Holders Technology - Capital usage in the two business areas

PUBLISHED: Mar 04 2016 @ 02:00 | Comments (0) |

The key to a revival of Holders Technology (LSE:HDT) is to cut out value-destructive activities, thereby not only reducing losses but releasing cash.
We have seen a decline in the amount of money tied up in inventory and receivables. Is this evidence of partial liquidation by getting out of unprofitable customer servicing?
Start with the overall company numbers:

£m	November 2012	November 2014	November 2015
Inventories	3.14	2.74	2.53
Receivables	2.40	1.95	1.56
Total	5.54	4.69	4.09
Reduction 2012 to 2014 (24 months)		0.85 15%
Reduction 2014 to 2015 (12 months)			0.6m 13%
Reduction 2012 to 2015 (36 months)			1.45 26%

A company with a market capitalisation of £1m has reduced the cash tied up in inventory and receivables by £1.45m over 36 months.
But also note that over the same period net current asset value has fallen by £1.24m from £4.45m to £3.21m. Trading losses total £0.66m over those three years.
If more cash can be released from the £4.09m in inventory and receivables as unprofitable activities are curtailed then the BS might shift to a higher proportion of cash – perhaps the cash will exceed MCap.
Unfortunately, the recent evidence is not good: cash went down by £191k over the last year rather than up.
Different stories for the PCB and the LED businesses.

Printed circuit board supplies
The business supplying components to printed circuit board manufacturers has been declining for years.
In the most recent 12 months revenue was down 25%, and comments such as “PCB market in 2015 continued to be demanding…..sharply reduced customer demand” and “In the current year, given market conditions, it will be difficult for our PCB activities to make a positive contribution” confirm my view that this division should be killed off, or, at least, reduced to its profitable niches.
However, it would not be sensible to kill it off hastily. As cash tied up in inventory and receivables is released the company will carry on trading with some customers and so is obliged to carry a minimum stock level.
Also German labour laws may not permit rapid redundancy without high cost. So a subtle release of capital is required. How are the managers doing on this score?
First, note that employee numbers across the company have fallen to 78 compared with 107 in 2011 (they were down by 6 in 2015).
Also staff costs were £2.7m five years ago; they are £2.1m now.
It’s unlikely that staff numbers in the LED business have gone down as this division is being built up. I thus surmise that PCB has lost over 40% of its staff.
But has that released any money? Here are some numbers:
PCB Division – Costs, Profits and Assets

£000’s	2012	2013	2014	2015
Revenue	11,036	11,011	11,025	8,304
Gross profit	2,760	2,640	2,546	1,853
Gross margin	25%	24%	23.1%	22.3%
Distribution costs	316	301	333	272
Administrative costs	2,257	2,154	2,182	1,707
Other operating income	47	56	45	98
Division operating profit	234	241	76	-28
Assets	8,522	9,453	7,314	6,509
Liabilities	2,467	1,919	1,841	1,970
Net assets	6,055	7,534	5,473	4,539

In the last year gross profit fell by £693k compar……….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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