FW Thorpe: Record Annual Results Spotlight Further Double-Digit Growth As Dividend Lifted For 15th Consecutive Year

4 thoughts on “FW Thorpe: Record Annual Results Spotlight Further Double-Digit Growth As Dividend Lifted For 15th Consecutive Year”

1. FW Thorpe (TFW)

   AGM Statement

   This statement was announced on 23 November. It seems to me the new chairman is suggesting the second half may not be that great. Here is the full text:

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   “Last year we achieved record results and my September statement referred to the challenges in maintaining these for the current financial year. We presently expect the interim results to be in line with the same period last year.

   At this time it is difficult to predict what the second half may bring, however, we are confident that the Group is well placed to face any political and economic head winds that may arise from much-publicised issues both domestically and overseas. Our continuing focus is for sustainable, long-term growth for the Group”

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   The caution is not great for a stock rated at 24x earnings. Still, it has not really paid to be a seller of this business long term.

   Maynard

2. Maynard,

   Doesn’t read so negative to me…. the second para fairly positive in the typical TFW manner

   David

3. FW Thorpe (TFW)

   Acquisition

   It seems I missed this acquisition announcement — it was published originally on 21 December 2017. The deal does not look too bad. Here is the full text:

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   F W Thorpe is pleased to announce the acquisition of 100% of the share capital of Famostar B.V. (“Famostar”) in the Netherlands, a specialist in emergency lighting for a range of different sectors.

   The acquisition is expected to enhance earnings per share in the first full financial year of ownership (to 30 June 2019), as well as complementing the Company’s existing technologies, providing potential growth opportunities and synergies. It is expected to make a minor contribution to Group profits in the year ending 30 June 2018.

   F W Thorpe has paid an initial consideration of €7.6m (circa £6.8m), with up to an additional €0.5m (circa £0.4m) payable subject to performance conditions relating to the EBITDA for 2017 and 2018.

   The Famostar investment will be acquired via Lightronics Participaties B.V., our holding company in the Netherlands and be subject to similar share appreciation conditions established when F W Thorpe acquired Lightronics in 2015.

   The initial consideration has been funded from the Company’s existing cash reserves and this is the intention for any additional consideration.

   The senior management team will remain in the business and report directly to the board of Lightronics B.V.

   About Famostar

   Famostar specialises in the development, manufacture and supply of emergency lighting products. Revenues are derived from the Netherlands, where it is considered one of the foremost brands in the market. Famostar was originally established in 1947, is based in Velp and currently employs 31 people.

   During its last financial year ended 31st December 2016, Famostar achieved revenues of €6.8m and adjusted profit before tax of €0.9m. For the year ending 31st December 2017 forecast revenues are €7.8m, with an adjusted profit before tax of €1.2m. Net assets as at 31st December 2016 were €2.9m.

   The addition of Famostar will further develop the Lightronics presence in the Netherlands and expand its emergency lighting product portfolio.

   Chairman, Mike Allcock commented:
   
   “I would like to welcome Famostar to the F W Thorpe group. We are looking to build upon our successful acquisition of Lightronics by growing our presence and our product portfolio in the Netherlands.

   With the addition of the successful Famostar brand and the potential to share our recent developments in wireless emergency lighting systems, we are looking forward to the opportunity to generate further value for our shareholders.”
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   Paying €7.6m plus up to €0.5m for pre-tax profit of €1.2m equates to a 6.3x pre-tax multiple — although my sums do not include the additional “share appreciation conditions” that will incur an extra cost.

   Famostar looks a decent business. Established for 70 years, enjoys a respectable 15% margin and employs 31 workers each producing average revenue at a sizeable c€250k.

   Maynard

4. FW Thorpe (TFW)

   Publication of 2017 annual report

   Oh dear. Reading TFW’s subsequent interim results made me realise that I did not study the firm’s 2017 annual report. I did wonder why some of the balance-sheet entries were odd.

   Anyway, here are the main points of interest:

   1) Risks

   The Risks section noted two extra (but not so unusual) dangers: cyber security and Brexit:

   

   Among the three risks TFW reckons had increased, ‘adverse economic conditions’ is probably the most worrying:

   

   

   There was no real indication of why economic conditions may deteriorate, unless it relates to the new Brexit risk.

   2) Thorlux

   Some snippets about Thorlux.

   The new SmartScan product — which allows users to monitor lighting via a computer — produced revenue of £7m-plus:

   

   Representing almost 7% of total revenue in its first year is not bad.

   I am pleased Thorlux appears to have global ambitions:

   

   3) Lightronics

   I think this was the only reference to currency-adjusted growth within the whole annual report:

   

   9% constant-currency growth versus 25% reported growth really ought to have been spotlighted prominently within the management narrative.

   Seems there is still work to do for Lightronics to enter the ‘industrial’ lighting marketplace:

   

   

   4) TRT

   The TRT division, which has suffered pricing pressure from customers, represents close to 9% of revenue:

   

   Street lighting is where the competition is being felt the most:

   

   The outlook suggests currency movements have put pressure on margins:

   

   However, the subsequent interim results suggested the issue is stiffer competition.

   5) IFRS15 and IFRS16

   Nothing to worry about with upcoming accounting changes:

   

   6) Assets

   Let’s now run through TFW’s eclectic collection of assets, which I include in my net cash/investment calculation:

   

   6a) Loans and receivables

   These are IOUs that were issued to:

   i) two former subsidiaries that were subject (I’m sure) to management buyouts, and;
   ii) the former owners of Lightronics to fund their new 35% equity participation within the subsidiary.

   I see the Mackwell notes were not repaid as initially scheduled:

   

   And a re-arrangement was agreed after the year end:

   

   The subsequent interim results showed loans and receivables up £2m to £6m. I assume the Mackwell situation explains part of that increase.

   6b) Investment property

   Here is the investment property note:

   

   Seems as if the riverbank land and the woodland may be worth more than their book values (which are not specified exactly):

   

   It is a bit sad that these properties only just cover their income:

   

   I have been told the land near the River Wye, which includes fishing rights (see point 7 below), is used for entertaining clients (and directors?).

   6c) Available-for-sale assets

   These are UK shares:

   

   Years ago I heard TFW’s portfolio included Lloyds TSB.

   6d) Other financial assets

   These are units in a sterling cash fund:

   

   No, I am not sure why you’d bother with such a fund either.

   7) Intangible assets

   I am quite confident TFW is the only quoted company that lists ‘fishing rights’ within its accounts:

   

   More notably, I see intangible write-offs and transfers came to £2,334k during the year. The transfer looks to be just £23k, so the £2m-plus write-off was significant.

   TFW’s cash flow statement…

   

   …shows amortisation of £2,302k, so I can only assume the write-off is taken directly as an expense to the income statement. For 2016, the write-off was £1.2m and for 2015 it was £0.8m. So the sums are becoming larger, which may indicate certain product developments are not going entirely to plan.

   Note also a £262k goodwill impairment — a small figure, but indicates something TFW has acquired has not worked out.

   8) Freeholds

   TFW’s freeholds have not been revalued for 20-plus years:

   

   The current book value is £11m:

   

   9) Trade receivables

   I like this. Higher revenue for the year, but lower unpaid customer invoices:

   

   Average trade receivables as a proportion of revenue was 17.6% for 2017, versus 20%-plus for the three previous years and the lowest percentage since 2009.

   10) Other payables

   These ‘other payables’ now include a few subsidiary liabilities as well as what TFW reckons it still has to pay for Lightronics:

   

   The subsequent interim results showed these ‘other payables’ advancing significantly to £11m… and I am not entirely sure why.

   There is another acquisition to consider, but I am not sure that explains everything. This is an entry I will need to keep an eye on.

   11) R&D tax credit

   TFW collected a £233k R&D tax credit during 2017 (sorry, no red box to highlight it):

   

   I don’t know why this credit is effectively treated as income, and not part of the tax calculation:

   

   I am sure other companies — Getech being one — account for such credits in the tax calculation.

   12) Pension scheme

   TFW’s pension notes show that final-salary schemes need not be ‘black holes’:

   This scheme boasts a small £714k surplus, which for complex bookkeeping reasons is not displayed on the balance sheet:

   

   Pension assets of £38m, plus combined employee/employer contributions of £1m, ought to be able to fund benefits of £1.2m a year:

   

   The pension contributions were largely charged to the income statement, with only £140k escaping but then showing up in the cash flow numbers:

   

   Company contributions for 2018 will not increase dramatically:

   

   13) Employees

   Some encouraging numbers here:

   

   Employee costs as a percentage of revenue — at 26.6% — was the lowest since at least 2004. Up until 2016, the figure had generally been 28%-plus. Revenue per employee also set a new record at £165k — 10% up on 2016 and double that achieved back in 2005. Average employee cost is now £44k, up 10% on 2016.

   14) Director pay

   No complaints here, given the year’s double-digit growth rate:

   

   Basic wages for the top two increased by only a few 000, and do not appear extravagant for a business reporting an £18m operating profit. Bonuses do not appear outrageous either. Staff options represent less than 2% of the share count, and board options less than 1%.

   Maynard

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