Tricorn Share Discussion Threads

[chrisg] 02/11/2012 18:15

I wonder if it is anything to do with the following:

"Engineers later found that one of the engine's external oil feed pipes was finger tight and had leaked. It was the fourth time a Qantas A380 had suffered an oil leak in one of their Roll-Royce engines.
Rolls-Royce later discovered that the oil leaks were the result of a loss of clamping force in the oil feed pipe connection at the engines' casings."

Read more:

This was separate from the oil pipe break which caused an engine to explode on a flight from Singapore to Australia in 2010. The above article also goes on to say that as of December last year, oil leaks had been found in 16 Roll-Royce engine across the worldwide A380 fleet.

Fine pipework is what TCN does, so I'm guessing there may be a connection between the above facts and today's announcement. But it is only a guess. I'm just relieved I sold out a few weeks ago, and sorry for those who got caught by today's RNS.

[underhill] 02/11/2012 17:27

OK, understand now. Thanks.

[timp230] 02/11/2012 16:03

Boystown, you make a good point. I work for a business striving like mad to become a supplier into the commercial aerospace market. It's a bit like getting into an exclusive club (you almost need an introduction to get in!). The attraction is high margins. In aerospace volumes are small (compared with automotive, say). Cost is not so much of an issue but quality is everything - you don't want an aircraft dropping out of the sky because of dodgy components. So my concern - like yours - is that there are quality concerns rather than a pricing issue.

[choppa] 02/11/2012 15:55

All engineers suffering in this climate. Gonna get worse before it gets better imho.

[paleje] 02/11/2012 15:37

Been out of these a while but bought today, risky but the 30% drop seems too much. We don't know the ins and outs but they will obviously try to reduce costs and have said they'll try to accelerate the new business pipeline which is healthy. Management are/were good.

My worry, as per others, is what's the reason for RR's pull out, is a competitor offering better value which might lead to other clients defecting. Don't know so tight stop.

[pugugly] 02/11/2012 15:30

timp230;> Spot on. My calculations were very quick and dirty but i am pleased that you concur.

Underhill:- As tmp230 has outlined with more clarity than I did, I was looking at the bottom line if they did not compensate with new business or downsizing. but as timp correctly brings to our attention there could well be exceptional costs in this case. Too foggy at the moment to even guess what these might be.

[boystown] 02/11/2012 15:26

For me, the bigger concern is the effect this will have on their existing customers. IF it's a quality issue, there could, presumably, be implications for other customers; "If it isn't good enough for RR, it isn't good enough for us"????

[timp230] 02/11/2012 15:19

Underhill, I think you're confusing gross profit (before fixed costs) with net profit (after fixed costs. So the loss of £2.71m of sales will reduce there bottom line profit by the marginal contribution derived from those sales at 33% - i.e. £900k. That's assuming they don't drive some fixed costs out of the business to offset the lost business - but that would carry a hefty one-off re-structuring cost.

[underhill] 02/11/2012 14:41

I can't accept your quick calculation Pugugly
I take it your calculation is this: Loss of 11% revenue, equating that to loss of 11% of (£24.7m) gross turnover. If so then £2.71m down on turnover and at 33% gross margin that's £900k lost profit. But if that were so, then overall profit would be £24.71*33% = £8.15m, which it's not.

The other possibility is to infer it's 11% lost profit (£1.16m net), which is £127.6k)

Anyone have another take on this?

[cisk] 02/11/2012 13:57

This is extremely disappointing news, especially given RR is in the sector that was growing the most, and offsetting the slowing demand in automotive.

On the one hand I think the share price drop is a bit of an overreaction to the news - but for me it's the loss of a strategic customer who they had hoped to sell more to, rather than less. Given the aerospace sector has a very small number of key players it effectively reduces the pool of potential customers significantly.

I believe that the design-in period for such products can be quite lengthy so RR would have decided some time ago to switch suppliers - wouldn't be surprised if they were beaten on cost by a supplier from the east.

It's always a risk investing in a company that has a very specialist range of products - in hindsight I'm not sure how much growth I expected from a company with such a specialist offering, but given the damage in reputation and prospects I sold.

I also hold Avingtrans - hopefully they won't have similar issues given their broader product and customer base.

[electronica] 02/11/2012 13:24

daz

The 11:10 timing is no real suprise. These guys seem pretty honourable & they would not have wanted the workforce to get this message via an RNS (& the romourmill) before starting work.

I guess a workforce meeting to break the news & then an RNS is the right way to do it.

So, why did they lose the business? Quality?, Price?, Delivery Performance? Does anybody have any ideas?

[apad] 02/11/2012 13:23

I think the % of the group profit is not a useful metric.
RMGD production capacity must be mostly devoted to Trent engine high volume production.
Also, given that it is a small company in Derbyshire the politics of Royces not renewing the contract is significant.
My concern is that this is not a commercial decision, but might be about quality and reliability of production.
RMGD is one of 4 companies in the group and it is civil aerospace that is the growing market.
More to find out about here I am afraid.
apad

[stegrego] 02/11/2012 12:33

Cornishman,

Yeah Ive not had a profit warning in ages, and like you TCN just a small fraction of holdings, so no harm done.

[cornishman33] 02/11/2012 12:31

Stegrego
'Ive sold, purely because I have a rule to sell on any profit warnings these days'.

I have the same rule. Fortunately I have not had to apply it much and my TCN holding was only about 4% of my total.

[stegrego] 02/11/2012 12:21

Not good, especially as I wasnt around when the announcement came out...

Aerospace was the sector they were doing well in, so thats put the cat amongst the pigeons.

Ive sold, purely because I have a rule to sell on any profit warnings these days.

[pj 1] 02/11/2012 12:06

Plus the worry of who has stepped on out Toes...........High Status Customer probably gone for 3 years.......competitor targetting TCN Customers

[pugugly] 02/11/2012 12:06

at some 11% of t/o I make t/o loss some £2.7 Million and if same average gross margin as per accounts at some 33% then reduction in gross profit of some £900K plus dislocation and one off redundency costs.

Agreed may well sink below electrionicas target.

e&oe. - imo & dyor.

Any fly on the wall any knowledge as to why RR are not renewing and who is taking the business ??

[saucepan] 02/11/2012 12:03

Ouch! Commiserations to those holding. (I follow with interest as TCN is one I held before).

[davydoo] 02/11/2012 12:02

Only have a few, but my worry is not loss of contract but loss of name and what that says to their sales prospects which now have a licence to screw down their own terms.

[rivaldo] 02/11/2012 11:56

Bloody hell, glad I didn't buy any more. My loss is within reason fortunately.

Prior forecasts of 5p EPS going forward will obviously have to be considerably scaled back.

[royaloak] 02/11/2012 11:56

I have been buying, overreaction at 21p level.

[pj 1] 02/11/2012 11:53

Do they have other ''contracts'' with RR???

[electronica] 02/11/2012 11:49

RR loss an absolute disaster.

It's going to be a long way back for TCN.

What price to consider an average down? 15p might be worth a look.