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.

 

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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