Speedcast International Limited (ASX:SDA) (FRA:7SC) (OTCMKTS:SPPDF) announced today its preliminary financial results for the six months ended 30 June 2019, highlighted by a rise in its Group revenue by 17.3% to US$ 357.6 million against US$ 304.8 million during the same period last year.
The company posted a Statutory NPAT loss of US$ 175.5 million, which included a small positive impact due to AASB 16 and a US$ 154.8 million negative impact from the impairment of goodwill relating to the performance of the non-Government operating segment
EBITDA, excluding US$ 4.6 million impact of AASB 16, was up 3.0% to US$62.2 million against US$ 60.4 million in H1 2018.
The company registered Operating cash flow of US$ 23.9 million with cash conversion of 36% of Underlying EBITDA (H1 2018: 89%) due to working capital deterioration and non-recurring expenses.
The company also posted Net debt increased to US$ 625 million at 30 June 2019 due to non-recurring acquisition and Globecomm integration costs, negative working capital and payment of the final 2018 dividend
Commenting on the H1 2019 results, Speedcast CEO Pierre-Jean Beylier said: "The Board and management are disappointed with the company's financial performance, the lower than anticipated contribution from Globecomm and slower organic growth. Significant steps have been taken to address our operational performance and return Speedcast to growth."
"We have substantial opportunities across our operating divisions to drive organic growth and deliver strong future outcomes for our customers, staff, suppliers, and shareholders. We have enhanced the flexibility in our debt facilities while having a stronger focus on more tightly managing working capital and capital! expenditure to support a positive turnaround in cash flows in the second half of this year," added Beylier.
H1 2019 Divisional Performance
- Maritime: Total revenue was up 12.0% to US$119.3 million (H1 2018: US$106.5 million) driven by the contribution from Globecomm. Excluding Globecomm, Maritime total revenue was down 1.7% to US$104.7 million while within this Service revenue was up 3.1% to US$97.0 million.
- Enterprise and Emerging Markets: Total revenue was up 6.8% to US$79.6 million (H1 2018: US$74.5 million) driven by the contribution from Globecomm. Excluding Globecomm, Enterprise and Emerging Markets' revenue was down 21.4% to US$58.6 million, mainly due to the phasing of the nbn project. This Division's performance is now improving with service revenue stabilised and good momentum in several markets.
- Government: Total revenue was up 69.3% to US$80.4 million (H1 2018: US$47.5 million) driven by the contribution from Globecomm, with underlying organic revenue flat. However, new customer programs are expected to drive growth in services revenue once the implementation cycle is complete in H2 2019.
- Energy: Total revenue was up 2.6% to US$78.3 million (H1 2018: US$76.3 million) mainly due to the contribution from Globecomm, with underlying organic revenue up 0.2%. The oil & gas sector and our Energy business have stabilised. A stronger H2 2019 is expected driven by Systems Integration revenue, continued growth in onshore oil services and slight pick-up in offshore drilling activity.
Outlook
Over the medium term, Speedcast said it continues to expect healthy growth in Maritime - both in commercial shipping and in cruise - where bandwidth needs continue to grow. Government is expected to grow with ! continued increase in defense spending and revenue synergies from the Globecomm integration expected in 2020 and beyond. Energy's return to growth will provide an uplift in Underlying EBITDA margin, and while market conditions in Enterprise and Emerging Markets remain challenging, Speedcast expects to return to growth in this sector due to market share gains and scale.Speedcast reaffirmed its previous guidance for 2019 full year EBITDA in the range between US$150 million to US$160 million (including US$10 million of Leasing reclassification benefit).
In addition, for the 2019 full year, the company said it expects:
- Moderate organic growth in H2
- Globecomm underlying EBITDA expected to be ~US$21 million, including cost synergies of ~US$11 million ex Leasing reclassification benefit
Expecting US$18-20 million of Globecomm cost synergies in 2020
- Expected cost savings of $10 million in H2, equating to US$20 million of annualised savings
- Targeting US$50 million of capex
- No dividend to be declared for H2
- Leverage Ratio target below 4.0x at end of 2019.
