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BUREAU VERITAS SA
BUREAU VERITAS SA
Disappointing organic revenue
18 Oct 16
Organic revenue decreased by 1% in Q3 16. It is a disappointing trend as a positive turnaround was expected as from Q3 16. Q3 16 figures: Revenue reached €1,136m, -0.6% (vs +7.3% in Q3 15). Organic revenue declined by 1% (vs +0.9% in Q3 15). Acquired companies brought in 2.7pts of growth. The currency effect was a negative 2.3%. Four divisions out of eight had a decrease in organic revenue (Marine & Offshore: -9.8%, Industry: -9%, Government Services & International Trade: -4.1%, Construction: -1.6%) which more than offset the positive trend in the other divisions (Certification: +7.6%, Consumer Products: +4.5%, Commodities: +3.9%, In-service Inspection & Verification: +3.7%). The low organic revenue was due to the continuation of difficult trading conditions in the oil & gas capex-related activities (-21% in 9m 2016 following -19% in H1 16) which affected the Industry division and the deterioration of the shipping market which penalised all the businesses within the Marine & Offshore division. 9m 2016 figures: Revenue reached €3,358m (-3%) following -4.2% in H1 16. Organic revenue declined by 0.8% following -0.6% in H1 16. The acquisition of companies brought 1.8pts of growth. The currency effect was a negative 4%. The Certification division was the most dynamic with organic revenue growth of 6.1%, ahead of the In-service Inspection & Verification division, Consumer Products division and Commodities division, respectively +4.7%, +3% and +2.1%. These positive trends were offset by the collapse in revenue in the Industry division, -9.5%, the Governmental Services & International Trade, -4.2%, the Marine & Offshore division, -1.2%, and the Construction division, -0.3%.
First positive growth initiatives, nevertheless not enough
29 Jul 16
Bureau Veritas had a mitigating H1 16, as expected. The negative currency effects, the drop in oil & gas capex-related activities and the weakness of the activities in the upstream minerals market weighed on the overall performance. The reduction in the operating margin was limited thanks to the restructurings. H1 16 earnings. - Revenue was €2,221m (-4.2%). It included a negative currency effect (-4.9pts) related to the depreciation of the emerging countries’ currencies against the euro, and a change of perimeter with six acquisitions (+1.3pt). Organic revenue declined by 0.6% (-0.6% both in Q2 and Q1 16). This was largely attributable to the Industry division (-9.8%, o/w -11.4% in Q2 16) and the GSIT division to a lesser extent (-4.2%, o/w -3.2% in Q2 16). Organic revenue slowed in the Commodities division (+1.3%, o/w +0.8% in Q2 16) and remained weak in the Construction division (+0.4%, o/w +0.1% in Q2 16). All were more or less offset by organic revenue growth in Marine & Offshore (+3%), IVS (+5.2%), Certification (+5.4%) and the Consumer Products (+2.3%). By geographic area, organic revenue increased in Europe (+3.6%, Asia Pacific (+1.9%) and was rather stable in MEA/Eastern Europe (+0.6%). Conversely, there was a sharp decrease in Americas (-8.7% impacted by the oil & gas activities). - The adjusted operating income decreased to €350m (-5.3%) leading to a margin rate of 15.8% of revenue (-0.2pt). The decline was due to currencies as the adjusted operating margin was stable organically. Cost management and restructurings offset the impact of lower volume and price pressure in the oil & gas business and the increase in marketing/sales expense related to the growth initiatives (BV Strategic 2016-20 plan). - The reported operating profit decreased to €303m (-10%) after the €-32m amortisation of acquisition intangibles (vs €-34m in H1 15), €11.5m restructuring costs in the Americas and Australia for Industry and Commodities, €-3.5m acquisition costs (vs €-0.4m in H1 15) - Group net profit was €160m (-9%) after a slightly lower effective income tax rate (-0.9pt to 35.9%). The operating cash flow decreased by 26% to €161m due to lower EBITDA and an increase in the change of WCR due to a change in the timing for the disbursement of indirect taxes and social contributions. Free cash flow (after interest paid) decreased to €44m (vs €74m in H1 15) after lower net capex (-33% to €57m including the disposal of facilities for €9m in Latin America). The acquisitions of companies were significant and represented cash out of €-135m (vs €-66m in H1 15). On 30 June 2016, the adjusted net financial debt amounted to €2,184m and represented 2.2x shareholders’ equity. The adjusted net debt/EBITDA ratio was 2.44x (vs 2x at year-end 2015 and 2.31x on 30 June 2015).
Slow start to the year 2016
13 May 16
Q1 16 revenue Revenue reached €1,059m (-4.2%), which included a significant negative currency impact (-4.4%) related to the depreciation of emerging countries’ currencies against the euro. The strongest negative currency effect was in the Industry division (-7.4%). The contribution from acquisitions was low (+0.8%), unlike the same period last year (+6.2% in Q1 15). Organic revenue declined slightly (-0.6% vs +4.4% in Q1 15). The negative organic trend was attributable to the Industry division (-8.1%) which was impacted by the poor trading conditions for the oil & gas related activities in the Americas and Australia, and the Government Services & International Trade (GSIT) division (-5.2%) which suffered from lower volumes in Iraq and countries dependent on commodities. The most dynamic divisions were In-service Inspection & Verification (+5.1%) and Certification (+3.6%).
Mixed short term
25 Feb 16
In a difficult context that led to low organic revenue growth (+1.9%), the group succeeded in maintaining the operating margin rate (16.7% of revenue, +0.1pt). +FY2015 figures+: - Revenue reached €4,635m (+11.1%). The apparent revenue growth was the combination of a change in the perimeter (+3.7%), a positive currency effect (+5.5%) due principally to the strengthening of the $ vs the euro, and low organic growth (+1.9%). Organic revenue growth was above the group average in four divisions (Marine & Offshore: +10.2%, Certification: +4.6%, Commodities: +3.3%, In-Service Inspection & Verification: +2.8%). Organic revenue declined in the main division (Industry: -1.6%, 22% of the total) and the Government Services & International Trade/GSIT (-1.9%). - Adjusted operating profit increased to €775m (+11.7%) corresponding to a margin rate of 16.7% of revenue (+0.1pt). Margins improved in four divisions (Marine & Offshore: +1.4pt to 26.4% of revenue, Construction: +0.7pt to 15.5% of revenue, Consumer products: +0.6pt to 24.6% of revenue, GSIT: +0.2pt to 16.6% of revenue). These were practically offset by lower margins in the other divisions (Industry: -0.9pt to 14.2% of revenue, Commodities: -0.7pt to 11.3% of revenue, IVS: -0.3pt to 13.8% of revenue, Certification: -0.1pt to 17.1% of revenue). - Operating profit increased moderately to €577m (+2.5%) due to significant other operating costs (€-198m vs €-131m in 2014). There was an impairment of goodwill related to the commodities activity (€90m), accelerated amortisation of customer relationships in the Metals & Minerals segment in Australia (€10m) and restructuring costs (€21m) corresponding to measures implemented in the Americas and Australia (industry, commodities). - Group net profit decreased to €255m (-13%) after higher net financial expenses (€89m, +10%, including a negative currency impact of €-4m) and higher effective tax rate (45.2%, +8.9pts - no deductibility of the goodwill impairment). The adjusted effective tax rate was 37% (+0.7pt). Adjusted net debt was practically unchanged and amounted to €1,863m (-1%) and the net debt/EBITDA ratio was 2.02x at year-end 2015. In 2015, FCF (after interest paid) increased significantly (+15% to €462m) taking into account lower WCR and higher net capex (+15%). Cash outflows included investments in shares of €118m, the dividend paid for €238m and share buy-backs of €45m. The fluctuations of currencies added €55m to the financial debt. The proposed dividend in respect of FY2015 is €0.51/share (+6.3%) despite still challenging trading conditions in 2016.
Postponement of projects and price pressure in oil & gas
05 Nov 15
Organic revenue growth slowed as expected in Q3 15 and the weaknesses were concentrated in the Industry, Commodities and Consumer Products divisions. Q3 15 figures: Q3 15 revenue reached €1,143m (+7.3%). Overall growth was mainly attributable to the change in the perimeter (+2.9%) and a positive currency effect (+3.5%). Organic revenue growth slowed to +0.9% (vs +3.6% in H1 15, +3.2% in Q3 14). Low organic revenue growth was due to the weakness of the mineral and oil & gas markets which impacted organic revenue growth in Asia-Pacific (-0.8% mainly attributable to poor mining and oil & gas end-markets in Australia) and the Americas (-4.5%). In addition, the group had to face the deterioration in the economic environment in emerging countries such as Brazil, and Asia (moderate growth) to a lesser extent. Lastly, some delays in the launch of electronic devices affected organic growth in the Consumer Products division (+0.1%) which amplified the total revenue slowdown. Conversely, organic revenue growth was significant in Europe (+5.2%) thanks to the commercial initiatives which paid-off and benefited from a better economic environment. The activities were buoyant in Middle East/Africa/Eastern Europe (+8.1%). 9m 2015 figures: The group had revenue of €3,462m (+14.2% and +2.7% organically). The positive currency impact was significant (+7%) and the acquisition of companies increased revenue by 4.5%. External growth corresponded to the acquisitions of seven small/medium-sized companies (o/w four transactions in China) which represent a total revenue of €70m on an annual basis. On 30 September 2015, the adjusted net debt was slightly below the €2.1bn level seen at the end of H1 15.
New growth ambition, really convincing
09 Oct 15
The Bureau Veritas' Investors Day provided a promising future for the group. The main guidelines for 2016-20 are: 1) revenue growth of 8-10% including the acquisition of companies, o/w +5-7% organically with a progressive acceleration in the coming years, 2) an adjusted operating margin of c.17.5% of revenue, and3) high FCF generation. These targets are based on initiatives in five directions. 1) The development of the service offerings in the traditional key market segments where the group is well-positioned (marine/offshore, opex-related services in oil/gas-power & utilities-chemicals, retail & mining, and the increase in global contracts in Certification) and higher exposure to consumer spending-related sectors (building & infrastructure, agri-food, automotive and the "smartworld"). 2) Strengthening the key account strategy by selling more integrated and global solutions combining inspection, audit, testing and data management with a digital content to large international corporations. These two items are expected to provide more resilience to the group's activities. 3) The improvement of productivity through the Excellence@BV programme. 4) The focus on three main geographic areas (Europe, the US and China) and continuing investment in emerging countries in Africa and Asia. 5) The completion of the acquisition of small and medium-sized companies in areas in order to support growth in the areas described above. This strategy is supported by Wendel which owns 40% of the shares of Bureau Veritas (56% of the voting rights). There will be no change of this stake in the capital of Bureau Veritas until 2020 and afterwards. The group represents important financial assets in the long-term for Wendel.
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.