TIDMSPRP
RNS Number : 6251R
Sprue Aegis plc
25 September 2017
25 September 2017
Sprue Aegis plc
("Sprue", the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
Sprue (AIM: SPRP), one of Europe's leading developers and
suppliers of home safety and connected home products, announces its
unaudited interim results for the six months ended 30 June
2017.
Financial highlights
-- Group revenue of GBP26.0m (H1 2016: GBP25.9m)
-- Adjusted operating profit* of GBP1.5m (H1
2016: operating loss* GBP0.9m)
-- Gross margin pre-BRK distribution fee up
by 6.2% to 31.7% (H1 2016: 25.5%)
-- Return on sales before share-based charge
improved to 5.6% (H1 2016: (3.5%))
-- Basic EPS improved to 2.8 pence per share
(H1 2016: 1.3p loss per share)
-- Strong balance sheet, no debt and cash of
GBP10.0m (30 June 2016: cash of GBP14.7m)
-- Total warranty costs in line with the Board's
expectations with warranty provisions as
at 30 June 2017 of GBP3.9m (30 June 2016:
GBP5.7m)
-- Inventory reduced by 19% to GBP13.2m (30
June 2016: GBP16.3m)
-- Increased investment in new product development
of GBP1.4m (H1 2016: GBP1.1m)
-- Declared interim dividend maintained at
2.5p per share (H1 2016: 2.5p per share)
*Adjusted operating profit is stated before share-based payments
charge of GBP0.2m (H1 2016: GBP0.3m)
Operational highlights
-- Implementation of transformational manufacturing
and supply agreement with Flex progressing
to plan and on track
-- Following receipt of notice to terminate
from Newell, Sprue continues to work towards
exiting both the distribution and manufacturing
agreements on 31 March 2018
-- New customer wins across UK Retail, Trade
and EMEA
Post-period end highlights
-- Partnership with SmartThings to certify
the FireAngel Z-wave smoke and heat alarms
as "Works With SmartThings" devices for
use with the SmartThings platform
-- Launch of Europe's first domestic battery
powered gas alarm
Graham Whitworth, Executive Chairman of Sprue Aegis,
commented:
"I am pleased to report the strong progress made in the first
half, highlighted by our return to profitability. We are fast
transforming into a lean, technology driven safety products
business in the high growth potential connected home safety
products market.
"Our manufacturing and supply agreement signed with Flex on 31
March 2017, combined with a continued focus on both product
innovation and promotion of our FireAngel brand, will act as a
catalyst to further exploit existing markets, alongside broadening
our current product range and geographic reach.
"We remain hugely optimistic about the Group's growth prospects
and believe that our core strategic initiatives will fundamentally
transform our business over the coming years."
For further information, please contact:
Sprue Aegis plc 02477 717700
Graham Whitworth, Executive
Chairman
Neil Smith, Group Chief Executive
John Gahan, Group Finance Director
Vigo Communications
Jeremy Garcia / Fiona Henson
/ Natalie Jones 020 7830 9700
Stockdale Securities 0207 601 6100
Tom Griffiths
Notes to Editors
About Sprue Aegis plc
Sprue's mission is to protect, save and improve our customers'
lives by making innovative, leading edge technology simple and
accessible. Sprue is one of the market leaders in the European home
safety products market and launched its own connected homes product
proposition in December 2016.
Sprue's principal products are smoke alarms, CO alarms and
accessories and its products can be connected to the internet. The
Group has an extensive portfolio of patented intellectual property
in Europe, the US and other selected territories. Products are sold
under Sprue's leading brands of FireAngel, FireAngel Pro, SONA,
AngelEye and FireAngel Connect.
For further product information, please visit: www.sprue.com
Business review
Introduction
We are pleased to report a return to profitability in the first
six months of 2017, with adjusted operating profit of GBP1.5m (H1
2016: operating loss of GBP0.9m). This was achieved through a
significant improvement in gross margin and a net reduction in
overheads, delivered against a backdrop of flat sales.
We have seen good progress in EMEA which, as expected, has
helped to offset the lower year on year sales in the UK post the
implementation of the private landlord legislation which had
boosted sales in 2016.
The profit generated in our core markets has enabled the Board
to declare a maintained interim dividend of 2.5p per share,
underpinning its confidence in the business and its prospects.
Basic EPS in the six months ended 30 June 2017 was 2.8 pence per
share (H1 2016: loss of 1.3 pence per share).
Despite the significant increase in debtors at 30 June 2017
compared to the position at 30 June last year, together with the
ongoing cash cost of servicing the product warranty, the balance
sheet remains strong with GBP10.0m in cash at 30 June 2017 (30 June
2016: GBP14.7m) and no debt.
Strategic initiatives
On 31 March 2017, following receipt of 12 months' notice from
Newell Brands Inc. ("Newell") to terminate the BRK distribution and
manufacturing agreements with effect from 31 March 2018, the
Company announced two new strategic manufacturing agreements, which
will transform the business and improve its operational scale and
geographic reach. A new manufacturing and supply agreement was
signed with Flex, which coupled with an agreement with a leading
manufacturer in the Far East, will bring greater control and
certainty to the Group's product road map and manufacturing. From
31 March 2018, Sprue will no longer have to pay the BRK
distribution fee representing an annualised saving of GBP2.9m in
cash.
These new initiatives form the core of our strategic focus,
which are as follows:
-- To build on Sprue's strong market presence
to leverage our technology and exert greater
end-to-end autonomy over the product offering,
underpinned by strong IP protection and
in-house product development capabilities
-- To accelerate the development of the Group's
technology driven, own branded products
with opportunity to distribute into new
territories and markets
-- To leverage Flex's manufacturing footprint
and expertise whilst also benefitting from
significant supply chain capabilities and
efficiencies
-- To capitalise on the high growth potential
of the "Connected Homes" market by expanding
the Group's FireAngel Connect system across
Europe
-- Continued major investment in new product
development (which amounted to GBP1.4m
in the six months ended 30 June 2017 (H1
2016: GBP1.1m)) to improve the Company's
connected home product offering and develop
other key new products
Connected homes and innovation
Sprue is ideally placed to capitalise on the burgeoning
"Connected Homes" market, with its existing range of wireless
products. Whilst sales of Sprue's connected home products are still
in their infancy, we believe that the Company is well positioned to
build a sizeable connected homes business over the medium to long
term.
Connected home products command a price premium as they feature
significant additional functionality and user benefits compared to
non-connected products. Connected products can be managed via the
FireAngel Connect cloud-based administration system and to interact
via an app with tablets and smart phones.
To bring this capability in-house, during the period, the Group
paid GBP0.6m in cash to purchase further source code and
development rights to software produced by Intamac Systems Limited
("Intamac"). This is in addition to the connected homes software
acquired by the Company from Intamac last year. This additional
software will support a 'B2C' product to be launched early next
year leveraging our successful deployment of similar 'B2B'
products, sales of which have already commenced.
Partnering with SmartThings
Sprue has recently entered into a partnership with SmartThings
to certify the FireAngel Z-wave smoke and heat alarms as "Works
With SmartThings" devices for use with the SmartThings platform.
This exciting partnership is testament to the strength and trust in
our brand and products and will extend the reach and connected
products footprint under the FireAngel umbrella. Further details on
SmartThings can be found at: www.smartthings.com/uk.
Products and brands
Earlier this month, after the period end, Sprue announced the
launch of the Europe's first domestic battery powered gas alarm,
"Natural Gas Detector" under its FireAngel brand which expanded the
Group's product range beyond smoke, heat and CO alarms and
accessories. The development of this gas alarm is further evidence
of our ability to leverage our technology and significantly
increases our addressable market to more than 300 million
households in mainland Europe and over 25 million in the UK
alone.
In addition, we have updated our innovative product road map to
2020 and beyond which extends the capabilities of our core
technology and has the potential to create incremental new market
opportunities and strengthen our product offering.
By refreshing our existing portfolio around the FireAngel brand
over the next 12 to 18 months, we will seek to further consolidate
our product range and our brands, significantly reducing the level
of stock. Based on customer feedback, it is clear that the
FireAngel brand resonates well and, as a result, will become the
central focus of our sales and marketing efforts.
Customers and markets
Our sales teams have had a busy six months, securing multiple
contract wins with major new customers, including:
-- OBI and Bauhaus - leading German retailers,
marking Sprue's entry into the German retail
market
-- Moyne Roberts (Ireland) - strengthening
Sprue's position in Trade
-- Devon and Somerset Fire & Rescue Services
-- Bunnings UK and Bunnings New Zealand -
enhancing Sprue's leading position in UK
Retail and extending our reach in New Zealand
The Board is focused on Sprue becoming the leading provider and
developer of home safety technology in Europe, as evidenced by the
launch of the gas alarm in a wider geographic spread.
The 2020 plan
The 2020 plan sets out Sprue's target to be the market leader in
Home Safety solutions combining, connecting and complementing our
unique technology, products and services through our trusted
brands. We aim to:
-- Improve our existing business whilst at
the same time creating an organisation
that invents new safety solutions so creating
new opportunities
-- Innovate, differentiate and grow share
within current markets through valued added
technology and services combined with outstanding
levels of customer service and satisfaction
-- Generate incremental growth by creating
new markets leveraging Flex's manufacturing
footprint and "sketch to scale" expertise
-- Leverage Sprue's culture and the talent
of our people
Outlook
Following receipt of the notice of cancellation of the BRK
distribution agreement, representing an annualised saving of
GBP2.9m in cash from 31 March 2018, and the cancellation of the
manufacturing agreement with DTL, which we have replaced with two
new manufacturing and supply agreements, we continue to make
substantial progress towards our strategic objective of becoming an
independent technology business with outsourced manufacturing. We
believe 2017 and 2018 will be pivotal for Sprue as we seek to
integrate and capitalise on our manufacturing agreement with
Flex.
Our product roadmap out to 2020 provides Sprue with a clear
direction to expand our range and increase sales. Whilst continuing
to enhance our core technology and connected products offering, we
remain committed to leveraging the full commercial value of our
FireAngel brand through the launch of additional complementary
product sets.
During H2 2017, the Board expects a stronger UK sales bias, with
full year results expected to be in line with market
expectations.
The Board considers that the Group's prospects remain
strong.
Graham Whitworth Neil Smith
Executive Chairman Group Chief
Executive
Financial report
Summary
Revenue in H1 2017 increased slightly to GBP26.0m (H1 2016:
GBP25.9m) with strong sales in EMEA, offset by the expected lower
demand within the UK as the increase in demand from the private
landlord legislation was satisfied last year. Pace Sensor sales
were affected by a reduced CO sensor requirement due to lower CO
sales year on year.
Gross margin in the period before the BRK distribution fee
improved by 6.2% to 31.7% (H1 2016: 25.5%) principally due to a
GBP0.3m reduction in stock provisions in respect of BRK stock,
proactive gross margin management and a reduction in rework costs
compared to H1 2016.
Movements in foreign exchange rates of each of the US Dollar and
the Euro against Sterling in the first half did not have a
significant impact on the Group's results. Higher product costs due
to Sterling's weakness against the US Dollar* were broadly offset
by the benefit of Sterling's weakness against the Euro**. The Group
booked a net GBP0.3m loss from the mark to market of forward
contracts (H1 2016: GBP0.4m loss).
Excluding share-based payments charge, fixed costs reduced to
GBP5.4m (H1 2016: GBP6.0m), principally due to lower staff costs
which helped contribute to a much improved adjusted operating
profit of GBP1.5m (H1 2016: adjusted operating loss of
GBP0.9m).
Basic EPS was a profit of 2.8 pence per share (H1 2016: loss per
share of (1.3) pence per share).
*Sterling decreased in value against the US Dollar by circa 12%
with an average H1 2017 exchange rate of 1.26 (H1 2016: 1.43)
**Sterling decreased in value against the Euro by circa 9% with
an average H1 2017 exchange rate of 1.16 (H1 2016: 1.28)
Revenue by business unit
The table below summarises the revenue for each business unit
and Pace Sensors.
H1 2017 H1 2016
Revenue Revenue Change
Revenue GBPm GBPm GBPm
---------------------------- -------- -------- -------
Business Units:
EMEA 11.8 8.0 3.8
UK Retail 6.3 7.5 (1.2)
UK Trade 3.1 4.0 (0.9)
UK Fire & Rescue Services 2.4 2.8 (0.4)
UK Utilities 0.9 1.3 (0.4)
Pace Sensors Limited 1.5 2.3 (0.8)
---------------------------- -------- -------- -------
Total revenue 26.0 25.9 0.1
---------------------------- -------- -------- -------
Strong sales performances in Germany and Benelux helped drive
the overall EMEA growth. Sprue is the market leader in Benelux
which, as a market without new smoke and CO legislation, continues
to show a high level of customer awareness about the dangers of
smoke and carbon monoxide ('CO').
Good progress was made in EMEA which, as expected, helped to
offset the lower year on year sales in the UK post the
implementation of the private landlord legislation which boosted
2016 sales.
Balance sheet
Intangible assets - capitalised product development costs
The net book value of capitalised product development costs as
at 30 June 2017 was GBP11.0m (30 June 2016: GBP7.3m). An analysis
of the intangibles by major category together with detailed
commentary thereon is set out at note 6 below.
Specific people and non-people costs which meet the relevant
criteria are capitalised and amortised against future profits from
the sale of products which incorporate the intangible assets.
Product development costs are typically amortised over a 7 to 15
year period and are regularly reviewed for any signs of
impairment.
As part of the impairment review, the net book value of each
intangible asset is compared with the expected gross profit from
the sales over the next 24 months of products which incorporate
that technology. This allows an assessment of the carrying value of
each intangible asset relative to the expected gross profit each
asset is forecast to generate. Except for the connected home
intangible asset (where sales have just commenced and are expected
to increase over time as acceptance of the technology increases),
gross profit generated from the expected sale of relevant products
over the next two years is typically greater than the carrying
value of the intangible asset on the balance sheet.
The key judgement in relation to connected homes and whether the
intangible asset is impaired relates to the take up rate of
connected homes technology and the level of profit that the Group
could reasonably expect from the sale of connected home products.
The Board expects sales of connected home product will increase as
acceptance and use of the technology becomes more widespread.
Deferred tax
Deferred tax assets as at 30 June 2017 of GBP0.9m (30 June 2016:
GBP0.7m) relate primarily to unrelieved taxable losses carried
forward. With GBP2.3m of brought forward trading losses, the Group
does not expect to pay any UK corporation tax this financial
year.
Deferred tax liabilities as at 30 June 2017 of GBP1.7m (30 June
2016: GBP1.5m) relate primarily to product development costs where
the Company has claimed accelerated R&D tax credits. The
Group's tax treatment of intangibles is mirrored in its tax
computations submitted to HMRC.
Stock
Following receipt of 12 months' notice from Newell to terminate
the 2010 BRK distribution agreement as announced on 31 March 2017,
any remaining stock of BRK products held by Sprue as at 31 March
2018 will be repurchased by BRK at the price Sprue paid for the
goods. It is expected that this will result in a cash payment to
Sprue of at least GBP3.0m assuming that in the meantime,
Sprue has not sold the remaining BRK stock. As at 30 June 2017,
the gross book value of BRK stock held by Sprue amounted to GBP4.8m
(as at 30 June 2016: GBP7.7m).
Warranty provisions
Total warranty provisions as at 30 June 2017 amounted to GBP3.9m
(30 June 2016: GBP5.7m; as at 31 December 2016: GBP4.6m) of which
GBP2.4m is included within current liabilities to cover warranty
costs expected to be incurred over the next twelve months. The
overall rate of free of charge replacements being issued due to
known warranty issues is in line with management's expectations.
The vast majority of warranty costs incurred by the Group relate to
the battery impedance issue previously identified in April
2016.
Cash flow
Net cash flow from operations was negative at GBP2.3m (H1 2016:
negative GBP6.1m) principally due to an increase in trade and other
receivables which were GBP3.7m higher than at 30 June 2016 due to
the adjustment of credit terms for certain customers, a stronger
month of trading in June 2017, together with the ongoing cash cost
of servicing free of charge replacements which utilised GBP0.7m of
the warranty provision in H1 2017 as referred to above. Reductions
in stock were broadly offset by lower trade creditors as the Group
sought to reduce stock.
In total, H1 2017 net cash flow declined by GBP4.3m (H1 2016:
decline of GBP7.7m). However, the balance sheet remained robust
with net cash at 30 June 2017 of GBP10.0m (30 June 2016: GBP14.7m)
and no debt.
During the period, the Group purchased further software modules
from Intamac for GBP0.6m in cash and paid tax in Canada of
GBP0.2m.
Dividend
The Board is pleased to declare a maintained interim dividend of
2.5p per share (H1 2016: 2.5p per share) payable on 27 October 2017
to shareholders on the register on 13 October 2017. The Board
confirms that the Company will continue to pursue a progressive
dividend policy.
Signed on behalf of the Board
Neil Smith John Gahan
Group Chief Executive Group Finance
Director
CONDENSED STATEMENT OF CONSOLIDATED INCOME
PERIODED 30 JUNE 2017
Notes (Unaudited) (Unaudited) (Audited)
Period Period Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
GBP000 GBP000 GBP000
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Revenue 3 26,026 25,939 57,106
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Cost of sales excluding BRK distribution fee (17,768) (19,316) (40,789)
BRK distribution fee (1,415) (1,483) (2,982)
Total cost of sales (19,183) (20,799) (43,771)
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Gross profit 6,843 5,140 13,335
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Distribution costs (469) (553) (1,083)
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Administrative expenses excluding share-based payments charge (4,916) (5,489) (10,182)
Share-based payments charge (179) (282) (563)
Total administrative expenses (5,095) (5,771) (10,745)
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Total fixed costs (5,564) *(6,324) (11,828)
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Profit / (loss) from operations pre share- based payments charge
% of sales 1,458 (902) 2,236
5.6% (3.5%) 3.9%
Profit / (loss) from operations 1,279 (1,184) 1,507
Finance income 18 49 66
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Profit / (loss) before tax 1,297 (1,135) 1,573
Income tax (charge) / credit 4 (26) 556 246
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Profit / (loss) attributable to equity owners of the parent 1,271 (579) 1,819
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
Earnings per share (pence) 5
From continuing operations:
Basic 2.8 (1.3) 4.0
Diluted 2.8 (1.3) 4.0
----------------------------------------------------------------- ----- ----------- ----------- -------------------------
*Total fixed costs in H1 2016 include a GBP0.2m restructuring
charge within Administrative expenses (H1 2017: GBPnil)
Continuing operations
None of the Group's activities are treated as acquired or
discontinued during the above periods.
CONDENSED STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
FOR THE PERIODED 30 JUNE 2017
(Unaudited) (Unaudited) (Audited)
Period ended Period ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
-------------------------------------------------------------------- ------------- ------------- ------------
Revenue Profit / (loss) for the period 1,271 (579) 1,819
Items that may be reclassified subsequently to profit and loss:
Net exchange (loss) / gain on translation of foreign operations (net
of tax) (80) 153 393
Other comprehensive (loss) / income for the period (80) 153 393
--------------------------------------------------------------------- ------------- ------------- ------------
Total comprehensive income / (loss) for the period 1,191 (426) 2,212
--------------------------------------------------------------------- ------------- ------------- ------------
CONDENSED STATEMENT OF consolidated FINANCIAL POSITION
(Unaudited) (Unaudited) (Audited)
30 June 30 June 31 December
NOTES 2017 2016 2016
GBP000 GBP000 GBP000
--------------------------------- ----- ----------- ----------- ------------
Non-current assets
Goodwill 169 169 169
Computer software 110 74 60
Product development costs 6 11,000 7,190 9,860
Plant and equipment 914 990 916
Deferred tax assets 855 694 625
--------------------------------- ----- ----------- ----------- ------------
13,048 9,117 11,630
--------------------------------- ----- ----------- ----------- ------------
Current assets
Inventories 7 13,167 16,307 13,316
Trade and other receivables 8 14,365 10,691 13,451
Current tax assets 527 756 287
Derivative financial assets 14 - - 1
Cash and cash equivalents 10,044 14,664 14,333
--------------------------------- ----- ----------- ----------- ------------
38, 103 42,418 41,388
--------------------------------- ----- ----------- ----------- ------------
Total assets 51,151 51,535 53,018
--------------------------------- ----- ----------- ----------- ------------
Current liabilities
Trade and other payables 9 (13,705) (13,097) (16,741)
Proposed dividends (1,376) (2,522) -
Current tax liabilities - - (43)
Warranty provisions 10 (2,400) (2,197) (2,800)
Derivative financial liabilities 14 (388) (495) (88)
--------------------------------- ----- ----------- ----------- ------------
(17,869) (18,311) (19,672)
--------------------------------- ----- ----------- ----------- ------------
Net current assets 20,234 24,107 21,716
--------------------------------- ----- ----------- ----------- ------------
Non-current liabilities
Warranty provisions 10 (1,455) (3,493) (1,793)
Deferred tax liabilities (1,705) (1,512) (1,569)
--------------------------------- ----- ----------- ----------- ------------
Total non-current liabilities (3,160) (5,005) (3,362)
--------------------------------- ----- ----------- ----------- ------------
Total liabilities (21,029) (23,316) (23,034)
--------------------------------- ----- ----------- ----------- ------------
Net assets 30,122 28,219 29,984
--------------------------------- ----- ----------- ----------- ------------
Equity
Share capital 11 917 917 917
Share premium 12,713 12,713 12,713
Foreign exchange reserve 184 24 264
Retained earnings 16,308 14,565 16,090
--------------------------
Total equity attributable
to the owners of the
parent 30, 122 28,219 29,984
-------------------------- ------- ------ ------
CONDENSED STATEMENT OF consolidated CHANGES IN EQUITY
FOR THE PERIODED 30 JUNE 2017
Foreign
Share Share exchange Retained
capital premium reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- ------ -------- --------- --------- -------
Balance at 1 January 2016 917 12,713 (129) 17,596 31,097
Loss for the six months - - - (579) (579)
Foreign exchange gains and (losses)
from overseas subsidiaries - - 153 - 153
--------------------------------------- ------ -------- --------- --------- -------
Total comprehensive income for
the six months - - 153 (579) (426)
Transactions with owners in their
capacity as owners:-
Dividends - - - (2,522) (2,522)
Total transactions with owners
in their capacity as owners - - - (2,522) (2,522)
Share-based payment charge - - - 282 282
Deferred tax charge on share-based
payment - - - (212) (212)
------ -------- --------- --------- -------
Balance at 30 June 2016 917 12,713 24 14,565 28,219
--------------------------------------- ------ -------- --------- --------- -------
Balance at 1 January 2017 917 12,713 264 16,090 29,984
Profit for the six months - - - 1,271 1,271
Foreign exchange (losses) from
overseas subsidiaries - - (80) - (80)
--------------------------------------- --- ------ ---- ------- -------
Total comprehensive income for
the six months - - (80) 1,271 1,191
Transactions with owners in their
capacity as owners:-
Dividends - - - (1,376) (1,376)
Total transactions with owners
in their capacity as owners - - - (1,376) (1,376)
Share-based payment charge - - - 179 179
Deferred tax credit on share-based
payment - - - 144 144
--------------------------------------- --- ------ ---- ------- -------
Balance at 30 June 2017 917 12,713 184 16,308 30,122
--------------------------------------- --- ------ ---- ------- -------
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE PERIODED 30 JUNE 2017
(Unaudited) (Unaudited) (Audited)
Period ended Period ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
-------------------------------------------------------- ------------- ------------- ------------
Profit / (loss) before tax 1,297 (1,135) 1,573
Finance income (18) (49) (66)
--------------------------------------------------------- ------------- ------------- ------------
Operating profit / (loss) for the period 1,279 (1,184) 1,507
Adjustments for:
Depreciation of property, plant and equipment 145 141 281
Amortisation of intangible assets 299 243 332
Reduction / (increase) in fair value of derivatives 302 398 (10)
Share-based payments charge 179 282 563
--------------------------------------------------------- ------------- ------------- ------------
Operating cash flow before movements in working capital 2,204 (120) 2,673
Movement in inventories 146 (750) 2,241
Movement in receivables (915) 1,026 (1,734)
Movement in warranty provision (738) (1,103) (2,200)
Movement in payables (3,037) (5,104) (1,460)
--------------------------------------------------------- ------------- ------------
Cash (expensed) by operations (2,340) (6,051) (480)
Income taxes paid (152) (384) (56)
--------------------------------------------------------- ------------- ------------- ------------
Net cash used from operating activities (2,492) (6,435) (536)
--------------------------------------------------------- ------------- ------------- ------------
Investing activities
Purchase of intangible assets (887) (1,086) (2,207)
Purchase of software costs (602) (25) (1,649)
Purchase of property, plant and equipment (143) (391) (497)
Interest received 18 49 66
--------------------------------------------------------- ------------- ------------- ------------
Net cash used on investing activities (1,614) (1,453) (4,287)
--------------------------------------------------------- ------------- ------------- ------------
Financing activities
Dividends paid - - (3,668)
--------------------------------------------------------- ------------- ------------- ------------
Net cash used on financing activities - - (3,668)
--------------------------------------------------------- ------------- ------------- ------------
Net (decrease) in cash and cash equivalents (4,106) (7,888) (8,491)
Cash and cash equivalents at beginning of period 14,333 22,403 22,403
Non-cash movements (183) 149 421
--------------------------------------------------------- ------------- ------------- ------------
Cash and cash equivalents at end of the period 10,044 14,664 14,333
--------------------------------------------------------- ------------- ------------- ------------
Notes to the financial information
1. General information
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. Statutory accounts for the year ended 31
December 2016 were approved by the Board of Directors and have been
delivered to the Registrar of Companies. The audit report on those
accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain any statement under section
498(2) or (3) of the Companies Act 2006.
This condensed consolidated interim financial information has
been reviewed, not audited.
2. Accounting policies
Basis of preparation
The annual financial statements of Sprue Aegis plc are prepared
in accordance with International Financial Reporting Standards
(IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations
as adopted by the European Union and the Companies Act 2006
applicable to companies reporting under IFRS. The condensed
consolidated set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the European
Union.
The accounting policies adopted in the preparation of the
condensed consolidated interim financial information are consistent
with those followed in the preparation of the Group's financial
statements for the year ended 31 December 2016.
Risks and uncertainties
An outline of the key risks and uncertainties faced by the Group
is described in the 2016 financial statements, including exposure
to foreign exchange rate fluctuation, in particular the exchange
rate of Sterling relative to the US Dollar and the Euro. Risk is an
inherent part of doing business and with the cash position of the
Group, together with the expected underlying profitability of the
core business in the full year, this leads the Directors to believe
that the Group is well placed to manage the key risks it faces.
Going concern
The Group's forecasts and projections, taking account of
reasonably predictable changes in trading performance, support the
conclusion that there is a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for the foreseeable future, a period of not less than
twelve months from the date of this report. Accordingly, the going
concern basis has been adopted in preparing the financial
information.
New standards, amendments and interpretations
There are no new standards which have been endorsed by the EU
which are effective for the first time during the financial period
commencing 1 January 2017 which are relevant to the Group.
Accounting standards in issue but not yet effective:
At the date of authorisation of these financial statements the
following standards and interpretations, which have not been
applied in these financial statements and which are considered
potentially relevant, were in issue but not yet effective (and in
some cases had not yet been adopted by the EU):
-- IFRS 9: Financial Instruments
-- IFRS 15: Revenue from contracts with customers
-- IFRS 16: Leases
-- Amendments to IAS 12: Recognition of Deferred
Tax Assets for Un-realised Losses
-- Amendments to IAS 7: Disclosure Initiative
-- Clarifications to IFRS 15: Revenue from
Contracts with Customers
-- Amendments to IFRS 2: Classification and
measurement of share-based payment transactions
-- Annual Improvements to IFRS 2014-2016 Cycle
-- IFRIC 22: Foreign Currency Transactions
and Advance Consideration
-- IFRIC 23: Uncertainty Over Income Tax Treatments
The Directors anticipate that the adoption of these standards
and interpretations in future periods will not have a material
impact on the financial statements of the Group or the Company when
the relevant standards and interpretations come into effect.
3. Operating segments
Sprue sells and distributes home safety products and accessories
in the UK, Continental Europe and certain other countries and
undertakes manufacturing activities in Canada. Its major customers
are based throughout the UK and Continental Europe. Financial
information is reported to the Board on a consolidated basis with
revenue and operating profit stated for the Group as a whole.
The Board considers that there are no identifiable business
segments that are engaged in providing individual products or
services or a group of related products and services that are
subject to risks and returns that are different to the core
business.
Segmental revenues for each of the Group's business units,
comprising gross and net sales to external customers and movement
in gross profit from previous forecasts is the main financial
information reported to the Board at business unit level. Business
unit reporting to the Board typically excludes information on
overheads which is reported on an aggregated basis.
All assets and liabilities are consolidated on a Group basis and
reported as such to the Board.
Business units earn revenue from the sale of smoke and carbon monoxide detectors and accessories
to end customers. Pace Sensors Limited earns revenue from the manufacture and sale of carbon
monoxide sensors to a third party carbon monoxide detector assembler based in China.
For H1 2017, revenues of approximately GBP7.4m (H1 2016: GBP7.8m) were derived from one external
customer (H1 2016: two external customers), which individually contributed over 10% of the
revenue of the Group. This revenues is attributable to the European business unit (H1 2016:
revenue is attributable to both Retail and European business units).
A geographical analysis of the Group's revenue is as follows:
(Unaudited) (Unaudited) (Audited)
Period ended Period ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
----------------------------------------- --------------- ----------------------------- --------------
Continuing operations:
United Kingdom 12,685 15,589 30,080
Continental Europe and Rest of World 13,341 10,350 27,026
------------------------------------------ --------------- ----------------------------- --------------
26,026 25,939 57,106
--------------------------------------------- --------------- ----------------------------- --------------
Non-current assets, excluding deferred tax assets, for UK and overseas territories are shown
as follows:
(Unaudited) (Unaudited) (Audited)
30 June 30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
------------------------------------------ --------------- ----------------------------- --------------
Continuing operations:
UK 11,963 8,129 10,720
Canada 230 294 285
------------------------------------------ --------------- ----------------------------- --------------
Non-current assets 12,193 8,423 11,005
------------------------------------------ --------------- ----------------------------- --------------
4. Income tax
The major components of income tax charge / (credit) in the
Income Statement are as follows:
(Unaudited) (Unaudited) (Audited)
Period Period Year ended
Ended ended 31
30 June 30 June December
2017 2016 2016
GBP000 GBP000 GBP000
--------------------------------- ------------ ------------ ------------
Current tax
UK corporation tax (credit) (154) (217) (99)
UK - Adjustments in
respect of prior periods
(credit) - - (46)
Foreign tax charge 130 152 267
---------------------------------- ------------ ------------ ------------
(24) (65) 122
--- ----------------------------- ------------ ------------ ------------
Deferred tax
Origination and reversal
of temporary differences 50 (491) (368)
Income tax expense /
(credit) 26 (556) (246)
---------------------------------- ------------ ------------ ------------
Domestic income tax is calculated at 19.5%
(H1 2016: 20.0%) of the estimated assessable
profit for the year.
The tax credit for H1 2017 is primarily attributed to claiming
small company's enhanced R&D tax relief at the elevated 230%
rate (H1 2016: 230%).
Legislation to reduce the main rate of corporation tax from 20%
to 19% from 1 April 2017, and to 17% from 1 April 2020, has been
enacted. The deferred tax balances have therefore been calculated
at 17%.
5. Earnings per share
Further details on the earnings per share per the Income
Statement are set out in the note below:
(Unaudited) (Unaudited) (Audited)
Period Period Year
Ended Ended Ended
30 June 30 June 31 December
2017 2016 2016
Earnings from continuing
operations GBP'000 GBP'000 GBP'000
----------------------------- ------------ ------------ -------------
Earnings for the purposes
of basic earnings
per share (profit
for the year attributable
to owners of the parent) 1,271 (579) 1,819
------------------------------ ------------ ------------ -------------
Number of shares '000 '000 '000
----------------------------- ------------ ------------ -------------
Weighted average number
of ordinary shares
for the purposes of
basic earnings per
share 45,855 45,855 45,855
Effect of dilutive
potential ordinary
shares:
Deemed issue of potentially
dilutive shares 71 80 71
------------------------------
Weighted average number
of ordinary shares
for the purposes of
diluted earnings per
share 45,926 45,935 45,926
------------------------------ ------------ ------------ -------------
2017 2016 2016
pence pence pence
---------------------- ------ ------ ------
Basic earnings per
share 2.8 (1.3) 4.0
Diluted earnings per
share 2.8 (1.3) 4.0
----------------------- ------ ------ ------
Basic EPS is calculated by dividing the earnings attributable to
ordinary owners of the parent by the weighted average number of
shares outstanding during the period.
Diluted EPS is calculated on the same basis as Basic EPS but
with a further adjustment to the number of weighted average shares
in issue to reflect the effect of all potentially dilutive share
options. The number of potentially dilutive share options is
derived from the number of share options and awards granted to
employees and directors where the exercise price is less than the
average market price of the Company's ordinary shares during the
period.
6. Product development costs
A summary of product development costs with a net book value of
GBP11.0m as at 30 June 2017, is shown below.
Connected Wi-safe Nano Mains Smoke Future CO Total
Home 2 Powered Sensing Products Sensing
products Products
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
Cost
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
At 1 January
2017 2,842 1,738 1,403 1,500 1,515 2,399 524 11,921
Total
Additions 813 2 76 131 156 230 19 1,427
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
At 30th
June 2017 3,655 1,740 1,479 1,631 1,671 2,629 543 13,348
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
Amortisation
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
At 1 January
2017 2 259 19 73 352 1,293 66 2,064
Charge
(6 Months) 7 53 40 49 105 - 30 284
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
At 30th
June 2017 9 312 59 122 457 1,293 96 2,348
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
Carrying
Amount
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
At 1 January
2017 2,840 1,479 1,384 1,427 1,163 1,106 458 9,857
At 30th
June 2017 3,646 1,428 1,420 1,509 1,214 1,336 447 11,000
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
% of total 33% 13% 13% 14% 11% 12% 4% 100%
-------------- ---------------- ---------------- --------------- --------------- -------------- --------------- --------------- --------------
Intangible assets described as "Other" with a net book value
("NBV") of GBP1.3m as at 31 December 2016 have been reclassified
into the appropriate categories in the first half of the year to
group similar technology and products together. The average
remaining useful economic life of each intangible asset is
typically in the range of 7 to 15 years.
Additions relate to new products and / or technology under
development which will be amortised over their expected useful
economic lives once sales of the products incorporating the
intangible asset commence.
The following is a high level summary of the products /
technology in the table above:
Connected Home Solutions ("CHS")
CHS allows Sprue to connect and monitor a range of its products
through its interface gateway technology to the internet. Sprue has
developed an app for users which works on any Android or iOS
device. Having acquired the development rights to the Intamac
software in H2 2016, Sprue has expanded the skills and capabilities
of its Technical team to accelerate product development. The net
book value of CHS intangibles as at 30 June 2017 amounted to
GBP3.6m which includes the following net book values:
-- Intamac technology GBP3.2m
-- Z-wave module (wireless language technology) GBP0.3m
-- Innohome (cooker shut off products) GBP0.1m
Wi-safe 2
Wi-safe 2 (including products using Wi-safe 2 capabilities) are
an enhancement and development on the Group's Wi-safe I technology
with a combined NBV of GBP1.4m as at 30 June 2017. Wi-safe 2 is a
core piece of technology which underpins a number of key products
and accessories, especially in Connected Homes.
Nano
Nano is the miniaturised CO sensor developed by Pace Sensors,
Sprue's wholly owned subsidiary in Canada. Nano's net book value of
GBP1.4m as at 30 June 2017 represents the costs incurred in the
development of the CO sensor and the final development of finished
CO products that incorporate the sensor.
Mains powered products
In December 2014, Sprue launched a fully certified range of
mains powered products and accessories for the UK Trade sector
which includes heat alarms, smoke alarms, CO alarms and a remote
test and reset product.
Sprue's technology provides an advantage over competitor
products with its market leading low power consumption, which is
particularly important for new housing projects which require a
"sustainability" assessment. The net book value of mains powered
product intangibles amounted to GBP1.5m as at 30 June 2017.
Smoke sensing products
The net book value of smoke sensing product intangibles as at 30
June 2017 amounted to GBP1.2m which includes all of Sprue's own
smoke products under development.
Future products
Future products which consist of the next generation of smoke
and CO alarms with a net book value of GBP1.3m as at 30 June 2017
are still under development and as such, are not finished so there
is no amortisation charge in respect of these intangible assets.
These are major projects which are expected to come to market over
the next few years.
CO sensing products
The net book value of CO sensing product intangibles as at 30
June 2017 was GBP0.4m which includes Sprue's 10 year life CO alarm,
the British Gas developed CO alarm and CO sensing products
currently under development. The CO market is growing through
marketing activities and increased awareness of the dangers of
carbon monoxide.
Impairment review
During H1 2017, the Group did not record any material impairment
charges upon review of its product development cost intangible
assets.
If any such impairment is identified, the recoverable amount of
the asset is estimated in order to determine the extent of the
impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the
recoverable amount of the cash-generating unit to which the asset
belongs. Where a reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the
smallest Group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
Products completed and available for sale
As part of the Group's impairment review, the Group prepares a
schedule that compares the net book value of each intangible asset
with the expected gross profit from that technology in the next 24
months. The purpose of this review is to ensure that the value of
the intangible asset is likely to be "recovered" within the next
few years. Except for connected homes product sales, the expected
gross profit within the next 24 months is significantly greater
than the current net book value of the individual intangible asset.
This provides significant comfort that the carrying value of each
intangible asset is reasonable and is not impaired.
Products not yet completed
Product development costs are tested for impairment at the half
year end and full year end. This assessment includes re-visiting
the IAS 38 criteria for capitalising development costs, including
consideration of the likely cost of completing the project and the
expected profit on sale.
7. Inventories
A summary of inventory is set out below:
(Unaudited) (Unaudited) (Audited)
As at 30 As at 30 As at 31
June June December
2017 2016 2016
GBP000 GBP000 GBP000
------------ ------------
Raw materials 247 341 236
Work-in-progress 715 344 370
Finished goods 12,606 16,377 13,404
-------------------------- ------------ ------------ ----------
Total gross inventories 13,568 17,062 14,010
Inventory provisions (401) (755) (694)
-------------------------- ------------ ------------ ----------
Total net inventories 13,167 16,307 13,316
-------------------------- ------------ ------------ ----------
Provision % of
total gross inventory 3.0% 4.4% 4.9%
-------------------------- ------------ ------------ ----------
CO sensors made by Pace Sensors, the Group's wholly owned
subsidiary in Canada are shipped to Pace Technology, an independent
third party supplier based in China for assembly into finished CO
detectors which are purchased by Sprue Safety Products. As Pace
Technology is an independent third party business to the Group, the
Board considers that it is not appropriate to maintain a provision
for unrealised profit in CO detectors purchased from Pace
Technology and held at the balance sheet date.
Following receipt on 31 March 2017 of the notice by Newell
Brands to terminate the 2010 BRK Distribution Agreement, any
remaining BRK products in inventory as at 31 March 2018 will be
returned to BRK at the price Sprue paid for them and the cost of
the stock shall be deducted from the BRK creditor then. Sprue will
continue to sell BRK stock between now and 31 March 2018 and the
Board anticipates that there will be approximately GBP3.0m of BRK
products in stock on 31 March 2018, the termination date of the BRK
distribution agreement.
8. Trade and other receivables
A summary of trade and other debtors is set out below:
(Unaudited) (Unaudited) (Audited)
As at 30 As at 30 As at 31
June June December
2017 2016 2016
GBP000 GBP000 GBP000
------------------- ------------ ------------ ----------
Trade receivables 13,143 9,694 13,003
Other debtors 56 - 47
Prepayments 1,166 997 401
Trade and other
receivables 14,365 10,691 13,451
-------------------- ------------ ------------ ----------
In September 2016, Sprue agreed to acquire the software and
development rights to the source code to Intamac's software and, as
part of that transaction, it and Intamac agreed to convert its
prepaid licence fee of GBP0.45m into consideration for the
acquisition. Consequently, GBP0.45m of the GBP1.0m prepayment as at
30 June 2016 was reclassified into intangible assets in the second
half of 2016.
9. Trade and other payables
At 30 June 2017, GBP7.8m (as at 30 June 2016: GBP5.9m) of Trade
payables were denominated in Sterling, GBP0.1m of payables were
denominated in Euros (as at 30 June 2016: Nil) and GBP1.0m in US
Dollars (as at 30 June 2016: GBP2.2m).
(Unaudited) (Unaudited) (Audited)
As at 30 As at 30 As at 31
June June December
2017 2016 2016
GBP000 GBP000 GBP000
----------------------- ------------------------------ ------------------------------ ----------
Trade payables 8,936 8,102 11,696
Accruals and deferred
income 3,996 4,338 4,421
Other tax and social
security 773 657 624
------------------------
13,705 13,097 16,741
------------------------ ------------------------------ ------------------------------ ----------
10. Provisions
A summary of the warranty provision analysed between FireAngel
and BRK products is as follows:
FireAngel BRK Brands
Product Product Warranty
Warranty Warranty Total
GBP000 GBP000 GBP000
-------------------------- ------------------------------ ----------- ---------
At 1 January 2016 6,463 330 6,793
Additional provision
in period 136 247 383
Utilisation of provision (1,196) (290) (1,486)
----------------------------
At 30 June 2016 5,403 287 5,690
----------------------------
At 31 December
2016 4,333 260 4,593
Additional provision
in period - 314 314
Utilisation of provision (943) (109) (1,052)
----------------------------
At 30 June 2017 3,390 465 3,855
---------------------------- ------------------------------ ----------- ---------
Following receipt by the Company of the required 12 months'
notice from Newell to terminate both the BRK distribution agreement
and manufacturing agreement with effect from 31 March 2018, the BRK
warranty provision was increased by GBP0.2m to GBP0.5m. The
provision of GBP0.5m is expected to cover the foreseeable costs of
dealing with any BRK warranty issues.
The total product warranty provision is classified between less
than one year and greater than 1 year as follows:
(Unaudited) (Unaudited) (Audited)
As at As at As at
30 June 30 June 31 December
2017 2016 2016
GBP000 GBP000 GBP000
-------------------------- ------------ ------------ -------------
Current provision 2,400 2,197 2,800
Non-current provision 1,455 3,493 1,793
--------------------------- ------------ ------------ -------------
Total warranty provision 3,855 5,690 4,593
--------------------------- ------------ ------------ -------------
As at 30 June 2017, the Group maintained warranty provisions of
GBP3.9m (as at 30 June 2016: GBP5.7m) against the cost of replacing
products where there are known product warranty issues where the
long term rate of product returns is expected to be above 1.0% of
net Group sales (as at 30 June 2016: 1.0%). It is estimated that
approximately GBP2.4m (as at 30 June 2016: GBP2.2m) of the total
warranty provision will be utilised within 12 months with the
balance to be utilised over the next two to three years.
Determining the amount of the warranty provision, which reflects
the Board's best estimate of resolving the warranty issues,
requires the exercise of significant judgement. It is necessary,
therefore, to form a view on matters which are inherently
uncertain, such as the returns profile over time, the final return
rate, whether the return rate of each year of production will be
similar, whether the return rates from different sales channels
will vary and the estimated cost of redress. The Board has
considered all of these factors to determine an estimate of the
future number of product returns together with the estimated cost
of providing free of charge replacement products.
There is a greater degree of uncertainty in assessing these
factors when an issue is first identified. Consequently, the
continued appropriateness of the underlying return assumptions is
reviewed on an ongoing basis with actual returns versus expected
returns by year of manufacture regularly presented to the Board. It
is encouraging that in total, the overall level of 2012 and 2013
returns to 30 June 2017 is still within management's original April
2016 estimates. The estimated terminal rate of returns for each
year of production was, and still is, based on an expected terminal
rate of returns of 2012 production rate adjusted for the expected
rates of return in the relevant sales channel.
It is possible that following changes in the manufacturing
process at the battery supplier, the terminal rate of product
returns of later years of battery production used in products sold
in 2014 and beyond could be lower than the rates of return used for
production in 2012 and 2013.
11. Share capital
Details of the authorised and issued fully paid share capital
are as follows:
(Unaudited) (Unaudited)
Company Company
2017 2016
Number Number
Authorised: '000 '000
100,000,000 Ordinary shares
of 2p each
--------------------------------- --------------- ----------------
Ordinary shares in issue:
As at 1 January 45,855 45,855
Issue of shares in respect
of share options exercised - -
----------------------------------------------- --------------- ----------------
As at 30 June 45,855 45,855
----------------------------------------------- --------------- ----------------
Issued and fully paid ordinary
shares of 2p each: GBP000 GBP000
As at 1 January 917 917
Issue of share capital in
respect of share options
exercised - -
--------------------------------- --------------- ----------------
As at 30 June 917 917
---------------------------------- --------------- ----------------
The Company has one class of ordinary shares
which carry no right to fixed income.
12. Options
A summary of the change in share options is set out below:
H1 2017 H1 2016
-------------------- --------------------
Options Weighted Options Weighted
'000 average '000 average
exercise exercise
price price
----------------------------- -------- ---------- -------- ----------
Outstanding at
1 January 1,952 97p 2,026 102p
Exercised during
the period - - - 200p
Granted during
the period - - - 2p
Expired during
the period (3) 200p (74) 200p
---------------------------------- -------- ---------- -------- ----------
Outstanding and exercisable
30 June 1,949 96p 1,950 97p
---------------------------------- -------- ---------- -------- ----------
Further details of share options outstanding
at 30 June 2017 are as follows:
Exercised Granted *Forfeited
Outstanding during during during Outstanding
Grant at start the the the at end Expiry Exercise
date of period period period period of period date price
------------ ------------ ---------- -------- ----------- ------------ ----------- ---------
Directors'
share options
25/04/2014 319,445 - - - 319,445 28/04/2021 200p
03/06/2015 900,000 - - - 900,000 03/06/2025 2p
Employee share
options
30/06/2010 50,000 - - - 50,000 29/06/2017 35p
25/04/2014 607,614 - - (3,181) 604,433 28/04/2021 200p
03/06/2015 45,000 - - - 45,000 03/06/2025 2p
03/06/2015 30,000 - - - 30,000 03/06/2015 2p
1,952,059 - - (3,181) 1,948,878
------------ ------------ ---------- -------- ----------- ------------ ----------- ---------
*Forfeited share options during the period relate to employees
who left the Group in H1 2017
13. Dividends
In respect of the year ended 31 December 2016,
the directors recommended the payment of a
final dividend of 5.5 pence per share payable
on 7 July 2017 to shareholders on the register
on 23 June 2017 which was subsequently approved
by shareholders at the Company's Annual General
Meeting on 15 June 2017. Therefore the final
dividend has been included as a liability
in these financial statements. The total dividend
payable in 2017 (including the 2.5 pence per
share interim dividend) will be 8.0 pence
per share which will cost approximately GBP3.7m.
14. Financial risk management and financial instruments
Introduction
The Group's activities expose it to a variety of financial risks
that include currency risk, interest rate risk, credit risk and
liquidity risk. These financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements which should therefore be read in
conjunction with the Group's financial statements as at 31 December
2016. There have been no changes to the risk management policies
since the year ended 31 December 2016.
The Group's bankers perform the valuations of financial
derivatives for financial reporting purposes.
The total net loss on forward contracts recognised in the
operating result for the period ended 30 June 2017 was GBP0.3m
(2016 H1: GBP0.4m loss) and is included within "Cost of sales". The
decrease or increase in the valuation of forward contacts in the
period is presented in the cash flow statement.
Foreign exchange rate risk
Over the next 12 months, a significant proportion of total sales
are likely to be generated in Continental Europe in Euros. To
mitigate the exchange rate risk, the Group regularly places forward
contracts up to 12 months out selling Euros buying either US
Dollars or buying Sterling. In addition, a significant proportion
of the Group's product costs are in US Dollars. Again, to mitigate
the exchange rate risk on product purchases, the Group covers part
of the forward US requirements by placing forward contracts up to
12 months out from the balance sheet date.
Typically, there are a number of forward contracts maturing in
any one month which blends the impact of changes in the relevant
currency exchange rate against Sterling over time. At 30 June 2017,
the Group had forward contracts in place to sell Euros which
amounted to EUR15.5m (as at 30 June 2016: EUR18.1m) and forward
contracts to buy US Dollars of US $12.9m (as at 30 June 2016: US
$10.0m).
The Group's results are inevitably affected by the translational
impact of changes in relevant exchange rates. Accordingly, if
Sterling weakens against the Euro by 1 cent, measured over a whole
year, the Group's Euro sales and Euro gross profit in Sterling
would each increase - all other things being equal - by
approximately GBP0.2m. If Sterling strengthens against the Euro by
1 cent, again measured over a whole year all other things being
equal, the Group's Euro sales and gross profit in Sterling would
decline by approximately GBP0.2m.
With the move to source all products in US Dollars from Flex and
a Far East based supplier next year, the Group's exposure to
changes in the value of the exchange rate between Sterling and the
US Dollar increases as the exchange rate risk on products sourced
from DTL is currently evenly shared between the Company and DTL. If
Sterling strengthens against the US Dollar by 1 cent, measured over
12 months, current product costs would reduce by approximately
GBP0.3m and if Sterling weakens against the US Dollar, over time
over 12 months, the Group would see on cost in its product costs of
approximately GBP0.3m.
Financial Instruments and the non-adoption of hedge
accounting
All forward contracts are "marked to market" at the balance
sheet date with the net gain or loss arising taken to cost of sales
in the month. The movement in the value of forward contracts (which
is a non-cash unrealised profit or loss) is disclosed in the cash
flow statement as an adjustment to operating profit. Losses on
forward contracts are added back to operating profit, and gains on
forward contracts are deducted from operating profit to arrive at
net cash flow from operations.
The Board believes that by using forward contracts and by
valuing those contracts at the balance sheet date and reflecting
the entire net gain or entire net loss in the income statement to
date, the presentation of the financial performance of the Group is
transparent and easy to understand. However, in adopting this
accounting treatment and by not hedge accounting, the Board accepts
that the financial performance of the Group in times of volatile
exchange rates may fluctuate significantly.
In light of the move to source almost all of the Group's
products in US Dollars from 31 March 2018, the Board has decided to
review whether to adopt hedge accounting.
15. Related party: Newell Brands Inc. ("Newell")
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
In H1 2016, Newell acquired the entire issued share capital of
Jarden Corporation, the Company's largest shareholder in the Group.
During the period, certain Group companies entered into the
following transactions with Newell which is not a member of the
Group:
Newell
--------------------------------------
(Unaudited) (Unaudited) (Audited)
Period Period Year
ended ended ended
30 June 30 June 31
2017 2016 December
GBP000 GBP000 2016
GBP000
Sales of goods in period - 3 196
9,628 9,975
Purchases of goods in
period including engineering
fees 9,975 9,975 19,534
Distribution agreement
fee 1,415 1,483 2,982
Dividends payable - - 912
Amounts owed by related
parties at period end - - -
Amounts owed to related
parties at period end 6,506 4,592 7,670
-------------------------------- ------------ ------------ ----------
Newell, through its subsidiary BRK Brands Europe Limited, holds
a significant proportion of the Company's ordinary shares (23.4% as
at 30 June 2017) and has a right to nominate a director for
appointment to the Company's Board of directors. On 31 March 2017,
Newell's nominated director, Tom Russo resigned with immediate
effect following the serving of notice by Newell on Sprue to
terminate both the manufacturing agreement and distribution
agreement.
Despite not having a director on the Board, the Directors
consider that Newell is a related party to the Company given its
significant shareholding. Purchases between related parties are
made under contractual arrangements negotiated on an arm's length
basis.
Newell represents the single largest supplier to the Group
supplying all of the Group's smoke alarms, heat alarms and
accessories from DTL which in turn sources products from CICAM.
Sales of goods in the period of GBPnil (H1 2016: GBP3,000)
related to Newell's wholly owned subsidiary, Mapa Spontex, which is
based in France.
16. Post balance sheet events
There were no post balance sheet events between 30 June 2017 and
the date of approval of these unaudited interim results by the
Board on 22 September 2017.
17. Availability
The interim financial information covers the period 1 January
2017 to 30 June 2017 and these statements were approved by the
Board on 22 September 2017. Further copies of this interim
announcement can be accessed on the Sprue Aegis plc investor
relations website, www.sprueaegis.com.
Responsibility Statement
We confirm to the best of our knowledge:
Ø the consolidated set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting;
Ø the Interim management report includes a fair review of the
information, being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
Ø the Interim management report includes a fair review of the
information, being related party transactions that have taken place
in the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during the period and also any changes in the related party
transactions described in the last Annual Report that could do
so.
At the date of this statement, the Directors are those listed in
the Group's 2016 Annual Report as amended by the changes summarised
above.
Approved by the Board and signed on its behalf.
Neil Smith John Gahan
Group Chief Executive Group Finance Director
INDEPENT REVIEW REPORT TO SPRUE AEGIS PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the six
month period ended 30 June 2017 which comprises the Condensed
Statement of Consolidated Income, Condensed Statement of
Consolidated Comprehensive Income, the Condensed Statement of
Consolidated Financial Position, the Condensed Statement of
Consolidated Changes in Equity, the Condensed Statement of
Consolidated Cash Flows and related notes. We have read the other
information contained in the interim financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our review work has been undertaken so that we might state
to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' Responsibilities
The interim financial report, is the responsibility of, and has
been approved by the directors. The directors are responsible for
preparing and presenting the interim financial report in accordance
with the AIM Rules of the London Stock Exchange.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards and International Financial Reporting
Interpretations Committee pronouncements as adopted by the European
Union. The condensed set of financial statements included in this
interim financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of the interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six month period ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union, and the AIM Rules of
the London Stock Exchange.
RSM UK Audit LLP
Chartered Accountants
St Philips Point
Temple Row
Birmingham
B2 5AF
22 September 2017
Board of Directors
Executive
Graham Whitworth Executive
Chairman
Neil Smith Group Chief Executive
Nick Rutter Chief Product
Officer
John Gahan Group Finance
Director
Non-executive
William Payne
Ashley Silverton
John Shepherd
Tom Russo (until 31 March
2017)
Corporate Directory
REGISTERED NUMBER SECRETARY
3991353 William Payne
REGISTERED OFFICE
Bridge House
4 Borough High Street
London
SE1 9QR
AUDITOR REGISTRAR
RSM UK Audit LLP Neville Registrars Limited
Chartered Accountants Neville House
St Philips Point 18 Laurel Lane
Temple Row Halesowen
Birmingham B63 3DA
B2 5AF
SOLICITOR BANKER
Ashfords LLP HSBC plc
1 New Fetter Lane 3 Rivergate
London Temple Quay
EC4A 1AN Bristol
BS1 6ER
NOMINATED ADVISOR AND
BROKER
Stockdale Securities
Limited
Beaufort House
15 St. Botolph Street
London
EC3A 7BB
Shareholder information
SHAREHOLDER ENQUIRIES
Any shareholder with enquiries should, in the first instance,
contact our registrar, Neville Registrar, using the address
provided in the Corporate Directory.
SHARE PRICE INFORMATION
London Stock Exchange Alternative Investment Market (AIM)
symbol: SPRP
Information on the Company's share price is available on the
Sprue Aegis investor relations website at www.sprueaegis.com
INVESTOR RELATIONS
Vanguard Centre
Sir William Lyons Road
Coventry
CV4 7EZ
England
Telephone: 024 7771 7700
Email: info@sprueaegis.com
Website: www.sprueaegis.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UURNRBNAKUAR
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