James Latham has now released their final results for the year ended 2017.

Revenues increased by £12.9M when compared to last year, cost of inventories were up £11.5M, staff costs increased by £426K but other cost of sales declined by £794K to give a gross profit £1.6M higher. Selling staff costs increased by £836K but other selling costs were down £598K. Admin staff costs also increased, up £760K but there was a £206K net positive forex movement and other admin costs were down £389K which meant that the operating profit grew by £929K. A £436K growth in the tax expense meant that the profit for the year was £11M, a growth of £506K year on year.

When compared to the end point of last year, total assets increased by £12.5M, driven by a £4.3M growth in freehold property, a £3.6M increase in trade receivables, a £2.1M growth in inventories and a £1.1M increase in deferred tax assets. Total liabilities also increased during the year due to a £7M growth in the pension obligation, a £2.3M increase in trade payables and a £1M growth in other taxes and social security payables. The end result was a net tangible asset level of £73M, a growth of £2.2M year on year.

Before movements in working capital, cash profits increased by £503K to £15.3M. There was a cash outflow from working capital and after the tax payments grew by £630K, the net cash from operations came in at £9.3M, a decline of £411K year on year. The group spent £6M on property, plant and equipment to give a free cash flow of £3.4M, of which £2.9M was spent on dividends to give a cash flow of £414K and a cash level of £17.2M at the end of the year.
During the year the UK economy showed steady growth, although there are signs of slowdown following the Brexit vote. The group’s customers still appear busy, however, and remain positive for the immediate future.

Revenue grew during the year due to higher prices resulting from the weakness of sterling and to increased volumes ex-warehouse with Q4 increases particularly encouraging. The gross margin was down 0.3pp due to competitive pressures and higher stock replacement costs. Panel and timber prices rose sharply during the year due to sterling’s weakness.

The group’s extensive stock holding of melamine, laminates and veneered wood panels has enabled them to show good sales growth in these areas. Plywood sales were very encouraging. Garnica high quality plywood was added to the range towards the end of the year and sales to date have been very encouraging. MDF supplies were affected by an accident at one of the production lines of a key supplier but the effect on customers was minimal. In spite of these problems, they once again grew MDF volumes.

The demand for OSB increased significantly during the year and the board expect this will continue. Door blank sales for their Flamebreak, Moralt and Halspan brands have all grown. The advanced technical panels team had a strong year showing sales and volume growth with good growth being achieved in the WISA range of coated Birch Plywood. Additional sales resources were added to the team to ensure they could target and develop new markets.
The market for Hi-Macs natural acrylic stone has been extremely competitive leading to static volumes and margins being under pressure. Strong sales have been achieved in Florian Prime European Oak. This product is of a consistently high quality which has proved successful in the joinery sector. African volumes are ahead of last year but margins in particular on Sapele came under pressure.

Demand for Accoya modified wood has been good this year, in line with expectations. Their focus on developing new users for the product following the investment by their supplier in increased production facilities. Sales of Accoya and Cedar cladding have grown and they are winning more specifications. The latest addition to their cladding range is Shou Sugi Ban Charred Accoya which has been well received by architects and designers visiting their showroom at the Business Design Centre. Composite decking sales have grown significantly as their brand has gained more awareness.

LDT, the bulk timber pack operation, have made a very useful contribution to group profits despite finding the importer and merchant market for hardwoods very competitive. They have made some progress in developing overseas markets in Europe and have also invested in staff to explore export markets in the Middle East for their full range of products.

Construction of the new site for the Yate operation is nearing completion and the move is planned for July. Negotiations are at an advanced stage for the construction of a new site for the Wigston unit and relocation is expected by the end of the year.

So far in the current year, like for like revenue, both in panels and timber, is 3% higher for April and May but the gross margin is still under pressure.

At the current share price the shares are trading on a PE ratio of 14.9 and yield of 1.8%. I can’t find any forecasts so I guess we have to go with these figures.

Overall then this has been a solid year for the group. Profits increased, net assets grew and although the operating cash flow fell, this was due to increased tax payments and cash profits increased with a decent amount of free cash being generated. The end markets still seem fairly healthy but although the sterling weakness has helped sales, it has not been so kind on margins. And this has been the topic really, the group has done well in increasing sales but profits are not moving on as much due to margin erosion. With a PE of 14.9 and yield of 1.8% these shares don’t look to be tremendous value to me.

On the 23rd August the group released a statement covering the first four months of the year. Revenue is 6% higher than last year and volumes through the warehouses are higher against a strong comparator. While the weaker value of sterling has led to increased prices, this has led to continued pressure on margins as it takes time for higher prices to become established in markets.

The level of activity for both timber and panels customers remains positive but the trading environment is competitive. The group continues to see growth in most of the newer product lines that they have taken on and bad debts continue at a low level.

They moved into the new site in Yate in July which has had a short term increase in costs. The relocation of the Wigston warehouse to Leicester is progressing with a new site purchased and construction work started with completion expected by the end of 2017. Overall things are ticking on OK here with increased revenue offset by increased costs. The high volumes are encouraging.