
Alumasc has now released its interim results for the year ending 2016.
Overall revenues declined when compared to the first half of last year as a £959K growth in water management revenue and a £330K increase in housebuilding & other product revenue was more than offset by a £2.5M fall in roofing & walling revenue, and a £539K decrease in solar shading and screening revenue. Cost of sales saw a greater decline, however, to give a gross profit £489K above last time. Operating expenses did increase but the operating profit was still £148K ahead of the first half of 2015 and both pension finance costs and interest costs declined during the period which, along with an £81K fall in tax, meant that the profit from continuing operations came in at £2.6M, an increase of £418K year on year.
When compared to the end point of last year, total assets declined by £5.8M as a £4M asset held for sale was more than offset by a £2.2M fall in property, plant & equipment, a £953K decrease in inventories and a £5.4M decline in receivables. Total liabilities also declined over the past six months driven by a £6.5M fall in receivables and a £1.4M decrease in the pension liability, partially offset by a £1M liability held for sale. The end result was a net tangible asset level of £795K, an increase of £1.4M over the half year period.
Before movements in working capital, cash profits declined by £215K to £4.4M. There was a cash outflow from working capital with a large fall in payables but the outflow was less than last year and after tax and interest were down somewhat, the net cash from operation came in at £2M, a growth of £1.6M year on year. The group then spent £617K in property, plant & equipment along with £160K on intangible assets to give a free cash flow of £1.2M. The group spent all this on dividends and also had £119K of finance costs and spent £388K buying shares to give a cash outflow for the half year of £506K and a cash level of £5.4M at the period-end.
UK demand for the group’s building products continues to grow. Whilst revenues declined during the period, the order book grew from £24M to £27.4M during the period. The group also continues to develop export markets. The decline in revenue reflects the non-repeat of the two large projects, Kitimat and Chiswick Park Building 7 that occurred in the first half of the prior year, along with delays to a number of projects in the roofing and walling business. Operating margins increased from 10.1% to 10.8% reflecting a combination of the resolution of the operational and capacity issues last year and the benefit of operational gearing following further growth in the water management and housebuilding product businesses.
The operating profit in the Solar Shading and Screening business was £462K, an increase of £76K year on year. Levolux’s order book increased 28% to £19.9M, further establishing a sustainable and growing business in North America. Some £11.4M of the order book is expected to convert into revenue in 2017 and beyond, including the £3M project announced in October to screen a power plant in Eastern USA, the largest order so far in North America. In the absence of work on any large projects during the period, the business’ trading performance was satisfactory, reflecting good project execution and a higher number of project completions.
The operating profit in the Roofing and Walling business was £1.8M, a decline of £834K when compared to the first half of last year in the absence of a replacement for the large Kitimat smelter refurbishment contract in Canada. Performance in the earlier part of the year was affected by delays to a number of refurbishment projects caused by factors in the wider contractual chain beyond the group’s control. The facades business is also being impacted by lower housing refurbishment work in England and Wales as Green Deal funding comes to an end and therefore continues to develop its new build business. Specification banks for the recently launched Alumasc Ventilated System are promising and continue to grow.
The operating profit at the Water Management business was £1.9M, a growth of £746K when compared to the first half of 2015 with a particularly strong performance from Alumasc Rainwater and a much better first half in domestic markets for Gatic Slotdrain. New products introduced during the period, including Gatic Filcoten and Harmer SML Below Ground, performed well and these should continue to gain traction. In addition, Gatic’s access covers business performed well, including some recovery of demand in SE Asia. Plans to relocate the rainwater and drainage business to a new site in the Kettering area have been delayed by up to a year due to issues with the initially preferred relocation site. A number of alternative options are being evaluated.
The operating profit at the Housebuilding and Ancillary product business was £573K, an increase of £141K year on year. Timloc delivered another record first half performance, benefiting from growing demand, an expanding product range and operational efficiencies. Further new products that will enable the group to leverage existing sales channels are being planned for launch later in the year. As part of the previously announced plans to facilitate future growth, Timloc will relocate to new leased premises in the Goole area over the next year and a half.
The group is in discussions with a number of parties to sell the Dyson Diecastings business. Current expectations are that the carrying value of the business of £3M will be recovered on sale but this is not guaranteed. This was a difficult period for UK die-casters supplying international OEMs in automotive and off-highway diesel markets with slowing growth rates in developing markets resulting in customer de-stocking. Against this backdrop, Dyson saw profits £100K lower at £200K and in view of the group’s strategy to concentrate on building products and the sale of Alumasc Precision Components last year, the board have now actively marketed the business for sale.
During the period the group awarded 180,000 options under the ESOS. They have an exercise price of 188p and require centre criteria to be fulfilled before vesting. Total awards granted under the LTIP amounted to 194,413, they have no exercise price but are dependent on certain vesting criteria being met. The group pension scheme continues to be an issue, although the deficit reduced from £20.9M at the end of last year to £19.5M at the end of the half, mainly due to lower long term inflation expectations. The company’s current obligations to make deficit funding contributions to its legacy defined schemes will be re-assessed following the next triennial valuation in March.
With the group expected to benefit from its normal seasonal trading bias in favour of the second half of the year, the board’s previous expectations for the full year performance remains unchanged. Against a backdrop of further UK growth in demand for premium building products for sustainable building, and with growing order books and continuing success in growing their overseas presence, the board believe the group is well positioned to make further progress from next year onwards.
At the period-end the group had a net cash position of £500K compared to £900K at the end point of last year, and given the delay to the investment in the new Kettering property, the group is now unlikely to incur any significant indebtedness for another year. At the current share price the shares trade on a PE ratio of 13 which falls to 10 on the full year forecast. After an 8% increase in the interim dividend, the shares trade on a yield of 3.2% increasing to 3.4% on the full year forecast.
Overall then this was a fairly decent half year period. Profits were up, net assets increased and the operating cash flow improved, although it should be noted that this was due to better working capital control and cash profits fell. Nonetheless, there was a decent amount of free cash flow generated. The Water Management division performed very well, but its relocation has been delayed. Elsewhere, the housebuilding products and solar shading/screening businesses also performed well with the latter winning a bit contract in the US to screen a power plant.
The performance at the Roofing and Walling business was not so good, however, as the conclusion of the large Kitimat smelter project hit earnings, along with delays in some other projects and lower housing refurbishments. The Dyson sale should bring in a bit of cash but leaves the group very specialised in niche products and the pension scheme remains a cloud hanging over the group with a huge deficit in relation to the size of the company. The dividend yield of 3.4% is decent enough and the forward PE of 10 looks cheap but these pension scheme and generally highly cyclical nature of the group’s markets need to be taken into account along with the impending capex associated with the relocation of the Water Management division, although this has been delayed now. The shares are probably fairly valued.
On the 7th March the group announced that non-executive Jon Pither purchased 2,500 shares in the company at a value of £4.4K. On the same date, Penny Pither purchased 1,550 shares at a value of £2.7K. Overall Jon has 258,181 shares so these buys are not really material.
On the 30th June the group announced that it had completed the sale of Dyson to Broadway Stampings for a cash consideration of £4M. The net asset value of the business was £3.2M so the disposal has given rise to a profit of £800K but under the terms of the transaction, the legacy defined pension obligations will be retained by Alumasc, which is a pain. The disposal is expected to be broadly earnings neutral due to the current challenging environment. The cash proceeds of the sale will be reinvested in the group and will help with the intended purchase of new premises for the Water Management Solutions business as it approaches full capacity over the next couple of years.
In 2016, the group’s performance has been in line with market expectations. Despite the short term impact on the UK construction markets of uncertainties surrounding the EU referendum towards the end of the year, the group has delivered growth and improving returns across a number of its niche building product businesses. Cash generation continues to be strong.
They currently have close to record building product order books with growth greatest at Levolux, the solar shading business, which has seen a significant uplift in orders for export to the US. Whilst it is too early to tell whether the recent referendum result will have any effect on business, the board believe that long term structural drivers support a positive outlook for revenue development over the next year. I am not so sure.
On the next day it was announced that non-executive director David Armfield acquired 10,000 shares at a value of £13K to give him a total of 35,000 shares.