Tuesday 15 August 2017 by FIIG Research Company updates

Company updates – Aurizon, Avon, Capitol Health, Dell, Dicker Data, Hertz, NAB, Newcrest, NEXTDC, NRW, Pepper Group, Westpac and Virgin Airlines

This week, Moody’s takes rating action on Dell, Dicker Data and Cisco separate, NEXTDC increases funding facility,  NRW is on trading halt, Pepper confirmed takeover, Westpac equity investment in zipMoney. FY17 results from Aurizon, Capitol Health, Newcrest Mining and Virgin Airlines, 2Q17 results from Avon Products and Hertz and 3Q17 from NAB. 

Aurizon Network – FY17 results

On 14 August 2017, Aurizon released its full year results for 2017.

Key points:

  • Access revenue increased 6% to AUD1.2bn
  • Volume decreased 7% due to Cyclone Debbie (FY17 201.8mt; average 225mtpa)
  • EBITDA increased 2% to AUD778m
  • EBIT decreased 3% to AUD490m
  • Next debt maturity in FY19 is undrawn bank debt of AUD525m and plans to refinance in FY18
  • Timing of final decision on next regulatory tariff reset (“UT5”) is unknown
  • Transitional tariffs assumed for full year FY18

The link to Aurizon’s results announcement is available here.External link - opens in a new window

Avon Products – 2Q17 results

On 3 August 2017, Avon released its second quarter results for 2017.

Key points:

  • Revenue decreased 3% to USD1.4bn and decreased 4% in constant dollars
  • Active representatives and Ending representatives, both from reportable segments, declined 3% and 2%, respectively
  • Gross margin and adjusted gross margin each increased 180bps to 62.4%
  • Operating margin decreased 430bps to 2.3%; adjusted operating margin decreased 230bps to 5.0%
  • The provision for income taxes was USD34m compared to USD36m in 2Q16. On an adjusted basis, the provision for income taxes was lower at USD34m compared to USD44m in 2Q16
  • Loss from continuing operations, net of tax was USD46m compared to income of USD36m in 2Q16
  • The company is on track to achieve its 2017 cost savings target of USD230m

The link to Avon’s results announcement is available here.External link - opens in a new window

Capitol Health Limited – preliminary FY17 results

On 10 August 2017, Capitol Health released its preliminary full year results for 2017.

Key points:

  • Operating revenue of AUD162.5m, up 2.6% or AUD4.1m from FY16
  • Core radiology EBITDA of AUD22.2m before one off restructuring costs, ahead of guidance range of AUD19.5m to AUD21.5m
  • Group operating revenue of AUD118m to AUD122m and core radiology EBITDA of AUD19m to AUD21m
  • NSW asset sale on track for completion on or around 31 August 2017 estimated value AUD81.5m
  • Cash balance post NSW asset sale circa AUD95m (estimated total debt of AUD50m)
  • Capital management in FY18 expected to include share buy back and dividend reinstatement
  • Medicare system growth returning to more normal range

The link to Capitol Health’s results announcement is available here.External link - opens in a new window

Dell Inc.

Moody's affirmed Dell’s corporate family and probability of default ratings at Ba1 and Ba1-PD, respectively, following VMware, Inc.'s proposed notes issuance. Moody's also affirmed all of the debt ratings at Dell, Dell International LLC, and EMC Corporation. The rating outlook is stable.

The link to Moody’s ratings rationale is available here.External link - opens in a new window

Dicker Data

On 15 August 2017, Dicker Data announced the termination of its distribution agreement with Cisco in New Zealand.

The actual amount this represents is not public, however the total NZ business represents about 10% of revenue and 8% of EBITDA (FY16). Cisco NZ represents a proportion of that. Dicker says that with new vendor agreements it will still meet its FY17 NPBT guidance of AUD40m.

Dicker Data states its distribution agreement with Cisco in Australia remains in place and is not impacted by this announcement. Cisco represents a significant ~30% of Dicker’s total business. 

The New Zealand market is unique

NZ is unique in that it is significantly smaller than Australia, and business is transacted through a few major accounts. As such, Cisco initiated a Request for Proposal (RFP) process 12 months ago to reassess its ‘go to market’ strategy in NZ. No such similar process has been initiated in Australia nor does Dicker believe it will be.

In NZ, vendors have been reducing distribution agreements with multiple parties in preference to dealing with one industry player. During the past 24 months, there has been a lot of change in the market. Industry magazine “Reseller News” describes the situation as a “case of swings and roundabouts” for all distributers, including Dicker. While losing Cisco, Dicker was recently appointed by Schneider Electric to replace Ingram Micro, agreed a partnership with TeamViewer in April and announced a pre Christmas deal with Lenovo.

Hertz Global Holdings – 2Q17 results

On 8 August 2017, Hertz released its second quarter results for 2017.

Key points:

  • Total revenues for 2Q17 were USD2.2bn, a 2% decline from 2Q16
  • 2Q17 net loss from continuing operations of USD158m, including USD54m of impairment charges, compared to a net loss from continuing operations of USD28m in 2Q16
  • Adjusted net loss was USD52m compared to net income of USD35m in 2Q16
  • Loss from continuing operations before income taxes was USD245m, including USD86m of impairment charges compared to USD35m in 2Q16
  • Adjusted corporate EBITDA was USD35m compared to USD184m in 2Q16

US rental car summary:

  • Total revenues were USD1.5bn, a decrease of 4% from 2Q16
  • Pricing, as measured by total revenue per transaction day (RPD), decreased by 2%, driven by a change in customer mix (yoy) and weaker ancillary revenues
  • Adjusted corporate EBITDA was a negative USD22m, an USD190m decline compared to 2Q16. In addition to revenue pressure and increased fleet costs, the reduction was impacted by investments related to service level improvements, systems enhancements and brand development initiatives

International rental car summary:

  • Segment revenues were USD543m, an increase of 1% from 2Q16
  • Excluding an USD18m unfavourable impact of foreign currency exchange rates, revenues increased 4% driven by a 6% increase in transaction days, partially offset by a 1% decrease in total RPD
  • Adjusted corporate EBITDA was USD63m, a 50% increase from 2Q16
  • The yoy increase reflects an USD20m charge taken in 2Q16 related to adverse public liability and property damage claims experience and case development – which did not reoccur this year due to management action to improve claims handling and changes in business practices.

The link to Hertz’s results announcement is available here.External link - opens in a new window

National Australia Bank – 3Q17 results

On 10 August 2017, NAB released its 2017 third quarter trading update.

Key points:

  • Unaudited statutory net profit of AUD1.6bn
  • Unaudited cash earnings of AUD1.7bn, up 2% compared to March 2017 half year quarterly average and 5% versus prior corresponding period
  • Cash earnings growth reflects improved revenue growth and stronger asset quality
  • Revenue up 2%, with growth in lending and improved group net interest margin (NIM) partly offset by lower markets and treasury income
  • Higher group NIM largely reflects loan repricing and more favourable funding conditions
  • Expenses up 2%, or 1% excluding redundancies, due to increased investment spend
  • Bad and doubtful debt charges fell 12% to AUD173m, reflecting improved asset quality trends and non repeat of the collective provision overlay for commercial real estate raised in the March 2017 half year
  • Leverage ratio of 5.3% (APRA basis)
  • Liquidity coverage ratio quarterly average of 127%
  • Net stable funding ratio of 108%

The link to NAB’s results announcement is available here.External link - opens in a new window

Newcrest Mining – FY17 results

On 14 August 2017, Newcrest released its full year results for 2017. Solid operating performance underpins continuous free cash flow generation

FY17 results highlights:

Source: Newcrest, FIIG Securities

Key points:

  • Gold production of 2.38m ounces at a group all in sustaining cost of USD787 per ounce
  • Underlying profit increased  22% to USD394mand EBITDA rose 18% to USD1,408m
  • Free cash flow of USD739m enabled a 29% reduction in net debt to USD1.5bn, which resulted in net debt/EBITDA dropping to 1.1x at 30 June 2017 from 1.6x at 30 June 2016
  • Newcrest continued its shareholder-friendly policy by announcing new dividend policy targeting at least 10-30% of free cash flow (no less than USD0.15 per share on a full year basis)


Subject to market and operating conditions, Newcrest provides the following guidance for individual assets for FY18:

The link to Newcrest’s results announcement is available here.External link - opens in a new window 

NEXTDC increases funding facility

NEXTDC is positioning itself for its next growth phase, renegotiating and increasing its funding with NAB. It remains the highest bidder for Asia Pacific Data Centre Group. The company has announced a new three year AUD300m senior secured syndicated loan with its major lender, NAB. The facility will replace its existing $100m senior secured facility.

For more information, click here.External link - opens in a new window

NRW is on trading halt until Wednesday 16 August

The securities of NRW Holdings Limited (the “Company) will be placed in trading halt session state at the request of the Company, pending the release of an announcement by the Company. Unless ASX decides otherwise, the securities will remain in trading halt until the earlier of the commencement of normal trading on Wednesday 16 August 2017 or when the announcement is released to the market.

Pepper Group Limited

Australia’s Pepper Group confirmed an AUD650m takeover offer from private equity giant Kohlberg Kravis Roberts. Pepper has granted the private equity group exclusive access to its books for a due diligence process. 

Virgin Airlines – FY17 results

On 10 August 2017, Virgin Airlines released its full year results for 2017.

Key points:

  • Airline passenger revenue was 13.4% below Bloomberg consensus estimates of AUD4.935bn compared to the group’s reported AUD4.275bn, which was however a marginal improvement of 1.9% compared to per corresponding period (pcp) in FY16.
  • The underlying EBIT deteriorated by 22.1% to AUD164.1m due to subdued trading conditions and the impact of fleet simplification
  • The group’s business segments reported mixed performances but recorded its first positive free cashflow of AUD34.3m since FY12. This was mainly underpinned by a 17.2% increase in cash generated from operating activities (before transformation and finance costs) to AUD525.9m
  • Financial leverage (defined as net debt adjusted for operating lease rentals to EBITDAR) continued to drop to 4.5x at 30 June 2017 (from 5.2x at 30 June 2016). This improvement follows a 18.9% reduction in gross debt to AUD2.4bn at 30 June 2017 pcp, including accelerated debt repayments of AUD260m. Virgin also benefitted from the AUD931m received from its shareholders following its entitlement offer during 1H17
  • Virgin launched the sale of direct services to Hong Kong in March 2017 and commenced its proposed alliance with HNA Aviation, Hong Kong Airlines and HK Express. The airlines also commenced flights from Melbourne to Los Angeles in April 2017

The link to Virgin’s results announcement is here.External link - opens in a new window

Westpac Banking Corporation

On 8 August 2017, Westpac made an AUD40m equity investment in the digital payments platform, zipMoney. This is the largest direct investment by an Australian bank in a local fintech, and is expected to fast track the company’s development plans. Westpac, for its part, gets access to zipMoney’s real time data analytics and credit approval processes. The bank also gets AUD9.8m performance options – subject to revenue hurdles – that can be exercised for an addition AUD8m. If zipMoney fails to clear any hurdles in three years, AUD3.92m of the options will lapse.