Tuesday 8 February 2022

The Alumasc Group plc

Interim results

On track to deliver Full Year expectations

Alumasc (ALU.L) the sustainable building products, systems and solutions Group today announces results for the six months ended 31 December 2021.

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

"The Alumasc Group reported a solid performance during the first half and is on track to deliver its expectations for the full year. Although there were some headwinds experienced due to Covid-19 driven contract delays and cost inflation across the industry during the period, the business performed well and has good momentum going into the second half.

Alumasc is at the forefront of providing high-quality, low carbon, sustainable products, systems and solutions, the majority of which manage the scarce resources of water and energy and improve quality of life for the owner/occupier in the built environment. Our commitment to sustainable business is evidenced by Timloc, our housebuilding products business, becoming the first building products manufacturer in the UK to be carbon neutral across its operations.

I am therefore delighted that Alumasc's green credentials have been recognised by the award of the London Stock Exchange Green Economy Mark in November 2021 and that we are well on the way to becoming a market leader in the provision of sustainable building products."

Financial Overview: Solid underlying performance

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

⁽¹⁾  Underlying operating margin: Underlying operating profit as a percentage of revenue.

⁽²⁾  EBITDA: Underlying operating profit before interest, tax, depreciation and amortisation.

·    Group revenues of £46.3m, were 1.6% (£0.7m) ahead of H1 FY21 (£45.6m, which benefited from some £2.5m of business delayed from FY20 by Covid-19). Excluding this, sales growth was 7.5%.

·    Export sales grew by 41% to £8.7 million and represented 19% of total Group revenue (H1 FY21: 13%).

·    The strength of our brand positioning and customer relationships allowed the successful pass-through of input cost inflation. As a result, gross margin was only slightly diluted at 34.6% (H1 FY21: 36.7%).

·    Underlying operating margin remained strong at 11.9% (H1 FY21: 13.6%), with statutory operating margin of 11.7% (H1 FY21: 12.9%), after absorbing the lower gross margin as well as the resumption of business development costs which had been curtailed by the Covid-19 restrictions. Structural cost savings of £3.1m p.a., achieved over the previous two years, remain.

·    The Group is selectively investing in opportunities to accelerate growth.

·    Underlying profit before tax was £5.3m (H1 FY21: £6.0m); with statutory profit before tax of £5.1m (H1 FY21: £5.5m).

·    Net bank debt at 31 December was £4.1m (31 December 2020: £0.2m net bank debt). During the period the Group repaid £0.8m of VAT and pension liabilities deferred from FY20 under the Group's Covid-19 cash conservation measures. In addition, the Group actively increased its stock holdings to maintain customer service and mitigate price increases, in response to the global supply chain challenges and raw material cost inflation.

·    The defined benefit pension scheme deficit was further reduced during the first half to £2.5m (30 June 2021: £4.6m), mainly as a result of deficit reduction payments and asset performance.

·    The Board plans to pay an interim dividend of 3.35p per share in April 2022. This represents an increase of 3.1% on the previous interim dividend, and reflects the encouraging first half performance and Board's confidence in the strength of the Group's strategy and its future prospects.

Divisional Overview

·    Water Management Division made a record profit of £4.1m, 17.6% ahead of H1 FY21. Revenues were 18.9% ahead, with strong export and online sales growth. Operating margins remained in line with the prior period at 18%, driven by volume growth and cost savings.

·    The Building Envelope Division reported a reduced revenue and delivered a profit of £0.9m (5% operating margin), £1.6m below H1 FY21. Alumasc Roofing performed well against a prior half year which included significant business delayed from FY20. Levolux's performance was affected by Covid-19 in its core UK and USA markets, resulting in delays in orders, and it reported a loss for H1 FY22 of £1.0m (H1 FY21: £0.2m profit). With its restructured cost base and improved capability, Levolux is well placed to recover as commercial market activity resumes.

·    Housebuilding Products Division grew its revenue by 6.4%, representing a very commendable performance given a challenging environment of inflationary pressures and supply-side constraints holding back site activity. Housebuilding Products continued to deliver the highest return on sales in the Group, with a 19% operating margin (H1 FY21: 22%).

Outlook

·    Good momentum across the majority of the Group's businesses, and a growing pipeline of opportunities at Levolux.

·    A strong balance sheet and cash position allows investment to accelerate future growth.

·    The business is on track to deliver against its full year expectations and looks forward to the future with confidence.

Enquiries:

REVIEW OF INTERIM RESULTS

Chief Executive's Statement

The first half of the 2021/22 financial year saw strong sales momentum across most markets and the effective management of ongoing, industry-wide, supply chain and inflationary pressures.

In our Annual Report and Accounts 2021 we indicated that we estimated that circa £2.5m sales had been carried forward from the lockdown affected prior year, most of this helping to boost the prior year first half performance. Excluding this from the comparator, underlying sales growth in H1 FY22 was £3.2m (7.5%). Price rises and surcharges, necessary to pass through the sustained increase in cost prices, were responsible for £1.9m (4.4%) of this. The remaining 3.1% increase in revenue includes reduced volumes at Levolux; revenue growth in the other businesses was closer to 10%.

In particular, our Water Management Division had an excellent first half year, increasing its revenue by 19% (£3.6m) to £22.8m, a great effort and assisted by increased export sales and, in particular, the start of the shipments to Hong Kong's Chek Lap Kok Airport, illustrating the global reputation of our water management products. Our Roofing business did very well to almost fully offset the delayed revenues from lockdown and a significant contract which both benefited H1 FY21. In addition, our Housebuilding Products Division's revenue grew by 6% and was assisted once again by new product launches.

Group export sales grew by 41% to £8.7 million and represented 19% of total revenue (H1 FY21: 13%).

Levolux's performance was affected by Covid-19 (in the UK and USA) resulting in delays in orders. It reported a loss for H1 FY22 of £1.0m (H1 FY21: £0.2m profit). However Levolux, with its restructured cost base and improved capability, is well placed to recover as commercial market activity resumes. Enquiry levels are increasing and we anticipate an improved order intake in the second half.

Operational Review

Water Management

Alumasc Water Management Division delivered another strong and record performance in the first half year, significantly increasing underlying operating profit. The drivers of the 18% improvement in operating profit to £4.1 million (18.1% operating margin) were the continued control of operating costs while accompanied by a significant revenue increase of £3.6m (19%) which saw market share growth, particularly within the civil drainage and roofline markets.

Within this the E-Commerce business, Rainclear, returned another significant revenue increase, this time of 18%, following new product launches. Gatic Slotdrain performed very strongly in H1 FY22, and was successful in winning several new larger car parks work and new Amazon facilities, including one in Valencia, Spain. A Slotdrain project was completed for a highway in Costa Rica. Although activity was quiet at airports in the UK, the first shipments to Chek Lap Kok's Airport Runway 3 were made in the second quarter.

Alumasc Water Management Solutions performed very well, with successful market and sales initiatives benefiting in particular sales of its Alumasc Rainwater and Skyline brands.

Building Envelope

The Building Envelope Division had a reduced revenue in both parts of its division and produced a profit of £0.9m (5% operating margin), £1.6m below H1 FY21, largely reflecting the result at Levolux, discussed below.

The Roofing business performed ahead of internal expectations in both its newbuild and refurbishment markets, against a comparative that included a large one-off contract as well as significant sales delayed from the prior year. It has benefited significantly from the recruitment of high quality sales people who have improved sales in regions that had been weaker in the past. The Covid-19 impact also meant that there was more external work carried out on roofing than on internal refurbishment for Academies. The Roofing business continues to focus on high end specification offers supported by the highest standards, with 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 sectors.

Covid-19 also played a part in slowing down newbuild commercial market projects, which particularly affected Levolux. This depressed the order intake in the first half to a position significantly lower than was anticipated, and led to a £1.0m loss at the half year, compared to a £0.2m profit in H1 FY21. However, levels of customer enquiries are increasing and the business is actively pursuing several significant opportunities. With its streamlined operating structure and improved capability, Levolux is well positioned to benefit as market activity resumes.

Specification sales opportunities are growing from the new integrated Building Envelope sales approach with an increasing number of combined project wins taking place.

Housebuilding Products

Timloc, our Housebuilding Products business, continued to perform well. Its industry leading next day delivery service and continued introduction of new products underpins this performance.

This Division, representing 12% of Group's revenues, grew its revenue by £0.4m (6.4%). This was a very commendable performance in a challenging environment in which housebuilding activity on sites was frequently interrupted by commodity product and labour shortages and inflationary pressures. Despite these, Housebuilding Products maintained its strong returns with a 19% (H1 FY21: 22%) operating margin. New product introductions, outstanding service and rigorous cost controls contributed significantly to this performance. The achievement of 100% On Time In Full ('OTIF') delivery performance was, once again, appreciated by its customers.

New products such as meter boxes, fire rated stop socks, non-combustible InvisiWeep, and the relaunch of the Cavity Closer range all had a positive impact on the business. Ongoing investment in new equipment with much improved energy efficiency, delivering excellent pay-backs, has made a significant contribution in the reduction of the Group's carbon footprint. Timloc became the first building products manufacturer in the UK to source all its energy from renewable sources. In addition, it has become the first building products manufacturer in the UK to become carbon neutral across its operations.

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.

·    Recovery of Levolux's financial performance.

Long-term:

·    Drive organic growth across the Group.

·    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 £3.1m p.a. of structural costs in the last two years, with no reduction in capacity or capability. Of this, £2.5m of costs were removed from Levolux, to ensure the business' cost base is efficient and provides a good platform for profitable growth as the order book pipeline and future opportunities are executed.

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 2% revenue increase, including the 41% growth in export revenue, 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.

In recognition of its portfolio of environmental solutions and contribution to the global green economy, Alumasc was very pleased to be a recipient of the coveted London Stock Exchange Green Economy Mark in November 2021.

Financial Review

The Group's underlying tax rate was 19.4%, marginally below H1 FY21 (19.6%). Underlying earnings per share for the period were 11.8p, 11.9% lower than H1 FY21 (13.4p), reflecting the lower underlying profit before tax. Basic earnings per share were 11.2p (H1 FY21: 12.2p).

Cash flows and net debt

* EBITDA: Underlying operating profit before interest, tax, depreciation and amortisation

The Group's operating cash inflow was £4.4m (H1 FY21: £7.7m), which included a £0.6m (H1 FY21: £0.6m) repayment to HMRC for VAT deferred during the initial Covid-19 lockdown. The cash outflow into working capital was £1.8m (H1 FY21: £0.9m inflow), including a £2.6m outflow into inventory, resulting from higher cost prices and increased stock holdings to maintain continuity of supply and secure pricing on committed orders; and a net inflow of £0.8m from other working capital lines. Average trade working capital as a percentage of sales for the half year was 15.5% (H1 FY21: 14.9%).

Capital expenditure was £1.4m (H1 FY21: £1.0m), representing 111% of depreciation (H1 FY21: 87%). Principal investments were made on capacity/capability upgrades (£0.4m), tooling for new products (£0.4m) and system upgrades (£0.2m).

Tax paid of £1.3m reflected higher payments on account in respect of FY21 and FY22. The prior half year included £0.4m of tax refunded from FY19.

The £1.3m (H1 FY21: £1.3m) of pension fund payments included the final £0.2m (H1 FY21: £0.2m) of payments deferred under the Group's Covid-19 cash conservation measures.

After the £2.2m (H1 FY21: £0.7m) payment of the prior year final dividend, £0.4m (H1 FY21: £nil) of own share purchases to fulfil the vesting of employee share awards, and £0.6m (H1 FY21: £0.5m) of lease and interest payments, net bank debt at December 2021 was £4.1m (December 2020: £0.2m).

Pensions and net assets

The Group's pension deficit reduced further to £2.5m at December 2021 (June 2021: £4.6m, December 2020: £12.8m), as a result of the £1.3m of deficit repair payments, investment gains and the effect of higher bond yields, which offset an increase in the inflation rate assumption. The scheme's next triennial actuarial valuation is scheduled for 31 March 2022, and the Group expects to conclude ongoing funding discussions with the scheme trustees prior to publication of its full year results later this year.

Group net assets increased in the period by £2.2m to £38.3m, as a result of the profit retained after dividend payments and the further reduction in the pension deficit. Post tax return on investment (rolling twelve month underlying operating profit divided by capital invested) was 17.8% (December 2021: 13.9%, June 2021: 19.8%).

Interim Dividend

The Board has decided to declare an increased interim dividend of 3.35p per ordinary share, payable on 6 April 2022 to shareholders on the register on 25 February 2022.

The Board

A new Non-Executive Director, Karen McInerney, joined us at the start of the second half year. Karen, a Chartered Accountant, is currently the Group Financial Controller at Computacenter plc, a FTSE 250 company. Karen took on the chairmanship of the Audit Committee, which was relinquished by Vijay Thakrar on his appointment as Chairman of The Alumasc Group.

Vijay became Chairman following the retirement of John McCall in December 2021. John served as Chairman and Chief Executive on the buy-out of Alumasc from Consolidated Goldfields in 1984, remaining as Chief Executive until 2003 and continued as Chairman until his retirement. The Group is indebted to John for his wise counsel across the many years. We also said goodbye to Jon Pither who retired having served for 29 years as a non-executive director. Once again, the Group is indebted to Jon's wise and sometimes iconoclastic counsel.

Outlook

The Group has entered the second half of the year with good momentum, and a growing pipeline of opportunities within Levolux that should come to fruition once activity resumes within the commercial market. Challenges are likely to remain around Covid-19 precautions, supply chain delays and input cost inflation, but we are confident in the resilience of our businesses. We believe our strong positions in sustainable building products will remain a key driver of future growth, and our strong balance sheet will allow us to continue to invest in opportunities to accelerate this.

Accordingly the Board confirms it remains on track to deliver full year results in line with its expectations.

Paul Hooper, Chief Executive

8 February 2022

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

for the half year to 31 December 2021

Full reco0nciliations 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 2021