James Halstead Share Blog – Interim Results Year Ending 2018

James Halstead have now released their interim results for the year ending 2018.

Revenues increased by £6.5M when compared to the first half of last year and after cost of sales grew by £6.1M the operating profit was £382K higher. Finance costs were down £82K and tax charges fell by £241K to give a profit for the period of £18.4M, a growth of £705K year on year.

When compared to the end point of last year, total assets decreased by £9.1M driven by a £5M decline in cash, a £4.5M fall in receivables and a £757K decrease in deferred tax assets, partially offset by an £895K growth in inventories. Total liabilities also decreased during the period as a £915K growth in current tax liabilities was more than offset by a £7.9M fall I payables and a £4.7M decrease in pension obligations. The end result was a net tangible asset level of £113.4M, a growth of £2.6M over the past six months.

The operating cash flow declined by £11M to £20.2M and after tax payments fell by £211K the net cash from operations was £15.9M, a decline of £10.8M year on year. The group spent £2M on capex which meant that the free cash flow was £14M. This didn’t quite cover the dividends, of which £19.2M was paid out which gave a cash outflow of £5M for the period and a cash level of £47.5M at the period-end.

UK turnover was 2.6% ahead of last year despite the difficulties in the facilities management sector, including the demise of Carillion. Object Flor reported a 2% growth in local currency with a 4.4% sterling growth in Germany and a 14% increase in France.

Raw material costs were nearly 14% ahead of last year. The group has started using bulk storage for raw materials in Teesside to more easily source them from Asia. This has mitigated European shortages and led to lower raw material prices than those available from local sources. Up to half of their polymer requirements are sourced this way and are a hedge against pricing/exchange rate issues in Europe. In addition they can offset customs import duty as around 25% of their exports are to outside the EU.

Sales in Australia have grown 7%. Having moved their Queensland warehouse to larger premises, opened their first warehouse in South Australia and augmented their sales force with reps in North Queensland and Tasmania, the business continues to drive bottom line growth.

There has been a continued investment in sales reps in Canada which is bearing fruit with a 25% increase in turnover in the period. Falck Design, based in Sweden, posted 9% growth. Polyflor India has slipped back, however, with a decline in sales that resulted from the introduction of a general sales tax in July which disrupted construction activity and purchasing particularly in the core healthcare sector. Current trading is now back to prior year levels and growing, however. Sales in the Middle East have more than doubled with numerous healthcare and education sector projects completing together with projects in Qatar such as the Al Bayt and Khalifa Stadiums.

The three months leading up to the period-end saw the group preparing for range updates and new product launches at the major European exhibitions and there was a strong reception for these which should underpin the second half of the year. As a consequence of a German competitor entering administration the group have received multiple enquiries from customers of that business and to date have converted many of these into sales. Since the period-end, January trading was particularly strong and February and March were both ahead of last year so that sales in Q3 are ahead by around 10%.

At the current share price the shares are trading on a PE ratio of 23.7 which falls to 22.8 on the full year consensus forecast. After a 2.7% increase in the interim dividend the shares are yielding 3.1% which increases to 3.4% on the full year forecast. At the period-end the group had a net cash position of £47.5M.

On the 5th April the group announced that they were at the very early stages of evaluating making an offer for Airea.

Overall then this has been a decent period for the group with both profits and net assets increasing. There was quite a hefty decline in operating cash flow, however, and the free cash didn’t quite cover the dividends. During the period, raw material costs were an issue but Q3 has started strongly due to a competitor going out of business. With a forward PE of 23.8 and yield of 3.1% these shares are not cheap, but then again they never are and prospects look good for the second half. I am tempted.

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