James Latham has now released their final results for the year ended 2019.
Revenue increased by £20.2M but cost of inventories grew by £16.2M, staff costs were up £366K and other cost of sales grew by £1M to give a gross profit £2.7M higher. Selling staff costs were up £1.1M, other selling and distribution costs increased by £555K, there was a £298K decrease in forex gains and other admin costs grew by £248K to give an operating profit broadly flat. There was also a £224K decrease in the profit on the disposal of a property offset by a £223K decrease in pension liability costs so that after tax charges were up £343K the profit for the year came in at £12.4M, a decline of £224K year on year.
When compared to the end point of last year, total assets increased by £7M to £138.8M driven by a £2.3M growth in inventories, a £2M increase in customer lists and a £1.6M increase in cash. Total liabilities declined during the period, mainly due to a £1.3M decrease in trade payables. The end result was a net tangible asset level of £97.4M, a growth of £7.9M over the past six months.
Before movements in working capital, cash profits declined by £238K to £15.5M. There was a cash outflow from working capital and after tax payments reduced by £146K the net cash from operations was £7.6M, a decline of £845K year on year. The group spent £1.6M on an acquisition and £2.4M on fixed assets, although they recouped £1.7M from the sale of a property to give a free cash flow of £5.5M. Of this, £478K was spent on treasury shares and £3.4M went on dividends so the cash flow was £1.6M and the cash level at the year-end was £15.5M.
Volumes increased by 0.9% with the majority of the growth being on direct business. The cost price of their products increased and fluctuated more than previous years but cost prices on some imported plywood have shown weakness in Q4. Warehouse costs increased due to planned extended working hours, further investment in the racking systems and some increased rents.
During the year there was a £700K cost associated with equalising male and female pensions and a £1.1M profit on the sale of their old Yate site. The group will continue to invest in their warehouses and extend the working day at their depots to ensure that they meet the delivery needs of their customers. The focus will be major racking investment in Purfleet and Thurrock and Gateshead where they have now gained planning permission to develop the site to improve the yard layout and provide new offices. Their Fareham depot will join Yate and Leeds in working a 24 hour shift system.
Going forward they have had a positive start to the year with sales per working day 4.5% higher in April and May, excluding the acquired Abbey Woods. Margins have also improved compared to H2 2019. The integration of Abbey Woods has gone well and they now have a good platform to develop sales in Ireland. They continue to see growth in sales of added value timber and panel products, although volume in their core products is proving more challenging. Prices on some commodity panels are showing signs of weakness, partly due to over stocking within the industry. Despite the strong start to the year there is still uncertainty surrounding the economic outlook but the board remain confident that they are in a strong position to continue to grow the business.
At the current share price the shares are trading on a PE ratio of 13.9 and I can find no forecast. After an increase in the dividend the shares are yielding 2.2%.
Overall then this has been a decent year for the group. Profits declined but pre-tax profit was up. Net assets increased but the operating cash flow fell somewhat, although there was still a decent amount of free cash generated. Volumes were up and the investments in warehousing has enabled improved shift patterns. So far this year both sales and margins have improved but serious macro issues remain. The PE of 13.9 and yield of 2.1% is probably about right and I continue to hold.