Molins has now released its interim results for the year ending 2017.
Revenues increased when compared to the first half of last year as a £100K decline in Americas revenue was more than offset by a £3.8M growth in Asia Pacific revenue and a £3.5M increase in EMEA revenue. Cost of sales grew by £4.9M which meant that the gross profit was £2.3M higher. Distribution costs increased by £400K and admin expenses were up £700K to give an operating break even, £1.2M better than last time. The £100K pension scheme expense was offset by a £200K increase in the tax receipt so the profit from continuing operations was £300K, an improvement of £1.3M year on year, although when the discontinued trading from last year is added, this represents a £500K improvement.
When compared to the end point of last year, total assets increased by £4.4M driven by a £40.1M growth in assets held for sale and a £6.5M increase in deferred tax assets, partially offset by a £14.2M reduction in intangible assets, a £10.3M fall in inventories, a £10K decline in receivables, a £5.3M fall in property, plant and equipment and a £3M decline in cash. Total liabilities decreased during the year as an £11.8M increase in liabilities held for sale and a £2.4M growth in deferred tax liabilities were more than offset by a £12.4M fall in payables, a £1M decrease in provisions and a £1M decline in long term borrowings. The end result was a net tangible asset level of £39.7M, a growth of £19.5M year on year.
Before movements in working capital, cash profits declined by £4.8M to just £1M. There was a cash outflow from working capital but this was lower than last time and even after a £1.4M increase in cash generated from discontinued operations, there was a net cash outflow of £1.4M, a deterioration of £1.3M year on year, not helped by the £500K of reorganisation costs. The group spent just £200K on capex and the cash outflow before financing was £1.8M. they then paid back £1M of loans to give a cash outflow in the half year of £2.9M and a cash level of £5.8M at the period-end.
The profit in the Americas division was £3M, a decline of £400K year on year with sales down £100K. Order intake was ahead of sales and reflects a strong level of activity in most markets. Order prospects remain strong and activity levels in the region are high so the anticipated sales in the second half are well supported by the current order book.
The profit in the EMEA division was £3.1M, an increase of £2.2M when compared to the first half of last year with sales up £3.5M. Order intake was at a similar level to sales but below expectations at the beginning of the year with a number of potential projects being discussed with customers but with an elongated period to convert these prospects to orders. Order prospects are strong and although the activity levels in the second half of the year are not as high, the region is well positioned moving into next year.
The profit in the Asia Pacific division was £1M, a growth of £500K when compared to the first half of 2016 with sales more than doubling. The region experienced a low level of sales in the first half of last year but sales increased considerably in the first half of this year. Order intake has been a little lower than sales but ahead of expectations at the start of the year and the region is well placed to continue to develop.
The group completed the disposal of their Instrumentation and Tobacco Machinery division after the period-end, in August, to Coesia. The business made an operating profit of £1.9M during the period so it is a profitable part of the group. The net cash consideration is approximately £27.3M, £2.7M of which was used to make a one-off pension fund contribution and the rest has been used to pay off the bank debt and retained for future growth. As part of this transaction the group has also sold the right to use the Molins name and will therefore change their name before the end of January 2018.
In June the group entered into an agreement to sell their manufacturing facility in Ontario. Completion of the transaction is expected to take place by the end of November so the asset has been presented as held for sale in these accounts. The group will receive £6.7M in consideration for the property, paid on completion with the net proceeds expected to be around £5.9M. The book value of the property is £1.5M so a profit of £5.2M has been made on the sale. The group has entered into a ten year contract to lease a new facility, around eight miles from the current location. At an annual cost of around £350K and are expecting to spend around £1M to adapt the building to its needs. The new facility will include a customer showroom that will enable the business to serve its customers more effectively and will be a platform for growth to assist in the development of the Americas region.
The pension deficit remains a major issue at the group, and even more so now that it has reduced in size but not reduced the pension. They continue to pay £1.8M per annum to the fund which increased by 2.1% per annum. They will pay a one-off amount of 10% of the net proceeds of the sale of the division which is expected to be around £2.7M. The UK scheme is actually in a small net asset position but the present value of obligations is £392.7M. The US scheme is still in a liability situation but obligations are only £23.3M.
Going forward, trading in the continuing group has been encouraging, with order intake and sales both strongly ahead of the same period of last year.
At the current share price the shares are not trading on a PE ratio as they made a loss last year. This year the consensus forecast is for a PE ratio of 39.7 reducing to 14.4 on next year’s forecast. No interim dividend was announced but the consensus forecast for the full year is a yield of 1.3%. At the period-end the group had a net debt position of £1.1M compared to a net cash position of £800K at the end of last year, although after the period-end the group received £23.1M of cash proceeds from the sale of I&TM.
Overall than this has been a period of some progress for the group. Profits were up but they only made a profit in the continuing operations due to tax receipts and there were pre-tax losses. Net assets increased but the operating cash flow was poor, with a cash outflow from operations. The Americas saw profits reduce but order intake increased. The other regions saw profits fall and although they are both apparently well positioned for H2, order intake seems a little subdued. The forward PE of 14.4 and yield of 1.3% is not exactly cheap but the group seems to be on the road to recovery and I remain invested for now.
On the 3rd January the group announced the proposal to change its name from Molins to MPac Group. It was apparently chosen as it is a name grounded in the business’ rich heritage and which “looks forward to their future as a world leading end to end packaging machinery provider”. Who am I to argue.