Trifast has now released their final results for the year ended 2017.
Revenues increased when compared to last year with a £13.2M growth in European revenue, an £8M increase in Asian revenue, a £2.7M growth in UK revenue and a £1.3M increase in US revenue. Depreciation was up £493K and other cost of sales increased by £14.6M to give a gross profit £10m ahead of last year. Distribution expenses grew by £762K, there was a £615K reduction in net forex gains and other underling admin expenses were up £4.5M. There was a £567K share option exercise cost that did not occur last year but the operating profit grew by £4M. Interest payable declined by £270K but tax charges increased by £1.8M to give a profit for the year of £12.7M, a growth of £2.5M year on year.
When compared to the end point of last year, total assets increased by £19.2M driven by a £7M growth in cash, a £5.6M increase in trade receivables, a £2.5M growth in inventories, a £1.9M increase in goodwill and a £1.6M growth in plant and equipment. Total liabilities also grew during the year as a £2.4M reduction in borrowings and a £1.3M fall in contingent consideration was more than offset by a £2.1M increase in trade payables, a £2.2M growth in other payables and a £1.2M increase in other taxes and social security payables. The end result was a net tangible asset level of £62M, a growth of £16.5M year on year.
Before movements in working capital, cash profits increased by £4.8M to £22.5M. There was a modest cash inflow from working capital and interest payments fell by £314M. Tax payments increased by £2.1M, however, and the net cash from operations was £17.2M, a growth of £5.3M year on year. The group spent £2.9M on property, plant and equipment along with £1.5M on acquisitions to give a free cash flow of £13M. Of this, a net £4.8M was used to pay back loans and £3.3M went on dividends to give a cash flow for the year of £5.2M and a cash level of £24.6M at the year-end.
The underling profit in the UK division was £6M, a growth of £307K year on year on a stronger than expected sales performance. The TR fastenings business got off to a solid start in Q1 as customer demand increased in the automotive, general industrial, aerospace and defence sectors. Following quieter trading mid-year the region returned to a growth position for the year-end with excellent results achieved in Q4. Belfast delivered steadier year following a couple of years of rapid growth and is now in the process of reviewing options for additional space.
Product based European distributor sales have exceeded expectations with Lancaster Fastener having their best year ever, growing by 16% to £5.7M. Although automotive was still growing, the group experienced some delays with one of the major OEMs revising forecasts for two production builds which resulted in a two to three month reduction against the original forecast. The electronics sectors saw a slight decline this year and other sectors remained flat.
Gross margins were positively impacted by 100bps due to transaction gains on Euro sales as well as a broadening of the product mix. The underlying operating margin remained consistent reflecting the ongoing investments being made.
Towards the end of the year the business had already started to see some pricing increase requests being made from suppliers. Looking ahead, the board recognise that these inflationary pressures will continue to rise if the current Sterling weakness persists. They are already working to manage this risk but as a business they expect this could lead to a temporary depression of the UK gross margin in 2018. Currently the UK economy is continuing to grow, albeit more slowly, despite the wider uncertainty that exists.
The profit in the Europe division was £8.1M, an increase of £2.5M when compared to last year with strong revenue growth reflecting the ongoing success at TR Kuhlmann where a first year of trading in the group has driven non-organic regional revenue growth up by more than 5%. On the organic side, growth has been spread across a number of the European entities, but most specifically in Sweden in the automotive sector, and in Hungary in electronics.
During the year the group established a greenfield site in Barcelona to serve existing and known customers, primarily in the tiered automotive sector. By the end of the year, it was fully operational with first invoicing taking place in April.
Underlying operating margins have also continued to improve, up 160bps. The largest driver of this increase is in Italy where the first half saw favourable cost variances for both raw material and finished goods. Whilst purchase price inflation in the second half had eroded some of these gains by the year-end, the board expect their ongoing investments in capacity to help mitigate some of this impact going forward.
Over the course of the year, VIC has received significant capex of £1.7M for production equipment, a heat treatment plant, quality inspection equipment, an automated packing machine and zero-defect checking machines. This investment plan will continue to roll out into 2018 to drive production volumes and efficiencies going forward. The recent establishment of the Spanish business and the acquisition of Kuhlmann have provided the group with a good foothold in two of the region’s key markets from which they can grow and they are searching for another acquisition in the area.
The profit in the US division was £309K, a decrease of £68K when compared to 2016. The profit in the Asian division was £7.1M, an increase of £1.2M year on year.
At the current share price the shares are trading on a PE ratio of 21.1 which falls to 17.1 on next year’s consensus forecast. After an increase in the dividend the shares are yielding 1.6% which increases to 1.7% on next year’s forecast.
On the 27th July the group released a trading update from the AGM. They have entered the current year with a robust pipeline. Trading in the first four months of the year continues to perform well in line with management expectations.
On the 25th September the group released a trading update covering the first half of the year where they stated that the dynamics of their business continue to match management expectations. The positive benefits of the capital investment campaign are now revealing themselves. For example, TR VIC in Italy has just installed its £1M new heat treatment plant, along with additional production plant for more complex valued added components supported by new automated inspection and packing machines. This expansion allows them to further the growth market sectors in Europe.
They continue to identify and evaluate appropriate target acquisitions but as a result of conducting their due diligence, they ultimately withdrew from the two negotiations that took place this year, which is actually quite encouraging as far as I’m concerned. The visibility of the order pipeline remains very encouraging and the board is confident that the group will deliver its expectations for the year as a whole.