7th Mar 2014 14:06
LONDON (Alliance News) - AGA Rangemaster Group PLC Friday reported higher operating profits and revenues for 2013 thanks to higher sales of its high-end ovens and a recovery in its bathrooms and kitchens unit, although its pretax profit was hit by restructuring changes and higher finance costs, partly related to its pension scheme.
The range cooker maker said 2013 pretax profit fell to GBP1.1 million, from GBP1.7 million in 2012, as it booked restructuring charges of GBP2.2 million as it shrank sites in Ireland and France, and closed design centres as well as a warehouse in North America. It had booked restructuring costs of GBP1.7 million in 2012.
The biggest burden came from finance costs, which rose to GBP1.4 million from GBP0.2 million in 2012. The increase reflected higher borrowing costs of three-year bank facilities put in place at the end of 2012, guarantees for its pension scheme, and interest payable on its euro and dollar hedging loans.
The company has a large pension scheme relative to the size of its overall business, and it has been warning about the costs of funding the scheme for several years. It hasn't paid a dividend for two years, having agreed with the scheme's trustees to halt payouts as it tries to reduce the deficit, which stood at GBP35.8 million at the end of last year.
In 2013, the schemes paid out benefits and expenses of over GBP40 million, but the overall value of assets held by the schemes increased by nearly GBP20 million to GBP828.9 million.
AGA Rangemaster paid only GBP4.1 million into the pension schemes in 2013, having contributed GBP19.5 million in 2012, and it plans to pay nothing in 2014, followed by GBP4.0 million in 2015 and GBP10 million per year from 2016 as part of an agreed deficit-reduction plan.
It will next discuss paying a dividend in 2015, after the pension scheme gets its next triennial actuarial valuation at the end of this year, meaning the company and trustees can agree on a new financing plan for the scheme.
"The real objective is to reduce the size of the pension scheme relative to the underlying corporate, and therefore reduce its demands on the group. The deficit will also benefit from the trading performance of the business improving, so then the pension scheme becomes smaller relative to the group, because the group is trading upwards," Finance Director Shaun Smith told Alliance News.
"Ultimately it's to reduce the burden of the pension scheme on the group, but doing it from both improvements in the underlying pension scheme, and the performance of the business," he said.
The group had total equity of GBP120.7 million at the end of 2013, up from GBP119.9 million in 2012, and net cash of GBP5.9 million, up from GBP5.5 million. Smith said it will use the money to invest in new products, and to drive organic growth by expanding in international markets like China, Germany and Russia.
"North America is doing well and the UK is improving, but we are looking to focus on two or three other international markets," said Smith, adding "we have been working on launching a range of products in China, and are hoping to drive on with that in the second quarter of the year."
"Closer to home we are looking at driving our Rangemaster products in markets like Germany, after we have had a good run in France," he said, adding that developing a sales channel into Russia is at a very early stage.
Operationally, AGA Rangemaster signalled a turnaround in its markets and improvements in its own operational efficiency after recent restructuring.
The company reported an operating profit of GBP8.2 million for 2013, up from GBP6.5 million in 2012, driven by 2.4% growth in revenues to GBP250.4 million, from GBP244.6 million, and thanks to the operational efficiencies it made during its restructuring program.
The cooker manufacturer was also positive about its outlook, saying it expects improved trading this year and current order intake is more than 6% above the level of a year ago. It expects the order intake to be up strongly by the time it raises prices for its AGA and Rangemaster cookers by more than 3% at the end of March.
It was hit hard by the financial crisis and ensuing economic downturn as it is heavily dependent on a strong housing market for sales of its products. In its statement, the company said the recovery in the UK and US is now entrenched, but still has some way to go.
"The tide turning in the housing market proved pivotal and we will benefit as the number of house moves increase. As revenues start to grow, with capacity available and with new products and a widened targeted customer base, we are confident of good progress in the year," Chief Executive William McGrath said in the earnings statement.
"AGA volumes increased significantly, Rangemaster orders were ahead and Fired Earth is building momentum," McGrath added.
The company's Fired Earth business was particularly hard hit by the downturn, but returned to profitability in 2013 for the first time for several years. The unit, which makes kitchen and bathroom fittings likes sinks and taps, as well as wall and floor coverings, saw revenues rise by over 5% and order intake is accelerating.
Fired Earth made a loss of GBP1.4 million in 2011, and AGA Rangemaster focused on direct sourcing, tight cost control and developed a smaller stores format in the South East of England to turn around the business.
"Fired Earth was the worst performing business in the group, and has been for some time. The business is doing better, it has returned to profitability and now we are looking at how to take the business forward," Smith told Alliance News.
A sale of the business hasn't been ruled out, he said.
"There is no option excluded, so it is one possibility, although there are several options. Management could look at how they value their stake, while others might be interested in taking a part of the business," he said.
AGA Rangemaster said sales continued to slow at furniture maker Grange, with revenues down 8% in the year, while it stayed loss-making despite the cuts to Range's North American business and a move to one site in Saint Symphorien in France.
"Grange has been a drain on resources for some time. The programme to bring the cost base in line with achievable revenues has continued," the company said.
AGA also said that Rayburn and Stanley cast iron cooker/boiler sales continue to struggle, with sales down, although it is predicting a recovery as the housing market continues to pickup.
"Markets remained difficult for the cooker/boiler brands. Rayburn and Stanley rely heavily on refurbishment projects. Overall cast iron cooker volumes fell to 10,000, from 10,300 in 2012, and Stanley sales in Ireland are 30% of pre-recession levels," the company said.
"The tide turning in the housing market proved pivotal and we will benefit as the number of house moves increase. As revenues start to grow, with capacity available and with new products and a widened targeted customer base, we are confident of good progress in the year," said McGrath.
AGA Rangemaster shares were up 9.7% at 189.75 pence Friday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright © 2014 Alliance News Limited. All Rights Reserved.
"Clearly whilst we are still developing the business, and using the resources for development, we have not chosen to pay a dividend. As we look to the new valuation this year, and look at the growth opportunities, we will look at where to go forward from there," said Smith.
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