Andrew Sykes Regulatory News (ASY)

28 September 2018

Andrews Sykes Group plc

Interim Financial Statements 2018

Andrews Sykes Group plc ("Andrews Sykes" or the "Company" or the "Group") announces unaudited results for the six months ended 30 June 2018.

Summary

* Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-recurring items.

Enquiries:

Andrews Sykes Group plc +44 (0) 1902 328 700

Andy Phillips (CFO)

Mark Calderbank (Company Secretary)

GCA Altium (Nominated Adviser) +44 (0) 20 7484 4040

Tim Richardson

Chairman's Statement

Overview

The Group produced a successful result for the first half of 2018, once again the winter months created some good opportunities for our heating and boiler hire products. Overall, the Group's revenue for the six months ended 30 June 2018 was £37.8 million, an increase of £2.5 million compared with the same period last year. As a consequence operating profit increased by £1.1 million from £8.2 million in the first half of 2017 to £9.3 million for the six months ended 30 June 2018.

The Group continues to be profitable and cash generative. Cash generated from operations was £7.6 million (2017: £8.6 million) but net funds decreased by £3.3 million from £20.3 million as at 31 December 2017 to £17.0 million as at 30 June 2018, partly due to an increase in working capital of £4.8 million. This was also after paying the 2017 final dividend of 11.9 pence per share, or £5.0 million in total, during the period.

Management continue to safeguard the operational structure of the business. Cash spent on new plant and equipment, primarily hire fleet assets, amounted to £4.0 million and a further £0.9 million from stock was also added to the hire fleet. We have continued our policy of pursuing organic growth within our market sectors and start up costs of the new businesses discussed in previous Strategic Reports continue to be expensed as incurred. Continuing investment in both our existing core businesses and the ongoing development of new operations and income streams will ensure that we remain in a strong position and will safeguard profitability into the future.

Operations review

Our main hire and sales business segment in the UK and Europe continued to expand during first half of 2018. Our pumping activity has stayed in line with expectation and our heating products have increased revenue levels by 21%. Demand for our air conditioning products has increased by 14%.

Our operations across the Benelux region have experienced continued strong growth. Our recently established businesses in France and Switzerland continue to trade in line with our expectations. In Italy we have had a strong trading result driven by a 39% increase in revenues.

Andrews Air Conditioning & Refrigeration, our UK air conditioning installation business, produced an operating profit in line with previous periods.

Khansaheb Sykes, our business based in the UAE, had a challenging start to the year, maintaining similar hire revenue levels to 2017 whilst sales revenues have fallen back against expectation. As a result, the operating profit of Khansaheb Sykes has reduced to £1.0 million from £1.2 million in the first half of the year.

Profit for the financial period and Earnings per Share

Profit before tax was £9.3 million (2017: £8.1 million) reflecting the above £1.1 million increase in operating profit. The total tax charge was increased by £0.3 million from £1.5 million for the six months ended 30 June 2017 to £1.8 million for the current six month period. The effective tax rate increased from 19.0% for the six months ended 30 Jun 2017 to 19.4% in the current period. The rate for the current period is slightly higher than the standard effective UK corporation tax rate of 19% which is mainly due to the effect of profits being made in overseas regions with different tax rates to those in the UK and non-tax deductible expenses. A reconciliation of the theoretical corporation tax charge based on the accounts profit multiplied by the UK annualised corporation tax rate of 19% and the actual tax charge is given in note 4 of these interim financial statements.

Profit after tax was £7.5 million (2017: £6.6 million), an increase of £0.9 million or 14.58% (2017: £0.4 million or 6.05%) compared with the same period last year. The basic earnings per share increased by 2.27 pence, or 14.59%, from 15.55 pence for the first half of 2017 to 17.82 pence for the period under review reflecting both the increase in profit and shares purchased for cancellation during the period.

Share buybacks

The board continues to believe that shareholder value will be optimised by the purchase by the Company, when appropriate, of its own shares.

During the current period, on 31 May 2018, a total of 87,723 ordinary shares were purchased for cancellation for a total consideration of £438,000. These purchases enhanced earnings per share and were for the benefit of all shareholders.

Dividends

The final dividend of 11.90 pence per ordinary share for the year ended 31 December 2017 was approved by members at the AGM held on 20 June 2018. Accordingly on 25 June 2018 the Company made a total dividend payment of £5,029,000 which was paid to shareholders on the register as at 1 June 2018.

The board continues to adopt the policy of returning value to shareholders whenever possible. The Group remains profitable, cash generative and financially strong. Accordingly the board has decided to declare an interim dividend for 2018 of 11.90 pence per share which in total amounts to £5,019,000. This will be paid on 9 November 2018 to shareholders on the register as at 12 October 2018. The shares will go ex-dividend on 11 October 2018.

Outlook

Trading in the third quarter to date has continued to be positive. Europe has experienced strong trading results through the summer months as a result of continued high demand for air conditioning products. Once again activity in the Middle East has remained consistent through the summer period.

The board remains cautiously optimistic that the Group will have further success in the remainder of the year.

Consolidated income statement

for the 6 months ended 30 June 2018 (unaudited)

* Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-

recurring items.

Consolidated balance sheet

as at 30 June 2018 (unaudited)

Consolidated cash flow statement

for the six months ended 30 June 2018 (unaudited)

Consolidated statement of comprehensive total income (CSOCTI)

for the six months ended 30 June 2018 (unaudited)

Notes to the consolidated interim financial statements

for the six months ended 30 June 2018 (unaudited)

1 General information

Basis of preparation

These interim financial statements have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as adopted by the European Union and with the Companies Act 2006.

The information for the 12 months ended 31 December 2017 does not constitute the Group's statutory accounts for 2017 as defined in Section 434 of the Companies Act 2006. Statutory accounts for 2017 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. These interim financial statements, which were approved by the Board of Directors on 27 September 2018, have not been audited or reviewed by the auditors.

The interim financial statement has been prepared using the historical cost basis of accounting except for:

(i) Properties held at the date of transition to IFRS which are stated at deemed cost;

(ii) Assets held for sale which are stated at the lower of (i) fair value less anticipated disposal costs and (ii) carrying value;

(iii) Derivative financial instruments (including embedded derivatives) which are valued at fair value; and

(iv) Pension scheme assets and liabilities calculated at fair value in accordance with IAS 19.

Functional and presentational currency

The financial statements are presented in pounds Sterling because that is the functional currency of the primary economic environment in which the Group operates.

2 Accounting policies

With the exception of the adoption of IFRS 15 on 1 January 2018, these interim financial statements have been prepared on a consistent basis and in accordance with the accounting policies set out in the Group's Annual Report and Financial Statements 2017. There was no material impact on the Group's results as a consequence of the transition to IFRS 15 as the Group's activities are primarily (i) the hire of assets, mainly on short term leases, and (ii) the sale of goods the revenue for which was previously recognised at a point in time when the transfer of risks and rewards occurs which is consistent with IFRS 15. The comparative figures in these interim financial statements have not been restated as a consequence of adopting IFRS 15 for the first time this period.

3 Revenue

An analysis of the Group's revenue is as follows:

The geographical analysis of the Group's revenue by origination is:

The geographical analysis of the Groups' revenue by destination is not materially different to that by origination.

4 Taxation

The tax charge for the financial period can be reconciled to the profit before tax per the income statement multiplied by the effective standard annualised corporation tax rate in the UK of 19% (30 June 2017 and 31 December 2017: 19.25%) as follows:

The total effective tax charge for the financial period represents the best estimate of the weighted average annual effective tax rate expected for the full financial year applying tax rates that have been substantively enacted by the balance sheet date. Accordingly UK corporation tax has been provided at 19%; the rate of 19% for the tax year ending 31 March 2019 having been substantially enacted in October 2015. UK deferred tax has been provided at 19% being the rate substantially enacted at the balance sheet date at which the timing differences are expected to substantially reverse.

5 Earnings per share

Basic earnings per share

The basic figures have been calculated by reference to the weighted average number of ordinary shares in issue and the earnings as set out below. There are no discontinued operations in any period.

Diluted earnings per share

There were no dilutive instruments outstanding at 30 June 2018 or either of the comparative periods and therefore there is no difference in the basic and diluted earnings per share for any of these periods. There were no discontinued operations in any period.

6 Dividend payments

Dividends declared and paid on ordinary one pence shares during the 6 months ended 30 June 2018 were as follows:

The above dividend was charged against reserves during the 6 months ended 30 June 2018.

On 27 September 2018 the directors declared an interim dividend of 11.90 pence per ordinary share which in total amounts to £5,019,000. This will be paid on 9 November 2018 to shareholders on the register as at 12 October 2018 and will be charged against reserves in the second half of 2018.

Dividends declared and paid on ordinary one pence shares during the 6 months ended 30 June 2017 were as follows:

The above dividend was charged against reserves during the 6 months ended 30 June 2017.

Dividends declared and paid on ordinary one pence shares during the 6 months ended 31 December 2017 were as follows:

The above dividends were charged against reserves during the 12 months ended 31 December 2017.

7 Retirement benefit obligations - Defined benefit pension scheme

The Group closed the UK group defined benefit pension scheme to future accrual as at 29 December 2002. The assets of the defined benefit pension scheme continue to be held in a separate trustee administered fund.

As at 30 June 2018 the Group had a net defined benefit pension scheme surplus, calculated in accordance with IAS 19 (revised) using the assumptions as set out below, of £3,354,000 (30 June 2017: £2,575,000; 31 December 2017: £3,364,000). The asset has been recognised in the financial statements as the directors are satisfied that it is recoverable in accordance with IFRIC 14.

Following the 2016 triennial recalculation of the funding deficit, a revised schedule of contributions was agreed with the pension scheme trustees. In accordance with this schedule of contributions the group made additional contributions in 2017 to remove the funding deficit as at 31 December 2016 of £710,000 and this was eliminated by 31 December 2017.

The next formal triennial funding valuation is due as at 31 December 2019. The Group currently expects to make pension contributions of £120,000 during 2018 in accordance with the current schedule of contributions of which £60,000 was paid in the first half year.

Assumptions used to calculate the scheme surplus

A qualified independent actuary has updated the results of the 31 December 2016 (30 June 2017and 31 December 2017: 31 December 2016) full actuarial valuation to calculate the surplus as disclosed below:

The major assumptions used to determine the present value of the scheme's defined benefit obligation were: 

From 1 January 2011, the government amended the basis for statutory increases to deferred pensions and pensions in payment. Such increases are now based on inflation measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI). Having reviewed the scheme rules and considered the impact of the change on this pension scheme, the directors consider that future increases to (i) all deferred pensions and (ii) Guaranteed Minimum Pensions accrued between 6 April 1988 and 5 April 1997 and currently in payment will be based on CPI rather than RPI. Accordingly, this assumption was adopted as at 31 December 2010 and subsequently.

Assumptions regarding future mortality experience are set based on advice in accordance with published statistics. The mortality table used at 30 June 2018 is 110% S2NA CMI2016 (30 June 2017: 110% S2NA CMI2015; 31 December 2017: 110% S2NA CMI2016) with a 1.25% per annum long term improvement for both males and females (30 June 2017: 1% males and females; 31 December 2017: 1.25% males and females).

The assumed average life expectancy in years of a pensioner retiring at the age of 65 given by the above tables is as follows: 

Valuations

The fair value of the scheme's assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the scheme's liabilities, which are derived from cash flow projections over long periods and are inherently uncertain, were as follows:

The movement in the fair value of the scheme's assets during the period was as follows: 

The movement in the present value of the defined benefit obligation during the period was as follows:

Amounts recognised in the income statement

The amounts credited / (charged) in the income statement were:

Actuarial gains and losses recognised in the consolidated statement of comprehensive total income (CSOCTI)

The amounts (charged) / credited in the CSOCTI were:

8 Called up share capital

During the period the Company bought back 87,723 shares for cancellation for a total consideration of £437,689 (June 2017 and December 2017: Nil shares bought back).

The Company did not issue any shares in the period or either of the comparative periods. No share options were granted, forfeited or expired during the periods and there were no share options outstanding at any period end.

The Company has one class of ordinary shares which carry no right to fixed income.

9 Cash generated from operations

* Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-recurring items.

10 Analysis of net funds and movement in financing liabilities

11 Distribution of interim financial statements

Following a change in regulations in 2008, the Company is no longer required to circulate this half year report to shareholders. This enables us to reduce costs associated with printing and mailing and to minimise the impact of these activities on the environment.

A copy of the interim financial statements is available on the Company's website, www.andrews-sykes.com.