Final Results

Heath(Samuel) & Sons PLC

21 July 2023

 

HEATH (SAMUEL) & SONS PLC

21 JULY 2023

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2023 AND NOTICE OF AGM

CHAIR'S STATEMENT

As anticipated in the half year report, the second half proved to be more difficult than the first half, with tightening market conditions adding to the expected reductions in margins. However, given the uncertainties at the half year, the overall result was better than we feared might be the case, also taking into account that the previous year saw exceptional outperformance at the profit level due to what we highlighted at the time to be unsustainably low cost levels.

Total revenue for the year of £14.717m represented a 5% increase compared to the prior year (2022: £14.015m). Operating profit for the year was £1.167m (2022: £2.152m) and profit after tax £0.931m (2022: £1.472m).

The sales increase versus prior year occurred almost exclusively in the first half, with sales decreasing in the second half compared to the first half (£7.157m versus £7.560m). The USD exchange rate movement against Sterling accounted for virtually all the increase. The order book held up reasonably well during the year, but sales were held back by production difficulties caused by machinery breakdowns and labour shortages.

As mentioned above, and in the half year report, profit margins have reduced as the result of a number of factors. Machine breakdowns and maintenance have been particularly disruptive, as some Computer Numerical Control (CNC) lathes are coming to the end of their useful lives. Replacements have been ordered, requiring new programming and tooling, but there are long lead times before they can be fully commissioned. Shortages of skilled labour have also caused delays and inefficiencies and, whilst the staffing situation has now improved, new recruits require long training periods. Energy costs increased by £366k (71%) year on year and general cost inflation also took its toll. The other major cost increase arose from investment in sales and marketing resources: selling and distribution costs increased by 22%, as a result of recruiting more sales personnel, resuming attendance at international trade fairs, and investing in new product development. The directors consider this investment to be essential to secure the future health of the business.

The balance sheet continued to be robust, indeed more so than in the prior year, with net assets increasing from £7.676m to £11.193m. The increase was due to the reduction in the pension scheme deficit from £4.8min 2022 to £0.5m in 2023 (calculated under IAS 19 rules), as a result of the increase in interest rates and gilt yields. However, the most recent Actuarial Valuation showed a deficit of £5.528m at 31 March 2022. The directors decided to ask the scheme trustees to request an Annual Funding Update from the scheme actuary as at 31 March 2023. This has been received and shows a deficit of £1.030m.

Cash and cash equivalents decreased by £1.697m, from £4.410m to £2.717m. Capital expenditure accounted for £1.163m, and mainly comprised the cost of replacing production machinery. Also £311k was capitalised as product development costs and £471k was spent increasing inventories as part of our policy of securing supplies and avoiding supply chain disruption.

We have experienced some weakness in sales in the first quarter of the year to 31 March 2024. Anecdotal reports from our customers, both in the UK and North America, indicate a marked downturn in their order books. We will need to wait until after the usually quiet summer period to find out whether this is a longer-term market issue. In any event, it seems unlikely that there will be much good news on the macro-economic front, with the Bank of England determined to raise interest rates and cool the economy down quickly.  Growth is slowing in the US market, although we currently have only a small market presence and there are significant opportunities for us to increase our market share.

The investment in new equipment will enable us to accelerate the cycle time for getting new product ranges into the market. We have recently launched a new range called 'The Forme Collection', which is generating much excitement in our customer base. It combines a high quality, elegant design with more efficient, lower cost production, and correspondingly lower price point, and we are hopeful that this will assist in combatting any adverse market conditions.

Much depends on the markets in 2023/24 and market conditions will not be helpful at least for the first half, so we are expecting the order book to decline and therefore some worsening in trading. We are still working through historical orders. In the near term, production continues to be constrained by the time it takes to bring new equipment up to speed and we are currently having to work significant overtime to meet our order book.  However, the directors are hopeful that the actions they have been taking will give us a fair chance of restoring growth in the second half year. I would like to congratulate the executive management team for their pro-active approach in meeting the challenges and also our loyal staff for working diligently to provide an excellent service for our customers.

AR Buttanshaw

Chair

20 July 2023

DIVIDEND

The directors recommend the maintenance of the final dividend at 7.5626p per share (2022: 7.5625p). The final dividend will be paid on 21 September 2023 to shareholders on the register at the close of business on 4 August 2023. The ex-dividend date for this payment is 3 August 2023.

This announcement contains inside information for the purposes of the UK Market Abuse Regulation and the Directors of the Company are responsible for the release of this announcement..

For further information:

Samuel Heath & Sons Plc
Simon Latham - Company Secretary	[phone]
Cairn Financial Advisers LLP	[phone]
James Caithie/Jo Turner

________________________ CONSOLIDATED INCOME STATEMENT_________________________

for the year ended 31 March 2023

	Note		2023			2022
			£000			£000
Revenue	3		14,717			14,015
Cost of sales			(7,950)			(6,975)
Gross profit			6,767			7,040
Selling and distribution costs			(3,556)			(2,917)
Administrative expenses			(2,097)			(1,986)
Other operating income			53			15
Operating profit			1,167			2,152
Finance income			34			10
Finance cost			(133)			(132)
Profit before taxation			1,068			2,030
Taxation	4		(137)			(558)
Profit for the year attributable to owners of the Parent Company			931			1,472
Basic and diluted earnings per ordinary share	6		36.7p			58.1p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2023
							2022
			£000			£000
Profit for the year			931			1,472
Items that will not be reclassified to profit or loss:
Actuarial gain on defined benefit pension scheme			3,588			693
Deferred taxation on actuarial gain			(891)			(173)
Deferred tax rate change			-			381
Revaluation of property, plant and equipment			293			-
Deferred Tax on revaluation			(73)			-
			2,917			901
Total comprehensive income for the year			3,848			2,373

___________________________STATEMENTS OF FINANCIAL POSITION_____________________

31 March 2023

		Group
		2023		2022
		£000		£000
Non-current assets
Intangible assets		691		442
Property, plant and equipment		4,754		3,670
Investments		-		-
Deferred tax assets		-		425
		5,445		4,537
Current assets
Inventories		4,387		3,916
Trade and other receivables		1,629		1,836
Current tax receivable		37		-
Amounts owed by group undertakings		-		-
Cash and cash equivalents		2,717		4,410
		8,770		10,162
Total assets		14,215		14,699
Current liabilities
Trade and other payables		(1,644)		(1,982)
Amounts owed to group undertakings		-		-
Lease liabilities		(62)		(62)
Deferred tax liability		(723)		-
Current tax payable		-		(13)
		(2,429)		(2,057)
Non-current liabilities
Lease liabilities		(56)		(129)
Retirement benefit scheme		(537)		(4,837)
		(593)		(4,966)
Total liabilities		(3,022)		(7,023)
Net assets		11,193		7,676
Equity
Called up share capital		254		254
Capital redemption reserve		109		109
Revaluation reserve		1,220		1,186
Retained earnings		9,610		6,127
Total equity attributable to owners of the Parent Company		11,193		7,676

_________________ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY __________________

for the year ended 31 March 2023

	Attributable to owners of the Parent Company
	Share capital	Capital redemption reserve	Revaluation reserve	Retained Earnings	Total Equity
	£000	£000	£000	£000	£000
Balance at 31 March 2021	254	109	1,267	3,987	5,617
Equity dividends paid	-	-	-	(314)	(314)
Profit for the year	-	-	-	1,472	1,472
Reclassification of depreciation on revaluation	-	-	(81)	81	-
Other comprehensive income for the year	-	-	-	901	901
Total comprehensive income for the year	-	-	(81)	2,454	2,372
Balance at 31 March 2022	254	109	1,186	6,127	7,676
Total transactions with owners
Equity dividends paid	-	-	-	(331)	(331)
Profit for the year	-	-	-	931	931
Reclassification of depreciation on revaluation	-	-	(81)	81	-
Other comprehensive income for the year	-	-	115	2,802	2,917
Total comprehensive income for the year	-	-	34	3,814	3,848
Balance at 31 March 2023	254	109	1,220	9,610	11,193

___________________________STATEMENTS OF CASHFLOWS _____________________________

                                                          for the year ended 31 March 2023

                                                                                                                                                Group                           

			2023		2022
			£000		£000
Cash flow from operating activities
Profit for the year before taxation			1,068		2,030
Adjustments for:
Depreciation			401		359
Amortisation			107		50
Loss on disposal of property, plant and equipment			41		4
Net finance costs			(34)		(12)
Defined benefit pension scheme expenses			166		170
Contributions to defined benefit pension scheme			(877)		(1,036)
Operating cash flows before movements in working capital			872		1,565
Changes in working capital:
(Increase) in inventories			(471)		(234)
Decrease in trade and other receivables			170		272
(Decrease)/increase in trade and other payables			(338)		195
Cash generated from operations			233		1,798
Taxation paid			-		-
Net cash generated from operating activities			233		1,798
Cash flows used in investing activities
Payments to acquire property, plant and equipment			(1,167)		(444)
Proceeds from the sale of property, plant and equipment			41		11
Payments to acquire intangible assets			(357)		(306)
Net finance income			34		12
			(1,449)		(727)
Cash flows from financing activities
Lease payments			(58)		(46)
Dividends paid			(331)		(314)
CBILS Loan received			-		950
CBILS Loan repaid			-		(950)
			(389)		(360)
Net (decrease)/increase in cash and cash equivalents			(1,605)		711
Cash and cash equivalents at beginning of year			4,410		3,682
Effect of exchange rate differences on cash and cash equivalents			(88)		17
Cash and cash equivalents at end of year			2,717		4,410

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1.     Basis of preparation

The Group has prepared its consolidated financial statements for the year ended 31 March 2023 in accordance with UK-adopted International Accounting Standards. The accounting policies applied are consistent with those included in the financial statements of the Group for the year ended 31 March 2022.

The financial information contained in this preliminary announcement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The annual report and financial statements for the year ended 31 March 2023 were approved by the Board of Directors on 20 July 2023 along with this preliminary announcement.   The annual report and financial statements will be delivered to the Registrar of Companies after the Annual General Meeting.

The statutory accounts of Samuel Heath & Sons PLC for the year ended 31 March 2022 have been delivered to the Registrar of Companies. The auditor's reports on the statutory accounts for the years ended 31 March 2023 and 31 March 2022 were unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2.     Critical accounting and key sources of estimation

Critical accounting estimates, assumptions and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The Group has evaluated the estimates and assumptions that have been made in relation to the carrying amounts of assets and liabilities in these financial statements.

The key accounting judgements and sources of estimation uncertainty with a significant risk of causing a material adjustment to assets and liabilities in the next 12 months include the following:

Pensions - movements in equity markets, interest rates and life expectancy could materially affect the level of surpluses and deficits in the defined benefit pension scheme.

Valuation of property, plant and equipment - the Group reviews the value, useful economic lives and residual values attributed to assets on an on-going basis to ensure they are appropriate. Changes in market value, economic lives or residual values could impact the carrying value and charges to the income statement in future periods.

Provisions - using information available at the balance sheet date, the Directors make judgements based on experience on the level of provision required against assets, including inventory where the provision is reviewed against expected future stock usage, the stock provision at year end was £2.512m (2022: £2.211m).

Research and development - the Group reviews the projects worked on during the year and capitalises the costs of those projects deemed to generate profits in future years, £311,000 was capitalised in the year (2022: £276,000). The Company takes full advantage of available taxation support.

Deferred tax assets - deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.

3.     Revenue by geographic market
			2023 £000		2022 £000
Overseas			7,276		6,687
UK			7,441		7,328
			14,717		14,015

4.     Income taxes

	2023 £000		2022 £000
Current taxes:
Current year	-		32
Adjustments in respect of prior periods	(41)		2
	(41)		34
Deferred taxes:
Origination and reversal of temporary differences	211		348
Change in tax rate	-		152
Adjustments in respect of prior periods	(33)		24
	178		524
Total income taxes	137		558

Corporation tax is calculated at 19% (2021: 19%) of the estimated assessable profit for the year.

Tax reconciliation

		2023 £000		2022 £000
	Profit for the year	1,068		2,030
	Corporation tax charge thereon at 19% (2022: 19%)	203		386
	Adjusted for the effects of:
	Prior year adjustments	(73)		26
	Research and development claim	-		(68)
	Changes in tax rates	68		152
	Revaluation	(73)		-
	Other adjustments	12		62
	Total income taxes	137		558

5.     Dividends

	2023		2022
	£000		£000
Final dividend for the year ended 31 March 2022 of 7.5625 pence per share (2021: 6.875 pence per share)	192		175
Interim dividend for the year ended 31st March 2023 of 5.50 pence per share (2022: 5.50 pence per share)	139		139
	331		314

The directors are recommending a final dividend for 2023 of 7.5625 pence per share amounting to £192,000. The proposed final dividend is subject to approval at the Annual General Meeting and hence has not been included as a liability in these accounts.

6.     Earnings per share

The basic and diluted earnings per share are calculated by dividing the relevant profit after taxation of £931,000 (2022: £1,472,000) by the average number of ordinary shares in issue during the year being 2,534,322 (2022: 2,534,322). The number of shares used in the calculation is the same for both basic and diluted earnings.

7.     Exceptional items

There were no exceptional costs for 2023.

8.     Notice of annual general meeting

Notice is hereby given that the 2023 Annual General Meeting of the Company will be held at the registered office of the Company, Leopold Street, Birmingham, on 7 September 2023 at 12.00 noon.

9.     Posting of accounts

The report and accounts are being posted to shareholders today where requested, and are available on the Company's website, at www.samuel-heath.com/investor-relations. 

Note: 

Certain statements made in this announcement are forward-looking statements. These forward-looking statements are not historical facts but rather are based on the Company's current expectations, estimates, and projections about its industry; its beliefs; and assumptions. Words such as 'anticipates,' 'expects,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates,' and similar expressions are intended to identify forward-looking statements. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors, some of which are beyond the Company's control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The Company cautions security holders and prospective security holders not to place undue reliance on these forward-looking statements, which reflect the view of the Company only as of the date of this announcement. The forward-looking statements made in this announcement relate only to events as of the date on which the statements are made. The Company will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances, or unanticipated events occurring after the date of this announcement except as required by law or by any appropriate regulatory authority. 

 

END