Half Yearly Report

RNS Number : 4040Q

Tandem Group PLC

19 October 2011

TANDEM GROUP PLC
("Tandem" or the "Company")

HALF YEARLY REPORT

The Board of Tandem announces its half yearly report for the 6 months to 31 July 2011.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present the unaudited financial statements for the 6 months ended 31 July 2011.

The period has been one of great economic uncertainty and intense competition in our market. Despite these challenges we are well placed to take advantage of an economic upturn.

As we previously reported the Company carried out a share buyback during the period, purchasing 821,500 of its own shares on 14 February 2011 and a further 80,000 on 27 May 2011. Both purchases were transferred to treasury. We continue to evaluate share buyback opportunities and the earnings enhancing impact this has.

Results

Revenue for the 6 month period to 31 July 2011 was £16,665,000 compared to £19,062,000 in the same period last year.

More favourable currency rates and shipping costs helped to improve gross margin in the bicycles and accessories division. However, a large percentage of turnover in the sports, leisure and toys business is conducted in US dollars and sold on an FOB basis which hasn't allowed this segment to benefit in the same way.

Operating costs were contained to an increase of 1.6% reflecting the Group's attention to cost control.

Profit before tax was £553,000 (2010 - £648,000). Net assets increased to £7,835,000 (2010 - £7,707,000) despite a reduction in cash following the share buyback referred to above.

Bicycles and accessories

There was a reduction in revenue in our bicycles and accessories businesses by 7.0% to £11,072,000 (2010 - £11,900,000), partly attributable to a decrease in the seasonal promotional business with a national retailer.

A number of competitors have adopted a policy of heavy discounting in an attempt to maintain their market share and to reduce stock levels. Our strategy to uphold our brand values has meant a small reduction in turnover but a significant increase in profitability.

As we reported in our trading update of 9 September 2011, cycle demand has been under great pressure during the period. Your board have been quick to react to the changing market. We have been proactively taking steps to ensure our bicycle businesses continue to offer the quality, value and excellent customer service that our retailers and consumers have come to expect of us.

A number of new initiatives have been introduced with efforts primarily focussed on improving bicycle profit margins.

Alternative suppliers, having passed our safety and ethical audit criteria, have been identified and utilised during the period. This has helped to reduce cost and decrease lead times whilst maintaining product quality. As has always been the case, our bicycles continue to be designed in the UK.

Significant product development has been undertaken to increase the appeal of our bicycle offering. During the period we introduced a number of new hybrid, mountain and road bike promotions at key price points for our independent cycle dealers.

Our Dawes 'Heritage' range of cycles continues to go from strength to strength. The feedback from the introduction of our new electric cycle ranges has been encouraging although we believe that there is some way to go before demand for electric bicycles in the UK emulates continental Europe.

The introduction of the Claud Butler branded parts and accessories range supported by a fully functional business to business website, has been very successful.

As a result of these actions, profitability from our bicycle and accessories businesses increased to £808,000 in the period compared to £424,000 in the comparative period.

Sports, leisure and toys

There was a reduction in revenue in our sports, leisure and toys businesses to £5,593,000 in the 6 months to 31 July 2011 compared with £7,162,000 last year.

Revenue from our Ben 10 wheeled toy licence, which has performed so strongly for our sports, leisure and toys businesses over several years, was a significant factor in the decline. This was coupled with the reduced levels in consumer demand and cautious buying plans by national retailers.

There has been a reluctance by national retailers to commit to new licensed properties. This has inhibited growth opportunities in those ranges during the period.

There was an increase in turnover from some of our licensed properties including Ben & Holly's Little Kingdom, Fireman Sam, Transformers 2 and Star Wars: The Clone Wars. This was, however, more than offset by the reduction in Ben 10 highlighted above and a decline in other properties including In The Night Garden and Ironman 2.

Turnover in our Ben Sayers golf business increased by 21% during the period with strong performance from our package set range. We continue to invest in the areas necessary to grow the Ben Sayers brand with additional sales resources added and new supplier sources identified.

Sales of the Kickmaster football training brand also increased as more national retailers supported the range.

Our Hedstrom outdoor play brand performed similarly to the prior period although the range continues to come under increasing pressure from national retailer own label product.

Pot Black, our snooker, pool and indoor games range, was slightly behind the previous period, again under pressure from direct importing from large retailers.

Profit from our sports, leisure and toys businesses for the period was £138,000 compared to £655,000 in the prior period.

Trading update

Group revenue for the 37 week period to 14 October was approximately £24.3 million compared to £26.9 million in the comparative period last year.

Revenue in the bicycles and accessories businesses to 14 October was approximately £15.2 million against £16 million in the same period last year.

In the sports, leisure and toys businesses revenue for the 37 weeks to 14 October was approximately £9.1 million compared to £10.9 million last year.

Outlook

We reported last year that September and October 2010 were challenging months. The same period this year has been no exception. Accordingly, we have a cautious outlook for the short to medium term future.

We continue to focus on our flagship brands of Claud Butler and Dawes. We are also encouraged by the reaction to the launch of our BMX Scorpion and Dirty ranges and our 2011 range of traditional pavement cycles.

The Claud Butler parts and accessories offering has been extended for the second half of 2011 and into 2012 with additional resources deployed to support the anticipated growth.

The Dawes parts and accessories range and a new high specification carbon fibre range were successfully launched at the NEC Cycle Show at the end of September. We expect these to make a positive contribution in the future.

We have signed a number of strong licences for 2012 and beyond which include The Avengers, Generator Rex, Power Rangers and ThunderCats. For younger children we are delighted to have secured the licences for Mike The Knight, Little Charley Bear, The Octonauts, Raa Raa The Noisy Lion and Rastamouse.

Amongst our licences there is the potential for growth when the economy improves. We also plan to launch a competitive range of generic products at key price points to satisfy consumer demand for value as household budgets are constricted.

We remain encouraged by the interest in our licensed range of wheeled products for the 2012 London Olympic and Paralympic games for which we expect sales to peak between Easter 2012 and the start of the games.

Despite these positives we anticipate that the profit for the year to 31 January 2012 will be behind the comparative in 2011 although we continue our efforts to maintain an acceptable level of profitability.

Dividend

In line with our announcement on 9 September 2011, we declare an interim dividend of 1.05p per share (2010 - 1.00p per share) to be paid to shareholders on or before 25 November 2011. The ex-dividend date is 26 October 2011 and the record date 28 October 2011.

MPJ Keene

Chairman

19 October 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

For the 6 months ended 31 July 2011

	Note	6 months ended 31 July 2011	6 months ended 31 July 2010		Year ended 31 January 2011
		Unaudited	Unaudited		Audited
		£'000	£'000		£'000


Revenue		16,665		19,062		34,610

Cost of sales		(11,762)		(14,152)		(24,777)

Gross profit		4,903		4,910		9,833


Operating expenses		(4,264)		(4,197)		(8,628)

Operating profit		639		713		1,205

Finance costs		(86)		(65)		(120)

Profit before taxation		553		648		1,085

Tax expense		(26)		(47)		-

Net profit for the period		527		601		1,085


		Pence		Pence		Pence
Earnings per share
Basic	3	11.04		10.89		19.60


Diluted	3	10.66		10.70		18.98

All figures relate to continuing operations.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months ended 31 July 2011

	6 months ended 31 July 2011	6 months ended 31 July 2010	Year ended 31 January 2011
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000

Profit for the period	527	601	1,085

Other comprehensive income:
Foreign exchange differences on translation of overseas subsidiaries	(36)	57	26
Actuarial gain on pension schemes	-	-	827
Movement in pension schemes' deferred tax provision	-	(19)	(272)
Other comprehensive income for the period	(36)	38	581

Total comprehensive income attributable to equity shareholders of Tandem Group plc	491	639	1,666

All figures relate to continuing operations.

CONDENSED CONSOLIDATED BALANCE SHEET

As at 31 July 2011

	At 31 July 2011	At 31 July 2010	At 31 January 2011
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000

Non current assets
Goodwill	2,236	2,236	2,236
Property, plant and equipment	310	372	336
Deferred taxation	1,165	1,342	1,165
	3,711	3,950	3,737

Current assets
Inventories	7,170	6,706	7,636
Trade and other receivables	6,758	8,120	4,696
Cash and cash equivalents	1,136	2,785	2,721
	15,064	17,611	15,053


Total assets	18,775	21,561	18,790

Current liabilities
Trade and other payables	(6,439)	(8,950)	(6,880)
Financial liabilities	(3,662)	(3,086)	(2,666)
Current tax liabilities	(434)	(436)	(100)
	(10,535)	(12,472)	(9,646)
Non current liabilities
Pension schemes' deficits	(405)	(1,382)	(479)

Total liabilities	(10,940)	(13,854)	(10,125)


Net assets	7,835	7,707	8,665


Equity
Share capital	1,503	1,503	1,503
Shares held in treasury	(337)	(115)	(115)
Other reserves	2,749	2,816	2,785
Profit and loss account	3,920	3,503	4,492
Total equity	7,835	7,707	8,665

CONDENSED Consolidated statement of changes in equity

As at 31 July 2011

	Share capital	Shares held in treasury	Merger reserve	Capital redemption reserve	Translation reserve	Profit and loss account	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000

At 1 February 2010	1,503	(129)	1,036	1,427	296	2,870	7,003
Net profit for the period	-	-	-	-	-	601	601
Retranslation of overseas subsidiaries	-	-	-	-	57	-	57
Total comprehensive income for period attributable to equity shareholders	-	-	-	-	57	601	658
Share based payments	-	-	-	-	-	6	6
Exercise of share options	-	14	-	-	-	26	40
Total transactions with owners	-	14	-	-	57	633	704
At 31 July 2010	1,503	(115)	1,036	1,427	353	3,503	7,707

Net profit for the period	-	-	-	-	-	484	484
Retranslation of overseas subsidiaries	-	-	-	-	(31)	-	(31)
Net actuarial gain on pension schemes	-	-	-	-	-	555	555
Total comprehensive income for period attributable to equity shareholders	-	-	-	-	(31)	1,039	1,008
Share based payments	-	-	-	-	-	6	6
Dividends paid	-	-	-	-	-	(56)	(56)
Total transactions with owners	-	-	-	-	(31)	989	958
At 1 February 2011	1,503	(115)	1,036	1,427	322	4,492	8,665

Net profit for the period	-	-	-	-	-	527	527
Retranslation of overseas subsidiaries	-	-	-	-	(36)	-	(36)
Total comprehensive income for period attributable to equity shareholders	-	-	-	-	(36)	527	491
Share based payments	-	-	-	-	-	3	3
Exercise of share options	-	4	-	-	-	5	9
Share buyback	-	(226)	-	-	-	(1,014)	(1,240)
Dividends paid	-	-	-	-	-	(93)	(93)
Total transactions with owners	-	(222)	-	-	(36)	(572)	(830)
At 31 July 2011	1,503	(337)	1,036	1,427	286	3,920	7,835

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the 6 months ended 31 July 2011

	6 months ended 31 July 2011	6 months ended 31 July 2010	Year ended 31 January 2011
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Cash flows from operating activities
Net profit for the period	527	601	1,085
Adjustments:
Depreciation of property, plant and equipment	39	49	98
Finance costs	86	65	120
Tax expense	26	47	-
Taxation paid	(14)	(53)	(135)
Share based payments	3	6	12
Net cash inflow from operating activities before movements in working capital	667	715	1,180

Decrease/(increase) in inventories	466	(1,715)	(2,645)
Increase in trade and other receivables	(2,061)	(4,141)	(813)
(Decrease)/increase in trade and other payables	(224)	3,644	1,270
Net cash utilised from operations	(1,152)	(1,497)	(1,008)

Cash flows from investing activities
Purchases of property, plant and equipment	(13)	(53)	(66)
Net cash used in investing activities	(13)	(53)	(66)

Cash flows from financing activities
Increase in invoice financing	995	1,230	810
Interest paid	(55)	(38)	(71)
Exercise of share options	9	40	40
Dividends paid	(93)	-	(56)
Payment to acquire own shares	(1,240)	-	-
Net cash (used in)/from financing activities	(384)	1,232	723

Net decrease in cash and cash equivalents	(1,549)	(318)	(351)
Cash and cash equivalents at beginning of period	2,721	3,046	3,046
Effect of foreign exchange rate changes	(36)	57	26
Cash and cash equivalents at end of period	1,136	2,785	2,721

NOTES TO THE HALF YEARLY REPORT

1 General information

Tandem Group plc is a public limited company incorporated and domiciled in the United Kingdom with its shares listed on AIM of the London Stock Exchange.

The principal activity of the Group is the design, development and distribution of sports and leisure equipment.

The ultimate parent company of the Group is Tandem Group plc whose principal place of business and registered office address is 35 Tameside Drive, Castle Bromwich, Birmingham,
B35 7AG.

The interim financial statements for the period ended 31 July 2011 (including the comparatives for the periods ended 31 July 2010 and 31 January 2011) were approved by the Board of Directors on 19 October 2011. Under the Security Regulations Act of the European Union ("EU"), amendments to the financial statements are not permitted after they have been approved.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 January 2011, prepared under International Financial Reporting Standards ("IFRS"), have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under Sections 498(2) and 498(3) of the Companies Act 2006.

This interim financial information has been prepared using the accounting policies set out in the Group's 2011 statutory accounts. Copies of the annual statutory accounts and the interim report may be obtained by writing to Tandem Group plc, 35 Tameside Drive, Castle Bromwich, Birmingham, B35 7AG and can be found on the Company's website at www.tandemgroup.co.uk.

The net retirement benefit obligation recognised at 31 July 2011 is based on the actuarial valuation under IAS19 at 31 January 2011 updated for movements in net defined benefit pension income and contributions paid during the half year period. A full valuation for IAS19 financial reporting purposes will be carried out for incorporation in the audited financial statements for the year ending 31 January 2012.

2 segmental reporting

For management purposes the Group is organised into two operating segments. The revenues and net results for these segments are shown below:

	Bicycles and accessories	Sports, leisure and toys	Total
	£'000	£'000	£'000
6 months to 31 July 2011

Revenue	11,072	5,593	16,665

Segment result	808	138	946
Unallocated corporate expenses			(307)
Operating profit			639
Finance costs			(86)
Result for the period before taxation			553
Tax expense			(26)
Net profit for the period			527

6 months to 31 July 2010

Revenue	11,900	7,162	19,062

Segment result	424	655	1,079
Unallocated corporate expenses			(366)
Operating profit			713
Finance costs			(65)
Result for the period before taxation			648
Tax expense			(47)
Net profit for the period			601

Year ended 31 January 2011

Revenue	20,032	14,578	34,610

Segment result before management charges	625	1,279	1,904
Management charges	(571)	(98)	(669)
Segment result after management charges	54	1,181	1,235
Unallocated corporate expenses			(30)
Operating profit			1,205
Finance costs			(120)
Profit before taxation			1,085
Tax expense			-
Net profit for the year			1,085

3 earnings per share

The calculation of earnings per share is based on the net result and ordinary shares in issue during the period as follows:

	6 months ended 31 July 2011	6 months ended 31 July 2010	Year ended 31 January 2011
	£'000	£'000	£'000

Net profit for the period	527	601	1,085

Weighted average shares in issue used for basic earnings per share	4,774,470	5,520,563	5,536,482
Weighted average dilutive shares under option	167,075	96,632	179,533
Average number of shares used for diluted earnings per share	4,941,545	5,617,195	5,716,015


	Pence	Pence	Pence
Basic earnings per share	11.04	10.89	19.60

Diluted earnings per share	10.66	10.70	18.98