Dewhurst is a supplier of components to the lift, transport and keypad industries. For lifts they produce push buttons, indicators, auxiliary equipment, control and monitoring systems. In the transport industry the group produces highway products, parking equipment, push buttons and indicators. In the keypad industry the group produces banking terminals, security products, ticketing machines and petrol pumps. The group is listed on the AIM exchange and has now released its final results for the year ended 2014.
Overall revenue increased by £2.9M year on year with a £2.5M growth in lift revenue, a £337K increase in keypad revenue and a £296K increase in transport revenue. We then see a £1.4M increase in the cost of inventories and staff costs increasing by just under half a million pounds. To offset this, there was an improvement in foreign exchange losses and the lack of a £1.3M in goodwill write downs that occurred last year to give an operating profit some £2.6M ahead. Taxation was substantially lower than last year, mainly due to deferred tax and unrelieved tax losses in the period, to give a profit for the year of £3.9M, an increase of £3M when compared to 2013.
When compared to the end point of last year, total assets increased by £2.4M driven by a £2.4M growth in cash levels, a £633K increase in trade receivables and a £377K growth in the deferred tax asset, partially offset by a £373K decline in capitalised development costs, a £315K fall in plant & equipment and a £260K decrease in property values. Liabilities also increased during the year due to a £1.7M increase in pension obligations and a £207K growth in warranty provisions. The end result is a £995K growth in net tangible assets to £18.9M.
Before movements in working capital, cash profits increased by £1.3M to £6.5M before this was eroded by an increase in receivables and a £1.4M contribution to the pension scheme. The tax paid was somewhat lower than last year, however, to give a net cash from operations of £3.9M, an increase of £959K year on year. The group then spent £408K on capital expenditure, £70K on development costs and £112K on contingent consideration as Dual Engraving reported sales over A$4.5M to give a free cash flow of £3.4M, a very respectable £2.8M higher than last year. After dividends were paid and the group purchased a small number of shares for cancellation, they were left with a comfortable cash inflow of £2.6M and a cash pile of £12.9M at the year-end – this all looks pretty good to me.
UK operating profit was £1.9M compared to a break-even position last year. After a difficult 2013, sales at Dewhurst UK Manufacturing recovered strongly this year, particularly for the lift products with the improvement being spread across domestic and overseas sales. In the UK the business has been focused on building sales of complete fixtures and rather than just selling loose components. The market interest in the UniBlade product range has led them to significantly extend the number of variants to suit different markers and installations. The product has already been installed in the Cheesegrater building and T2 at Heathrow.
The business has continued to work on improving processes throughout the year with a particular focus on waste. At Feltham, an unacceptable proportion of the moulding material was ending up as waste so they have implemented a project to significantly reduce this through improved planning, changes to tooling and product rationalisation.
It was a very busy year at Thames Valley Controls. After many years of reduced local authority spending, it seems that investment has increased as far as lifts are concerned and the business has increased sales of both controller products and lift monitoring systems. The online monitoring system, CMS Anytime, has proven to be popular and lift operations can be simply checked either on the move or in the office which can enable engineers to deliver weekly and monthly reports to residents. During the last year they also released a new Remote Indicator Display which enables facilities managers to display a message on a remote screen by sending a text message which means that residents can be easily informed about building repairs or maintenance works. The business has started the year with a strong order book that is expected to continue through the coming year.
Regulatory requirements in the UK with regards to road signage have gone through some significant changes over the past year and TMP were required to make some design changes to its core product to ensure the new codes were met. This resulted in the launch of a new solar powered bollard, Evo-s, with new front and wider side profiles as well as increased light output. Since its launch mid-way through the year it has been very well received and enjoyed good sales. In the past the group has outsourced the supply of the base of the bollards that enable them to flex and return to their original positon but they have now taken this in-house and from 2015, the bollard products will all use the new base which offers improved impact performance at a lower cost. The group believes that spending on road infrastructure will gradually increase over the coming years and they believe that there are significant opportunities to grow the business so have added additional design resources to come up with some new products.
European operating profit was £965K, an increase of £412K year on year. Sales grew marginally at Dewhurst Hungary and the implementation of some overhead reductions enabled the business to improve on last year’s performance. During the year, they have developed a new design of keypad for one of their major customers which has been delivered in line with customer requirements in good time. The test lab in Hungary is now fully commissioned and the group is carrying out ongoing tests of all keypad products that are manufactured in the country.
Americas operating profit was £1.3M, a decline of £200K when compared to last year. The regional economy in North America continued to be reasonably buoyant and Dupar Controls took advantage of this to grow sales during the year. The business operates mainly in Canada but there is also a Chicago sales office to cover the mid-western US states which has become a particular target with an increase in sales force based there. The increase in sales has intensified pressure on the production facilities in Ontario so the group have invested in a further CNC engraving machine and added a second evening shift.
At Elevator Research and Manufacturing, the group changed the management structure to harmonise standards between that business and Dupar with the promotion of George Folenau, the GM of Dupar Controls to be VP of North American operations. The aim is to enable customers to experience the same terms of service, drawings, product design and quality no matter which business they order from. Like Dupar, ERM benefited from the improved economic situation in the US and sales rose. In the second half of the year, after an investment into the production side, the percentage of deliveries shipped on time improved significantly and the backlog was eliminated.
Asian and Australian profit was £1M, an increase of £400K when compared to 2013. It was a challenging year for Australian Lift Components after the merger of JAS into the business and this distraction coupled with a fall in sales in the first half of the year led to a poor performance. The performance did pick up dramatically in the second half of the year, however, which sets the business up positively for the new year. Lift Material grew sales throughout the year with the EHC product line performing very strongly. The business benefitted from good sales of handrails and encouraging sales of a wide range of escalator spare parts. Customers also have the opportunity to buy products direct from the manufacturer but they chose to purchase from the business due to the local technical and installation support that they can offer.
Dual Engraving’s business in Western Australia continued to be busy throughout the year and they had a number of major projects in Perth where they supplied custom lift interiors. The plan for Perth includes further development of the city centre so there is opportunity to grow the business over the medium term. As a response, the business has invested more resources into admin and manufacturing to ensure that they are able to boost their capacity and meet the available demand. Dewhurst Hong Kong has now been operational for about four years. The market in Hong Kong remains quite buoyant and the business predominantly sells into the local housing and infrastructure sectors. There is currently a great deal of infrastructure investment in the state, particularly for the railways, with a number of extensions to the mass transit rail system and the new high speed rail link to China. The business has this year taken on the distribution of Avire safety edges for lifts as well as their own products and initial sales have been “very encouraging”.
The group has capital commitments of £134K at the end of the year. It should be noted that AIG Speciality Insurance filed a complaint against the Hungarian subsidiary claiming $7M in respect of a purported failure of a component supplied to a third party. The group is obviously defending the claim but this could be a material amount for the company if they lose the case.
One other potential issue with this company is the pension scheme. They operate schemes in the UK, Canada, USA, Australia and Hong Kong and closed the schemes to future accrual in 2010. This year the deficit increased by £1.7M to £12.2M and the group pays £1.4M each year to reduce this deficit which will continue going forward and is a fairly material amount to a company of this size. The group have also suffered somewhat from the strength of Sterling which is something else that should be watched. The company is clearly still heavily owned by the Dewhurst family with Mrs V Dewhurst being the largest shareholder. All of the directors seem to have sensible pay levels which is nice to see
The group has launched a new version of its solar powered traffic bollard and an enhanced security ATM keypad during the year along with a mirror blade for lifts that provides clear and stylish indication of the lift to board for users of destination despatch control systems. The group has been putting considerable investment into products that will be launched in the near future.
Overall demand remains stable but news on the economy can be volatile. Australia seems more buoyant than last year and there are some reasonable projects scheduled for the coming year. The signs in the UK and North America are reasonably positive but elsewhere things are less certain and the strength of the pound is likely to reduce the benefit of overseas sales.
At the current share price the shares trade on a cheap looking PE ratio of 8.5 and the dividend yield stands at 2.3%. Management are looking to move towards a dividend covered four times by earnings and this year the dividend increased by 12.5% year on year. I don’t have any forecasts but these figures look rather good value to me. There is no debt and operating leases are fairly negligible so the net cash positon was about £12.9M.
Overall this seems like it has been a good year for the company. Profits are up, albeit being flattered somewhat by the lack of a goodwill write-down this year, net tangible assets increase and there were negligible operating leases and a very strong balance sheet. There was also a good free cash flow generation that more than paid for the dividends and added to the already decent cash pile. Operationally, things seem to be improving as far as lifts are concerned in the UK and Australia but a strong Sterling and subdued European demand is likely to be a headwind going forward. As usual, there are some things to watch out for. The pension deficit looks big for a company this size, there is the potential for a material claim against the Hungarian subsidiary and the continued strength of Sterling is also an issue but with a current P/E of just 8.5, a strong net cash position and a 2.3% dividend yield, these shares look good value to me.