Creightons Regulatory News (CRL)

Creightons plc Group

Unaudited interim financial report

for the six months ended 30 September 2020

Financial highlights

· Revenue increased by £8.62m (36.3%) to £32.37m (2019: £23.75m).

· Gross margin percentage decreased by 2.7% to 39.3% (2019: 42.0%).

· Profit before tax increased by £1.13m (63.8%) to £2.90m (2019: £1.77m).

· Profit before tax as a percentage of sales increased by 1.5% to 8.9% (2019: 7.4%).

· Profit after tax as a percentage of sales increased by 1.2% to 7.5% (2019: 6.3%).

· Diluted EPS 3.31p (2019: 2.06p).

· Net cash on hand at £2.38m (2019: £1.57m).

· Paid final dividend of 0.50p per ordinary share in October 2020 (2019: 0.40p).

· Interim dividend of 0.15p per ordinary share to be paid in January 2021 (2019: 0.15p).

Operational highlights

· Successfully managed the Covid-19 pandemic with increased sales, output and profits.

· Prepared for a no deal Brexit.

· Increased investment to improve output, and capability, particularly relating to Alcohol Gel manufacturing.

Chairman's statement

I am pleased to report that the Group has continued to grow sales and increase profitability during this extraordinary first half year ended 30 September 2020. This is a tribute to the flexibility of the business and the teams that have pulled together to manage the significant potential risks and take advantage of the opportunities available.

Sales and margin

Group sales were £32.37m for the six months ended 30 September 2020 (2019: £23.75m) an increase of £8.62m (36.3%). The main driver of this sales growth has been the increased sales of hygiene products, sanitising gels and hand washes, primarily through our reinvigorated 'Pure Touch' brand. The Pure Touch products were mainly sold to the Department of Health and Social Care (DHSC), as part of the NHS PPE procurement plan, and to major UK retailers. The increase in hygiene sales was partially offset by a reduction in sales to private label and contract manufacturing customers, whose sales were adversely impacted by Covid-19 related store closures. Revenues through our branded division, excluding the hygiene related revenues, continued to grow, with increased internet sales, a full period sales of Balance Active (acquired in June 2019) and increased sales from the launch of the Body Bliss brand. Sales through e-commerce increased by 180% in the period albeit from a low base.

Our gross margin was 39.3% in the six months to 30 September 2020 (2019: 42.0%). The main reason for the decrease in margin are:

· Additional employee-welfare costs associated with Covid-19 amounting to £0.31m- including a decision to carry additional permanent staff rather than the increased risks associated with agency staff.

· an increase in stock provisions relating to hygiene products,

· increased costs associated with air-freighting goods,

· higher costs for certain scarce raw materials required to meet the huge demand for hygiene products, and

· reduced productivity in the early months, as we slowed down production to maintain social distancing rules.

Whilst many of these costs were anticipated and built into selling prices some costs increased beyond our expectations. Investment in production line layout enabled line speeds and efficiency to quickly recover. The increased stock provision and adverse material costs are unlikely to recur to the same degree in the future as the supply chains have normalised. We are now re-focusing on our margin improvement programmes encompassing procurement and production efficiency.

Overheads

Distribution costs have increased by 46.2% to £1.71m (2019: £1.17m) and now represent 5.3% of sales (2019: 4.9%). This was partly driven by organic growth and partly by increased costs associated with outsourcing the warehousing. An increasing proportion of our total stocks are now stored at third parties.

Administration costs have increased by 14.8% to £8.00m (2019: £6.97m) with costs increasing to manage the significant increase in activity over the period, including a night shift across both sites and increased variable production related costs. The night shift has now ceased, and costs will be re-aligned with the lower level of activity anticipated in the last quarter of the year. We are continuing to strengthen the management structure to position the Group for future growth.

Overheads include £0.32m of additional employee-welfare costs associated with Covid-19.

Profit before tax

Profit before tax was £2.90m (2019: £1.77m), which represents an increase of £1.13m (63.8%). The increased sales together with the improved operational leverage results in an operating profit margin of 9.3% (2019: 7.7%).

Tax

The tax charge provided in the accounts of £0.48m (2019: £0.26m) represents a rate of 16.4% (2019: 14.7%).

Earnings per share

I am pleased to report that the result of the above is an improved diluted earnings per share of 3.31p (2019: 2.06p) an increase of 60.7%.

Dividend Payments

The Board confirms that it will be paying an interim dividend of 0.15 pence per ordinary share (2019: 0.15 pence per ordinary share), reflecting the continued strong performance of the Group to 30 September 2020. This will be paid in January 2021. This is in addition to the dividend of 0.50 pence per ordinary share we paid in October 2020 (2019: 0.40 pence per ordinary share). The total payment in relation to the dividend paid in October was £0.32m (2019: £0.25m).

Working capital

Net cash on hand (cash and cash equivalents less short-term borrowings and loans) is £2.38m (2019: net cash on hand £1.57m). We have increased our investment in working capital in the period as we have increased investment in inventories by 24.4% and trade debtors by 54.6%. Stock levels will reduce in the second half of the year as activity falls from the peak. Trade debtors have increased in line with activity with debtor days slightly lower than 2019. The second half of the year will see these levels fall as the cash is received. The increased levels of trade and other payables reflects the increased activity and the delayed VAT payment for the March 2020 quarter of £0.97m.

Brexit

As the UK Government continues its negotiations, uncertainty remains as to the extent to which our operations and financial performance will be affected in the longer term. At a Group and business level, we have continued to prepare for changes in legislation, trade agreements and working practices in order to take advantage of any opportunities arising and to mitigate risk. The Group operates globally and may be affected by Brexit developments, which could provide a number of challenges. The Group is continuously monitoring events and putting mitigating actions in place including the registration of a new subsidiary Potter & Moore Ltd based in Ireland to be used as an EU base for recording regulatory information. Trading with our EU customers and suppliers will be more complex. The company has also established a subsidiary in Germany, Creightons GmbH, to facilitate trading within the EU. Any actual or perceived barriers to free trade are an obvious area of concern for us. As a result of Brexit, the Group is exposed to potential currency fluctuations. Brexit and trade barriers continue to be an integral part of the Group's ongoing risk management and review process, for which solutions to address the risks are identified and implemented. Although there is still uncertainty surrounding the outcome of Brexit, we do not expect the direct consequences of Brexit to have a material impact on the Group.

Covid-19

Like all businesses, Covid-19 presents significant risks to our customer base, supply chain and the infection risk faced by our employees.

We proactively managed the risks faced by our customers by working closely with them and by increasing debtor management and expanding our credit insurance. All customers' debtor limits, apart from the Department of Health and Social Care, are within insurance credit limits or they pay on a pro-forma basis.

We have worked closely with suppliers and used our improved Far East sourcing capabilities to expand our supply base to ensure that we can meet the demand from our existing customers. This has increased costs as high demand for scarce raw materials drove up prices and we increased the use of air freighting to ensure we could meet the increased demand for hygiene products. We managed these increased costs with our customers to mitigate the impact on the business.

We appointed a team of senior managers to monitor risks to our employees and manage these on a daily basis.

Amongst other actions, the Group has:

· introduced a Covid-19 test and trace regime for all employees who cannot work from home,

· increased use of PPE and installed screens to ensure social distancing can be maintained,

· expanded all cleaning regimes in our sites,

· managed site access through new security, and included temperature testing processes,

· minimised the risks associated with car sharing by providing our own transport for employees who cannot get to work by other means.

The direct costs associated with these actions in the period have increased our cost of sales by £0.31m (net of Furlough claims for employees shielded during the initial lockdown period) and our overheads is £0.32m. These costs incorporate; additional payments to staff who worked on site in the first uncertain months of the period, support for furloughed staff, increased costs for security, on-site test and trace, site cleaning and absenteeism. All of these costs have decreased as measures were fine-tuned over the period and will be significantly lower in the second half of the year. The Group has also deferred VAT payments totalling £0.97m.

I would like to take this opportunity to thank each and every one of the Group's employees who have continued to pull together through an exceptionally difficult period to enable the Group to deliver the increased sales and profits. I would also like to thank our customers, shareholders and suppliers for their support and loyalty to the Group.

W O McIlroy

Executive Chairman 08 December 2020

Responsibility statement

The names and functions of the Directors of the Company are as follows:

William O McIlroy Executive Chairman and Chief Executive

Bernard JM Johnson Executive Managing Director

Nicholas DJ O'Shea Non-executive Director and Group Company Secretary

William T Glencross Non-executive Director

Martin Stevens Deputy Managing Director

Philippa Clark Deputy Managing Director

Paul Forster Group Finance and Commercial Director

The Board confirms that to the best of its knowledge the condensed set of financial statements gives a true and fair view of the assets and liabilities, financial position and profit of the Group and has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules as issued by the Financial Conduct Authority, namely:

· DTR 4.2.7: 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 financial year.

· DTR 4.2.8: Details of 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 enterprise during that period. Together with any changes in the related parties transactions described in the last annual report that could have a material effect on the enterprise in the first six months of the current financial year.

Going Concern

Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.

· The directors are pleased to report that the Group continues to meet its debt obligations and expects to operate comfortably within its available borrowing facilities. The directors have therefore formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future being at least twelve months from the date of this report. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

· Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare the financial statements of the Company on a going concern basis.

By order of the Board

Nicholas O'Shea

Company Secretary and Director 08 December 2020

Principal risks and uncertainties

The Board regularly monitors exposure to key risks, such as those related to production efficiencies, cash position and competitive position relating to sales. It has also taken account of the economic situation over the past 6 months, and the impact that has had on costs and consumer purchases.

It also monitors those risks not directly or specifically financial, but capable of having a major impact on the business's financial performance if there is any failure, such as product contamination and manufacture outside specification, maintenance of satisfactory levels of customer and consumer service, accident ratios, failure to meet environmental protection standards or any of the areas of regulation mentioned above.

The principal risks and uncertainties and their associated mitigating and monitoring controls which may affect the Group's performance in the next six months are consistent with those detailed in the Annual Report and Financial Statements 2020. The main two risks facing the Group relate to the Covid-19 pandemic and Brexit, which are covered in detail in the Chairman's statement.

Consolidated income statement - unaudited

Earnings per share

1. Basis of preparation

The interim financial statements for the six months ended 30 September 2019 and 30 September 2020 and for the twelve months ended 31 March 2020 do not constitute statutory accounts for the purposes of Section 434 of the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 March 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 March 2020 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006. The 30 September 2020 statements were approved by the Board of Directors on 8 December 2020. This unaudited interim report has not been audited or reviewed by auditors pursuant to the Financial Reporting Council guidance on Review of Interim Financial Information.

The condensed financial statements in this Interim Report have been prepared in accordance with the requirements of IAS 34 'Interim Financial Reporting' as adopted by the European Union.

As required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, the condensed set of financial statements has been prepared by applying the accounting policies and presentation that were applied in the preparation on the Company's published consolidated financial statements for the year ended 31 March 2020, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The condensed interim financial statements for the six months ended 30 September 2020 and the comparative figures for the six months ended 30 September 2019 are unaudited. The figures for the year ended 31 March 2020 have been extracted from the Annual Report on which the Auditors issued an unqualified audit report and which have been filed with the Registrar of Companies.

2. Significant accounting policies

IFRS 16

The Group has adopted the modified retrospective approach to IFRS 16 from 1 April 2019.

IFRS 16 replaces IAS 17 in providing a one lease accounting model requiring the recognition of assets and liabilities for all leases with the option to exclude leases where the underlying asset is of low value or the lease term is 12 months or less. The Group has elected to use this option. IFRS 16 substantially carries forward the lessor accounting in IAS 17 with the operating and finance lease distinction still applying. During this period the Group had no lessor activities. However following the acquisition of the Peterborough property the Company will lease the property to one of its subsidiaries and two other small tenants.

The Group elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 April 2019. Also the Group applied other practical expedients of:

● using a single discount rate to a portfolio of leases with reasonably similar characteristics;

● excluding initial direct costs for the measurement of right of use assets at the date of initial application;

● reliance on previous assessments on whether the leases are onerous and;

● accounting for operating leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-term leases.

With the adoption of IFRS 16 the Group has recognised right of use assets and lease liability in relation to the property leased in Devon and the Group's forklift trucks previously identified as operating leases. As the Peterborough property lease ceased in October 2019 it has been accounted as an operating lease.

The leases now recognised under IFRS 16 were measured at present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at 1 April 2019. This is the rate at which a similar borrowing could be obtained from an independent financial provider. The weighted average rate applied was 3.04%.

Until March 2019 the Devon properties and forklift trucks were classified as operating leases. All the payments under these leases were charged to the profit or loss on a straight-line basis over the term of the lease.

2. Significant accounting policies - IFRS 16 (Continued)

From 1 April 2019 the value of the right of use assets included within property, plant and equipment on the Balance Sheet and the lease liability included within obligations under finance liabilities (short and long term) both increased by £888,000. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss for the period of the lease to produce a constant periodic rate of interest on the remaining liability. The right of use asset is depreciated over the shorter of the asset's useful economic life and the lease period on a straight-line basis and the cost is included within administrative expenses.

At 30 September 2020 the values in relation to right of use assets included in property, plant and equipment were £1,023,000. The obligations under leases in relation to the right of use assets were recognised as £206,000 of current liabilities and £870,000 recognised in obligations under finance leases within non-current liabilities.

The adverse impact on the income statement is £19,000 with additional finance costs of £63,000 and depreciation of £70,000 compared to operating rental costs of £114,000.

The calculation of the basic and diluted earnings per share is based on the following data:

4. Taxation

5. Notes to cash flow statement

Analysis of changes in net debt

6. Finance costs

7. Related party transactions

The related party transactions that occurred in the six months ended 30 September 2020 are not materially different in size or nature to those reported in the Company's Annual Report for the year ended 31 March 2020. On 16 October 2019 Oratorio Developments Limited, a company of which Mr W Mcllroy who is a Director and controlling shareholder, sold the freehold property at Peterborough to the Group for £3,800,000. This was approved by shareholders at a General Meeting on 10 October 2019.

8. Availability of Interim Report

The Interim Report is being made available to shareholders on the Company website www.creightonsplc.com. Further copies can be obtained from the Company's Registered Office, 1210 Lincoln Road, Peterborough, PE4 6ND.

Interim Dividend Declaration

Creightons plc wishes to confirm that the Company has declared and will pay an interim dividend of 0.15p per ordinary share as per the timetable below:

Ex-dividend date Thursday 17 December 2020

Record date Friday 18 December 2020

Payment date Tuesday 15 January 2021

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

For more information:

Nicholas O'Shea, Director, Creightons plc 01733 281000

Roland Cornish, Beaumont Cornish Limited 0207 628 3396