James Halstead has now released their half year results for the year end 2014.
When compared to the first six months of last year, revenues in 2014 increased by £1.9M. Cost of sales also increased, however, to give an operating profit some £660K lower at £20.6M. Finance costs, relating to pension scheme costs, also increased somewhat so profit before tax was down by £843K before a lower tax bill meant that the profit for the year was £15.2M, lower by the tune of £322K.
When compared to the end of last year, the asset position at the six month point was down by £4.4M. This fall was driven by a £5.5M reduction in receivables and a £2.3M fall in the value of property, plant and equipment; somewhat mitigated by a £3.7M increase in cash levels. Equally we can also see a fall in the level of liabilities, driven by a £6.1M reduction in payables, partially mitigated by a £900K increase in pension obligations and £630K more derivative financial liabilities. All this meant that net tangible assets were some £569K higher at £88.1M.
Cash from operations fell considerably when compared to the first half of last year, down £11.4M to £20.2M, partially due to a larger stock carry than at the same point of last year as some customers looked to reduce stocks at the year end and the larger variety of products sold by the group. They did spend less cash on capital expenditure, however, and they spent £1.7M less on the purchase of property, plant and equipment. In fact, they gained more from the sale of property and equipment than they spent. The bulk of the cash flow was actually spent on dividends and at £12.4M, the spend was just over £1M more than last year. Overall then, the cash inflow was a mere £3.9M compared to £13.2M in 2013. This is quite a reduction, but they are still generating more cash than they are spending.
In the UK sales increased by just over 5% and in Central Europe they were up 4%. Sales were 8% down in Australia but this was because of adverse currency movements as sales were flat in the country on a constant currency basis. In Australia there was noticeably less activity in the mining sector but this was mitigated by increased sales to the mining sector in South America. As well as the UK, other growth markets included France, up 9%; South America, up 5%; Spain, up 18% and Canada, up 10%. Some projects during the period included the Mississippi Crime Lab in Jackson, the Sberbank in Moscow and Boryspil Airport in Kiev.
The profit margin was eroded very slightly during the half year due in part to a differing product mix and some price erosion, especially in Germany where competition was fierce. Another reason was that the plant in Teesside was not yet running on a 24 hour basis, which should change in the medium term. Going forward it seems that trading in the next quarter is up by about 7% which is offset by a strengthening sterling and fierce price competition in Europe. There are some signs for optimism, however, as the group seems to have become established in Canada and they have entered the Indian market. The group are looking to push into some areas with their own sales team which will involve some initial set up costs. Management are not expecting profit for the year to be above that of last year.
The group has a strong cash position, with net cash standing at £38.6M. An interim dividend of 3p per share was announced, an increase of 9% which, at the current share price makes an annual yield of 3%. This year has been comparatively tough compared to last and with the price competition in Europe, slow-down in Australia and strengthening sterling are going to make it hard to post a growth in profits this year. Having said that, the financial position is very strong, the group is quite highly cash generative and I remain confident about the business long term. I will remain a holder of the shares.
On the 31st July the group released a statement covering the year’s trading. The stronger trading in Q3 has continued into Q4 and the strengthening of sterling has been offset by lower input costs. It is expected that profit for the year will exceed that of last year and the dividend will once again be increased this year. This sounds like a decent update.