30 Jun 2008 07:00
HIGHTEX GROUP PLC
PRELIMINARY AUDITED RESULTS FOR
THE YEAR ENDED 31 DECEMBER 2007
CHAIRMAN'S STATEMENT & REVIEW OF OPERATIONS
Introductory
In the year ended 31 December 2007, Hightex Group plc ("the Company" or "the Group") generated turnover of € 13.0 million. The gross profit was € 4.0 million and after charging approximately € 0.5 million of development expenditure on SolarNext, the loss before taxation was € 2.4 million.
The comparative 2006 figures, on the pro forma assumption that the Hightex group had been in existence as it is presently constituted on 1 January 2006, were turnover of € 8.4 million, a gross profit of € 3.5 million and a loss before tax of € 2 million after charging approximately € 353,000 of development expenditure on SolarNext.
Although there have been some achievements in the business during the year, the Hightex Group Board considered the trading results of the Group to be unsatisfactory, and that a more robust approach to achievement of the Company's strategic objectives was required.
As part of this process, the Hightex Board was re-structured to help achieve the necessary commercial focus. Frank Molter (previously Finance Director) was appointed Chief Operating Officer, responsible for managing all aspects of the membrane and solar business, acting in a dual capacity until a replacement Finance Director is appointed. David Walker, an executive Director, was appointed Chief Commercial Director, responsible for all commercial matters across the group. These senior appointments have also been reflected in further re-allocation of responsibilities at other management levels and a re-structuring of operations.
The continuing Hightex Group Board directors, along with management and staff, are working hard to bring the Company onto a more solid and commercial footing to deliver both revenue growth and profitability.
The Company is seeking to appoint a new Chief Executive Officer of the group, but as an interim measure, I have taken on a more active day-to-day role as Executive Chairman.
Much remains to be done to turn the business around and make it profitable, but early signs are encouraging.
Membrane business
The chief contracts which contributed to sales in 2007 were the Robina Gold Coast Stadium in Brisbane, Queensland (new 25,000 seat sports stadium); the MTZ Münchner Technologiezentrum (technology centre); the 11M Monument in Madrid (memorial building to the victims of the Madrid bombings on 11 March 2004 situated on a roundabout in front of Atocha station in Madrid); and the start of work on both the Johannesburg stadium roof (for the FIFA 2010 World Cup) and the new retractable roof above the Centre Court at Wimbledon.
As part of its new commercial focus, Hightex will in the future concentrate its efforts on offering tensile membrane structures of large surface area which incorporate complex, innovative coatings and which are attractive to the end users but not readily available elsewhere. Such coatings enable more energy efficient structures to be realised. This will lead to higher value and higher margin contracts than those which simply supply a standard or commodity product.
On 12 May 2008, Hightex announced a new such contract win together with its consortium partner Martifer Construções Metalomecânicas S.A. The contract covers the provision of the complete steel structure, ETFE cushion roof and façade for the Dolce Vita Tejo shopping mall situated in Lisbon, Portugal. This will be one of the largest shopping malls in Europe and will total more than 120,000 square metres of gross rentable area.
Hightex's total contract volume from this contract is around € 8.5 million, of which approximately € 7.5 million will arise in 2008, with the balance in 2009.
The Dolce Vita Tejo shopping mall will be the first structure in the world to have a unique ETFE roof that uses high performance Selective Filters and Low-Emissivity ("Low-E") coatings applied to the cushion system.
The Selective Filter is a coating which represents a pioneering use of the ETFE membrane, as the Selective Filter allows more light than heat to enter the building. The Low-E coating serves to prevent the roof, when it gets hot, re-radiating heat into the building, thereby reducing the cooling costs.
Developed by Hightex, this new solution allows ETFE to compete with glass in thermal performance, and these coatings are expected to have wide appeal for future applications using polymer membranes.
Other contracts which will contribute to 2008 turnover include the provision of a new membrane roof as part of the upgrading of the First National Bank ("FNB") Stadium in Johannesburg, South Africa, which is to be used for the 2010 FIFA Football World Cup. The total contract volume for Hightex is around € 7 million of which approximately € 1 million arose in 2007, about EUR 4.5 million will arise in 2008 with the balance in 2009.
The retractable roof above the Centre Court at Wimbledon is due to be installed this year after the close of the 2008 championship. Hightex is also close to signing another significant membrane contract: if successful, the contract value will be worth some € 12 million to Hightex and spread across 2008 and 2009.
Hightex has created a joint venture in Cape Town, South Africa, though Hightex Structures Pty Limited, which is owned 74% by Hightex and 26% by Circle Capital Ventures, which was founded by Dr Mamphela Ramphele (a former World Bank managing director) and Hlumelo Biko (who has an extensive network of business, government and other relationships in South Africa). This equity structure ensures that Hightex qualifies under the Black Economic Empowerment Act of 2004 and enables Hightex to seek further contracts in this significant area.
The Directors are confident that the overall market for membrane architecture will continue to grow. Sporting events, including not least the 2012 London Olympics and successive international football and rugby tournaments, will give rise to a continuing need for upgraded or new stadiums. Also, awareness is growing that membrane is a far safer material than glass in structures where the public congregate such as airport terminals, atria in hotels, public and governmental buildings and others in terms of reducing the risk of possible injury in the unwelcome event of a terrorist attack.
A significant feature of the architectural membrane business is the requirement to provide performance and other bonds to secure the contracts. These have to be backed by blocked cash deposits, which currently amount to some € 2,500,000. The directors have had discussions with a large insurance company in order to seek an insurance solution to replace the provision of blocked cash deposits. However, this answer will only be available to Hightex once sales have increased to a greater level than those achieved in 2007.
In summary, Hightex has resolved to concentrate on higher value contracts with the potential to incorporate Hightex's innovative coatings, which in turn permit better margins to be earned. Hightex will concentrate on winning contracts primarily in Europe, the Middle East, North America and South Africa.
Solar business
For two years, the solar business has been in its development stage but is now reaching the point where commercial sales can commence.
The portfolio of products includes the innovative coatings and thermal insulation materials, such as those used for Dolce Vita Tejo, and the exclusive use of the Flexcell/ETFE product in architectural membrane applications. Flexcell is owned by VHF-Technologies SA, the majority of whose share capital is owned by Q-CELLS AG, a leading company in solar technology. SolarNext has integrated Flexcell, a flexible photovoltaic layer, into an ETFE membrane for intelligent building envelopes, which can act as a source of local power generation. This represents a major innovative advance with significant potential for use in architectural membrane structures such as sports stadia, airports, rail stations, hotels, residential homes and shopping malls.
Hightex has also developed a solar cooling system in kit form for use in smaller residential and office applications. Systems can be supplied in a range of sizes from 7.5 kw to 500 kw capacity. Twelve systems have so far been made and sold to third parties without any concerted marketing effort. It is plain that this business will require separate finance and distribution capabilities and the directors have begun discussions with potential partners to expand this business in a collaborative manner.
SolarNext has furthermore developed a control unit which can be adapted to a range of control systems for hot water and space heating, cooling and air conditioning and all forms of energy management. International patent applications have been filed so as to protect this valuable, intangible intellectual property asset. The widely recognised need for the more efficient and more economic use of energy provides a strong commercial driver for this kind of product. As with solar cooling, this business will also require separate finance and distribution capabilities and potential partners have been identified.
The Board will announce updates on these developments once discussions have completed and appropriate commercial arrangements agreed.
Conclusion
The poor results of 2007 reflect in part the way the business used to be managed. A more commercial approach has now been introduced. Certain members of staff have left the Hightex group to allow the recruitment of new staff with wider commercial experience. The re-direction of Hightex towards a profitable and growing company has begun and the Directors expect to make further significant progress in the second half of 2008.
Enquiries:
Hightex
Charles DesForges (Executive Chairman) 020 7603 1515
Landsbanki Securities (UK) Limited Sindre Ottesen 0207 426 9000
GROUP INCOME STATEMENT
For the year ended 31 December 2007
| Year ended 2007 | 4 months from 6 September to 31 December 2006 | |||
| Notes | €000 | €000 | ||
| Continuing operations | ||||
| Revenue | 2 | 12,960 | 3,790 | |
| Cost of sales | (8,977) | (1,838) | ||
| Gross profit | 3,983 | 1,952 | ||
| Operating expenses: | ||||
| Salaries and related expenses | (2,438) | (947) | ||
| Other operating expenses | (3,675) | (1,969) | ||
| Depreciation and amortisation | (320) | (136) | ||
| Operating loss | (2,450) | (1,100) | ||
| Interest and other income | 153 | 69 | ||
| Finance costs | (84) | (115) | ||
| Loss on ordinary activities before tax | (2,381) | (1,146) | ||
| Income tax credit | 3 | 223 | 249 | |
| Loss after tax and before minority interest | (2,158) | (897) | ||
| Minority interest | (51) | (53) | ||
| Loss from continuing operations and attributable to equity holders | (2,209) | (950) | ||
| Loss per share (cents): | ||||
| Basic and diluted | 5 | (1.85)* | (0.84)* |
* In accordance with IAS 33 'Earnings per share' and as the Group has reported a loss for the period, the shares are not dilutive.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2007
| Share capital | Share premium | Accumulated losses | Minority interest | Total | |
| €000 | €000 | €000 | €000 | €000 | |
| Group | |||||
| Balance at 1 January 2007 | 1,775 | 11,757 | (991) | 198 | 12,739 |
| Issued during the period | 1 | - | - | - | 1 |
| Loss for the year | - | - | (2,209) | 63 | (2,146) |
| Currency translation differences | - | - | (373) | - | (373) |
| Balance at 31 December 2007 | 1,776 | 11,757 | (3,573) | 261 | 10,221 |
| Share capital | Share premium | Accumulated losses | Total | |
| €000 | €000 | €000 | €000 | |
| Company | ||||
| Balance at 1 January 2007 | 1,775 | 11,757 | (297) | 13,235 |
| Issued during the period | 1 | - | - | 1 |
| Loss for the year | - | - | (527) | (527) |
| Balance at 31 December 2007 | 1,776 | 11,757 | (824) | 12,709 |
GROUP BALANCE SHEET
As at 31 December 2007
| 2007 | 2006 | |||
| Notes | €000 | €000 | ||
| Assets | ||||
| Non-current assets | ||||
| Goodwill | 6,627 | 6,627 | ||
| Other intangibles | 4 | 403 | 65 | |
| Property, plant and equipment | 908 | 768 | ||
| Deferred tax asset | 425 | 143 | ||
| 8,363 | 7,603 | |||
| Current assets | ||||
| Cash at bank and in hand | 2,530 | 5,305 | ||
| Inventories | 218 | 143 | ||
| Trade and other receivables | 5,421 | 3,638 | ||
| 8,169 | 9,086 | |||
| Total assets | 16,532 | 16,689 | ||
| Equity and liabilities | ||||
| Current liabilities | ||||
| Trade payables | 1,799 | 1,329 | ||
| Accrued liabilities and deferred income | 3,189 | 1,358 | ||
| Other accounts payable | 1,005 | 1,009 | ||
| 5,993 | 3,696 | |||
| Non-current liabilities | ||||
| Accrued liabilities and deferred income | 256 | 187 | ||
| Other accounts payable | 62 | 67 | ||
| 318 | 254 | |||
| Total liabilities | 6,311 | 3,950 | ||
| Capital and reserves | ||||
| Share capital | 6 | 1,776 | 1,775 | |
| Share premium | 6 | 11,757 | 11,757 | |
| Accumulated losses | (3,573) | (991) | ||
| Total equity attributable to equity holders | 9,960 | 12,541 | ||
| Minority interest | 261 | 198 | ||
| 10,221 | 12,739 | |||
| Total equity and liabilities | 16,532 | 16,689 |
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2007
| Year ended 2007 | 4 months from 6 September to 31 December 2006 | |||
| €000 | €000 | |||
| Cash flows from operating activities | ||||
| Operating loss for the period | (2,450) | (1,100) | ||
| Adjustments for: | ||||
| Loss on disposal of fixed assets | 50 | 4 | ||
| Bad debts written off | 46 | - | ||
| Depreciation | 282 | 127 | ||
| Amortisation and impairment of intangibles | 39 | 59 | ||
| Operating cash flows before movements in working capital | (2,033) | (910) | ||
| Increase inventories | (75) | (143) | ||
| (Increase)/Decrease in receivables | (1,828) | 903 | ||
| Increase in payables | 2,270 | 595 | ||
| Cash (used in)/generated from operating activities | (1,666) | 445 | ||
| Interest paid | (84) | (115) | ||
| Income tax paid | (51) | (23) | ||
| Net cash (used in)/generated from operating activities | (1,801) | 307 | ||
| Cash flows from investing activities | ||||
| Acquisition of subsidiary, net of cash acquired | - | 4,307 | ||
| Acquisition of intangible assets | (377) | (124) | ||
| Acquisition of property, plant and equipment | (551) | (344) | ||
| Proceeds from disposal of property, plant and equipment | 92 | - | ||
| Interest received | 153 | 69 | ||
| Net cash (used in)/generated from investing activities | (683) | 3,908 | ||
| Cash flows from financing activities | ||||
| Proceeds from issuance of ordinary shares | - | 2,178 | ||
| Costs of issue of shares | - | (1,088) | ||
| Proceeds from loan | 83 | - | ||
| Net cash (used in)/generated from financing activities | 83 | 1,090 | ||
| Net (decrease)/increase in cash and cash equivalents | (2,401) | 5,305 | ||
| Cash and cash equivalent at the beginning of the period | 5,305 | - | ||
| Effect of foreign exchange on cash and cash equivalent brought forward | (374) | - | ||
| Cash at bank and cash equivalent at the end of the period | 2,530 | 5,305 | ||
| Cash at bank and in hand comprises: | ||||
| Cash and cash equivalents | 1,034 | 2,997 | ||
| Cash lodged under performance and warranty bonds | 1,496 | 2,308 | ||
| 2,530 | 5,305 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2007
1 Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and using accounting policies which are consistent with those adopted in the financial statements for the period ended 31 December 2006.
The financial information set out in this announcement does not constitute the Company's statutory financial statements for the period ended 31 December 2007, but is derived from those financial statements. The auditors have reported on the statutory financial statements for the period ended 31 December 2007; their report was unqualified.
The financial information for the period ended 31 December 2006 is derived from the financial statements for that year. The Company's auditors have reported on the 2006 financial statements; their report was unqualified.
The financial information set out in this announcement was approved by the Board on 27 June 2008.
The Directors do not recommend the payment of a dividend.
2 Business and Geographical Segments
For business purposes, the Group is currently organised into just one significant operating division - design, supply and fit of membrane structures. A second division, the exploitation of solar intellectual property rights ("Solar") is in development but has not reached significant revenue stage to date and so is not included as a separate division.
This single division is the basis on which Group reports its primary information by geographic segment as follows:
| 2007 | 2006 | ||
| €000 | €000 | ||
| Revenue | |||
| Europe | 7,681 | 2,255 | |
| Asia | 94 | 398 | |
| USA | 249 | - | |
| Africa | 1,958 | - | |
| Australasia | 2,978 | 1,137 | |
| 12,960 | 3,790 | ||
| Carrying amount of segment assets | |||
| Europe | 6,952 | 6,386 | |
| Asia | - | - | |
| USA | 76 | 2,780 | |
| Africa | 1,966 | - | |
| Australasia | 888 | 896 | |
| 9,882 | 10,062 | ||
| Carrying amount of segment liabilities | |||
| Europe | 4,236 | (3,240) | |
| Asia | 152 | - | |
| USA | 150 | (30) | |
| Africa | 1,466 | - | |
| Australasia | 307 | (680) | |
| 6,311 | (3,950) | ||
| Additions to plant and equipment | |||
| Europe | 542 | 344 | |
| Asia | - | - | |
| USA | - | - | |
| Africa | - | - | |
| Australasia | 9 | - | |
| 551 | 344 | ||
| Additions to intangible assets | |||
| Europe | 377 | 124 | |
| Asia | - | - | |
| USA | - | - | |
| Africa | - | - | |
| Australasia | - | - | |
| 377 | 124 |
Segment assets and intangible assets exclude goodwill. The goodwill on consolidation in the period is €6,627,000 (2006 : €6,627,000) and has not changed in aggregate and relates entirely to operations in Europe.
3 Taxation
| Group | |||
| Year ended 2007 | Period ended 2006 | ||
| €000 | €000 | ||
| Current taxation | (60) | (23) | |
| Deferred taxation | 283 | 272 | |
| Corporate taxation | 223 | 249 | |
The deferred taxation credit has arisen on losses recognised across the Group.
Analysis of factors influencing the tax charge:
| Group | |||
| Year ended 2007 | Period ended 2006 | ||
| €000 | €000 | ||
| Net deficit before taxation | (2,381) | (1,146) | |
| Loss on ordinary activities at 27% (2006 : 30%) | 642 | 344 | |
| Tax paid for current period | (4) | 3 | |
| Tax rate differences | - | (12) | |
| Effect of tax free earnings | (443) | (129) | |
| Deferred tax adjustments | 30 | 42 | |
| Other adjustments | (2) | 1 | |
| Corporate taxation credit | 223 | 249 | |
4 Intangible fixed assets
Movements in the cost, amortisation and net book value of the assets are as follows:
| Development | Software | Total | |||
| €000 | €000 | €000 | |||
| GROUP | |||||
| Cost | |||||
| As at 1 January 2007 | - | 124 | 124 | ||
| Additions | 297 | 80 | 377 | ||
| As at 31 December 2007 | 297 | 204 | 501 | ||
| Accumulated Amortisation | |||||
| As at 1 January 2007 | - | (59) | (59) | ||
| Charge for the year | (7) | (32) | (39) | ||
| As at 31 December 2007 | (7) | (91) | (98) | ||
| Net book value | |||||
| As at 31 December 2007 | 290 | 113 | 403 | ||
| As at 31 December 2006 | - | 65 | 65 |
5 Loss per share
The basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period. In accordance with IAS 33 and as the Group has reported a loss for the period the share are not diluted:
| Group | |||
| 2007 | 2006 | ||
| Loss attributable to equity holders of the Company | €2,209,000 | €950,000 | |
| Number of shares | Number of shares | ||
| Weighted average number of ordinary shares in issue | 119,652,582 | 112,895,359 | |
| Basic and diluted loss per share based on the issued share capital as at 31 December 2007 | (1.85) cents | (0.84) cents | |
6 Share issues during the year
| Shares | Share capital | Share premium | |||
| €000 | €000 | ||||
| At 1 January 2007 | 119,541,217 | 1,775 | 11,757 | ||
| Issued on 20 February 2007 | 111,365 | 1 | - | ||
| At 31 December 2007 | 119,652,582 | 1,776 | 11,757 | ||
| On 20th February 2007, the Company issued and allotted 111,365 new ordinary shares of 1p each. These were issued and allotted in exchange for 1,113,666 shares in West 175 Media Group Inc, following the receipt of received valid letters of transmittal. The new ordinary shares rank pari passu with the existing Ordinary Shares of the company. | |||||
The annual report and accounts will be posted to Hightex shareholders today. A copy of the report will also be available on the Company's website www.hightexworld.com.