Sepura released its Half year IMS statement today, and so far the market is marking it down on the day.
However, while its half year OI has been hit hard in comparison to last years, a lot of it is down to exchange rate problems, and investing in its future and if the increase in order book (10.4M Euro vs 3.3M euro) this investment seems to be paying off.
They are mitigating the exchange rate using hedging, which I don't fully understand, So if somebody can provide a simple overview of risks & issues i'd appreciate it.
Extract from IMS
"Some of the inherent volatility in exchange rates has been mitigated by the Group's policy of hedging the majority of its operating expenses, which relate to UK-based development and operations and are incurred in Sterling. The Group therefore has in place forward contracts to sell Euros and buy Sterling to meet the forecast Sterling expenses for the next twelve months. While this provides certainty as to the future Euro costs of the Group, the average hedge rate for the period was EUR1.27 / GBP1, based on prevailing rates during the first half of last year, compared to EUR1.14 / GBP1 for the same period last year which were in turn based on prevailing rates twelve months previously. As a result the Group's hedged Euro operating costs have increased by 11%"
I also noticed that one of the risks they have included
"The risk that rapid growth may place a significant strain on management, operational and financial resources."
Is this a thinly veiled warning that they may need to a fund raising?
Appreciate any views on this company
DJLJ23, this might make the situation a little clearer?
Sepura blighted by FX hit
Digital radio specialist Sepura's (SEPU) shares sank 6 per cent after revealing half-year numbers marred by a foreign exchange hit and the costs of investing in new products and routes to market. Adjusted cash profits shrank to €0.6m (£0.5m), from €3.6m a year ago, with adverse movements in the euro and US dollar versus sterling accounting for €2.3m of that drop.
The company hedges its operating expenses, which are mostly in sterling, by selling euros and buying sterling 12 months in advance. In the first half, those hedging contracts worked against Sepura with an average hedged rate of €1.27/£1 versus €1.14/£1 last year. This should, however, turn into a tailwind next year as the rates already contracted for next year are below current levels.
