Hightex Group Regulatory News (HTIG)

24 April 2013

Hightex Group plc

 ("Hightex" or "the Group")

Preliminary Unaudited Results for the Year Ended 31 December 2012

Hightex Group plc (AIM: HTIG), a leading systems designer and installer of large area, cable supported membrane roofs and façades worldwide, announces its preliminary unaudited results for the year ended 31 December 2012.

Financial Overview:

·; Turnover of €17.7 million (2011: €19.4 million)

·; Gross profit of €2.6 million (2011: gross loss of €1.9 million)

·; Pre tax loss of €1.2 million (2011: pre-tax loss of €5.5 million)

·; Result per share of a loss of 0.43 cents (2011: loss of 2.54 cents)

·; Gross cash balances of €0.9 million (2011: €2.4 million)

·; Operating costs fell by €118,000 to €2,765,000, despite an increased loss on exchange of €184,000, with a programme initiated to deliver cost savings of approximately €200,000 in 2013

·; Hightex's confirmed future revenues from contracts secured to date amount to approximately €17.8 million

Membrane and Façade division:

·; Selected to design and install the membrane structure of the roof on three of the stadia to be used in the FIFA 2014 World Cup in Brazil: Beira-Rio Stadium in Porto Alegre, Arena das Dunas in Natal and the host of the competition, the Maracanã Stadium in Rio de Janeiro. All three installations remain on track.

·; Additional revenues were earned from the Centre for Applied Energy-Research in Germany and the Prince Sultan Cultural Centre in Saudi Arabia.

·; The Group continued to advance opportunities for further membrane contracts in the United Kingdom, Continental Europe and the Americas.

Solar Cooling division

·; Following a strategic review, the business is now focused on industrial applications with large scale installations.

·; In consequence of this focus, the business made excellent progress in the second half of 2012, and increased its sales by 94% to €534,000. As a result, the loss at EBIT level improved by €180,000 to a reduced loss of €129,000. The directors believe that this momentum can be maintained and deliver breakeven or modest profitability in the current year

Charles DesForges, Executive Chairman, commented:

"The results for 2012 showed a marked recovery in comparison with 2011. Profitability was restored at the gross profit level. The prospects for the Group's membrane and solar cooling businesses have both significantly improved and the directors' firm objective is to achieve a profit before tax in the current year".

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Media enquiries

Chairman's statement

Introduction

Hightex continues to work as a global, innovative leader in the systems design and installation of large area architectural tensile polymer membrane roofs and façades by using advanced cable engineering. The year ended 31 December 2012 showed a marked recovery in comparison with 2011. Although aggregate revenues fell by 9% to €17.7 million, profitability was restored at the gross profit level, and the financial results at both the EBITDA and results before tax showed a significant improvement. The directors' firm objective is to achieve a Group profit before tax in the year ending 31 December 2013.

Financial overview

Hightex continues to operate in a very challenging macro-economic environment. In Europe the market for developers looking for finance, from any source, for large scale projects remains extremely difficult. Against this background the directors believe that the Group made significant progress and achieved a creditable performance, reducing losses in the membrane and cable operation by 77% and improving margins to acceptable levels of around 15%. It remains the focus of the Group to target projects that deliver at least a 20% margin and the directors believe that this is achievable. Internal restructuring and changes to management responsibilities were also made during the year that contributed to improved margins. Efforts to reduce fixed costs still further were successful and this drive will continue in 2013.

The ongoing financial turnaround remains our key focus in 2013.

Aggregate revenues in the year, which are calculated by the percentage of completion method, fell by €1.7 million to €17.7 million (2011: €19.4 million). The majority of the Group's revenues were earned from its three contracts in Brazil, namely the Maracanã Stadium in Rio de Janeiro, the Beira-Rio Stadium in Porto Alegre and the Arena das Dunas in Natal. Further revenues were generated from one project in Germany, the Zentrum für Angewandte Energieforschung ("Centre for Applied Energy-Research") and from the Prince Sultan Cultural Center in Riyadh, Saudi Arabia. In addition, the maintenance business earned revenues of €0.2 million (2011: €0.2 million). In the case of two particular contracts, delays by third parties had the effect of deferring Group revenue of approximately €2.5 million from 2012 into 2013. If these revenues had been booked in 2012 as budgeted, Group revenues in 2012 would have shown a modest increase over those of 2011.  

The gross profit was increased to €2.6 million (2011: gross loss of €1.9 million) an improvement which arose mainly from work performed on the Brazilian and the German contracts.

Overall operating expenses amounted to €2.8 million, a figure approximately €0.1 million lower than in 2011. In 2012, selling and distribution costs were reduced by €0.22 million from €1.2 million to €0.9 million; research and development costs increased from €0.1 million to €0.2 million; and administrative expenses were unchanged at €1.6 million. The reduction of selling and distribution costs is mainly due to lower employment and associated costs and other savings. Research and development costs reverted to their normal level after savings in 2011. The fact that administrative expenses were unchanged masks two offsetting features: both personnel expenses and the cost of the office premises decreased by €0.1 million, saving €0.2 million in all, but unrealised currency losses of approximately €0.2 million cancelled out this saving. Following the centralisation and savings programme started in 2012, Hightex Group expects to achieve further cost savings of approximately €0.2 million from personnel costs.

At the EBITDA level, the Group recorded a small loss of €0.18 million (2011: loss of €4.7 million), which represents significant progress in the Group's turnaround journey. The result before tax for the full year was a loss of €1.2 million, compared with a loss of €5.5 million in 2011. Expressed in per share terms, the 2012 result amounted to a loss of 0.43 cents, compared with a loss per share of 2.54 cents in 2011.

Shareholders' funds were €7.7 million, compared with €8.9 million at 31 December 2011. Gross cash balances as at 31 December 2012 were €0.9 million, compared with €2.4 million as at 31 December 2011.

Solar cooling business

The strategic review carried out in 2012 determined that the focus for the business would concentrate on industrial applications with large scale projects. In consequence, the solar cooling business almost doubled its sales from €276,000 in 2011 to €534,000 in 2012, with most of the growth being achieved in the second half of the year. As a result the loss at EBIT level improved by €180,000, reducing from €309,000 in 2011 to €129,000 in 2012. The business is wholly focussed on maintaining this sales momentum. The directors believe that this is attainable and should it do so, the business would deliver a breakeven result or modestly better in its first full year following the review.

A key feature of the strategic change was to increase the power output capability of each SolarNext system that is installed and thereby significantly increase the average contract value. One important new contract was awarded for a German turkey-breeding farm where climate control has a major impact on the productivity of the total business. The potential for an expansion of sales to this sector is clear. The directors further believe that livestock breeding units have a considerable need for thermal cooling of their environment and that SolarNext systems are ideally suited to meet to this need.

Another innovative step was taken during the year by the award to SolarNext of the first large value, industrial contract with a well-known international company involved in the production of high performance window units. The use of waste material to generate thermal energy that can in turn be used to control the manufacturing environment is likely to be of interest to other industrial sectors.

The current sales and marketing efforts are concentrating in the first instance on German-speaking territories and then, based on successful exploitation of the identified opportunities, the business will address markets further afield.

Prospects

The core strategy for 2013 is to increase revenues in both operating units and return the Group to overall profit.

In the membrane and cable engineering division, Hightex has responded to the significant market potential in Brazil. The main activity during 2012 took place in Brazil where Hightex won three contracts relating to the 2014 FIFA World Cup competition, due to complete in 2013. These are the Beira Rio Stadium in Porto Alegre, the Arena das Dunas in Natal and the National Stadium of Maracana in Rio de Janeiro. In 2016 Brazil is to host the Olympic Games, and the related transport infrastructure projects, both air and rail, are being scheduled. The directors feel that the Group's high profile and highly regarded existing Brazilian projects will stand it in good stead in capitalising on these contract opportunities. Additionally, major prospects for both new and renovated stadia have already been identified during visits to Russia where the next FIFA World Cup competition will take place in 2018. Many of the designs can be realised by making use of membrane technology. The market is all the more attractive as the Russian government wants to use this specific event to demonstrate and reinforce the point that it ranks alongside other Western nations in its ability to finance and organise major world events. The necessary financial support from the state will provide an essential underpinning for this renovation and rebuilding programme.

Elsewhere in Europe the Group has identified longer term, large scale projects where Hightex technology will be needed for both roofs and façades. Given the lengthy planning cycle for these projects, it is essential that marketing initiatives begin in 2013. Hightex's record of completed global projects admirably supports these plans, where it has provided innovative solutions to design issues raised by architects in widening the use of lightweight materials. The combination of the aesthetics of membrane structures with the savings on construction costs is very attractive to the promoters of these schemes, who are seeking to maximize the use of structures for a wide range of events, both sporting and entertainment. The availability of retractable roof systems for membrane technology is an added advantage for these developments.

Canada and the United States of America provide a new market opportunity for the Group. Both countries are seeking to emerge from a quasi-depression partly by spending on infrastructure, covering not only renovation of venues but also the planning, design and construction of new ones, many of which favour light weight engineering construction processes. The Group has been closely following this general development by opening a small office in New York and engaging in early-stage, constructive dialogue with architectural practices and engineering design groups. The reputation of the Group has been materially assisted by its work on the BC Place stadium, where its innovative, membrane roof-closing mechanism has attracted much attention. In consequence a number of potential projects in the region have been identified.

In Southern Europe, which has been the focus of much attention at the political level of the Eurozone and much adverse press comment, we have seen delays in the start of potential projects and in some cases there has been a complete failure to deliver the expected large value projects. The market in Northern Europe has also been depressed, but there are now clear signs that market conditions are improving for major developments in sight in France and the United Kingdom.

The Middle East region is looking more promising as infrastructure investment is seen as a vital part of the economy. One of the contracts awarded to Hightex, the Prince Sultan Cultural Centre in Saudi Arabia, has been delayed as changes on the original design from the client's architect have been imposed because of related changes in the local construction codes so as to conform to higher demands for building security. This delay has had an impact on group revenues and profit during 2012.

Hightex has also been active in recent years in the introduction of innovative membrane materials which incorporate mini-LED units, and which allow a facade of a stadium or other structure to function as an interactive media platform. This can be used to convey event information or for advertising. Passive structures are thereby enabled to become active and of increased potential value. This initial development has been undertaken in co-operation with a very large industrial partner.

The prospects of the solar cooling business and the response from the market, particularly in the field of industrial applications, support the target of significant growth in sales and reaching or passing the break-even point in 2013. While growth is expected first to be gained from the local and national market, international projects will be pursued based on their strategic importance to Hightex.

Conclusion

Hightex's confirmed revenues from membrane contracts secured to date, amount to approximately €17.8 million and new potential membrane contracts are being actively pursued worldwide. The change of strategy in the solar cooling division has enjoyed a promising start. The directors are determined to build on the Group's accumulated experience in both operating units and return the Group to profitability in 2013 and beyond.

Charles DesForges

Executive Chairman

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Consolidated statement of comprehensive income

For the year ended 31 December 2012

Consolidated statement of comprehensive income (continued)

Other comprehensive income

Consolidated statement of financial position

As at 31 December 2012

Consolidated statement of changes in equity

For the year ended 31 December 2012

Share premium

The share premium reserve represents the consideration that has been received in excess of the nominal value of shares on issue of new ordinary share capital.

Retained losses

The retained losses reserve represents profits and losses retained in the previous and current periods.

Share option reserve

The share option reserve represents amounts recognised directly in the statement of comprehensive income in the previous and current periods relating to the share based payment transactions granted under the Group's share options schemes.

Foreign currency translation reserve

The foreign currency translation reserve represents the revaluation of overseas foreign subsidiaries and associates.

Consolidated statement of cash flows

Notes to the financial information

For the year ended 31 December 2012

1 Basis of preparation

The Group financial statements are presented in Euros ("€") which, as the Group is expected to transact more of its business in Euros than any other currency, is also the functional currency of the Group.

The financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS"), IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS, as adopted by the European Union, and the Companies Act 2006. The financial information has been prepared under the historical cost convention, as modified by revaluations of financial assets and financial liabilities at fair value through the statement of comprehensive income. Details of the accounting policies applied are set out in the financial statements for the year ended 31 December 2011 and have not changed for the year ended 31 December 2012.

The preliminary announcement for the year ended 31 December 2012 was approved and authorised for issue by the board of directors on 23 April 2013. The financial information set out in this preliminary announcement does not constitute audited financial statements for the year ended 31 December 2012. The financial information for the year ended 31 December 2011 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis and did not contain a statement under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation. The financial information for the year ended 31 December 2012 is derived from draft financial statements. The audit of the statutory accounts for the year ended 31 December 2012 is not yet complete. These accounts are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 434(3) of the Companies Act 2006.

The statutory accounts for 2012 will be finalised on the basis of the financial information presented in this preliminary announcement and will be posted to shareholders in May 2013.

2. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are dealt with in the consolidated income statement from or up to their effective dates of acquisition or disposal respectively. Control is normally evidenced when the Company, or a company which it controls, owns more than 50% of the voting rights of a company's share capital.

All inter-company transactions and balances within the Group are eliminated on consolidation.

3. Going Concern

The financial information has been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. The assessment has been made based on the Group's economic prospects which have been included in the financial budget for the years 2013-2014. In assessing whether the going concern a1ssumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements.

4. Business Segments

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. Per IFRS 8 operating segments are based on internal reports about components of the Group, which are regularly reviewed and used by Chief Operating Decision Maker ("CODM") for strategic decision making and the resource allocation, in order to allocate resources to the segment and to assess its performance. The CODM is Frank Molter, CEO of the Group. The Group's reportable operating segments are as follows:

i) Membrane Business

ii) Solar Business

The CODM monitors the operating results of each segment for the purpose of performance assessments and making decisions on resource allocation. Performance is based on external and internal revenue generations and profit before tax, which the CODM believes are the most relevant in evaluating the results relative to other entities in the industry.

Information regarding each of the operations of each reportable segment is included below. 

The Group's revenue from external customers and information about its segment assets (non-current assets excluding investments in associates, deferred tax assets and other financial assets) by geographical location are detailed below:

92% of the Group's external revenue was derived from three customers (2011: 84% from three customers).

5. Share capital

Issued

No new shares were issued during 2012.

6. Taxation

Analysis of factors influencing the tax charge:

The rate of taxation on ordinary activities of 27% is derived from the composite rate of tax applicable in Germany, where the majority of the Group's operational activities take place.

7. Earnings per share

(i) Basic and diluted earnings

The basic and diluted earnings per share is calculated by reference to the earnings attributable to ordinary shareholders divided by the number of shares in issues as at 31 December as follows:

(ii) Effect of potential ordinary shares

In accordance with IAS 33 and as the average share price in the year is lower than the exercise price, the share options do not have a dilutive impact on earnings per share for the year ended 31 December 2011.

8. Intangible fixed assets

Movements in the cost, amortisation and net book value of the assets are as follows:

In 2011 the Group capitalised development expenses of €2,000,000 resulting from the development of the technology of the new retractable cushion roof which has been developed for the project B.C. Place Stadium, Vancouver. The Group expects significant future sales from this new product, which results from demand in climatic cold or hot regions being triggered by trends and regulations aiming at sustainability and ecologic-energy savings.

Development expenses are being amortised over the estimated useful life which is assessed by management as eight years.

9. Commitments under operating leases

As at 31 December, the Group had total minimum lease payments under non-cancellable operating leases as follows:

New office premises in Bernau: The Group acquired a new office building and adjacent factory hall in Bernau, Bavaria which came with a heritable building right for its premises. The heritable building right bears a lease of annually €24,000 to the owner of the land. This lease expires on 26 February 2015.

10. Contingent Liabilities

At 31 December, the Group had contingent liabilities under contracted performance, warranty bonds and advance payments as follows:

Included within cash at bank and in hand in the balance sheet is aggregate cash of €789,000 (2011: €1,033,000) lodged under the terms of performance, warranty bonds and advance payments. Access to cash balances lodged under the terms of such bonds is restricted.

11. Nature of financial information

These preliminary results will be available from 24 April 2013 on the Company's website www.hightexworld.com. Further copies can be obtained from the registered office at Masters House, 107 Hammersmith Road, London W14 0QH.

The Company anticipates posting its audited report and accounts shortly.