Thursday 4 February 2021

The Alumasc Group plc

Interim results

Outstanding H1 performance

Alumasc (ALU.L) the sustainable building products, systems and solutions Group today announces results for the six months ended 31 December 2020.

Commenting on the interim results, Paul Hooper, Chief Executive of Alumasc said:

"The Group's substantially strong performance of an 11% increase in revenues, 23% increase in export sales and more than 100% increase in underlying pre-tax profit during the period, reflects the successful execution of our repositioning strategy launched in 2019. This has been achieved by the hard work of the employees, for which I would like to thank them.

Alongside an increasingly strong financial performance, the Group has undertaken a significant number of internal initiatives to act in an environmentally sustainable manner, including sourcing 50% of the Group's electricity from sustainable sources. We are also in the process of setting internal metrics to monitor performance and aligning our ESG programme to TCFD and the UN Sustainability Goals. Many of our products contribute to carbon and water efficiency in the built environment and our internal initiatives contribute further to helping our customers mitigate their environmental impact.

Reflecting the Board's confidence in the year ahead, the underlying strength of the business and the strategic growth opportunities available to us, we have today proposed an interim dividend of 3.25 pence per share.

Our long-term strategy remains to continue to deliver profitable growth through our strategic positions in sustainable building products, while growing our export market. In spite of some potential industry headwinds, we will focus on delivering this to generate sustainable returns for all our stakeholders."

Financial Highlights:

Against a background of the continuing presence of COVID-19 and uncertainty surrounding the likelihood of a Trade Agreement being secured with the UK's exit from the EU, Alumasc's performance in H1 was outstanding.

-    Group revenues were up by 11% to £45.6 million (2019: £41.1 million), with UK revenues 9% ahead and exports (representing 13% of Group revenues) 23% ahead

-    Underlying operating margins were ahead by 7.5 percentage points to 13.6% (2019: 6.1%) reflecting increased sales, improved margins and the benefit of the prior year cost reduction programme in lower overheads

-    Underlying profit before tax was £6.0 million (2019: £2.3 million)

-    EBITDA was £7.4 million (2019: £3.5 million)

-    Statutory profit before tax was £5.5 million (2019: £2.1 million)

-    Underlying earnings per share were 13.4 pence (2019: 5.1 pence) and basic earnings per share 12.2 pence (2019: 5.0 pence)

-    Net bank debt at 31 December was £0.2 million (30 June 2020: £4.3 million), benefitting from strong focus on working capital management

-    Pension deficit at 31 December was £12.8 million (30 June 2020: £19.3 million), benefitting from a strong investment performance

-   An interim dividend of 3.25 pence per share is planned for payment in April 2021, reflecting the Board's confidence in the underlying strength of the business and strategic growth opportunities available to it. This would be an increase from the 2.95 pence per share interim dividend that was planned for April 2020 but which was cancelled in light of the Pandemic's onset.

Operational Highlights:

The Water Management Division, representing 42% of Group revenues, made a profit of £3.5 million (18% operating margin), £1.1 million (44%) ahead of the prior year first half, driven by £1.6 million (9%) volume increases, gross margin improvements and cost savings.

The Building Envelope Division, representing 46% of Group revenues, delivered a record performance, returning to profit of £2.5 million (12% operating margin), £2.8 million ahead of the prior year. This benefitted both from market share gains at Roofing and from a much improved performance at Levolux, where more disciplined opportunity qualification, project management and reduced overheads led to a profit in every month of H1.

Housebuilding Products Division, representing 12% of Group revenues, grew profit by 29% to £1.2 million (22% operating margin), testament to the success of new product introductions, outstanding service and stringent cost controls.  The achievement of 100% On Time In Full delivery performance in H1 was clearly appreciated by its customers.

The Levolux restructuring and turnaround performance created a much improved performance in which it achieved a profit in each month of H1. As anticipated, revenues have fallen in line with our decision to strategically position it as a specialist provider of solar shading, architectural screening and modular balconies, with an increasing bias towards design and supply work. Its performance was largely driven by the growth of export sales to the US in this design and supply category. Improved opportunity qualification, and project management along with higher than budgeted cost reductions also contributed to the turnaround as the business continues to operate with a more professional approach to tender opportunity selection. The new approach is beginning to show a healthy pipeline of targeted projects for the future.

In addition, following a search using consultants we have identified a new Group Finance Director, who will join us on 1 March 2021, and have issued a separate RNS on this today.

Outlook

Underlying profit before tax at 13% of sales demonstrates what Alumasc can achieve in its chosen marketplace. The Group has a strong balance sheet, with a healthy cash position, and a well defined growth path. One mark of our confidence in the future is the resumption of the interim dividend today.

While it is encouraging that an EU Free Trade Agreement has been agreed, we wait to see how frictionless this is in practice and what the impact of the proposed cessation of the Help to Buy and Stamp Duty government initiatives in our Q3 might be. In spite of COVID-19 and its mutations which have put the UK into a third lockdown construction, at least at this stage, is being allowed to continue to operate.  It is hoped that the roll-out of vaccines should result in a more stable situation in our Q4. Nevertheless, despite the above risks and uncertainties, the Group is now in a very strong position to move further forward.

Notes to Editors:

Alumasc is a UK-based supplier of premium building products, systems and solutions. Almost 80% of group sales are driven by building regulations and specifications (architects and structural engineers) because of the performance characteristics offered.

The Group has three business segments with strong positions and brands in their individual markets. The three segments are: Water Management; Building Envelope; and Housebuilding Products.

REVIEW OF INTERIM RESULTS

Overview

Financial Overview

•    Against a background of the continuing presence of COVID-19 and uncertainty surrounding the likelihood of a Trade Agreement being secured with the UK's exit from the EU Alumasc's performance in H1 was outstanding.

-    Group revenues were up by 11% to £45.6 million (2019: £41.1 million), with UK revenues 9% ahead and exports (representing 13% of Group revenues) 23% ahead

-   Gross margins were 36.7% (2019: 29.8%)

-    Underlying operating margins were ahead by 7.5 percentage points to 13.6% (2019: 6.1%) reflecting increased sales, improved margins and the benefit of the prior year cost reduction programme in lower overheads

-    Underlying profit before tax was £6.0 million (2019: £2.3 million)

-    EBITDA was £7.4m (2019: £3.5m)

-    Statutory profit before tax was £5.5 million (2019: £2.1 million)

-    Underlying earnings per share were 13.4 pence (2019: 5.1 pence) and basic earnings per share 12.2 pence (2019: 5.0 pence)

-    Net bank debt at 31 December was £0.2 million (30 June 2020: £4.3 million), benefitting from strong focus on working capital management.

•    An interim dividend of 3.25 pence per share is planned for payment in April 2021, reflecting the Board's confidence in the underlying strength of the business and strategic growth opportunities available to it. This would be an increase from the 2.95 pence per share interim dividend that was planned for April 2020 but which was cancelled in light of the COVID-19 Pandemic's onset.

•    Government grant income of £0.1 million was repaid during the period in relation to Coronavirus Job Retention Scheme income that had been claimed in the previous financial period for employees that have, unfortunately, subsequently been made redundant.

Operational Overview

•    The 11% uplift in our revenues to £45.6 million reflects an increase in our market share won particularly in our Roofing business and Water Management Division. Following a refocus of the customer profile our Housebuilding Products Division's revenue grew slightly, bolstered by the success of several new products across the last twelve months.

•    Export sales grew by 23% to £6.2 million, 13.5% of the total (2019: 12.1%), driven by sales to North America by Levolux.

•    The Water Management Division, representing 42% of Group revenues, made a profit of £3.5 million (18% operating margin), £1.1 million (44%) ahead of the prior year first half, driven by £1.6 million (9%) volume increases, gross margin improvements and cost savings. The division continued to deliver Rain to Drain solutions, enabling customers to benefit from rainwater and drainage products that capture, retain and control the flow of rainwater inside and outside buildings from origination source to water course, sewer or ground.

•    The Building Envelope Division, representing 46% of Group revenues, delivered a record performance, returning to profit of £2.5 million (12% operating margin), £2.8 million ahead of the prior year. This benefitted both from market share gains at Roofing and from the successful execution of the Levolux strategy, where more disciplined project management and reduced overheads led to a profit in every month of H1. The Roofing business has increased focus on a high end specification offer supported by the highest standards on a customer focused service level which meets the client's requirements on providing carbon reducing systems combined with safety in installation; all backed by bona fide long term warranties which combine to increase market share growth across all sectors.

•    Housebuilding Products Division, representing 12% of Group revenues, grew profit by 29% to £1.2 million (22% operating margin), testament to the success of new product introductions, outstanding service and stringent cost controls.  The achievement of 100% On Time In Full delivery performance in H1 was clearly appreciated by its customers.

•    The Levolux restructuring and turnaround performance created a much improved performance in which it achieved a profit in each month of H1. As anticipated, revenues have fallen in line with our decision to strategically position it as a specialist provider of solar shading, architectural screening and modular balconies, with an increasing bias towards design and supply work. Its performance was largely driven by the growth of export sales to the US in this design and supply category. Improved opportunity qualification, and project management along with higher than budgeted cost reductions also contributed to the turnaround as the business continues to operate with a more professional approach to tender opportunity selection. The new approach is beginning to show a healthy pipeline of targeted projects for the future.

Outlook 

•    Underlying profit before tax at 13% of sales demonstrates what Alumasc can achieve in its chosen marketplace. The Group has a strong balance sheet, with a healthy cash position, and a well defined growth path. One mark of our confidence in the future is the resumption of the interim dividend today.

•    While it is encouraging that an EU Free Trade Agreement has been agreed, we wait to see how frictionless this is in practice and what the impact of the proposed cessation of the Help to Buy and Stamp Duty government initiatives in our Q3 might be. In spite of COVID-19 and its mutations which have put the UK into a third lockdown construction, at least at this stage, is being allowed to continue to operate.  It is hoped that the roll-out of vaccines should result in a more stable situation in our Q4.  Nevertheless, despite the above risks and uncertainties, the Group is now in a very strong position to move further forward.

Strategy Update

•    The significant improvement in the Group's fortunes emanates from the execution of the strategy which includes the stated objectives of:

•     Recovery of Levolux's financial performance back into a run rate profit

•     Continuing to simplify, streamline and reduce fixed costs across the Group.

•    Over £1.8 million of costs (versus a target £1.5 million) were taken out of Levolux in the prior year and, when combined with its embryonic focus on supply only, improved project management and developing North America further, this has been successful with the aforementioned profit achieved in every month of H1 and a significant increase of sales into North America.

•    Alongside these short-term areas of focus the Group has continued to progress its long-term strategy to deliver profitable growth through leveraging its strong strategic positions in sustainable building products and to outperform the UK construction market while continuing development of export markets. The Group's 11% revenue increase, including the 23% growth in export revenue, is testament to that.

•    Alumasc is also in a very strong position to benefit from the environment/green/sustainability agenda both in terms of its own actions and through the development of further products to manage energy in buildings, to produce a greener built environment, to take CO² out of the atmosphere and to manage the scarce resource of water following changes in rainwater patterns in the UK.  Many internal initiatives have also been taken to act in an environmentally sustainable manner, including the sourcing of electricity from renewable sources for over 50% of the Group's electricity.

Operational Review

Water Management

Revenue: £19.2 million (2019/20: £17.6 million)

Operating profit: £3.5 million (2019/20: £2.4 million)

Operating margin: 18.3% (2019/20: 13.8%)

Alumasc Water Management Division delivered another strong performance in the first half year, significantly increasing profit and operating margin.  The drivers of the 44% improvement in operating profit to £3.5 million (18.3% operating margin) were the continued control of operating costs including the benefit of the Slotdrain manufacturing move from Dover to the Halstead facility along with improved productivity at the Burton Latimer facility.  This was accompanied by a £1.6 million (9%) revenue increase which will have taken market share with all parts of the Division ahead.  Within this the E-commerce business, Rainclear, delivered a significant, 30%, revenue growth following increased marketing activity and, as has been seen in many parts of the UK economy, greater activity has taken place online.  Gatic and Wade performed very strongly in H1.  Although not registered as revenue yet the first shipment to Chek Lap Kok's Airport Runway 3 will be recognised at the start of Q3.

Alumasc Water Management Solutions performed well with encouraging Alumasc Rainwater, Harmer Drainage and Skyline sales along with a strong Wade and Gatic Slotdrain performance. This followed successful marketing and sales initiatives in this Division.

Building Envelope

Revenue: £21.1 million (2019/20: £18.2 million)

Underlying operating profit/(loss): £2.5 million (2019/20: £(0.3) million)

Underlying operating margin: 12.0% (2019/20: (1.5)%)

Operating profit/(loss): £2.4 million (2019/20: £(0.4) million)

The Building Envelope Division had a significant turnaround in H1 from a small loss in the prior year to a £2.5 million (12% operating margin) operating profit.

Alumasc Roofing had an outstanding first half year and, in particular, benefitted from the further investment in its sales team particularly in areas that had been historically weak for it. It also had increased activity focussed into the refurbishment market.  The COVID-19 impact meant that there was more demand for external work, for instance, on schools rather than on internal refurbishment.  Alumasc benefitted from this while taking market share.  New Build work also held up well during H1.

It was very pleasing to see the result of much hard work at Levolux turning into profit for every month including December. The strategy, to focus on good value added projects in the UK, preferably supply only, and better project management while developing the strong opportunity further in North America is showing encouraging early signs. This is very much the case despite the UK new commercial market being a little challenging.

Specification sales opportunities are growing from the new integrated Building Envelope sales approach with some combined project wins already achieved.

Housebuilding Products

Revenue: £5.3 million (2019/20: £5.3 million)

Underlying operating profit: £1.2 million (2019/20: £0.9 million)

Operating margin: 22.2% (2019/20: 17.3%)

Operating profit: £1.1 million (2019/20: £0.9 million)

Timloc, our Housebuilding Products business, continues to perform well.  It really benefitted from the introduction of several new products across the last year and also from its acclaimed 100% OTIF delivery performance.

Its new products, such as Adapt-Air, InvisiWeep, Meter boxes, Fire-rated Cavity Closer and Rad-Seal, have been very successful. There has been an increased focus on operational efficiency improvements which has led to cost reductions in H1.  Continued investment in new equipment with much improved energy consumption, delivering excellent paybacks, has been a significant contribution to assisting the reduction in the Group's greenhouse gas emissions. In addition, Timloc has now sourced all its energy requirements from renewable sources.

Financial Review

The Group's net cash inflow was £4.1 million in the period, with net bank debt decreasing to £0.2 million at 31 December 2020 compared with £4.3 million at 30 June 2020. Capital expenditure was £1.0 million in the period, in line with depreciation and non-brand amortisation. The Group continues to invest in new plant and machinery to support new product development and to improve operational efficiency and environmental performance, and the expectation is that capital investment will exceed depreciation in the shorter term to continue with these improvements.

The Group's net assets and shareholders' funds increased from £19.8 million at the beginning of the financial year to £27.6 million at 31 December 2020, reflecting the impact of pension scheme actuarial gains and the retained profit after tax in the first half year, offset by the payment of the prior year's final dividend in October. The Group's IAS 19 pension liability was £12.8 million at 31 December 2020, £6.4 million lower than at 30 June 2020, with an increase in the valuation of gross pension liabilities due to reduced gilt yields more than offset by a good investment performance and company deficit reduction contributions. Post tax return on investment was 13.9% (2019: 10.6%) reflecting the higher year on year operating profit.

Board

A new Group Finance Director, Simon Dray, will join the Board on 1 March 2021. After qualifying as a Chartered Accountant Simon moved into industry where he served 6 years at Halma plc becoming Group Financial Controller before joining Low and Bonar plc where he moved from Group Financial Controller to Interim CFO before becoming Director of Group Strategy and M&A. Simon brings with him much experience in running the finance side of a PLC along with significant M&A experience which will assist Alumasc in its next phase of strategy growth.

Paul Hooper, Chief Executive

4 February 2021

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

for the half year to 31 December 2020

Full reconciliations of underlying to statutory profits and earnings per share are provided in notes 4 and 10 respectively.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

at 31 December 2020