Half Yearly Report

RNS Number : 4559T

Andrews Sykes Group PLC

29 September 2010

 



Andrews Sykes Group plc

29 September 2010

Interim Financial Statements for the six months to 30 June 2010

Summary of Results

	6 months ended 30 June 2010 £'000	6 months ended 30 June 2009 £'000
Revenue from continuing operations	27,573	28,766
Normalised EBITDA* from continuing operations	8,851	8,763
Normalised operating profit **	6,816	6,609
Profit for the financial period	5,225	4,619
Net funds / (debt)	2,762	(12,070)

*      Earnings Before Interest, Taxation, Depreciation Amortisation and non-recurring costs.

**     Operating profit before non-recurring items as reconciled on the consolidated income statement

Chairman's Statement

Overview

The group's revenue for the six months ended 30 June 2010 was £27.6 million compared with £28.8 million in the first half of 2009, a decrease of 4.1%. Despite this reduction in revenue, through careful cost control and efficiency savings, the group's normalised operating profit * has increased by £0.2 million, or 3.1%, from £6.6 million in the first half of 2009 to £6.8 million in the current period.

The group continues to generate strong cash flows. As at 30 June 2010 the group has net funds of £2.8 million compared with a net debt position of £12.1 million at 30 June 2009 - an overall reduction in net debt of £14.9 million in a 12 month period. This clearly demonstrates the group's positive cash flow ability.

Management have achieved the above improvements in operating profit and positive cash flows by continuing to follow the policies outlined in the last year's annual report - namely cost control, efficiency initiatives, cash and working capital management. The operational structure of the business has been safeguarded and the group remains in a strong position ready to take advantage of any business opportunities whenever they arise.

Operations review

Our main hire and sales business in the UK and Northern Europe benefited from a long and cold end to the 2009 winter although, conversely, the second quarter of 2010 was abnormally dry. Fortunately our ongoing strategy of diversification, particularly into less weather dependent specialist hire sectors, again proved beneficial.

Our UK installation business continued to show some trading improvements, albeit relatively modest in comparison with the overall group's results.

As predicted in the 2009 annual report, trading in the Middle East proved to be difficult throughout the first half of 2010 and we were unable to maintain the level of profitability achieved last year. Debt collection and credit control continue to be the focus of management attention and the directors consider that adequate bad debt provisions have been made in these interim results.

Share buyback programme

As previously announced, the board continues to believe that shareholder value will be optimised by the purchase by the company, when appropriate, of its own shares.

During the period under review a total of 909,930 ordinary shares were purchased for cancellation for a total consideration of £1,053,000. Subsequently a further 5,000 have been purchased for a total consideration of £6,000 bringing the aggregate for the year to date to 914,930 ordinary shares representing approximately 2.07% of shares in issue at the beginning of the financial year.

The directors confirm that they intend to actively continue to pursue this policy and any shareholder who is considering taking advantage of the share buyback programme is invited to contact their stockbroker, bank manager, solicitor, accountant or other independent financial advisor authorised under the Financial Services and Markets Act 2000, in order to contact Brewin Dolphin Limited who are operating the buyback programme on behalf of the company.

Prospects

In a similar vein to last year, there was a short hot spell in the UK and Northern Europe at the beginning of July following which the summer has been mixed with only average temperatures. Therefore we expect our all important air conditioning hire business to return a satisfactory performance.

The UK pumping division has faced adverse conditions throughout the summer with dry weather and lack of construction activity combining to make trading difficult. Whilst the effects have been partially offset by the development of non-weather related business it has not been possible to compensate completely for these factors.

Our business in the Middle East continues to suffer from the economic downturn in the region and we expect this to continue for the remainder of 2010.

Our specialist hire divisions continue to perform well and our ongoing strategy of careful investment in our traditional core products and services, increasing our non-seasonal business and investment in new technically advanced and environmentally friendly products will continue to be followed.

Overall, the board is cautiously anticipating a reasonable performance for the rest of 2010.

JG Murray

Chairman

28 September 2010

* Operating profit before non-recurring items as reconciled on the consolidated income statement

Andrews Sykes Group plc Consolidated Income Statement For the 6 months ended 30 June 2010 (unaudited)
	6 months ended 30 June 2010 £'000		6 months ended 30 June 2009 £'000		12 months ended 31 December 2009 £'000
Continuing operations
Revenue	27,573		28,766		54,358
Cost of sales	(11,883)		(12,766)		(23,218)
Gross profit	15,690		16,000		31,140
Distribution costs	(4,518)		(5,001)		(9,367)
Administrative expenses:     - Recurring	(4,356)		(4,390)		(8,836)
- Non-recurring	164		-		273
- Total	(4,192)		(4,390)		(8,563)
Operating profit	6,980		6,609		13,210
Normalised EBITDA*	8,851		8,763		17,368
Depreciation and impairment losses	(2,281)		(2,518)		(4,964)
Profit on the sale of plant and equipment	246		364		533
Normalised operating profit	6,816		6,609		12,937
Profit on the sale of property	164		-		273
Operating profit	6,980		6,609		13,210
Income from other participating interests	-		-		980
Finance income	843		817		1,584
Finance costs	(1,103)		(1,797)		(2,843)
Inter company foreign exchange gains and losses	395		873		360
Profit before taxation	7,115		6,502		13,291
Taxation	(1,890)		(1,883)		(1,648)
Profit for the financial period	5,225		4,619		11,643
There were no discontinued operations in any of the above periods.
Earnings per share from continuing operations
Basic (pence)	11.83 p		10.43 p		26.30 p
Diluted (pence)	11.83 p		10.43 p		26.30 p
Dividends paid per equity share (pence)	0.00 p		0.00 p		0.00 p

*               Earnings Before Interest, Taxation, Depreciation, Amortisation and non-recurring costs.

Andrews Sykes Group plc

Consolidated Balance Sheet

As at 30 June 2010 (unaudited)

	30 June 2010		30 June 2009		31 December 2009
	£'000		£'000		£'000
Non-current assets Property, plant and equipment Lease prepayments Trade investments Deferred tax asset Other financial assets - cash held on deposit	12,543                    58                  164               1,238                       -		14,556                    86                  164                     -                     -		13,697                              59                            164                         1,042                         3,000
	14,003		14,806		17,962
Current assets Stocks Trade and other receivables Other financial assets - cash held on deposit Cash and cash equivalents Assets held for sale	4,117             13,723                      -             23,716                   213		6,561            14,265                     -            17,974                 405		4,865                       13,295                         6,000                       18,150                            238
	41,769		39,205		42,548
Current liabilities Trade and other payables Current tax liabilities Bank loans Obligations under finance leases Provisions Derivative financial instruments	(7,521)              (1,980)              (6,000)                 (261)                   (13)                      -		(7,818)            (1,504)            (6,000)               (206)                     -                     -		( 7,408)                         (1,670)                         (6,000)                            (203)                            (13)                            (23)
	(15,775)		(15,528)		(15,317)
Net current assets	25,994		23,677		27,231
Total assets less current liabilities	39,997		38,483		45,193
Non-current liabilities Bank loans Obligations under finance leases Provisions Retirement benefit obligations Deferred tax liability Derivative financial instruments	(14,000)                 (628)                   (53)                       -                       -                   (65)		(23,000)               (770)                     -            (1,026)               (340)                 (68)		(23,000)                          (700)                            (60)                                -                                -                            (32)
	(14,746)		(25,204)		(23,792)
Net assets	25,251		13,279		21,401
Equity Called-up share capital Retained earnings Translation reserve Other reserves	434             21,988               2,585                  234		443           10,545              2,056                 225		443                       17,828                         2,895                            225
Surplus attributable to equity holders of the parent	25,241		13,269		21,391
Minority interest	10		10		10
Total Equity	25,251		13,279		21,401

Andrews Sykes Group plc Consolidated Cash Flow Statement For the 6 months ended 30 June 2010 (unaudited)
	6 months ended 30 June 2010 £'000		6 months ended 30 June 2009 £'000		12 months ended 31 December 2009 £'000
Cash flows from operating activities Cash generated from operations Interest paid Net UK corporation tax paid Net withholding tax paid Overseas tax paid	8,856             (292)             (843)                   -             (862)		9,288              (1,284)                 (746)                      -                 (243)		18,081              (1,653)              (1,586)                 (329)                 (179)
Net cash inflow from operating activities	6,859		7,015		14,334
Investing activities Dividends received from participating interests (trade investments) Movements in ring fenced bank deposit accounts Sale of assets held for sale Sale of plant and equipment Purchase of property, plant & equipment Interest received	-            9,000               390               344          (1,014)                 73		-                       -                       -                  568              (1,549)                  118		980              (9,000)                   439                   813              (1,661)                   208
Net cash inflow / (outflow) from investing activities	8,793		(863)		(8,221)
Financing activities Loan repayments Finance lease capital repayments Purchase of own shares	(9,000)            (130)            (1,053)		(5,000)                   (77)                       -		(5,000)                 (150)                       -
Net cash outflow from financing activities	(10,183)		(5,077)		(5,150)
Net increase in cash and cash equivalents	5,469		1,075		963
Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes	18,150                 97		18,233              (1,334)		18,233              (1,046)
Cash and cash equivalents at end of period	23,716		17,974		18,150

Reconciliation of net cash flow to movement in net funds / (debt) in the period

Net increase in cash and cash equivalents	5,469		1,075		963
Cash outflow from decrease in debt	9,130		5,077		5,150
Movements in ring fenced bank deposit accounts	(9,000)		-		9,000
Non cash movements re finance leases	(116)		-		-
Non cash movements in the fair value of derivative instruments	(10)		40		53
Movement in net debt during the period	5,473		6,192		15,166
Opening net debt at the beginning of period	(2,808)		(16,928)		(16,928)
Effect of foreign exchange rate changes	97		(1,334)		(1,046)
Closing net funds / (debt) at the end of period	2,762		(12,070)		(2,808)

Andrews Sykes Group plc Consolidated Statement Of Comprehensive Total Income (CSOCTI) For the 6 months ended 30 June 2010 (unaudited)
	6 months ended 30 June 2010 £'000		6 months ended 30 June 2009 £'000		12 months ended 31 December 2009 £'000
Profit for the financial period Other comprehensive income: Currency translation differences on foreign currency net investments Defined benefit plan actuarial gains and losses Deferred tax on other comprehensive income	5,225         (306)           (14)               4		4,619           (2,441)           (1,668)               467		11,643              (1,602)              (1,308)                  366
Other comprehensive income for the period net of tax	(316)		(3,642)		(2,544)
Total comprehensive income for the period	4,909		977		9,099

Andrews Sykes Group plc Notes to the consolidated interim financial statements For the 6 months ended 30 June 2010 (unaudited)

1. General information

Basis of preparation

These interim financial statements have been prepared in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as adopted by the European Union and with the Companies Act 2006.

The information for the 12 months ended 31 December 2009 does not constitute the group's statutory accounts for 2009 as defined in Section 434 of the Companies Act 2006. Statutory accounts for 2009 have been delivered to the Registrar of Companies. The Auditor's report on those accounts was unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. These interim financial statements, which were approved by the Board of Directors on 28 September 2010, have not been audited or reviewed by the auditors.

The interim financial statement has been prepared using the historical cost basis of accounting except for:

i) Properties held at the date of transition to IFRS which are stated at deemed cost;

ii) Assets held for sale which are stated at the lower of fair value less anticipated disposal costs and carrying value and

iii) Derivative financial instruments (including embedded derivatives) which are valued at fair value.

Functional and presentational currency

The financial statements are presented in pounds Sterling because that is the functional currency of the primary economic environment in which the group operates.

2. Accounting policies

These interim financial statements have been prepared on a consistent basis and in accordance with the accounting policies set out in the group's Annual Report and Financial Statements 2009.

3	Revenue An analysis of the group's revenue is as follows:
		6 months ended 30 June 2010 £'000		6 months ended 30 June  2009 £'000		12 months ended 31 December 2009 £'000
	Continuing operations Hire Sales Installations	22,566           3,048           1,959		22,515           4,437           1,814		42,934               7,708               3,716
	Group consolidated revenue from the sale of goods and provision of services
		27,573		28,766		54,358
4	Taxation
		6 months ended 30 June 2010 £'000		6 months ended 30 June  2009 £'000		12 months ended 31 December 2009 £'000
	Current tax UK corporation tax Adjustments in respect of prior periods	1,691                   2		890               (12)		1,735                 (146)
	Overseas tax Adjustments to overseas tax in respect of prior periods Withholding tax	1,693               320                68                   -		878               288                   -                   -		1,589                   506                   (10)                   329
	Total current tax charge	2,081		1,166		2,414
	Deferred tax Deferred tax on the origination and reversal of temporary differences Adjustments in respect of prior periods	(191)                   -		717                   -		(837)                    71
	Total deferred tax charge	(191)		717		(766)
	Total tax charge for the financial period	1,890		1,883		1,648

	The tax charge for the financial period can be reconciled to the profit before tax per the income statement multiplied by the standard effective corporation tax rate in the UK of 28% (June 2009 and December 2009: 28%) as follows:
		6 months ended 30 June 2010 £'000		6 months ended 30 June  2009 £'000		12 months ended 31 December 2009 £'000
	Profit before taxation from continuing and total operations	7,115		6,502		13,291
	Tax at the UK effective corporation tax rate of 28% (June 2009 and December 2009: 28%) Effects of: Expenses not deductible for tax purposes Capital gain sheltered by capital losses and indexation allowance Effects of different tax rates of subsidiaries operating abroad Withholding tax Non-taxable income from other participating interests Release of deferred tax provision following enactment of FA 2009 Adjustments to tax charge in respect of previous periods	1,992                44                (25)              (191)                   -                   -                   -                 70		1,821                 43                   -                  31                  -              -              -               (12)		3,721                       179                       (75)                      (925)                       329                     (274)                  (1,222)                        (85)
	Total tax charge for the financial period	1,890		1,883		1,648

The total effective tax charge for the financial period represents the best estimate of the weighted average annual effective tax rate expected for the full financial year. In accordance with IAS 12 no account has been taken in these interim financial statements of the announcement in the emergency budget on 22 June 2010 that the UK corporation tax rate will reduce from 28% to 24% over a period of 4 years from 2011.  The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010 and will be effective from 1 April 2011.  This will reduce the group's future current tax rate accordingly.  If the rate change from 28% to 27% had been substantively enacted on or before the balance sheet date it would have had the effect of reducing the deferred tax asset recognised at that date by approximately £40,000.  It has not yet been possible to quantify the full anticipated effect of the announced further 3% reduction, although this will further reduce the group's future current tax charge and the group's deferred tax asset accordingly.

5	Earnings per share
	Basic earnings per share The basic figures have been calculated by reference to the weighted average number of ordinary shares in issue and the earnings as set out below.  There are no discontinued operations in any period.
		6 months ended 30 June 2010
		Continuing earnings £'000		Number of shares
	Basic earnings/weighted average number of shares	5,225		44,156,707
	Basic earnings per ordinary share (pence)	11.83p
		6 months ended 30 June 2009
		Continuing earnings £'000		Number of shares
	Basic earnings/weighted average number of shares	4,619		44,268,365
	Basic earnings per ordinary share (pence)	10.43p
		12 months ended 31 December 2009
		Continuing earnings £'000		Number of shares
	Basic earnings/weighted average number of shares	11,643		44,268,365
	Basic earnings per ordinary share (pence)	26.30p
	Diluted earnings per share The calculation of the diluted earnings per ordinary share in the current period is based on the profits and shares as set out in the table below.  The options have an antidilutive effect in both the previous periods and therefore there is no change to the basic earnings per share as disclosed above.  There are no discontinued operations in any period.
		6 months ended 30 June 2010
		Continuing earnings £'000		Number of shares
	Basic earnings/weighted average number of shares Weighted average number of shares under option Number of shares that would have been issued at fair value to satisfy the above options	5,225		44,156,707                       15,000                      (12,853)
	Earnings / diluted weighted average number of shares	5,225		44,158,854
	Diluted earnings per ordinary share (pence)	11.83p
6	Dividend payments
	The directors have not declared any interim dividends in respect of the period under review or either of the two previous periods.

7	Retirement benefit obligations - Defined benefit pension scheme
	The group closed the UK group defined benefit pension scheme to future accrual as at 29 December 2002.  The assets of the defined benefit pension scheme continue to be held in a separate trustee administered fund. The group are making additional contributions to remove the funding deficit in the group pension scheme.  These contributions include both one-off and regular monthly payments, currently £10,000 per month, and are agreed in advance with the trustees of the pension scheme. Assumptions used to calculate the scheme deficit The last full actuarial valuation was carried out as at 31 December 2007.  A qualified independent actuary has updated the results of this valuation to calculate the position as disclosed below. The major assumptions used in this valuation to determine the present value of the scheme's defined benefit obligation were as follows:
		30 June 2010		30 June  2009		31 December 2009
	Rate of increase in pensionable salaries Rate of increase in pensions in payment Discount rate applied to scheme liabilities Inflation assumption	N/A 3.05% 5.35% 3.15%		N/A 3.50% 6.20% 3.50%		N/A 3.40% 5.80% 3.60%
	Assumptions regarding future mortality experience are set based on advice in accordance with published statistics.  The current mortality table used is PA92YOBMC+2 at all the above period ends. The assumed average life expectancy in years of a pensioner retiring at the age of 65 given by the above tables is as follows:
		30 June 2010		30 June  2009		31 December 2009
	Male, current age 45 Female, current age 45	21.3 years 24.1 years		21.3 years 24.0 years		21.3 years 24.1 years
	Valuations The fair value of the scheme's assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the scheme's liabilities which are derived from cash flow projections over long periods and are inherently uncertain, were as follows:
			30 June 2010 £'000		30 June  2009 £'000	31 December 2009 £'000
	Total fair value of plan assets Present value of defined benefit funded obligation calculated in accordance with stated assumptions		28,926           (28,904)		25,981   (27,007)	28,936           (28,862)
	Surplus / (deficit) in the scheme calculated in accordance with stated assumptions Net pension asset not recognised		22                   (22)		(1,026)              -	74                 (74)
	Pension liability recognised in the balance sheet		-		(1,026)	-

	The movement in the fair value of the scheme's assets over the reporting period are as follows:
		30 June 2010 £'000		30 June  2009 £'000	31 December 2009 £'000
	Fair value of plan assets at the start of the period Expected return on plan assets Actuarial (losses) / gains recognised in the CSOCTI Employer contributions - normal Benefits paid	28,936              770             (221)                60            (619)		26,440                 662            (1,444)                 750               (427)	26,440              1,338                 992              1,500            (1,334)
	Fair value of plan assets at the end of the period	28,926		25,981	28,936
	The movement in the present value of the defined benefit obligation during the period was as follows:
			30 June 2010 £'000	30 June  2009 £'000	31 December 2009 £'000
	Opening present value of defined benefit funded obligation calculated in accordance with stated assumptions Interest on defined benefit obligation Actuarial gain / (loss) recognised in the CSOCTI calculated in accordance with stated assumptions Benefits paid		(28,862)         (816)           155           619	(26,165)               (770)               (499)                 427	(26,165)            (1,530)            (2,501)              1,334
	Closing present value of defined benefit funded obligation calculated in accordance with stated assumptions Net pension asset not recognised		(28,904)           (22)	(27,007)                     -	(28,862)                 (74)
	Present value of defined benefit funded obligation at the end of the period		(28,926)	(27,007)	(28,936)
	Amounts recognised in the income statement The amounts credited / (charged) in the income statement were:
			30 June 2010 £'000	30 June  2009 £'000	31 December 2009 £'000
	Expected return on pension scheme assets credited within finance income Interest on pension scheme liabilities charged within finance costs		770         (816)	662               (770)	1,338            (1,530)
	Net pension interest charge Settlements and curtailments		(46)               -	(108)                      -	(192)                     -
	Net pension charge in the income statement		(46)	(108)	(192)

 

	Actuarial gains and losses recognised in the consolidated statement of comprehensive total income (CSOCTI) The amounts (charged) / credited in the CSOCTI were:
				30 June 2010 £'000		30 June  2009 £'000		31 December 2009 £'000
	Actual return less expected return on scheme assets Experience gains and losses arising on plan obligation Changes in demographic and financial assumptions underlying the present value of plan obligations			(221)           772         (617)		(1,444)                  -            (499)		992               (421)            (2,080)
	Actuarial loss calculated in accordance with stated assumptions			(66)		(1,943)		(1,509)
	Pension asset not recognised Reverse provision re non recognition of pension scheme asset			(22)             74		-              275		(74)                 275
	Actuarial loss recognised in the CSOCTI			(14)		(1,668)		(1,308)
	Cumulative actuarial loss recognised in the CSOCTI			(4,464)		(4,810)		(4,450)
8	Called-up share capital
				30 June 2010 £'000		30 June  2009 £'000		31 December 2009 £'000
	Issued and fully paid: 43,358,435 ordinary shares of one pence each (June 2009 and December 2009:  44,268,365 ordinary shares of one pence each)			434		443		443
	During the period the company bought back 909,930 shares for cancellation for a total consideration of £1,052,976 (June 2009 and December 2009: Nil shares bought back). The company has one class of ordinary shares which carry no right to fixed income. At 30 June 2010 cash options to subscribe for ordinary shares under the executive share option scheme were held as follows:
					Number of one pence ordinary shares
	Date of Grant	Date normally exercisable	Subscription price per share		30 June 2010		30 June 2009	31 December 2009
	November 2001	November 2004 to October 2011	89.5 pence		15,000		15,000	15,000

No share options were granted, forfeited or expired during either the current or previous financial periods.

No share options were exercised during the period (June 2009 and December 2009:  Nil options).

 

9	Cash generated from operations
		6 months ended 30 June  2010 £'000		6 months ended 30 June 2009 £'000		12 months ended 31 December 2009 £'000
	Profit for the period attributable to equity shareholders Adjustments for: Taxation charge Finance costs Finance income Inter-company foreign exchange gains and losses Income from other participating interests Profit on the sale of property, plant and equipment Depreciation Excess of normal pension contributions compared with service cost	5,225         1,890         1,103          (843)          (395)                      -            (410)          2,281              (60)		4,619              1,883              1,797               (817)               (873)                     -               (364)              2,518               (750)		11,643             1,648             2,843           (1,584)              (360)              (980)              (806)            4,964           (1,500)
	Cash generated from operations before movements in working capital	8,791		8,013		15,868
	Decrease in stocks (Increase) / decrease in trade and other receivables Increase / (decrease) in trade and other payables (Decrease) / increase in provisions	374            (428)             126                (7)		1,432              3,499            (3,656)                    -		1,904            4,318           (4,082)                 73
	Cash generated from operations	8,856		9,288		18,081
10	Analysis of net funds / (debt)
			30 June 2010 £'000		30 June  2009 £'000	31 December 2009 £'000
	Cash and cash equivalents per cash flow statement		23,716		17,974	18,150
	Other financial assets - cash held on deposit		-		-	9,000
	Financial assets		23,716		17,974	27,150
	Bank loans Obligations under finance leases Derivative financial instruments		(20,000)        (889)          (65)		(29,000)            (976)              (68)	(29,000) (903) (55)
	Gross debt		(20,954)		(30,044)	(29,958)
	Net funds / (debt)		2,762		(12,070)	(2,808)
11	Distribution of interim financial statements Following a change in regulations in 2008, the company is no longer required to circulate this half year report to shareholders.  This enables us to reduce costs associated with printing and mailing and to minimise the impact of these activities on the environment.  A copy of the interim financial statements is available on the company's website, www.andrews-sykes.com

For further information, please contact:

Andrews Sykes Group plc

Jean Christophe Pillois               01902 328700

Brewin Dolphin

Sandy Fraser/Iain Marlow           0845 213 4730

 

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