Well rounded growth in Revenue, profit and cash in Q1 2019
Guwahati; 16th July, 2018: Cyient (Estd: 1991, NSE: CYIENT), a global provider of engineering, manufacturing, geospatial, network and operations management services to global industry leaders, reported its consolidated financial results for the first quarter (Q1) of FY 2019 ending June 30, 2018.
YoY revenue growth of 14.3% in US$ terms, quarterly revenue stood at $160.8 Mn
YoY $ services growth of 10.9%; highest ever at $142.8 Mn; QoQ services growth in CC is 1.1%;
DLM growth of 52.1% YoY
Operating Profit YoY growth of 13.5% ; Overall operating profit at ₹1,316 Mn;
Operating margin at 12.2%
Healthy cash & cash equivalent at ₹11 Bn
YoY revenue growth in A&D, Transportation & SIA stood at 26%, 28% & 35% respectively
EMEA, NAM & APAC YoY revenue growth of 17%, 14% & 13% respectively
Acquisition of Belgium based AnSem, a leading fabless, custom analog and mixed-signal ASIC design company
Commenced operations of 51:49 JV with Israeli partner for UAV systems, obtained Industrial License
Acquired balance 49% stake in Cyient Insights; now 100% owned by Cyient
Improved focus on analytics portfolio
Creation of Silicon Solution Lab for automated testing of chips for accelerated delivery for our clients
Received AS9100 Rev D and ISO 9001:2015 Quality Certifications for Melbourne, Florida
Successfully completed the AS9115A software audit for a manor aero customer for DLM facility in Mysore
Message from the Management
Commenting on the results, Mr. Krishna Bodanapu, Managing Director and Chief Executive Officer, said, “Q1 FY 19 has been in line with our expectation. We witnessed a YoY growth of 14.3% driven by strong growth in Aerospace and Defense, Transportation and Semiconductor, IOT and Analytics business units. On QoQ basis we witnessed a de-growth of 2.3%. The services business witnessed a growth of 1.1% QoQ in constant currency, while DLM business witnessed a de-growth due to cyclicality in the business. Our top customer revenue grew by 6.4% YoY. Our Aerospace and Defense business grew by 15.4% YoY which reflects that the momentum is back after a few tepid years
To reinforce our Design-Build-Maintain value proposition, we made two key acquisitions during the quarter. AnSem N.V. that specializes in advanced analog, radio frequency, and mixed-signal integrated circuit design. This acquisition will strengthen our capability in smart sensors to capture data while leveraging our IoT and analytics capabilities. We also acquired a small manufacturing facility in North America to strengthen our manufacturing capabilities inline with our S3 strategy. We also signed a definitive agreement to acquire 100% ownership of Cyient Insights Private Limited (Cyient Insights), a data science company whose 51% stake was acquired in 2014.This quarter we also formed a Joint Venture Cyient Solutions and Systems Pvt. Ltd. (“CSS”) with Israel-based BlueBird Aero Systems. CSS will indigenize, manufacture, assemble, integrate, and test advanced UAV systems at our production facilities in Hyderabad by leveraging BlueBird’s technology and manufacturing know-how. Several of our key projects have kicked off in the New Business Accelerator program which will give us good traction in the years to come.
Our outlook for FY 19 continues to remain strong. We expect a double digit growth in operating profit through the year. Our operating margin is expected to remain flat YoY as operational improvements and upsides from exchange rates are offset by investments we make through the year.
Commenting on the results, Mr. Ajay Aggarwal, President & CFO, said, “I am pleased to share that Cyient is progressing well to another year of well-rounded performance with 14.3% YoY growth in dollar revenue with 13.5% YoY growth in operating profit. The quarter performance has been in line with our annual plan. Improving operating efficiencies and optimization/absorption of SG&A is the top priority for FY19. While it did not play to plan, also due to limited growth, we are committed to focus on achieving operating margin for the year. Cash generation continues to be a key focus and while in Q1 FY19, it has been lower, we are confident of H1 FY19 and full year FY19 in line with past and annual plan. The cash balance is at ₹11 Bn which is the highest ever.
We continue to remain confident to achieve strong FY19 performance and will focus on growth, improvement in operating efficiencies and cash generation and thus maximizing the value for our shareholders.”
Business performance and outlook
Aerospace & Defence
The Aerospace & Defense BU witnessed a growth of 15.4% YoY and 4.7% QoQ driven by new business from existing and new clients. Our UTC business is stabilizing and we expect to show growth this year. We completed the acquisition of a small facility in North America to strengthen our Manufacturing capabilities in line with our S3 strategy. Our outlook for FY19 continues to be positive with demand from key clients expected to drive growth.
The Communication BU witnessed a growth of 16.2% YoY, however, it de-grew by 3.2% QoQ. The sequential weakness is driven by lower work volumes from select clients in Europe and ramping down of a program in APAC. The outlook for FY19 continues to be strong with the growth coming from increased volumes for key customers and increased plan, design and build work for fixed and mobile networks.
Utilities & Geospatial
The U&G BU witnessed a degrowth of 5.5% YoY and 12.5% QoQ due to delays in project commitment (utilities) and cyclicality (geospatial) together with higher costs. However, our pipeline continues to grow for both core services and IP solutions. The outlook for FY19 continues to be challenging with an emphasis on cost reduction and a number of long-term deals and new clients in new markets driving growth. In Utilities, our solutions strategy is gathering momentum as interest in IP-led solutions is meeting the digital transformation needs of the market. In Geospatial, increasing technology enablement of related services and solutions positions us positively for market growth.
The Transportation BU witnessed growth of 27.8% YoY and 4.5% QoQ driven predominantly by strong momentum in key accounts and new project wins. Our outlook for FY19 continues to be positive supported by industry growth in our focus segments of Rolling Stock and Signaling, our strong long term relationships, healthy opportunity pipeline and the increasing momentum in strategy execution.
Industrial, Energy and natural resources (IE&NR)
The I&ENR BU witnessed growth of 6% YoY and a degrowth of 3% QoQ. The YoY growth in the business was predominantly driven by strong performance in Off Highway Equipment. We launched our connected equipment and asset health monitoring solutions with key clients and are seeing significant interest in both the OEM and Owner / Operator segments. The outlook for FY19 continues to be positive as we anticipate strong growth in key accounts and manufacturing segment.
Semiconductor, Internet of Things & Analytics (SI&A)
The SIA BU witnessed a growth of 34.6% YoY and 39.1% QoQ (including Ansem) driven by strong traction in existing clients and new client wins. This quarter we completed the acquisition of Belgium based fabless semiconductor company, AnSem N.V. The company specializes in advanced analog, radio frequency, and mixed-signal integrated circuit design. The company provides custom ASICs for global clients across key industries. Their capability will allow us to offer turnkey ICs— from concept circuit to final production. With this acquisition, Cyient can help clients develop smart analog sensors to capture data while leveraging our IoT and analytics capabilities. Our outlook for FY19 continues to remain positive basis some significant design opportunities with new clients (including AnSem N.V.) and demand in verification services.
Medical Technology and Healthcare
The Medical and Healthcare BU witnessed a growth of 10% YoY and degrowth of 17% QoQ. The QoQ degrowth was primarily due to particularly strong Q4 and a couple of delayed project starts. The outlook for FY19 continues to be positive in both revenue and profitability. We are seeing projects starting across all five of our key segments of diagnostic imaging, in-vitro diagnostics, consumer healthcare, cardiology/patient monitoring and orthopedics. To support this growth and solution development, we have made strategic hires with deep domain and functional expertise in cardiology, patient monitoring and medical device manufacturing.
• Continue to support 25 Government Schools - supporting underprivileged children
• Added three more Cyient Digital Centre that provides digital educational resources taking the total to 60 providing digital literacy to 25,000+ children
• Recognised for good practices at the 6th FICCI Quality Excellence Awards
• Won “Commendable Performance Award 2018” from John Deere
• Institutional Investors in an independent survey recognized Cyient’s CFO among top three CFOs in Asia under sell-side category for investor relations in the IT Services and Software category.
Future Outlook for FY19
• Double digit growth in the Services business
• Legacy DLM business expected to grow by ~20%
• Overall DLM growth expected to be ~35% including B&F
• Double digit growth in operating profit in FY19
• OPM to be flat YoY
o Driven by operational improvements, upsides from exchange rates, offset by investments
• DLM margin will improve; low single digit
• Tax rate likely to be lower by ~200 bps (23% ETR)