Portmeirion Share Blog – Interim Results Year Ending 2019

Posted on by
Reply

Portmeirion has now released their interim results for the year ending 2019.

Revenues declined when compared to the first half of last year as a £1.1M growth in UK revenue, a £1.1M increase in Korean revenue and a £174K increase in US revenue was more than offset by a £4.4M decline in ROW revenue.  There were £395K of acquisition costs but other operating costs were down £536K to give an operating profit £1.9M lower.  There was a slightly lower profit from an associate but tax charges declined by £351K to give a profit for the period of just £26K, a decline of £1.6M year on year.

When compared to the end point of last year, total assets increased by £3.1M driven by a £5M growth in inventories and a £4.8M recognition of right of use assets, partially offset by a £5M decline in cash and a £2.7M decrease in receivables.  Total liabilities also increased during the period as a £1.3M decrease in payables was more than offset by a £3M growth in borrowings and a £4.8M recognition of lease liabilities.  The end result was a net tangible asset level of £32.8M, a decline of £3.9M over the past six months.

Before movements in working capital, cash profits declined by £1.5M to £1.6M.  There was a cash outflow from working capital and despite tax payments reducing by £101K there was a £3.7M outflow of cash from operations, a deterioration of £5.4M year on year.  The group spent £363K on an associate, £793K on fixed assets and £135K on intangible assets to give a cash outflow of £5M before financing.  They took out £3M of new loans to pay the £3.1M of dividends so there was a cash outflow of £5M for the half year and a cash level of £2.2M at the period-end.

Trading in the period was impacted by challenges in export markets including Korea but they delivered strong growth in the UK and there are positive signs for healthy growth in the US markets through the key seasonal trading period. 

Revenue in the UK grew by 9%.  The UK retail sector remains challenging due to the uncertainties over Brexit.  The US saw a revenue decline of 3.7% in local currency (although there was actually growth in GBP terms). This decline is largely down to the timing of shipments.  The order book is ahead of last year.  Online sales grew 13%.  Sales from the home fragrance division increased by 0.5%.  They had to anniversary a large account win with initial pipefill orders in the first half of last year (not sure what that means!)  The board expect good full year growth for this business buoyed by new markets and product development.

Going forward, early signs for the remainder of the year are positive and the board expect to meet full year market expectations. 

After the period-end the group acquired Nambe for a cash consideration of $12M.  The business is a branded US homewares business with an EBITDA of $1.1M.  Their sales are largely concentrated on the US.  There are considerable sales and cost synergies to be achieved and the acquisition will be earnings enhancing in the full year of ownership.  The business has net assets of $9.6M

At the current share price the shares are trading on a PE ratio of 10 but this rises to 13 on the full year consensus forecast.  After the dividend was kept the same the shares are yielding 5.2% which is predicted to remain the same for the full year.  At the period-end the group had a net debt position of £5.8M compared to net debt of £1.3M at the same point of last year.

On the 30th September the group announced that it sold its 44.5% stake in Furlong Mills, a supplier of clay and glazes.  The sale is for £3.3M and will give rise to a profit of £900K.  The group will continue to source its raw materials for the Stoke factory from the business and has signed a long term supply contract that closely mirrors their historical trading relationship with the mill.

On the 14th November the group released a trading update.  Sales into the Korean market, specifically for the Botanic Garden ranges, continue to be weaker than expected.  It is clear that the significant historic demand has led to other markets re-shipping into Korea, resulting in overstocking of the market. 

Since May they have developed nearly 1,000 new products for the Korean distributor to create a fresh differentiated product in the market.  These ranges have started to sell positively.  They have increased due diligence of their distributors to ensure greater visibility of sales tracking; they have signed a new distribution contract with a major Korean retailer to drive growth from other premium brands in their portfolio.  First shipments are expected to start in late 2019 with significant growth in 2020.

The clearing of the overstock in Korea combined with a more disciplined focus on exports has resulted in a larger than expected short term reduction in their Botanic Garden range sales.  This, combined with the development cost and manufacturing processes for the new products will have an impact on the financial performance this year.  As such the board now expect profit in 2019 will be materially behind market expectations. 

The board are, however, encouraged by online sales, expansion in their home fragrance division and new product development to celebrate the Spode brand’s 250th anniversary.  In addition the integration of Nambe is progressing well.  There is no anticipated change in dividend policy.

On the 16th January the group announced that it expects pre-tax profit for the year will be in line with revised market expectations.  Revenue will increase by 3% which includes the contribution from Nambe in July.  Like for like revenues are down 5% as previously reported.  The UK market grew by 5% despite the difficult retail backdrop. 

Total online sales in the UK and US grew by 17%.  Excluding the Nambe acquisition, sales in the US declined by 12%.  This was driven by the strategy to reduce re-shipping into Korea and this market should return to growth in 2020.

They have taken a long term view to protect their brand in the Korean market.  This has caused some short term pain through reduced export sales of the Botanic Garden range and increased costs and disruption to their factories from developing a large number of new ranges.  They believe they have now made good progress stabilising this market, however.

Overall then this has been a pretty terrible period for the group.  Profits were down, net assets declined and the operating cash flow deteriorated with a cash outflow at the operating level. This was being blamed on a collapse in exports to Korea brought about by overstocking.  The UK seems to be doing well, however, and the group could be over the worst in Korea.  The shares are not too expensive with a forward PE of 13 and yield of 5.2% but they are reliant on a recovery.

Games Workshop Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Games Workshop has now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year due to a £16.7M growth in trade revenue, a £3.3M increase in retail revenue and a £3.2M growth in mail order revenue.  Amortisation declined by £432K and inventory provisions were down £505K but depreciation increased by £706K and other cost of sales were £4.2M higher to give a gross profit £19.2M higher.  Other operating expenses grew by £6.3M but royalty income was £5.2M higher to give an operating profit £18.4M up.  Finance costs increased by £638K and tax charges were £3.1M higher which meant the profit for the year was £47.5M, a growth of £14.6M year on year.

When compared to the end point of last year, total assets increased by £47.3M, driven by a £29M recognition of right of use assets, a £10M increase in receivables, a £3.6M growth in cash, a £3.8M increase in property, plant and equipment and a £2M growth in other intangible assets, partially offset by a £2.5M decline in inventories.  Total liabilities also increase during the period due to a £28.4M recognition of lease liabilities and £11.4M of dividends payable, partially offset by a £6.8M reduction in current tax liabilities.  The end result was a net tangible asset level of £101.4M, a growth of £12.4M over the past six months.

Before movements in working capital, cash profits increased by £23.8M to £71.9M.  There was a cash outflow from working capital but this was similar to last time and after tax payments increased and finance lease repayments were recognised the net cash from operations was £37.9M, an increase of £10M year on year.  The group spent £8.5M on fixed assets, £1.5M on software and £3.7M on product development leaving a free cash flow of £24.3M.  Of this, £21.1M was paid out in dividends to give a cash flow of £3.9M and a cash level of £33M at the period-end.

Sales for December were in line with expectations. The group have made some good progress implementing their European ERP system and upgrading their warehousing capacity and systems in both Memphis and Nottingham.  All projects are broadly on track and in line with spending limits.

The operating profit for the Trade division was £31.5M, a growth of £9M year on year with 200 new trade accounts opened and growth in all key countries.  The operating profit for the Retail division was £1.8M, a decline of £3.1M when compared to the first half of last year with 12 new stores opened.  The operating profit for the Online division was £15.7M, an increase of £2.6M when compared to the first half of 2018.  Users accessing the website community were up 48% and sessions per user have also increased. 

The operating profit for the Product and Supply division was £16.5M, an increase of £6.9M year on year.  The group made royalties of £10.2M, an increase of £5.2 when compared to the first half of last year.  This includes £6.2M of guaranteed income on the signing of new license contracts as opposed to £1.6M last year so this may not be repeated at such a high level going forward.

The development work on a TV series based on the Eisenhorn series of novels continued to make good progress.  No production contracts have been signed yet nor have they booked any guaranteed royalties. 

At the current share price the shares are trading on a PE ratio of 33.7 which falls to 28.9 on the full year consensus forecast.  The shares are yielding 2.3% which increases to 2.5% on the full year forecast. 

Overall then this has been another good period for the group.  Profits were up, net assets improved and the operating cash flow increased with plenty of free cash being generated.  All divisions performed well with the exception of retail and it should be noticed that the royalty income is quite lumpy and may not be as high going forward.  The great performance comes at a price though with the forward PE of 28.9 and yield of 2.5% these shares are no longer cheap.

On the 11th February the group announced that CEO sold 10,000 shares at a value of £720K; finance director Rachel Tongue sold 4,700 shares at a value of £338K; and chairman Nick Donaldson sold 3,300 shares at a value of £237K. These shares are looking pretty expensive.

Omega Diagnostics Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Omega Diagnostics has now released their interim results for the year ending 2020.

Revenues declined when compared to last time as a £248K growth in food intolerance revenue was more than offset by a £527K decline in allergy revenue and a £484K decrease in infectious disease revenue.  Excluding the £1M revenue from discontinued operations, the gross profit increased by £407K.  Amortisation was up £217K, there was no £1.1M gain on the sale of a business and Omega liabilities written off decreased by £598K to give an operating loss £1.4M worse that the first half of last year.  Finance charges were up slightly but tax charges decreased by £147K which meant that the loss for the year was £321K, an improvement of £73K year on year. 

When compared to the end point of last year, total assets increased by £2.9M, driven by a £1.7M growth in property, plant and equipment, a £710K increase in intangible assets and a £237K growth in inventories.  Total liabilities also increased during the period due to a £1.8M increase in borrowings and a £650K growth in the bank overdraft.  The end result was a net tangible asset level of £658K, a decline of £488K over the period. 

Before movements in working capital, cash profits improved by £681K to £517K. There was a cash outflow from working capital but this was less than last time and the group generated £60K of cash from operations, an improvement of £1.1M year on year.  This didn’t come close to covering the leases, however, which were £1.9M.  The group also spent £964K on intangible assets and £57K on fixed assets so that before financing there was a cash outflow of £2.9M.  The group made £635K from new share issues, £1.9M from finance leases and £650K from the overdraft which gage a cash flow of £27K and no cash left at the period-end.

The pre-tax loss for the Allergy and Autoimmune business was £139K, a deterioration of £77K year on year.

The pre-tax profit for the Food Intolerance business was £1.7M, an increase of £228K when compared to the first half of last year with revenues up 6%.  Two customer orders amounting to £200K were ready to be shipped by the period-end but were not picked up in time to be included in the results.  Sales of Food Print lab reagents increased by 12% with growth in the top five markets.  Sales of Food Detective were flat with an uplift of £290K of sales to the new Chinese partners offsetting £120K of sales shipped late. 

The pre-tax loss for the Infectious Disease business was £1.3M, a deterioration of £552K when compared to the first half of 2019.  For the CD4 350 test they have made progress in signing distribution agreements and now have distributors in 19 countries with the advanced disease test being added to nine of those.  There are a further three countries for which distribution discussions are continuing.  They are still awaiting the outcome from the Nigerian Ministry of Health and they continue to remain confident about the prospects for the country being the largest market for the test.

For the advanced disease test, they have received an order from Zimbabwe and expect to receive further seeding orders from other countries this year.  Following receipt of ERPD approval in September, they are in discussions with the Clinton Health Access Initiative to implement their Advanced disease initiative.  They have identified four countries to act as early adopters of the test.  They are making good progress with the WHO Prequalification process with the tests finished in early 2020.

Admin overheads increased by £220K.  The majority of this increase relates to amortisation of the allergy and CD4 intangible assets.  The allergy assets started amortisation in April and CD4 in August in line with the commercial launches of these products.

Going forward, the food intolerance division continues to grow and the board remain confident that this unit will deliver double digit revenue growth this year, helped by the new Chinese partner having placed stocking orders for 50,000 units in preparation for their expected regulatory approval in China.  The partner in Nigeria has ordered 200,000 CF4 350 tests, deliverable in January to March which is conditional on receiving approval from the Ministry of Health. 

The group made a loss last year and is predicted to make one this year too so PE ratios are pretty redundant.  There is no dividend on offer. 

On the 17th January the group announced that they had received approval from the Nigerian Ministry of Health for the 350 test to be deployed in the country.  They have received initial orders from their distribution partner in Nigeria for 250,000 tests and they will now look to firm up a delivery schedule to determine what proportion of this demand can be shipped prior to the year-end.

Overall then this has been a difficult year for the group.  Losses from continued operations did improve somewhat but the net tangible asset level deteriorated and the operating cash outflow also got worse, with no cash being generated.  The Food Intolerance business seems to be doing well but the infectious disease business is using up a lot of resources.  Hopefully this will reverse at some point with the Nigerian approval but it is hard to quantify.  The Allergy business seems to be on its last legs.  Overall I think this looks too risky at the moment but could be become interesting at some point in the future.

James Halstead Share Blog – Final Results Year Ended 2019

Posted on by
Reply

James Halstead has now released their final results for the year ended 2019.

Revenues increased when compared to last year as a £1.4M reduction in European revenue and a £2.3M fall in Asia Pacific revenue was more than offset by a £6M increase in UK revenue and a £1.3M growth in ROW revenue.  Staff costs were up £2.9M but R&D costs reduced by £1.5M and other cost of sales were down £2.1M to give a gross profit £4.3M higher.  There was an increase in selling and distribution costs and a £1.9M growth in admin costs to give an operating profit £1.2M higher.  Interest income grew by £207K and the pension interest cost fell by £138K but tax expenses were up £490K to give a profit for the year of £37.8M, a growth of £1.1M year on year.

When compared to the end point of last year, total assets increased by £18.7M driven by an £18M increase in cash and a £1.5M growth in property, plant and equipment partially offset by a £1.2M decrease in inventories.  Total liabilities also increased during the year due to a £9.4M growth in trade payables and a £4.7M increase in pension obligations.  The end result was a net tangible asset level of £129.8M, a growth of £4.2M year on year.

Before movements in working capital, cash profits increased by £1.4M to £52.4M.  There was a cash inflow from working capital and after interest received increased by £207K and tax payments grew by £845K the net cash from operations was £50.3M, a growth of £21.6M year on year.  OF this, only £4.3M was spent on capex to give a free cash flow of £46.1M.  The group paid out £28.4M in dividends to give a cash flow of £18M and a cash level of £68.7M at the year-end.

As a net exporter the group had an advantage with weak sterling but with many economies sluggish and projects slow to come to fruition, it was a year of difficult trading.  Looking at global markets, Europe was on a par with last year.  Their revenue in France, Holland and Spain demonstrated the best growth while Turkey and Italy were the worst performing.  The rest of the world is broadly positive with growth in South America, North America, Africa and Scandinavia while China has slowed.

In terms of raw materials, it was a year of stability and overall the cost of raw materials increased by just 0.52%.  Energy costs continue to rise with electricity some 12% more expensive. 

Turnover in Central Europe was solid but 1.2% below last year which reflected the downturn in the German market where all business is hard fought against strong competition.  Branded sales increased with declines in own label collections.  The main product launches were the revamped Expona Design and Expona Clic.  The Objectflor campus was opened in December.  This is a large showroom and training facility in Cologne.

James Halstead France made progress in all key regions which is encouraging following their investment in sales reps.  Their distribution network has broadened and whilst their market share is modest they are encouraged by their continued growth.  Whilst the French economy is not showing good growth, they do see the potential for increased market share and they continue to invest.  They also established an office showroom in the Netherlands. 

Despite a soft economy, the Australian business remained solid.  Volumes in most segments remained strong and stock management saw reduced working capital and strong cash flow.  Turnover was slightly below last year while the effects of exchange rates and increased investment in warehousing saw the profit decline.  Palettone took market share.  The AFL Max facility in Adelaide is a brand new facility that has installed the group’s product.  In addition their flooring has been used in the new concept Vape Square Lounge.

New Zealand showed good growth with sales increasing 4%.  The increased revenue led to increased profitability although the sales mix resulted in slightly lower margins.  The growth continued in the North Island while in the South it was generally tougher.  The business continues to have a high market share.  In the latter part of the year there has been focus on broadening the customer chains they are operating with which will increase the visibility of their products in the market. 

The changes in the management structure of the Asian business have been bedding down.  Investments have been made in the marketing taking greater control of this from their customers.  Their business is growing in Hong Kong but in mainland China there has been a distinct slowdown.  Plans to have a stock presence in China to access the smaller projects markets are at an advanced stage.

At Polyflor and Riverside in the UK, the year was challenging for production and towards the end of the year part of the plant was closed due to equipment failure.  This had adverse effects on overhead recovery and consequently profitability but these challenges are apparently behind them.  In Norway turnover grew 3.8% but in Sweden economic conditions have been difficult and turnover declined.

In Canada, sales grew 24% and brand awareness across the country continues to grow with increased specs.  The portable building sector continues to perform relatively poorly but successes in the commercial sector have more than compensated.  The business in Ontario has continued to grow and their new team in British Columbia have had good results.  They have continued to expand their presence in Vancouver. 

In India, both turnover and profitability has increased.  Their flooring continues to be laid in the healthcare and education sectors but they have also had success in the retail sector and in the defence sector.  There is encouraging interest from aligned markets such as Bangladesh, Sri Lanka and Nepal and volumes to these territories are increasing.

Last year the group opened an office in Dubai and they have continued to underpin their global sales with more representation in local markets.  In June they opened an office in Colombia to support sales in South America.

The constant focus on Brexit has led to deferred spending in several sectors and certain retail chains are curtailing their normal refurbishment cycles. 

Going forward, trading since the year-end continues to be solid, particularly in the UK.  In September, Polyflor was selected as a key supplier to the NHS and the board are confident of continued progress in the coming year.  The first two months has seen a 4% reduction in raw material prices.  The coming year will see a new phase of investment.  In part this will be the expansion of warehouse and distribution and this is one decision that requires some clarity over the UK’s relationship with the EU.  With simplified access to Europe they would increase warehousing close to manufacture in the UK but this could move to Europe if this is not the case. 

At the current share price the shares traded on a PE ratio of 30.8 which falls to 29.5 on next year’s forecast.  After a 3.6% increase in the dividend, the shares are yielding 2.5% which increases to 2.6% on next year’s forecast.  At the year-end the group had a net cash position of £68.7M compared to £50.7M at the end of last year. 

On the 6th December the group released a trading update covering the first five months of the year.  The trading environment in the UK is challenging and across all markets large projects are keenly contested by all manufacturers.  Nevertheless, trading is ahead of last year and at this time, they have continued to see modest growth in turnover and profit. 

Overall then this was a pretty decent year for the group.  Profits were up, net assets increased and the operating cash flow improved with plenty of free cash being generated, although this was boosted by working capital movements.  The UK is actually performing quite well, despite Brexit concerns with India seeming to be the other good performer.  Elsewhere growth is non-existent of sluggish.  Raw material costs have come down though.  With a forward PE of 29.5 and yield of 2.6% these shares are expensive but this is a quality company spewing off cash.  Not sure the value is quite there though.

On the 30th January the group released a trading update covering the first half of the year.  The encouraging turnover and profit performance continued into December and the group expects to attain record turnover for the half year.

Turnover in the UK was 6.8% ahead of last year.  Underlying margins held up but in the period July through to September, there were adverse manufacturing variances and increased labour costs associated with extending shifts and overtime subsequent to a significant engineering breakdown.  Notwithstanding this, the group expects to report record pre-tax profit for the half year.

Easyjet Share Blog – Final Results Year Ended 2019

Posted on by
Reply

Easyjet have now released their final results for the year ended 2019.

Revenues increased when compared to the prior year with a £321M growth in passenger revenue and a £166M increase in ancillary revenue.  Fuel costs were up £232M, airport and ground handling costs grew by £196M, and crew costs increased by £105M.  There was a £67M decline in the commercial IT platform change, a £40M reduction in Tegel integration costs, a £21M fall in sale and leaseback charges and £67M decrease in other costs which gave an EBITA £141M higher than last time.  Aircraft dry leasing costs were down £147M but depreciation was up £285M which meant that the operating profit was £3M higher.  Interest income was up £10M but there was a £26M recognition of interest payable on lease obligations so after tax charges declined by £6M the annual profit came in at £349M, a decline of £9M year on year.

When compared to the end point of last year, total assets increased by £1.17BN, driven by a £498M recognition of right of use assets, a £482M increase in aircraft and spares, a £260M growth in cash and a £48M equity investment, partially offset by a £57M reduction in money market deposits and a £122M fall in derivative financial assets.  Total liabilities also increased due to a £578M recognition of lease liabilities, a £347M increase in borrowings, a £192M growth in unearned revenue, a £179M increase in derivative financial instruments, a £74M increase in provisions and a £62M growth in the maintenance provision.  The end result is a net tangible asset level of £2.424BN, a decline of £263M year on year.

Before movements in working capital, cash profits declined by £24M to £1.018BN.  There was a cash inflow from working capital but this was less than last year and after interest payments increased by £28M and tax payments decreased by £16M the net cash from operations was £994M, a decline of £129M year on year.  The group spent nearly all this, £954M, on property, plant and equipment along with £30M on intangible assets and £174M on leases to give a cash outflow of £164M.  They also paid out £233M in dividends but took in £443M from a new Eurobond issue and £121M from sale and leaseback of aircraft.  This gave a cash flow of £210M and a cash level of £1.285BN at the year-end.

Total revenue per seat decreased by 1.8% to £60.81 reflecting economic uncertainty across markets, weakness in Q2 and subsequent recovery in the second half.  Passenger revenue actually grew by 6.9% due to a focus on optimising late yield, strength in the UK regions and France, a full year contribution from Tegel and a positive impact from strikes at BA and Ryanair.  This was offset by a tough comparison which benefited from the collapse of Monarch, cancellations at Ryanair and industrial action in France, economic uncertainty in some markets, weakness in Q2 due to the original Brexit date, drone sightings in Gatwick and a softer London market. 

Ancillary revenue grew 13.7% which reflected a focus on a data-driven programme of products and services such as seasonal pricing on allocated seating, introduction of the fourth band of seat pricing and loss of revenue from changes to admin fees more than offset by a strong performance of ancillary revenues generally.

Headline cost per seat increased by 1.5% to £56.74 and at constant currency was up 0.4% to £56.08.  Excluding fuel, the headline cost per seat at constant currency decreased by 0.8% to £43.11.  This was driven by investment in operational resilience which drove decreases in cancellations and delays despite the drone issue at Gatwick and summer thunderstorms; lower navigation costs due to a reduction in Eurocontrol rates; fleet up-guaging from A319s to A320s and A321s, although this was less than planned due to Airbus delivery delays and lower de-icing costs due to relatively benign weather.

This was partially offset by the annualisation of crew pay deals, price increases at airports, and the impact of the drones at Gatwick relating to customer welfare coasts.  Fuel cost per seat increased by 8.4% to £13.48 and by 4.3% at constant currency, driven by a higher hedged fuel price compared to last year partially offset by a continued investment into more fuel efficient aircraft. 

The group incurred a net benefit of £3M in non-headline items this year compared to a £133M cost last year.  There was a £2M gain as a result of the sale and leaseback of ten A319s compared to a charge of £19M last year, there was a £2M gain from the retranslation of balance sheet monetary assets, a £2M credit related to the commercial IT platform compared to a £65M charge, a £4M charge for ongoing Brexit mitigation costs compared to £7M last time, a £1M credit related to fair value adjustments and no Tegel charges, which were £40M last year.

The group continues to target growth in regional France and in April opened a new base in Nantes, which brings its number one position in the country to six, including Nice, Lyon, Bordeaux, Lille and Grenoble.  They also consolidated their position as the UK’s leading airline in the domestic market with growth at Manchester, Edinburgh, Glasgow, Belfast, Liverpool, Southend and Bristol as well as continuing to strengthen their number one position in Milan, Venice and Naples.

During the year they grew capacity by 10.3% which is nearly double the market as a whole.  The growth came from the UK, France, Spain and Italy as well as Germany due to last year’s Tegel acquisition.

The group are now offsetting the carbon emissions form the fuel used for all its flights on behalf of customers to make them the first major airline to have a net zero carbon emissions from all flights.  At this stage it is expected that this will cost £25M in 2020. 

The new Holidays business will be launching in the UK before Christmas.

The increase in business passengers in 2019 was 11% and has been driven by a B2B sales focus on promoting a new Flexi Fare proposition and inclusive products on their UK, French and German domestic routes, which saw a 13% increase in business passenger numbers.   Overall penetration of business rose by 0.5% to 17.5% but the business premium declined by 4% reflecting tougher market conditions.

The efficiency programme has been able to deliver sustainable reductions in the period.  £139M of savings has been achieved due to new airport deals, lower ground handling costs and disruption costs savings.  They expect to deliver at least £80M incremental savings in the coming year. 

The Air Traffic Control environment in Europe remains challenging, experiencing 24.5M delay minutes in the year.  During the year, however, the group made significant progress in its operational resilience programme using data and resource from across the company which has resulted in improvements in several key areas.

Improvements include schedule design, factoring in longer turn times for larger aircraft and buffers for congested airspace; increasing standby aircraft and crew; increasing automation in claims processing; and more data products to predict issues.  These have yielded tangible results with a 30% reduction in total events, a 46% reduction in cancellations and a 24% reduction in three hour delays. In mitigating the impact of ATC delays, the pre-flight tactical planning team avoided over 550 hours of forecast delay and the flight planning team is re-routing on the day to avoid a further 20,000 minutes of delay a week.  For the first time in four years the group has seen a reduction in disruption costs. 

During the year the group purchased land in Luton with the intention of building a new head office.

After the year-end the group acquired Thomas Cook’s slots at Gatwick airport (12 summer slots and 8 winter slots) and Bristol (6 summer slots and one winter slot) for £36M. 

Forward bookings for the first half of 2020 are reassuring and slightly ahead of last year.  Revenue per seat for the first half of the year is expected to be up low to mid single digits year on year.  Disruption costs are expected to continue improving next year.  A lower rate of capacity growth will make it more challenging to deliver lower costs per seat on an underlying basis, however.  Headline cost per seat excluding fuel at constant currency is expected to increase by low single digits and capex for 2020 is expected to be around £1.35BN.  Based on today’s fuel prices, unit fuel costs are expected to result in a headwind of between £70M and £140M.  The expected forex impact is expected to be a positive movement of around £40M. 

At the current share price the shares are trading on a PE ratio of 17.4 which falls to 15.5 on next year’s consensus forecast.  After a decrease in the dividend the shares are yielding 2.9% which increases to 3.2% on next year’s forecast.  At the year-end the group had a net debt position of £326M compared to a net cash position of £396M at the end of last year.  Although it should be pointed out that there is an extra £531M of debt due to the recognition of leases as debt.

On the 21st January the group released a trading update covering Q1.  They delivered a strong performance.  The delivery of self-help initiatives, robust customer demand and low levels of competitor activity drove outperformance in both the passenger and ancillary revenue per seat leading to an upgrade to their H1 revenue guidance.  The cost performance was in line with expectations and the group expects to deliver a first half headline loss better than last year.

Total group revenue for the quarter increased by 10% with passenger revenue up 9.7% and ancillary revenue up 10.8%.  Passenger numbers increased by 2.8% driven by a 1% increase in capacity and a 1.6 percentage point increase in load factor.  Total revenue per seat increased by 8.8% at constant currency.  This has been driven by a solid yield performance with a strong performance in Berlin reflecting changes made in the German market, robust demand, better bag and allocated seating sales, a new car rental offering, and a benefit from the Thomas Cook administration in September. 

Airline headline cost per seat excluding fuel increased by 4.3% reflecting lower capacity growth, inflationary increases in ground handling, airport costs and maintenance, ownership costs reflecting new aircraft deliveries, annualisation of crew pay deals and better crew retention, French national strikes, partially offset by a focus on cost initiatives and the up-gauging of the fleet. 

The group has improved their on time performance despite the air traffic environment remaining challenging.  At the end of November the group launched its holidays business which was well received.

For the full year the group expects to grow capacity by 3% and H1 to grow around 1.5%, slightly lower than the previous expectation due to French air traffic control strikes.  H1 revenue per seat is expected to increase by mid to high single digits, slightly higher than before.  Full year cost per seat is expected to be up low single digits with H1 up mid single digits which includes a one-off maintenance charge.  The full year fuel bill is expected to be between £110M and £170M adverse and the full year forex movements are expected to have a £70M positive impact on headline profit.  The holidays business is expected to be at least break-even for the year.  Overall the group expects to deliver a first half headline loss before tax better than last time. 

Overall then this has been a bit of a difficult year for the group.  Profits declined somewhat, net assets were down and the operating cash flow deteriorated with no free cash generated.  The market is difficult at the moment due to general economic uncertainty, Brexit and continuing French ATC strikes.  Costs do seem to be fairly well controlled, however, and 2020 looks like it has stated rather better.  The forward PE and yield indicate that this is already the price of the shares though at 15.5 and 3.2% respectively.

Avon Rubber Share Blog – Final Results Year Ended 2019

Posted on by
Reply

Avon Rubber has now released their final results for the year ended 2019.

Revenues increased when compared to last year due to a £12.7M growth in protection and defence revenue and a £1.1M increase in dairy revenue.  Depreciation fell by £500K but amortisation was up £700K and other cost of sales increased by £6.7M to give a gross profit £6.9M higher.  Admin costs increased by £2.8M and there were a number of one-off costs including £3.5M on pension scheme past service costs, £2.9M acquisition costs, £5.4M costs relating to the exit of the Fire SCBA market and a £1.1M property impairment, although there was no £900K restructuring cost this year.  All of this meant that the operating profit fell by £8.4M.  Finance costs reduced somewhat and the tax charge was £2.4M lower which meant that the profit for the year was £14.3M, a decline of £7.1M year on year.

Total assets increased by £7.6M when compared to the end point of last year, driven by an £11.2M increase in trade receivables, a £4.3M growth in deferred tax assets and a £1.8M increase in cash, partially offset by a £3.5M decline in acquired intangibles, a £2.4M fall in development expenditure, a £2.3M decrease in inventories and a £1.2M fall in freehold property.  Total liabilities also increased during the year as a £2.4M decline in trade payables, a £2M fall in current tax liabilities, a £1.5M decrease in deferred tax liabilities and a £1.3M decrease in accruals was more than offset by a £12.5M increase in the pension obligation.  The end result was a net tangible asset level of £51.1M, a growth of £7.8M year on year.

Before movements in working capital, cash profits increased by £1.3M to £37M.  There was a cash outflow from working capital and after tax payments increased by £1.1M the net cash from operations was £15.8M, a decline of £15.6M year on year.  The group spent £3.9M on property, plant and equipment and £4M on development costs to give a free cash flow of £7.9M.  This covered the dividends of £5.4M and own share purchases of £1.3M so the cash flow for the year was £1.2M and the cash level at the year-end hit £48.4M. 

The operating profit in the protection business was £26.2M, a growth of £4.7M year on year.  There was a 26% growth in military revenue offsetting a 27% decrease in law enforcement and a 5% decline in fire.  There was good growth across the military business with both the DOD and ROW customers.   The award of two significant long-term contracts with the DOD for the M69 aircrew mask and the M53A1 mask and powered air system, which have a combined contract value of $340M, confirm the business as the sole source provider of general purpose masks, tactical masks, powered air systems and tactical SCBAs across the DOD.

The M53A1 framework contract, which also covers additional products, including the ST54 self-contained breathing apparatus, has a maximum value of $246M and a minimum five year duration.  This framework is accessible to a number of different and new customers within the DOD, including all four military service branches and other national and federal agencies.  They received the first order under the contract earlier in the year, worth $20.2M, which they have partially completed during the year, and expect further orders during 2020.

The M69 sole source contract to supply the DOD with the M69 Joint Service Aircrew Mask for strategic aircraft extends the group’s portfolio reach into the aviation sector for the first time and has a maximum value of $93M and a minimum five year duration.  As with the M53A1 they received their first order under the contract worth $17.8M earlier in the year and they partially completed the first deliveries this year.

These contract awards mark the transition away from the historic focus on the M50 mask system.  Notwithstanding this, the M50 mask system remains an important part of the portfolio and positive discussions regarding the future requirements of the DOD are ongoing and they expect to have a contract award in 2020.  In addition they have a visible pipeline of ROW military opportunities and are in active dialogue with a broad range of customers who are looking to upgrade their capability to the FM50 mask system. 

The group re-established their relationship with the UK MOD when they won the contract last year to supply their GSR mask.  They have been preparing the tooling and processes for the full manufacturing requirements and completed customer acceptance testing.  They expect the first orders and deliveries to follow in early 2020.  Through those activities they have been able to demonstrate to the MOD their focus on quality and technical expertise, and as a result, they see further opportunities to deepen their relationship with the MOD, leveraging from their wider product portfolio. 

They launched their MCM100 deep water rebreather in 2018 and completed the first large order from the Norwegian military during the year.  The MCM100 has opened up a significant number of new opportunities with various militaries.  They have had an active year of dive trials and supplied a number of evaluation units, which has enabled them to demonstrate their technology.

During the year the strong momentum in the law enforcement business was interrupted by the partial shutdown of the US government at the start of 2019.  The shutdown had a significant impact during the year and whilst purchasing activities returned to normal in the second half, affected customers were unable to accelerate their procurement processes to fully mitigate the delays.  Despite this, the law enforcement community is still showing a strong demand for their protection products as the elevated environment of threats remains high on the agenda.

They continue to see good market penetration with US and ROW law enforcement customers, where they have been able to demonstrate the benefits of their portfolio and modular product range to meet the diverse needs of a broader section of customers.  They expect to continue to grow their market share in all of their key markets which should support a return to growth in 2020.

Given the breadth of their personal protection offering following the 3M acquisition, the group have reviewed their participation in the Fire SCBA market.  The Fire market remains highly competitive with a fragmented customer base where they have a small market position and compete against much larger players which means they generate margins that are below their strategy targets.  They have therefore taken the decision to move away from the market.

They will continue to stay committed to the Argus thermal imaging camera technology which contributes to their profits.  During the year they increased volumes across their full range of products from the premium MiTIC S to the more cost effective MITIC E solution.

The operating profit in the Dairy business was £7.5M, a decline of £500K compared to last year.  This was due to difficult market dynamics, particularly in North America during the first half of the year.  Their customers continue to see the benefit of accessing their product range on a lease hire basis but the growth from farms taking up Farm Services was offset by closures of smaller farms.  With stabilising market conditions they expect the division to return to growth in 2020.

On a constant currency basis, Interface grew revenue by 0.8% but there were reductions in PCI revenue of 3.8% and Farm Services of 1.6%.  The growth of Interface was driven by a stronger performance in Europe and Asia Pacific in the second half of the year.  North American revenues declined by 1.5% reflecting  the challenging market conditions over the year with increased farm closures and consolidation in the sector. 

The sales of the PCI range were most affected by the difficult trading conditions as farmers sought to delay investment until more certainty returned to the market.  The stabilising conditions from spring meant that farmers were more confident to invest in farm efficiency again, highlighted by a 5.5% increase in order intake.  The strong closing order book of £1.4M gives the board confidence in the stronger performance of the business in 2020.

The challenging market conditions in North America impacted Farm Services and interrupted the growth of the lease model with the addition of new farms offsetting farm closures and consolidations.  Reflecting the impact of the changing market dynamics, the constant currency decline in North America was 5.3%, partially offset by a 6% growth in Europe. The consolidation seen in the North American dairy market in 2019 will fundamentally support the return to growth in Farm Services as the larger dairies are most focused on labour and farm efficiency and animal welfare. 

The development expenditure in the year has predominantly focused on Avon Protection with significant investment in the UK GSR, MC M100 and next gen hood programmes.  Development expenditure for Milrite included the compact milk meter to address the market for smaller milk producing animals.

The group signed an agreement to acquire 3M’s ballistic protection business and the rights to the Ceradyne brand in August for an initial cash consideration of £75M with a further potential contingent consideration of £21M.  They expect to complete the acquisition in the first half of 2020 once US regulatory approvals have been received. 

There were a number of one-off costs during the period.  There was £3.5M relating to the high court judgement on pension equalisation; £2.9M of acquisition costs relating to the 3M acquisition.  At the year-end the decision was taken to move away from their participation in the Fire self contained breathing apparatus market, resulting in one-off exit costs of £5.4M including a £3.8M impairment of development costs, inventory write-downs of £1.4M and receivable write-offs of £200K.  The restructuring of the dairy business created at vacant property at the Italian operation.  Changes in the local economy mean it was appropriate to write off the carrying value of this property by £1.1M. 

Going forward the group had an opening order book of £40.4M.  A full year of revenue and follow on orders is expected for the M53A1 and M69 contracts.  The M50 sustainment contract negotiations are progressing with the DOD and an award is expected in 2020.   There is a strong pipeline of ROW opportunities with first orders and deliveries of UK GSR expected in early 2020.  Law Enforcement is expected to return to growth with positive momentum entering 2020.  There are stabilising dairy market conditions that support improved farmer confidence and the dairy division is expected to grow in 2020.  The group is expected to return to a net cash position by 2021.

At the current share price the shares are trading on PE ratio of 53.2 which falls to 26.5 on next year’s forecast.  After a 30% increase in the dividend, the shares are yielding 0.8% which increases to 1.1% on next year’s forecast.  At the year-end the group had net cash of £48.3M compared to £46.5M at the end of last year. 

Overall then this has been a decent underlying year beset with some one-off issues.  Profits fell due to the pension equalisation, exit from the fire market and acquisition costs.  Net assets increased but the operating cash flow declined due to working capital movements.  Cash profits grew, however, and a decent amount of free cash was still produced.  The military market is doing well as new mask contracts take over from the older ones.  Law enforcement declined due to the US government shutdown and the dairy market suffered from difficult conditions.  These issues seem to have resolved as the group moves into this year, however.  The shares are expensive with a forward PE of 26.5 and yield of 1.1% but we are paying for quality here in my opinion.

On the 30th January the group released a trading update.  They saw a positive start to 2020 with continued strong order intake in both businesses.  The board therefore remains confident of achieving its expectations for the current year.

Avon Protection saw a solid start to the year with order intake up 12% in Q1.  Strong order intake in the military business has more than offset the impact of their exit from the fire market.  They expect to receive further follow on orders in Q2 from the US DOD under the M69 and M53A1 mask and powered air systems contracts.  They also see a strong pipeline of ROW and first responder opportunities to further broaden their customer base across their product portfolio.

The acquired ballistic protection business performed in line with expectations and the board remain confident of it achieving their expectations for 2020.

Global dairy market conditions have remained positive in Q1.  Improving milk prices, together with stable feed prices and production volumes have led to improved farmer confidence, resulting in orders received in Q1 being up 10%.  This has supported strong trading for Miltrite InterPuls across all three lines of business.  They expect global dairy market conditions to remain positive in the near term.

Solid State Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Solid State has now released their interim results for the year ending 2020.

Revenues increased by £10M when compared to the first half of last year and after cost of sales also increased, the gross profit was £3.3M higher.  Amortisation fell by £52K and acquisition costs were down £149K but share based payments were up £75K, amortisation of acquired intangibles increased by £85K and other admin expenses grew by £2.3M to give an operating profit £1.1M higher.  Finance costs increased by £56K and tax charges were up £63K which meant that the profit for the period was £2.1M, a growth of £935K year on year.

When compared to the end point of last year, total assets declined by £3.7M, driven by a £2.4M fall in cash, and a £1.7M decrease in receivables, partially offset by an £870K right of use asset.  Total liabilities also declined during the period due to a £4.7M fall in borrowings, a £1.2M decrease in payables, and a £700K fall in contract liabilities.  The end result was a net tangible asset level of £12.8M, a growth of £1.8M over the past six months. 

Before movements in working capital, cash profits increased by £1.4M to £3.5M.  There was a modest cash inflow from working capital and interest payments increased slightly to give a net cash from operations of £4M, an increase of £1.3M.  The group spent £183K on property, plant and equipment, £180K on computer software and £224K on lease payments to give a free cash flow of £2.9M.  They then spent £706K on dividends and repaid £4.7M of debt which gave a cash outflow of £2.4M and a cash level of £1.3M. 

Trading in the period benefitted from favourable currency movements and the acceleration of certain strong margin project work that had been expected in the second half so the full year results are expected to be first half weighted.  Although the macro-economic environment remains very challenging, current trading since the period-end has continued in line with management expectations.  Prospects for the rest of the year are underpinned by the solid open order book and the resilience and diversity of the group.

The manufacturing division saw organic revenue growth of 22% with first half billings particularly strong in the Power business unit.  The continued focus on delivering high value solutions has resulted in a favourable mix of sales.  The focus on marketing is delivering an increase in quality lead generation to support the focused sales activities and the improved utilisation of their facilities leverages the operational gearing which has delivered an improvement in profitability.  They completed the commissioning of the environmental test equipment at the Leominster facility allowing the pre compliance testing of products from across the group.  They are now looking to strengthen their attenuation and electromagnetic compatibility testing capability at the Redditch facility.

The Distribution division traded well with revenues increasing by £7.5M, mainly as a result of the contribution from the Pacer acquisition.  Like for like revenues were up 4% with the electronics business flat and the opto-electronics business growing by 11%.  This significantly expanded their services which now includes a sub module optical assembly alongside class 7 clean room facilities in Weymouth.  In July it was announced that they secured the enlarged Microship franchise.  They have already seen their first billings of Microchip product and this is expected to impact order intake in the second half.

At the current share price the shares are trading on a PE ratio of 21 which falls to 15.5 on the full year forecast.  After a 25% increase in the interim dividend the shares are yielding 2.1% which increases to 2.4% on the full year forecast.  At the period-end the group had a net cash position of £300K compared to £1.9M at the year-end.

Overall then this has been a strong period for the group.  Profits were up, net assets increased and the operating cash flow grew with a good amount of free cash being generated.  The group has benefited from favourable currency movements and the pull forward of some orders, however, and the second half is not expected to be as strong.  That being said, trading seems to be OK, although the forward PE of 15.5 and yield of 2.4% isn’t entirely that cheap.

On the 16th January the group announced that CEO Gary Marsh sold 16,000 shares at a value of just over £100K.  He still owns 280,795 shares.

Begbies Traynor Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Begbies Traynor has now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year with a £3.1M growth in insolvency & restructuring revenue and a £2.7M increase in property revenue.  Direct costs also increased to give a gross profit £2.3M higher.  Admin costs were up £1.4M, acquisition costs increased by £445K, deemed remuneration was up £692K and the amortisation of acquired intangibles grew by £279K, although there was a £1.9M gain on an acquisition which meant the operating profit was £1.3M higher.  Finance charges were slightly lower but tax charges were up £121K to give a profit for the period of £1.3M, a growth of £1.3M year on year.

When compared to the end point of last year, total assets increased by £9.7M, driven by a £2.6M growth in unbilled income, a £3.8M increase in deemed remuneration, a £2M growth in intangible assets and a £1.7M increase in cash.  Total liabilities also increased as a £2M decline in borrowings was more than offset by a £2.3M final dividend liability, a £1.5M increase in other creditors and a £1.2M growth in deferred income.  The end result was a net tangible asset level of £4.7M, an improvement of £5.8M over the past six months.

Before movements in working capital, cash profits increased by £754K to £5.4M.  There was a cash inflow from working capital and a marginal increase in tax payments to give a net cash from operations of £4.6M, a growth of £1.3M year on year.  Of this, £4.4M was spent on acquisitions, £1.9M on deferred consideration and £329K on property, plant and equipment which meant there was a cash outflow of £2M before financing.  The group issued £7.8M in new shares, paid out £1.2M in leases, £914K in dividends and paid back £2M of loans to give a cash flow of £1.7M and a cash level of £5.7M at the period-end.

The operating profit in the business recovery and financial advisory business was £4.9M, a growth of £1.2M year on year with a 13% increase in organic revenue.  This reflects the continuing development of the division, increased insolvency market activity levels, a strong performance from the advisory team and the contribution from prior year acquisitions.

Insolvency volumes nationally have continued to increase, growing by 7%.  In this improving market the group have maintained their market share.  They have invested in the business recovery through the recruitment of fee earners with a focus on business development and increasing capacity, and have also appointed four new partners.  They have also seen an increase in corporate finance transaction completions despite the economic uncertainty.

The operating profit in the property advisory and transactional services was £2.1M, an increase of £34K when compared to the first half of last year with flat organic revenues as returns from growth initiatives was offset by a reduction in revenue following the completion of several property insolvencies which enhanced margins last year.

The building consultancy team has continued to develop, notably with continuing growth in the education and wider public sector.  They have continued to invest in the team which included the recruitment of a Cambridge based team in the period.  Revenue from the property valuation team grew during the period, reflecting the recruitment of experienced surveyors which has improved geographical coverage.  The property transaction teams have performed well, with activity levels broadly in line with the prior year but they have experienced a reduced level of activity from their heavy plant disposal team with lower market activity levels in the current economic environment.

Towards the end of the period the group completed three acquisitions.  Alexander Lawson Jacobs is a London-based insolvency and business recovery practice and was acquired for £2.35M plus a maximum earn out of £4M contingent consideration; Ernest Wilson is a business sales agency operating across a broad range of sectors ranging from food outlets to care homes, restaurants and hotels, for an initial consideration of £4M plus £1.6M in contingent consideration; Regeneratus is an advisory practice with expertise in restructuring, turnaround and legal issues for an initial consideration of £500K and contingent consideration of £1.1M.  Last year these three business generated pre-tax profit of £1.8M.  In July they completed a share placing which raised net proceeds of £7.8M.

A proportion of the consideration payable requires post-acquisition service obligations to be performed by the selling shareholders.  The amounts are accounted for as deemed remuneration and charged to the income statement over the period of the obligation.  The value of assets acquired exceeds the value of consideration and consequently a gain of £1.9M has been recognised

Going forward, following a strong performance in the first half, the board remains confident of delivering results at least in line with current market expectations for the full year, including the benefit of contribution from the recent acquisitions.  Overall they anticipate a further year of increased revenue and earnings. 

At the current share price the shares are trading on a PE ratio of 42 but this falls to 15.2 on this year’s consensus forecast.  After a 13% increase in the interim dividend the shares are yielding 3.1% which increases to 3.2% on the year’s forecast.  At the period-end the group had a net debt position of £2.3M compared to £6.3M at the end of last year.

On the 30th December Company Secretary John Humphrey sold 35,000 shares at a value of £31.5K.

On the 8th January non-executive director Peter Wallqvist purchased 30,000 shares at a value of £26.4K. 

Overall then this has been an OK period for the group.  Profits are up, but this was due to a gain on acquisition; net assets increased, as did the operating cash flow, although no free cash was generated.  The Business Recovery division is doing well due to the higher level of insolvencies but the Property Advisory division saw a flat performance.  This is a decent hedge in my opinion given the anti-cyclical nature of the business and I think the forward PE of 15.2 and yield of 3.2% is about right.

Cohort Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Cohort has now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year with the maiden £13.9M from CHESS, a £3.8M increase in MASS revenue, a £2.4M growth in EID revenue and a £1.5M increase in MCL revenue, partially offset by a £528K decline in SEA revenue.  Cost of sales also increased to give a gross profit £7.9M higher.  Amortisation increased by £1.4M but there was no reorganisation costs, which were £500K last time.  Other admin costs grew which meant the operating profit showed a £2.3M improvement.  Finance costs increased by £322K and tax charges were up £228K to give a profit for the period of £407K, an improvement of £1.8M year on year.

When compared to the end point of last year, total assets increased by £1.9M, driven by a £5.7M right of use asset, a £1.2M growth in property, plant and equipment, and a £900K increase in goodwill, partially offset by a £3.7M decline in other intangible assets and a £1.3M fall in receivables.  Total liabilities also increased during the period as a £2.3M decline in payables and a £907K decrease in deferred tax liabilities were more than offset by a £5.8M lease liability, a £1.2M increase in current tax liabilities and a £912K growth in provisions.  The end result was a net tangible asset level of £15M, broadly flat over the past six months.

Before movements in working capital, cash profits increased by £4.3M to £4.8M.  There was a cash outflow from working capital but this was less than last time so after there was a £1.4M swing to a tax receipt, the net cash from operations was £4.8M, an improvement of £8.7M year on year.  The group spent £1.8M on capex to give a free cash flow of £3M.  Of this, £2.5M was paid out in dividends and a net £726K was spent on their own shares which meant there was a cash outflow of £260K and a cash level of £18.4M at the period-end.

The operating profit in the Chess business was £1.8M.  This was its first contribution with good contributions from sales of its counter-drone systems to military customers in the US and Norway.  The business also completed deliveries of naval systems for both the UK and export customers.  The order book of £16M along with good short-term order prospects give the board confidence that the business will have a profitable second half.  Long-term prospects for naval, land and counter-drone systems remains strong. 

The operating profit in the EID business was £56K, an improvement of £330K year on year.  The stronger performance was mostly in its Land division, delivering the first part of a large order to a Middle East customer.  The mix of work, with lower naval systems activity, and further investment in the new vehicle intercom systems account for the lower margin.  The business is expected to have a stronger second half as it delivers against contracted orders.

The operating profit in the MASS business was £3.8M, a growth of £1.6M when compared to the first half of last year.  The higher revenue was a result of work starting on new electronic warfare operational support projects for export customers.  Following significant order intake in 2019 the business secured further renewals in the first half of the year and the board expect it to maintain its order book into 2021.

The operating profit in the MCL business was £468K, an increase of £436K when compared to the first half of 2019 as a result of increased activity in supplying equipment to the UK MOD, particularly the Royal Navy.  The order book increased by £3.2M and a good pipeline of opportunities give them confidence that the business will have a stronger second half. 

The operating loss in the SEA business was £302K, a deterioration of £683K year on year.  The combination of lower revenue, investment in its products, particularly its anti-submarine warfare Krait Defence System, and extensive bidding activities on export opportunities for naval systems account for the weaker performance.  They expect this investment to deliver stronger order intake in the second half, providing good underpinning for 2021.  The closing order book declined by £6.1M and the board expect the business to be profitable in the second half, similar to last year.

Going forward, the year has started well with over £77M of orders secured and they expect a similar second half for order intake.  They expect these orders to include first steps in some key markets and programmes which will provide good revenue streams for many years to come, particularly at SEA and Chess.  The board expect a stronger performance in the second half but they still need to win and deliver some important orders to achieve their targets for the year.  Overall, the board expects the performance to be in line with market expectations. 

The acquisition of ELAC will add a profitable and growing sixth stand-alone business.  It furthers their strategy of expanding in defence products and export markets, particularly the naval sector.  The naval export markets the group is focused on are expected to reach $150M of spend over the next decade in the Asia Pacific region alone.

At the current share price the shares are trading on a PE ratio of 37.1 which falls to 20.4 on the full year forecast.  After a 12% increase in the interim dividend the shares are yielding 1.2% which increases to 1.4% on the full year forecast.  At the period-end the group had a net debt position of £6.8M compared to a net debt figure of £6.4M at the year-end.

On the 12th December the group announced that it had agreed to acquire ELAC, a German-based market leader in naval surface ship and submarine sonar systems for €11.3M.  Last year the business made an EBIT of €1.4M and has a pension scheme with a deficit of €7.1M. 

Overall then this seems to have been a period of decent progress for the group.  Profits improved, although the group is not that profitable really.  Net tangible assets were flat and the operating cash flow increased, generating some free cash.  Most of the businesses seem to be performing well, and Chess seems a good addition, although SEA struggled.  This is expected to improve in H2, however, and the group performance overall is expected to improve too.  This positive news may already be priced in, however, with a forward PE of 20.4 and yield of 1.4%.

Trifast Share Blog – Interim Results Year Ending 2020

Posted on by
Reply

Trifast has now released their interim results for the year ending 2020.

Revenues decreased when compared to the first half of last year as a £1.2M growth in US revenue was more than offset by a £665K decline in UK revenue, a £1.6M fall in European revenue and a £759K decrease in Asian revenues.  Cost of sales were marginally higher so gross profit fell by £2M.  Other operating income was down £101K and distribution expenses increased by £88K but admin expenses fell by £1.3M, share based payments fell by £571K, acquisition costs were down £177K and Project Atlas costs were £223K lower to give an operating profit that was £107K higher.  Bank interest increased by £194K but tax charges were down £149K which meant that the profit for the period was £6M, broadly flat year on year.

When compared to the end point of last year, total assets increased by £20.1M, driven by a £14.7M addition of right of use assets, a £5.7M growth in inventories and a £1.5M increase in intangible assets, partially offset by a £1.9M decline in receivables.  Total liabilities also increased as a £3.3M growth in payables was more than offset by a £16M addition in lease liabilities, a £3.7M dividend payable and a £1.4M growth in borrowings.  The end result was a net tangible asset level of £77.3M, an increase of £1.1M year on year.

Before movements in working capital, cash profits increased by £909K to £12.2M.  There was a cash outflow from working capital to give a net cash from operations of £4.6M, broadly flat year on year.  The group spent £503K on an acquisition, £1.9M on property, plant and equipment and £1.7M on lease payments to give a free cash level of £527K.  This did not cover the £1.4M of dividends paid and the cash outflow for the half year was £777K, giving a cash level of £25M at the period-end.

The first half of the year has been challenging with end markets across a number of sectors remaining weak, particularly automotive.  Domestic appliance sales have reduced, with ongoing low volumes at a key multinational OEM.  The reduction in the electronics sector is largely driven out of decreased volumes on more established lines at a key OEM in Europe as well as the ongoing indirect impact of US tariffs on China.  Growth across the general industrial sector has been strong, however, with new customer relationships and double digit growth at PTS.  Brexit related disruption to the EU distributor sales has offset some of these gains overall, though.

The pre-tax profit in the UK business was £3.9M, a decline of £337K year on year with revenues down 1.9%.  This was due to the automotive slowdown, with planned production stops across a number of OEMs in April as well as falling production volumes more generally across existing builds and deferred start of production dates.  In addition, as a result of Brexit, there was disruption to the EU distributors sector.  As expected, April and May saw revenues fall led by a reversal of the stocking up that happened before the initial Brexit date, with some signs of more cautious ordering and de-stocking taking place into Q2.

On the positive side, revenues in the general industrial sector have increased strongly in the UK with new customer wins mainly responsible for driving growth.  PTS continues to perform well with double digit revenue growth despite the current market uncertainty.  An expanded warehouse at Lancaster has provided them with a capacity increase of 20%, including additional picking locations as well as bulk storage facilities to support future growth and in the Midlands, further investments have been made in the newly developed Technical and Innovation centre.

The pre-tax profit in the European business was £3.1M, a fall of £1.4M when compared to the first half of last year with revenues down 3.1%.  In the Netherlands this reflects a reduction in automotive as volumes on existing builds have reduces. In Italy, the main driver for the decrease is the domestic appliances sector with volumes at one of the group’s largest domestic appliances customers have continued to be depressed due to their ongoing reputation issues.  This is in addition to some volume decreases in the wider market as economic uncertainties start to weigh on consumer confidence and production scheduling. 

In Hungary sales to one of their key electronics OEMS have reduced as volumes decreased on more established lines ahead of new products and overall they are also seeing deferred start of production dates reducing automotive growth in the short term.  Offsetting some of this there is more limited growth in TR Kuhlmann despite the recessionary environment in Germany as well as automotive market share wins in Sweden and Spain.

The site in Spain continues to growth with a good pipeline in place.  The group expect to make additional overhead investments to support that growth in the second half of the year and beyond.  They are also in the process of finalising a potential site move for the Hungarian business which is needed to support the growth already seen over the past five years and pave the way for future growth.

The pre-tax profit in the US business was £199K, flat when compared to the first half of 2019 with revenue growth of 21%.  The growth in sales was largely driven by their ongoing penetration into their existing automotive multinational customers and looks set to continue at double digit level for the foreseeable.  Additional investments in headcount has temporarily reduced margins ahead of the expected further increases in sales which is expected to continue in the medium term. 

The group have secured a small site at Clemson University where they intend to set up a mini technical and innovation centre.  The university is a hub for all areas of vehicle research and design and this follows on from the sites in Sweden and the UK. 

The pre-tax profit in the Asian business was £4.7M, a decrease of £240K year on year with revenues down 6.8%.  In Taiwan, sales to European automotive distributors have reduced significantly as production volumes in Europe decrease.  In China, it is lower domestic automotive production volumes that have decreased sales, with JLR related builds being particularly badly affected.  Additional reductions have also been seen in the electronics sector in China as a small number of multinational OEMs reduce local production volumes in the face of US trade tariffs.  They are following business as it transfers to new locations where possible.  There is growth in the electronics sector in Singapore and automotive market share wins for the distribution site in Thailand, however.

Going forward, the board currently expect a slightly stronger second half than first half but they expect that in the short to medium term the macroeconomic environment will remain challenging.  The pipeline of new wins remains solid and activity levels around the group continue to be encouraging across all sectors and there are new platform wins in automotive, domestic appliances and general industrial on the horizon for their existing customers.  They also have a number of new multinational relationships under development, most specifically in the general industrials sector.

At the current share price the shares are trading on a PE ratio of 18.7 which falls to 14.7 on the full year forecast.  At the period-end the group had a net debt position of £31.8M (including the new lease liabilities) compared to £14.2M at the year-end.  After the interim dividend was maintained the same, the shares are yielding 2.3% which is predicted to be the total for the year too.

Overall then this has been a difficult period for the group.  Profits were flat but this was due to lower share based payments, project Atlas costs and acquisition costs so the underlying profit level fell.  Net assets did increase but despite a flat operating cash flow, this was due to the lease payments now not being classified as operations (I might manually change this) and free cash did not cover the dividends.

There are a number of adverse factors affecting the group.  The well-publicised malaise in the automotive sector is having an effect, the main domestic appliance customer is having reputational issues and the US tariffs on China is affecting the Asian business.  Indeed the US business is the only one growing but even here profits aren’t increasing due to the group investing for growth.  The outlook doesn’t look to bad considering but I am not sure there is too much value with the forward PE of 14.7 and yield of 2.3%.  This remains a great company though in my opinion so I will keep an eye on developments.

On the 14th February the group releases a trading update covering Q3.  Since the announcement in November market conditions have become more challenging than expected, reflecting greater volatility of results in Q3 and a slower than forecast start to Q4.  The impact of this weakness has continued to constrain revenue growth across a number of sectors. With a corresponding reduction in gross margins being further impacted by deferred start of production dates the board have concluded that their pre-tax profit is now expected to be at the lower end of analysts’ forecasts.

To date the impact of the Corona virus has been restricted to the extended closure of their Chinese sites and corresponding reduction in locally generated revenues.  It is not possible to assess how extensive any longer term impacts will be but they are already working closely with customers and suppliers to minimise these risks as much as possible.

Whilst the project Atlas timetable continues to be on track and budget, in the current volatile macroeconomic environment the shorter term phasing of that benefit realisation is likely to be slower than originally anticipated.

The pipeline of new sins is strong and activity levels around the group continue to be encouraging which means that despite a challenging 2020, the business remains well positioned in the market and they are optimistic regarding prospects for 2021.  They have not lost customer or business during this period.