LISI GROUP - 2018 Financial report

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Depreciation increased by €8.9 million due to significant capital
expenditures over the last few years. Provision reversals completed to
offset some operating expenses increased by €3.8 million.
Current operating profit (EBIT) decreased by €35.8 million (-20.9%) to
€135.6million.The8.2%operatingmarginamountstoadropof2.2points.
The strongly positive impact of the financial result (+€5.3 million)
compared to 2017 (-€21.6 million) can be explained by the following main
items:
■■the revaluation of debts and receivables denominated mainly in
US dollars (€-12.7 million, compared to €+32.4million in 2017);
■■the negative impact of the fair value of hedging instruments involving
currencies (-€4.1 million compared to +€13.9 million in 2017),
■■financialexpenses,whichcorrespondtothecostof long-termnetdebt,
totaled -€5.9million (stable compared to 2017), an average fixed rate of
2.0%. Gains on current cash investments totaled +€3.2 million,
compared to +€2.8million in 2017. Net financial expenses in proportion
to net financial debt therefore represents less than 1%.
Non-current expenses weigh down net earnings by -€10.3 million
(-€3.7 million in 2017) and mainly involve decreases in the value in use of
some assets.
The tax charge, calculated on the basis of the corporation tax as a
percentageof thenet incomebefore taxes, reflects aneffective average
rate of tax of 25.9%, slightly down compared with 2017 (26.8%).
At €92.1 million, net earnings were lower than in 2017 (€108.0 million) by
-14.7%.
This amounts to €1.73 per share (€2.04 in 2017).
Based upon the results, the Board of Directors will seek the approval of
the Shareholders’ General Meeting to set the dividend at €0.44 per share
for the 2018 financial year.
Free Cash Flow is clearly positive at €57.3 million, and is higher than
in 2017 (€46.3 million).
Operating cash flow reached €194.9 million (-€8.9 million, 11.8% of
consolidated sales revenues), compared with €203.8 million in 2017.
Despite the decrease in business, the Group was able to adapt its capital
expenditures without compromising the continuation of the
differentiating technical initiatives launched over the past several years
in all divisions, as well as its innovation projects, harbingers of future
growth. The CAPEX ratio thus represents 8.0% of sales revenue at
€131.3million,slightlydown incomparisontothehigh2017 level(8.5%; i.e.
€140.1 million).
The steepdecline inbusiness experienced in the automotivedivision and
the additions to inventories, required by the ramp-up of the new
“Structural Components” programs in the aerospace division, generated
an increase in inventory at 83 days of sales revenue (+4days compared to
2017). Following the restatement of the consolidation of Hi-Vol, the
increase was limited to €5.7 million.
Other WCRs increased following the US company Hi-Vol’s entry into the
scope of consolidation. The ratio was also significantly affected by the
decline in the automotive division’s activity and increased by 3 days to
77 days of sales revenue. The delay in tax payments had a positive impact
of +€16.1 million.
StringentmanagementenabledtheGrouptogeneratepositiveFreeCash
Flow of €57.3 million (€46.3 million), in line with the stated objectives.
The financial structure remains sound
The increase innet financial debt, which includes 100%of the acquisition
of Hi-Vol (€43.4 million), was limited to €39.1 million and totaled
€339.3 million as of December 31, 2018. It accounted for 36.0% of
shareholders’ equity (33.4% in 2017) and 1.5x EBITDA.
On the other hand, return on capital employed (ROCE) dropped by over
4 points at 10.6%, primarily due to the decline in current operating profit
(-2.8 points), and to a lesser extent, to the consolidation of Hi-Vol over the
end of the year (-0.3 point).
Outlook
Market trends are mostly positive in the United States for all segments
in which the aerospace division operates. Boeing will benefit from
the launch of the 777-X for which LISI AEROSPACE developed numerous
products (fasteners for composite wings, and particularly technologies
to withstand lightning strikes, the most advanced temporary and
permanent fastener systems).
The division does not expect any significant recovery in Europe as the
productionpaceoftheA350hasstabilizedata lower levelthanexpected.
With an adjusted cost level in Europe, this activity’s contribution should
improve over the upcoming financial year as a whole.
Theactivity levelin“StructuralComponents”shouldremainstrongthanks
to the continuing ramp-up in the LEAP engine and the entire engine
sector.
The automotive division foresees stable demand compared to the last
quarterof2018.Chinesemarketsshouldremainsluggishgiventheoverall
context wherein productsmixes are still changing. LISI AUTOMOTIVEwill
continue to develop items with strong added value. Nevertheless, on
the raw materials front, the situation seems more stable than in 2018.
The division is fully committed to adjusting its capacities and costs to
the current level of demand and to strengthening its sales and technical
synergies with the US companies Termax and Hi-Vol.
Themedicaldivisionmustrisetothetechnicalchallengesassociatedwith
the launch of many complex products. During the first half of 2019,
LISI MEDICAL’s management team will focus on the renewal of the
contract with long-standing customer Stryker for the LISI MEDICAL
Orthopaedics facility.
The 2019 financial year is beginning auspiciously for the aerospace
division, in continuation of the last quarter of 2018. Visibility remains
nonetheless limited, particularly concerning the automotive market
during the secondhalf of the year. Assuming stability in itsmainmarkets,
the Group’s 2019 objectives are to return to positive organic growth,
surpass its 2018 financial performance thanks to already implemented
managementmeasures,andtogenerate largelypositiveFreeCashFlow.