I am not sure how the market will react to these results.
On the positive side, revenue up a healthy 17.1%, cash conversion improved and pipeline looks good.
However, the margins have reduced. NPAT was only up 4.4%.
At the interims, Kees explained that he expected NPAT margin to get back up towards the 20% target, at least high 19's.
It has improved from the 14.8% at the interim, to 18.4%, but not quite where he said it would be.
There is a slide which explains that the shortfall is due to some exceptional costs in ERP development and lease costs associated with unused land and factory space. However, even allowing for that it only brings it up to 19%, which is still below target.
Hopefully, they still have a 20% target.
A couple of other things to note are;
1. Kees mentioned in his half year presentation, that he expected there would be a few significant Aerospace and Defence contracts announced within the following 3 months. There has not been any announced in the six months since then.
2. In the breakdown of revenue and EBITDA across segments, it looks like the main drop-off in margin is in the C & R segment, which is the North American division. There the EBITDA margin went from 23.5% to 14.45%. In the other PWR Performance section (Australia and Europe), it only fell from 37% to 36%.
Given, that the explanation for reducing margins seems to be increased labour, travel, insurance and ERP costs, I am a bit confused as to why it is so concentrated in the North America segment.
Overall, I think the results are OK and a bit improved from where they were at interims, but given that they got savaged when they revealed the reduced margins in interims, I am not sure how the market will react. I guess at the end of the day, if you are a long term holder, it's irrelevant.
What matters is whether the business is still doing well and poised to continue growing into the future.
It will be interesting to hear the presentation. I have a few niggling concerns, but hopefully these will be addressed tomorrow.
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(20min delay)