RNS Number : 0306I

Airea PLC

12 April 2022

Airea plc

Final results for the year ended 31st December 2021

Strategic Report

Neil Rylance

It is impossible to review 2021 without referring to the untimely death of Neil Rylance in March 2022. Neil had been the CEO of Airea plc for 13 years. Those shareholders who have supported the company during his tenure will understand, first hand, the impact of Neil's contribution to this Company's success. Without his focus, tenacity, and deep understanding of the sector we would not be the profitable business we are today.

It is easy to forget the changes that Airea has undergone, when we see the stable, profitable business we have today. Neil led the programme of change and, had the patience, foresight, and dogged determination, to follow these challenges to a successful conclusion. He did this with a Liverpudlian wit, a no-nonsense approach and an unswerving self-belief. Neil led from the front and was able to attract like-minded executives whom he mentored to assist in shouldering the burden of change for the better. He has left us with a platform for growth. He has also left a management team who are capable of delivering on that promise. In Neil's memory we must do so, because Neil is a man who is not easy to forget.

The search for Neil's successor has begun.

Highlights for the year

- Recovery in revenue; however, not yet at pre-pandemic levels.

- Continued profitability during the COVID-19 pandemic.

- Underlying gross profit margins (revenue less cost of sales) increased year on year.

- Utilising our new equipment to enable the launch of a further three products during the year.

- Improvement in pension funding position.

The board is pleased with the group's resilience in the face of the challenges of the COVID-19 pandemic and its impact on all aspects of our business. We continue to focus on improving our operational and supply chain processes which are imperative when facing the uncertainty regarding labour and raw material availability and the unprecedented increases in raw material prices.

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.


The group's performance during the 12 months ended 31st December 2021 has continued to be impacted by the COVID-19 pandemic and the related lockdown restrictions. Access to our export business was most severely impacted by the lockdown restrictions coupled with the additional complications trading overseas following the post Brexit transition period.

We continue to maintain our cash reserves and strong balance sheet position to enable us manage the impact of the continued uncertainty in the economy and the related risks on the business.

The group increased the level of inventory on hand to help mitigate against the supply chain tensions which continue to put a strain on the availability of materials and the costs of obtaining them.

Our investment in the development of our product range continues with launches of new products into the market throughout 2021, supported by our new equipment, which is now fully operational. Feedback from customers has been extremely positive and the specification of our products bodes well for our continued success. The new product lines resulted in an increase in inventory at the year-end due to putting new product lines into stock.

The defined benefit pension scheme deficit reduced from GBP1.8m to an unrecognised surplus of GBP5.1m. The surplus has been restricted from being recognised as an asset on the balance sheet due to the group not having an unconditional right to a refund. The group contributions to the scheme have been reduced from GBP0.4m per year to

GBPnil (for the financial year 2022) based on the latest agreed schedule of contributions between the group and the scheme's trustees. 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 GBP3.7m to GBP4.0m. The gain is highlighted separately in the income statement.

Group results

Revenue for the year was above prior year at GBP15.9m (2020: GBP14.6m) with home sales recovering, however the COVID-19 pandemic continued to reduce our access to export markets and constrained growth. Operating profit before valuation gain nevertheless increased to GBP1.3m (2020 Restated: GBP0.7m). Underlying gross profit margins increased year on year due to the increased level of sales and the group also continued to benefit from furlough savings of GBP0.3m (2020: GBP0.5m).

There was an unrealised valuation gain on the investment property of GBP0.3m (2020: GBP0.1m) giving an operating profit after valuation gains of GBP1.6m (2020 Restated: GBP0.8m).

Other finance costs relating in the main to the defined benefit pension scheme were GBP0.3m (2020: GBP0.4m).

After a tax charge of GBP0.2m primarily due to deferred tax on the property plant equipment and changes in tax rate at which deferred tax is recognised (2020: GBP0.1m) profit attributable to shareholders of the group for the year was GBP1.0m (2020: GBP0.3m). Earnings per share were 2.70p (2020 Restated: 0.89p).

Operating cash flows before movements in working capital and other payables were GBP1.7m (2020 Restated: GBP1.4m). Working capital increased by GBP0.3m (2020 Restated: GBP0.7m decrease) following a increase in inventories, trade and other receivables and trade and other payables. Contributions of GBP0.4m (2020: GBP0.4m) 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 GBP1.3m (2020 Restated: GBP0.2m) related to the group's investment new machinery to help with the development of new product ranges.

The group had GBP5.7m of cash on hand as at 31st December 2021 (2020: GBP6.6m). In 2020 the group borrowed GBP2.75m under the government Coronavirus Business Interruption Loan Scheme, as of 31st December 2021 the amount outstanding was GBP2.4m (2020: GBP2.75m). Following the six-month capital repayment holiday, the group recommenced repayments on the existing long-term loan taken out to acquire shares for the Employee Benefit Trust, with GBP0.8m of the loan repaid during the year. This loan is unsecured and repayable over three years in equal quarterly instalments with two instalments remaining. The group has access to further liquidity of GBP1.0m via our unutilised facility (2020:

GBP1.0m unutilised).

We continue to preserve cash to protect against unforeseen circumstances in these difficult times. However, as an appreciation of our shareholder support and patience, through these exacting trading periods, we propose a total dividend of GBP0.2m or 0.4p per share (2020: GBPnil). This proposal is subject to shareholder approval.

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 2021, operating profit return on sales was 8.3% (2020: 4.8%), return on net operating assets was 6.7% (2020: 3.8%) and working capital to sales percentage was 57.7% (2020: 63.5%).

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 current unrest in Ukraine presents significant uncertainty for the upcoming financial year with an unknown impact of the conflict, particularly on international sales performance and on the costs and availability of raw materials and their impact on the group's performance. However, the group is well placed to mitigate these risks through its diversified sales base and by drawing on the experience gained navigating similar supply chain issues during the past 2 years when the group was able to remain open for business.

Most 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 which 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 and the economic environment. 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 help negate the impact of seasonality.

The group operates a defined benefit pension scheme. At present, in aggregate, there is an actuarial surplus between the value of the projected liabilities of this scheme and the assets they hold. This actuarial surplus has been fully provided for and not recognised due to the group not having an unconditional right to the funds. The amount of the assets and liabilities may be adversely affected by changes in several factors, including investment returns, long-term interest rate and price inflation expectations and anticipated members' longevity. Adverse changes in the pension scheme position may require the group to recommence cash contributions 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 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 2020, a revised deficit recovery plan was agreed. Under the plan the company are not required to make any annual contributions and to continue a strategy of gradual reduction in investment risk. The next triennial funding valuation will be due up to 1st July 2023.

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 adjusting 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 the continued challenges of 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 current economic environment and the Ukrainian conflict continue to put global raw material prices and supply chains under pressure. The group has flexibility and can continue to adapt to these unprecedented times and will continue to invest in new products throughout 2022 based upon our confidence in the prospects of the business.

   MARTIN TOOGOOD                                    RYAN THOMAS 

Chairman Group Finance Director 12(th) April 2022


Ryan Thomas 01924 266561

Group Finance Director

Peter Steel 020 7496 3061

Singer Capital Markets

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 2021 or the 12 month period ended 31 December 2020. The financial information for the 12 month period ended 31 December 2020 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 2021, 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 2021 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 2021

                                                Year ended    Year ended 
                                                31 December   31 December 
                                                       2021          2020 
                                                    GBP'000       GBP'000 
 Continuing Operations 
 Revenue                                             15,865        14,554 
 Operating costs                                   (14,832)      (14,136) 
 Other operating income                                 280           280 
 Operating profit before valuation gain               1,313           698 
 Unrealised valuation gain                              275           125 
---------------------------------------------  ------------  ------------ 
 Operating profit                                     1,588           823 
 Finance income                                           8             7 
 Finance costs                                        (305)         (376) 
                                                    _______       _______ 
 Profit before taxation                               1,291           454 
 Taxation                                             (249)         (109) 
                                                    _______       _______ 
 Profit attributable to shareholders of the 
  group                                               1,042           345 
                                                    _______       _______ 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2021

                                             2021    2021    2020    2020 
                                              GBP     GBP     GBP     GBP 
 Profit attributable to 
  shareholders of the group                         1,042               345 
 Items that will not be 
  classified to profit or 
 Actuarial gain/(loss) recognised 
 in the pension scheme                      1,599           (389) 
 Related deferred taxation                  (380)              74 
 Revaluation of property                      166              37 
 Related deferred taxation                   (32)             (4) 
 Total other comprehensive 
  income/(loss)                                     1,353             (282) 
   Total comprehensive income 
   attributable to shareholders 
   of the group                                     2,395                63 
                                           ------  ------  ------  -------- 

Consolidated Balance Sheet

Year ended 31 December 2021

                                    2021      2021      2020      2020 
                                 GBP'000   GBP'000   GBP'000   GBP'000 
 Non-current assets 
 Property, plant and 
  equipment                        5,305               4,202 
 Intangible assets                    55                  54 
 Investment property               4,000               3,725 
 Deferred tax asset                  720                 920 
 Right-of-use-asset                  972               1,086 
                                           _______             _______ 
                                            11,052               9,987 
 Current assets 
 Inventories                       6,150               5,622 
 Trade and other receivables       1,887               1,735 
 Cash and cash equivalents         5,688               6,555 
                                 _______             _______ 
                                            13,725              13,912 
                                           _______             _______ 
 Total assets                               24,777              23,899 
                                           _______             _______ 
 Current liabilities 
 Trade and other payables        (3,258)             (2,895) 
 Provisions                        (245)               (465) 
 Lease liabilities                 (124)               (243) 
 Loans and borrowings              (935)             (1,071) 
                                 _______             _______ 
                                           (4,562)             (4,674) 
 Non-current liabilities 
 Deferred tax                    (1,031)               (609) 
 Pension deficit                       -             (1,789) 
 Lease liabilities                 (183)               (188) 
 Loans and borrowings            (2,592)             (2,641) 
                                 _______             _______ 
                                           (3,806)             (5,227) 
                                           _______             _______ 
 Total liabilities                         (8,368)             (9,901) 
                                           _______             _______ 
 Net assets                                 16,409              13,998 
                                           _______             _______ 
 Called up share capital                    10,339              10,339 
 Share premium account                         504                 504 
 Own shares                                  (555)             (1,197) 
 Share based payment 
  reserve                                      157                 141 
 Capital redemption reserve                  3,617               3,617 
 Revaluation reserve                         3,150               3,014 
 Retained earnings                           (803)             (2,420) 
                                           _______             _______ 
 Total equity                               16,409              13,998 
                                           _______             _______ 

Consolidated Cash Flow Statement

Year ended 31 December 2021

                                                      Year ended    Year ended 
                                                      31 December   31 December 
                                                             2021          2020 
                                                          GBP'000       GBP'000 
 Cash flows from operating activities 
 Profit for the year                                  1,042         345 
 Depreciation                                         276           228 
 Depreciation of right-of-use-assets                  250           270 
 Amortisation                                         30            38 
 Movement in provisions                               (220)         145 
 Share based payment expense                          16            56 
 Net finance costs                                    297           369 
 Tax charge                                           249           109 
 Unrealised valuation gain                            (275)         (125) 
                                                     ------------  ------------ 
                                                          _______       _______ 
                                                          _______       _______ 
 Operating cash flows before movements in 
  working capital                                           1,665         1,435 
 Increase in inventories                              (528)         (161) 
 (Increase)/decrease in trade and other 
  receivables                                         (152)         433 
 Increase in trade and other payables                 347           467 
---------------------------------------------------  ------------  ------------ 
                                                          _______       _______ 
                                                          _______       _______ 
 Cash generated from operations                             1,332         2,174 
 Contributions to defined benefit pension 
  scheme                                                    (400)         (400) 
                                                          _______       _______ 
 Net cash generated from operating activities                 932         1,774 
 Cash flows from investing activities 
 Payments to acquire intangible fixed assets          (31)          (53) 
 Payments to acquire tangible fixed assets            (1,236)       (164) 
---------------------------------------------------  ------------  ------------ 
                                                          _______       _______ 
                                                          _______       _______ 
 Net cash used in generated from investing 
  activities                                              (1,267)         (217) 
 Cash flows from financing activities 
 Interest paid on lease liabilities                   (12)          (15) 
 Interest paid on borrowings                          (83)          (33) 
 Interest received                                    8             7 
 Proceeds from loan and borrowings                    -             2,750 
 Proceeds from asset financing                        934           - 
 Principal paid on lease liabilities                  (260)         (344) 
 Repayment of loans                                   (1,119)       (324) 
---------------------------------------------------  ------------  ------------ 
                                                          _______       _______ 
 Net cash (used)/received in financing activities           (532)         2,041 
                                                          _______       _______ 
 Net (decrease)/increase in cash and cash 
  equivalents                                               (867)         3,598 
 Cash and cash equivalents at start of the 
  year                                                      6,555         2,957 
                                                          _______       _______ 
 Cash and cash equivalents at end of the 
  year                                                      5,688         6,555 
                                                          _______       _______ 

Consolidated Statement of Changes in Equity

Year ended 31 December 2021

                                                           Share                                      Capital 
                                            Share          premium         Share         Share        redemption    Revaluation       Retained        Total 
                                            capital        account         based         Option       reserve       reserve           earnings        equity 
GBP000                                                GBP000                 GBP000  GBP000      GBP000                  GBP000    GBP000       GBP000 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
At 1st January 2020 10,339                            504           (1,839)          85          3,617                3,048        (1,875)      13,879 
Comprehensive income for 
   the year 
Profit for the year -                                 -             -                -           -                -                345          345 
Actuarial loss recognised 
on the pension scheme -                               -             -                -           -                -                     (315)        (315) 
Revaluation of property 
 -                                                    -             -                -           -                -                33           33 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
   Total comprehensive income 
    for the year -                                      -             -                -           -                -                63           63 
Contributions by and 
   distributions to owners 
Share based payment -                                 -             -                56          -                -                -            56 
Own Shares Transfer -                                 -                     642      -           -                -                (642)                 - 
Revaluation Reverse Transfer 
 -                                                    -             -                -           -                (34)             34                      - 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
Total contributions by and 
 distributions to owners 
 -                                                      -             642              56          -                (34)             (608)        56 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
At 31st December 2020 10,339                          504           (1,197)          141         3,617                    3,014    (2,420)      13,998 
At 1st January 2021 
Comprehensive income for 
 the year 
Profit for the year -                                 -             -                -           -                -                1,042        1,042 
Actuarial gain recognised 
on the pension scheme -                               -             -                -           -                -                1,219             1,219 
Revaluation of property 
 -                                                    -             -                -           -                            166  (32)                 134 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
Total comprehensive income 
 for the year -                                         -             -                -           -                166              2,229        2,395 
Contributions by and 
   distributions to owners 
Share based payment -                                 -             -                16          -                -                -            16 
Own Shares Transfer -                                 -                     642      -           -                -                (642)        - 
Revaluation Reserve Transfer 
 -                                                    -             -                -           -                (30)             30           - 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
Total contributions by and 
 distributions to owners 
 -                                                      -             642              16          -                (30)             (612)        16 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 
At 31st December 2021 10,339                          504           (555)            157         3,617                    3,150    (803)        16,409 
----------------------------------------------------  ------------  ---------------  ----------  ---------------  ---------------  -----------  ------------ 

In accordance with Rule 20 of the AIM Rules, Airea confirms that the annual report and accounts for the year ended 31 December 2021 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 12 April 2022 and will be posted to shareholders by 21 April 2022. The AGM will be held on 17th May 2022, at 2.00 p.m. at the Cedar Court Hotel (Huddersfield), Lindley Moor Road, Ainley Top, Huddersfield, HD3 3RH. 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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