Spotless Group Holdings, Scottish Pacific and Harvey Norman - First Impressions from reporting

Bell Potter


Spotless Group Holdings (SPO):   Reported net loss $358m- includes $391.1m of exceptional items (after tax) primarily relating to the contract portfolio restructure | Contract renewal rates improved to continue to hold at 95% by number and 72% by annual value. New contract wins also increased during the period to 71% by number and 21% by annual value |  Facility Services: Underlying EBITDA down 7.9% to $113m and the underlying business EBITDA margin of 8.5% is 20bps above pcp | Laundries: Underlying EBITDA down 9.7% to $33.6m and Underlying EBITDA margin 23.3%, is 170 bps below pcp | Dividend policy reset:Payout ratio adjusted to 40% to 60% of adjusted NPAT. Net debt of $848.1m and net leverage ratio of 2.7x (based on last 12 months EBITDA and excluding exceptional items) has increased from June 2016 due to the acquisition of Nuvo and mobilisation of PPP contracts. | Outlook: FY17 profit guidance after tax (pre-exceptional items) of between $80m-$90m reflecting increased depreciation and investment in future growth. The outlook reflects business development returns being slower than expected and the benefits to date being more than offset by weaker business performance in the Business and Industry, Construction and Resources sectors.The outlook reflects increases in depreciation and investment in business development. This year on year increase has been previously foreshadowed.” 


Scottish Pacific (SCO):    Segment Performance: Debtor Finance PBIT up 13.9% to $20.4m (Lower net interest margin and management fee resulting from lower margin large clients acquired from Suncorp and GE), PBIT margin up 370bps to 42.9%; Trade Finance PBIT up 166% to $0.9m (Increased business from Trade UK and Export lines), PBIT margin up 18.3 ppts to 33.3% | Net operating cash flow $23.4m as compared to $51.8 m pcp. | Outlook: “While volume growth was below expectations for the first four months of 1H17, we have since seen a sustained improvement in general business conditions and new client settlements. Our trading performance is in line with our revised forecasts and this performance has continued into the new year.” The Group’s trading performance since providing the Trading Update, up to and including January 2017 is consistent with our revised FY2017 guidance. New client settlements and pipeline are strong while margins and costs are well in control. Accordingly, the Group reaffirms its FY2017 guidance of Net Revenue of $100.9m, PBIT of $40.6m and NPATA of $30.8m.


Harvey Norman (HVN):   Franchise operations revenue up  4.7% on a comparable sales basis to $2.84bn, margins up from 5.53% to 6.01% | Net operating cash flow $279.5m as compared to $141.8m pcp (Cash inflows received from higher franchise fee income and higher sales from company-operated stores were significantly stronger than pcp. Receivables from franchisees reduced relative to the previous half indicating a lower net outflow in the provision of financial accommodation to franchisees).



Bell Potter Securities is a leading Australian stockbroking, investment and financial advisory firm that provides a comprehensive offering of financial services to a diversified client base that includes individuals, institutions and corporations.

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