Latham(James) PLC – Half-year Report

Revenue for the six months ended 30 September 2018 was £118.2m, up 10.2% on £107.3m for the same period last year. Volumes increased by 1.5%, mainly through an increase in direct business, and product prices increased by 7.8%, against the comparative six months. The remaining increase in revenue arose due to changing product mix, with increased sales of lower volume, higher priced products.

Gross margin for the six month period ended 30 September 2018 was 17.1% compared with 17.3% in the comparative six months, which is partly explained by the increase in direct business which is at a lower margin. This figure includes warehouse costs, which have increased by 4.9% due to the increased cost of operating from the two new depots at Yate and Leicester. Both relocated sites are performing well.

Selling and distribution costs were 3.4% higher than the comparative period last year. Transport costs per tonne have increased by 3.0%, where increased fuel costs have been partially offset by reduced external haulier costs.

Administrative expenses are higher than last year, mainly due to an increase in bad debts compared with a low charge in the comparative six months. Despite this increase in bad debts, total bad debts are still on budget.

Operating profit was £7.7m, up 10.0% on the comparative period's operating profit of £7.0m. Profit before tax of £8.7m (2017: £6.7m) includes a profit of £1.1m on the sale of our old Yate site. Earnings per ordinary share were 36.9p (2017: 27.8p) an increase of 32.7%.

As at 30 September 2018 net assets have increased to £98.6m (2017: £83.8m). Stock volume levels have remained stable throughout the six months. Trade Receivables have continued to show good debtors day figures. Cash and cash equivalents of £12.9m (2017: £12.6m), remain strong and we continue to take advantage of additional early settlement discount opportunities with our suppliers.

The calculation of the pension deficit remains very sensitive to changes in assumptions, and the pension deficit under IAS19 is now calculated as decreasing from £8.4m at 31 March 2018 to £3.1m at 30 September 2018.  This is largely due to positive asset performance and an increase in the discount rate. Following the finalisation of the triennial actuarial valuation as at 31 March 2017, the Company has agreed a recovery plan with the trustees of £2.0m per annum until 31 March 2024. Since the end of the half year, the High Court made a judgement confirming that pension schemes are required to equalise male and female Guaranteed Minimum Pensions. The effect of this decision is still being assessed by the Trustees, but is likely to increase the pension scheme liabilities by approximately £1m.

Interim dividend

The Board has declared an increased interim dividend of 5.0p per Ordinary Share (2017: 4.5p), which is covered 7.4 times (2017: 6.2 times).  The dividend is payable on 25 January 2019 to ordinary shareholders on the Company's Register at close of business on 4 January 2019.  The ex-dividend date will be 3 January 2019.

Current and future trading

The second half of 2018/19 has started well with revenues continuing to grow. Margins however are slightly down, with price rises being more difficult to absorb by the market. Our customers remain busy and are reporting good order books. The economic outlook though is affected by the uncertainty caused by the Brexit negotiations and we will not be immune to any slowdown in the UK economy. We have reviewed our key European suppliers and have put plans in place to hold more stocks for a period of time in the first half of 2019 in order to mitigate any supply issues over that period. We are continuing to invest in the business, with extensive racking projects started at our Purfleet and Thurrock depots, and the planned redevelopment of our Gateshead site in order to make the most efficient use of the space.

Nick Latham

Chairman

29 November 2018