REG - Airea PLC - Final Results
AIREA plc
Preliminary results for the 18 month period ended 31st December 2017
HIGHLIGHTS
· Commercial Floorcoverings business Operating Profit before exceptional items of £4.3m
· Export sales growth of 58 % over last six months following entry into new geographical markets, strengthening of international dealer network, and successful launch of new products
· Broader product range of new products based on new technology investment in 2017 has opened up new markets & opportunities as planned
· Closure of loss making residential carpet business (Ryalux) will be cash generative with receipts from stock realisation & sale of plant and machinery exceeding closure costs
· The Group's simplification and focus on its core Burmatex business is expected to deliver considerable and sustainable free cash generation in the mid-term, creating considerable shareholder value.
· At the AGM on 10th May 2018 the board will be seeking authority to return some value to shareholders through a buy-back of up to 6m shares (14.5% of current share capital)
· Pension deficit reduced by £4.5m to £2.2m with, statutory funding position deficit reduced to zero
· Strong cash generation and closure of Ryalux businesses supports a 5p special final dividend
· Total dividend payment (inclusive of the interim dividend) for the financial period of 6.75p
Strategic Report
Principal activity and strategy
The group remains focused on the manufacture, marketing and distribution of floor coverings. Our approach to strategy is uncomplicated; to develop products that sell, exploit the strength of our combined manufacturing and distribution operation, and deliver robust cash flows to support a progressive dividend policy.
Overview
As recently announced the Company has entered into a formal consultation period with employees concerning the proposed closure of the residential carpets business. Operating as Ryalux Carpets Limited ("Ryalux"), the residential carpets business offers high quality standard and custom broad loom carpets available through carpet retail outlets. The Company has proposed the closure of Ryalux Carpets Limited as the business has been loss making for a number of years. Airea has implemented a range of initiatives in recent years to improve the business, including new product development, rationalisation of sites and strict cost controls. Despite this, the trading environment for residential carpets has worsened and the ongoing trend to cheaper synthetic products has led to further declines in demand for high quality tufted woollen carpets. In the 18 months to 31 December 2017 Ryalux Carpets Limited generated an operating loss before exceptional items of £3.1m on revenue of £9.9 million. The Company has incurred exceptional costs of £1.7m, inclusive of £1.1m of asset impairment and provisions, associated largely with a reduction in working capital and impairment of assets. Overall, the closure is likely to be cash generative, with receipts from the realisation of assets being greater than closure costs.
Going forward the increase in free cash generation arising from the proposed elimination of losses previously incurred by Ryalux will enable increased investment in the highly profitable commercial flooring business operated under the Burmatex brand ("Burmatex"). In the eighteen months to 31 December 2017 the commercial floorcoverings division generated an operating profit before exceptional items of £4.3m on sales of £26.9m. The investment in new technology made earlier in the period is now coming to fruition with the launch of a series of new products, which will open up new higher value markets. This adds to the successful launch of a competitively priced entry product, which has already established a significant market share in its own right as well as opening up new opportunities for the rest of the product range. Burmatex now has a range of products to profitably compete across the broad spectrum of price points. We are already seeing the benefit in sales growth both in the UK and internationally.
It is pleasing to report that the improved management of liabilities and a refocussed investment strategy has seen a considerable improvement in the funding position of the legacy defined benefits pension scheme. The accounting deficit reduced by £4.5m to £2.2m.
We also saw an increase in valuation of the investment property to £3.2m from £2.7m. The gain, which is highlighted separately in the income statement, results from the increased rent potential following extensive refurbished carried out in the period.
As previously announced, the company's accounting reference date has been changed to the 31st December, necessitating an eighteen month reporting period. The comparative figures cover a twelve month period, which means they are not directly comparable. However, moving forward the new reporting period will be more closely aligned to the company's business cycle.
Group results
Revenue for the period was £36.7m (2016: £24.6m). Operating profit before exceptional items was £1,156,000 (2016: £2,013,000). The reduction in profitability resulted from the accelerating losses in the residential carpets business. The exceptional costs of £2.2m (2016: £1.3m) relate in the main to the rationalisation of the residential carpets business and the associated impairment of assets. The exceptional income of £0.4m arises from the revaluation of the investment property. The operating loss after exceptional items was £578,000 (2016: profit £2,042,000). Other finance costs relating in the main to the defined benefit pension scheme were £932,000 (2016: £651,000). After a tax credit of £140,000 (2016: charge £114,000), the loss for the year was £1,370,000 (2016: profit £1,277,000).
Basic loss per share was 3.31p (2016: earnings 3.01p), and basic adjusted earnings per share1 were 1.97p (2016: 2.96p).
Operating cash flows before movements in working capital and other payables were £1,007,000 (2016: £2,041,000). Working capital decreased by £2,201,000 (2016: £1,009,000) due in the main to the run down of inventories in the residential carpets business. Contributions of £600,000 (2016: £400,000) were made to the defined benefit pension scheme in line with the agreement reached with the trustees based on the 2014 actuarial valuation. Capital expenditure gross of asset finance of £1,313,000 (2016: £704,000) and investment in intangible assets of £163,000 (2016: £nil) related in the main to the introduction of new technology.
The reduction of £4.5m in the pension deficit to £2.2m (2016 £6.7m) stemmed principally from strong investment returns on scheme assets.
Key performance indicators
As part of its internal financial control procedures the board monitors certain financial ratios. To enable meaningful comparison where figures cover an eighteen month period, they have been reduced to a twelve month equivalent on a simple time apportionment basis. For the eighteen months to 31st December 2018, adjusted to a twelve month equivalent, value added per employee (the ratio of sales less material costs to average employee numbers) amounted to £69,000 (2016: £70,000), operating return on sales (the ratio of operating profit before exceptional items to revenue) was 3.1% (2016: 8.2%), return on average net operating assets (the ratio of operating profit before exceptional items to average operating assets) was 4.2% (2016: 11.0%) and working capital to sales percentage was 24.8% (2016: 34.3%). The reduction in the performance indicators is as a result of the deterioration of the residential carpet business. The directors are confident that the actions taken will drive significant improvement in the future.
Principal risks and uncertainties
The Board has responsibility for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives, and ensuring that risks are managed effectively across the group. Risks are identified as being principally based on the likelihood of occurrence and potential impact on the group. The group's principal risks, which remain consistent with the prior year, are identified below, together with a description of how the group mitigates those risks.
The key operational risk facing the business continues to be the competitive nature of the markets for the group's products. To mitigate this risk the group seeks to improve existing products, introduce new products and achieve high levels of customer service and efficiency.
The majority of the group's revenue arises from trade with flooring contractors and independent retailers. The activity levels within this customer base are determined by consumer demand created through a wide range of commercial refurbishment and building projects and activity in the housing market. The general level of activity in these underlying markets has the potential to affect the demand for products supplied by the group. The group mitigates these factors by closely monitoring sales trends and taking appropriate action early, along with strengthening the product range and developing new channels to market, both at home and abroad, to grow demand across a wider range of markets.
The group operates a defined benefit pension scheme. At present, in aggregate, there is an actuarial accounting deficit between the value of the projected liabilities of this scheme and the assets they hold. The amount of the deficit may be adversely affected by changes in a number of factors, including investment returns, long-term interest rate and price inflation expectations, and anticipated members' longevity. Further increases in pension scheme deficit may require the group to increase the amount of cash contributions payable to the scheme, thereby reducing cash available to meet the group's other operating, investing and financing requirements. The performance and risk management of the group's pension scheme and deficit recovery plan are regularly reviewed by both the group and the trustees of the scheme, taking actuarial and investment advice as appropriate. The results of these reviews are discussed with the Board and appropriate action taken. Following the triennial funding valuation of the group's pension scheme as at 1st July 2017, a revised deficit recovery plan was agreed. Under the plan the company will continue to make annual contributions of £400,000, even though the statutory funding deficit has been eliminated. This is to allow a gradual reduction in investment risk.
Other risks
Raw material costs are a significant constituent of overall product cost, and are impacted by global commodity markets. Significant fluctuations in raw material costs can have a material impact on profitability. The group continuously seeks out opportunities to develop a robust and competitive supply base, substitute new materials and closely monitors selling prices and margins.
The global nature of the group's business means it is exposed to volatility in currency exchange rates in respect of foreign currency denominated transactions, the most significant being the euro. In order to protect itself against currency fluctuations the group has taken advantage of the opportunity to naturally hedge euro revenue with euro payments. This is done in combination with foreign currency bank accounts and forward exchange contracts. No transactions of a speculative nature are undertaken.
Other risks include the availability of necessary materials, business interruption and the duty of care to our employees, customers and the wider public. These risks are managed through the combination of quality assurance and health and safety procedures, and insurance cover.
The long term impact of the Brexit Referendum is not yet clear in respect of the degree in respect of its impact on future economic growth in the UK market, or on any additional tariffs that may apply to UK businesses trading with the European Union. The group monitors this position and adjusts its forward plans where appropriate. It is believed that the group's strength in refurbishment markets, its position as a UK manufacturer with a strong presence in the UK market and strategies of developing new sales channels will act to mitigate the impact of adverse changes and provide opportunities for growth.
Management and personnel
We recognise the hard work and dedication our staff have applied in trying to recover the fortunes of the residential carpets business. We thank them for the dedication they have continued to show during the most challenging of times.
Current trading and future prospects
The changes we are making to the business and the increased investment in our successful commercial flooring business provides significant opportunities for profitable growth. Given our confidence in the future prospects of the business, the ongoing improvement in the performance of the commercial floorcoverings business, and the cash surplus arising from the actions taken in the residential carpets operation we will be proposing a special dividend payment. If approved, a final dividend of 5.0p per share will be paid on 23rd May 2018 to shareholders on the register at close of business on 13th April 2018, with an ex dividend date of 12th April 2018.
MARTIN TOOGOOD NEIL RYLANCE
Chairman Chief Executive Officer 20th March 2018
1 Adjusted earnings are earnings adjusted for exceptional operating items (net of tax)
Enquiries:
Neil Rylance 01924 266561
Chief Executive Officer
Roger Salt 01924 266561
Group Finance Director
Richard Lindley 020 7496 3000
N+1 Singer
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
The financial information set out in the announcement does not constitute the group's statutory accounts for the 18 month period ended 31 December 2017 or the year ended 30 June 2016. The financial information for the year ended 30 June 2016 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not include any statement under s498(2) or s498(3) of the Companies Act 2006. The consolidated balance sheet at 31 December 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated cash flow statement, the consolidated statement of changes in equity and the segmental reporting for the 18 month period then ended have been extracted from the Group's 2017 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under s498(2) or s498(3) of the Companies Act 2006.
The announcement has been agreed with the company's auditor for release.
Consolidated Income Statement
18 month period ended 31st December 2017
18 months ended 31st December
12 months ended 30th June
2017
2016
£000
£000
Revenue
36,749
24,577
Operating costs
(37,327)
(22,535)
Operating profit before exceptional items
1,156
2,013
Exceptional costs
(2,183)
(1,271)
Pension credit
-
1,300
Unrealised valuation gain
449
-
Operating (loss) / profit
(578)
2,042
Finance costs
(932)
(651)
(Loss) / profit before taxation
(1,510)
1,391
Taxation
140
(114)
(Loss) / profit attributable to shareholders of the group
(1,370)
1,277
(Loss) / earnings per share (basic and diluted)
(3.31)p
3.01 p
All amounts relate to continuing operations
Consolidated Statement of Comprehensive Income
18 months ended 31st December 2017
18 months ended 31st December
12 months ended 30th June
2017
2016
£000
£000
£000
£000
(Loss) / profit attributable to shareholders of the group
(1,370)
1,277
Actuarial gain / (loss) recognised in the pension scheme
4,827
(291)
Related deferred taxation
(862)
(83)
3,965
(374)
Unrealised valuation gain
117
3,009
Related deferred taxation
-
(240)
117
2,769
Total other comprehensive income
4,082
2,395
Total comprehensive income attributable to shareholders of the group
2,712
3,672
Consolidated Balance Sheet
as at 31st December 2017
31st December
30th June
2017
2016
£000
£000
£000
£000
Non-current assets
Property, plant and equipment
5,294
5,489
Intangible assets
124
-
Investment property
3,150
2,701
Deferred tax asset
389
1,264
8,957
9,454
Current assets
Inventories
6,937
9,338
Trade and other receivables
2,893
4,601
Cash and cash equivalents
3,702
3,114
13,532
17,053
Total assets
22,489
26,507
Current liabilities
Trade and other payables
(3,745)
(5,505)
Provisions
(300)
(125)
Obligations under finance leases
(183)
-
(4,228)
(5,630)
Non-current liabilities
Pension deficit
(2,164)
(6,685)
Deferred tax
(268)
(241)
Obligations under finance leases
(510)
-
(2,942)
(6,926)
Total liabilities
(7,170)
(12,556)
15,319
13,951
Equity
Called up share capital
10,339
10,339
Share premium account
504
504
Capital redemption reserve
3,617
3,617
Revaluation reserve
3,126
3,009
Retained earnings
(2,267)
(3,518)
15,319
13,951
Consolidated Cash Flow Statement
18 month period ended 31st December 2017
18 Months ended 31st December
12 Months ended 30th June
2017
2016
£000
£000
Cash flows from operating activities
(Loss) / profit for the year
(1,370)
1,277
Depreciation
927
837
Amortisation
39
Finance costs
932
651
Profit on disposal of property, plant and equipment
-
(6)
Tax (credit) / expense
(140)
114
Pension credit
-
(1,300)
Tangible fixed assets impairment
708
-
Inventory impairment
289
468
Trade receivables impairment
71
-
Unrealised valuation gain
(449)
-
Operating cash flows before movements in working capital
1,007
2,041
Decrease in inventories
2,112
841
Decrease / (Increase) in trade and other receivables
1,674
(189)
(Decrease) / Increase in trade and other payables
(1,760)
232
Increase in provisions for liabilities and charges
175
125
Cash generated from operations
3,208
3,050
Income tax received
143
61
Contributions to defined benefit pension scheme
(600)
(400)
Net cash generated from operating activities
2,751
2,711
Cash flows from investing activities
Payments to acquire tangible fixed assets
(392)
(704)
Payments to acquire intangible fixed assets
(163)
-
Receipts fro sales of tangible fixed assets
-
25
Net cash used in investing activities
(555)
(679)
Cash flows from financing activities
Interest paid
(26)
-
Finance lease repayments
(238)
-
Share repurchase
-
(410)
Equity dividends paid
(1,344)
(391)
Net cash used in financing activities
(1,608)
(801)
Net increase in cash and cash equivalents
588
1,231
Cash and cash equivalents at start of the year
3,114
1,883
Cash and cash equivalents at end of the year
3,702
3,114
Consolidated Statement of Changes in Equity
18 month period ended 31st December 2017
Share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Profit and loss account
Total equity
£000
£000
£000
£000
£000
£000
At 1st July 2015
10,851
504
3,105
-
(3,380)
11,080
Comprehensive income for the year
Profit for the year
-
-
-
-
1,277
1,277
Other comprehensive income for the year
-
-
-
3,009
(614)
2,395
Total comprehensive income for the year
-
-
-
3,009
663
3,672
Contributions by and distributions to owners
Share repurchase
(512)
-
512
-
-
-
Consideration paid on share purchase
-
-
-
-
(410)
(410)
Dividend paid
-
-
-
-
(391)
(391)
Total contributions by and distributions to owners
(512)
-
512
-
(801)
(801)
At 30th June and 1st July 2016
10,339
504
3,617
3,009
(3,518)
13,951
Comprehensive income for the period
Loss for the period
-
-
-
-
(1,370)
(1,370)
Other comprehensive income for the period
-
-
-
117
3,965
4,082
Total comprehensive income for the period
-
-
-
117
2,595
2,712
Contributions by and distributions to owners
Dividend paid
-
-
-
-
(1,344)
(1,344)
Total contributions by and distributions to owners
-
-
-
-
(1,344)
(1,344)
At 31st December 2017
10,339
504
3,617
3,126
(2,267)
15,319
Notes to the Financial Statements
1
SEGMENTAL REPORTING
The group presents its results in accordance with internal management reporting information which means that the group is reported as two segments. The residential carpets business was separated out during the period, assets revenues and cost allocated accordingly and the segment monitored separately during the period as a result of increasing losses. The commercial floorcoverings segment focusses on the design and manufacture of floorcoverings to meet the needs of architects, specifiers and contractors for the education, leisure, commercial, healthcare and public sectors. The residential carpets segment produces standard and bespoke carpets distributed through independent carpet retail outlets. The performance of the group is monitored and measured and strategic decisions made by the Chief Operating Decision Maker, which is deemed to be the board, on the basis of the group's results. The group's results include all items presented under IFRS. This management information therefore accords with group financial information presented in the consolidated income statement and consolidated balance sheet.
Revenue is reported by geographical location of customers, and by market sector.
All revenue is generated by operations within the United Kingdom and all assets are located in the United Kingdom.
18 month period ended 31st December 2017
Commercial
Residential
Total
Floorcoverings
Carpets
£000
£000
£000
Revenue
26,890
9,859
36,749
Operating costs
(22,658)
(14,669)
(37,327)
Operating profit / (Loss) before exceptional items
4,255
(3,099)
1,156
Exceptional costs
(472)
(1,711)
(2,183)
Unrealised valuation gain
449
-
449
Operating profit / (Loss)
4,232
(4,810)
(578)
Finance costs
(932)
-
(932)
Profit /(Loss) before taxation
3,300
(4,810)
(1,510)
Taxation
186
(46)
140
3,486
(4,856)
(1,370)
Depreciation charge
291
636
927
Amortisation charge
39
-
39
Capital expenditure
1,428
58
1,486
Segment assets
14,286
1,033
15,319
Year ended 30th June 2016 (Restated)
Commercial
Residential
Total
Floorcoverings
Carpets
£000
£000
£000
Revenue
18,066
6,511
24,577
Operating costs
(13,424)
(9,111)
(22,535)
Operating profit / (loss) before exceptional items
3,342
(1,329)
2,013
Exceptional costs
-
(1,271)
(1,271)
Pension credit
1,300
-
1,300
Operating profit / (loss)
4,642
(2,600)
2,042
Finance costs
(651)
-
(651)
Profit / (Loss) before taxation
3,991
(2,600)
1,391
Taxation
(114)
-
(114)
3,877
(2,600)
1,277
Depreciation charge
214
623
837
Capital expenditure
248
456
704
Segment assets
10,722
3,229
13,951
Analysis of revenue by destination
18 months ended 31st December
12 months ended 30th June
2017
2016
£000
£000
United Kingdom
28,717
20,246
Republic of Ireland
2,050
960
Rest of Europe
5,215
2,866
North America
42
91
Rest of the World
725
414
36,749
24,577
In accordance with Rule 20 of the AIM Rules, Airea confirms that the annual report and accounts for the period ended 31st December 2017 will be available to view on the Company's website at www.aireaplc.co.uk on 21st March 2018, and will be posted to shareholders by 28th March 2018.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR FKKDBCBKDQNB
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