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Higher operating margin despite Gardena
21 Oct 16
Husqvarna had a slightly disappointing Q3 16 below our expectations. This is tempered by the challenging basis of comparison last year at Gardena and the Construction business to a lesser extent. Q3 16 figures: Sales reached SEK7,349m (+1%). Organic sales were down 1% (vs flat on Q3 15) due to Gardena, -6% (vs +19% in Q3 15) and the Consumer Brands division, -10% (vs -18% in Q3 15). Conversely, Husqvarna performed well, +5% (vs +3% in Q3 15) and the Construction division grew slowly, +1% (vs +7% in Q3 15). The operating income increased to SEK431m, +6% and +2% at constant currency, and the operating margin improved to 5.9% of sales (+0.4pt). The currency effects were negative by SEK-60m (vs SEK-60m in Q3 15). The increase in group operating income was attributable to the Husqvarna division (SEK368m, +14%), the Construction division (SEK155m, +8%) and the Consumer Brands division which reduced its operating losses (SEK-80m vs SEK-119m in Q3 15). Conversely, the Gardena division had lower operating income, or SEK50m (vs SEK113m in Q3 15), due to the lower sales of the highly-profitable watering products. Group net profit was SEK206m (+5%) after a surge in net financial costs (+49% to SEK-124m including a negative currency effect) and a lower income tax rate (33.2%, -5.9pts) considering that there was a one-off tax item in Q3 15. On 9m 2016, the operating cash flow increased to SEK3.1bn (+22%) after a decrease in the change of WCR. FCF reached SEK2.1bn after net capex of SEK996m (+5%). On 30 September 2016, financial net debt (excluding the provision for pensions) was reduced to SEK3.8bn (-12%) and represented 27% of total equity (vs 32% on 30 September 2015).
Good operating performance despite lower sales
15 Jul 16
Q2 16 figures Sales reached SEK11,504m (-6%). Organic sales were down 4% due to the drop of the organic activity in the Consumer brands division (-24%). Conversely, the other divisions showed positive organic sales growth, respectively +3% for Husqvarna, an impressive +13% for Gardena, +4% for the Construction business. The gross margin surged to 34.2% of sales (+3.2pts), reflecting stable prices, a favourable product mix, lower material costs and efficiency improvements. The group’s operating income increased to SEK1,729m (+3% and +5% excluding the negative currency effect), representing an operating margin of 15% of sales (+1.3pts). This included a negative currency impact of SEK-170m split as follows: SEK-100m in the Husqvarna division, SEK-30m in the Gardena division, SEK-65m in the Consumer brands division, and SEK+25m in the Construction division. The improvement in the operating result was mainly attributable to the Gardena division, SEK449m (+13% and +14% at constant currency) and the Husqvarna division, SEK1,031m (+3% and +4% at constant currency) which more than offset the lower contribution of the Consumer brands division, SEK147m (-17% and -12% at constant currency). In the Construction division, the increase in the operating income, SEK179m (+12% and +15% at constant currency) was due to the positive currency effect principally. Group net profit was SEK1,255m (+10%) after lower net financial charges (SEK-72m vs SEK-139m in Q1 15) mainly due to currency effects, and a lower income tax rate (-1.6pts to 24%). Key items in H1 16 Sales reached SEK22.9bn (-1% and +1% organically), the operating income improved to SEK2,895m (+4% and +5% organically) taking into account a negative currency impact of SEK-380m (vs a positive impact of SEK200m in H1 15) and the group net profit was SEK2,014m (+5%). The cash flow from operations increased to SEK1,339m (vs SEK734m in H1 15) thanks to lower inventories reflecting the lower demand in North America and a decrease in the change of trade receivables. Capital expenditure increased to SEK632m (+4%). Free cash flow surged to SEK707m (vs SEK126m in H1 15). Finally, the financial net debt reached SEK5bn (vs SEK5.8bn in H1 15) and represented 36% of shareholders’ equity.
Negative currency effects offset at Group level
22 Apr 16
Q1 16 earnings Sales reached SEK11,361m (+4%). Excluding currency effects, sales increased by 5% (vs -3% in Q1 15) thanks to organic growth in all divisions (Husqvarna: +4%, Gardena: +17%, Consumer Brands: +2%, Construction: +6%). The gross margin improved to 27.8% of sales (+0.6pts). The operating income was SEK1,166m (+5%, +6% excluding currency effects) and corresponded to a margin rate of 10.3% of sales (+0.1pt) despite hugely negative currency effects as expected (SEK-215m vs SEK+107m in Q1 15). The increase in operating income was attributable to the Gardena division (SEK226m, +11%, margin rate of 14.9% of sales, -0.6pt), the Consumer Brands division (SEK64m vs SEK-11m in Q1 15, margin rate of 1.9% of sales, +2.2pts) and the Construction division (SEK89m, +20%, margin rate of 9.2% of sales, +1.2pt). The Husqvarna division was the only division to report lower operating income (SEK844m, -6%, margin rate of 15.5%, -1.3pt) and was the most affected by the negative currency effects (SEK-135m). The Group net profit was SEK759m (-3%) after higher net financial expenses (SEK-142m vs SEK-55m in Q1 15) and a fairly similar income tax rate (25.7%, +0.2pt). Husqvarna traditionally has negative operating cash flow in Q1 due to inventory build-up. The negative operating cash flow was reduced to SEK-1,426m (vs -2,167m in Q1 15) due to a lower increase in the change of inventories. Capital expenditure increased to SEK311m (+28%). Finally, the financial net debt reached SEK6.7bn (vs SEK8.2bn in Q1 15) and represented 49% of shareholders’ equity.
Satisfactory Q4 15, challenging Q1 16 in perspective
08 Feb 16
+Q4 15 figures+ Sales reached SEK5,672m (+7%, +2% organically). Organic sales growth was driven by all divisions (Husqvarna, Gardena, Construction: all +6%) except for the Consumer Brands division (-10%). The operating loss was SEK365m (vs SEK-1,032m including a goodwill impairment loss of SEK767m in Q4 14). It included additional restructuring charges of SEK153m and a negative currency impact of SEK45m. Excluding the restructuring costs, the operating loss was reduced to SEK212m (vs SEK-265m restated in Q4 14). The Husqvarna and Construction divisions had a positive contribution (respectively SEK65m and SEK87m) while the Gardena and Consumer Brands divisions were loss-making but had opposite trends (Gardena: SEK-123m vs SEK-186m in Q4 14, Consumer Brands: SEK-168m vs SEK-158m in Q4 14). Group net loss was SEK238m (vs SEK-961m) after higher net financial expenses (SEK-67m vs SEK-49m in Q4 14) and income tax of SEK193m. +FY2015 figures+ Husqvarna posted sales of SEK36,170m (+10%, -1% organically). The decline in organic sales was attributable to the Consumer Brands division (-16%) while the Husqvarna, Gardena and Construction divisions performed very well (respectively +6%, +8% and +6%). The reported operating income surged by 79% to SEK2,827m. Restated from the restructuring charges (SEK153m in 2015) and non-recurring items (impairment loss of SEK767m in 2014), operating income increased by 27% to SEK2,980m and included a positive currency impact of SEK110m (o/w SEK200m in H1 15 and SEK-90m in H2 15). Group net profit was SEK1,883m (vs SEK820m in 2014) after net financial expenses of SEK-344m (+6%) and lower income tax rate (24% vs 34% in 2014 due to the impairment loss which was non-deductible). In 2015, operating cash flow increased to SEK3.0bn (+9%) and FCF pre-dividend increased to SEK1,731m (+24%) taking into account lower net capex of SEK1,325m (-6%). The dividend paid to shareholders amounted to SEK945m. At year-end 2015, the financial net debt was reduced to SEK4,980m (-8%).
Exceptional performance at Gardena
21 Oct 15
Husqvarna had quite a good Q3 15, characterised by an exceptional performance of the Gardena division, the continuing weakness of the Consumer Brands division and adverse currency effects at the group operating level. Q3 15 results: Sales reached SEK7.3bn (+8%, flat organically compared to +3% last year). Organic sales grew for Husqvarna (+3%), Gardena (+19%) and the Construction activity (+7%). The Consumer Brands division was the only one to have lower organic sales (-18%). The operating income increased to SEK405m (+22%) and the margin rate improved to 5.5% of sales (+0.6pt). This improvement was attributable to the Gardena division (SEK113m vs SEK-7m restated in Q3 14) and the construction business (SEK144m, +35%), both having benefited from higher volume and a favourable product-mix. The operating loss was slightly reduced in the Consumer Brands division (SEK-119m vs SEK-138m restated in Q3 14) while the Husqvarna division was the only one to have a lower contribution (SEK321m, -26%) due to lower production volumes and an unfavourable product-mix (earlier selling of winter products such as snow-blowers). As expected, the currency effects turned negative at the operating level (SEK-60m). Group net profit was SEK197m (-1%) after an increase in the net financial costs (+19% to SEK-83m) due to a higher average interest rate on borrowings (3.9% vs 3.5%) and a surge in the income tax rate (c.39% vs 24% in Q3 14) due to higher income in countries with higher tax rates and a one-time tax item. On 30 September 2015, the financial net debt (excluding the provisions for pensions) amounted to SEK4.3bn (-12%) and represented 32% of total equity (vs 38% on 30 September 2014). The operating cash flow declined to SEK2.3bn (-10%) due to an increase in the change of trade receivables. It was used to fund significant capex (SEK947m, +5%). The cash out-flows do not include the second part of the dividend that will be paid on 28 October 2015 (SEK1.10/share following SEK0.55/share paid in April 2015).
A challenge in front of Husqvarna in the short-term
17 Jul 15
Q2 15 earnings: Sales surged to SEK12.3bn (+11%) due to a significant currency effect. Organic sales were down 1% due to the drop of organic sales in the Consumer brands division (-12%). Conversely, the Husqvarna and Gardena brands performed well with organic sales up +4% and +3% respectively, and the Construction business also posted strong organic sales growth (+9%). The gross margin increased to 31.1% of sales (+0.1pt). The group has been in a positive quarterly trend yoy from the beginning of 2014 until now. The group's operating income increased to SEK1,675m (+22%), representing an operating margin of 13.7% of sales (+1.3pts). This included a positive currency impact of SEK100m split as follows: SEK20m in the Husqvarna division, SEK50m in the Consumer brands division, SEK30m in the Construction division. The improvement in the operating result was attributable to the Husqvarna division, SEK1,001m (+22%), the Construction division, SEK160m (+37%), and the Consumer brands division, SEK178m (vs SEK97m in Q2 14), despite lower volume and thanks to the reduction of direct material costs and selling and administrative expenses. Group net profit was SEK1,138m (+18%) after higher net financial charges (SEK-139m vs SEK-110m in Q2 14) and a higher income tax rate (+2.2pts to 25.6%). Key items in H1 15: Sales reached SEK23.2bn (+12% and -2% organically), the operating income improved to SEK2,787m (+22%) taking into account a positive currency impact of SEK200m and group net profit was SEK1,924m (+22%). The operating cash flow fell to SEK418m (-54%) due to an increase in the change of trade receivables and the fact that there was no change of inventories, unlike H1 14 where there was a reduction. Capital expenditure increased to SEK608m (+3%). Finally, the financial net debt reached SEK5.8bn (vs SEK6.2bn in H1 14) and represented 44% of shareholders' equity.
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UK Housebuilding Sector: Q3 2016 - “I am Steve McQueen”
11 Oct 16
Steve was street savvy, but he was not the smartest knife in the drawer, which makes his Delphic comment to Robert Vaughn all the more surprising. What Steve was saying is that “it’s not over yet”; that there is still a lot more to come (sadly for McQueen, who died in 1980 aged 50, it was a future that was not his). The same is true of Brexit and the collateral undulations that it has riven in the UK Housebuilding Sector. Immediately post-the-Brexit-vote, the UK Housebuilding Sector tanked 36% in value in two trading days (24 and 27 June with a weekend in between); and at one stage was off almost 40%.
Safe as houses
17 Oct 16
Telford Homes is in as strong a position as it has ever been in the 15 years since flotation. The company has a strong balance sheet, with an expanded equity base and significant headroom on its banking facilities, a large development pipeline and impressive forward sales position, and good levels of demand for its product and geography from a diverse group of buyers.
“Encouraging”Q1: Positive transformation momentum continues
24 Oct 16
“Encouraging” AGM/Q1 (July-Sept 2016) FY17 trading update should reassure further as it builds on the strong momentum of the recent FY16 results. Management’s self-help initiatives appear increasingly sure-footed. Reflecting the balance of this encouraging Q1 outcome and the highly uncertain backdrop (e.g. raw material prices/input cost inflation, currency movements, and other macro pressures), we think it prudent to keep our FY17 forecasts unchanged for now, not least as there are another 3 financial quarters to navigate. That said, so far so good. We therefore retain our BUY.
Short term blip provides an attractive entry point
04 Aug 16
Portmeirion Group has reported their interim results this morning which are inline with our revised estimates. The company has had a mixed first half year but should be well positioned to rectify underlying issues in South Korea and India and hit our full-year numbers. The recent profit warning should be viewed as a blip and should not overshadow the company’s fantastic track record.
N+1 Singer - Morning Song 21-10-2016
21 Oct 16
Xaar has announced that its FD, Alex Bevis, will be leaving to pursue other opportunities after almost 6 years with the group. A search is underway for his replacement and Alex will remain with Xaar until 24th March 2017. While Alex’s departure is disappointing, Xaar’s strategy remains on track, with new product launches expected to drive near term organic sales growth and a target of £220m sales by 2020. This reflects stronger leverage of Xaar’s innovative technology into a broader spread of end products and markets, with the £220m expected to be composed of broadly equal contributions from ceramics, packaging & product printing, Thin film/P4, and partnerships/M&A. Prospects for the group are exciting, with positive news flow on product launches and end markets anticipated over the year ahead.