Goodwin Share Blog – Interim Results Year Ending 2020

Goodwin have now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year due to a £2.2M growth in mechanical engineering revenue and a £350K increase in refractory engineering revenue.  Depreciation was up £416K and the £389K depreciation of right of use assets was recognised for the first time.  Other cost of sales were up £2.3M to give a gross profit £460K lower.  There was £689K of other income and a £523K reduction in share based payments but other admin expenses were up £686K which meant the operating profit was broadly flat.  Finance expenses increased by £146K and the share of the profit from an associate was down £240K.  Tax charges fell by £264K to give a profit for the period of £5.3M, a decline of £133K year on year.

When compared to the end point of last year, total assets increased by £16.3M driven by an £11.8M recognition of right of use assets, a £6.4M growth in inventories, a £6.1M increase in contract assets and a £2.1M growth in derivative financial assets, partially offset by a £10.6M decline in property, plant and equipment.  Total liabilities also increased during the period as a £5.8M decline in bank overdrafts and a £2.4M decrease in payables was more than offset by a £9.1M increase in contract liabilities, a £6.4M growth in lease liabilities, a £7M increase in other borrowings, a £1.7M increase in other payables and a £1.4M growth in deferred tax liabilities.  The end result was a net tangible asset level of £87M, no change over the past six months.

Before movements in working capital, cash profits increased by £488K to £12M.  There was a cash outflow from working capital and after tax payments increased by £869K the net cash from operations was £4.7M, a decline of £7.7M year on year.  The group spent £3.2M on fixed assets and £297K on R&D to give a free cash flow of £1.1M.  They then took out a net £4.3M of new leases and £6.9M of new borrowings which paid of the £6.9M of dividends and left a cash flow of £5.5M for the period and a cash level of £6.1M at the period-end.

The profit in the mechanical engineering division was £5.4M, a growth of £878K year on year.

The profit in the refractory engineering division was £3.4M, a decline of £1.4M when compared to the first half of last year.  There was an unforeseen decrease in demand for the consumer oriented jewellery products for which they supply the casting powder.  They believe this is due mainly to the uncertainty around the ongoing US and China trade war and the rise in the gold price since May has declined since August.  The market seems to be beginning to improve, however.

Sales of the AVD fire extinguishers and extinguishing agent are starting to grow with a constant monthly sales stream.  First adopters have been companies that manufacture products incorporating lithium batteries such as e-scooters, vehicles and green energy storage systems.  The group are in discussions with several large battery manufacturers which may bode well over time.

Going forward the board believe the group is likely to show a similar profitability in the second half of the year as the first, with an improving cash flow.  In the mechanical engineering division, although the petrochemical market has not yet recovered they have a positive outlook based on the fact that the demand for energy is set to increase.  Esat Radar Systems has won an order to supply two turnkey surveillance systems for an Asian air force.  The order was the first overseas system order for the business. 

The board believe that the new financial year will allow the group to start increasing profits.  They also expect to win significant new business. 

At the current share price the shares are trading on a PE ratio of 22.9 and a yield of 2.8%.  There are no forecasts available.  At the period-end the group had a net debt level of £27.2M compared to £21.2M at the year-end.

Overall then this has been a bit of a subdued period for the group.  Profits were down, net assets were flat and although the cash profits increased, the operating cash flow fell due to working capital movements and although some free cash was generated, this did not cover the dividends.  The mechanical engineering division is performing well but the refractory engineering divisions suffered due to a slowdown in the jewellery sector, although this may be recovering.  Still, with a PE ratio of 22.9 and yield of 2.8% the shares seem a bit expensive.


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