Dewhurst has now released their final results for the year ending 2016.
Revenues increased when compared to last year, primarily due to currency movements, as a £667K decline in keypad revenue was more than offset by a £1.4M growth in lift revenue and a £600K increase in transport revenue. Cost of inventories were up £912K, staff costs increased by £632K, there was a £307K detrimental forex movement and £413K less gained on the sale of fixed assets after last year’s property sale but R&D and audit costs both declined modestly and other operating costs fell £556K to give an operating profit £265K below that of last year. Tax charges also increased by £575K which meant that the profit for the year was £3.5M, a decline of £802K year on year.
When compared to the end point of last year, total assets increased by £5.3M driven by a £2.1M growth in trade receivables, a £1.7M increase in cash and a £749K growth in goodwill. Total liabilities also increased during the year due to a £4.2M growth in pension obligations and a £697K increase in trade payables. The end result was a net tangible asset level of £21M, a decline of £427K year on year.
Before movements in working capital, cash profits increased by £1.6M to £6.9M. There was a cash outflow from working capital which was greater than last year and after tax payments increased by £874K the net cash from operations was £2.8M, a decline of £793K year on year. The group spent £901K on property, plant and equipment along with £62K on development costs to give a free cash flow of £1.9M. Of this, £1.1M was spent on dividends to give a cash flow of £734K and a cash level of £16.7M at the year-end.
Lift businesses in the UK and Australia were both broadly flat, but there was good growth in North America. Transportation business grew during the year but keypad sales were down, although they recovered somewhat from the first half. There were significant currency swings during the year with the pound stronger in the first half and weaker in the second with forex movements having a £400K positive effect on profits compared to last year.
After a slow year last year, sales at Dewhurst UK Manufacturing grew by 12%. This growth was spread evenly between their home market and their export markets. They have taken the decision to open an office in the Middle East to support our activities in that region and are looking to have it operational from the start of 2017. There is currently an increase in the number of infrastructure projects in the UK. There has been growing investment in the transport network in London and they have been working closely with TFL and Crossrail on their ongoing projects.
The UniBlade family of products has grown during the year and they continue to see an increasing number of projects using these products. Significant installations include the office of Clifford Chance in Canary Wharf, Scotia Plaza in Toronto and the new Bloomberg office in Kings Cross. Activity in the rail industry has also increased and the group have won an important order for their US97 Rail Pushbutton, which has been fitted into the refurbished Virgin East Coast mainline trains. They have also added their range of trackside signal boxes and expect to see growing demand for these products through 2017.
The engineering team has had a busy year, predominantly adding to their range of existing products. They have developed a new version of their U95 pushbutton to meet the specific requirements of the Singapore market. A new pushbutton has also been developed for California where there was a need for a vandal resistant metal on metal button that meets the Californian Elevator Code. On top of this they have introduced new variants of UniBlade IDs and Blade Lanterns. The group have purchased a new folding machine during the year and expect to add more during 2017.
The market continued to be challenging for Thames Valley Controls and they continue to see a decline in sales, although the rate of decline was reduced. Order input was reasonably strong but in both the monitoring and controller markets they suffered from customers delaying projects. The year saw their new controller product, Ethos 2, come online with a good number of customers changing over to this new product. It is a touch screen that provides clear indication of the lift’s current status and functions. It also analyses the ride performance of the lift in real time which helps the engineer identify any issue before the passenger does. Demand for the newer monitoring products has been encouraging. Sales of CCTV products have grown substantially as have sales of autodialler products, both of which add security to passenger in lifts.
During the year the group experienced significant sales growth at Traffic Management Products, with an improvement of over 20% compared to last year. Over the last eighteen months the team have carried out an extensive reorganisation programme and in 2016 they started to see the benefits. The business is launching a series of architectural street bollards for use on pavements as well as a range of wooden bollards for use on paths and in parkland settings.
Sales at Dewhurst Hungary were down by around 7%. There was a reduction in demand for both the keyboard products and the ATM facia units. The reduction in sales was primarily in Q1 and since that time it has remained reasonably consistent. The group have continued their investment in the business with the purchase of a new laser marking machine which will help improve the appearance and durability of their laser market keys.
At Dupar Controls in North America, sales continued to grow, up by just under 10% reflecting the buoyant economy. A major investment in new computer software to help in their front end processes is just beginning to come on stream now. Early indications are that it will be a great benefit. Not only does it allow them to process drawings more quickly but it systematises the way that they produce their drawings which will reduce potential mis-communication.
After a slow start, interest in the new US1 Touch car operating panel has taken off in H2, The first installation has gone smoothly and forward orders for the product are now quite healthy which has given the board confidence to add two new sizes to the product range.
At Elevator Research and Manufacturing, sales grew by 10%. Sales of lift fixtures were slow but sales of the cab and door products were very buoyant. There are still significant challenges to overcome at the business in order to provide consistent levels of customer service but they are confident that they have the beginnings of a team who can achieve these goals.
Sales at Australian Lift Components fell marginally, primarily due to the increased competition that has been seen in the market. The steady growth in sales continued at Lift Material with another record year with a growth of just under 5%, the Escalator Product Group showing the greatest growth. At Dual Engraving, sales fell back from last year’s peak by around 10% as expected. The economy in Perth has slowed following the reduction in new mining infrastructure projects in the area but despite this, the business recorded profits broadly in line with expectations. Dewhurst Hong Kong saw sales grow by 6% with record profits being achieved. The growth was supported by work done in other Asian markets to increase sales outside the province.
Going forward, the weaker pound is going to benefit the reported figures and their competitiveness as long as it continues. Offsetting that, UK short term demand has been variable and there are indications of customer nervousness and indecision that are likely to affect medium term demand. Elsewhere, North America demand experienced a lull at the start of the year but the outlook remains positive and Australian demand is also encouraging. On balance the new financial year has started reasonably positively so the board are optimistic that they should have a better Q1 than last year but it is quite difficult to predict likely outcomes beyond that.
At the current share price the shares are trading on a PE ratio of 12.1 which falls to 10.2 on next year’s consensus forecast. After the final dividend was increased the shares are yielding 2.2% which increases to 2.4% on next year’s forecast. The group has no debt and £16.7M cash.
On the 1st February the group announced that it had signed an agreement to acquire 75% of P&R Liftcars. The business, based in Sydney, is a lift car interior manufacturer which works with all the major Australian lift companies. The founder will retain a 25% shareholding and will continue in the role of GM. There is a cash consideration of $1.5M and last year the business made a profit of $1M, excluding the employment costs of the owner-manager. This seems like a decent deal to me.
Overall then this seems to have been a decent-enough year. Profits were down but this seems to be due to the sale of a property last year, although there was a benefit from forex movements so perhaps underlying profits are broadly flat. Net assets declined due to the increase in pension liabilities and the operating cash flow declined, although this is due to increased tax payments and working capital movements with cash profits increasing – a decent amount of free cash was received.
Lifts in North America seem to have done well but I am a bit concerned that there now seems to be a bit of a lull – could this worsen? The transport business seems to have done well buy Keypads have declined. With a forward PE of 10.2 and yield of 2.4% this seems fairly sensibly priced and I continue to hold.