The Property Franchise Group Share Blog – Interim Results Year Ending 2019

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The Property Franchise Group have now released their interim results for the year ending 2019.

Management service fees increased by £235K but franchise sales were down £132K and other revenue declined by £148K.  Assisted acquisitions support increased by £29K but other cost of sales fell slightly to give a gross profit £59K lower.  Depreciation increased by £29K but other admin expenses fell by £183K which meant the operating profit was £95K higher.  Bank interest was slightly lower, as were tax charges so the profit for the period was £1.6M, a growth of £120K year on year.

Total assets declined somewhat over the past six months, driven by a £207K decrease in the master franchise agreement, partially offset by a £124K growth in trade receivables.  Total liabilities also declined during the period as a £228K increase in current tax payables and a £91K growth in other payables was more than offset by a £450K reduction in the bank loan.  The end result was a net asset base (minus goodwill) of £8.6M, a growth of £84K over the past six months.

Before movements in working capital, cash profits increased by £122K to £2.4M.  There was a small cash outflow from working capital but tax payments fell by £200K and interest payments were down £13K to give a net cash from operations of £2.2M, a growth of £209K year on year.  The group spent £205K on assisted acquisitions support but there was negligible other capex so the free cash flow was £2.1M.  Of this, £450K was used to repay loans and £1.5M was paid out in dividends to give a cash flow of £59K and a cash level of £3.9M at the period-end.

All six brands’ franchising networks experienced revenue growth over the period despite challenging market conditions.  Their franchisees added 1,175 tenanted managed properties in the period through their assisted acquisitions programme which, alongside the continued organic growth of the portfolio, leaves the group managing 56,000 properties at the period-end.

For the traditional brands, growth was driven largely by a robust increase in lettings management service fees which outweighed the market weakness faced in sales.  Ewemove has 115 franchise territories at the end of the period, which was broadly flat on last year but property listings have increased to 3,173 in the first half despite a falling market.  The business has improved its cash generation and tight cost control has delivered a corresponding improvement in profitability.  They are on track to materially improve on the 2018 result for the full year.

The government’s tenant fee ban took effect at the start of June with these results reflecting just one month’s impact of the ban.  After the period end, July letting results exceeded board expectations with evidence of pent up demand feeding through. 

Going forward, the group traditionally experiences stronger trading in the second half of the year and at this stage the board believe this pattern will be maintained.  While the board are cognisant of the UK market conditions, they remain confident of delivering on market expectations for the full year.

At the current share price the shares are trading on a PE ratio of 16.7 which reduces to 14 on the full year consensus forecast.  After an 8% increase in the interim dividend, the shares are yielding 4.2% which remains the same for the full year forecast.  At the period-end the group had a net cash position of £2.8M compared to £500K at the same point of last year.

On the 20th November the group released a trading update.  Trading during the second half of the year to date has remained strong and management are confident that the group remains in line to achieve market expectations for the full year.  In October, they set a new record for lettings revenue at a franchise level who reported income of £6M.  This was achieved despite the loss of tenant fee income following the ban in June, which had previously represented 16% of their franchisees lettings revenue.

Growth in management commission has increased 10% to £4.3M.  The group believes that it is the high level of satisfaction of its landlord clients that lies behind the better than expected progress in shifting the burden of cost from tenants to landlords.  Management are now confident that the objective of full mitigation of these costs will be attained by June 2020, six months earlier than originally thought. 

The sales market has softened further in the second half of the year but the lettings business is outperforming expectations. 

Overall then this has been a decent period for the group in a difficult market.  Profits were up due to tighter controls over admin costs, net assets were flat and the operating cash flow improved with a good amount of free cash being generated.  The lettings business is doing well, having mitigated the loss of tenant fees.  Ewemove also seems to be making progress.  The sales business is faring less well in this market, however. With a forward PE of 14 and yield of 4.2% this is not a bargain given the market conditions but it is a quality, cash generative company so I’m tempted to buy here at the right price.

On the 14th January the group announced that it intends to develop a new division, targeting the acquisition of financial services businesses which are relevant to the core business.  The division will operate as a subsidiary and service the existing franchisees.  It is the intention to make financial services available as a new franchise opportunity with the group holding the master franchise rights and delivering to its franchisees a mortgage products and compliance function. 

As part of this strategy they have acquired a 72% stake in Auxilium Partnership a protection advisory business, for a non-material sum.  The business was launched in March 2019, has no debt and is cash generative. 

On the 28th January the group released a trading update covering the whole year ending 2019.  Overall they performed in line with expectations, delivering growth in both revenues and management service fees.  Their franchisees mitigated much of the impact of the tenant fee ban and achieved a record performance for lettings revenue.  EweMove is also expected to show a significant improvement in profit over last year.

Despite the wider market being adversely impacted by the tenant fee ban, the group increased revenue by £200K and management service fees grew by £200K.  They had net cash of £4M at the year-end. 

As expected the tenant fee ban tempered lettings revenues in the second half but the group made good progress with a mitigation plan and is now confident that the objective of the full mitigation will be achieved by June 2020, six months ahead of the original plan.  Early indications of improving market conditions underpin the board expectations that the volume of house sales should increase in 2020.  The lettings market is also expected to remain healthy with rising rents and increased confidence leading to more opportunities for the franchisees to acquire competitors’ books than this year.

It is worth noting that the CEO is leaving having been with the group since IPO in 2013.

Character Share Blog – Final Results Year Ended 2019

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Character has now released its final results for the year ended 2019.

Revenues increased when compared to last year as a £1.2M decline in UK revenue was more than offset by a £15.4M growth in ROW revenue.  Cost of inventories was up £13.5M but other cost of sales declined slightly, including a £1.2M positive swing to inventories write down credits, to give a gross profit £5.2M higher.  Selling and distribution costs grew by £1.8M, staff costs were up £2.6M and other admin expenses also rose.  There was a £299K decline in other operating income and there was a £3.1M impairment of goodwill, although this was somewhat offset by £1.5M of contingent consideration that was no longer payable which meant the operating profit fell by £1.7M.  Finance costs and taxation increased somewhat to give a profit for the year of £7.9M, a decline of £1.7M year on year.

When compared to the end point of last year, total assets increased by £9.7M driven by a £9.4M growth in receivables and a £5.5M increase in inventories, partially offset by a £5.6M decline in cash.  Total liabilities also increased due to a £4.1M growth in payables and a £3.4M increase in borrowings.  The end result was a net tangible asset level of £33.2M, a growth of £2.3M year on year.

Before movements in working capital, cash profits increased by £274K to £13.9M.  There was a cash outflow from working capital and interest payments increased by £426K, although tax payments reduced to give a net cash from operations of £7.9M, a decline of £2.8M year on year.  This did not cover he £8.9M spent on the acquisition and they also spent £1.7M on intangible assets and £449K on capex to give a cash outflow of £3.1M before financing.  They then paid out £5.3M on dividends and £1.3M on their own shares which gave a cash outflow of £9.2M for the year and a cash level of £6.5M at the year-end.

This was a challenging year from the group.  The Scandinavian toy market failed to recover fully from the demise of Top Toy, the UK toy market continued to decline and the group suffered from the weakness in Sterling.  The group’s market share in the UK did not materially change in the year.

During the year the operating loss sustained by Proxy was £750K.  The Proxy team is focused on reducing the current inventories of slower moving lines.  A full review of the business model is underway and it is expected that, in addition to tighter group controls over purchases and a substantial reduction of the product lines already agreed, this will lead to cost cutting measures being implemented.  Whilst the challenging market conditions in Scandinavia are continuing, the board is hopeful of a significant improvement in Proxy’s performance in the current year. 

The group’s collaboration with Moose Toys has led to the production of a new range of compound-filled, collectable characters under the Goo Jit Zu brand, which was launched in the summer.  The brand has already gained acclaim in the industry, receiving a nomination in the final selections for the UK’s Top Toy award and becoming a finalist in the US action figure Toy of the Year for 2020.  The line has also been well received by their customers and distributors but did not feature significantly in the sales in the year.  They anticipate achieving significant sales in over 30 territories by the end of the current year and revenue forecasts look strong.  Further developments for the brand include a series of Marvel collectable characters. For which the group has secured a European and Middle East license from Disney.

In Spring 2020 they will be launching two new in house brands which have received good reactions from their early presentations.  As well as their in-house brands, the portfolio includes lines produced by overseas companies which they distribute and new ones will be added in 2020.

Following the announcement of the proposed takeover of Entertainment One by Hasbro, it is good to see that the current Peppa Pig license was extended until June 2021.  They also signed a new licence with Entertainment One to produce a range of wooden Peppa Pig toys and products.  This deal which includes Europe and Australia will run through to December 2022.  The initial reaction to the concepts and designs have been positive.  The line is likely to be launched in June 2020.

The international sales of their lines, particularly Goo Ji Zu and Peppa Pig have been encouraging and coupled with the introduction of new brands such as the Peppa Pig wooden range, the board anticipate significant growth in international sales this year. 

In October 2018 the group acquired 55% of Proxy, a Scandinavian toy distributor based in Denmark.  The consideration paid amounts to £11.2M and the acquisition generated goodwill of £3.1M.  In view of the losses sustained by the business, however, and in light of forecasts going forward, the board is of the view that the contingent consideration of £1.5M will not be paid and has written off the goodwill.

Going forward, the challenging trading in prospect for Christmas will affect the first half of the year but prospects for the second half look positive.  The new ranges will feature increasingly in sales in the coming year, both domestically and abroad.  Overall the board are confident they will achieve market expectations for the current year. 

At the current share price the shares are trading on a PE ratio of 8.8 which increases to 9.3 on next year’s consensus forecast.  After an 8.3% increase in the dividend the shares are yielding 4.6% which remains flat on next year’s forecast.  At the year-end the group had a net cash position of £6.5M compared to £15.6M at the end of last year. 

Overall then this has been a rather tricky year for the group.  Profits were down, as was the operating cash flow which didn’t cover the acquisition.  This was mostly due to working capital movements, however, and the net asset level did rise.  There are problems in both the Scandinavian market and the UK one.  The Proxy acquisition seems rather ill-judged to me and there is also the potential problem of Peppa Pig brand owner Entertainment One being taken over by Hasbro, who you would have thought would like to eventually take production in-house.  Some of the upcoming releases seem interesting though and trading is likely to pick up in the second half.  Unfortunately this means the all-important Christmas trading could be poor.  The forward PE of 9.3 and yield of 4.6% looks decent value but I think I would rather find out how Christmas trading went before committing. 

On the 17th January the group released a trading update.  The Christmas period was very challenging with the total market in the UK contracting for the second year.  These conditions will impact the results for the first half.  Sales of core products were lower than last year.  Despite the first half results being below last year, the board believe that they will deliver a strong second half. This confidence has been boosted by customer reactions to recent products.

Despite the expected strong second half, the weakened Christmas performance has led the board to believe that their pre-tax profit for the year will be around £10M which is below market expectations. 

AG Barr Share Blog – Interim Results Year Ending 2020

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AG Barr have now released their interim results for the year ending 2020.

Revenues declined when compared to the same period of last year with an £11.4M decrease in carbonates revenue and a £4M decline in still drinks revenue.  Cost of sales also declined to give a gross profit £7.9M lower.  Depreciation was up £1.7M but other operating costs declined by £5.3M.  There was £400K of redundancy costs and a £100K loss from an associate to give an operating profit £4.6M lower.  Finance costs were up £100K but tax charges fell by £1M which meant the profit for the period was £10.8M, a decline of £3.7M year on year.

When compared to the end point of last year, total assets increased by £500K driven by an £11.1M growth in property, plant and equipment, a £3.2M increase in inventories and a £900K investment in an associate, partially offset by a £12.8M decrease in cash and a £1.3M decline in receivables.  Total liabilities also increased during the period as a £2.8M fall in pension obligations, a £2.1M decrease in payables and a £2M decline in current tax liabilities was more than offset by an £8.1M increase in lease liabilities and a £4.4M growth in bank borrowings.  The end result as a net tangible asset level of £101.9M, a decline of £4.8M over the past six months.

Before movements in working capital, cash profits declined by £2.8M. There was a cash outflow from working capital but this was lower than last time and after tax payments increased by £500K, the net cash from operations was £11.7M, a decline of £300K year on year.  The group spent £8.4M on capex and £1M on acquisitions to give a free cash flow of £2.3M.  This did not cover the £1.6M of lease payments and £1M of shares bought by the employee share scheme, let alone with £2.5M spent on own shares and £14.4M on dividends so the cash outflow for the half year was £17.2M and the cash level at the period-end was £4.6M. 

The gross profit in the Carbonates business was £40.6M, a decline of £6.4M year on year.  The gross profit in the Still drinks business was £5.3M, a decrease of £2.1M when compared to first half of last year.  The gross profit in the Others business was £4.8M, a growth of £600K when compared to the first half of 2019.

There were a number of adverse factors affecting the business including the introduction of the soft drinks levy, the significant impact on demand and supply related to CO2 shortages and a long hot summer. The group benefited last year from one-off trading factors and favourable weather and this, combined with some specific brand challenges saw a deterioration in financial performance.

During the period, the total UK soft drinks market value was down 0.6% and volume declined 4.1% but in the last 13 weeks, market performance was notably weaker with value down 6.3% and volume declining 8.7% which reflects the strong comparative last year.

During the period the group moved away from prioritising volume and returned to the value-driven approach and reducing promotional activity.  This transition, combined with the disappointing weather has had a volume impact across the portfolio, exacerbated by specific brand challenges in Rockstar and Rubicon.  They are now seeing positive indications of consumer acceptance of this new price and promotional positioning.  Early indications are that increased average realised prices are compensating for the reduction in volume. 

There has been encouraging initial trade and consumer response to the recently launched Irn-Bru Energy range, which initially launched in Scotland and is now planned to roll out across the wider UK market later in the year.

The group are taking action to address the issues related to Rockstar and Rubicon, including the planned launch of three new Rockstar products in the Autumn and recipe improvement for Rubicon but the benefit of these actions will not be seen until later in the second half of the year.  These activities combined with an easing of prior year trading comparatives across the second half of the year give the board confidence of meeting full year expectations. 

Funkin performed strongly and the recent launch of ready to serve nitro-infused premium cocktails in cans is exceeding expectations with strong rates of sale and a number of significant listings secured across a range of channels including travel operators and large multiple grocers. 

The group will complete the £14M investment in their ingredients handling and processing assets at Cumbernauld in early 2020 and during the period they spent £8.4M on this project.

In June the group made a 20% investment in Elegantly Spirited at a cost of £1M.  The business is a brand builder, marketing and selling a range of non-alcoholic distilled spirits.  During the period the business made a loss of £100K.

Going forward, despite continued economic uncertainty the board expect to meet the revised profit expectations for the year. 

At the current share price the shares are trading on a PE ratio of 18.4 which rises to 22.2 on the full year forecast.  After a 2.5% increase in the interim dividend the shares are yielding 2.9% which falls to 2.8% on the full year forecast.

Overall then this has been a rather tricky period for the group.  Profits were down, net assets declined and the operating cash flow fell.  Once lease payments and share purchases for the employee scheme are taken into account, there was not free cash.  Both the still and fizzy businesses are struggling, although Funkin is still doing well.  There have been strong comparatives but the group are struggling to make both Rockstar and Rubicon work and the market hasn’t reacted well to their price increases.  With a forward PE of 22.2 and yield of 2.8% these shares still don’t look great value.

On the 28th January the group released a trading update covering the year as a whole.  Pre-tax performance is expected to be at the top end of current market expectations, just ahead of £37M.  Revenue is expected to be around £255M. 

The group faced a combination of challenging trading conditions during the year, particularly across the summer period.  In addition they adjusted their promotional and pricing position to align more closely with the market which reduced volumes but delivered an increase in average realised price, re-establishing their consumer pricing position.

The Rockstar and Rubicon recovery plans are now being implemented; Irn Bru has returned to growth in Q4 and Funkin continues to perform strongly.  They have completed the first phase of their business re-engineering programme.  The associated exceptional costs of £2M are expected to almost entirely be offset by a one-off exceptional gain related to the removal of a wind turbine at the Cumbernauld site.

The £30M share repurchase programme completed during the period.  The external landscape remains challenging but they exit the year with encouraging momentum which the board expect to continue into 2020.

Cranswick Share Blog – Interim Results Year Ending 2020

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Cranswick have now released their interim results for the year ending 2020.

Revenues increased by £50.8M, depreciation was up £5.8M and other costs of sales grew by £34M.  There was a £3.7M positive movement in the value of the pigs to give a gross profit £14.7M higher.  Selling and distribution costs were up £3.9M, share based payments increased by £400K, the amortisation of acquired intangibles grew by £500K and other admin expenses were up £4.2M which meant that the operating profit was £5.7M higher.  Finance costs were up £800K, and tax charges increased by £900K to give a profit for the period of £37.M, a growth of £3.9M year on year.

When compared to the end point of last year, total assets increased by £175.7M driven by a £92M growth in property, plant and equipment, a £37.1M increase in intangible assets, a £29.3M growth in receivables and an £11M increase in inventories.  Total liabilities also increased during the period due to a £74.1M growth in financial liabilities, a £46.5M increase in lease liabilities and a £26.8M growth in payables.  The end result was a net tangible asset level of £369.9M, a decline of £11.5M over the past six months.

Before movements in working capital, cash profits increased by £9.4M to £67.3M.  There was a cash outflow from working capital but tax payments increased by £6.2M to give a net cash from operations of £40.7M, a growth of £1.7M year on year.  The group spent all this on an acquisition of £41.3M and then some £55.7M of capex on tangible assets.  They also paid out £4.1M in lease payments to give a cash outflow of £57.6M before financing.  The group took out a net £73.3M in borrowings and paid out £15.6M in dividends to give a cashflow of £600K and a cash level of £21.1M at the period-end.

Total fresh pork revenue increased by 15% reflecting stronger wholesale and export demand through the first half of the year with the number of pigs processed during the period increasing by 8.8%.  Retail sales were also modestly ahead.  The group invested £4.2M across the processing facilities and £800K on upgrading the refrigeration systems at the Hull facility.

Total export revenue increased by 65%. Exports to the Far Eastern markets were 94% higher reflecting strong demand from China following the outbreak of African Swine Fever in the region.  Shortly after the period-end the Norfolk facility was granted full Chinese export approval which means that all facilities now have full approval leaving them well placed to develop and grow this revenue stream.

The Chinese pig price increased 89% by the end of September and pork meat imports had increased by 72%.  It is anticipated that restocking of the Chinese herd may take several years.  EU pork prices remain high, supported by strong export demand from China.  ASF outbreaks continue in domestic pigs in Eastern Europe but the reporting rate of cases in the wild boar population in Belgium continues to decline, although the group is still on high alert for any potential outbreak in the UK which would be very detrimental to the industry.  The UK pig price increased by 12% but was modestly lower when compared to last year.

Convenience revenue increased by 5.1% reflecting growth in continental products offset by lower cooked meats revenue. Like for like convenience revenue was up 0.5%. Cooked meats were slightly down on the same period last year as the market faced a strong summer season last year and lower promotional activity this year.  The group gained market share due to an increased share of promotional activity by one of their key customers, strong growth with a discount customer and new business launched with a premium retail customer part way through the period.  They invested £19.8M across the cooked meats facilities including the commissioning of the new Sutton Fields £13.9M extension.  Investment also continued in Milton Keynes to accelerate additional business with the site’s dedicated customer which comes on stream in the second half.

Continental revenue growth was underpinned by a strong performance from the site’s lead customer particularly across corned beef, olive and pre-pack categories.  The new Bury facility is now performing in line with expectations.  Further investment in the automation of olive packing has increased throughput, creating capacity to accommodate future volume growth.  During the period the freehold site at Trafford Park was sold for £3.2M, realising a profit of £400K.

Gourmet products revenue was in line with last year, with strong growth in pastry and bacon offsetting lower sausage revenue which reflected tough comparatives due to the extended BBQ season last year.  Some business was lost but this was mostly offset by new contract gains.  Strong demand for festive garnish ranges is expected to drive sales over the Christmas trading period.

Strong volume growth in bacon reflected new food service business coming on stream during the period and increased promotional activity with a key customer.  This momentum was partly offset by downward pressure on selling prices from one retail customer.  Pastry revenue grew strongly during the period supported by new contract wins and a strong innovation pipeline. New ranges supplied to the anchor customer performed ahead of expectations.  Towards the end of the period a new product range was launched across a number of outlets with a national coffee shop chain.

Poultry revenue increased by 5% with a more moderate growth profile compared to recent reporting periods primarily reflecting the annualisation of new business wins in the cooked poultry category.  Their fresh chicken business continued to operate at full capacity ahead of the move to the new facility.  The customer base was realigned with new business launched with the anchor customer balancing the rationalisation of the customer base.  Above average temperatures adversely affected broiler growing performance and subdued wholesale pricing continues to impact the performance of the business. 

Investment in the new £74.8M poultry primary processing facility which will more than double existing capacity is progressing to plan with £24.1M spent on the project.  The commissioning process started shortly after the period-end and is due to be completed by the year-end.  Investment in the upstream agricultural operations also continued and a second feed mill in Suffolk came on stream shortly after the period-end.  Cooked poultry revenue growth reflected the launch of new business with a third national grocery multiple and the introduction of a new product range with one of the existing customers during the period.

The share of loss of the joint venture of £100K represents the ongoing start up losses of White Rose Farms.  The business is part of a longer term strategy to secure commercial pig supply and these losses are in line with the plan. 

Although conditions in the core UK market remain extremely competitive, the outbreak of African Swine Fever in their Far Eastern markets has created the opportunity to increase sales into the region on commercially favourable terms.  It is anticipated that this opportunity may continue in the medium term provided the UK remains ASF free.

In July the group acquired Katsouris Brothers for £41.3M.   The business is a processor and supplier of continental non-meat food products and the acquisition generated goodwill of £23M.  In the two months since acquisition the business has contributed a profit of £900K to the group.  The agreement includes contingent consideration payable over the next year and is valued at £6.8M. 

Going forward, commissioning of the new poultry facility is due to be completed by the year-end and the board looks to the future with confidence.

At the current share price the shares are trading on a PE ratio of 23 which falls to 22.1 on the full year forecast.  After a 5% increase in the interim dividend the shares are yielding 1.8% which increases to 1.9% on the full year forecast.  Net debt increased by £120M to £113.7M during the period. 

Overall then this was a decent period for the group.  Profits were up, as was the operating cash flow but no free cash was generated and the capex is not covered by the operating cash flow.  The pork business is doing well due to increased demand from China following the outbreak of ASF there, but this might be a temporary boost.  Elsewhere poultry did fairly well and some other markets were rather sluggish. This remains a good company but I feel the forward PE of 22.1 and yield of 1.9% is rather expensive.

On the 17h December the group announced that it has acquired Packington Pork from the Mercer family.  The business comprises pig farming and rearing operations and specialises in the production of British free range and outdoor bred pigs.  The transaction increases the group’s self-sufficiency in UK pigs processed to over 25%.

CWK

On the 17th January the group released a Q3 trading statement where they stated that pre-tax profit would be above current market forecasts.  There was revenue growth across all four of the product categories.  Export sales have been exceptionally strong and the outlook remains positive.  African Swine Fever has created opportunities for Far Eastern exports as long as the UK remains disease free. 

Net debt increased during the period reflecting the usual seasonal uplift in working capital, the ongoing capex programme and the acquisition of Packington Pork. 

On the 11th February the group announced that it had acquired the Buckle family’s pig farming and rearing operations as well as their 50% share of the White Rose Farms pig production joint venture set up with Cranswick in 2018.  The enlarged pig enterprise, specialises in the production of Red Tractor assured pigs in Yorkshire.  This transaction increases the group’s self-sufficiency in UK pigs processed to over 30%.

Cambria Automobiles Share Blog – Final Results Year Ended 2019

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

Revenue increased when compared to last year due to a £23.7M growth in used cars revenue, a £3.2M increase in new car revenue and a £3.2M growth in after sales revenue.  Internal sales increased by £2.3M and coast of sales were up £23.8M to give a gross profit £3.9M higher.  Site closure costs reduced by £508K, there was a £414K profit on the disposal of a property, staff costs fell by £424K and operating leases declined by £576KJ, although depreciation and amortisation was up £956K and other admin costs were £1.2M higher to give an operating profit which was £3.7M higher.  Loan interest was up £277K and tax charges grew by £689K to give a profit for the year of £10M, a growth of £2.7M year on year.

When compared to the end point of last year, total assets increased by £50.5M driven by a £31.4M growth in freehold land and buildings, a £23.1M increase in inventories and a £10.8M growth in cash, partially offset by a £9.9M decrease in long leasehold land and buildings, a £5.2M decline in assets under construction and a £2.3M decrease in properties held for sale.  Total liabilities also increased during the year due to a £24M growth in the vehicle consignment creditor, a £9M increase in the revolving credit facility, a £4M growth in vehicle funding and a £4M increase in other payables.  The end result was a net tangible asset level of £44.1M, a growth of £9M year on year.

Before movements in working capital, cash profits increased by £3.3M to £16.7M.  There was a cash inflow from working capital and after the reduction in one-off costs, the net cash from operations was £22.2M, a growth of £9M year on year.  The group made £2.9M from the sale of plant and equipment and spent £21.9M on capex to give a free cash flow of £3.3M.  They spent £495K on interest and £1M on dividends and then took out new loans of £9M to give a cash flow of £10.8M and a cash level of £26.3M at the year-end.

Overall this has been a difficult new car market that has been impacted by weakening consumer demand in the face of uncertainty around the Brexit negotiations, inconsistent messaging around the future of diesel engines and the impact on car supply from the change in emissions testing.  The challenges facing vehicle manufacturers in achieving compliance with the 2020 and 2021 CO2 emissions targets will impact the new car market over the next two years.  The group are also having to cope with rising costs including the national minimum wage increases, apprenticeship levy, pension contributions, increases in credit card charges and increases property rating costs. 

The overall new car market is forecast to end the year at 2.3M registrations and the current forecast is set to see them continue to fall in 2020 to 2.2M compared to 2.7M in 2016.  The biggest change remains the diesel segment which is down 24%.  The new car market will be further disrupted as the plethora of different technologies hit the car market over the coming years.  It is worth noting that the comparatives look favourable due to the disruption encountered last year whilst the franchise and property changes were being delivered. 

The gross profit in the new car division was £20.6M, a growth of £2.7M year on year on revenue that increased by 1.1% despite sales volumes dropping by 18% which illustrates that significant increase in the average transaction price of units sold which was up 40%.  This was a result of the like for like increase in profit, a reduction in sales volume of low margin commercial and fleet units, and the strengthening mix.  The business has gone through a significant period of disruption with the site closures in the previous year and the franchise changes this year.  The addition of two Lamborghini, two Bentley one McLaren franchise have made a marked difference to the new car department profitability.

On a like for like basis, new volumes declined by 15% with gross profit down £200K with profit per unit up 20%.  The sales volume decline was attributable to reductions in unit sales from certain volume manufacturer partners who have experienced a significant reduction in registrations.  The sale of new vehicles to private individuals was 12% lower (like for like down 8%) and profit per unit was up 32% (11% like for like).  New commercial vehicle transactions were down 60% to just 390 units and new fleet vehicle sale decreased by 36%.  Total registrations were down 6.4% in the period.

The gross profit in the used car division was £25.1M, an increase of £800K when compared to last year with a £23.7M increase in revenues and a 5% decline in sales volumes, partly driven by site closures and shift in mix to more premium and luxury cars.  Profit per unit sold was up 8.7%.  On a like for like basis, sales volumes increased by 1.4% and gross profit was up £1.2M with profit per unit growing by 7%.  They have continued their strategy to increase the efficiency with which they source, prepare and market their used vehicles.  This has resulted in the increase in like for like profitability. 

The gross profit in the aftersales division was £29.3M, an increase of £400K when compared to 2018 with a 4.3% increase in revenue.  The increase was £800K and 5.1% respectively on a like for like basis. 

During the year the group incurred capex of £21.9M with the main projects being £8.1M for the Hatfield JLR, Aston Martin and McLaren build completion and fit out; £3.7M for the Hatfield PDI centre land acquisition for storage and preparation; £5.4M for a Brentwood land purchase and £2.7M for the Swindon freehold land purchase and completion of development.  Over the next two years the group intends to complete Solihull Aston Martin for £5M and the Brentwood JLR, Aston Martin, Bentley and Lamborghini for £16M.

On closure of the Blackburn dealership, the Freehold property has been transferred to assets held for sale at its net book value. 

Going forward, trading in the current year has started in line with board expectations.  The UK economy remains in a period of significant uncertainty while the ramifications of Brexit are worked through.  There is little clarity on how or if any free trade agreements will be negotiated and there continue to be major implications for the Sterling exchange rate.  A weaker sterling and any tariffs would undoubtedly have a detrimental effect on the new car market.  The changes made over the past two years with regards the franchise mix have started to contribute positively and the board believes that they have further potential. 

At the current share price the shares are trading on a PE ratio of 6.9 which falls to 6.6 on next year’s consensus forecast.  After the final dividend was increased by 10% the shares are yielding 1.7% which remains the same on next year’s forecast.  Net debt at the year-end stood at £3.8M compared to £5.5M at the end of last year. 

Overall then this has been a pretty successful year despite the challenges in the new car market.  Profits were up, as was net tangible assets.  The operating cash flow also improved with a decent amount of free cash being generated although it is worth noting that were it not for the favourable working capital movements, there would be none generated.  All divisions did well, although this was against some favourable comparatives last year.  The new car market looks like it will be very difficult over the next couple of years so there are going to be challenges. I do like the way the company is investing in its own assets to improve their product mix though so I am going to hold with a forward PE of 6.6 and yield of 1.7%. 

On the 9th January the group released a trading update.  Their performance in Q1 has been in line with expectations.  In the period the new car market was down 1.2% with the private segment down 4.4%.  The group’s new vehicle unit sales for the quarter were down 9.4%.  This reduction was offset by a significantly improved profit per unit, reflecting the change in mix to the luxury segment.

Used vehicle sales performed well.  Total used unit sales were up 2% and the group delivered an improved gross profit per unit.  As a result, the profit from the used car department increased year on year.  Overall the aftersales operations delivered a stable performance, with revenue increasing by 1.9%. 

The board remains cautious about the general uncertainty in the economy and around the consumer environment while Brexit is worked through but the group is well positioned for 2020 with strong representation across the premium segments.

On the 21st January the group announced the acquisition of an Aston Martin and Rolls Royce franchise in Edinburgh from the administrators of Leven Cars.  The total cash consideration, which includes a freehold property is £1.6M.  The board believes the acquisition will be earnings neutral in its first full year of ownership.  This is the first Rolls Royce dealership for the group  and it is the only outlet for the cars in Scotland.

On the 2nd February the group announced that chairman Philip Swatman sold 100,000 shares at a value of £68.5K.

QinetiQ Share Blog – Interim Results Year Ending 2020

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

Revenues increased when compared to the first half of last year as a £900K fall in property rental income was more than offset by a £49.2M growth in EMEA Services revenue and a £17M increase in global products revenue.  There was a £2.5M beneficial swing to a profit on the disposal of plant and equipment but depreciation was up £3.2M, share based payments increased by £1.2M and other underlying operating costs grew by £55M.  There was a £13.3M profit on the disposal of a property, and a £2.6M decrease in property impairments but acquisition costs increased by £1.2M and there was a £2M increase in the amortisation of acquired intangible to give an operating profit £20.7M higher.  There was a £900K fall in the pension scheme financial income and a £1.1M fall in investment sale gains but tax charges increased by £6.5M to give a profit for the period of £62.1M, a growth of £12M year on year.

When compared to the end point of last year, total assets increased by £41.7M driven by a £36.4M growth in the pension surplus, an £11M increase in property, plant and equipment, a £10.4M growth in cash, a £9.1M increase in inventories and a £3.7M increase in goodwill, partially offset by a £30.2M decline in receivables.  Total liabilities decreased during the period was a £14.9M increase in deferred tax liabilities was more than offset by a £34.9M decrease in payables and an £8.5M fall in current tax liabilities.  The end result was a net tangible asset level of £610.8M, a growth of £68.9M over the past six months.

Before movements in working capital, cash profits increased by £8.7M to £82.1M.  There was a cash outflow from working capital, but this was much less than last time and after tax payments increased by £4.1M and finance lease payments grew by £1.5M the net cash from operations came in at £62.9M, a growth of £16.5M year on year.  The group spent £7.1M on intangible assets and £33.3M on fixed assets but brought in £14.1M from the sale of property, plant and equipment to give a free cash flow of £36.5M.  They spent £25.5M of this on dividends and a small amount on some other bits to give a cash flow of £10.4M and a cash level of £201.2M at the period-end.

The underlying operating profit in the EMEA Services division was £46.2M, a growth of £5M year on year which includes a £1.6M benefit a gain on sale of aircraft and spares which will not repeat, and a £2.1M contribution from QinetiQ Germany and Inzpire which were acquired in the second half of last year.  Excluding these and forex movements, profit was up 3% with margins impacted by the higher volume of work under the EDP contract.  Orders were up 57%, driven by a £67M contract for the UK Robust Global Navigation System and £60M orders under the Engineering Delivery Partner contract.  Revenue increased by 9% on an organic basis as a result of work delivered under EDP and the Battlefield Tactical Communications and Information Systems contract. 

In Air and Space in June the transformed Empire Test Pilots’ School was opened and is now equipped to provide world-class test aircrew training.  Building on this investment, they have experienced strong demand for both long and short ETPS courses, especially from international customers.  There were £60M of orders under the EDP with an £11M contract to provide independent technical evaluation services on the F35 aircraft to ensure it meets the requirements of the RAF.

Within Maritime, Land and Weapons, the group is now in a two year transition period of the LTPA to deliver the new modern ways of working covered under the contract.  Key milestones have been agreed with the customer and they have met the first two of these on time.  They supported the delivery of Formidable Shield 2019, a live fire exercise testing integrated air and missile defence capabilities led by the US Navy. They are also awarded a £19M contract to provide electromagnetic and acoustic mapping services to the Royal Navy through the LTPA contract.  This will reduce the detectability of their ships and submarines. 

Within Cyber, Information and Training the CIT business secured a £67M contract with the UK MOD to develop secured satellite navigation receivers.  Under the UK Robust Global Navigation System programme, they will deliver positioning, navigation and timing capability to the MOD.  They also booked £16M orders under a new £20M contract to provide assurance and testing services on a new air to ground communications system for all police and air ambulance aircraft.  The ongoing delivery of BATCIS where the group is supporting the development of next gen tactical communication and information systems in progressing well and made a notable contribution to a good performance in the first half. 

Within the international business they group delivered a positive performance with strong growth in orders, revenue and profit.  Performance in Australia has been strong, underpinned by their status as a major service provider to the government in partnership with Nova.  The integration of QinetiQ Germany following the acquisition in October 2018 is proceeding well.  As part of the LTPA air range modernisation programme agreed in 2016, they have secured a €10M contract to provide range clearance services in the UK over the next nine years.

The underlying operating profit in the Global Products division was £13.5M, an increase of £3.1M when compared to the first half of last year driven by increased sales of higher margin products in QinetiQ Target Systems.  Orders were stable and revenues were up 17% driven by QinetiQ Target Systems.  Organic revenue was up 14%. 

QinetiQ North America saw a strong performance primarily driven by robotics orders.  The business completed the first set of deliveries under the Common Robotic System programme of record.  In larger unmanned ground vehicles, the business has partnered with Pratt & Miller to submit a bid based on a variant of the Expeditionary Modular Autonomous Vehicle into the competition for the Robotic Combat Vehicle programme.  In the maritime domain, they were awarded a contract by General Dynamics Electric Boat to design, test and qualify a next gen Electronic Grounding Unit for Virginia Class submarines. 

OptaSense performance was positive with growth in revenues and profits.  Orders declined slightly, however, following a tougher comparator and slippage of confirmed orders into the second half of the year.  While the oil and gas market remains challenging, they have seen encouraging progress in the uptake of OptaSense in key international basins.  Demand for linear assets protection, pipelines, perimeters and transport also continued to improve with significant uptake in North and South America. 

Within Space Products, the group opened a new higher grade clean room facility in Belgium which enables them to produce up to four major products at any one time and will support growth in satellites and docking systems production. Leveraging these new facilities, they were awarded a €9M three year contract to build equipment that will support experiments in the International Space Station. 

Within EMEA Products QinetiQ Target Systems delivered a strong performance, doubling orders and delivering a 50% increase in revenue.  They developed two new products.  The first is a Banshee target that replicates fast flying jets and the group have already seen strong customer interest.  They also released the air-launched Rattler target, a low cost supersonic target used to replicate anti-radiation missiles and supersonic threats, and they have received the first orders of this product form the UK Royal Navy. 

Beyond QTS, they were awarded a £3M contract to conduct research into the latest vehicle technologies to boost the performance of the UK Future Ground Combat Vehicles.  This project will focus on solutions for ground vehicle mobility exploiting the potential provided by electric drive systems.  They are seeing encouraging demand for their broader product portfolio, including Obsidian, their counter-drone technology designed to detect, ID and track small drones and Bracer, their secure commercial satellite communications system. 

Shortly after the period-end the group announced the acquisition of MTEQ, a US provider of advanced sensing solutions.  It is expected to close towards the end of the year.  The group will pay $105M on completion with an earn out of $20M payable in cash and shares dependent on performance over three years.

Going forward, the board are maintaining expectations for full year operating profit with high single digit revenue growth. 

At the period-end the group had a net cash position of £173.5M compared to £161.3M at the year-end.  At the current share price the shares are trading on a PE ratio of 17.6 which increases to 17.9 on the full year consensus forecast.  After an increase in the interim dividend the shares are yielding 2% which is forecast to remain the same for the full year. 

Overall then this has been a solid performance from the group.  Profits were up, net assets increased and the operating cash flow improved with a decent amount of free cash flow produced.  EMEA Services has increased profit, mainly due to the acquisitions, with a more modest underlying increase.  Global Products performed well, mainly due to the Target Systems business.  The shares look pricey with a forward PE of 17.9 and yield of 2% but this does not take into account the large amount of cash on the balance sheet.  I’m considering buying in here.

President Energy Share Blog – Interim Results Year Ending 2019

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President Energy have now released their interim results for the year ending 2019.

Revenues increased by $1.4M when compared to the first half of last year, depreciation was up $821K and other well operating costs increased by $70K to give a gross profit $517K higher.  Salaries were up $495K but other admin expenses fell by $393K and non-operating gains increased by $112K which meant the operating profit increased by $515K.  There was a $113K decline in bank interest received and interest paid increased by $812K, although there was a $1.1M positive swing to a gain on forex translation.  Taking into account the $2.6M improvement in deferred tax provisions, the loss for the period came in at $1.4M, an improvement of $3.2M year on year. 

When compared to the end point of last year, total assets increased by $3.1M driven by a $3.1M growth in receivables and a $1.8M increase in property, plant and equipment, partially offset by a $1.8M decline in cash.  Total liabilities declined during the period as a $1.5M increase in deferred tax liabilities was more than offset by a $2.2M decline in borrowings and a $1.3M fall in payables.  The end result was a net tangible asset level of $46.3M, a growth of $3.8M over the past six months.

Before movements in working capital, cash profits increased by $1.2M to $6.7M.  There was a small cash inflow from working capital but interest payments increased by $680K to give a net cash from operations of $5M, a growth of $3.3M year on year.  The group spent $8M on development and production and $1.1M on licences in Argentina so that before financing there was a cash outflow of $4.5M.  The group issued $4.1M of new shares, paid $242K in finance leases and paid back a net $1.1M of loans so there was a cash outflow of $1.8M and a cash level of $197K at the period-end.

There were a number of unforeseen headwinds during the period.  In Argentina, a series of down-hole issues affecting some of the high impact production wells and electrical outages impacting average field performances in the Puesto Flores field on top of natural declines and in Louisiana there was flooding which resulted in the shutting-in of the entire production from all three wells for three months which also included the first part of H2.

In total ten workovers at the main Puesto Flores field were completed with the objective of stemming both the expected and unexpected losses in production and to make production less reliant on the relatively few high impact wells in the core Rio Negro province.  Whilst these met with mixed success the learnings were valuable and the work was beginning to show positive signs towards the end of the period.  The frac conducted in well PF0-16 was successful with production at double the pre-frac level.  Further fracs will be effected in the field in due course. 

In other work, the Puesto Prado field and associated facilities were recommissioned and placed into operation and the Las Bases gas facilities were tested and further sub-surface studies conducted in relation to the Paraguay assets.  After the period-end a further eight workovers have been completed in Rio Negro with work currently continuing at the Puesto Flores field.  The Estancia Vieja field and necessary facilities have now also been brought back into production after some eight years lying idle.  Gas sales from that field will commence shortly.  Elsewhere in Argentina, the Puesto Guardian field production remains stable. 

Work has now also started on a brand new 16km section of steel pipeline to be laid between Puesto Prado and Las Bases, replacing the limited capacity pipeline between those points.  This will enable a significant increase in gas sales in the new year with a projected additional 1,850 boepd in spring.

The presidential elections are due to take place in Argentia in October.  In August the prelim elections took place, the result of which saw the Peronist Frente de Todos party securing 78% of the vote, a 16% margin over the Macri administration.  The result was not anticipated which resulted in a significant fall in the Merval Index and the Peso/Dollar exchange rate.  The fall in the currency has to a certain extent been corrected.

After the year-end there has been increasing volatility and falls in the Merval Index and USD:Peso exchange rate.  In an aim to reduce pressure on consumers in the short-term, the Argentinian government passed a decree in August which fixes the price of crude oil and gasoline for 90 days.  This sets a reference price of $59 per barrel.  Additionally they imposed a fixed exchange rate of 49.30 pesos to the dollar.

With the exchange rate fixed at lower than the current rate of exchange, the decree is having an impact on the group due to the fact that all domestic oil sales contracts are paid in pesos.  Therefore realised sales revenues in H2 will be lower than expected.  It remains difficult to forecast where the domestic oil price will land after the end of the restrictions as well as the future of the temporary forex controls.

In Louisiana the wells have now been placed back in production after an extensive workover of the highest producing Triche well due to lower oil and gas and higher water flow.  This and the historic flooding led to production falling by 42%. After the workover the well is delivering reduced production compared to pre-flood levels.  This is down from 260 bopd at the start of the year to just 55 bopd.  Whilst remaining profitable at these levels, the group is monitoring progress and considering further action and strategy regarding these assets.  They are due to start drilling in Q4 at Jefferson Island where they have a 20% interest. 

Whilst the macro circumstances in Argentina have been volatile of late, there have been early signs that stability is returning.  All the presidential candidates acknowledge that the domestic hydrocarbon industry needs continued investment with satisfactory returns for investors. 

Current net group production is 2,422 boepd with a further 250 due to be brought online from Rio Negro in October.  The Rio Negro assets are contributing the most at 79% followed by Salta at 18% and the balance representing reduced production from Louisiana.  The group remains operationally profitable and cash generative at the field level with profits in Argentina expected to be $3.5M in the second half.  The next four months will see more growth from the group and the board expect to deliver from their existing well stock and additional 1,850 boepd in Spring. 

Group well operating costs fell by 15% to $20 per boe and admin expenses fell by 13% to $6.40 per boe.  In the period the group raised $4.1M by way of a placing of shares at 8p per share.  The results for the full year are not currently expected to materially improve on 2018

The net group production for 2019 is now projected to be 2,600 boepd, up 13.5% on last year with the benefits from increased gas production only being felt from the end of the year once the building of the enlarged pipeline is completed.  Internal projections for 2020 show an average in the range of 4,000 to 5,000 boped with a significantly increased proportion of gas from the Rio Negro assets.

At the current share price the shares are trading on a 2019 predicted PE ratio of 31.8.

On the 21st October the group announced the acquisition of an exploration contract in Rio Negro and the subscription of $1.8M of new shares by CGC. 

Angostura is situated to the west of the group’s Las Bases concession and their pipeline passes through the SW corner of the area.  It currently produces 50 bopd and 2.8MMscf of gas per day, representing in total around 500 boepd so will increase the group’s daily production by 10%.  All the gas is currently compressed within Angosturam sent by pipeline to the group’s Las Bases facility and conveyed by their pipeline to offtakers.  The oil will be taken by truck to Las Bases and added to their existing production. 

The first period of the exploration contract extends until November but they are entitled to request access to a second exploration period, with a royalty of 15% over volumes produced during this phase.  In the event that the exploration contract is converted into an exploitation concession of 25 years, the royalty is reduced to 12% and the province’s energy company will take a 20% interest.

CGC has agreed on completion of the acquisition to invest $1.8M in the group by way of a subscription.

On the 1st November the group released an update.  They announced that they are now ready to flow gas through their own 60km pipeline from their Estancia Vieja and Las Bases fields.  From the start of November, 30,000m3 per day of their own gas will be piped by this route to market with the volume currently restricted by a bottleneck in a 16km stretch of pipeline due to it being a 3” flexible temporary plastic pipe.

Next week they will commence to build a 6” steel pipeline to replace this section.  The work is due to be completed in January.  When finished, gas deliveries will be ramped up as more wells will be opened up on a stage by stage basis. 

Since the last announcement the 75 boepd production from Louisiana has increased to 275 boped as the Triche well has staged a recovery with currently a gross 220 bopd being sold.  In Argentina it was announced that oil prices payable to producers will increase by 5% with effect from now.  Which is a start. 

Overall then this has been a bit of a difficult period for the group.  Losses did improve, the net asset level increased and the operating cash flow improved but the group still produced no free cash and I am starting to wonder whether they will ever actually be cash generative.   The issues are the poor performance of the workovers, the floods in Louisiana and the political situation in Argentina.  Given the issues in Argentina it is especially disappointing to see the US assets performing badly.  There is still potential here but the group seems unable to realise it and the forward PE of 31.8 looks expensive.

On the 14th November the group announced that the decree limiting prices for oil producers in Argentina has now expired and prices have returned to normal.  It has not yet been replaced which means an immediate increase of around $9 per barrel to around $53 per barrel.  It is unclear as to how long this will last. 

On the 20th November the group announced the acquisition of the Angostura exploration contract has been completed along with the subscription for $1.8M of new shares. 

On the 3rd February the group released a full year trading update.  The group had turnover of $41M, $6M lower than last year with average realisation price in Argentina 19% down.  Average production of 2,414 was 6% up on 2018 and the group made an adjusted EBITDA of $12M, $5M lower. 

First oil was produced from the Estancia Vieja field with the field facilities in Puesto Prado and the gas plant in Las Bases re-commissioned.  First gas was transported from the Estancia Vieja field to market through the group’s pipelines.  At the end of the year the producing Angostura field was purchased but this came too late to have a material impact on results, although it is now contributing profitably. 

The challenges encountered included unplanned downtime in key producing wells and electricity supply outages in Rio Negro, a three month shutdown in Louisiana and the effects of the temporary Decree 566 in Argentina which reduced oil prices by almost 25% for three months.  Consequently margins were squeezed.  The results were further impacted by lower oil prices which was reflected in average group sales prices declining to $49.6, down nearly 17% with Argentina down 19% to $49.90.

As a result of the above factors the group suspended drilling activity in Argentina.

The current year has got off to a good and profitable start with January showing a material improvement over H2 2019.  Trafigura has consolidated its position as an active partner by coming on board as a significant shareholder with group debt reduced by $69M to $15M.  The temporary Decree 566 lapsed in December and therefore the group is preparing to drill three new wells in Rio Negro with the first expected to be spudded by the end of the first half.  Additionally with Louisiana production largely restored they expect to drill in Jefferson Island during H1.  A further six wells are targeted to be drilled across their assets later in the year, of which two are exploratory. 

The construction of the new gas pipeline between Estancia Vieja and Las Bases in Rio Negro has now been completed on time and budget and should be commissioned by the end of the month.  Group production will be supplemented by gas flowing through that enlarged pipeline where they expect by the end of February, gas deliveries to market of around 1,000 boepd with a target of 1,500 boepd by the end of the first half of the year.  The acquired Angostura exploration block is expected to make a contribution of some 600 boepd by mid-February.

The group is cautiously optimistic that the macro environment in Argentina has calmed and that they may see beneficial developments during the year.  The group repeats their guidance for 2020 of average production in excess of 4,000 boepd.

Tristel Share Blog – Final Results Year Ended 2019

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

Revenues increased when compared to last year as a £111K decline in animal healthcare revenue was more than offset by a £4.1M growth in human healthcare revenue.  Cost of sales also increased somewhat to give a gross profit £3.5M higher.  Share based payments increased by £187K, there was a £150K swing to forex losses and other admin expenses were up £2.4M to give an operating profit £718K higher.  The profit from the associate increased by £21K and tax charges fell by £19K which meant that the profit for the year came in at £4M, a growth of £760K year on year.

When compared the end point of last year, total assets increased by £5.7M driven by a £4.2M growth in goodwill, a £1.5M increase in customer relationships, a £681K growth in trade revenues and a £678K increase in inventories, partially offset by a £2.5M decrease in cash.  Total liabilities also increased in the year due to a £345K growth in deferred tax liabilities and a £238K increase in trade payables.  The end result was a net tangible asset level of £10.6M, a decline of £859K year on year.

Before movements in working capital, cash profits increased by £998K to £7.1M.  There was a cash outflow from working capital, which was broadly the same as last time to give a net cash from operations of £5.5M, a growth of £991K year on year.  The group spent £669K on intangible assets, £678K on fixed assets, £120K further invested into MobileODT and £4.7M on Ecomed to give a cash outflow of £682K before financing.  They also paid out £2.2M in dividends to give a cash outflow for the year of £2.5M and a cash level of £4.2M at the year-end.

The gross profit in the Human Healthcare sector was £19.2M, a growth of £3.5M year on year.  The gross profit in the Animal Healthcare sector was £533K, a decline of £17K when compared to last year.  The gross profit in the Contamination Control sector was £922K, flat year on year.  Overseas sales grew by 26% and UK sales were up 9% reflecting the differences in market penetration already achieved. 

In November 2018 the group acquired their three distributors in Belgium, the Netherlands and France (Ecomed).  During the seven and a half month period they were under group ownership, they registered sales of £2.1M which had the effect of increasing group sales by £1.7M.  Their direct involvement in the French ultrasound market has been timely with the publication of the new guidelines in the early summer

Whilst no revenues have yet been generated from the US, significant progress has been made to build a commercial platform from which to enter the market.  During the year they continued to generate data required for a submission which they intend to make to the FDA to obtain pre-market approval for their foam-based Duo product as a high level disinfectant for medical devices.  They have already received approvals from the EPA for Duo.  They have entered into a partnership with Parker Labs based in New Jersey by which they have put in place manufacturing capability and a national distribution network.

After the year-end the group acquired 80% of Tristel Italia for £595K which takes their ownership up to 100%.

Going forward, Brexit is yet to occur and has been pushed back, and the board expect the challenges it brings to repeat this year.  To forestall any potential disruption to their customers’ supply chain, the group build inventory of all component parts and finished products in the run up to the end of March and encouraged key customers to increase their stock.  As Brexit did not take place, they believe that most of their customers’ inventory holdings were then wound down again in the final quarter of the year.

The other significant event relating to Brexit was to move the location of their notified body from BSI’s office in the UK to Amsterdam.  They believe this will ensure their ability to CE mark their disinfectants and sell them in Europe irrespective of the outcome of Brexit.  Notwithstanding this uncertainty relating to the trading relationship with Europe and the rest of the world, the outlook for the group remains positive. 

At the current share price the shares are trading on a PE ratio of 36.5 which falls to 27.6 on next year’s forecast.  After a 21% increase in the dividend the shares are yielding 1.7% which increases to 1.9% on next year’s forecast.  At The year-end the group had a net cash position of £4.2M compared to £6.7M at the end of last year.

Overall then this has been a decent year for the group.  Profits were up, and the operating cash flow improved, although there was no free cash generated after the investment in the distributors.   The net tangible asset level deteriorated somewhat.  There is not really much to go on as far as trading was concerned, despite Brexit things seem to be ticking along fine.  The forward PE of 27.6 and yield of 1.9% looks rather expensive, however, and it is clear that some sales form the US are definitely being priced in.

On the 17th December the group released a trading update.  They expect pre-tax profit for the first half of the year to be no less than £2.8M compared to £2.4M last year.  This includes a positive contribution from their operations in Belgium, the Netherlands, France and Italy which were all acquired during the past year.  They are performing in line with management expectations and the US regulatory approvals project is progressing well. 

Photo-Me Share Blog – Final Results Year Ended 2019

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Photo-Me has now released its final results for the year ended 2019.

Revenues decreased when compared to last year as a £9.6M growth in European revenue was offset by a £10.8M decline in UK revenue and a £455K fall in Asian revenue.  Amortisation was up £224K and depreciation increased by £1.7M but inventory costs were down £4.1M and staff costs fell by £2.8M to give a gross profit £1.7M above last year.  Restructuring costs were down £805K but there was no profit on the sale of buildings, which brought in £2.3M last time and other admin expenses were up £3.4M to give an operating profit £3.4M lower.  The group made £3.3M on the disposal of Stilla Technologies but made £3.7M less on the disposal of investments and made a £2.9M loss on the fair value of financial instruments which meant that the profit came in at £31.2M, a decline of £8.9M year on year.

When compared to the end point of last year, total assets increased by £33.1M, driven by a £13.2M growth in goodwill, a £25.9M increase in cash, a £2.4M growth in financial instruments, a £2.2M increase in other receivables and a £1.6M increase in other intangible assets, partially offset by a £6M decrease in financial assets, and a £3.6M decline in current tax assets.  Total liabilities also increased during the year as a £2.6M decline in trade payables was more than offset by a £34M increase in loans and a £2.8M growth in deferred tax liabilities.  The end result was a net tangible asset level of £102M, a decline of £15.4M year on year.

Before movements in working capital, cash profits increased by £4.1M to £69.6M.  There was a cash outflow from working capital but tax payments fell by £2.1M to give a net cash from operations of £57.2M, a growth of £4.8M year on year.  The group paid £13.5M for an acquisition, £2.2M on intangible assets and £28.2M on property, plant and equipment but brought in £4.4M from the disposal of an associate, £1.6M in loans repaid by the associate and £2.3M on the sale of property, plant and equipment to give a free cash flow of £21.6M.  Of this, £31.9M was paid out in dividends and £8.4M was repaid in loans but once again the group took out a big loan, pulling in £43.7M which meant that the cash flow was £25.9M and the cash level at the year-end was £84.6M.

Overall ID revenue declined by 1.1% due to a more challenging trading environment in the UK and continued uncertainty surrounding Brexit.  Consumer activity slowed and footfall in retail locations was lower.  In addition the UK government’s decision to allow photo ID to be taken on a smartphone has impacted volumes and around 178 machines were removed from the UK estate due to rising operational costs.

Elsewhere they continued to see a resilient performance aided by the diversification of their photobooth services, including the rollout of their encrypted photo ID upload technology in the UK, France, Germany, Ireland and the Netherlands.  In total the group has more than 12,000 booths connected to government organisations for the secure upload of photo ID.  The board expects this number to increase as discussions with governments progress. 

Total laundry revenue grew by 19% despite a decrease in B2B laundry revenue.  This reflects the expansion of their laundry operations with 427 new units installed.  The key geographies for growth continue to be the UK, Ireland, Portugal, France and Spain. They are also looking to expand their presence in Germany (currently 20 units) and Austria (2).  The board expect to approach 6,000 owned, sold and acquired laundry units by the end of 2020.

The number of revolution units in operation increased by 18% to 2,732 and total revenue from the units was up 30%.  La Wash, the Spanish launderettes franchise company which the group acquired in May 2018 contributed profit of £900K as expected.  The group’s B2B operations are currently focused on the UK and revenue declined by 39% while last year’s profit of £1.4M became a loss of £100K.

The number of kiosks in operations increased by 1.3% following the relocation of kiosks from Photo-Me retail shops in the UK.  Upon relocation in France, revenue increased by 15%.  These Speedlab units were refurbished and redeployed to replace previous generation machines.  The 19% decrease in revenue is due to removal of 491 kiosks related to the Photo-Me retail restructuring programme.

In Europe, operating profit increased by 5% to £33.5M.  The performance of the UK and Ireland was impacted by macro headwinds in the UK which resulted in a 32% decline in profit to £7.1M.

The turnaround in Asia continued but operating profit decreased by 13.5% to £4.7M which included the impact of £1.8M in Japanese restructuring fees.  Excluding this, profit was up 20%, recovering faster than expected.  While the photo ID market in Japan remains very competitive, the board believes that there are growth opportunities. As a result they intend to start the deployment of their new units, which have a significantly lower production cost and will offer a 35% faster return on investment.

There was revenue and profit growth in Europe and the Japanese business returned to profitability as planned.  In the UK, however, their operations were adversely affected by macro headwinds and uncertainty.  Overall trading in the UK became more challenging than expected as consumer activity slowed, owing to uncertainty around Brexit.  This resulted in lower revenues from business to business and machine sales activity due to delays in order decisions, albeit the board expect part of these revenue delays to be recovered in 2020.

Total revenues from laundry operations increased by 19% and revenue from Revolution increased by 30%.  This growth was achieved despite a decrease in B2B laundry revenue and aided by the first year contribution from Le Wash.  ID declined by 1%, reflecting challenging market conditions in the UK.  Revenue from Kiosks declined by 19% following the restructuring of Photo-Me Retail.

The group acquired Sempa in April for a gross consideration of €20.6M funded by more borrowings.  Sempa is the leader in France for the commercialisation of self-service fresh fruit juice equipment and operated 2,788 units.  This represents a platform to develop a new business area for the group.  The group are looking to replicate the success in France across their existing network with the initial focus on Europe.  The business operates via a lease model whereby they sell fresh fruit juice equipment to customers through lease finance agreements.  It receives payment on the sale of the equipment and the lease finance contracts are then subject renewal every year on average.  The business is expected to contribute pre-tax profits of £3.2M next year. 

In November 2018 the group launched their first banking booth which provides front end retail banking services to customers, in Paris, in partnership with Anytime, a Belgian Fintech business.  In the long term customers will be able to deposit cheques and cash in the booths and speak directly to bank specialists through the screen.  A ten machine pilot is underway in Paris.

Going forward, while consumer uncertainty continues to weigh on their business in the UK, the board remain confident that the group will continue to perform well this year. 

At the current share price the shares are trading on a PE ratio of 11.3 which falls to 9.9 on next year’s forecast.  After the dividend was kept the same the shares are yielding 9% which is predicted to remain flat next year.  At the year-end the group had a net cash position of £16.3M compared to £26.7M at the end of last year. 

On the 28th October the group released a trading update covering the first five months of the year. Overall group trading has been in line with expectations, underpinned by growth in Asia and Europe, led by the laundry business.  Trading in the ID division in the UK has remained challenging due to continued uncertainty over Brexit and the use of smart phone photos for passports. 

Excluding the UK, ID revenue was stable driven by a solid performance in France and Japan.  Including the UK, total revenue was down 3.8%.  There was revenue growth of 23% in the laundry division.  The rollout of Revolution machines in the UK, Ireland, Portugal and Spain has continued at an average of around fifty per month.  They also grew their presence in Germany, Austria and Switzerland.  In the UK there was an improving trend in B2B activity.

The kiosks business has performed as expected and the acquired Sempa business has performed to expectations.  In September the group acquired 150 juice vending machines from L’Orangerie de Paris, enabling them to run a larger scale trial to test the market.  In the B2C market the group is initially offering fresh orange juice though the intention is to extend the product range over time.  The development of machines for apple and pineapple juice is underway which are expected to be rolled out in 2021.

While consumer uncertainty continues to weigh on their business in the UK, the board remain confident that overall the group will perform in line with market expectations this year. 

Overall then this has been a rather mixed year for the group.  Profits were down and net assets decreased.  The operating cash flow did improve, however, with some free cash being generated but not enough to cover the dividend.  The problem at the moment stems from the UK.  The decline in B2B laundry (slowly improving) and reduction in ID photos is being blamed on Brexit but the more worrying trend I believe is the Government accepting smart phone photos for passports.  The Japanese business and laundry division seem to be performing well, however.  There is also the issue here that they are taking on oodles of debt despite having a seemingly increasing cash pile.  This still doesn’t sit right with me.  The shares look cheap with a forward PE of 9.9 and yield of 9% but I am uneasy about this one.

Newmark Security Share Blog – Final Results Year Ended 2019

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Newmark Security has now released their final results for the year ended 2019.

Revenues increased when compared to last year with a £3M growth in electronics revenue and a £512K increase in asset protection revenue.  Amortisation was down £220K, there was no impairment of development costs, which were £698K last time but other cost of sales grew by £1.8M to give a gross profit £2.6M higher.  Redundancy costs increased by £152K and other admin expenses were up £220K to give an operating profit which was a £2.2M improvement.  Invoice discounting charges increased by £27K and tax charges were up £197K which meant that the profit for the year was £189K, an improvement of £2.1M year on year.

When compared to the end point of last year, total assets increased by £1.5M driven by a £991K growth in inventories and a £359K increase in other receivables.  Total liabilities also increased due to a £595K growth in accruals, a £499K increase in trade payables and a £246K growth in the invoice discount account.  The end result was a net tangible asset level of £2.4M, a growth of £171K over the past year.

Before movements in working capital cash profits improved by £1.2M to £873K.  There was a cash outflow from working capital and after interest was up £22K and tax payments increased by £45K the net cash from operations was £288K, an improvement of £533K year on year.  The group spent £333K on development costs and a net £143K on capex to give a cash outflow of £188K before financing.  They received £246K through invoice discounting and paid £87K in finance leases to give a cash outflow of £29K for the year and a cash level of £1M at the year-end.

The pre-tax profit of the Electronic division was £1M, an improvement of £2.3M year on year.  In the US where the Human Capital Management sector is larger, growth has been aided by increasing the scope of services offered, particularly in the areas of data protection and management.  HCM providers are now choosing Grosvenor to provide a range of services in a SaaS basis and this is expected to increase revenues. 

Elsewhere the HCM sector remains less mature and of smaller scale.  In Europe, HCM providers often look to adjacent technology sectors to allow them to offer additional services downstream.  Grosvenor’s Access Control line of business has been a further driver of revenues as synergies between the product and services offerings have facilitated their cross-sale approach.

US revenues increased by 167% to £4.5M and has provided the most success and opportunities.  While data collection edge devices remain at the heart of the offering, their data protection and edge device management software services are becoming increasingly important.  In ROW, HCM revenues remained broadly flat at £2.4M.  There were no significant end user projects but organic growth was shown across the majority of existing clients.  Negotiations began with several large HCM providers based in Europe and Australia, with a view to providing a range of hardware and software as a service. 

The US continues to provide opportunities for both software and hardware sales and is expected to continue to growth in the current year.  Investment in the region continues to be increased and it is anticipated that both headcount and market will be increased in the forthcoming periods.

Access Control revenues increased by 6% to £4.1M.  The legacy Janus platform has now been retired and the end user upgrade programme to the Sateon platform has now been completed.  The decline in Janus revenues was less pronounced than in the previous period, down just 3%, but revenues are expected to decline in future periods in line with the reduced demand for legacy hardware.

Sateon revenues grew by 9%.  As expected, the final release of this platform was made available during the year and no further development is being carried out other than essential maintenance.  The focus is now on maintaining revenues at the current level with existing customers.  Towards the end of the year the group released their new platform Janus C4, an integrated security management and access control product aimed at the increasing industry demand for single platform solutions.  The software is developed in collaboration with a third party and uses the group’s hardware. 

The pre-tax profit in the Asset Protection division was £321K, a decline of £58K when compared to last year although revenues increased by 6% with product revenue declining slightly despite increased competition and depletion of traditional niche products.  The sales of products to public sector markets continued to be affected by a lack of investment as a result of budget cuts and Brexit uncertainty.  As they market contracted they experienced increased pressure from customers to reduce prices whilst they saw an increase in the number of competitors. 

Products revenue decreased by 1.3% with revenue from high street banks and building societies decreasing by 33% and 24% respectively as they move away from fortress counters to open plan branches.  Revenue from sales of time delayed cash handling equipment to the Post Office increased 17% due to orders received as part of their Network Development programme.  This programme is now completed so this revenue stream will reduce. 

Revenue from other cash handling sales increased as a result of a programme of work for a long-term customer.  Revenue from sales of security doors decreased by 17.5% as their work is project based and they are reliant on customers and markets having programmes of work.  Other product groups declined by 7%.

As a result of declining sales in this division and the lack of repeat programmes of refurbishment from their long term customers, a reconstruction plan was implemented in Q4 and resulted in staff reduction and other cost saving measures.  Unprofitable customers and product groups have been removed.  As part of the cost savings, the Kempston warehouse has been closed and plans are in place to consolidate the warehouse and main offices in Dartford which will be completed in the current year. 

Despite developing new products, sales of counter terror security equipment for staff and customer protection have not increased and the lack of sales is due to reduced spending as a result of Brexit.  They will continue their programme of selected product certification for bullet, blast and manual attack, however.  Product margins continue to be affected by the increased costs of raw materials and imported components and they expect this trend to continue.

The Service business continued its bank branch upgrade work and delivered sales 18% higher.  This was against a backdrop of a general reduction in bank and building society sites in the high street.  Overheads were reduced by 1.7% as the business managed its field resource with less head office involvement now that the ERP system has been fully embedded.  Margins were slightly diminished by 2pp as a result of entering new markets which are non-niche and more competitive.  The strategy going forward continues to be to develop within new markets and resource has been introduced to further these aims.

In the electronics division the trend to generating more revenues from HCM activities is set to be maintained, particularly in North America.  The board believes there will be medium term growth in both divisions core market and it is expected that revenues will continue to grow in the recently launched Janus C4 Access Control offering.  In both divisions the ambition is to generate a greater proportion of recurring revenues.  In the short term this will be more prevalent in the HCM sector where provision of SaaS will increase.

The asset protection division will benefit from the restructuring.  The products business will concentrate on increasing the range of physical security products with continued product development and certification.  The development of staff remains at the heart of this strategy in the service business as the UK based team of technicians supports an increasing number of third party products not related to Safetell’s traditional core business.  Additional resources have been deployed to bolster sales and marketing and early stage negotiations with potential partners are initially positive.  The board are encouraged by the return to profitability and looks forward to the year with confidence.

At the current share price the shares are trading on a PE ratio of 26 and I can find no forecast for next year.  There is no dividend on offer here.

Overall then this has been a much improved year for the group. They have moved into profit, net assets increased and the operating cash flow improved, although the group still isn’t able to generate any free cash.  The Electronics division seems to be doing well, especially in US data protection but the asset protection division is struggling due to Brexit-related lack of investment, high street banks moving away from fortress counters, and the post office programme coming to an end.  This has prompted restructuring.  Whilst the group certainly looks more healthy than it did, the lack of cash generation is concerning and the PE of 26 looks a bit expensive to me.

On the 13th November the group announced that finance director Graham Feltham purchased 800,000 shares at a value of £10K.  This is his first share purchase.

On the 12th December the group announced that Chairman Maurice Dwek purchased 1M shares at a value of £14K.  He now owns 95M shares.