Preliminary Announcement year ended 30 Sept. 2018

 

13 December 2018                                                                                                 LEI: 213800ZHXS8G27RM1DD7

Titon Holdings PLC                                  

Preliminary results for the year to 30 September 2018

 

Another record year of delivery

 

Titon Holdings Plc ("Titon", the "Group" or the "Company"), a leading international manufacturer and supplier of ventilation systems, and window and door hardware, is pleased to announce its preliminary results for the year ended 30 September 2018.

 

Summary Financial Results

	2018	2017	Change
Net revenue	£29.9m	£28.0m	+7%
EBITDA	£2.85m	£2.46m	+16%
EBIT	£2.19m	£1.85m	+18%
Profit before tax	£2.98m	£2.49m	+20%
Earnings per share (EPS)	19.17p	16.55p	+16%
Full year dividends per share (DPS)	4.75p	4.20p	+13%

 

Financial Highlights

·     Group net revenue rose 7% to a record £29.9 million (2017: £28.0 million), an increase of 8% on a constant currency basis.

·     Gross profit margin increased by 0.9%, to 26.8%.

·     Profit before tax of £2.98 million increased by 20% (2017: £2.49 million).

·     Proposed final dividend of 3.0 pence per share, up 11% (2017: 2.7 pence), taking dividends for the full year to 4.75 pence, an increase of 13% (2017: 4.2 pence).

·     Net cash at 30 September 2018 of £3.42 million (2017: £3.27 million).

·     Maiden cash dividend of £433,000 paid by Titon Korea to the Company.

·     Group return on capital employed (ROCE) ¹ of 15.3% (2017: 15.1%).

·     Trading for the first two months of 2019 in line with expectations.

 

Operational highlights

·     Titon Korea's revenue grew by 21% and its net profit after tax rose by 24%; it remains the Group's largest contributor to Group profits.

·     The UK and European based businesses saw revenue rise 7% in the year:

§  Mechanical ventilation products again performed well, with good growth in exports in both existing and new markets in Continental Europe, up by 13%.

§  The UK hardware business also improved on last year with Titon branded door and window products recording 34% growth in revenue; other sub-sectors also continued to grow.

·     Sales in the USA have fallen significantly in the year due to the completion of a large subsidised maintenance programme and a general slowdown in Titon's regional markets. Titon's US business represents only 2% of Group revenue (2017: 6%) and there are a number of projects in the pipeline, which, if delivered, will return the US business to growth. 

·     The Group has also continued to promote the benefits of good indoor air quality in the UK.

 

Executive Chairman Keith Ritchie said: "It was another record year for Titon with revenues of £30 million and profit before tax growing by 20%, to £2.98 million. The total dividend for the year was also increased by 13% which is now the 6^th consecutive year of rising dividends underpinned by a robust balance sheet and a growing cash position.

 

"The UK economy continues to grow at a modest rate in both historic and relative terms with consensus forecasts for GDP growth clustered around 1.5% per annum in both 2019 and 2020. These forecasts, too, are made assuming that the UK reaches an agreement with the EU about withdrawing in an orderly manner and any continuing uncertainty is unwelcome to our business. In the first two months of the new fiscal year, we have been pleased with UK and Continental European trading, which is in line with the same period in 2017, when October and November were particularly good months. 

                                                            

"In South Korea, the World's 12th largest economy² and the Group's largest net profit contributor, Q3 of calendar 2018 saw slightly slower GDP growth in relative terms at 2.0% compared with 2.8% in Q2 due largely to weaker construction and business investment. We anticipate that increasing levels of air pollution may raise demand for mechanical ventilation units over natural ventilation products in fiscal 2019, resulting in a slowdown in our core natural ventilation business. We are, however, in the process of developing new solutions for the South Korean ventilation market. Most importantly, the trajectory of the South Korean economy remains enviably positive with FocusEconomics forecasting GDP growth of 2.6% in both 2019 and 2020 as Government spending increases and monetary policy remains accommodative. We are therefore positive on the medium-term outlook for our South Korean business.

                                                                     

"Titon builds and delivers popular products across a unique geographical spread. It has good people and a perennially strong balance sheet. We also continue to look for new opportunities for growth within our target markets. 2019 may be a more testing year in South Korea and the UK, compounded by the continuing uncertainty over Brexit. However, provided that Brexit doesn't negatively impact the UK economy we expect another year of growth in revenue and profits for Titon in line with market expectations.

 

 

For further information please contact:

 

Titon Holdings Plc Keith Ritchie, Executive Chairman	Tel: +44 (0)1206 713821
Shore Capital - Nominated Adviser and Broker Dru Danford Edward Mansfield Daniel Bush	Tel: +44 (0)20 7408 4090

 

 

Notes:

¹ ROCE is calculated by dividing EBIT by capital employed (capital employed being the sum of shareholders' funds, non-controlling interests and all debt less intangible assets and cash)

² International Monetary Fund data at May 2018

 

 

Chairman's Statement

It was another record year for Titon, generating revenue of £30 million and delivering a 20% increase in profit before tax to £3.0 million. The total declared dividend for the year was also increased by 13%.

 

Profit and loss

In the year ended 30 September 2018, the Group's net revenue (which excludes inter-segment activity) rose 7% to £29.9 million (2017: £28.1 million). On a constant currency basis, however, the increase is 8%.

The gross margin increased from 25.9% to 26.8% and EBITDA was 16% higher at £2.85 million (2017: £2.46 million). Earnings before interest and tax (EBIT) or operating profit rose 18% to £2.19 million (2017: £1.85 million) with the operating margin higher at 7.3% (2017: 6.6%).

Net interest contributed £13,000 (2017: £10,000) while the share of profits from the Group's associate (in South Korea) rose 23% to £778,000 (2017: £633,000) resulting in profit before tax of £2.98 million, which was an increase of 20% (2017: £2.49 million). On a constant currency basis there was no material change to the 2018 profit before tax. 

Earnings per share for the year increased 16% to 19.2 pence (2017: 16.5 pence). The effective rate of taxation increased to 12% (2017: 11%).

The Directors are proposing a final dividend of 3.0 pence per share (2017: 2.7 pence). When added to the interim dividend of 1.75 pence, paid on 21 June 2018 (2017: 1.5 pence), this represents a total dividend for the year of 4.75 pence (2017: 4.20 pence) a 13% rise on 2017.  If approved by shareholders at the forthcoming Annual General Meeting on 20 February 2019, the dividend is payable on 26 February 2019 to shareholders on the register at 18 January 2019.  The ex-dividend date is 17 January 2019.

Statements of financial position and cash flows

Net assets including non-controlling interests rose £2.3 million to £18.5 million with net cash at £3.42 million (2017: £3.27 million) which is equivalent to 18.5% of net assets (2017: 20.2%). Inventory levels at the year-end increased by £997,000 on 2017 due to strong business growth in South Korea and the introduction of new products into the UK and European markets. In turn, this meant that cash generated from operations in the year was £1.94 million (2017: £2.24 million). Capital expenditure increased to £893,000 (2017: £706,000) and dividends paid to the shareholders of Titon Holdings Plc increased by 19% to £489,000 (2017: £410,000). Titon Korea also paid a maiden dividend in the year and this led to a cash outflow from the Group to the Non-Controlling Interests of £416,000 (2017: £0), whilst simultaneously repatriating a similar amount to the UK as a dividend to Titon Holdings Plc. The result of the above is an overall net increase in the Group's cash reserves in the period of £146,000 (2017: £831,000). Net current assets were £11.2 million (2017: £9.9 million) with a Quick Ratio¹ of 1.97 (2017: 2.13).

ROCE² was 15.3% (2017: 15.1%) with Capital Turn at 2.1 (2017: 2.3).

Segment analysis

The directors look initially at geographical areas to evaluate the Group's performance and then consider product group splits at the secondary level. 

 

UK and Europe

Revenue from the UK and Europe increased by 7% in fiscal 2018. This increase was derived chiefly from a strong performance in the Hardware business comprising sales of our traditional trickle vents, and window and door hardware. Here, sales into the aluminium window and door sector continued to perform strongly, up 12%. I am also pleased to report that sales of Titon branded door and window hardware products had a strong year with a 34% annualised revenue increase in the year, which reflects a lot of hard work put into this product area.

Results from the Ventilation System's sales of mechanical ventilation products saw an increase of 7.5% in revenue, with pleasing demand for exports again as new customers have been introduced. The latter reflects a continued targeting of and investment in new geographical markets, particularly Eastern Europe. Within the UK, sales were up marginally on 2017 as we restructured our sales areas outside of London and the South East.

Titon continues to invest in research and development which, in turn, yields a continuing number of new products for both the Ventilation Systems and Hardware businesses and this will also be true in 2019. The importance of air quality, both outdoors and indoors, continues to expand as the impact of poor quality air becomes more understood by the medical profession, governments and consumers. Titon has worked with one of our trade associations, Beama (British Electrotechnical & Allied Manufacturers Association), which represents manufacturers of electro technical products, such as ventilation products, to promote the benefits of good indoor air quality. In October 2018, the Healthy Homes and Buildings All Party Parliamentary Group published a White Paper entitled Building our Future, Laying the Foundations for Healthy Homes and Buildings. I am very pleased to say that Titon was a significant contributor to this paper, which we hope will lead to healthier homes and higher sales of ventilation products.

 

The value of UK private and public housebuilding output is forecast to increase in 2018 by 4.5% against calendar 2017 according to the Construction Products Association. At the same time, the expected value of repair, maintenance and improvement (RMI) in the private and public residential sectors is forecast to be flat in 2018 against 2017.

South Korea

In South Korea, the Group's subsidiary, Titon Korea (51% owned), manufactures natural window ventilation products and is the national market leader with an estimated market share in this core sub-sector in excess of 75%. In fiscal 2018, it also had another very good year with revenue increasing by 21% to £11.6 million, due to higher private sector demand, and its contribution to Group profit after tax was up by 24% to £1.0million.

The Group's associate company, Browntech Sales Co. Limited ('BTS') also operates exclusively in South Korea and it generated another higher contribution in the year, with the Group recognising a share of profits from BTS of £778,000 (2017: £633,000) up 23% on 2017. In terms of activity, BTS distributes ventilation products in South Korea and both invests in and develops schemes in the domestic residential real estate market. There are three such schemes active at this time: the first in the form of a secured loan, which is expected to be repaid in 2019; the second, a residential refurbishment in Seoul, which is tenanted; and the third, the development of a residential property in Seoul, which has now been completed and is currently being marketed. Taking Titon Korea and BTS together, South Korea is the largest contributor to the Group's profit after tax at £1.8million for the year. (2017: £1.5million).

United States

Finally, as I noted in the interim results, revenue in the US was substantially lower and this continued in the second half, although the US represents only a small proportion of Group sales (2% in 2018 and 6% in 2017). In fact, sales for the year were down by almost two-thirds against 2017, which was very disappointing and due largely to the ending of a subsidised window replacement programme in New York and a general market slowdown in one of our core markets in Washington State. It is important to add, however, that we benefit from very low fixed costs in our US business and the region has made a positive contribution overall to the Group's results.

Board

We have not made any changes to the Board in the last twelve months. However, we have agreed, in connection with our move to AIM, that we will appoint another independent Non-executive Director to the Board in 2019. The process of selecting an appropriate person for this role is underway and an announcement will be made in due course.

Employees

Once again, I offer my sincere thanks to all of the employees of Titon as the success of the Group is down to their hard work and talents. We continue to grow and develop as a business and it would not be possible without their contribution. As with last year, we have continued to make increases in the wages of our UK weekly paid employees in line with the National Minimum Wage.

Investors

We have now completed our move from the Main Market of the London Stock Exchange to the AIM market, which was effective from 10 December 2018. We are very pleased that shareholders voted in favour of this change as the Board believes it offers significant benefits to existing shareholders and new investors in Titon.

We have continued to engage the corporate research house Hardman & Co. which regularly writes and distributes investment research on Titon and which we believe has both widened interest in the Group and continues to have a positive impact in the share price over the past three years. We have engaged Shore Capital as our Nominated Advisor and Broker for the purposes of the move to AIM and they will initiate research coverage on Titon in early 2019. Finally, here, I would like to mention again the Group's dividend reinvestment programme (DRIP) which has operated for a number of years. This represents a straight-forward and cost effective way for shareholders to increase their holdings in Titon should they wish to do so.

Outlook

It was another record year for Titon with revenue of £30 million and profit before tax ahead by a fifth to £2.98 million. The dividend for the year was also increased by 13% which is the 6th consecutive year of rising dividends.

The UK economy continues to grow at a modest rate in both historic and relative terms with consensus forecasts for GDP growth clustered around 1.5% per annum in both 2019 and 2020. These forecasts, too, are made assuming that the UK reaches an agreement with the EU about withdrawing in an orderly manner and any continuing uncertainty is unwelcome to our business. By way of a failsafe, though, we have already placed orders for certain extra components with our EU suppliers. That said, in the first two months of the new fiscal year, we are very pleased with UK and continental European trading, which is in line with the same period in 2017 when October and November were particularly good months.

In South Korea, the World's 12th largest economy³ and the Group's largest net profit contributor, Q3 of calendar 2018 saw slightly slower GDP growth in relative terms at 2.0% compared with 2.8% in Q2 due largely to weaker construction and business investment. We anticipate that rising levels of air pollution may raise demand for mechanical ventilation units over natural ventilation products in fiscal 2019, resulting in a slowdown in our core natural ventilation business. We are, however, in the process of developing new solutions for the South Korean ventilation market. Most importantly, the trajectory of the South Korean economy remains enviably positive with FocusEconomics forecasting GDP growth of 2.6% in both 2019 and 2020 as Government spending increases and monetary policy remains accommodative. We are therefore positive on the medium-term outlook for our South Korean business.

Titon builds and delivers popular products and has a unique geographical spread. It has good people and a perennially strong balance sheet. We also continue to look for new opportunities for growth within our target markets. 2019 will be a more testing year in the UK and in South Korea as noted above. However, provided that Brexit doesn't negatively impact the UK economy we expect another year of growth in revenue and profits for Titon in line with market expectations.

On behalf of the Board.

 

K A Ritchie

Chairman

 

12 December 2018

 

Notes:

¹The Quick Ratio measures liquidity and is calculated as follows Current Assets-less-Stocks divided by Current Liabilities

² ROCE is calculated by dividing EBIT by capital employed (capital employed being the sum of shareholders' funds, non-controlling interests and all debt less intangible assets and cash); with Capital Turn calculated by dividing revenue by capital employed

³ International Monetary Fund data at May 2018