Avingtrans Share Blog – Final Results Year Ended 2019

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Avingtrans 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 Energy PSRE revenue, a £12.2M increase in Energy EPM revenue and a £1.7M growth in medical revenue.  Depreciation was up £708K, cost of inventories grew by £29M but other cost of sales declined to give a gross profit £8.1M higher.  Distribution expenses increased by £672K but acquisition costs fell by £1.5M, amortisation of acquired intangibles decreased by £1.7M and restructuring costs were down £1.3M.  Other admin expenses increased by £4.3M to give an operating profit £7.5M improved.  There was a decline in finance expenses, mainly due to no losses on derivative contracts but tax increased by £645K to give a profit for the year of £2.5M, an improvement of £9M year on year.

When compared to the end point of last year, total assets increased by just £533K driven by a £4.1M growth in inventories and a £2.3M increase in cash, partially offset by a £2.4M reduction in the amount due under long term contracts, a £1.3M fall in prepayments and accrued income and an £845K decline in customer relationships.  Total liabilities also increased during the year as a £2.4M decline in borrowings and an £841K decrease in deferred tax liabilities was more than offset by a £5.6M increase in payments on account.  The end result was a net tangible asset level of £31.4M, a growth of £1.4M year on year. 

Before movements in working capital, cash profits increased by £5.6M to £7.4M.  There was a cash inflow from working capital and despite increases in interest payments and tax the net cash from operations was £9M, an improvement of £15.9M year on year.  The group spent £848K on intangible assets and £2.3M on fixed tangible assets to give a free cash flow of £6.1M.  Of this, £3.3M was used to repay borrowings, £1.1M paid out in dividends and £1M went on finance lease payments to give a cash flow of £1.3M and a cash level of £8.1M at the year-end.

The operating profit in the Energy EPM division was £2.9M, an improvement of £4.4M year on year.  During the year the division secured a number of key contracts, including to provide high temperature molten salt, nuclear life extension equipment and spare parts to nuclear reactors.  As part of their global business strategy and to support growth, the group opened up a new factory in Kunshan, China, in January.  They also opened a new motor rewind centre in India.  The division has won a £10M order with Vattenfall in Sweden and further orders from KHNP in Korea and US nuclear operators. 

In the UK and China, EPM signed an authorised channel and service partner agreement with Baker Hughes, a GE company which has a significant installed base in the UK, but no effective local facility to service, overhaul and upgrade their equipment.  The business has gained its first order from a Gen IV nuclear developer in the US for molten salt technology and also funding from the US DOE to develop molten salt pump technology for advanced concentrated solar applications.  With their new range of pumps for natural gas and a range of renewable technologies, they are slowly reducing their reliance on coal fired power stations. 

The operating profit in the Energy PSRE division was £1.9M, a growth of £1.5M when compared to last year.  The acquisition of Ormandy has integrated well and has made a satisfactory, albeit modest, profit.  The business manufactures off-site plant, heat exchangers and other HVAC products.  The fluid handling business in Scotland had an excellent year, as it expanded its capability to support the nuclear decommissioning market in the UK.  This has further strengthened the division’s strategic relationship with Sellafield.

The division has a good interest in the UK nuclear submarine fleet and associated facilities as well as developing new nuclear technologies like small nuclear reactors.  They have a good installed base on the UK submarine fleet, is the chosen manufacturing partner for the Astute steam turbines and through this experience can support longer tern nuclear technologies. As well as nuclear, divisional brands also have a strong presence in the oil and gas market.  This market is now improving with the group securing an order for £10M for steam turbines for a floating production vessel.

The division has seen an increase in end user sales.  In particular, PB saw further increases in aftermarket sales and won a new £5M UK government end user contract in June 2018.  End-user service arrangements have been signed to gain better access to the reciprocating compressor installed base and an expansion of the channel partners and agents has been concluded.  Overall the ration of aftermarket sales for the division has not improved in the year, but this is due to success in growing OE sales in parallel with the aftermarket. 

Finally the Crown business remains a small but positive performer in the division, although the year was quieter than expected due to delays in the roll out of smart motorways and 5G networks. 

The operating loss in the Medical division was £204K, an increase of £95K when compared to 2018.  The division is making gradual progress at Scientific Magnetics and Tecmag as they look to integrate their various sub-systems to produce a prototype MRI demonstrator unit.  They have now been able to take first images of inanimate objects with the system.  They are now in the next phase of image refinement to bring the system up to the level expected in clinical diagnostic imaging.  This next phase will take us a few months to complete and will continue to absorb some cash. 

Within NMR, their service offering has been strengthened both in the UK and US so they are optimistic about seeing good progress over the next year.  They continue to work with QOne in China and Switzerland on new NMR systems, to challenge the market leader.  QOne have been successful in selling initial systems to the market over the last year, albeit that the numbers are still small. 

Following its acquisition, Tecmag has been performing relatively well and with support from other group resources managed to achieve a break even result.  There is a decent pipeline of legacy business to go for, pending their development of new products.  Metalcraft UK’s business with Siemens for MRI components continues to be stable, although progress in China with other vacuum vessel customers remains rather pedestrian.  Composite Products had a reasonable year with deliveries to Rapiscan continuing and support from other smaller accounts at this unit.

In October 2018 the group acquired Tecmag Inc for a total consideration of £132K, which generated no goodwill.  The acquisition was made to enhance their position in the medical division and it generated profit of £13K.  After the year-end the group acquired Booth Industries for a total consideration of £1.8M.  In the first seven months of this year the business made a trading loss of £752K.  They manufacture high integrity doors used in the nuclear, oil and gas and critical national infrastructure markets.  Also after the year-end the group acquired Energy Steel & Supply for $600K which made a loss of $1.6M last year.

Going forward the board remain vigilant over Brexit but their direct EU exposure is somewhat limited and they have and they have taken actions over their supply chains.  US and Chinese tariff risks have been largely mitigated by an agile supply chain response but they will continue to monitor that closely. 

At the current share price the shares trade on a PE ratio of 32 which falls to 16.3 on next year’s consensus forecast.  At the year-end the group had a net debt position of £2M compared to £7.1M at the end of last year.  After an increase in the final dividend the shares are yielding 1.5% which increases to 1.6% on next year’s consensus forecast. 

On the 30th October the group announced that Booth Industries secured a £7.2M government contract for safety doors.  When the group acquired Booth, it did not acquire the existing order book and this new contract brings the total value of contracts won to £12M, spread over the next two years.

Overall then this has been a good year of progress for the group.  Profits are up, net assets increased and the operating cash flow improved with plenty of free cash being generated, albeit with help from working capital movements.  The energy division seems to be performing well and I would say has hit critical mass but the same can’t really be said of the medical division.  It is still loss making and seems to lack the immediate potential to make meaningful profits.  I am tempted to buy into the story here, it is still quite expensive with a forward PE of 16.3 and yield of 1.6%, however.

On the 8th November the group announced that director Austen Adams sold 29,008 shares at a value of £72K.  He now owns just 5,000 shares. 

On the 23rd January the group released a trading update covering the first half of the year.  They continued to perform well and are trading in line with market expectations.  The order and prospect pipeline remains robust with notable orders secured including a £2M order for HT China for pumps to be installed at a new concentrated solar power plant in Dubai; a record £1M order for Fluid Handling in Scotland from Sellafield for remote maintenance valves to be used on nuclear waste reprocessing equipment; and a £2M order for Peter Brotherhood for additional steam turbines in the defence market as part of a long standing framework agreement. 

The recent acquisitions are responding to their recovery programmes well and are integrating as expected with strong order books already secured and healthy prospect pipelines. 

Redrow Share Blog – Final Results Year Ended 2019

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

Revenues increased with a £191K growth in revenues from housing sales.  Cost of sales also increased to give a gross profit £35M higher.   Admin expenses were up so the operating profit increased by £29M.  There was a £2M reduction in loan interest but the share of profit from joint ventures decreased by £5M and tax charges were down £5M so the profit for the year came in at £329M, a growth of £21M year on year.

When compared to the end point of last year, total assets increased by £219M driven by a £136M growth in cash, a £104M increase in land for development and a £20M increase in trade receivables, partially offset by a £34M growth in payments on account and a £10M decrease in other receivables.  Total liabilities also grew during the year as a £25M decline in customer deposits was more than offset by a £75M increase in bank loans, a £51M growth in amounts due in respect of developed land and an £11M increase in trade payables.  The end result was a net tangible asset level of £1.583BN, a growth of £102M year on year.

Before movements in working capital, cash profits increased by £26M to £406M.  There was a cash outflow from working capital but this was less than last year and after tax and interest payments increased slightly the net cash from operations was £292M, a growth of £94M year on year.  The group spent just £4M on capex and received £1M in interest to give a free cash flow of £289M.  For some reason they took out £75M of new loans and they paid out £10M to buy their own shares and £218M to pay dividends to give a cash flow of £136M and a cash level of £204M at the year-end

The housing market continues to be affected by the uncertainty surrounding Brexit and the high cost of moving, particularly stamp duty.  During the year residential property transactions reduced and are running below historical levels.  House price inflation remains subdued.  The new homes market has been less affected and remains relatively resilient.  The group entered the coming year with an order book of £1.02BN, a decrease of £129M as a result of weaker trading towards the end of the first half of the year and lower volumes and selling prices in London.  The mortgage market remains competitive, however, and Help to Buy continues to support buyers of new homes. 

From April 2021, the Help to Buy scheme will only be available to first time buyers and regional price caps are to be introduced.  The scheme will end in March 2023.  The regional price caps will adversely affect the ability of first time buyers to acquire homes through the scheme in the more affluent areas of the north and midland and London will be least effected until 2023.  The group’s strategy to mitigate the impact of this is to attract more buyers from the secondary market to their Heritage Collection which offers the character and space considered by many to be absent from new homes. 

There was a 13% rise in completions to 6,443, driven by a 55% increase in social housing output which accounted for the average selling price falling by 2% to £324K.  The private average selling price increased by 2% to £389.5K due to geographic mix and a small element of house price inflation.  With overall house price inflation barely covering underlying cost increases the group have instigated a number of cost saving measures. 

During the year the group opened a new office in Oxford.  To reduce costs they are consolidating their East and West London divisions into one office based in Colindale, where in time, they will be building a new office to house all their London operations.  By making these changes they will be able to share a number of functions across the two businesses.  They are expanding the team at Harrow Estates who will now have a satellite operation in the Thames Valley office to focus on the larger sites in the south.  The expansion of Harrow will also assist the divisions on larger more complicated schemes and forward land.

During the year the group added 7,371 plots to the owned and contracted land holdings.  Of these, 2,909 were converted from forward land holdings.  After taking into account completions, their owned and contracted land holdings with planning increased by 936 plots to 28,566.  Their forward land holdings increased by a net 800 plots to 31,500.  The group are maintaining a cautious approach to land buying until there is more certainty around Brexit.  This more cautious approach combined with ongoing delays in the planning system is having an impact on the rate at which new outlets are coming on stream.  Their shift to acquiring and developing larger sites offering a wider range of product is helping mitigate this by delivering better rates of sale. 

The current land holdings in London continue to fall reflecting the board concerns over the market.  London is the most affected by the political uncertainty around Brexit and the end of Help to Buy in 2023.  They are particularly cautious about future investment and will continue to de-risk any investment through either PRS or partnership agreements. 

There were a number of relevant board changes.  Steve Morgan, who founded the business, has stepped down from the board.  After nine years, so did Debbie Hewitt.  Matthew Pratt was promoted to COO and John Tutte was made executive chairman. 

The board are cautious about the post-Brexit future and the eventual impact of the changes to the Help to Buy scheme.  Since the start of the New Year, trading has been encouraging and the demand for their new homes is strong with reservations running ahead of last year.  Notwithstanding the political and economic uncertainty, they are confident that 2020 will be a successful year for the group.

After a 9% increase in the full year dividend the shares are yielding 5.1% which increases to 5.3% on next year’s consensus forecast.  The net cash balance at the year-end was £124M, an increase of £63M over last year.  At the current share price the shares are trading on a PE ratio of 6.6 which increases slightly to 6.7 on next year’s forecast. 

On the 5th November it was announced that director Warren Thompson sold 19,328 shares at a value of £120K. 

Overall then there is no doubt that this has been another good year for the group with increased profits, net assets and operational cash flow, with plenty of free cash being generated.  The year has started well but there are clouds on the horizon with Brexit and the end of Help to Buy.  It seems that the group may be entering a period of no growth, possibly backed up by the director sale.  On the other hand, this is a sturdy company and this could already be priced in with a forward PE of 6.7 and yield of 5.3%.  I continue to hold for now.

On the 6th November the group released a trading update.  For the first 18 weeks off the year, trading has remained resilient despite ongoing Brexit uncertainty and relatively weak demand in the wider housing market.  The value of net private reservations in the period, excluding a £119.5M PRS sale at Colindale, was 2% ahead of last year at £598M.  Including that sale they were up 22%.  The average selling price of private reservations remained broadly the same at £389K. 

Outlet growth continues to be affected by planning delays and the cautious approach to land acquisition the group have adopted.  The combination of constrained outlet growth and the timing of block completions in London will result in revenue, profit and cash generation being considerably more weighted than usual to the second half of the year.  This, together with the strength of current trading has resulted in a record overall order book of £1.3BN, an 8% increase.

Net debt currently stands at £32M compared to net cash of £132M last year due to the £218M cash return to shareholders over the past year. 

The further uncertainty created by the general election and the impact this will have on the terms of Brexit leave the prospects for the housing market in an unpredictable stage but the group is well positioned to deliver with a strong forward order book.  The board are confident that provided trading conditions remain stable, the group is on course to achieve good results.

On the 27th November the group announced that director Graham Cope sold 150,000 shares at a value of just under £1M.

On the 29th November the group announced that director Karen Jones sold 30,000 shares at a value of £200K. 

I also note the recent large sale at Berkeley and wonder whether this is a sign that the peak has been reached with housebuilders?

Central Asia Metals Share Blog – Interim Results Year Ending 2019

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Central Asia Metals have now released their interim results for the year ending 2019.

Revenues declined by $12.5M, depreciation and amortisation was down $1.9M but other cost of sales saw a modest increase to give a gross profit $9.9M down on last time.  Admin expenses fell by $1.4M, share based payments reduced by $2.5M and forex losses declined by $2.9M to give an operating profit $3M lower.  Finance costs fell slightly and tax charges were down $1.4M so that after the $664K improvement in the discontinued operation was taken into account, the profit for the period was $27.5M, a decline of $1M year on year.

When compared to the end point of last year, total assets decreased by $49.2M, driven by a $17.3M decline in mineral rights, a $9.6M fall in plant and equipment, an £11.7M decrease in cash, a $4.9M decline in mining licences and permits and a $4.5M fall in trade receivables, partially offset by a $4M increase in construction in progress.  Total liabilities also declined during the period as a $5.1M growth in silver streaming commitments was more than offset by a $39.4M decline in bank loans and a $12M decrease in deferred consideration.  The end result was a net tangible asset level of $272.1M, a growth of $6.5M over the past six months.

Before movements in working capital, cash profits declined by $9.7M to $56.6M.  There was a slight cash outflow but this was less than last time and after interest payments fell by $943K and tax payments were down $2.8M the net cash from operations was $40M, a decline of $878K year on year.  The group spent $4.4M on property, plant and equipment along with $6.5M of deferred consideration to give a free cash flow of $29.2M.  Of this, $19.2M was used to pay back loans and $18.2M was spent on dividends which meant that there was a cash outflow of $8.6M and a cash level of $26.1M at the period-end.

The first half has been very positive operationally, with all mines on track to meet guidance but revenue was 19% lower due to significantly lower commodity prices with the zinc price down 18% to $2,676 per tonne and the lead price 22% lower at $1,930 per tonne.  The income from the Sasa mine was also affected by higher treatment charges in the period which reflected the change in market conditions for zinc concentrates.  The copper price held up slightly better, down 7% to $6,191 per tonne.  There may continue to be short term weakness in commodity prices given current global uncertainties. 

The pre-tax profit at Kounrad was $26M, a growth of $83K year on year.  There was a 153 tonne reduction in copper production to 6,594 tonnes but more copper was sold and less taken into stock with 6,125 tonnes sold compared to 5,972 tonnes.  This was due to a logistical issue last year meaning more copper was held in inventory.  Overall costs at the mine decreased somewhat due to a fall in the value of the local currency but offsetting this was additional costs incurred for increased reagents and coal consumption due to a colder than usual Q1, along with a 6% salary rise. 

The pre-tax profit at Sasa was $19M, a decline of $3.6M when compared to the first half of last year.  During the period, total mined ore was up 9,319 tonnes.  The average head grades were 3.28% for zinc and 3.76% for lead, both down slightly on last time.  Recoveries were 86.7% for zinc and 94.4% for lead, both somewhat higher.  For zinc, the stirred media detritor mill that was installed in Q2 last year has been modified and is now delivering broadly consistent recovery results and in addition, a lead re-grind mill has been included in the circuit which has aided the rejection of zinc from the lead circuit.  The payable production of zinc was 9,652 tonnes and for lead it was 13,639 compared to 9,256 tonnes and 13,701 tonnes last year.

During the period construction of Tailings Storage Facility 4 continued, with the construction of the dam materially completed.  After the period-end, lining of the facility was completed and commissioning is expected in Q4.  In February they performed a review of the current Sasa tailngs storage facility and concluded that there are no high risk areas, and that the dam is unlikely to fail due to liquefaction, a common cause of tailings dam failure.

A number of new changes are being implemented at Sasa underground including remote control loader units that will be commissioned in Q4, explosive cartridge loaders have been introduced, telescopic jumbo feeds have been introduced, underground drainage has been reviewed and additional pumps ordered, and optimised side loading has been introduced. 

In terms of metallurgy, the purchase of a new tertiary crusher at a cost of $600K has been approved which will generate a finer grained product from the crushing circuit, allowing for increased throughput capacity.  In addition, the metallurgical lab has been modernised, enabling opportunities within the processing plant to be better evaluated.  Throughout this year and last, the group have employed new processing operators and engineers in order to fulfil operational objectives with the aim of further improving metallurgical recoveries. 

In April an agreement with the previous owners of CMK for receipt of $5.5M was finalised relating to the $5.9M withholding tax liability in Macedonia that relates to the activities of CMK prior to group ownership, hence the reduction in payables. 

Going forward the group is on course to achieve 2019 production guidance of 12,500 to 13,500 tonnes of copper; 22,000 to 24,000 tonnes of zinc; and 28,000 to 30,000 tonnes of lead.

At the current share price the shares are trading on a PE ratio of 14.2 which falls to 11.6 on the full year forecast.  After the interim dividend was held the same, the shares are yielding 7.8% which falls to 6.4% on the full year forecast.  Net debt at the period-end stood at $100.4M compared to $110.3M at the prior year-end.

On the 8th October the group released a trading update covering Q3 where they stated that production was on track to meet full year guidance in all products.  They produced 4,039 tonnes of copper, 6,186 tonnes of zinc and 7,362 tonnes of lead. 

Overall then this has been a mixed period for the group.  Profits were down, as was the operating cash flow.  There was an OK amount of free cash being generated, which just about covers the dividends if no deferred consideration is paid.  The net tangible asset level improved.  Operationally this was a good period, with increased amounts of each metal being sold but the problem has been the reduction in commodity prices and some increased costs at Sasa, blamed on the weather.  The forward PE of 11.6 and yield of 6.4% look OK but this realty is dependent on future metals prices which look a bit precarious.  Could be a decent buy but who knows?!

On the 9th January the group released an update covering Q4 and the year as a whole.  Copper production exceeded guidance at 13,771 tonnes.  Zinc and lead production were at the top end of the guidance range at 23,369 and 29,201 tonnes respectively.  The 2020 guidance is 12,500 to 13,500 tonnes of copper, 23,000 to 25,000 tonnes of zinc and 30,000 to 32,000 tonnes of lead. 

The year was productive at Sasa with the installation of a new tertiary crusher, which will facilitate increased throughput and has allowed the board to increase guidance for 2020.  It is the intention to transition to cut and fill mining in the next few years and this will result in another year of technical studies while they finalise their plans. 

The analysis this year indicated that the ageing underground fleet at Sasa is becoming less cost effective to run.  A decision was made to undergo a phased process of replacing the current underground mobile plant with a new optimised fleet.  The initial component of this process will indicate the purchase of six new units in 2020, and three additional units in 2021, 2022 and 2023.  During the year the mine began building a wireless underground network which will allow for increased monitoring and communication of machines and in Q1 2020 they will introduce the use of data analytics in order to better monitor utilisation.

Pre-feasibility studies have been undertaken and on this basis the board have decided in principle to transition to cut and fill stoping at Svinja Reka.  This is a more flexible mining method better suited to the geometry of the three Svinja Reka orebodies.  Recent geological studies at Sasa have indicated that stresses will increase with depth and additional pillars of ore would need to be left in-situ if the mine continues its current method.  The group should complete the engineering studies in the second half of 2020.

The capex required to construct a paste plant should be spread over two years from 2021 onwards and is expected to be more than offset by the savings in not constructing further downstream tailings facilities over the life of the mine.  They do not expect to incur any material capex for the transition during 2020.  Given the fleet replacement programme underway, they expect 2020 capex to be between $12M and $14M. 

Air Partner Share Blog – Interim Results Year Ending 2020

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

Revenues declined when compared to the first half of last year due as a £624K growth in consulting and training revenue was more than offset by a £4.6M decline in group charter revenue, a £263K decrease in private jets revenue and a £134K fall in freight revenue.  Cost of sales also declined to give a gross profit £176K lower.  Admin costs were down £949K but there was a £315K income from the release of deferred consideration, and no accounting review costs or abortive acquisition costs which were £748K and £472K respectively last year, which meant the operating profit increased by £382K.  Finance expenses were up £226K but tax charges fell by £107K which meant that the profit for the period was £2.2M, a growth of £285K year on year.

When compared to the end point of last year, total assets increased by £18.5M driven by a £9M recognition of right of use assets, a £6.6M increase in receivables and a £2.4M growth in cash.  Total liabilities also increased during the period due to a £6.8M increase in deferred income, a £9.3M growth in lease liabilities and a £3.1M growth in other liabilities.  The end result was a net tangible asset level of £650K, a growth of £601K over the past six months.

Before movements in working capital, cash profits increased by £3.4M to £6.9M.  There was a cash inflow from working capital and even after tax payments were up £287K and interest payments increased by £226K the net cash from operations came in at £8.8M, a growth of £4.5M year on year.  The group spent £300K on fixed assets, £121K on intangibles and £430K on acquisitions to give a free cash flow of £8M.  I am starting to think that finance lease payments should probably appear above the free cash flow line so I guess the free cash flow is more like £5.3M, still above last year.  Of this, £2M was spent on dividends to give a cash flow of £3.3M and a cash level of £28.4M at the period-end.

The operating environment has continued to be challenging across the aviation industry with headwinds including Brexit, trade wars between the US and China and sector volatility, but group results have been slightly stronger than previous expectations despite pressure on the French tour operations business due to shortages of supply and a significant flying programme for a UK customer being delayed.

The group charter operating profit was £2M, a decline of £899K year on year.  The division had a mixed performance, partly due to the fact that there have been no one-off major events comparable to last year’s World Cup.  Despite this, the European offices, particularly Austria and Germany, have performed well, primarily driven by work in the government and automotive sectors.  In addition, the port and Meetings, Incentive, Conferences and Exhibitions business this year has been strong and they foresee further opportunities there in the second half of the year.

This strong performance was not enough to offset a drop in tour operations activity in France, a reduction in flying by a key customer in the UK, as well as small decreases in activity in the US and Italy.  While the remarketing business performed below expectations in the first half, it has signed several new aircraft mandates, creating a pipeline of around $5M, which are forecast to convert in the next year.

The operating profit in the Private Jets division was £1.7M, a growth of £340K compared to the first half of last year.  This was driven by a strong performance in the US.  It was a difficult period for the UK and Europe, which saw a decline in profit driven by Brexit uncertainty and some key customers flying less.  The Jetcard performance in the US has been strong but the number of cards in the UK and Europe remained flat.  They did launch a fixed Trans-Atlantic rate for Jetcard in July, however, with a good pipeline of prospects showing interest.

The operating profit in the freight division was £429K, a fall of £83K compared to the first half of 2019.  Trade tensions have caused challenges in the freight sector and air cargo volumes remain weak across the industry, although they are cautiously optimistic about the full year.  Their aircraft on ground product continues to be popular and they have added a further six large airlines to their customer base.  In addition their on-board courier service, suitable for smaller shipments, has grown year on year. 

The operating profit in the consulting and training division was £284K, a decrease of £168K year on year although there was a strong performance from the aviation, energy and ground handling sectors.  The board expect a number of current contracts will continue throughout 2020 and beyond, including the supply of surveying services to the Isle of Man registry which has recently added parked commercial jet aircraft to the certificate.  Moreover several large customers, across both civil and military sectors, have confirmed their intention to continue projects with their consultancy service into 2021.  They launched their first pop up training academy in Europe in September and another one is planned in the Middle East for the early part of next year. 

Clockwork Research has now been fully integrated.  Over the period they have undertaken safety cases for a major European airline, a UK transport provider and an international energy provider to manage their fatigue risk.  In Aviation Managed Services, Wildlife Hazard Management won contracts to provide fully managed services at three airfields, in addition to retaining its existing contracts.  Meanwhile there is a robust plan in place within ATC to improve some of the underperforming legacy contracts.

Air Evacuation continues to perform well and they recently entered into a partnership with Northcott Global Solutions.  Under the terms of this, the group will become their preferred emergency air charter supplier, while they will be able to leverage Northcott’s capabilities in medical provision, ground and maritime security, armed protection and traveller tracking and intelligence thereby offering customers a broader suite of emergency evacuation services.

Gross profit increased in Germany and the US but declined elsewhere. 

During the period the group have opened an office in Singapore, which continues to develop its relationships across freight and remarketing, and an office in Houston.  In addition, plans are well advanced to open a new office in Dubai by the end of the year. 

During the period there were a few one-off items.  There was £187K of amortisation of acquired intangibles and a £315K income relating to the release of deferred consideration.  An exceptional provision of £283K was made in respect of indirect tax charges for a prior-year tax assessment in France.  They are in the early stage in their discussions with the French tax administration and this represents management’s best estimate of the reassessment liability after taking legal advice.

Going forward the board expect the group to deliver profits in the second half of the year in line with the first half and to meet market expectations. 

After a 3% increase in the interim dividend the shares are yielding 5.9% which increases to 6% on the full year forecast.  At the current share price the shares are trading on a PE ratio of 14.3 but this rises to 16.5 on the full year forecast. At the period-end the group had a net cash position of £4.3M compared to £6.7M at the same point of last year.

Overall this has been a rather mixed period for the group.  Profits increased but this was due to the lack of accounting review costs and underlying profit did fall.  Net assets increased but remained small but the operating cash flow did increase with enough free cash being generated.  The only division that did well was Private Jets, driven by a good performance in the US.  The Group Charter division suffered from lower tour operations in France and a large customer in the UK suffering delays; while the freight division struggled in the face of the China/US trade war.  The forward PE of 16.5 doesn’t look particularly cheap to me but the dividend of 6% is an incentive, which looks to be covered suitably by the cash flow.  Tricky one, this.

On the 22nd January the group released a trading update covering the year.  The UK charter division has been impacted by slower than expected Q4 trading and as a result the board now expects to announce pre-tax profit of £4.3M, lower than previously expected. 

Group charter performed well in the US and reasonably well in Europe but the UK has been weak impacted by a single UK customer suspending a complex global flying programme in the first half which did not revert in the second half as expected, although the group continue to support the customer on an ad-hoc basis; a soft UK private jet market which worsened in Q4; and an A330 remarketing mandate where the sale and purchase agreement is signed but remains subject to closing conditions which means it is likely to fall into next year for revenue recognition purposes.

Outside the UK the US market continues to be strong and the US business is performing well, particularly in private jets.  This is despite no urgent action events taking place.  They have invested in their US charter business consistently over the last three years, selectively increasing broker headcount and opening new offices and this will continue in 2020. 

The newly formed Safety and Security division has performed in line with expectations with revenue growth expected to exceed the prior period by 10%.  The group acquired Redline Assured Security, a global aviation security solutions and training business, in December, and the integration is progressing well. 

While the visibility around charter orders is always limited, it has been further impacted by the political uncertainty in the UK and headwinds in the global economy.  The division has already secured some sizeable new business wins for the coming year and the 2020 events calendar is much better than in 2019.  The remarketing business has a good pipeline of mandates and is in the process of growing this even further. Exclusive mandates which are active include one B777, one A330, one ATR72, six S76 helicopters and three Twin Otters.

Heightened tensions in the Middle East have resulted in increased interest in their emergency planning product.  They received several enquiries for evacuations during and immediately after the events in Iran and Iraq at the start of 2020.

Over the last two years they have opened offices in LA, Houston, Singapore and Dubai.  The cost of new office openings is expenses and a positive contribution is expected after around two years.  They are still committed to opening one or two new offices per annum over the next three years.

The Safety and Security division which includes the full year effect of the Redline acquisition starts the year with an order book coverage of around 35% of its forecast outlook. 

Going forward the board are encouraged by the forward order book and the increasing levels of visibility that they are gaining through the growth of the Safety and Security division.

MPAC Share Blog – Interim Results Year Ending 2019

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

Revenues increased when compared to the first half of last year as a £1.5M reduction in pharmaceutical revenue was more than offset by a £16.9M increase in healthcare revenue, a £700K growth in food and beverage revenue and a £1.5M increase in other revenue.  Cost of sales also increased to give a gross profit £7.2M higher.  Distribution costs increased by £700K, non-underlying admin expenses increased by £1.1M, other admin expenses were up £1.7M and other operating expenses grew by £200K to give an operating profit £3.5M higher.  Finance costs and tax were flat so the profit for the period came in at £2.6M, a growth of £3.5M year on year.

When compared to the end point of last year, total assets increased by £29.3M driven by a £16.1M increase in intangible assets, an £8.8M increase in the pension surplus, a £6.6M growth in receivables, a £5.1M growth in right of use assets, a £4.2M increase in contract assets and a £4M growth in inventories, partially offset by a £17.4M decline in cash.  Total liabilities also increased as a £4.5M decline in contract liabilities was more than offset by a £12.5M growth in payables, a £4.6M increase in deferred tax liabilities, a £5.1M increase in lease liabilities and a £2.6M growth in deferred consideration.  The end result was a net tangible asset level of £32.4M, a decline of £7.2M over the past six months. 

Before movements in working capital, cash profits increased by £5M to £5.5M.  There was a cash outflow from working capital and after interest and tax were up £300K the net cash outflow from operations was £5.8M, an increase of £2.1M year on year.  The group also spent £1.1M fixed assets and £10.6M on an acquisition to give a cash outflow of £17.6M before financing.  Of which there was none so the cash outflow for the half year was £17.6M and the cash level at the period-end was £10.5M. 

The gross profit in the Original Equipment division was £10.4M, a growth of £6.2M year on year.  Order intake was 42% above last year and at the end of the period the order book was broadly in line with June 2018.  Revenue in the Americas increased by £18.1M and sales in Asia Pacific increased by 29%, although the EMEA region saw revenues reduce by 32%..  Sales to the healthcare sector increased by 200%, driven by the large contracts won in late 2018 and early 2019.  Sales to the food and beverage and other markets also showed steady progress.  Pharmaceutical revenue was adversely affected by the timing of contracts within the industry and is expected to recover in the second half. 

Gross margin was up from 18% to 27% with the increase as a result of delivering the higher opening orderbook at contract margins.  Last year’s performance included a significant cost contingency driven by two technically challenging legacy contracts.

The gross profit in the Service division was £2.7M, an increase of £1M when compared to the first half of last year. Order intake was up 75% with the increase a result of additional focus on pushing the service side and improved offering in conjunction with new machine sales.  This led to a 52% increase in revenues with the improvement being broadly equal between the Americas and EMEA regions.  Service sales in Asia Pacific improved more steadily but still showed progress, up 20%.  Improved operational and supply chain efficiency also led to an increase in service margin in the period from 34% to 36%. 

The group started the year with a significantly higher order book than at the start of 2018.  The quality of the opening order book was the driver behind the financial performance.  There remain, however, potential for forecast orders to be delayed due to general economic uncertainty for the medium term.  Therefore the board anticipates that while the results for the year will be above current market expectations, primarily as a result of an increased number of repeat projects and by operational efficiencies, the medium-term economic outlook is less certain. 

Currently the order book is broadly in line with the level at the end of June 2018 and the conversion of orders is more difficult to predict in the current environment as customers defer discretionary investment

The group owns an investment property and land comprising of 10 acres in Buckinghamshire which is held at a book value of £800K and is not required for their operations.  They were not successful in their recent efforts to have the site designated for residential housing development but will continue to explore all high value options for the investment. 

The actuarial deficit in the UK pension scheme reduced from £69.9M to £35.2M in the formal valuation.  The deficit is now expected to be eliminated by July 2024 compared to August 2029 under the previous valuation, representing a saving of £9.7M.  The current annual deficit recovery payments have been maintained but will now cease more than five years earlier than was agreed previously.  The net valuation of the US pension schemes showed a deficit of £6.1M, which was unchanged. 

In May the group acquired Lambert Automation, a provider of automation solutions to the medical and consumer healthcare markets for an initial consideration of £15M and a further £3M subject to the business achieving certain earn-out criteria.  It is expected that the acquisition will be materially earnings enhancing and it generated goodwill of £5.9M.  The business contributed profit of £1.3M to the group during the first half of the year.

Going forward, profits for the full year are expected to be significantly above market expectations.  General market uncertainty has increased with global FMCG companies under pressure to eliminate plastic in consumer products leading to investment delays whilst they develop new solutions.  Order intake is also variable and sensitive to geo-political events and recent signs of slowing growth resulting in delayed investment decisions.  Overall progress is expected to continue and short term prospects remain positive. 

At the current share price the shares are trading on a PE ratio of 27.8 which falls to 7.5 on next year’s forecast.  There are no dividends on offer here.  At the period-end the group had a net cash position of £9.6M compared to £27M at the end of last year. 

Overall then this has been a good period for the group.  Profits increased with both service and original equipment divisions doing well.  Net tangible assets did decline, however, as did the operating cash flow which shows a cash outflow, although this was due to working capital movements.  Although this has been an outperformance, there are a few warnings that this may be temporary, with market uncertainties growing.  For this reason, despite the cheap-looking forward PE of 7.5 I’m tempted to sell.

On the 8th January the group released a trading update covering the year.  The momentum in the business has continued to accelerate and the board expect to report full year trading ahead of expectations.  This is primarily as a result of a strong Q4 order intake and accelerated project execution.  Alongside this, progress has been made in realising the financial benefits of the strategic plans.

Order intake and revenue growth have continued for both OEM and Services and the group will close with a strong order book for execution in 2020 which gives rise to an improved outlook for next year.

Goodwin Share Blog – Final Results Year Ended 2019

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

Revenues increased when compared to last year with a £1.7M growth in mechanical engineering revenue and a £521K increase in refractory engineering revenue.  Depreciation was up £576K and amortisation increased by £174K but other cost of sales were down £3.5M to give a gross profit £5M higher.  There was no profit from the sale of property, plant and equipment, which brought in £1.6M last time and other admin expenses increased by £923K to five an operating profit that was up £2.8M.  Finance expenses were down £356K but tax was up £98K to give a profit for the year of £11.5M, a growth of £3M year on year.

When compared to the end point of last year, total assets increased by £31.8M, driven by a £21.7M growth in inventories, a £5M increase in property, plant and equipment, a £4.9M growth in trade receivables, a £2.2M increase in cash and a £1.2M growth in intangible assets, partially offset by a £2.3M decline in contract assets and a £1.2M fall in investments in associates.  Total liabilities also increased as a £4.1M decline in other payables and a £2.6M decrease in deferred tax liabilities was more than offset by a £17.8M growth in contract liabilities, a £12.4M increase in borrowings and a £2.7M growth in trade payables.  The end result was a net tangible asset level of £87M, a growth of £3.2M year on year.

Before movements in working capital, cash profits increased by £5.1M to £24.8M.  There was a cash outflow from working capital and despite interest and tax payments reducing the net cash from operations came in at £11.2M, a decline of £20M year on year.  The group spent £11.5M on property, plant and equipment, £2.7M on investments in existing subsidiaries and £1.5M on R&D, although they did get £1.3M in dividends from the associate to give a cash outflow of £3.8M before financing.  They then spent £911K on finance lease payments and £6.6M on dividends so had to take out £8.3M in new loans which meant there was a cash outflow of £2.5M for the year and a cash level of £493K at the end of the year.

The operating profit in the Mechanical Engineering division was £11.9M, a growth of £3.7M year on year.  Goodwin Steel Castings has undergone a major change, returning to profitability and completing its extensive upgrade programme that increases its casting capability up to 35 tonnes.  With the work they have won internationally to date, which is now starting to be delivered, they should never again be as reliant on the petrochemical industry.  One such order if for cast and machines radiation shielding containment vessels for the US nuclear decommissioning market. 

Easat Radar Systems reported a loss due to lack of throughput and excessive work in progress over the year, combined with contract delays whilst working to finalise an off the shelf radar system for a major customer.  The final documentation approvals for this are all but complete now which should allow for a reduction of around £5M work in progress in the current year as radar systems are shipped.

Over the past decade, Goodwin International has worked closely with world leading valve stockist, RP Valves, who have stocked and sold Goodwin dual plate valves.  The business has placed a multi-million pound order for axial valves with the group. 

The operating profit in the Refractory Engineering division was £8.1M, an increase of £542K when compared to last year.  The business has maintained the significant increase in market share in the investment casting powder sector when its major competitor ceased manufacture.  In the coming year they will start to see sales of the Silica Free investment powder, for which a patent was filed in April, with early adopters likely to be the more western countries.  This new technology will enable the division to further grow its global market share and help increase gross margins in the years to come.

The global awareness of the risks of lithium battery fires and requirement for a solution continues to grow.  During the year, Dupre Minerals has put in place a manufacturing agreement with a French company that will manufacture AVD fire extinguishers for Europe.

As of August, the group’s order input since the start of the year has been £93M and the total forward order book stands at £165M, a 94% increase from the same point of last year with yet more long term contracts still to be placed.  Several orders have multi-year delivery requirements and there is seen to be little risk in executing them. 

During the year, the group signed an agreement to purchase a 26% interest in Jewelry Plaster (Thailand), converting it into a 75% owned subsidiary.  They also acquired a further 24% stake in ULtratec (China) and in SRS QD (China) making these 75% owned subsidiaries too.

The group has benefited from the new accounting standards which has boosted pre-tax profit by £1.7M this year.  If they were still reporting under the old standards, pre-tax profit would have been £14.7M.

At the current share price the shares are trading on a PE ratio of 22 and a yield of 2.9%, after the dividend was increased by 15%.  There are no forecasts available.  At the year-end the group had a net debt position of £21.2M compared to £11.3M at the end of last year.

Overall then this has been a good year for the group.  Profits were up, net assets increased but the operating cash flow reduced with no free cash generated, although this was due to working capital movements predominantly.  The mechanical engineering division is doing well, helped by the turnaround of the castings business, and the refractory engineering business maintained the gains made last year.  The Silica free technology seems like something that could provide a further boost.  All this good news is priced in though, arguably, as the PE of 22 and yield of 2.9% isn’t great value.

Sylvania Platinum Share Blog – Final Results Year Ended 2019

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

Revenue increased by $7.8M when compared to last year.  Direct operating costs fell by $1.3M but staff costs were up $1.5M to give a gross profit $8.2M higher.  Admin staff costs decreased by $97K and share based payments were down $65K but other admin costs were up $180K which meant that the operating profit was $8.2M higher.  Interest income increased by $140K but tax charges were up $1.1M to give a profit for the year of $18.2M, a growth of $7.2M year on year.

When compared to the end point of last year, total assets increased by $16.6M, driven by a $23.3M growth in contract assets, a $4.2M increase in plant, a $7.7M growth in cash, a $4.2M increase in assets held for sale and a $1.8M growth in deferred tax assets, partially offset by a $17.9M decline in trade receivables, a $3M fall in construction in progress and a $2.5M decline in mineral rights.  Total liabilities also increased, mainly due to a $686K increase in trade payables.  The end result was a net tangible asset level of $74.2M, a growth of $20M year on year.

Before movements in working capital, cash profits increased by $7M.  There was a cash outflow from working capital and after tax payments increased by $4M the net cash from operations was $17.4M, a growth of $2.3M year on year. The group spent $8M on property, plant and equipment and $253K on exploration but received $629K due to a refund from the rehabilitation insurance guarantee to give a free cash flow of $9.4M.  Of this, $1.3M was spent on dividends, $148K on loan repayments and $120K on treasury shares to give a cash flow of $7.8M and a cash level of $21.8M at the year-end.

Q2 and Q3 were challenging and resulted in lower production volumes and efficiencies.  In particular the water shortages at the Western operations, and power infrastructure and supply disruptions in the East, as well as community disruptions associated with social unhappiness, culminated in unexpected disruptions and downtime, impacting negatively on production which led to a reduction in the guidance to 72K ounces. 

The SDO delivered record production of 72,090 ounces, including a record quarterly production of 21,789 ounces in Q4.  The increase is attributable to a 3% increase in PGM plant recovery with PGM tonnes treated marginally lower and the feed grade remaining stable.  The improvement in recovery efficiencies is due to the contribution from MF2 plants at Millsell and Doornbosch for the full year, compared to only six months last year as well as improvements at Tweefontein. 

The average gross basket price was $1,277 per ounce, a 13% increase.  Although the platinum and palladium prices fell in the second half, the basket price was such that they benefited from the higher rhodium price.

Although the feed head grade decreased by 2% due to the erratic grade during the re-mining of the Doornbosch tailings dump, which reached its end of life, as well as the receipt of lower current arisings than expected from the host mine, the PGM feed grade was marginally higher after being upgraded during classification.  In order to mitigate lower front-end feed grades, the operation began mining the new million-tonne tailings dam in Q4 and current arisings from the host mine improved after repairs and improvements to their circuits.  Management also began the implementation of an optimised re-mining strategy.

The SDO cash cost increased by 8% in ZAR but the USD cash cost decreased marginally to $532 per ounce.  The increase in ZAR terms was primarily driven by above-inflation electricity rate increases, wage increases and higher re-mining costs associated with the final dump floor cleaning and re-mining challenges at Doornbosch. 

Utility infrastructure and supply of power continued to present challenges to the operations and execution of expansion projects throughout the year.  Delays in the rollout of the MF2 module at Tweefontein, due to power constraints, were counteracted by fast-tracking the module at Mooinooi, which was commissioned earlier than planned in Q3.

Operations in the West were also hindered due to abnormal summer heat and drought conditions which resulted in water shortages in some plants.  Lesedi, in particular, where there is no current arisings feed source or tails slurry from a host mine at present was severely impacted.  The plant could only treat 52% of its planned tonnage during Q2.  To alleviate this impact, further boreholes were drilled and a water transfer scheme was implemented from neighbouring operations, which helped improve supply in the second half.  Additional boreholes are being drilled in consultation with water experts and process options continue to be explored to minimise consumption, which could assist in mitigating any future impact.

The relocation of the redundant Steelpoort chrome circuit to Lesedi was completed and commissioning started in June which will contribute to higher feed grades in the coming year. With regards project Echo, Tweefontein MF2 is the next module to be executed but construction depends on completion of an infrastructure upgrade by the national power utility to ensure stable and reliable power supply to the host mine.  This upgrade has begun and is expected to commission by 2020.  To date, expenditure on project Echo is $9.5M and it is estimated that it will take a further $2.5M to complete.

They are beginning to see the results from the MF2 modules at Millsell, Doornbosch and Mooinooi and expect the resultant ounces from these projects to be sustainable in the coming years.  With the increase in the basket price and continued cost controls in place, the group were able to continue to internally fund their expansion projects. 

Over the past year, the run up in the palladium and rhodium prices has boosted the basket price markedly which has been very welcome due to subdued platinum prices.  The weakness of the rand has also boosted the group’s bottom line.  Platinum is forecast to make a modest recovery on the back of a rise in investor activity, but autocatalyst consumption recovery and legislative changes in China and India, power supply issues and industrial activity have a major impact on the potential outcome.  Palladium is expected to rise as a result of an increase in automotive consumption but rhodium prices may expect a moderate rise as market fundamentals stabilise following a release from pipeline inventories. 

The group continues with an R&D joint operation programme and have conducted pilot work on the pelletising of chrome fines with the opportunity to convert chrome ore fines to pellets for current output and for third parties.  As the basic piloting has now finished, engineering will be progressed to firm up a business case in the coming year with a possible view to adding a new business line to the company. 

Management has committed to a plan to sell Grasvally Chrome with a sale expected by April 2020.  The value of the assets held for sale is $4.2M.  After the year-end, the group received a cash offer of $7.8M from Forward Africa Mining. 

Going forward the aim is to maintain SDO performance with efficient cost controls, and to achieve a production guidance of around 74K ounces to 76K ounces for 2020.   

At the current share price the shares trade on a PE ratio of 7.8 but this drops to 5.4 on next year’s consensus forecast.  The group has a net cash position of $21.8M.  This year the group is paying a maiden dividend of 4.3% which increases to 6.7% on next year’s forecast. 

Overall then, operationally this has been a difficult year with power supply issues and water shortages but the performance has been very good with increased profits, net assets and operational cash flow, with plenty of free cash being generated.  The group is benefiting from the increased rhodium price and the weakness of the Rand.  Obviously there are risks here, the continued power supply issues are a concern, as is the rocky state of the automotive industry and the effect this could have on platinum prices but a forward PE of 5.4 and yield of 6.7% seems to have more than factored this in to my mind.  I hold.

On the 22nd October the group released a trading update covering Q1.  They delivered a solid, above guidance performance of 20,797 ounces.  Whilst the plant feed tonnes and PGM plant feed grade were 6% and 8% lower respectively, recovery efficiencies increased 11%.  Front end plant feed improved 7% but the coarser nature of material being mined impacted negatively on the proportion of fines reporting to the plant.  The feed grade was impacted by lower quantities of higher grade current arisings received at the Tweefontein operation, after a production disruption at the host mine.  Lower grade current arisings from Mooinooi related to a temporary change in feed source at the host mine, further impacting feed grade.

The improvement in the recovery efficiency can be attributed to a combination of the Mooinooi MF2 circuit that has now been running a full quarter, improved feed stability and circuit configuration at Lesedi following the commissioning of the new milling and chrome benefication circuit, and higher flotation mass pull philosophy at some of the operations which also improved recoveries.  Although new circuits at Lesedi and Mooinooi will continue to contribute towards recovery efficiencies going forward, flotation mass pull will have to be lower in the coming quarters to address concentrate quality and payability at the expense of recovery.  Steady-state recovery efficiency for 2020 is planned at around 52% to 53% compared to 59% this quarter.

The total SDO cash costs were within budget but increased by 16% in ZAR terms and 13% in USD terms to $550 per ounce.  Higher re-mining costs associated with additional feed screening of coarse dump material at Lesedi, and a non-recurring ZAR8M rehabilitation adjustment were two of the most significant contributors to the increase in costs.

Water constraints remain a concern and management continue to explore technologies to reduce water losses and consumption and explore and implement alternative measures to supplement water supply to the operations.  Additional trial boreholes are being drilled at Lesedi in order to recover seepage from tailings dam facilities that could potentially be rolled out to other sites if proven successful.  Community protests in the Steelpoort area related to community demands and expectations of employment and commercial opportunities resulted in disruption in the Eastern operations in September.

Net revenue increased by 54% to $31.2M.  The increase is due mainly to Q4’s pipeline payment and the increase in commodity prices with the 25% increase in basket price to $1,654/ounce.  Total operating costs increased 12% largely due to employee-related costs.  The changes to the re-mining strategy initially resulted in higher costs and combined with the increase in feed tonnes, increased total mining costs in the quarter.  Electricity costs were also higher as the Mooinooi MF2 module was fully operational.  Admin costs increased 21% to $600K due to annual employee cost increases and an escalation in travel costs.   

Group EBITDA more than doubled to $19.2M and the net profit was up 158% to $12.5M.  The group cash balance increased by $4.8M to $26.6M. 

On the 31st January the group released a trading update covering Q2.  The SDO delivered 19,206 ounces for the quarter, the third highest ever and above Q2 last year.  It was 8% lower than Q1, however, as Q2 and Q3 are historically lower due to the impact of public holidays and the host mines closing over the holiday period. 

PGM feed tonnes and plant feed grade remained stable.  Recovery efficiencies were higher than planned but reduced by 8% on Q1 due to the feed characteristics of material processed, reduced concentrate mass pull strategy and an increase of work in progress ounces at the start of December. 

As the volumes of fresh current arisings and RoM fines received from the host mines decrease at some operations over December, operations compensate for this by processing higher volumes of lower grade dump material which has a lower PGM recovery potential than freshly mined sources.

The total SDO cash costs decreased 7% to $510 per ounce, attributable to maintaining tight cost controls and planning at the operations.

Water supply issues remain an area of focus albeit that there was some reprieve where plants experienced some rainfall.  The Lesedi and Tweefontein operations are most affected by water shortages but a successful intervention was implemented at Lesedi towards the end of the quarter, which assisted in the reduction of overall water losses.  Management will now focus on implementing similar measures at Tweefontein next quarter.  This should assist in alleviating production pressures associated with any water shortages.

Power constraints in the form of load shedding, power cuts due to maintenance and power interruptions associated with frequent trips from the utility provider, have impacted operations and led to downtime during the interruptions and frequent consequential chokes in the processing plants.  The group continues to investigate alternative long term solutions to help mitigate this.

The host mine has communicated potential retrenchments and production cuts related to some of their Eastern and Western operations, which could potentially result in lower volumes of current aristings and RoM at some plants during the current depressed chrome market environment.  The operations are able to substitute current arisings in order to mitigate this impact but at slightly lower feed grades and recoveries. 

All Project Echo modules are now fully commissioned except the Tweefontein MF2 project that has been delayed pending the completion of a power supply upgrade by the power utility, which is scheduled towards the end of 2020.  Management continues to focus on plant optimisation of the installed infrastructure to improve PGM recoveries and concentrate quality. 

Commissioning of the new Lannex Mill as part of the life extension project is scheduled for May 2020 which will enable the plant to improve processing efficiencies and profitability based on the current feed sources and further enable it to accommodate alternative coarser feed sources such as RoM fines from underground or open cast operations, which will contribute to extend the life of this operation.

Net revenue decreased 11% to $27.9M as a result of lower production compared to Q1.  This was partially mitigated by the 13% increase in basket price to $1,654 per ounce.  Total operating costs decreased 11% and the all in sustaining costs also decreased.  Group EBITDA decreased 9% to $17.4M and net profit was down 9% to $11.4M as a result of the lower revenue.  The cash balance at the period-end was $33.8M, a $7.2M increase. 

Overall then I am not too concerned about the reduced production, this seems to be due to seasonality.  The water shortages and power outages are of more concern but these seem to be somewhat under control.  The reduced production at the host mines, however, is something that should be watched carefully.  Although as long as the sales price of these metals hold up as they are, these issues should be mitigated to some extent.

Somero Share Blog – Interim Results Year Ending 2019

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

Revenues decreased when compared to the first half of last year due to a $3.3M fall in North American revenue, a $1.9M decline in European revenue and a $1M decrease in Middle East revenue.  Cost of sales declined to give a gross profit $4M lower.  Selling expenses were down $351K, share based payments fell by $137K and other admin expenses were $337K lower but engineering expenses increased by $118K to give an operating profit that was down $3.3M.  There was a small growth in finance income and tax charges were down $647K which meant that the profit for the period was $8.1M, a decline of $2.5M year on year.

When compared to the end point of last year, total assets declined by $4.6M as a $2.1M growth in inventories, a $1.9M increase in right of use assets, a $1.8M growth in accounts receivable and a $1.8M increase in intangible assets was more than offset by a $13.1M decrease in cash.  Total liabilities increased during the period as a $1.5M decline in accrued expenses was offset by a $1.7M increase in lease liabilities and some other smaller increases.  The end result was a net tangible asset level of $43.8M, a decline of $8.4M over the past six months.

Before movements in working capital, cash profits declined by $3.6M to $8.7M.  There was a cash outflow from working capital and despite tax income increasing by $479K the net cash from operation was $4.4M, a decline of $7.9M year on year.  The group spent $587K on fixed assets, $138K on intangibles and $2M on acquisitions to give a free cash flow of $1.7M.  This didn’t come anywhere near paying for the dividends of $14.2M and there was a cash outflow for the period of $13.2M to give a cash level of $15.1M at the period-end.

Overall the first six months fell short of their full year expectations at the start of the year, mainly due to heavy rainfall in the US that depressed sales in the largest market.  The US non-residential construction market remains healthy and as the weather improves, the board expect to see an improvement in performance.

Towards the end of the period, trading in Europe and the Middle East fell below the prior year, in part due to the timing of certain contracts.  Despite this the remain confident in delivering improved second half results, broadly in line with guidance for the full year, notwithstanding the macro pressures in Germany, the Middle East and Australia.  Despite the disappointment in trading in the first half they don’t see a fundamental change in the end markets.

The high levels of rainfall in the US hampered construction activity, resulting in project delays that in turn slowed the pace of equipment purchases.  North American sales declined by 11%.  In the US there are multiple variables contributing to longer term economic uncertainty but the construction industry is healthy and contractors and builders remain busy with backlogs well into 2020. 

The European market reported a $1.9M decline in sales compared to the first half of last year.  Their activity level was positive but this did not convert to their targeted level of sales at the end of the period, attributable in part to the timing of project starts.  They have not observed a fundamental change in construction activity in the European market and anticipate continued positive activity in the region for the remainder of the year but they have noted an increasing level of concern driven by longer term economic uncertainty in the region with the German market particularly illustrating this. 

China reported flat sales year on year with consistent trading and positive movement towards the end of the period.  The US-China tariff disputes did not directly impact trading volumes but newly imposed tariffs and competition in the low-end productivity segment of the market are resulting in margin pressure.  Capturing the long-term opportunity in China remains dependant on growth in demand for quality concrete floors which has been slower to take hold than initially expected. 

The Middle East reported a sales decline of $1M to just $200K primarily as a result of timing of projects which are impacted by the continued geopolitical uncertainty in the region.  They expect to see meaningful opportunities in the second half but continue to expect uncertainty in the region will impact trading and as such don’t expect to recapture the first half shortfall.  In India, there has been an increase in demand for quality and sales in the region doubled to $1M.

In January the group acquired Line Dragon for $2M in cash and additional consideration up to 2031.  The performance payments are calculated at 3% of gross revenues from the sale of SP-16 of Line Dragon concrete puller or placer equipment.  The acquisition generated $351K of goodwill.  The integration is progressing well but sales have impacted by the poor weather in the US.  They are completing the design of the next generation product in this family and anticipate its launch in the second half.

Going forward the board carry a positive outlook for the rest of the year in the US and expect to deliver full year results broadly in line with market expectations.  This outlook is based on the healthy construction, the high level of confidence displayed by their customers and the expectation of an improvement of weather conditions in the US.  They are also encouraged by the interest shown in their new products. 

In Europe they anticipate solid interest across the region but expect H2 trading to fall modestly below last year due to concerns over longer-term economic activity in the region.  In China, performance is solid but they will continue to monitor the trade dispute with the US. 

At the current share price the shares are trading on a PE ratio of 6.3 which increases to 6.9 on the full year forecast.  The shares are currently yielding 10.5% but this falls to 7.3% on the full year forecast.  At the period-end the group had a net cash position of $15.1M compared to $20.7M at the same point of last year.

Overall then this has been a difficult period for the group.  Profits declined, net assets reduced and the operating cash flow decreased with very little free cash being generated.  Much of the blame has been put on the poor weather in the US and if this is indeed the reason for the downturn then this should improve in the second half.  More of a concern I think is the poor market in Europe.  This looks more like a real slow-down here and should this move to the US too then the group could be in real trouble.  These risks could be priced in already though as they certainly look cheap with a forward PE of 6.9 and yield of 7.3%.  Tricky one this.  Could be risky to continue to hold but the returns could be good.

Finsbury Foods Share Blog – Final Results Year Ended 2019

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

Revenues increased when compared to last year due to a £7.4M growth in UK bakery and a £4.3M increase in overseas.  Cost of sales also increased to give a gross profit £3.3M higher.  Operating lease payments reduced by £496K, share option charges were down £441K, there was no impairment of assets, which accounted for £987K last year, and site closure costs fell by £12.1M.  R&D costs were up £420K, amortisation increased by £613K, there was £823K of reorganisation costs and other admin expenses grew by £5.4M which meant that the operating profit was £10.1M higher.  There was a £525K negative swing in the value the hedges, bank interest increased by £492K and tax charges were up £2M to give a profit for the year of £9.3M, a growth of £7.1M year on year.

When compared to the end point of last year, total assets increased by £30.3M, driven by an £11.5M increase in goodwill, a £7.1M growth in property, plant and equipment, a £5.1M increase in receivables, a £3M growth in cash and a £1.7M increase in the value of software.  Total liabilities also increased during the year due to a £22.7M growth in borrowings and a £2.8M increase in deferred consideration.  The end result was a net tangible asset level of £12M, a decline of £9.3M year on year.

Before movements in working capital, cash profits were broadly flat.  There was a cash outflow from working capital but tax payments fell by £1.3M to give a net cash from operations of £13.5M, a decline of £4.8M year on year.  The group spent £11M on fixed assets and £16.9M on acquisitions to give a cash outflow of £14.4M before financing.  They took out £22.1M of new loans and paid out £5.2M in dividends which meant that there was a cash flow of £2.9M and a cash level of £12.4M at the year-end.

The operating profit of the UK bakery business was £14.2M, a decline of £1.3M year on year.  The out of home easting supplying pubs, restaurants etc was a particularly strong performer.  Artisan brands continue to grow strongly.  The operating profit in the overseas business was £2.7M, a growth of £305K when compared to last year. 

The group is coming out of its intense investment phase, and will benefit from these investments in the coming year.  Following the launch of their own Free From brand in Europe last year, Wiso, they have also launched Free From cakes in addition to the Free From bread and mornings goods ranges.  These products capitalse on the fact that making the choice to avoid gluten or embrace veganism are growing lifestyle choices. 

Within licensed brands, the second half of the year has been particularly active with the big block buster movie releases of Toy Story 4 and the latest Avengers and Spiderman instalments.  They also continued to keep their core product portfolio licenses fresh with a relaunch of Batman, Minions, Pokemon, Paw Patrol, Peppa Pig, Trolls and Me to You cakes. 

In September 2018 the group acquired Ultrapharm for £16.9M plus up to £3M payable in annual instalments up to 2021.  The business is a Free From bakery with product ranges covering bread, buns, rolls and morning goods.  The acquisition generated goodwill of £11.5M and the business made an operating profit of £295K in the period. 

Going forward the board are confident the strong second half performance will continue into the year ahead as the core business continues to perform well with strong Q1 growth to date.  Having made investments in IT and the new free from bakery in Poland they are expecting to significantly reduce their capex going forward as they focus on driving efficiencies from the new systems and utilise their additional capacity.

At the current share price the shares are trading on a PE ratio of 11.2 which falls to 8.1 on next year’s consensus forecast.  After a 6% increase in the dividend the shares are yielding 4.4% which increases to 4.7% on next year’s forecast.  At the year-end the group had a net debt position of £35.6M, up £20M year on year. 

Overall then this has been a bit of a mixed year for the group.  Profits were up but this was due to less site closure costs than last year, and underlying profits were down somewhat as a small improvement in the overseas bakery was offset by a decline in the UK.  Net tangible assets declined, as did the operating cash flow with no free cash being generated, although this was due to a change in working capital movements and cash profits were broadly flat.  Going by management comments, it does seem that things are improving, however, and the recent investments should help performance.  That being said, there is quite a lot of debt here and a rather flimsy tangible asset base.  The shares are quite cheap though, with a forward PE of 8.1 and yield of 4.7%.  Could be worth a punt.

On the 20th November the group announced that momentum from the second half of the previous year has been maintained and the group continues to achieve strong growth across the core business.  Sales for the first four months of the year grew by 6.4% as a result of a strong retail and foodservice performance in the UK as well as new business wins across the group.  The wider macroeconomic and political environment remains challenging in the UK but the board is confident of achieving market expectations for 2020.

Begbies Traynor Investor Blog – Final Results Year Ended 2019

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

Revenues increased when compared to last year due to a £5M growth in insolvency and restructuring and a £2.6M increase in property revenue.  Direct costs were up £4.1M to give a gross profit £3.5M higher.  Share based payments fell by £196K but other underlying admin expenses grew by £2.2M.  The Put and call option charge increased by £371K, amortisation of acquired intangibles was up £483K and deemed remuneration increased by £1.1M but there was a £1.7M increase in gains on acquisition to give an operating profit £1.2M higher.  Bank interest broadly flat but tax charges grew by £220K which meant that the annual profit came in at £2.4M, a growth of £1M year on year.

When compared to the end point of last year, total assets increased by £4.4M driven by a £2.7M increase in deemed remuneration and an £827K increase in trade receivables.  Total liabilities also increased during the year due as a £1M decrease in bank loans was more than offset by a £1.4M growth in deemed remuneration and a £989K growth in other taxes and social security payables.  The end results was a net tangible asset level of £309K, a growth of £221K year on year.

Before movements in working capital, cash profits increased by £1.6M to £8.4M.  There was a cash outflow from working capital and after tax payments increased by £382K the net cash from operations was £7.3M, a decline of £200K year on year.  The group spent £784K on fixed assets and £216K on intangibles along with £1M on deferred consideration and £1.2M on acquisitions to give a free cash flow of £4.1M.  Of this, £2.6M went on dividends and £1M used to repay loans which left a cash flow of £491K and a cash level of £4M at the year-end.

The profit in the business recovery and financial advisory services division was £8.7M, a growth of £1.1M year on year.  This reflects the benefit of increasing market activity levels, the continuing development of their advisory services, the prior year acquisition of Springboard and the benefit of organic growth initiatives.  Insolvency volumes nationally increased, with the underlying number of corporate insolvencies growing by 10%.  In this improving market, they have maintained market share.

They completed the acquisition of two insolvency boutiques in the North East, and in Stoke.  Their advisory activities increased in the year, benefiting from the full year impact of the Springboard acquisition.

The profit in the property services business was £3.8M, an increase of £633K when compared to last year.   This reflects the benefit of acquisitions, organic growth and the completion of several property insolvencies.  During the year they completed several long running property insolvencies, which enhanced margin in the year. They continued to invest in the property valuation team, through the recruitment of experienced surveyors which has improved their geographical coverage.

The asset disposal team performed well.  Property auction levels were broadly in line with the prior year and they have introduced an online platform.  Machinery and business asset activity levels increased following the prior year acquisition of CJM which has integrated well with the existing team.  The building consulting team had a successful year, increasing their instructions from the education sector which has been a key area of development. 

In January they completed the acquisition of Croft Transport Planning which provides highways, transport and traffic planning advice on commercial, residential and mixed use schemes to a corporate client base. This expands the consultancy services they can offer to real estate developers and corporate clients.  There was an initial consideration of £1.5M with a maximum cash payment of £2.5M subject to financial performance over the next five years.

In April they acquired Barker Storey Matthews, a firm of chartered surveyors with offices in Cambridge, Huntingdon, Peterborough and Bury.  The core services offered are commercial property agency, property management, building consultancy, professional services and planning services.  This expands their geographic coverage.  The initial consideration was £1.6M with a maximum additional cash payment of £1.4M over the next three years.

They also acquired KRE North East in February for an initial consideration of £450K with a maximum additional payout of £150K over the following year.  In March they acquired Dunion & Co for an initial consideration of £100K and a maximum cash payment of £100K over the next two years.  The value of net assets acquired in the above acquisitions exceeded the accounting value of the consideration so there was a £2.9M gain recognised on the transactions.

Going forward there is uncertainty in the UK economy as a result of Brexit but with a combination of their counter-cyclical activities and breadth of services, the board believe they are well placed to continue to growth in the coming year.  They have entered the year with positive momentum and are confident of delivering current market expectations. 

At the current share price the shares are trading on a PE ratio of 40.7 which falls to 15.5 on next year’s consensus forecast.  After an 8% increase in the dividend the shares are yielding 3.1% which increases to 3.3% on next year’s forecast.  At the year-end the group had a net debt position of £6M compared to £7.5M at the end of last year. 

On the 26th July the group announced that they were raising £8.3M through the issue of 11M new shares to institutional investors.  This is to finance a pipeline of business acquisitions. 

On the 19th September the group released a trading update.  All areas of the group continued to perform well in Q1.  The market for counter-cyclical activities has been favourable with a 9% increase in corporate insolvency appointments in the first half of the year.  Revenue and profit growth in Q1 is in line with expectations and reflects both the continuing organic development of the group and the contribution from recent acquisitions.  They remain confident of delivering current market expectations this year. 

Overall then this has been a good year for the group.  Profits and net assets both increased and although the operating cash flow declined, this was due to working capital movements and cash profits increased with a decent amount of free cash generated.  Both business sectors did well due to organic growth and acquisitions, in buoyant markets.  I am a bit concerned that they felt the need to issue new shares but the forward PE of 15.5 and yield of 3.3% looks OK for a company that is somewhat counter-cyclical. Tempted to buy in here.

On the 24th September the group announced the acquisition of Regeneratus Consulting 1, an Exeter-based advisory practice with expertise in restructuring, turnaround and legal issues.  Last year it had pre-tax profits of £200K and it has assets of £600K.  The acquisition is for an initial consideration of £500K with contingent consideration of up to £1.1M.

On the 21st October the group announced the acquisition of Ernest Wilsons. The business is a UK business transfer agent, providing agency services for the sale of small businesses across the country.  The acquisition enhances the group’s existing transactional support services provided by Eddisons, which include the sale of commercial property together with machinery and business asset disposals.  Last year the business reported pre-tax profits of £700K and it had gross assets of £500K. 

The acquisition is for an initial consideration of £4M to be satisfied by £3M in cash and through the issue of 1,163,874 new shares.  An additional contingent consideration of up to £1.6M could be payable in the three years following completion.

On the 25th October the group announced the acquisition of Alexander Lawson Jacobs, a London-based insolvency and business recovery practice.  Last year it reported pre-tax profit of £900K and gross assets of £500K.  The acquisition is for an initial consideration of £2.4M to be satisfied by £2.1M in cash and through the issue of 296,195 new shares.  There is contingent consideration of up to £4M over a five year period.