Titon Holdings (TON ), a manufacturer and supplier and ventilation systems and window and door hardware, released unaudited interim results for the 6 months ended 31 March 2023 (H1 23).
Titon's net revenue rose by 5.2% due to stronger trading in the UK and Europe, slightly ahead of management expectations. EBITDA was £0.18m, down from £0.28m in FY22, reflecting lower gross margins - 26% in 1H23 compared to 28% in 1H22 as the group continued to manage labour, material, and energy cost inflation.
As a a result of lower margins, its pre-tax loss widened to £0.45 after depreciation and amortisation charges of £0.49m, compared £0.25m in 1H22. Its cash balance at the end of the period after payment of dividends was a comfortable £1.6m, roughly unchanged from the end of FY22. The interim dividend was cut to 0.5p from 1.5p last year.
Titon said sales of ventilation systems rose 31% against 1H22, driven by strong European performance where sales rose 124% as component shortages eased and production caught up with demand.
Window and door hardware sales in the UK fell by 9% due to lower sales of bought-in hardware products following the ending of a distributor relationship, but sales of Titon-manufactured products increased by 16%.
Trading in South Korea remained challenging due to the weak housing market there and the movement to mechanical ventilation products. Sales were marginally lower against the same period last year and losses were higher.
As a result of the slowdown in the housing market, Titon expects 2H23 revenues from the UK and Europe to be "slightly lower" than 1H23. On a full-year basis, the company continues to expect trading in the UK and Europe to be in line with expectations. However, as a result of difficult trading conditions in South Korea, Titon anticipates its full-year results to be lower than previously expected.
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Titon enjoyed 5% higher sales in its UK and European markets in 1H23 despite the loss of a distributor, slightly ahead of management expectations. However, inflationary pressures resulted in lower margins and in turn a wider loss of £0.45m.
Against the difficult macro-economic backdrop and slowdown in the housing market, the company expects second-half revenues in the UK and Europe to be slightly lower than last year. However, on a full-year basis, Titon continues to trade in line with prior expectations in the UK and Europe.
Trading in South Korea remains difficult as the construction market has seen projects delayed, and losses were higher than expected. Although UK and Europe trading is staying in line with expectations, weaker trading in South Korea is expected to push Titon's full-year results lower than expected.
Overall, despite current challenges, the outlook for Titon remains positive. As the macroeconomic backdrop in the UK and Europe improves, so should Titon's margins. In South Korea, a rebound in profitability is expected once the transition from natural ventilation products to mechanical products starts to take effect, with a small sales increase forecast for FY23/24.
The economic outlook for the UK has improved in recent months compared to earlier forecasts that the country would enter a recession this year. In March 2023 the UK Office for Budget Responsibility forecast two quarters of negative growth in GDP before the economy starts growing again in Q3 2023. The Construction Products Association now forecasts that private housebuilding output will fall by 17% in 2023 before recovering by 4% in 2024 and with falls in RM&I of 9% in 2023 and rising by 2% in 2024 in the UK.
Titon continues to benefit from a strong balance sheet at period end, with a solid £1.6m net cash balance against its £8.6m market cap and no debt. Titon's broad product spread and growth opportunities, supported by recent regulatory changes, should support sales through the difficult half-year ahead. The company has made progress against its identified 2023 "key business imperatives" and has caught up to its order backlog. New product development is continuing with a number of new mechanical and hardware product launches planned.
Regarding the difficulty in South Korea and broader inflationary pressures, Titon said it is focused on managing its cost base and improving efficiency throughout the business, with a plan to streamline its corporate structure and operations in the country.
Titon has started a recruitment process to hire a new chief executive after the departure of Alexandra French, and will update shareholders at a later time.
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