Hightex Group Regulatory News (HTIG)

9th June 2014

Hightex Group plc

 ("Hightex" or "the Group" or "the Company")

Results for the Year Ended 31 December 2013

Hightex Group plc (AIM: HTIG), a leading systems designer and installer of large area, cable supported membrane roofs and façades worldwide, announces its results for the year ended 31 December 2013.

Financial Overview:

· Turnover of €9.9 million (2012: €17.1 million)

· Gross profit of €0.6 million (2012: gross profit of €2.4 million)

· Pre tax loss from continuing operations of €2.8 million (2012: pre-tax loss of €1.1 million)

· Loss for the year of €1.7 million (2012: loss of €1.2 million)

· Result per share of a loss of 0.61 cents (2012: loss of 0.43 cents)

· Gross cash balances of €0.9 million (2012: €0.9 million)

· Operating costs fell by €124,000 to €2,385,000. The majority this decrease is explained by cost savings mainly in selling and distribution and in research and development of €0.4 million while unrealized currency losses of €0.3 million almost cancelled out this saving

· Post year end loan facility signed with TCA Global Credit Master Fund LP for up to USD 10million

Membrane and Façade division:

· Installation work on the projects won by Hightex in Brazil was largely completed during 2013, with the final work being executed in the first quarter of 2014.

· The Maracanã Stadium in Rio de Janeiro has already hosted the special opening game in May 2013 and the FIFA Confederations Cup in June 2013, one year ahead of the FIFA World Championship 2014.

· The majority of the Group's revenues in 2013 were earned from contracts in Brazil.

· Difficulties in obtaining financial information and payment from its Brazilian joint venture SEPA Hightex Coberturas Ltda. triggered material uncertainty over Brazilian receivables and difficulties in Hightex's working capital. This was alleviated by the sale of 50.15% of the Group's shares in SolarNext AG during 2013 and by signing a loan facility with TCA Global Credit Master Fund LP for up to USD 10 million in March 2014.

· The Group continues to pursue promising opportunities to win further membrane contracts in the United Kingdom, Continental Europe, the Middle East and the Americas.

Solar Cooling division

· After its strategic review in 2012, the solar cooling business was focused on larger scale industrial applications.

· After significant sales growth in 2012, revenues in 2013 were disappointing, reaching €209,000 (2012: €534,000). As a result the loss at EBIT level increased by €184,000, from €118,000 in 2012 to €302,000 in 2013.

· Sales in the first four months of 2014 have shown a material increase, and SolarNext has already taken orders with a higher value than all of 2013.

· Following the sale of a majority stake as detailed above, the Company now owns 49.85% of SolarNext.

Charles DesForges, Executive Chairman, commented:

"2013 has proved to be a most difficult year for the Company principally as a consequence of operational problems in the Brazilian joint venture company, but the Company successfully took action to alleviate the working capital strains by the sale of 50.15% of the issued share capital of SolarNext and negotiating a loan facility of up to USD 10 million of which USD 1.8 million has been drawn down. Hightex's reputation for innovative expertise in membrane structures, coupled with the gradual improvement in global economic conditions, have led Hightex to submit tenders for several interesting projects and the Directors are cautiously optimistic about one or more contract wins in the second half of 2014".

For further information: 

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, but the year ended 31 December 2013 did not compare well with 2012. Aggregate revenues fell by 42% to €9.9 million. Whereas profitability was restored at the gross profit level, the financial result before tax showed a loss of €2.8 million (2012: loss of €1.1 million).

The directors' firm objective is to continue to work at winning contracts by pursuing active opportunities and thus to achieve a break even EBIT result and positive cash flow in the year ending 31 December 2014.

Financial overview

The environment in which Hightex is operating continues to be most challenging as global economic problems are still present and specific problems in Latin America add to these difficulties.

Difficulties in obtaining financial information from its Brazilian joint venture SEPA Hightex Coberturas Ltda. triggered material uncertainty over Brazilian receivables. In its accounts for the full year to 31 December 2013, Hightex has made a provision for its Brazilian receivables and has included in this provision an estimate for all further anticipated expenses.

The unwelcome consequence of this uncertainty was to exacerbate difficulties in Hightex's working capital. The Board acted to alleviate these difficulties by the sale of 50.15% of the Group's shares in SolarNext AG during 2013 and by signing a loan facility with TCA Global Credit Master Fund LP ("TCA") for up to USD 10,000,000 in February 2014. Following these actions, the delayed interims were announced on 26 March 2014, when the suspension from trading Hightex's shares on AIM was lifted.

In order to help to ensure better corporate governance over its Brazilian joint venture SEPA Hightex Coberturas Ltda. Hightex has changed its representative director at SEPA Hightex Coberturas Ltda. This should give Hightex a better understanding of the joint venture.

Aggregate revenues in the year 2013, which are calculated by the percentage of completion method, fell by €7.2 million to €9.9 million (2012: €17.1 million). The majority of the Group's revenues were earned from its contracts in Brazil, where the 2014 FIFA World Cup competition will take place in June. In addition, the maintenance business earned revenues of €0.2 million (2012: €0.2 million).

The gross profit fell to €0.6 million (2012: €2.4 million) in line with the decrease in sales.

Aggregate operating expenses amounted to €2.4 million, a reduction of €0.1 million from €2.5 million in 2012. While selling and distribution costs were reduced by €0.4 million from €0.8 million to €0.4 million and research and development costs decreased from €0.2 million to €0.1 million, administrative expenses increased by €0.4 million to €1.9 million. The fact that administrative expenses (before the deconsolidation reduction) were increased masks two offsetting features: personnel expenses including the Board management and administrative functions decreased by €0.1 million, but legal and IT expenses increased by €0.1 million. In addition, mainly unrealised currency losses of approximately €0.3 million cancelled out these savings and increased the administrative expenses.

At the EBITDA level, the Group recorded a loss of €1.8 million from the continuing operations (2012: loss of €0.1 million), which represents a set-back for the Group's turnaround efforts. The result before tax for the full year was a loss of €1.7 million after including the profit of €1.1 million on the sale of discontinued operations, compared with a loss before tax of €1.1 million in 2012. Expressed in per share terms, the 2013 result amounted to a loss of 0.61 cents, compared with a loss per share of 0.43 cents in 2011.

Shareholders' funds were €6.3 million, compared with €7.7 million at 31 December 2012. Gross cash balances as at 31 December 2012 were €0.9 million, compared with €0.9 million as at 31 December 2012, of which €0.7 million is restricted (2012: €0.8 million).

Following the year end the Company has secured capital from TCA Global Credit Master Fund LP for up to USD 10 million, of which USD 1.8m was drawn down in March 2014. This has provided much needed working capital as the Board looks to pursue a number of tender opportunities.

Thermal cooling business

After its strategic review in 2012, the solar cooling business was focused on large-scale industrial applications and consequently extended and renamed the thermal cooling business. After significant sales growth in 2012, the revenues in 2013 were disappointing, reaching €209,000 in 2012 compared to €534,000 in 2012. As a result the loss at EBIT level increased by €184,000, from €118,000 in 2012 to €302,000 in 2013.

The market for thermal cooling was adversely affected by the exceptionally cold weather in continental Europe during the spring of 2013. In the second half of 2013, sales continued at a low level because of political uncertainty on the governmental energy policy in Germany. These factors led to most potential customers putting investment plans on hold until the political complexion of the new government became clear. However, in the early weeks of 2014, a major recovery was seen in sales and SolarNext has already taken orders with a higher value than for all of 2013.

As a consequence of the working capital constraints caused by difficulties in Brazil, the Group raised cash in December 2013 through the sale of 50.15% of the issued share capital of SolarNext to a group of investors. Accordingly, as at 31 December 2013 Hightex Group owned 49.85% of the issued share capital of SolarNext, and the accounts therefore reflect the deconsolidation of SolarNext, and its inclusion as an investment in an associate.

The new shareholder group is committed to provide additional working capital to SolarNext to match the expected increase in turnover.

Composition of the Board

Charles Sebag-Montefiore, having served as a non-executive director for eight years, is retiring from the Board at the conclusion of the forthcoming Annual General Meeting. The Board thanks him for his steadfast contribution to the Company during his period in office. The Board intends to appoint a non-executive director as soon as practical.

Prospects and Conclusion

2013 has proved to be a most difficult year for the Company, principally as a consequence of operational problems in the Brazilian joint venture company, which was created in order to be able to bid for contracts associated with the vast stadia renovation and construction programme for the 2014 FIFA World Cup competition. It was particularly pleasing that once again the final game will be played under a "Hightex" roof as was the case in 2006 and 2010 and this is a testament to the engineering excellence for which the Company is renowned. The portfolio of major structures, which the Company has established in various continents over the past 15 years, provides a basis on which future growth can be planned.

New opportunities, which will allow the Company's engineering skills to be fully used, have been identified either indirectly in conjunction with architectural and engineering practices or directly with general contractors. Tenders are being submitted for contracts on which decisions will be made this year and in 2015. The Directors have reviewed in depth the possible obstacles to growth and have concluded that a stronger balance sheet would be of great value in detailed contract negotiation. Ideally this would be the result of agreements on sources of bank finance, either within Europe or in the country/region where the specific projects are located. The global financial problems arising from the economic recession, which started in 2008/09, are still not solved and many small to medium companies have suffered in consequence. One specific solution for Hightex might be to identify a partner with the appropriate financial strength which would complement the well-recognised, innovative construction engineering skills for which the Company is renowned. The Directors continue to investigate this possibility.

As part of a strategic assessment of the future financial needs of the Company, the Directors have reviewed the potential of the thermal engineering technology developed by SolarNext both in terms of the geographical location of markets and the investment required to realise this potential. The difference in technology between that used in SolarNext and its markets and the cable and membrane engineering operation have led the Directors to conclude that it should no longer be the main focus of the Group. It was consequently decided that external investment in SolarNext was essential to finance its growth. In future the Company will hold only a minority stake in SolarNext. Steps to create a separate management team are to be taken in conjunction with the new investors.

Hightex's reputation for innovative expertise in membrane structures, coupled with the gradual improvement in global economic conditions, have led Hightex to submit tenders for several interesting projects and the Directors are cautiously optimistic about one or more contract wins in the second half of 2014.

Charles DesForges

Executive Chairman

Consolidated statement of comprehensive income

For the year ended 31 December 2013

Consolidated statement of comprehensive income (continued)

Other comprehensive income

Consolidated statement of financial position

As at 31 December 2013

Consolidated statement of changes in equity

For the year ended 31 December 2013

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

For the year ended 31 December 2013

Notes to the financial information

For the year ended 31 December 2013

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 2012 and have not changed for the year ended 31 December 2013.

The financial information set out in this announcement does not constitute audited financial statements for the year ended 31 December 2013. The financial information for the year ended 31 December 2012 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 2013 is derived from the financial statements, but does not constitute the Group's financial statements. The Company's auditors have reported on the statutory financial statements for the year ended 31 December 2013 and their report is unqualified, but, with the following emphasis of matter.

Emphasis of matter - Going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in the financial statements concerning the company's ability to continue as a going concern. The financial statements have been prepared on the going concern basis, which depends on the timing of new contracts. These conditions, along with the other matters explained in the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

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 financial information set out in this announcement was approved by the board on 6th June 2014.

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 2014-2015 and for managing their working capital and the continued support of their creditors. In assessing whether the going concern assumption 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. Should the company be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their reasonable amounts, to provide for further liabilities which might arise, and to classify fixed assets as current.

The nature of the business in which Hightex operates creates a degree of uncertainty as to the timing of acquisition and value of new contracts. A number of projects are currently at the tender stage and the directors are confident that new contracts will be awarded to the Group in due course. These include contracts in Americas, the Middle East and in Europe. Based on the directors' estimated probability that the Group will be awarded a proportion of the contracts for which it is currently tendering, this would enable the Group to achieve its forecast revenue and operating result for 2014 and represent a significant proportion of the revenue and operating profit forecast to be achieved in 2015.

Further steps have been taken to reduce substantially operating costs across the Group, with the consequence that the Group now has a lower level at which it is forecast to break even on an EBIT level and a positive cash flow.

The Group finances its working capital through financing facilities with different banks and lenders. The directors have held and continue to hold discussions with the Company's and group companies' bankers and other lenders about future borrowing needs and no matters have been brought to their attention to suggest that facilities currently available to the Group and included in the Group's forecasts, will be withdrawn or the terms changed. As a consequence, the Group's financial forecasts indicate that the Group and Company should be able to operate within its borrowing facilities and have adequate resources for the foreseeable future, being a period not less than 12 months from the date on which these accounts have been signed.

Based on the above, the directors have formed a judgement that the going concern basis should be adopted in preparing the financial statements.

4. Business segments

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. Under 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) Thermal Cooling Business, conducted through SolarNext

As a consequence of the working capital constraints caused by difficulties in Brazil, the Group raised cash in December 2013 through the sale of 50.15% of the issued share capital of SolarNext to a group of investors. Accordingly, as at 31 December 2013 Hightex Group owned 49.85% of the issued share capital of SolarNext, and the accounts therefore reflect the deconsolidation of SolarNext, and its inclusion as an investment in an associate.

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:

In 2013 98% of the Group's external revenue was derived from three customers (2012: 92% from three customers).

5. Share capital

Issued

No new ordinary shares were issued in 2013.

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 2013.

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 was developed for the B.C. Place Stadium in Vancouver, Canada. The innovative component of this development lies in the ability to provide thermal insulation within the roof as and when desired via the retracting mechanism. The demands for energy efficiency and particularly for conservation of energy are increasing each year, and this type of structure has been developed in response to these demands. The potential for the wider use of this technology, specifically developed by Hightex, is judged to be significant.

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:

Office premises in Bernau: In 2011 the Group acquired its office building and the adjacent factory hall in Bernau, Bavaria. These premises bring a liability under a 99-year-lease to make an annual payment to the owner of the land of €24,000 per annum. This lease expires on 26 February 2105.

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 €674,000 (2012: €789,000) 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. Discontinued operations

In December 2013 Hightex Group sold 50.15% of the issued share capital of SolarNext AG, which conducts the Thermal Cooling Business.

12. Nature of financial information

These preliminary results will be available from 9th June 2014 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.