RNS Number : 0969S
Airea PLC
07 March 2019
AIREA plc
Preliminary results for the 12 month period ended 31st December 2018
HIGHLIGHTS
· Profit attributable to shareholders increased £3.4m to £2.0m (2017: £1.4m loss)
· Operating profit before exceptional items increased 7.1% to £3.0m over last year's corresponding 12 month period of £2.8m
· Revenue increased 8.4% to £19.3m over last year's corresponding 12 month period of £17.8m
· Export sales growth of 15.7% continued the upward trend of 2017
· A stronger and broader product range following investment in new technology continues to open up new markets and opportunities
· The closure of the Ryalux business was successfully completed during the first half of the year in line with expectations with focus now solely on the profit making Burmatex flooring business and opportunities
· There were no exceptional costs during the year
· Basic Earnings per share increased 36.6% to 8.21p over last year's corresponding 12 month period of 6.01p
· A progressive dividend policy continues with final dividend increased 14.3% to 2.0p from the interim dividend of 1.75p
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
Airea plc is pleased to report significant growth in revenue and operating profit before exceptional items compared to the corresponding 12 month period. The decision to close the Ryalux business has increased free cash generation within the business supporting a progressive dividend policy. The group profit attributable to shareholders increased significantly compared to the prior year as the group enjoyed the benefits of sales growth and the closure of Ryalux.
Successful launches of higher added value products and sales growth in UK and International markets has driven the improved performance in the year.
As previously announced the Ryalux closure was completed and the operating premises in Wakefield have been vacated bringing the operational footprint down to one site in Ossett. This has brought about considerable cost savings to the group highlighted in the turnaround from a loss making period in the prior period to a significant growth in profit during the year ended 31 December 2018.
Volatility in global equity markets in the second half of 2018 increased the pension deficit from £2.2m to £3.7m despite the improved management of liabilities and investment strategy.
A High Court judgment reached on 26 October 2018 in relation to Lloyds Banking Group's defined benefit pension schemes concluded that schemes should equalise pension benefits for men and women in relation to guaranteed minimum pension benefits (GMP). Following consultation and a review with both our actuarial and legal advisers, it was calculated that the judgment will crystallise additional liabilities for our pension scheme of £0.3m equivalent to 0.6% of the liabilities as at 31 December 2018. This has been charged through the finance costs within the income statement. We are pleased that these increased liabilities will have no cash impact on the group's contributions or any significant impact on the current investment strategy.
The value of the investment property increased from £3.15m to £3.4m. The gain is highlighted separately in the income statement.
We changed our accounting reference date for the prior period from 30 June to 31 December. This report therefore includes audited figures for the 18 months period to December 2017 as comparatives. However, for clarity, we are also providing unaudited financial information for the year to 31 December 2017 as part of this strategic review.
Group results
Revenue for the year increased to £19.3m (12 months 2017: £17.8m, 18 months 2017: £26.9m) following full year sales of new products and the growth in our UK and Export business. Operating profit before exceptional items increased to £3.0m (12 months 2017: £2.8m, 18 months 2017: £4.3m).
There were no exceptional costs during the year (2017: £0.2m). There was an unrealised valuation gain on the investment property of £0.3m (2017: £0.4m). Operating profit after exceptional items was £3.3m (12 months 2017: £3.1m, 18 months 2017: £4.5m).
Other finance costs relating in the main to the defined benefit pension scheme were £0.4m (12 months 2017: £0.7m, 18 months 2017: £0.9m). There were finance costs relating to GMP equalisation (as noted in the overview) in the defined benefit scheme of £0.3m (2017: £nil).
The losses incurred from discontinued operations totalled £1.4m (12 months 2017: £3.1m, 18 months 2017: £5.2m).
After a tax credit of £0.8m related to the recognition of a deferred tax asset on group losses carried forward (12 months 2017: £0.1m, 18 months 2017: £0.2m) profit attributable to shareholders of the group for the year was £2.0m (12 months 2017: £0.7m loss, 18 months 2017: £1.4m loss).
Basic earnings per share were 8.21p (12 months 2017: 6.01p, 18 months 2017: 9.16p), and basic adjusted earnings per share were 8.21p (12 months 2017: 6.42p, 2017: 9.57p). Group basic earnings per share were 4.86p (12 months 2017: 1.56p loss, 2017: 3.31p loss)
Operating cash flows before movements in working capital and other payables were £1.8m (2017: £1.0m). Working capital decreased by £0.6m (2017: £2.2m) following the rundown of inventories in the residential carpets business. Contributions of £0.4m (2017: £0.6m) were made to the defined benefit pension scheme in line with the agreement reached with the trustees based on the 2017 actuarial valuation. Capital expenditure of £0.4m (2017: £1.3m) and investment in intangible assets of £0.1m (2017: £0.2m) related in the main to the introduction of new technology.
The volatile performance in equity markets in the second half of the year and the increased liabilities following the adjustment for GMP equalisation increased the pension deficit £1.5m to £3.7m (2017: £2.2m).
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 year ended 31 December 2018, value added per employee amounted to £0.1m (2017: £0.1m), operating return on sales was 15.7% (2017: 13.7%), return on net operating assets was 18.5% (2017: 13.8%) and working capital to sales percentage was 60.4% (2017: 77.7%).
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. The board and the management team meet regularly to discuss the business and the risks that it faces. 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 groups
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 fit out companies. The activity levels within this customer base are determined by consumer demand which is created through a wide range of commercial refurbishment and new build projects. The general level of activity in these underlying markets has the potential to affect the demand for products supplied by the group and is subject to seasonal variations. 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 and negate the impact of seasonality.
The group operates a defined benefit pension scheme. At present, in aggregate, there is an actuarial 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 1 July 2017, a revised deficit recovery plan was agreed. Under the plan the company will continue to make annual contributions of £0.4m 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, agree forward pricing where possible and closely monitors selling prices and margins making adjustments when necessary.
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 when necessary. 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 short and long-term impact of the Brexit Referendum continues to be unclear in respect of the degree 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 particularly in relation to its supply chain and working capital requirements. 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 continue to provide opportunities for growth.
Management and personnel
We continue to recognise the hard work and dedication our staff have applied in both trying to recover the fortunes of the residential carpets business and also the professional manner with which the closure was finalised. We thank them for the dedication they have continued to show during the most challenging of times and look forward to the contribution they can make going forward in the future of the company.
As part of its ongoing review of our staff incentivisation policy the Board has considered various options to implement a reward structure which encourages, recognises and rewards high performance and long term delivery.
The group recognises the need to retain and reward members of staff for long term outperformance, and has decided to establish an employee share scheme. The purpose of the scheme is to incentivise employees through nil cost share awards.
The Board is creating an employee benefit trust ("EBT") managed by independent trustees to operate the scheme. The EBT will buy existing shares to satisfy any awards under the scheme, thereby ensuring existing shareholders will not be diluted upon exercise. The Company will advance a loan to the EBT which will be funded by an unsecured bank loan. Initially the EBT will be able to buy up to 3.5m shares, and any awards will vest with beneficiaries over a three to five year period and after the achievement of Group and individual performance conditions.
Current trading and future prospects
The changes made to the business and the increased investment in our successful commercial flooring business provides significant opportunities for profitable growth. Further investment in new products will continue throughout 2019 maintaining our confidence in the future prospects of the business, the ongoing improvement in the performance of the commercial floorcoverings business, and the cash this business continues to generate. If approved, a final dividend of 2.0p per share will be paid on 22 May 2019 to shareholders on the register at close of business on 12 April 2019, with an ex-dividend date of 11 April 2019.
MARTIN TOOGOOD NEIL RYLANCE
Chairman Chief Executive Officer 7th March 2019
1 Adjusted earnings are earnings adjusted for exceptional operating items (net of tax)
Enquiries:
Neil Rylance 01924 266561
Chief Executive Officer
Paul Stevenson 01924 266561
Group Finance Director
Peter Steel 020 7496 3061
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 12 month period ended 31 December 2018 or the 18 month period ended 31 December 2017. The financial information for the 18 month period ended 31 December 2017 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 2018, 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 12 month period then ended have been extracted from the Group's 2018 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
Year ended 31 December 2018
18 months
Year ended
ended
31 December
31 December
2018
2017
£'000
£'000
Continuing Operations
Revenue
19,260
26,890
Operating costs
(16,536)
(23,043)
Other Operating income
291
409
_______
_______
Operating profit before exceptional items
3,015
4,256
Exceptional costs
-
(172)
Unrealised valuation gain
250
449
Operating profit
3,265
4,533
Finance income
1
-
Finance costs
(355)
(932)
Finance costs relating to GMP Equalisation
(299)
-
_______
_______
Profit before taxation
2,612
3,601
Taxation
785
185
_______
_______
Profit attributable to shareholders of the group from continuing operations
3,397
3,786
_______
_______
Discontinued Operations
Loss attributable to shareholders of the group from discontinued operations
(1,389)
(5,156)
_______
_______
Profit / (Loss) attributable to shareholders of the group
2,008
(1,370)
_______
_______
Consolidated Statement of Comprehensive Income
Year ended 31 December 2018
2018
2018
2017
2017
£
£
£
£
Profit / (Loss) attributable to shareholders of the group
2,008
(1,370)
Actuarial (loss) / gain recognised in the pension scheme
(1,284)
4,827
Related deferred taxation
218
(862)
_______
_______
(1,066)
3,965
Revaluation of property
78
117
Related deferred taxation
(13)
-
_______
_______
65
117
_______
_______
Total other comprehensive (loss) / income
(1,001)
4,082
_______
_______
Total comprehensive income attributable to shareholders of the group
1,007
2,712
_______
_______
Consolidated Balance Sheet
Year ended 31 December 2018
2018
2018
2017
2017
£'000
£'000
£'000
£'000
Non-current assets
Property, plant and equipment
5,108
5,294
Intangible assets
95
124
Investment property
3,400
3,150
Deferred tax asset
1,466
389
_______
_______
10,069
8,957
Current assets
Inventories
6,797
6,937
Trade and other receivables
2,330
2,893
Cash and cash equivalents
2,732
3,702
_______
_______
11,859
13,532
_______
_______
Total assets
21,928
22,489
_______
_______
Current liabilities
Trade and other payables
(3,571)
(3,745)
Provisions
(320)
(300)
Obligations under finance leases
(187)
(183)
_______
_______
(4,078)
(4,228)
Non-current liabilities
Pension deficit
(3,688)
(2,164)
Deferred tax
(305)
(268)
Obligations under finance leases
(323)
(510)
_______
_______
(4,316)
(2,942)
_______
_______
Total liabilities
(8,394)
(7,170)
_______
_______
Net assets
13,534
15,319
_______
_______
Equity
Called up share capital
10,339
10,339
Share premium account
504
504
Capital redemption reserve
3,617
3,617
Revaluation reserve
3,096
3,126
Retained earnings
(4,022)
(2,267)
_______
_______
Total equity
13,534
15,319
_______
_______
Consolidated Cash Flow Statement
Year ended 31 December 2018
18 months
Year ended
ended
31 December
31 December
2018
2017
£'000
£'000
Cash flows from operating activities
Profit / (Loss) for the year
2,008
(1,370)
Depreciation
372
927
Amortisation
58
39
Finance costs
654
932
Profit on disposal of property, plant and equipment
(291)
-
Tax credit
(785)
(140)
Tangible fixed assets impairment
-
708
Inventory impairment
-
289
Trade receivables impairment
-
71
Unrealised valuation gain
(250)
(449)
_______
_______
Operating cash flows before movements in working capital
1,766
1,007
Decrease in inventories
140
2,112
Decrease in trade and other receivables
581
1,674
Decrease in trade and other payables
(174)
(1,760)
Increase in provisions for liabilities and charges
20
175
_______
_______
Cash generated from operations
2,333
3,208
Income tax received
-
143
Contributions to defined benefit pension scheme
(400)
(600)
_______
_______
Net cash generated from operating activities
1,933
2,751
Cash flows from investing activities
Payments to acquire tangible fixed assets
(399)
(392)
Payments to acquire intangible fixed assets
(29)
(163)
Receipts from sales of tangible fixed assets
513
-
_______
_______
Net cash generated from / (used in) investing activities
85
(555)
_______
_______
Cash flows from financing activities
Interest paid
(14)
(26)
Interest received
1
-
Finance lease repayments
(183)
(238)
Equity dividends paid
(2,792)
(1,344)
_______
_______
Net cash used in financing activities
(2,988)
(1,608)
_______
_______
Net (decrease) / increase in cash and cash equivalents
(970)
588
Cash and cash equivalents at start of the year
3,702
3,114
_______
_______
Cash and cash equivalents at end of the year
2,732
3,702
_______
_______
Consolidated Statement of Changes in Equity
Year ended 31 December 2018
Share
Capital
Share
premium
redemption
Revaluation
Retained
Total
capital
account
reserve
reserve
earnings
equity
£'000
£'000
£'000
£'000
£'000
£'000
At 1 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)
Actuarial gain recognised on the pension scheme
-
-
-
-
3,965
3,965
Revaluation of property
-
-
-
117
-
117
_______
_______
_______
_______
_______
_______
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 31 December 2017 and 1 January 2018
10,339
504
3,617
3,126
(2,267)
15,319
Comprehensive income for the year
Profit for the year
-
-
-
-
2,008
2,008
Actuarial loss recognised on the pension scheme
-
-
-
(1,066)
(1,066)
Revaluation of property
-
-
-
65
-
65
_______
_______
_______
_______
_______
_______
Total comprehensive income for the year
-
-
-
65
942
1,007
Contributions by and distributions to owners
Dividend paid
-
-
-
-
(2,792)
(2,792)
Revaluation Reserve Transfer
-
-
-
(95)
95
-
_______
_______
_______
_______
_______
_______
Total contributions by and distributions to owners
-
-
-
(95)
(2,697)
(2,792)
_______
_______
_______
_______
_______
_______
At 31 December 2018
10,339
504
3,617
3,096
(4,022)
13,534
_______
_______
_______
_______
_______
_______
In accordance with Rule 20 of the AIM Rules, Airea confirms that the annual report and accounts for the year ended 31st December 2018 will be available to view on the Company's website at www.aireaplc.co.uk on 7th March 2019, and will be posted to shareholders by 19th March 2019.
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