ANDREWS SYKES GROUP PLC

Earnings Release • May 11, 2017

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RNS Number : 7615E

Andrews Sykes Group PLC

11 May 2017

Andrews Sykes Group plc

Summary of results

For the 12 months ended 31 December 2016

	12 months               ended    31 December                  2016                 £'000	12 months              ended     31 December                  2015                 £'000
Revenue from continuing operations	65,389	60,058
EBITDA* from continuing operations	20,664	17,701
Operating profit	15,816	13,208
Profit after tax for the financial period	14,473	10,800
Basic earnings per share from total operations (pence)	34.25p	25.55p
Interim and final dividends paid per equity share (pence)	23.80p	23.80p
Proposed final dividend per equity share (pence)	11.90p	11.90p
Net cash inflow from operating activities	15,133	12,124
Total interim and final dividends paid	10,058	10,058
Net funds	17,673	14,558

*  Earnings Before Interest, Taxation, Depreciation, profit on sale of property, plant and equipment, Amortisation and non-   

recurring items as reconciled on the consolidated income statement.

For further information please contact:

Andrews Sykes Group plc Paul Wood, Group Managing Director Andrew Phillips, Chief Financial Officer	01902 328700
GCA Altium Limited  (NOMAD) Paul Lines Adam Sivner	0845 505 4300
Arden Partners plc (broker) Steve Douglas	020 7614 5900

Chairman's Statement

Overview and financial highlights

Summary

The group's revenue for the year ended 31 December 2016 was £65.4 million, an increase of £5.3 million, or 8.9%, compared with the same period last year. This increase had a more than proportionate impact on operating profit which increased by 19.7%, or £2.6 million, from £13.2 million last year to £15.8 million in the year under review. This increase, which follows a 16.8% increase last year, reflects strong performances from both our hire and sales businesses in the UK and Europe and the Middle East. Part of this increase, in Sterling terms, is due to the relatively weak pound compared with overseas currencies but nevertheless the underlying trading performance in our overseas subsidiaries shows a significant improvement compared to last year.

Net finance income was £1.7 million this year compared with £0.2 million in 2015. This is largely attributable to a foreign exchange gain arising on the retranslation of inter-company balances of £1.6 million which is also due to the relatively weak value of Sterling compared with overseas currencies, notably the Euro and the UAE Dirham.

Mainly as a consequence of the increase in operating profit and net finance income, our basic earnings per share increased by 34.1% from 25.55p last year to 34.25p in the current period. The basic earnings per share is a positive factor reflecting the strong trading performance of the group's businesses.

The group continues to generate strong cash flows. Net cash inflow from operating activities was £15.1 million compared with £12.1 million last year. Despite shareholder related cash outflows of £10.1 million on ordinary dividends, net funds increased by £3.2 million from £14.5 million at 31 December 2015 to £17.7 million at 31 December 2016.

Our policy of returning affordable dividends to shareholders continues. Over the last four financial years the group has paid £37.7 million in cash to shareholders. At the same time the level of external bank borrowings reduced from £6 million as at the end of last year to £5 million as at 31 December 2016. The Board is once again proposing a further final dividend payment amounting to £5.0 million which, if approved at the forthcoming AGM, would be paid in June 2017.

Cost control, cash and working capital management continue to be priorities for the group. Capital expenditure is concentrated on assets that give a good return and in total £6.2 million was invested in the hire fleet this year, £0.6 million more than last year and significantly more than the wasting depreciation charge of £4.5 million. In addition, the group invested a further £0.7 million in property, plant and equipment. These actions will ensure that the group's infrastructure and revenue generating assets are sufficient to support future growth and profitability. Hire fleet utilisation, condition and availability continue to be the subjects of management focus.

Operating performance

The following table splits the results between the first and second half years:

	Turnover	Operating profit
	£'000	£'000
1st half 2016	30,287	6,395
1st half 2015	28,240	4,973
2nd half 2016	35,102	9,421
2nd half 2015	31,818	8,235
Total 2016	65,389	15,816
Total 2015	60,058	13,208

The above table demonstrates that the successful performance in the first half of the year continued into the second half. Turnover in the first half of the year showed a 7.2% improvement over the same period in 2015 and, in the second half, the percentage improvement increased to 10.3%. Operating profit for the first half year showed a 28.6% improvement compared with the same period in 2015 and a 14.4% improvement for the second half year. Although the percentage improvement was lower in the second half this year this is in comparison to a much stronger performance in the second half of last year. Traditionally the group makes more profit in the second half year due to the higher profit margins on its air conditioning products which are hired predominantly in the second half of the year.

The above significant improvement in operating profit has been achieved despite any significant extremes in climatic conditions. The operating profit of our main business segment in the UK and Northern Europe increased from £11.3 million last year to £13.8 million in the year under review. Whilst demand for our pumping and dehumidification products was stimulated by the floods in the North of England at the beginning of 2016, the absence of a hot summer did not help our air conditioning business. Generally the underlying performance was better than last year across the business sector due to robust operational management. Our traditional businesses continue to be developed and supported by the expansion of non-weather dependent niche markets which benefit the performance of our specialist hire divisions. This year's result further demonstrates that with a diverse product range we are able to return a strong performance despite the absence of any significant extreme weather conditions.

Our hire and sales business in the Middle East had another excellent trading year. The operating profit for this business segment increased from £2.3 million last year to £2.9 million in 2016. Trading was strong throughout the region and our climate rental division returned a positive contribution to the business results.

Our fixed installation business sector in the UK returned a slightly reduced operating profit of £0.3 million this year, £0.1 million behind the result achieved last year. The market continues to be fragmented with high levels of price competition.

Central overheads increased from £0.8 million in 2015 to £1.2 million in the current year.

Profit for the financial year

Profit before tax was £17.5 million this year compared with £13.4 million last year. This is attributable to the above £2.6 million increase in operating profit and the £1.5 million increase in net finance income. No dividends were received in either year from Oasis Sykes, our trade investment in Saudi Arabia.

Tax charges increased from £2.6 million in 2015 to £3.1 million this year. The overall effective tax rate reduced from 19.2% in 2015 to 17.5% primarily due to an increase in profits earned by our business based in the Middle East, where corporation tax rates are very low, the utilisation of off balance sheet overseas tax losses and a reduction in the UK corporation tax rate. Profit for the financial year was £14.4 million compared with £10.8 million last year.

Equity dividends

The company paid two dividends during the year. On 24 June 2016 a final dividend for the year ended 31 December 2015 of 11.9 pence per ordinary share was paid and this was followed on 2 November 2016 by the payment of an interim dividend for 2016 also of 11.9 pence per share. Therefore, during 2016, a total of £10.1 million in cash dividends has been returned to our ordinary shareholders.

I am pleased to announce that, in view of the group's ongoing profitability and its significant cash resources, the Board has proposed a final dividend for 2016 also of 11.9 pence per ordinary share. If approved at the forthcoming Annual General Meeting this dividend, which in total amounts to £5.0 million, will be paid on 26 June 2017 to shareholders on the register as at 26 May 2017.

Net funds

At 31 December 2016 the group had net funds of £17.7 million compared with £14.5 million last year, an increase of £3.2 million despite the payment of the above equity dividends totalling £10.1 million during the year.

Bank loan facilities

The final capital repayment of £5 million that was due under the bank loan agreement entered into in April 2013 was made in accordance with the agreed repayment schedule on30 April 2017. This was financed by a new five year loan of £5 million also with the Royal Bank of Scotland. This will be repaid by four equal annual instalments of £0.5 million per annum commencing in April 2018 followed by a final balloon repayment of £3 million due in April 2022.

Share buybacks

During the current year the company did not purchase any ordinary shares for cancellation. However, in prior periods such purchases were made and these enhanced earnings per share and were for the benefit of all shareholders.

The Board believes that it is in the best interest of shareholders if it has this authority in order that market purchases may be made in the right circumstances if the necessary funds are available. Accordingly, at the next Annual General Meeting, shareholders will be asked to vote in favour of a resolution to renew the general authority to make market purchases of up to 12.5% of the ordinary share capital in issue.

Outlook

The group's policy to increase investments in new technologically advanced and environmentally friendly non-seasonal products will be continued into 2017. Investments will also continue in our traditional businesses to ensure we are ready to support our customers in times of extreme weather conditions.

The group continues to face both challenges and opportunities in all of its geographical markets but our business remains strong, cash generative and well developed, with positive net funds. The Board is therefore cautiously optimistic for further success in 2017, always being mindful of the favourable or adverse impact that the weather can have on our business.

JG Murray

Chairman

10 May 2017

Andrews Sykes Group plc

Consolidated Income Statement

For the 12 months ended 31 December 2016

	12 months                ended   31 December                   2016                 £'000		12 months                ended    31 December                  2015                    £'000
Continuing operations
Revenue Cost of Sales	65,389             (26,677)		60,058               (25,284)
Gross profit	38,712		34,774
Distribution costs	(11,512)		(10,828)
Administrative expenses	(11,384)		(10,738)
Operating profit	15,816		13,208
EBITDA* Depreciation and impairment losses Profit on the sale of plant and equipment	20,664               (5,310)                    462		17,701                 (4,959)                      466
Operating profit	15,816		13,208
Finance income Finance costs	1,875                  (150)		323                    (164)
Profit before taxation	17,541		13,367
Taxation	(3,068)		(2,567)
Profit for the financial period	14,473		10,800
There were no discontinued operations in either of the above periods
Earnings per share
Basic (pence)	34.25p		25.55p
Diluted (pence)	34.25p		25.55p
Interim and final dividends paid per equity share (pence)	23.80p		23.80p
Proposed final dividend per equity share (pence)	11.90p		11.90p

*  Earnings Before Interest, Taxation, Depreciation, profit on the sale of property, plant and equipment, Amortisation and non-

recurring items.

Andrews Sykes Group plc

Consolidated Statement of Comprehensive Total Income

For the 12 months ended 31 December 2016

	12 months                  ended     31 December                    2016                  £'000		12 months                  ended      31 December                    2015                    £'000
Profit for the financial period	14,473		10,800
Other comprehensive income / (charges)
Items that may be reclassified to profit and loss:
Currency translation differences on foreign currency net
Investments	1,924		(175)
Items that will never be reclassified to profit and loss:
Remeasurement of defined benefit assets and liabilities	(2,201)		1,157
Related deferred tax	418		(207)
Other comprehensive income for the period net of tax	141		775
Total comprehensive income for the period	14,614		11,575

Andrews Sykes Group plc

Consolidated Balance Sheet

As at 31 December 2016

		31 December 2016				31 December 2015
		£'000		£'000		£'000		£'000
Non-current assets
Property, plant and equipment				20,062				17,750
Lease prepayments				49				50
Trade investments				164				164
Deferred tax asset				559				282
Retirement benefit pension surplus				1,161				2,443
				21,995				20,689
Current assets
Stocks		4,994				4,199
Trade and other receivables		18,425				16,584
Overseas tax (denominated in Euros)		-				17
Cash and cash equivalents		22,819				20,715
		46,238				41,515
Current liabilities
Trade and other payables		(13,055)				(11,090)
Current tax liabilities		(1,825)				(1,306)
Bank loans		(4,995)				(980)
Obligations under finance leases		(102)				(101)
		(19,977)				(13,477)
Net current assets				26,261				28,038
Total assets less current liabilities				48,256				48,727
Non-current liabilities
Bank loans		-				(4,995)
Obligations under finance leases		(49)				(81)
								(5,076)
				(49)
Net assets				48,207				43,651
Equity
Called-up share capital				423				423
Share premium				13				13
Retained earnings				43,619				40,987
Translation reserve				3,897				1,973
Other reserves				245				245
Surplus attributable to equity holders of the parent				48,197				43,641
Minority interest				10				10
Total equity				48,207				43,651

Andrews Sykes Group plc

Consolidated Cash Flow Statement

For the 12 months ended 31 December 2016

		12 months                 ended     31 December                    2016                    £'000		12 months                 ended      31 December                    2015                    £'000
Cash flows from operating activities
Cash generated from operations		17,693		14,623
Interest paid		(136)		(155)
Net UK corporation tax paid		(1,846)		(1,881)
Overseas tax paid		(578)		(463)
Net cash flow from operating activities		15,133		12,124
Investing activities
Sale of property, plant and equipment		673		711
Purchase of property, plant and equipment		(5,392)		(5,234)
Interest received		241		197
Net cash flow from investing activities		(4,478)		(4,326)
Financing activities
Loan repayments		(1,000)		(1,000)
Finance lease capital repayments		(116)		(94)
Equity dividends paid		(10,058)		(10,058)
Net cash flow from financing activities		(11,174)		(11,152)
Net decrease in cash and cash equivalents		(519)		(3,354)
Cash and cash equivalents at the beginning of the period		20,715		24,077
Effect of foreign exchange rate changes		2,623		(8)
Cash and cash equivalents at the end of the period		22,819		20,715
Reconciliation of net cash flow to movement in net funds in the period
Net decrease in cash and cash equivalents		(519)		(3,354)
Cash outflow from the decrease in debt		1,115		1,094
Non-cash movement in respect of raising loan finance		(20)		(20)
Non-cash movements re new finance leases and hire purchase agreements		(84)		-
Movement in net funds during the period		492		(2,280)
Opening net funds at the beginning of the period		14,558		16,846
Effect of foreign exchange rate changes		2,623		(8)
Closing net funds at the end of the period		17,673		14,558

Andrews Sykes Group plc

Consolidated Statement of Changes in Equity

For the 12 months ended 31 December 2016

	Attributable to equity holders of the parent company							Minority interest		Total equity
	Share capital £'000	Share Premium £'000	Retained earnings £'000	Translation reserve £'000	Other reserves £'000	Total £'000		£'000		£'000
At 31 December 2014	423	13	39,295	2,148	245	42,124		10		42,134
Profit for the financial period	-	-	10,800	-	-	10,800		-		10,800
Other comprehensive income and (charges):
Items that may be reclassified to profit and loss:
Currency translation differences on foreign currency net investments	-	-	-	(175)	-	(175)		-		(175)
Items that will never be reclassified to profit and loss:
Remeasurement of defined benefit assets and liabilities	-	-	1,157	-	-	1,157		-		1,157
Related deferred tax	-	-	(207)	-	-	(207)		-		(207)
Total other comprehensive income and (charges)	-	-	950	(175)	-	775		-		775
Transactions with owners recorded directly in equity
Dividends paid	-	-	(10,058)	-	-	(10,058)		-		(10,058)
Total transactions with owners	-	-	(10,058)	-	-	(10,058)		-		(10,058)
At 31 December 2015	423	13	40,987	1,973	245	43,641		10		43,651
Profit for the financial period	-	-	14,473	-	-	14,473		-		14,473
Other comprehensive income and (charges):
Items that may be reclassified to profit and loss:
Currency translation differences on foreign currency net investments	-	-	-	1,924	-	1,924		-		1,924
Items that will never be reclassified to profit and loss:
Remeasurement of defined benefit assets and liabilities	-	-	(2,201)	-	-	(2,201)		-		(2,201)
Related deferred tax	-	-	418	-	-	418		-		418
Total other comprehensive income and (charges)	-	-	(1,783)	1,924	-	141		-		141
Transactions with owners recorded directly in equity:
Dividends paid	-	-	(10,058)	-	-	(10,058)		-		(10,058)
Total transactions with owners	-	-	(10,058)	-	-	(10,058)		-		(10,058)
At 31 December 2016	423	13	43,619	3,897	245	48,197		10		48,207

Notes

1.   Basis of preparation

Whilst the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. Therefore the financial information set out above does not constitute the company's financial statements for the 12 months ended 31 December 2016 or 31 December 2015 but it is derived from those financial statements.

2.   Going Concern

The board remains satisfied with the group's funding and liquidity position. The group has operated throughout the 2016 financial year and until the date of signing these accounts within its financial covenants as contained in the bank agreement.

Both loan capital and interest payments have been made in accordance with the bank agreement. The first two capital repayments of £1 million each were made on the due dates in prior periods and these were followed by a further capital repayment, also of £1 million, on 30 April 2016. Interest is paid bi-annually at the end of October and April.

The final loan repayment was made on 30 April 2017, financed by a new five year loan of £5 million also with the Royal Bank of Scotland. This will be repaid by four equal annual instalments of £0.5 million per annum commencing on 30 April 2018 followed by a final balloon repayment of £3 million due on 30 April 2022. Interest will be charged at the 3 month LIBOR rate plus a margin of 1.1%. The group's profit and cash flow projections indicate that the financial covenants included within the new bank loan agreement will be met for the foreseeable future.

The group continues to have substantial cash resources which at 31 December 2016 amounted to £22.8 million compared with £20.7 million as at 31 December 2015. Profit and cash flow projections for 2017 and 2018, which have been prepared on a conservative basis taking into account reasonably possible changes in trading performance, indicate that the group will be profitable and generate positive cash flows after loan repayments. These forecasts and projections indicate that the group should be able to operate within the new bank facility agreement and that all associated covenants will be met.

The board considers that the group has considerable financial resources and a wide operational base. As a consequence, the board believes that the group is well placed to manage its business risks successfully, as demonstrated by the current year's result, despite some uncertain external influences.

After making enquiries, the board has a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the board continues to adopt the going concern basis when preparing this Annual Report and Financial Statements.

3.   Distribution of Annual Report and Financial Statements

The group expects to distribute copies of the full Annual Report and Financial Statements that comply with IFRSs by 19 May 2017 following which copies will be available either from the registered office of the company; St David's Court, Union Street, Wolverhampton, WV1 3JE; or from the company's website; www.andrews-sykes.com. The Annual Report and Financial Statements for the 12 months ended 31 December 2015 have been delivered to the Registrar of Companies and those for the 12 months ended 31 December 2016 will be filed at Companies House following the company's Annual General Meeting. The auditors have reported on those financial statements; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain details of any matters on which they are required to report by exception.

4.   Date of Annual General Meeting

The group's Annual General Meeting will be held at 10.30 a.m. on Wednesday 21 June 2017 at 2 Eaton Gate, London, SW1W 9BJ.

This information is provided by RNS

The company news service from the London Stock Exchange

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