Dewhurst has now released their final results for the year ended 2019.
Revenues increased when compared to last year as a £354K decline in transport revenue was more than offset by a £371K growth in keypad revenue and an £11.4M increase in lift revenue. Cost of inventories was up £4.6M, staff costs increased by £3.8M and amortisation was up £1.1M, relating to acquired intangibles. There was a pension equalisation charge of £639K and other operating costs grew by £648K to give an operating profit that was broadly flat, reducing by £64K. Pension scheme costs declined somewhat but tax charges were up £439K to give a continuing profit of £2.7M, a decline of £621K year on year.
When compared to the end point of last year total assets increased by £8.3M driven by a £7.5M growth in cash, a £3.7M increase in property and a £1.1M growth in goodwill, partially offset by a £2.5M decline in trade receivables and a £1.7M fall in acquired intangibles. Total liabilities also increased as a £1.1M decline in trade payables was more than offset by a £2.9M growth in pension obligations. The end result was a net tangible asset level of £32.9M, a growth of £4.6M year on year.
Before movements in working capital, cash profits increased by £1.9M to £9.5M. There was a cash outflow from working capital but this was less than last time and after tax payments were £641K higher the net cash from operations was £6.4M, a growth of £3.2M year on year. The group spent £5.2M on property, plant and equipment and gained £7.5M from the disposal of the business to give a free cash flow of £8.8M. They then spent £1.3M on dividends to give a cash flow of £7.4M and a cash level of £17M at the year-end.
Sales improved at Dewhurst UK as their drive to increase fixture sales gained momentum. The UK market was particularly strong with an increase in demand for infrastructure products, especially in the rail sector. They fulfilled their first order for signalisation of a new range of lifts for London Underground and they expect further orders over the coming years to support their programme to install lifts in all their surface stations. Overseas they started delivery of fixtures for the first of 180 lifts for the new Riyadh Metro. This is a significant order and the bulk of this contract will be delivered in the coming year.
They have also introduced a number of new products, primarily to add to their Lift Fixture Offering. Their new Unity Fixture provides a low profile, modern and flexible solution for landing stations and car stations. They originally designed it for the Riyadh Metro project but have now launched it globally and it has been well received. They have also added to their Lift Indicator range with a number of new offerings based on glass designs.
In its final year of ownership, TVC continued to grow and revenues increased significantly. The cost and complexity of developing these new products is becoming increasingly onerous. I think the sale is a bit of a shame given the success of the business.
Traffic Management Products had a particularly difficult first half of the year when revenues were particularly soft. At the same time the team at Wednesbury still had a lot of work to do at the new factory ensuring that the plant was running efficiently. There had been a greater turnover of staff than is ideal and the new sales team needed to restore contacts. This takes time but in the second half of the year, there were definite signs this work was begging to pay off and the board are optimistic of strengthening sales in the coming year.
They have recently launched a new addition to their range of self-righting bollards which has more depth and delivers maximum visibility at any angle, making it ideal to use at road junctions.
A&A Electrical Distributors completed their first full year as part of the group. Sales and profits were broadly in line with expectations. This year they have launched a new LED shaft lighting system that will be a key product in the future. In the summer they transitioned the business to the Dewhurst EP system and disruption was kept to a minimum.
At Dewhurst Hungary sales of keypad products were quite strong. Their major customer had suffered a slowdown in ATM sales in the previous year but they recovered this year and the group have seen the benefit of this with improved keypad sales. Towards the end of the year demand for the next generation of keypads gained traction.
In North America revenues weakened slightly at Dupar Controls due to a softening of the modernisation market in Canada, which had an impact on profits. Demand for fixtures for new installations continued to be strong and the longer term outlook remains encouraging. Earlier in the year they secured a new site in Kitchener close to their existing factory and have signed a contract to build a new manufacturing facility. This is significantly larger than their current one. This year the business introduced a new software solution for production planning to provide greater visibility of progress through the manufacturing process.
Elevator Research and Manufacturing had another good year in which they continued to turn the business around. Fixture sales grew by 20% as customers returned to ERM. Profits, although still relatively modest, grew significantly from last year. The market in California is strong and they look forward to another year of progress.
Sales at Australian Lift Components grew significantly as they started to see the benefit of having a local sales engineering presence in both Brisbane and Melbourne. There was also an increase in the number of joint projects they secured with P&R Lift Cars for both car interiors and fixtures. They are beginning to do a reasonable amount of metal fabrication work for P&R and to support this they purchased a new Amada Brake Press which will improve the accuracy of their folds and the length of material that can be folded. This has been another good year for P&R Lift Cars as demand for their high end lift interiors continued to increase.
Sales continued to grow at Lift Material with the escalator division leading the way with growth in revenues of over 30%. They have purchased a unit in Botany Bay which should meet their needs for space for the foreseeable future. Dual Engraving revenues increased above expectations as the Perth market recovered. They have purchased a CNC machine for the business with delivery expected early in the new year which should help improve their capacity over the coming years.
At Dewhurst Hong Kong sales grew slightly but the current political unrest is having an impact. Many projects have been put temporarily on hold and the first half of the coming year is expected to be challenging.
During the year the group spent £2.7M on a property for Lift Material as well as £1.2M on land for Dupar Controls to develop. The building a Dupar is expected to cost £4.8M and take about a year to build with the existing factory being marketed for sale next year.
In September the group disposed Thames Valley Controls to Vantage Elevator Solutions for a consideration of £8.6M. There was a £6M gain on disposal of the subsidiary and the group received £7.5M in cash from the disposal. £1M of the proceeds have been transferred to the pension fund towards liabilities for TVC pension scheme members.
Going forward, the board anticipate performance in the UK will be highly dependent on the results of the election. Overseas in the US the market still seems strong but the Canadian market, particularly for lift modernisation, appears to be softening. In Australia the market seems steady, at least for the first half of the year. Regarding keypads, having gained this year from sales build up on a new model, they now envisage a reduction from the rundown in stock of the ongoing product line.
At the current share price the shares are trading on a PE ratio of 34.7 which falls to 17.2 on next year’s forecast. After an increase in the dividend, the shares are yielding 1.2% which remains the same next year.
Overall then this has been a rather mixed year for the group. Profits declined but this was mainly due to the pension equalisation costs, without which they would have been flat. Net assets improved, as did the operating cash flow with enough free cash generated to nearly cover the dividend. The lift business seems to be doing well with a lot of rail projects, both in the UK and overseas. This is offset by a softer market in Canada, a poor performance for the traffic management business and disruption in Hong Kong. This is a decent business but I feel the forward PE of 17.2 and yield of 1.2% is not particularly cheap.