Highlights of 2015/16 Half-Year Results
- Group sales US$1,022 million — down 5% compared to the first half of prior financial year. Excluding currency effects, sales increased by 2%
- Gross profit margin decreased to 27.6% from 30.2%
- EBITDA US$163 million or 16.0% of sales (15.9% in prior year)
- Operating margin 11.2% (11.6% in prior year)
- Net profit attributable to shareholders down 11% to US$98 million or 11.1 US Cents per share on a fully diluted basis
- Total debt to capital ratio of 13% and cash reserves of US$678 million as of 30th September 2015
- Interim dividend increased by 7% to 15 HK Cents per share (1.92 US Cents per share)
- Acquisition of Stackpole International completed on 27th October 2015
Johnson Electric Holdings Limited (“Johnson Electric”) (HKSE: 179), a global leader in electric motors and motion subsystems, today announced its results for the six months ended 30th September 2015.
Group sales for the first half of the 2015/16 financial year totaled US$1,022 million, a decrease of 5% over the first half of the prior financial year. Excluding currency effects, underlying sales increased by 2%. Net profit attributable to shareholders decreased 11% to US$97.8 million or 11.1 US Cents per share.
The Group’s business strategy of strengthening its technology capabilities and expanding its global operating footprint continues to make excellent progress. During the first half, Johnson Electric announced the acquisition of Stackpole International, a leading manufacturer of highly-engineered pumps and powder metal components, as well as the opening of a second manufacturing facility in Mexico. Notwithstanding the difficult current macro-economic environment, these and other strategic initiatives are positioning Johnson Electric for sustained success.
Overview of Financial Results
The Automotive Products Group (“APG”), which contributed over two-thirds of total sales, increased sales by 5% on a constant currency basis compared to the first half of the prior year. The division continues to perform well overall with particularly encouraging underlying performances achieved in the Engine & Transmission, Powertrain Cooling and Actuation Systems business units. However, the significant market presence that these businesses enjoy in Europe means that their reported sales were negatively affected by the weak Euro compared to the US Dollar. During the second quarter of the financial year, APG’s sales to Asian based customers also showed signs of softening as the slowdown in China’s economy and other developing economies began to impact automotive sales volumes.
In the face of an especially challenging market in China, sales of the Industry Products Group (“IPG”) declined by 4% in constant currency terms compared to the same period in the prior year. End-market demand for many of our customers’ products remains rather tepid and this combined with intense price competition for lower-end product applications resulted in a disappointing performance by IPG’s Asian-based business units. On the other hand, those business units focused on more technology-differentiated motion solutions, including MedTech and Meter & Circuit Breakers, fared much better and recorded healthy double-digit sales increases.
Significant productivity improvements and lower raw material costs helped to minimise the negative impact of reduced sales revenue and higher wage rates, particularly in China. The investment in building out our manufacturing footprint in Mexico and Eastern Europe is also acting as a drag on near term profitability as anticipated. As a result, gross margins in the period declined to 27.6% from 30.2% in the first half of the prior year. A reduction in selling and administrative costs combined with gains from foreign currency hedging and increased other income resulted in operating profits of US$114.9 million or 11.2% of sales (11.6% in the prior year).
Johnson Electric maintained its strong financial condition with a total debt to capital ratio of 13% and cash reserves of US$678 million as of 30th September 2015.
Increased Interim Dividend
The Directors have today declared a 7% increase in the interim dividend to 15 HK Cents per share, equivalent to 1.92 US Cents per share (2014 interim: 14 HK Cents per share). This is consistent with the previously announced intention to increase gradually the ratio of interim dividends such that it represents approximately one-third of the prior financial year’s total dividends paid. The interim dividend will be payable on 6th January 2016 to shareholders registered on 28th December 2015.
Acquisition of Stackpole International
In August 2015, Johnson Electric announced plans to acquire Stackpole International, a leading manufacturer of highly-engineered automotive engine and transmission pumps and powder metal components. The transaction, which valued Stackpole at C$800 million on an enterprise value basis, was completed on 27th October 2015 and was financed by a combination of Johnson Electric’s cash balances and existing revolving credit facilities.
Improving fuel economy and reducing emissions are pivotal drivers of automotive technology today — and Johnson Electric is a market leader in supplying key motion subsystems to support these imperatives. The addition of Stackpole’s pumps technology and powder metal expertise is an excellent fit that will enable the Group to provide integrated motorised pumps to customers in a rapidly growing market for electrically controlled solutions in engine and transmission applications. In addition, the acquisition significantly increases Johnson Electric’s exposure to the North American automotive market which is presently experiencing strong demand.
Chairman’s Comments on Results and Outlook
Commenting on the first half results, Dr. Patrick Wang, Chairman and Chief Executive, said, “Johnson Electric recorded somewhat weaker financial results for the six month period ended 30th September 2015 against a backdrop of adverse foreign currency movements and a weakening global economic environment.”
“In the face of such difficult conditions, Johnson Electric remains focused on those parts of the business where management has a reasonable degree of influence. First, this means directing our energies to serving customers whose products are aligned to the key underlying trends that will drive long-term consumer demand — including the imperatives to reduce emissions, lower fuel consumption, improve health and safety, and increase mobility and controllability. Second, it requires a relentless effort to improve efficiency and continue to eliminate waste from our operations. Third, we are aggressively expanding a global operating footprint that provides greater customer responsiveness and reduced exposure to foreign currency volatility or single country risk. And lastly, it means continuing to invest in building a team of people who are committed to making our customers successful and to growing a world-class company that can share in that success.”
Concerning the outlook for the remainder of the current financial year, Dr. Wang commented, “We expect underlying sales levels to be broadly similar to the first half with the weak Euro and slowdown in China’s economy continuing to exert pressure on both the top and bottom lines. Full year results will also include a five month contribution from the acquisition of Stackpole International and consequently will be affected by one-time transaction expenses. We look forward to Stackpole making a positive impact on the Group’s earnings base over time.”
“Looking further ahead, I remain confident that despite the challenging operating environment Johnson Electric is pursuing a strategy that will strengthen its competitive position and form the basis for an improved long-term growth and profit trajectory.”
Note to Editors and Securities Analysts: The full text of the Half-Year Results announcement, including additional financial information, is available through the Investor Relations section of Johnson Electric’s website at www.johnsonelectric.com.
About Johnson Electric Group
The Johnson Electric Group is the global leader in electric motors and motion subsystems. It serves a broad range of industries including automotive, building automation and security, business machines, food and beverage equipment, home technologies, HVAC, industrial equipment, medical devices, personal care, power equipment and power tools. The Group is headquartered in Hong Kong and the total global headcount stands at over 37,000 individuals located in Asia, the Americas and Europe. Innovation and product design centres are located in Hong Kong, China, Canada, Switzerland, Germany, Italy, Israel, Japan, the UK and the USA. Johnson Electric Holdings Limited is listed on The Stock Exchange of Hong Kong Limited (Stock Code: 179). For further information, please visit: www.johnsonelectric.com.
What should I invest and How do I invest
By Imogen Clarke
With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.
For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.
If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.
There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?
With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:
Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.
So, how do you decide where to invest?
According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.
The main areas of ESG investing include:
- Environmental challenges (climate change, pollution, etc)
- Social issues (human rights, labour standards, child labour, etc)
- Governance considerations relating to company management
According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”
ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.
As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”
So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?
There are four areas of ESG investing:
- Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
- Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
- Positive screening strategies:when companies meet the ESG goals and are approved for investments.
- Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.
You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?
Investment Roundtable: Live with Jim Bianco
With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.
- Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
- Identify important intermarket relationships he is watching with respect to Global Equities
- Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.
Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.
Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.
At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.
The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March. As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.
These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.
The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term. A rise in the unemployment rate to 8% or so later this year still looks quite likely.
Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.
Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.
Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.
It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.
All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.
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