RNS Number:9360R
Straight PLC
09 April 2008
9 April 2008
Straight plc
Preliminary Results
for the year ended 31 December 2007
Straight plc (AIM: STT), the recycling products and services group, is pleased
to announce its Preliminary Results for the year ended 31 December 2007.
Key Points
• Total revenue of £23.6m (2006: £27.8m)
• Increase in core trade revenues to £19.2m (2006: £18.7m)
• Increase in gross margin from 19.3% to 20.8%
• New contracts won increasing a record order book
• Direct to consumer business re-modeled on a variable basis
• Cash balances at year end of £1.6m
• Final dividend of 2.0p (2006: 2.7p) proposed - Full dividend for the
year of 3.25p (2006: 3.9p)
Commenting on the results, James Newman, Chairman of Straight plc, said: "The
Board strongly believes that the Group has put the problems of 2007 behind it
and is confident that 2008 will deliver an improved trading performance."
Jonathan Straight, Chief Executive of Straight plc, added: "Overall we are in
good shape and my team and I are optimistic about the future."
The preliminary announcement was approved by the Board on 9 April 2008.
For further information:, please contact:
Straight plc
James Newman, Chairman 07850 672 727
Jonathan Straight, Chief Executive 0113 245 2244
Panmure Gordon
Andrew Godber / Katherine Roe 0207 459 3600
Redleaf Communications
Paul Dulieu / Sam Robbins / Clair Sharp 0207 822 0200
Notes to Editors
• Straight plc was established in 1993, by Jonathan Straight, to supply
container solutions for source separated waste. Initially one man and a desk,
the company grew to become the UK's leading supplier of kerbside recycling
boxes as well as a key supplier of other types of waste and recycling
container solutions.
• Following sustained growth, Straight joined AIM in 2003 with a view to
fuelling further growth.
• In 2005, Straight acquired Blackwall Limited, the UK's largest supplier of
home composters and water butts. Since integrating the two businesses,
Straight now provides a wide range of waste and recycling solutions to local
authorities, the waste industry and general businesses. Straight also delivers
environmental home and garden products directly to end users in partnership
with local authorities and utilities.
• Further information about the company and its products can be found at:
www.straight.co.uk
Chairman's Statement
As outlined in our Trading Statement at the end of January, 2007 has not been a
good year for the Group and I have to report that our trading performance is
substantially below that of 2006 with a number of issues contributing to this
disappointing result. However, the Board believes that this result was only a
temporary downturn in profitability and 2008 should see the trading performance
improve towards pre 2007 levels.
Trading performance
Turnover for the year ended 31 December 2007 was £23.6m (2006: £27.8m), a
reduction of 15%. This fall was a result of reduced retail sales, which were
down 44% from the exceptionally high levels of 2006. This was mainly due to the
extreme wet weather conditions experienced in the middle of the year, which
affected sales of water butts and other gardening products. With 2006 being the
warmest year on record in the UK, and 2007 being the wettest, the reduction in
retail sales was more seriously felt, but, when compared to the 2005 figure of
£4.2m, a less dramatic picture emerges. The Board believes that the level of
sales in 2005 provides a better benchmark for the level of retail sales going
forward
On a more positive note, the Group's core trade business of waste and recycling
containers remained strong, with sales for the year increasing by 2.6% to £19.2m
(2006: £18.7m). This growth was achieved despite the delay of some sales until
2008 and the absence of materials handling revenues following the dissolution of
the agreement with Rehrig Pacific in 2006.
Despite the reduced level of direct to consumer (retail) sales, overall gross
margins did improve slightly to 20.8% (2006: 19.3%), reflecting the strong
market position held by the Group in its core product ranges and markets. This
benefit was, however, offset by the increases in overhead costs as a result of
the fixed fees payable on the distribution contract, which commenced at the
beginning of 2007. Consequently, and in the light of the lower retail sales
experienced during 2007 and likely ongoing volumes, the outsourcing model
deployed has proved, with hindsight, to be a mistake and the distribution
contract has been terminated by mutual consent.
This distribution has now been outsourced to a fulfilment house specialising in
direct to consumer deliveries with a cost model that is almost entirely
variable. As a result of this change, the associated costs should be
substantially reduced going forward and overall delivered margins improved. This
approach will also be able to accommodate any unexpected peaks or troughs in
demand.
The Group has also recently relocated its entire staff to one office in the
centre of Leeds. This means that, for the first time since the acquisition of
Blackwall in 2005, all Group personnel will be based at the same site. This move
has already resulted in an improvement in working practices and the quality and
efficiency of customer service. Staff numbers have also recently been reduced by
one quarter as a result of the complete outsourcing of the Group's call centre
activities and the closure of the Group's warehouses.
As a result of all the above changes to the distribution model, staff and
location, the Group incurred £476,000 of one-off reorganisation and redundancy
costs, which are not expected to recur in the future.
Headline operating profit, before reorganisation costs and amortisation of
intangibles is £1.0m (2006: £1.9m). Profit before taxation is £0.6m (2006:
£2.0m).
Earnings per share
This year the tax charge is reduced by a number of factors leading to an
adjusted earnings per share of 9.6p (2006: 12.4p) and basic earnings per share
of 4.8p (2006: 11.9p)
Balance sheet
The Group remains cash generative with year end cash balances at just over
£1.6m, after record capital expenditure on new tools and systems of over £0.9m.
Stock levels remain high at £1.7m (2006: £1.2m), as the manufacture of key
products continued throughout the second half of the year for sales delayed
until the first half of 2008. The Group expects to see a substantial reduction
in stock levels in 2008.
Dividend
An interim dividend of 1.25p (2006: 1.20p) was paid in December 2007. Despite
the substantially reduced level of profitability for the year, the Board is
confident about future trading and is therefore proposing a final dividend of
2.0p (2006: 2.7p) be paid from the profits generated in 2007. Subject to
shareholder consent at the Annual General Meeting, this dividend will be paid on
30 May 2008 to shareholders on the register on 25 April 2008. This gives a total
dividend for the year of 3.25p (2006: 3.90p)
Strategic developments
A number of new and innovative products were developed in the year, such as
Steelybin(R), an 1100 litre metal waste and recycling container, aimed at the
trade and municipal markets and the new 23 litre Kerbside Caddy for separate
food waste collections. Both these products have been well received in the
market and the recent contract win in Wales of £1.4m is hopefully the first of
many.
The Group has developed a new consumer facing brand for the traditional retail
trade. Under the BeGreen(TM) banner, orders for recycling and environmentally
positive goods have been taken for delivery in 2008 from leading high street
retailers, who are now seeing this sector as a growth opportunity.
The Board is still keen to make suitable acquisitions, which fit the Group's
strategy of developing its product range and adding good quality brands to our
customer offering. Whilst no acquisitions of any size were completed in 2007,
the Group continues to have an active dialogue with a number of companies.
Board and employees
There is no doubt that 2007 has been a difficult year for all connected with the
Group. I would like to thank my Board colleagues and all the staff for their
support during this difficult time. My Board colleagues, especially, are to be
commended for making some hard decisions and restructuring the Group to provide
the platform for growth in 2008 and beyond.
At the Annual General Meeting, Roger Green, who has been a Non-Executive
Director since flotation in 2003, will step down from the Board. I would like to
thank Roger for his great contribution to the development of the Group and its
management over that time and his wise counsel to me personally. A replacement
for Roger is being recruited and is likely to have a sales and marketing
background.
Outlook
Prospects for 2008 remain good with a strong order book and a significant number
of new customers. 2008 should also benefit from a full year's sales of the new
products developed in the second half of 2007. The strength of the Group's
market position in its core trade business and our strategy to reduce the impact
of seasonality on the retail business gives the Board cause for optimism for the
coming year.
The Board strongly believes that the Group has put the problems of 2007 behind
it and is confident that 2008 will deliver an improved trading performance.
James Newman
Chairman
9 April 2008
Chief Executive's Review
2007 was a frustrating year for the Group and its management and employees.
Having taken a series of steps to ensure the scalability of our retail business
and increasing fixed costs in anticipation of another strong year, we saw sales
in that area decrease as a result of the UK experiencing the wettest summer on
record. However, the results overall for 2007 demonstrate a strong core trade
business, which finished the year in significantly better shape than it was in
at the start. This area of the business, which remains the powerhouse of the
Group, is still growing and will continue to form the mainstay of the business
going forward.
Waste and recycling container solutions
For this area of the business, 2007 was an excellent year during which the
foundations were laid for the next phase of growth. We have strengthened and
expanded our sales team and improved our operations team. As a result of the
extensive work undertaken in improving our customer service, the Company was
awarded ISO9001 and ISO14001 accreditation in November.
Sales of recycling containers, such as kerbside boxes and caddies, have
continued at record levels and this trend has continued into 2008. From the new
Waste Strategy for England, which was published in May 2007, we have also
identified several new opportunities which we are currently pursuing.
The considerable interest in food waste collections, driven by Government
support for anaerobic digestion, has led to an increase in demand for containers
designed for this purpose. Historically, this market has been served through the
import of products from Europe. Intent on maintaining our lead in this market,
during 2007 we designed a new food waste container, which was launched early in
2008. This product is already winning orders, most notably the local authority
agreements in Wales announced on 2 April 2008. The launch of our own UK produced
product, coupled with the recent strength of the Euro, means that we expect to
continue to play the leading part in this emerging market in the same way that
our core business is leveraged by our unchallenged expertise and
long-established relationships with councils and waste management companies.
Late in 2007 we launched our first metal product, Steelybin(R), a four-wheeled
container for 'on street recycling' and trade waste applications. We believe the
established market for this product to be worth around £35m per annum.
Traditionally, low cost products entering the market have been of poor quality.
Through a combination of manufacture in the far east and customisation and
assembly in the UK, we have produced a high quality product, which we can sell
at a very reasonable price. At the end of the first quarter, commitments for
this range have reached almost 50% of its first year target.
The government agency, WRAP (Waste & Resources Action Programme) continues to be
a major customer for our home compost bins with strong sales in 2007. However,
as DEFRA funding to WRAP is reduced during 2008, we expect sales through WRAP to
reduce, but anticipate these volumes to be replaced by an increase in activity
in our direct to consumer business.
Home & garden products
In order to capitalise on interest shown by traditional retailers in our
environmental home and garden products, we launched the BeGreen(TM) brand in the
second half of 2007. The success of this brand has so far exceeded our
expectations with a number of products now listed by major retailers including B
&Q and Tesco.
We have also begun to supply garden products to the Australian market, which is
counter-cyclical to our own. Having shipped UK-made products during 2007, we are
now in a position to outsource our manufacturing to Australia and would expect
this to strengthen our market position, increase volumes and improve margins.
Our business model is perfectly suited to this activity and we are currently
looking at the possibility for this type of arrangement elsewhere in the world.
Trade business
The trade business of the Group, being business to business sales, grew through
2007 and we expect this growth to continue in the current year with the
increased legislative impetus on businesses to recycle more of their waste.
Further new products will be launched during 2008 to capitalise on this growth
and enhance our margins.
Overall, the trade business has started 2008 ahead of 2007 and also ahead of our
own expectations. We remain confident that this pattern will continue into the
second quarter and then into the second half of this year.
Retail business
The very wet weather during 2007 certainly impacted on direct to consumer sales
of water butts, especially when compared with the level of sales for 2006. This
was unfortunate as margins in this area of the business increased mainly due to
the solving of the previous year's customer service issues. Sales are currently
at a level consistent with 2005, a year where the weather had neither a positive
or negative impact.
We have now dealt with the fixed cost base relating to this area, which was too
high and the complete outsourcing of our call centre activity, combined with a
new fulfilment partner, Spark Response, means costs in this area are now almost
completely variable.
We have also renewed our contract with DHL for the provision of customer
services for the WRAP home composting campaigns. This new tender runs until the
end of 2008.
The weather-related risk to this area of the business is recognised and a number
of actions are ongoing to give the retail business critical mass for the whole
of the year. Significant development work has been completed on our order
processing software and the interfaces with our new fulfilment partner. We are
now able to take orders via telephone, post or web and have the goods rapidly
shipped out with a full audit trail. This gives the confidence to push further
retail developments forward including a new site supplying waste and recycling
containers and other specialist web sites, which will help reduce the seasonal
impact on this part of the business.
Management and staff
Our move to new premises has been the catalyst to re-engineer the organisational
structure to suit the business going forward. We have had a challenging year,
which has tested my fellow directors and managers. All have performed well and I
extend my thanks to them. Now together under one roof, our slimmed down team is
stronger than ever before and is poised to meet the challenges ahead.
Outlook
Trade sales have been strong in the first quarter and continue to gain momentum.
Whilst the retail business has started 2008 slowly, the cost base has been
correctly addressed. New product development continues at a rapid rate and ahead
of budgeted plans. Overall we are in good shape and my team and I are optimistic
about the future.
Jonathan Straight
Chief Executive
9 April 2008
Finance Director's Review
International Financial Reporting Standards (IFRS)
This is the first preliminary announcement that the Group has presented in
accordance with IFRS. Note 24 to the financial statements provides a
reconciliation between the results previously reported under UK GAAP and the
comparative information presented this year.
Revenue and operating margins
Although revenue in the core trade waste and recycling container solutions
business grew by 2.6%, gross profitability fell by 2.1% to 18.8%. This fall was
caused principally by:
•sales of kerbside products reaching record levels and being driven in
part by a number of very large orders where some margin was sacrificed in
order to guarantee large volumes. This strategy proved very successful in
protecting our dominant market position;
•sales of higher gross margin composters and water butts into the
independent garden centre sector falling following its general weak
performance during a very wet summer. We did however increase our share of
the supply of these products into retail multiples although these supplies
were at lower gross margins than enjoyed in the independent garden sector.
Volumes in the retail business fell significantly although, at gross margin
level, the delivery and customer service costs incurred in 2006, in order to
deal with the impact of that year's hose pipe bans on demand for our water
butts, were not repeated. The consequence of this, combined with the success in
2007 of our WRAP customer service contract, was an increase in gross margin from
17.3% to 30.2%.
Operating cashflow
Stocks remained high at the end of the year following the failure of demand for
water butts held for our direct to consumer business to materialise and also the
delay in the placing of orders for composters until 2008, by WRAP. Fortunately,
the impact of this increase, and also the impact of reduced operating profits
were mitigated by continuing success in cash collection from trade customers.
The resultant cash generated from operations was £1.3m (2006: £1.7m).
The Group continued in its strategy of consolidating its strong market position
in its growing core business by investing a large amount in new products and
systems. Net cash used in investing activities increased to £0.9m (2006: £0.8m).
With the cash dividends paid during the year increased slightly to £0.5m (2006:
£0.4m), cash balances ended the year at £1.6m, £0.5m lower than at the beginning
of the year.
Earnings per share
Basic earnings per share fell to 4.8p (2006: 11.9p). The full impact of the fall
in profits was not reflected in earnings per share following the reduction of
our tax charge as a consequence of certain one-off cash refunds we were
successfully able to claim.
Management of financial risk
The Group has continued to place surplus cash on deposit so that the maximum
return can be obtained consistent with its need to access the cash. The Group
has also maintained its policy of managing foreign exchange risk by purchasing
currency forward when it is notified that a contract bid has been successful and
foreign currency is required. The policy of rigorously credit checking all new
customers and chasing existing customers promptly has once again ensured that we
have avoided significant bad debts.
Outlook
The opportunity to increase cash through stock reduction is already being taken
with stock already beginning to fall. The investment we have made in new
products and systems continues to build on our market position, which in our
core business has never been stronger.
James Mellor
9 April 2008
Finance Director
Consolidated Summarised Income Statement
For the year ended 31 December 2007
Headline Reorg- Total Total
anisation
2007 2007 2007 2006
Note £'000 £'000 £'000 £'000
Revenue 2 23,592 - 23,592 27,836
Cost of sales 3 (18,694) - (18,694) (22,465)
Gross profit 4,898 - 4,898 5,371
Operating costs 3 (3,900) (476) (4,376) (3,521)
Operating profit 2 998 (476) 522 1,850
Investment income 4 67 107
Profit before taxation 2 589 1,957
Income tax expense 5 (33) (610)
Profit for the year attributable
to the equity holders of the Company 556 1,347
Earnings per share (continuing and total)
for profit attributable to the equity
holders of the Company during the year
Adjusted 6 9.6p 12.4p
Diluted adjusted 6 9.5p 12.0p
Basic 6 4.8p 11.9p
Diluted 6 4.8p 11.5p
All operations are continuing.
Consolidated Summarised Balance Sheet
At 31 December 2007
2007 2006
£'000 £'000
Assets
Non current assets
Property, plant and equipment 1,513 1,180
Intangible assets 5,932 5,719
Investments 35 -
7,480 6,899
Current assets
Inventories 1,686 1,181
Trade and other receivables 3,553 5,057
Cash and cash equivalents 1,604 2,126
6,843 8,364
Total assets 14,323 15,263
Liabilities
Non current liabilities
Deferred taxation (45) (35)
Current liabilities
Trade and other payables (3,941) (4,599)
Income tax payable (125) (609)
(4,066) (5,208)
Total liabilities (4,111) (5,243)
Net assets 10,212 10,020
Equity attributable to equity holders
of parent
Issued share capital 115 115
Share premium 5,970 5,953
Merger reserve 744 744
Profit and loss account 3,383 3,208
Total equity 10,212 10,020
Consolidated Summarised Statement of Changes in Equity
For the year ended 31 December 2007
Share Share Merger Profit Total
Capital Premium Reserve and Loss Equity
Account Account
£'000 £'000 £'000 £'000 £'000
At 1 January 2006 113 5,827 744 2,227 8,911
Profit for 2006 attributable to
the equity holders of the Company - - - 1,347 1,347
Issue of shares 2 126 - - 128
Arising on grant of share options - - - 56 56
Dividends - - - (422) (422)
At 1 January 2007 115 5,953 744 3,208 10,020
Profit for 2007 attributable to
the equity holders of the Company - - - 556 556
Issue of shares - 17 - - 17
Arising on grant of share options - - - 72 72
Dividends - - - (453) (453)
At 31 December 2007 115 5,970 744 3,383 10,212
Consolidated Summarised Cash Flow Statement
For the year ended 31 December 2007
2007 2006
£'000 £'000
Cash flows from operating activities
Profit after taxation: 556 1,347
Adjustment for:
Depreciation 306 352
Profit on sale of property plant and equipment (3) (111)
Goodwill amortisation 17 17
Other intangibles amortisation 72 34
Investment income (67) (107)
Taxation expense recognised in income statement 33 610
Share option costs recognised in income statement 72 56
Increase in inventories (505) (766)
Decrease in trade and other receivables 1,504 508
Increase in trade payables (665) (229)
Cash generated from operations 1,320 1,711
Income tax paid (507) (540)
Net cash from operating activities 813 1,171
Cash flows from investing activities
Purchase of investments (35) -
Purchase of intangibles (302) (193)
Purchase of property, plant and equipment (639) (701)
Proceeds from sale of equipment 10 -
Interest received 67 107
Net cash used in investing activities (899) (787)
Cash flows from financing activities
Proceeds from issue of share capital 17 128
Dividends paid (453) (422)
Net cash used in financing activities (436) (294)
Net (decrease)/increase in cash and cash equivalents (522) 90
Cash and cash equivalents at beginning of period 2,126 2,036
Cash and cash equivalents at end of period 1,604 2,126
Notes to the Preliminary Announcement
For the year ended 31 December 2007
1. Basis of preparation
The preliminary announcement has been prepared in accordance with applicable
International Financial Reporting Standards as adopted by the EU.
2. Revenue and profit before tax
The revenue and profit before taxation are attributable to the principal
activities of the Group. The revenue and gross profits attributable to the
principal activities are set out below.
Revenue Profit Revenue Profit
2007 2007 2006 2006
£'000 £'000 £'000 £'000
Environmental container solutions 19,167 3,599 18,678 3,903
Direct to consumerenvironmental products 4,288 1,296 7,609 1,313
Materials Handling 137 3 1,549 155
Revenue and gross profit 23,592 4,898 27,836 5,371
Unallocated central costs (4,376) (3,521)
Operating profit 522 1,850
The unallocated costs are unable to be split between the operating segments of
the business as the resources to which they relate are common to all segments.
All assets other than trade receivables are used in all segments of the
business. The amount carried in trade receivables which relates to the direct to
consumer business is £134,000 (2006: £217,000) and to the materials handling
business £nil (2006: £204,000).
The profit before taxation is stated after the costs below.
2007 2006
£'000 £'000
Depreciation 306 352
Goodwill amortisation 17 17
Other intangibles non-current assets amortisation 72 34
Operating lease rentals - land and buildings 97 97
Auditors' remuneration - audit services 24 20
Auditors' remuneration - review of interim financial statements 6 3
Share based payments 72 56
3. Cost of sales and operating expenses
2007 2006
£'000 £'000
Cost of sales 18,694 22,465
Distribution costs 2,143 1,931
Administrative expenses 1,757 1,590
Operating expenses before reorganisation costs 3,900 3,521
Reorganisation costs 476 -
Operating expenses 4,376 3,521
4. Investment income
2007 2006
£'000 £'000
Bank deposits 67 39
Short term deposits - 68
67 107
5. Taxation
2007 2006
£'000 £'000
Corporation tax at an average rate of 25% (2006: 30%) 125 605
(Over)/under provision in prior years (102) 7
Current tax 23 612
Deferred tax 10 (2)
Income tax expense 33 610
Analysis of total tax charge
Profit on ordinary activities before tax 589 1,957
Profit on ordinary activities multiplied
by standard rate of Corporation tax in the
UK (30%) (2006: 30%) 177 587
Expenses not deductible for tax purposes 2 16
Marginal relief (27) -
Other (17) -
(Over)/under provision in respect of prior periods (102) 7
33 610
6. Earnings per share
Basic 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 in
the year 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 2007.
2007 2006
Weighted Weighted
average Per average Per
Earnings number share Earnings number share
£'000 of shares pence £'000 of shares pence
Basic earnings attributable
to ordinary shareholders 556 11,493,382 4.8 1,347 11,349,878 11.9
Dilutive effect of share
options - 130,655 - - 328,481 (0.4)
Diluted earnings per share 556 11,624,037 4.8 1,347 11,678,359 11.5
Adjusted earnings per share
Adjusted earnings per share is calculated on the basis of adjusted profit
for the year after tax (see below), defined as profits attributable to the
equity holders of the company excluding reorganisation costs and share
scheme charges, divided by the weighted average number of shares in issue in
the year of 11,493,382. The comparative is calculated by reference to the
weighted average number of shares in issue in 2006 of 11,349,878.
2007 2006
Weighted Weighted
average Per average Per
Earnings number share Earnings number share
£'000 of shares pence £'000 of shares pence
Adjusted earnings
attributable to
ordinary shareholders 1,107 11,493,382 9.6 1,403 11,349,878 12.4
Dilutive effect of
share options - 130,655 (0.1) - 328,481 (0.4)
Diluted earnings per share 1,107 11,624,037 9.5 1,403 11,678,359 12.0
2007 2006
£'000 £'000
Profit for the year attributable to the equity
holders of the Company 556 1,347
Reorganisation costs 476 -
Share scheme charges 75 56
Adjusted earnings attributable to
ordinary shareholders 1,107 1,403
7. Post balance sheet event
On 9 April 2008, the Board proposed a dividend of 2.0p per share. Subject to
shareholder consent at the Annual General Meeting, this dividend will be
paid on 30 May 2008 to shareholders on the register on 25 April 2008. This
gives a total dividend for the year of 3.25p (2006: 3.90p).
8. 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 consolidated balance sheet at 31 December 2007, summarised
consolidated income statement, summarised consolidated cash flow statement,
summarised consolidated statement of changes in equity and associated notes
for the year then ended, have been extracted from the Group'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.
9. Annual General Meeting
The Annual General Meeting of the Company will be held in Leeds on Thursday
22 May 2008. 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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