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Research Tree provides access to ongoing research coverage, media content and regulatory news on ZODIAC AEROSPACE. We currently have 8 research reports from 1 professional analysts.
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Take a seat for the (too) slow recovery
23 Nov 16
Showing a really mixed performance by division, Zodiac has held its Aircraft Interiors Activities’ operating result loss at a reasonable level. Moreover, the strong increase in Aircraft Systems’ operating result slightly compensated for the headwinds encountered by the company. FY revenues came in at €5.21bn, representing a 5.6% increase versus last year, and the recurring operating result decreased by 14.2% to €269.5m, now representing a 5.2% operating margin versus 6.4% last year. Also, the operating result decreased to €193.9m (-33.6% yoy), while the net result decreased by 41.5% to €107.9m. Finally, the group has announced a dividend of €0.32/share and its EPS decreased to €0.38/share.
Q3 progress undeniable
15 Jun 16
Solid +4.4% organic growth in Q3 15/16 resulting in sales for 9M up +5.9% to €3,841.8m, with organic growth of +0.4% and a forex benefit of 5.5%. During the quarter, System activities saw a continuing weakness from its Aerosafety business (-7.7% organic decline in Q3 and -6.5% for 9M 2015/16) as the contract from US airports’ arresting systems came to an end, but a recovery is expected in Q4. On the other hand, the Aircraft systems business benefited from strong traffic growth in commercial aviation but growth was dampened by sales falling in Helicopter-related activities as well as in the Business jet segment. The Aircraft interior business also posted a solid quarter with sales up 6.3% on an organic basis and 5.3% taking into account a negative 1.3% forex impact. The Seats business returned to organic growth over the course of the quarter, +3.2%, as Zodiac was able to obtain certification for business class seats and therefore was able to deliver these (Cathay Pacific business class A350 seats). Similarly, Cabin maintained its solid organic growth profile and improved on its organic growth figures (+9.9% in Q3 vs +4.1% for 9M 2015/16). The improvement in the delivery profile for the A350, as well as the acceleration at Embraer and Bombardier, is leading to a positive volume boost. In addition to a solid growth profile during the quarter, Zodiac announced reassuring commercial contracts across all its business units suggesting that its remains well placed in the market and is not suffering significantly from the issues it encountered over the last two years. The announcements include a retrofit contract with AirFrance for its A330 fleet, as well as a significant win from United Airlines which selected Zodiac’s Polaris business class seats. Reassuringly, Zodiac has confirmed its full-year guidance of a flat current operating income. The banking covenant should be respected. This puts an end to the series of profit warnings.
Zodiac turning the corner in H2?
20 Apr 16
Zodiac announced its H1 results with no surprises on the revenue front given that sales were released a month ago, H1 15/2016 revenues are up +7.1% to €2,489.1m; but down 1.7% on a lfl basis. The key information related to its current operating income over H1 15/16 which came in at €80.4m. Looking at the various segments: Together Aerosafety and Aircraft Systems (now called just Aircraft Systems) generated a current operating income of €153m, up from €142m in the previous year, whilst the Aircraft interior segment posted a negative contribution of some €66.3m, hampered by what the company estimates is €110m in excess costs due to issues in the Seats and Cabin business and the structural lower margin on product ramp-ups, while maturing high margin products are seeing volumes tail off. Importantly, the guidance for FY 15/16 has been maintained with the group expecting an improvement in its financial results in H2 and confirming its target of a current operating income for the 2015/16 fiscal year to be close to 2014/15’s (€314m), suggesting a COI of c.€220m over H2 or a margin of 8.2% based on our estimates for FY revenues. Net debt to shareholders’ equity ratio stood at 0.5x and net debt has increased to €1,621.4m vs. €1,423.3m. The group’s financing was reinforced in H1 and the group does not expect to breach its financial covenants at the year-end even excluding the hybrid equity line that management now says will be used to finance an M&A transaction if necessary and, in this case, avoid breaching the covenants.
A collapsing House of Cards?
16 Mar 16
Top-line evolution: H1 revenues at Zodiac are a mixed bag with ramp-ups of large commercial aircraft still very much the growth driver. On the Regional aircraft front, sales are stable meaning that growth at Zodiac is flat. The Business Jets segment, however, is on a downward trajectory given the softness in the market and especially the delays in entry into service of multiple platforms. The demand from the helicopter market continues to fall with the Oil & Gas segment particularly challenging. Aftermarket sales are proving resilient as air traffic remains robust. Overall, H1 revenues stood at €2,488m growing 7.1% but mainly thanks to a favourable exchange rate impact of 8.7%. On an organic basis, growth stood at a negative 1.8% with Aero-Systems (Aero Safety -6% and Aircraft systems -1.4%) revenues falling by 2.8% and Aircraft interior business (Seats -4.2% and Cabin +1.4%) revenues falling by 1.1%. Management attempted to explain the reasons for last month’s profit warning, suggesting that the first four months of the year were in line with the guidance given in December, however January and onwards saw a fall in performance that meant that guidance had to be scrapped. Zodiac was forced to realise that despite no new issues arising in either the seats or the cabin segments, the corrective measures would take significantly more time than first thought and therefore additional costs would continue for a longer period of time. Issues remain: SEATS: The backlog of seats that have been delayed has remained stable since Q1 c.300PAX. The problematic seat shell production remains an issue and Zodiac is incurring significant extra costs (excess production costs and in service support costs). While production has issues due to bad design and specifications and therefore leading to redesign costs, the supply chain is also not functioning effectively, meaning that spare parts are insufficient. The longer term fixes include adding industrial scale, redefining segment governance and responsibilities, hiring new required competencies, overhauling operations and improving the engineering capability both in design and production. The target is now to return to a normal operational performance in the next 18 months. CABIN: With many programmes ramping up fast, Zodiac was insufficiently prepared to meet the production demands and this means that catching up and delivering on time is significantly impacting the segment’s profitability. The programmes concerned include the A350 lavatories for which the production site in California did not have sufficient capacity, requiring the opening of a second line in Canada, however with some delay. An initial improvement in the production rate as well as the quality was achieved in February (rate 5) with Zodiac targeting rate 8 by August. Zodiac is incurring costs due to the retrofit programme required to fix the already delivered lavatories. On the A320 programme, Zodiac is offering the Spaceflex V2 option which is encountering significant success with airlines and means that Zodiac is looking to add additional capacity in anticipation. Overall, the various costs that are ramping up are: Cost of redesign. Non-quality costs, higher purchasing costs and late delivery penalties. Costs related to the learning curve which is not in line with expectations as a result of required additional training and excess labour. Again, looking at resolving the structural issues, Zodiac is improving the industrial processes and adopting modern enterprise resource planning systems (ERP) which are requiring additional staff training. In addition, production expertise is being transferred from EU sites to the US. Similar to the seats business, the Cabin segment’s management expects a return to a normal operational performance based on quality and on time delivery in the next 18 months. Update on Zodiac’s financial position: Zodiac maintains an overall liquidity position of €2.07bn composed of the following: A club deal from 7 banks of €1.03bn for which Zodiac has extended the maturity by an additional year to 2021. A Euro Private Placement of €230m with a 7 year maturity which will help fund the €133m July 2016 repayment part of the Schuldschein €535m and replace an existing Private Placement maturing in 2018. Zodiac has set up a hybrid financing line of €250m with no fixed maturity which will be recognised in shareholders’ funds. Commercial paper programme of €1bn of which €458m was used at 29/02/2016. The existing banking covenant on the company Club deal remains a net debt/EBITDA ratio of 3x which is tested at the financial year-end. Outlook: Following last month’s profit warning, Zodiac suggests that the 2015/16 operating income should be close to that of 2014/15. More details will be given at the group’s H1 results presentation on 24 April 2016.
Total loss of credibility
02 Mar 16
Zodiac is implementing its Focus transformation plan, a complete revision of the production systems within the whole group. Zodiac has updated the market on its delivery status and suggested that, in its Seats business, no progress has be made since mid-January in terms of delivery delays and that the “transformation and industrial recovery" may take longer than initially planned. Zodiac confirms that this will result in "excess costs remaining at a high level". As a result, the guidance of a 10% operating margin for the FY and the 18-month guidance for c.12% are at risk. In addition, Zodiac, on the basis its revised projections, does not expect to break any of its banking covenant ratios (adjusted net debt/EBITDA), which are calculated exclusively at the end of the fiscal year.
No return to a normative 14-15% margin over the next two years
26 Nov 15
We will not refer to the sales progression in this article as we tackled the subject in our Latest on 16/09/2015. Over the course of the full year 2014/15, Zodiac’s current operating income (COI) fell by 44.6% to €314m. As a result, the group's COI margin fell to 6.4% for FY 14/15 from 13.6% in 2013/14 and 14.5% in 2012/13. Aero Safety saw its COI improve by €6.3m to €118.3m, despite an organic decline of €16.9m. Aircraft Systems saw its COI increase by €29m, mainly thanks to foreign exchange movements which compensated for an organic decline of €39.1m. The two segments will be merged together in the future as part of Zodiac’s reorganisation. The new two division organisation was set up in September and The Focus transformation plan is being implemented to “learn from the seats crisis and strengthen the group's industrial operations”. The Aircraft Interiors activity was mainly responsible for the decline in the COI with its contribution falling to -€6.1m from €285m. The €325.5m in cost overruns versus “Zodiac's budgeted costs” came mainly from the Seats segment. The €325.5m incremental costs split 60% into increased production costs and 40% extra costs. Production costs differences included (c. €200m): • Labour costs, • Raw materials, • Cost of non-quality, • Procurement cost variances, • Inventory write-offs • Temporary workers and consultants While extra costs (c. €125m) refer to: • Penalties • Settlement costs • Logistics costs Zodiac saw its full-year net debt increase to €1,267m from €1.07bn. Zodiac emphasised that its debt covenant had not been breached. The increase of €238m in working capital is the main reason for this increase. With working capital as a percentage of sales representing 37.4% at the end of 2014/15, this represents a 3ppt increase versus the previous year and 8ppts since 2011/12. This highlights that Zodiac has struggled to manage its top-line growth and ramp-ups optimally. Zodiac is set to maintain the dividend flat year on year at €0.32. Finally, the guidance for FY 2015/2016 suggests that Zodiac should achieve a slight growth in revenue with a positive dollar impact and a COI margin of around 10%. This seems conservative and unhelpful given that the CEO said that it would look to do better than that, setting expectations higher already and rendering the guidance instantly obsolete. In addition, the current operating margin should improve in 2016/17, by an estimated additional 2ppts with respect to the 2015/16 fiscal year, i.e. 12% given the current 10% guidance.
07 Dec 16
Severfield’s (SFR’s) H117 results were well ahead of the previous year; margin performance and order book development cause us to raise our FY17 profit expectations. This combination has also proved to be a catalyst for share price outperformance following the results. Revenue growth and further margin development towards management’s stated aim of doubling FY16 PBT by 2020 can sustain further progress.
Focused on the long term
08 Dec 16
These are rare events but it is nice to see a management use its public listing advantageously to trade short-term dilution in EPS for the optionality of asymmetric upside in the long term. With over £10m already in the balance sheet, ABD has successfully raised £5.4m gross in a placing and expects to raise another £1m from an offer. We were not surprised to learn that the placing was over 3.5x oversubscribed. How many listed UK companies are positioned to take advantage of the digital revolution in the automotive industry? The additional investment in new people, facilities, products & services should be dilutive to FY2017-18 EPS but this is small price to pay to establish the leading supplier of integrated test, measurement and simulation solutions to the autonomous vehicle industry. Our forecasts assume that growth will accelerate from FY2019. We raise our target price to 575p based on 15x FY2019 EPS, equivalent to Ricardo, the only other UK stock which has embraced the optionalities offered by the technological changes in the automotive industry.
Exceptional trading continues
08 Nov 16
Keywords has announced that the strong trading in localisation and audio services has continued into H216. In particular, the Synthesis business acquired in April continues to benefit from exceptionally strong trading. Full-year results are now expected to be materially ahead of consensus and we upgrade our FY16e EPS by 13%. Erring on the side of caution, we have not changed our FY17 estimates significantly. Nevertheless, we believe the company does have a platform to sustain double-digit earnings growth, and hence medium-/long-term prospects for further share appreciation remain good.
08 Dec 16
Elderstreet stake acquired 02 GENERAL NEWS Globalworth premium In this issue Venture capital firm Draper Esprit has taken a 30.8% stake in venture capital trust manager Elderstreet. Both investment managers focus on the technology sector and they will be able to co-invest. Elderstreet has investments in a number of AIM-quoted companies through its VCTs. The purchase was funded by an issue of Draper Esprit shares worth just over £250,000. Simon Cook, the chief executive of Draper Esprit, is a former partner at Elderstreet so he knows the business and the people who run it, although he did leave more than 14 years ago. Cook has previously acquired portfolios from 3i and Cazenove, two other firms where he has worked. Draper Esprit has an option to acquire the remaining shares in Elderstreet, which has more than £25m under management. Adding Elderstreet to the group enables Draper Esprit to offer investors a range of EIS funds, VCTs and an ISA qualifying listed evergreen patient capital fund. The enlarged group has venture capital assets under management of more than £350m. At the end of September 2016, Draper Esprit had a net asset value of 352p a share, which is similar to the current share price. The June 2016 flotation price was 300p a share. Draper Esprit is quoted on Ireland’s Enterprise Securities Market as well as AIM.
02 Dec 16
On 30 September 2016, when the company announced its full year results, it reported that the UK business had seen a slow start to the year, with particular weakness in repair and renewal spending by the NHS as well as “reticence” in the education sector. However, with the UK only representing about a third of the business, this weakness was expected to be more than offset by the positive effect of a weakened sterling on its overseas business, given the benefits for competitiveness and margins.