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BBA: H1 2005
BBA reported a 6.4% increase in operating profits (before restructuring and one-off costs) but pre-tax profits declined due to high finance and restructuring costs in the half year to June 2005. Underlying pre tax profits were £55.6m compared to £58.9m last year.
The company said improved earnings from aviation services were offset by higher raw material costs at its specialist materials division.
Turnover grew by 10% to £739.8m but gross margins declined to 20%, from 21.8% last year due to higher raw material cost in materials technology business. (Operating margins in materials technology shrank to 7.6% from 9.8% a year ago while aviation margins improved by 1% to 11.5%). The growth in turnover ensured a slight improvement in gross profits to £148.6m from £146.9m the previous year.
Tight cost control reduced administrative and distribution costs to £81.9m (1H 2004: £85.2m), which together with the improvement in gross profits increased operating profits by 6.2% to £68.1m.
Restructuring costs of £9.3m (1H 2004:£2.8m) and finance costs of £24.1m (1H 2004: £16m) saw pre-tax profits drop to £44.8m (1H 2004: £54.5m).
Growth prospects hinge on expansion of the aviations business (acquisitions in France for £7m, South Africa for £2m have already been announced and others are in the pipeline). New streams of revenue from advertising as well as contract wins in the US will also boost earnings.
The negatives are the underperforming materials business and the impact of high oil prices on air travel.
Raw material costs in the materials technology business have fallen from the levels seen at the start of the year but expected to rise again-although not to the high level seen at the start of the year. Restructuring of this business is ongoing and a new management team has been appointed but there does not, at yet, appear to be a clear cut strategy for growth in the business.
Given the negatives, overall prospects do not look particularly good. the share trades at 306p, on a prospective PE (2005 earnings) of 14.4x, at the upper end of the sector with a yield of 3.8%.
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