Nerves of steel

Judging by Metalrax‘s full-year results, published earlier this week, the company, which manufactures pots, pans and baking trays and a range of engineered metals, components and products for industry, is recovering. But the story has its financial complications.

The bigger specialist engineering division is recovering well, but pots and pans are barely profitable at the operating level and overall the results are perhaps marginally better than last year. Here are the stats:

The left hand side of the table shows items taken mostly from the company’s financial statements in the years to 31 December 2011 and 31 December 2010. The right hand side shows the nine factors derived from the left hand side that comprise Piotroski‘s F_Score, which tells us if Metalrax’s financial position is improving.

It is, broadly. A score of seven out of nine shows improving strength, specifically Metalrax is more profitable in accounting terms than it was last year and less indebted. Although its cash profitability didn’t match its accounting profitability, at least it was positive.

The ''1.8m net profit Metalrax made excludes exceptional costs, mostly the amortisation of ''1.4m of the cost of its previous refinancing in 2009. Include exceptional items and it just about broke even, but I think this may be the end of large refinancing charges, so perhaps the ''1.8m figure gives us a better idea of the company’s potential profit in future. Certainly the charge is bigger than it should have been as Metalrax accelerated amortisation before arranging a new facility with its bank in February.

Metalrax has not banished long-term debt from its balance sheet as the statistics imply, it repaid a little but the rest has enjoyed a short sojourn in current liabilities as it approached maturity. Now the company has refinanced, long-term debt will reappear on its next balance sheet and Metalrax admits to the possibility another downturn could result in it breaching its new covenants.

It did pay off some debt in 2011, but that was mostly from the proceeds of two properties it sold and then leased back, replacing an obligation to the bank with an obligation to the landlord. Arguably, this manoeuvre leaves it indebted, just in a different way, and to see how much its lease obligations have increased, we’ll have to wait for the annual report in April.

So I’m looking at a qualified, quasi-phantasmagorical, turnaround, that is as much the result of shifting items around Metalrax’s financial statements as it is about cooks rushing to buy skillets and warehouse managers queuing to buy pallet trucks

But at least it doesn’t look like things are getting worse.