Trifast Plc - 2016 Preliminary Results
‘FY 2015 was our strongest trading performance ever. In FY 2016, we have built on that success story and delivered our sixth year of continuous growth’
31 March 2016
31 March 2015
|Gross Profit %||29.7%||29.0%||+70bps||+50bps|
|Underlying Operating Profit *||£16.8m||
|Underlying Profit Before Tax *||£16.0m||£14.3m||11.8%||14.8%|
|Profit Before Tax||£13.1m||£11.8m||11.0%|
|Underlying Diluted Earnings Per Share *||99.9p||8.68p||15.1%|
Basic Earnings Per Share:
- Final Proposed
Return on Capital Employed (ROCE) *
*before seperately disclosed items (see note 2).
^ Actual Exchange Rate ('AER')
† Constant Exchange Rate ('CER')
Peel Hunt LLP
TooleyStreet Communications IR, corporate & media relations
^ Actual Exchange Rate ('AER')
† Constant Exchange Rate ('CER')
Revenue increase of 6.8% at CER with acqusitions representing 4.1%
Organic revenue growth of £4.1m at CER with our multinational OEMs growing by 3.0%
Underlying operating margin* increased to 10.4%
Underlying profit before tax* grew 14.8% at CER
Underlying diluted earnings per share* increased by 15.1% at AER
Total dividend increased by 33.3% reflecting the Directors’ ongoing confidence in the business
Total capital expenditure of £2.3m primarily increasing our capacity in Malaysia, Taiwan and Italy
Investing for growth in future CAPEX and people around the world
Smooth management succession in our executive and senior management teams
“In FY 2016 we have seen another year of strong trading, making this our sixth year of continuous growth.
“For us, Europe, Asia and the USA all remain key areas for growth both organically and non-organically. Our enquiry pipeline is strong, whilst our core organic strategy of focusing on our multinational OEMs looks set to continue to deliver growth. FY 2017 will be the first full year of trading from our latest acquisition, TR Kuhlmann, and we are already starting to see opportunities coming through as the result of us working together.
“Looking ahead there are some macroeconomic factors that we cannot control, including the ongoing volatility in the foreign currency and raw material markets. However, building on the strong performance delivered last year and, with our geographical spread, balanced sector mix and clear strategies for growth, the Board is optimistic for the current year and the Group’s longer term prospects.”
Mark Belton, CEO
Statement by the Chairman, Malcolm Diamond MBE
It gives me great pleasure to report on another year of excellent progress across the Group; also, it is particularly significant that in our forthcoming Annual Report we have summarised the past year with the strap line: ‘Investing for growth.’
It is often said within the business world that the only constant is change, and so an organisation’s ability to respond quickly and decisively to market conditions is paramount for prosperity.
Seven years ago, less than 15% of our Group revenue derived from the automotive sector, whilst telecoms/electronics, our driver for growth in the nineties, was in relative decline and dragging TR with it. By 2015, automotive Tier 1 demand for our expertise had become global and today accounts for over 30% of Group revenue, whilst electronics has since proven to have delivered organic growth over that same five-year period of our ‘renaissance’. Our acquisition of VIC in Italy in 2014 instantly grew our domestic appliances revenue from 8% to 23% of Group revenue, thus finalising a trio of key international fastener demand sectors totalling over 60% of our business.
The growing demand from our automotive and domestic appliances sectors has driven substantial new capital investment in the year in our Italian, Malaysian and Taiwanese factories, the details of which are explained further below.
As reported previously, our core business model of focusing on multinational high volume assemblers continues at a dynamic pace. The model is based on introducing our unique combination of low cost/zero defect, high quality manufacturing resources, component logistics direct to assembly lines, and customised design/application engineering support to the senior decision makers of global companies. This leads to detailed audits (spanning several days) of our relevant manufacturing sites, which in turn confers global Preferred Vendor status upon TR which is our entry ticket to approach their individual assembly plants and to sell what we can offer as benefits to their local production and engineering management.
Many of these global Original Equipment Manufacturers (‘OEMs’) have over 100 plants spread around the world, and often the same product is duplicated to serve their local markets. Once TR is specified for a customised component, then there is often a
roll-out of the same component across several plants. There is an increasingly strong adoption by these customers of consistent designs and specifications, quality levels and in place cost that gives TR a multiplier effect on volume from the original enquiry from the initiating plant. This is particularly evident within the automotive sector where the same basic vehicle platform spans several brands and is assembled in different countries.
It is highly reassuring that around 60% of our business now comes from 50 of our global OEM customers, thus reinforcing our belief that our strategy is not only delivering consistent growth but with less than an average of 25% penetration, we still have many years of momentum ahead of us.
In addition, each year we win new multi-plant internationally spread OEM customers, giving us increasing growth opportunities.
Crucial as our growing revenue is, our profit growth record owes substantial acknowledgement to our ever improving operational and vendor management performance, which my colleagues explain in detail later into this report.
I must now also acknowledge my close colleague and CEO Jim Barker’s retirement at the end of September 2015. I thank him for being the key architect of our recovery strategy back in early 2009 when, at that time, tough decisions and urgent actions were paramount.
The turnaround period, followed by the acquisitions of Power Steel & Electro-Plating Works (‘PSEP’) in Malaysia and Viterie Italia Centrale (‘VIC’) in Italy required the full involvement of our then CFO Mark Belton, who, as Jim stepped down, was by far the best candidate to take over as our CEO. Clare Foster (who joined us in January 2015) took over from Mark as CFO. Despite the perceived worries surrounding succession planning in any organisation, I must congratulate Mark and Clare, with the support of Geoff, Glenda and the wider senior team for achieving such a smooth handover during the past six months.
Finally, we welcome our wonderful German colleagues from Kuhlmann who joined the Group last October, and, we congratulate them on the results they have achieved since then.
As always, my never ending appreciation and thanks go to all our managers and staff spread around our Group for their constant skill, effort and loyalty – without which we would just be a very ordinary company.
Summary business review
Unless stated otherwise, amounts and comparisons with prior year are calculated at constant currency (Constant Exchange Rate ‘CER’) and, where we refer to ‘underlying’ this is defined as being before separately disclosed items (see note 2).
Our Group performance
Growth at CER
|Growth at AER|
|Gross Profit ('GB')||£48.9m||£48.0m||£44.9m||9.0%||6.9%|
|Underlying Operating Profit ('UOP')||£17.2m||£16.8m||£15.3m||12.8%||9.9%|
|Underlying Profit Before Tax||£16.4m||£16.0m||£14.3m||14.8%||11.8%|
|Underlying Diluted EPS||10.22p||9.99p||8.68p||17.7%||15.1%|
In FY2015, our business delivered its strongest trading performance ever. In FY 2016, we have built on that success story by going on to achieve profitable top line growth of 6.8% and Actual Exchange Rate (‘AER’) revenues of £161.4m.
The biggest driver of our organic growth has come from our multinational OEMs, contributing 3% to our overall revenue growth.
On the non-organic side, growth reflects a mix of:
- A first full year of trading from VIC, Italy (acquired 30 May 2014), and
- A first six months of trading from TR Kuhlmann, Germany (acquired 1 October 2015)
Both acquisitions are performing very well. VIC has achieved over 13% organic revenue growth against the prior year, with three record breaking trading months in FY 2016. TR Kuhlmann, our newest addition to the TR family, is already slightly ahead of expectations in its first six months and over 12% up on the 1 October 2014 to 31 March 2016 period (pre-acquisition).
Gross profit margins remain strong at 29.5% (2015: 29.0%). Underlying operating margins have continued to improve to 10.4% (2015: 9.9%) reflecting our ongoing commitment to operational efficiencies. All of this has helped our underlying PBT to increase by 11.8% at AER, driving a strong increase in our underlying diluted EPS at AER of 15.1% to 9.99p (2015: 8.68p).
With a proven track record, a strong balance sheet and a confident strategy for growth we remain committed to a progressive dividend policy.
As a result, the Directors are proposing, subject to shareholder approval, a final dividend of 2.00p per share. This, together with the interim dividend of 0.80p (paid on 15 April 2016), brings the total for the year to 2.80p per share, an increase of 33.3% on the prior year (2015: 2.10p). The final dividend will be paid on 14 October 2016 to shareholders on the register at the close of business on 16 September 2016. The ordinary shares will become ex-dividend on 15 September 2016.
The 2016 final proposed dividend means that since 2010 dividends have grown from 0.50p to 2.80p, representing a compound annual growth rate (‘CAGR’) of 53.8%.
At the same time, dividend cover has fallen, now representing cover of 3.6x. For the medium term, we believe an appropriate level of cover will continue to be in the range of 3x to 4x. As is always the case, the actual dividend each year will need to take in to account our ongoing strategy of investment driven growth, any acquisitions and the working capital requirements of a growing business.
By far the Group’s biggest revenue growth in FY2016 has been across our European businesses with a significant increase of 24.9% to £57.8m. Non-organic growth has driven 14.0% (£6.5m) of that increase, in conjunction with very strong organic growth of 10.9% from increased trading levels in our existing businesses.
In Asia, the overall trading position has been more stable, with an increase in organic revenues of 1.1% (£0.4m).
In Singapore, growth has been very strong at 9.4% (£1.1m) reflecting a significant growth in the domestic appliances sector sales. In contrast, our Malaysian operations have struggled in FY 2016 against a backdrop of falling customer demand and domestic market weakness. This has led to a decrease in revenues of 8.3% (£0.9m).
In the UK, revenue has decreased by 2.0% (£1.3m), reflecting a slight softening in demand in HY 2016, whilst in the USA trading is in line with the prior year at £4.3m.
The Group’s gross margin has increased by 50bps to 29.5% (AER 70bps to 29.7%; 2015: 29.0%). This reflects a very strong underlying margin improvement in Asia due in part to capacity increases especially out of our Singapore site however, this has been offset by a fall in the gross margins achieved in Europe to 26.5% (2015: 28.2%), largely due to unfavourable movements in the average €:US$ rate, reducing gross margins in our Italian operations.
Underlying operating profit
Underlying operating margins have increased to 10.4% (2015: 9.9%). In Asia, underlying operating margins have increased significantly, to 17.3% (2015: 14.8%) reflecting the improvements in margin noted above. In the UK, foreign exchange translation gains on monetary items in the balance sheet, in conjunction with ongoing operating efficiencies, have helped to drive a 70bps increase to 9.6% (2015: 8.9%).
In Europe, overall underlying operating margins have been negatively impacted by the noted foreign exchange movements, leading to a decrease to 12.7% (2015: 14.0%). In the US, operating margins have increased to 8.7% (2015: 7.6%) reflecting gross margin improvements in the region.
Net financing costs (at AER)
Despite an increase in average net debt to £16.8m (FY 2015: £14.5m), interest costs have decreased by 18.1% or £0.2m. This cost reduction has been driven out of a reduced reliance on asset based lending in the UK and Italy, a fall in the average EURIBOR rate and a decrease in the level of non-utilisation fees incurred on our revolving credit facilities.
Taxation (at AER)
The Effective Tax Rate (‘ETR’) has reduced significantly in the year to 21.8% (2015: 29.2%). The largest single fall, of 4.5%, arose on the recognition of a deferred tax asset of £0.6m in our US business. Given the positive trading position in the US, we consider it probable that this asset will be recoverable against future taxable profits and have therefore brought it on to the balance sheet. Excluding this, our normalised ETR has reduced to 26.3% as corporation tax rates continue to reduce around the world, most specifically in the UK.
Earnings per share (EPS)
Our strong gross margin and improved underlying operating profits have led to an impressive increase in our underlying diluted EPS of 15.1% at AER to 9.99p (2015: 8.68p).
Shareholder equity (at AER)
As at 31 March 2016, the Group’s shareholders’ equity has increased significantly to £83.8m (2015: £71.7m). This £12.1m uplift is made up of retained earnings of £9.6m, share issues totalling £0.2m and a substantial foreign exchange reserve gain of £2.2m which arose due to the rapid weakening in Sterling in the last few months of the financial year.
Our net debt position at year end increased by £2.6m to £16.0m (2015: £13.4m). The key reasons for that increase are our recent acquisitions and ongoing investment driven growth strategy.
As the result of the successful achievement of performance conditions, set at the time of the acquisition, the maximum deferred earn out payment was made in July for VIC of £3.4m (€5.0m). In addition, on the 1 October 2015, we paid the initial consideration of £4.9m (€6.8m) to acquire TR Kuhlmann in Germany. Over the past twelve months, our investment driven growth strategy has also led to further capital expenditure of £2.3m, predominantly, as previously highlighted, in our manufacturing sites in Taiwan, Malaysia and Italy.
Outside of these investments, the underlying business remains strongly cash generative, achieving an underlying EBITDA to cash conversion of 88.9%, (2015: 50.2%). This is despite the fact that in FY 2016, we continued to reverse the final £2.5m of the VIC non-recourse debt factoring that we inherited on acquisition in May 2014.
Excluding the impact of the de-factoring, we have seen a net decrease in our working capital levels of £0.6m at CER, even with the overall increase in the Group’s trading.
Banking facilities to support growth
Amended facilities are in the process of being agreed with our main Group bankers, HSBC. Negotiations are substantially complete, subject to the finalisation of contractual terms with credit approval already obtained.
In summary, the amendments will reduce the Group’s reliance on the Asset Based Lending (‘ABL’), increase our available Revolving Credit Facility (‘RCF’), decrease the overall cost structure and extend the maturity profile of a proportion of our borrowings to better reflect the Group’s core funding and investment requirements.
As a result of the above changes, unutilised available facilities will increase by c. £5.0m, helping to support our strategy of investment driven growth. In addition, an accordion facility of £20.0m is being written in to the agreement, providing potential flexibility to debt finance further acquisitions in the future.
In FY 2016 we have seen another year of strong trading, making this our sixth year of continuous growth.
For us, Europe, Asia and the USA all remain key areas for growth both organically and non-organically. Our enquiry pipeline is strong, whilst our core organic strategy of focusing on our multinational OEMs looks set to continue to deliver growth. FY 2017 will be the first full year of trading from our latest acquisition, TR Kuhlmann, and we are already starting to see opportunities coming through as the result of us working together.
On the manufacturing side, the investments we are making to increase capacity and the focus we are putting on making better use of existing capacity, specifically in our Malaysian sites, should start to impact positively on results in the next year and beyond.
Our investment in the UK business, in to both senior sales resource and driving further operational efficiencies, is expected to continue to build on profitability in this region.
Looking ahead there are some macroeconomic factors that we cannot control, including the ongoing volatility in the foreign currency and raw material markets. However, building on the strong performance delivered last year and, with our geographical spread, balanced sector mix and our clear strategies for growth, the Board is optimistic for the current year and the Group’s longer term prospects.
For further information see below
- Trifast - Prelimanary Results For The Year Ended 31 March 2016 - Interview with Malcolm Diamond, Executive Chairman - 14.06.16
- Trifast - Analyst interview, Peel Hunt
- Directors Talk - 'Trifast plc 16.8% Potential Upside Indiscated by Peel Hunt' - 14.06.16
- LMKAT - 'Trifast plc's (Tri) Buy Rating Reaffirmed at Peel Hunt - 14.06.16
- London South East - 'Trifast Hikes Dividend After Seeing Strong Performance In Europe' - 14.06.16
- Share Trading - 'Trifast PLC (LON:TRI) Issued With Buy Rating From Peel Hunt - 14.06.16
- Risers & Fallers - 'Shares of Trifast PLC (LON:TRI) Rated As Buy By Analysts At FinnCap - 14.06.16
- Torque Expo - 'Profits up for Trifast' - 11.07.16
- F&F - Industry News - 'Trifast reports sixth year of growth' - July 16, p12
Malcolm Diamond MBE, Executive Chairman
Telephone: +44 (0) 1825 747366
Peel Hunt LLP
Stockbroker and financial adviser
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TooleyStreet Communications IR, corporate & media relations
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For further information on Trifast plc please visit our investors website: www.trifast.com