Alumasc has now released their interim results for the year ending 2020.
Revenues declined when compared to the first half of last year with a £1.6M decrease in building envelope revenue, a £1.4M fall in water management revenue and a £292K decline in housebuilding products revenue. Cost of sales declined by £2.8M to give a gross profit £491K lower. There was no past pension service cost, which was £1.1M last year and other operating expenses declined by £616K which meant the operating profit increased by £1.3M. Interest was up somewhat and the continuing profit for the period was £1.4M, an increase of £1M year on year.
When compared to the end point of last year, total assets increased by £267K driven by a £4.8M growth in right of use assets and a £1.5M increase in cash partially offset by a £5.7M decline in receivables. Total liabilities also increased during the period as a £6.1M decline in payables was more than offset by a £4.9M recognition of lease liabilities and a £3M growth in borrowings. The end result was a net tangible asset level of £5.5M, a decline of £1.2M over the past six months.
Before movements in working capital, cash profits declined by £382K to £2.4M. There was a cash outflow from working capital and after a £223K reduction in cash from discontinued operations and a £249K lease payment was partially offset by a £312K reduction in tax payments the net cash from operations was £567K, a decline of £2.2M year on year. The group spent £645K on property, plant and equipment and £253K on intangible assets but received £339K from the sale of a business to give a free cash flow of just £58K. The group paid out £1.6M so had to take £3M more in loans to give a cash flow of £1.5M and a cash level of £4.2M at the period-end.
Revenues were tracking a little ahead of last year with increased export revenues mitigating weakness in the UK construction market. The wet weather, combined with Brexit and UK general election disruption led to a marked slow down in revenues in the weeks leading up to Christmas, however. Order books and pipeline’s remain healthy for Gatic’s export markets in Europe and Asia as well as Levolux’s business in North America. Gross margins saw an improvement due to better selling prices at Gatic and operational fixed cost savings.
The profit for the Water Management business was £2.4M, a growth of £864K year on year despite the challenging market backdrop. The drivers of the performance were better selling prices at Gatic, increased export sales, and the restructure of the Gatic business with £500K of savings. Alumasc Water Solutions performed well with encouraging rainwater and skyline bespoke product revenues combining with good cost control.
The loss for the Building Envelope business was £269K, a deterioration of £589K when compared to the first half of last year. This division sells mostly into the UK commercial new build construction market which continued to experience falling demand. This reflected economic and political uncertainties including Brexit and the General Election. Following the election, the board expects some confidence to begin to return.
The Levolux turnaround plan is generally on track but the business was affected by below expected performance on a few construction contracts entered into prior to its restructuring relating mainly to balcony work. This impacted profits by £500K, mainly in Q1 with the business achieving breakeven in Q2. Alumasc Roofing’s performance was resilient in the refurb sector. Specification sales opportunities are growing from the new integrated Building Envelope sales approach, in particular combined roofing and walling and roofing and balcony opportunities.
The profit for the Housebuilding Products business was £919K, an increase of £36K when compared to the first half of 2019. Timloc, the housebuilding products business, continued to perform well despite a slowing UK new build housing market and exit from some lower margin work. They grew existing customer accounts and won new work as new product development activity accelerated, supported by ongoing capex in new tooling.
The restructuring of the Levolux business remains on track with actions taken to deliver £1.5M of cost savings this year. Design and supply only work as opposed to design, supply and installation is representing an increasing proportion of order intake. Under-performing installation contracts in the UK which were entered into prior to the new management team joining should be largely complete by Q4. The business is expected to complete the relocation from its two existing leased sites to the group’s freehold site in St. Helens in March. Order intake in the profitable North American export business has been encouraging in recent months and the board expects the business to deliver a modest profit in the second half.
The group has delivered over £1M of fixed cost savings in the first half and remains on track to realise £2M of savings for the year as a whole. The key elements of the cost reduction were the relocation of Gatic Slotdrain from Dover to Wade’s facility in Halstead last summer and the repositioning of Levolux to focus on profitable design and supply work. The group remains on target to reduce its number of operating locations from ten a year to six by the year-end, saving some £600K of leased property costs.
The Facades business which was divested in October 2018 was classified as a discontinued operation with the £339K proceeds this year relating to deferred consideration. The triennial pension deficit valuation at the period-end was significantly lower at £22.4M and company deficit reduction funding has been reduced to £2.3M from £3.2M per annum from the start of 2020 as part of a seven year recovery plan.
Going forward, despite the market weakness prior to the calendar year end has increased the task in the second half, with an increased order book of £23.6M, up to over 10% on six months ago, strong contract pipelines and the usual trading bias towards the second half the board’s expectations for full year performance remains unchanged.
At the current share price the shares are trading on a PE ratio of 58.1 but this falls to 7.1 on the full year consensus forecast. After the interim dividend was maintained the same, they are yielding 4.4% which increases to 4.5% on the full year forecast. At the period-end the group had a net debt position of £6.6M compared to £5.1M at the year-end.
Overall then this has been a bit of a mixed performance for the group. Profits were up but this was mostly due to no past service pension costs this year, net assets declined and the operating cash flow deteriorated with little free cash being generated, not helped by working capital movements. Exports are performing well but the UK market is less buoyant due to bad weather, Brexit and the general election. The Water Management business performed well due to prior restructuring but the Business Envelope business suffered due to the above reasons. With a forward PE of 7.1 and yield of 4.5% these shares are not expensive but I think this kind of construction business carries considerable risk at the moment, particularly given the debt compared to the flimsy tangible asset base here.