Goodwin has now released their interim results for the year ending 2018.
Revenues declined when compared to the first half of last year as a £2.5M growth in refractory engineering revenue was more than offset by a £10.5M decline in mechanical engineering revenue. Cost of sales did also fall but not enough to prevent gross profit decreasing by £1.3M. Distribution expenses increased by £150K and share based payments were up £515K but this was offset by a £1.6M profit on the sale of some assets and a £225K decrease in other admin expenses to give an operating profit £144K lower. Finance expenses reduced by £141K and there was a £64K increase in the share of profit from an associate so that after tax charges fell by £173K the profit for the period was £4.2M, a growth of £276K year on year.
When compared to the end point of last year, total assets increased by £4.2M driven by a £2.6M increase in cash, a £3.4M growth in receivables and a £1.1M increase in property, plant and equipment, partially offset by a £2.2M fall in inventories and a £1.2M decrease in the derivative financial asset. Total liabilities also increased during the period as a £3.1M increase in the overdraft was only partially offset by a £1.4M decline in other borrowings. The end result was a net tangible asset level of £77.8M, a growth of £2.3M over the past six months.
Before movements in working capital, cash profits declined by £1.2M to £8.5M. There was a small cash inflow from working capital compared to a large outflow last time and after tax payments reduced by £206K the net cash from operations was £8M, an improvement of £16.5M year on year. The group spent a net £3M on property, plant and equipment along with £355K on R&D to give a free cash flow of £4.3M. The group repaid loans of £1M and finance leases of £429K and after dividend payments of £3.1M there was a cash outflow of £333K and a cash level of -£1.9M at the period-end.
The profit in the Mechanical Engineering division was £2.7M, a decline of £2.1M year on year. The profit in the Refractory Engineering division was £5.3M, a growth of £3.1M when compared to the first half of last year. There has been a particularly good period for the businesses that supply consumables to the jewellery casting industry which is in a period of revival. The performance of the division was also enhanced by the demise of a major competitor based in the US which has resulted in a substantial surge in order input.
Good progress has been made in India where there is significant growth in the overall economy and the submersible pump business and jewellery investment powder business are expected to achieve record trading results this year. The Indian pump business is also benefiting from sales orders arriving from the newly formed pump business in South Africa which will make respectable profits in its first year of trading.
The profit for the period has benefited from a gain of £1.6M that was realised when Gold Star Powders India sold its one acre of land and factory facility purchased for £110K. The business has now moved to the same site as Goodwin Pumps India. The group don’t see an upturn in the release of new orders for new capacity in the oil and gas or mining markets until 2020 but they have been focusing on trying to win business in nuclear recycling and decommissioning and processing of mining industry waste materials. An example of this is the receipt of a $7.3M order for large machined and fabricated stainless steel castings for the nuclear fuel decommissioning industry in the US.
The current workload stands at £84M, unchanged from a year ago. The order input for the period is the same as last year and due to the persistent low activity in the oil and gas industries, the group further reduced the labour force by 50.
Going forward, due to the further improvement on the refractory engineering side of the business, the board expect to see group profitability in the second half starting to move forward again.
At the current share price the shares are trading on a PE ratio of 23.2. I have no forecast so have to go on this. There is no interim dividend but including the final dividend, the shares are yielding 2.2%. At the period-end the group had a net debt of £27.5M compared to £28.5M at the year-end.
Overall then this has been a bit of a mixed period for the group. Profits increased but this was due to the sale of the Indian property, without which they would have declined. Net assets did improve and although the operating cash flow improved, this was due to working capital movements and cash profits declined. Nevertheless, there was an OK level of free cash being generated. The mechanical engineering business continues to struggle as it relies on the oil and gas industry but the refractory engineering business is performing well, particularly those supplying the jewellery sector. The group is predicted to return to growth in H2 but with a PE ratio of 23.2 and yield of 2.2% I would say this is already priced in and the shares are still looking a bit expensive to me.