Aero Inventory Share Discussion Threads

[martinc] 16/3/2009 09:06

Stock is the key factor. It's the source of most of their debt. The business model is that stock levels can be run down due to duplications over multiple contracts. If they can avoid spending significant amounts on new stock for the second half of the year, then cashflow will look a lot better.

It's good news for March on this front, but what about the other months?

Total purchases in March 2009 are anticipated to amount to less than
US$20 million compared with over US$40 million one year earlier as contracts
mature and we start to reap the rewards of tighter planning and greater stock
fungibility

And if you add in the $100m and cash from stock placing, debt levels look pretty secure.

Fungibility is a new word for me. I'll have to remember that one. It'll impress Mrs. MartinC in Tesco's, I bet.

[woracle] 16/3/2009 09:04

I agree, but this is a new world. They won't be getting fresh facilities or refinancing at LIBOR+3% in 3 years time.. especially as interest rates won't be any lower than now.. and spreads are a lot worse. That wont change in 2 or 3 years. If they paid back the facility by selling stock, there is no business.. Its a ponzi scheme and leaves no room for error. It might work, but there are much better risk rewards in the market today.

[mdj8] 16/3/2009 08:51

Woracle, in addition to kannerwas explanation, it's not as though AI. can't pay the facility back if they wanted to - it's fully covered by the stock they have on their books. IMHO AI. are in a strong position and not beholden to lenders or others - hence their ability to reject business on what they perceive to be unreasonable terms. 18% op margin - nice!

[jr hartley] 16/3/2009 08:50

Sorry some typos in earlier post...Monday morning.......

I agree that on 1st reading these results are disapointing.
However looking for some positives amongst the gloom, despite the increased borrowing and stock levels as compared to the same H1 period last year, the balance sheet is looking stronger even excluding the H2 stock sale.

H1 07/08 - Current assets (634.5) less liabilities (434.1) = 200.4
H1 08/09 - Current assets (883.9) less liabilities (624.9) = 259

Divide these values with 52million shres approx gives:
H1 07/08 = $3.85
H1 08/09 = $4.98

We therefore are 29% stronger in terms of real asset value 1 year on.
Factor in the recent stock sale which moves approx $100m stock to cash and this looks even better.

It remains to be seen how effective they can be at improving their operational efficiency and purchasing and planning processes over the next 12 months and they really need to deliver on this to get the markets attention.

[jr hartley] 16/3/2009 08:47

I agree that on 1st reading these results are disapointing.
However looking for some positives amongst the gloom, despite the increased borrowing and stock levels as compared to the same H1 period last year, the balance sheet is looking stronger even excluding the H2 stock sale.

H1 07/08 - Current assets (634.5) less liabilities (434.1) = 200.4
H2 09/09 - Current assets (883.9) less liabilities (624.9) = 259

Divide these values with 52million shres approx gives:
H1 07/08 = $3.85
H2 08/09 = $4.98

We therefore are 29% stronger in terms of real asset value 1 year on.
Factor in the recent stock sale which moves approx $100m stock to cash and this looks even better.

It remains to be seen how effective they can be at improving their operational efficiency and purchasing and planning processes over the next 12 months and they really need to deliver on this to get the markets attention.

[kannerwas] 16/3/2009 08:40

Muangsing. "Excludes" must be intended to mean "excludes the effect of the sale of". It's badly expressed.
Woracle. A lot of business models would not add up if companies had to repay all existing debts as they fell due without replacing them with new facilities. The question here is: is the company sufficiently cash-generative to justify new facilities being granted in due course? I think the answer is probably yes.

[woracle] 16/3/2009 08:21

Business model doesnt add up.. can't see them generating enough cash to pay back almost 485M in years 3 to 5.. or even 385M !

[muangsing] 16/3/2009 08:21

rat attack

Surely in that case the word used should be "includes" and not "excludes"?

regards

[stallone10] 16/3/2009 08:17

yup borrowing money of investors for years by placements, its a ponzi scheme guide to fgrowing a co pany , but look like the music stopped can't go the market anymore.

[rogerbridge] 16/3/2009 08:16

Good results in the circumstances. I totally agree with MDJ8, we do not want business at any price.Prospects for growth in the future, good dividend and very very low pe.

[mdj8] 16/3/2009 08:07

Seems some pragmatic decisions have been made - contrary to ydderF I am completely against a business at all costs mentality, particularly in this climate - who is to say such desperate potential clients will stay around? Far better to consolidate and digest the current work they have whilst paying off the loan facility with the cash generated, they'll be a lot stronger for it and when they do decide to take on more business perhaps their success and sound business practices will be rewarded instead of getting drowned out by the cacophony of headless chickens in the market, as in the ACTS deal. This company is not priced correctly IMHO and the retained divvi is a testament to that.

[johnrxx99] 16/3/2009 08:06

Yup, funding could be the problem. They only have £16m headroom but I assume that will increase after the sale but nevertheless a bit disappointing.

[rat attack] 16/3/2009 07:57

Thats because the balance sheet is 31 Dec not end Feb!! Liquidity is much better now with 100m inventory off bal sheet and reduced debt. However, I remain to be convinced about onerous contract negotiations - looks to me they wouldnt have been in a position to take on new inventory and airline wanted cash upfront!!

[cockneyrebel] 16/3/2009 07:52

Frauddy, you've been knocking these for weeks so you obviously want to buy them! That's your way - get in quick!

CR

[muangsing] 16/3/2009 07:40

The chief executive says the stock figure of $751.9m

"but excludes the stocks sold in february to Air Canada".

My take on the english is that the stock would have been $851m approx if the sale hadn't of taken place. Yet I can find no sign of the corresponding debit in the balance sheet.

If the stock at end of Feb were $651m approx and they had a bill of $100m then the liquidity position is better

Any ideas?

[ydderf] 16/3/2009 07:33

Another crookney crock - the warning signs were there, sufficient for me to sell at least, when they raised cash on onerous terms.....it pays to use common sense sometimes, what a disaster - the management are running scared, this is the time to build the business, not consolidate - they seemed infected with the shaky knee virus - whats the point of directors being paid loads of money if they cant be entrpreneurial?

That said I am buyer below 140p

[rat attack] 16/3/2009 07:18

Sumary:


HIGHLIGHTS OF THE SIX MONTHS


* Revenue of US$256.1 million, an increase of 55% over the corresponding period
(2007: US$165.1 million), reflecting in particular a full six-month contribution
from our contract with Aveos (formerly ACTS).
* Pre-tax profits of US$33.1 million, an increase of 46% over the corresponding
period (2007: US$22.7 million).
* Fully diluted EPS of 46.9 cents per share, an increase of 47% over the
corresponding period (2007: 31.9 cents per share). Translated into sterling at
the current exchange rate the diluted earnings per share amounted to
approximately 34 pence per share.
* Interim dividend maintained at last year's level of 6.0 pence per share.
* Decision taken to withdraw from contract negotiations with the major airline
referred to in our 10th February announcement as satisfactory commercial terms
could not be agreed.
* In the absence of this major piece of new business, the Board has determined to
focus in the near term on cash generation and improved operational efficiency.


CHAIRMAN'S STATEMENT

STRATEGY
Aero Inventory's long-term strategy is to continue to grow the business rapidly
and profitably by securing long-term sole supplier contracts with airlines and
maintenance, repair and overhaul companies (MROs). The market is large, and the
trend towards outsourcing strong. The potential for further growth is therefore
significant.
However, following the termination of contract negotiations with a major
airline, the Board has decided that in the near term the Company's focus will be
on cash generation and improved operational efficiency. Substantial new
contracts have long gestation periods. While we may add some smaller pieces of
business which complement our existing contracts we intend to view this period,
at a time when investors are wary of gearing and focused upon cash, as an
opportunity to demonstrate the ability of the business to generate cash and
increase its stock efficiency, having already proven its ability over a number
of years to achieve rapid growth in sales and profits.

RESULTS AND DIVIDEND
The results for the first half were in line with management expectations,
reflecting in particular a full six-month contribution from our contract with
Aveos (formerly ACTS) in Canada. Turnover was up 55% and pre-tax profits were up
by 46%. In the light of this result and given the satisfactory outlook for
profits the Board is recommending an unchanged interim dividend of 6.0 pence per
share. The interim dividend will be paid on 19 June 2009 to shareholders on the
share register on 22 May 2009.


REVIEW OF RESULTS
The first half of the current financial year included a full six months
contribution from our contract with Aveos (formerly ACTS) and, largely
reflecting this, our revenues have grown by 55% to $256.1 million and profits
before tax by 46% to $33.1 million.
Gross margins in the period amounted to 34% compared to 36.8% in the comparative
period and the operating margin remained at approximately 18% as operating
expenses only increased 31% compared to the 55% increase in revenue.
Finance costs increased to US$14.9 million (2007: US$8.1 million). The increase
reflects the increased level in borrowings to finance the Aveos and ANA
contracts and some additional investment in stock to support other existing
contracts.
The pre-tax profit for the six months was US$33.1 million (2007: US$22.7
million). The tax charge was US$10.4 million (2007: US$6.5 million), which
reflects an estimated effective annual rate of 31% compared to a tax rate of 29%
in the last financial year.
On the basis of after tax earnings of US$22.7 million (2007: US$16.2 million)
and the weighted average number of shares in issue during the period of
47,626,909 (2007: 47,360,921), basic earnings per share were 47.6 cents per
share (2007: 34.1 cents per share). Diluted earnings per share were 46.9 cents
per share (2007: 31.9 cents per share). Translated into sterling at the current
exchange rate the diluted earnings per share amounted to approximately 34 pence
per share.
The period-end balance sheet shows increased stocks at US$751.9 million
(compared to US$690.1 million at 30 June 2008). The increase from 30 June 2008
includes additional investment made in stock to support our ANA and Aveos
contracts but excludes the stocks sold in February to Air Canada. If this
transaction had been included the stock value would have been similar to that
reported at the end of last financial year.
Net bank debt at 31 December 2008 was US$467.1 million (compared to US$392.2
million at 30 June 2008). The movement since 30 June 2008 again principally
reflects stock investment to support our newer contracts. Since 31 December 2008
we have made progress in reducing stock levels with a sale of stock to Air
Canada referred to above. The Company has a committed US$500 million facility in
place which does not expire until February 2013.

OPERATIONAL IMPROVEMENTS
We continue to focus on all operational aspects of our business and recently a
series of changes has been made to our planning and purchasing activities to try
to ensure that inventory meets as closely as possible the requirements of our
customers. Total purchases in March 2009 are anticipated to amount to less than
US$20 million compared with over US$40 million one year earlier as contracts
mature and we start to reap the rewards of tighter planning and greater stock
fungibility. More stocks are being transferred between sites and the total value
of these transfers completed in the period amounted to over US$50 million.

SRT IRELAND
It was announced on 12 February 2009 that SR Technics plans to close its
operations in Dublin. Aero Inventory's business in Dublin accounted for less
than 5% of turnover in the six months to 31 December 2008 and therefore this
closure will not have a material effect of Aero Inventory's results particularly
as some of the work previously performed in Dublin is likely to be transferred
to Zurich or Stansted, where the Company continues to support SR Technics as
previously. The stock held in Dublin will be transferred to other sites. No
stock or debtor write-downs are anticipated.
Aero Inventory's two other contracts with SR Technics in Zurich and at Stansted
were due to be renewed in August 2009 but have now been extended by a further
three months to November 2009.

AIR CANADA
On 10 February 2009 Aero Inventory announced that it had completed the sale of a
significant quantity of consumable aircraft parts to Air Canada, the principal
customer of Aveos. The consideration received by Aero Inventory for this
material is in the form of Bills of Exchange with a face value of approximately
US$100 million, maturing in early February 2010. Aero Inventory had intended to
discount the bills for cash to raise part of the funds necessary to finance its
prospective substantial new contract. In light of the decision to terminate the
contract negotiations referred to earlier the Company is now considering whether
to hold some or all of the bills until maturity. This sale of material which
will largely not need to be restocked represents a significant step towards
achieving the Company's twin objectives of improving stock turn and releasing
cash from inventory. The stock sold represents in part materials that would have
been purchased by Air Canada from our customer Aveos and therefore the sale will
have the effect of reducing ongoing sales levels to Aveos in the short term.

SHARE PLACING
At the same time as the sale of stocks to Air Canada the company announced that
it had raised GBP11.9 million before expenses, through an institutional placing
of 4,762,680 new shares at a price of 250p per share.

CURRENT TRADING AND PROSPECTS
Against the background of a strong first half, it is disappointing to announce
that the Board has decided to withdraw from negotiations for a substantial new
contract (referred to in our 10 February announcement) as satisfactory
commercial terms could not be agreed. Given the long gestation periods of
substantial new contracts, the near term focus for the business has now turned
to cash generation and improved operational efficiency. Our existing business
continues to trade broadly in line with management expectations, although, as we
have said on previous occasions, it would be unrealistic to expect it to be
unaffected by the deterioration in the global aviation market. While some
additional costs have been put in place in preparation for the major new
contract, the outcome for the year is still anticipated to be satisfactory.

[darlocst] 16/3/2009 07:14

Disappointing results.

New contract cannot be agreed, gross margin down, borrowing up.

First line I looked for:

Net cash out flows from operating activities (50.2)

Until they can prove this business can generate net cash from existing operations then it will remain on my watchlist.

One positive, at least they maintained the dividend.

[milacs] 16/3/2009 00:51

If it should fall beneath 200p we have no history which would allow us to predict the potential low.

M

[thekobbler] 15/3/2009 19:47

fingers crossed for tomorrow......

[cockneyrebel] 11/3/2009 12:11

chart looks like it's bottoming on the 2001 lows.

Starting to look like it might start making higher highs and higher loes here, especially after good results.

CR

[nfs] 11/3/2009 12:07

whoa ,zoomed up at 1145am looks like-interesting

[cockneyrebel] 10/3/2009 19:09

Well something like 24p in divi due over 14 months. Net that off over that time and your buy price is 190p.

If they do anything like concensus the PE is just around 2.5.

There has to be a lot of fear factored in at that valuaton imo, won't take much to surprise to the upside I wouldn't have thought.

CR

[iomhere] 10/3/2009 18:57

Interim's out on Monday.

[nurdin] 10/3/2009 18:17

Wonder what their debt position is now