AGA.L Regulatory News (AGA)

7th March 2014

FOR IMMEDIATE RELEASE

AGA RANGEMASTER GROUP PLC

2013 FULL YEAR RESULTS

OPERATING PROFITS UP AS REVENUES START TO GROW AGAIN

AGA Rangemaster Group plc ('the Group'), the specialist in range cooking and kitchen living, is pleased to announce its full year results for the year ended 31st December 2013. 

Financial highlights

Strategic and operational highlights

William McGrath, Chief Executive commented: "I am pleased with the progress we achieved in the year as AGA volumes increased significantly, Rangemaster orders were ahead and Fired Earth is building momentum.

The tide turning in the housing market proved pivotal and we will benefit as the number of house moves increase. As revenues start to grow, with capacity available and with new products and a widened targeted customer base, we are confident of good progress in the year." 

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AGA RANGEMASTER GROUP PLC

2013 FULL YEAR RESULTS

CHAIRMAN'S STATEMENT

Overview

2013 saw the tide begin to turn in our markets. We now expect that the product development programmes and the enhanced operational gearing that we have implemented over the past year will show their worth as revenues increase. We have some outstanding brands relevant to contemporary lifestyles and it was exciting to see the first material signs of improvement with a £5.8 million increase in sales in the year to over £250 million. This was driven by second half growth of 4.4% compared to being flat in the first half. This brought a 26.2% increase in operating profits for the year to £8.2 million. The return on sales was 3.3% (2012: 2.7%) showing the gap still that remains to our peak of cycle target of 10%. We maintained our strong balance sheet position with a cash balance of just under £6 million at the year end.

Our markets

The sharp fall in UK house sales through 2007 / 2008, and the lengthy trough that followed, had a major impact on us as appliance sales are positively correlated to house moves. Our markets have been running around 30% below their peaks. From the middle of 2013, a concerted effort by the Government and companies in the housing sector to stimulate demand has given rise to a much-improved market. On a rolling 12-month basis, monthly mortgage approvals rose by the end of 2013 to 61,000 from 51,000 at the start of the year. Approvals of over 70,000 in November and December 2013 were the highest monthly levels since January 2008. The Bank of England's February 2014 Inflation Report suggests the trend will continue through this year. With nearly two thirds of our sales still linked to UK consumer spending on the home, the housing market is of central importance to us.

Trading performances

For AGA cookers a good autumn meant sales volumes were up 10% in the full year having been down 2% at the half year. There was also a sharp shift towards electric cooker models which represented 70% of sales in the year. The AGA Dual Control launched in June 2013 has had an immediate impact and over half of sales volumes in the second half were of Total Control and Dual Control electric models. These products are factory-finished at our sites in Coalbrookdale and Telford in Shropshire. In contrast, markets remained difficult for the cooker/boiler brands. Rayburn and Stanley rely heavily on refurbishment projects. Overall cast iron cooker volumes fell to 10,000 (from 10,300 in 2012) and Stanley sales in Ireland are 30% of pre recession levels. The shift to wood burning stoves and boiler stoves has had a major impact on Stanley and stove sales are strong. Wood burning products, for their economics and fuel independence, provide optimism for our heating lines.

Rangemaster had a slow start to the year and volumes were 4% lower at the half year. We were, however, able to stimulate the market with new products and volumes were just ahead at 60,500 units by the year end. Overall, revenues finished just ahead for the year. We rolled out 25 premium design centres with Dixons Retail plc, which led to AGA Rangemaster receiving their 'White Goods Partner of the Year' award. Exports were ahead. For Rangemaster, we continued to achieve growth in France despite weak markets and we expect to see continental sales continue to grow with Germany becoming a target market.

In North America, where the housing recovery is quite well established, we were pleased that AGA Marvel volumes rose by more than 10%. With the new accounts we have won and the wider market penetration we have through quality dealers, we expect the trend lines to continue to be positive. In North America, where we have long held a modest position on the cooker side, we believe we have the product mix capable of making our products more of a mainstream option.

Fired Earth returned to profitability for the first time for some years with the pick up in revenues of over 5% combined with the benefits of direct sourcing, tight cost control and the success of our small store format developed for Greater London. Set against the improving market backcloth, we expect to deliver progress in a business that struggled to make its presence felt during the downturn. We will be considering this year a valorisation exercise for Fired Earth.

Grange remains in a testing position as revenues fell and losses continued which offset the benefit of the rationalisation programmes in Europe and most particularly in North America. We can, however, see already that the product mix with a more contemporary slant and the market differentiation provided by the online design and ordering package, 'My Grange', are starting to improve the brand's fortunes.

Our increased optimism is based upon the stronger markets, our enhanced product portfolio for the domestic market and the benefits of the commitment we have put into growth in international markets. We have recently obtained our first accreditation to sell a Rangemaster cooker in China. As range cookers are not a known category in China, this has been a protracted process. This product has an innovative new wok burner system that will have wider international market reach. We are excited about launching our products in China, with our partner Vatti and we expect more accreditations will be obtained in the near future.

Strategy

Our task now is to ensure that we seize the opportunities of the improving markets, our available production capacity and exciting product innovations. For AGA cookers we can explain to the numerous long-time owners that the modern, more flexible models bring many benefits including reduced running costs compared to the older models. The new models are attracting a wider customer base and a younger audience to the superior quality of radiant heat cooking - with the walls of the oven at a constant temperature - as well as the classic design. We have other new products to introduce aimed particularly at urban audiences and this is reflected in the decision to open a shop in the City of London later this year.

For Rangemaster, it is for us, as range cooker experts, to reiterate the case for the range cooker over built-in options as providing a heart to the home still in an economic and space-efficient way. Most cabinetry producers and property developers prefer built-in and thus can deprive the consumer of a strong lifestyle option. With consumers expecting choice, the range cooking story should appeal equally strongly in both the UK and in our key European growth markets.

The premise from which we build is that the range cooker has a central role in modern life and that we have products with the functionality, look and ambience to suit a range of styles and price points. We continue to target some international markets where the range cooker is little known, like Germany and China, both of which have the scale which should materially change the business once this lifestyle message connects with consumers.

People

We were delighted last year to welcome Rebecca Worthington to the board as a non-executive director and she now chairs the audit and risk committee. She brings considerable financial, property and plc experience to the board. Paul Dermody has relinquished his chairmanship of the audit and risk committee and will stand down as a director at the AGM. His contribution over the last decade as a non-executive director has been tremendous in providing steady influence and consistent insight while the fortunes of the business fluctuated.

In June 2013 Mike Bufton, managing director of our UK appliance operations, died. He was an inspirational leader who had played a central role in the development of Rangemaster and latterly of AGA Rangemaster as an integrated operation in the UK. He was succeeded by Gary Green who is also the Group's manufacturing director. Gary has an in depth knowledge of manufacturing and has spearheaded the implementation of efficient manufacturing processes throughout the Group.

I should like to thank all our employees for their continuing contribution. We are now embarking on a new phase in the story of the Group where the emphasis will switch more to commercial and selling skills. I have confidence that we are developing a team able to deliver on the operational gearing available.

Dividend

As previously announced, the board proposes not to make dividend payments without pension scheme trustee agreement in accordance with the arrangements made on completion of the 2011 triennial actuarial valuation of the Group's main pension scheme. Agreement was not sought this year and the board is not proposing to make a dividend payment in respect of 2013. The next triennial actuarial valuation as at 31st December 2014 will be prepared during 2015 and dividend policy will again be a matter to be discussed.

Current trading

Against a backcloth of increased activity in the UK housing market, we expect an improved trading performance in 2014. Currently order intake is over 6% ahead of prior year. This is higher than the growth rates achieved overall in the second half of 2013. We have indicated price increases for both AGA and Rangemaster of over 3% at the end of March and expect order intake to be well up at that point. The estimate book for Fired Earth was strong at the end of 2013 and that has been translated into sales growth in the first two months which were up by more than 10%. In North America the improvement in the housing market is well established and orders are up again. Our cookware brands selling online have all had excellent starts to the year. We recognise that a recovery is not fully embedded. However, with the potential for growth from our work to move into international markets and with the expansion of the addressable market in the UK for range cookers, the outlook for the Group does look better than it has been for some years.

BUSINESS AND STRATEGIC REVIEW

As the housing market continues to improve, the focus of the business has to alter as we set out to ensure that we are ready to take the opportunities from the work we have undertaken over the last few years on developing new products and on improving the operational gearing in the business. Below are some of the key actions taken during 2013 which are set to accelerate the sales momentum that we have been seeking.

AGA Dual Control, launched in June 2013, has 3 or 5 electric ovens on one system and two separate hobs. It complements the fully flexible AGA Total Control, launched in 2011, where the ovens are separately controlled. Dual Control has been a particular hit with owners used to keeping a classic AGA on for sustained periods but who are still attracted by cutting the running costs in half compared with a comparable old style oil fired AGA as a result of short heat up times and the ability to use the hot plates separately. We think that over time an appreciable proportion of existing owners, of which we estimate there are 250,000, will trade up to the new generation of models. Special incentive programmes will run for these target customers throughout 2014.

We support the AGA brand with events across the country and in home interest magazines. Our campaign centred on 'My AGA : My Warm Welcome Home' aimed at showing how the AGA cooker adapts to meet the needs of working families. The campaign is continuing through spring 2014. For a traditional, often more rural audience, we have the AGA Ladies Open Point-to-Point Championship which has gained particular traction through social media, reinforcing the recognition of AGA in the rural community. We relaunched the AGA Living magazine with a circulation of over 70,000 with cover features on Marco Pierre White and Mary Berry both staunch AGA advocates and owners. The next edition features Richard and Mindy Hammond.

Our initiatives increased footfall and fed into a strong autumn sales season - although sales in the year for AGA were still 35% below the peak years of 2004 - 2006. Order intake volume was 12% ahead in the year.

We launched the 'iconic' cookware line with a striking AGA repeater pattern which will provide high recognition levels. Indeed, Divertimenti and AGA Cookware performed well with particularly strong sales online by both brands.

Of our cast iron cooker products - both the Rayburn and Stanley lines - have struggled for some time. Now, by placing them more firmly in the framework of solid fuel and wood burning products in which we have long had expertise and which is strengthening as a market driven by running cost considerations, we believe that we can stop the volume declines and start to grow. Our stove business in Ireland is actually already very strong, and led by the comprehensive re-engineering of the product to meet changing regulatory requirements, it has become core to Waterford Stanley's performance and, indeed, our boiler stoves have been taking sales from Stanley cookers. We are now looking carefully at exports from Ireland with the greatest potential being the UK and France. As people recognise the cost and efficiency benefits of our products, we expect growth and this to pull through a more satisfactory volume level for Rayburn and Stanley lines. The successful re-organisation of production facilities in Waterford at a cost of €2.0 million over the last two years has created the opportunity to galvanise sales of the heating lines. To reinforce the heating product themes we have produced a booklet - available online - entitled 'AGA-Rayburn - A Heart-Warming Story' explaining the remarkable international history of our role in this sector led by the same team that made the AGA an icon in the 1930's and 1940's.

Rangemaster has been the bedrock brand for the Group during the recessionary period. Volumes at 60,500 are still well below the 2007 volumes of 76,000. 28% of sales are exports. We have consolidated our position in the UK and France where we are comfortably the market leading brand. Our facilities, fully utilised, can make 100,000 units a year. The style we prefer of having a design centre in primary retail outlets works well - be it with independents or with major chains.

The quality and availability of UK made products continues to impress consumers. We have been emphasising that the quality gap between ourselves and others in the market is greater but the price differential is smaller than consumers believe. We continue to show that Rangemaster has a mainstream market position and that the stretch up in price point should not cause consumers to default to built-in options which may be less functional and still require as much actual space in the kitchen.

We continue to use the flexibility of our production capabilities in Leamington Spa to provide niche looks, which delivers products under the Rangemaster, Falcon, Mercury, Redfyre, Cornufé and AGA Masterchef brands.

A particular success has been to broaden Rangemaster into being a wider kitchen brand - something now readily accepted across the sector. Our refrigeration lines sold over £5 million in the year. We continue to develop our sink lines under the Rangemaster brand as well as under the trade name Leisure - which we manufacture in our factory in Long Eaton - a facility that makes many of the metal parts required for AGA and Rangemaster cookers.

La Cornue, our premium range cooker brand, continues to develop its international platform. We are looking to ensure that good lead levels for larger projects now translate into revenue growth.

In North America AGA Marvel has performed well and is rebuilding profitability as the market picks up. We are excited about the new opportunities that the changing energy regulatory framework is providing and about the more efficiently constructed products we have produced at our facility in Greenville, Michigan. We had a root and branch rethink about the techniques of cabinet manufacture. A complete new model line up will be launched in the next few months. The consequence is that we believe we have widened our addressable market - in applications where temperature control is particularly important - and indeed we can benefit from filling gaps that non-compliant products have occupied. The first order has been received for product developed for an important new OEM account. We now need to present a more effective case for our hot side products in North America. We are focussing on the AGA heat storage lines so that they are given the particular attention needed by specialists so that AGA is not simply a 'trophy' retail store line.

Our home fashions brand, Fired Earth, had a much better year. In 2011 we embarked on a strategy to develop and tighten the cost base and then rebuild revenues often through new smaller stores in the South East. The business is now operating profitably and recent months have been particularly encouraging. The tile collection seen in the new brochure encompasses attractively priced stone and porcelain tiles as well as stylish and unusual lines so long associated with Fired Earth as the 'home of great design'. The more direct sourcing approach we have adopted has helped in margin recovery and with improved customer service. Our focus on customer needs fulfilment has made a significant difference, as has the improved performance of the established major outlets like the Adderbury and Fulham Road stores. We have seen a rapid growth of online sales - running at 7% of sales at the start of 2014.

Grange has been a drain on resources for some time. The programme to bring the cost base in line with achievable revenues has continued. The cuts to the North American business and the project to move to one site in Saint Symphorien, France have been undertaken successfully. At the same time we have been modernising both the product offering and in particular the way to do business with the sector changing technology 'My Grange' which means the consumer can have products specified for their particular needs in store and order direct from the factory. As this approach becomes better known and dealers become more comfortable with it, Grange is seeing a clearer way ahead. Grange has a strong and committed management team that has systematically addressed the business issues. The excellent response at this January's Paris trade show, Maison & Objet, to the Grange presentation was encouraging. Current order intake is well ahead of the prior year.

Pension scheme funding

The Group's main pension scheme is large relative to the scale of the Group's operations, and the scheme continues to be monitored closely. The next triennial actuarial valuation will be carried out at the end of 2014. In 2013, despite benefits and expenses of over £40 million being paid out, the overall value of assets held by the Group's pension schemes increased by nearly £20 million to £828.9 million. The annual cash benefit outgoings of the Group's main pension scheme will peak after 2020 at just over £50 million. The Group paid £4.1 million into pension schemes in 2013, having contributed £19.5 million in 2012. The current deficit recovery plan for the Group's main pension scheme has payments of nil in 2014, £4.0 million in 2015 and £10.0 million being made per annum from 2016.

With markets recovering and gilt yields increasing the actuarial deficit has reduced far more than the accounting deficit. This is because while gilt yields rose sharply, those of corporate bonds moved less. The accounting deficit which was £38.7 million as at 31st December 2012 fell to £35.8 million as at 31st December 2013.

The existence of a clear strategy for growth is relevant to our relationship with stakeholders, the trustees and advisers to the Group's pension schemes, and regulators. Pension scheme trustees and regulators do now have to take into account, in their appraisal of the scheme and its financial requirements, the growth plans of the sponsor as supporting the long-term security of the scheme members' position. Although the funding position of the Group's main pension scheme remains in deficit, the scheme's underlying finances improved again during the year.

The tasks ahead

Our ambition is to see AGA Rangemaster become the dominant force in a growing international market for range cookers. The ground work has been laid - in product and distribution terms. We will continue to develop our online business, making greater use of the 1.5 million contacts on our customer database. The mission now is to connect with the lives of consumers thinking of investing in their kitchens to show how our products meet their needs so well - for quality food and a great style and ambience at the heart of their homes.

The opportunities, given a strengthening UK market and the intriguing potential within international markets, make the prospects for the Group exciting.

FINANCE REVIEW

Revenue

Group revenues increased by 2.4% to £250.4 million from the £244.6 million reported in 2012. First half revenues of £119.5 million compare with £119.2 million in the first half of 2012. Second half revenues of £130.9 million were 4.4% up (2012: £125.4 million). Of total revenues 37% were outside the UK (2012: 37%).

Operating profit

The operating profit for the year was £8.2 million, up from the operating profit of £6.5 million reported in 2012. The second half profit of £6.7 million followed on from a first half profit of £1.5 million as the Group benefitted more fully from the operational efficiencies established during the economic downturn and the normal seasonality.

Non-recurring costs

The non-recurring costs of £2.2 million related to site rationalisation programmes involving Waterford Stanley in Ireland and Grange in France and the costs of closing certain design centre outlets and the warehouse at Grange in North America. In 2012 non-recurring costs of £1.7 million were a result of the reorganisation of our AGA Rangemaster distribution operations and retail structures, the benefits of which are now coming through. 

Finance costs

Net finance costs for the year were £1.4 million (2012: £0.2 million) reflecting the higher borrowing costs of the three year bank facilities put in place at the end of 2012. Finance costs include the cost of the £30.0 million of pension scheme guarantees provided and interest payable on the Group's EUR and USD hedging loans.

Profit before tax

Profit before tax in the year was £1.1 million (2012: restated £1.7 million).

Taxation

The Group had a tax charge of £0.4 million (2012: restated £0.2 million) on profits before tax of £1.1 million. The Group expects the underlying tax rate to be slightly above the UK standard rate of 21% from April 2014. There was a tax receipt of £1.7 million in the year as a result of overpaid tax in previous years. The impact of the pension scheme deficit recovery contributions in previous years will continue to reduce significantly future cash tax payments which were nil in 2013.

Earnings per share

Basic earnings per share were 1.2 pence (2012: restated 2.3 pence) based on an average number of shares in issue of 69.3 million (2012: 69.3 million). Adjusted underlying earnings per share (excluding the pension charge and non-recurring costs and based on a standard UK tax rate) were 7.6 pence (2012: 7.1 pence).

Dividends

The directors are not recommending a final dividend. This means no dividends are to be paid in relation to the 2013 results (2012: nil). Under the arrangements made on completion of the 2011 actuarial valuation of the Group's main pension scheme, agreement with the scheme trustee would be required prior to a dividend payment being made and this was not sought in respect of 2013.

Cash flow

The Group has continued with its disciplined approach to cash management. Cash flow generated from operating activities of £8.4 million in the year was up on the £2.1 million generated in 2012 and resulted from a determined effort to manage working capital while supporting the international development of the business.

The net inflow from working capital in the year was £0.4 million (2012: £5.5 million outflow).

No pension scheme deficit recovery contributions to the Group's main pension scheme were made in 2013 (2012: £16.0 million). No further deficit recovery payments are scheduled until the £4.0 million due in the second half of 2015.

Cash flows relating to discontinued operations amounted to £0.7 million (2012: £6.0 million).

Capital expenditure including intangibles in the year totalled £8.5 million compared to £6.4 million in 2012. The charge for depreciation and amortisation of intangibles in 2013 was £7.0 million (2012: £7.2 million).

Proceeds of £1.2 million were received from the disposal of property, plant and equipment (2012: £1.0 million).

The resulting net cash position at 31st December 2013 was £5.9 million (2012: £5.5 million).

Pensions

The deficit in the Group's pension schemes at the end of 2013 included in the financial statements was £35.8 million on an accounting basis compared with a restated deficit of £38.7 million a year earlier. The change over the year reflects primarily a higher inflation expectation assumption largely offsetting the increase in the value of the assets held over the year and a higher liability discount rate of 4.5% (2012: 4.3%). The pension charge in the year was £3.5 million (2012: restated £2.9 million). The IAS 19R pensions restatement is set out in note 4.

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES

1. Segmental analysis

The directors consider that there are two operating segments namely AGA and Rangemaster.

The two operating segments are considered to meet the aggregation criteria of IFRS 8 in full and so the directors consider that there is only one aggregated reportable segment.

Disclosures in respect of revenues from external customers and non-current assets are provided below:

2. Dividends

The directors are not recommending a final dividend in respect of the financial year ended 31st December 2013 (2012: nil).

3. Exchange rates

The income statements of overseas subsidiaries are translated into sterling using average exchange rates and balance sheets are translated at year end rates.

4. Pensions

Restatement

IAS 19R has been applied retrospectively from 1st January 2012. As a result, expected returns on pension schemes' assets are no longer recognised in profit or loss. Instead, net interest on the net defined benefit obligation is recognised in profit or loss, calculated using the discount rate used to measure the pension liability. Given the profile of the scheme the present value of projected future general administration expenses that are a direct consequence of past service, paid by the scheme and the Company, has now been included as part of the retirement benefit obligation rather than being included in the current service cost and the costs of managing the plan assets are deducted as incurred in determining the return on plan assets which is recognised in other comprehensive income.

The impact on the 2012 consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet and EPS is as follows. There was no overall impact to the cash used in operating activities in the cashflow statement.

The net impact on the consolidated balance sheet at 1st January 2012 is a reduction to the equity attributable to equity holders of the parent of £21.2 million, being an increase of £27.9 million to the retirement benefit obligation relating to the present value of projected future general administration expenses and a £6.7 million increase in the related deferred tax asset.

5. Tax on profit for the year

Factors affecting the future tax charge

A reduction in the UK corporation tax rate from 24% to 23% was substantively enacted in July 2012 and was effective from 1st April 2013. Further reductions in the UK corporation tax rate to 21% from 1st April 2014 and to 20% from 1st April 2015, were substantively enacted in July 2013 and accordingly, the substantively enacted rates have been applied in the measurement of the Group's deferred tax assets and liabilities as at 31st December 2013.

6. Earnings per share ('EPS')

7. Non-recurring costs

The non-recurring costs during the year of £2.2 million related to site rationalisation programmes initiated in the year involving Waterford Stanley in Ireland and Grange in France and the costs of closing certain retailing outlets and the warehouse at Grange in North America. The directors do not expect further costs of this level and nature in the next accounting period.

In 2012 the non-recurring costs amounted to £1.7 million and related to the reorganisation of our AGA Rangemaster distribution operations and retail structures.

2014 financial calendar

The 2013 full year results were approved by the board of directors on 7th March 2014. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31st December 2013 and 2012. The financial information within this announcement is prepared in line with the accounting policies presented within the Company's statutory accounts for the current and previous years. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The Company's auditor has reported on these accounts; its reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.