Alumasc has now released their final results for the year ended 2017.
Revenues increased when compared to last year due to a £7M growth in solar shading and screening revenue, a £3.1M increase in water management revenue and a £1.4M growth in roofing and walling revenue. Cost of sales increased by £10.6M to give a gross profit £1.9M higher. Operating expenses were up £1.3M but there were no pension admin costs which accounted for £510K last time to give an operating profit £1.2M higher. Pension finance costs reduced by £104K and other finance costs fell by £83K and after tax remained flat the group had a profit of £6.5M, a growth of £1.5M year on year.
When compared to the end point of last year, total assets increased by £652K driven by a £2.7M growth in receivables and a £270K increase in inventories, partially offset by a £1.5M decrease in cash and a £579K fall in deferred tax assets. Total liabilities declined during the period due to a £2.1M fall in the pension deficit and a £1.9M decline in payables, partially offset by a £1M growth in borrowings. The end result was a net tangible asset level of £3.9M, a growth of £3.9M year on year.
Before movements in working capital, cash profits were broadly flat. There was a cash outflow from working capital due to the timing of payments of large orders, however, and despite tax falling by £180K and interest payments declining by £101K, there was a net cash flow from operations of £744K, a decline of £6.6M year on year. This didn’t cover the £909K spent on property, plant and equipment and after £147K was spent on intangible assets there was a cash outflow of £308K before financing. The group also spent £2.4M on dividends so took out £1M more borrowings to give a cash outflow for the year of £1.6M and a cash level of £9M at the year-end.
The combination of weaker sterling and a recovery in some commodity prices raised costs for many of the group’s products with an inevitable squeeze on margins in the first half of the year. Operating margins in the second half recovered to prior full year levels after absorbing over £1M of additional material costs during the year, arising from the depreciation of sterling.
The underlying operating profit in the solar shading and architectural screening division was £2M, double that of last year. The business benefited from a significant growth in North American export sales, including a large $5M contract to screen a power station in the US; the first significant contribution from the embryonic balcony and balustrading business in the UK, with healthy demand from developers of prestige residential flats; and continuing strong demand for solar shading and architectural screening solutions in the core UK market.
They group invested £700K in new people to support the business’ continuing growth during the year, including two VP of sales to double their representation in North America, and additional resources to manage and support the growth of the business more generally including designers, estimators, project managers, operational and supply chain resources.
The order book remains strong at £18.4M. The pre-order quotation pipeline is at record levels but in view of the completion in June of the power station project in the US, revenues in 2018 are expected to be broadly the same as this year as continued growth in the underlying business is mitigated by the reduction in revenue from this project. The order nook for projects expected to be on site in the coming year is already over £3M which is a record level of order visibility at this stage of the year.
The coming year should give the business the opportunity to consolidate and benefit from improvements in operational performance following the recent investment.
The underlying operating profit in the Roofing and Walling division was £3.3M, a decline of £700K year on year. The year was a strong one the roofing business, especially for new build sales, with a number of significant projects completed, particularly in the South East. The group continues to work on projects in Battersea and London Docklands. Around £400K was invested in new people to support the medium term growth potential of the roofing business and further growth is expected, albeit with continued pressure on margins.
The facades business had a challenging year. It principally supplies exterior wall insulation systems, mainly to the public sector refurb market but a significant reduction in government funding in England and Wales combined with cuts to the Eco programme have led to industry overcapacity, pressure on margins and a significant reduction in revenues and profits. In July therefore, they reduced overheads in the business by £300K per annum.
The scaffold and construction products business had a difficult year, impacted by strong price competition and the increased cost of imported materials. The business sold a relatively commoditised product range and had low margins, achieving a break even performance on revenues of £4.2M. The board took the decision that SCP was no longer sufficiently aligned to their strategy and sold the business for £1M in July, after the year-end.
Rainclear had its fourth full consecutive year of record revenues and profits following its acquisition. The business has continued to expand its product range within its specialist niche of metal rainwater systems.
The operating profit in the Water Management division was £3.6M, an increase of £100K compared to last year with revenues up 11% led by record export sales of Gatic systems arising from a number of large projects in Europe, the Middle East and the Far East. Margins were impacted by the 70% increase in steel costs, however, which could not be fully offset by selling price increases and internal efficiencies.
The water management solutions business had a record year, albeit experiencing more modest revenue growth mainly driven by sales to UK domestic markets. Margins were helped by operational efficiencies but this was largely offset by currency led import cost inflation on materials sourced from the EU and the Far East. New drainage products introduced in the prior year continued to gain traction. Including the new generation Gatic Slotdrain range, Gatic Filcoten and the Harmer SML below ground range.
The group sees great potential to develop the Gatic business, including internationally, and is increasing the level of investment in the UK and export sales resources together with new leadership to accelerate growth and improve margins.
It remains the intention to relocate the water management business to a new facility in Kettering in the next two to three years as the business approaches capacity. A number of options are under consideration, including greenfield and existing industrial sites. Pending the move, the business will incur £300K of additional property lease costs at its existing site from July.
The house building and ancillary products division saw an operating profit of £1.6M, a growth of £200K when compared to 2016. Timloc’s revenue growth continued to out-perform the expanding UK market for new houses through the addition of new products in the range and expansion of geographical reach within the UK. The Above the Roofline range launched last year exceeded expectations and the group expect this new line of business to continue to grow with new products sill to be added.
Investment of £300K was made in additional sales and operational resources during the year which helped drive and support the revenue growth. Most of the raw material inflation and adverse forex impacts on margin were offset by manufacturing efficiency gains. The new leased factory is expected to be commissioned in early 2018. It will bring much needed additional capacity to meet further growth in demand. They anticipate increased property costs of £200K next year which is expected to be recovered through sales volume growth and margin improvement. Non-recurring move and factory commissioning costs are expected to be around £300K.
This year the group spent about £1M on capex but this is expected to increase in the coming year, expected to be around £4M, including the new Timloc factory fit out and commissioning costs of around £1.8M.
In August the EU announced it was imposing a 33% duty on certain iron castings imported from China. This will impact Gatic’s UK access covers business. The additional cost will be recovered through selling price increases and internal efficiencies where possible.
Going forward the order books and enquiries in the pre-order pipeline remain strong so the board believe the group can continue to grow like for like revenues in the coming year. They are targeting and improvement in financial operating margins, assisted by new products and systems, the annualised impact of selling price rises, the divestment of SCP and further operational gearing. They are conscious of the wider political uncertainties but they believe they can continue to perform well in the coming year and beyond.
At the current share price the shares are trading on a PE ratio of 9.5 which falls to 7.9 on next year’s consensus forecast. After a 10% increase in the dividend, the shares are yielding 4.2% which grows to 4.5% on next year’s forecast. At the end of the year the group had a net cash position of £6.1M compared to £8.6M at the end of last year.
Overall then this has been a decent year for the group. Profits were up, and net assets increased, although the balance sheet isn’t the strongest in the world – the pension liability remains a problem. The operating cash flow declined but this was due to working capital movements and cash profits remained flat with no free cash being generated. The Solar shading business performed well but due to the end of a large contract that is due to remain flat this year; the roofing and walling business struggled due to the reduction in the external wall insulation business; water management was up modestly, suffering from reduced margins; and the house building division seemed to perform well.
Next year, margins are likely to continue to be squeezed due to raw material price increases but otherwise the business seems healthy. A forward PE of 7.9 and yield of 4.5% looks pretty decent value to me and I am tempted to buy in here but the share is not without its risks!
On the 24th October the group announced that director Jon Pither purchased 18,250 shares at a value of £31K.
On the 26th October the group released a trading update covering the year so far. Against the backdrop of relatively flat demand in the UK construction market, the groups like for like domestic revenues have increased by 4% so far this year. Meanwhile export sales are lower than last year, reflecting the later phasing of larger projects.
Levolux has a strong forward order book, providing good visibility for the year as a whole which includes a number of significant balcony, balustrading and international projects expected to be delivered in the second half of the year. Similarly, larger framework agreements and green roof projects at Alumasc roofing and the latest tranche of Scottish government funded social housing refurbishment work at Alumasc Facades will be phased towards the second half.
In Water management, the group has started the year positively with revenue growth ahead of its UK end user markets. Gatic is pursuing a number of identified large export opportunities and would expect to secure its fair share of these. In addition, they have initiated further price increases in response to further input cost pressure, which they expect largely to mitigate any adverse impact on margins for the financial year as a whole.
Timloc building products continues to perform strongly and expects to commission its new factory around the half year stage. This will provide an enhanced platform to support further growth in the business.
Across the group, both existing order books and a strong pre-order pipeline include a number of larger projects. These typically make a significant profit contribution to overheads and are scheduled to be delivered and completed mainly in the second half of the year. As a result, the group’s financial performance is expected to have a greater weighting towards the second half of last year. This sounds dangerous, but the board’s expectations for the full year remain unchanged for now.