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08 Aug 18. G4S shares fall 7% as profits and revenues fall. Security company G4S reported a fall in revenue for the first half of the year amid the adverse impacts of its restructuring and of foreign exchange rates, but the outsourcer said it was confident about growing momentum in the business. Revenue fell 7.5 per cent compared to last year to £3.7bn, while adjusted profit before interest, tax and amortisation fell by 10.5 per cent to £213m. Further adjusted to strip out the impact of the movement in exchange rates, onerous contracts and businesses that were sold or closed in the period, revenue increased 0.2 per cent to £3.6bn, while profits fell 3.2 per cent. Shares were down 7 per cent in early trade on Thursday. “As anticipated, the Group delivered a marked improvement in revenue generation in the second quarter, with organic growth of 2.8 per cent resulting in half year organic growth of 0.2 per cent against demanding comparatives,” said chief executive Ashley Almanza. “Our contract wins and strong retention rate in the first half of 2018 provide revenue momentum into the second half of the year. This, together with growing technology-enabled services in both our cash and security businesses, a favourable sales mix and planned productivity benefits, underpins the Group’s positive outlook for the full year.” In the six months, the group saw new contract wins of £0.7bn (in annual contract value). Its performance in the Middle East & India recovered compared to last year, when consistently lower oil prices had weighed on trading in the Gulf. G4S said lower profitability in the region was expected to improve in the second half of the year. In line with last year, the group spent £14m in restructuring costs in the period, and said it aimed to generate savings of between £90-100m by 2020. Earnings per share fell to 6.7p from 9.8p last year on a statutory basis, and remained flat at 7.4p on an adjusted basis. G4S also raised concerns that Brexit could lead to a “shortage of skills or workforce availability” in the UK — although noted that 80 per cent of its revenues were generated outside the UK. (Source: FT.com)
08 Aug 18. TT Electronics shares power ahead following strong results. TT’s first-half results show the company is building real momentum, according to Numis analysts. TT said its move into growth markets benefiting from electrification had helped deliver higher growth and improved margins. Shares in TT Electronics (LON:TTG) soared more than 16% after the electronics engineer said its first-half operating profit grew more than a third and that its prospects for the remainder of the year looked good. The manufacturer of electronic components and provider of manufacturing services reported a 34% uplift in operating profit to £14.6m on revenue 8% higher at £194.2m in the six months to the end of June. It also hiked the interim dividend to 1.95p from 1.75p.
“These results demonstrate that the company is building real momentum. Book-to-bill over 1.0 suggests the second half will generate further growth in sales and profits. The Stadium and Precision acquisitions are integrating well whilst the increased investment in R&D (5.2% of sales) supports growth and its drive into higher technology capabilities,” Numis analysts said in a note to clients.
TT Electrics said its strategic move to position itself in growth markets benefiting from increasing electrification, which had resulted in the business delivering higher growth and improved margins.
“Our recent acquisitions have added more design-led product solutions, whilst providing a new growth dimension focused on connected devices and the Internet of Things,” TT Electronics CEO Richard Tyson said. “We continue to look for further opportunities to add to our portfolio. Our first half performance and order momentum give us confidence of progress for the full year ahead of our prior expectations.”
Shares in TT Electronics were 16.4% up at 256p in early afternoon trade. (Source: proactiveinvestors.co.uk)
24 Jul 18. Bioquell PLC – 2018 interim results. Bioquell PLC (“Bioquell”) (LSE symbol: BQE) – a leading provider of bio decontamination solutions and modular isolators for the Pharmaceutical, Life Science and Healthcare markets today announces its interim results for the six month period ended 30 June, 2018.
- Total revenues including defence sales increased by 9% to £15.7m (2017: £14.3m), an increase of 13% at constant currency rates
- Revenues excluding defence increased by 7% to £15.0m (2017: £14.0m). Like-for-like revenues, adjusting for the disposal of the AirFlow Spares and Service business (“AirFlow”), were up 15% at constant currency rates
- EBITDA increased 28% to £3.3m (2017: £2.5m)
- Profit before tax increased by 41% to £2.0m (2017: £1.4m)
- Basic earnings per share were up 38% to 7.6p (2017: 5.5p)
- Cash and cash equivalents of £15.0 m at 30 June 2018 (2017: £11.8 m)
- Disposed of final non-core asset, MDH Defence, for an initial consideration of £0.4m and a possible future consideration of £0.6m contingent on financial performance
- Completed the disposal of AirFlow
- Repositioned business with focus on bio decontamination solutions and modular isolators
Commenting on the 2018 interim results, Ian Johnson, Executive Chairman of Bioquell PLC, said: “I am pleased to report continued growth in revenues despite exchange rate headwinds, a strong comparative first half in 2017 and the effect of disposals. Our core business increased by 15% on like for like sales at constant currency. Profit before tax increased by 41% with further improvement in gross margins from 52% to 54%. The final non-core asset disposal of MDH Defence (which will cease to generate revenue from the end of 2018) provides the business with more predictable revenues and higher quality earnings from bio decontamination solutions and modular isolators. Given the continued improvements, particularly with respect to profitability, the Board believes that the Company will exceed current market expectations for profit for the full year.”
07 Aug 18. Mitsubishi posts further defence losses. Japan’s largest military manufacturer, Mitsubishi Heavy Industries (MHI), has reported strong growth in quarterly group profits but its defence sales continue to decline. MHI said in a statement on 3 August that its revenues in the first quarter of fiscal year 2018 were JPY906.1bn (USD8. bn), which is comparable to the same period last year. MHI added that its group quarterly profits from business activities surged nearly fourfold to JPY31.4bn thanks to increased sales from its Power Systems division. However, MHI’s Aircraft, Defense & Space (ADS) business unit posted year-on-year declines in orders, sales, and losses. ADS orders decreased 6% to JPY85.1bn, sales fell 12% to JPY150.6bn, and the business unit’s losses widened to JPY12.1bn compared to a loss of JPY6.8 bn in the first quarter in 2017. (Source: IHS Jane’s)
08 Aug 18. ST Engineering announces profit increase. Singapore Technologies Engineering (ST Engineering) has posted a decline in revenues but an increase in profits during the second quarter of fiscal year 2018, the company announced on 8 August. In a press release ST Engineering said that in the quarter ending 30 June, its revenues were SGD1.65 bn (USD1.2bn), a 3% decline compared with the same period last year. Group profit before tax increased 4% to SGD150.4m while earnings before interest and tax climbed 15% to SGD144.5m. In terms of its business divisions, ST Engineering’s aerospace sector recorded a 12% growth in revenue to SGD713m, while electronics declined 10% to SGD512 m due to the absence of a one-time revenue increase in the same quarter in 2017. (Source: IHS Jane’s)
07 Aug 18. Ultra Electronics downgraded to ‘hold’ by Kepler Cheuvreux on limited upside of raised target price. The broker said that organic growth was expected to return to the firm, however declining prepayments on overseas orders and supply chain shortages could affect cash flow. Despite the downgrade, the broker raised its target price to 1,720p from 1,650p. Analysts at Kepler said that despite first-half results indicating that “organic growth will resume”, the FTSE 250-aerospace and defence firm’s free cash flow (FCF) “appeared to be under some pressure, as [capital expenditure] and working capital could rise”.
“The order book up 19% organically and sales growth up 1.3% are positive indicators of Ultra finally returning to organic growth, six years after having entered an unprecedented period of organic decline,” said Kepler’s analysts in a note, although they added that due to raised capital expenditure guidance to £20mln from £15mln, declining prepayments on overseas orders, and the appearance of supply chain shortages meant it was “unclear whether Ultra will stick to its 85% cash conversion guidance beyond [the 2018 financial year]”.
The broker also expected Ultra’s chief executive Simon Price to announce additional cost reduction efforts in a strategic review to be unveiled in March 2019, in addition to “higher investments in core skills and capabilities” and “improved discipline in [merger & acquisitions] criteria, as recent M&A has not delivered in line with plans”. As a result of its revised estimates, the broker raised its target price to 1,720p from 1,650p, “assuming higher organic growth (from 3% to 4%), but lower FCF conversion”, with a limited upside to the current share price justifying the new ‘hold’ rating. In mid-morning trading Tuesday, Ultra Electronics shares were down 9.4% at 1,539p. (Source: proactiveinvestors.co.uk)
07 Aug 18. Meggitt ups dividend, helped by organic revenue in first half. The interim dividend increased 5% to 5.3p per share. Meggitt PLC (LON:MGGT) emphasised its organic revenue growth, measuring 9%, as it released its first-half results statement. The engineering and defense company said the performance was driven by its civil aftermarket, military and energy units, albeit, the impacts of currency movements and divestments meant that the reported revenue figure actually declined by 1%. It also highlighted the recent, early July, upgrade to the full year organic revenue growth forecast to between 4% and 6% – thanks to its first-half performance and strong order intake. Reported profit declined 37% from the preceding six-month period, reflecting what were described as lower gains from disposals, as well as mark-to-market adjustments. Cash flow metrics, meanwhile, showed improvement – up 19% to £27.1mln – and the company decided to increase its dividend payment by 5%, to 5.3p per share.
“Trading in the first half was strong, with organic growth accelerating across our civil aftermarket, military and energy end markets,” said Tony Wood, Meggitt chief executive. “Good progress has been made in the ongoing execution of our strategy in the first half. We have continued to sharpen the strategic focus of our portfolio and taken further steps in the delivery of our operational transformation.”
Wood added: “Looking forward, we remain well placed to deliver our 2021 targets to achieve an underlying operating margin of at least 19.9% and to deliver £200m of cash from increasing inventory turns from 2.3x to 4.0x” (Source: proactiveinvestors.co.uk)
07 Aug 18. Meggitt PLC 2018 Interim results. Strong H1; well positioned to deliver upgraded full year guidance Meggitt PLC (“Meggitt” or “the Group”), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and energy markets, today announces unaudited interim results for the six months ended 30 June 2018.
- Organic revenue growth of 9% reflects strong trading performance in civil aftermarket, military and energy. Reported revenue declined by 1% due to currency and non-core divestments.
- Full year organic revenue growth forecast raised (on 2 July) to 4 to 6% following better than anticipated trading in H1 and strong order intake with organic book to bill of 1.13x.
- Underlying operating profit declined organically by 2% to £150.8m, within which underlying operating profit at Meggitt Polymers & Composites (MPC) was £2.3m (June 2017 as restated: £21.9m). Excluding MPC, underlying operating profit was up 7% (170 basis point margin improvement).
- Statutory operating profit declined by 37% as a result of lower gains from disposals and noncash mark to market of our financial instruments, compared to the prior period.
- Free cash flow increased by 19% to £27.1m (June 2017 as restated: £22.8m) resulting in net borrowings: EBITDA on a covenant basis of 1.9x (June 2017: 2.2x).
- Strong progress on key strategic initiatives:
o Completed three further divestments to focus the portfolio, with 70% of revenue now in attractive markets where Meggitt has a strong competitive position;
o Continued investment in differentiated technologies;
o Factory consolidation and expansion activity ahead of plan; work at UK Super Site now underway;
o Moving to a customer-aligned divisional structure from January 2019 in order to accelerate organic growth and realise the operational benefits of our continued journey to becoming an integrated Group.
- Interim dividend up 5% to 5.3p reflecting our continued confidence in the prospects for the Group.
1 Restated for IFRS 9 /15/16. 2 Organic numbers exclude the impact of acquisitions, disposals and foreign exchange. 3 Underlying profit and EPS are used by the Board to measure the trading performance of the Group as set out in notes 4 and 9. 4 Underlying EBITDA represents underlying operating profit adjusted to add back depreciation, amortisation and impairment losses. 5 Net borrowings represent net debt adjusted to exclude lease liabilities.
Tony Wood, Chief Executive, commented: “Trading in the first half was strong, with organic growth accelerating across our civil aftermarket, military and energy end markets. As a result, in July we increased our full year revenue growth guidance to 4 to 6%. Good progress has been made in the ongoing execution of our strategy in the first half. We have continued to sharpen the strategic focus of our portfolio and taken further steps in the delivery of our operational transformation. Relationships with our key customers are expanding and we have announced our intention to move to a customer-aligned organisation structure from 2019. These steps will further accelerate our transition to an integrated aerospace, defence and selected energy Group. As previously indicated, elevated costs at Meggitt Polymers & Composites (MPC) mean that we expect full year operating margins to be towards the lower end of our 17.7 to 18.0% guidance range. We remain focused on delivering further operational improvements at MPC and expect financial recovery to build through the second half and into 2019. Looking forward, we remain well placed to deliver our 2021 targets to achieve an underlying operating margin of at least 19.9% and to deliver £200m of cash from increasing inventory turns from 2.3x to 4.0x. The acceleration in growth and our continuing confidence in the prospects for the Group, underpins our interim dividend increase of 5% to 5.3p.”
06 Aug 18. Interserve shares volatile after outsourcer swings to loss. Shares in troubled government outsourcer Interserve dropped more than 10 per cent in early trade on Tuesday, before making a sharp recovery, after the group swung to a loss in the first half of the year. Shares in Interserve fell as much as 12 per cent in early trade in London after the group reported a £6m loss for the six months to June 30 and a 10 per cent fall in revenue. After the initial drop, the share decline eased to only 1.5 per cent. The news comes soon after the group, which provides support services in areas including probation and healthcare, secured a rescue deal from creditors and in the wake of probes from both the UK Cabinet Office and the Financial Conduct Authority. It also follows an announcement in July that the UK government plans to wind up contracts with private companies, including Interserve, for probation services several years early. In October, Interserve warned that it expected operating profit for the second half of 2017 to be “approximately half the level” of that reported in H2 in 2016, and subsequently reported a loss for the full year. Shares plunged on the news, and have since traded at lows not seen since the 1980s. (Source: FT.com)
06 Aug 18. Morgan Advanced Materials coming to the boil. The company, formerly known as Morgan Crucible, could be set to enjoy the benefits of some heavy investment in research & development, Berenberg believes. Morgan is “in the best shape it has been for many years.” It’s not too late to get on board the Morgan Advanced Materials plc (LON:MGAM) bandwagon, says Berenberg, which has upgraded the stock to ‘buy’. Results for the first half of 2018 from the advanced ceramics and carbon products manufacturer showed “significant progress”, according to Berenberg, with 7.8% year-on-year organic sales growth and 12.4% organic growth in underlying earnings (EBITA). That was a better performance than the German bank had been expecting and means Morgan is now trading ahead of its end-markets. Berenberg has become increasingly confident that Morgan is “in the best shape it has been for many years”. Organic growth of 6.7% and a return of capital employed of 17.1% projected by Berenberg for the full-year are the highest rates since 2011 when Morgan was recovering from the financial crisis. Leverage of 1.1 times annual underlying earnings is the lowest since 2007 while cash generation has significantly improved.
“Operationally, the company now seems better positioned in more attractive end-markets with an improved, more streamlined organisational structure,” Berenberg suggested.
The bank thinks the company is set to enjoy the fruits of increased research & development (R&D) over the next two-to-five years, while margins could be set to improve, having been weighed down in the past by R&D spending, unhelpful exchange rate movements and the loss-making defence business, which is up for sale. Berenberg has a target price of 420p for Morgan, up from 330p previously; the shares were up 4.4% at 367p on Monday morning. (Source: proactiveinvestors.co.uk)
23 Jul 18. SRT Marine Systems swings to full-year loss on contract cancellation. SRT Marine Systems said on Monday that it swung to a full-year loss as revenue slumped following the cancellation of a key contract. In the year to the end of March, the company swung to a loss before tax and exceptional items of £5.8m from a profit of £1.2m the year before, as it recorded a one-off exceptional impairment charge of £1.5m in relation to a systems contract with a European systems integrator, which is a prime contractor to a SE Asian coast guard.
“Although we received written re-assurances from the customer, including a letter from the end customer explaining that the delay had arisen due to a lack of budget availability and would re-commence in the future, since in this instance, SRT was not the prime contractor and thus not engaged directly with the end customer, we decided that given this lack of visibility it was prudent for us to write down the full value of the project.”
Meanwhile, revenue in the year tumbled to £5.3m from £11m.
Chief executive officer Simon Tucker said: “I am very disappointed with the shortfall in our revenues for the year, which was caused by an unexpected contract change. This does not reflect the excellent operational progress the business has made with regards to product development and sales opportunities. I recognise that we are measured on the profits that SRT delivers and to that end expect SRT to measure up to expectations in the near future.” (Source: Sharecast)
06 Aug 18. Ultra Electronics Holdings plc (“Ultra” or “the Group.”)- Interim Results for the six months to 30 June 2018.
- Group benefitting from increased US defence spending
- Organic(3) growth in H1
o Revenue growth of 1.3% (H1 2017: organic decline of 6.7%)
o Profit growth of 1.4% (H1 2017: organic decline of 5.4%) excluding £6.1m impact of development contracts
- FX headwind impact in H1: revenue by 5.5% and underlying operating profit by 5.8%
- H1 operating margin of 13.7%; 15.4% excluding impact of development contracts (H1 2017: 15.7%)
- Strong order book of £969.2m, organic(3) growth of 19%
- As at 30 June 2018, £49.7m spent as part of previously announced share buyback
Douglas Caster, Chairman, commented: “The majority of Ultra’s operations have had better than expected order intake during the period reflecting an improvement in our major market. As previously disclosed, cost overruns on specific development contracts impacted the reported results, however the Group as a whole performed broadly in line with management expectations.”
Simon Pryce, Chief Executive Officer, commented: “Although I have only been here a short time, it is clear that the Group has a strong and relevant technology base and a range of specialist capabilities supporting a broad number of long term platforms and programmes. We enter the second half with a strong order book and remain focused on execution and delivery while continuing to win new business. The Group is well positioned in areas of priority spend with significant exposure to the strengthening US defence budget. We will also be looking at the potential for greater connectivity, operational improvement and further targeted investment in core technology, processes and people. Management’s expectations for 2018 are unchanged from our recent pre-close trading statement.”
02 Aug 18. Investors blindsided by Rolls’ recovery potential. Rolls-Royce (RR.) is making a habit of winning over investors on result days. The embattled jet engine maker faces no shortage of problems, yet still managed to tick all the right boxes at the half-way point, upgrading guidance, outperforming lowly analyst estimates and reiterating its ambitious pledge to generate £1bn of free cash flow by 2020. Statutory figures were blighted by the usual roll-call of ugly one-off costs. This time around, they were attributed to another dose of Warren East’s efficiency measures, a hefty loss on the group’s foreign currency contracts, and a £554m charge booked to handle the “abnormal costs” associated with fixing malfunctioning Trent 1000 engines. Management doesn’t believe these exceptional expenses offer an accurate reflection of Roll’s progress, and so urges investors to focus on its underlying figures instead. Based on those more favourable metrics, heavy statutory losses were replaced with a £81m pre-tax profit, an attractive outcome considering that analysts expected the group to post a £60m loss. Underlying profits were boosted by a variety of cost reduction and efficiency measures, as well as positive trading conditions across key end markets. The engineer’s power systems segment delivered double-digit original equipment and services revenue growth, while its core civil aerospace arm narrowed its underlying operating profit loss by £149m to £112m after reducing cash deficits on original equipment engine sales by 15 per cent and experiencing stronger appetite for high-margin replacement and maintenance work. Better cash flows from its civil aerospace aftermarket, together with higher deposit inflows at defence and a more balanced profile of civil spare engine deliveries, enabled Rolls to register a much improved free cash inflow of £10m across its core businesses, despite reporting additional R&D and Trent engine expenses. Management now expects free cash flow, a measure closely watched by investors, to reach the upper end of its earlier guidance of between £350m and £550m. It also predicts that underlying operating profit for the full-year will come in at about £450m, give or take £100m, up from its previous target of between £300m to £500m. Bloomberg consensus estimates give pre-tax profit of £330.6m and adjusted EPS of 13.7p for the Dec 2018 year-end, rising to £661.2m and 26.7p in 2019.
IC View: Confidence in Rolls appears to be at an all-time high, with the shares now trading at 39 times 2019 forecast earnings. This huge level of faith in Mr East’s turnaround strategy isn’t completely unfounded, although we’d argue that the recent Trent 1000 setbacks should serve as an important reminder that the engineer isn’t completely out of the woods yet. Hold. Last IC view: Hold, 829p, 13 Jun 2018 (Source: Investors Chronicle)
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