6^th March 2015

FOR IMMEDIATE RELEASE

AGA RANGEMASTER GROUP PLC

2014 FULL YEAR RESULTS

2014 PROVIDES SOUND TRADING BACKDROP FOR STRATEGIC INITIATIVES

AGA Rangemaster Group plc ('the Group'), the specialist in range cooking and kitchen living, is pleased to announce its full year results for the year ended 31^st December 2014. 

Financial highlights

Strategic and operational highlights

William McGrath, Chief Executive commented: "2014 was another sound year achieved in easing market conditions.  AGA, Rangemaster and Marvel Refrigeration were all strong performers and now have new product platforms established in their markets.  We are seeking out strategic links to accelerate the growth strategies for these brands."

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AGA RANGEMASTER GROUP PLC

2014 FULL YEAR RESULTS

Group overview

2014 was a positive year for the Group.  Revenues rose by 4.3% to £261.1 million, 5.7% at constant currency, with 66% of the revenue generated in the UK.  Second half growth of 5.1% was higher than in the first half.  Operating profits rose again to reach £9.6 million from £8.2 million - a 17.1% increase. 

This success has come despite the challenging trading environment across our markets, where activity levels remain down on pre-2008 levels.  UK mortgage approvals, which have been a good lead indicator of activity for us historically, actually ended the year with a fourth quarter down on the prior year, leaving rolling 12 month numbers only just ahead year-on-year.  This was sharply below expectations set a year ago by the Bank of England.  It was encouraging, therefore, that household goods expenditure and appliance expenditure increased after a long period in the doldrums.  With real incomes now rising and with inflation low, the trend towards higher spending on the home can be expected to continue in 2015.  Elsewhere our markets in North America showed sustained good growth in contrast to our European markets which were soft.

Trading performance

Our AGA and Rangemaster brands are the most significant contributors to Group revenue and operating profit, and they traded well with new products for both brands coming to the market.  We introduced the new 60 centimetre cookers in the autumn which attracted encouraging levels of interest. While still operating well below 2007 levels, both brands are seeing sustained improvement in volumes. Marvel Refrigeration based in the United States gained traction with the introduction of a new generation of products and increased further market share. Overall, there was reasonable growth across our core appliance brands during 2014. We are confident that with the current product development phase nearing completion, 2015 will see further opportunities for growth for these brands.

Fired Earth performed strongly with revenue growth of over 15%.  That fed through into a significantly improved profit performance.  We are optimistic about the prospects for 2015. Trading for our European operations, however, continued to be more difficult with consumers remaining cautious in their spending.  Waterford Stanley and Grange based in Ireland and France respectively have been particularly affected. We have invested significantly in recent years to improve the fundamentals of these operations.  The issues for these businesses are about demand levels in their product categories which have been weakened by the prevailing economic environment.  

Dividend

As previously announced, the board agreed on completion of the 2011 triennial actuarial valuation of the Group's main pension scheme and related recovery plan not to make dividend payments without pension scheme trustee agreement. The board is not proposing to make a dividend payment in respect of 2014.

Strategy

Over the recent difficult years for trading, all levels of our operations have carefully managed cost and rationalisation programmes to reduce the number of sites we occupy and to deliver cost savings to improve efficiency and effectiveness.  We are a leaner business and in a better position to deliver profits as our markets pick up and our operational gearing shows through.  We have prepared for an upturn by continuing to invest in research and development and have thereby brought a wide range of new products to market, many of which will have international appeal. We are proud of our heritage and look to build on it creating new products focussed on meeting the demands of today's customers with designs for 21st century living.

The Group's strategy is to focus on the expansion of its core cooker and refrigeration brands in the UK and international markets.  During the year we considered offers for Fired Earth but felt the best option was to extend existing arrangements with management, acquire a portion of management's shareholding and allow the benefit of work carried out to be clearer in its impact before looking at a comprehensive valorisation exercise.  A value of £3.3 million - by extrapolation over £20 million for Fired Earth as a whole including an inter-company loan - was placed on the management's shareholding which gave rise to a fair value movement.

The triennial actuarial valuation as at 31st December 2014 is in train and in due course we will provide further clarification on the future funding requirements of the pension scheme.

Overall, we are working to configure the business best to take the market opportunities that arise. Focusing our resources and potentially creating strategic and product alliances from within our segment would bring appreciable benefits.  In January 2015 Rothschild was appointed corporate finance adviser to the Group to assist in bringing third party agreements to fruition.

Current trading

Market conditions in our major business areas are expected to improve this year. Our order intake so far this year is back to 2014 levels after a slow start.  Fired Earth and AGA Marvel have seen the strong trend lines of 2014 continue in 2015. There are some more encouraging signs in both Ireland and France. We are looking to our development work in wider markets to start to contribute additionally to our sales in Germany - where our distributor CoolGiants has been rapidly opening up new outlets - and China. In China, our distributor, Beijing Hi Seasons is to have 30 displaying outlets and there will be the formal launch later this month in Beijing.  Overall, with these developments providing additional impetus, we expect trading outcomes to be encouraging this year.

Business review and performance

AGA : range modernisation completed

AGA had an encouraging year in 2014 with sales of heat storage AGA cookers increasing by 9%. The launch of the AGA City60 in the autumn helped to create a widened market for us. Of the sales in 2014 66% were of factory finished controllable products launched since mid 2011. The AGA Dual Control where electric hobs and gas or electric ovens operate on one system was launched in 2012 and is already our best selling heat storage line. The additional flexibility offered by a product that provides radiant heat, cooked food - together with the wider lifestyle benefits of the AGA - within a readily installable, flueless, electric package, provides a powerful sales proposition. We have been generating materially higher numbers of leads and we are now offering greater flexibility in how we work with customers so that we are ready to talk about their needs whenever they wish - not only in shop hours. We are also launching an international programme of webinars aimed at 'absolute beginners'. With the City60 we are also making sure that the transition from an old built-in or slot-in cooker to an AGA is made as straight forward as possible.

We now have the products in place for AGA for the coming years.  Our strategy is to maximise sales in our main targeted markets from the new product.

We see the AGA cookware business - from cast iron pots to fashionable textiles - as an important adjunct to the sale of cookers.  Revenues are now growing with online sales rising sharply to represent a third of the business.  A new website launching this month introduces a 'click and collect' capability which will add to the momentum.

Cooker boiler sales under the Rayburn and Stanley brands have fallen substantially since 2008 and continue to decline. To reverse the trend we are putting greater emphasis on direct contact from our own Rayburn/Stanley sales teams with consumers in supporting our dealers in ensuring the particular features and benefits of these products are recognised by consumers. That can apply to solid fuel/wood burning models, in particular, where how to make the most of cost efficiency and practicality of a cooker/boiler combination needs to be fully explained.

For a wide range of households in the UK and France, there is a strong case for having a wood burning product in the home. Such a tradition exists in Ireland where we are the market leader and we see our stove operation expanding beyond its Irish homeland to bring volumes that can much improve the economics of our Waterford Stanley factory - now our centre of excellence for wood burning products and their development.

Rangemaster : 1,000,000 cooker milestone

Our range cooker operations sold 64,000 units during 2014, up 6% in the year with the UK up 9%. Our ranges are the best made in the overall market - 'built from experience'. The solidity is provided by the patented single piece base plate and single piece hob developed in-house. The quality of the ovens and air flow management then ensure that our ovens cook evenly and well.  Our home economics team review these aspects continually.

The domestic cooker was invented in our Leamington Spa factory in 1830 which has always had a reputation for product excellence. We remodelled the range cooker in 1995 for the modern world. We have now made over 1,000,000 of these modern range cookers in the Leamington Spa factory which is testament to the strength of the business. In 2014 Currys added 25 new design centres in the UK which featured the breadth of Rangemaster products. We provided Currys with an exclusive six month launch period for certain 60cm products. The independent retailers - who had a good 2014 - also had an exclusive line.  As the market for these 60cm products widens this year it will provide an important additional revenue source.

With our complementary brands, Rangemaster, Falcon and Mercury we lead the UK range market. Part of our strategy is to increase the size of the UK market by highlighting why a range provides a better option than a built-in layout for the kitchen. We are also putting this to house builders and to builders providing refitted kitchens for existing homes.

We expect to show progress again in 2015 as the market continues to strengthen.  We also expect Rangemaster to expand onto the continent - a key strategic objective for the Group. Economic conditions in our established markets in France and Benelux remain tough but the growth structures are in place. There are now over 250 displays in Germany.  At the Cologne Kitchen Show in January it was clear that opinion forming observers of the German kitchen scene, were expecting range cookers to make ground in a market that is completely dominated by built-in models.

We have developed a gas burner system for our hobs which is particularly relevant for consumers who use woks extensively. We offer great controllability and flexibility. We are looking to see this support our progress in the Far East and in particular in the Chinese market, for which we now have the accreditations and sales structure in place.  We are launching our products at the end of March and will test how rapidly the range can gain a niche position in the Chinese market.

Our development work in 2014 saw us create a new generation of vaulted ovens for La Cornue to be launched this month. It brings a patented variant to air flow management in a vaulted oven ensuring La Cornue meets new European energy consumption standards.  The international dealer structure for La Cornue has received great attention and we expect revenues to start to grow significantly this year.

AGA Marvel : returns starting to increase

Our Marvel Refrigeration operation in North America enjoyed a strong year as consumer confidence picked up.  We strengthened our market position by launching a completely new product range in the autumn, compliant with regulatory requirements introduced from September 2014 - this was a key strategic objective for the business. It is the work of our highly technically adept engineering team who put their careers' experience into producing this new product generation. We have had an excellent response to the launch. We expect the double digit revenue growth achieved in the last two years to continue. As the production levels increase the operational gearing of our modern purpose built facility in Greenville, Michigan should, for the first time, show through in North America.

We hope to broaden our relationship with consumers by providing packages of hot and cold products.  This is a key strategic objective for the business. Our European produced cookers have a small but well established presence and we have the platform to deepen consumer contact. Generating a consistent flow of leads to be managed closely by our own team alongside our dealers will ensure both our North American and European styled products find wider audiences.

Fired Earth : further growth

Having returned to profitability in 2013 Fired Earth enjoyed a good year in which revenues increased by over 15%. The tile business which provides over half of sales for the division, was at a record level with both floor and wall lines performing well. Strengths are in providing not only good value but the unusual products, like our porcelain tiles that look like wood.  Sales online exceeded those achieved by any one retail store for the first time.  The retail format devised of smaller neighbourhood stores has been part of a retail space evolution for Fired Earth and we believe that the new stores opened recently in Ascot, Beaconsfield and Barnes will add to the momentum being achieved.  We are moving from Marylebone High Street to a new flagship showroom on Baker Street following the sale of our shop lease. With a new brochure for bathrooms now available that sets style standards - as is expected of Fired Earth - we anticipate good growth to continue this year.

Grange : modernisation continues

In 2014 the major project undertaken by Grange was the integration of factory sites in Saint Symphorien, near Lyon,  into a single production and warehouse centre, the benefits of which will be seen in higher efficiencies from 2015. The project cost was £1 million and follows other factory rationalisation programmes in Europe and the closure of a number of design centre outlets and our warehouse in North America. We have also looked at the product offering and Grange has been introducing new contemporary styled products which are aimed at younger urban consumers. The Côte Design products which lend themselves to small space living and many of which have multi-functional and imaginative capabilities is one of the principal drivers that are expected to provide the additional 10% in revenues to take Grange back above the breakeven point - a key strategic requirement for the Group.  It has been in North America where over a ten year period revenues have decreased from $18 million to less than $4.5 million where we are yet to create a viable model.

With a capable management team, new product and established, committed dealers in place we are examining what needs to be added to the commercial mix of Grange to provide the impetus the business needs to prosper again as markets improve.

Pension scheme funding

31^st December 2014 is the date of the triennial actuarial valuation of the Group's main pension scheme. The scheme is large relative to the size of the Group's operations. The scheme's asset performance over the three years since the last triennial valuation has been good. The returns achieved on the assets have been well in excess of the payments made to meet current obligations to and in respect of the members of the scheme.  The basis on which the future liabilities of the scheme are assessed for scheme funding purposes is linked to yields on UK government bonds.  As gilt yields are being maintained at extremely low levels, and fell markedly over the second half of 2014, the valuation of the liabilities on the gilts-related basis increased significantly over this period. In accounting terms the liabilities are valued by reference to yields on 'AA' corporate bonds - which at the year end were also particularly low by historical standards. As a result, against total pension scheme assets of £883.4 million, the accounting liabilities were £955.4 million as at 31^st December 2014 - giving an accounting deficit of £72.0 million as at 31^st December 2014, compared with a deficit of £35.8 million as at 31^st December 2013. It is expected that the funding deficit as at 31^st December 2014 will be substantially higher given that gilt yields fell even more sharply than 'AA' corporate bond yields over the second half of 2014.

In accordance with the deficit recovery plan put in place on completion of the triennial actuarial valuation undertaken as at 31^st December 2011, the Group paid £16.0 million in deficit reduction contributions in 2012 and made no deficit recovery payments in 2013 and 2014.  If this existing deficit recovery plan were to remain in place, the deficit reduction contributions would be £4.0 million in 2015 and £10.0 million per annum in and from 2016.

Given the current levels of profitability of the Group, the pension scheme is a major absorber of resources and likely to continue to be so if gilt yields remain at current levels. All parties are aware of the need to maintain a balance recognising the interests of all stakeholders. A strengthening corporate covenant and the delivery of higher growth rates for the Group's principal operations would assist in achieving the necessary balance.

Financial Review

Revenue

Group revenues increased by 4.3% to £261.1 million from the £250.4 million reported in 2013 and were up 5.7% in constant currency. First half revenues of £123.5 million were 3.3% up compared with £119.5 million in the first half of 2013 while second half revenues of £137.6 million were 5.1% up (2013: £130.9 million) as we successfully introduced a new range of 60cm product in September. Of total revenues 34% were outside the UK (2013: 37%).

Operating profit

The operating profit for the year was £9.6 million, up from the operating profit of £8.2 million reported in 2013. The second half profit of £7.2 million followed on from a first half profit of £2.4 million as the Group benefitted more fully from the operational efficiencies established during the economic downturn and the normal seasonality.

Net operating costs and non-recurring costs

Net operating costs for the year included reorganisation costs of £0.9 million - shown separately in 2013. Income of £0.9 million in the first half related to a lease assignment of one of the Group's London shops and followed a prior year property gain of £0.9 million.

In 2013 non-recurring costs of £2.2 million related to site rationalisation programmes involving Waterford Stanley in Ireland and Grange in France and the costs of closing certain design centre outlets and the warehouse at Grange in North America.

Fair value movement

A fair value charge of £3.3 million arises from a provision for a 'cash settled share based payment' in respect of incentive arrangements with the management of Fired Earth.  Of this, £1.1 million was paid in January 2015.  The £3.3 million represented the value placed on management's 19.9% holding at the balance sheet date.  This values Fired Earth, including an inter-company loan, at over £20 million.

Finance costs

Net finance costs for the year were £1.5 million (2013: £1.4 million) and related to the cost of the three year bank facilities put in place at the end of 2012, the cost of the £30.0 million of pension scheme guarantees provided and interest payable on the Group's EUR and USD hedging loans.

Profit before tax

Profit before tax in the year was £0.7 million (2013: £1.1 million).

Taxation

The Group had a tax charge of £0.6 million (2013: £0.4 million). The Group expects the underlying tax rate to be slightly above the UK standard rate of 20% from April 2015. The impact of the pension scheme deficit recovery contributions in previous years will continue to reduce significantly future cash tax payments, which totalled £0.3 million in 2014.

Earnings per share

Basic earnings per share was 0.1 pence (2013: 1.2 pence) based on an average number of shares in issue of 69.3 million (2013: 69.3 million). Adjusted underlying earnings per share (excluding the pension charge, non-recurring costs and fair value movement and based on a standard UK tax rate) were 9.4 pence (2013: 7.6 pence).

Dividends

The directors are not recommending a final dividend. This means no dividends are to be paid in relation to the 2014 results (2013: nil). Under the arrangements made on completion of the 2011 actuarial valuation of the Group's main pension scheme, agreement with the scheme trustee would be required prior to a dividend payment being made and this was not sought in respect of 2014.

Cash flow

Cash management continues to be a focus of attention for the Group. Cash generated from operating activities of £14.4 million in the year was up on the £8.4 million generated in 2013 and resulted from a determined effort to manage working capital while supporting the international development of the business.

The net inflow from working capital in the year was £2.0 million (2013: £0.4 million).

Cash flows relating to discontinued operations amounted to £0.5 million (2013: £0.7 million).

Capital expenditure including intangibles in the year totalled £9.9 million compared to £8.5 million in 2013 and included additional investment during the year in the AGA manufacturing processes in Coalbrookdale. The charge for depreciation and amortisation of intangibles in 2014 was £7.0 million (2013: £7.0 million).

Proceeds of £1.1 million were received from the disposal of property, plant and equipment and assets held for sale (2013: £1.2 million) as we sold the former head office building during the year.

The resulting net cash position at 31st December 2014 increased to £9.2 million (2013: £5.9 million).

Pensions

The deficit in the Group's pension schemes at the end of 2014 included in the financial statements was £72.0 million on an accounting basis compared with a deficit of £35.8 million a year earlier. The change over the year reflects the impact of a lower liability discount rate of 3.5% (2013: 4.5%) which increases the liabilities, which counters the increase in the value of the assets held and the lower inflation expectation assumptions. The pension charge in the year was £4.1 million (2013: £3.5 million), of which £1.5 million was net interest as calculated on the net deficit in the scheme, up £0.4 million on 2013.

CONSOLIDATED INCOME STATEMENT

     All operations are continuing.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES

1.       Segmental analysis

The directors consider that there are two operating segments namely AGA and Rangemaster.

The two operating segments are considered to meet the aggregation criteria of IFRS 8 in full and so the directors consider that there is only one aggregated reportable segment.

Disclosures in respect of revenues from external customers and non-current assets are provided below:

2.       Dividends

The directors are not recommending a final dividend in respect of the financial year ended 31^st December 2014 (2013: nil).

3.       Exchange rates

The income statements of overseas subsidiaries are translated into sterling using average exchange rates and balance sheets are translated at year end rates.

4.       Pensions

5.       Tax on profit for the year

Factors affecting the future tax charge

Reductions in the UK corporation tax rate to 21% from 1^st April 2014 and to 20% from 1^st April 2015, were substantively enacted in July 2013. Accordingly, the substantively enacted rates have been applied in the measurement of the Group's deferred tax assets and liabilities as at 31^st December 2014.

6.         Earnings per share ('EPS')

2015 financial calendar

The 2014 full year results were approved by the board of directors on 6^th March 2015. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31^st December 2014 and 2013. The financial information within this announcement is prepared in line with the accounting policies presented within the Company's statutory accounts for the current and previous years. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The Company's auditor has reported on these accounts; its reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.