Final Results

RNS Number : 8635E

Synnovia PLC

09 July 2019

 

9^th July 2019

Synnovia plc

("Synnovia", the "Company" or the "Group")

Results for the year ended 31 March 2019

Synnovia plc (AIM: SYN) announces its audited results for the year ended 31 March 2019, which are in line with market expectations.

Financial highlights

	Year ended 31 March 2019 £000	Year ended 31 March 2018 £000	% Change
Revenue	81,639	75,107	8.7%
Adjusted EBITDA*	7,546	7,032	7.3%
Adjusted Profit before tax*+	4,188	4,185	0.1%
Adjusted EPS (p)*+	9.7p	9.5p	2.1%
DPS (p)	0.00p	0.00p	na
Net Debt	16,436	15,123	8.7%

* excluding amortisation of intangibles and deal fees, realised non-cash foreign exchange translation derivative losses and share-based incentive scheme charges

+ also excludes non-controlling interests and unrealised foreign exchange translation derivative losses

Highlights

·    Record year for sales and EBITDA

·    Good like-for-like organic revenue growth - 8.4% annually

·    Accelerating recovery in bearings business; like-for-like sales up 19.8%

·    £5.2 million invested in capital equipment for new products, capabilities and capacity

·    Bearings business converts new business worth £19.6 million of lifetime sales

·    Change of name and visual identity announced in December 2018

·    Corporate sustainability and waste plastic policy implemented

·    Banking facilities successfully refinanced post period-end

Commenting on these results, Faisal Rahmatallah, Chairman, said:

"FY2019 has been another excellent year for organic growth.  To maintain our momentum, we have recruited and trained new staff, invested in new facilities and equipment, and refinanced our banking facilities post period-end. This has supressed our profitability for the year somewhat as we continue to invest for future growth. We consider this reinvestment policy to be the best approach for the creation of long-term shareholder value. 

The Board thanks all our employees for the commitment and ingenuity shown over the last year.  More of the same will be needed over the next year. Meanwhile, the Board is confident that FY2020 will be another year of significant progress."

Synnovia plc	Tel: [phone]
Faisal Rahmatallah, Chairman
Nick Ball, Finance Director
Cenkos Securities plc (Nomad and Joint Broker)	Tel: [phone]
Mark Connelly
Callum Davidson
Allenby Capital Limited (Joint Broker)	Tel: [phone]
David Hart

Notes to Editors

Notes to Editors

Synnovia is a specialist manufacturer of industrial components and consumables.  Applications for these products vary widely and examples include:

·    Packaging for the food manufacturing and distribution - films, sacks and pouches

·    Steering columns and instrument control knobs in the automotive industry - plastic ball bearings

·    Hydraulic and industrial rubber hose manufacture - various types of plastic mandrel

·    Cardboard box manufacture - creasing matrices

Synnovia's business model is based on understanding customers' problems in depth, and then developing and mass producing proprietary, technical solutions for these problems.

The business operates through two divisions, Films and Industrial, and has the majority of its production in six UK based factories, with a further two factories in Asia.  Approximately 50% of its £82 million revenue are made outside the UK to more than 80 countries.

Further information can be found on www.synnovia.com

 

Chairman's Statement

Review of FY2019

Adjusted vs GAAP figures

On a GAAP basis, operating profit decreased by £2.4 million over the prior year, profit before tax decreased by £3.5 million to a loss before tax of £0.7 million, and EPS decreased by 8.1p over the prior year.

We have always reported figures on an adjusted basis and included a reconciliation to GAAP figures in the initial pages of our financial report. For reasons of consistency and transparency we have done the same this year.  These key differences are set out in detail below and relate to:

·    Amortisation of intangibles - if applied to the adjusted figures would reduce Adjusted EBITDA by £3.6 million, and Adjusted EPS by 9.2p. We do not include this in our adjusted figures as it is not a cash cost now or any time in the foreseeable future.

·    Unrealised gains/losses on unexpired currency forward contracts - if applied, would reduce Adjusted EBITDA by £0.7 million, and Adjusted EPS by 1.8p. We do not include these as the forward contracts have been taken out to hedge our exposure to our foreign currency trading gains and losses, so there is a matching gain/loss in future trading performance which is not taken into account in the way statutory accounts are presented. We therefore exclude them.

·    Exceptional costs - if applied, would reduce Adjusted EBITDA by £0.1 million and Adjusted EPS by 0.3p. Exceptional costs are by their nature ones that we would not expect to occur in the normal course of business.  We therefore exclude them.

Alternative performance measures defined, explained and reconciled below.

Financial Performance

Revenue increased in FY2019 by 8.7% to £81.6 million, a record level. Of this increase, 0.3% was due to exchange rate fluctuations and the rest was achieved organically. On a like-for-like basis, both the Films and Industrial Divisions grew strongly, 7.5% and 9.7% respectively; in addition, the Industrial Division benefitted by 0.7% from exchange rate fluctuations.

FY2019 profitability, measured in terms of Adjusted EBITDA*¹ to revenue ("Adjusted EBITDA margin*"), is unchanged from FY2018 at 9.2%, but has benefitted from favourable currency movement.  Our longstanding hedging policy is to hedge our exposure to the US dollar up to two years in advance and, consequently, during FY2019 we benefitted from the devaluation of Sterling that happened in 2016 after the Brexit referendum vote.  The benefit of this to Adjusted EBITDA* during the year was £0.7 million.

Like-for-like Adjusted EBITDA* in the Industrial Division grew by £0.7 million as our bearings business recovered from a disappointing year in FY2018.  Like-for-like Adjusted EBITDA* in the Films Division receded by £0.8 million as we suffered delays and disruption in the installation of new capacity, and inflation in energy, packaging and logistics costs. As FY2019 concluded, all this new equipment was installed and fully functional.

Overall therefore, Synnovia's Adjusted EBITDA* increased by £0.5 million or 7.3% during the year as we benefitted from the unwinding of the hedges taken out before June 2016 and strong performance in the Industrial Division was negated by a weaker performance in the Film Division caused by cost pressure.

Depreciation increased by £0.3 million or 13.7% on the prior year because of increased capital expenditure.  Interest costs increased by £0.1 million or 9.8% due to a higher average debt level during the year.  As a result, adjusted EPS increased by 0.2p or 2.1% over the prior year. 

Working capital was 11.3% of revenue at year end, down from 12.1% in the prior year, benefitting from the shift towards sales of die-making and die-cutting accessories in our matrix business, as well as good working capital management generally.  Overall net debt at the end of the year was £16.4 million, an increase of £1.2 million since the start of the financial year primarily attributable to significant re-investment in the business to enable future growth.  Net debt leverage was 2.2x Adjusted EBITDA*, which was slightly above the range we target over the long run of 1.5-2.0x Adjusted EBITDA*. Interest cover remained comfortable at 9.8x.

______________

¹ * Alternative performance measures - All references to EBITDA are Adjusted measures “Adjusted” means excluding amortisation, exceptional costs, foreign exchange derivative and loan gains / losses, and LTIP charges

 See below (Financial Review) for reconciliations of (i) presented non-GAAP measures to the GAAP measures including Adjusted EBITDA, (ii) net debt; and (iii) organic revenue growth. 

 “like-for-like” means comparison between years applying a constant exchange rate (i.e. applying the same foreign exchange rates to both years)

“net debt leverage” means the ratio of Synnovia’s cash and cash equivalents less current interest bearing loans and borrowings and non-current interest bearing loans and borrowings compared to its Adjusted EBITDA

“Interest Cover” means the ratio of Synnovia’s Adjusted EBITDA compared to its bank interest charge

New Business Performance

Revenue from new business entering production over the last year was £4.3 million up from £3.9 million in FY2018.  We have seen good levels of new business entering production in our specialist sacks and matrix businesses in particular. Customer retention, reflecting customer satisfaction, was good; lost business in the year was low, accounting for only 2.5% of turnover. 

Project conversions in our bearings business were once again strong at £19.6 million of lifetime sales, reflecting a 9% increase on the prior year. We have reassessed the future annual sales value of the pipeline of new business based on latest forecasts, and this now stands at £5.7 million up from £5.2 million at the end of FY2018 and we expect this pipeline to take three years to come through.

Banking

Net debt remained between £15 million and£17 million during the year as we continued to invest heavily in the business. The cost of borrowing over FY2019 averaged approximately 350 bps over LIBOR.

Post period end we concluded a refinancing with Barclays, who have been our bankers now for eight years. The new facilities enable a maximum drawdown of £25.3 million combined, with a final maturity date of June 2023. They comprise a senior term loan, invoice discounting, export finance, asset finance and overdraft facilities. These new arrangements will replace those existing with Barclays that were due to mature in June 2021.

Investment

FY2019 saw the following areas of reinvestment in the business:

·    Customer specific projects - the bearings business grew significantly during FY2019 and further new projects are due to start production during FY2020 for which additional capacity has been needed. In total, during FY2019, £0.8 million was invested in customer specific capital expenditure in our bearings business.

·    New capacity and capabilities - to facilitate entry into new markets and provide additional capacity in the Films Division, a total of £4 million was invested during the year in additional capacity and capabilities.

·    Spend on maintenance, equipment replacement, infrastructure and efficiency improvement - £1.3 million invested, a little more than typical, reflecting significant improvements in the Films Division, as the Dunstable factory was substantially upgraded and Flexipol moved into new offices and a new logistics unit.

In total, therefore, we have invested approximately £6.1 million in FY2019, which was more than we expected as the year commenced; there was some spend spill-over from the end of FY2018 and some good opportunities for investment came up during the year.  The total spend was funded by free cash flow (before maintenance capex) of £4.7 million and by increasing net debt by £1.3 million.

Strategy & Growth

Sustainability & Plastic Waste

As we have stated previously, none of the products we make are single-use consumer plastic products and so we are not in the "eye of the storm" of the adverse publicity against plastics.  Moreover, the products we manufacture generally have smaller carbon footprints as well as functional advantages when compared to substitute products made from other materials, such as paper or metal.

Nevertheless, we can still make our products better and more sustainable, and with that in mind we have stepped up our efforts to reduce the waste we produce, increase the amount of recycled material we introduce into many of our products, and intensified our monitoring of advances in new materials and processing technologies which could improve the carbon footprint and the recyclability of the products that we produce.

Brexit

The impact to date of Brexit on our business is difficult to assess and the future impact even more difficult to predict. It should be noted that approximately 50% of our sales are in the UK and approximately15% are to the EU. The key risk is a "no deal" scenario, in which there are four different factors to consider - logistics, tariffs, currency and UK economic conditions.

·    Logistics - we have taken steps where possible to increase stocks for European customers and increase raw materials we purchase from Europe but we would still expect some short-term supply chain disruption in the event of "no deal". 

·    Tariffs - moving to WTO tariffs would have single digit percentage impacts on sales from the EU but probably sterling weakness would in the short term compensate for these.  Much of our raw material purchases are from Europe and some single digit percentage impacts would also apply; however, there are alternative sources and UK competitors would be equally affected.

·    Currency - Sterling weakness has benefitted us since the referendum, by making us more competitive, although the translation impact on our financials was delayed until FY2018-19 by our hedging policy.  We can expect to continue benefit and probably more so in the event of "no deal" if sterling weakens further.

·    UK economic conditions - these are expected to worsen. We do not appear to have been unduly affected in FY 18-19, but there are indications in Q1 FY19-20 that UK demand has weakened. This is probably the most significant factor to be considered going forward.

Overall, therefore, a "no deal" Brexit could disrupt some of our sales and raw material supplies, and could supress UK sales growth but may also improve our prospects for export and overseas sales growth.

Key Initiatives

In early FY2016 we launched a five-year plan with the target of doubling Adjusted EBITDA* over the subsequent five years. As we conclude the fourth year out of five, it is clear that we are behind plan against this target.  Inevitably over five years there are many factors at play but we can identify three that are most significant:

·    Firstly, this year's set-backs have put the Films Division roughly a year behind target. We believe the Films Division should recover from what have been temporary operational issues.

·    Secondly, our efforts to establish a profitable business in China from our three Industrial Division companies have been frustrating. Essentially, we have not yet built revenue up to the level expected; the issues in China are associated with market development, customer acceptance and critical mass, all of which have held us back.

·    Thirdly, we have continued to add costs to invest for future growth over the next five years as the current five-year period comes to an end. Business development and new product development costs has been increased significantly relative to expectations at the start of the five-year period.

To ensure we continue to focus on creating value in the long term, we have reviewed the current five-year target which has now become a short-term target with the potential to lead to dysfunctional decision making. We consider that doubling Adjusted EBITDA* over a five-year time horizon is once again an appropriate aspirational goal and so the new target is Adjusted EBITDA* of £15 million by 2023-24.

The key initiatives now driving our strategy are as follows:

·    The introduction of new films, innovative sacks and pouches to be produced in-house.

·    An increase in internal recycling of plastic scrap and waste material.

·    The roll-out of our plastic bearing solutions for key accounts in our core applications like steering columns, instrument controls, domestic appliances, video conferencing cameras, conveyors and shower enclosures.

·    The introduction of a range of plastic bearings that can operate at higher loads, temperatures and speeds than has hitherto been the case, so widening the range of applications and available market that can be served.

·    Forward integration in the matrix business and using this to increase both the range of customers we serve directly and the range of products we can offer.

·    Improvement in the security and speed of supply of bespoke mandrels to key accounts, particularly those based in the USA and Asia.

Obviously, any programme of initiatives, such as those listed above, has risks associated to their achievement.  For example, we routinely face the possibility of customer inflicted delays and unforeseen technical difficulties, notwithstanding the management processes we have put in place to avoid or mitigate such issues.  Attrition (i.e. customer losses) is also a factor that we have considered and made allowances for, but this allowance could be insufficient. Finally, the most unpredictable and impactful risk is what happens in the global economy. Our working assumptions over the long term are for slow growth (c.2-3% annually) and that current exchange rates remain broadly unchanged. We believe that both these assumptions are reasonable but they may prove to be incorrect, particularly over short periods.

Capital Allocation - Looking Ahead

We anticipate a further £5.0 million capital expenditure during the upcoming financial year.

·    Customer specific projects - at this stage we expect approximately £0.5 million of capex associated with specific customer projects and committed capital expenditure.

·    New capabilities and capacity - we will be moving our bearings factory in Thailand to a larger facility roughly twice the size of our current facility; this will give us scope for expansion over the next few years.  In addition, we will be increasing production of mandrels in the US and commencing manufacture in Thailand to enable us to serve our customers in the US and in Asia better. We will also add some specialist conversion and recycling machinery in our Films Division.  In total, about £3.2 million is earmarked for these areas during FY2020.

·    Maintenance, replacement, infrastructure and productivity - we expect a similar year to FY2019, as we complete the move of premises in the Films Division and commence a project to integrate IT systems so that the Division can be managed as one business. Approximately £1.3 million has been set aside for this category of capital expenditure.

Dividend

Given the strong organic growth we are achieving and the potential for making further investments for acquisitive and/or organic growth, we do not propose to recommence dividends payments at this time.  The Group's dividend policy will be kept under review.

Outlook

Trading in Q1 FY2020 has been steady amongst a backdrop of poor economic conditions generally. Sales volumes for the quarter were lower than those for Q4 2019 although this is most likely partly due to pre-Brexit stock building that so far has proved to be unnecessary.  However, the production issues in the Films Division that affected performance in FY2019 are largely behind us and business conversion pipelines within all our businesses are good.

The Board wishes to extend its sincere thanks to the Group's employees, who have responded to some difficult challenges during FY2019 extremely well. It has been a very busy year and a huge amount of hard work has been put in by all. I am pleased to report that we continue to be highly profitable and cash generative as a Group and that we are firmly on a growth track.  We look forward to another year of good progress in FY2020.

Faisal Rahmatallah

Chairman

Operational Review

			2019 £000	Restated 2018 £000
Industrial Division			37,700	34,464
Films Division			43,939	40,643
Revenue per consolidated income statement			81,639	75,107

Industrial Division

Bell Plastics ("Bell"), which manufactures hose mandrels and protective films for hoses, had a more challenging year than in FY2018 when revenue increased by 24%. The loss of a European key account at the end of the prior year, part compensated by the development of new business in both North America and Asia, meant that revenue were down 9% year-on-year.  Mandrel production in our West Virginia facility, which commenced at the end of the prior year, was successfully consolidated and plans are in place to extend this this further to satisfy an increasing percentage of our revenue in North America.

Overall equipment efficiency, a key measure of productivity for Bell, improved gradually over the year in the UK factory. Bell also launched an important project to increase the recycled material content of our mandrels, helping us toward achieving our waste recycling target. The operational team continues to make good progress in developing the competencies needed to achieve continuous improvement of material, labour and capital productivity.

Bell is working on two important new product developments. The first, an easy release mandrel which improves our customers' hose manufacturing process notably by improving mandrel ejection, is undergoing refinement to improve customer acceptance.  The second product, a new abrasion resistant film to improve hydraulic and industrial hose abrasion resistance, UltraXLPE, has made its first sales and Bell is working on scaling up production to meet potential demand appropriately.

BNL (UK) Limited ("BNL"), which manufactures plastic ball bearings and related assemblies, had an excellent year with revenue up 20.7% on the previous year (19.8% at constant exchange rates), after a disappointing prior year in which revenue fell by 4.3% in constant currency terms. Projects which had been slow to come through in FY2018, did fulfil expectations in FY2019 and in addition some key accounts enjoyed strong demand and BNL benefitted accordingly.  

New business wins in the year were again healthy, with newly converted projects expected to deliver over £19.6 million in lifetime sales.  This was the fourth consecutive year when the conversion of new projects has been significantly ahead of current annual turnover.  Particularly pleasing has been the conversion of two important projects involving our standard or "catalogue" range of bearings, the first substantial orders we have received for this range of bearings.

The newly converted business pipeline is healthy, with projects won but not yet in full production (or not at full production rate) at just over £4.6 million. This business is expected to flow through over the next three to four years.

During FY2020, BNL will move its Thai factory into larger premises. Fortunately, the new factory will be located very close to the existing and so disruption will be minimised.  BNL will remain in a trade free zone and will have a factory with roughly twice the floor area, so enabling expansion over the next five years. The existing factory was opened in October 2008.

FY2020 will be a year in which BNL consolidates the progress made in FY2019.  Aside from moving the Thai factory, other investments include adding new salespeople in the USA and increasing the strength and depth of the engineering and tooling team in the UK.  A significant number of new projects are scheduled to start production during FY2020 and BNL have found in the past that this ramp up phase of demand at the start of a major project is very difficult to predict and is consequently a management challenge.

C&T International ("C&T"), the world's largest manufacturer of creasing matrix, increased turnover 7.0% entirely through organic growth. C&T now has sales offices in China, India, Italy, UK and USA; factories in UK and China and roughly 100 distributors around the world.

We have taken the successful sales and marketing approach adopted in the UK in recent years, to other territories. Sales have increased through our direct technical sales approach and by gradually broadening the range of die supply products to both box convertors and die makers. We have particularly strengthened our sales team in China towards the end of the year and will be looking for significant revenue growth there in FY2020.

In the USA, we have made good progress towards improving the profitability at CCM, which was marginal at the time of acquisition and the management team there are now highly motivated to continue to take the steps necessary to enable CCM achieve the benchmarks C&T expects of a distribution businesses in the die supply industry.

In China, we have progressed the joint venture distribution company in Shanghai; this has taken some time to develop but as FY2019 closed we started to see some progress towards the levels of business expected.  The factory in Tianjin is benefitting from more exchange of best practice with the UK factory in Wellingborough, and the two factories increasingly aware of the need and importance of acting in an integrated manner operationally.

C&T's future growth will come from continual improvement of its technical sales service, further broadening of its product range and forward integration in key territories through acquisition or joint ventures.

After discussion with our auditors, the Directors have decided to a £2.5 million impairment of goodwill which was recorded in 2007 on the acquisition of Channel.

Films Division

Throughout FY2019, the leadership and the sales and marketing organisations of the Films Division companies (Flexipol, Palagan and Synpac) were consolidated into one structure, with three operational platforms in Haslingden, Dunstable and Hessle.  It was also decided that the Division should adopt the Flexipol name, but that the Palagan and Synpac names would be retained for sales and marketing activity in their core product-markets. The Films Division will therefore become known as "Flexipol" going forward.

Flexipol had a good year for revenue with revenue up 8.1% in value terms, although only 6.2% in tonnes. Eight new key accounts, that is customers with annual revenue of more than £0.1 million, were converted during the year, which was also an excellent achievement.

Unfortunately, profitability did not follow as the business was subject to unexpected inflation in costs categories that included energy, packaging and logistics, as well as relatively minor delays to projects intended to provide additional capacity and to introduce new capabilities. The delays and disruption in particular meant that inefficiencies and additional costs were incurred in production during the year. Furthermore, there was insufficient time as these projects concluded to achieve revenue in FY2019 from the new capacity and capabilities added. In summary therefore, additional costs were incurred during the year whilst additional revenues were limited by capacity until the projects concluded towards the end of FY2019.

A total of £4.4 million of new equipment was installed at Flexipol's sites during the year.  Overall capacity at both Haslingden and Dunstable has increased by 20-25% and some important new capabilities have been added in terms of printing, multilayer extrusion and internal recycling. In addition, a lease for new offices and an associated logistics facility in Haslingden was entered into in Q3 which will also facilitate future growth and provide staff with improved facilities.

Towards the end of the year important announcements were made regarding leadership succession as Ian Smith, who has been MD of Flexipol since its acquisition by Synnovia, has decided to stand down from the end of FY2020. Ian was a founder director of Flexipol in the 1990s, helped to build it over the years until Synnovia's acquisition in 2015 and has led the business extremely well since then.  Richard Stevens, who has been at Flexipol for 21 years in various operational and commercial roles, and is currently Commercial Director will take over from Ian.  We very much hope that Ian will continue to be associated with the business after he steps back from the leadership role.

 

Financial Review

		2019	2018	Change
		£000	£000	%
Revenue***		81,639	75,107	8.7%
Gross profit		24,528	24,088	1.8%
Operating profit		946	3,369	(71.9)%
Add back: Depreciation		2,403	2,119
Add back: Amortisation		1,035	1,118
Add back:  Impairment of goodwill		2,500	-
Add back: LTIP charge		56	94
Add back: Exceptional administrative costs		137	1,452
Add back: Foreign exchange non-cash realised loss / (gain)		469	(1,120)
Adjusted EBITDA		7,546	7,032	7.3%
(Loss) / profit before tax		(705)	2,762
Add back: Amortisation of intangible assets		1,035	1,118
Add back:  Impairment of goodwill		2,500
Add back: Amortisation and write off of capitalised deal fees		180	89
Add back: LTIP charge		56	94
Add back: Exceptional costs		137	1,452
Add back: Unrealised foreign exchange & derivative (gain)/loss		565	(263)
Add back:  Foreign exchange non-cash realised gain		469	(1,120)
Less: Non-Controlling interests (credit) / charge		(90)	353
Less:  Non-controlling interest's exceptional charge		-	(300)
Add back:  Share of Associate's loss		41
Adjusted Profit before tax*		4,188	4,185	0.1%
Current year tax charge+		(420)	(525)
Adjusted Profit after tax*		3,768	3,660	3.0%
Basic adjusted EPS*+		9.7p	9.5p	2.1%
Basic EPS		(2.4)p	5.7p	(142.1)%
Capital expenditure		6,771	3,705	82.7%
Net debt		16,436	15,123	8.7%

+              applying an underlying tax charge of 10% (2018: underlying tax charge of 13%) and based on weighted average shares in issue in the year.  The underlying tax charge for 2019 is applicable to Synnovia's Adjusted PBT.  This tax rate will take into account the current tax charge (19%) less any further deductions such as the R&D tax credit, the investment allowance and low tax zones overseas.

***    Restated Revenue- see Note 9

Revenue

Revenue for the year was £81.6 million which was an increase of 8.7% from £75.1 million (restated) in FY2018. On a constant foreign exchange basis, revenue increased by approximately 8.4%.

Alternative Performance Measure:  Organic Revenue Growth reconciliation			Change on
			Prior year
		£000	%
Actual Revenue 2018		75,107
Foreign exchange impact		224	0.3%
Organic revenue		6,308	8.4%
Actual Revenue 2019		81,639	8.7%

Gross profit

Gross profit was £24.5 million (margin: 30.0%) in FY2019 against £24.1 million (margin: 32.1%) in FY2018. After adjusting for the foreign exchange non-cash realised loss of £0.5 million in FY2019 and the foreign exchange non-cash realised gain of £1.1 million in FY2018, the gross profit margin was 30.5% (30.6% in FY2018).

Exceptional costs

Exceptional costs incurred and included in administrative expenses in the year were £2.6 million.  This compared to FY2018 where exceptional costs were £1.4 million.

Profitability

Adjusted EBITDA was £7.5 million which is 7.3% higher than in 2018.

Loss before taxation of £0.7 million compares with the prior year equivalent profit of £2.8 million.  The primary reason for this was the write-off of £2.5 million of goodwill associated with C&T International - this was following management's impairment review to assess the total net present values of its cash flows compared to the goodwill held on the balance sheet.

Adjusted profit before taxation of £4.2 million compares with the prior year equivalent of £4.2 million.

Taxation

Synnovia's tax charge for the year was £0.1 million which compares with a tax charge of £0.9 million in FY2018.

Earnings per share

Basic loss per share was (2.4)p compared to earnings per share of 5.7p in 2018.

Capital expenditure

Capital expenditure was £6.8 million in FY2019 which compares with £3.7 million in 2018. As in the previous year, significant investment has been made to increase capacity and capabilities across Synnovia for future growth. Specific capital expenditure in the year included:

·    additional capacity in the Films division through upgrades of existing and new extrusion lines, new conversion lines and a print press; and

·    adding new injection moulding machines for a new bearings project and further investment in tooling

·    additional property acquired at Flexipol to provide extra space (£0.7 million).  This property was then sold under a sale and leaseback arrangement in December 2018.

Cash flow

In the year, cash generated from operations amounted to £6.2 million (FY2018: £4.5 million). There was a decrease in cash and cash equivalents of £2.8 million in the year (FY2018: decrease of £0.5 million).

Equity

The Company's total number of shares in issue was 38,995,151.  This number remained unchanged over the course of the year.

Net debt

Net debt at the year-end was £16.4 million (2018: £15.1 million), an increase during the year of £1.3 million.  As at 31 March 2019 net debt leverage was approximately 2.2x based on the current Adjusted EBITDA of Synnovia.

Alternative Performance Measure:	2019	2018
Net debt reconciliation	£000	£000
Cash and cash equivalents	(4,074)	(4,854)
Current Liabilities: Interest bearing loans and borrowings	9,762	7,206
Non-current Liabilities: Interest bearing loans and borrowings	10,748	12,771
Net Debt	16,436	15,123

Consolidated Income Statement

for year ended 31 March 2019

	Note	2019	2019	2019	2019		2018	2018	2018	2018
		Before foreign exchange impact on derivatives and loans & exceptional items	Foreign exchange impact on derivatives and loans	Exceptional items	Total		Before foreign exchange impact on derivatives and loans & exceptional items	Foreign exchange impact on derivatives and loans	Exceptional items	Total
		£000	£000	£000	£000		£000	£000	£000	£000
Revenue*		81,639	-	-	81,639		75,107	-	-	75,107
Cost of sales*		(56,595)	(516)	-	(57,111)		(53,527)	508	-	(51,019)
Gross profit		25,044	(516)	-	24,528		23,580	508	-	24,088
Distribution expenses		(3,663)	-	-	(3,663)		(3,542)	-	-	(3,542)
Administration expenses	3	(17,389)	-	(2,637)	(20,026)		(15,727)	-	(1,452)	(17,179)
Other income		107	-	-	107		2	-	-	2
Operating profit		4,099	(516)	(2,637)	946		4,313	508	(1,452)	3,369
Finance credit/(expense)	4 / 5	(1,045)	(565)	-	(1,610)		(870)	263	-	(607)
Share of Associate's loss		(41)	-	-	(41)		-	-	-	-
Profit/(loss) before tax		3,013	(1,081)	(2,637)	(705)		3,443	771	(1,452)	2,762
Tax charge		(127)	-	-	(127)		(945)	-	-	(945)
Profit for the year		2,886	(1,081)	(2,637)	(832)		2,498	771	(1,452)	1,817
Attributable to:
Equity holders of the Parent		2,796	(1,081)	(2,637)	(922)		2,551	771	(1,152)	2,170
Non-controlling interest		90	-	-	90		(53)	-	(300)	(353)
Profit for the year		2,886	(1,081)	(2,637)	(832)		2,498	771	(1,452)	1,817
Basic earnings per share attributable to equity shareholders of the Company	8				(2.4)p					5.7p
Diluted earnings per share attributable to equity shareholders of the Company	8				(2.3)p					5.6p

* restated - see Note 9

Consolidated Statement of Comprehensive Income

for year ended 31 March 2019

				2019	2018
				£000	£000
(Loss) / profit for the year				(832)	1,817
Other comprehensive income Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign currency operations				322	(267)
Total comprehensive (expense) / income				(510)	1,550
Total recognised income and expense for the year is attributable to:
Equity holders of the parent				(600)	1,903
Non-controlling interest				90	(353)

Consolidated Statement of Changes in Shareholders' Equity

for year ended 31 March 2019

				Reverse		Total	Non-
	Share	Share	Translation	acquisition	Retained	parent	controlling	Total
	capital	premium	reserve	reserve	earnings	equity	interest	equity
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 31 March 2017	357	21,396	1,246	2,640	491	26,130	(289)	25,841
Total recognised income and expense for the year	-	-	(267)	-	2,170	1,903	(353)	1,550
Transactions with non-controlling interest	-	-	-	-	(584)	(584)	643	59
Issue of share capital	32	3,564	-	-	-	3,596	-	3,596
LTIP charge	-	-	-	-	94	94	-	94
Balance at 31 March 2018	389	24,960	979	2,640	2,171	31,139	1	31,140

				Reverse		Total	Non-
	Share	Share	Translation	acquisition	Retained	parent	controlling	Total
	capital	premium	reserve	reserve	earnings	equity	interest	equity
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 31 March 2018	389	24,960	979	2,640	2,171	31,139	1	31,140
Total recognised income and expense for the year	-	-	322	-	(922)	(600)	90	(510)
LTIP charge	-	-	-	-	56	56	-	56
Balance at 31 March 2019	389	24,960	1,301	2,640	1,305	30,595	91	30,686

Consolidated Balance Sheet

at 31 March 2019              

				Note	2019	2018
					£000	£000
Non-current assets
Property, plant and equipment					16,167	12,444
Investment in Associate					17	-
Intangible assets				6	23,811	26,989
					39,995	39,433
Current assets
Inventories					9,880	8,656
Trade and other receivables					17,449	16,979
Other financial assets					-	421
Cash and cash equivalents					4,074	4,854
					31,403	30,910
Total assets					71,398	70,343
Current liabilities
Interest-bearing loans and borrowings					9,762	7,206
Trade and other payables					17,712	16,949
Other financial liabilities					289	-
Corporation tax liability					829	922
					28,592	25,077
Non-current liabilities
Interest-bearing loans and borrowings					10,748	12,771
Deferred tax liabilities					1,372	1,355
					12,120	14,126
Total liabilities					40,712	39,203
Net assets					30,686	31,140
Equity attributable to equity holders of the parent
Share capital				7	389	389
Share premium					24,960	24,960
Translation reserve					1,301	979
Reverse acquisition reserve					2,640	2,640
Retained earnings					1,305	2,171
Total parent equity					30,595	31,139
Non-controlling interest					91	1
Total equity					30,686	31,140

 

Consolidated Cash Flow Statement

for year ended 31 March 2019

			2019	2018
			£000	£000
(Loss) / profit after tax for the year			(832)	1,817
Adjustments for:
Income tax charge			127	945
Depreciation and amortisation			5,938	3,237
Financial expense			1,610	607
Foreign exchange non-cash realised loss / (gain)			469	(1,120)
(Gain) / loss on disposal of plant, property and equipment			(107)	125
LTIP charge			56	94
Changes in working capital
(Increase) in trade and other receivables			(299)	(1,497)
(Increase) in inventories			(1,226)	(1,998)
Increase in trade and other payables			484	2,284
Cash generated from operations			6,220	4,494
Interest paid			(866)	(780)
Income tax paid			(144)	(566)
Net cash inflow from operating activities			5,210	3,148
Cash flows from investing activities
Acquisition of subsidiary and fees (net of cash acquired)			-	(1,207)
Investment in Associate			(58)	-
Acquisition of property, plant and equipment			(6,771)	(3,705)
Development expenditure capitalised			(347)	(496)
Proceeds from disposal of property, plant and equipment			832	-
Dividend received			-	2
Net cash (outflow) from investing activities			(6,344)	(5,406)
Cash flows from financing activities
Net proceeds from new loan			909	572
Issue of share capital			-	3,546
Repayment of borrowings and fees			(2,547)	(2,393)
Dividends paid			-	-
Net cash inflow from financing activities			(1,638)	1,725
(Decrease) in net cash and overdraft			(2,772)	(533)
Net cash at 1 April			4,854	4,914
Overdraft at 1 April			(4,984)	(4,511)
Net cash and overdraft at 31 March			(2,902)	(130)

 

Notes

1          Financial information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2019 or 2018.  Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2019.

Going concern

The Financial Reporting Council issued "Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks - Guidance for directors of companies that do not apply The UK Corporate Code" in April 2016 and the Directors have considered this when preparing the financial statements. These have been prepared on a going concern basis and the Directors have taken steps to ensure that they believe the going concern basis of preparation remains appropriate.  Subsequent to the year end, on the 28 June 2019, the Company refinanced its banking facilities with Barclays bank.  The new banking facilities totals £25.3 million, with a final maturity date of 30 June 2023 and has been structured by means of a term loan, invoice discounting facility, revolving credit facility and an asset finance facility. The interest rate is determined on a ratchet system linked to net debt leverage.  Covenants have been set quarterly and these consist of net debt leverage, interest cover and cash flow cover. The directors have prepared cash flow forecasts for a period of five years from the date of approval of these financial statements which indicate that, taking account of reasonably possible downsides, the company will have sufficient funds, through facilities in place, to meet its liabilities as they fall due for that period.

The Directors have also considered the position of the trading companies in Synnovia to ensure that these companies are in a position to meet their obligations as they fall due.

There are not believed to be any contingent liabilities which could result in a significant impact on the business if they were to crystallise.

Accounting estimates and judgements

The Company makes estimates and assumptions regarding the future.  Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities or to the financial statements in general within the next financial year are discussed below:

Intangible assets

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangible assets are arrived at by using appropriate valuation techniques.

Acquired intangible assets recognised by the Group have a finite useful life and are carried at cost, less accumulated amortisation and impairment losses. Their useful economic lives and the methods used to determine the cost of intangible assets acquired in a business combination are as follows:

Intangible asset	Useful economic life	Valuation method
Trademarks and brands	5 - 20 years	Relief from royalty
Intellectual property rights	7 years	Replacement cost
Distributor and customer relationships	7 - 15 years	Excess earnings
Technology	5 - 7 years	Relief from royalty

Notes (continued)

Goodwill

Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries and trade and assets. In respect of business acquisitions that have occurred since 1 April 2005, goodwill represents the difference between the cost of the acquisition and the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Identifiable intangible assets are those which can be sold separately or which arise from legal rights regardless of

whether those rights are separable.

Acquisitions and disposals of non-controlling interests that do not result in a change of control are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.  Any difference between the price paid or received and the amount by which non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of the parent.

When Synnovia ceases to have control or significant influence, any retained interest in the entity is re-measured to its fair value, with the change

in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if Synnovia had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but

is tested annually for impairment.

In respect of acquisitions prior to 1 April 2005, goodwill is included on the basis of its deemed cost, which represents the amount recorded under UK GAAP, which was broadly comparable, save that only separable intangible assets were recognised and goodwill was amortised.

Negative goodwill arising on an acquisition is recognised in the income statement in full in the year of acquisition.

Inventory

Inventories are stated at the lower of cost and net realisable value.  In determining the cost of raw materials, consumables and goods purchased for resale, the weighted average purchase price is used. For work in progress and finished goods, cost is taken as production cost, which includes an appropriate proportion of attributable overheads.

Exceptional costs, foreign exchange costs and presentation of the financial statements

The Group is required to make judgements in determining its policy for the disclosure and presentation of exceptional costs and foreign exchange costs. These judgements are made in order to facilitate the understanding of the performance of the Group.

2          Accounting policies

Synnovia plc (the "Company") is a public company incorporated in England and Wales, with subsidiary undertakings in the UK, Italy, Japan, Thailand, India, China and the United States of America.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").  The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").   The accounting policies have been applied consistently to all periods presented in these Group financial statements.

Notes (continued)

3              Exceptional items

Administrative expenses
			2019	2018
			£000	£000
Redundancy and restructuring costs (i)			137	192
Impairment of goodwill			2,500	-
Professional and legal costs (iii)			-	278
Factory relocations and set-ups (iv)			-	362
Restatement of CCM's opening balance sheet (v)			-	620
			2,637	1,452

Exceptional costs incurred and included in administrative expenses in the year relate to:

(i) redundancy and restructuring costs associated with the Palagan production team (and in the prior year costs in Palagan);

(ii) impairment of goodwill within C&T International

(iii) in the prior year, professional and legal costs associated with the acquisitions of CCM and Mito;

(iv) in the prior year, business wide restructuring within the Industrial Divisions; and

(v) in prior year, an exercise was undertaken in 2017-18 to assess the fair value of assets and liabilities on the opening balance sheet of CCM, following Plastics Capital Trading Limited's initial 10% investment in May 2016 and in August 2017, this shareholding was increased to 51%.  This highlighted certain adjustments to the value of property, plant & equipment, inventory and liabilities recorded at the date of acquisition.  The impact has been recorded as an exceptional charge of £0.6 million in the 2018 consolidated income statement - if this exercise had occurred within 12 months then the opening balance sheet would have been restated.

It is anticipated that this adjustment to CCM's net assets, as recorded at the date of acquisition, will be taken into account in the agreement of the final purchase price to be paid for the remaining 49% in CCM in 2021.

4              Finance expense / (credit) (excluding foreign exchange)

					2019	2018
					£000	£000
Bank interest					866	789
Interest received					(1)	(8)
Amortisation of bank arrangement fees					180	89
Financial expenses					1,045	870

5              Finance expense / (credit) included within foreign exchange costs

			2019	2018
			£000	£000
Net foreign exchange loss			370	315
Unrealised losses / (gains) / on derivatives used to manage foreign exchange risk			195	(578)
			565	(263)
Notes (continued)

6              Intangibles

			Intellectual	Distributor
			property	& customer	Trademarks	Development
	Goodwill	Technology	rights	relationships	and brands	costs	Total
	£000	£000	£000	£000	£000	£000	£000
Cost
Balance at 31 March 2017	20,197	3,146	1,175	10,361	2,444	1,962	39,285
Additions	-	-	94	982	159	496	1,731
Balance at 31 March 2018	20,197	3,146	1,269	11,343	2,603	2,458	41,016
Additions	-	-	10	-	-	347	357
Balance at 31 March 2019	20,197	3,146	1,279	11,343	2,603	2,805	41,373
Amortisation & impairment
Balance at 31 March 2017	313	2,900	1,175	5,763	1,900	858	12,909
Amortisation for the year	-	52	3	612	137	314	1,118
Balance at 31 March 2018	313	2,952	1,178	6,375	2,037	1,172	14,027
Amortisation for the year	-	53	3	579	168	232	1,035
Impairment charge	2,500	-	-	-	-	-	2,500
Balance at 31 March 2019	2,813	3,005	1,181	6,954	2,205	1,404	17,562
At 31 March 2019	17,384	141	98	4,389	398	1,401	23,811
At 31 March 2018	19,884	194	91	4,968	566	1,286	26,989

Notes (continued)

6              Intangibles (continued)

	Discount		Discount
	factor	2019	factor	2018
Goodwill is allocated to the following cash generating units ("CGU"):
	%	£000	%	£000
Bell Plastics	10.3	4,529	10.3	4,529
BNL Group	10.5	1,178	10.5	1,178
C&T International	11.3	6,542	11.3	9,042
Palagan	11.6	3,563	11.6	3,563
Flexipol	11.6	832	11.6	832
Synpac	11.6	740	11.6	740
		17,384		19,884

Management have performed impairment reviews on the carrying value of goodwill as at 31 March 2019. For the purpose of impairment testing goodwill is allocated to each CGU which represent the lowest level within the Group at which goodwill is monitored for internal management purposes. The carrying amounts of goodwill for each CGU are as above. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit.

The calculation of the value in use was based on the following key assumptions:

·      Cash flow projections covering a five-year period to 31 March 2023 - the projections are based on the budget for 2020.  This has been prepared using a bottom-up approach for each subsidiary with revenue and gross margins determined on a product by product basis.  Revenue growth rate assumptions, based on sensitised historic growth rates, have been applied to all CGUs as follows:

o  Bell Plastics - 5%

o  BNL Group - 4%

o  C&T International - 5%

o  Palagan - 5%

o  Flexipol - 6%

o  Synpac - 3.5%

After the fifth year then a revenue growth rate of 3% has been applied in perpetuity.

A £2,500,000 impairment of goodwill within the C&T International CGU has been recognised in the income statement, reflecting the fact that the business has not yet delivered the financial returns expected compared to the carrying value of its goodwill.  The C&T CGU is included within the Industrial segment. The impairment exercise has confirmed that there has been no impairment in any other CGU.

The above assumptions have been applied in determining the recoverable amounts. 

For the CGUs below a reasonably possible change in key assumptions would lead to an impairment.  The amount by which the value in use exceeds the carrying of the CGUs are disclosed below:

·      Bell Plastics - £1,741k

·      Palagan - £2,547k

Applying the following discount rates would lead to an impairment:

•              Bell Plastics - 11.7%

•              Palagan - 14.1%

Notes (continued)

7              Capital and reserves

Share capital      

	Ordinary shares of 1p each
In thousands of shares			2019	2018
In issue at 1 April			38,995	35,751
Shares issued during the year			-	3,244
In issue at 31 March - fully paid			38,995	38,995

		2019	2018
		£000	£000
Allotted, called up and fully paid
38,995,151 (2017: 38,995,151) ordinary shares of 1p each		389	389
		389	389

The following describes the nature and purpose of each reserve within owners' equity:

Reserve	Description and purpose
Share premium	Amount subscribed for share capital in excess of nominal value
Retained earnings	Cumulative net gains and losses recognised in the consolidated income statement
Translation reserve	The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations
Reverse acquisition reserve	Arises on the reverse acquisition accounting applied to the share for share exchange of Plastics Capital Trading Limited by the Company

8              Earnings per share

		2019	2018
		£000	£000
Numerator
Earnings used in basic and diluted EPS
(Loss) / profit for the year attributable to the equity holders of the parent		(922)	2,170
Adjusted Earnings used in adjusted EPS (see Financial Review)		3,768	3,660
Earnings used in adjusted EPS have been based on the adjusted profit before tax as detailed in the Financial Review section above.  To this has been applied the effective corporation tax charge to calculate the adjusted profit after tax.
Denominator
Weighted average number of shares used in basic and EPS *		38,414,255	37,922,211
Weighted average number of shares used in diluted EPS *+		39,585,633	39,043,589

* - excludes shares held by Plastics Capital (Trustee) Limited for the LTIP.  Treasury shares are not counted under IAS33.

+ - includes effects of share option schemes

Notes (continued)

(Loss) / Earnings per share

	2019	2018
	pence	pence
Basic	(2.4)p	5.7p
Diluted	(2.3)p	5.6p
Adjusted	9.7p	9.5p

9              Re-statement of historic revenues and cost of sales

Revenue and cost of sales for the prior year ended 31 March 2018 have been restated to eliminate £1.619 million of inter-company revenues that were not previously eliminated. The restatement relates to product revenues between entities within the Films Division. There is no impact on reported gross profit for the year ended 31 March 2018 or net assets as at that date or at 1 April 2017.

10           Annual General Meeting

It is intended that the Annual General Meeting ("AGM") will take place at Synnovia plc, Room 1.1, London Heliport, Bridges Court Road, London, SW11 3BE on Monday 2 September 2019 at 2.00pm.  Notice of the AGM will be sent to shareholders with the financial statements.

 

END

 

 

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