Interim results for the six month period ended 2 august 2003 - Chairman's interim statement
London (ots)
After the positive progress made over the last three years, the trading performance of the group in the six months ended 2 August 2003 has been disappointing. The loss of £4.6m on ordinary activities after tax and exceptional items was £1.3m higher than last year. As in previous years, no interim dividend is declared at this stage.
In relation to the existing business, the loss on ordinary activities before taxation and exceptional items was slightly lower than the previous year at £2.9m (2002 loss of £3.4m). However, the impact of Shellys and various exceptional items such as the cost of restructuring the warehouse and distribution activities, a reduction in the pension fund prepayment in accordance with SSAP24, offset by profits on the disposal of properties, have led to the overall increase in the total pre-tax loss.
In the year-end Chairman's Statement and Operating Review, I made mention of three main areas of concern, all of which have affected these results:
· The increased concession commission arrangements, which cost the business an extra £0.7m in the six months;
· Economic uncertainty surrounding the conflict in Iraq, which modestly dampened sales in the first quarter;
· The potential for further deterioration in the pension fund deficit, which led to an adverse impact on the profit and loss account as a result of a reduction in the pension prepayment of £0.7m, in addition to the increased cash contribution of £0.2m in the six month period.
Trading in the Barratts division has been below expectations, primarily due to the lack of depth of seasonal product. The PriceLess division has continued to grow, with excellent results throughout the season. Trading in both divisions has unfortunately been adversely affected by changes in our distribution arrangements and the underperformance of our distribution centre.
On 4 April 2003 we acquired Shelly's Shoes Limited for a purchase price of £1.5m. Turnover in Shellys has been broadly in line with expectations, albeit margin has been adversely affected both by the significant amount of surplus stock carried by Shellys on acquisition, which we have been addressing by means of an aggressive and ongoing clearance programme, and by the delay experienced in placing orders for the Autumn season, which has made the margin recovery slower than anticipated. A new management team has been put in place to take this business forward.
Shellys has very strong brand recognition and design capability and we remain confident that the business will be an important contributor to group profits in the coming years.
Profit and Loss
Total turnover of £102.7m is £7.4m (7.8%) ahead of last year, of which £5.8m comes from the acquisition of Shellys with £1.6m from the existing business. This represents a like-for-like increase in sales in the existing business of 2.6% for the six months ended 2 August 2003. The improvement in sales performance in the existing business was supported by an improvement in the margins achieved on those sales.
Costs of sales of £94.7m were £6.6m higher than last year, of which £6.0m comes from Shellys and £0.6m from the existing business. Overall gross profit increased by £0.8m (11.7%) to £8.1m, with the existing business increasing by £1.2m (16.7%), despite a £0.5m increase in the depreciation charge resulting from the significant investment in stores last year and the decision to shorten the expected lives of capitalised refurbishment expenditure from 9 to 5 years. This has generated an increase in the gross profit margin from 7.6% last year to 7.9% this year (8.7% for the existing business).
Distribution and administrative expenses have increased by £2.7m to £11.8m. Pre-exceptional distribution and administrative expenses have increased by £1.9m to £10.7m. Whilst there has been an increase in variable costs as sales volumes have grown, there has been a growth in costs in the warehouse following the change of management earlier in the year and the underperformance in the distribution centre which was experienced as a result. These have been tackled. Administrative expenses in the existing business have increased by £0.2m in the period as a result of increased pension fund contributions. In addition, the Group has absorbed £1.2m of distribution and administrative expenses with the acquisition of Shellys.
There have been a number of exceptional costs incurred in the six month period, including accelerated depreciation (£218k), warehouse and distribution restructuring (£345k), legal and professional fees for the share buyback completed in February (£123k), and the reduction in the pension fund prepayment in accordance with SSAP24 (£671k).
In the six-month period we made an exceptional profit of £1.1m on property disposals compared with £0.4m for the equivalent period last year.
Balance Sheet
Net assets of £52.1m at 2 August 2003 reflect both the loss for the first half of £4.6m on ordinary activities after tax and exceptional items and the capital reduction and share buyback schemes over the past twelve months.
Fixed tangible assets of £76.2m are £1.2m lower than at 3 August 2002 as a result of net disposals of property in the twelve-month period. Provisional goodwill of £1.6m has arisen on the acquisition of Shelly's Shoes Limited.
Investment in both Barratts and PriceLess has continued, leading to a total capital expenditure of £2.3m for the six months. At 2 August 2003 we had net debt of £35.9m compared with £29.2m at 3 August 2002 (within this, restricted cash deposits of £3.1m are held for reinvestment in property, compared with £2.2m in 2002). This is after paying out £13.6m to shareholders in the form of capital repayment and share buybacks over the course of the last twelve months.
Pension Fund
The Report and Accounts for the fifty-two weeks ended 1 February 2003 highlighted the impact of the deterioration in the stock market during that year and the consequent impact on the underlying pension fund deficit at that date. As noted at the time, action was taken to address the imbalance over the medium term by way of an increase in contributions and a reduction in future service benefits. In accordance with SSAP24 this deficit is being spread over the average service lives of employees resulting in an exceptional non-cash charge of £671k for the six-month period. There is likely to be a similar charge in the second half of the year.
Future Prospects
Shareholders will be aware that our second half performance is traditionally better than the first half. It is very difficult to predict the outcome of the full year particularly as we are so dependent on the sale of Autumnal products and Christmas trading. However, at this stage, sales in the second half have started slowly. The future benefits from Shellys are unlikely to materialise in the results until 2004.
People
I am delighted to welcome Howard Stanton to the Board as a non-executive director. Howard joined us on 1 October 2003 and will make a very positive contribution to the development of the business.
My thanks as ever go to the staff for their continued support and commitment.
Michael Ziff
Chairman and Chief Executive
16 October 2003
Consolidated Profit & Loss Account for the 26 weeks ended 2 August 2003
Unaudited
26 Weeks ended 2 August 2003Before
Acquisition Exceptionals Exceptionals Total
£000 £000 £000 £000Turnover 5,819 96,926 - 102,745
Cost of Sales (5,968) (88,471) (218) (94,657)
Gross profit/ (loss) (149) 8,455 (218) 8,088
Distribution (311) (3,266) (345) (3,922) costs
Administrative (931) (6,196) (794) (7,921) expenses
Operating (1,391) (1,007) (1,357) (3,755) (loss)/ profit
Operating (2,398) loss)/ profit before exceptionals
Profit on disposal of - 1,072 1,072 fixed assets
Net interest payable (1,936) - (1,936)
(Loss)/profit on (4,344) (285) (4,619) ordinary activities before taxation
Taxation payable/ - - - (credit)
(Loss)/profit on (4,334) (285) (4,619)
ordinary activities after taxation
Dividend proposed -
(Deducted (4,619) from)/ added to reserves
Basic (11.38) (11.55) (loss)/ earnings per share (pence)
Diluted (11.38) (11.55) (loss)/ earnings per share (pence)
Dividend per - share (pence)
Consolidated Profit & Loss Account for the 26 weeks ended 2 August 2003
Unaudited
26 Weeks ended 3 August 2002Before
Exceptionals Exceptionals Total
£000 £000 £000Turnover 95,332 - 95,332
Cost of Sales (88,089) - (88,089)
Gross profit/(loss) 7,243 - 7,243
Distribution costs (2,828) - (2,828)
Administrative (5,997) (288) (6,285) expenses
Operating (loss)/ (1,582) (288) (1,870) profit
Operating loss)/ (1,582) profit before exceptionals
Profit on disposal of - 357 357 fixed assets
Net interest payable (1,793) - (1,793)
(Loss)/profit on (3,375) 69 (3,306) ordinary activities before taxation
Taxation payable/ - - - (credit)
(Loss)/profit on ordinary(3,375) 69 (3,306) activities after taxation
Dividend proposed -
(Deductedfrom)/added to (3,306) reserves
Basic (loss)/earnings per (5.90) (5.76) share (pence)
Diluted (loss)/earnings per (5.90) (5.76) share (pence)
Dividend - per share (pence)
Consolidated Profit & Loss Account (contd.) for the 52 weeks ended 1 February 2003
Audited
52 Weeks ended 1 February 2003Before
Exceptionals Exceptionals Total
£000 £000 £000Turnover 208,851 - 208,851
Cost of Sales (184,100) (566) (184,666)
Gross profit/(loss) 24,751 (566) 24,185
Distribution costs (5,727) - (5,727)
Administrative expenses (12,560) (873) (13,433)
Operating ((loss)/profit 6,464 (1,439) 5,025
Operating loss)/profit before exceptionals 6,464
Profit on disposal of fixed assets - 5,411 5,411
Net interest payable (3,564) - (3,564)
(Loss)/profit on ordinary activities 2,900 3,972 6,872 before taxation Taxation payable/(credit) - - -
(Loss)/profit on ordinary activities after taxation 2,900 3,972 6,872
Dividend proposed (541)
(Deducted from)/added to reserves 6,331
Basic (loss)/earnings per share 5.16 12.23 (pence)
Diluted (loss)/earnings per share 5.14 12.17 (pence)
Dividend per share (pence)
1.25Consolidated Balance Sheet as at 2 August 2003
Unaudited Unaudited Audited
As at 2 August As at 3 August As at 1
February
2003 2002 2003
£'000 £'000 £'000Fixed assets Goodwill 1,576 - - Tangible assets 76,171 77,330 77,061 Investments 1,474 773 886
79,221 78,103 77,947
Current assets Stocks 32,517 31,703 24,407 Debtors 12,064 2,495 12,191 Cash at bank and in hand 3,632 6,186 11,085
48,213 50,384 47,683
Creditors due within one year Borrowings 9,013 4,410 6,713 Other creditors 36,055 32,819 28,211
45,068 37,229 34,924
Net current assets 3,145 13,155 12,759
Total assets less current 82,366 91,258 90,706 liabilities
Creditors due after one year Borrowings 30,000 30,000 30,000 Other creditors 231 501 1,357
52,135 60,757 59,349
Capital and reserves Called up share capital 865 14,895 1,015 Share premium 41 11,667 41 Revaluation reserve 41,618 47,105 43,508 Profit and loss account 9,611 (12,910) 14,785 Equity shareholders' funds 52,135 60,757 59,349
Group Cash Flow Statement
Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
2 August 3 August 1 February
2003 2002 2003
£000 £000 £000 £000 £000 £000
Net cash
(outflow)/
inflow (3,090) 426 12,636
from operating activitiesReturns on investment and servicing of finance
Interest received - - 104
Interest element of(40) (41) (80) finance lease payments
Interest paid (1,896) (1,752) (3,700)
Net cash outflow from (1,936) (1,793) (3,676) returns on investment and servicing of finance
Taxation - - -
Capital expenditure and financial investment
Purchase of tangible (2,573) (3,239) (11,227) fixed assets
Purchase of subsidiary (880) - - undertaking
Cash acquired with 15 - - subsidiary undertaking
Purchase of shares for (520) (196) (309) Employee Benefit Trust
Sale of tangible fixed 2,944 3,339 14,102 assets
Net cash (outflow)/ inflow (1,014) (96) 2,566 from capital expenditure and financial investment
Capital repayment (2,595) - (10,154)
Repayment to ex-management (894) - - shareholders
Cash (outflow)/ inflow (9,529) (1,463) 1,372 before financing
Financing Net (decrease)/ increase (2,500) - 6,500 in bank loans Net decrease/ (increase) 3,185 (2,183) (6,245) in restricted cash deposits
Capital element
of (224) (248) (487)
finance lease payments
461 (2,431) (232)(Decrease)/increase in cash (9,068) (3,894) 1,140
Reconciliation of net cash flow movement to movement in net debt
(Decrease)/ (9,068) (3,894) 1,140 increase in cash Net decrease/ (increase) 2,500 - (6,500) in bank loans
Net (decrease)/ increase (3,185) 2,183 6,245 in restricted cash deposits
Reduction in finance leases 224 248 487
Change in net debt from (9,529) (1,463) 1,372 cash flows
Net debt at beginning of year (26,322) (27,694) (27,694)
Net debt at end of period (35,851) (29,157) (26,322)
Reconciliation of operating (loss)/profit to net cash (outflow)/inflow from operating activities
26 weeks ended 26 weeks ended 52 weeks ended
2 August 3 August 1 February
2003 2002 2003
£000 £000 £000Operating (loss)/profit (3,755) (1,870) 5,025
Depreciation charge 2,763 2,250 4,697
FRS 11 Impairment - - 204
Goodwill written off 54 - -
EBT provision released (68) - (309)
Increase in stocks (4,784) (7,490) (194)
Decrease in debtors 1,032 1,302 1,865
Increase in creditors 1,668 6,234 1,348
Net cash (outflow)/inflow (3,090) 426 12,636 from operating activities
Notes to the Accounts
1 Exceptional items Unaudited Unaudited Audited
26 weeks ended 26 weeks ended 52 weeks ended
2 August 3 August 1 February
2003 2002 2003
£000 £000 £000Impairment adjustment - - (204)
Accelerated depreciation (218) - (362)
Distribution restructuring costs (345) - -
(563) - (566)
Professional fees (123) (288) (672)
Decrease in SSAP 24 pension asset (671) - (201)
(1,357) (288) (1,439)
Profit on disposal of fixed assets 1,072 357 5,411
(285) 69 3,972
2 Analysis of net debt At Cashflows Other At
1 February movement 2 August
2003 2003
£000 £000 £000 £000Cash at bank and in hand 4,840 (4,268) - 572
Bank overdraft (213) (4,800) - (5,013)
4,627 (9,068) - (4,441)
Restricted cash 6,245 (3,185) - 3,060 deposits
Bank loans - - - -
Debt due within one (6,500) 2,500 - (4,000) year
Debt due after one (30,000) - - (30,000) year
Finance leases (694) 224 - (470)
Total (26,322) (9,529) - (35,851)
3 On 4 April 2003, the Group acquired the entire share capital of Shelly's Shoes Limited for a consideration of £1.5m, incurring acquisition costs of £130,000. Of the £1.5m, £750,000 was paid on completion with the balance payable 12 months thereafter. The provisional fair value of the net assets acquired amounted to £nil with a resultant goodwill of £1,630,000. The book value of assets and liabilities are based on management accounts, and whilst a provisional fair value exercise has been carried out, the review is not complete and certain provisional amounts are yet to be finalised. The expected useful life of the goodwill has provisionally given rise to a £54,000 amortisation in the current period to administrative expenses within acquired operations. A full review of the expected useful economic life of the resultant goodwill will be completed by the 31 January 2004 year end. The provisional period may be revised once this review is complete.
4 The financial information set out herein does not constitute full financial statements within the meaning of the Companies Act 1985. The financial information for the 26 weeks ended 2 August 2003 is unaudited and has been prepared on the basis of the accounting policies set out in the Group's 2003 Report and Accounts. The accounts for the period ended 1 February 2003 received an unqualified audit report and have been filed with the Registrar of Companies.
5 Copies of the report are being sent to all shareholders and are available at the company's registered office.
This information is provided by RNS
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