RNS Number:4662A
Straight PLC
28 March 2006
28 March 2006
Straight plc
Preliminary Announcement for the year ended 31 December 2005
Highlights
* Turnover up 90% from #12.8m to #24.3m
* Gross margins up 9.8% from 15.3% to 16.8%
* Operating margins up 50% from 5.0% to 7.5%
* Headline EBITDA up 179% to #2.1m
* Profit before tax up 112% from #0.7m to #1.5m
* Headline earnings per share up 68% from 7.5p to 12.6p
* Earnings per share up 16% from 7.5p to 8.7p
* Blackwall acquisition fully and successfully integrated
* Significant Materials Handling orders
Commenting on the results, James Newman, Chairman, said
"2005 has been another successful year for the Group. Much has been achieved
and the Board believes 2006 will be another year of continued growth as our new
markets and new products begin to contribute to the business."
Jonathan Straight, Chief Executive, added
"With the recent publication of the Draft Waste Strategy from DEFRA, we
anticipate rising recycling targets, which will require container solutions. We
expect home composting to continue to be high on the environmental agenda and
water shortages in some parts of the country will keep up the demand for water
butts.
The recent acquisition of the "Cloudburst" brand from Titan Environmental will
give us access to new retail and export markets and there are a number of
exciting materials handling projects in the pipeline. The outlook for Straight
plc remains very positive indeed."
Contacts
Company: James Newman/Jonathan Straight - 0113 245 2244
Simon Mountford Communications: Simon Mountford - 01347 844844
Panmure Gordon: Andrew Godber - 0207 459 3600
The preliminary announcement was approved by the Board on 28 March 2006
Chairman's Statement
I am delighted to report that significant further progress has been achieved
during 2005, following the acquisition of Blackwall at the beginning of the
year.
Results
Turnover at #24.3m was almost double that of 2004, both as a result of the
Blackwall acquisition and continued organic growth in the original business.
Both retail and trade sales were buoyant and, in their first full year of
operations, our growing fulfillment and contact centre services performed well.
We also successfully delivered our first major order in our Materials Handling
Division.
Overall, gross profit margins increased from 15.3% to 16.8% as a result of more
efficient production and buying and better controls over distribution costs.
Synergies were achieved from integrating the two businesses, although these were
partly offset by reorganisation costs.
Operating profit for the year, before goodwill and reorganisation costs, was up
by 186% to #1.8m (2004: #0.6m). Profit before tax was up by 112% at #1.5m.
Dividend
During the year, the Board declared an interim dividend of 1.0p (2004: 0.8p) per
share. The Directors have declared a final dividend of 2.5p (2004: 1.6p), making
a total for the year of 3.5p per share (2004: 2.4p). This dividend will be paid
on 26 May 2006 to shareholders on the register at 26 April 2006.
Strategic developments
The acquisition of Blackwall was completed in January and the integration of the
two businesses was successfully completed during the first half of the year.
Straight's high profile in trade and B2B markets and Blackwall's strong retail
brand has delivered growth and consolidated the Group's position as the UK's
leading supplier of specialist waste and recycling containers.
In January 2006, the Group announced the purchase of the 'Cloudburst' garden
products division of Titan for #150,000, thus adding to the Group's portfolio of
good quality products and brand names.
Whilst sales in the Materials Handling Division were modest in 2005, our
strategic alliance with our US partner, Rehrig Pacific, has started to create
some excellent sales and product opportunities. It is expected that this
division will grow significantly in 2006.
Board
I am pleased to announce the appointment of Simon Shepherd as Director of Sales
and Marketing from 6 March 2006. Simon comes to us from Mono Pumps Limited,
where he was European Sales and Marketing Manager. He will be an excellent
addition to the executive management team. It is anticipated that Simon will
join the Board from 1 July 2006.
Tom Musgrove, Operations Director, who has been with the Company since 1996,
will step down from the Board as from 30 June 2006. On behalf of the Board, I
would like to thank Tom for his contribution to the business over the last 10
years. I am delighted that Tom will be staying with the Group as Director of
National Accounts.
Outlook
The Government and its agencies are still looking at ways to achieve the various
waste and recycling targets they and Europe have set themselves. These targets
will be hard to achieve unless funding to our major customers continues to be
made available. The Group is well placed to support this effort.
2005 has been another successful year for the Group. Much has been achieved and
the Board believes 2006 will be another year of continued growth as our new
markets and new products begin to contribute to the business.
James H Newman
Chairman 28 March 2006
Chief Executive's Review
2005 began with the acquisition of Blackwall Limited, a key rival for many
years. A rapid and smooth integration of this business was essential in order
to sustain our position as the UK's leading supplier of kerbside recycling
containers, home compost containers and water butts. I am delighted that all of
this was achieved.
The Blackwall business proved to be an excellent fit with Straight's core
activities. As old adversaries became good friends, a successful new management
structure was created with the full co-operation and assistance of the outgoing
directors.
The new management team has, therefore, been able to take from the best of both
businesses ensuring that we made significant progress in each of our key sectors
during the year.
Markets
In our core market of waste and recycling containers we continued to grow our
sales and customer base. Although major new contracts were won through the year,
we also noticed a trend for repeat business from both existing Straight and our
new Blackwall customers. This demonstrated our ability to provide excellent
service in both quality and price.
The profitability of our wheeled bin business, traditionally one of low margins,
improved due to better buying and selling, as well as an increase in the supply
of customised product.
General recycling containers for the B2B market, which was a particular focus
for our internal sales team, increased in sales volume and profitability.
Sales of garden products continued to grow with deliveries of compost bins to
WRAP at a record level. By working with almost all the water companies in the
UK, we ensured a strong year on retail sales of water butts. An attractive new
catalogue allowed us to maximise the selling opportunities to every retail
customer.
The former Blackwall contact centre, expanded and transformed by new investment
in up to date technology, handled a record number of calls both for ourselves
and also for third party clients such as Exel Logistics.
Our Materials Handling Division began to make headway in this lucrative market
area. A range of attached lid containers, introduced in the early part of the
year, gained support from a number of leading retailers and orders were obtained
and delivered successfully during the year. We also developed an innovative new
nest/stack container for the warehouse systems market. This container is
specially designed to work with automated handling systems, and has been chosen
by automated materials handling solution specialist FKI Logistex, who have
placed an initial order for #359,000 of the new crates. We are currently
working on a number of very large projects and expect to announce several
contract wins over the next few months.
Blackwall Integration
Key to our strategy was to maintain good relationships with both the suppliers
and customers of Blackwall. Having assured our new expanded supplier base that
it was "business as usual", it was important to give comfort to our newly
enlarged trade customer base. In every case we took a long term view and
customers did not experience significant changes in prices or terms of trade,
and hence their confidence grew in dealing with the new combined organisation.
Having expected an approximate customer fall-out rate of 10%, I am pleased to
advise that not one single significant customer stopped dealing with the
business.
New Product Development
Product development, a key part of our strategy, continued, including the
integration of the Blackwall product range. Our new 5 litre Kitchen Caddy
started production in February 2005 and has run almost continuously since then.
A new kerbside box divider delivered much improved margins.
A great deal of development work has been done in respect of future product
launches. Prototypes of the innovative Recycle Station and the Wheeled Bin Caddy
secured sufficient interest to merit ordering tooling. Both of these products
will come to market in 2006.
Contract awards
2005 saw significant awards from WRAP for home compost bins, from Manchester
City Council for wheeled bins, from Somerset County Council for kitchen caddies
and kerbside baskets and from Cleanaway for recycling boxes.
Management and staff
All of the achievements of the past year would not have been possible without
the tremendous efforts of the new management team and all other staff. In order
to reward hard work and success, we have implemented new pay scales, a bonus
scheme for the management team and a contributory pension scheme. Further share
options were issued in 2005, ensuring that most permanent staff now have a
potential equity interest in the business.
Outlook
With the recent publication of the Draft Waste Strategy from DEFRA, we
anticipate rising recycling targets, which will require container solutions. We
expect home composting to continue to be high on the environmental agenda and
water shortages in some parts of the country will keep up the demand for water
butts.
The recent acquisition of the "Cloudburst" brand from Titan Environmental will
give us access to new retail and export markets and there are a number of
exciting materials handling projects in the pipeline. The outlook for Straight
plc remains very positive indeed.
Jonathan M Straight
Chief Executive 28 March 2006
Finance Director's Review
I am pleased that following the successful integration of the Blackwall
business, the Group's financial position continues to grow in strength.
Turnover
Turnover at #24.3m was 90.1% higher than in 2004. Whilst the acquisition of
Blackwall contributed greatly to this, the underlying organic growth in sales of
the combined business was just over 10%. This increase in activity extended
across both the waste and recycling containers and home and garden products
businesses.
Operating margins
By being able to combine the best performing suppliers from both Blackwall and
Straight, gross margin has increased from 15.3% in 2004 to 16.8% in 2005. In
addition we have been able to migrate a large proportion of our supply base to
the UK, thus saving on the cost of inward carriage. These improvements were
achieved as a result of the investment which the business has made in both its
middle management team and in its IT infrastructure. However, despite this
investment, the net operating margin of the Group has also improved, rising from
5.0% in 2004 to 7.5% in 2005, assisted by early synergy gains arising from the
successful and timely integration of Blackwall.
Operating cashflow
Cash balances as the end of 2005 amounted to #2.0m, #0.9m down on 2004, but
after the outlay during the year of #1.0m in cash to pay for the balance of the
acquisition price of Blackwall not covered by the share placing. Working
capital levels increased by #1.2m during the year, driven in part by increased
turnover levels, but more importantly, as a result of a deliberate policy of
using excess cash to take advantage of early settlement discounts from certain
key suppliers.
Capital expenditure
The Group's capital expenditure amounted to almost #0.5m, up from #0.3m in 2004,
and included investment in both new products tooling and in IT. Continued
investment in tooling has enabled the business to continue its strategy of
maintaining control of its products and margins by tool ownership and innovative
design. The installation of a new group-wide IT platform during the year has
enabled the business to significantly improve customer service and operational
efficiency.
Earnings per share
Headline earnings per share, based upon profit for before goodwill amortisation
and reorganisation costs, increased by 68% from 7.5p to 12.6p.
Basic earnings per share were 8.7p (2004: 7.5p). Fully diluted earnings per
share were 8.4p (2004: 7.3p).
Management of financial risk
The Group has continued to generate significant amounts of surplus cash which it
has placed on deposit so that the maximum return can be obtained consistent with
the Group's need to access the cash. The Group has maintained its policy of
managing foreign exchange risk by purchasing currency forward when it is
notified that a contract bid has been successful. We have again successfully
avoided bad debt by continuing our policy of rigorously credit checking all new
customers and keeping existing customers under review.
Outlook
The Group remains both profitable and cash generative and expects to make
further progress on earnings and margins in 2006.
James D Mellor
Finance Director and Company Secretary 28 March 2006
Summarised Consolidated Profit and Loss Account
For the year ended 31 December 2005
Headline Goodwill Total Total
performance Amortisation and
reorganisation
costs
2005 2005 2005 2004
Note #,000 #,000 #,000 #,000
Turnover 2 24,343 - 24,343 12,807
Cost of sales 3 (20,243) - (20,243) (10,850)
____ ____ ____ ____
Gross profit 4,100 - 4,100 1,957
Operating expenses 3 (2,275) (442) (2,717) (1,319)
____ ____ ____ ____
Operating profit 1,825 (442) 1,383 683
Interest receivable 4 125 73
____ ____
Profit on ordinary activities before taxation 2 1,508 711
Taxation 5 (547) (192)
____ ____
Profit for the financial year 961 519
____ ____
Headline earnings per share (p) 6 12.6 7.5
Diluted headline earnings per share (p) 6 12.3 7.3
Basic earnings per share (p) 6 8.7 7.5
Diluted earnings per share (p) 6 8.4 7.3
All operations are continuing.
There were no recognised gains or losses other than the profit for the financial
year.
Summarised Balance Sheets
At 31 December 2005
Group and
Group Company Company
Restated
2005 2005 2004
#'000 #'000 #'000
Fixed assets
Intangible 5,490 - -
Tangible 882 882 460
Investments - 6,902 -
____ ____ ____
6,372 7,784 460
Current assets
Stocks 415 415 312
Debtors 5,489 5,489 2,055
Cash at bank and in hand 2,036 2,036 2,915
____ ____ ____
7,940 7,940 5,282
Creditors: amounts falling due within one year (5,364) (7,290) (3,010)
____ ____ ____
Net current assets 2,576 650 2,272
Total assets less current liabilities 8,948 8,434 2,732
Provisions for liabilities and charges (37) (37) (17)
____ ____ ____
Net assets 8,911 8,397 2,715
____ ____ ____
Capital and reserves
Called up share capital 113 113 69
Share premium account 5,827 5,827 1,158
Merger reserve 744 744 -
Profit and loss account 2,227 1,713 1,488
____ ____ ____
Equity shareholders' funds 8,911 8,397 2,715
____ ____ ____
Summarised Consolidated Cash Flow Statement
For the year ended 31 December 2005
2005 2004
Note #'000 #'000
Net cash (outflow)/inflow from operating activities 7 (160) 1,550
_____ _____
Returns on investments and servicing of finance
Interest received 125 58
_____ _____
Net cash inflow from returns on investments and 125 58
servicing of finance
Taxation (514) (99)
Capital expenditure
Purchase of tangible fixed assets (457) (280)
Disposal of tangible fixed assets 4 1
_____ _____
Net cash outflow from capital expenditure (453) (279)
Net cash outflow from acquisitions (4,362) -
Equity dividends (222) (56)
Management of liquid resources
Purchase of short term deposits - (1,500)
_____ _____
Net cash outflow before financing (5,586) (326)
Financing
Issue of share capital 5,000 -
Costs of share issue (293) (17)
_____ _____
Net cash inflow/(outflow) from financing 4,707 (17)
_____ _____
Decrease in cash (879) (343)
_____ _____
Notes to the Preliminary Announcement
For the year ended 31 December 2005
1. Basis of preparation
The preliminary announcement has been prepared under the historic cost
convention in accordance with applicable accounting standards. The principal
accounting policies of the Group have remained unchanged from the previous year
except that FRS21, "Events after the Balance Sheet Date", has been adopted.
Prior period figures have been restated as appropriate.
2. Turnover and Group profit
The turnover and profit on ordinary activities before taxation are attributable
to the principal activities of the Group as set out below.
Gross Gross
Turnover profit Turnover profit
2005 2005 2004 2004
#'000 #'000 #'000 #'000
Waste and recycling containers 19,913 3,328 11,363 1,765
Home and garden products 4,208 738 1,439 190
Materials Handling 222 34 5 2
_____ _____ _____ _____
24,343 4,100 12,807 1,957
_____ _____ _____ _____
It is not possible to separate the profit before tax or net assets of these
operating segments.
Due to the full and early integration of the Blackwall business into the Group,
and also the overlap in customers and products, the Board are unable to identify
the element of turnover, gross profit and operating expenses which relate to the
acquisition.
The profit on ordinary activities before taxation is stated after the costs
below.
2005 2004
#'000 #'000
Depreciation of owned assets 256 108
Goodwill amortisation 289 -
Operating lease rentals 119 62
Auditors' remuneration - audit services 20 13
Auditors' remuneration - other services* 3 2
* In addition to the above, Grant Thornton were paid #10,000 for work done in
relation to the acquisition of Blackwall Limited.
3. Cost of sales and operating expenses
2005 2004
#'000 #'000
Cost of sales 20,243 10,850
______ _____
Operating expenses
Distribution costs 1,397 442
Administrative expenses 1,320 877
_____ _____
2,717 1,319
_____ _____
Adminstrative expenses of #1,320,000 include #289,000 of goodwill amortisation
and reorganisation costs of #153,000. There were no goodwill amortisation or
reorganisation costs in 2004.
4. Interest receivable
2005 2004
#'000 #'000
On bank deposits 56 55
Short term deposits 69 18
_____ _____
125 73
_____ _____
5. Taxation
2005 2004
#'000 #'000
Corporation tax at an average rate of 35% (2004: 27%) 535 189
Over provision in prior years (11) -
_____ _____
524 189
Deferred tax 23 3
_____ _____
547 192
_____ _____
Analysis of current tax charge
Profit on ordinary activities before tax 1,508 711
_____ _____
Profit on ordinary activities multiplied by standard rate of
Corporation tax in the UK (30%) (2004: 30%) 452 213
Expenses not deductible for tax purposes 88 7
Capital allowances in excess of depreciation - (9)
Marginal relief (5) (22)
Over provision in respect of prior years (11) -
_____ _____
524 189
_____ _____
6. Earnings per share
Basic and diluted earnings per share
Basic earnings per share are calculated on the basis of profit for the financial
year after tax divided by the weighted average number of shares in issue for the
year.
Diluted earnings per share are calculated on the basis of profit for the year
after tax divided by the weighted average number of shares in issue for 2005
plus the weighted average number of shares which would be issued if all the
options granted were exercised.
All options were dilutive at 31 December 2005.
2005 2004
Weighted Weighted
average average
Earnings number Per share Earnings number Per share
#'000 of shares pence #'000 of shares pence
Basic earnings 961 11,096,585 8.7 519 6,903,750 7.5
attributable to
ordinary shareholders
Dilutive effect of - 303,771 (0.3) - 159,512 (0.2)
share
_____ _________ ____ ____ ________ ____
Diluted earnings per 961 11,400,356 8.4 519 7,063,262 7.3
share _____ _________ ____ ____ ________ ____
Headline earnings per share
Headline earnings per share is calculated on the basis of the headline profit
for the year, defined as the profit for the financial year before the
amortisation of goodwill and reorganisation costs, divided by the weighted
average number of shares in issue in the year of 11,096,585. The headline
earnings per share reflects the Group's recurring trading profitability. The
comparative is calculated by reference to the weighted average number of shares
in issue in 2004 of 6,903,750.
2005 2004
Number Number
Earnings of shares Per share Earnings of share Per share
#'000 in issue pence #'000 in issue pence
Headline earnings 1,403 11,096,585 12.6 519 6,903,750 7.5
attributable to
ordinary shareholders
Dilutive effect of - 303,771 (0.3) - 159,512 (0.2)
share options _____ _________ ____ ____ ________ ____
Diluted headline 1,403 11,400,356 12.3 519 7,063,262 7.3
earnings per share _____ _________ ____ ____ ________ ____
7. Reconciliation of operating profit to net cash flow from operating
activities
Group Group
2005 2004
#'000 #'000
Operating profit 1,383 638
Depreciation 256 108
(Profit)/loss on sale of tangible fixed assets (4) 1
Goodwill amortisation 289 -
Decrease/(increase) in stocks 115 (113)
(Increase)/(decrease) in debtors (2,320) 1,263
Increase/(decrease) in creditors 121 (347)
_____ _____
Net cash inflow from operating activities (160) 1,550
_____ _____
8. Reconciliation of net cash flow to movement in net funds
2005 2004
#'000 #'000
Decrease in cash in the year (879) (343)
Purchase of short term deposits - 1,500
Net funds at 1 January 2,915 1,758
_____ _____
Net funds at 31 December 2,036 2,915
_____ _____
9. Post balance sheet events
On 5 January 2006, the Group acquired the trade and assets associated with the
Cloudburst range of garden products from Titan Environmental Limited for
consideration of #150,000.
On 28 March 2006, the Company declared a dividend of 2.5p per share. This will
be paid on 26 May 2006 to all shareholders on the register at 26 April 2006.
10. Publication of non statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The summarised balance sheets at 31 December 2005, summarised consolidated
profit and loss account, summarised consolidated cash flow statement and
associated notes for the year then ended, have been extracted from the Company's
financial statements upon which the auditors opinion is unqualified and does not
include any statement under section 237 of the Companies Act 1985. Those
financial statements have not yet been delivered to the Registrar.
11. Annual General Meeting
The Annual General Meeting of the Company will be held in Leeds on Thursday 22
June 2006. Full details will be included in the published Annual Report and
Financial Statements which will be sent to shareholders in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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