James Halstead has now released its interim results for the year ending 2016.
Revenues declined by £2.5M when compared to the first half of last year, due to the strength of Sterling, but cost of sales fell by more to give an operating profit £1.7M above that of last time. Finance costs were up £57K and tax expenses increased by £82K to give a profit for the half year period of £17.7M, a growth of £1.5M year on year.
When compared to the end point of last year, total assets increased by £4.4M driven by an £8.4M growth in cash and a £1M increase in property, plant and equipment, partially offset by a £3.5M fall in receivables and a £1.5M decrease in the value of derivative financial instruments. Total liabilities also increased during the year due to a £16.3M special dividend payable and a £2.6M growth in payables. The end result is a net tangible asset level of £87.1M, a decline of £16.1M over the past six months.
After a £1.1M increase in tax paid, the net cash from operations came in at £24.4M, a growth of £1.6M year on year. The group spent just £2.2M on capex to give a free cash flow of £24.4M, of which £16.3M was spent on dividends, to give a cash flow for the half year of £8.3M and a cash level of £55.9M at the period-end.
There was growth in most markets in the period on a constant currency basis. Polyflor Canada continued to expand with a 32% growth in turnover and their flooring is refurbishing store chains such as Loblaws and Indigo Kids. The French business reported a near 10% increase and notable projects there included the Alstrom Epsilon building complex in Lyon. In the more established markets, the Central European operation based in Germany reported a 4% growth in sales. The latest range, Expona Flow, has already been fitted in sales areas within Ikea stores in Kaiserslautern, Berlin and Ravensburg and long term customers such as the fashion retail chain Modepark Rother continue to expand.
The UK business maintained its strong presence with notable projects including the Croydon University Hospital, the Vision Express retail chain and the new Pontypridd Lido in Wales. The UK market, representing about 39% of total turnover, has shown a solid performance with growth of 4.5% in the period which is ahead of the general market. Australia and New Zealand have reported an 8% to 9% growth with the former providing flooring to Aldi stores across the country and the latter to Burwood Hospital in Christchurch, which is the country’s largest ever healthcare project.
Gross margins have improved by 1.5% despite the adverse forex effect due to the increased output of heterogeneous flooring, reduced raw material prices and energy savings. Overheads are 3.2% below the comparative period but on a par at constant exchange rates.
Early trading in the second half of the year has been challenging with the UK noticeably facing tougher trading conditions but the global footprint provides opportunities for advancement.
At the current share price the shares are trading on a forward PE ratio of 23.5. Including the special dividend and the increased interim dividend (up by 11%), the shares are currently yielding 4.8% which reduces to 3% on the full year forecast.
Overall then, this was another strong period for the group. Profits were up, the operating cash flow grew with loads of free cash being generated and although net assets declined, this was due to the payment of the special dividend. The performance was pretty good across all markets, especially Canada, France and Oceania and the group also benefited from lower raw material costs.
The problem is, however, the outlook statement where the board have indicated that trading in H2 so far has been challenging, especially in the UK and with a forward PE of 23.5 and yield of just 3%, the shares are looking a bit expensive to me and I have sold out for now (with a heavy heart – this company has been a great money maker for me). Hopefully I will be able to buy back in a bit lower in the future.
On the 1st August the group released a trading update covering the year-end 2016. As reported previously, profit in the first half of the year was 7.5% ahead but early trading in the second half was challenging. During the majority of the year, Sterling traded at a higher level than last year which presented challenges for the export business, which is over 60% of total turnover. Obviously this situation has ow reversed which bodes well for the next year.
Trading for the rest of this year has been solid and pre-tax profit will be ahead of this year (it should be given they were 7.5% ahead at the half year point!). It is also in line with market expectations, whatever they are.