Goodwin Plc - Final Results ended April 2020
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The pre-tax profit for the Group for the twelve month period ending 30th April 2020, was £12.1 million (2019: £16.4 million), a decrease of 26% on a revenue of £145 million (2019: £127 million) which is 14% up on the figures reported for the same period last financial year. The Directors propose a reduced dividend of 81.71p (2019: 96.21p). As with the majority of companies around the world, Covid-19 has stalled our progress in the last quarter of the financial year, and we have seen a slower start to the new financial year than we would have expected without the pandemic. Despite this and the disruption due to trade frictions between the USA and China, the underlying progression of the business remains robust and resilient.
At the time of writing, the Group's current workload stands at £183 million which is 11% ahead of last year's Group record figure of £165 million (2019: £165 million, 2018: £82 million, 2017: £76 million). Whilst the current workload figure contains the first element of the supply agreement announced to the Stock Exchange on 22nd June 2020, this supply agreement for the manufacture and machining of storage boxes to assist with nuclear waste clean-up accounts for less than 2% of the £183 million and excludes the amount of orders that are expected to be placed in the future once the mobilisation phase is complete. Armed with this workload, the Group retains a high degree of confidence in the future versus the looming uncertainty for many businesses this coming year.
Within the Mechanical Engineering Division, margins continue to be squeezed on our petrochemical work and this is likely to persist during the current financial year given the low oil price. In order to counteract this I am able to give the assurance that our diligently fostered and growing workload contains substantial amounts of non-petrochemical work commanding respectable margins in areas such as national defence capability and projects of national importance. The critical nature of this ongoing work was highlighted by 'key worker' notices being issued to certain of the Group's operations immediately upon the onset of the pandemic. Whilst these projects are in their infancy, they will start to ramp up over the next 6 to 12 months.
Goodwin Steel Castings has had another difficult year. This is largely attributable to the performance of two contracts where we are currently in dispute with our customers. Any favourable resolution will be booked in the current financial year once resolved. Going forward the casting of nuclear waste containment boxes in relation to Goodwin International's supply agreement will provide a significant base load for our foundry. However, with projects of this nature they take time to get mobilised, so in this current financial year it is unlikely this contract alone will be transformational, but it will be beneficial in future years. This with their other work for shipbuilding components in specialist alloys for the USA, that only a few alloy steel foundries in the world are qualified to produce, along with specialist nuclear power generation application castings means that our foundry has transitioned away from what used to be business reliant on the petrochemical industries. The business key market re-alignment is still transitional, but the Directors can see that with the markets it is addressing and the projects it is working on that there is a long term, bright and profitable future for Goodwin Steel Castings.
Similarly Easat Radar Systems is now focusing on complete radar system supply contracts, with a product suite and offering that is competitive internationally. Two complete systems will be sent to Thailand during this year, and there is a requirement for significant airport infrastructure in developing countries over the coming years, which our competitive product offering is tailored to meet. Over the past twelve months, Easat completed a substantial amount of business, such that it reduced its unacceptable working capital investment by some £4 million which has helped with the Group cash flow.
The Refractory Engineering Division achieved operating profits of £7 million in the year, (2019: £8 million), representing 47% of the Group's operating profit despite its customers' consumer products being affected most by Covid-19 in the last quarter. Moving forward, although the construction and industrial customers' activity is returning, uncertainty remains with regard to the medium term outlook especially for our customers' luxury products, for which they use our investment powders, waxes and silicone rubbers.
During the financial year, the Group successfully acquired the globally recognised Castaldo silicone rubber and wax division, including the trade name and associated trademarks. For the past 75 years Castaldo has been at the centre of the worldwide jewellery casting industry and this acquisition will further increase the Group's global market share within the moulding rubber and injection wax business by aligning higher value complementary sales activities with the existing business activities. By utilising the distribution network and global presence within our Refractory Engineering Division it is forecast that significant revenue growth can be achieved over and above the Castaldo division sales levels seen pre-acquisition. The manufacturing of the product lines is being relocated to Thailand which will also increase the gross margin of the acquired product lines.
Post year end the Group has also seized the opportunity to purchase a 2.5 acre manufacturing site and mineral processing assets for £770,000 that is complementary to our existing minerals processing business that is running at near full capacity. The purchase was concluded within seven days, and the Directors believe that the site was acquired at substantially less than its true market value. In addition, we believe that within a few months we will be able to start to generate profits by utilising the assets acquired.
Across both Divisions, our intangibles have grown in recent years due to multiple product development activities and acquisitions. A number of these major activities will be completed and taken to market within the current financial year leaving us with products that can be sold for many years to come; many of these new products are covered by international patent protection. This is not to say that there will be no new product development programmes as activities here have just been scaled back, focusing as always on areas that we anticipate may yield good future prospects.
In line with the Group's strategy the Board has worked hard to control its working capital and ensure a safe level of gearing. This is transparently seen at an operational level delivering strong cash generation in the year of £22.5 million, up £7.6 million from the previous year. As a result of a reduced level of investment in the year, I am pleased to report the Group's net debt stands at a modest £19 million, equating to a gearing percentage of 18% versus 20% last year.
Following a productive ten year relationship with Lloyds Bank PLC, and with our five year facility set to mature in December 2020, we put the facilities out for competitive tender. On a like-for-like basis in terms of available facility and once all costs in relation to the facility had been evaluated Lloyds were no longer as competitive in relation to other offers we received. I can confirm that the Board has now signed a new facility agreement with Santander UK plc for the same quantum but on improved terms, including a higher proportion that will be committed for a five year period. In addition, a £10 million revolving credit facility (RCF) set to expire in October 2020 is also in the final stages of being renegotiated ultimately providing the Group with long term facilities totalling over £50 million, in addition to the £30 million secured as an additional committed credit line through the Bank of England Covid Corporate Financing Facility (CCFF), which was taken out as an insurance policy should any possible extreme Covid-19 event occur and is repayable in April 2021.
Auditor rotation is now mandated by regulation meaning that the year ended 30th April, 2020 will be KPMG's last year performing the Group audit having worked with us for the prior 56 years (Peat, Marwick, Mitchell & Co. in the earlier years). The Board would like to express its gratitude for the work performed over this period. Following a competitive tender process, the Audit Committee and the Board propose that RSM UK Group LLP be appointed as the new Group auditor, commencing responsibility for auditing the Group for the financial year beginning 1st May 2020.
Despite my optimism, at the time of writing, it is necessary that we remain acutely aware of the external environment with Covid-19, as until an effective vaccination programme is rolled out, the likelihood of more flare-ups and lockdowns across the globe seems inevitable. However, with the Group's underpinnings, in terms of its order book, its cash flow and excellent workforce, from a business point of view Covid-19 will likely be nothing more than a bump in the road of the Group's progression when we look back at it in a few years' time.
Since the start of the pandemic our workforce has been outstanding. The Group immediately set out a policy to protect its employees, and they in turn have responded and looked after the Group's interests. This has involved working in many cases even harder in order to achieve the same outcomes due to the restrictive and new working practices that were necessarily imposed for everyone's wellbeing.
The Board is once again indebted to our Directors, managers and employees around the world for their efforts in keeping the Group operational during this difficult Covid-19 period and for their devotion to the Group's long-term performance. Had the Group not kept on manufacturing over the four month period between March and the end of June, the Group's profitability and cash flow would have deteriorated substantially. We have all been working in uncharted territory because of this, and I am immensely proud of how every single employee within the Group has adapted and worked within this challenging new environment.