Annual Results for the year ended 31 Dec 2019
12/05/2020 10:00
RNS Number : 6275M
Braime Group PLC
12 May 2020
BRAIME GROUP PLC
(formerly T.F. & J.H. BRAIME (HOLDINGS) P.L.C.)
("Braime" or the "Company" and with its subsidiaries the "Group")
ANNUAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2019
At a meeting of the directors held today, the accounts for the year ended 31st December 2019 were submitted and approved by the directors. The accounts statement is as follows:
Chairman's statement
A big thank you to all our staff
I want to begin this year's Statement by thanking our staff in the UK and overseas for their support. At a time when everyone is naturally worried for themselves and for their families, our staff have shown courage, resilience, and a willingness to learn new skills so they can cover for their colleagues. Their ongoing support has been amazing.
Variously they have been working from home or coming into work on a rota basis, and where necessary, many staff at all levels have continued to work on site in both office and manufacturing settings. In turn, we have tried our very best in all our locations to create a safe environment and to enable social-distancing.
Our current trading position
As a result of our staff's huge efforts, we have been able to continue processing, manufacturing and shipping customer orders. Demand for our products has remained high in the UK and globally. Our manufacturing business supplies oil filters that have to be replaced four times a year to keep modern commercial vehicles on the road; equally our material handling components are essential to distribute and process the cereals used to produce food.
To meet this demand, we have had to re-introduce manufacturing on a 24-hour basis, which is particularly challenging in the current circumstance. It is only possible because of the flexibility shown by our staff. Some of our overseas subsidiaries were forced to shut temporarily but have all now re-opened, including 4B China. Other subsidiaries, which were initially closed, have reopened with certificates exempting them from local "lockdowns" due to the importance of maintaining their supplies.
We are increasingly confident that by continuing to support our customers, we will be able to pull through, survive as a business, maintain long term employment and achieve a positive future for us all.
Summary of 2019 results
The world has changed and 2019 now seems a particularly long time ago. In 2019, the Group's sales revenue fell by 6.4% from £35.7m to £33.4m but the operating profit fell from £3.2m to £2.2m. After deducting interest charges and tax, the net profit in 2019 was down £0.9m to £1.3m.
In last year's Statement on the 2018 result, I indicated that the results were exceptional due to high demand in the US market. In an already exceptional year for sales, margins had been further boosted by the steep fall in sterling which substantially increased the local gross margins of goods exported from the UK, which make up the majority of Group sales. The results in 2018 were then further enhanced when overseas profits were consolidated back into sterling.
In my Chairman's Statement for 2018 and my Interim Statement in 2019, I also warned that revenues in the year in progress had already been effected by much weaker global demand due to the reduction in investment following the severe droughts in South America and Australia in late 2018, by the general economic slowdown in the European market in 2019, and by the negative effect on the US Agricultural market caused by Trump's Trade War with China. Additionally, sterling strengthened when the UK left the EU, reversing some of the FX gains which had contributed to the very strong results in 2018.
The Group's concentration on the agricultural market, a long-term growth sector, is one of our strengths but it does expose our business to the year on year fluctuations in the agricultural market. This is an area where we can find a way of reducing our future dependence, but our vulnerability to large fluctuations in the exchange rate is not. We hold funds in a spread of key currencies, but hedging is expensive and ultimately unwinds.
The lower result in 2019, while slightly disappointing, remains a relatively good year when put in context, and falls within the pattern of a long-term increase in the profitability of the Group.
Braime Pressings Limited specialises in the manufacture of deep drawn presswork concentrated on supplies to the commercial vehicle industry. In 2019, we were forced to concede "cost downs" and additionally sales revenue in the year was lower than in 2018. Volume in manufacturing is critical in order to cover high fixed costs, so a small decrease in external revenues resulted in a disproportionate loss of £252,000 in 2019.
The 4B material handling division markets its products through exclusive distributors in approximately 50 countries, 6 regional overseas subsidiaries and 2 overseas branches. The division's niche products, both mechanical and electrical, are focused on providing innovative engineering solutions. External sales in 2019 were £1.4m lower, and together with the other factors explained earlier, this resulted in a reduction in profit of £0.6m in this division.
Capital expenditure
In 2019, the Group invested £1.7m in new plant and machinery compared to £1.8m in 2018. Major investment has gradually transformed the Group's manufacturing facilities. The increase in the outstanding balance of depreciation is a drag on the results, but without steady improvements in taking cost out, the ability to compete in the long term is lost permanently. The investments in 2019 were principally in new manufacturing equipment installed in the UK and USA. More detail is given in the Strategic Report. In the current year, we have no major planned investment in new machinery and the focus is on completing existing projects.
In January, we announced an investment in a new 2,200m2 facility to enable 4B France to relocate from their outdated and inadequate premises. The decision to construct a modern office and warehouse unit for 4B France, our European distribution business, was a major part of our strategy to mitigate against the potential negative effects of a "No deal" Brexit but remains an essential step to maintain and grow our sales in the European market.
Leasing proved difficult and cost prohibitive and would have necessitated moving to a more expensive location, in Amiens, 25km away, and also required us to compensate our staff for an increase in their commuting distance. Instead, we purchased land from an adjacent commune, Villers Bretonneux, and are constructing new bespoke premises, which will improve operating efficiencies and have the additional benefit of almost immediate access to the French motorway network. The total project cost is €2.2m, financed by a cash investment of €0.5m and bank loans of €1.7m borrowed at 1.3% per annum. Relocation is planned for February 2021.
Cash and financial position
After funding capital investments, expenditure and working capital, cash outflow at the end of 2019 was £0.8m. More detail follows in the Strategic Review. Currently, the Group has available headroom of £2.3m which we believe is more than sufficient to operate the business, even allowing for the current exceptional circumstances.
Free Trade Agreement with the EU
After three years wasted by internal fighting, and following the clear result of the last UK election, the UK finally left the EU on the 31st January 2020. Hopefully this painful chapter is finally closed and the position of the UK Government is unambiguous. Although the UK and EU have not yet reached agreement on the terms of a Free Trade Deal, given that it remains in their mutual self-interest, and even more so now in the dire economic circumstances caused by the Coronavirus epidemic, a failure to do so is almost unimaginable. No doubt, as usual, final agreement will only be achieved at the very last moment.
Dividend
In October 2019 the first interim dividend was increased from 3.5p to 3.6p. It had been the Board's intention to increase the second interim dividend but after careful thought, the directors have decided it is no longer appropriate to do so and instead have decided to maintain last year's dividend of 8.0p, making a total dividend for the year of 11.6p. The second interim dividend of 8.0p will be paid on the 5th June 2020 to the holders of Ordinary and 'A' Ordinary Shares on the 22nd May 2020.
2020 AGM
At the time of writing, the UK government has prohibited public gatherings and non-essential travel. The 2020 AGM will therefore be run as a closed meeting and shareholders will unfortunately not be able to attend in person. Shareholders are strongly encouraged to submit a proxy vote in advance of the meeting and details of how to do this can be found on the notes to the Notice of the Meeting within the Annual Report. Shareholders are encouraged to appoint the Chairman of the meeting as their proxy rather than a named person who will not be permitted to attend the meeting. This will ensure your votes are cast in accordance with your wishes.
The Annual General Meeting of the members of the Company will be held at the registered office of the company at Hunslet Road, Leeds, LS10 1JZ on Monday 29th June 2020 at 11.45am. The Annual Report and financial statements will be sent to shareholders by 1st June 2020 and will also be available on the Company's website (www.braimegroup.com) from that date.
Longer-term outlook and strategy
In both March and April, we have achieved sales revenues very close to our original budget set in December 2019 and demand is likely to remain at similar levels for the next few months. While forward orders have now fallen very slightly, our customers advise us that they currently have several months backlog for projects for completion in 2020, which has built up due to the temporary closure of construction sites. So, our subsidiaries are hopeful of a "bounce" once manufacturing and construction sites re-open.
It is important to emphasise that this is all subject to change, as we are in unknown territory and whilst the Group is currently in a relatively fortunate position, we are taking the necessary steps to ensure we remain flexible, carefully managing our cashflow, and keeping expenditure under constant review.
Going further forward, a decline in the new build of commercial vehicles is a strong possibility as demand for new commercial vehicles is likely to fall in the current climate. Similarly, while our OEM customers who manufacturing new handling and processing facilities, currently have full order books for projects to be completed in 2020, it is likely that order books will not be refilled quickly by new equipment for projects in 2021, as the appetite for risk and investment declines and finance becomes less available.
We need to start immediately on finding new ways of working for all our staff, both those on site and those working from home. At the same time, we must prepare ourselves for the likelihood of lower demand while the world economy struggles to recover and concentrate ourselves on reducing cost and increasing efficiency.
Our policy has always been to stay close to our customers and we will have to find innovative ways of achieving this. Above all we need to refocus on our long-term strategy of introducing new products and new customers to compensate for the decline in existing products if we are to maintain the recent growth of the Braime Group.
Nicholas Braime, Chairman
12th May 2020
For further information please contact:
Braime Group PLC
Nicholas Braime/Cielo Cartwright
0113 245 7491
W. H. Ireland Limited
Katy Mitchell
0113 394 6628
The directors present their strategic report of the Company and the Group for the year ended 31st December 2019.
Principal activities
The principal activities of the Group during the year under review was the manufacture of deep drawn metal presswork and the distribution of material handling components and monitoring equipment. Manufacturing activity is delivered through the Group's subsidiary Braime Pressings Limited and the distribution activity through the Group's 4B division.
Braime Pressings specialises in metal presswork, including deep drawing, multi-stage progression and transfer presswork. Founded in 1888, the business has over 130 years of manufacturing experience. The metal presswork segment operates across several industries including the automotive sector and supplies external as well as group customers.
The subsidiaries within the 4B division are industry leaders in developing high quality, innovative and dependable material handling components for the agricultural and industrial sectors. They provide a range of complementary products including elevator buckets, elevator and conveyor belting, elevator bolts and belt fasteners, forged chain, level monitors and sensors and controllers for monitoring safety and providing preventative maintenance systems which facilitate handling and minimise the risk of explosion in hazardous areas. The 4B division has operations in the Americas, Europe, Asia, Australia and Africa and export to over fifty countries. The US subsidiary also has a new injection-molding plant. All injection-molded products are made wholly for internal consumption and this is classed as 4B division activity rather than included in the manufacturing segment.
Performance highlights
For the year ended 31st December 2019, the Group generated revenue of £33.4m, down £2.3m from prior year. Profit from operations was £2.2m, down £1.0m from prior year. EBITDA was £3.5m. At 31st December 2019, the Group had net assets of £14.3m. The full year results are in line with expectations at the half-year, when there were indications that the agricultural markets globally were seeing a reduction in activity, in part due to the continuing US-Sino tariff retaliations.
Cash flow
Inventories increased by £0.7m and trade and other receivables decreased by £1.0m reflecting the reduced sales activity. These were partly offset by a decrease in our trade and other payables of £1.5m. In total the business generated funds from operations of £1.7m (2018 - £2.4m). The group maintained its programme of investment during the year, spending £1.7m on capital items. After the payment of other financial costs and the dividend, the cash balance (net of overdraft) was £0.7m, a decrease of £0.8m from the prior year.
Bank facilities
The Group's operating banking facilities are renewed annually. The arrangements with HSBC provide sufficient headroom to the Group and have allowed us to make the necessary investments in the year. The business has good relations with its bankers who are cognizant of the general economic uncertainties facing the business as a result of the corona virus outbreak and the yet unknown trading rules that will apply when transitional arrangements for Brexit terminate at the end of the year. The Group has kept abreast of government backed loans and grants and will apply for relevant funding as appropriate to its needs.
Taxation
The tax charge for the year was £0.4m, with an effective rate of tax of 23% (2018 - 26%). The effective rate is higher than the standard UK tax rate of 19% (2018 - 19%), this results from the blending effect of the different rates of tax applied by each of the countries in which the Group operates, in particular, our operations in the US less group reliefs available from losses. In any financial year the effective rate will depend on the mix of countries in which profits are made, however the Group continues to review its tax profile to minimise the impact.
Capital expenditure
In 2018, the Group invested £1.7m (2018 - £1.8m) in plant and equipment. £0.3m relates to the purchase of a new injection molding machine in the USA. Other major investments relate to installation of two hydraulic presses and a bolt forming machine in the UK, as well as a 190KW solar panel system which will provide circa 25% of the UK businesses' electricity requirements. The Group also introduced an automated components washer. Our chief investment plan in 2020 is the set-up of a new warehouse for 4B France at a cost of €2.2m. This will be partly funded from existing cash resources and bank facilities. In addition, Bank of Credit du Nord and BPI-France are jointly providing a loan of €1.7m repayable over 15 years at an interest rate of 1.3%. In the light of the Covid-19 pandemic we are keeping a careful review of the timing of funds draw-down.
Balance sheet
Net assets of the Group have increased to £14.3m (2018 - £13.3m). A foreign exchange loss of £0.3m (2018 - gain of £0.2m) was recorded on the re-translation of the net assets of the overseas operations, which has decreased retained earnings in the year.
Principal exchange rates
The Group reports its results in sterling, its presentational currency. The Group operates in six other currencies and the principal exchange rates in use during the year and as at 31st December 2018 are shown in the table below. Following the exit of the UK from the EU, sterling strengthened against many of the currencies in which we operate and consequently as mentioned above the Group's reserves decreased by £0.3m from losses in foreign currency translations.
| Currency | Symbol | Average rate Full year 2019 | Average rate Full year 2018 | Closing rate 31st Dec 2019 | Closing rate 31st Dec 2018 |
| Australian Dollar | AUD | 1.8399 | 1.787 | 1,8834 | 1.809 |
| Chinese Renminbi (Yuan) | CNY | 8.8096 | 8.700 | 9.1501 | 8.676 |
| Euro | EUR | 1.1443 | 1.130 | 1.1765 | 1.115 |
| South African Rand | ZAR | 18.4531 | 17.627 | 18.5475 | 18.364 |
| Thai Baht | THB | 39.5778 | 42.962 | 39.3460 | 41.301 |
| United States Dollar | USD | 1.2807 | 1.332 | 1.3210 | 1.277 |
| Key performance indicator | Note | 2019 | 2018 |
| Turnover growth | 1 | (6.4%) | 13.6% |
| Gross margin | 2 | 49.1% | 48.4% |
| Operating profit | 3 | £2.21m | £3.24m |
| Stock days | 4 | 176 days | 141 days |
| Debtor days | 5 | 57 days | 56 days |
| 2019 | 2018 | |
| £'000 | £'000 | |
| Revenue | 33,433 | 35,718 |
| Changes in inventories of finished goods and work in progress | 959 | 1,229 |
| Raw materials and consumables used | (17,986) | (19,677) |
| Employee benefits costs | (8,530) | (8,300) |
| Depreciation and amortisation expense | (1,236) | (788) |
| Other expenses | (4,737) | (4,940) |
| Other operating income | 318 | - |
| Profit from operations | 2,221 | 3,242 |
| Finance expense | (477) | (227) |
| Finance income | 2 | 2 |
| Profit before tax | 1,746 | 3,017 |
| Tax expense | (397) | (788) |
| Profit for the year | 1,349 | 2,229 |
| Profit attributable to: | ||
| Owners of the parent | 1,360 | 2,178 |
| Non-controlling interests | (11) | 51 |
| 1,349 | 2,229 | |
| Basic and diluted earnings per share | 94.44p | 151.25p |
| 2019 | 2018 | |
| £'000 | £'000 | |
| Profit for the year | 1,349 | 2,229 |
| Items that will not be reclassified subsequently to profit or loss | ||
| Net pension remeasurement gain on post employment benefits | 178 | 76 |
| Items that may be reclassified subsequently to profit or loss | ||
| Foreign exchange (losses)/gains on re-translation of overseas operations | (323) | 206 |
| Other comprehensive income for the year | (145) | 282 |
| Total comprehensive income for the year | 1,204 | 2,511 |
| Total comprehensive income attributable to: | ||
| Owners of the parent | 1,231 | 2,481 |
| Non-controlling interests | (27) | 30 |
| 1,204 | 2,511 |
| 2019 | 2018 | |
| £'000 | £'000 | |
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 6,824 | 6,232 |
| Intangible assets | 48 | 61 |
| Rights of use assets (see note below) | 278 | - |
| Total non-current assets | 7,150 | 6,293 |
| Current assets | ||
| Inventories | 8,573 | 7,872 |
| Trade and other receivables | 5,697 | 6,820 |
| Cash and cash equivalents | 1,679 | 2,313 |
| Total current assets | 15,949 | 17,005 |
| Total assets | 23,099 | 23,298 |
| Liabilities | ||
| Current liabilities | ||
| Bank overdraft | 1,016 | 832 |
| Trade and other payables | 3,808 | 5,493 |
| Other financial liabilities | 2,163 | 1,870 |
| Corporation tax liability | 19 | 249 |
| Total current liabilities | 7,006 | 8,444 |
| Non-current liabilities | ||
| Financial liabilities | 1,384 | 1,256 |
| Deferred income tax liability | 360 | 265 |
| Total non-current liabilities | 1,744 | 1,521 |
| Total liabilities | 8,750 | 9,965 |
| Total net assets | 14,349 | 13,333 |
| Share capital | 360 | 360 |
| Capital reserve | 257 | 257 |
| Foreign exchange reserve | (6) | 301 |
| Retained earnings | 14,084 | 12,734 |
| Total equity attributable to the shareholders of the parent | 14,695 | 13,652 |
| Non-controlling interests | (346) | (319) |
| Total equity | 14,349 | 13,333 |
| 2019 | 2018 | |
| £'000 | £'000 | |
| Operating activities | ||
| Net profit | 1,349 | 2,229 |
| Adjustments for: | ||
| Depreciation and amortisation | 1,236 | 788 |
| Foreign exchange (losses)/gains | (255) | 158 |
| Finance income | (2) | (2) |
| Finance expense | 477 | 227 |
| Loss on sale of land and buildings, plant, machinery and motor vehicles | (12) | 15 |
| Adjustment in respect of defined benefits scheme | 93 | 158 |
| Income tax expense | 397 | 788 |
| Income taxes paid | (451) | (871) |
| 1,483 | 1,261 | |
| Operating profit before changes in working capital and provisions | 2,832 | 3,490 |
| Decrease/(increase) in trade and other receivables | 1,044 | (580) |
| Increase in inventories | (701) | (1,441) |
| (Decrease)/increase in trade and other payables | (1,499) | 977 |
| (1,156) | (1,044) | |
| Cash generated from operations | 1,676 | 2,446 |
| Investing activities | ||
| Purchases of property, plant, machinery and motor vehicles and intangible assets | (1,660) | (1,767) |
| Sale of land and buildings, plant, machinery and motor vehicles | 27 | 32 |
| Interest received | 2 | 2 |
| (1,631) | (1,733) | |
| Financing activities | ||
| Proceeds from long term borrowings | 728 | 792 |
| Repayment of borrowings | (459) | (349) |
| Repayment of hire purchase creditors | (281) | (276) |
| Repayment of lease liabilities | (210) | - |
| Bank interest paid | (426) | (198) |
| Lease interest paid | (48) | - |
| Hire purchase interest paid | - | (29) |
| Dividends paid | (167) | (153) |
| (863) | (213) | |
| (Decrease)/increase in cash and cash equivalents | (818) | 500 |
| Cash and cash equivalents, beginning of period | 1,481 | 981 |
| Cash and cash equivalents, end of period | 663 | 1,481 |
| Share Capital | Capital Reserve | Foreign Exchange Reserve | Retained Earnings | Total | Non- Controlling Interests | Total Equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance at 1st January 2018 | 360 | 257 | 74 | 10,633 | 11,324 | (349) | 10,975 |
| Comprehensive income | |||||||
| Profit | - | - | - | 2,178 | 2,178 | 51 | 2,229 |
| Other comprehensive income | |||||||
| Net pension remeasurement gain recognised directly in equity | - | - | - | 76 | 76 | - | 76 |
| Foreign exchange losses on re-translation of overseas subsidiaries consolidated operations | - | - | 227 | - | 227 | (21) | 206 |
| Total other comprehensive income | - | - | 227 | 76 | 303 | (21) | 282 |
| Total comprehensive income | - | - | 227 | 2,254 | 2,481 | 30 | 2,511 |
| Transactions with owners | |||||||
| Dividends | - | - | - | (153) | (153) | - | (153) |
| Total transactions with owners | - | - | - | (153) | (153) | - | (153) |
| Balance at 1st January 2019 | 360 | 257 | 301 | 12,734 | 13,652 | (319) | 13,333 |
| Comprehensive income | |||||||
| Profit | - | - | - | 1,360 | 1,360 | (11) | 1,349 |
| Other comprehensive income | |||||||
| Net pension remeasurement gain recognised directly in equity | - | - | - | 178 | 178 | - | 178 |
| Foreign exchange gains on re-translation of overseas subsidiaries consolidated operations | - | - | (307) | - | (307) | (16) | (323) |
| Total other comprehensive income | - | - | (307) | 178 | (129) | (16) | (145) |
| Total comprehensive income | - | - | (307) | 1,538 | 1,231 | (27) | 1,204 |
| Transactions with owners | |||||||
| Dividends | - | - | - | (167) | (167) | - | (167) |
| Total transactions with owners | - | - | - | (167) | (167) | - | (167) |
| Balance at 31st December 2019 | 360 | 257 | (6) | 14,084 | 14,695 | (346) | 14,349 |
| Dividends paid | 2019 | 2018 |
| £'000 | £'000 | |
| Equity shares | ||
| Ordinary shares | ||
| Interim of 8.00p (2018 - 7.10p) per share paid on 17th May 2019 | 38 | 34 |
| Interim of 3.60p (2018 - 3.50p) per share paid on 18th October 2019 | 17 | 17 |
| 55 | 51 | |
| 'A' Ordinary shares | ||
| Interim of 8.00p (2018 - 7.10p) per share paid on 17th May 2019 | 77 | 68 |
| Interim of 3.60p (2018 - 3.50p) per share paid on 18th October 2019 | 35 | 34 |
| 112 | 102 | |
| Total dividends paid | 167 | 153 |
| Central | Manufacturing | Distribution | Total | |
| 2019 | 2019 | 2019 | 2019 | |
| £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||
| External | - | 3,416 | 30,017 | 33,433 |
| Inter Company | 2,104 | 3,440 | 6,224 | 11,768 |
| Total | 2,104 | 6,856 | 36,241 | 45,201 |
| Profit | ||||
| EBITDA | 851 | (244) | 2,850 | 3,457 |
| Finance costs | (305) | (27) | (145) | (477) |
| Finance income | - | - | 2 | 2 |
| Depreciation and amortisation | (607) | (18) | (611) | (1,236) |
| Tax expense | (114) | 39 | (322) | (397) |
| (Loss)/profit for the period | (175) | (250) | 1,774 | 1,349 |
| Assets | ||||
| Total assets | 5,529 | 3,657 | 13,913 | 23,099 |
| Additions to non current assets | 1,138 | 76 | 607 | 1,821 |
| Liabilities | ||||
| Total liabilities | 852 | 1,768 | 6,130 | 8,750 |
| Central | Manufacturing | Distribution | Total | |
| 2018 | 2018 | 2018 | 2018 | |
| £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||
| External | - | 4,291 | 31,427 | 35,718 |
| Inter Company | 695 | 3,891 | 6,452 | 11,038 |
| Total | 695 | 8,182 | 37,879 | 46,756 |
| Profit | ||||
| EBITDA | 387 | 187 | 3,456 | 4,030 |
| Finance costs | (116) | (36) | (75) | (227) |
| Finance income | - | - | 2 | 2 |
| Depreciation | (464) | - | (324) | (788) |
| Tax expense | (19) | (55) | (714) | (788) |
| (Loss)/profit for the period | (212) | 96 | 2,345 | 2,229 |
| Assets | ||||
| Total assets | 5,009 | 3,202 | 15,087 | 23,298 |
| Additions to non current assets | 650 | - | 1,149 | 1,799 |
| Liabilities | ||||
| Total liabilities | 3,713 | 2,127 | 4,125 | 9,965 |