Tuesday 6 February 2024

 

The Alumasc Group plc

Interim results

Encouraging first half, confident of delivering expectations

 

Alumasc (ALU.L) the sustainable building products, systems and solutions Group today announces results for the six months ended 31 December 2023.

 

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

 

"We are very pleased to report an encouraging first half in which we continued to outperform our underlying construction markets. As expected, UK sales were resilient in a challenging environment; and coupled with strong overseas sales, Group revenue and underlying profit before tax grew by 6% and 12% respectively. We have again demonstrated the resilience of our business model with its multi-markets exposure.

 

"We were delighted to complete the strategic acquisition of ARP Group during the period and welcome our new colleagues to the Group. There are exciting synergies and opportunities for cross-selling ahead, which will support the delivery of the Group's growth ambitions.

 

"The Board remains confident in achieving full year expectations, despite the expected continuation of UK demand headwinds and the further delay of a significant export contract in Hong Kong."

Organic growth demonstrates resilience of business model and progress against strategic initiatives

·    Group revenues up by 6.4% to £47.8m (H1 FY23: £45.0m):

o  Strong performance in Water Management, with revenues up 12% to £22.0m.

o  Building Envelope resilient, with revenues of £18.7m (H1 FY23: £18.3m).

o  Housebuilding Products also had a resilient first half, with revenues up slightly to £7.1m.

o  Strong recovery in overseas sales to £5.7m, over twice the level of the prior period.

·    Underlying Group operating margin of 14.1% (H1 FY23: 13.4%):

o  Water Management 16.0% (H1 FY23: 12.8%).

o  Building Envelope 12.8% (H1 FY23: 14.1%).

o  Record underlying operating margin in Housebuilding Products of 24.5% (H1 FY23: 23.0%).

·    Underlying profit before tax grew 12.4% to £6.3m (H1 FY23: £5.6m) as a result of increased volumes, complemented by the management team's focus on price and cost control.

·    Reported profit before tax was £5.6m (H1 FY23: £5.3m).

·    Underlying earnings per share of 13.0p (H1 FY23: 12.3p).

·    Statutory earnings per share (continuing operations) of 11.4p (H1 FY23: 12.5p).

·    Net bank debt at December 2023 was £7.4m (H1 FY2023: £6.8m), after net cash outflow on ARP acquisition of £6.5m:

o  Represents gearing of 0.5x (H1 FY2023: 0.5x).

o  Comfortably within bank covenant of less than 2.5x.

·    Interim dividend per share increased to 3.45p (H1 FY23: 3.40p).

Accelerating growth with the acquisition of ARP Group

·    Acquisition of ARP Group ('ARP') for a maximum cash consideration of £10.0m on a cash and debt free basis completed in December 2023.

·    ARP is a manufacturer and distributor of specialist metal rainwater and architectural aluminium products and will sit within Water Management division.

·    The acquisition strengthens Alumasc's rainwater product offering, brings exciting consolidation synergies and will support delivery of the Group's strategic growth plans.

 

 

Outlook

·    The Group's focus on sustainable building products, coupled with innovation, cost base management and outstanding customer service, will help mitigate the external geopolitical and economic environment, which is expected continue to create uncertainty for our sector for the remainder of the year.

·    With significant funding capacity and a clear, investment-led strategy supporting both organic and acquisitive growth, the Group is focused on delivering outperformance during this period of market volatility.

·    Structural drivers of energy and water management mean the Group remains well positioned to deliver significant long term growth when markets recover.

Enquiries:

The Alumasc Group plc	+44 (0) 1536 383844
Paul Hooper, Chief Executive
Simon Dray, Group Finance Director
Peel Hunt (Broker)
Mike Bell, Ed Allsop	+44 (0) 20 7418 8831
Cavendish Capital Markets Ltd (Nominated Adviser)
Julian Blunt, Edward Whiley	+ 44 (0) 207 220 0500
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: resilient performance enhanced by increased overseas sales

 

We are pleased to report an encouraging Group result for the six months ended 31 December 2023. Revenue from continuing operations was £47.8m (H1 FY23: £45.0m), 6.4% ahead of the prior period. UK sales, 2% below the prior period, were resilient in a challenging market, which was estimated to have declined by over 6%. This was offset, as expected, by a strong first half contribution from overseas sales, which at £5.3m were more than twice the level of the prior period. This was achieved despite further delays in call-offs on a significant project at Chek Lap Kok airport in Hong Kong, announced in November 2022, which is now expected to ship after our June 2024 year end.

 

Underlying profit before tax grew by 12.4% to £6.3m (H1 FY23: £5.6m) as a result of increased sales volumes, complemented by the management team's focus on control of costs and pricing. Reported profit before tax grew by 6% to £5.6m (H1 FY23: £5.3m).

 

After investment in the ARP acquisition of £6.5m, net bank debt at December 2023 was £7.4m (H1 FY23: £6.8m), representing gearing of 0.5x (H1 FY23: 0.5x), comfortably within our bank covenant of less than 2.5x. The Group's underlying operating cash flow was £10.0m, 80% higher than H1 FY23, after a £1.7m inflow from working capital (H1 FY23: £1.9m outflow).

 

The financial and operational performance during the period has provided a good platform, with the Group entering the second half of the year with good momentum and a strong order book. Notwithstanding the current geopolitical and economic uncertainties, the Board remains confident in the Group achieving its full year expectations and has approved an interim dividend per share of 3.45 pence (FY23 interim dividend: 3.40 pence).

 

This performance further demonstrates the resilience of our business model, and was underpinned by progress against our strategic initiatives, positioning the Group well for when markets recover.

 

Acquisition of ARP Group: accelerating organic growth with targeted acquisitions

 

On 25th July 2023, Alumasc announced the proposed acquisition of the entire share capital of ARP Group ("ARP"), a manufacturer and distributor of specialist metal rainwater and architectural aluminium goods, for a maximum cash consideration of £10.0m on a cash and debt free basis. The acquisition completed in December 2023 following its unconditional clearance by the UK Competition and Markets Authority.

 

ARP marks the first acquisition by Alumasc since 2018 and demonstrates the Group's strategy to supplement organic growth through earnings-accretive acquisitions. ARP shares many qualities with Alumasc, including outstanding customer service, and strong relationships with contractors which will complement Alumasc's business model. ARP also broadens the Group's existing product offerings, augments the routes to market and improves the online presence for both businesses.

 

The acquisition aligns with our strategy of accelerating our organic growth with bolt-on acquisitions which complement our existing businesses and broaden our sales offering. Our initial work on ARP's integration has reaffirmed our belief that the acquisition will bring significant synergistic benefits.

 

Strategic Overview

 

The Group's performance during the period reflects further progress on delivering the Group's growth strategy:

 

·    Accelerating sales growth

·    Driving margin improvement

·    Championing sustainable building products

·    Value-enhancing investment

 

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 outperformance versus the UK construction market and its more than doubling of its export revenue in H1 reflects continued strong progress.

 

The Group's strong margins are as a result of high value-add products, tight cost management, and a relentless focus on efficiency. The restructuring of the sales and commercial teams in our Water Management division right-sizes the team for current UK market activity, while simplifying the organisational structure and improving capability and customer service. We continue to identify opportunities to improve our efficiency and will act quickly should conditions require it.

 

Alumasc is also in a very strong position to benefit from the growth in sustainable construction and green buildings, both in terms of its own decarbonisation 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 near-term Net Zero targets have been set, and will be verified with the Science Based Target Initiative later in the year.

 

The Group has continued to invest in value-enhancing growth initiatives, including improving geographical sales coverage in Building Envelope, expanding the overseas sales team in Water Management, and improving new product development capability in Housebuilding Products. The acquisition of ARP Group, which will sit within our Water Management division, strengthens our rainwater product offering, brings exciting consolidation synergies, and will accelerate delivery of our strategic growth ambitions.

 

Operational Review

 

Water Management

	H1 FY24	H1 FY23
Revenue	£22.0m	£19.6m
Underlying operating profit	£3.5m	£2.5m
Underlying operating margin	16.0%	12.8%
Operating profit	£3.2m	£2.5m

 

In H1 FY24 the Water Management division, after a quieter FY23, delivered a very strong performance with revenue ahead by £2.4m (12%). This was augmented by a strong export performance, driven by the recent investments in overseas sales resource and project work at Chek Lap Kok airport in Hong Kong, despite a further delay in call-offs from a £7m order, announced in November 2022, which is now likely to be shipped after our June 2024 year end. Underlying operating profit increased by 40% to £3.5m, and the division achieved an increased 16% operating margin (H1 FY23: 13%).

 

Significant UK orders were delivered to prison and naval projects, and a large data centre, helping to offset lower levels of work on distribution warehouses. Overseas sales benefited from work at a number of airports, mostly significantly at Chek Lap Kok airport, and projects were also won in New Zealand, Saudi Arabia, Ireland and Peru.

 

In the light of the subdued UK demand, we announced in October 2023 the reorganisation of the UK sales and commercial teams. This will deliver annualised savings of £0.8m, while simplifying the management structure and improving capability and customer service.

 

The division finished the half year with a very strong order book, albeit this contains several overseas projects whose financial impact will be after the FY24 year end. Several important projects are, however, expected to support improved UK sales in the second half of the current year.

 

 

Building Envelope

Continuing operations	H1 FY24	H1 FY23
Revenue	£18.7m	£18.3m
Underlying operating profit	£2.4m	£2.6m
Underlying operating margin	12.8%	14.1%
Operating profit	£2.4m	£2.6m

 

The Building Envelope Division grew its revenue by 2%, despite a challenging marketplace.  New products continued to be an important contributor. The business continued its development of carbon-reducing specified systems and in Green and Blue Roofing areas whilst focusing on Bio Solar techniques and the continued success of the CO₂ reducing product, Olivine. The portfolio was also supplemented by the recently launched metal profiled roof and abutment system and further enhancement of the liquid roofing systems.

 

The prior year's successful strengthening of areas with previously limited sales representation, whilst expanding the division's internal trainee programme, continues to contribute to the overall performance.  A feature of the first half year has been the winning of larger multi-site refurbishment projects, as a result of Alumasc's service reputation.  This provides a stronger platform of ongoing work and helps underpin future performance.

 

Despite the challenging market conditions, the Building Envelope Division's underlying operating profit was only marginally impacted.

 

Housebuilding Products

	H1 FY24	H1 FY23
Revenue	£7.1m	£7.0m
Underlying operating profit	£1.7m	£1.6m
Underlying operating margin	24.5%	23.0%
Operating profit	£1.7m	£1.4m

 

Against a housebuilding market widely reported to have declined by over 17% year-on-year, Timloc, our Housebuilding Products Business, delivered a robust first half year and grew its revenue by 1% to £7.1m.

 

This was partially achieved through the extended distribution of its existing products, where new customers appreciate the industry-leading next day service and low carriage paid order values. In addition, sales were supported by the continued growth of new products even though overall market demand in the housebuilding sector has declined.

 

Inventive Roof Tile Vents and additional Roofline products, launched in the second half of the prior year, continue to take market share as Timloc expands its distribution model to Roofing Merchants.  These products have been particularly well received for their quality and service proposition.  Improved efficiencies, through further investment in automation, energy efficient moulding machines and rigorous cost controls, have all contributed to the division achieving a record first half underlying operating margin of 24.5%, up from 23.0%.

 

Timloc's focus on sustainability, including being the first building products manufacturer to achieve carbon neutral operations (scope 1 and 2), leaves it well positioned to support the housebuilders' drive to build zero carbon homes and meet the current underlying demand for new houses.

 

Financial Review

 

Tax rate and earnings per share (continuing operations)

 

The Group's underlying tax rate was 25.4% (H1 FY23: 21.2%), reflecting the increase in UK Corporation Tax rate from 19% to 25% from April 2023. Underlying earnings per share for the period was 13.0p (H1 FY23: 12.2p); 6% higher than the prior period, but lower than the underlying profit increase due to the higher tax rate. Basic earnings per share were 11.4p (H1 FY23: 12.5p).

 

Acquisition of ARP Group

 

The acquisition of ARP Group completed on 21 December 2023, following its unconditional clearance by the UK Competition and Markets Authority. The initial net cash outflow on acquisition was £6.5m, representing the initial cash and debt free consideration of £8.5m, plus a net debt and working capital adjustment of £0.2m, less £2.2m of net cash held by ARP at completion. A further £1.2m of working capital adjustment, and the first earn out payment of £0.75m, were paid in January 2024. A final earn out payment of £0.75m, due for payment in January 2025, subject to ARP's profit for the year to November 2024, has been accrued in full.

 

Cash flow and net debt

 

£m (continuing operations)	H1 FY24	H1 FY23
Underlying operating profit	6.7	6.0
Depreciation/underlying amortisation	1.5	1.3
Share-based payments	0.1	0.1
Working capital inflow/(outflow)	1.7	(1.9)
Underlying operating cash flow	10.0	5.5
Pension deficit funding	(0.6)	(1.0)
Non-underlying cash flows	(0.5)	(0.2)
Cash generated by operating activities	8.9	4.3
Capital expenditure	(1.5)	(1.4)
Interest	(0.3)	(0.3)
Tax	(1.7)	(0.1)
Lease payments	(0.5)	(0.4)
Purchase of own shares	(0.4)	(0.1)
Dividend payment	(2.5)	(2.4)
Acquisition of ARP Group	(6.5)	-
Disposals	-	(1.7)
Increase in net bank debt	(4.5)	(2.1)

 

£m	H1 FY24	H1 FY23
Net bank debt	7.4	6.8
Lease liabilities	4.8	4.6
Total (IFRS 16) net debt	12.2	11.4

 

The Group's underlying operating cash flow was £10.0m, 80% higher than H1 FY23, after a £1.7m inflow from working capital (H1 FY23: £1.9m outflow). Average trade working capital as a percentage of sales for the half year was 16.7% (H1 FY23: 19.4%), as surplus inventory holdings unwound with the easing of supply chain pressures.

 

After pension deficit funding of £0.6m (H1 FY23: £1.0m), reduced in line with the agreement with trustees, and non-underlying cash flows of £0.5m (H1 FY23: £0.2m), cash generated from operating activities was £8.9m (H1 FY23: £4.3m).

 

Capital expenditure of £1.5m (H1 FY23: £1.4m) was 115% (H1 FY23: 111%) of depreciation. Principal investments were in tooling for new products and capacity upgrades at Timloc, our Housebuilding Products business.

 

Tax paid was £1.7m (H1 FY23: £0.1m), reflecting the expiry of the capital allowance super deduction which benefited the prior period.

 

After lease payments of £0.5m (H1 FY23: £0.4m), the payment of the prior year's final dividend of £2.5m (H1 FY23 £2.4m), own share purchases to fulfil the vesting of employee share options of £0.4m (H1 FY23: £0.1m), the initial net consideration for ARP of £6.5m (H1 FY23: £nil), and the cash outflow on disposal of Levolux of £nil (H1 FY23 : £1.7m), the increase in net bank debt in the half year was £4.5m (H1 HY23: £2.1m).

 

Net bank debt at December 2023 was £7.4m (H1 FY23: £6.8m), representing gearing of 0.5x (H1 FY23: 0.5x), comfortably within our bank covenant of less than 2.5x.

 

Pension deficit and net assets

 

The Group's IAS 19 pension deficit was £4.8m (H1 FY23: £8.4m), an increase of £0.5m since June 2023. An increase in the value of scheme liabilities, on lower bond yields, was only partially offset by company contributions and higher asset values. The Group continues to expect the current level of contributions, and a recovery in asset values, to bring the scheme to a low dependency position within a reasonable timeframe.

 

Group net assets increased to £26.3m (H1 FY23: £20.7m, FY23: £25.7m).

 

Interim Dividend

 

The Board declared an increased interim dividend of 3.45p (H1 FY23: 3.40p) per ordinary share, payable on 8 April 2024 to shareholders on the register on 23 February 2024.

 

Outlook

 

The Board does not expect the current demand headwinds to alleviate significantly in the second half of the year. However Alumasc has a proven track record of outperforming its UK construction end markets through product innovation, experienced management teams and its focus on best in class service and operational excellence. The Board therefore remains confident in the Group achieving its full year expectations.

 

Alumasc is well positioned, as a producer of innovative products which meet the growing demand for environmental solutions and sustainable products, to benefit when markets recover and to deliver long-term significant shareholder value.

 

 

Paul Hooper, Chief Executive

6 February 2024

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

for the half year to 31 December 2023

 

 

		Half year to 31 December 2023			Half year to 31 December 2022			Year to 30 June 2023
		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	47,812	-	47,812	44,953	-	44,953	89,135
Cost of sales		(29,864)	-	(29,864)	(28,449)	-	(28,449)	(56,406)
Gross profit		17,948	-	17,948	16,504	-	16,504	32,729
Net operating expenses
Net operating expenses before non-underlying items		(11,211)	-	(11,211)	(10,499)	-	(10,499)	(20,620)
Non-underlying items	4	-	(584)	(584)	-	(229)	(229)	(585)
Net operating expenses		(11,211)	(584)	(11,795)	(10,499)	(229)	(10,728)	(21,205)
Operating profit	4, 5	6,737	(584)	6,153	6,005	(229)	5,776	11,524
Net finance costs	7	(460)	(104)	(564)	(419)	(24)	(443)	(985)
Profit before taxation		6,277	(688)	5,589	5,586	(253)	5,333	10,539
Tax expense	8	(1,594)	109	(1,485)	(1,184)	337	(847)	(2,186)
Profit for the period from continuing operations		4,683	(579)	4,104	4,402	84	4,486	8,353
Discontinued operations:
Loss after taxation for the period from discontinued operations	6	-	-	-	-	(1,795)	(1,795)	(1,750)
Profit/(loss) for the period		4,683	(579)	4,104	4,402	(1,711)	2,691	6,603
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Actuarial loss on defined benefit pensions, net of tax				(739)			(5,404)	(2,796)
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				(46)			(27)	(285)
Exchange differences on retranslation of foreign operations				(31)			12	(18)
				(77)			(15)	(303)
Other comprehensive loss for the period, net of tax				(816)			(5,419)	(3,099)
Total comprehensive profit/(loss) for the period, net of tax				3,288			(2,728)	3,504
Earnings per share:				Pence			Pence	Pence
Basic earnings per share
-       Continuing operations	11			11.4			12.5	23.3
-       Discontinued operations				-			(5.0)	(4.9)
	11			11.4			7.5	18.4
Diluted earnings per share
-       Continuing operations				11.3			12.4	23.1
-       Discontinued operations				-			(5.0)	(4.9)
	11			11.3			7.4	18.2

 

 

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 2023

 

		31 December	31 December	30 June
		2023 (Unaudited)	2022 (Unaudited)	2023 (Audited)
	Notes	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment - owned assets		14,584	12,733	13,227
Property, plant and equipment - right of use assets		4,517	4,444	5,007
Goodwill	14	13,493	8,526	8,526
Other intangible assets		5,292	2,035	2,073
Deferred tax assets		1,203	2,094	1,081
		39,089	29,832	29,914
Current assets
Inventories		12,952	14,376	11,561
Trade and other receivables		18,350	15,462	20,748
Derivative financial assets		-	314	-
Cash at bank	12	7,186	5,962	5,995
		38,488	36,114	38,304
Total assets		77,577	65,946	68,218
Liabilities
Non-current liabilities
Interest bearing loans and borrowings	12	(14,556)	(12,782)	(8,848)
Lease liability	12	(3,979)	(3,696)	(4,366)
Employee benefits payable		(4,812)	(8,375)	(4,323)
Provisions		(1,503)	(811)	(1,185)
Deferred tax liabilities		(2,865)	(1,907)	(1,614)
		(27,715)	(27,571)	(20,336)
Current liabilities
Trade and other payables		(20,854)	(15,259)	(19,120)
Lease liability	12	(836)	(881)	(868)
Provisions		(776)	(1,033)	(612)
Corporation tax payable		(1,005)	(491)	(1,505)
Derivative financial liabilities		(91)	-	(30)
		(23,562)	(17,664)	(22,135)
Total liabilities		(51,277)	(45,235)	(42,471)
Net assets		26,300	20,711	25,747
Equity
Share capital		4,517	4,517	4,517
Share premium		445	445	445
Capital reserve - own shares		(378)	(587)	(577)
Hedging reserve		(68)	236	(22)
Foreign currency reserve		167	228	198
Profit and loss account reserve		21,617	15,872	21,186
Total equity		26,300	20,711	25,747