James Halstead has now released their interim results for the year ending 2017.
Revenues increased by £4.9M when compared to the first half of last year so after cost of sales grew by £4.7M, gross profit was up £200K. Finance costs increased by £39K and tax charges grew by £229K to give a profit for the period of £17.7M, broadly flat year on year with a decline of just £47K.
When compared to the end point of last year, total assets increased by £266K driven by a £7.5M growth in cash, a £1.2M increase in derivative financial assets and a £792K growth in property, plant and equipment, partially offset by a £9M decrease in receivables and an £880K decline in inventories. Total liabilities also increased during the period as a £2.7M growth in pension obligations and a £987K increase in current tax liabilities was only partially offset by a £2M decline in payables and a £1.4M fall in derivative financial liabilities. The end result was a net tangible asset level of £94.3M, broadly flat year on year.
The cash generated from operations increased by £135K to £31.2M. After tax was paid(slightly less than last time), the net cash from operations was £26.7M, a growth of £301K over the past six months. The group spent £2.1M on capex so there was a free cash flow of £24.7M. Of this, £17.6M was spent on dividends to give a cash flow of £7.2M and a cash level of £51.6M at the period-end.
The benefits of weaker sterling on exports have been beneficial and exports recorded growth of just over 12%, although in constant currency this would have been 2.5%. Offsetting this was a 7% decline in UK turnover that the board believe is a result of destocking. During the period one of their significant customers, a subsidiary of SIG, drastically destocked and faced buying restrictions. The business was sold to a private equity investor in February and it is hoped that more regular trading patterns may arise.
The Australia and New Zealand businesses have both seen growth in sales and profitability with the business benefiting from last year’s restructuring. The move to a new Auckland warehouse took place smoothly, resulting in a lower cost operation in the future.
The European businesses are on a par with last year. They have a busy six months ahead with the launch of key Luxury Vinyl Tile, Loose Lay and Heterogeneous products. Having been launched at exhibitions in January and February and being well received, it is anticipated that the benefits from sales of these products will be seen in the second half of the year.
Scandinavia followed a very quiet beginning to the year with a strong performance in Q2 and both sales and profits are ahead of the equivalent period last year. Felleskjopet Agri, a cooperative owned by Norwegian farmers is one project of note that they were involved in.
The business in Canada saw local sales increase and the group have expanded their staff representation in the country to include British Columbia, an area previously handled by a distributor. As the resources sector continues to suffer the business relating to portable buildings has retrenched but contracts into other sectors such as retail and commercial buildings have been developed over the last four years such that portable buildings are now a minor part of the business.
The fledgling India business has continued to extend its roots in the period. A team of salespeople operating across the area means that they are obtaining specifications and enquiries at a far higher level. Deliveries continue to grow, particularly into the healthcare sector, but also into industrial and pharmaceutical customers. Examples such as the Ayurdundra Hospital and Guwahati, the ESIC hospital in Bhubaneswar and Barclays bank in Delhi are a few of them.
Going forward the UK market is solid but there is some upward price pressure on raw materials and overseas sourced goods. Overall this is offset by opportunities for overseas exports from a weaker sterling. Taking into account these points and with the positive feedback from the range of revamps that have been presented to the trade the board continue to be confident of progress through the year.
At the current share price the shares are trading on a PE ratio of 28.8 which falls to 27.1 on this year’s consensus forecast. After a 7% increase in the interim dividend, and including the special dividend, the shares are yielding 4.1% which falls to 2.7% on the full year forecast. At the period end the group had a net cash position of £51.6M.
Overall then performance has been rather static during the period. Profits were flat, as were net assets. The operating cash flow saw a modest increase, however, and the group remained very cash generative. Export sales rose during the period, flattered by the recent weakness of sterling but UK sales declined, apparently as a result of customer destocking. Going forward there is likely to be some price pressure from raw materials but there are some new ranges being launched which might provide some momentum. The forward PE is 27.1, although the large pile of cash should be noted here, and the yield is 2.7%. Overall I think I would rather wait and see how the second half goes before jumping in.
On the 1st August the group released a trading update covering the year as a whole. Last time it was noted that a slowdown in the UK market and adverse price pressure on raw material and overseas sourced goods were holding back the benefits of export currency gains. This continued into H2 and was exacerbated by a number of major distributors in the UK reducing stock levels. Notwithstanding this, the board are confident of reporting record profits for the year. Despite this, things seem to be getting tougher here – I am not sure these shares offer good value at the moment.