IMMEDIATE RELEASE

31 January 2017

 

 

THE ALUMASC GROUP PLC - INTERIM RESULTS ANNOUNCEMENT

 

Alumasc (ALU.L), the premium building products, systems and solutions group, announces interim results for the six months ended 31 December 2016.

 

Half year financial highlights
Half year to 31 December	2016	2015	% change
Revenue (£m)	50.7	43.5	+17%
Underlying profit before tax (£m)*	4.1	4.0	+2%
Underlying earnings per share (pence)*	9.1	8.9	+2%
Profit before tax (£m)	3.6	3.4	+6%
Basic earnings per share (pence)	8.2	7.6	+8%
Dividends per share (pence)	2.85	2.70	+5.6%
Net cash at 31 December (£m)	5.2	0.5

 

^* Underlying profits and earnings per share are stated prior to the deduction of brand amortisation charges of £0.1 million (2015/16: £0.1 million), IAS 19 pension costs of £0.4 million (2015/16: £0.7 million) and, in 2015/16, profit from discontinued operations of £0.2 million.

 

Key points

·      Alumasc's strategy is delivering continued outperformance of the UK construction market.

·      The group's fifth consecutive first half year of earnings growth.

·      Strong revenue growth reflects progress in all operating segments.

·      Lower group margins reflect increased imported materials costs and continued investment to support growth. 

·      Benefits of pricing actions and operational gearing will see margins stronger in H2. 

·      Solar Shading & Screening achieved 46% revenue growth to £11.1m with operating profit up 37% to £0.6m after £0.7m additional annualised investment in people. Levolux is experiencing strong demand in North America and will benefit from completed contracts in H2.    

·      Roofing & Walling revenue rose 13% to £20.9m. Roofing traded at record levels with margins reflecting increased imported materials costs which will be partially recovered in H2. Facades benefited from insulation refurbishment activity in Scotland. Growth in new build was not enough to offset falls in funded refurbishment activity in England and Wales. Divisional operating profit was down 8% to £1.6m. Selling price increases are expected to improve divisional margins in H2.

·      Water Management revenue was up 6% to £14.9m, driven principally by Gatic exports and sales of drainage systems under the Alumasc Water Management Solutions brand. Increases in imported materials and steel costs reduced margins in H1, with operating profit down 15% to £1.6m, although strong order books and selling price increases will benefit H2.

·      Housebuilding & Ancillary Products increased revenue by 8% to £4.4m and operating profit by 22% to £0.7m, reflecting a positive performance from Timloc's enlarged product range, including "Above the Roofline", and management actions to improve operating margins. Timloc's new purpose-built factory at Goole is on schedule for completion in the Autumn.

 

Paul Hooper, Chief Executive, commented:

 

"Group order books currently stand at £27.6 million, close to record levels. The majority of this relates to Levolux and to construction projects that are for the most part due to complete prior to the financial year end, which we expect will benefit profit and margin recognition in the second half year. Elsewhere we expect the group's positive trading momentum to continue in the remainder of the financial year. Therefore, the Board's expectations for full year performance remain unchanged.

 

Notwithstanding the ongoing economic uncertainties arising from the UK's intended exit from the European Union and the current weakness in Sterling, latest industry forecasts continue to anticipate modest growth in the UK construction market over the next few years. All of Alumasc's chosen specialist markets continue to benefit from one or more of the long term strategic growth drivers of energy management, water management, bespoke solutions and ease of construction. This, when combined with an encouraging pipeline of enquiries and quotations including for large international projects at Levolux and Gatic in particular, gives the board confidence that Alumasc should continue to make good progress beyond the current financial year."

 

 

Enquiries:

 

The Alumasc Group plc	01536 383844
Paul Hooper (Chief Executive) Andrew Magson (Finance Director)
Glenmill Partners Limited	07771 758517

Simon Bloomfield

 

 

REVIEW OF INTERIM RESULTS

 

 

Performance Overview

 

Alumasc is pleased to announce the fifth consecutive first half year of earnings growth:

 

·      Group revenues advanced by 17% to £50.7 million (2015/16: £43.5 million), with all operating segments continuing to grow strongly;

·      Sales to domestic markets grew by 9% to £43.2 million. This compares with UK construction market growth of around 1% in the period, providing further evidence of the higher than industry average growth rates generated by Alumasc's specialist systems and solutions, with over two thirds of the group's business now focused on managing the scarce resources of water and energy in the built environment;

·      Export sales almost doubled to £7.5 million, led by continued penetration of the North American market for bespoke architectural, shading and screening solutions by Levolux; and increased sales of specialist access covers and civil drainage systems by Gatic in a number of countries;

·      Group operating margins reduced from 9.5% to 8.2%, mainly reflecting the increased cost of imported materials following the depreciation of Sterling over the last six months. In light of the investment already made by the group in resource and capability to support the continued expansion of the business, margins are expected to be higher in the second half year as the benefit of selling price increases and operational gearing, driven by the strong growth in revenues, is realised;

·      Underlying profit before tax (stated prior to IAS 19 pension charges, amortisation of acquired brands and discontinued operations in 2015/16) increased to £4.1 million from £4.0 million in the first half of last year, and underlying earnings per share increased to 9.1 pence (2015/16: 8.9 pence).  A full reconciliation of underlying to statutory profit before tax is shown in note 4; and

·      Statutory profit before tax and basic earnings per share improved to £3.6 million from £3.4 million and to 8.2 pence from 7.6 pence, respectively, reflecting the better underlying results and lower IAS 19 pension charges.

 

Cash generation in Alumasc remains strong, underpinned by EBITDA of £4.8 million in the period. However, there was a net cash outflow in the first six months of the financial year of £3.4 million reflecting working capital absorption to support the significant growth in revenues and the expected un-wind of cash received last year in advance of profit recognition on construction contracts.

 

At 31 December 2016 Alumasc had net cash resources on its balance sheet of £5.2 million (31 December 2015: £0.5 million). The group intends to use these funds in the planned re-location and expansion of Timloc, the group's house building products business, in Autumn 2017, and of Alumasc Water Management Solutions, expected in 2019.

 

Strategic development

 

Encouraged by the group's first half performance both in the UK and internationally, the Board is working with divisional management teams to identify further initiatives to accelerate the profitable growth of the business by continuing to increase revenues faster than UK construction market growth and focus on margin improvement.

 

The Board believes Alumasc has significant UK growth potential in all its divisions, with further opportunities to expand internationally through Levolux and Alumasc's Water Management business in particular.

 

In addition, operating and EBITDA margin improvement will be driven through a combination of:

·      continued product, system and service innovation;

·      a more focused programme of capital investment including the modernisation and upgrade of plant, equipment and tooling;

·      efficiencies derived from the planned relocation and expansion of the Timloc and Alumasc Water Management Solutions businesses in the next 2-3 years, which will benefit once higher initial property costs have been absorbed;

·      using the group's cash resources to flex working capital ratios where needed to take advantage of procurement opportunities; and

·      the benefits of operational gearing, particularly at Levolux, which is beginning to generate double digit operating margins on a run rate basis.

 

Should the right opportunities arise at the right price, Alumasc intends to supplement this organic growth potential through selective complementary acquisitions and, following the divestment of non-core businesses in recent years, more senior management time is now being devoted to this area.

 

Operational review

 

(a) Solar Shading and Screening

 

Revenue £11.1 million (2015/16: £7.6 million)

Underlying operating profit £0.6 million (2015/16: £0.5 million)

Underlying operating margin 5.7% (2015/16: 6.1%)

 

The enlarged Levolux business, which now encompasses an established North American presence and a UK Balconies and Balustrading business in addition to the original UK Solar Shading operation, increased revenues by 46% in the period, benefiting as expected from the high order book at the beginning of the period. Whilst this led to an increase in underlying operating profit of 37% in the first half, the full benefit of this growth will not be realised until the second half of the current financial year when a number of construction contracts that were in their relatively early stages at 31 December 2016 are due to complete. As a result, we expect both profits and margins to be weighted towards the second half.

 

Approximately £0.7 million of annualised people cost, including international sales managers, designers, project managers and operational resources, have been added to support growth. We have doubled our own directly employed sales resources focused on the North American market from two to four over the last twelve months.

 

Order intake, enquiry and tender levels remain strong for both domestic and export markets.

 

(b) Roofing & Walling

 

Revenue £20.9 million (2015/16: £18.4 million)

Underlying operating profit £1.6 million (2015/16: £1.7 million)

Underlying operating margin 7.8% (2015/16: 9.5%)

 

Alumasc Roofing traded at new record levels of revenue and profit during the period and momentum going into the second half year is strong. Our strategy for growth, through enhancements made to our range of flat roofing solutions and extending our UK geographical presence by continuing to attract high quality technical sales resources, continues to bear fruit. Operating margins were impacted by a rise on the cost of imported materials and sales mix in the period.

 

Alumasc Facades continued to perform well in its exterior wall insulation refurbishment business in Scotland, underpinned by ongoing funding support from the Scottish government's HEEPS scheme. Refurbishment activity in England and Wales was lower than a year ago due to funding cuts to the ECO and Green Deal schemes which took place in November 2015. The business continues to invest in growing its new build presence, including through innovative solutions such as the Alumasc Base Coat and the Alumasc Ventilated System.  However, initial successes in these areas were not sufficient to offset the fall in refurbishment activity.

 

Selling price increases already in place are expected to improve divisional margins in the second half year.

 

(c) Water Management

 

Revenue £14.9 million (2015/16: £14.0 million)

Operating profit £1.6 million (2015/16: £1.9 million)

Operating margin 10.9% (2015/16: 13.6%)

 

Divisional revenue growth of 6% was driven principally by increased export sales of Gatic systems and higher sales of building drainage systems including new products introduced under the Alumasc Water Management Solutions brand over the last year. Profitability was impacted by a combination of cost inflation from imported materials, significant increases in steel costs due to the global increase in steel prices following removal of surplus industry capacity last year and sales mix in the first half year. Again, selling price increases already implemented should mitigate some of this margin pressure in the second half of the year.

 

Order books across the division remain strong and Gatic's order books are at record levels, including a number of large international projects which are expected to benefit the second half year.

 

 

(d) Housebuilding & Ancillary Products

 

Revenue £4.4 million (2015/16: £4.1 million)

Operating profit £0.7 million (2015/16: £0.6 million)

Operating margin 15.8% (2015/16: 14.0%)

 

Timloc continues to make good progress. The sales team has been strengthened, the "Above the Roofline" product range launched last year is performing well and cost inflationary pressures have been mitigated through a combination of management actions including purchasing and supply chain initiatives and operational efficiencies. Revenue growth of 8% also enabled the business to better leverage fixed costs, improving operating margins.

 

Timloc's new purpose built leasehold manufacturing and warehousing facility is now under construction and scheduled to be operational in the Autumn. This will allow the business to further expand and provide additional manufacturing flexibility.

 

Balance sheet and pensions

 

Shareholders' funds of £16.6 million were a little higher at 31 December 2016 than they were at 30 June 2016 with retained profit over the last six months more than offsetting an increase in net of tax pension obligations calculated under IAS 19. Post tax return on investment remains strong at 23.0% (2015/16: 22.3%) and well above the group's weighted average cost of capital.

 

The group has now concluded the formal triennial valuation as at 31 March 2016 of its legacy defined benefit pension obligations on a technical provisions basis, a more prudent valuation methodology than that used for accounting purposes. On this basis of valuation, the pension deficit was calculated to be £33.0 million and is to be recovered over a period of ten years, with Alumasc making annual cash contributions of £3.2 million (previously £3.0 million), to include scheme running costs. This outcome is in line with the expectations set out in our 2016 Annual Report. 

 

Outlook

 

Group order books currently stand at £27.6 million, close to record levels. The majority of this relates to Levolux and to construction projects that are for the most part due to complete prior to the financial year end, which we expect will benefit profit and margin recognition in the second half year. Elsewhere we expect the group's positive trading momentum to continue in the remainder of the financial year. Therefore, the Board's expectations for full year performance remain unchanged.

 

Notwithstanding the ongoing economic uncertainties arising from the UK's intended exit from the European Union and the current weakness in Sterling, latest industry forecasts continue to anticipate modest growth in the UK construction market over the next few years. All of Alumasc's chosen specialist markets continue to benefit from one or more of the long term strategic growth drivers of energy management, water management, bespoke solutions and ease of construction. This, when combined with an encouraging pipeline of enquiries and quotations including for large international projects at Levolux and Gatic in particular, gives the board confidence that Alumasc should continue to make good progress beyond the current financial year.

 

Dividend

 

In view of all the above the Board has decided to increase the interim dividend by 5.6% to 2.85 pence per share (2015/16: 2.7 pence) to be paid on 7 April 2017 to shareholders on the register at 24 February 2017.

 

 

Paul Hooper, Chief Executive

31 January 2017

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

for the half year to 31 December 2016

 

 

			Half year to 31 December 2016				Half year to 31 December 2015		Year to 30 June 2016
				(Unaudited)			(Unaudited)		(Audited)
Continuing operations:	Notes			£'000			£'000		£'000
Revenue	5			50,743			43,468		92,233
Cost of sales				(34,898)			(28,904)		(61,434)
Gross profit				15,845			14,564		30,799
Net operating expenses				(11,837)			(10,849)		(23,101)
Operating profit	5			4,008			3,715		7,698
Finance expenses	7			(403)			(473)		(939)
Profit before taxation				3,605			3,242		6,759
Tax expense	8			(704)			(663)		(1,581)
Profit for the period				2,901			2,579		5,178
Discontinued operations:
Profit after taxation for the period from discontinued operations	6			-			132		1,306
Profit for the period				2,901			2,711		6,484
Other comprehensive income
Items that will not be recycled to profit or loss:
Actuarial (loss)/gain on defined benefit pensions	2			(1,663)			542		(3,412)
Tax on actuarial loss/(gain) on defined benefit pensions	8			50			(517)		240
				(1,613)			25		(3,172)
Items that are or may be recycled subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges				(20)			170		(22)
Exchange differences on retranslation of foreign operations				41			(4)		1
Tax on cash flow hedge	8			4			(35)		(1)
				25			131		(22)
Other comprehensive (loss)/profit for the period, net of tax				(1,588)			156		(3,194)
Total comprehensive profit for the period, net of tax				1,313			2,867		3,290
Earnings per share				Pence			Pence		Pence
Basic earnings per share
-  Continuing operations				8.2			7.2		14.5
-  Discontinued operations				-			0.4		3.7
	11			8.2			7.6		18.2
Diluted earnings per share
-  Continuing operations				8.0			7.0		14.3
-  Discontinued operations				-			0.4		3.6
	11			8.0			7.4		17.9

 

Reconciliations of underlying to statutory profits and earnings per share are provided in notes 4 and 11 respectively.

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

at 31 December 2016

 

							31 December				31 December	30 June
							2016 (Unaudited)				2015 (Unaudited)	2016 (Audited)
							£'000				£'000	£'000
Assets
Non-current assets
Property, plant and equipment							5,202				5,310	5,250
Goodwill										16,488	16,488	16,488
Other intangible assets							2,459				2,802	2,642
Financial asset investments									17		17	17
Deferred tax assets									3,915		3,509	4,080
									28,081		28,126	28,477
Current assets
Inventories									10,613		9,686	10,238
Trade and other receivables							20,803				14,915	19,759
Cash and cash equivalents							6,109				5,404	10,540
Assets classified as held for sale									-		3,978	-
									37,525		33,983	40,537
Total assets									65,606		62,109	69,014
Liabilities
Non-current liabilities
Interest bearing loans and borrowings							(923)				(4,893)	(1,908)
Employee benefits payable							(23,031)				(19,492)	(22,668)
Provisions									(898)		(1,129)	(1,064)
Deferred tax liabilities									(446)		(415)	(508)
									(25,298)		(25,929)	(26,148)
Current liabilities
Trade and other payables								(22,326)			(16,832)	(25,351)
Provisions									(514)		(396)	(478)
Corporation tax payable									(534)		(574)	(188)
Derivative financial liabilities									(289)		(77)	(269)
Liabilities classified as held for sale									-		(1,018)	-
									(23,663)		(18,897)	(26,286)
Total liabilities									(48,961)		(44,826)	(52,434)
Net assets									16,645		17,283	16,580
Equity
Called up share capital							4,517				4,517	4,517
Share premium										445	445	445
Capital reserve - own shares							(640)				(968)	(931)
Hedging reserve									(237)		(63)	(221)
Foreign currency reserve									91		45	50
Profit and loss account reserve									12,469		13,307	12,720
Total equity									16,645		17,283	16,580

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

for the half year to 31 December 2016

 

				Half year to		Half year to	Year to
				31 December		31 December	30 June
					2016 (Unaudited)	2015 (Unaudited)	2016 (Audited)
				Notes	£'000	£'000	£'000
Operating activities
Operating profit					4,008	3,715	7,698
Adjustments for:
Depreciation					474	431	931
Amortisation					206	194	364
Gain on disposal of property, plant and equipment					-	(3)	(11)
(Increase)/decrease in inventories					(375)	157	(400)
(Increase)/decrease in receivables					(1,044)	3,936	(804)
(Decrease)/increase in trade and other payables					(3,098)	(4,944)	2,958
Movement in provisions					(130)	(101)	(84)
Cash contributions to retirement benefit schemes					(1,542)	(1,250)	(2,500)
Share based payments					50	123	181
Cash (absorbed)/generated by operating activities of continuing operations					(1,451)	2,258	8,333
Operating profit from discontinued operations					-	167	27
Depreciation and amortisation					-	70	141
Movement in working capital from discontinued operations					-	26	15
Cash generated by operating activities of discontinued operations					-	263	183
Tax paid					(201)	(401)	(980)
Net cash (outflow)/inflow from operating activities					(1,652)	2,120	7,536
Investing activities
Purchase of property, plant and equipment - continuing operations					(476)	(520)	(869)
Purchase of property, plant and equipment - discontinued operations					-	(97)	(148)
Payments to acquire intangible fixed assets					(11)	(160)	(255)
Proceeds from sales of property, plant and equipment					-	18	21
Proceeds from sale of business activity					-	-	4,474
Net cash (outflow)/ inflow from investing activities					(487)	(759)	3,223
Financing activities
Interest paid					(35)	(112)	(221)
Equity dividends paid					(1,349)	(1,248)	(2,208)
Draw down of amounts borrowed					-	5,000	-
Repayment of amounts borrowed					(1,000)	(5,000)	(3,000)
Refinancing costs					-	(119)	(119)
Acquisition of own shares					-	(452)	(759)
Proceeds on exercise of share based incentives					51	64	147
Net cash outflow from financing activities					(2,333)	(1,867)	(6,160)
Net (decrease)/increase in cash and cash equivalents					(4,472)	(506)	4,599
Net cash and cash equivalents brought forward					10,540	5,914	5,914
Effect of foreign exchange rate changes					41	(4)	27
Net cash and cash equivalents carried forward			12		6,109	5,404	10,540