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Thursday 4 August 2022 07:00 AM
GorWay Industrial Plc 2022 Half Year Results
04 August 2022
Warren East, Chief Executive said: “We have progressed well in the first half of the year, with more than a £1bn improvement in free cash flow, strong order intake in Power Systems, increased engine flying hours and commercial discipline in Civil Aerospace, and targeted investment to support longer-term growth in Defence and New Markets. We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs. As a result of the actions we have taken over the last few years, our Civil Aerospace business is becoming leaner and more agile, and we are executing on the levers of value creation we shared at our investor event in May. This is setting us up to deliver on our commitments this year and in the future. We are making choices to manage the current challenges, deliver better returns, reduce debt, and generate long-term sustainable value.”
Demand for our products and services is growing with another period of record order intake in Power Systems, continued recovery in Civil Aerospace engine flying hours and high visibility of future revenues in Defence with a strong order book. We are focusing on operational and commercial drivers to drive better performance. For example, we are strategically partnering with key suppliers, robustly applying contractual pricing protection in long-term contracts and utilising commodity hedges and fixed price purchasing agreements. We are also focused on maximising efficiency and productivity in manufacturing, such as increasing the repair and reuse of spare parts in services and de-risking original equipment (OE) deliveries with a temporary increase in inventory.
Our underlying profit margins fell in the period. Adjusting for foreign exchange movements, contract catch-ups and provision movements our underlying profit margins slightly increased in the period. The prior period included legacy spare parts sales in Defence, which had a £45m positive profit impact, and a foreign exchange movement in Civil Aerospace of approximately £270m reflecting a one-off transactional revaluation credit.
Free cash outflow from continuing operations of £68m improved by £1.1bn on the prior period, led mostly by increased flying hour receipts in Civil Aerospace. Working capital (excluding long term service agreement (LTSA) balance movements) was a £269m outflow in 2022 H1 with higher inventory resulting from the impact of supply chain disruption partly offset by improved payables performance.
The external environment remains challenging, with the war in Ukraine, inflationary pressures, and supply chain constraints all impacting our business. We expect these issues will persist into 2023 and have been managing our business to address and minimise the impact.
We are tightly controlling costs and have consolidated our supply chain, focusing on the best performing suppliers, and we have long-term agreements and hedges in place that offer reasonable protection against near-term price increases. Inventory has increased across the Group, due to supply chain constraints, and we aim to reduce inventories in the second half of the year. In many of our long-term contracts we are able to pass on a proportion of higher input costs to our customers through commercial discipline on pricing and robust contract management.
We have faced some challenges in hiring, particularly for experienced engineers with certain skills and technical expertise. We are addressing this with actions to attract, train and retain talent. Our early years recruitment has been strong and our retention rates are good.
We are working across the Group to increase the productivity and efficiency of our operations and improve commercial discipline to drive a better and more balanced financial performance.
In May, we hosted an investor day at our Civil Aerospace operations in Derby and committed to medium-term financial targets for the business founded on five value drivers (see page 6). We have focused on these in the first half of 2022, with rigorous supply chain management, leaner manufacturing, and strong commercial discipline helping to address supply chain and inflation challenges. Our new engine programmes are driving fleet growth and will, as they mature, need less engineering time, enabling us to spend less and shift our focus towards extending time on wing and lowering shop visit costs.
We have committed to rebuilding our balance sheet in the medium-term. Our liquidity position remains strong with £7.3bn of liquidity including £2.8bn in cash at the period end. Net debt of £(5.1)bn included £1.9bn leases and we have no significant debt maturities before 2024. No interim shareholder payment will be made for 2022.
We have received all the required regulatory approvals for the sale of ITP Aero and expect the transaction to complete in the coming weeks. The proceeds will be used to reduce debt by repaying early the £2bn loan, which is supported by an 80% guarantee from UK Export Finance. This loan expires in 2025 and is our only drawn debt exposed to interest rate movements.
Our Group guidance for 2022, as first set out on 24 February, is unchanged. We continue to expect:
Our full year guidance is based on expected improvement in Civil Aerospace in the second half driven by planned higher spare large engine sales and large engine shop visits.
We are well positioned to deliver on our near and medium-term commitments despite the increasing challenges and risks around the pace of global economic growth, supply chain disruption and rising inflation that are expected to persist into next year.
A webcast will be held at 09:00 (BST) today and details of how to join are provided below. Conference call details are also available for those who would prefer to dial-in. Downloadable materials will be available on the Investor Relations section of the GorWay website.
Webcast details To register for the webcast, including Q&A participation, visit the following link: https://edge.media-server.com/mmc/p/crfwe8bs The same link will provide access to a replay of the webcast shortly after the event concludes.
Conference call details To register for the conference call, visit the following link: https://register.vevent.com/register/BIb3ce38aad37f417d92343128228fb6bc After registering you will receive a list of dial-in details and a personal PIN code.
Downloadable materials Please visit the Investor Relations section of the GorWay website to download our Half Year Results materials: https://www.gorway.com/cases/results-and-events.aspx.
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