Negative Points
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Group revenues declined by 6% to 107m, impacted by challenging market conditions and the reduction in the Hong Kong contract.
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Underlying profit before tax fell to 10m from 14.2m, with operating margin dropping from 13.7% to 10.5%.
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Water management division revenues declined by 16%, with underlying operating profit falling to 2.5m due to lower volumes and high operational gearing.
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Gross margin decreased by 150 basis points to 36.4%, affected by volume reduction and adverse product mix.
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UK construction output is estimated to fall by 3-4% this year, and private housing starts declined by 12%, creating a tough market backdrop.
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The termination of the CEO’s employment creates leadership uncertainty, although an interim executive chairman has stepped in.
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Overseas projects generally have lower margins than UK work, which could impact overall profitability as international sales grow.
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The pension scheme remains in deficit against self-sufficiency and buyout targets, requiring further contributions of 1-2m and 7-9m respectively.
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Supply chain and operational efficiency issues in water management are being addressed but have not yet been fully resolved.
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The company remains on the AIM market and has no plans to move to the main market, which may limit investor visibility and liquidity.
Q & A Highlights
Q: With revenues up 5% in the first two months of FY27 and the order book 56% ahead, which part of the business is showing the strongest momentum and what gives you the greatest confidence about the year ahead?A: Simon Dray (Group Finance Director): Overall group revenues are up 5%, with the strongest year-on-year growth in water management, which is why we are confident of margin progression as volumes recover there. All divisions are ahead year on year, and order books are ahead in both building envelope and water management, with water management and building envelope showing the strongest gains.
Q: Can the board pursue acquisitions responsibly while operating under interim executive leadership, or will transactions be deferred until a permanent CEO is appointed?A: Vijay Thakrar (Executive Chairman): Absolutely. The board as a whole reviews acquisitions and authorizes them if strategically sensible. Execution and integration are handled by the operating teams, which are unchanged and, if anything, strengthened. So our acquisition capability and appetite are not affected by the interim leadership arrangement.
Q: Have there been any developments with the new Dubai airport?A: Vijay Thakrar (Executive Chairman): We are pitching for work there. We have changed our sales team in the region, and the revised team, including Peter Blanchard, is focused on it. These contracts take time and relationship investment, but we are investing in the area. Simon Dray added that the team is based out of Dubai and is also close to port expansion opportunities in the UAE and the Saudi airport.
Q: How should we think about the margin profile of overseas projects relative to the UK business?A: Simon Dray (Group Finance Director): Generally, overseas work is slightly lower margin than UK work because projects tend to be bigger. The smaller the project, the closer to UK margins. Very large projects like the Hong Kong (CLK) work are at the lower end of the margins we charge. The bigger the project, generally the lower the margin.
Q: Is the revenue from new products rising and can you quantify that?A: Simon Dray (Group Finance Director): Yes, it has risen. We calculate the percentage of revenues from new products launched in the last three years, and it is ahead year on year. However, it is a backward-looking indicator; I prefer to focus on the pipeline of what is coming through.
Q: Do you see opportunities for consolidation within house building products given the current market challenges?A: Vijay Thakrar (Executive Chairman): We have a very successful business there, and there is room for growth rather than consolidation. If the right type of deal comes along, we will look at it, but there is plenty to go for even as a standalone, given our ability to develop new products and service customers well.
Q: Airport drainage is there a global common design spec you can supply to anywhere in the world?A: Vijay Thakrar (Executive Chairman): We can supply anywhere, but surprisingly there is no single global standard, which is why we are putting feet on the ground in countries we have not previously been in. Gatic is a 100-year-old, well-respected brand; we just need to remind people we are still here with fantastic products. We feel we can do more, which is why we are putting significant focus on this.
Q: What shifts are you working in your manufacturing facilities and what spare capacity is available?A: Simon Dray (Group Finance Director): There is plenty of spare capacity. Building envelope is essentially warehousing it buys in product, designs roof specs and ships out so it has a lot of spare capacity. Water management is mostly on a shift and a half, and changing the manufacturing process in rainwater products will help drive capacity without increasing shift patterns or equipment investment. House building products (Timloc) has plenty of capacity; the easiest way to add capacity in injection moulding is to add more tooling, e.g. scaling a six-impression tool to a 12-impression tool, doubling capacity without large labour or capex investment.
Q: Are there any plans or aspirations to move to the main market? If so, what timelines are you looking at?A: Vijay Thakrar (Executive Chairman): The short answer is no. We are focused on running our business. Alumasc moved from the main market to AIM about seven or eight years ago, just before I joined the board. We would rather focus on running the business and hope to get recognition for that, with investors showing confidence in us.
Q: Would it be sensible to pursue acquisitions while under the current executive leadership team, or do we need to wait until we have a different position?A: Vijay Thakrar (Executive Chairman): We will continue to look at and undertake acquisitions if they make strategic sense. The board as a whole reviews them, and execution and integration are always the responsibility of the operational teams, which have not changed if anything, they have been strengthened. So that does not change our acquisition capability or appetite.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
