MPAC has now released their final results for the year ended 2018.
Revenues increased when compared to last year as a £3.1M decline in Asia Pacific revenue was more than offset by a £4.3M growth in EMEA revenue and a £3.7M increase in Americas revenue. Cost of sales grew by £5.4M to give a gross profit £500K lower than last year. Distribution expenses declined by £400K but there was no profit on the sale of surplus property, which was £4.8M last year and there was a past service cost of the pension scheme of £7.3M which meant that there was a detrimental movement of £12.2M to an operating loss. There was a £500K positive swing in pension interest income and the tax charge saw a £3.3M positive swing to give a loss of £6M, a detrimental movement of £8.4M year on year.
When compared to the end point of last year, total assets increased by £4.3M driven by a £5.5M growth in contract assets, a £2.9M increase in the pension asset and a £900K growth in inventories, partially offset by a £3M decline in receivables and a £2.4M decrease in cash. Total liabilities also increased during the year as a £6.2M decline in payables was more than offset by an £11.6K increase in contract liabilities and a £1M growth in deferred tax liabilities. The end result was a net tangible asset level of £39.6M, a decline of £2.3M year on year.
Before movements in working capital, cash losses improved by £2.1M to £700K. There was a cash inflow from working capital but tax payments increased by £700K and reorganisation costs were up £200K. Despite the £4.4M cash received last time from discontinued operations the net operational cash outflow from operations improved by £1.3M to £1M. The group spent £1.1M capex and £300K on development costs to give a cash outflow of £2.2M before financing, of which there was none, so the cash outflow for the year was £2.2M and the cash level at the year-end was £27.9M.
The group faced a challenging first half to the year with slower than expected order intake and two contract issues.
The gross profit in the OEM division was £9.3M, an increase of just £100K year on year on revenues that increased by 14%. Order intake was £4M ahead of last year, driven by a 75% increase in the order intake in the Americas due to growth in the healthcare market and the significant investment plans of a new customer in H2 2018.
EMEA made considerable progress across most markets with packaging solutions but this was offset by slow order intake for their first of a kind solutions in the region, resulting in order intake falling by £8M. There was also slowdown in order intake in Asia, driven mainly by subdued demand from China which reduced order intake by £1.7M.
A strong performance in sales to the food and beverage market contributed to Americas revenue increasing by £4.1M. EMEA sales in the period increased by £4.3M. In 2017 order intake included the investment plans of a major customer in the pharmaceutical market which were directed towards Europe, resulting in revenue growth this year. The closing order book of 2017 was also heavily weighted towards projects in the EMEA region, and consequently revenue growth was achieved despite the slowdown of orders this year. The closing order book of 2018 was weighted towards the Americas.
Asian sales, predominantly driven by the food and beverage market, reduced by £2.6M this year. Gross profit margins fell from 22.8% to 20.1% due mainly to the costs associated with two problem contracts. The UK contract is resolved and they have agreed the commercial and technical approach to resolving the Canadian contract which is expected to be finalised during 2019. Overall order prospects remain strong and activity levels across the business remain high such that it is well positioned moving into 2019.
The gross profit in the Service division was £4.7M, a decline of £600K when compared to last year on revenues that declined by 7%. Order intake was 9% below last year. This is being blamed on staff being dedicated to fulfilling machine installation, especially in the first half of the year. They have found candidates for the management positions across the regions and expanded the number of field service agents which should give some momentum to sales as the impact of these changes was notable in the last few months of the year. Americas revenue was down £400K, Asian sales fell by £500K and EMEA revenue was flat with order intake broadly in line with sales. Overall margins remained unchanged.
The pension fund continued to be a drain on the company. Administration costs during the year were £900K, although there was a net £200K finance income on the scheme balances. In addition the group paid £1.9M in respect of the deficit recovery plan. These recovery payments will continue going forward. Also, following a high court ruling the group have recognised a charge of £7.3M in respect of increased future liabilities relating to GMP equalisation.
Going forward, the group entered 2019 with a stronger order book than last year (16% higher) with a broader, updated product portfolio following the commercialisation of several innovation projects. The year has started well with order intake in the first two months ahead of last year.
At the year-end the group had a net cash position of £27M compared to £29.4M at the end of last year. At the current share price, excluding the exceptional pension costs, the shares are trading on a PE ratio of 24.2 which falls to 12.1 on next year’s forecast. There are no dividends on offer here.
Overall then this has been a rather difficult year for the group. Discounting the one-off pension adjustment and last year’s building sale, there was an improved performance but the group is still not making a profit. Net assets declined and again the operating cash flow improved but there is a still a cash loss and there was not free cash generated. There have been two difficult contracts which have been a drag on results, one of which at least has been resolved but a good performance in the Americas region has offset poor conditions elsewhere. The services division has apparently suffered as staff are not able to make fees, which hopefully has also been resolved.
The group seems to be better positioned now and this year has indeed started better but a forward PE of 12.1 seems a little pricey given the group has not made any profit since they sold their tobacco machinery division. There is a big cash buffer here, which is helpful, and may come in handy to bolster their position. Tricky one this. I feel it might be worth a punt.