On 14/8/14, SGH advised F15 revenue guidance of $500m which:
* included contribution of A$25.6 m from acquisitions announced and to be completed in FY15, subject to final due diligence and formal documentation execution; and
* GBP:AUD exchange rate of £0.54.
On 12/8/14, the acquisitions of Nowicki Carbone and Schulz Toomey O'Brien had been announced, with annualised revenue (full year) of $39m.
The $25.6m acquisition assumption therefore suggested a completion date by end October 2014, assuming that these were the particular acquisitions to which the 14/8 assumptions was referring. Both acquisitions settled by end October, so SGH was spot on, here.
On 20/10/2014, a similar presentation was used at the AGM, maintaining guidance at $500m, with no changes to either the acquisition assumptions or to the GBP exchange rate.
On 10/2/15, the Half Year presentation maintained the guidances, and assumptions, unchanged from the 2014 full year results. In the meantime however, exchange rates had fallen substantially, with the GBP:AUD exchange rate falling to £0.47, and experiencing an F15 average closer to £0.506 (/marginally lower than this and closer towards £0.50).
UK segment revenue was $182.5m in F14 so, if the GBP:AUD exchange rate is taken at £0.506 instead of £0.54, then that same reported F14 revenue becomes $194.8m when re-calibrated to a £0.506 average rate, assuming the status quo is maintained. So, +$12.3m increase in revenues (off the F14 existing UK revenue base) assuming only only the change in FX rates which occurred during the year.
Then on 30/3/15 when the PSD acquisition was first announced, no changes were made to the underlying guidance.
On 24/6/15, with the PSD acquisition finalised, an Investor Update was provided which raised guidance to $520m, excluding PSD, but including the Australian acquisitions (Nowicki + Schulz) and the UK acquisitions of Walker Smith Way and Leo Abse Cohen both of which completed in May 2015, with assumed F15 contributing revenue of £3.1m through to end June.
The exchange rate assumptions were also changed, to now assume a rate of £0.532 instead of £0.54. This however is still to the high side. For example, OzForex puts the average rate for the year at £0.506.
Refer:
http://www.ozforex.com.au/forex-tools/historical-rate-tools/yearly-average-rates.
Working through the comments that had been made, the original revenue guidance of $500m assumed local acquisition revenue of $25.6m. Assuming this to be correct, then the additional UK revenue (from the Walker and Leo acquisitions) would likely have come to $+6.1m (assuming average FX across May and June of £0.506).
Similarly, if the whole year average FX is applied at a £0.506 rate, then the added revenue on account of FX variation for the year would have been +$12.3m.
In contrast however SGH have used an average rate of £0.532 which when built into the assumptions suggests a variation increase of +$2.7m.
So, bringing all this together, the increased guidance from $500m to $520m, if built around a £0.532 rate suggests:
* FX variation - +2.7
* new UK sales - +5.8
* other - +11.5 = +20.0m
But if so, then assuming a much more realistic average GBP exchange rate of £0.506, then this suggests:
* FX variation - +12.3
* new UK sales - +6.1
* other - +1.6 = +20.0m
So, either SGH is going to report:
* flat AU results, adjusted out for the F15 domestic acquisitions; or
* surprise to the upside of its revised revenue guidance.
This however depends on whether the results are based on a "real" average GBP exchange rate being much lower than their initially suggested 54 rate (ie: much closer to 50.6), or whether they will be reporting to a 53.2 rate (per the 24/6/15 Investor Presentation).
With >60% of their future business coming from offshore, SGH are also now going to have to become FX savvy although it remains possible to consider treat the UK and Australia as respective, near standalone operations, with limited crossover adjustment being required from a financial, funding flows perspective. If so, then FX considerations are not relevant to the need for currency hedging to apply (in order to back up movements in funding flows), but they do become increasingly relevant from a financial reporting perspective.
So, one of the really important numbers to look at in the FY results will be to see the extent to which Australia is growing (sans the 2015 contributing acquisitions), vs how much of the increased revenue guidance is due to currency flucuations.
All that this is suggesting is that somewhere between $8.5m and $18.4m of the increased F15 revenue guidance is attributed either to new /more recent UK acquisitions or to FX movements. Conversely, increased domestic contributions range from $1.6m - $11.5m off a 2014 domestic revenue base of $236m (adjusted for inter segment revenue or "transfer pricing"). That's an increase of between 0.6% - 4.9% on the domestic side sans the 2015 "new" acquisition contributions.
So, $500m will be met. revised guidance to $520m should be met, but the make-up mix is uncertain, so therefore could still surprise to the upside if a lower than previously suggested FX rate is applied. Otherwise, the possibility of a heightened domestic squeeze off the existing revenue base remains probable.
(20min delay)