Tuesday 7 February 2023

 

The Alumasc Group plc

Interim results

Confidence in delivering full year expectations

 

Alumasc (ALU.L) the sustainable building products, systems and solutions Group today announces results for the six months ended 31 December 2022.

 

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

"This was a strong first half performance, against a comparative that included significant sales to Chek Lap Kok airport in Hong Kong. While the short term market remains uncertain, we enter the second half with encouraging momentum and a record half year order book, which includes the next phase of the Chek Lap Kok project, giving us confidence in the delivery of our expectations for the full year."

 

Financial Overview: continuing operations

·    Group revenues up by 5% to £45.0m (H1 FY22: £42.6m), with organic growth and pricing offsetting significant export orders in the first half of the prior year:

o  Building Envelope delivered a 29% increase in revenues to £18.3m (H1 FY22: £14.2m).

o  Housebuilding Products delivered a 24% increase in revenues to £7.0m (H1 FY22: £5.7m).

o  Water Management delivered revenues of £19.6m (H1 FY22: £22.8m), reflecting significant export project sales in the prior half year.

·    Underlying⁽¹⁾ operating margin⁽²⁾ of 13.4% (H1 FY22: 15.3%):

o  Building Envelope underlying operating margin of 14.1% (H1 FY22: 13.3%).

o  Housebuilding Products underlying operating margin of 23.0% (H1 FY22: 19.3%).

o  Water Management underlying operating margin of 12.8% (H1 FY22: 18.1%), reflecting the prior year divisional mix benefitting from large export orders.

·    Underlying⁽¹⁾ profit before tax of £5.6m (H1 FY22: £6.3m).

·    Reported profit before tax of £5.3m (H1 FY22: £6.2m).

·    Underlying⁽¹⁾ earnings per share of 12.3p (H1 FY22: 14.1p).

·    Dividend per share increased to 3.40p (H1 FY22: 3.35p) reflecting the Board's confidence in the future performance of the business.

 

Outlook

·    Building Envelope and Housebuilding Products had strong first half performances and good momentum going into the second half.

·    Water Management has seen lower first half export volumes, but a stronger performance is expected in H2 as a result of the next phase of the Chek Lap Kok airport project and other overseas project phasing.

·    Whilst market conditions remain uncertain in the near term, the Group continues to demonstrate its ability to outperform underlying markets through innovation and service, as well as manage costs and improve efficiency.

·    As a result, the Board remains confident in the Group achieving its full year expectations.

·    With a clear strategy and the majority of revenues directly linked to sustainability benefits to its customers, the Group remains well positioned to deliver long term market outperformance.

Notes:

⁽¹⁾    A reconciliation of underlying to statutory profit is provided in note 4 to the interim financial statements

⁽²⁾    Underlying operating margin: underlying operating profit as a percentage of sales

 

Enquiries:

The Alumasc Group plc	+44 (0) 1536 383844
Paul Hooper, Chief Executive
Simon Dray, Group Finance Director
Peel Hunt (Broker)
Mike Bell	+44 (0) 20 7418 8831
Ed Allsopp
finnCap (Nominated Adviser)
Julian Blunt, Edward Whiley	+ 44 (0)207 220 0561
Camarco (Financial PR)	alumasc@camarco.co.uk
Ginny Pulbrook	+ 44 (0)203 757 4992
Rosie Driscoll	+ 44 (0)203 757 4981

 

 

REVIEW OF INTERIM RESULTS

Chief Executive's Statement

 

Group sales from continuing operations for the six months ended 31 December 2022 were £45.0m (2021: £42.6m). UK sales were strong, increasing by £6.7m (18%). In particular, the Building Envelope and Housebuilding Products Divisions had strong first half performances driven by very good sales, the result of efforts in taking market share and the launch of new products into existing and adjacent markets.

 

As expected, Export sales in the period were lower, due to the timing of several significant contracts in Asia. The prior period included c.£2.8m of sales of Gatic access and drainage products into a number of projects, notably Chek Lap Kok airport in Hong Kong. This project was successfully completed in the prior year, and the next phase is due to commence in the final quarter of this financial year.  Export sales outside Asia were also lower, due to project timings and in particular to the temporary slowing of sales to the Middle East caused by the FIFA World Cup in Qatar, but are expected to recover in the second half of the year.

 

The results of Levolux, which was sold by the Group on 26 August 2022, have been excluded from continuing operations in the current and prior period, and presented as discontinued operations.

 

Operational Review

 

Water Management

	H1 FY23	H1 FY22
Revenue	£19.6m	£22.8m
Underlying operating profit	£2.5m	£4.1m
Underlying operating margin	12.8%	18.1%
Operating profit	£2.5m	£4.1m

 

Following two successive years of record performance, the Water Management Division fell back predominantly due to the timing of several significant projects, including at Chek Lap Kok airport in Hong Kong, which delivered c.£2.8m of sales to the prior period. Export sales are expected to recover in the second half of the financial year, as the next phase of the Chek Lap Kok development starts.

 

UK sales were strong, with several large projects for Gatic Slotdrain and Access Covers and another very good performance by our Architectural Aluminium business, Skyline, which benefitted from the successful introduction of a number of new products to complement the existing ranges.

 

With its greater exposure to self-build projects, Rainclear had a slower performance than the prior period, due to pressure on household income. However, it mitigated some of these effects through work with regional housebuilders, and the high profile launches of its new canopy and veranda ranges, both of which are showing early promise.

 

Building Envelope

Continuing operations	H1 FY23	H1 FY22*
Revenue	£18.3m	£14.2m
Underlying operating profit	£2.6m	£1.9m
Underlying operating margin	14.1%	13.3%
Operating profit	£2.6m	£1.9m

* The results for the half year to 31 December 2021 have been re-presented to show the Levolux business as a discontinued operation.

 

The Building Envelope Division had a very strong first half year, growing its revenue by 29%, the result of investment in high quality employees and some new products, including a very successful flat to pitch roof system along with the successfully increased promotion of the CO₂ reducing product, Olivine.

 

Previously weaker areas of the UK have improved significantly following the strengthened representation in those areas. A good level of Academy work was won in the year. Some reasonably significant cost increases were successfully passed on.  The Roofing business continues to focus on high end specification offers supported by the highest standards, and a customer focused service level which delivers low carbon systems combined with safety in installation, all supported by long term warranties. This has allowed the business to increase market share in its core areas.

 

Housebuilding Products

	H1 FY23	H1 FY22
Revenue	£7.0m	£5.7m
Underlying operating profit	£1.6m	£1.1m
Underlying operating margin	23.0%	19.3%
Operating profit	£1.4m	£1.1m

 

Timloc, our Housebuilding Products business, had an outstanding first half, growing its revenue by 24%. This was achieved through the extended distribution of its existing products and the continued growth of new products, including the significant launch of its new range of Tile Vents. These have been very well received by the marketplace for their quality and service proposition and take Timloc into a new distribution channel of roofing merchants.

 

Despite the challenges of cost increases, which were successfully passed on, the Housebuilding Products Division managed to increase its operating margin to a record 23.0%. Improved efficiencies, outstanding next day service and rigorous cost controls contributed significantly to this performance.

 

Timloc's continued investment and focus on sustainability, including being the first building products company to become a carbon neutral manufacturer, leaves it well positioned to support the Housebuilders drive to build carbon zero homes. During 2022 Timloc moved all of its company vehicles to fully electric.

 

Strategic Overview

 

The significant improvement in the Group's performance across the last two years emanate from the execution of the Group's strategy which includes the stated objectives of:

 

Short-term:

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

 

Long-term:

·    Drive organic growth across the Group by increasing market share and entering adjacent categories.

·    Continual efficiency improvements.

·    Geographical expansion within selected territories.

·    New product development focused on environmental and sustainable solutions.

·    Bolt-on M&A to expand products and markets.

·    Use of sustainable materials with recycled and fully recyclable materials.

 

We have managed to streamline the business and have removed reasonable levels of cost in the last three years, while continuing to invest in capacity and capability. The Group's full year operating margin from its continuing operations increased from 8.4% in FY20 to 14.9% in FY22, and our medium term target is to increase this to between 15% and 20%.

 

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 18% increase in UK revenues is testament to that.

 

Alumasc is also in a very strong position to benefit from the move towards sustainable construction and green buildings, both in terms of its own actions and through the development of its portfolio of products to manage energy consumption in buildings, to produce a greener built environment, and to manage the scarce resource of water. Many internal initiatives have also been taken to act in an environmentally sustainable manner, including the sourcing of electricity from renewable sources for 100% of the Group's supply. The Group's Net Zero planning is underway.

 

 

Financial Review

 

Discontinued operations

 

The Group sold Levolux Ltd on 26 August 2022, for an initial consideration of £1. Additional consideration, contingent on a subsequent sale of the business, is unlikely to be paid and has not been included in the loss on disposal. Levolux's trading results up to the date of disposal, which were formerly reported within the Building Envelope division, have been presented within discontinued operations, together with the loss arising on disposal. Results for H1 FY22 have been re-presented accordingly.

 

Tax rate and earnings per share

 

The Group's underlying tax rate was 21.2%, above the H1 FY22 rate of 19.4% reflecting the increase of UK corporation tax rate from 19% to 25% which comes into effect from April 2023, part way through our financial year ending 30 June 2023. Underlying earnings per share for the period were 12.3p, 12.8% lower than H1 FY22 (14.1p), reflecting the lower underlying profit before tax and the higher effective tax rate. Basic earnings per share were 7.5p (H1 FY22: 11.2p).

 

Cash flows and net debt

				H1 FY23 £m		H1 FY22 £m
Underlying operating profit from continuing operations				6.0		6.5
Underlying depreciation/amortisation				1.4		1.3
Underlying EBITDA				7.4		7.8
Change in working capital				(1.9)		(2.1)
Deferred VAT paid				-		(0.6)
Operating cash flow from continuing operations				5.5		5.1
Discontinued operation				-		(0.7)
Operating cash flow from continuing and discontinued operations				5.5		4.4
Capital expenditure				(1.4)		(1.4)
Interest				(0.3)		(0.2)
Tax				(0.1)		(1.3)
Pension deficit funding				(1.0)		(1.3)
Lease payments				(0.4)		(0.4)
Dividend payments				(2.4)		(2.2)
Purchase of own shares				(0.1)		(0.4)
Sub total				(0.2)		(2.8)
Cash outflow on Levolux disposal				(1.7)		-
Other non-underlying payments				(0.2)		(0.3)
Net cash flow				(2.1)		(3.1)
Net bank debt at 31 December				6.8	4.1

 

The Group's operating cash inflow was £5.5m (H1 FY22: £4.4m). Operating cash inflow from continuing operations as a percentage of underlying operating profit was 92% (H1 FY22: 78%). Supply chain disruption and cost price inflation eased over the period, allowing partial reversal of the selective inventory investments made over FY22 to maintain customer service. Provided these pressures continue to ease, this trend will continue in H2 FY23. Average trade working capital as a percentage of sales for the half year was 19.4% (H1 FY22: 14.6%).

 

Capital expenditure was £1.4m (H1 FY22: £1.4m), representing 111% of depreciation (H1 FY22: 111%). Key investments were made on capacity/capability upgrades (£0.9m), tooling for new products (£0.4m) and system upgrades (£0.1m).

 

Tax paid of £0.1m included the benefit of the capital allowance super-deduction, which is in place until April 2023.

 

The £1.0m (H1 FY22: £1.3m) of pension fund payments reflects the £1.1m reduction in annual employer contributions, from 1 October 2022, agreed at the latest triennial valuation.

 

The disposal of Levolux, which completed on 26 August 2022, led to a £1.7m cash outflow in the period, which represented transaction costs together with cash held by Levolux on disposal.

 

The net cash outflow for the period was £2.1m (H1 FY22: £3.1m). Net bank debt at December 2022 was £6.8m (December 2021: £4.1m).

 

Pensions and net assets

 

The Group's IAS19 pension deficit increased to £8.4m at December 2022 (June 2022: £2.1m, December 2021: £2.5m), as a result of market volatility reducing the value of the scheme's growth assets. This reduction exceeds the reduction in liabilities over the period, driven by the increase in bond yields, which was partially hedged, as intended, by matching assets. The deficit remains within performance scenarios considered at the 2022 triennial valuation, and the Group continues to expect the lower level of contributions agreed with trustees to bring the scheme to a fully funded position over a reasonable timeframe.

 

Group net assets decreased in the period by £5.0m to £20.7m, as the retained profit was exceeded by the increase in pension deficit, payment of the final dividend for FY22 and the loss on disposal of Levolux. Post tax return on investment (rolling twelve month underlying operating profit from continuing operations divided by capital invested) was 23.1% (December 2022: 19.0%, June 2022: 25.8%).

 

Interim Dividend

 

The Board has decided to declare an increased interim dividend of 3.40p (H1 FY22: 3.35p) per ordinary share, payable on 6 April 2023 to shareholders on the register on 24 February 2023.

 

Outlook

 

The Group has entered the second half with encouraging momentum, and a record half year order book fortified by the £7.0 m+ Chek Lap Kok Airport project.  As a result, the Board remains confident in the Group achieving its full year expectations.

 

Whilst market expectations remain uncertain in the near term, the Group continues to demonstrate its ability to outperform underlying markets, through innovation and service, as well as manage costs and improve efficiency. With the majority of revenues directly linked to sustainability benefits to its customers, the Board remains confident in the significant opportunity available to the Group over the longer term.

 

 

Paul Hooper, Chief Executive

7 February 2023

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

for the half year to 31 December 2022

 

 

		Half year to 31 December 2022			Half year to 31 December 2021 (restated)*			Year to 30 June 2022
		Underlying	Non-underlying	Total	Underlying	Non-underlying	Total	Total
		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Audited)
Continuing operations:	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	5	44,953	-	44,953	42,649	-	42,649	89,381
Cost of sales		(28,449)	-	(28,449)	(26,889)	-	(26,889)	(56,015)
Gross profit		16,504	-	16,504	15,760	-	15,760	33,366
Net operating expenses
Net operating expenses before non-underlying items		(10,499)	-	(10,499)	(9,224)	-	(9,224)	(20,033)
Other non-underlying items	4	-	(229)	(229)	-	(35)	(35)	(634)
Net operating expenses		(10,499)	(229)	(10,728)	(9,224)	(35)	(9,259)	(20,667)
Operating profit	4, 5	6,005	(229)	5,776	6,536	(35)	6,501	12,699
Net finance costs	7	(419)	(24)	(443)	(265)	(67)	(332)	(668)
Profit before taxation		5,586	(253)	5,333	6,271	(102)	6,169	12,031
Tax expense	8	(1,184)	337	(847)	(1,217)	(34)	(1,251)	(2,421)
Profit for the period from continuing operations		4,402	84	4,486	5,054	(136)	4,918	9,610
Discontinued operations:
Loss after taxation for the period from discontinued operations	6	-	(1,795)	(1,795)	(816)	(84)	(900)	(16,657)
Profit/(loss) for the period		4,402	(1,711)	2,691	4,238	(220)	4,018	(7,047)
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Actuarial (loss)/gain on defined benefit pensions, net of tax				(5,404)			616	(25)
Items that are or may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges, net of tax				(27)			83	480
Exchange differences on retranslation of foreign operations				12			10	161
				(15)			93	641
Other comprehensive (loss)/gain for the period, net of tax				(5,419)			709	616
Total comprehensive (loss)/profit for the period, net of tax				(2,728)			4,727	(6,431)
Earnings per share:				Pence			Pence	Pence
Basic earnings per share
-       Continuing operations	11			12.5			13.7	26.8
-       Discontinued operations				(5.0)			(2.5)	(46.5)
	11			7.5			11.2	(19.7)
Diluted earnings per share
-       Continuing operations				12.4			13.5	26.4
-       Discontinued operations				(5.0)			(2.5)	(46.5)
	11			7.4			11.0	(20.1)

 

* The results for the half year to 31 December 2021 have been re-presented to show the Levolux business as a discontinued operation.

 

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

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

at 31 December 2022

 

		31 December	31 December	30 June
		2022 (Unaudited)	2021 (Unaudited)	2022 (Audited)
	Notes	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment - owned assets		12,733	12,368	12,573
Property, plant and equipment - right of use assets		4,444	5,081	4,926
Goodwill		8,526	18,705	8,526
Other intangible assets		2,035	3,152	2,126
Deferred tax assets		2,094	630	529
		29,832	39,936	28,680
Current assets
Inventories		14,376	13,488	13,394
Trade and other receivables		15,462	16,895	18,786
Derivative financial assets		314	-	325
Cash at bank	12	5,962	2,878	8,284
		36,114	33,261	40,789
Total assets		65,946	73,197	69,469
Liabilities
Non-current liabilities
Interest bearing loans and borrowings	12	(12,782)	(6,963)	(13,000)
Lease liability		(3,696)	(4,475)	(4,251)
Employee benefits payable		(8,375)	(2,520)	(2,114)
Provisions		(811)	(1,251)	(1,061)
Deferred tax liabilities		(1,907)	(1,010)	(1,730)
		(27,571)	(16,219)	(22,156)
Current liabilities
Trade and other payables		(15,259)	(16,449)	(19,031)
Lease liability		(881)	(1,145)	(881)
Provisions		(1,033)	(471)	(1,360)
Corporation tax payable		(491)	(419)	(309)
Derivative financial liabilities		-	(165)	-
		(17,664)	(18,649)	(21,581)
Total liabilities		(45,235)	(34,868)	(43,737)
Net assets		20,711	38,329	25,732
Equity
Share capital		4,517	4,517	4,517
Share premium		445	445	445
Capital reserve - own shares		(587)	(435)	(601)
Hedging reserve		236	(134)	263
Foreign currency reserve		228	65	216
Profit and loss account reserve		15,872	33,871	20,892
Total equity		20,711	38,329	25,732