Last checked at 23 Mar 2011 07:00
AIREA plc
Review of Operations
Introduction
Market conditions remained depressed in many of the markets in which we operate. Despite this it is pleasing to report that the group remained profitable albeit at a reduced level, and continues to be debt free with a strong balance sheet.
The business has faced and indeed continues to face a volatile trading environment with a mix of erratic demand and raw material inflation. Residential sector sales were hit by an extremely weak High Street performance in December, but we remain encouraged by progress in the sales of new products and the winning of new business with a major multiple retailer, which should start to come on stream in our fourth quarter. Contract volumes did however hold up well as deliveries against new major contracts commenced. Raw material price inflation has become a major factor in the business, requiring careful management of selling prices to protect margins
Group results
Sales for the period were £15.1m (2009: £16.7m). The rationalisation of the residential product range undertaken last year and previously reported accounted for £0.7m of the decline. Sales of core products were ahead by 1.2% year on year at the end of our first quarter, however the normal uplift in demand in the second quarter did not materialise and a particularly poor December left sales of ongoing residential products 16% down. Sales to the contract sector increased by 0.6%. The operating profit before exceptional items was £514,000 (2009: £757,000). The operating result after charging exceptional operating costs of £165,000 (2009 £97,000) was £349,000 (2009 £660,000).
After accounting for pension related finance costs and incorporating the appropriate tax charge the result for the period was a profit of £94,000 (2009: £362,000). Basic earnings per share were 0.20p (2009: 0.78p). Cash and cash equivalents totalled £2,430,000 (2009: £4,195,000).
Net cash used in operations in the period amounted to £946,000 (2009: generated from operations £1,313,000). The increase in working capital of £1,686,000 (2009: reduction £1,014,000) was largely due to timing issues caused by the low residential sales in the second quarter and delays in deliveries against major contracts which required action to correct excess inventories. Whilst this was achieved prior to the half year end, the impact on cash had still to work through trade payables, which showed a significant reduction. Capital expenditure of £396,000 (2009: £613,000) was largely focussed on the increased capacity of the dye house and investment to realise the operational synergies in the business. Contributions of £300,000 (2009: £600,000) were paid to the defined benefit pension scheme.
Current trading and future prospects
The trading environment remains challenging especially in the residential sector with consumer confidence weakening in the face of an increasing tax burden, government cuts and fears over job security. We have yet to see how changes in government expenditure will impact demand for floor-coverings in the public sector markets that we serve. Increasing raw material prices resulting from commodity price inflation only add to the challenges we face but so far we have been able to pass on appropriate price increases to the market.
On a more optimistic note against this backdrop of difficult trading conditions we continue to demonstrate our ability to manage costs. Major progress has been made in the reduction of waste and distribution costs. In addition, our residential product offer is well placed to serve the mid to upper end of the market, where consumer confidence has proved most resilient. Our selection as a supplier to a major multiple retailer will support volumes towards the end of our financial year. The winning of business in new contract markets has cushioned the dip in general maintenance and refurbishment work, and we would expect to benefit from any switch of expenditure in education from major capital projects to greater refurbishment. Burmatex Sp z.o.o. our newly established business in Poland, is making excellent progress and achieved sales growth of 50% in that market, and our international sales progress generally is extremely encouraging. Our new dyeing capability is now fully operational, and delivering a lower cost, better quality product to the business.
Margins have been impacted due to increases in selling prices lagging behind raw material prices, but we expect this to be corrected in the second half as the price increases implemented in January 2011 come through.
2011 should see some relief from the cost of surplus property. We will exit 2 large leased properties in September 2011, and so alleviate the cash effect of lease payments. In addition, following representations from the company Wakefield Council have proposed that the property owned by the Group and known as Victoria Mills, Ossett be allocated for housing development. This draft allocation is part of the council's Local Development Framework Site Specific Proposals Development Plan Document. This document was published on the 24th February 2011 and is open to public view and comment for a period of 6 weeks prior to submission to the Secretary of State. Due to the consultation process, the document is not likely to be adopted by Wakefield Council until 2012, but this emerging allocation represents a significant part of the Group's strategic review of its property portfolio and manufacturing footprint.
The board remains committed to restoring a progressive dividend policy at the earliest opportunity, and continues to implement operational improvements to mitigate difficult trading conditions and strengthen the financial position of the business to allow the restoration of dividend payments. However, at this time the need to retain financial flexibility must remain paramount and as a result the board has decided that it would be imprudent to make a dividend payment at the interim stage.
In summary despite the great uncertainty over future trading conditions the business retains the operational flexibility and financial strength to respond to changing market conditions and take advantage of opportunities when economic conditions improve.
Enquiries:
Neil Rylance 01924 266561
Chief Executive Officer
Roger Salt 01924 266561
Group Finance Director
Mark Brady 0845 213 4729
Brewin Dolphin
Consolidated Income Statement | |||||||
6 months ended 31st December 2010 | |||||||
Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Continuing operations |
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Revenue | 15,080 | 16,679 | 30,899 |
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Operating costs | (14,731) | (16,019) | (30,188) |
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Operating profit after exceptional items | 349 | 660 | 711 |
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Analysed between: |
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Operating profit before exceptional items | 514 | 757 | 900 |
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Exceptional operating costs | (165) | (97) | (189) |
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Finance income | - | 5 | 16 |
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Finance costs | (160) | (150) | (300) |
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Profit before taxation | 189 | 515 | 427 |
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Taxation | (95) | (153) | (164) |
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Profit for the period | 94 | 362 | 263 |
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Earnings per share (basic and diluted) | 0.20p | 0.78p | 0.57p |
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Consolidated statement of comprehensive income |
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6 months ended 31st December 2010 |
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Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Profit attributable to shareholders of the group | 94 | 362 | 263 |
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Actuarial losses recognised in the pension scheme | - | - | (379) |
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Related deferred taxation | - | - | 106 |
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Total comprehensive income for the period | 94 | 362 | (10) |
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Consolidated Balance Sheet | |||||||||
as at 31st December 2010 | Unaudited | Unaudited | Audited |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Non-current assets |
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Property, plant and equipment | 7,862 | 8,037 | 8,047 |
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Deferred tax asset | 2,001 | 2,024 | 2,131 |
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9,863 | 10,061 | 10,178 |
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Current assets |
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Loan notes | - | 150 | - |
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Inventories | 7,024 | 6,462 | 7,579 |
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Trade and other receivables | 4,308 | 5,082 | 5,387 |
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Cash and cash equivalents | 2,430 | 4,195 | 3,772 |
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13,762 | 15,889 | 16,738 |
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Total assets | 23,625 | 25,950 | 26,916 |
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Current liabilities |
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Trade and other payables | (3,518) | (5,300) | (6,338) |
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Provisions | (830) | (672) | (627) |
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(4,348) | (5,972) | (6,965) |
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Non-current liabilities |
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Provisions | (100) | (929) | (704) |
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Pension deficit | (5,379) | (4,990) | (5,519) |
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Deferred tax | (163) | (162) | (198) |
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(5,642) | (6,081) | (6,421) |
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Total liabilities | (9,990) | (12,053) | (13,386) |
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13,635 | 13,897 | 13,530 |
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Equity |
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Called up share capital | 11,561 | 11,561 | 11,561 |
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Share premium account | 504 | 504 | 504 |
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Capital redemption reserve | 2,395 | 2,395 | 2,395 |
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Share option reserve | 16 | - | 5 |
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Profit and loss account | (841) | (563) | (935) |
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13,635 | 13,897 | 13,530 |
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Consolidated Cash Flow Statement | ||||||||||||||||
6 months ended 31st December 2010 | Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Operating activities |
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Cash generated from operations | (946) | 1,313 | 1,285 |
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Interest received | - | 5 | 16 |
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Income tax received | - | 132 | 159 |
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(946) | 1,450 | 1,460 |
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Investing activities |
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Purchase of property, plant and equipment | (396) | (613) | (1,212) |
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Proceeds on disposal of property, plant and equipment | - | 13 | 29 |
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Earn-out receipt | - | 103 | 103 |
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(396) | (497) | (1,080) |
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Financing activities |
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Redemption of loan notes | - | - | 150 |
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- | - | 150 |
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Net (decrease)/increase in cash and cash equivalents | (1,342) | 953 | 530 |
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Cash and cash equivalents at start of period | 3,772 | 3,242 | 3,242 |
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Cash and cash equivalents at end of period | 2,430 | 4,195 | 3,772 |
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Consolidated Statement of Changes in Equity |
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6 months ended 31st December 2010 |
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Share capital | Share premium account | Capital redemption reserve | Share option reserve | Profit and loss account | Total equity |
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£000 | £000 | £000 | £000 | £000 | £000 |
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At 1st July 2009 | 11,561 | 504 | 2,395 | - | (925) | 13,535 |
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Total comprehensive income for the period | - | - | - | - | 362 | 362 |
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At 1st January 2010 | 11,561 | 504 | 2,395 | - | (563) | 13,897 |
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Total comprehensive income for the period | - | - | - | - | (372) | (372) |
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Share based payment | - | - | - | 5 | - | 5 |
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At 1st July 2010 | 11,561 | 504 | 2,395 | 5 | (935) | 13,530 |
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Total comprehensive income for the period | - | - | - | - | 94 | 94 |
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Share based payment | - | - | - | 11 | - | 11 |
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At 31st December 2010 | 11,561 | 504 | 2,395 | 16 | (841) | 13,635 |
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Notes
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1 | EXCEPTIONAL OPERATING COSTS |
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Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | Year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Provision against inventories | - | 120 | 119 |
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Severance payments & incentives | 165 | 80 | 165 |
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Legal & professional expenses | - | - | 8 |
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Earn-out receipt | - | (103) | (103) |
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165 | 97 | 189 |
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The provision against inventories relate to the ongoing reorganisation of the residential carpets business. The severance payments and incentives relate to the streamlining of the operating business. The legal and professional expenses relate to the streamlining of the group structure. |
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The earn-out receipt relates to Sirdar Spinning Limited. This disposal was disclosed in previous periods. |
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2 | EARNINGS PER SHARE |
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The calculation of basic, adjusted and diluted earnings per share is based on the following data: |
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Number of shares |
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Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | Year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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Ordinary shares for the purpose of basic earnings per share | 46,242,455 | 46,242,455 | 46,242,455 |
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Earnings |
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Unaudited | Unaudited | Audited |
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Earnings | Earnings | Earnings |
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6 months ended | 6 months ended | Year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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£000 | £000 | £000 |
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Group results: |
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Earnings | 94 | 362 | 263 |
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Exceptional operating costs (net of tax) | 119 | 70 | 136 |
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Adjusted earnings | 213 | 432 | 399 |
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Group earnings per share |
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Unaudited | Unaudited | Audited |
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6 months ended | 6 months ended | Year ended |
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31st December 2010 | 31st December 2009 | 30th June 2010 |
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pence | pence | pence |
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Basic adjusted | 0.46 | 0.93 | 0.86 |
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Basic | 0.20 | 0.78 | 0.57 |
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Diluted EPS |
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All options in issue were anti-dilutive. |
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3 | DEFERRED TAX | ||||||
Pension deficit | Tax losses | Total | |||||
£000 | £000 | £000 | |||||
(a) Deferred tax non-current asset | |||||||
At 1st July 2009 | 1,523 | 694 | 2,217 | ||||
Movement during the period: | |||||||
Income statement | (126) | (67) | (193) | ||||
At 1st January 2010 | 1,397 | 627 | 2,024 | ||||
Movement during the period: | |||||||
Income statement | 42 | (41) | 1 | ||||
Statement of comprehensive income | 106 | - | 106 | ||||
At 1st July 2010 | 1,545 | 586 | 2,131 | ||||
Movement during the period: | |||||||
Income statement | - | (130) | (130) | ||||
At 31st December 2010 | 1,545 | 456 | 2,001 | ||||
Unaudited | Unaudited | Audited | |||||
6 months ended | 6 months ended | Year ended | |||||
31st December 2010 | 31st December 2009 | 30th June 2010 | |||||
£000 | £000 | £000 | |||||
(b) Deferred tax current liability | |||||||
Balance brought forward | 198 | 159 | 159 | ||||
Movement during the period | (35) | 3 | 39 | ||||
Amount carried forward | 163 | 162 | 198 | ||||
The above amounts are in respect of accelerated capital allowances and other temporary differences | |||||||
4 | RECONCILIATION OF PROFIT FOR THE PERIOD | ||||||
TO NET CASH GENERATED FROM OPERATIONS | |||||||
Unaudited | Unaudited | Audited | |||||
6 months ended | 6 months ended | Year ended | |||||
31st December 2010 | 31st December 2009 | 30th June 2010 | |||||
£000 | £000 | £000 | |||||
Profit for the period | 94 | 362 | 263 | ||||
Share based payment | 11 | - | 5 | ||||
Tax charged | 95 | 153 | 164 | ||||
Finance costs | 160 | 145 | 284 | ||||
Profit on earn-out receipt | - | (103) | (103) | ||||
Depreciation | 581 | 498 | 1,087 | ||||
Loss/(profit) on disposal of property, plant and equipment | - | 3 | (13) | ||||
Decrease/(increase) in inventories | 555 | 533 | (584) | ||||
Decrease in receivables | 1,079 | 541 | 264 | ||||
(Decrease)/increase in payables | (2,820) | (60) | 947 | ||||
Decrease in provisions | (401) | (159) | (429) | ||||
Contributions to defined benefit pension scheme | (300) | (600) | (600) | ||||
Net cash (used in)/generated from operations | (946) | 1,313 | 1,285 | ||||
5 | BASIS OF PREPARATION AND ACCOUNTING POLICIES |
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The financial information for the six month period ended 31st December 2010 and 31st December 2009 has not been audited and does not constitute full financial statements within the meaning of Section 434 of the Companies Act 2006. The financial information relating to the year ended 30th June 2010 does not constitute full financial statements within the meaning of Section 434 of the Companies Act 2006. This information is based on the Group's statutory accounts for that period. The statutory accounts were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and received an unqualified audit report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. These financial statements have been filed with the Registrar of Companies. | |||||||
These interim financial statements have been prepared using the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ("IFRS"). The accounting policies used are the same as those used in preparing the financial statements for the year ended 30th June 2010. These policies are set out in the annual report and accounts for the year ended 30th June 2010 which is available on the Company's website at www.aireaplc.co.uk. | |||||||
Further copies of this report are available from the Company Secretary at the registered office at Victoria Mills, The Green, Ossett, Wakefield, West Yorkshire WF5 0AN. |
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