MPAY.L Regulatory News (MPAY)

Thursday, 22 March 2012

Autoclenz Holdings Plc

Preliminary Announcement of Results for the year to 31 December 2011

Highlights

·; Stable revenues in a continuing difficult business environment

·; Significant progress towards final settlement of Measham case

·; Operating profit (adjusted for amortisation of intangibles, share option related charges and non-recurring costs) of £1.27 million (2010: £1.35 million)

·; Earnings per share (adjusted for amortisation of intangibles, share option related charges and non-recurring costs) 8.65 pence (2010: 9.0 pence)

·; Consolidated Income Statement shows loss before tax £0.26 million (2010 : £0.13 million profit) with basic loss per share 1.73 p (2010: 0.83p profit)

·; Continuing strong cash generation with net debt reduced to £0.3 million (2010: £0.8 million)

·; Final dividend of 1 pence (2010: 1 pence)

Chairman James Leek commented:

"We are pleased to report a further year of stable revenues alongside difficult market conditions. Having put behind us the legal and related costs of the Measham case and stopped the property cleaning losses our aim is to continue to deliver a satisfactory financial performance in 2012."

STATEMENT BY THE CHAIRMAN, JAMES LEEK

Results

We are pleased to report that performance in the second half of the year has been somewhat better than we anticipated when we released our cautious trading and legal update in November 2011.

Underlying operating profit (defined as in previous years before amortisation of intangibles and share option related charges) but also before non-recurring costs of £0.4m for the Measham case and HMRC assessments was at the top end of our expectations at £1.27million (2010: £1.35 million).

This has been achieved in a continuing difficult business environment with new car registrations showing a further decline of over 4%.Taking this into account, we believe that the results for the year are credible and underline both the value of our product offerings and the financial strength of our company with its £26 million of total sales and a very low level of bank debt.

Adjusted earnings per share, applying a standard tax charge of 26% to the underlying operating profit after interest of £1.21m are 8.65pence (2010: 9.0 pence). The accompanying Financial Review reconciles underlying profits as stated above with the statutory figures in the Consolidated Income Statement which show: operating loss £0.2 million (2010: £0.22 million profit) loss before tax £0.26 million (2010: £0.13 million profit) and basic loss per share of 1.73 pence (2010: 0.83 pence profit).

Operating Review and Segmental Analysis

We continue to operate our activities in two distinct segments:

·; Automotive Services (incorporating Autoclenz/PINNACLE valeting, AC SMART, READY TO RENT and MOVEMENTS

·; Specialist Cleaning Services/REACT

Automotive Services

Despite intense price pressure and a lack of underlying growth in the market we are pleased to report that we exceeded our internal budgets with sales and gross profit of £25 million and £5.3million respectively, which is broadly consistent with 2010. We successfully renegotiated and retained two of our major customer contracts - one in the auction sector and the other in our PINNACLE valeting business. Despite some reduction in margin this gave us longer term stability and in the case of PINNACLE additional annualised sales of over £1million.

Our MOVEMENTS collection and delivery business has continued to go from strength to strength after overcoming the teething costs in 2010 of the major Northern expansion. It fits neatly with our READY TO RENT business which has suffered from recessionary markets.

Our SMART Repair business has significantly improved its profit contribution and we continue to see this as an important growth opportunity.

As ever, we have no lack of competition and in recessionary times those who cut corners and offer uneconomic pricing may make short term gains. We believe in maintaining our reputation for the highest quality and presentational standards (as confirmed by independent market research commissioned by us) and this gives a real benefit both to our automotive customers and their retail and fleet customers. We believe our strong financial position and adherence to high professional and ethical standards helps us maintain our leadership position in automotive valeting.

We have a number of positive initiatives in place for the current year:

·; Additional sales resource will be devoted to growing our SMART business where we have identified a number of opportunities. We will continue to make a similar investment in our MOVEMENTS/READY TO RENT business to build on the additional contribution which we believe exists in all three of these businesses.

·; Enterprise teams have been set up to drive for value added services in our existing customer base, allowing our valeting Salesforce to concentrate on seeking new customers.

·; Key Performance Indicators with operational and financial benchmarks have been rolled out throughout the company. The combination of KPI's and management development programmes together with detailed profit and loss accountability are key to the business model and delivering the objectives of the company; they enhance both our customer's experience from using our services, and the company performance and profitability whilst maintaining our valuable business model over the longer term.

·; We have successfully invested in external training for senior management, and this is now being extended down to the next tier. Over the past years all of our management team have managed the business through difficult and trying times. The actions we have taken collectively have allowed us to retain customers and improve their experience. These collective efforts have enabled us to overcome these recent challenges and leave us with a cash generative business, with a low level of external debt which is forecast to be repaid within the next 18 months.

Specialist Cleaning

Sales and gross profit from these activities increased in aggregate to £1.7million (2010: £1.4million) and £0.8million (2010: £0.7million) respectively. However a much improved performance from our traditional REACT Rapid Response/decontamination business was unfortunately more than offset by unacceptable losses of £0.17m from React Property Services which provides cleaning and clearance for housing associations and local authorities. As explained in our November update all these unprofitable activities have now been curtailed.

The Measham case -the final chapter

We have endured significant costs and disruption from the Measham case which started with an industrial tribunal in 2008 and ended with the unfavourable Supreme Court judgment in July 2011. We are pleased to report that we have made significant progress towards concluding negotiations with various parties in recent weeks.

We have agreed assessments in principle with HMRC and accrued for the resultant liability for PAYE and NIC. We have now received the financial claims from our valeters who brought the case and from their legal team - whilst these are still the subject of ongoing negotiation and robust arguments in our favour, we have continued to accrue for what we believe will be a realistic settlement with the parties concerned. The cost of expenditure and accruals made in the 2011 year were £0.4 million (2010: £68,000) which covers both parties legal costs, HMRC assessments and claims from valeters. Whilst one can never be certain of this until final agreement is reached, we do believe that any future variance from this accrual level will not be material in the context of our ongoing results.

As stated above, the total cost of accruals and expenditure charged against the 2011 operating profit for the above matters is the very significant amount of £406,000. Apart from the financial cost, this whole affair has been a very serious disruption and expenditure of senior management time. With matters now largely concluded we are delighted to be able to refocus our full energies on improving our financial performance and growing our company.

Finance and dividend

Our long record of good cash generation has continued with year - end net debt at an historic low of £0.3m (2010: £0.8m) which makes us one of the strongest companies in our industry. Being listed on the AIM market with its detailed reporting requirements does of course give our private company competitors a lot of useful knowledge about our performance and strategies, and also entails a degree of extra overhead and management resource. We continue to monitor this particularly in the light of the relatively low market valuation accorded to a number of profitable smaller AIM companies like us.

We expect another year of good operating cash generation which should more than cover the accrued liabilities of some £0.5m which will fall due for payment on completion of the negotiations referred to above. Interest charges fell to £58,000 with interest cover of 21 times based on our underlying operating profit. We enjoy a continuing good relationship with our bankers HSBC who during 2011 renewed our working capital facility of £3m until June 2014.

We are pleased to propose again a final dividend of 1.00 pence per share (2010:1.00 pence). Subject to approval at the AGM to be held on 16th May 2012, this dividend will be paid on 1st June 2012 to shareholders on the register at 27th April 2012 and the shares will become ex-dividend on 25th April 2012.

Outlook

We are not anticipating any significant improvement in market conditions. Having put behind us the legal and related costs of the Measham case and stopped the Property Cleaning losses our aim is to deliver a satisfactory financial performance.

James Leek

Non-Executive Chairman

FINANCE REVIEW BY THE GROUP FINANCE DIRECTOR, TREVOR CLINGO

Overview

An Operational Business Review of the year is set out in the Chairman's Statement preceding this review, however the financial results for the year ended 31st December 2011 can be summarised as follows:

*Underlying Operating Profit before Interest is calculated before amortisation of intangible assets and one off expenses of £406K (2010: £68K) incurred for the Measham Case and HMRC assessment. The Board believes this profit figure provides a better understanding of the Group's performance.

Revenue

Revenue increased during the year by 1.1% to £26.6 million. Automotive Services revenue was unchanged at £24.9 million. During 2011 contracts with British Car Auctions and Mercedes Retail (UK) were renewed for 3 years and 2 years respectively. Revenue was increased with other major customers such as Europcar. The customer attrition within Automotive Services was higher than the previous 2 years but has been more than off-set in revenue terms by new business gained.

Automotive Services revenues in the second half of 2011 shows 4% growth from the first half of the year and is also 3.6% higher than the second half of 2010 leaving me with confidence as we move into 2012.

Specialist Cleaning revenues are 20.4% higher than 2010 at £1.66 million. This does include some loss making Property Services contracts that have now ceased as reported in the update on 8th November 2011.

Gross Profit

In the reporting period a gross profit of £6.1 million (2010: £6.2 million) gave rise to a margin of 23.1% (2010: 23.4%).

The margin within Automotive Services declined slightly to 21.4% (2010: 22.0%).

As in 2010 the entire Automotive Sector was highly competitive during 2011. Price reductions were experienced in some accounts, they have been offset primarily by improving efficiency and reducing costs in some of the poorer performing accounts, most notably within Northern Movements as already reported in the November update.

Specialist Cleaning Services saw its gross margin decrease to 47.6% (2010: 49.5%). The proportion of Property Services sales increased to 31% (2010: 12.3%). These services are priced at a lower margin than Clinical or Rapid Response cleans hence the 1.9% fall in margin.

Underlying Operating Profit before Interest

After taking into account the additional costs incurred defending the Measham Case and HMRC review that was running alongside it the underlying profit before interest was £1.273 million (2010: £1.353 million).

As in previous years the underlying operating profit is after the non cash accounting adjustment for amortisation of Intangible Assets (£1,070,000) (2010: £1,070,000).

Interest

Interest charges reduced by £26,000 to £58,000 (2010: £84,000). Interest cover has improved to 21.9 times (2010: 16.1 times) when calculated on the underlying operating profit.

Taxation

The underlying effective rate of taxation in the period on profit before amortisation of intangible assets is 24.4% (2010: 28.7%).

Earnings per share

Basic loss per share for the period was 1.73 pence (2010: 0.83 pence profit). The basic earnings per share on the underlying profit was 8.56 pence (2010: 11.12 pence). The earnings per share, applying a standard tax rate of 26% to the underlying operating profit after interest of £1,215,000 is 8.65 pence (2010: 9.0 pence).

Dividend

The Directors will recommend a final dividend of 1.0 pence per share (2010, 1.0 pence) at the Annual General Meeting on 16th May 2012, to be paid on 1st June 2012 to shareholders on the register at 27th April 2012. The date the shares become ex-dividend is 25th April 2012.

Cash Flow

Net debt reduced by £476,000 (2010: £726,000). The closing net debt as at 31 December 2011 is £274,000 (2010: £750,000).

Reconciliation of the debt movements is summarised in the table below. Further details of the breakdown of net cash from operating activities can be found in note 7.

Banking Facilities

On 23 May 2011 the £3 million working capital facility provided by HSBC was formally agreed and extended to 30th June 2014.

The funding is a revolving credit facility and there are two financial covenants to be complied with quarterly. The financial covenants are:

1) Interest to be covered 8 times by EBITDA

2) Ratio of Net Debt to EBITDA to be lower than 1.25

Both covenants have been comfortably met throughout the year and are forecast to be met throughout 2012.

Key Performance Indicators

Key Performance Indicators are used by the Board and Senior Management to monitor progress against targets on a monthly basis. The major KPI's used in 2011 were:

The shortfall in the Gross Margin target was a direct consequence of price pressure due to the combination of a high level of competitor activity and the renewal of major contracts at lower prices.

The KPI's and the targets continue to be monitored for their relevance in a changing market. Individual performance measures have been set with all Senior Management in 2012.

Principal Risks and Uncertainties

There are a number of risks and uncertainties which could impact the Groups long term performance. The Board has a process to identify, manage and mitigate risk. The principal risks are considered to be:

Going Concern Basis

The Group's business activities, together with the factors likely to affect its future development and performance are set out in the Chairman's Statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described earlier in the Financial Review. In addition to this full details of financial instruments, credit risk and liquidity risk are included in note 24 to the primary financial statements in the full Annual Report.

In July 2011 the Supreme Court directed that the 20 valeters engaged at one specific site should be granted employment status. This was implemented from 1 August 2011 for all of the original 20 claimants who were still operating at that site. Negotiations continue with those valeters to settle their back claims for various payments including holiday pay. Accruals have been made for settlement and legal costs. In tandem with the legal case HMRC has conducted an assessment of the employment Tax status of Autoclenz Ltd operators. HMRC have concluded their enquiry and their finding was that only the 20 Measham claimants were considered to be employees of Autoclenz. The 2011 accounts include a full accrual for taxation and national insurance for the 20 claimants.

As highlighted in the Financial Review the Group meets its day to day working capital requirements through a revolving credit facility of £3 million which was renewed for a period of 3 years ending 30 June 2014.

The Group has forecasts and projections for the 12 months ahead, including cash outflows in relation to the situations noted above, that indicate that the Group will operate within these facilities throughout that period.

After making enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Annual Financial Statements.

Trevor Clingo

Group Finance Director

21 March 2012

Consolidated statement of comprehensive income

For the year ended 31 December 2011

The results for the period are derived from continuing operations.

Consolidated statement of financial position

As at 31 December 2011

Consolidated statement of changes in equity

For the year ended 31 December 2011

Consolidated statement of cash flows

For the year ended 31 December 2011

Notes to the Consolidated Financial Accounting Statements

1 Segmental analysis

The identification and analysis of the reportable segments under IFRS 8 are as below.

The Group does not allocate all operating costs to the segments identified above, and these unallocated costs are separately identified above.

Assets and Liabilities are not split by segment. The nature of the services provided is such that the return on capital is not a useful measure. The low value assets are not apportioned across the various businesses and the ledgers for payables and receivables are not segmented. Geographically the Group operates solely in the UK and as such revenue, costs, assets and liabilities all originate and are held in the UK.

2 (Loss)/profit on ordinary activities before taxation

(Loss)/profit on ordinary activities before taxation is stated after charging/(crediting):

3 Tax

The standard rate of tax for the period, based on the UK standard rate is 26% (2010: 28%). The actual tax charge for the current and previous period differs from the standard rate for the reasons set out below in the following reconciliation:

4 Earnings per share

There is no dilutive effect on the earnings per share in respect of share options as the exercise price is higher than the share price.

5 Current Liabilities

6 Borrowings

7 Cash flow

Reconciliation of operating (loss)/profit to net cash inflow from operating activities

8 Reconciliation of movement in shareholders' funds

9 Reconciliation of net cash flow to movement in net debt

10 Analysis of changes in net debt

11 The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

12 The Annual Report is to be published and sent to shareholders shortly. Copies will be also available on request from The Company Secretary, Autoclenz Holdings Plc, Stanhope Road, Swadlincote, Derbyshire, DE11 9BE and will also be available on the Company web-site: www.autoclenz.co.uk.

13 The Annual General Meeting will be held at the Company's registered office: Stanhope Road, Swadlincote, Derbyshire, DE11 9BE at 11.30am on 16 May 2012.