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Dewhurst (LSE:DWHA) has a number of niche manufacturing and distribution business with many displaying high market shares, strong reputations and long-standing relationships with customers and the agents of clients (e.g. architect specifying Dewhurst lift components for new high rise building).
The UK and Europe businesses
Dewhurst UK Manufacturing
What it does:
- Pushbuttons, e.g. those in the Shard lifts, the Elizabeth Line, Dubai train station, Network Rail elevators, the tallest building in Hong Kong, Heathrow’s Terminal 5 lifts.
- Key switches – locks lifts so only those with a key can get at the controls
- Displays, e.g. electric display boards on London Underground
- Lanterns – waiting passengers can see which elevator has arrived.
- Fixtures – the entire panel in lifts with all the electronics behind it
- Customising design for prestigious interiors of lifts.
- Destination control – lifts figuring out where a lift is to go.
- Rail multi-sounder – doors talking to passengers, e.g. “door about to close”.
A large proportion of the UK manufactured goods is sent to customers abroad or sold through subsidiaries based in Australia, Hong Kong, Dubai, etc.
2018 Annual Report: “Sales declined at Dewhurst UK for the second consecutive year mainly due to overseas markets being less buoyant than had been expected. The UK market was also quite stagnant, with a recurring theme of projects being delayed. We have been extremely active on the product design side. We launched our first wholly new rail product for many years. The Train Despatch Equipment Unit has been developed in conjunction with Network Rail and brings together all the components required by a train despatcher, into one module. The unit is currently being trialled at Birmingham New Street Station and in due course is expected to be rolled out onto the platforms of many large stations. For the lift industry we have extended our Profile Plus Landing Station range to include three new widths. We have also launched two new sizes of our US1 touch car operating panel.”
Thames Valley Controls
Lift control and remote monitoring of lifts (e.g. gives operational information online such as reports lift performance). Also, CCTV, e.g. in Manchester’s Arndale Centre.
Local Councils and Housing Associations use Dewhurst’s “Non Invasive Monitoring” system providing both lift monitoring and breakdown indication irrespective of make of lift. The online dashboard gives customers instant breakdown advice, KPI reports for tenants and better management of repairs.
2017 Annual Report: “another challenging year for this division”.
2018 Annual Report: “the lift business in the UK was up significantly, with 9% of organic growth… some parts of the lift market were reasonably strong, others were weaker…strong growth from Thames Valley Controls…After two quite difficult years at TVC, the company has bounced back with strong sales growth and a significant improvement in profits. Demand for both our controller products and our monitoring systems increased… We now have four automated test simulation units which have contributed significantly in reducing test times. The Application Engineering Team have continued their work with a new computer aided engineering system to increase end to end efficiency in the production of controllers. In the summer we launched our first controller onto the shop floor that had been engineered using this system.”
Traffic Management Products
Mostly the manufacture of road bollards that bounce back when run over. This division was bought about a decade ago and was a perennial disappointment.
However, in 2016 sales grew “significantly”, and in 2017 “slightly”. These bollards are highly customisable regarding style, signs and banding (976 variations available). Far Eastern sales are growing.
2018 Annual Report: “business fell slightly…mainly as a result of reduced demand for our solar powered products. TMP have launched a large number of new products over the last two years. Whilst some of these products have become well established and achieved good growth, others have not gained the traction we had originally hoped for. Management are aware of this challenge and are working with the sales team to grow the sales of all these new products. As we indicated last year, we have taken the decision to move key manufacturing processes in house. Good progress has been made on this project, which has led to some major changes for TMP. We have relocated the business to Birmingham and in our new facility, have all the plant required for vacuum forming, rotational moulding, lamination and assembly of our highway and street bollards. This should allow us to generate a significant improvement in both the gross and net profit of the business in the future.”
A&A Electrical Distribution – the new UK division
This business was bought by Dewhurst in June for between £10.5m and £12.25m cash. It has a 55,000 sq ft warehouse in London containing 30,000 lift components, cable and electrical equipment, such as those for escalators. It has stocked Dewhurst’s products for many years alongside those from other manufacturers and can supply anywhere in the UK within the day using its own vehicle fleet. Leading products that A&A supply include, electrical trailing cable, safety items such as car top controllers, shaft lighting. “Foremost lift component supplier in the UK…They act as a one stop shop for key components that are required in new lift installations and modernisations.” (2018 Report)
Acquiring A&A will enhance Dewhurst’s market position – I imagine international manufacturing competitors are concerned that Dewhurst now controls this powerful distributor. Buying it with cash, at a low price relative to its proven profits, is likely to push up earnings per share very significantly. “For the year ended 30 June 2016, A&A generated (audited) profit before tax of £3.3 million on turnover of £11.4 million…The Acquisition…will be immediately earnings enhancing.” (announcement of the acquisition, 4 June 2018).
Alan and Ann Warren, who started A&A 35 years ago, are now ready to at least semi-retire. They will both stay on for a short while to help smooth the transition, and Alan will join Dewhurst’s main board as a NED for two years (remuneration: £20k).
The main executive replacement at A&A will be John Bailey, appointed MD. John has been with Dewhurst since 2008 and was until recently MD of Traffic Management Products. The FD of A&A will be Jeremy Dewhurst, a chartered accountant, formerly with Deloitte’s.
The current task is to “fully aligning their systems”. The business is already showing promise, “We have the opportunity at A&A to further improve our customer service by making products available online. We also have the opportunity to replicate, in part, the A&A model to other overseas businesses in the Group…The business is performing in line with our expectations” (2018 Annual Report)
“A&A Electrical Distributors Ltd (A&A) contributed £3.9 million sales in the 4 months to September 2018 and £0.9m of profits to the Group. If the acquisition had occurred on 1 October 2017, Group turnover would have been around £62.3 million and Group operating profit for the period would have been around £8.0 million (before adjusting for any amortisation of acquired intangibles)”.
Dewhurst Hungary
A decade ago Dewhurst built a factory in Hungary to manufacture its keypads for ATMs etc. This was at the behest of a major customer. This raises the concern of being overreliant on one customer.
Today, this customer accounts for over 90% of the d
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