REG - Trifast PLC - Half-year Report- six months ended 30.9.19
19/11/2019 07:00
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RNS Number : 8007T
Trifast PLC
19 November 2019
The information contained within this announcement
is deemed by the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014.
Upon the publication of this announcement via the Regulatory Information
Service, this inside information is now considered to be in the public domain.
TRIFAST PLC
HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
"Even in challenging market conditions, we have maintained similar revenue
levels, a double-digit operating margin and solid cash generation"
KEY FINANCIALS
Underlying measures CER HY2020 (post-IFRS16) CER change v HY2019 AER HY2020 AER change v HY2019 FY2019
(post-IFRS16) HY2019 (pre-IFRS16) (pre-IFRS16)
Group revenue £102.2m -2.7% £103.1m -1.8% £105.0m £209.0m
Gross profit %^ 28.7% -150bps 28.8% -140bps 30.2% 30.0%
Underlying operating profit*^ £10.9m -8.4% £11.1m -6.7% £11.9m £24.2m
Underlying profit before tax*^ £10.4m -10.2% £10.6m -8.5% £11.6m £23.5m
Underlying diluted earnings per share*^ 6.39p -11.3% 6.52p -9.4% 7.20p 14.53p
Adjusted net debt(§) £15.7m +£2.2m £13.5m £14.2m
Return on capital employed (ROCE)*^ 16.5% -300bps 19.5% 18.8%
Interim/total dividend(¥) 1.20p - 1.20p 4.25p
GAAP measures
Operating profit^ £8.4m +1.3% £8.3m £17.1m
Profit before tax^ £7.9m -1.0% £8.0m £16.4m
Diluted earnings per share^ 4.82p - 4.82p 9.90p
Basic earnings per share^ 4.92p -0.2% 4.93p 10.14p
* Before separately disclosed items (see notes 2, 6 and 9)
^Presented after adoption of IFRS16 Leases in HY2020. For ROCE the impact has
been a reduction of 70bps (before IFRS16: 17.2%). Less significant impacts on
the remaining metrics have been explained in a separate paragraph at the end
of the business review.
(§)Adjusted net debt is presented, excluding the impact of IFRS16 Leases, as
this is how the calculation is performed for the purposes of the Group's
banking facilities. Including right-of-use lease liabilities, net debt would
increase by £16.1m to £31.8m at HY2020.
(¥)Change is in interim dividend only
OPERATIONAL HIGHLIGHTS
The investment journey continues…
· Challenging macroeconomic environment sees revenues reduce 2.7%
at Constant Exchange Rate (CER), 1.8% at Actual Exchange Rate (AER)
· Ongoing market share wins restrict Group automotive revenue
reduction to 2.5%, against a global production downturn of 7.3% (Source:
European Automobile Manufacturers Association)
· Underlying operating profit margins hold up well at 10.6% at CER
(HY2019: 11.3%)
· Underlying diluted earnings per share reduce 9.4% to 6.52p at AER
· Project Atlas, our multi-year investment in our systems, policies
and procedures is on track and on budget, with a spend of £2.5m in the period
· A strong balance sheet and c.£40.0m of banking facility headroom
provide a solid financial platform and significant flexibility to support our
long-term investment driven growth plans
· Potential M&A opportunities increase due to uncertain market
conditions and an increased focus on key geographies
· Interim dividend maintained at 1.20p reflecting the Board's
confidence in the long-term future of the business and our ongoing strong
profitability
"Despite the short-term end market weaknesses and macroeconomic uncertainty,
we are confident in the strong long-term fundamentals of our business model.
The Board remains committed to its ongoing investment driven growth strategy
and is optimistic for the long-term future"
"After ten years of continuous growth and strong cash generation, we have a
very solid balance sheet. This coupled with our new banking facilities
provides us with significant flexibility and security, to continue to invest
and to make sure that when the macroeconomic environment begins to settle, we
have the best foundation and are in the best possible position to add further
stimulus to our growth ambitions."
Malcolm Diamond MBE, Non-Executive Chairman
Presentation of results:
This will be held at 8:45am (UK time) today at, No1 Cornhill, The Gold Room -
London, EC3V 3ND.
Conference dial-in facility: on request, please contact Fiona Tooley on +44
(0)7785 703523
or email fiona@tooleystreet.com (mailto:fiona@tooleystreet.com) .
Enquiries please contact:
Trifast plc
Malcolm Diamond MBE, Non-Executive Chairman
Mark Belton, Chief Executive Officer
Clare Foster, Chief Financial Officer
Today: Mobile: +44 (0) 7979 518493 (MMD)
Office: +44 (0) 1825 747630
Email: corporate.enquiries@trifast.com
(mailto:corporate.enquiries@trifast.com)
Peel Hunt LLP (Stockbroker & financial adviser)
Mike Bell
Tel: +44 (0)20 7418 8900
TooleyStreet Communications (IR & media relations)
Fiona Tooley
Tel : +44 (0)7785 703523
Email : fiona@tooleystreet.com (mailto:fiona@tooleystreet.com)
Editors' note:
LSE Premium Listing: Ticker: TRI
LEI number: 213800WFIVE6RUK3CR22
Group website: www.trifast.com (http://www.trifast.com)
About us: Trifast, leading international specialist in the design,
engineering, manufacture and distribution of high-quality industrial and
Category 'C' fastenings principally to major global assembly industries. Key
sectors include automotive, domestic appliances, electronics and
distributors. The Group employs c.1,300 staff across 32 global locations
across the UK, Europe, Asia and the USA.
For more information, visit
Commercial website: www.trfastenings.com (http://www.trfastenings.com)
LinkedIn: www.linkedin.com/company/tr-fastenings
(http://www.linkedin.com/company/tr-fastenings)
Twitter: www.twitter.com/trfastenings (http://www.twitter.com/trfastenings)
Facebook: www.facebook.com/trfastenings (http://www.facebook.com/trfastenings)
Electronic communications
The Company is not proposing to bulk print and distribute hard copies of this
half-yearly financial report for the six months ended 30 September 2019 unless
specifically requested by individual shareholders. News updates, Regulatory
News and Financial statements, can be viewed and downloaded from the Group's
website, www.trifast.com (http://www.trifast.com) . Copies can also be
requested via corporate.enquiries@trifast.com
(mailto:corporate.enquiries@trifast.com) or, in writing to, The Company
Secretary, Trifast plc, Trifast House, Bellbrook Park, Uckfield, East Sussex,
TN22 1QW.
Forward-looking statements
This announcement contains certain forward-looking statements. These reflect
the knowledge and information available to the Company during the preparation
and up to the publication of this document. By their very nature, these
statements depend upon circumstances and relate to events that may occur in
the future thereby involving a degree of uncertainty. Therefore, nothing in
this document should be construed as a profit forecast by the Company.
TRIFAST PLC
HALF-YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
"Investing to build the Trifast of tomorrow, a truly world class global
industrial player"
Dear Shareholder,
Way back in the late Eighties a visiting newspaper journalist to TR Uckfield
asked me a very insightful question: "Do you manage your company for profit or
prosperity?"
I replied that, as a privately-owned business with only two founder
shareholders, we favoured prosperity over profit so as to try and enable
future proofing, and to provide an ever-strengthening foundation for growth.
Of course, since flotation on the LSE in early 1994, the focus on delivering
consistent and sustainable profitability has increased in order to safeguard
the very basis upon which outside investors risk buying our shares in trusting
anticipation of gaining value, ideally both in capital and dividend yield.
It is tempting to fall into line with what is now a majority of industrially
based enterprises at this vexed time who are reporting the damaging effects of
Brexit, global trade disruption, climate change policies and currency
fluctuations. However, although we have seen revenues reduce slightly due to
these external factors beyond our control, we are also in a transitionary
phase where we are consciously reinvesting earnings into internal initiatives
which we believe are crucial to enhance the platform for long-term prosperity.
We have already explained and notified you of the initiation of our
transformational investment into our global systems, policies and procedures,
Project Atlas, which is now halfway through its four-year time line and
progressing as expected and on budget (thanks to the ongoing focus and
dedication of our implementation team that are linked across the entire
Group).
However, there has been a strategic shift in what our customers expect of our
commitment and service support that has been accelerating over the past
decade. We are no longer simply "box shifters", instead we are involved
earlier in new customer product development (including problem solving and
cost effectiveness), after passing stringent auditing on product and process
quality.
Once our prototype design or specification has been thoroughly tested in an
assembly process, we secure orders over the life of the customer's product and
also provide adequate stock or production availability.
With two thirds of our customers being multinationals, our price, quality and
service must be consistent across all their assembly facilities, hence our
locations now being spread across Europe, Asia and North America in order to
provide seamless support across all time zones.
In the early days of TR Fastenings, our reputation was built on prompt
reliable service driven by our sales team having great interpersonal skills in
communicating with buyers and purchasing managers.
Now, it is more about globally accepted quality and process certification
tangibly under pinned by qualified engineers able to provide assembly
solutions that save time and resource - hence cost. Price is still crucial,
but it is now well documented that this is only a small part of what is called
"in place cost". This cost optimisation is what predominantly TR now sells.
This, in turn, has led to further investment in qualified field engineers that
has intensified this year, with intake in the USA, UK, Europe and Asia. As a
result, this has required the set-up of a sophisticated Technical &
Innovation centre in a neighbouring unit to our Waterside facility in the West
Midlands. To maximise the impact of this investment, this new site interacts
with the centre established last year in Gothenburg, Sweden.
We have also invested recently in a range of highly technical measuring and
testing equipment that our increasingly demanding customers expect us to
provide, some of which are so cutting edge as to be market leading. Robotic
assembly is also now so prevalent that every component we supply has to have
highly consistent and accurate dimensions that, due to large volume
consumption can only be realistically assessed by automatic camera and laser
machines. The Group now owns a significant number of these sophisticated and
costly machines installed across many of our logistics and manufacturing
facilities.
You can read a great more detail regarding our investment programme within the
reports of my colleagues that follow my letter, which I hope you will find
both relevant and reassuring.
As always, I remain inspired by the sheer quality, loyalty and energy of our truly outstanding workforce, many of whom have devoted years of unstinting commitment to our Company. To these, me and my fellow Board colleagues give our sincere thanks.
Malcolm Diamond MBE, Non-Executive Chairman
18 November 2019
BUSINESS REVIEW
Unless stated otherwise, comparisons with prior year are calculated at
constant currency (CER) and where we refer to 'underlying', this is defined as
being before separately disclosed items (see note 2). CER calculations have
been calculated by translating the HY2020 figures by the average HY2019
exchange rate.
The impact of foreign exchange movements has increased our AER revenue by
0.9%, £0.9m (HY2019: decreased by 0.5%, £0.4m), our AER underlying profit
before tax by 1.7%, £0.2m (HY2019: decreased by 0.9%, £0.1m) and our AER
underlying diluted EPS by 1.9%, 0.13p (HY2019: decreased by 1.0%, 0.07p).
Our Group performance
Underlying measures HY2020 CER (post-IFRS16) Change at CER HY2020 AER (post-IFRS16) Change at AER HY2019
(pre-IFRS16)
Revenue £102.2m -2.7% £103.1m -1.8% £105.0m
GP%^ 28.7% -150bps 28.8% -140bps 30.2%
Underlying EBITDA*^ £13.5m +4.2% £13.7m +6.0% £12.9m
Underlying EBITDA%*^ 13.2% +90bps 13.3% +100bps 12.3%
Underlying operating profit (UOP)*^ £10.9m -8.4% £11.1m -6.7% £11.9m
UOP%*^ 10.6% -70bps 10.7% -60bps 11.3%
Underlying profit before tax*^ £10.4m -10.2% £10.6m -8.5% £11.6m
Underlying diluted EPS*^ 6.39p -11.3% 6.52p -9.4% 7.20p
Return on capital employed ROCE*^ 16.5% -300bps 19.5%
GAAP measures
Operating profit^ £8.4m +1.3% £8.3m
Operating profit %^ 8.2% +30bps 7.9%
Profit before tax^ £7.9m -1.0% £8.0m
Diluted EPS^ 4.82p - 4.82p
*Before separately disclosed items (see notes 2, 6 and 9)
^Presented after adoption of IFRS16 Leases in HY2020. For Underlying EBITDA
and Underlying EBITDA%, the impact has been an increase of £1.6m and
160bps at CER (before IFRS16: £11.9m and 11.6%) and £1.6m and 160bps at AER
(before IFRS16: £12.1m and 11.7%). For ROCE (AER) the impact has been a
reduction of 70bps (before IFRS16: 17.2%). Less significant impacts on the
remaining metrics have been explained in a separate table at the end of the
business review
Similar to many other businesses in the industrials space, the first half of
FY2020 has been a challenging time for the business with end markets across a
number of sectors remaining weak, particularly in the automotive sector. This
has led to some reduced volumes to existing builds across the UK, Europe and
Asia, as well as lead times on production schedules moving out on a number of
new business wins.
In the context of this high degree of uncertainty and volatility in the
macroeconomic climate, we are very pleased to report a solid set of results,
that show only a small reduction in revenues, down 2.7% to £102.2m (AER: down
1.8% to £103.1m; HY2019: £105.0m).
Our core growth strategy, focusing on sales to our multinational OEMs, has
continued to produce results, especially in the automotive sector where
despite a 7.3% fall in global automotive production levels, we are reporting
only a 2.5% decrease. This demonstrates our ongoing ability to win market
share alongside site penetration, most specifically into our existing
multinational Tier 1 customers. On a gross level, we have seen overall volume
reductions on existing builds largely across our European and UK Tier 1
customer base. But these reductions have been substantially offset by very
strong market share wins, most specifically from our rapidly growing sites in
the US, Spain and Thailand.
Group domestic appliances sales have reduced, most particularly in Europe
where ongoing low volumes continue at a key multinational OEM. The reduction
in the electronics sector is largely driven out of decreased volumes on more
established lines at one of our key OEMs in Europe, as well as the ongoing
indirect impact of US tariffs on certain multinational OEMs in China.
In contrast, growth in the general industrial sector has been strong, with new
customer relationships and double-digit growth at our latest acquisition, PTS,
driving a c.5% revenue increase. Although as previously reported, Brexit
related disruption to our EU distributor sales has worked to offset some of
these gains overall.
Gross margins have reduced by 150bps to 28.7% (HY2019: 30.2%). As semi-fixed
costs are less easily absorbed by the reduction in sales and product mix
changes, temporary increases in stock holding and provisioning levels, and
foreign exchange movements negatively impact margins in our Italian
operations. Underlying operating margins have reduced by less, down 70bps to
10.6% (HY2019: 11.3%). With short-term savings and deferrals being made at
overhead level, where possible in the context of our ongoing investment plans,
so as to reduce the impact of the lower gross margin.
Our underlying PBT is down 10.2% to £10.4m (AER: 8.5%, to £10.6m, HY2019:
£11.6m). This has resulted in a decrease in our underlying diluted earnings
per share (EPS) at CER, down 11.3% to 6.39p and at AER, down 9.4% to 6.52p
(HY2019: 7.20p).
Our underlying EBITDA has increased 4.2% to £13.5m (HY2019: £12.9m).
However, this increase reflects the first-year adoption of IFRS16 Leases,
which has moved £1.6m of operating rental costs into depreciation and
financial expenses. Excluding the positive impact of this, underlying EBITDA
would have decreased by 8.2% to £11.9m (HY2019: £12.9m).
Revenue (CER)
Outside of very strong growth in the USA, up 21.1% (HY2019: 34.8%), we have
seen challenging conditions across all of our regions, with revenue reductions
ranging from 1.9% to 6.8% (HY2019: growth of 4.3% to 10.8%) against a strong
HY2019.
Europe has seen a revenue decrease of 3.1% to £37.3m (AER: down 3.6% to
£37.1m, HY2019: £38.4m). In Holland this reflects a reduction in automotive
as volumes on existing builds have reduced. Whereas in Italy, the main driver
for the decrease is in the domestic appliances sector. As previously reported,
volumes at one of the Group's largest domestic appliances customers have
continued to be depressed due to their ongoing reputational issues. In
conjunction now with some volume decreases in the wider market as economic
uncertainties start to weigh on consumer confidence and production scheduling
in the region. In Hungary, sales to one of our key electronics OEMs have
reduced, as volumes decrease on more established lines ahead of new product
introductions. While overall, we are also seeing deferred start of production
dates reducing automotive growth in the short-term.
Helping to offset the above, we are pleased to report ongoing, albeit more
limited, growth in TR Kuhlmann, despite the recessionary environment in
Germany. As well as encouraging automotive market share wins at both our
Swedish and Spanish sites.
As national economies struggle with the impact of trade tariffs and reducing
growth rates, it is perhaps not surprising that Asia has been our poorest
performing region in HY2020. Revenues have reduced by 6.8% to £28.7m (AER:
down 3.7% to £29.6m, HY2019: £30.8m).
In Taiwan, sales to European automotive distributors have reduced
significantly as production volumes in Europe decrease. Whilst in China, it is
lower domestic automotive production volumes that have decreased sales, with
JLR related builds being particularly badly affected. Additional reductions
have also been seen in the electronics sector in China as a small number of
multinational OEMs reduce local production volumes in the face of US trade
tariffs. We are working closely with customers in this situation, to ensure we
follow business as it transfers to new locations wherever possible.
In contrast, we continue to see positive growth in the electronics sector in
Singapore and automotive market share wins for our distribution site in
Thailand.
In the UK, revenues have reduced 1.9% to £38.4m (HY2019: £39.2m). There are
two main reasons for this reduction. Firstly, due to the expected automotive
slowdown, with planned production line stops across a number of OEMs in April
as well as falling production volumes more generally across existing builds
and deferred start of production dates. Secondly, as a result of Brexit,
disruption to the EU distributors sector. As expected, April and May saw
revenues fall led by a reversal to the stocking up that had happened in
February and March, coupled with some signs of more cautious ordering and
de-stocking taking place into Q2.
On the positive side, revenues in the general industrial sector have increased
strongly in the UK, with new customer wins mainly responsible for driving
growth. Furthermore, we are very pleased to report that PTS continues to
perform very well with double digit revenue growth despite all the current
uncertainty in the market place.
In the USA, growth continues to be extremely strong, up 21.1% to £5.2m (AER:
up 28.4% to £5.5m; HY2019: £4.3m). This is largely being driven out of our
ongoing penetration into the Group's existing automotive multinational Tier 1
customers and looks set to continue at double-digit level for the foreseeable
future.
Underlying operating profit (CER)
The Board's ongoing confidence in the long-term fundamentals of the business
model have allowed us to continue to invest for long-term growth, despite the
current macroeconomic uncertainties. Whilst even in more challenging trading
conditions, a focus on strong overhead control, has helped to maintain a
double-digit operating margin of 10.6% (HY2019: 11.3%) and limit the overall
decrease in underlying operating profit, down 8.4% to £10.9m (AER: down 6.7%
to £11.1m; HY2019: £11.9m).
In Europe, we have seen a 320bps reduction in UOP margins against HY2019 to
8.5% (HY2019: 11.7%, FY2019: 10.9%). This primarily reflects a reduction in
the gross margin, including a reversal due to particularly favourable product
mixes in both Sweden and Hungary in HY2019. The positive impact of these had
already reversed by FY2019. The remainder is largely related to Italy, where
movements in the average €:$ exchange rate have increased $ purchase costs
unfavourably against a largely € denominated revenue base.
Outside of the gross margin, the reduction in sales has led to a fall in UOP
against a semi-fixed cost base. In response, no overall overhead increases
were recorded in the period despite some ongoing investments in the region, as
short-term savings and deferrals have been made wherever possible to offset.
In Asia, underlying operating margins have remained broadly level at 15.8%
(HY2019: 15.9%). Gross margins have improved, most noticeably in Singapore as
previous capital investments in the mezzanine floor flow through to greater
production efficiencies. The reduction in sales over a semi-fixed cost base
has reduced overall operating margins with the remaining difference largely
coming out of a reduced balance sheet translation gain of <£0.1m (HY2019:
£0.5m) as the US$ has remained more stable against our main Asian trading
currencies in the period.
In the UK, underlying operating margins have reduced 60bps to 10.3% (HY2019:
10.9%). Gross margins have fallen in the region, reflecting a change in
product mix due to a lower distributor spend, some temporary increases in
stock provisioning due to higher levels on hand and the flow through of a
small amount of residual purchase price inflation following the extended
weakness of £ since the referendum in 2016. Outside of the gross margin, the
fall in sales against a semi-fixed cost base has reduced operating margins.
But we are pleased to report that a decrease in overheads, as costs have been
saved or deferred where possible, has helped to reduce the overall negative
impact on operating margins in the short-term.
In our smallest region, the USA, UOP% has remained broadly level at 4.5%
(HY2019: 4.8%), largely reflecting the significant increase in trading in the
period offset by a gross margin reduction due to the ongoing shift in focus to
automotive. Additional investments in overheads, mostly relating to additional
headcount, have temporarily reduced UOP% ahead of further expected increases
in sales volumes. As in prior periods, low underlying operating margins are to
be expected in this region for the medium-term given the level of investments
for future growth being made here.
Net financing costs (AER)
These have increased to £0.5m (HY2019: £0.3m). The main reason for this
increase is the inclusion of £0.2m of expense in relation to right-of-use
lease liabilities, following the adoption of IFRS16.
Taxation (AER)
The HY2020 underlying effective tax rate (ETR) has remained consistent at
23.4% (HY2019: 23.5%, FY2019: 23.6%).
Subject to future tax changes and excluding prior year adjustments, our
normalised underlying ETR is expected to remain in the range of c.22.5-24.5%
going forward.
Earnings per share (AER)
The reduction in underlying profit before tax, has decreased our underlying
diluted EPS by 9.4% to 6.52p (HY2019: 7.20p). Diluted EPS has remained
consistent at 4.82p (HY: 4.82p) largely due to lower IFRS2 costs incurred in
the period. These have reduced to £0.6m (2019: £1.2m) reflecting the lower
trading results achieved in the current challenging macroeconomic environment,
against original benchmark targets set.
Dividend
Given the Board's confidence in the long-term future of the business and our ongoing strong profitability even in a period of macroeconomic uncertainty, the interim dividend has been maintained in line with the previous period. We have therefore declared an interim dividend of 1.20p (HY2019: 1.20p). This will be paid on 9 April 2020, to shareholders on the Register as at 13 March 2020. The shares will become ex-dividend on 12 March 2020.
Shareholder equity (AER)
As at 30 September 2019, the Group's shareholders' equity increased to
£123.7m (FY2019: £121.1m). The £2.6m uplift reflects retained earnings of
£1.4m (HY2019: £2.0m), a foreign exchange reserve gain of £2.3m and an
opening balance adjustment in respect of IFRS 16 reducing retained equity by
£1.1m.
At the 30 September 2019, the number of shares still held by the EBT to honour
future equity award commitments as required, has remained unchanged at
1,317,378 shares (HY2019: 1,317,378 shares; FY2019: 1,317,378 shares).
Over this increased asset base, a solid, albeit lower, trading performance and
ongoing investment has led to a reduced ROCE of 16.5% (FY2019: 18.8%). We note
that part of this reduction is due to the adoption of IFRS16 Leases. Excluding
the impact of this, ROCE would be higher at 17.2%.
Net debt (AER)
Our net debt position at the end of HY2020 has increased by £17.6m to £31.8m
(FY2019: £14.2m). Some £16.1m of this increase is due to the adoption of
IFRS 16 Leases. Excluding the impact of this, our pre-IFRS16 adjusted net debt
is significantly lower at £15.7m.
Capital expenditure of £1.9m (HY2019: £1.3m) in the period supports the
Board's ongoing investment in the business, most specifically with regards to
Project Atlas. With £1.3m being capitalised, largely reflecting phase one of
the design and build element of the project, as well as directly related
infrastructure spend. In July 2019, we were also pleased to pay a final £0.5m
earn-out amount in relation to PTS. This follows on from a very successful
first year with us, achieving double digit growth that has subsequently
carried on into HY2020.
Outside of these movements, our cash generation is lower than the prior period
with a conversion rate of underlying EBITDA to underlying cash of 60.5%
(FY2019: 64.9%; HY2019: 67.4%). However we note that this conversion rate
has also been negatively impacted by the adoption of IFRS16 Leases. If we
exclude the impact of this, then our cash conversion would be slightly ahead
of the prior period at 68.9%. Our half year cash conversion is historically
lower than our full year position, due to the higher stock levels we hold at
this stage of the trading cycle.
Our overall investment in gross stock has increased by £4.5m since year end
and we have retained the investment in stock that we were holding at the 31
March 2019 in case of a no-deal Brexit. We intend to continue to hold this for
the foreseeable future, until there is greater clarity over our future trading
relationship with the EU.
Our stock weeks across the Group have increased by 2.1 weeks, largely in the
UK (up £3.4m) where lower than budgeted sales and planned stock range
investments, especially on the distribution side have temporarily lowered
stock turn.
Banking facilities
As previously reported, on 16 April 2019 the Group signed new four year
banking facilities with a consortium of three banks.
As at 30 September the RCF headroom on these facilities was £39.9m (FY2019:
£6.2m). In addition to which, we have access to an additional accordion
facility of £40.0m. The adjusted net debt to Underlying EBITDA ratio
(excluding the impact of IFRS16) was 0.65x, and significantly less than our
covenant limit of 3.00x (1.16x including IFRS16).
This provides us with a significant degree of potential flexibility to debt
finance future acquisitions and further investments as required. As well as an
increase in both security and tenure of funding to adequately support us in a
less certain macroeconomic environment.
Acquisitions
We successfully added PTS to our portfolio in April 2018. However, in a
fragmented market, and with a track record of success, inevitably the search
for the next successful acquisition remains an important strategic aim for the
Group.
Over the course of the last six months, we have continued to develop our
proactive search. We have appointed advisors in a couple of key geographies
and with their help are now actively researching and approaching the market
where opportunities that fit our acquisition criteria are identified. The full
benefits of this increased activity are likely to come through over time.
However, even at this early stage we are seeing a marked increase in the
number of potential targets being identified. And in a less certain world, we
are also seeing an increased number of opportunities approaching us. This is
an exciting and busy time for the TR Acquisitions team.
Ongoing and future investment plans
Trading
We are continuing to invest in both our global and local sales resources and
cross functional supporting teams. Some specific investments have already been
made into our engineering sales, quality, and IT teams and additional plans
are being pulled together now to further develop and build our sourcing and
supply side resources.
In Europe, our successful greenfield site in Spain continues to grow, with an
exciting pipeline in place. We anticipate making additional overhead
investments to support that growth in the second half of the year and beyond.
Looking ahead, we are also in the process of finalising a potential site move
for our Hungarian business. This is needed to support the strong growth we
have already seen here over the last five years and to pave the way for future
growth in this fast growing region.
In the UK an expanded warehouse in our Lancaster site has provided us with a
much-needed capacity increase of 20%, including additional picking locations
as well as bulk storage facilities to support future growth plans. Whilst in
the Midlands, further investments have been made in our newly developed
Technical and Innovation Centre. This investment sets us apart from the
competition and further supports the TR UK Brand just when we need it most, as
the local competitive landscape hardens.
Following on from a few years of significant capital investment in Asia, we
have focused over the last six months on Taiwan. Here a reasonably small
investment of c.£0.2m has got the final machines installed to successfully
complete the factory extension we started in FY2019.
In the USA, we continue to invest in headcount to support the significant
growth in the region. We have also taken the strategic decision to secure a
small site at Clemson University, South Carolina where we intend to set up a
mini Technical and Innovation Centre. The Clemson University International
Centre for Automotive Research is an advanced technology research campus and a
real hub for all areas of vehicle research and design. We intend this to be a
smaller version of the very successful sites that we have already set up in
the heart of Sweden's electric vehicle development area, Lindholmen
Gothenburg, and next to our main Midlands distribution hub here in the UK.
Project Atlas - we remain on track and on budget
Project Atlas is a significant £15.0m planned investment into the integration
and development of the Group's IT infrastructure and underlying rules,
processes and policies. This project is considered an essential part of our
ongoing growth plans, both organic and acquisitive, and will allow us to
continue to meet the evolving needs of our multinational OEM customers.
The estimated ROI of >25%, at the point of full benefit realisation,
compares favourably to our current ROCE. We remain confident that this project
has the ability to create significant shareholder value in its own right as
well as creating the capacity for ongoing growth.
As planned, over the last six months our international Atlas cross functional
workstreams, the Atlas project team and our implementation partner have been
working closely together to finalise the analysis work and start the design
and build phase of the project. This is an incredibly exciting time for the
business as we start to see all of that hard work turned into initial Proof of
Concepts ahead of testing and training starting in earnest.
Alongside the main project launch, we have also started looking at our HR
(Talent) platform. This will help to drive consistency across all of our
businesses, making sure that we are best able to recruit, develop and retain
our people around the world.
As a consequence of the work undertaken to date on this project, we have
incurred direct costs of £2.5m in HY2020, largely relating to project team,
consultancy and directly related infrastructure costs. We have excluded £1.2m
of these costs from our underlying results, (see note 2), to reflect the
unusual scale and one-off nature of this project. In line with accounting
standards, we have also recognised the remaining £1.3m as intangible fixed
assets on the balance sheet at 30 September 2019. These will start to be
amortised as the new IT system is rolled out across our global sites.
Looking ahead from a strong foundation
HY2020 has been a challenging six months. But even in challenging market
conditions and during a period of investment, we have maintained similar
revenue levels, a double-digit operating margin and solid cash generation.
In line with the majority of our recent history, we currently expect a
slightly stronger second half than first half to the year. The Board consider
that set against what was a very strong HY1 & a slower HY2 in FY2019, this
is the most appropriate position to take. Although we do continue to expect
that in the short to medium-term the macroeconomic environment will remain
challenging and volatile.
We are pleased to report that our pipeline of new wins remains reassuringly
solid and activity levels around the Group continue to be encouraging across
all sectors. Our core strategy focusing on our multinational OEM/Tier 1
customers is continuing to bear fruit. With significant new platform wins in
automotive, domestic appliances and general industrial on the horizon for our
existing customers. In addition to which, we have a number of exciting new
multinational relationships under development, most specifically in the
general industrials sector.
There is no doubt that on some level, as a component supplier we are always
dependent on the fortunes of our customers. And in an uncertain, volatile
world we have inevitably seen production volume reductions and start of
production date deferrals across a number of our multinational OEMs/Tier 1s in
recent months. It is very reassuring to note that we have not lost business or
customers. We continue to hold preferred supplier status at a wide range of
large manufacturers across the globe, and as soon as manufacturing volumes
return we will be there, in place and ready to support. In the meantime, we
continue to be at the forefront of the new and rapidly growing sub-sectors of
our markets, with exciting opportunities currently being worked on in both the
electric vehicle and 5G markets.
After ten years of continuous growth and strong cash generation, we have a
very solid balance sheet. This coupled with our new banking facilities
provides us with significant flexibility and security to continue to invest
and to make sure that when the macroeconomic environment begins to settle, we
have the best foundation and are in the best possible position to add further
stimulus to our growth ambitions.
Trifast is a global business serving a broad and balanced range of sectors and
geographies, generating c.70% of revenues and profits outside of the UK and
with no one customer representing greater than 7% of revenue. We are a full
service provider to our multinational customers, delivering reliable product
engineering, quality and supply, via flexible global logistics solutions. In
the long term, it is these core skills that will continue to allow us to
increase market share across a wide customer base and put us in a good
position to keep moving forward and delivering on our future aspirations.
Despite the short-term end market weaknesses and macroeconomic uncertainty, we
are confident in the strong long-term fundamentals of our business model. The
Board remains committed to its ongoing investment driven growth strategy and
is optimistic for the long-term future.
RISKS AND UNCERTAINTIES
The Directors do not consider that the principal risks and uncertainties of
the Group have changed since the publication
in June 2019 of the Group's Annual Report for the year ended 31 March 2019.
The principal risks and uncertainties include: loss of key personnel and
resource, a major quality issue, foreign exchange volatility, macroeconomic
factors, loss of a key customer and debtor exposure, interruption of supply,
inventories obsolescence, a breach of cyber security and Brexit. A copy of
this publication can be found on the website www.trifast.com
(http://www.trifast.com) .
No system can fully eliminate risk and therefore the understanding of
operational risk is central to the management process within TR. The Group
operates a system of internal control and risk management to provide assurance
that we are managing risk whilst achieving our business objectives. Risk
assessment reviews are regularly carried out by management, with
responsibilities for monitoring and mitigating personally allocated to a broad
spread of individual managers. These reviews are analysed and discussed at
Audit Committee meetings chaired by our Senior Independent Non-Executive
Director.
As with all businesses, the Group faces risks, with some not wholly within its
control, which could have a material impact on the Group, and may affect its
performance with actual results becoming materially different from both
forecast and historic results. There are indications that the macroeconomic
climate is still under pressure, and so, we continue to remain vigilant for
any indications that could adversely impact expected results going forward.
Past and future acquisitions can also carry impairment risks on goodwill
should there be a sustained downturn in trading within an acquired subsidiary.
The long-term success of the Group depends on the ongoing review, assessment
and control of the key business risks it faces.
IFRS16 impacts
HY2020 HY2020 HY2019
Underlying measures (post-IFRS16) IFRS16 impact (pre (pre-
-IFRS16) IFRS16)
CER
GP% 28.7% +10bps 28.6% 30.2%
Underlying EBITDA £13.5m +£1.6m £11.9m £12.9m
Underlying EBITDA% 13.2% +160bps 11.6% 12.3%
Underlying operating profit (UOP) £10.9m +£0.2m £10.7m £11.9m
UOP% 10.6% +10bps 10.5% 11.3%
Underlying profit before tax £10.4m - £10.4m £11.6m
AER
Underlying diluted EPS 6.52p - 6.52p 7.20p
Return on capital employed (ROCE) 16.5% -70bps 17.2% 19.5%
Net debt £31.8m +£16.1m £15.7m* £13.5m
Net debt to underlying EBITDA ratio 1.16x +0.51x 0.65x* 0.54x
Underlying cash conversion as a percentage of underlying EBITDA 60.5% -840bps 68.9% 67.4%
Net financing costs £0.5m +£0.2m £0.3m £0.3m
GAAP Measures (AER)
Operating profit £8.4m +£0.2m £8.2m £8.3m
Operating profit % 8.2% +10bps 8.1% 7.9%
Profit before tax £7.9m - £7.9m £8.0m
Diluted EPS 4.82p - 4.82p 4.82p
*These measures are referred to as adjusted net debt and adjusted net debt to
Underlying EBITDA ratio in the business review
Trifast plc - responsibility statement
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
· the interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Mark Belton, Chief Executive Officer
Clare Foster, Chief Financial Officer
18 November 2019
Condensed consolidated interim income statement
Unaudited results for the six months ended 30 September 2019
Six months Six months Year
Notes ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Continuing operations
Revenue 103,107 104,981 208,952
Cost of sales (73,461) (73,327) (146,317)
Gross profit 29,646 31,654 62,635
Other operating income 165 266 464
Distribution expenses (2,311) (2,223) (4,268)
Administrative expenses before separately disclosed items 2 (16,423) (17,822) (34,635)
IFRS 2 share based payment charge (581) (1,152) (2,454)
Acquired intangible amortisation (712) (734) (1,419)
Net acquisition costs - (177) (3)
Project Atlas (1,267) (1,490) (3,117)
Cost on exercise of executive share options (88) - (107)
Total administrative expenses (19,071) (21,375) (41,735)
Operating profit 8,429 8,322 17,096
Financial income 44 36 80
Financial expenses (550) (356) (755)
Net financing costs (506) (320) (675)
Profit before tax 7,923 8,002 16,421
Taxation 4 (1,938) (2,087) (4,177)
Profit for the period 5,985 5,915 12,244
(attributable to equity shareholders of the parent company)
Earnings per share
Basic 6 4.92p 4.93p 10.14p
Diluted 6 4.82p 4.82p 9.90p
Condensed consolidated interim statement of comprehensive income
Unaudited results for the six months ended 30 September 2019
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Profit for the period 5,985 5,915 12,244
Other comprehensive income:
Exchange differences on translation of foreign operations 3,439 1,571 148
(Loss)/profit on a hedge of a net investment taken to equity (1,142) (295) 466
Other comprehensive income recognised directly in equity, 2,297 1,276 614
net of income tax
Total comprehensive income recognised for the period 8,282 7,191 12,858
(attributable to equity shareholders of the parent company)
Condensed consolidated interim statement of changes in equity
Unaudited results for the six months ended 30 September 2019
Unaudited results for the Share Share Own shares held Translation Retained Total
six months ended 30 September 2019 capital premium £000 reserve earnings equity
£000 £000 £000 £000 £000
Balance at 1 April 2019 6,095 21,914 (3,019) 13,988 82,115 121,093
Effect of change in accounting policy (see note 1) - - - - (1,069) (1,069)
Balance at 1 April 2019 (restated) 6,095 21,914 (3,019) 13,988 81,046 120,024
Total comprehensive income for the period:
Profit for the period - - - - 5,985 5,985
Other comprehensive income for the year - - - 2,297 - 2,297
Total comprehensive income for the period - - - 2,297 5,985 8,282
Transactions with owners, recorded directly
in equity:
Issue of share capital 1 23 - - - 24
Share based payment transactions (net of tax) - - - - 482 482
Dividends - - - - (5,134) (5,134)
Total transactions with owners 1 23 - - (4,652) (4,628)
Balance at 30 September 2019 6,096 21,937 (3,019) 16,285 82,379 123,678
Unaudited results for the Share Share Own shares held Translation Retained Total
six months ended 30 September 2018 capital premium £000 reserve earnings equity
£000 £000 £000 £000 £000
Balance at 1 April 2018 6,068 21,579 (3,437) 13,374 72,705 110,289
Total comprehensive income for the period:
Profit for the period - - - - 5,915 5,915
Other comprehensive income for the year - - - 1,276 - 1,276
Total comprehensive income for the period - - - 1,276 5,915 7,191
Transactions with owners, recorded directly
in equity:
Issue of share capital 1 21 - - - 22
Own shares acquired - - 409 - (409) -
Share based payment transactions (net of tax) - - - - 1,088 1,088
Dividends - - - - (4,625) (4,625)
Total transactions with owners 1 21 409 - (3,946) (3,515)
Balance at 30 September 2018 6,069 21,600 (3,028) 14,650 74,674 113,965
Condensed consolidated interim statement of financial position
Unaudited results for the six months ended 30 September 2019
Group Notes 30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Non-current assets
Property, plant and equipment 21,130 20,664 21,081
Right-of-use asset 14,732 - -
Intangible assets 46,352 45,104 44,818
Deferred tax assets 2,251 2,311 2,129
Total non-current assets 84,465 68,079 68,028
Current assets
Inventories 63,271 55,594 57,558
Trade and other receivables 51,908 52,405 53,782
Cash and cash equivalents 7 25,027 26,661 25,199
Total current assets 140,206 134,660 136,539
Total assets 224,671 202,739 204,567
Current liabilities
Trade and other payables 34,032 38,492 37,207
Other interest-bearing loans and borrowings 7 537 30,548 32,617
Right-of-use liabilities 7 2,933 - -
Tax payable 1,748 1,640 1,982
Dividends payable 5 3,688 3,307 -
Total current liabilities 42,938 73,987 71,806
Non-current liabilities
Trade and other payables - 140 138
Other interest-bearing loans and borrowings 7 40,204 9,645 6,739
Right-of-use liabilities 7 13,115 - -
Provisions 959 991 959
Deferred tax liabilities 3,777 4,011 3,832
Total non-current liabilities 58,055 14,787 11,668
Total liabilities 100,993 88,774 83,474
Net assets 123,678 113,965 121,093
Equity
Share capital 6,096 6,069 6,095
Share premium 21,937 21,600 21,914
Own shares held 10 (3,019) (3,028) (3,019)
Translation reserve 16,285 14,650 13,988
Retained earnings 82,379 74,674 82,115
Total equity 123,678 113,965 121,093
Condensed consolidated interim statement of cash flows
Unaudited results for the six months ended 30 September 2019
Group Notes Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Cash flows from operating activities
Profit for the period 5,985 5,915 12,244
Adjustments for:
Depreciation, amortisation & impairment (excluding right-of-use assets' 1,872 1,801 3,672
depreciation)
Right-of-use assets' depreciation 1,487 - -
Unrealised foreign currency (gain)/loss (95) (43) 38
Financial income (44) (36) (80)
Financial expense (excluding right-of-use liabilities' financial expense) 378 356 755
Right-of-use liabilities' financial expense 172 - -
(Gain)/loss on sale of property, plant & equipment and investments (3) 18 12
Acquisition contingent consideration - discount unwinding - 76 -
Equity settled share based payment charge 539 1,126 2,414
Taxation charge 1,938 2,087 4,177
Operating cash inflow before changes in working capital 12,229 11,300 23,232
and provisions
Change in trade and other receivables 2,918 1,475 (755)
Change in inventories (4,528) (3,649) (6,036)
Change in trade and other payables (3,469) (1,984) (2,645)
Change in provisions - 20 (12)
Net cash generated from operations 7,150 7,162 13,784
Tax paid (2,159) (2,213) (3,877)
Net cash generated from operating activities 4,991 4,949 9,907
Cash flows from investing activities
Proceeds from sale of property, plant & equipment - 2 31
Interest received 45 38 84
Acquisition of subsidiary, net of cash acquired (503) (8,150) (8,150)
Acquisition of property, plant & equipment and intangibles (1,899) (1,288) (4,180)
Net cash used in investing activities (2,357) (9,398) (12,215)
Cash flows from financing activities
Proceeds from the issue of share capital 24 22 353
Proceeds from new loan 46,774 9,393 12,136
Repayment of borrowings (46,638) (3,202) (5,953)
Repayment of right-of-use liabilities (1,729) - -
Payment of finance lease liabilities (17) 22 (2)
Dividends paid (1,447) (1,319) (4,620)
Interest paid (378) (356) (758)
Net cash (used in)/generated from financing activities (3,411) 4,560 (1,156)
Net change in cash and cash equivalents (777) 111 (1,152)
Cash and cash equivalents at 1 April 25,199 26,222 26,222
Effect of exchange rate fluctuations on cash held 605 328 129
Cash and cash equivalents at end of period 7 25,027 26,661 25,199
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
Unaudited results for the six months ended 30 September 2019
1. Basis of preparation
These condensed consolidated interim financial statements have been prepared
in accordance with the Disclosure and Transparency Rules (DTR) of the
Financial Conduct Authority and International Financial Reporting Standard
(IFRS) IAS 34: Interim Financial Reporting as adopted by the EU. They do not
include all the information required for full annual financial statements, and
should be read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 31 March 2019. The annual financial
statements of the Group are prepared in accordance with International
Reporting Standards (IFRSs) as adopted by the EU.
This statement does not comprise full financial statements within the meaning
of Section 495 and 496 of the Companies Act 2006. The statement is unaudited
but has been reviewed by KPMG LLP and their Report is set out at the end of
this document.
The comparative figures for the financial year ended 31 March 2019 are not the
Company's statutory accounts for that financial year and have been extracted
from the full Annual Report and Accounts for that financial year. Those
accounts have been reported on by the Company's auditor and delivered to the
Registrar of Companies. The Report of the Auditors was (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying their Report, and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies Act 2006.
Except as described below, these condensed consolidated interim financial
statements have been prepared on the basis of accounting policies set out in
the full Annual Report and Accounts for the year ended 31 March 2019.
This note explains the impact of the adoption of IFRS 16 Leases on the group's
financial statements and discloses the new accounting policies that have been
applied from 1 April 2019.
The group adopted IFRS 16 retrospectively from 1 April 2019 under the modified
retrospective approach and therefore has not restated comparatives for the
2019 reporting period. The reclassifications and the adjustments arising from
the new leasing rules are therefore recognised in the opening balance sheet on
1 April 2019.
Policy applied from 1 April 2019 - The Group as lessee
The Group's leases primarily comprise of right-of-use assets regarding Land
& buildings, Motor vehicles and Equipment. Short-term leases and leases
for which the underlying asset is of a low value are excluded.
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, and
subsequently at cost less any accumulated depreciation and impairment losses.
The right-of-use asset is subsequently depreciated using the straight-line
method from the lease commencement date to the end of the lease term. In
addition, the right-of-use asset is periodically reduced by impairment losses,
if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group uses
its incremental borrowing rate.
The lease liabilities are subsequently increased by the interest cost on the
lease liability and decreased by lease payments made. The liability will be
remeasured if there is a change in the future lease payments or if there are
changes in the estimated length of the lease.
The lease period is established as the non-cancellable period together with
the opportunity to extend the lease if the lessee is reasonably certain to
utilise that option, and periods covered by an opportunity to terminate the
lease if the lessee is reasonably certain not to utilise that option.
Practical Expedients applied
In applying IFRS 16 for the first time, the group has used the following
practical expedients permitted by the standard:
· the use of a single discount rate to a portfolio of leases with
reasonably similar characteristics
· the accounting for operating leases with a remaining lease term
of less than 12 months as at 1 April 2019 as short-term leases
· the exclusion of initial direct costs for the measurement of the
right-of-use asset at the date of initial application, and
· the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
The Group has also elected not to reassess whether a contract is or contains a
lease at the date of initial application. Instead, for contracts entered into
before the transition date the Group relied on its assessment made applying
IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to
leases which had previously been classified as operating leases under the
principles of IAS 17 Leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the lessee's
incremental borrowing rate as of 1 April 2019. The Group also recognised
right-of-use assets for properties, vehicles & equipment which were
measured on a retrospective basis as if the new rules had always been applied.
This has been summarised below.
1 April 2019 £'000
Right-of-use assets 12,909
Deferred tax asset 251
Right-of-use liabilities (current) 2,727
Right-of-use liabilities (non-current) 11,566
Prepayments (117)
Accruals (180)
Retained Earnings (1,069)
When measuring lease liabilities for leases that were classified as operating
leases, the Group discounted lease payments using its incremental borrowing
rate at 1 April 2019. The weighted average rate applied is 2.4%.
1 April 2019 £'000
Operating lease commitment as at 31 March 2019 as disclosed in the Group's 14,283
consolidated financial statements
Recognition exemption for leases of low-value assets (160)
Recognition exemption for leases with less than 12 months lease term at (250)
transition
Operating leases in scope of IFRS 16 13,873
Discounted using the incremental borrowing rate as 1 April 2019 (1,676)
Inception date before transition date but lease commenced after (203)
Difference between minimum lease payments & end of lease 2,105
Extension options reasonably certain to be exercised 194
Lease liabilities recognised at 1 April 2019 14,293
The recognised right-of-use assets relate to the following types of assets:
1 April 2019 £'000
Land & buildings 11,925
Motor vehicles 951
Equipment 33
Total right-of-use asset 12,909
A number of amendments to existing standards are also effective from 1 April
2019 but they do not have a material effect on the Group financial statements.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the
accompanying business review from the Chief Executive Officer and Chief
Financial Officer. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are also described in the same
report. In addition, note 26 to the Group's previously published financial
statements for the year ended 31 March 2019 include the Group's objectives,
policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk.
These condensed consolidated interim financial statements have been prepared
on a going concern basis which the Directors consider to be appropriate.
Estimates
The preparation of financial statements in conformity with IFRSs requires
management to make estimates, judgements and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions take account of the
circumstances and facts at the period end, historical experience of similar
situations and other factors that are believed to be reasonable and relevant,
the results which form the basis of making the judgements about carrying
values of assets and liabilities that are not readily available from other
sources. Actual results may ultimately differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty include those disclosed
in the consolidated financial statements for the year ended 31 March 2019.
The key judgement made by management relates to Project Atlas costs meeting
the capitalisation criteria under IAS 38 Intangible Assets, allowing directly
attributable costs to be capitalised. No other key judgements have been made,
other than those involving estimations. The key sources of estimation
uncertainty are inventory valuation and recoverability of goodwill.
In the 31 March 2019 consolidated financial statements, in note 12, specific
disclosure was made around sensitivity to changes in key assumptions relating
to impairment testing for the recoverability of goodwill relating to TR VIC
(£10.1m). The unsettled political climate, as well as the economic struggles
in Italy, had caused the year end discount rate for TR VIC to significantly
increase, thus reducing headroom. As at our 30 September 2019 impairment
review, this discount rate had reduced to 9.9% (FY2019: 11.2%). However, we
note that the ongoing recoverability of the TR VIC goodwill amount continues
to be sensitive to any subsequent increase in this rate.
2. Underlying performance (before separately disclosed items)
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Underlying profit before tax 10,571 11,555 23,521
Separately disclosed items within administrative expenses:
IFRS 2 share based payment charge (581) (1,152) (2,454)
Acquired intangible amortisation (712) (734) (1,419)
Net acquisition costs - (177) (3)
Project Atlas (1,267) (1,490) (3,117)
Cost on exercise of executive share options (88) - (107)
Profit before tax 7,923 8,002 16,421
Year
ended
31 March
Six months Six months 2019
ended ended £000
30 September 30 September
2019 2018
£000 £000
Underlying EBITDA 13,724 12,942 26,449
Separately disclosed items within administrative expenses:
IFRS 2 share based payment charge (581) (1,152) (2,454)
Net acquisition costs - (177) (3)
Project Atlas (1,267) (1,490) (3,117)
Cost on exercise of executive share options (88) - (107)
EBITDA 11,788 10,123 20,768
Acquired intangible amortisation (712) (734) (1,419)
Depreciation and non-acquired amortisation (2,647) (1,067) (2,253)
Operating profit 8,429 8,322 17,096
Consistent with prior periods, management feel it is appropriate to remove
event driven costs and certain non-trading items included above to better
allow the reader of the accounts to understand the underlying performance of
the Group. Further reconciliations of underlying measures to IFRS measures can
be found in note 9.
IFRS2 share based payment charges have continued to be specifically presented
as separately disclosed items within administrative expenses. We understand
that these costs are more conventionally included within underlying results
and we confirm management's intention to present these as such at the
appropriate time. However, currently the underlying equity award schemes that
form the basis of these charges are under a period of significant development.
This includes:
• the cessation of the Board deferred equity
schemes that were in operation from FY2014 to FY2017;
• the one-off introduction of a three-year
Senior Manager deferred equity bonus award in FY2016;
• the introduction of the current annual,
rolling three year Board LTIP share awards in FY2018; and
• the subsequent introduction of a new annual,
rolling three year Senior Manager LTIP share award scheme in FY2020
As a result of the above, the annual IFRS2 charge is expected to be subject to
a significant degree of volatility until we reach a more stable ongoing
position. We consider that this ongoing volatility, if presented within our
underlying results in the short to medium-term, will only detract readers from
being able to gain a clear understanding of the Group's underlying trading
position.
Management will continue to periodically assess this decision to determine
when IFRS2 share based payment charges will become part of the underlying
results.
The rationale for the exclusion of Project Atlas costs is provided within the
business review.
3. Geographical operating segments
The Group is comprised of the following main geographical operating segments:
· UK
· Europe includes Norway, Sweden, Germany, Hungary, Ireland, Italy, Holland, Spain and Poland
· USA includes USA and Mexico
· Asia includes Malaysia, China, Singapore, Taiwan, Thailand, Philippines and India
In presenting information on the basis of geographical operating segments,
segment revenue and segment assets are based on the geographical location of
our entities across the world consolidated into the four distinct geographical
regions, which the Board use to monitor and assess the Group.
Goodwill and intangible assets acquired on business combinations are included
in the region to which they relate. This is consistent with the internal
management reports that are reviewed by the Chief Operating Decision
Maker.
Segment revenue and results under the primary reporting format for the six
months ended 30 September 2019 and 2018 are disclosed in the table below:
September 2019 UK Central costs, Total
£000 Europe USA Asia assets and £000
£000 £000 £000 liabilities
£000
Revenue*
Revenue from external customers 36,963 36,093 5,351 24,700 - 103,107
Inter segment revenue 1,459 972 120 4,903 - 7,454
Total revenue 38,422 37,065 5,471 29,603 - 110,561
Underlying operating profit 3,979 3,136 260 4,700 (998) 11,077
Net financing costs (89) (47) (61) (10) (299) (506)
Underlying profit before tax 3,890 3,089 199 4,690 (1,297) 10,571
Separately disclosed items (see note 2) (2,648)
Profit before tax 7,923
Specific disclosure items
Depreciation and amortisation (870) (1,372) (113) (953) (51) (3,359)
Assets and liabilities
Segment assets 63,109 76,909 9,159 63,152 12,342 224,671
Segment liabilities (25,080) (16,487) (1,353) (13,319) (44,754) (100,993)
September 2018 UK Central costs, Total
£000 Europe USA Asia assets and £000
£000 £000 £000 liabilities
£000
Revenue*
Revenue from external customers 37,628 37,718 4,176 25,459 - 104,981
Inter segment revenue 1,551 719 84 5,296 - 7,650
Total revenue 39,179 38,437 4,260 30,755 - 112,631
Underlying operating profit 4,272 4,491 204 4,900 (1,992) 11,875
Net financing (costs)/income (45) (22) (5) 30 (278) (320)
Underlying profit before tax 4,227 4,469 199 4,930 (2,270) 11,555
Separately disclosed items (see note 2) (3,553)
Profit before tax 8,002
Specific disclosure items
Depreciation and amortisation (361) (931) (23) (447) (39) (1,801)
Assets and liabilities
Segment assets 51,131 78,972 5,069 59,445 8,122 202,739
Segment liabilities (18,888) (16,343) (905) (13,418) (39,220) (88,774)
* Revenue is derived from the manufacture and logistical supply of industrial
fasteners and category 'C' components.
4. Taxation
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Current tax on income for the period
UK tax 134 396 496
Foreign tax 1,902 1,940 3,941
Deferred tax income (103) (269) (262)
Adjustments in respect of prior years 5 20 2
1,938 2,087 4,177
The HY2020 underlying effective tax rate (ETR) of 23.4% (HY2019: 23.5%) is in
line with our normalised ETR range of c.22.5-25%, based on the geographical
split of the Group's profits. The effective tax rate has reduced to 24.5%
(HY2019: 26.1%) due to the change in mix of profits by legal entity.
5. Dividend
The dividend payable of £3.7m represents the final dividend for the year
ended 31 March 2019 which was approved by Shareholders at the AGM on 24 July
2019 and paid on 11 October 2019 to Members on the Register on 13 September
2019.
6. Earnings per share
The calculation of earnings per 5 pence ordinary share is based on profit for
the period after taxation and the weighted average number of shares in the
period of 121,737,700 (HY2019: 119,894,777, FY2019: 120,723,637).
The calculation of the fully diluted earnings per 5 pence ordinary share is
based on profit for the period after taxation. In accordance with IAS 33 the
weighted average number of shares in the period has been adjusted to take
account of the effects of all dilutive potential ordinary shares. The number
of shares used in the calculation amount to 124,221,747 (HY2019: 122,761,456;
FY2019: 123,734,170).
The underlying diluted earnings per share, which in the Directors' opinion
best reflects the underlying performance of the Group, is detailed below:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Profit after tax for the period 5,985 5,915 12,244
IFRS 2 share based payment charge 581 1,152 2,454
Acquired intangible amortisation 712 734 1,419
Cost on exercise of executive share options 88 - 107
Net acquisitions costs - 177 3
Project Atlas 1,267 1,490 3,117
Tax charge on adjusted items above (536) (630) (1,370)
Underlying profit after tax 8,097 8,838 17,974
Basic EPS 4.92p 4.93p 10.14p
Diluted EPS 4.82p 4.82p 9.90p
Underlying diluted EPS 6.52p 7.20p 14.53p
7. Analysis of net debt
At At At
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Net cash and cash equivalents 25,027 26,661 25,199
Debt due within one year (3,470) (30,548) (32,617)
Debt due after one year (53,319) (9,645) (6,739)
Gross debt (56,789) (40,193) (39,356)
Net debt (31,762) (13,532) (14,157)
Right-of-use lease liabilities 16,048 - -
Adjusted net debt* (15,714) (13,532) (14,157)
*Adjusted net debt is stated before IFRS16 right-of-use lease liabilities.
There is no impact to HY2019 and FY2019 as IFRS16 was applied under the
modified retrospective approach, see note 1.
On 16 April 2019, all of the Group's centrally held facilities and the ABL
facility in TR Fastenings Ltd were redeemed via a new four year Revolving
Credit Facility of up to £80m maturing in April 2023. These new facilities
have been reflected in debt due after one year, as they include the right to
an automatic roll over of outstanding funds.
8. Reconciliation of net cash flow to movement in net debt
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Net (decrease)/increase in cash and cash equivalents (777) 111 (1,152)
Net increase in right-of-use liabilities (1,544) - -
Net increase in borrowings (124) (6,213) (6,181)
(2,445) (6,102) (7,333)
Exchange rate differences (867) 1 607
Movement in net debt (3,312) (6,101) (6,726)
Opening net debt* (28,450) (7,431) (7,431)
Closing net debt (31,762) (13,532) (14,157)
*Net debt at 1 April 2019 was restated to include £14.3m of right-of-use
liabilities due to the IFRS 16 Leases accounting standard change (see note 1).
9. Alternative Performance Measure
The half-yearly financial report includes both IFRS measures and Alternative
Performance Measures (APMs), the latter of which are considered by management
to better allow the readers of the accounts to understand the underlying
performance of the Group. A number of these APMs are used by management to
measure the KPIs of the business (see the business review) and are therefore
aligned to the Group's strategic aims. They are also used at Board level to
monitor financial performance throughout the year.
The APMs used in the half-yearly financial report (including the basis of
calculation, assumptions, use and relevance) are detailed in note 2
(underlying profit before tax, EBITDA and underlying EBITDA) and below.
• Constant Exchange Rate (CER) figures
These are used predominantly in the Business review and give the readers a
better understanding of the performance of the Group, regions and entities
from a trading perspective. They have been calculated by translating the
HY2020 income statement results (of subsidiaries whose presentational currency
is not sterling) using HY2019 average exchange rates to provide a comparison
which removes the foreign currency translational impact. The impact of
translational gains and losses made on non-functional currency net assets held
around the Group have not been removed.
• Organic measures
Organic measures are calculated before the impact of acquisitions. This
provides a better 'like-for-like' comparison against the prior period for the
reader. Acquisitions are included in organic figures from the start of the
13(th) month of being part of the Group.
• Underlying diluted EPS
A key measure for the Group as it is one of the measures used to set the
Directors' variable remuneration. The calculation has been disclosed in note
6.
• Return on capital employed (ROCE)
Return on capital employed is a key metric used by investors to understand how
efficient the Group is with its capital employed. The calculation is
underlying EBIT divided by average capital employed (net assets + net debt),
multiplied by 100%. Underlying EBIT has been reconciled to operating profit
below.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Underlying EBIT/Underlying operating profit 11,077 11,875 24,196
Separately disclosed items within administrative expenses
IFRS2 share based payment charge (581) (1,152) (2,454)
Acquired intangible amortisation (712) (734) (1,419)
Net acquisition costs - (177) (3)
Project Atlas (1,267) (1,490) (3,117)
Cost on exercise of executive share options (88) - (107)
Operating profit 8,429 8,322 17,096
• Underlying cash conversion as a percentage of underlying EBITDA
This is another key metric used by investors to understand how effective the
Group was at converting profit into cash. Since the underlying cash conversion
is compared to underlying EBITDA, which has removed the impact of IFRS2 share
based payment charges, acquisition costs and Project Atlas (see note 2), the
impact of these have also been removed from the underlying cash conversion.
The adjustments made to arrive at underlying cash conversion from cash
generated from operations are detailed below. To reconcile operating profit to
underlying EBITDA, see note 2.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
£000 £000 £000
Underlying cash conversion 8,306 8,722 17,154
Cost on exercise of executive share options (88) - (107)
Acquisition costs - (274) (101)
Expensed Project Atlas costs paid (1,068) (1,286) (3,162)
Cash generated from operations 7,150 7,162 13,784
• Underlying effective tax rate
This is used in the underlying diluted EPS calculation. It removes the tax
impact of separately disclosed items in the year to arrive at a tax rate based
on the underlying profit before tax.
• Adjusted net debt and adjusted net debt to Underlying EBITDA ratio
This removes the impact of IFRS16 from both net debt and Underlying EBITDA
from HY2020. There is no impact to HY2019 and FY2019 as IFRS16 was applied
under the modified retrospective approach, see note 1
Six months
ended
30 September
2019
£000
Net debt (31,762)
Right-of-use lease liabilities 16,048
Adjusted net debt (15,714)
Underlying EBITDA 13,724
Operating lease rentals (1,654)
Adjusted EBITDA 12,070
Net debt to annualised Underlying EBITDA ratio 0.65x
Adjusted net debt to annualised adjusted Underlying EBITDA ratio 1.16x
10. Own shares held
The own shares held reserve comprises the cost of the Company's shares held by
the Group. At 30 September 2019 the Group held 1,317,378 of the Company's
shares (30 September 2018: 1,317,378; 31 March 2019: 1,317,378).
11. Disaggregation of revenue
In line with IFRS 15 Revenue from Contracts with Customers we have included
the disaggregation of external revenue by sector, breaking this down by our
geographical operating segments.
September 2019 UK Europe USA Asia Total
Electronics 4% 4% 1% 6% 15%
Automotive 9% 12% 4% 8% 33%
Domestic appliances 2% 12% - 6% 20%
Distributors 9% - - 2% 11%
General industrial 7% 5% - 1% 13%
Other 5% 2% - 1% 8%
Revenue from external customers (AER) 36% 35% 5% 24% 100%
September 2018 UK Europe USA Asia Total
Electronics 5% 4% 2% 5% 16%
Automotive 9% 14% 2% 8% 33%
Domestic appliances 2% 12% - 6% 20%
Distributors 9% - - 2% 11%
General industrial 7% 4% - 2% 13%
Other 4% 2% - 1% 7%
Revenue from external customers (AER) 36% 36% 4% 24% 100%
INDEPENDENT REVIEW REPORT TO TRIFAST PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2019 which comprises the condensed consolidated interim income
statement, the condensed consolidated interim statement of comprehensive
income, the condensed consolidated interim statement of changes in equity, the
condensed consolidated interim statement of financial position, the condensed
consolidated interim statement of cash flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2019 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
The impact of uncertainties due to the UK exiting the European Union on our review
Uncertainties related to the effects of Brexit are relevant to understanding
our review of the condensed financial statements. Brexit is one of the most
significant economic events for the UK, and at the date of this report its
effects are subject to unprecedented levels of uncertainty of outcomes, with
the full range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future implications
for a company and this is particularly the case in relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The Directors are responsible for preparing the condensed
set of financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Mark Sheppard
for and on behalf of KPMG LLP
Chartered Accountants
1 Forest Gate
Brighton Road, Crawley
West Sussex, RH11 9PT
18 November 2019
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 (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
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