REG - Andrews Sykes Group - Preliminary results

Andrews SykesAnnouncement

12/05/2020 07:02

RNS Number : 5576M
  
Andrews Sykes Group PLC
  
12 May 2020
  
 

Andrews Sykes Group plc
Preliminary results
For the 12 months ended 31 December 2019
 
Summary




 


       12 months 
              ended
   31 December
                 2019
                £'000
 


       12 months 
              ended
   31 December
                 2018
                £'000
 




Revenue from continuing operations


77,246


                     78,563




 


 


 




EBITDA* from continuing operations 


28,519


                     26,737




 


 


 




Operating profit 


19,298


                     20,681




 


 


 




Profit after tax for the financial period


15,019


                     17,046




 


 


 




Basic earnings per share from total operations (pence)


35.61p


                     40.39p




 


 


 




Interim and final dividends paid per equity share (pence)


23.80p


                     23.80p




 


 


 




Proposed final dividend per equity share (pence) 


10.50p


                     11.90p




 


 


 




Net cash inflow from operating activities


18,522


                     19,110




 


 


 




Total interim and final dividends paid


10,038


                     10,048




 


 


 




Cash reserves**


23,897


23,381




 


 


 




Net funds


12,136


                     23,381




 
*  Earnings Before Interest, Taxation, Depreciation, profit on sale of property, plant and equipment, Amortisation and non-recurring items as reconciled on the consolidated income statement.
** Cash at bank less bank loans before IFRS 16 right-of-use lease obligations
For further information please contact:




Andrews Sykes Group plc
Paul Wood, Group Managing Director
 


01902 328700
 




GCA Altium Limited (NOMAD)
Tim Richardson
 


0207 484 4040




Arden Partners plc (Broker)
Steve Douglas
 


020 7614 5900




 
 
 
 
 
 
Chairman's Statement
Outlook
 
Andrews Sykes Group plc (the "group") remains resilient as sectors in which we trade have shown continuous demand whilst facing an unprecedented challenge in the form of the coronavirus pandemic. We are thankful and proud of our team members who continue to respond as essential service providers.
 
The group's trading in the first quarter of 2020 started positively, especially in the UK where the pump hire business benefited from the recent abnormally wet weather while March was unfavourably affected by the pandemic. As many of our products are sourced from China, our supply chain was only mildly affected as most of our goods had already been delivered before the virus spread. Customer demand in specific geographical areas of our business has been affected more than others. Our relatively small businesses in Italy and France faced strict lockdowns in late February and March, and the UK introduced a more flexible lockdown on 23 March 2020. The Benelux countries have adopted a similar approach, we are able to continue to trade, albeit at a reduced level and with increased health and safety and social distancing measures. In the UAE trading is also continuing but at a lower level than in the past.
 
The wellbeing of our employees and business partners is of paramount importance as we adhere to the local government guidelines. In the UK we have temporarily closed some of our smaller depots, introduced social distancing measures in our larger depots and embraced at home working employees. Our priority is to keep operations safe for customers, employees and business partners. 
 
The result for 2019 was the second best on record following the record result in 2018, and cash reserves* are robust. We have modelled with caution the effects of sales decline along with other factors to ensure the group remains within its bank facilities including cash flow forecasts for a period in excess of 12 months. The group has cash reserves* beyond May 2021 without renegotiating its bank facilities. The Board therefore considers the group is well positioned to manage through the impact of the pandemic considering its strong balance sheet and significant net cash position. 
 
The Board has in the past declared two dividends, an interim of 11.9 pence per share payable in November and a final, also of 11.9 pence per share, payable the following June. The Board has decided to propose a final dividend of 10.5 pence per share that will be paid in June 2020. 
 
* Defined as cash at bank less bank loans before IFRS 16 right-of-use lease obligations.
 
2019 trading summary
 
The group's revenue for the year ended 31 December 2019 was £77.2 million, a decrease of £1.3 million, or 1.7%, compared with the same period last year. This decrease had a more than proportionate impact on operating profit which decreased by 6.7%, or £1.4 million, from £20.7 million last year to £19.3 million in the year under review. This decrease would have been £0.3 million greater had it not been for the adoption of IFRS 16 for the first time this year. Further details of the effect of IFRS 16 on the results this year are disclosed in note 3 of this preliminary announcement. Despite this decrease, which followed a 17.6% increase last year, the performances from both our hire and sales businesses in the UK and Europe continue to be strong supported by a further improved performance from our business in the Middle East. Although down on an exceptional result last year, the current year's trading performance is the second best on record.
 
Net finance costs were £0.7 million this year compared with net finance income of £0.4 million in 2018. This is largely attributable to two factors; firstly an interest charge of £0.5 million this year on right-of-use lease obligations following the adoption of IFRS 16 on 1 January 2019, further details of which are given in note 3 of this preliminary announcement, and secondly a foreign exchange loss arising on the retranslation of inter-company balances of £0.3 million this year compared with a gain of £0.3 million in 2018. This reflects slight strengthening of Sterling compared with both the Euro and UAE Dirham.
 
The group has reported a decrease in the basic earnings per share of 4.78p, or 11.8%, from 40.39p in 2018 to 35.61p in the current year. This is mainly attributable to the above decrease in the group's operating profit and increase in net finance costs. Nevertheless, the basic EPS remains high and is indicative of the underlying business performance and strength of the group.
 
The group continues to generate strong cash flows. Net cash inflow from operating activities was £18.5 million compared with £19.1 million last year. Despite shareholder related cash outflows of £10.0 million on ordinary dividends, net cash reserves* increased by £0.5 million from £23.4 million at 31 December 2018 to £23.9 million at 31 December 2019.
 
Cost control, cash and working capital management continue to be priorities for the group. Capital expenditure is concentrated on assets that give a good return and in total £7.8 million was invested in the hire fleet this year, £0.3 million more than last year and significantly more than the wasting depreciation charge of £6.4 million. In addition, the group invested a further £0.8 million in property, plant and equipment. These actions will ensure that the group's infrastructure and revenue generating assets are sufficient to support future growth and profitability. Hire fleet utilisation, condition and availability continue to be the subjects of management focus.
 
* Defined as cash at bank less bank loans before IFRS 16 right-of-use lease obligations.
 
Operating performance
 
The following table splits the results between the first and second half years:
 




 


Turnover


Operating profit




 


£'000


£'000




1st half 2019


34,974


6,918




1st half 2018


37,815


9,280




 


 


 




2nd half 2019


42,272


12,380




2nd half 2018


40,748


11,401




 


 


 




Total 2019


77,246


19,298




Total 2018


78,563


20,681




 


 


 




 
The above table demonstrates that after a disappointing result in the first half of 2019, trading improved significantly in the second half year. Whilst turnover in the first half of the year showed a 7.5% decrease compared with the same period in 2018, improved trading in the second half year resulted in turnover increasing by 3.7% compared with the second half of 2018. Overall turnover was only 1.7% below the record result returned last year.
 
Operating profit followed the trend in turnover. In the first half of the year, operating profit was 25.5% below the same period in 2018 but in the second half it improved significantly to show an 8.6% improvement compared with 2018. Traditionally, the group makes more profit in the second half year due to the higher profit margins on its air conditioning products which are hired predominantly in the second half of the year and this factor was apparent this year. 
 
The operating profit of our main business segment in the UK and Northern Europe decreased from £19.1 million last year to £16.9 million in the year under review. The winter of 2019 was much milder than 2018 meaning that there were less opportunities for our heating and boiler hire products. Trading improved in the second half and whilst revenue from our air conditioning business did not reach the very high levels of 2018, primarily due to the lack of a hot summer in the UK in 2019, it was in line with our expectations. The wet weather in the final quarter enabled the pump hire business to recover after a slow start to the year and the results of our heating business were also better than expected. This year's result demonstrates that with properly directed investment, a well-maintained hire fleet, a knowledgeable management team and dedicated employees, we are able to take full advantage of opportunities when they are presented to us and deliver a strong performance for the benefit of all shareholders.
 
Our hire and sales business in the Middle East delivered a very good trading result. Operating profit for this business segment increased from £2.4 million in 2018 to £3.2 million in the current year reflecting a strong performance in both the first and second halves of the year. This result was driven by several large projects in the region including the 2020 Expo which is planned to be held in Dubai.
 
Our fixed installation business sector in the UK returned an improved operating profit of £0.2 million this year compared with £0.1 million in 2018. The market continues to be fragmented with high levels of price competition.
 
Central overheads were £1.0 million in the current year compared with £0.9 million in 2018. 
 
Profit for the financial year
 
Profit before tax was £18.6 million this year compared with £21.1 million last year, a decrease of £2.5 million. This is attributable to the above £1.4 million decrease in operating profit and by a swing in finance costs from a net credit of £0.4 million last year to a net charge of £0.7 million this year. This was due to two factors: an interest charge on right-of-use lease obligations of £0.5 million following the adoption of IFRS 16 for the first time in 2019; and a foreign exchange loss arising on the retranslation of inter-company balances of £0.3 million this year compared with a gain of £0.3 million in 2018, reflecting slight strengthening of Sterling compared with both the Euro and UAE Dirham. 
 
Tax charges decreased from £4.0 million in 2018 to £3.6 million this year. The overall effective tax 
rate increased slightly from 19.0% in 2018 to 19.1% this year. Profit for the financial year was £15.0 million compared with £17.1 million last year.
 
Equity dividends
The company paid two dividends during the year. On 21 June 2019, a final dividend for the year ended 31 December 2018 of 11.9 pence per ordinary share was paid and this was followed on 8 November 2019 by the payment of an interim dividend for 2019, also of 11.9 pence per share. Therefore, during 2019, a total of £10.0 million in cash dividends has been returned to our ordinary shareholders.
 
For the reasons given in the outlook section above, the Board has decided to propose a final dividend of 10.5 pence per share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £4.4 million, will be paid on 19 June 2020 to shareholders on the register as at 29 May 2020.
 
Share buybacks
 
The company did not purchase any of its own ordinary shares for cancellation during the period under review. In previous years, purchases were made which enhanced earnings per share and were for the benefit of all shareholders. As at 11 May 2020, there remained an outstanding general authority for the directors to purchase 5,271,794 ordinary shares which was granted at last year's Annual General Meeting.
 
The Board believes that it is in the best interests of shareholders to have this authority in order that market purchases may be made in the right circumstances if the necessary funds are available. Accordingly, at the next Annual General Meeting, shareholders will be asked to vote in favour of a resolution to renew the general authority to make market purchases of up to 12.5% of the ordinary share capital in issue.
 
Net cash reserves* and funds
 
At 31 December 2019, the group had net cash reserves* of £23.9 million compared with £23.4 million last year, an increase of £0.5 million despite shareholder related cash outflows of £10.0 million on ordinary dividends during the year.
 
As a result of adopting the accounting requirements of the new leasing standard, IFRS 16, existing lease commitments as at 1 January 2019 of £11.7 million were recognised on the balance sheet. The group adopted the standard's modified retrospective approach as at 1 January 2019 in accordance with which the cumulative effect of initially applying IFRS 16 was recognised as an adjustment to capitalise right-of-use assets and lease liabilities at the date of initial application. Comparative information was not restated. As at 31 December 2019 the group had right-of-use lease liabilities of £11.8 million and consequently net funds, after the IFRS 16 adjustment, at that date were £12.1 million.
 
* Defined as cash at bank less bank loans before IFRS 16 right-of-use lease obligations.
 
Bank loan facilities
The group continues to operate within its bank covenants. In April 2017, a bank loan of £5 million was taken out with the group's bankers, Royal Bank of Scotland. The first three loan repayments of £0.5 million were made in accordance with the bank agreement on 30 April 2018, 2019 and 2020.The remaining balance of £3.5 million is due to be repaid by one annual instalment of £0.5 million on 30 April 2021 followed by a final balloon repayment of £3 million due on 30 April 2022.
 
 
 
JG Murray
Chairman
11 May 2020
 
 
 
 
Consolidated Income Statement
For the 12 months ended 31 December 2019
 




 


12 months
               ended 
   31 December                   2019
                £'000


 


12 months 
               ended 
   31 December  
                 2018
                £'000




Continuing operations


 


 


 




 


 


 


 




Revenue
Cost of Sales


77,246


 


                 78,563
               (31,908)




 


(32,244)


 


 




Gross profit


45,002


 


                 46,655




 


 


 


 




Distribution costs


(11,996)


 


               (12,073)




 


 


 


 




Administrative expenses


(13,708)


 


               (13,901)




 


 


 


 




Operating profit


19,298


 


                 20,681




 


 


 


 




EBITDA*
Depreciation and impairment losses
Depreciation of right-of-use assets
Profit on the sale of plant and equipment


28,519
(7,203)
(2,538)
520


 


                 26,737
                 (6,666)
-
                      610




Operating profit


19,298


 


                 20,681




 


 


 


 




 


 


 


 




Finance income
Finance costs


146
(884)


 


                       461
                    (97)




Profit before taxation


18,560


 


                 21,045




 


 


 


 




Taxation


(3,541)


 


                 (3,999)




 


 


 


 




Profit for the financial period attributable to equity holders of the parent


15,019


 


                 17,046




 


 


 


 




There were no discontinued operations in either of the above periods


 


 


 




 


 


 


 




Earnings per share


 


 




 


 


 


 




Basic (pence)


35.61p


 


                 40.39p




Diluted (pence)


35.61p


 


                 40.39p




 


 


 


 




Interim and final dividends paid per equity share (pence)


23.80p


 


                 23.80p




 


 


 


 




Proposed final dividend per equity share (pence)


10.50p


 


                 11.90p




 
 *  Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non- recurring items.
 
 
 
 
 
 
 
 
Consolidated Statement of Comprehensive Total Income
For the 12 months ended 31 December 2019
 
 




 


            12 months 
  ended 
     31 December  
                  2019
                 £'000


 


            12 months 
                 ended 
     31 December  
                  2018
                 £'000




 


 


 


 




Profit for the financial period


15,019


 


                    17,046




 


 


 


 




Other comprehensive (charges) / income


 


 


 




 


 


 


 




Items that may be reclassified to profit and loss:


 


 


 




 


 


 


 




Currency translation differences on foreign operations


(906)


 


                         405




Foreign exchange difference on IFRS 16 adjustments


1


 


-




Related deferred tax


-


 


-




 


 


 


 




Items that will never be reclassified to profit and loss:


 


 


 




Remeasurement of defined benefit assets and liabilities


559


 


                   (1,649)




Related deferred tax


(106)


 


                      313




 


 


 


 




Other comprehensive (charges) for the period net of tax


(452)


 


                     (931)




 


 


 


 




Total comprehensive income for the period


14,567


 


                   16,115




 
 
 
 
 
Consolidated Balance Sheet
As at 31 December 2019
 




 


 


31 December 2019


 


31 December 2018




 


 


      £'000


 


         £'000


 


        £'000


 


         £'000




Non-current assets


 


 


 


 


 


 


 


 




Property, plant and equipment


 


 


 


24,561


 


 


 


         23,651




Right-of-use assets


 


 


 


11,515


 


 


 


-




Prepayments


 


 


 


44


 


 


 


                45




Deferred tax asset


 


 


 


254


 


 


 


              677




Retirement benefit pension surplus


 


 


 


1,963


 


 


 


           1,356




 


 


 


 


38,337


 


 


 


         25,729




 


 


 


 


 


 


 


 


 




Current assets


 


 


 


 


 


 


 


 




Stocks


 


6,333


 


 


 


        5,083


 


 




Trade and other receivables


 


21,333


 


 


 


      19,994


 


 




Cash and cash equivalents


 


27,880


 


 


 


      27,862


 


 




 


 


55,546


 


 


 


      52,939


 


 




 


 


 


 


 


 


 


 


 




Current liabilities


 


 


 


 


 


 


 


 




Trade and other payables


 


(12,942)


 


 


 


    (12,889)


 


 




Current tax liabilities


 


(1,674)


 


 


 


      (2,294)


 


 




Bank loans


 


(493)


 


 


 


         (493)


 


 




Right-of-use lease obligations


 


(2,279)


 


 


 


-


 


 




Obligations under finance leases


 


-


 


 


 


           (5)


 


 




 


 


(17,388)


 


 


 


    (15,681)


 


 




 


 


 


 


 


 


 


 


 




Net current assets


 


 


 


38,158


 


 


 


         37,258




 


 


 


 


 


 


 


 


 




Total assets less current liabilities


 


 


 


76,495


 


 


 


         62,987




 


 


 


 


 


 


 


 


 




Non-current liabilities


 


 


 


 


 


 


 


 




Bank loans


 


(3,490)


 


 


 


      (3,983)


 


 




Right-of use lease obligations


 


(9,482)


 


 


 


             -


 


 




 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 




 


 


 


 


 
(12,972)


 


 


 


          (3,983)




Net assets


 


 


 


63,523


 


 


 


         59,004




 


 


 


 


 


 


 


 


 




Equity


 


 


 


 


 


 


 


 




Called-up share capital


 


 


 


422


 


 


 


              422




Share premium


 


 


 


13


 


 


 


                13




Retained earnings


 


 


 


59,447


 


 


 


         54,013




Translation reserve


 


 


 


3,395


 


 


 


           4,300




Other reserves


 


 


 


246


 


 


 


              246




 


 


 


 


 


 


 


 


 




Surplus attributable to equity holders of the parent


 


63,523


 


 


 


         58,994




 


 


 


 


 


 


 


 


 




Non-controlling interests


 


 


 


-


 


               


 


                10




 


 


 


 


 


 


 


 


 




Total equity


 


 


 


63,523


 


         


 


         59,004




 
 
 
 
 
 
 
Consolidated Cash Flow Statement 
For the 12 months ended 31 December 2019
 




 


 
 


        12 months 
                ended 
     31 December  
                   2019
                   £'000


 


         12 months 
 ended 
     31 December  
                   2018
                   £'000




 


 


 


 


 




Cash flows from operating activities


 


 


 


 




Cash generated from operations


 


22,917


 


                        22,888




Interest paid


 


(609)


 


                            (88)




Net UK corporation tax paid


 


(2,227)


 


                       (2,236)




Overseas tax paid


 


(1,559)


 


                       (1,454)




 


 


 


 


 




Net cash flow from operating activities 


 


18,522


 


                       19,110




 


 


 


 


 




Investing activities


 


 


 


 




Sale of property, plant and equipment


 


685


 


                            944




Purchase of property, plant and equipment


 


(6,207)


 


                       (7,142)




Interest received


 


100


 


                              41




Net cash flow from investing activities


 


(5,422)


 


                       (6,157)




 


 


 


 


 




Financing activities


 


 


 


 




Loan repayments


 


(500)


 


                       (500)




Capital repayments for right-of-use lease obligations


 


(2,296)


 


                         -




Finance lease capital repayments


 


-


 


                          (45)




Equity dividends paid


 


(10,038)


 


                     (10,048)




Purchase of own shares


 


-


 


(438)




 


 


 


 


 




Net cash flow from financing activities


 


(12,834)


 


                     (11,031)




 


 


 


 


 




Net increase in cash and cash equivalents


 


266


 


                        1,922




 


 


 


 


 




Cash and cash equivalents at the beginning of the period


 


27,862


 


                      25,311




Effect of foreign exchange rate changes


 


(248)


 


                         629




 


 


 


 


 




Cash and cash equivalents at the end of the period


 


27,880


 


                      27,862




 


 


 


 


 




Reconciliation of net cash flow to movement in net funds in the period


 


 


 


 




 


 


 


 


 




Net increase in cash and cash equivalents


 


266


 


                         1,922




Cash outflow from the repayment of loans and right-of-use lease obligations


 


2,796


 


                         545




Non-cash movement in respect of raising loan finance


 


(7)


 


                            (8)




Non-cash movements re new right-of-use lease obligations


 


(2,593)


 


-




Increase in net funds during the period


 


462


 


                         2,459




Opening net funds at the beginning of the period


 


23,381


 


                       20,293




Transitional adjustment for right-of-use leases at the start of the period


 


(11,699)


 


-




Effect of foreign exchange rate changes on right-of-use lease obligations


 


240


 


-




Effect of foreign exchange rate changes


 


(248)


 


                          629




Closing net funds at the end of the period


 


12,136


 


                       23,381




 


 


 


 


 




 
 
 
 
Consolidated Statement of Changes in Equity
For the 12 months ended 31 December 2019
 




 


Attributable to equity holders of the parent company


 


Non-controlling 
interest


 


Total 
equity




 
 
 


Share 
capital
£'000


Share 
Premium
£'000


Retained 
earnings
£'000


Translation reserve
£'000


Other 
reserves
£'000


 
Total
£'000


 


 
 
      £'000


 


 
 
      £'000




At 31 December 2017


    423 


          13


    48,789


          3,895


        245


     53,365


 


10


    


     53,375




 


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Profit for the financial period


         -


            -


   17,046


               -


-


     17,046


 


-


 


     17,046




 


 


 


 


 


 


 


 


 


 


 




Other comprehensive income and (charges):


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Items that may be reclassified to profit and loss:


 


 


 


 


 


 


 


 


 


 




Currency translation differences on foreign operations


        -


           -


           -


            405


-


          405


 


 -


 


          405




 


 


 


 


 


 


 


 


 


 


 




Items that will never be reclassified to profit and loss:


 


 


 


 


 


 


 


 


 


 




Remeasurement of defined benefit assets and liabilities


         
-


            
-


 
(1,649)


               
  -


 
-


   
(1,649)


 


 


 


    
(1,649)




Related deferred tax


         -


             -


        313


                 -


-


        313


 


-


 


        313




 


 


 


 


 


 


 


 


 


 


 




Total other comprehensive income and (charges)


          
 -


              
-


    
(1,336)


              
405


 
-


      
(931)


 


 
 -


 


      
(931)




 


 


 


 


 


 


 


 


 


 


 




Transactions with owners recorded directly in equity:


 


 


 


 


 


 


 


 


 


 




Purchase of own shares


(1)


-


(438)


-


1


(438)


 


-


 


(438)




Dividends paid                        


         -


             -


(10,048)


                  -


-


  (10,048)


 


-


 


(10,048)




 


 


 


 


 


 


 


 


 


 


 




Total transactions with owners


 (1)


             -


 (10,486)


                 -


1


  (10,486)


 


-


 


(10,486)




 


 


 


 


 


 


 


 


 


 


 




At 31 December 2018


    422 


          13


54,013


       4,300


        246


     58,994


 


10


    


     59,004




 


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Profit for the financial period


-


-


15,019


-


-


15,019


 


-


 


15,019




 


 


 


 


 


 


 


 


 


 


 




Other comprehensive (charges) and income:


 


 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


 


 




Items that may be reclassified to profit and loss:


 


 


 


 


 


 


 


 


 


 




Currency translation differences on foreign operations


-


-


-


(906)


-


(906)


 


-


 


(906)




Foreign exchange differences on 


 


 


 


 


 


 


 


 


 


 




IFRS 16 adjustments


-


-


-


1


-


1


 


-


 


1




Related deferred tax


-


-


-


-


-


-


 


-


 


-




Items that will never be reclassified to profit and loss:


 


 


 


 


 


 


 


 


 


 




Remeasurement of defined benefit assets and liabilities


-


-


559


-


-


559


 


-


 


559




Related deferred tax


-


-


(106)


-


-


(106)


 


-


 


(106)




 


 


 


 


 


 


 


 


 


 


 




Total other comprehensive income and (charges)


-


-


453


(905)


-


(452)


 


-


 


(452)




 


 


 


 


 


 


 


 


 


 


 




Transactions with owners recorded directly in equity:


 


 


 


 


 


 


 


 


 


 




Dividends paid


-


-


(10,038)


-


-


(10,038)


 


-


 


(10,038)




Write-off of non-controlling interest                        


-


-


-


-


-


-


 


(10)


 


(10)




 


 


 


 


 


 


 


 


 


 


 




Total transactions with owners


-


-


(10,038)


-


-


(10,038)


 


(10)


 


(10,048)




 


 


 


 


 


 


 


 


 


 


 




At 31 December 2019


422


13


59,447


3,395


246


63,523


 


-


    


63,523




 


 


 


 


 


 


 


 


 


 


 




 
 
 
 
Notes
For the 12 months ended 31 December 2019
 
1.  Basis of preparation
 
Whilst the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. Therefore the financial information set out above does not constitute the company's financial statements for the 12 months ended 31 December 2019 or 31 December 2018 but it is derived from those financial statements.
 
2.  Going Concern
 
The Board remains satisfied with the group's funding and liquidity position. The group has operated throughout the 2019 financial year within its financial covenants as contained in the bank agreement.
 
The coronavirus pandemic will have an impact on our business during 2020. Reduced customer demand and our ongoing ability to meet that demand have been identified as our main areas of risk. Our supply chain has not been badly affected as the majority of our goods had already been delivered before the virus spread.
 
Management has prepared a detailed "bottom-up" profit and loss and cash flow forecast for the 24 months ending 31 December 2021 on a cautiously realistic basis. This takes into account reduced activity levels across all income streams and geographical locations taking into account specific factors relevant in each of our businesses. It has been assumed that the impact of the coronavirus pandemic affects trading for the remainder of 2020 and thereafter things return to a more normal level. These forecasts have been reviewed and approved by the Board.
 
Certain product lines are more resilient than others and we are experiencing an increase in demand in certain sectors, notably healthcare, emergency temporary hires to cover the breakdown of customer equipment and the hire of dewatering equipment in the UAE to enable construction work to continue. 
 
The impact on the business as of the end of March has been limited with trading levels close to expectation. Cash flow has not changed significantly and we continue to provide our full range of products and services across all territories. We are thankful and proud of our team members who continue to respond as essential service providers.
 
The wellbeing of our employees and business partners is of paramount importance as we adhere to the local government guidelines. We have temporarily mothballed some of our smallest depots, introduced social distancing measures in our larger depots and have enabled at home working for many employees. Appropriate supplies of PPE are provided to our staff to enable them to carry out their duties in a safe manner. Our priority is to keep operations safe for customers, employees and business partners.
 
In the UK, approximately 50% of our employees are furloughed. In France, Italy, Belgium and Luxembourg we are currently working with significantly reduced staff levels, with the most of our staff enlisted to the appropriate government employment retention schemes. In the UAE and Holland, our employees are currently continuing to work in a close to normal way. 
 
Our cash flow forecast assumes that cash collections will reduce over the next nine months as customers take longer to settle their debts. We will continue to make payments to our suppliers in accordance with our agreed terms and, with the exception of the May 2020 UK VAT payment that will be deferred until later in 2020, all fiscal payments to the UK and overseas government bodies will continue to be made on time. Bank loan repayments are also forecast to be made in accordance with the bank agreement. Due to the reduced level of activity, forecast capital expenditure for 2020 is c£1.2 million less than 2019.
 
A triennial funding valuation for the group defined benefit pension scheme is currently being prepared by the pension scheme trustees as at 31 December 2019. Management has received an estimate of the deficit as at that date and it has been assumed that this will be agreed and paid to the pension scheme by 31 December 2020.
For the purposes of the cash forecast only, we have assumed that a normal level of dividends will be resumed in November 2020.
 
The above factors have all been reflected in the forecast for the 24 months ending 31 December 2021. The headline numbers at a group level are as follows:
 
·    The actual cash reserves* as at 31 March 2020 are £27.2 million compared with £23.9 million as at 31 December 2019. This increase reflects strong trading and debt collections in the first quarter with supplier and other payments being made on schedule with payment plans being agreed with some key suppliers and landlords. Group operating profit in the first quarter was c£4.6 million.
 
·    Group turnover for the 12 months ending 31 December 2020 is forecast to be lower than 2019. Operating profit is therefore consequently likely to reduce, however the group still expects to produce a profit for 2020.
 
·    Closing cash reserves* as at 31 December 2020 are forecast to be below the level reported at 31 December 2019, although cash reserves* are not forecast to fall below c£15 million at any month end.
 
·    In 2021 we expect to return to normal levels of trading.
 
Therefore, it is forecast that the group will have significant cash reserves* throughout 2020 and 2021. Ignoring the positive cash flow in the first quarter, the group's net cash outflow in the nine months ending 31 December 2020 is forecast to be approximately £10 million. Even in an extreme scenario and this trend continued throughout 2021 resulting in an additional cash outflow of c£12 million, the group would still have cash reserves* of c£5 million at 31 December 2021.  In this extreme scenario, further remedial action would be taken. Payroll costs could be controlled at the current levels until the business recovers, additional staff could be furloughed and capital expenditure could be postponed until a later date.  Our bank has been very supportive and has indicated that it would be prepared to make additional loan facilities available the group if required. Dividend payments could also be reduced or suspended to further conserve cash. The Board is, however, confident that none of these additional measures will be necessary due to the level of confidence it has in the future trading performance of the group.
 
The group has considerable financial resources and a wide operational base. Based on the detailed forecast prepared by management taking into account the anticipated impact of the coronavirus pandemic, the Board has a reasonable expectation that the group has adequate resources to continue to trade for the foreseeable future even in the extreme scenario that the downturn continues throughout 2021. Accordingly, the Board continues to adopt the going concern basis when preparing this Annual Report and Financial Statements.
* Defined as cash at bank less bank loans before IFRS 16 right-of-use lease obligations.
 
3. International Financial Reporting Standards (IFRS) adopted for the first time in 2019
 
With the exception of the adoption of the new leasing standard, IFRS 16, there were no new standards or amendments to standards adopted for the first time this year that had a material impact on the results of the group. The prior year comparatives have not been restated for any changes in accounting policies that were required due to the adoption of new standards this year.
 
The group has adopted IFRS 16, which establishes principles for the recognition, measurement, presentation and disclosures of leases, with effect from 1 January 2019. 
 
IFRS 16 introduced a single, on-balance-sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The group adopted IFRS 16 on 1 January 2019 and applied the standard's modified retrospective approach. Under this approach the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to assets and liabilities at the date of initial application. Comparative information is not restated. Management has decided to make use of the practical expedient not to perform a full review of existing leases, bringing onto the balance sheet the net present value of the remaining outstanding lease obligations as at the date of transition as both an asset and liability, and has also applied IFRS 16 to new or modified contracts. There are recognition exemptions for short-term leases and leases of low-value items and the group has decided to make use of the short-term lease exemption. The group also took advantage of the practical expedients to exclude initial indirect costs in measuring the right-of-use assets and applying hindsight to options to extend contracts when determining the lease term at the date of initial application.
 
The group has recognised a right-of-use asset and a lease liability for its operating leases of properties, plant machinery and equipment, other than those that fall within the above recognition exemption. The amount capitalised was the net present value of the future expected minimum capital payments under the group's operating lease obligations discounted at the group's incremental borrowing rate as at 1 January 2019. Prepaid and accrued lease payments were considered to be immaterial and therefore the right-of-use assets were measured at an amount equal to the lease liability.  The nature of expenses related to these leases has changed because the group has recognised a depreciation charge for right-of-use assets and an interest expense, charged within finance costs, on the lease liabilities. The assets are depreciated on a straight-line basis over the remaining life of the lease and the interest expense is calculated in order to give a constant rate of interest on the outstanding capital liability. Previously, the group recognised operating lease expenses on a straight-line basis over the term of the lease as a reduction in operating profit, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
 
As at 1 January 2019, the date of transition to IFRS 16, the group recognised an additional right-of-use asset and associated right-of-use lease obligations of £11.7 million. 
 
As stated above the group, has adopted the modified retrospective approach and has not restated the comparative figures. The key effects on the current year's consolidated income statement and balance sheet can be summarised as follows:
 
 




 


2019 on a consistent basis with 2018


Effect of IFRS 16


As reported this year




 


£'000


£'000


£'000




Income statement


 


 


 




EBITDA


25,702


2,817


28,519




Depreciation


(7,203)


(2,538)


(9,741)




Profit on sale of fixed assets


520


-


520




Operating profit


19,019


279


19,298




Net finance costs


(212)


(526)


(738)




Profit before taxation


18,807


(247)


18,560




Taxation


(3,588)


47


(3,541)




Profit after taxation


15,219


(200)


15,019




Balance sheet


 


 


 




Non-current assets


26,775


11,562


38,337




Net current assets


40,437


(2,279)


38,158




Total assets less current liabilities


67,212


9,283


76,495




Non-current liabilities


(3,490)


(9,482)


(12,972)




Net assets


63,722


(199)


63,523




 


 


 


 




Translation reserve


3,394


1


3,395




Share capital and other reserves


60,328


(200)


60,128




Shareholders' funds


63,722


(199)


63,523




Net funds


23,897


(11,761)


12,136




 
There was no significant impact for the group's finance leases which were repaid in full during 2019.
 
IFRS 16 did not made any significant changes to the accounting for lessors, and therefore there was no significant change in this area as a result of adopting IFRS 16.
 
 
4.   Distribution of Annual Report and Financial Statements
 
The group expects to distribute copies of the full Annual Report and Financial Statements that comply with IFRSs by 20 May 2020 following which copies will be available either from the registered office of the company; St David's Court, Union Street, Wolverhampton, WV1 3JE; or from the company's website; www.andrews-sykes.com. The Annual Report and Financial Statements for the 12 months ended 31 December 2018 have been delivered to the Registrar of Companies and those for the 12 months ended 31 December 2019 will be filed at Companies House following the company's Annual General Meeting. The auditor has reported on those financial statements; the report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain details of any matters on which they are required to report by exception.
 
5.  Date of Annual General Meeting
 
The group's Annual General Meeting will be held at 3.30 p.m. on Tuesday, 16 June 2020 at Unit 5, Peninsular Park Road, London, SE7 7TZ.However in the light of the COVID-19 crisis and the compulsory "Stay at Home" measures implemented by the UK Government which limit public gatherings of more than two people, shareholders will not be permitted to attend this Annual General Meeting and persons seeking to attend the Annual General Meeting will be refused entry. Please see the Notice of Annual General Meeting that will be distributed with the Annual Report and Financial Statements for more information.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
  END
 
 
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