TCN.L Regulatory News (TCN)

31 March 2021

Tricorn Group plc

Unaudited Preliminary Results

for the 18 month period ended 30 September 2020

Tricorn Group plc ('Tricorn', 'Company' or the 'Group'), (AIM: TCN.L) the tube manipulation specialist, announces its unaudited preliminary results for the 18 month period ended 30 September 2020.

Summary

· Change of accounting reference date to 30 September, resulting in an 18 month reporting period

· Results significantly impacted by COVID-19 pandemic

· All Group facilities operational from April 2020 after a short period of closure

· Completed the investment in a painting line in the USA

· Successfully completed a Placing and Open Offer of new ordinary shares at 10p per share raising £1.34m (net of costs), strengthening the balance sheet and providing working capital headroom

· Secured Government funding in the UK and the USA for £1.0m and $0.7m respectively

· Took advantage of the furlough schemes in the UK and the USA

· Appointment of new Group Finance Director triggered a performance review and right sizing of the Group's balance sheet

· Governance and controls significantly enhanced

· Organisational changes at senior level have reduced costs and created a platform to drive forward the enhanced strategy

· Customer demand improving and margins normalising to expected levels

· Good liquidity and capacity within the Group's financing facilities to support growth

· Cash and cash equivalents of £0.7m at 30 September 2020. The Group's cash and cash equivalents as at 30 March 2021 were approximately £1.1m

Financial Overview

* References to adjusted EBITDA, (loss)/profit before taxation and adjusted earnings per share are before intangible asset amortisation, goodwill impairment, Rabun Gap start-up costs and share based payment charges

** Before hire purchase agreements and finance lease liabilities of £3.2m (mainly arising from the adoption of IFRS16 liabilities of £2.9m).

Commenting on the results and the Group's prospects, Andrew Moss, Chairman of Tricorn, said:

"Since February 2020, as a result of the global pandemic, Tricorn has experienced an extended period of challenging markets and turbulent trading. We have made significant changes to our senior executive team, who are focused on improving our operations and implementing new commercial strategies. Customer demand is steadily improving which is a welcome sign that the Company is returning to pre-pandemic levels of production activity.

We anticipate that the impact of COVID-19 and the shipping delays of imported material will continue to put pressure on labour costs and associated labour productivity in the near term, but with a re-energised leadership team, a credible balance sheet and funding arrangements that support future growth, Tricorn is well positioned to manage these headwinds and further improve its operational performance with its customers."

The Group's audited final results for the 18 month period ended 30 September 2020 are expected to be published in June 2021.

Enquiries:

Tricorn Group plc www.tricorn.uk.com

Andrew Moss, Chairman Tel +44 (0)7768 306 701

Michael Stock, Chief Executive and Group Finance Director Tel +44 (0)7894 784 106

Shore Capital Tel +44 (0)20 7408 4080

Tom Griffiths/David Coaten/Henry Willcocks

Notes to Editors:

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

Headquartered in Malvern, UK, Tricorn employs approximately 240 employees and has five manufacturing facilities in the UK, USA and China.

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With publication of this announcement this information is now considered to be in the public domain.

Chairman's statement

Performance in the 18 month period ended 30 September 2020

As a result of the impact of COVID-19, the Group changed its accounting reference date from 31 March to 30 September and this report therefore relates to the 18 month period commencing on 1 April 2019 and ending on 30 September 2020 (the "Period").

The first six months of the Period commenced with encouraging trading conditions but, by the end of this six month segment, UK markets were slowing. In the USA, whilst volumes were holding up, margins were under pressure from tariffs imposed on imported goods from China. The Group successfully completed its investment in a painting facility in the USA providing the capability to bring in-house painting processes previously out-sourced. This has provided both manufacturing cost savings and lead time reductions and is welcomed by our customers.

Trading during the second six-month period was initially in-line with the outlook presented with our interim results for the six months ended 30 September 2019, namely that UK markets were at a low ebb and US markets were weakening. We took measures to reduce our cost base to reflect lower levels of activity, but remained optimistic about the opportunities for the Group. On 5 February 2020, we successfully completed a placing and open offer of new ordinary shares raising net of costs, £1.34m. The planned use for these funds was to: strengthen the balance sheet; provide working capital headroom to enable growth opportunities to be pursued across the Group; and fund capital expenditure on a new manufacturing capability in the USA.

During February 2020, the first impact of COVID-19 was experienced by our joint venture business in China. Many businesses in China, including our own, were prevented by the Chinese Government from re-opening after the Spring Festival. However, our facility remained closed for only two weeks with local management successfully working with Government officials to put in-place COVID-19 secure measures to protect the work force. The joint venture has traded strongly since then with no further COVID-19 related disruption to activities.

We now realise that the unprecedented impact of COVID-19 on the global economy and our daily lives was first evidenced by the issues in China and associated supply chain disruption at our major customers in the early part of March 2020. For Tricorn, this meant short notice changes in demand schedules, both decreases and increases, with consequent adverse impacts on labour utilisation and working capital.

Both Tricorn's UK facilities were temporarily closed on 25 March 2020 amidst safety concerns for employees and following serious disruption to supply chains and numerous customer closures. The Group's USA facilities closed a few days later with similar concerns and challenges. Most of the Group's UK and US employees were furloughed from the end of March 2020, with the remaining key staff focused on ensuring that the Group's facilities were in full compliance with the latest Government guidelines to allow an early and safe restart once supply chains and customer demand were re-established.

As we entered the third six month period in April 2020, we were focused on preparing for the re-opening of our manufacturing facilities whilst implementing measures to protect all our employees in accordance with best practice. The Group's UK and US facilities reopened and have remained open, from 20 April 2020 onwards, albeit with reduced staffing levels and employees continuing to work from home wherever possible.

We also put in place a number of measures to protect our cash position. These included utilising the UK Job Retention Scheme and the USA furlough scheme. We obtained a $0.7m loan under the USA Payroll Protection Program, which post-Period end we were informed has been forgiven. The Group also obtained an additional £1.0m of funding through the UK Government's Coronavirus Business Interruption Loan Scheme ("CBILS") facility from its existing bank, HSBC and more recently, in March 2021, secured an additional £0.5m from the CBILS Invoice Discount Top Up Facility with HSBC which is backed by a UK Government guarantee.

On 16 June 2020, the Company announced the appointment of Michael Stock as Group Finance Director, replacing Philip Lee who had been with the Group for 11 years. Michael Stock joined the Group on 3 August 2020 and, following a review of the capabilities of the finance team, determined the need to hire a new, stronger and more experienced team. Under his leadership, this new team conducted an internal review of the performance of the Group and various matters came to light in the preparation of the Group's financial statements for the Period. These were announced on 16 November 2020 with further updates being made in December 2020 and January 2021. Further details on these matters are provided in the Chief Executive and Group Finance Director's Report below.

Revenue and loss before taxation were significantly impacted by the events and issues of the past 18 months that are described above. Revenue of £25.4m for the Period compares to £22.8m for the 12 months ended 31 March 2019. Loss before taxation was £7.7m (2019: profit £1.0m).

People

On 11 January 2021, the Company announced that Mike Welburn, after 13 years as Chief Executive, was stepping down from the Board with immediate effect and that Michael Stock, would take on the combined role of Chief Executive and Group Finance Director. In addition, David Leakey, who joined the Group as Sales Director in 2011, was appointed Group Sales and Operations Director with immediate effect.

The Board would like to take the opportunity to thank all our employees for their hard work and support throughout this difficult period. Their commitment and dedication ensure that we continue to drive the business forward and deliver quality products to our customers.

Outlook

Since February 2020, as a result of the global pandemic, Tricorn has experienced an extended period of challenging markets and turbulent trading. We have made significant changes to our senior executive team, who are focused on improving our operations to strengthen our commercial opportunities for growth. Customer demand is steadily improving which is a welcome sign that the Company is returning to pre-pandemic levels of production activity.

We anticipate that the impact of COVID-19 and the shipping delays of imported material will continue to put pressure on labour costs and associated labour productivity in the near term, but with a re-energised leadership team, a credible balance sheet and funding arrangements that support future growth, Tricorn is well positioned to manage these headwinds and further improve its operational performance to its customers.

Andrew Moss

Chairman

31 March 2021

Chief Executive and Group Finance Director's statement

Operational Review

The Group has five manufacturing facilities across the UK, USA and China. These locations make Tricorn ideally positioned to support its blue-chip OEM customer base, many of whom are seeking to localise supply and technical support for their facilities in these key regions. At the start of the Period, the Group consolidated its brands with Franklin Tubular Products Inc and the more recently announced expansion at Rabun Gap together operating as Tricorn USA with Malvern Tubular Components Limited and Maxpower Automotive Limited trading under the common identity of Tricorn UK. The joint venture in China remains as Minguang-Tricorn Tubular Products Nanjing Limited. Reporting is now on a geographic segment basis.

Tricorn UK

The Group has two manufacturing facilities in the UK, located in West Bromwich and Malvern. The Malvern facility specialises in the design and manufacture of larger tubular assemblies and fabrications for engine, cooling and generator set applications. Its customer base serves the power generation, oil and gas, mining and marine application markets. The West Bromwich site is focused on rigid, nylon and hybrid tubular products for engines, hydraulic actuation, transmission lubrication and fuel sender sub-systems. Key end markets are on- and off-road applications, including construction, trucks and agriculture.

Demand through February 2020 had started to slow in the UK with further softening thereafter as some customers experienced supply shortages from China. However, the situation deteriorated rapidly through March 2020. As set out above, both Tricorn UK facilities were temporarily closed on 25 March 2020 amidst safety concerns for employees and following serious disruption to supply chains and numerous customer closures. The facilities were reopened from 20 April 2020 onwards and have remained open since. Markets gradually started to improve towards the end of the Period albeit with some ongoing supply chain concerns.

Revenue for the 18 month trading period of £15.3m was 8.5% up on the corresponding 12 month period (March 2019: £14.1m). Segmental loss before taxation was £4.3m (March 2019: profit £0.9m).

Tricorn USA

In the USA, in May 2019, the Group had extended its capabilities with the purchase of a custom built powder coat and wet spray painting line located in leased premises at Rabun Gap, Georgia, a short distance from its manufacturing facilities at Franklin, North Carolina. This facility has allowed previously sub-contracted processes to be brought in-house as well as providing for further expansion of manufacturing facilities when market conditions improve.

Market demand slowed in the Period when compared to the previous period with this reduction escalating through March 2020 due to the impact of COVID‐19. Revenue for the Period of £10.3m was up 18.4% on the 12 month period ended 31 March 2019 (March 2019: £8.7m). Segmental loss before taxation in the Period was £2.3m (March 2019: profit £46,000).

Joint Venture - China

Our Chinese joint venture, Minguang-Tricorn Tubular Products Nanjing Limited, performed broadly in line with expectations and enabled dividend payments to the Group in the period of £0.3m.

Financial Review

Income statement

As highlighted in the Chairman's statement, this 18 month trading period has been significantly impacted by the effects of COVID-19 from which the Group is now emerging, and also from an internal review of the performance of the Group following my appointment and the subsequent hiring of a new, stronger and more experienced finance team.

Overall, consolidated revenue for the Period of £25.4m compares to £22.8m for the 12 months ended 31 March 2019. The loss before taxation was £7.7m (March 2019: profit £1.0m). Given the change of accounting reference date and the extended 18 month reporting period to 30 September 2020 as compared to the 12 month reporting period to 31 March 2019, and the significant impact of COVID-19 on the trading period, this review analyses the 18 month period in 6-month segments consistent with the Chairman's statement.

Trading for the 6 months ended 30 September 2019 showed revenue of £10.6m (2018: £11.4m) and a profit before taxation of £0.2m (2018: £0.5m). It was reported at this time that revenues in the UK were beginning to slow and that US margins were under pressure from import tariffs. Trading for the next 6 months to 31 March 2020 showed the impact of this slowdown and margin pressure and Group revenue for this period was £8.5m (a 19.8% decline from the previous 6 months) (2019: £11.3m) returning a loss before taxation of £0.8m (2019: profit £0.5m).

As noted above, February and March 2020 signalled the significant impact of COVID-19 on our business and this has largely defined the results in the 6 months ended 30 September 2020 with Group revenue of £6.3m (a further 25.9% decline from the previous 6 months) (2019: £10.6m) and a loss before taxation of £7.1m (2019: profit before tax £0.2m).

The loss before taxation of £7.1m in the 6 months to 30 September 2020 was significantly impacted by an internal review of the financial governance of the Group conducted following my engagement in August 2020 and the identification of a balance sheet risk of £4.6m which was announced on 16 November 2020. This has since been investigated and written off in full together with other more normal adjustments of approximately £0.5m, associated with a robust period-end close process in readiness for the audit of the Period.

Given the nature of the historic accounting records and prevailing control environment at the time, it has not been possible to accurately allocate the adjustment of £4.6m to specific time segments and it might be that some of these adjustments relate to accounting periods prior to the 18 months ended 30 September 2020. The Board does not consider it a cost effective or an economic use of resources to perform this reallocation exercise and therefore the adjustments have been reflected in the Period.

Approximately £1.1m of the £4.6m write-off related to the Group's US operation. This included a write-off of capitalised development costs of £0.3m and a write-down of net inventory of £0.5m both predominantly relating to a contract loss since the onset of COVID-19, and a more prudent view on debtor recovery of £0.3m.

In the UK, approximately £2.5m of the £4.6m was written off. This included a stock write down of £0.7m, an internal audit of fixed assets resulting in a write off of approximately £0.6m, recognition of a historic understatement of liabilities of £1.0m and a more prudent view on debtor recovery of £0.2m.

In addition to the £3.6m identified above as specific to the US and UK operations, it was also reported in the announcement of 16 November 2020 that there existed an intercompany imbalance of approximately £1.0m. This too has been subsequently investigated and has been written off in the results for the 18 month period to 30 September 2020.

Gross margins in the Period were down 8.3% at 30.1% (March 2019: 38.4%), impacted by approximately £2.0m of adjustment following the internal performance review referred to above. This equates to 7.9% of revenue in the period to 30 September 2020 or 8.8% of revenue for the 12 months to 31 March 2019.

Distribution costs at £1.1m (March 2019: £1.0m) represent 4.4% of revenue (March 2019: 4.5%). 

The Group's administration costs for the Period increased to £13.8m (March 2019: £6.8m) and includes an adjustment of approximately £3.0m following the internal performance review and non-underlying charges of £0.7m (March 2019: £0.1m). Adjusting for this £3.7m, administration costs as a percentage of revenue represent 39.8% (March 2019: 29.4%). The increase of 10.4% is predominantly attributable to the significant decline in volume and the lack of contribution from this lost revenue to the fixed costs of the business.

The Group's Chinese joint venture, Minguang-Tricorn Tubular Products Nanjing Limited, showed profitability over the Period, with the Group's share of profit being £0.1m (March 2019: £0.3m).

EBITDA for the Period was a loss of £5.2m (March 2019: profit £1.8m). Finance costs for the Period were £0.5m (March 2019: £0.2m), of which £0.2m is attributable to the adoption of IFRS16. The Group delivered a loss before taxation for the Period of £7.7m (March 2019: profit £1.0m).

After adjusting for intangible asset amortisation, goodwill impairment, Rabun Gap start-up costs and share based payment charges, the adjusted loss before taxation for the Period was £6.9m (March 2019: profit £1.1m). 

Basic earnings per share (EPS) was (18.81p) (March 2019: 2.62p) and after adjusting for non-underlying items, the underlying EPS* was (17.04p) (March 2019: 3.02p). 

The Board is not recommending the payment of a dividend for the Period ended 30 September 2020 (March 2019: 0.2p).

Balance Sheet

Total assets of the Group as at 30 September 2020 were £14.2m, a reduction of £0.8m on the previous period end (March 2019: £15.0m). The decrease is represented by a write-off of assets of approximately £3.0m following the internal performance review, net of an increase in fixed assets of approximately £2.9m following the adoption of IFRS16 and a goodwill impairment charge of £0.4m which relates to the acquisition of Maxpower Automotive Limited in 2007. The balance of £0.3m is predominantly attributable to the lower volume of business in the latter trading months leading up to 30 September 2020 which has resulted in lower levels of operating working capital.

* References to adjusted EBITDA, (loss)/profit before taxation and adjusted earnings per share are before intangible asset amortisation, goodwill impairment, Rabun Gap start-up costs and share based payment charges

Total liabilities of the Group as at 30 September 2020 had increased by £4.8m to £12.5m (March 2019: £7.7m) predominantly due to the recognition of £2.9m of lease commitments following the adoption of IFRS16 and an increase in borrowings of approximately £1.7m (excluding hire purchase and finance lease liabilities).

On translation of its overseas assets and liabilities, the Group made an exchange gain of £0.5m (March 2019: £0.1m gain). This is a non-cash movement and is treated as a movement in other comprehensive income. As a result, the translation reserve in shareholders' funds now shows a £0.5m surplus (March 2019: £14,000 surplus).

Cash Flow

The Group's cashflow from operations in the Period was an outflow of £1.9m (March 2019: inflow £1.2m). This was predominantly due to the impact of COVID-19 on the trading activities for the Period, as the write-off associated with the internal performance review was primarily non-cash in nature.

After interest payments and net tax receipts, cash outflow from operating activities during the Period was £2.2m (March 2019: inflow £0.9m). This excludes cashflows from operating leases following the adoption of IFRS16 of £0.7m which forms part of the payment of finance lease liabilities in the Group statement of cashflows of £0.9m (March 2019: £84,000).

During the Period, the net cash outflow from investing activities was £0.3m (March 2019: £1.0m). Expenditure on the purchase of plant and machinery was £0.3m (March 2019: £0.7m). In the year ended 31 March 2019, the Group had expenditure of £0.3m on intangible assets whereas this was £nil in the 18 months to 30 September 2020.

Total operational cash outflow including investing activities was £2.5m (March 2019: £0.1m) and was financed by a mixture of net proceeds from the February 2020 Placing and Open Offer of £1.34m (net of costs) and availability of COVID-19 related facilities in the UK and the USA of approximately £1.6m.

As a result of the Group's operating activities in the Period, net debt** increased over the prior year by £1.8m to £4.9m (March 2019: £3.1m). Cash and cash equivalents at 30 September 2020 were £0.7m (31 March 2019: £0.5m). The Group's cash and cash equivalents as at 30 March 2021 were approximately £1.1m.

Michael Stock

Chief Executive and Group Finance Director

31 March 2021

** Before hire purchase agreements and finance lease liabilities of £3.2m (mainly arising from the adoption of IFRS16 liabilities of £2.9m).

Group income statement

For the 18 month period ended 30 September 2020

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

Group statement of comprehensive income

For the 18 month period ended 30 September 2020

Group statement of changes in equity

For the 18 month period ended 30 September 2020

Group statement of financial position

At 30 September 2020

Group statement of cash flows

For the 18 month period ended 30 September 2020

1. General information

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

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 Link, Malvern, Worcestershire, WR14 1DA. Tricorn Group plc's shares are quoted on the Alternative Investment Market of the London Stock Exchange. 

The unaudited financial information set out in this preliminary results announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The Group income statement, the Group 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 18 month period ended 30 September 2020 are unaudited. The comparative figures for the year ended 31 March 2019 have been extracted from the Group's audited financial statements for that year. Statutory accounts for the year ended 31 March 2019 have been delivered to the Registrar of Companies. The auditor's report on the accounts for the year ended 31 March 2019 did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006. The Group's audited final results for the 18 month period ended 30 September 2020 are expected to be published in June 2021.

2. Accounting policies

Basis of preparation

This financial information has been prepared under the required measurement bases specified under International Accounting Standards in conformity with the requirements of the Companies Act 2006.

The Group distinguishes between underlying and non-underlying items in its Consolidated Income Statement. Non-underlying items are material items which arise from unusual non-recurring or non-trading events. They are disclosed on the face of the Consolidated Income Statement where in the opinion of the Directors such disclosure is necessary in order to fairly present the results for the period. Non-underlying items comprise exceptional costs of Group restructuring, intangible assets amortisation and share based payment charges.

Adoption of new standards

The Group has adopted IFRS 16 Leases under the modified retrospective approach and has introduced a single, on-balance sheet accounting model for lessees, eliminating the distinction between operating and finance leases. As a result, the Group has recognised £3.2m of right-of-use assets and corresponding lease liabilities on the date of initial application (1 April 2019). These are included within property, plant and equipment and loans and borrowings respectively in the consolidated statement of financial position. Details of the impact on the reported numbers are given in note 5. There are no other material changes in accounting policies from those adopted in the previous statutory financial statements.

Going concern

The Board has considered reasonable base case forecasts, taking into account the impact of COVID-19 and Brexit and the current level of trading activity for the next 3-5 years in conjunction with its existing banking facilities and have concluded that is appropriate to prepare the financial information on a going concern basis. 

In making their assessment, the Directors have assumed that banking facilities will continue to be made available on similar terms to the Group's existing facilities. Whilst some of the existing facilities with HSBC (both in the USA and the UK) continue to be repayable on demand, as has been the case historically, discussions are ongoing to formalise these arrangements. Relations with HSBC are good and discussions are active and positive. In light of the current engagement with the Group's bankers and the level of security available, the Directors are satisfied that it is reasonable to assume that facilities will continue to be available to the Group.

3. Segmental reporting

The Group has carried out a review of its organisational structure and concluded that segmental results will now be reported on a geographic basis as follows:-

§ UK - Comprising all UK based trading divisions

§ US - Comprising all North America based trading divisions

§ The joint venture in China will continue to be reported separately 

The Group's revenue from external customers (by destination) may be summarised as follows:

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 taxation effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares. 

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

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

5. Impact of transition to IFRS 16 Leases

The impact of the transition to IFRS 16 to the Group's primary financial statements was as follows:

6. Dividend

The Board is not recommending the payment of a dividend for the 18 month period ended 30 September 2020 (March 2019: 0.2p).

7. Availability

Copies of this announcement are available from the Company's registered office, Spring Lane, Malvern Link, Malvern, Worcestershire, WR14 1DA, and on its website, www.tricorn.uk.com.