Half Year Report

25 September 2024                                                                                                                   

ANDREWS SYKES GROUP PLC

("Andrews Sykes" or the "Company" or the "Group")

Half Year Results

Unaudited results for the six months ended 30 June 2024

Summary of Results

* Earnings before interest, taxation, depreciation, profit on the sale of property, plant and equipment and amortisation

Enquiries

CHAIRMAN'S STATEMENT

Overview of H1 2024

The Group's revenue for the six months ended 30 June 2024 (the "period") was £38.4 million, a decrease of £0.5 million compared with the same period in 2023. This decrease was predominantly due to the loss of approximately £1.0 million of turnover from our loss making French operation which, as previously reported, was closed with effect from November 2023. Operating profit for the period was £9.7 million compared with £9.7 million in 2023. Overall, net funds increased by £2.0 million from £4.6 million as at 31 December 2023 to £6.6 million as at 30 June 2024 as a result of the £1.1 million cash generated in the period and £0.9 million reduction in right-of-use lease obligations arising from property lease payments. As at 30 June 2023 net funds were £24.8 million, with the prior year special dividend payment of £24.9 million in November 2023 significantly reducing the net funds at 31 December 2023. A further breakdown of net funds is given in note 8.

Operations review

Revenue at Andrews Sykes Hire in the UK declined by 1.6% compared with the same period in 2023 with a combination of milder winter temperatures and a slow start to the summer cooling season limiting revenue opportunities. Our businesses in Europe also faced similar conditions, with revenue decreasing 12.2% compared to the same period in 2023 (4.5% decrease excluding the impact of closing our loss-making French subsidiary). This was largely driven by disappointing performances from our Luxembourg and Belgian subsidiaries, with revenues down 37.6% and 24.8% respectively on the same period in 2023. Luxembourg has been impacted by issues within the construction industry, a major revenue market for our products, with the Luxembourg Government declaring crisis measures in February 2024. Like the UK, Belgium was impacted by milder winter temperatures and a slow start to the summer cooling season. Italy continued to perform strongly with revenue increasing 10.6% compared to 2023. Despite these overall challenges to revenue growth, the combined operating profit for the UK and European hire businesses was marginally above the level achieved in 2023, demonstrating our strong cost control and continued operational efficiencies.

Andrews Air Conditioning and Refrigeration, our UK air conditioning installation business, experienced a difficult trading period primarily due to a reduction in large installation projects. Revenue decreased 29.0% in the period compared to the first six months of 2023, with operating profit reducing from £0.1m to a small loss in the period.

Khansaheb Sykes, our business based in the UAE, continues to experience an improvement in trading performance since the introduction of new senior management in the previous year. Revenue increased 31.7% versus the first half of 2023 with a decision taken to lease a new depot in Abu Dhabi further expected to increase revenue opportunities. The increased turnover in the UAE has resulted in operating profit being £0.4m higher to the first half of 2023.

Profit for the period and Earnings per Share

Profit before tax for the period was £9.7 million compared with £10.1 million in the same period last year. With operating profit being marginally ahead for the period, this £0.4 million decrease is attributable to an increased net foreign exchange loss on inter-company balances of £0.1 million due to the strengthening of Sterling compared with the Euro, a net decrease of £0.1 million in interest receivable resulting from the lower interest received on cash deposits as a result of the reduced cash balances compared to the same period in 2023 and an increased interest charge of £0.1 million on right-of-use lease obligations.

The total tax charge for the period increased by £0.1 million to £2.7 million (2023: £2.6 million), an effective tax rate of 27.4% (2023: 25.5%). The increase in the overall effective rate of tax is driven by an increase in the UK corporation tax rate from 19% to 25% effective from April 2023, giving a blended rate of 23.5% for UK corporation tax in 2023 versus 25% in 2024.

Profit after tax in the period was £7.1 million (2023: £7.5 million). Basic earnings per share decreased by 0.98 pence, or 5.5%, to 16.90 pence (2023: 17.88 pence) reflecting this decrease in profit.

Dividends

The final dividend of 14.00 pence per ordinary share for the year ended 31 December 2023 was approved by members at the AGM held on 18 June 2024. Accordingly, on 21 June 2024 the Company paid dividends totalling £5.9 million to shareholders on the register as at 24 May 2024.

The Board continues to adopt the policy of returning value to shareholders whenever possible. The Group remains profitable, cash generative and financially strong. Accordingly, the board has decided to declare an interim dividend of 11.90 pence per ordinary share which in total amounts to £5.0 million. The interim dividend will be paid on 1 November 2024 to shareholders on the register as at 4 October 2024.

Outlook

Trading in the second half of the year to date has been more subdued than in the comparable period of last year. A slow start to the summer season with cooler than average July temperatures recorded in the UK and Northern Europe has limited the overall revenue opportunities for the Group in these jurisdictions. Southern Europe and the Middle East continue to trade positively compared to the prior period. The Group's focus on continued cost control and operational efficiency will continue to limit the impact of these subdued revenue opportunities. Overall, Management remains confident of delivering full year results in line with the Board's expectations. In the longer term, Management remains optimistic that the business will continue to improve but are mindful of the impact that adverse economic issues can pose to the business and customer demand.  

JJ Murray

Executive Chairman

24 September 2024

Consolidated Income Statement

for the six months ended 30 June 2024

^* Earnings before interest, taxation, depreciation, profit on sale of property, plant and equipment and amortisation.

Consolidated Statement of Comprehensive Total Income

for the six months ended 30 June 2024

Consolidated Balance Sheet

At 30 June 2024

Consolidated Cash Flow Statement

for the six months ended 30 June 2024

Consolidated Statement of Changes in Equity

for the six months ended 30 June 2024

Notes to the Interim Financial statements

1              General information and accounting policies

These interim financial statements have been prepared in accordance with the recognition and measurement principles of international accounting standards in conformity with the requirements of the Companies Act 2006.

The information for the 12 months ended 31 December 2023 does not constitute the Group's statutory accounts for 2023 as defined in Section 434 of the Companies Act 2006. Statutory accounts for 2023 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006. These interim financial statements, which were approved by the Board of Directors on 24 September 2024, have not been audited or reviewed by the auditors.  

Basis of preparation

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

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

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

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

(iv)          Pension scheme assets and liabilities calculated at fair value in accordance with IAS 19

The annual financial statements of the Group are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.

Accounting policies

The principal accounting policies applied in preparing the interim Financial Statements comply with international accounting standards in conformity with the requirements of the Companies Act 2006 and are consistent with the policies set out in the Annual Report and Accounts for the year ended 31 December 2023.

No new standards or interpretations issued since 31 December 2023 have had a material impact on the accounting of the Group.

Functional and presentational currency

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

2              Revenue

An analysis of the Group's revenue is as follows:

The geographical analysis of the Group's revenue by destination is not materially different to that by origination.

3              Finance income and costs

4              Income tax expense

The total effective tax charge for the financial period represents the best estimate of the weighted average annual effective tax rate expected for the full financial year applying tax rates that have been substantively enacted by the balance sheet date. In the UK budget on 15 March 2021, the chancellor announced that the rate of corporation tax in the UK will increase from 19% to 25% with effect from 1 April 2023. UK corporation tax has been provided at 25% being the tax rate in the UK for 2024. Deferred tax has been calculated based on the rates that the directors anticipate will apply when the temporary timing differences are expected to reverse.

5              Earnings per share

Basic earnings per share

The basic figures have been calculated by reference to the weighted average number of ordinary shares in issue and the earnings as set out below. There are no discontinued operations in any period.

Diluted earnings per share

There were no dilutive instruments outstanding as at 30 June 2024 or either of the comparative periods and therefore there is no difference in the basic and diluted earnings per share for any of these periods. There were no discontinued operations in any period.

6              Dividend payments

Dividends declared and paid on ordinary one pence shares during the 6 months ended 30 June 2024 were as follows:

The above dividend was charged against reserves during the 6 months ended 30 June 2024.

On 24 September 2024 the directors declared an interim dividend of 11.90 pence per ordinary share which in total amounts to £4,981,000. This dividend will be paid on 1 November 2024 to shareholders on the register as at 4 October 2024 and will be charged against reserves in the second half of 2024.

Dividends declared and paid on ordinary one pence shares during the 6 months ended 30 June 2023 were as follows:

The above dividend was charged against reserves during the 6 months ended 30 June 2023.

Dividends declared and paid on ordinary one pence shares during the 12 months ended 31 December 2023 were as follows:

The above dividends were charged against reserves during the 12 months ended 31 December 2023.

7              Pensions

The Group closed the UK Group defined benefit pension scheme to future accrual as at 29 December 2002. The assets of the defined benefit pension scheme continue to be held in a separate trustee administered fund. Over recent years the Group has taken steps to manage the ongoing risks associated with its defined benefit liabilities. During the previous year the group completed an insurance buy-in of the scheme meaning the scheme has been derisked in terms of investment, interest rate, inflation and longevity risks. The buy-in secures an insurance asset that fully matches, subject to final price adjustments, the remaining pension liabilities of the scheme.

As at 30 June 2024 the Group had a net defined benefit pension scheme surplus, calculated in accordance with IAS 19  using the assumptions as set out below, of £2,514,000 (30 June 2023: £8,377,000; 31 December 2023: £2,489,000). The asset has been recognised in the financial statements as the directors are satisfied that it is recoverable in accordance with IFRIC 14.

The last formal triennial funding valuation was as at 31 December 2022. The valuation, including a revised schedule of

contributions, was agreed between the pension scheme trustees and the Board of directors in December 2023 and was effective from 1 January 2024. In accordance with this schedule of contributions, and based on the actions taken by the group during 2023 as already described, the group is no longer required to make any regular contributions into the scheme. Consequently, the Group expects to make total contributions to the defined benefit pension scheme of £Nil during 2024.

Assumptions used to calculate the scheme surplus

The IAS 19 figures are based on a number of actuarial assumptions as set out below, which the actuaries have confirmed they consider appropriate. 

The demographic assumptions used for 30 June 2024, were the same as used in 31 December 2023, 30 June 2023 and the last full actuarial valuation performed as at 31 December 2022.

Assumptions regarding future mortality experience are set based on advice in accordance with published statistics. The mortality table used at 30 June 2024, 30 June 2023 and 31 December 2023 is 100% S3PA CMI2022 with a 1.25% per annum long term improvement for both males and females, heavy tables for males and medium tables for females.

Valuation

The defined benefit scheme funding has changed under IAS 19 as follows:

8              Net funds and movement in financing liabilities

9              Distribution of interim financial statements

Following a change in regulations in 2008, the Company is no longer required to circulate this half year report to shareholders. This enables us to reduce costs associated with printing and mailing and to minimise the impact of these activities on the environment. A copy of the interim financial statements is available on the Company's website, www.andrews-sykes.com.