Straight's aim to be £100m recycling company

The Leeds-based wheelie bin maker yesterday reported a drop in half-year pre-tax profits and revenues, but said a strengthening of margins and "healthy" order book should drive it to an expectation-beating second half.

Straight, founded in 1993 by chief executive Jonathan Straight, has ambitious plans to grow its international reach and scale.

Last month Straight bought Hull injection moulding firm Dyro Holdings for a total 2.9m, taking manufacturing in-house for the first time.

"We saw the benefit of getting closer to what we are making and as a consequence we have now embraced manufacturing," said Mr Straight. "We are firm believers in manufacturing in the UK and in particular Yorkshire.

"There's a good labour force and it's possible to manufacture with good cost control in Yorkshire. We're able to favourably compete with anything that comes from overseas."

The group plans to expand into a building neighbouring its Dyro plant in east Hull by the end of March.

It is also exploring ways of generating its own electricity at the site, via solar panels and wind turbines.

"We're looking to make what we're doing there a champion of sustainable and environmental manufacturing," added Mr Straight.

Straight now makes 58 per cent of its own products and wants to grow this to 80 per cent.

Pre-tax profits in the first six months of the year fell 11 per cent to 847,000.

However, underlying operating profits were up five per cent to 993,000 and gross margin improved from 18.3 per cent to 24.8 per cent.

Straight saw half-year revenues plunge 23 per cent to 13.2m because of a drop in sales of wheelie bins made by a key supplier Helesi.

The group previously had a distribution deal to sell Helesi's bins, but when that deal ended, a chunk of low margin sales disappeared.

Straight responded by paying 1.65m in April for the bulk of Helesi's equipment, UK order book and, crucially, its first branded wheelie bins.

This manufacturing was moved to Dyro's plant in Hull, before Straight decided to buy Dyro outright.

Mr Straight said instead of the five per cent margin it was making on reselling Helesi's bins, it is now making a 14 to 17 per cent margin manufacturing the bins itself, profitability it hopes to improve further,

"We were looking to re-enter the market with our own range of bins and moulds," said Mr Straight.

"But that would have taken six months longer to implement than buying the Helesi business."

He said the two acquisitions put it on course for its five-year plan, which targets a 100m market capitalisation, compared with its current 13m level.

It also plans to grow international manufacturing to 20 per cent of sales by the end of 2014.

Straight intends to pay a 1.35p per share dividend, up four per cent.

Firm's rating set to improve

Shares in Straight rose 4.29 per cent yesterday to close up 4.5p at 109.5p.

Analysts at house broker Cenkos said its "valuation (is) too low... considering the growth drivers of the business and potential for earnings enhancement through acquisitions".

Straight plans to buy more companies, possibly funded through rights issues of placings, to grow its scale.

"We expect Straight's rating to improve once it starts to become apparent that the recent acquisitions have been bedded down successfully and are generating the expected returns," added Cenkos.

"There is also potential for further earnings enhancing acquisitions that could lead to step increases in earnings from what is a relatively low base of profitability."

They said the company can expect profits growth in the second half, and expect pre-tax profits of 1.8m for the full year.

"The group currently has a healthy order book which should translate to organic growth in the second half," they said.