Samuel Heath & Sons : Published Accounts MARCH 2022

SAMUEL HEATH

____________________________________ CONTENTS______________________________________

- 1 -

SAMUEL HEATH

_____________________________ DIRECTORS AND OFFICERS_____________________________

______________________________________________________________________________________

Secretary:Simon Latham

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

- 2 -

SAMUEL HEATH

______________________________ CHAIR'S STATEMENT_____________________________

Our financial performance clearly indicates that we have had a very successful year. The improvements in the first half, following the destabilising effects of Covid-19 and lockdowns, have continued throughout the second half. However, this was achieved with unsustainably low costs and it is therefore important that we manage future profit expectations as I explain further on.

Revenue for the year of £14.015m represented a 21% increase compared to last year (2021: £11.539m).

Operating profit for the year was £2.152m (2021: £1.123m before exceptional items) and profit before tax

£2.030m (2021: £0.942m before exceptional costs). In 2021, £322k exceptional costs relating to GMP equalisation and re-organisation were charged, after which profit before tax was £620k.

As 2021 was affected by Covid-19 and lockdowns, it is instructive to compare 2022 with the 2020 year, when revenues were at a similar level (2020: £13.887m). The increase in operating profit over 2020 was £618k (2020: £1.534m), but this must be viewed in the context of a £626k reduction in selling and distribution costs, which was in large part involuntary and caused by reductions in sales staff, the absence of trade shows to attend and lower marketing spend. These costs have now been reinstated as being essential for the future growth of the business. Nevertheless, the overall performance was excellent, reflecting the input provided by our very competent and skilled executive management team, supported by a loyal hard-working workforce.

Our sales profile during the year was varied, influenced in part by Covid patterns. Following the end of lockdown in June 2021, we saw a significant jump in orders in July, as customer projects put on hold during lockdown started back up. The order flow then reduced through much of the remainder of 2021, picking up again in December and continuing through the quarter to March 2022. It has remained strong into the quarter to June 2022. Trade shows have begun to take place again, and we have attended shows in the UK, North America, and Europe, which should help support interest in our products and the order stream.

So, to our forecast for the present trading year to 31st March 2023. I can report that we are experiencing continued momentum in sales during our first financial quarter, both at home and abroad, particularly overseas. However compared to 2021/2022, we are also experiencing some significant cost increases. As already mentioned, selling and marketing costs have increased and additionally, product development is an area of increased focus with emphasis on new product ranges. Increases in global energy costs, freight costs, and commodity prices are all impinging on margins. Supply chain disruption is an area where we have particular concerns, so we have been taking action to mitigate the effects, such as building longer lead times into our inventory and committing to raw material supplies much further in advance. Fortunately, we do have an advantage in that we manufacture a high proportion of our product inhouse, compared to our competitors.

The outturn for the year to 31st March 2023 is clearly dependent on our markets continuing to hold up, which is by no means certain in the current climate, but also on avoiding potentially serious disruption in supplies and being able to mitigate or pass on escalating costs increases.

In conclusion, whilst we have started the year well there are a number of headwinds which makes the Board cautious about the outturn for the year as a whole.

In view of these very strong expected results, we have no hesitation in recommending an increase in the final dividend to 7.5625p, which will be paid on 2nd September 2022 to shareholders registered as at 27th July 2022.

Anthony Buttanshaw

Non-Executive Chair

19th July 2022

- 3 -

SAMUEL HEATH

________________________________ STRATEGIC REPORT ________________________________

The directors present their annual strategic report for the year ended 31st March 2022.

Business Review and Key Performance Indicators

A review of the business of the Group and future developments is set out in the Chair's Statement on page 3.

The Board consider that the key financial performance indicators are those that communicate the financial performance and strength of the Company:

Net Assets at Group level increased to £7.68m (2021: £5.62m). The improved position has come as business has picked up after the various lockdowns, whilst we maintained a level of short-term cost savings.

Cash Position has remained strong, increasing by £0.73m to a balance of £4.41m. This was after paying out increased contributions to the pension scheme. The Company received a loan under the CBILS facility in April 2021 for the value of £0.95m, which was repaid in full in March 2022.

Inventory has increased slightly to £3.92m (2021: £3.68m) as we have ramped up production following the various lockdowns, although increasingly we look to make to order, not make for stock.

Pension Deficit has reduced this year. Contributions were increased by £36k to £1.036m and the asset values have seen a small increase in value, combined with changes to the discount rate this has reduced the deficit. An increase in inflation rates have gone against us but were not as significant. The latest balance, net of the related deferred tax asset, is £3.628m (2021: £5.18m).

Revenues have increased to £14.02m (2021: £11.54m). Revenues are now running in excess of pre Covid- 19 levels, and order streams are strong.

Gross Profit for the year has increased to 50%, from 43% last year. With revenues returning to pre-Covid levels and caution maintaining our cost base, we have seen an increase in margins.

Operating Profit Before Exceptional Items has increased this year to 15.4% of turnover, compared to 9.7% last year.

Exceptional Items were £nil this year. Last year saw costs incurred of £70k relating to the recognition of Guaranteed Minimum Pension Equalisation resulting from further recent case law, and also costs for reorganisation of £252k.

Investments during the Year

The business has taken advantage of increased profitability to reinvest some of the profit and cash generated during the year, into investments (including £444k on plant and machinery) anticipated to give returns back to the business in future years.

The business increased its work on research and development this year, total costs incurred were £501k (2021: £125k) of which £276k costs (2021: £29k) were capitalised in the year, and advantage is taken of the various tax incentives where appropriate.

Average cost per head before monies received in relation to the Coronavirus Job Retention Scheme was £43,366 (2021: £43,093).

- 4 -