Hightex Group Regulatory News (HTIG)

Hightex Group plc

 ("Hightex" or "the Group")

Preliminary Unaudited Results for the Year Ended 31 December 2010

Hightex Group plc (AIM: HTIG), a leading designer and installer of large membrane roofs and façades worldwide, announces its Preliminary Unaudited Results for the year ended 31 December 2010.

Financial Highlights:

·; Turnover up 51% to €30.2 million (2009: €20.0 million).

·; Gross profit up 36% to €5.7 million (2009: €4.2 million).

·; Pre-tax profit up 150% to €2.0 million (2009: €0.8 million).

·; Net cash balances of €4.0 million.

Operational Highlights:

·; Work proceeding well on three iconic stadia with an aggregate contract value of approximately €45.3 million due for completion in the second half of 2011. These are the roof above the Olympic Stadium in Kiev, Ukraine; the fixed and retractable roof over the National Stadium, Warsaw, Poland; and the entire retractable roof and fixed façade on the BC Place Stadium, Vancouver, Canada.

·; Started an inspection and maintenance business, which already has 13 contracts, mostly from customers new to Hightex, but including some former Hightex projects. This new activity will increase Hightex's presence in the market and generate a recurring revenue stream.

·; Memorandum of Understanding signed for a contract in the Middle East, worth approximately €8 million, with a contract expected shortly.

·; Hightex is actively working on tenders for four contracts for the 2014 FIFA World Cup in Brazil.

·; Actively working on numerous further tenders, particularly in the UK, France, the Middle East and South East Asia.

·; Advances in use of new materials including LED illumination in façades.

·; Company has begun active discussions with a potential investor into SolarNext.

Charles DesForges, Executive Chairman, commented:

"In 2010 Hightex delivered a strong performance by increasing its revenues and expanded its scale of operation by 50%, reaching a turnover of €30 million. Frank Molter has built and is leading an effective team of experienced, professional engineers and salesmen, capable of delivering practical solutions to the design and installation of large and complex structures. Exciting new materials, especially LED illumination in façades, will further enhance Hightex's reputation for innovation and technical excellence. The Directors are disappointed that no significant contracts have been awarded in recent months: however, although the shape of Hightex's potential forward order book has not changed, current financial and political developments have had an adverse impact on the timetable for awarding these contracts. Nevertheless, the Directors consider that the work Hightex has undertaken in the last year, and the progress it has made, puts the Company in a sound position to convert a number of these opportunities into firm contracts."

For further information: 

Media enquiries

Chairman's statement

Introduction

2010 has been a very successful year for Hightex, with revenues and profit before tax both substantially increased. We have continued to work on three iconic stadia in Ukraine, Poland and Canada. Additionally we have generated opportunities to tender for significant sporting and civil construction projects throughout the world.

Innovative new materials, high quality engineering systems management and technical excellence underpin our intention to grow the business profitably and maintain our position as a global, innovative leader in the design and installation of large area architectural tensile polymer membrane roofs and façades. In 2010, Hightex made important progress with the materials it uses and their wider commercial use as well as its core service proposition to offer complete roof systems.

Hightex is proud that its work on the façade of the Cape Town Stadium and the roof of the FNB Stadium in Johannesburg was seen by television audiences of hundreds of millions around the world in the summer of 2010, when South Africa hosted the 2010 FIFA World Cup.

Commentary on 2010 results

I am pleased to report that in the year ended 31 December 2010, Hightex increased turnover significantly to €30.2 million (2009: €20.0 million), an increase of 51%. I am also delighted to report that gross profit increased from €4.2 million to €5.7 million in 2010, and that profit before tax, after all charges, reached €2.0 million (2009: €0.8 million), representing an increase of 150%.

Revenues were earned from several globally recognised projects including the roof above the Olympic Stadium in Kiev and the fixed and retractable roof over the National Stadium, Warsaw, Poland (both of which are to be used for the UEFA EURO 2012 Championship, to be hosted by Poland and Ukraine) and the retractable roof and fixed façade on the BC Place Stadium, Vancouver, Canada. The aggregate value of these three contracts to Hightex is approximately €45.3 million.

Additionally, Hightex has started an inspection and maintenance business for membrane roofs and façades. Currently, 13 contracts have been signed, mostly from customers new to Hightex, but including some former Hightex projects:  these are expected to add revenues of approximately €0.3 million in a full year. The Directors consider that this new business will further develop Hightex's reputation for technical and engineering excellence.

Aggregate operating expenses rose from the rigorously low level in 2009 of €2.7 million to €3.3 million in 2010. Hightex hired additional engineers, in order to manage three large projects and to develop the Company's competences, and further salesmen in order to help to drive future growth.

Shareholders' funds rose to €12.2 million (2009: €10.8 million) as a result of the net profit retained, after tax. Cash balances as at 31 December 2010 were €4.0 million (2009: €4.6 million).

Solar cooling business

The solar cooling business offers an environmentally friendly way of cooling and heating homes, offices, commercial and other premises using the renewable power of the sun instead of electrical energy generated from burning fossil fuels. The system, which is available in kit form, is managed by an innovative multi-function system controller and can be retro-fitted to many kinds of thermal generation equipment. It has a clear commercial appeal and offers a cost-effective benefit to a wide range of potential customers. However, over recent years, Hightex has had to devote most of its available working capital to increasing its membrane business and thus has not invested heavily in SolarNext.

In the year ended 31 December 2010, SolarNext earned modest revenues of €0.3 million. Management estimate that, based on its currently available working capital, this business will make a loss before tax in 2011 of approximately €0.3 million and move into profit in 2012. An engineer has recently been hired and it is intended to recruit a salesman and an installer shortly to help drive the business forward.

The Directors are aware of significant commercial opportunities for SolarNext and are convinced that, with adequate working capital, SolarNext could realise its potential more swiftly. Accordingly, the Directors have begun active discussions with a potential investor into SolarNext in order to finance and help to develop this business into the next phase of larger scale commercialisation. An announcement will be made as soon as appropriate.

Prospects

Hightex has focused its membrane activities within its traditional range of capability - sports stadia, shopping malls, airports and other large area structures - in four geographical areas: South America, Europe, the Middle East and South East Asia.

The chief focus in South America is Brazil, which is to host the 2014 FIFA World Cup, and where Hightex has a full time presence. Twelve stadia are due to be refurbished or built from scratch, of which Hightex has identified four which are technically complicated and play to the company's strengths. So far, only one of the twelve contracts (for a polycarbonate roof) has been awarded: Hightex did not tender for this contract. The Board believes that, when the contracts are in due course awarded, its technical and engineering reputation for excellence will stand the Company in good stead.

Hightex has signed a Memorandum of Understanding for a contract for a stadium roof in the Middle East, worth approximately €8 million, and is hopeful that this will soon convert into a signed contract. In other parts of the Middle East, current political events have unfortunately led to the disappearance of a very substantial contract, which was in the final stages of negotiation. In Europe (chiefly France and the UK) and in South East Asia, Hightex continues to work on a number of sizeable forthcoming tenders for sports stadia.

Hightex is fully occupied with the introduction of new materials and innovative coatings, chief of which is a Light Emitting Diode ("LED") device which will enable a passive façade to become an active, multi-pixel, gigantic screen for the purpose of giving information, putting advertising on view and displaying artistic designs. Several potential customers have shown considerable enthusiasm for this development and full scale trails are planned for later this year.

Hightex is also moving increasingly to tendering for the entire roof system instead of only the design, fabrication and installation of the membrane element. This will allow Hightex to capture larger contracts as a systems provider and give it more operational control over its contracts.

The delay in the award of contracts has inevitably led to a reduction in the revenues which can be achieved in 2011. This delay does not signify permanent loss, but rather postponement of revenues into 2012 and beyond. The Directors now believe that revenues currently visible in 2011 will be in the region of €24 million, but that this figure is capable of increase if certain potential contracts are won before the end of the year. At this reduced level of revenues, the Company is still profitable.

Conclusion

In 2010, Hightex made great strides. Revenues increased by 51% from €20.0 million to €30.2 million and pre-tax profit increased by 150% from €0.8 million to €2.0 million. I warmly thank my colleagues on the Board as well as every member of staff for their considerable efforts which have contributed to this improved performance.

The Group is involved in the construction of three iconic stadia that represent existing contracted revenues. In recent months Hightex has not been immune to the political unrest in some parts of the Middle East and in the last twelve months no significant profitable contracts have been awarded in the regions we have targeted. We are working hard on winning sizeable contracts in Brazil, Europe, the Middle East and South East Asia, with some tenders submitted and decisions awaited. Exciting new materials have been developed which should further enhance Hightex's prospects in keeping it at the forefront of stadia roof and façade design and engineering. The Directors believe that the discussions with a potential investor in the solar cooling business could come to fruition during the current year, allowing that business to grow significantly.

The Directors believe that the Group has grown its scale of operations successfully and, combined with the nature of its potential forward order book, looks forward to further progress in 2011 and beyond.

Charles DesForges

Executive Chairman

Consolidated statement of comprehensive income

For the year ended 31 December 2010

Consolidated statement of comprehensive income (continued)

Other comprehensive income

Consolidated statement of financial position

As at 31 December 2010

Consolidated statement of changes in equity

For the year ended 31 December 2010

Consolidated statement of cash flows

For the year ended 31 December 2010

Notes to the Financial Information

For the year ended 31 December 2010

1 Basis of preparation

The Group financial information is presented in its functional currency; Euros ("€") because the Group is expected to transact more of its business in Euros than any other currency.

The Group and Company financial statements have 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 Companies Act 2006. The financial statements have 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.

The Board has reviewed the accounting policies set out in the Financial Statements and considers them to be the most appropriate to the Group's business activities.

The directors do not propose a dividend in respect of the year ended 31 December 2010 (2009: nil).

The preliminary announcement for the year ended 31 December 2010 was approved and authorised for issue by the board of directors on 12 April 2011. The financial information set out in this preliminary announcement does not constitute audited financial statements for the years ended 31 December 2010 or 2009. The financial information for the year ended 31 December 2009 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, 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 2010 is derived from draft financial statements. The audit of the statutory accounts for the year ended 31 December 2010 is not yet complete. These accounts will 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.

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 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 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.

* Due to the sale of 20% of shares of MSK, the operating segment (Metal working business)

is no longer reported. MSK is accounted as an investment in associate.

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:

85% of the Group's external revenue was derived from three customers (2009: 63% from two customers).

4 Other financial assets

Other financial assets in an amount of €432,000 (2009: Nil) relate to an insurance policy which offers a guaranteed claim of refund, as well as an annual return of 5%. €399k of this amount (2009: Nil) has been assigned as an advance payment bond on a project.

5 Share capital

(a) Issued

(b) Share options

As of 31 December 2010 no options were exercisable (2009: none). The share options outstanding at the end of the year expire on September 22, 2019. The weighted average fair value of the share options amounts to 0.02413 pence. The shares are dominated in sterling.

The fair value of the share options granted has been calculated using the bi-nomial option-pricing model individually applied to each category of options granted and modified by the application of a Monte Carlo simulation to reflect the calculated uncertainties of the share pricing triggering the relevant target prices and to adjust the "vesting" period to the theoretical time over which the share price might be expected to achieve the relevant market facing conditions. The inputs into the model were as follows:

The expected volatility represents management's best estimate given the lack of historical information available regarding share price volatility. The management decided to use the volatility of the last 6 months before the statement of financial position date. The share price varied between 7.25 pence and 9.00 pence.

The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome.

The share option scheme is an equity settled plan and fair value is measured at the grant date of the option.

On 31 December 2010 and as at the date of this document, the Company had outstanding warrants to subscribe for 750,000 (2009: 1,878,750) new ordinary shares as follows:

The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome.

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 Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

All amounts have been charged to the Consolidated Statement of Comprehensive Income.

The Group has tax losses which arose in Germany of €5,250,000 for Corporate Income Tax (CIT) and €3,762,000 for Municipal Trade Tax (MTT), that are available to be offset against future taxable profits of the companies in which the losses arose. These losses can be carried forward indefinitely.

Due to the international nature of the business and the location of the construction projects abroad tax losses for MTT will not be recovered in the foreseeable future. As a consequence the Group accounts for a reserve for the respective deferred tax asset.

These amounts have been classified in the Consolidated Statement of Financial Position as follows:

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of unused tax losses of approximately €9,354,000 (2009: €8,142,000) which are available for offset against future taxable profits. Deferred tax assets have not been recognised due to the uncertainty of the utilisation of these losses. The losses can be carried forward indefinitely.

8 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 2010.

9 Commitments under operating leases

As at 31 December, the Group had annual commitments under non-cancellable operating leases as follows:

Office premises in Rimsting: The Group entered into a rental agreement to rent its office premises in Rimsting, Bavaria and paid €82,000 (2009: €86,000) in relation to this agreement during the year ended 31 December 2010. This lease expires on 31 December 2011.

Adjacent factory building in Rimsting: An amount of €83,000 (2009: €165,000) was paid to KM Immobilien for the rent of the adjacent factory building in Rimsting under a lease which expires on 30 September 2012. Since 1 June 2010 the annual rent was agreed at €30,000.

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 €2,792,000 (2009: €2,379,000) 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 13 April 2011 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.