TCN.L Regulatory News (TCN)

 10 June 2014

Tricorn Group plc

Final Results

For the year ended 31 March 2014

"Investing in customer relationships through product innovation

and expansion of international manufacturing capability"

Tricorn Group plc ('Tricorn' or the 'Group'), (TCN.L) the AIM quoted tube manipulation specialist, announces its audited final results for the year ended 31 March 2014.

Key Points

· Revenue up 14.6% to £24.46m

· Sale of Redman Fittings business for £0.6m

· Further progress in China including formation of joint venture

· New business revenues continue to grow in US

· Investment in product development

· Restructure of Energy & Aerospace divisions

· Net debt reduced from half year position

Financial Summary

* All references to operating profit, operating profit margin, profit before tax and EPS are before restructuring costs, China start up costs, acquisition related costs, intangible asset amortisation, share based payment charges and foreign exchange derivative valuation.

Commenting on the year, Nick Paul CBE, Chairman of Tricorn, said:

"The year has proved challenging with expansion in our international manufacturing capability coinciding with necessary structural change. Tricorn has successfully delivered these changes whilst absorbing the costs, which demonstrates the resilience of the Group.

"Tricorn has made significant progress in laying the foundations for long term growth and has made further encouraging progress in strengthening relationships with its blue chip customers. With manufacturing facilities now established in the USA and China, the Group is well positioned to capitalise on the growth anticipated from these regions and as markets recover."

Enquiries:

Notes to Editors:

Tricorn is a value added manufacturer and specialist manipulator of pipe and tubing assemblies to niche markets worldwide in the Energy, Transportation and Aerospace sectors.

Headquartered in Malvern, UK, Tricorn employs around 400 employees and operates through four brands: Malvern Tubular Components; Maxpower; RMDG Aerospace and Franklin Tubular Products.

Chairman's and Chief Executive's statement

Performance in the year ended 31 March 2014

The year has proved challenging with demand lower through the second half of the year when compared to the first half. Nevertheless, the Group has made significant progress in laying the foundations for long term growth and has made further encouraging progress in strengthening relationships with its blue chip customers.

Revenue for the year was up 14.6% at £24.460m (2013 restated: £21.347m). Underlying LBT was £0.343m (2013: PBT £1.614m). Given the results for the year, the Board is not recommending the payment of a final dividend.

The restructuring of the Energy and Aerospace businesses was completed as planned and the Group has continued to focus on maintaining a strong balance sheet. Overall cash inflow in the second half of the year was positive and net debt reduced from the half year position.

Whilst there have been some recent signs of improvements in our markets, the Board remains cautious regarding the Group's short term prospects.

Business Review

The Group operates three main business segments and, following the sale of the Redman Fittings business, is focused on the Energy, Transportation and Aerospace sectors. The businesses serve a global blue chip OEM customer base, many of whom have major facilities in the UK and throughout the world.

Increasingly, as these customers expand their manufacturing footprint, they are looking to develop close relationships with those suppliers who understand their requirements and are able to support their facilities worldwide. It is against this back drop that the Group has made significant progress in establishing a manufacturing capability in the USA and China, in addition to its facilities in the UK. Today, the Group has six manufacturing facilities on three continents with around 90% of the final product ultimately destined for markets outside the UK.

Energy

The sale of Redman Fittings in November 2013 enabled the Malvern Tubular Components business to focus fully on its key capabilities in the design and fabrication of manipulated tubular assemblies for large diesel engines and radiator sets used within the Energy sector. The key markets served through its customers are power generation, mining and oil and gas applications.

With customers reporting weaker demand, particularly in the mining sector, revenue slowed through the second half, and for the year fell to £6.933m compared to £8.568m for the previous year. Costs have been reduced in response to these lower levels of demand with manufacturing now consolidated onto a single site. Markets appear to have stabilised and, while there is some ongoing fragility, the business is now much better positioned.

Transportation

The segment is focused on rigid, nylon and hybrid tubular products for engines, braking systems fuel sender sub-systems and hydraulic actuation in a variety of on and off road applications including construction, trucks and agriculture.

The segment has been considerably expanded with operations now established in the USA and China as well as in the UK.

Revenue for the year was £14.289m compared to £7.011m for the previous year with the segment benefitting both from the full year impact of the acquisition of Franklin Tubular Products in the USA and continued growth in operations in China.

In the UK, new business won has helped to offset slightly weaker underlying demand. Supplier Quality Excellence Process (SQEP) certification awarded by its largest customer has now been upgraded to silver and reflects the continuing commitment of Maxpower to achieving world class operational performance. Significant new business opportunities are being pursued.

In China, the Group has made good progress during the year. The Group's wholly owned manufacturing facility in Wuxi continues to secure new business and to broaden its customer base. The business has achieved excellent quality and delivery performance reflecting both the strong support from the UK and the enthusiasm of the local management team. The joint venture located in Nanjing, which employs around 40 people, became fully operational in September and significantly expands the capabilities in larger diameter tubular assemblies in the region.

In the USA, new business revenues continue to grow. This has included a highly engineered and technically demanding set of tubular assembles for a new transmission system for a new customer and the development of rigid pipe assemblies for the hydraulic actuation market again for a new customer. While this new revenue has not yet offset the impact of the business resourcing decisions that were made by existing customers at the time the business went into receivership and prior to its acquisition by Tricorn, discussions with both existing and prospective clients are progressing well.

Aerospace

This segment supplies rigid pipe assemblies used in a variety of applications principally within the Aerospace sector.

With the contract loss announced in November 2012 impacting revenue, the year was a difficult period with revenue lowering to £3.238m compared with £5.768m for the previous year. Restructuring was completed as planned and underlying losses reduced in the second half of the year. Excellent quality and delivery performance has been maintained with its customers and new business continues to be secured as a result of this performance. Steady progress is anticipated.

Outlook 

The year has proved challenging with revenue being lower than had been anticipated at the start of the year. Nevertheless, with manufacturing facilities now well established in the USA and China, the Group has significantly enhanced its capabilities from a year ago. This expansion of international capabilities aligns the Group as a key strategic supplier to its customers positioning us well to capitalise on the significant growth opportunities in these regions. Further progress is expected as markets recover.

Finance Director's statement

The year to 31 March 2014 has been a year of further change for the Group. Following completion of the sale of Redman Fittings and the acquisition of a 51% share of a joint venture in China, the Group is now focused on supplying pipe assemblies to customers globally. The Group's China subsidiary has continued to grow while the US operation has seen a full year of trading within the Group.

With the acquisition of Franklin Tubular Products occurring close to the prior year end, a number of fair value adjustments were finalised during the current financial year. As a result, comparative results for 2013 have been restated to take into account these fair value adjustments. In addition, comparative results have also been adjusted to show the Redman Fittings business as discontinued.

The Group made an underlying loss before tax of £0.343m (2013: PBT £1.614m) in the year. Given the results for the year, the Board is not recommending the payment of a final dividend.

Income Statement

Revenue for the year increased 14.6% to £24.460m (2013 restated: £21.347m) largely on the back of a full year of revenue from the US acquisition completed at the end of the last financial year. Gross margins were down slightly on last year at 34.2% (2013 restated: 36.5%).

The adjusted operating loss for the year was £0.152m (2013: operating profit £1.668m) and after adjusting for one-off costs the operating loss was £0.808m (2013 restated: operating profit £1.365m), with significant costs around restructuring within the Aerospace and Energy segments, as well as China start-up costs being incurred in the year.

During the year, the Group completed the fair value assessment of the net assets acquired following the acquisition of Franklin Tubular Products in March 2013. As a result the bargain purchase on acquisition increased by £0.267m to £1.098m. This has been shown in the comparative results for 2013 with acquisition related items now at £0.021m and headline operating profit restated to £1.365m.

Finance costs for the year increased to £0.149m (2013 restated: £0.059m). All finance costs incurred relate to short term borrowing and lease finance arrangements. After taking into account the trading operating loss from the joint venture, the Group returned an adjusted loss before tax of £0.343m (2013: profit before tax of £1.614m).

Basic LPS was (2.58)p (2013: EPS 2.98p) and after adjusting for one-off costs, the underlying LPS was (0.75)p (2013: EPS 4.02p).

Cash Flow

During the year, the Group continued to invest in expanding its footprint globally and also in its capabilities. At 31 March 2014 cash and equivalents had increased to £1.284m (2013: £0.697m) and net debt increased to £3.386m (2013: £1.908m) with gearing, based on total net debt, at 49.5% (2013: 23.9%).

Net cash used in investing activities was £0.824m (2013: £2.956m) and included the investment in the Chinese joint venture of £0.413m. The Group continued to invest in growing its existing infrastructure with capital expenditure at £0.714m, which as a ratio to depreciation was 0.97. In addition, the Group spent £0.297m on product development with a new customer. These costs have been capitalised as an intangible asset.

During the year the Group sold the Redman Fittings business for cash proceeds of £0.600m, realising a profit on the disposal of the business of £0.076m.

The Group continues to use short term borrowings to fund all of its activities, with selected capital additions being financed by lease finance arrangements. At the year end, the Group did not have any long term debt finance in place.

Balance Sheet

Total non-current assets at the end of the year were £6.161m (2013: £5.774m). The investment in the Chinese joint venture resulted in an increase of £0.371m, net of trading losses incurred and goodwill reduced by £0.060m as a result of the disposal of the Redman Fittings business.

Intangible assets increased due to the addition of £0.297m for product development costs. Following on from the US acquisition, the Group has been successful in working with a new customer to develop a range of pipework for incorporation into a new transmission system. This development is expected to come into full production during 2014 and, as a result, the Group has taken the opportunity, in accordance with IAS 38, to capitalise these costs on its balance sheet and amortise once production commences.

Net working capital at £4.197m, reduced by £0.364m over the prior year restated position. This was mainly as a result of lower inventory and trade and other receivables.

On translation of the assets and liabilities of its overseas businesses, the Group incurred a loss of £0.226m (2013: £Nil). This is a non-cash movement which is not hedged and is treated as a movement in other comprehensive income. The Group continues to use short term hedging instruments to hedge against foreign exchange movements on transactions where the Group makes sales or purchases in foreign currencies.

Phil Lee

Finance Director

Group income statement

For year ended 31 March 2014

All of the activities of the Group are classed as continuing.

Group statement of comprehensive income

For year ended 31 March 2014

Group statement of changes in equity

For year ended 31 March 2014

Group statement of financial position

At 31 March 2014

Group statement of cash flows

For year ended 31 March 2014

Notes:

1 General information

Tricorn Group plc and subsidiaries' (the 'Group') principal activities comprise high precision tube manipulation, systems engineering and specialist fittings.

The Group's customer base includes major blue chip companies with world-wide activities in key market sectors, including Power Generation, Aerospace, Off Highway, Commercial Vehicles, Agriculture and Automotive.

Tricorn Group plc is the Group's ultimate parent company. It is incorporated and domiciled in the United Kingdom. The address of Tricorn Group plc's registered office, which is also its principal place of business, is Spring Lane, Malvern, Worcestershire, WR14 1DA. Tricorn Group plc's shares are quoted on the Alternative Investment Market of the London Stock Exchange.

These consolidated financial statements have been approved for issue by the Board of Directors on 9 June 2014. Amendments to the financial statements are not permitted after they have been approved.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The group income statement, statement of comprehensive income, the group statement of changes in equity, the group statement of financial position, the group statement of cash flows and the associated notes for the year ended 31 March 2014 have been extracted from the group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2014 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.

2 Accounting policies

Basis of preparation

These consolidated financial statements have been prepared under the required measurement bases specified under International Financial Reporting Standards (IFRS) and in accordance with applicable IFRS as adopted by the European Union and IFRS as issued by the International Accounting Standards Board.

3 Segmental reporting

The Group operates three main business segments:

§ Energy: manipulated tubular assemblies for use in power generation, oil and gas and marine sectors, and innovative jointing systems for use typically within the utility industry.

§ Transportation: ferrous, non-ferrous and nylon material tubular assemblies for use in on and off-highway applications.

§ Aerospace: specialised rigid pipe assemblies for use the aerospace sector.

3 Segmental reporting (continued)

The financial information detailed below is frequently reviewed by the Chief Operating Decision maker.

3 Segmental reporting (continued)

The Group's revenue from external customers (by destination) and its geographic allocation of total assets may be summarised as follows:

4 Earnings per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

4 Earnings per share (continued)

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

There is no dilution to the basic or adjusted loss per share in 2014 owing to a loss for the year being reported

The Directors consider that the following adjusted earnings per share calculation is a more appropriate reflection of the Group performance.

5 Business combinations

As reported in the previous financial year, on 4 March 2013 the Group acquired the trade and assets of Whitley Products Inc, a company incorporated in the USA via an intermediate subsidiary, Franklin Tubular Products Inc, for consideration of $2,994,000.

Due to the proximity of the acquisition to the previous year end, the Directors performed an initial assessment of the fair value of the net assets acquired. Where the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group retrospectively adjusts the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. The measurement period shall not exceed one year from the acquisition date.

IFRS 3 Business Combinations requires that during the measurement period, the acquirer shall recognise adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date. Thus, the Group has revised comparative information for prior periods presented in its financial statements as needed, including making any change in depreciation, amortisation or other income effects recognised in completing the initial accounting. The measurement period adjustments were recorded due to new information obtained by the directors about facts and circumstances that existed at the acquisition date around the valuation of freehold property and inventories.

Those fair value estimates have been revisited during the current financial year and remeasured as follows:

Consideration transferred

The acquisition was settled in cash amounting to $2,994,000 (£1,984,000).

Bargain purchase on acquisition

The gain on the bargain purchase is recognised in prior year profit or loss.

6 Dividends

Given the results for the year, the Board is not recommending the payment of a final dividend.

7 Availability

Copies of this announcement will be available from the Company's registered office, Spring Lane, Malvern, Worcestershire, WR14 1DA, and on its website