Thursday, 30 January 2014

Royal Dutch Shell finals

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Shell announced their full year results today and their earnings were as reported in their trading statement commented on here, so I will not repeat them again.

EPS was $2.66 down 38.7%, excluding identified items it was $3.10 down 23.3%. A fourth quarter dividend has been announced of $0.45, making $1.80 for the full year both showing a 4.7% increase over last year. The first quarter 2014 dividend is expected to be declared at $0.47 an increase of 4.4%.

Free cash flow (FCF) was extremely disappointing and fell to a negative $0.8bn from $13.6bn last year and net debt has increased from $19.2bn to $34.9bn with gearing at 19.4% compared to 10.9% last year.

In a separate statement Van Beurden set out some changes in in strategic emphasis, which can best be described as improving financial performance, that can be achieved by restructuring and focusing on investments that deliver high quality returns.

They have decided to stop its exploration programme for Alaska due to the regulatory uncertainty, they will increase the pace of asset sales, which are expected to be $15bn for 2014-15 and reduce capital expenditure for this year to $37bn compared to $46bn last year.

The reduction in capital expenditure does not go far enough.  With a dividend bill of close to $13bn, they will need net operating cash flow of $50bn, for the FCF to cover the dividends.  Hence the need for $15bn of disposals.

Although the increase in dividends is welcome, Shell has much to do in improving the financial performance to ensure the continuation of this dividend growth.

Exxon results also came out today and their earnings were down 27% and EPS down 24% for the year, although excluding the effect of lower asset sales down by 8.2% and 6% respectively.

Pan African Resources trading update

A small South African based precious mining group that produces gold and platinum from high grade ore bodies at a low cash cost.  I have a holding in my growth portfolio (epic code: PAF).

PAF updated the market on expectations for the half-year yesterday and stated that EPS for the period is expected to be between 8 and 15% higher than last year.  So that would amount to an EPS of between .92 and .98p.  This may lead to a small upgrade in analysts forecasts for the full year where expectation are for EPS of 1.80p.

Tuesday, 28 January 2014

Globo trading update

A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).

Globo issued a trading update ahead of their full year results today.  Revenues for the full year from continuing operations grew 57% to €72 million, this compares to growth of 58% at the nine month stage.  Fourth quarter sales at €22m were 22% above the third quarter sales.

Management expect that profits will be in line with market expectations, although there was also a head line that stated "...The Board is pleased to report that Globo has achieved a strong financial performance for 2013, ahead of market expectations..." this may refer to the strong free cash flow in the quarter, but without any explanation it is rather confusing 

The company stated that growing sales of GO!Enterprise resulted in an increased operating profit cash conversion ratio of around 80% for the full year, contributing to a net cash position that was €42m, this also included the share placing proceeds of €23m, a further €1m of proceeds on the sale of 51% of its Greek subsidiary, reduced by $5m spent on the acquisition of Notify Technology Inc.

Based on the starting net cash position and the items mentioned above, I would estimate that the free cash flow (FCF) for the year was €8m, although it would be good to see the final results for confirmation of this.  If this number is confirmed, then this is a substantial improvement in the profile of the business, which has suffered historically from negative FCF (there was a small positive FCF in 2012).  

Management state that "...Current year trading has started very strongly and we anticipate that as IT budgets from customers start to be deployed and BYOD and mobile apps needs increase further, Globo will have the opportunity to deliver another year of excellent growth and market penetration..."

A  good trading update from a company that is clearly in a high growth phase within growing markets - they state that the Mobile Enterprise Management and Mobile Application Development Platform markets are expected to grow by 21.9% and 38.7% respectively over the next 4 years.  Shares were up almost 15% at 65p during the morning which still only puts them on an historic P/E (2013 earnings) of 9.6 and less than 7.5 on 2014 expected earnings.

Sunday, 26 January 2014

Unilever vs Procter & Gamble

Unilever Logo

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

On Friday 24 January Procter & Gamble issued their half year results, so it is interesting to produce a brief comparison with Unilever's full year results released on 21 January commented on here.

Sales for PG were $43.5bn for the six months, with an operating profit of $8.7bn, producing an operating margin of 20.0%.  Normalised EPS was $2.35 up +3% compared to last year, although statutory diluted EPS was $2.21 down -6%; this compares to ULVR's full year results that had underlying EPS up +3% and statutory diluted EPS up +11%.

Interesting to note the difference in trends on gross profit margins as ULVR grew theirs by +110 bps and PG saw theirs decline by 100 bps.  PG clawed the loss back by overhead cost reductions, so that operating margins improved by +30 bps, in contrast to ULVR who saw higher overhead spending managed an increase of +40 bps in the operating margin.

On a trailing twelve months (TTM) PG's sales were $85.4bn (€62.3bn) with an operating profit of $15.8bn (€11.5bn) producing an operating margin of 18.5%. This compares to Unilever's results for the full year of €49.8bn with an operating profit of €7.0bn producing an operating margin of 14.1%.

Although PG's operating margins are impressive, they do have a lower return on capital employed (ROCE) of about 18% compared to ULVR's ROCE of over 30%, due to the latter's more efficient use of capital.  This compares to the working average cost of capital (WACC) for PG of 7% compared to ULVR's 8%, which would imply that ULVR is creating 22% of value for each invested € of capital compared to PG's 11%.

ULVR did suffer from a lower generation of free cash flow (FCF) for the full year at €3.9bn down -11% on last year, but PG's FCF at $3.7bn for the six months was down -28% on last year.  PG though produced 8.5% of sales as FCF compared to ULVR's 7.8%.

PG is currently distributing about 51% of its earnings as dividend compared to ULVR who distribute about 68%.  PG's historic yield is 3.1% compared to ULVR's 3.7%.

The organic growth of the two businesses over the past four quarters are detailed in the table below:

Click on table to enlarge

This has ULVR ahead in all quarters with the exception of their disappointing third quarter to September.  PG does not supply a breakdown of their sales by territory, so it is not possible to make any comparisons.  PG did though state that emerging market sales grew by 8% in their December quarter, this compares to ULVR's 8.4% in the same quarter.

Interesting to compare the two forward looking statements:

 “We’re on-track to deliver our objectives of 3-4% organic sales growth and 5-7% core EPS growth for the fiscal year. We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange, and productivity savings that build throughout the year.”

"...Looking forward, we anticipate ongoing volatility in the external environment and are positioning Unilever accordingly..."  and in his presentation he states "...Slow market growth expected to continue in 1st Half..." and "...late Easter will shift volume from Q1 to Q2..." 

This may be a difference in style of PG's Lafley versus ULVR's Polman, or possibly that ULVR believe they may see a slowing of its growth to below PG's levels.  Personally I believe there is far more pressure on Lafley, who returned as CEO last May to replace his chosen successor McDonald, who had stalled PG's performance.  Lafley the returning "golden boy" is hardly likely to paint a downbeat outlook so early on his return, despite markets being tough.

I see these as two large corporations still performing well in difficult markets, with ULVR possibly having the edge in recent performance.

Thursday, 23 January 2014

Paypoint IMS

Provides clients with specialist consumer payment transaction processing and settlement across a wide variety of markets: (energy pre and post-payment, telecoms, housing, water, transport, e-commerce, parking and gaming) through its retail networks, internet and mobile phone channels. I have a holding in my income portfolio (epic code: PAY).

Paypoint issued their third quarter IMS today and commented that overall trading for the period to 31 December 2013 was in line with market expectations.

Total transactions processed for the quarter were 206m, up 6% compared to LY.  Gross revenues were £57m up 4% on the same period last year, with net revenues up 8% to £31m as a result of the growth in bill and general payments, retail services and PayByPhone.

Their Collect+ JV continues to grow substantially with volume up 87% to 4.2m transactions in the period.  They have increased the number of sites offering Collect+ since the half year end by 173 to 5,617 and importantly continues to trade profitability.

Strong cash generation continues to be a feature of Paypoint's trading - net cash at 31 December 2013 was £24.4m (excluding client cash of £6.4m), after payment of the interim dividend of £7.7m in the period, compared to £20.2m at 30 September 2013 (excluding client cash of £3.3m).

A positive IMS with talk of opportunities to unlock better growth in their e&m commerce (internet and PayByPhone) businesses, since a new single management structure  is providing greater focus.

Pearson trading statement


An international media and education company, providing educational materials, technologies, assessments and related services to teachers and students.  Owner of The Financial Times and part owner (47%) of Penguin Random House.  I have a holding in my income portfolio (epic code: PSON).

Pearson issued a trading statement today and indicated that they expect to report a full year operating profit of approximately £865m before restructuring charges, compared to £936m last year.  This decline reflects the associate accounting impact of the Penguin Random House merger and lower underlying margins in North American Higher Education.

They expect Adjusted EPS of around 83p (84.2p last year) before restructuring charges of approximately £130m (comprising £170m expensed and £40m of savings achieved during the year), resulting in adjusted EPS of around 70p after these charges, this compares to a market consensus 75.8p.

CEO John Fallon stated that trading conditions are still challenging in 2014, but remains confident of growth prospects in 2015.

Last year was always going to be difficult with the reorganising of the business, required restructuring and the problems with US budget approvals (US represents 60% of Group sales).  I have no quarrel with the strategic direction of the business, it is just disappointing that the short-term trading problems in developed markets appears to be continuing.  With little danger of a dividend cut or freeze, dividend cover is likely to be just over 1.45x, a little more patience is required while Fallon returns the business to growth.

Wednesday, 22 January 2014

Bhp Billiton six months operational review

A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas.  I have a holding in my income portfolio (epic code: BLT).

Bhp Billiton released their six months operations review today and it reinforced the strong start they had to the year in quarter 1 see here.

They have continued with a strong operating performance, with the December 2013 half year delivering a 10% increase in production and CEO Andrew Mackenzie stating that volumes are expected to grow by 16% over the two years to the end of the 2015 financial year.

By major resources:

Iron ore production has been raised by 19% in the December 2013 half year to a record 98m tonnes. Total iron ore production guidance for the 2014 financial year remains unchanged at 192m tonnes (+13% on 2013)

Total petroleum production for the half year was 120.4m barrels of oil equivalent (boe) a decline of 1% (natural gas declining by 7%, but crude oil up by 9%). Guidance for the financial year remains unchanged at approximately 250m boe (+6% on 2013)

Total copper production increased by 6% in the December 2013 half year to 843k tonnes. Copper production guidance for the financial year remains unchanged at 1.7m tonnes (+41% on 2013), although the Group's equity interest is 1.2m tonnes.

Metallurgical coal production was up by 22% in the December 2013 half year to a record 22m tonnes.  Metallurgical coal production guidance remains at 41m tonnes (+9% on 2013)

Energy coal production was 1% below last year at 37m tonnes. Energy coal production guidance for the financial year remains unchanged at 73m tonnes (no change on 2013)

Another good operational review from BLT it is worth repeating here the comments from Mackenzie, the bold highlighting is mine: 

"...During the period, six of our major projects delivered first production and our 10 remaining projects, which are largely low risk, brownfield expansions, are tracking to plan. By maintaining strict financial discipline and increasing internal competition for capital we intend to further differentiate ourselves by achieving a superior rate of return on incremental investment. We also remain committed to actively managing our portfolio for value. This strategy leaves us well positioned to deliver a substantial increase in free cash flow and higher returns to shareholders...". 

This reinforces the expectation of superior income returns for investors over the coming years. 

GlaxoSmithKline european approval


GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

Following on from the positive CHMP opinion on 22 November 2013, ViiV Healthcare yesterday announced that the European Commission has approved Tivicay (dolutegravir), an integrase inhibitor, for use in combination with other anti-retroviral medicinal products for the treatment of HIV infected adults and adolescents above 12 years of age.

Glaxo own 76.5% of the JV ViiV, with Pfizer at 13.5% and Shionogi at 10%.

Tuesday, 21 January 2014

IMI return of capital

IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI).

IMI confirmed today the details of their return of capital to shareholders following disposals mentioned here, it intends to return 200p per existing ordinary share in the capital of the Company to Shareholders on the register as at 6.00 p.m. on 14 February 2014. The Company also announced the associated consolidation of every 8 Existing Ordinary Shares into 7 new ordinary shares.

The cash returned can be elected as income or capital to be paid on 10 March or deferred capital payable in the next tax year on 21 April, to suit individual investor's tax requirements.  If the shares are held in an ISA or SIPP it is irrelevant whether the cash is taken as income or capital. 

I now have three companies (VOD, MRO, IMI) in my income portfolio with returns of capital within a similar time frame.  Since some of the holdings are outside of an ISA, it makes for difficult year-end tax planning. 

Melrose Industries return of capital

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Todays announcement confirms the Company's intention on the return of capital, it intends to use part of the net proceeds of recent disposals (see here) to return approximately £600m in cash to Shareholders.  This is equivalent to 47 pence per Existing Ordinary Share.  The balance of the net proceeds has been used to pay down existing borrowings of the Company.  Associated with this Return of Capital, there will be a one-off ordinary Share Capital Consolidation in the ratio of 11 for 13.

Melrose will allow the option of the return of 47p as capital or income to be paid on 27 February, or deferred capital taking it into the next tax year payable on 7 May, to suit individual investor's tax requirements.  If the shares are held in an ISA or SIPP it is irrelevant whether the cash is taken as income or capital.

Unilever finals

Unilever Logo

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

Unilever announced their full year results today, with few surprises.  Full year Turnover was down -3.0% to €49.8bn, although foreign exchange contributed a negative effect of -5.9% and the net result of acquisitions & disposals reduced revenue by a further -1.1%.  Consequently underlying sales growth was +4.3%, with volume contributing +2.5% and price +1.8%.

Core operating margin for the year was up 40bps at 14.1%, due to gross margin up 110bps. Core EPS increased by 3% to €1.58 for the full year and fully diluted statutory EPS was up 11% at €1.66 (this included the profits on disposal of the Skippy and Wish-Bone brands partly offset by a provision for competition investigations).

A final dividend of €0.269 (22.22p) was declared, making €1.076 (91.05p) for the full year a 10.7% increase (15.4% increase in sterling) and covered 1.54x by statutory earnings, although only 1.23x by free cash flow (FCF).  FCF at €3.9bn was 11% below last year mainly due to a lower cash inflow from working capital.

Net debt at €8.5bn was €1.1bn higher than last year, the result of increasing the Company's stake in Hindustan Unilever Limited from 52% to 67% for an outlay of €2.5bn.  Gearing is 59%, with a comfortable debt/EBITDA of 1, operating cash flow at 70% of debt and interest covered 14.2x.  

Although Unilever's emerging markets had underlying sales growth of 8.7% for the year, this was down from last year's 11.4% due to the poor third quarter, so it was good to see the fourth quarter showing growth of 8.4%, up from the third quarter's 5.95%.

Europe continues to be problematic with what appears to be strong price competition, so although volume was up by 0.4% price declines of -1.5% pulled down the overall sales performance to a -1.1% decline..

In a limited outlook statement CEO Polman stated "...Looking forward, we anticipate ongoing volatility in the external environment and are positioning Unilever accordingly..."  In his presentation he states "...Slow market growth expected to continue in 1st Half..." and "...late Easter will shift volume from Q1 to Q2..."  

Shares are up 2% to 2485p and on an historic P/e of 19 and the cautious outlook comment, there is unlikely to be further upside until their markets improve.  This has though been an excellent inflation beating income share and despite the lower FCF this year, it is nowhere near a level that might constrain a growing pay-out. 


The Restaurant Group directorate change


The Restaurant Group plc (TRG) is engaged in the operation of restaurants and pub restaurants. The principle brands are  Frankie & Benny’s, Chiquito, coast to Coast, Garfunkel’s, Home Counties Pub Restaurants and Brunning & Price.  I have a holding in my income portfolio (epic code: RTN).

The Restaurant Group today announced that Andrew Page has notified the Board that he wishes to retire as CEO in August 2014.

Although it is always unwelcome news when a highly talented CEO decides to retire and there appears not to be a natural internal successor, Page has agreed to remain with the Group as an advisor to the Chairman and presumably will be involved in the choice of his successor.

Page will have been with the Group for 13 years when he retires, eleven of these as Group MD or CEO and from 2003 he has grown sales by a compound 10% pa, earnings by 18% pa and the dividend by 14% pa - a very creditable performance. 

Monday, 20 January 2014

Royal Dutch Shell disposal

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Shell announced today, from what is believed to be a major programme of divestments, that it has agreed to sell its 8% equity interest in the Wheatstone-Iago Joint Venture and 6.4% interest in the 8.9m tonnes per annum Wheatstone liquefied natural gas project in Western Australia for a cash consideration of US$1.135bn to the Kuwait Foreign Petroleum Exploration Company.

Some analysts are expecting Shell's divestment programme under new CEO Ben van Beurden to reach $30bn  of non-core assets.  This may include some of its North Sea oil, US shale and Nigerian assets.  

Friday, 17 January 2014

Royal Dutch Shell trading statement

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Shell issued a trading statement ahead of its full year earnings due to be announced on 30 January, in what can only be described as a severe profits warning.

Management state that the fourth quarter is expected to be significantly lower than recent levels of profitability, due to the current oil and gas prices and the downstream oil products industry environment.  One could have also added - due to management's inability to ration investment to high return projects. 

Shell's fourth quarter 2013 earnings on a current cost of supplies basis excluding identified items are expected to be approximately $2.9bn compared to $5.6bn last year and a market expectation of $5.1bn, blaming weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes.  After identified items Fourth quarter 2013 CCS earnings are expected to be approximately $2.2bn

Full year earnings on a CCS basis excluding identified items are expected to be $19.5bn compared to $25.3bn last year.  After identified items full year 2013 CCS earnings are expected to be approximately $16.8bn.

The closest investors came to expecting problems in the fourth quarter, was a comment by the previous CEO Voser at the time of the third quarter announcement on 31 October:

"...We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near term outlook...". 

Under the FCA's Disclosure and Transparency Rules, it is a duty of management to  release relevant information as soon as it is available and; all those who want to deal in shares should have access to the same information at the same time.  Which would imply that the management of Shell were unaware that earnings for the fourth quarter were going to be substantially (43%) short of market expectations until a few weeks after the quarter end.  This is either a sad reflection on the competence of Shell's management or a blatant disregard for the Listing Rules.

The new CEO van Beurden has a lot "on his plate" to improve Shell's performance, so that it meets tactical and strategic targets.  This will require more insightful decision making from the management team, with respect to the allocation of funds to high value generating projects.

Some have commented in the press that this is a "kitchen-sink" approach to the results, to clear the decks for the new CEO.  Which is a bit rich if it is, as he was already part of the management team that are responsible for the result.  We will know a little more at the time of the full results on 30 January, as it will become apparent how much of the miss is cash related.

Synergy Health IMS


Delivers a range of specialist outsourced services to healthcare providers and other clients concerned with health management. Such as hospital sterilisation services; applied sterilisation technologies for single-use medical devices; reusable surgical solutions for daily delivery of sterile reusable gowns and towels; clinical pathology, toxicology and microbiological services; chemical and microbiological analysis; linen management services for healthcare facilities and product solutions designed for infection prevention and control, patient hygiene, surgical procedures and wound care.  I have a holding in my growth portfolio (epic code: SYR)

Synergy Health issued their 3rd quarter IMS today and stated that trading in line with the Board's expectations for the full year, which according to my notes should deliver about 70p per share. 

Reported revenue for the nine months increased by 8.4% to £286.9m up from £264.7m last year. Underlying revenue, excluding currency effects, increased by 6.0% to £280.5m. 

By territory the sales performance for the nine months was:

UK & Ireland                 + 1.4%
Europe & Middle East    - 4.2%
Asia & Africa                 + 6.6%
Americas                        +40.2%

They also stated that their order book has increased to approximately £1.35bn, which represents almost 3.5 years of sales.
There was a slightly negative comment on the strong US market where they stated that "...Trading over the Christmas period, which is traditionally strong in the United States, has been slower than expected...", although contract wins have been strong in this territory, so it may be wrong to read too much into this comment, but worth watching for any weakness.

There was a positive note on the troubled Dutch linen business where they stated that "...Our linen business is showing signs of stabilising, and under the leadership of a new managing director we are cautiously optimistic that we are reaching a period of stability..."

So in summary a reasonably positive statement, with the company on target to meet market expectations and good visibility for the future from a strong order book.  With the current price at 1269p producing a P/E of 18 on 2014 earnings, the stock looks up with events on an expected 10% growth for 2015.  Worth watching though for any new major contract wins.

Spectris trading update


Spectris develops and markets productivity-enhancing instrumentation and controls.  Operating in four segments - Materials Analysis, Test & Measurement, In-line Instrumentation and Industrial Controls.  I have a holding in my growth portfolio (epic code: SXS).

Today Spectris issued a trading update for their fourth quarter and year-end.  They reported like-for-like (LFL) sales for the fourth quarter up 3% from last year and reported sales for the full year up 2%, with an equal 1% contribution each from acquisitions and foreign exchange movements.  Therefore, LFL sales for the full year were broadly flat compared to 2012.

By region, LFL sales in Asia grew by 12%, North America 2% and Europe 1% in the fourth quarter. For the full year, LFL sales in Asia Pacific grew by 1%, North America declined by 3% and Europe grew by 2%. 

Management expect adjusted operating profit to be £214.7 million (2012: £216.9 million), giving an adjusted operating margin of 17.9% compared to 18.4% last year.

Although the performance is not outstanding, it does show a continuation of improvement from their first quarter.  LFL sales growth by quarter has been:

Qtr. 1 -9%
Qtr. 2 +3%
Qtr. 3 +3%
Qtr. 4 +3%

At the interim stage the adjusted operating profit had declined by -14%, so to end the year with just a -1% decline to £214.7m was a reasonable performance.  It was also good to see growth in the fourth quarter in all regions and most significantly the 12% growth seen in Asia that followed a weak third quarter for that region. 

Thursday, 16 January 2014

Aberdeen Asset Mgt IMS

A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN).

Aberdeen Asset Management issued their first quarter IMS today and declines in their Assets under Management (AuM) were much as expected, following the Morningstar report on net outflows in the 11 months to November 2013.  This is principally as a result of negative sentiment towards Asian and emerging markets in the December quarter.

Morningstar reported in early January that ADN had a £1.6bn net outflow of funds for the 11 months to November 2013 and for the first time in five years were in the bottom 10 of least popular fund managers, along with their recent acquisition Scottish Widows.

ADN reported gross inflows for the quarter of £6.8bn compared to £9.6bn for the 3 months to 30 September 2013. Outflows of £11.2bn were lower compared to £13.2bn for the 3 months to 30 September 2013, this resulted in net outflows of £4.4bn compared to £3.6bn for the previous quarter.

The performance of their funds added £1.4bn, although foreign exchange losses reduced assets by £3.8bn.

This resulted in ADN declaring AuM of £193.6bn at 31 December 2013 that were 3.4% lower than the £200.4bn reported at 30 September 2013.

Comments from Martin Gilbert on the fund performance are also relevant to how individual investors might approach their own portfolios:

"...Our equity process is focused on investing for the long term and our long term performance is compelling. However, there will be circumstances which will result in periods of shorter term underperformance. During 2013 we saw lower quality, more cyclical companies - which are not typical Aberdeen holdings - rally over the year. Our Asian, emerging market and global portfolios were also overweight markets where there was considerable currency weakness.

In our experience it has never ultimately been rewarding to chase performance, instead our focus remains on undertaking our own detailed research and  investing in companies we believe offer both good quality and attractive valuations. Eventually the market will return to focusing on corporate fundamentals - the higher quality companies. In short we do not expect to make any significant changes to the structure of our portfolios..."

My own annual return (dividends not reinvested) from ADN since my initial purchase in February 2007 has been 12.7%pa.  This includes today's 3% decline and the sale of 50% of my holding in January and March 2012 to rebalance my income portfolio.

During the period of my holding, as demonstrated by the chart below, there were many instances when the market was telling me to ditch the stock.  I held, as I believed the fundamentals of the business were strong and management were taking the right decisions to add value to my investment.  I'm sure that there are geniuses that can time market entry and exit to perfection and believe they can make a fortune on this volatility, but unfortunately I'm not one of them.  Investing in good quality businesses, at reasonable prices and holding for a substantial period, while collecting a rising dividend, works for me and is a lot less stressful than trying to time the market.

Click to enlarge

Wednesday, 15 January 2014

Diploma IMS

Diploma PLC

An international group of businesses supplying specialised technical products and services. They operate globally in three distinct sectors - Life Sciences; Seals and Controls. I have a holding in my growth portfolio (epic code: DPLM). 

Diploma issued their first quarter IMS today.  Group revenues for the period ended 31 December 2013 were 4% ahead of last year, although on an underlying basis, after adjusting for the impact of currencies, revenues increased by 6%.  This continues the stronger underlying growth seen in the second half of last year of 6% commented on here.  Operating margins remained in line with those achieved in the first quarter last year. 

By division the Life Sciences sector saw revenues grow 2% (8% ahead on an underlying basis); in the Seals sector, revenues increased by 4% and Controls revenues grew 8% ahead of last year.

Free cash flow in the quarter was ~£5m benefitting from lower capital expenditure as the Group's "Investment for Growth" programme reduces in scale.  Net cash funds increased to ~£22.0m at 31 December 2013 from £19.3m at the end of last year.

This looks to be a good first quarter and continues the momentum seen in the second half of last year.

Dialight directorate change


Supplier of light emitting diode (LED) solutions for industrial users. Applying leading edge LED technology, it produces retro-fittable lighting fixtures designed specifically for hazardous locations, obstruction signals and traffic signalling.  I have a holding in my growth portfolio (epic code: DIA). 

Dialight announced today that their Group FD Mark Fryer stepped down with immediate effect.  It is never a comfortable feeling when a key director leaves substantially earlier than his contractual notice (6 months in this instance).  Although he has stepped down from the Board today, he will remain with the company until the end of March, leaving shareholders to wonder why the company felt it necessary to have him resign his board position immediately, or why Fryer felt it necessary.

Thursday, 9 January 2014

GlaxoSmithKline US FDA approval


GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

GSK announced today that they had received U.S. FDA approval for Mekinist® (trametinib) for use in combination with Tafinlar® (dabrafenib) for the treatment of patients with melanoma that cannot be removed by surgery or melanoma which has spread to other parts of the body.

The original application was made in early July 2013, based on data from a phase I & II study.

Tesco trading statement

One of the world’s largest retailers.  I have a holding in my income portfolio (epic code: TSCO)

Tesco issued their Christmas & New Year trading statement today and performance, as in the 3rd quarter IMS, was weak.

Group sales in the six weeks to 4 January 2014 declined by -1.2% including petrol (-1.6% at actual exchange rates) and declined by -0.6% excluding petrol (-1.1% at actual exchange rates).

In the UK, total sales including VAT and petrol declined by -1.5% and by -0.6% excluding petrol, with like-for-like sales declining by -2.4%.  International sales declined by -0.7% (Asia -0.6% and Europe -0.8%) at constant exchange rates and -2.2% at actual exchange rates.

Management now expect to report full year results within the range of current market expectations of £3,157m to £3,416m for group trading profit.  The consensus mean was £3,330m.

Restaurant Group post-close update


The Restaurant Group plc (TRG) is engaged in the operation of restaurants and pub restaurants. The principle brands are  Frankie & Benny’s, Chiquito, coast to Coast, Garfunkel’s, Home Counties Pub Restaurants and Brunning & Price.  I have a holding in my income portfolio (epic code: RTN).

The Restaurant Group issued a strong post-close update, stating that profits for the 52 weeks to 29 December 2013 are expected to be ahead of the consensus of market forecasts.

Turnover for the year was 9% ahead of 2012 and like-for-like sales were 3.5% ahead; with operating margins expected to show an increase on 2012.

New openings were ahead of the previous year with 35 restaurants opened in 2013 compared to 28 in 2012.  Management stated that trading at these new sites had been excellent and they are set to deliver strong returns. The Group expects to open between 36 and 43 new sites in 2014.

The full year results will be announced in early March.


Greggs trading update

Greggs the Bakers

The leading bakery retailer in the UK, with almost 1,700 retail shops throughout the country.  I have a holding in my income portfolio (epic code: GRG).

Today Greggs issued a positive trading update - for the 2013 year total sales were up 3.8% and, although like-for-like (LFL) sales were down 0.8%, the fourth quarter showed an improving trend with LFL sales up 2.6%.

For the Christmas and New Year trading period (5 weeks to 4th January) total sales were up 4.8% and LFL sales up 3.1%.

Greggs continue to generate strong cash flow and they finished the year with a net cash balance of £24.6m, this compares to £12m at the interim stage and £19.4m at this time last year.  It will be good to see the detail when they announce the full results on 26 February and also the decision on dividends; I would think that a continuation of their 28 year record of dividend increases is a strong possibility. 

Management anticipate that full year results will be in line with their previous expectations.

For 2014 they have stated that due to the structural changes they are making, about 300 people may leave the business and that these changes would result in one-off redundancy costs and asset impairment charges amounting to £9.0m, of which £8.0m would be a cash cost.  Management anticipate that the ongoing benefit of the cost reduction would be £6.0m per year from mid-2015 and that, excluding the one-off costs, there would be a benefit in 2014 of £2.0m.

As previously indicated by management the costs of these structural changes are likely to constrain profit growth over the next two years; however they are confident that they are building a platform for sustainable long-term profitable growth.  See my previous post here for a full analysis.

Greggs is a highly cash generative business with a good dividend paying record, that will remain in my income portfolio.

Idox finals

Idox group logo

The Company is engaged in the development and supply of software solutions and services to the United Kingdom public sector and asset intensive industries worldwide. It operates in four segments: Public Sector Software, which delivers software service solutions to mainly local government customers across a broad range of departments; Engineering Information Management, which delivers engineering document management and control solutions to asset intensive industry sectors; Information Solutions, which delivers both an information service and consultancy services to a diverse range of customers across both private and public sectors and Recruitment, engaged in providing personnel with information, knowledge, records and content management to a diverse range of customers. It also provides information management, Web development, online publishing and training services. I have a holding in my growth portfolio (epic code: IDOX)

Yesterday Idox released their final results, with no further trading surprises.  Group revenues from continuing operations grew by 3% to £57m, due to organic growth in the PSS division and the impact of the three acquisitions made during last year. 

The geographical split of its revenue was similar to the prior year with 33% generated outside of the UK. 

Gross profit earned was 4% higher at £52m and Idox saw an increase in gross margin from 90% to 91% as a result of an increased mix of higher margin software business. 

As guided by a previous trading update see here EBITDA decreased by 9% to £15.0m (marginally better than expected) with EBITDA margins of 26% compared to 30% last year.

Despite the problems, Idox still generates reasonable amounts of free cash flow, £6.6m compared to £7.4m last year.  

Diluted adjusted EPS fell 7% to 3.38p and statutory diluted EPS increased by 13% to 2.07p.

Management sated that "...The Group starts the new financial year in an improved position in terms of capability, reliability and revenue visibility going forward..."

So is the worst behind us and can we expect good improvement from here?  It is difficult to tell, the following statement from the Chairman would imply some further overhead increases: 

"...Idox has had a long tradition of running a very lean business in terms of costs and people and we now recognise that we need more depth and capability across the Group to manage our newer activities around the world and provide more cover and support when needed in critical management positions. In addition, the complexities of the sales process for both software and services in large global organisations means we need to be more competitive in terms of management skills..."

There was also no detailed mention of the progress in recruiting a CFO (other than it is likely to be the last recruitment in the process of strengthening their management team) since the last one left rather swiftly in October and they had expected to have one in place by December.

They usually hold their AGM in late February and issue a trading statement at the same time, so I will wait to then before taking any action.