Keller Share Blog – Interim Results Year Ending 2019

Keller have now released their interim results for the year ending 2019.

Revenues increased when compared to the first half of last year as a £77.8M decline in Asia Pacific revenue was more than offset by a £76.7M growth in North American revenue and a £17.7M increase in EMEA revenue.  Depreciation was up £12.5M and other underlying operating costs increased by £15.4M.  Restructuring costs increased by £6.9M but amortisation of acquired intangibles declined by £4.1M and there was a £3.3M income from the contract dispute which gave an operating profit £10.3M lower. Finance costs were up £3.8M and tax charges increased by £7.3M (which included a write off of £10.5M deferred tax assets relating to the Australian tax group after the closure of Waterway) which meant the profit for the period was £3.5M, a decline of £20.9M year on year.

When compared to the end point of last year, total assets increased by £82.2M driven by a £66M growth in property, plant and equipment, a £64.2M increase in receivables, a £4.2M growth in inventories and a £4.1M increase in other assets, partially offset by a £42.5M decrease in cash and a £12.8M decline in deferred tax assets.  Total liabilities also increased during the period due to a £90.9M increase in borrowings.  The end result was a net tangible asset level of £280.6M, a decline of £11.3M over the past six months.

Before movements in working capital, cash profits increased by £1.6M to £82.1M.  There was a cash outflow from working capital but this was less than last time and cash generated from operations was up £8.7M.  The cash income from the contract dispute increased by £3.4M, there was an £8.1M inflow from an asset held for sale, but restructuring cash costs were up £2.1M.  Interest payments were up £2M but tax payments were down £5.7M to give a net cash from operations of £12.5M, an improvement of £21.8M year on year.  The group spent a net £35.1M on property, plant and equipment which meant there was a cash outflow of £20.9M before financing.  The group still spent £17.2M on dividends and paid out £13.5M in finance lease payments so took out a net £10.4M of new borrowings to give a cash flow of £41.3M and a cash level of £61.7M at the period-end.

Overall operating profit was materially lower than last year following the completion of two large projects in EMEA and a weak first half in Australia.  The restructuring programme announced last year was well executed with the Asia Pacific business showing a solid turnaround.  Contract awards at Waterway in Australia have not improved, however, and the decision was taken to cease operations in October.  They reduced capacity in South Africa and Brazil but they remain tough markets and the board continue to manage them closely with further cost reduction actions potentially required in the second half of the year.

The operating profit in the North America division was £33.1M, an increase of £700K year on year although the underlying operating profit fell by 4%. The performance was impacted by unfavourable weather.  The US construction market remains stable.  Residential construction was down but it is highly regional with Texas and Florida remaining buoyant.  Infrastructure is generally strong with a number of large road and rail projects and there are some good opportunities in the industrial sector.  The Canadian market remains regionally mixed.

The overall margin declined year on year driven by the adverse weather related inefficiencies in the period, non-recurring high margin emergency recovery data centre projects as well as a weak first half at Case.  This was offset to some extent by margin improvement at Suncoast where customer pricing has recovered the adverse material cost inflation that was experienced last year.

The North American foundation businesses had a disappointing first half.  Case in particular had a challenging period with negative job mix and adverse weather affecting projects in the Mid West, driving a significant reduction in revenue.  They expect an improved second half based on a stronger order book.  Hayward Baker had a disappointing period achieving revenue growth but at reduced margins, particularly in Q1, although margins have recovered in recent months.  The Moretrench integration continues to perform well and is contributing to their overall business. He other foundation businesses also declined with the Miami market subdued. 

The Canadian business delivered a marginal improvement in performance but it is still not operating at its full potential.  Market opportunities and the order book point to a stronger second half.  Suncoast had a good first half with revenues and margins up.  They have recovered from the steel price induced margin compression of last year.  Moretrench Industrial also performed well and the outlook for both businesses for the full year is positive. 

The operating profit in the EMEA division was £10.6M, a decline of £9.7M when compared to the first half of last year despite a 5% increase in revenue.  The decline in profitability was largely driven by two highly profitable projects in the Caspian ad Middle East which were not repeated this year.  Excluding these two projects, profits were up 4%.

The South East Europe business performed strongly and Germany also performed well and will be busy through 2019.  Elsewhere, Poland was subdued but the UK performed relatively well.  Prelim trial piling work has started on HS2 but the overall HS2 project requires parliamentary approval to proceed.  There are some good projects in North Africa and the French business has won its first large Paris Metro work. 

The Middle East was quiet and has some mixed project performance but they expect the second half to be busier.  Africa and Brazil continue to face tough market conditions despite restructuring actions to reduce capacity so further cost reduction measures may be needed in the second half. 

The operating loss in the Asia Pacific division was £2.5M, a deterioration of £2.1M when compared to the first half of 2018.  Constant currency revenue was down 35% driven partially by market conditions and partially from the capacity reduction actions.  Australian revenue declined 43%.  There was actually a good performance in ASEAN which was more than offset by the weak performance of Australia.

In Asia they took the decision last year to exit heavy foundations activity in Singapore and Malaysia.  This is nearing completion.  The business returned to profit in the period and the cost to complete the restructure was lower than expected.  The refocussing of the business on ground improvement has also enabled them to win a number of significant high quality contracts in recent months totalling more than £40M.  Keller India declined marginally but activity remains strong.

In Australia overall market conditions were soft with two cyclones causing delays in projects in the mining industry.  The level of contract awards has also been unfavourably impacted by the election but tendering activity is now stronger and the second half is expected to return to normal levels.  Waterway reported a £4M operating loss and has been closed.  The board are confident the division will return to profitability in the second half.

During the period the group announced further restructuring activity that will result in the ending of Waterway operations from October 2019 giving rise to a restructuring charge of £11M.  This was offset by a restructuring provision release in Asia Pacific resulting in a net restructuring charge in the region of £6.9M. Acquisition costs of £500K relate to professional fees associated with the wind up of an employee share ownership plan at Moretrench following its acquisition last year.  During the period £3.3M of proceeds were received on final settlement of a contributory claim relating to a contract dispute. 

As a consequence of the restructuring of the Australian business, the group has reviewed the recoverability of the deferred tax assets previously recognised for Australian tax losses and other temporary deductible differences.  On account of the additional risk of non-recovery, the tax charge on non-underlying items includes a valuation allowance of £10.5M made against the full value of the assets previously recognised.

Going forward, the board are confident in the overall health of their markets as reflected by their strong order book.  In the second half they expect to maintain the Q2 momentum in the performance of the North American division, win targeted projects in Australia and continue to deliver on their restructuring programme.  Therefore they expect a stronger H2 with an improvement in margin driving an increase in profit with full year revenue expected to be broadly flat.  Year-end net debt is expected to fall driven by the expected improvement in profit and focus on cash generation.

After the period-end, in July, the group announced that it will start a plan to integrate its seven North American foundations businesses into a single operation.  The costs associated with this are estimated at £2.5M to £4M and will be recognised in the second half of 2019 into 2020.  In the medium term they expect £4.5M to £6M per annum cost and efficiency benefits as well as strengthening market share gains.

After a 5% increase in the interim dividend the shares are yielding 4.2% which increases to 5.2% on next year’s consensus forecast.  At the current share price the shares are trading on a PE ratio of 10.9 which falls to 9.1 on next year’s forecast.  At the period-end the group had a net debt position of £419.6M compared to £286.2M at the year-end.

On the 20th September the group released a trading update.  Full year revenue is still expected to be broadly flat against last year with an improvement in margin driving an increase in profit.  The full year result is more dependent than usual on the timing of expected large contract awards and in the crystalisation of a number of customer claims that are in their final stages of negotiation. 

Trading momentum in North America in the second half has started more slowly than expected and whilst it is now building, there is an increased weighting to Q4.  Trading in EMEA remains mixed with good progress in key continental businesses being matched by challenging market conditions in some of the more peripheral operations.  In Asia Pacific they are on track in winning new targeted contracts in Australia which will ramp up during Q4, with only one material contract on which they have bid to be decided in Q4.  They are delivering well and are slightly ahead of plan with Waterway restructuring.

They expect net debt to reduce year on year and the order book continues to be robust.

On the 19th November the group released a trading update covering the year.  The board expects overall performance to be in line with market expectations, although the outturn remains dependent on the continued progress and timely resolution of a number of customer claims.

As expected, trading in North America has seen increased momentum in Q4.  The reorganisation of the foundations business is on track.  There has been material progress in the negotiations with respect to the scope adjustment to the Bencor contract but it is unlikely to be settled until early 2020.

EMEA trading has been mixed.  There has been good progress in their continental European businesses with strong performances from SE Europe and Central Europe.  Challenging market conditions have continued outside Europe and further restructuring has taken place in Franki Africa following continued disappointing performance during the year.  In Norway, they have been awarded a major contract to complete soil stabilisation and grouting works as part of the SMS3 rail project, valued at approximately £36M.  This is expected to start in November 2019 and completes in 2022.

In Asia Pacific, their expectation of a return to profitability in the second half remains on track.  The restructuring activities and exit from heavy foundations in SE Asia are close to completion and they continue to execute in line with their Waterway restructuring programme in Australia.  Their Austral business has won the final contract it required to underpin its 2019 performance, a major contract to procure and construct the replacement of berthing structures at Rio Tinto’s Cape Lambert Port in Australia.  Work will start in late 2019 and is expected to finish in mid-2021 and is estimated to be worth around £60M. 

Whilst current construction work in their key markets remains robust, the board remain cognisant of increasing global macroeconomic uncertainty.  The order book continues to be robust. 

On the 12th December the group released a trading update.   The board expect their financial performance for 2019 will be in line with market expectations.  The scope adjustment to the Bencor contract has been agreed.  Q4 cash flows have continued strongly.  They have also announced that they will be rationalising their geographic presence and exiting certain non-core services.

They have re-focused their Asia Pacific division which will return to profit in the full year.  In order to concentrate more heavily on their higher quality European business in the EMEA division, they will withdraw from South America where market conditions remain challenging.  They have also started a review of the African activities.  In North America the reorganisation of the foundation business is progressing well and they anticipate generating materially improved financial performance by 2022.

Overall then this has been a tough period for the group.  Profits were down, net assets declined and although the operating cash flow did improve, there was no free cash generation.  There have been a number of issues.  The non-repeat of two lucrative EMEA contracts, a poor performance in Australia, bad weather in the US and difficult markets in Brazil and South Africa have all taken their toll.  The group is returning to profit and is addressing some of these issues, however.  It is early days but the turnaround may be starting here and a forward PE of 9.1 and yield of 5.2% put these shares at pretty good value but the debt levels are a bit of a concern and I would like to see evidence of this coming down before I buy.

Redrow Share Blog – Interim Results Year Ending 2020

Redrow has now released their interim results for the year ending 2020.

Revenues declined by £100M when compared to the first half of last year.  Cost of sales also fell to give a gross profit £25M lower.  Admin expenses were up £3M but tax charges fell by £6M which meant the profit for the period was £128M, a decline of £22M year on year. 

When compared to the end point of last year total assets declined by £51M driven by a £115M decline in cash, a £51M decrease in land for development and an £11M fall in receivables, partially offset by a £99M growth in work in progress.  Total liabilities also declined during the period as a £15M growth in payables was more than offset by an £84M decrease in land creditors and a £34M fall in current tax liabilities.  The end result was a net tangible asset level of £1.64BN, a growth of £57M over the past six months.

Before movements in working capital, cash profits declined by £28m to £159M.  There was a cash outflow from working capital and tax payments increased by £42M which meant there was a cash outflow of £33M before financing.  The group paid out £72M in dividends and paid back £5M of bank loans to give a cash outflow of £115M and a cash level of £89M at the period-end.

Legal completions reduced from 2,970 to 2,554 with private completions down 99 and social completions falling by 317. The private average selling price was down £4K at £387K.  Gross margin was kept broadly the same as build cost inflation was offset by the change in mix.  Overheads increased by £3M following the opening of the new Thames Valley division. 

The housing market continued to be affected by political uncertainty around Brexit and the general election.  This had an impact on the time taken to close new home sales.  Despite this, the group saw a record number of private reservations with the value of them up 18% to £936M. Excluding the Colindale PRS deal, they were up 3%.  At the period-end the group had an order book of £1.2BN which was in line with last year’s level. 

The market was fairly consistent across all operating areas with London showing some early signs of improvement and pricing was stable.  The new Thames Valley division make a positive contribution to profits.  The board anticipate underlying build cost inflation will reduce in the calendar year 2020 to around 3% and will be largely offset by modest house price gains.

The group acquired 1,946 plots with planning and the owned and contracted land holdings with planning closed at 28,125 plots compared to 28,566 plots at the year-end.  They are processing a sizeable pipeline of sites with terms agreed and they expect acquisitions to accelerate in the second half. 

There are a number of changes scheduled for the board.  Chairman John Tutte will step down from July and Matthew Pratt will be appointed as CEO.

The market in the first five weeks of the second half has been resilient with the value of reservations up 15% at £180M.  Current market conditions combined with the strong order book gives the board confidence this will be another year of progress and expectations for the full year remain unchanged.  Planned changes to Help to Buy next year will limit the scheme to first time buyers and introduce regional price caps.  Whilst they expect this will see demand increase in the short term from buyers that will not qualify for the scheme in 2021, the board believe the regional caps will disadvantage buyers in the North and Midlands.

Due to constrained outlet growth last year and the timing of apartment block completions, the board budgeted to deliver significantly more completions in the second half than usual.  They are on track to do so.

At the current share price the shares are trading on a PE ratio of 9.1 which falls to 9 on the full year consensus forecast.  At the period-end the group had a net cash position of £14M compared to £124M at the year-end.  After a 5% increase in the interim dividend the shares are yielding 3.7% which increases to 3.8% on the full year forecast. 

Overall then, on the surface this looks like it has been a bit of a tricky period for the group.  Profits were down, net assets did improve but the operating cash flow deteriorated and there was no free cash.  The issue seems to be a lack of legal completions and is hopefully temporary as the board expect a much better second half.  The changes in the Help to Buy scheme look worrying but everything else seems stable.  I’m tempted to take some profit here, it could be that the good times for housebuilders don’t have much further to run, but with a forward PE of 9 and yield of 3.8% there still could be value here.

On the 18th February the group announced that director Timothy Stone sold 5,625 shares at a value of £8K.

Dewhurst Share Blog – Final Results Year Ended 2019

Dewhurst has now released their final results for the year ended 2019.

Revenues increased when compared to last year as a £354K decline in transport revenue was more than offset by a £371K growth in keypad revenue and an £11.4M increase in lift revenue.  Cost of inventories was up £4.6M, staff costs increased by £3.8M and amortisation was up £1.1M, relating to acquired intangibles.  There was a pension equalisation charge of £639K and other operating costs grew by £648K to give an operating profit that was broadly flat, reducing by £64K.  Pension scheme costs declined somewhat but tax charges were up £439K to give a continuing profit of £2.7M, a decline of £621K year on year.

When compared to the end point of last year total assets increased by £8.3M driven by a £7.5M growth in cash, a £3.7M increase in property and a £1.1M growth in goodwill, partially offset by a £2.5M decline in trade receivables and a £1.7M fall in acquired intangibles.  Total liabilities also increased as a £1.1M decline in trade payables was more than offset by a £2.9M growth in pension obligations.  The end result was a net tangible asset level of £32.9M, a growth of £4.6M year on year.

Before movements in working capital, cash profits increased by £1.9M to £9.5M.  There was a cash outflow from working capital but this was less than last time and after tax payments were £641K higher the net cash from operations was £6.4M, a growth of £3.2M year on year.  The group spent £5.2M on property, plant and equipment and gained £7.5M from the disposal of the business to give a free cash flow of £8.8M.  They then spent £1.3M on dividends to give a cash flow of £7.4M and a cash level of £17M at the year-end.

Sales improved at Dewhurst UK as their drive to increase fixture sales gained momentum.  The UK market was particularly strong with an increase in demand for infrastructure products, especially in the rail sector.  They fulfilled their first order for signalisation of a new range of lifts for London Underground and they expect further orders over the coming years to support their programme to install lifts in all their surface stations.  Overseas they started delivery of fixtures for the first of 180 lifts for the new Riyadh Metro.  This is a significant order and the bulk of this contract will be delivered in the coming year. 

They have also introduced a number of new products, primarily to add to their Lift Fixture Offering.  Their new Unity Fixture provides a low profile, modern and flexible solution for landing stations and car stations.  They originally designed it for the Riyadh Metro project but have now launched it globally and it has been well received.  They have also added to their Lift Indicator range with a number of new offerings based on glass designs.

In its final year of ownership, TVC continued to grow and revenues increased significantly.  The cost and complexity of developing these new products is becoming increasingly onerous.  I think the sale is a bit of a shame given the success of the business.

Traffic Management Products had a particularly difficult first half of the year when revenues were particularly soft.  At the same time the team at Wednesbury still had a lot of work to do at the new factory ensuring that the plant was running efficiently.  There had been a greater turnover of staff than is ideal and the new sales team needed to restore contacts.  This takes time but in the second half of the year, there were definite signs this work was begging to pay off and the board are optimistic of strengthening sales in the coming year.

They have recently launched a new addition to their range of self-righting bollards which has more depth and delivers maximum visibility at any angle, making it ideal to use at road junctions. 

A&A Electrical Distributors completed their first full year as part of the group.  Sales and profits were broadly in line with expectations.  This year they have launched a new LED shaft lighting system that will be a key product in the future.  In the summer they transitioned the business to the Dewhurst EP system and disruption was kept to a minimum.

At Dewhurst Hungary sales of keypad products were quite strong.  Their major customer had suffered a slowdown in ATM sales in the previous year but they recovered this year and the group have seen the benefit of this with improved keypad sales.  Towards the end of the year demand for the next generation of keypads gained traction.

In North America revenues weakened slightly at Dupar Controls due to a softening of the modernisation market in Canada, which had an impact on profits.  Demand for fixtures for new installations continued to be strong and the longer term outlook remains encouraging.  Earlier in the year they secured a new site in Kitchener close to their existing factory and have signed a contract to build a new manufacturing facility.  This is significantly larger than their current one.  This year the business introduced a new software solution for production planning to provide greater visibility of progress through the manufacturing process.

Elevator Research and Manufacturing had another good year in which they continued to turn the business around.  Fixture sales grew by 20% as customers returned to ERM.  Profits, although still relatively modest, grew significantly from last year.  The market in California is strong and they look forward to another year of progress.

Sales at Australian Lift Components grew significantly as they started to see the benefit of having a local sales engineering presence in both Brisbane and Melbourne.  There was also an increase in the number of joint projects they secured with P&R Lift Cars for both car interiors and fixtures.  They are beginning to do a reasonable amount of metal fabrication work for P&R and to support this they purchased a new Amada Brake Press which will improve the accuracy of their folds and the length of material that can be folded.  This has been another good year for P&R Lift Cars as demand for their high end lift interiors continued to increase. 

Sales continued to grow at Lift Material with the escalator division leading the way with growth in revenues of over 30%.  They have purchased a unit in Botany Bay which should meet their needs for space for the foreseeable future.  Dual Engraving revenues increased above expectations as the Perth market recovered.  They have purchased a CNC machine for the business with delivery expected early in the new year which should help improve their capacity over the coming years.

At Dewhurst Hong Kong sales grew slightly but the current political unrest is having an impact.  Many projects have been put temporarily on hold and the first half of the coming year is expected to be challenging. 

During the year the group spent £2.7M on a property for Lift Material as well as £1.2M on land for Dupar Controls to develop.  The building a Dupar is expected to cost £4.8M and take about a year to build with the existing factory being marketed for sale next year.

In September the group disposed Thames Valley Controls to Vantage Elevator Solutions for a consideration of £8.6M.  There was a £6M gain on disposal of the subsidiary and the group received £7.5M in cash from the disposal.  £1M of the proceeds have been transferred to the pension fund towards liabilities for TVC pension scheme members.

Going forward, the board anticipate performance in the UK will be highly dependent on the results of the election.  Overseas in the US the market still seems strong but the Canadian market, particularly for lift modernisation, appears to be softening.  In Australia the market seems steady, at least for the first half of the year.  Regarding keypads, having gained this year from sales build up on a new model, they now envisage a reduction from the rundown in stock of the ongoing product line.

At the current share price the shares are trading on a PE ratio of 34.7 which falls to 17.2 on next year’s forecast. After an increase in the dividend, the shares are yielding 1.2% which remains the same next year. 

Overall then this has been a rather mixed year for the group.  Profits declined but this was mainly due to the pension equalisation costs, without which they would have been flat.  Net assets improved, as did the operating cash flow with enough free cash generated to nearly cover the dividend.  The lift business seems to be doing well with a lot of rail projects, both in the UK and overseas.  This is offset by a softer market in Canada, a poor performance for the traffic management business and disruption in Hong Kong.  This is a decent business but I feel the forward PE of 17.2 and yield of 1.2% is not particularly cheap.

Ricardo Share Blog – Final Results Year Ended 2019

Ricardo has now released their final results for the year ended 2019.

Revenues increased when compared to last year as a £16.3M decline in technical consulting revenue was more than offset by a £22.2M growth in performance products revenue.  Cost of inventories increased by £20.5M but other cost of sales was down £6.8M to give a gross profit £7.8M lower.  Depreciation was down £800K, redundancy costs fell by £1.6M but there no profit on asset disposals, which was £1.6M last time and R&D expenditure was up a net £1.7M.  Other underling admin costs declined by £7.5M, however.  Reorganisation costs declined by £1.4M but there was a £1.3M pension equalisation so the operating profit was down by £100K.  Interest payments were up £900K but tax charges declined by £2.7M to give a profit for the year of £19.8M, a growth of £2.2M year on year.

When compared to the end point of last year, total assets increased by £37.4M, driven by an £18.7M increase in goodwill, a £6.33M growth in customer relationships, an £8M increase in amount receivable on contracts, a £4.3M growth in software, a £3.2M increase in cash, a £2.9M growth in assets held for sale and a £1.9M increase in prepayments, partially offset by a £2.2M decline in deferred tax assets and a £1.9M fall in trade receivables.  Total liabilities also increased during the year as a £2.8M decline in current tax liabilities and a £5.4M decrease in the bank overdraft was more than offset by a £29.2M growth in the bank loan, a £6.3M increase in trade payables, a £4M growth in accruals, a £3.9M increase in pension obligations and a £3.4M growth in deferred tax liabilities.  The end result was a net tangible asset level of £46.7M, a decline of £26.9M year on year.

Before movements in working capital, cash profits declined by £3.2M.  There was a cash outflow from working capital and after tax payments declined by £2.8M the net cash from operations was £25.2M, a decline of £9.3M year on year.  The group spent £7.6M on property, plant and equipment along with £9.1M on intangible assets and £18.9M on an acquisition which gave a cash outflow of £9.7M before financing.  They then took out £29.2M of new borrowings to pay £11M of dividends which gave a cash flow of £8.6M and a cash level of £32.4M at the year-end.

Overall the group’s order intake reduced by 7%.  In Technical Consulting this reflects a combination of large multi-year programmes won in the prior year and lower orders in both automotive and rail this year.  In Performance Products order intake increased through a combination of growth in McLaren engine volumes and orders for the anti-lock brake and electronic stability control systems programme for the US Army. 

The pre-tax profit in the Technical Consulting division was £20.3M, a decline of £200K year on year.  The Energy and Environment business performed strongly with increased order intake and profit.  It has won increased levels of work internationally, particularly Australia, with prospects in the region looking even better following the acquisition.  It was a mixed year for the rail business.  It was impacted by lower volumes in Europe and Asia resulting in a small decline in organic profit but the acquisition in May made an immediate impact, offsetting organic decline.

The European automotive business suffered from significantly lower order intake and revenue as a result of the uncertain market conditions.  The impact on profitability was marked, but they took restructuring actions which mitigated the effect.  The US automotive business ended the year with an increased loss as results did not improve in the second half.  It will continue to focus on new energy vehicle opportunities and realigning its cost base in order to reduce losses and reposition itself. 

There was a good performance in automotive in China, which has led to further revenue and profit growth in the year.  The order book and pipeline remain strong, although they did see some evidence of a slowdown in orders towards the end of the year.  The defence consulting business performed well with its increased order intake driven by the US market.  The strategic consulting business delivered growth in line with expectations. 

The pre-tax profit in the Performance Products division was £11.9M, a growth of £2.6M when compared to last year.  Order intake significantly increased by 40%.  This performance was driven by increased volumes of engines for McLaren and the ABS brake kits programme for the US Army, with deliveries ramping up during the year in line with expectations.  Growth in these programmes has been complemented by the award of the MOD Combat Vehicle Reconnaissance programme and the Bugatti and Porsche transmission programmes as well as growth in new software license sales.

The have made good progress in the preparations for the supply contract for the Aston Martin Red Bull Valkyrie hypercar transmission which is due to enter production in early 2020.  They developed upgrades for the M-Sport World Rally Championship programme and won contracts to support key manufacturers within the Formula E Championship. 

In May 2019 the group acquired Transport Engineering for £21.7M in cash and £5.1M of contingent consideration.  The acquisition generated goodwill of £17.9M and came with a heft intangible customer contract asset of £9.7M.  The business is a rail technical services consultancy based in Australia.  During the one month the business was part of the group in the period it contributed operating profits of £300K.  Had it been part of the group for the whole year it would have contributed operating profit of £3.2M. 

Reorganisation costs of £3.4M comprised expenditure incurred as part of a restructuring of the Technical Consulting business, primarily in automotive.  These costs comprised redundancy-related and dual running costs in relation to headcount reductions and the establishment of a shared service centre.  In addition, contractor costs, professional fees, onerous contract costs and other costs associated with asset disposals in the prior year and scaling down of operations in Germany are also included. 

After the period-end the group acquired PLC Consulting for £3.9M.  The business is an Australian firm with a technical advisory capability across the project lifecycle in infrastructure, environment and planning, including supporting the environmental requirements of master-planning, business cases, procurement, design, construction and operation.  There is also a contingent consideration payable of £5.4M and the acquisition generated goodwill of £2M. 

In August they purchased the freehold property of their Detroit Technical Centre for £14.2M.  This removes the long term lease commitment and the DTC assets will be marketed for sale, including this freehold property.

Going forward, current political and economic uncertainties aside, the group are well positioned for growth with a strong order book and pipeline, recurring revenue from long-term production programmes and the benefit of recent acquisitions. 

At the current share price the shares are trading on a PE ratio of 21 which falls to 13.1 on next year’s consensus forecast.  After a 4% increase in the dividend the shares are yielding 2.7% which increases to 2.9% on next year’s forecast.  At the year-end the group had a net debt positon of £47.4M compared to £26.1M at the start of the year. 

Overall then this has been a rather difficult period for the group.  Profits were up, but this was due to lower tax charges and underlying profits were sluggish.  Net tangible assets declined and the operating cash flow deteriorated with no free cash after the acquisition.  The performance products division is doing well, with increased orders from McLaren and the MOD but the Technical Consulting division is really struggling with rail and automotive in particular showing weakness.  There is no real sign of a pick up in automotive, but rail should improve after the acquisition.  With a forward PE of 13.1 and yield of 2.9% these shares are probably priced about right as they are quite dependent on automotive.

Newmark Security

Newmark Security have now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year as a £1.7M decline in asset protection revenue was more than offset by a £2.1M growth in electronics revenue.  Cost of sales increased slightly to give a gross profit £290K higher.  Admin expenses were up £90K, finance costs increases by £13K but there was a £463K swing to a tax income so the profit for the period was £1.1M, a growth of £650K year on year.

When compared to the end point of last year, total assets increased by £1.4M driven by a 980K growth in property, plant and equipment, a £608K increase in receivables and a £449K growth in deferred tax assets, partially offset by a £635K decline in cash.  Total liabilities also increased during the period as a £765K decline in payables was more than offset by a £1M growth in borrowings.  The end result was a net tangible asset level of £3.4M, a growth of £1.1M over the past six months.

Before movements in working capital, cash profits increased by £123K to £946K.  There was a cash outflow from working capital but this was less than last year and after interest payments increased by £13K there was a net cash outflow of £162K from operations.  The group spent £203K on property, plant and equipment along with £167K on development costs to give a cash outflow of £504K before financing.  They repaid £205K in finance leases and received £72K of proceeds from invoice discounting to give a cash outflow of £637K and a cash level of £406K at the period-end.

Revenue for the Electronics division was £7.1M, a growth of £2.1M year on year following significant growth last year.  This was largely due to the continued ramp-up of major US customers in the Human Capital Management business.  Performance is expected to be slightly first half weighted but it is anticipated that the profitability of this division will continue into the second half. 

Revenues in Human Capital Management increased by 60% to £4.9M.  Sales in North America delivered the most significant growth, more than doubling to £3.1M.  This was in line with expectations as major US clients continued the roll out of their next gen hardware.  The number of enquiries from Tier 1 target customers increased during the period and negotiations began with two new major US-based software providers.  Both have expressed an interest in the Android timeclock, the GT-10.

During the period the US business was rebranded GT Clocks and a number of market activities including the launch of a new website were conducted.  The messaging focuses on the provision of timeclocks alongside the relevant services to both manage and maintain devices remotely and the secure management of clients’ data.  They have continued to increase their resources in marketing and business development in North America.  Outside North America revenues grew 13% to £1.8M as a result of a general uplift across a number of customers based across Europe. 

In this market generally, growth continues to be facilitated through the technology drivers of high speed internet availability and the subsequent mass shift to Cloud based computing.  This shift means that the traditionally challenging to serve and fragmented SME market is now within reach of providers.  AS a consequence of this, the provision of the group’s own services increased across all clients.  The long term strategy remains the increase of recurring revenues through the provision of a higher proportion and number of software sales under a subscription model. During the period they increased the resource dedicated to developing their software platforms with a Cloud and API first approach.

Access Control Revenue increased by 12% to £2.3M.  The Janus product is no longer installed in new systems as it used an unsupported version of Windows although with the Janus to Sateon upgrade programme now closed, legacy sites continued to add their products.  This, combined with a number of price increases, has led Janus revenues to increase by 48% to £845K.

The group completed the launch of the new Security Management System – Janus C4, which was delivered in conjunction with their software development partner in Slovakia.  The market is beginning to move away from stand alone Access Control systems towards integrated Access Control, Intruder, CCTV and Fire and Building Management in a single platform.  This has been well received by customers with strong pipeline growth and early sales of £83K.  They are in the early stages of migrating existing Sateon customers to the platform and to help facilitate this, they are investing further resources in training.

With focus now on Janus C4, Sateon revenues decreased by 8% to £1.3M.  Development of Sateon software is now limited to critical bug fixes and maintenance.  Sales continue to be bolstered by the OEM variant of the Sateon Advance which allows third parties to use the hardware on their own access control platforms.  They added a second OEM customer during the period and continue to have conversations with a number of third party access control providers. 

Asset Protection revenue declined by £1.7M to £3M.  Safetell revenue was 36% lower as a result of the expected reduction in volume of work relating to the Post Office Network Transformation and the continued shrinkage in demand from high street banks, along with reduced project work in the Service division.  This has resulted in reduced revenue in products by 38% and service by 34%.  As a result of the declining sales and lack of repeat programmes of refurb from their long term customers, a business reorganisation plan was implemented resulting in staff reductions and other cost saving measures.

They have seen the results of the reorganisation being reflected in the performance of the division delivering improved gross margin and being profitable.  Once this is complete, a series of strategic reviews were undertaken which have identified new markets, products and customers.  They have also identified an opportunity to align product and service resources and wherever possible the central teams have been combined.

The Electronic division’s performance is expected to be slightly first half weighted but it is expected that the profitability of the division will continue into the second half.  The Asset Protection revenue is also expected to be weighted to the first half sue to seasonality factors which will have a corresponding impact on full year profit for that division.  Once the reorganisation and strategic review are fully embedded, however, the division’s performance is expected to improve next year.  Overall the board expects the group to show a marginal decline in revenue for the full year but with an improved level of operating profit.

At the current share price the shares are trading on a PE ratio of 33.7 and I can find no forecast but based on a full year profit of around £1M, this would come in at 6.6.  There is no dividend here. 

Overall then this has been a fairly positive period for the group.  Profits were up, net assets increased and the operating cash flow improved, although the group is still cash flow negative at the operating level.  The electronics division is doing well, boosted by good trade in the US and the growth of cloud-based computing.  The asset protection division seems to be in structural decline due to less work with the post office and banks paring back their outlets.  The reorganisation might inject some life into it though.  It is very hard to value this, I suspect my prediction of a PE of 6.6 is rather optimistic but nevertheless I do seem some interesting potential here.

Alumasc Share Blog – Interim Results Year Ending 2020

Alumasc has now released their interim results for the year ending 2020.

Revenues declined when compared to the first half of last year with a £1.6M decrease in building envelope revenue, a £1.4M fall in water management revenue and a £292K decline in housebuilding products revenue.  Cost of sales declined by £2.8M to give a gross profit £491K lower.  There was no past pension service cost, which was £1.1M last year and other operating expenses declined by £616K which meant the operating profit increased by £1.3M.  Interest was up somewhat and the continuing profit for the period was £1.4M, an increase of £1M year on year.

When compared to the end point of last year, total assets increased by £267K driven by a £4.8M growth in right of use assets and a £1.5M increase in cash partially offset by a £5.7M decline in receivables.  Total liabilities also increased during the period as a £6.1M decline in payables was more than offset by a £4.9M recognition of lease liabilities and a £3M growth in borrowings.  The end result was a net tangible asset level of £5.5M, a decline of £1.2M over the past six months.

Before movements in working capital, cash profits declined by £382K to £2.4M.  There was a cash outflow from working capital and after a £223K reduction in cash from discontinued operations and a £249K lease payment was partially offset by a £312K reduction in tax payments the net cash from operations was £567K, a decline of £2.2M year on year.  The group spent £645K on property, plant and equipment and £253K on intangible assets but received £339K from the sale of a business to give a free cash flow of just £58K.  The group paid out £1.6M so had to take £3M more in loans to give a cash flow of £1.5M and a cash level of £4.2M at the period-end.

Revenues were tracking a little ahead of last year with increased export revenues mitigating weakness in the UK construction market.  The wet weather, combined with Brexit and UK general election disruption led to a marked slow down in revenues in the weeks leading up to Christmas, however.  Order books and pipeline’s remain healthy for Gatic’s export markets in Europe and Asia as well as Levolux’s business in North America.  Gross margins saw an improvement due to better selling prices at Gatic and operational fixed cost savings.

The profit for the Water Management business was £2.4M, a growth of £864K year on year despite the challenging market backdrop.  The drivers of the performance were better selling prices at Gatic, increased export sales, and the restructure of the Gatic business with £500K of savings.  Alumasc Water Solutions performed well with encouraging rainwater and skyline bespoke product revenues combining with good cost control.

The loss for the Building Envelope business was £269K, a deterioration of £589K when compared to the first half of last year. This division sells mostly into the UK commercial new build construction market which continued to experience falling demand.  This reflected economic and political uncertainties including Brexit and the General Election.  Following the election, the board expects some confidence to begin to return. 

The Levolux turnaround plan is generally on track but the business was affected by below expected performance on a few construction contracts entered into prior to its restructuring relating mainly to balcony work.  This impacted profits by £500K, mainly in Q1 with the business achieving breakeven in Q2.  Alumasc Roofing’s performance was resilient in the refurb sector.  Specification sales opportunities are growing from the new integrated Building Envelope sales approach, in particular combined roofing and walling and roofing and balcony opportunities. 

The profit for the Housebuilding Products business was £919K, an increase of £36K when compared to the first half of 2019.  Timloc, the housebuilding products business, continued to perform well despite a slowing UK new build housing market and exit from some lower margin work.  They grew existing customer accounts and won new work as new product development activity accelerated, supported by ongoing capex in new tooling.

The restructuring of the Levolux business remains on track with actions taken to deliver £1.5M of cost savings this year.  Design and supply only work as opposed to design, supply and installation is representing an increasing proportion of order intake.  Under-performing installation contracts in the UK which were entered into prior to the new management team joining should be largely complete by Q4.  The business is expected to complete the relocation from its two existing leased sites to the group’s freehold site in St. Helens in March.  Order intake in the profitable North American export business has been encouraging in recent months and the board expects the business to deliver a modest profit in the second half. 

The group has delivered over £1M of fixed cost savings in the first half and remains on track to realise £2M of savings for the year as a whole.  The key elements of the cost reduction were the relocation of Gatic Slotdrain from Dover to Wade’s facility in Halstead last summer and the repositioning of Levolux to focus on profitable design and supply work.  The group remains on target to reduce its number of operating locations from ten a year to six by the year-end, saving some £600K of leased property costs.

The Facades business which was divested in October 2018 was classified as a discontinued operation with the £339K proceeds this year relating to deferred consideration.  The triennial pension deficit valuation at the period-end was significantly lower at £22.4M and company deficit reduction funding has been reduced to £2.3M from £3.2M per annum from the start of 2020 as part of a seven year recovery plan. 

Going forward, despite the market weakness prior to the calendar year end has increased the task in the second half, with an increased order book of £23.6M, up to over 10% on six months ago, strong contract pipelines and the usual trading bias towards the second half the board’s expectations for full year performance remains unchanged. 

At the current share price the shares are trading on a PE ratio of 58.1 but this falls to 7.1 on the full year consensus forecast.  After the interim dividend was maintained the same, they are yielding 4.4% which increases to 4.5% on the full year forecast.  At the period-end the group had a net debt position of £6.6M compared to £5.1M at the year-end.

Overall then this has been a bit of a mixed performance for the group.  Profits were up but this was mostly due to no past service pension costs this year, net assets declined and the operating cash flow deteriorated with little free cash being generated, not helped by working capital movements.  Exports are performing well but the UK market is less buoyant due to bad weather, Brexit and the general election.  The Water Management business performed well due to prior restructuring but the Business Envelope business suffered due to the above reasons.  With a forward PE of 7.1 and yield of 4.5% these shares are not expensive but I think this kind of construction business carries considerable risk at the moment, particularly given the debt compared to the flimsy tangible asset base here.

Paypoint Share Blog – Interim Results Year Ending 2020

Paypoint have now released their interim results for the year ending 2020.

Revenues declined when compared to the first half of last year as a £387K growth in UK revenue was more than offset by a £1.5M decline in Romanian revenue and a £1.2M decrease in Irish revenue.  The commission payable to retail agents declined by £1.1M, cost of mobile top ups decreased by £3M, depreciation fell by £375K and other cost of sales were down £453K to give a gross profit £2.5M higher.  Share based payments were up £140K and other admin expenses grew by £3.7M which meant the operating profit was £1.4M lower.  There was a modest increase in finance income and tax charges were down £307K to give a profit for the period of £19.5M, a decline of £1M year on year.

When compared to the end point of last year, total assets increased by £729K driven by a £2.1M increase in client cash, a £2.1M growth in accrued income, a £1.3M growth in current tax assets and a £1.1M increase in other intangible assets, partially offset by a £4.6M decline in items in the course of collection and a £1.6M decrease in trade receivables.  Total liabilities also increased during the period as a £4.6M decrease in settlement payables, a £4.5M decline in current tax liabilities and a £2.2M fall in other payables was more than offset by an £18M increase in borrowings.  The end result was a net tangible asset level of £12.4M, a decline of £10.3M over the past six months.

Before movements in working capital cash profits declined by £171K to £28.5M.  There was a cash outflow from working capital and tax payments increased by £5.7M to give a net cash from operations of £17.5M.  The group spent £2.5M on intangible assets and £1.6M on property, plant and equipment to give a free cash flow of £13.7M.  This did not cover the £28.7M spent on dividends so they took out £18M of new loans to give a cash flow of £2.7M and a cash level of £40.5M at the period-end.

The rollout of Paypoint One has continued, expanding to 15,922 sites.  The strong momentum seen means the group is set to exceed its original target of 15,800 sites by the end of March with the new target being 16,500 sites.  This will mean they have largely retired their legacy terminal from the UK independent retail estate by this time.  Service fee revenue grew by 31.8% and is now the largest net revenue contributor in the UK retail services business. 

Going forward, whilst the financial performance of the group will be influenced by parcel volumes and continued resilience in UK bill payments over the second half, the progress of the business during the first half underpins the board’s confidence that there will be progression in profit for the year.

There was a focus on delivering cost efficiencies.  In the first half they extended in house terminal repairs to PPoS and Paypoint One terminals.  They have now secured £800K of annual savings from bringing terminal repairs in-house which has significantly improved the quality of repairs, reduced swap levels by 57% and enhanced customer service.  Microsoft NAV was also installed as the new ERP system resulting in automation of reports and processes. 

Card payment sites returned to growth and increased by 83 to 9,879.  Transactions increased by 17% and net revenue was 8.3% higher at £4.2M.  The increase in the number of transactions was offset by lower average transaction values arising from the growth in contactless payments.  The average transaction value was £11.83 compared to £12.81 last year.  Card service churn rates declined by 1.4ppts to 15.9%. 

There was a 145 increase in ATM sites to 3,972.  The group secured a new significant ATM client and rolled out 132 ATMs to its leisure centres.  The average monthly transactions per site increased by 0.9% to 885 but overall transactions declined by 3.2%, less than the general market decline of 7.3%. Net revenue decreased by 7.2% to £6M, primarily due to the reduction in Link interchange fees but the group was the first to support Link’s new nationwide scheme which reinstitutes access to free to use cash machines in communities by installing an ATM in Oxfordshire in September. 

Parcel volumes increased by 15% to 11.5 million, reflecting improvement in Yodel volumes and new partner volumes starting.  Net revenue decreased by 15%, however, due to last year’s £500K Yodel impact.  Excluding that, they were up 6%.  During the period focus was on rolling out new partners into the networks with Ebay, DHL, Fedex and Amazon each having over 20% access to the network. 

UK bill payment net revenue was 4% ahead at £22M.  Transaction volume increased by 0.7% driven by a resilient performance in the energy sector.  Client revenue mix continued to improve with average net revenue per transaction increasing by 3.2%.  Multi Pay’s continued strong growth delivered a net revenue increase of 32% driven by processing 13.9 million transactions, an increase of 33.5%. 

UK top-ups continue to be affected by market trends whereby direct debit pay monthly options displace prepay mobile.  As expected top-up transactions declined by 12% which led to a £700K decline in net revenue.  Offsetting this impact was the strong growth in eMoney which increased transactions by 17% and net revenue by 18.7%.

As announced in June, the group was unable to agree appropriate renewal terms with British Gas and will cease working with British Gas in December 2019.  The impact on new revenue is expected to be £1.4M in 2020.

In Romania transactions grew by 1.7% despite challenging market conditions and net revenue increased by 6.2% to £7.3M with net revenue per transaction up 4.4% driven by an ongoing focus on margin improvement and the integration of Payzone.  The group have developed a new T4 terminal with integrated card payment functionality in preparation for replacing the legacy terminals in the country. 

At the current share price the shares are trading on a PE ratio of 15.8 which falls to 14.9 on the full year consensus forecast.  After the dividend was maintained, the shares are yielding 8.5% which is predicted to remain the same for the full year.  At the period-end the group had a net debt position of £12.3M compared to a net cash position of £600K at the same point of last year.

On the 12th August the group announced that non-executive director Rakesh Sharma purchased 2,038 shares at a value of £19K.

On the 6th December it was announced that founder Tim Watkin-Rees sold 498,354 shares at a value of over £4.8M.

On the 19th December the group announced that following a temporary leave of absence on medical grounds, CEO Patrick Headon has stepped down with immediate effect.  The chairman Nick Wiles has agreed to continue in the role of executive chairman until a new CEO is appointed. 

Overall then this has been another sluggish period for the group.  Profits were down due to higher admin costs, net assets declined and the operating cash flow was somewhat lower with the free cash not covering the dividends.  The group seems to be operating in rather low growth areas and even growth in Romania seems to have stalled.  The forward PE of 14.9 and yield of 8.5% looks decent but that dividend yield is not sustainable and the recent large share sale by the founder is rather concerning. 

On the 23rd January the group released a trading update covering Q3.  The warmer weather over the period continues to affect energy transactions in the UIK bill payments and parcel volume growth remains towards the lower end of expectations as the four new parcel partners become established.  Retail services are performing in line with expectations and should carry on growing well.  Actions to deliver cost efficiencies and enhance customer service are ongoing.

Overall the board remains confident that there will be a progression in profit in 2020, albeit at a more modest rate than previously expected. 

Group net revenue increased by £1.3M to £32.7M driven by an increase in service fees, through the ongoing roll out of Paypoint One and a robust performance in bill payments in the UK and Romania.

Telecom Plus Share Blog – Interim Results Year Ending 2020

Telecom Plus have now released their interim results for the year ending 2020.

Revenues have increased when compared to the first half of last year due to a £41M growth in customer management revenue and a £1.3M increase in customer acquisition revenue.  Depreciation was up £481K and other cost of sales increased by £34.2M to give a gross profit £7.7M higher.  Distribution expenses were up £483K and admin expenses increased by £5.6M which meant the operating profit was £2M higher.  Finance expenses were up £332K and tax charges increased by £1M to give a profit for the period of £15.2M, a growth of £730K year on year.

When compared to the end point of last year, total assets declined by £23.6M driven by a £38.4M decrease in prepayments and accrued income and a £5.6M fall in the energy supply contract, partially offset by an £11.4M increase in cash, a £4.3M growth in property, plant and equipment, a £2.9M increase in other receivables and a £2M growth in software.  Total liabilities also declined during the period as a £10.1M increase in bank loans, a £5M growth in payables and a £5M increase in finance leases were more than offset by a £34M decline in accrued expenses and deferred income and a £5.8M decline in current tax liabilities.  The end result was a net tangible asset level of £44.9M, a decline of £1.2M over the past six months.

Before movements in working capital, cash profits declined by £2.8M to £31.3M.  There was a cash inflow from working capital and after tax payments increased by £5.9M the net cash from operations was £27.2M, a growth of £3.2M year on year.  The group spent £3M on intangible assets, £1.6M on finance leases and £794K on property, plant and equipment to give a free cash flow of £22M.  Of this, £21.1M was spent on dividends and £1.3M on interest.  The group took out £1.6M of new finance leases and a net £9.5M of new borrowings to give a cash flow of £11.4M and cash level of £35.6M at the period-end.

During the period the growth in revenue exceeded the increase in service numbers mainly due to seasonally normal gas consumption and higher energy prices.  Gross margin fell slightly, reflecting a change in service mix with an increasing proportion of revenue derived from lower margin energy services due to a rise in the Ofgem price cap. 

Admin expenses rose by £5.5M due to growth in the volume and range of services provided; higher technology costs relating to updating their core CRM systems, developing new tools to support the partner network and enhancing information security; the acceleration of smart meter rollout; higher regulatory costs; and inflation linked increases in staff pay. In addition they continue to invest in strengthening the senior management team to support an acceleration in their current organic growth.

The number of members and services for the period increased by 10,267 and 92,519 respectively and both were marginally impacted by the one-off migration of their Cash Back card base from Mastercard to Visa.  The quality of the membership base continued to improve with a further rise in the proportion of new members taking all core services which now represent over 25% of the residential membership base. 

The annualised churn for the period increased marginally to 12.5%. This reflects higher energy prices from April, partially offset by the improving quality of the membership base. 

The boiler installation business will be loss making during the period but its performance has been improving steadily and it is on track to make a modest positive contribution in the full year. 

In a broadly flat market overall the group’s telephony and broadband market share increased.  The penetration of mobile telephony in the membership base now exceeds 40% for the first time, reflecting a doubling in the number of members over the past five years. The board believe there is scope to achieve significant further growth over the coming years.

The group are steadily building a home insurance book with renewal rates running at around 95%. Overall policy numbers increased by 50% in the first half to almost 22,000, assisted by the launch of a new home and boiler care product in March and they anticipate adding a similar number of policies during the second half. 

Going forward their competitive position has recently improved following the reduction in the energy price cap which will help drive an acceleration in growth over the second half of the year.  Over the last ten weeks they have seen a significant increase in the number of new partners joining the business which is an encouraging lead indicator for the rate of future customer growth over the coming months.  The board expect to deliver full year profits of £60M to £65M, in line with guidance. 

At the current share price the shares are trading on a PE ratio of 39.1 which falls to 23.6 on the full year consensus forecast.  After an 8% increase in the interim dividend the shares are yielding 3.6% which increases to 3.8% on the full year forecast. Net debt at the period-end was £40.7M compared to £37M at the same point of last year.

Overall then this has been a steady period for the group.  Profits increased but the net asset level declined somewhat.  Although the operating cash flow improved, this was due to working capital movements and cash profits declined with the free cash level just about covering the dividends.  Operationally the group seems to be doing well with increasing numbers of members and some helpful regulation but the shares don’t look cheap with a forward PE of 23.6 and yield of 3.8%. 

James Latham Share Blog – Interim Results Year Ending 2020

James Latham has now released their interim results for the year ending 2020.

Revenues increased by £7.4M when compared to the first half of last year and with cost of sales only up £5.8M, the gross profit was £1.7M higher.  Selling and distribution costs increased by £1M but admin costs were broadly flat to give an operating profit £743K higher.  There was no profit on the disposal of a property, however, which was £1.1M last time so after finance costs grew by £57K and tax expenses were up £212K the profit for the period was £6.7M, a decline of £564K year on year.

When compared to the end point of last year total assets increased by £9.9M, driven by a £4.3M recognition of right of use assets, a £3.1M increase in receivables, a £997K growth in cash and a £983K increase in deferred tax assets.  Total liabilities also increased as a £1.1M decline in tax payable was more than offset by a £4.4M recognition of lease liabilities, a £5.9M increase in pension obligations and a £1.2M growth in payables.  The end result was a net tangible asset level of £95.2M, a decline of £294K over the past six months.

Before movements in working capital, cash profits increased by £1.6M to £9.5M.  There was a cash outflow from working capital but this was less than last tie and after tax payments increased by £1.3M the net cash from operations was £4.9M, a growth of £4.2M year on year.  The group spent a net £1.4M on property, plant and equipment to give a free cash flow of £3.6M. The group paid out £2.5M in dividends to give a cash flow of £997K and a cash level of £16.5M at the period-end.

During the period the revenue increase was due to a strategic change in product mix as overall volumes have been flat.  The panel product business has seen an increase in delivered volumes through their warehouses, but a reduction in their direct volumes. Their timber business has also seen an increase in delivered volumes, especially on added value products.  Prices have decreased on most of their commodity panel products but timber prices have remained stable.

Warehouse costs were higher due to the increased volumes through warehouses and as part of the strategy to increase the working hours to better meet customer needs.  Three of their depots are now working 24 hours a day five days a week.  The increased delivered volumes have also resulted in an increase in distribution costs but admin costs are down with a reduction in the bad debt charge.

The second half of the year has started well with margins slightly ahead.  They are seeing increased sales at Abbey Woods, the Irish business purchased in February 2019, and an improvement in their panel product volumes. Purchase prices of their commodity panel products remain weak.  The investment in the Gateshead facility to improve site efficiency is going well and should be completed in June.  The racking investment in Purfleet will be completed by the end of December 2019.  The majority of customers are busy and the board remain confident that they can continue to grow their business.

At the current share price the shares are trading on a PE ratio of 16.5 and are yielding 1.9%.  There are no current forecasts available.

On the 25th November the group announced that it had acquired Dresser Mouldings, a processor of timber and cladding products, for £1M.  Last year the business had an EBITDA of £276K.  They specialise in the processing and vacuum coating of bespoke timber products, the production of timber mouldings and other specialist timber machining for use in a variety of market segments.  They operate from one site in Rochdale and an online store.

Overall then this has been a decent period for the group.  Profits fell but this was because there was no land sale this year and underlying profit saw an increase.  Net assets declined due to the pension obligations increasing but the operating cash flow improved with a decent amount of free cash being generated.  Volumes seem to be static but the group are selling more value added product which is fuelling the good performance.  Trading seems to be pretty steady but the shares are not exactly cheap with a PE of 16.5 and yield of 1.9%.

Goodwin Share Blog – Interim Results Year Ending 2020

Goodwin have now released their interim results for the year ending 2020.

Revenues increased when compared to the first half of last year due to a £2.2M growth in mechanical engineering revenue and a £350K increase in refractory engineering revenue.  Depreciation was up £416K and the £389K depreciation of right of use assets was recognised for the first time.  Other cost of sales were up £2.3M to give a gross profit £460K lower.  There was £689K of other income and a £523K reduction in share based payments but other admin expenses were up £686K which meant the operating profit was broadly flat.  Finance expenses increased by £146K and the share of the profit from an associate was down £240K.  Tax charges fell by £264K to give a profit for the period of £5.3M, a decline of £133K year on year.

When compared to the end point of last year, total assets increased by £16.3M driven by an £11.8M recognition of right of use assets, a £6.4M growth in inventories, a £6.1M increase in contract assets and a £2.1M growth in derivative financial assets, partially offset by a £10.6M decline in property, plant and equipment.  Total liabilities also increased during the period as a £5.8M decline in bank overdrafts and a £2.4M decrease in payables was more than offset by a £9.1M increase in contract liabilities, a £6.4M growth in lease liabilities, a £7M increase in other borrowings, a £1.7M increase in other payables and a £1.4M growth in deferred tax liabilities.  The end result was a net tangible asset level of £87M, no change over the past six months.

Before movements in working capital, cash profits increased by £488K to £12M.  There was a cash outflow from working capital and after tax payments increased by £869K the net cash from operations was £4.7M, a decline of £7.7M year on year.  The group spent £3.2M on fixed assets and £297K on R&D to give a free cash flow of £1.1M.  They then took out a net £4.3M of new leases and £6.9M of new borrowings which paid of the £6.9M of dividends and left a cash flow of £5.5M for the period and a cash level of £6.1M at the period-end.

The profit in the mechanical engineering division was £5.4M, a growth of £878K year on year.

The profit in the refractory engineering division was £3.4M, a decline of £1.4M when compared to the first half of last year.  There was an unforeseen decrease in demand for the consumer oriented jewellery products for which they supply the casting powder.  They believe this is due mainly to the uncertainty around the ongoing US and China trade war and the rise in the gold price since May has declined since August.  The market seems to be beginning to improve, however.

Sales of the AVD fire extinguishers and extinguishing agent are starting to grow with a constant monthly sales stream.  First adopters have been companies that manufacture products incorporating lithium batteries such as e-scooters, vehicles and green energy storage systems.  The group are in discussions with several large battery manufacturers which may bode well over time.

Going forward the board believe the group is likely to show a similar profitability in the second half of the year as the first, with an improving cash flow.  In the mechanical engineering division, although the petrochemical market has not yet recovered they have a positive outlook based on the fact that the demand for energy is set to increase.  Esat Radar Systems has won an order to supply two turnkey surveillance systems for an Asian air force.  The order was the first overseas system order for the business. 

The board believe that the new financial year will allow the group to start increasing profits.  They also expect to win significant new business. 

At the current share price the shares are trading on a PE ratio of 22.9 and a yield of 2.8%.  There are no forecasts available.  At the period-end the group had a net debt level of £27.2M compared to £21.2M at the year-end.

Overall then this has been a bit of a subdued period for the group.  Profits were down, net assets were flat and although the cash profits increased, the operating cash flow fell due to working capital movements and although some free cash was generated, this did not cover the dividends.  The mechanical engineering division is performing well but the refractory engineering divisions suffered due to a slowdown in the jewellery sector, although this may be recovering.  Still, with a PE ratio of 22.9 and yield of 2.8% the shares seem a bit expensive.