Results Round-up
Posted on: 09 Aug 2012 by Polly York

Defence technology group Cobham saw robust growth in its core businesses in the first half, but said that it is approaching 2013 ‘with caution’, particularly as its order intake slipped by over a fifth.

Nevertheless, the firm hiked its interim dividend per share by 33% from 1.8p to 2.4p.

Core revenues, which exclude Analytic Solutions (divested in November 2011) and Commercial Systems (divested in July 2012), increased by 6% from £773m to £817m in the six months to June 30th. Organic core revenue growth rose 1.7%, better than the 1% core growth expected by Credit Suisse.

However, total revenue fell 5% from £892m to £843m, while the order intake dropped 21% from £969m to £768m, in part due to the divestment of Analytic Solutions. Excluding this sale and adjusting for acquisitions, group orders fell 8%.

Underlying pre-tax profits fell 4% from £149m to £142m. Underlying earnings per share (EPS) increased 9% from 9.8p to 10.7p; Credit Suisse was expecting around 7% EPS growth. Underlying results are from continuing operations excluding the impacts of certain M&A-related costs and business restructuring costs (as well as other items).

The company said that the divestment of the Beacon business and the more first half-weighted contribution from the 2011 share buy-back means that full-year EPS growth will be lower than the first half. As such, full-year EPS will be at similar levels than the previous year.

‘We have made progress in the first half delivering organic revenue growth, earnings per share up 9% and a further step in rebalancing the portfolio towards our commercial markets,’ said the new Chief Executive Bob Murphy.

He said that the outlook for the commercial and non-US defence/security businesses is ‘positive’ – these units now represent 60% of revenue. However, the outlook for the US defence/security market for the end of 2012 and 2013 is particularly uncertain due to the upcoming US elections and the lack of political consensus on US Government budgets, Murphy added.

Cobham’s exposure to the US defence/security markets has been reduced over the last year from 48% of group revenue to 40% (core pro-forma).

‘Given the uncertainties referred to we are approaching 2013 with caution and building flexibility into the operating model including preparations for appropriate cost management in response to differing US Government budgetary outcomes.’ 

Recent updates from Aquarius Platinum have been increasingly gloomy about the difficulties of operating in South Africa so it was no surprise when the platinum miner announced it had fallen into the red.

Loss before tax in the 12 months to the end of June was $189.0m versus a profit of $25.4m the year before, with the group taking a £95.0m hit on foreign exchange (FX) movements this time round, versus a £60.1m FX gain the year before.

Revenue slumped 29% to $485.4m from $682.9m, reflecting a 14% decline in the group’s attributable production to 411,398 platinum group metals (PGM) ounces for the full year.

The average rand basket price achieved was flat year-on-year at just over 10,300 rand per PGM ounce.

Mine operating net cash flow plummeted by 85% to $26m from $176m the year before, and mine earnings before interest, tax, depreciation and amortisation fell in line with cash flow to $29m from $206m the year before.

Stuart Murray, Chief Executive Officer of Aquarius Platinum, gave his usual hard-bitten assessment of the current situation for players in the South African PGM industry, describing the year just gone as ‘an exceptionally challenging one’. The general operating environment combined with the poor pricing conditions place the South African (SA) PGM sector under real pressure, in Murray’s view.

‘Company specific operational performance issues, a significant drop in the Rand price basket especially since February coupled with rising input costs in SA and Zimbabwe, poor labour relations at the primary mining contractor in SA, and unreasoned safety stoppages all combined to deliver an unfortunate operational and financial outcome for Aquarius,’ Murray said.

Aquarius is currently in cash conservation mode, having mothballed its Everest and Marikana mines. The group’s cash balance at the end of the reporting period was $180m, down from $328m a year earlier. Aquarius believes its present cash reserves are sufficient to manage its operating mines for the next twelve months based on present market dynamics but points out that it will need to secure additional funding if it is required to conclude the acquisition of mineral rights to Booysendal South, an area adjacent to Aquarius’s Everest mine.

Aquarius paid a $15m deposit during the reporting period on the proposed acquisition which is set to cost the company $179m in total. In noting the necessity for securing additional capital, Aquarius is taking advice on a number of options.

No dividend has been declared this year, whereas last year the company paid a divi of 8 cents.

Tags: analytic solutions | bob murphy | cobham | commercial markets | core businesses | core growth | credit suisse | defence technology group | earnings per share | tax profits