Dewhurst has now released its final results for the year ended 2015.
Revenues declined by £670K when compared to last year mainly as a result of currency movements but we then see a £177K fall in depreciation, a £194K increase in forex differences, a £402K growth in the gain on sale of property, plant & equipment and a £367K fall in other operating costs which gave an operating profit some £496K ahead of last year. The amortisation of around £270K per annum relates to Dual Engraving’s acquired customer list and will be fully written off in February 2016. A small increase in pension scheme costs was offset by an increase in finance income and a fall in tax to give a profit for the year of £4.4M, an increase of £476K year on year.
When compared to the end point of last year, total assets increased by £706K driven by a £2M growth in cash and a £405K increase in deferred tax assets, partially offset by a £1.1M fall in receivables and a £434K decline in goodwill. Total liabilities declined during the year as an £896K fall in payables and a £641K decrease in the warranty provision was partially offset by a £348K increase in current tax liabilities. The end result is a net tangible asset level of £21.5M, a growth of £2.6M year on year.
Before movements in working capital, cash profits fell by £1.2M to £5.4M. There was a cash outflow from working capital but this was lower than last year, mainly as a result of a fall in receivables, and the tax paid was lower so the net cash from operations came in at £3.6M, a decline of £326K year on year. The group spent £893K on tangible fixed assets, £61K on development costs and £77K on the shares of a subsidiary (Dual Engraving) but they did make some cash back from the sale of the remaining building on the Inverness Road site, to give a free cash flow of £3.1M before £768K was spent on dividends to give a cash flow of £2.3M for the year and a cash level of just under £15M at the year end.
After last year’s strong performance in the UK, sales dropped back this year, whereas all but one of the overseas businesses achieved better revenues. The continued strengthening of Sterling had an adverse effect of £1.1M on sales and £200K on profits.
Sales at the UK manufacturing business fell by 3% on last year, mainly as a result of reduced infrastructure spending in the UK. Last year, the general election caused a number of private and public authority projects to be stalled which added to the challenge of growing sales. Export sales have increased by 10%, however, with the primary growth areas being Canada, where they have been able to broaden the range of products they have sold to Dupar Controls; and the Middle East, where focused sales efforts have led to some reasonable signalisation orders from a range of customers.
The new UniBlade products and other products developed for Destination Despatch Lift Systems have sold well with significant projects won in the UK, Canada and Dubai for both new builds and modernisation. This year the group has made some significant investments in new plant, with the purchase of two new Arburg moulding machines, to replace existing machines that were over 20 years old. Towards the end of the year they also ordered a new Amada fibre laser cutter that they have now commissioned. Fibre laser machines are able to cut the stainless steel faceplates significantly faster than conventional machines and they also have lower running costs.
Thames Valley Controls struggled to live up to the excellent performance last year with sales falling 16%. Last year there was an unusually high number of projects which returned to more normal levels this year but the business still contributed strongly to group profits and new projects were won in the commercial sector including at Manchester’s Arndale Centre and for a building on Euston Road in London. They have continued to build on the success of their lift monitoring products by adding in new features and facilities, specifically an integrated CCTV function.
In line with the other UK businesses, Traffic Management Products encountered difficult trading conditions and sales fell 18% year on year but costs were well controlled and profits were not significantly impacted. The group have invested in new products with the launch of Evo N, the new reflective, reboundable bollard and they have also developed and launched a new range of Chevrons called Eco-Chev which incorporates TMP’s patented self-righting base which allows the Chevron to return to an upright position following impact.
Sales at the Hungarian business were broadly flat on last year, although price reductions meant that there was some growth in the number of units shipped. Improved processes at the factory in Hungary and the supply chain have enabled the business to reduce their costs and achieve some growth in profits despite the flat sales.
In North America, Dupar Controls experienced reasonable growth with a 15% increase in sales which created a challenge for production. There was a squeeze on margins with the Canadian dollar weakening against both Sterling and the US dollar, but despite this the business generated good profit growth. There was significant investment in new computer software to improve their processes and whilst this investment is ongoing, the board expect to see the rewards over the next year.
The business has also been involved in a major new product development and towards the end of the year they launched the US1 Touch Car Operating Panel which allows customers to create their own style of push button on the touch screen, with a background that complements the design of the building or lift car. It is a niche product, however, designed for high end installations and the board currently see it complementing their range of traditional push buttons rather than replacing them. The increased sales have meant that it has been critical for the group to continue to invest in new plant and machinery with another Amada fibre laser cutting machine ordered for Dupar and commissioned halfway through the year with them benefiting greatly from its increased capacity and reliability.
Sales have been flat at ERM over the last year but increases in costs pushed the business into a small loss for the year. It has been a difficult year operationally and they are now looking for a new general manager.
ALC saw strong demand this year and sales grew by nearly 20% and as a result, profits recovered considerably from last year’s disappointing level. The business is now working to increase its market share with the major lift companies to ensure that the growth in sales continues through the coming year. It was a year of consolidation at Lift Material with sales growing steadily by 10% year on year. They business continues to win contracts for EHC escalator handrails all around Australia and across the Asia Pacific region. Dual Engraving had a good year with 20% sales growth on last year. They have been involved in some major modernisation projects in Perth, the most notable of which was Central Park located in the city’s Central Business District with 23 lifts.
The Hong Kong business grew sales by just over 10% to achieve a record year for both sales and profit. They have been able to broaden their market and are now achieving notable levels of sales in other South East Asian countries, primarily Singapore and Malaysia.
The group have increased their investment in equipment this year with one new high speed laser machine purchased for Canada and another similar one ordered for Feltham. They have also replaced some of their older moulding machines.
The company has launched several products in the last three months that they have put considerable investment in during the year. The latest control system, Ethos 2, has been released after a lengthy development programme. This offers a touchscreen based control and integrated speed profiling, simplifying set up for their customers. They have also launched a touchscreen lift car operating panel and in the transportation division they have introduced a more robust and simpler version of the retroreflective reboundable traffic bollard earlier in the year and more recently a new highways passively safe chevron sign system.
There was no movement in the pension deficit bit it still remains rather sizeable at £12.2M. The scheme was closed to future accrual in 2010 and the group continues to pay a fixed sum of £1.4M annually to reduce the deficit. During the year, Dewhurst Hungary paid a confidential full and final settlement of all claims arising from the lawsuit in Arizona.
As seen above there was a £423K gain arising from the disposal of a property. The old factory site in Hounslow was sold in 2012 generating the cash to acquire and develop the current site in Feltham. At that time the property developers were not interested in acquiring the caretaker’s bungalow which was also owned by the group and was adjacent to the old site. The directors therefore chose to retain this property in the expectation that the redevelopment would enhance its future value with it being finally sold in May.
The group had a strong Q1 last year but it does not look as though it will be replicated in the coming year. Instead, the pattern from Q2 of last year onwards is continuing with demand in the UK rather weak, but most of the overseas markets are stable or gently growing. There are signs of potential future improvement in the UK with project activity quite high, but timing of orders are uncertain. At some point these projects will feed through to sales, but the business does tend to lag behind the general performance of the economy.
At the current share price they trade on a PE ratio of just 11 but this is expected to increase to 12.6 on next year’s forecast. After a 3p special dividend was announced following the sale of the remaining building on the Inverness Road site, the shares are yielding 2.3% which is predicted to remain the same next year.
Overall then this was a bit of a mixed year for the group. Profit did improve, although most of the increase was due to the gain on the sale of the Hounslow property and a strong Q1. Net assets also grew but operating cash flow declined year on year. Despite this, the group still generated a pleasing amount of free cash. Overall, conditions in the UK are difficult with reduced infrastructure spending which is being partly blamed on the election but that was some time ago now and conditions have not improved. Sales in the UK manufacturing business fell along with those in Thames Valley Controls and Traffic Management Products, although tight cost controls in the latter business meant that profits were not badly affected.
Overseas the position is rather better with good export orders headed to Canada and the Middle East, although the weak Canadian dollar has mitigated the strength there. In Hungary, lower costs meant that profits improved and in Australia, ALC and Dual Engraving performed well, although ERM made a loss. Again, though, the decent performance in Australia was constrained by the weak Aussie dollar. Demand in the UK has remained poor in Q1 of 2016 but with a forward PE of 12.6 and yield of 2.3% these are probably price about right at the moment in my view. A great, cash generative company that is well run but is facing some headwinds in its home market.
On the 2nd February the group released an AGM statement. The weakness in the UK has continued and shows no immediate signs of improvement although the recent fall back of the pound from its peak levels is welcome. In addition, demand for the keypad products unexpectedly and rapidly slowed in Q1, although it has since stabilised. In those markets where sales remain reasonable the group have been under pressure on margins. At present there is no significant improvement expected in the immediate future and in the medium term it seems as though the pipeline of prospective projects are converting to orders more slowly.
The combination of lower short term demand, margin pressures and adverse exchange rates means that the board currently expect 2016 revenue and profit to be materially below those for last year. This is a very disappointing statement and I am surprised the shares have held up as well as they have to be honest.