Molins has now released its interim results for 2014.
Scientific Services revenues increased slightly and packaging machinery sales remained fairly flat but Tobacco Machinery sales collapsed by £8M. Cost of sales also reduced but gross profits were some £1.1M lower than in the first six months of 2013. Distribution costs increased, offset by a fall in admin expenses but operating profits for the half year were zero and the overall loss for the half year was £200K, a fall of £900K when compared to the first half of 2013.
When compared to the end point of last year, total assets were £3.6M lower driven by a £6.5M fall in cash levels and a £2.9M decline in receivables, somewhat offset by a £4.4M increase in inventories and a £1.2M growth in tax assets. Liabilities increased during the period entirely due to a £4.3M increase in pension liabilities with other liabilities falling. This led to net tangible assets falling by £5.6M to £19.7M.
Before movements in working capital, cash profits of £1.3M were £1.5M lower than in the first half of last year. An adverse movement in inventories, plus a slightly higher tax payment meant that there was a net cash outflow of £3.5M from operations, a reverse of £4.8M when compared to last year. The group then spent £1M on capex and £1.3M on development costs, plus the dividend payment which helped push the cash outflow to £6.5M which reduced cash levels to £8.5M at the end of the half year – clearly a disappointing and unsustainable result.
Scientific Services profit was £700K, a £600K increase on the first half of last year. Sales of process and quality control instruments grew with demand remaining strong for quality control instruments in their main markets and demand for cigarette smoke capture machines ahead of last year. The group launched a new instrument for the testing of e-cigarettes which has received some strong market interest, resulting in some initial orders and sales of the newer carton testing and air sampling products increased during the period. Order intake for lab based analytical services was slightly ahead of last year with work secured from some new clients with increased activity from e-cigarette manufacturers. Despite the increase in profits, sales actually fell due to a large order that was received in the first half of last year and there remains uncertainty over US regulation but the division seems to be making progress with new orders and reduced costs.
Packaging Machinery profits were flat year on year at £100K. Actual sales for the division grew somewhat but the result was affected by adverse currency movements. The UK specialist engineering and machinery business made progress in increasing its customer base, particularly in the pharmacy and healthcare sectors. The group has produced new “hygienic” versions of current machines which have produced some initial orders and the new Singapore office is performing well.
Tobacco Machinery losses were £200K, a collapse from the £1.3M profit recorded last time. This disappointing result reflects the adverse market conditions in some of the main markets with the division experiencing reduced order demand and aftermarket activity with two large orders to the Middle East and Eastern Europe being deferred. Looking ahead the business is continuing with its product development initiatives with commercialisation of the Alto cigarette making machine and the launch of a new cigarette packing machine expected to have a positive impact over the medium term.
The latest valuation of the UK pension scheme shows a deficit of £6.3M. At the actuarial valuation in 2012 there was a funding deficit of £53M with an agreed level of deficit funding set at £1.7M per annum, to increase over the next years until being reassessed in 2015. Apparently the full year trading performance will be weighted towards the second half but the board is “mindful” of the strength of sterling and current market conditions for the Tobacco Machinery division.
An interim dividend of 2.5p represents no change on last year so the yield at these prices is 6.9%. For the first time in a while the group is in a net debt position and at £900K this compares unfavourably to the £5.6M net cash position this time last year or the £5.2M recorded at the end point of 2013. This is clearly a disappointing set of results with lower profits, lower net assets and a cash outflow. The Tobacco Machinery business really seems to be struggling due to market conditions but if these two deferred orders come good, that should help. I am still remaining on the side lines until earning show some improvement.
On the 10th October the group released a trading update. Apparently market conditions and geopolitical instability has resulted in weaker order prospects and delays to expected machine deliveries in the Tobacco Machinery division with the Scientific Services division also affected by tobacco customers delaying orders for instrumentation following strong orders in the first half of the year. As a result, management expects profit for the year to be below market expectations but are holding the dividend at its current level. One glimmer of light was the Packaging Machinery division where both order intake and sales are ahead of last year. This is a pretty hefty profit warning from levels that were not really that great last year and following the poor first half, this is not going to be pretty. This looks less and less like a decent investment so I will only update again when something changes for the better.