Preliminary Results

RNS Number : 4917U

Dewhurst PLC

03 December 2013

 

Dewhurst PLC

("Dewhurst" or the "Group")

Preliminary Results for the year ended 30 September 2013

Chairman's Statement

Results

Although we had predicted it, it is still disappointing to report a fall in sales and profits. We did expect that the deterioration in customer confidence we detected during 2012 would impact our performance this year.  We also warned that keypad sales would fall back after an exceptional 2012.   Sales were down 15% to £43.7 million (2012: £51.6 million), operating profit before goodwill write down and amortisation of acquired intangibles was £4.1 million (2012: £5.6 million before exceptional gain on property) and profit before tax was £2.6 million (2012: £5.4 million) down 52%.

The primary cause of the fall in sales was the reduction in keypad sales back to normal levels.  There was also a significant drop in transport division sales in the UK and a smaller fall in UK lift business sales.  In Australia and Asia the fall in sales from continuing businesses was more than offset by the part year contribution from our acquisition in this market.  Apart from the acquisition, the other area of growth has been North America, where performance has improved significantly in the last year.

It has been a difficult year in a number of respects.  But the Group's employees have shown great flexibility and resilience to help us work our way through this period. I would like to thank them for their contribution to what we have achieved this year.

Acquisition and Reorganisation

In February this year we acquired a 70% controlling shareholding in Dual Engraving (Dual) based in Perth, Western Australia (WA). Dual provides fixtures, cab interiors and metalwork to the lift industry in WA.  Dual complements our existing companies in Australia and allows us to provide improved support for customers across this vast continent.

Action has been taken to restructure the transport division in the UK and the Australian lift fixture businesses to improve performance and operational control.

Dividends

We believe it is prudent to retain a cash reserve for the business and do not intend to change that view.  However, one of our objectives is to increase the cash returned to shareholders.  Our dividend cover has historically been very conservative, but we have consumed cash on a number of planned investment projects in recent years and the continuing support of the pension scheme.  With our current business position we believe we can raise the dividend and still remain relatively conservative.  As a result it is our intention to increase the dividend to a level where on average the maximum cover is 4 times earnings per share.  Clearly this is subject to the cash position remaining healthy and any exceptional items. In view of these intentions, we are proposing to increase the dividend this year despite the disappointing performance.

Outlook

The transport division continues to struggle with weak demand caused by the cutbacks in public sector spending in the UK and we do not expect this to change in the short term.

However there are currently definite signs of recovery in some of our major markets, although there is uncertainty about the sustainability of the trend.  The UK economy is growing again and North America continues to improve.  Conversely Australia has fallen back in the majority of our markets on the East Coast.  At the moment this is expected to be a relatively short term dip, but we do feel it will last until at least the half year point.

Overall, as long as the recovery maintains its momentum, we feel there is a good opportunity to achieve improved performance in the coming year.

Richard Dewhurst

Chairman

Strategic Report

Business Review

The company and Group principal activity, in the course of the year, continued to be the manufacture of electrical components and control equipment for industrial and commercial capital goods. The Group maintained its position as a specialist supplier of equipment to lift, transport and keypad sectors. A business review of the Group's operations is dealt with below in operating highlights and in the Chairman's Statement.

Principal Risks and Uncertainties

The board is informed at every meeting of the principal risks and uncertainties across the Group which could have a material impact on the Group's long and short term performance and action plans to mitigate these risks.  The Group's risk assessment process is designed to identify, manage and mitigate business risks. Business and operational risks are referred to in the business review. Financial risks, being currency and credit risk are covered within the financial review.

Key Performance Indictors

The directors believe that the key financial performance indicators relevant to the Group are earnings per share, adjusted operating profit, profit before tax and return on equity which are stated in the five year review. The key non-financial performance indicators relevant to the Group are quality measures and on-time deliveries to our customers.

Operating Highlights

It has been a very tough year for most operating companies within the Group.   After an excellent year last year, we were aware that this year would be much more difficult.

All employees though have worked hard during this period and have remained motivated through some difficult times.   We have continued to improve our processes, reduce our lead times, focus on our on time deliveries and work on quality improvements.

These advances, coupled with a good number of excellent new products to sell and the feeling that we are selling them into improving markets, ensures that we enter the new financial year in a stronger position.

UNITED KINGDOM

Dewhurst UK Manufacturing

After the excitement of last year with our move to our new premises in Feltham and sales well above forecast, this year was a return to reality. We got on with the hard graft of doing business in the current difficult business environment.  Early in the year and having operated for over 12 months in the new facility, we recruited a Continuous Improvement Manager. She has really helped us to be more efficient in our new premises in Feltham, making some good improvements, particularly in the way we manufacture and assemble our fixtures.   We have also embarked on a rigorous 5S programme throughout the factory and offices to Sort, Set in Order and Standardise our processes and procedures. This has ensured that we continue to work in a professional environment.  

Over the last twelve months we have had two significant exhibitions, LiftEx held in London, in May and Interlift, held in Germany in October.   When it comes to product development, exhibitions are a good incentive for focusing attention.   This year we have continued to develop our Hall Lantern products and ancillary products for Destination Control.   We have launched a new range of UniBlade Lanterns, which are quite striking in their design and easy to install.   UniBlade is available as both a Hall Lantern for regular lift installations or as a Lift Identifier for Destination Control Installations.    As well as these products we have broadened our range of conventional Hall Lanterns, created a new vandal resistant surface mount faceplate range and made numerous minor improvements to other existing products.

As previously indicated, the last financial year was tough for Dewhurst UK Manufacturing and sales were down significantly from the previous year.   We had however anticipated this to a certain extent and had already taken significant steps to reduce our overheads, with the result that despite relatively low sales our overall financial performance showed an encouraging improvement.

Indications are that the UK Lift Industry, in line with the UK economy as a whole, is improving and we will be working to capitalise on this.

Thames Valley Controls

New Product Development was also one of the key activities for TVC during the year.   Although they do not exhibit overseas, LiftEx was an important opportunity to showcase new developments at the company and TVC made the most of it.

At LiftEx we previewed the successor to our current Ethos microprocessor, Ethos 2.   This new processor features a highly intuitive touch screen, which will make both system set up and troubleshooting significantly easier for lift engineers.   We are looking for Ethos 2 to come on line during the current financial year.   We also launched an upgraded version of our monitoring system platform CMS Anywhere.  The look of the screens has been changed to a more modern tabulated view which allows easy viewing over a wider range of platforms such as tablets and mobile devices. There is also a new MAPS facility that enables users to pinpoint the exact location of their lift or escalator and to show its current status. This is particularly useful if a person is trapped in a lift or if a critical escalator has malfunctioned.

Our flagship product, Navigator, the Ethos Hall Call Destination System, continues to gain traction in the market and 2013 saw more systems being installed in major modernisation projects in London.

Although the UK market has been difficult, TVC has fared better than Dewhurst UK in terms of orders received, so we start the year with a stronger order book than last year.

TMP

After last year's solid sales growth, TMP was not immune this year to the difficult environment in the UK and we suffered a reduction in sales.   The market continues to be tough and there are some potential code changes which will create challenges but also opportunities for TMP.

We have continued to invest heavily in new product development.   We launched our Apollo range of sign lights in the first half of the year and we are now promoting these with Local Authorities.   Engineering focus is now back on our core range of products and a new range of bollards is due to be launched early in this financial year.

In mid-2013 John Bailey resigned as Managing Director of TMP to pursue other interests, although he remains a non-executive Director of Dewhurst plc.   We have not yet found a suitable successor but we are looking to fill the position shortly.

Cortest ceased trading during the year.

EUROPE

Dewhurst Hungary

Sales in Hungary last year were exceptional. We knew that revenues would fall this year and sales in the year were in line with our expectations.

There continues to be pressure on margins and the team in Hungary have worked hard to implement efficiency changes which have been reasonably effective.

A great deal of attention is paid to product quality and this year we installed a test laboratory at the plant in Hungary. This allows us to run product validation tests on a continual basis on random units taken straight from the production line.  The strong focus on quality has allowed us to achieve a significant reduction in rejects, measured in parts per million by our key customer for the keypad parts.  We cannot achieve this alone and our team in Hungary work closely with our supply base to ensure that we have a robust supply chain.

Over the years we have suffered significant foreign exchange gains and losses in Hungary.   We have now changed our base currency from the Forint to the pound and we are confident that this will significantly reduce the impact of foreign exchange on the reported results.

NORTH AMERICA

Dupar Controls

Dupar Controls have performed well over the last few years, despite the North American market being quite difficult.   This year however the market has improved and Dupar Controls benefitted from that improvement.

The growth in the first half of the year was significant enough to create challenges.   The team at Dupar Controls were quick to respond and boosted their capacity to ensure that customer expectations continued to be met.   It is critical in all our businesses that we achieve a high level of on time delivery.   It is also important that high levels of quality and accuracy are maintained, so when the customer receives his goods they meet expectations.   Dupar Controls and all our other fixtures businesses focus closely on these aspects and we are confident that this strategy is helping us to increase our market share. 

Much of the product development carried out at Dewhurst UK, is tailored specifically to the requirements of our key export markets, such as North America.  Both Dupar Controls and Elevator Research and Manufacturing will be promoting these products heavily during the coming year.

Elevator Research & Manufacturing (ERM)

We made a large number of changes in the business last year, dropping product lines that were no longer profitable. We also relocated the fixture business into a more suitable building and introduced some lean processes into the operation.

The results have been encouraging and the business is now on a much sounder footing.    There is however a lot more work to be done to bring the operation up to the standard of other fixture businesses around the Group.   This will take time to achieve but it should allow ERM to thrive.

AUSTRALASIA & ASIA

Australian Lift Components (ALC)

It appeared that the Australian market was immune to the downturn that had affected most other parts of the world. Inevitably this could not last forever and during 2013 the business environment turned and became much more difficult.   ALC sales dropped significantly as did those of JAS and it became clear that we should merge these two businesses to ensure that we made synergistic savings as the market softened.

In 2013 we therefore incorporated JAS into ALC and we now operate with one lift Fixture Company in New South Wales. This is in reality a more efficient way to operate, has simplified the management structure and will allow us to provide a higher and more consistent level of service to our customers.

Although the market has remained difficult through 2013, there are signs that following the election the economy is beginning to pick up.

Lift Material

Lift Material obviously experienced the same market uncertainty as ALC.   We did have our first full year of sales of the Escalator Handrail Company (EHC) products and we were confident that this would be a strong product line for us which would generate significant sales.   The pickup was not quite as fast as we had hoped but nevertheless, we generated good sales of EHC products which reduced the overall impact of the market turndown.

The EHC product line takes up a considerable amount of space and it was clear in early 2013 that we had outgrown our Sydney warehouse. We have therefore moved into larger premises, still conveniently located near all the lift companies and with plenty of office and warehouse space to allow us to expand over the medium term.

The interest in EHC products continues to build and we are still very confident that this will be a key product line for us over the coming years.  

Dual Engraving

We acquired Dual Engraving in February 2013 and revenues have been generally in line with expectations.

Dual Engraving specialise in the design and installation of Lift Car interiors including the fixtures.   They have worked on a large number of the most prestigious new buildings in Perth and have designed some quite spectacular interiors.

We have often looked at Car Interiors as a natural addition to our range and with the acquisition of Dual we have access to the expertise required to carry out this work.

It is true to say that Dual's fortunes are very much linked to the fortunes of Perth.  We can look to broaden their reach but certainly in the short term they are dependent on growth in Perth.  The city does remain buoyant and we are confident that Dual will contribute significantly to the Group over the coming years.

David Dewhurst

Group Managing Director

Financial Review

Trading results

Dewhurst had a very difficult trading year with sales down on last year, primarily affected by the decline in transport and keypad sales. The UK transport sector continued to face a very tough and challenging year with sales to local authorities down significantly in bollards and non-destructive testing.  As a result TMP has been restructured to reduce its operational costs and Cortest has ceased operation and will be wound up. Last year's keypad sales were aided by £3.1 million of additional pass through revenue, but even allowing for the loss of these additional sales, the keypad decline was still double digit. However this was anticipated, because we recognised 2012 was an exceptional year for keypad sales due to a customer building up stock.  The lift sector maintained overall sales of £31.5 million with the drop in UK and Australian fixture and UK controller sales being partially offset by strong fixture and cab sales in North America along with the additional 8 months sales from the new lift division acquisition Dual Engraving. Overall revenue decreased by 15.2% from £51.6 million to £43.7 million whilst operating profit before goodwill write down, acquired intangible amortisation and the gain on the property disposal fell by 27.1% from £5.6 million to £4.1 million.

Goodwill write down

TMP's poor local sales and performance again meant that the company fell short of its original purchase valuation and so required a further and final goodwill write down. In Sydney we had two companies providing lift fixtures to the local market.  We felt that this was a confusion in the market and also we believed operational efficiency and control could be enhanced by merging JAS Engineering (JAS) into Australian Lift Components.  With this merger the goodwill at JAS could not really be separately identified, so it has been decided to fully write this goodwill down.   More information can be found in note 10 to the accounts.

Strong cash position

Despite a poor operating performance and pension contributions of £1.4 million, cash flow was still good with £3.8 million of cash being generated from operations. The Group spent £1.7 million, as planned, acquiring 70% of Dual Engraving as well as £1 million on an enhanced dividend but still ended the year at a strong £10.5 million.

We started and finished the year with no borrowing or bank overdraft facility.

Pension scheme deficit

A more detailed analysis of the retirement benefit fund assets and liabilities movements is reported in note 22 under IAS 19, but this year has seen the scheme deficit decrease by £1.4 million from £11.9 million to £10.5 million. The scheme was closed to future accrual in 2010 and the company has since paid in £1.4 million annually to reduce the deficit. As previously reported the movement in the liability discount rate, which is  used to calculate the net present value of future liabilities and is traditionally based upon the 15 year AA bond yields, tends to have the biggest impact on the scheme deficit and this year is no different. With a move back up from 4% to 4.3% this one assumption change had approximately a £2.0 million positive impact on the scheme position.  We were also assisted this year by improved investment returns.  This has meant that, in total over the past 3 years, investment returns have performed broadly as expected.

The Group will continue to pay a fixed sum of £1.4 million annually to reduce the defined benefit pension scheme deficit and all recommendations made by the scheme's actuary to eliminate the scheme deficit within an agreed timeframe have been fully implemented.

Treasury policy

The Group seeks to reduce or eliminate financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The policies and procedures operated are regularly reviewed and approved by the board. By varying the duration of its fixed and floating cash deposits, the Group maximises the return on interest earned.

With over three quarters of profit before tax earned and held in foreign currencies the Group continues to hedge internally where possible and to consider the need to use derivatives in the form of foreign exchange contracts to manage its currency risk, as reported in note 25. The Group for several years has been particularly aware of the translational currency risk resulting from Dewhurst (Hungary) kft's functional currency being Sterling, yet its local reporting currency being Hungarian Forints. As a result  from 1 October 2013 Dewhurst (Hungary) kft's local reporting currency has been switched to Sterling to reduce the impact of currency risk.

Dividends

Dividends are accounted for when paid or approved by shareholders, and not when proposed, therefore the proposed final dividend for 2013 has not been accrued at the balance sheet date. The total dividend for 2013 of 8.00p per share is 14% up on 2012 (before last year's 5p special dividend) and is covered 1.9 times by earnings. Total equity improved from £21.6 million to £21.9 million.

There was no change in the number of allotted shares during the year.

Jared Sinclair

Finance Director

For further details please contact:

Dewhurst Plc	Tel: [phone]
Richard Dewhurst, Chairman Jared Sinclair, Finance Director
Cantor Fitzgerald Europe Ltd (Nominated Adviser)	Tel: [phone]
Rick Thompson / David Foreman (Corporate Finance)
Paul Jewell (Corporate Broking)

Consolidated income statement

For the year ended 30 September 2013
						2013		2012
Continuing operations						£(000)		£(000)
Revenue						43,698		51,555
Operating costs						(41,104)		(45,895)
Adjusted operating profit (*)						4,084		5,605
Goodwill write down						(1,266)		(3,889)
Amortisation of acquired intangibles						(224)		-
Gain on disposal of property						-		3,944
Operating profit						2,594		5,660
Finance income						100		124
Finance costs						(99)		(342)
Profit before taxation						2,595		5,442
Taxation						(1,307)		(1,688)
Profit for the financial year						1,288		3,754
Attributable to:
Equity shareholders of the company						1,336		3,786
Non-controlling interests						(48)		(32)
						1,288		3,754
Basic and diluted earnings per share							15.70p		44.48p

* Operating profit before goodwill write down, amortisation of acquired intangibles and gain on property disposal

Consolidated statement of recognised income and expense

				2013	2012
				£(000)	£(000)
Net income/(expense) recognised directly in equity:
Actuarial gains/(losses) on the defined benefit pension scheme				68	(3,619)
Exchange differences on translation of foreign operations				(947)	49
Tax on items taken directly to equity				184	821
Net income/(expense) recognised directly in equity in the year				(695)	(2,749)
Profit for the financial year				1,288	3,754
Total recognised income and expense for the year				593	1,005
Attributable to:
Equity shareholders of the company				717	1,004
Non-controlling interests				(124)	1
				593	1,005

Consolidated balance sheet

At 30 September 2013
				2013	2012
				£(000)	£(000)
Non-current assets
Goodwill				3,173	3,555
Other intangibles				836	125
Property, plant and equipment				9,240	9,669
Deferred tax asset				1,709	2,037
				14,958	15,386
Current assets
Inventories				4,557	4,852
Trade and other receivables				8,556	8,421
Current tax assets				20	-
Cash and cash equivalents				10,506	11,101
				23,639	24,374
Total assets				38,597	39,760
Current liabilities
Trade and other payables				5,445	5,583
Current tax liabilities				-	35
Short-term provisions				752	722
				6,197	6,340
Non-current liabilities
Retirement benefit obligation				10,530	11,856
Total liabilities				16,727	18,196
Net assets				21,870	21,564
Equity
Share capital				851	851
Share premium account				157	157
Capital redemption reserve				286	286
Translation reserve				1,425	2,097
Retained earnings				18,540	18,173
Total attributable to equity shareholders of the company				21,259	21,564
Non-controlling interests				611	-
Total equity				21,870	21,564

The financial statements were approved by the board of directors and authorised for issue on 2 December 2013 and were signed on its behalf by:

Richard Dewhurst  Chairman

Jared Sinclair  Finance Director

Company Registration Number: 160314

Consolidated cash flow statement

For the year ended 30 September 2013
				2013 £(000)	2012 £(000)
Cash flows from operating activities
Operating profit				2,594	5,660
Goodwill write down				1,266	3,889
Depreciation and amortisation				1,198	875
Additional contributions to pension scheme				(1,356)	(1,399)
Exchange adjustments				35	(155)
(Profit)/loss on disposal of property, plant and equipment				75	(3,964)
				3,812	4,906
(Increase)/decrease in inventories				415	(583)
(Increase)/decrease in trade and other receivables				(135)	(27)
Increase/(decrease) in trade and other payables				(308)	361
Increase/(decrease) in provisions				30	247
Cash generated from operations				3,814	4,904
Interest paid				(1)	(5)
Tax paid				(869)	(889)
Net cash from operating activities				2,944	4,010
Cash flows from investing activities
Acquisition of subsidiary undertakings				-	(585)
Acquisition of business and assets				(1,716)	-
Proceeds from sale of property, plant and equipment				22	4,588
Purchase of property, plant and equipment				(587)	(1,374)
Development costs capitalised				(112)	(104)
Interest received				100	124
Net cash generated from/(used in) investing activities				(2,293)	2,649
Cash flows from financing activities
Dividends paid				(1,023)	(579)
Net cash used in financing activities				(1,023)	(579)
Net increase/(decrease) in cash and cash equivalents				(372)	6,080
Cash and cash equivalents at beginning of year				11,101	5,009
Exchange adjustments on cash and cash equivalents				(223)	12
Cash and cash equivalents at end of year				10,506	11,101

 

Notes

 

1. AGM, results and dividends

The trading profit for the year, after taxation, amounted to £1.3 million (2012: £3.8 million).

A final dividend on the Ordinary and 'A' non-voting ordinary shares of 5.66p per share (2012: 4.68p plus 5.00p special) for the financial year ended 30 September 2013 will be proposed at the Annual General Meeting (AGM) to be held on 4 February 2014. If approved, this dividend will be paid on 20 February 2014 to members on the register at 17 January 2014.

An interim dividend of 2.34p per share (2012: 2.34p) was paid on 27 August 2013.

 

2. Earnings per share and dividend per share

	2013	2012
Weighted average number of shares	No.	No.
For basic and diluted earnings per share	8,511,398	8,511,398

The calculation of basic and diluted earnings per share is based on the profit for the financial year of £1,336,093 and on 8,511,398 Ordinary 10p and 'A' non-voting ordinary 10p shares, being the weighted average number of shares in issue throughout the financial year.

	2013	2012
Paid dividends per 10p ordinary share	£(000)	£(000)
2012 final paid of 9.68p (2011: 4.46p)	(824)	(380)
2013 interim paid of 2.34p (2012: 2.34p)	(199)	(199)

The final proposed dividend is based on 3,309,200 Ordinary 10p shares and 5,202,198 'A' non-voting ordinary 10p shares, being the latest number of shares in issue.  The directors are proposing a final dividend of 5.66p (2012: 9.68p which included a 5p special dividend) per share, totalling £482k (2012: £824k).  This dividend has not been accrued at the balance sheet date.

3. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2013 or 2012. Statutory accounts for 2012, have been delivered to the Registrar of Companies. The statutory accounts for 2013 which are prepared under IFRS as adopted by the EU will be delivered to the Registrar of Companies following the company's annual general meeting. 

The preliminary statement of results has been reviewed by and agreed with the Company's auditor, Chantrey Vellacott DFK LLP, who have indicated that they will be giving an unqualified opinion in their report on the statutory financial statements for 2013. The auditor has also reported on the 2012 accounts. Their report was unqualified, did not include references to any matters to which the auditor drew attention to by way of emphasis without qualifying the opinion and did not contain a statement under section 498 of the Companies Act 2006.

Dewhurst plc has prepared its consolidated and company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) from 1 October 2005.  The group and company financial statements have been prepared in accordance with those parts of the Companies Act 2006 that are applicable to companies adopting IFRS. The company is registered and incorporated in the United Kingdom; and quoted on AIM.

It is expected that the audited Report and Accounts for the year ended 30 September 2013 will be sent to shareholders and will also be available on the Company's website www.dewhurst.co.uk  on 20 December 2013.

 

END

 

 

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