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AIREA PLC Management Reports 2021
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National Storage Mechanism | Additional information 
RNS Number : 1584R
Airea PLC
04 March 2021
Airea plc
Final results for the year ended 31st December 2020
Strategic Report
Airea plc is pleased that the group has been able to remain open for business throughout the year navigating its way through the most unpredictable and volatile of years driven by the Covid-19 pandemic and Brexit transition phase. This has caused unprecedented market conditions which have proved to be extremely disruptive. During this turbulent political and economic year the group benefitted from the improved operational and supply chain processes implemented during the previous 12 months enabling the group to navigate and mitigate these challenges and continue to prepare the group for growth opportunities when they arise.
Highlights for the year
· Increased year-end cash balance from £3.0m to £6.6m (£3.9m excluding CBILS loan of £2.75m);
· Profitable during the Covid-19 pandemic;
· Underlying gross profit margins (revenue less cost of sales) increased year on year;
· Three new product launches during the year.
Principal activity and strategy
The group remains focused on the design, manufacture, marketing and distribution of floor coverings. Our approach to strategy is uncomplicated; to develop products that sell, exploit the strength of our combined manufacturing and distribution operation and deliver robust cash flows to support the ongoing investment in the business.
Overview
After a strong start in the first quarter the effects of the Covid-19 pandemic and various national and regional lockdowns had a significant impact on the groups ability to trade. Whilst the group remained open for business throughout the year management had to reassess its strategic priorities and made the decision to prioritise cash and working capital to provide the best defence against uncertainty. This did not stop the group looking to the future and continuing to develop new products to provide opportunities for growth.
The group was able to take advantage of the Covid-19 support provided by the UK government and the group's banking partner to help during the period including:
· A six-year CBILS loan of £2.75m with no fees, interest or repayments for the initial 12-month period
· Capital repayment holiday for 6 months on existing long-term loan
· Extended overdraft from £0.5m to £1.0m
· Q1 2020 VAT payment deferred until 2021
· Furloughed employees throughout the year
All of these initiatives have helped to bolster the financial performance of the group; however, due to the market conditions revenues were below prior year particularly with regards to export sales. This generated a significantly lower operating profit although we are pleased that underlying gross profit margins actually increased year on year.
The group continued to develop new products, although product launches were pushed back to the fourth quarter and early 2021. It is too early to see any benefits of the new product launches on the performance of the group; however, the feedback from customers has been extremely positive and bodes well for their success in 2021 and beyond. There was a small increase in inventory at the year-end due to the manufacture of new product launch stock.
Despite the pension scheme deficit increasing slightly to £1.8m from £1.5m the group considered its investment strategy a success in limiting the impact the Covid-19 pandemic could have had on the deficit. There continues to be volatility in global equity markets with the scheme's investment strategy constantly under review to mitigate the scheme's long-term risk profile as much as possible.
The value of our investment property increased from £3.6m to £3.7m. The gain is highlighted separately in the income statement.
Group results
Revenue for the year was significantly below prior year at £14.6m (2019: £19.2m) as the Covid-19 pandemic had a significant impact on market demand. As a result operating profit before valuation gain decreased to £0.7m (2019: £2.2m). Underlying gross profit margins increased year on year and the group benefitted from furlough savings (£0.5m) which helped to reduce overheads compared to the prior year even after the additional Covid-19 related costs of £0.1m safeguarding the employees and site.
There was an unrealised valuation gain on the investment property of £0.1m (2019: £0.2m) giving an operating profit after valuation gains of £0.9m (2019: £2.4m).
Other finance costs relating in the main to the defined benefit pension scheme were £0.4m (2019: £0.4m).
After a tax charge of £0.1m primarily due to deferred tax on the pension scheme, partial unwinding of the deferred tax asset as brought forward losses are utilised and unrealised valuation gain on the investment property (2019: £0.4m) profit attributable to shareholders of the group for the year was £0.4m (2019: £1.6m). Earnings per share were 1.00p (2019: 3.97p).
Operating cash flows before movements in working capital and other payables were £1.5m (2019: £2.7m). Working capital decreased by £0.8m (2019: £0.4m) following a reduction in trade receivables and increase in trade and other payables. Contributions of £0.4m (2019: £0.4m) were made to the defined benefit pension scheme in line with the agreement reached with the trustees based on the 2017 actuarial valuation. Capital expenditure of £0.2m (2019: £0.4m) related to investment in the Ossett site improving warehouse capacity and machine efficiency.
The group borrowed £2.75m under the government Coronavirus Business Interruption Loan Scheme ("CBILS"). This is a 6-year term loan with no fees, interest or repayment due for the initial 12 months. The group took a 6-month capital repayment holiday on the existing long-term loan taken out to acquire shares for the Employee Benefit Trust. £0.4m of the loan was repaid during the year. The loan is unsecured and repayable over three years in equal quarterly instalments with five instalments remaining.
No dividend payments were made during the year due to the Covid-19 pandemic (2019: £1.1m) and the Board has decided not to declare a final dividend for 2020.
Key performance indicators
As part of its internal financial control procedures the board monitors the key financial metrics of revenue, operating profit, gross margin, working capital (debtor and creditor days), inventory turns and cash. These KPI's are reviewed in comparison to previous year and the budget and analysis undertaken to establish trends and variances. For the year ended 31st December 2020, operating return on sales was 5.1% (2019: 11.3%), return on net operating assets was 4.0% (2019: 13.5%) and working capital to sales percentage was 63.4% (2019: 36.0%).
Principal risks and uncertainties
The board has responsibility for determining the nature and extent of the risks it is willing to take in achieving its strategic objectives and ensuring that risks are managed effectively across the group. The board and the management team meet regularly to discuss the business and the risks that it faces. Risks are identified as being principally based on the likelihood of occurrence and potential impact on the group. The group's principal risks, which remain consistent with the prior year, are identified below, together with a description of how the group mitigates those risks.
The key operational risk facing the business continues to be the competitive nature of the markets for the group's products. To mitigate this risk the group seeks to improve existing products, introduce new products and achieve high levels of customer service and efficiency to attempt to differentiate from the competition.
The Covid-19 pandemic presents significant uncertainty for the upcoming financial year with an unknown impact of the virus on the company's performance. However, the group is well placed to mitigate this continued risk by drawing on the experience gained navigating the issues during this year when the group was able to remain open for business and continuing to take advantage of available government support. The group can also point towards its strong balance sheet and cash reserves.
The post Brexit transition export trading conditions present a short-term risk to the group whilst the most optimal and efficient supply route is established to the group's many customers in the European Union. Whilst the export of goods is initially zero rated for UK VAT purposes the differing treatment our customers face in individual countries has made it more difficult for the customer to import goods into their respective countries. We continue to work with our customers to find the best solution to the logistical challenges to ensure continued and smooth trading conditions.
The majority of the group's revenue arises from trade with flooring contractors and fit out companies. The activity levels within this customer base are determined by consumer demand that is created through a wide range of commercial refurbishment and new build projects. The general level of activity in these underlying markets has the potential to affect the demand for products supplied by the group and is subject to seasonal variations. The group mitigates these factors by closely monitoring sales trends and taking appropriate action early, along with strengthening the product range and developing new channels to market, both at home and abroad, to grow demand across a wider range of markets and negate the impact of seasonality.
The group operates a defined benefit pension scheme. At present, in aggregate, there is an actuarial deficit between the value of the projected liabilities of this scheme and the assets they hold. The amount of the deficit may be adversely affected by changes in a number of factors, including investment returns, long-term interest rate and price inflation expectations and anticipated members' longevity. Further increases in the pension scheme deficit may require the group to increase the amount of cash contributions payable to the scheme, thereby reducing cash available to meet the group's other operating, investing and financing requirements. The performance and risk management of the group's pension scheme and deficit recovery plan are regularly reviewed by both the group and the trustees of the scheme, taking actuarial and investment advice as appropriate. The results of these reviews are discussed with the board and appropriate action taken. Following the triennial funding valuation of the group's pension scheme as at 1st July 2017, a revised deficit recovery plan was agreed. Under the plan, the company will continue to make annual contributions of £0.4m to allow a gradual reduction in investment risk. The next triennial funding valuation will be drawn up to 1st July 2020 and completed within the permitted 15-month period.
Other risks
Raw material costs are a significant constituent of overall product cost and are impacted by global commodity markets. Significant fluctuations in raw material costs can have a material impact on profitability. The group continuously seeks out opportunities to develop a robust and competitive supply base, substitute new materials, agree fixed pricing where possible, source material with improved and shortened lead times and closely monitors selling prices and margins making adjustments when necessary.
The global nature of the group's business means it is exposed to volatility in currency exchange rates in respect of foreign currency denominated transactions, the most significant being the euro. In order to protect itself against currency fluctuations the group has taken advantage of the opportunity to naturally hedge euro revenue with euro payments utilising foreign currency bank accounts. No transactions of a speculative nature are undertaken. Other risks include the availability of necessary materials, business interruption and the duty of care to our employees, customers and the wider public. These risks are managed through the combination of quality assurance and health and safety procedures and insurance cover.
Management and personnel
We continue to recognise the hard work and dedication our staff have applied during this most challenging of years working through the Covid-19 pandemic and uncertainty it has brought to them and their families. We look forward to the contribution they can make going forward in the future of the company.
Current trading and future prospects
The continued investment in our successful commercial flooring business provides significant opportunities for profitable growth; however, the Covid-19 pandemic and nationwide lockdowns continue to suppress market activity on a global basis. We expect this to impact demand for the foreseeable future. The group has flexibility and can adapt to these unprecedented times and will continue to invest in new products throughout 2021 based upon our confidence in the future prospects of the business during and particularly post the Covid-19 pandemic.
MARTIN TOOGOOD NEIL RYLANCE
Chairman Chief Executive Officer 4th March 2021
Enquiries:
Neil Rylance 01924 266561
Chief Executive Officer
Paul Stevenson 01924 266561
Group Finance Director
Peter Steel 020 7496 3061
N+1 Singer
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
The financial information set out in the announcement does not constitute the group's statutory accounts for the 12 month period ended 31 December 2020 or the 12 month period ended 31 December 2019. The financial information for the 12 month period ended 31 December 2019 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 include any statement under s498(2) or s498(3) of the Companies Act 2006. The consolidated balance sheet at 31 December 2020, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated cash flow statement, the consolidated statement of changes in equity and the segmental reporting for the 12 month period then ended have been extracted from the Group's 2020 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under s498(2) or s498(3) of the Companies Act 2006.
The announcement has been agreed with the company's auditor for release.
Consolidated Income Statement
Year ended 31 December 2020
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| 2020 | 2019 | ||
| £'000 | £'000 | ||
| Continuing Operations | |||
| Revenue | 14,554 | 19,183 | |
| Operating costs | (14,090) | (17,297) | |
| Other operating income | 280 | 280 | |
| Operating profit before valuation gain | 744 | 2,166 | |
| Unrealised valuation gain | 125 | 200 | |
| Operating profit | 869 | 2,366 | |
| Finance income | 7 | 6 | |
| Finance costs | (376) | (411) | |
| _______ | _______ | ||
| Profit before taxation | 500 | 1,961 | |
| Taxation | (109) | (403) | |
| _______ | _______ | ||
| Profit attributable to shareholders of the group | 391 | 1,558 | |
| _______ | _______ |
Consolidated Statement of Comprehensive Income
Year ended 31 December 2020
| 2020 | 2020 | 2019 | 2019 | ||||||||
| £ | £ | £ | £ | ||||||||
| Profit attributable to shareholders of the group | 391 | 1,558 | |||||||||
| Items that will not be classified to profit or loss | |||||||||||
| Actuarial (loss)/gain recognised in the pension scheme | (389) | 2,172 | |||||||||
| Related deferred taxation | 74 | (369) | |||||||||
| (315) | 1,803 | ||||||||||
| Items that will be reclassified subsequently to profit or loss when specific conditions are met | |||||||||||
| Revaluation/(impairment) of property | 37 | (17) | |||||||||
| Related deferred taxation | (4) | 3 | |||||||||
| 33 | (14) | ||||||||||
| Total other comprehensive (loss)/income | (282) | 1,789 | |||||||||
| Total comprehensive income attributable to shareholders of the group | 109 | 3,347 | |||||||||
Consolidated Balance Sheet
Year ended 31 December 2020
| 2020 | 2020 | 2019 | 2019 | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Non-current assets | |||||
| Property, plant and equipment | 4,271 | 4,229 | |||
| Intangible assets | 54 | 39 | |||
| Investment property | 3,725 | 3,600 | |||
| Deferred tax asset | 920 | 847 | |||
| Right-of-use-asset | 1,086 | 1,233 | |||
| _______ | _______ | ||||
| 10,056 | 9,948 | ||||
| Current assets | |||||
| Inventories | 5,622 | 5,461 | |||
| Trade and other receivables | 1,712 | 2,112 | |||
| Cash and cash equivalents | 6,555 | 2,957 | |||
| _______ | _______ | ||||
| 13,889 | 10,530 | ||||
| _______ | _______ | ||||
| Total assets | 23,945 | 20,478 | |||
| _______ | _______ | ||||
| Current liabilities | |||||
| Trade and other payables | (2,895) | (2,412) | |||
| Provisions | (465) | (320) | |||
| Lease liabilities | (243) | (329) | |||
| Loans and borrowings | (1,071) | (562) | |||
| _______ | _______ | ||||
| (4,674) | (3,623) | ||||
| Non-current liabilities | |||||
| Deferred tax | (609) | (457) | |||
| Pension deficit | (1,789) | (1,472) | |||
| Lease liabilities | (188) | (323) | |||
| Loans and borrowings | (2,641) | (724) | |||
| _______ | _______ | ||||
| (5,227) | (2,976) | ||||
| _______ | _______ | ||||
| Total liabilities | (9,901) | (6,599) | |||
| _______ | _______ | ||||
| Net assets | 14,044 | 13,879 | |||
| _______ | _______ | ||||
| Equity | |||||
| Called up share capital | 10,339 | 10,339 | |||
| Share premium account | 504 | 504 | |||
| Own shares | (1,197) | (1,839) | |||
| Share based payment reserve | 141 | 85 | |||
| Capital redemption reserve | 3,617 | 3,617 | |||
| Revaluation reserve | 3,014 | 3,048 | |||
| Retained earnings | (2,374) | (1,875) | |||
| _______ | _______ | ||||
| Total equity | 14,044 | 13,879 | |||
| _______ | _______ | ||||
Consolidated Cash Flow Statement
Year ended 31 December 2020
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| 2020 | 2019 | ||
| £'000 | £'000 | ||
| Cash flows from operating activities | |||
| Profit for the year | 391 | 1,558 | |
| Depreciation | 228 | 206 | |
| Depreciation of right-of-use-assets | 270 | 274 | |
| Amortisation | 38 | 65 | |
| Movement in provisions | 145 | - | |
| Share based payment expense | 56 | - | |
| Net finance costs | 369 | 405 | |
| Profit on disposal of property, plant and equipment | - | (12) | |
| Tax charge | 109 | 403 | |
| Unrealised valuation gain | (125) | (200) | |
| _______ | _______ | ||
| _______ | _______ | ||
| Operating cash flows before movements in working capital | 1,481 | 2,699 | |
| (Increase)/decrease in inventories | (161) | 1,336 | |
| Decrease in trade and other receivables | 456 | 221 | |
| Increase/(decrease) in trade and other payables | 467 | (1,159) | |
| _______ | _______ | ||
| _______ | _______ | ||
| Cash generated from operations | 2,243 | 3,097 | |
| Contributions to defined benefit pension scheme | (400) | (400) | |
| _______ | _______ | ||
| Net cash generated from operating activities | 1,843 | 2,697 | |
| Cash flows from investing activities | |||
| Payments to acquire intangible fixed assets | (53) | (9) | |
| Payments to acquire tangible fixed assets | (233) | (378) | |
| Receipts from sales of tangible fixed assets | - | 136 | |
| _______ | _______ | ||
| _______ | _______ | ||
| Net cash used in generated from investing activities | (286) | (251) | |
| Cash flows from financing activities | |||
| Interest paid on lease liabilities | (15) | (21) | |
| Interest paid on borrowings | (33) | (34) | |
| Interest received | 7 | 6 | |
| Proceeds from loan | 2,750 | 1,700 | |
| Purchase of own shares by the EBT | - | (2,000) | |
| Principal paid on lease liabilities | (344) | (343) | |
| Repayment of loan | (324) | (448) | |
| Equity dividends paid | - | (1,081) | |
| _______ | _______ | ||
| Net cash received/(used) in financing activities | 2,041 | (2,221) | |
| _______ | _______ | ||
| Net increase in cash and cash equivalents | 3,598 | 225 | |
| Cash and cash equivalents at start of the year | 2,957 | 2,732 | |
| _______ | _______ | ||
| Cash and cash equivalents at end of the year | 6,555 | 2,957 | |
| _______ | _______ | ||
Consolidated Statement of Changes in Equity
Year ended 31 December 2020
| Share capital | Share premium account | Share based payment reserve | Share Option | Capital redemption reserve |
Revaluation reserve |
Retained earnings | Total equity |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| At 1st January 2019 10,339 | 504 | - | - | 3,617 | 3,096 | (4,028) | 13,528 |
| Comprehensive income for | |||||||
| the year | |||||||
| Profit for the year - | - | - | - | - | - | 1,558 | 1,558 |
| Actuarial gain recognised | |||||||
| on the pension scheme - | - | - | - | - | - | 1,803 | 1,803 |
| Impairment of property - | - | - | - | - | (14) | - | (14) |
| Total comprehensive income for the year - |
- | - | - | - | (14) | 3,361 | 3,347 |
| Contributions by and | |||||||
| distributions to owners | |||||||
| Dividend paid - | - | - | - | - | - | (1,081) | (1,081) |
| Purchase of own Shares | |||||||
| by the EBT - | - | (2,000) | - | - | - | - | (2,000) |
| Share based payment - | - | - | 85 | - | - | - | 85 |
| Own Shares Transfer - | - | 161 | - | - | - | (161) | - |
| Revaluation Reverse Transfer - | - | - | - | - | (34) | 34 | - |
| Total contributions by and distributions to owners - | - | (1,839) | 85 | - | (34) | (1,208) | (2,996) |
| At 31st December 2019 10,339 | 504 | (1,839) | 85 | 3,617 | 3,048 | (1,875) | 13,879 |
| At 1st January 2020 | |||||||
| Comprehensive income for the year | |||||||
| Profit for the year - | - | - | - | - | - | 391 | 391 |
| Actuarial loss recognised | |||||||
| on the pension scheme - | - | - | - | - | - | (315) | (315) |
| Impairment of property - | - | - | - | - | - | 33 | 33 |
| Total comprehensive income for the year - |
- | - | - | - | - | 109 | 109 |
| Contributions by and | |||||||
| distributions to owners | |||||||
| Dividend paid - | - | - | - | - | - | - | - |
| Share based payment - | - | - | 56 | - | - | - | 56 |
| Own Shares Transfer - | - | 642 | - | - | - | (642) | - |
| Revaluation Reserve Transfer - | - | - | - | - | (34) | 34 | - |
| Total contributions by and distributions to owners - | - | 642 | 56 | - | (34) | (608) | 56 |
| At 31st December 2019 10,339 | 504 | (1,197) | 141 | 3,617 | 3,014 | (2,374) | 14,044 |
In accordance with Rule 20 of the AIM Rules, Airea confirms that the annual report and accounts for the year ended 31 December 2020 and notice of Annual General Meeting ("AGM") and related proxy form will be available to view on the Company's website at www.aireaplc.co.uk on 5 March 2021 and will be posted to shareholders by 19 March 2021. The AGM will be held on 12th May 2021, at 2.00 p.m. at the company's registered office at Victoria Mills, The Green, Ossett, West Yorkshire, WF5 0AN. Due to the ongoing Covid-19 pandemic and government "stay at home" measures this will be a closed meeting; however, shareholders will be able to dial in and listen to the AGM. Further details are set out in the notice of the AGM available within the financial statements which can be viewed on the group's website.
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