Product testing and calibration specialist Exova (EXO) posts a robust set of results despite headwinds in the oil and gas industry.

Helped in part by acquisitions, sales increased 7.9% to £296.5 million and organic growth was also solid at 2.3%. That’s despite sales in Exova’s oil and gas-facing unit, which represented 22% of revenue at the start of 2015, falling back 11.2%.

Visibility on organic growth – excluding unusual years like 2015 when oil and gas markets were left reeling – tends to be pretty reasonable, says chief executive Ian El-Mokadem.

‘The last year was an exceptional one in oil and gas and it was challenging for anyone to predict in advance,’ says El-Mokadem.

‘We approach 2016 with less visibility in that product cluster though it is now only 13% of our revenue overall. In the other sectors we don’t see any real change in the outlook compared to last year.

‘We have a good mix of high quality and growing businesses and the drivers for all of them remain broadly intact.’

EXOVA GROUP - Comparison Line Chart (Rebased to first)17

Aerospace is underpinned by strong aircraft manufacturer order books, says El-Mokadem, an industry in which Exova tests the performance of specialist materials used to make components. Revenue in this unit gained 4.6% organically.

Product and certification, now Exova’s biggest line of business, increased sales 10% organically driven by an increase in vehicle launches which led to contracts for testing axles, structural durability and engine-testing. El-Mokadem says it will be tough to match that level of growth in the year ahead.

Health sciences grew 5.8% helped by an unusually high level of food testing in the UK as well as wins in water and environmental testing.

Middle East, which benefits from infrastructure spending in Gulf Cooperation Council states Saudi Arabia, Qatar and Dubai, saw increased demand for materials testing, helping organic sales 10.4% higher.

El-Mokadem says acquisitions conducted in recent months give Exova a ‘roll-forward revenue benefit’ of around 5% in the year ahead, with margins expected to be a little lower than the 15.8% achieved this year driven by the mix of revenue growth across product clusters.

House broker Investec is slightly upgrading forecasts for the year ahead, with estimated sales at £295.4 million and earnings before interest, tax and amortisation (EBITA) – management’s preferred measure of performance – flat at £46.5 million.

Underlying earnings per share are pitched at 11.3p, down from this year's 12.4p in the 12 months to 31 December 2015.

Shares in Exova trade 0.2% higher at 132p.

Issue Date: 03 Mar 2016