Titon : Interim Statement (6 months to 31st March 2022)

2022

Titon Holdings Plc

2022 Interim Statement

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2022 Interim Statement

Contents
Business Review.........................................................................................................	2
Consolidated Interim Income Statement..................................................................	6
Consolidated Interim Statement of Comprehensive Income...................................	6
Consolidated Interim Statement of Financial Position............................................	7
Consolidated Interim Statement of Changes in Equity............................................	8
Consolidated Interim Statement of Cash Flows.......................................................	9
Notes to the Condensed Consolidated Interim Statements..................................	10
Directors and Advisers.............................................................................................	16

Titon Holdings Plc Interim Statement 2022	1

Business Review

Chairman's Statement

I am disappointed to report that trading conditions have been difficult for us during the six months to 31 March 2022. As we indicated in the trading update on 22 February 2022, whilst the year started as we expected and revenues in the first four months of the year were slightly higher than the six months to 31 March 2021, the shortages we have experienced of materials and components, and the cost increases for materials, components, labour and energy necessitated us to revise our expectations for the current financial year. Whilst supply shortages and input cost increases have persisted, we are optimistic that we will see some easing of some of the supply chain issues in the second half of the current financial year.

Despite these inflationary challenges, we have continued to carry on with key investments for our future. We have invested in strategic overhead to support growth of our higher margin Mechanical Ventilation Systems area of the business. We have continued to invest in our product software that will support qualified leads to grow our business in Europe. We have also executed select investments in additional talent within Finance, Supply Chain and HR. Our new ERP system implementation went live in May.

We have spent much of the last two years considering Covid-19 and the effect this has had on the economy and our own business. I am pleased to report that the impact of Covid-19 on our UK and European business and the wider construction industry generally in these areas has been greatly reduced and we have returned to normal pre-pandemic operations throughout the period. We have continued to follow Government guidelines for safe working and, whilst we have experienced some additional employee absence as a result of Covid-19, this has not had a significant impact on our business in the UK. All of our office-based employees have now returned to the office on a flexible working basis.

Income Statement

In the six months to 31 March 2022, Titon's net revenue (which excludes inter-segment activity) decreased by 1.7% to £11.5 million (2021: £11.7 million). All UK businesses saw an increase in sales over the period but sales of Ventilation Systems products to Europe fell as we suffered from shortages of components for mechanical products. Sales in Titon Korea, our 51% owned subsidiary fell by 27% reflecting the on-going difficult trading conditions and market dynamics in South Korea.

Gross margin fell to 28.0% (2021: 31.9%) due to higher raw material, labour and overhead costs in the UK and Europe and the lower contributions from Titon Korea. EBITDA was 75% lower at £0.28 million (2021: £1.13 million), whilst we made an operating loss of £0.21 million (2021 profit: £0.62

million). The results from the Group's associate, Browntech Sales Co. Ltd (BTS) in South Korea, amounted to a loss of £29,000 (2021 loss: £59,000) as a result of the continuing weak housing market in Korea and the Korean market shift towards mechanical ventilation. In aggregate, the Group made a loss before tax of £0.25 million (2021 profit: £0.55 million).

The Group's earnings per share for the period was a loss of

1.46 pence (2021: profit of 4.29 pence) with the total loss of £0.22m (2021 profit: £0.48m) and an apportionment to minority shareholders of a loss of £47,000 (2021: profit of £2,000) which reflected the weaker trading incurred by the Group's 51% owned subsidiary, Titon Korea.

Whilst trading conditions were more challenging than originally anticipated, the Group continues to maintain a strong balance sheet and cash position and the Board has therefore approved the payment of an interim dividend in respect of the 6 months ending 31 March 2022 of 1.5 pence per share (2021: 1.5 pence per share). The interim dividend is payable on 1 July 2022 to shareholders on the register at 27 May 2022. The ex-dividend date is 26 May 2022.

Balance sheet and cash flow

Net assets including non-controlling interests fell by 1.3% or £0.2 million to £16.3 million (31 March 2021: £16.5 million) with net cash of £3.7 million (31 March 2021: £4.6 million) which is equivalent to 23.0% of net assets (31 March 2021: 28.0%). The Group had no financial indebtedness at 31 March 2022, other than lease liabilities. The cash held by Titon Korea reduced to £0.1 million at 31 March 2022 (31 March 2021: £0.3 million).

The half year saw cash used in operations of £0.29 million (2021: used £0.13 million), primarily due to increasing our inventory to allow for component shortages - this has also required an increase in amounts paid in advance of receipt of goods. Capital expenditure in the period was £0.38 million (2021: £0.19 million) as we resume investing in plant and machinery and our new ERP system. Net current assets were £8.7 million at 31 March 2022 (2021: £9.2 million) with a Quick Ratio1 of 1.97 (2021: 2.19). Asset Turn was 1.97 (2021: 2.11).

Segmental and operational review

We previously identified the shortages of certain materials and components and continuing cost increases for these items, as well as labour and energy cost inflation, were the biggest challenges in H1 2022 and these risks have certainly impacted us to date this year. Although our top-line sales revenue in the period is only marginally below 2020/21 the mix of products sold has meant that margins have reduced. Revenues in South Korea have continued to fall but sales in Titon Inc. have remained at the same level as last year.

Gross margins have fallen by 3.9% compared to the same period last year. The reduction in gross margin and an

2 Titon Holdings Plc Interim Statement 2022

increase in overheads has meant that our operating result is a loss of £0.25m versus an operating profit of £0.62m in 2021. The increase in overheads is mainly due to the expansion in our headcount to drive growth in our higher gross margin Mechanical Ventilation Systems area of the business and to increase the strength in teams such as Finance, HR and Research & Development, all areas of the business that required investment.

UK and Continental Europe

As noted above, revenues in the UK and Europe have increased slightly against the prior period, rising by 3.7%. Sales in UK Window and Door Hardware have risen by 8% due to increased demand for trickle vents and aluminium products. As noted in the 2021 Annual Report, our distributor relationship with Sobinco has now terminated but we did see an increase in sales as our aluminium customers ordered higher quantities of products before the change in their supply chain. Gross profit margins have fallen in the period for sales of both Titon manufactured products and bought-in products as we have suffered from raw material and labour cost increases.

In our Ventilation Systems division sales in the UK have risen by 13% against the same period last year as sales of the Titon FireSafe® Air Brick range continued to grow. Within this, sales of Titon manufactured mechanical products grew by 17% but sales of ducting bought-in products were 8% down against last year. Sales of the new Titon Ultimate® dMEV extract fan started to increase in the period as some initial production issues were resolved. We expect sales of this product to continue to increase in the second half of the year.

In Europe, sales fell by 33% in the period due to some component shortages and also due to one particular customer where we suspended sales to them until amounts owed to the Group were paid. These have now been settled and sales have resumed. We will ensure that product availability to our European customers will improve in the second half of the year. There are also several very interesting opportunities for our European sales in the next twelve months and we have spent considerable time and expense in developing our product software to meet the requirements to capitalise on these opportunities. Exports of our Window and Door Hardware products were up slightly in the period.

Our Window and Door Hardware division made a profit in the period but our Ventilation Systems division made a loss compared to the six months ended 31 March 2021.

On environmental measures we continue to invest in more energy efficient plant and vehicles and will update further on this at the year-end.

South Korea

Revenues from South Korea were weaker than expected

in the first half year. This has been caused by a number of factors, including on-goingCovid-19 related challenges and delays in site construction projects in that market leading to sales being deferred. We have not yet seen any significant sales of mechanical products in South Korea but marketing is underway and we expect to see sales start to come through in financial year 2022/23. In terms of the segmental contribution from South Korea, the two businesses, Titon Korea and BTS are aggregated. The revenue in the Group's accounts, which is solely that from Titon Korea (the Group's share of BTS's profits/losses are accounted for as an associate) was 27% lower at £1.5 million (2021: £2.1 million).

The segment contribution, which includes the pre-tax loss of Titon Korea plus 49% of the post-tax loss of BTS, was a loss of £153,000 (2021 loss: £54,000).

United States

Sales in our US business remain a very small portion of the Group's overall sales and were flat against the same period last year at £292,000 (2021: £294,000). Titon Inc. made a small pre-tax loss in the period, but when we include the associated Haverhill production profit, the US contribution to Group profit before tax was positive.

Board

I am very pleased to report that we have now completed the recruitment process for the vacancies on the Board that have existed during the period. Paul Hooper and Jeff Ward, our two new independent Non-executive Directors, have both now started their appointments and are swiftly gaining an understanding of our business and the ventilation industry generally. Following Mat Norris leaving Titon in February 2022, I am delighted to welcome Alexandra French to the Board as our new CEO. As we announced, Alexandra brings a wealth of experience from her career with Johnson Matthey over 25 years and she is now meeting her new colleagues and developing her understanding of our products and processes.

The fourth new member of the Board this year is Carolyn Isom, who was promoted to the Board in December 2021 as the Chief Financial Officer. Carolyn has done a great job since she joined Titon in December 2019 and has taken on significant additional workload and day-to-day responsibilities, for which I am very grateful.

I look forward to the contributions of all four new Board members.

Tony Gearey has now left Titon after 36 years and I would like to thank him for everything he has done for Titon during those years. John Anderson has now stepped down from the Board and has accepted the position of president. He will remain involved in Titon's affairs from this new position.

The period under review has been challenging, and I

Titon Holdings Plc Interim Statement 2022	3