RNS Number:4232I
Coats PLC
07 March 2003
PART 1
7 March 2003
COATS PLC ANNOUNCES PRELIMINARY RESULTS
FOR YEAR TO 31 DECEMBER 2002
Financial Highlights
* Thread sales #923m - (2001: #938m) up 2% like-for-like*
* Thread operating profit pre-reorganisation cost #77m - (2001:#73m) up
11% like-for-like*
* Profit before tax #45m (2001: #23m)
* Headline earnings per share 3.8p (2001: 2.8p)
* Net operating cash inflow up 16% at #101m
* Net debt reduced by #24m to #104m
Strategic Highlights
* Strong second half recovery as benefits of restructuring and
investment begin to come through
* 46% of Thread operating profit pre-reorganisation cost generated in
Asia
* Reduction of cost base in Western Europe and North America continues
* Investment in new capacity in lower cost markets particularly China
* Buy-out of minority stake in India and acquisition of competitor in
Brazil strengthens position in key markets
* Losses in Fashion Retail depressed 2002 earnings but sale of the
business in January 2003 means that transformation of Coats into a
business focused on Thread is almost complete
Recommended Offer
* The Board has recommended an offer for the Company by Avenue
Acquisition plc
Commenting on the results, Martin Flower, Chief Executive, said:
"The strong second half performance in Thread shows that the benefits of the
decision to focus the Group's management and financial resources on Thread are
beginning to come through. Despite the highly uncertain economic and political
environment, the combination of our strengthened leadership position in the
global thread market and the significant reduction in exposure to non-core
business allows us to face the future with confidence."
Commenting on the offer, Sir Harry Djanogly, Chairman, said:
"This offer will enable the Group to move forward and continue the successful
implementation by current management and employees of the Thread strategy
currently in place. The price being offered represents fair value for
shareholders and will therefore be recommended by the Board."
*see table at end of financial review
Financial highlights
2002 2001 Restated
#m #m
Turnover - Thread 923 938
- Total 1,156 1,247
Operating profit - Thread 62 46
- Total 40 36
Pre-tax profit 45 23
Earnings per share - basic 4.2p 1.4p
- headline 3.8p 2.8p
Dividends per share 4.00p* 3.00p
Net asset value per Ordinary share 63p 71p
Capital expenditure 57 55
Net debt 104 128
Net debt less current asset investments 80 104
Net gearing 21% 22%
Net cash inflow from operating activities 101 87
Net interest cover (operating profit) 4.4x 3.5x
Market Capitalisation at 31 December 347 333
*Dividends per share include a special second interim dividend of 2.5p declared
by the directors and payable in conjunction with the recommended offer announced
separately yesterday.
Note
2001 comparatives have been restated following the adoption of FRS19 - Deferred
tax. The full impact is reflected in the statement of accounting policies.
Chairman's statement
After a year in which trading conditions in most sectors of the global economy
remained more depressed than expected, I am very pleased to report that Coats'
core business of Thread was able to deliver growth in profits and sales broadly
in line with management's original plan. Just as importantly, the sale of
Fashion Retail in January means that the transformation of Coats into a business
focused on Thread is largely complete. Negotiations on the sale of the remaining
non-core business - Bedwear - are well advanced.
The overall group result for 2002 was affected by higher than expected trading
losses at Fashion Retail. In the circumstances, we believe the sale of the
business for a nominal sum whilst retaining assets with a value of approximately
#24m represents the best available outcome for shareholders. Headline earnings
per share increased by 36% to 3.8p.
The present economic and political situation clearly holds great challenges for
all businesses but I am confident that the substantial investment already made
in restructuring and new capacity in our global Thread business will deliver
progress in underlying performance during 2003 and beyond. However, with almost
all Thread profits outside the UK, published earnings in sterling will continue
to be subject to exchange translation, and in particular fluctuation in the US
dollar.
In February this year the Board received a bid approach from a group of
shareholders led by Guinness Peat Group. After due consideration and on the
basis of advice received from the Group's advisors, Cazenove and HSBC, the Board
has decided to recommend an offer at 58.5p per share including the special
dividend of 2.5p in lieu of a final dividend. Further details and background to
the offer and the Board's recommendation are contained in yesterday's offer
announcement.
Chief Executive's Review
THREAD
Operating profit before reorganisation costs #77.3 million (2001: #72.7 million)
A strong second half performance, led by significant growth in our Asian
businesses, more than offset a weak first half to deliver real progress over
2001. Sales growth in our industrial business reflected share gain in key global
accounts. The migration of apparel and footwear manufacture from developed
markets such as the USA, the UK, France and Germany to lower labour cost
countries continued apace, allowing us to leverage our strong service capability
in virtually all favoured locations. The crafts business performed well, notably
in the USA and Germany, as cyclical interest in handknitting activity was
maintained in 2002.
Thread sales 2002 #m Like- for-like growth on same period of previous year*
Full year First half Second half
Apparel thread 358.3 +2% -3% +8%
Speciality thread 141.8 +3% -3% +10%
Zips & trim 92.1 -3% -9% +5%
Total industrial 592.2 +2% -4% +8%
Crafts 325.1 +5% +1% +9%
Other 5.3 -42% -29% -79%
Total 922.6 +2% -3% +8%
*Growth at constant exchange rates, excluding impact of acquisitions / disposals
North America
The demand for industrial thread within the NAFTA area was subdued throughout
the year. US consumer demand for apparel was generally flat and the expected
inventory build after significant de-stocking in 2001 was not as strong as
expected as retailers focused on shorter supply lead times. Another sharp
contraction of garment manufacturing activity in the US occurred with China and
other Asian markets being the main beneficiaries. However our sales of
industrial thread in the Caribbean Basin Initiative area grew strongly as we
benefited from recent investments in capacity for local service in the Dominican
Republic and Honduras.
Pressure on industrial margins continued due to intense competitor pressure in
the face of volatile and shifting customer demand. This was compensated by
significant cost reduction action taken in the latter part of 2001, bolstered by
further overhead reductions in 2002. Our significant investment in a
comprehensive Mexican supply capability commenced in July and is progressing on
schedule, with first production planned for mid 2003. This will greatly enhance
our local service capability and long-term cost competitiveness.
The US crafts business again delivered a strong performance, bolstered by
increased consumer interest in leisure crafts activity, our strong position with
key retailers such as Wal-Mart, and increased emphasis on product innovation.
UK & Europe
Sales of industrial thread declined in Western Europe in the face of difficult
market conditions, notably in Germany and France, and continued migration of
manufacturing to the European rim and Asia. Competitive pressure also impacted
margins. This was compensated by good sales growth in Eastern Europe as we
strengthened our sales force and service capability in Romania, Bulgaria, Turkey
and the Ukraine. The major expansion of capacity in Romania commenced in the
fourth quarter and will come on-stream in mid 2003. Our business in Turkey
benefited from a more stable exchange rate and strong sales growth to
contractors servicing the European market.
Zip fastener sales were slightly down, reflecting a fashion change away from the
zip as an aesthetic feature of the finished garment. Progress however was made
in the latter part of the year in securing stronger European retailer
specification for our Opti branded product.
Strong crafts sales were registered in Germany as a result of renewed consumer
interest in handknittings. Crafts sales generally throughout Europe were robust,
reflecting greater emphasis on product development and the leveraging of our
comprehensive distribution capability, which now extends to Eastern Europe.
Asia
Demand for industrial thread grew strongly throughout the year, as a result of
exceptional growth in exports of apparel and footwear to the USA in the latter
part of the year. The major beneficiaries were China and Vietnam but all our
Asian businesses recorded a strong second half as US and European retailers
placed their faith in the Asian contractor base as an integral part of their
ongoing supply chain. This had to a large extent been anticipated and the
earlier expansion of capacity in our Asian units paid dividends. We continued to
gain share in key footwear accounts with a number of new specifications being
received during the year including Nike, Wolverine, Timberland, Clarks and Dr.
Martens. Consumer thread sales also grew as we exploited opportunities in
markets where we have a strong industrial thread presence.
Expansion of capacity continued in the high growth markets during 2002 and in
2003 we intend to invest in a new factory in Southern China capable of servicing
the expected surge in demand over the next five years. This unit will also
provide low cost, high quality product for our European supply chain. Full
production is planned for the first half of 2004. Elsewhere in Asia, service
capability was strengthened with the opening of new units in Bangladesh and
Thailand. Our Madagascar service unit re-opened at the end of the year as the
political situation in the country stabilised and this will allow us to fully
exploit sales growth potential in this region arising from the African Growth
and Opportunity Act.
Our Indian business performed strongly in both the industrial and consumer
thread segments as we benefited from strong growth in apparel exports and local
demand. The successful buy-out of the minority stake in Madura Coats further
strengthened our position in this highly strategic market.
South America
Reported profit for the year was again negatively affected by currency
translation in Brazil. However underlying activity in all segments of our
Brazilian business was strong, particularly in industrial thread as apparel
exports grew on the back of an extremely competitive exchange rate. The
acquisition in February 2003 of an industrial thread competitor, Vicunha,
further strengthens our business and we are well-positioned to benefit from
economic recovery in the region.
OTHER BUSINESSES
Operating loss before reorganisation costs #18.0 million (2001: #4.3 million)
Further deterioration in the performance of non-core businesses was almost
entirely due to Fashion Retail where the second half proved just as
disappointing as the first half. Both Jaeger and Viyella were affected by weak
demand and more intense competition in their respective segments, leading to a
full year operating loss before reorganisation costs of #16.3 million (2001:
#2.3 million). As noted below, the majority of the Fashion Retail businesses
were sold in January for a nominal sum but over the next one-two years we expect
to realise the value of the retained assets. Based on external valuations,
eventual realization of the retained assets is expected to lead to a net cash
inflow of approximately #24 million.
Bedwear performance continued to be impacted by lower own-label sales but some
improvement was seen towards the end of the year as cost savings started to come
through. For the full year, operating loss before reorganisation cost was #1.5
million (2001: profit #0.7 million). Since the year end, action has been taken
to further reduce capacity so as to position the business to return to profit.
Negotiations on the sale of the business are well advanced.
India Textiles benefited from earlier capacity reduction and the operating loss
before reorganisation costs was reduced to #0.2 million (2001: #2.3 million).
Withdrawal from the business is now almost complete.
STRATEGY
The strong second half performance in Thread shows that the benefits of the
decision to focus the Group's management and financial resources on Thread are
beginning to come through. Good progress was made during 2002 in downsizing
Western capacity whilst expanding in low cost locations. However, as stated
previously, we expect this major restructuring of our global supply chain to
continue until end 2004, at which point the full benefits of our leading global
position in Thread should begin to flow through. The strategic priorities for
the business remain unchanged. Continued focus on four critical areas of
activity will enable us to further strengthen our competitive position and build
on the momentum achieved in the latter part of 2002 into 2003 and beyond.
* Relationships with global retailers and brand owners
We will continue to invest resource to exploit this still emerging
opportunity, drawing on our unique global spread and our growing
understanding of retailer supply chains. In the short term this is the
key to increased market share and growth in industrial thread. Longer
term, our position as the leading supplier to garment exporters in
emerging markets will enable us to benefit from the huge potential for
growth in domestic consumption as living standards improve.
* Cost-effective supply chain
Continued reduction of capacity in Western Europe and North America
will be complemented by the commissioning of significant new
investment in capacity in Romania, Mexico and China. Reduction of the
cost base in Western markets is the key to further growth in operating
margins. In a volatile economic climate, strategic partnerships with
global suppliers also contributed greatly to raw material cost
stability during 2002.
* Service capability in low cost locations
During 2002 we further strengthened our service network with
investments in Bulgaria, Thailand and Bangladesh and the expansion of
capacity in high growth locations, notably China and Vietnam. We have
now virtually completed our global service coverage. The emphasis
moving forward is to extract maximum value from this service
capability, both in terms of securing new business through the
provision of an unparalleled fast response service as well as the
achievement of world class performance standards to minimise cost and
inventory.
* Capitalise on Crafts position
Our strong performance in Crafts is based on a relatively small number
of markets and the opportunity exists to roll out successful product
development on a broader scale, building on our existing international
network.
Despite the highly uncertain economic and political environment, the combination
of our strengthened leadership position in the global thread market and the
significant reduction in exposure to non-core business allows us to face the
future with confidence.
Financial Review
Accounting Standards
The Group's accounting policies fully reflect all applicable standards issued by
the Accounting Standards Board.
Since 2001, FRS 17 - Retirement Benefits has been fully adopted in preparing the
accounts, in line with best practice. Unlike companies which are applying the
transitional rules permitted by this standard, operating profit reflects the
Group's full pension current service cost, with the expected return on pension
scheme assets offset by interest on pension liabilities included as other
finance income in the Group's profit and loss account. The full effect of this
standard is set out in Note 29 to the accounts.
FRS 19 - Deferred Tax, which requires a full provision to be made for deferred
tax in respect of almost all timing differences, has been adopted in the
accounts for 2002. The comparative figures for 2001 have been restated
accordingly, resulting in a #27.3 million fall in shareholders' funds as at 31
December 2001. The full effect of this standard is set out in the Statement of
accounting policies.
Post balance sheet events
The Group completed the disposal of the majority of its loss-making Fashion
Retail businesses on 23 January 2003 for a nominal consideration, and the
results of the businesses sold have been included within discontinued
operations. The net assets of the businesses sold amounted to approximately
#36.0 million. No goodwill arose on the original acquisition of the business and
the loss arising on disposal, including expenses, is approximately #38.0 million
which will be reflected in the 2003 accounts. The Group retains certain assets
of these businesses, primarily including the rights to a long-term lease and
Jaeger's US business, which based on external valuations are expected to
ultimately realise approximately #24.0 million.
In addition, on 28 February 2003, the Group completed its acquisition of the
industrial thread business of Vicunha Textil, Brazil's largest textile
manufacturer, for approximately #6.0 million. Goodwill of approximately #5.0
million arises on this acquisition, and will be accounted for in the 2003
accounts.
Review of operating results
Operating profit after reorganisation and other exceptional costs increased by
12% to #40.2 million (2001 - #35.9 million), on turnover of #1,155.6 million
(2001 - #1,247.0 million).
This reflects a good underlying performance by the Thread business, as set out
below:
Thread Operating Profit 2001 2002
#m H1 H2 Total H1 H2 Total
UK and Europe 13.0 5.1 18.1 7.6 5.2 12.8
North America 8.9 2.8 11.7 3.8 8.2 12.0
South America 6.9 5.7 12.6 4.7 6.8 11.5
Asia 15.2 14.3 29.5 15.1 20.6 35.7
Corporate -2.5 3.3 0.8 -2.4 7.7 5.3
41.5 31.2 72.7 28.8 48.5 77.3
Margin% 8.5% 6.9% 7.8% 6.2% 10.6% 8.4%
Reorganisation costs & -13.2 -13.6 -26.8 -8.7 -6.5 -15.2
exceptional items
Total 28.3 17.6 45.9 20.1 42.0 62.1
Half year split 62% 38% 32% 68%
As noted in the Chief Executive's review, in 2002 the Thread business
experienced a strong recovery in the second half whilst continuing to downsize
Western capacity and invest in low cost economies in Asia. Profits in Asia for
the full year increased by 21% and represented almost half of total Thread
profits. Operating margins strongly recovered in the second half as a result of
cost reduction initiatives and improved capacity utilization, leaving full year
margins 0.6 percentage points higher than the previous year.
Corporate benefited from a #4.1 million increase in royalties from Group
subsidiary companies as well as a #3.7 million (2001 - #1.9 million) benefit
from the write off of negative goodwill arising on the purchase of minority
interests in accordance with FRS 10 - Goodwill and Intangible assets, and as set
out in note 21 of the accounts.
Whereas Thread performance deteriorated during the second half of 2001, it
improved throughout 2002, and 68% of 2002 profits were generated in the second
half of the year, giving the Group a solid platform for 2003.
Operating losses after reorganisation costs and exceptional items from the
Group's other businesses, namely Indian Textiles, Fashion Retail and Bedwear,
totalled #21.9 million (2001 - #10.0 million). The progress made in exiting
these businesses is detailed below.
Disposals
The Group has made substantial progress in withdrawing from its non-Thread
businesses. The ongoing withdrawal from India Textiles will be completed in
2003, and operating losses after reorganisation costs were reduced to #0.5
million (2001 - #2.3 million). Exit costs amounted to #7.0 million (2001 -
#12.8 million) and as in 2001 are included in the loss on sale or termination of
operations. The Jaeger Knitwear manufacturing business was sold in December
2002 at a loss of #3.1 million, and, as noted above, the majority of the
loss-making Fashion Retail businesses were sold subsequent to the year end.
Discussions are well advanced on the sale of the Group's Bedwear business.
Gains on sales of property and other assets made surplus by the reorganisation
and disposal programme totalled #8.7 million (2001 - #13.6 million). In total,
the net loss on sale or termination of operations and asset sales was #1.4
million (2001 - #13.2 million).
Interest and tax
Net interest costs fell to #9.4 million (2001 - #10.5 million) reflecting a
reduction in debt.
FRS 17 other finance income increased to #14.3 million (2001 - #10.2 million).
This includes a #3.9 million refund from the winding up of a discontinued
pension scheme. The balance represents the net of the expected return on
pension scheme assets offset by interest on pension liabilities, and is a
non-cash item. Further details are contained in note 29 of the accounts.
Profit before tax increased significantly to #44.6 million (2001 - #23.0
million). On the IIMR basis (before goodwill and FRS 3 exceptional items)
profit before tax was #44.4 million (2001 - #38.0 million).
The tax charge was reduced to #9.1 million (2001 - #11.0 million). This charge
is made up of tax on profits of overseas subsidiaries, while losses continued to
be generated in the UK, primarily by the Fashion Retail division. The reduction
in the tax charge reflects refunds of prior year tax in both the UK and the US.
Basic earnings per share increased to 4.2p (2001 - 1.4p) and headline earnings
per share increased to 3.8p (2001 - 2.8p).
Dividends
In connection with the recommended offer announced separately yesterday, the
Board has declared a special second interim dividend of 2.5p (in lieu of a final
dividend for the year just ended). The payment of this dividend is conditional
on the offer being declared wholly unconditional. In the event that this offer
is not successful, this special second interim dividend will not be paid. In
this situation the Board will propose a final dividend.
Pension arrangements
The Company operates a defined benefit plan in the UK. This plan was in surplus
at 31 December 2002 and remains open to new members. There are similar
arrangements in the US where the plan is also in surplus. Continued suspension
of employer contributions has been recommended by the actuaries in both cases.
The Group's recognised pension assets at 31 December 2002 have fallen to #31.1
million (2001 - #50.7 million), of which #11.5 million (2001 - #24.4 million)
represents the surplus in the UK plan net of deferred tax and the remainder
represents surpluses in North America plans.
The gross surplus in the UK plan at the beginning of the year was #219.0
million, of which #34.9 million was recognised, being the present value of the
long term contribution holiday. The surplus reduced significantly to #16.5
million at 31 December 2002, reflecting the fall in equity markets during the
year.
There are various pension and leaving indemnity arrangements in other countries,
primarily in Europe, which in general are not funded. These liabilities amounted
to #60.9 million (2001 - #49.8 million) net of deferred tax at 31 December 2002.
#28.5 million (2001 - #4.4 million) of the deterioration in recognised pension
assets and liabilities has arisen as the actuarial assumptions made in the
valuation at 31 December 2001 were not met or have been changed. In accordance
with FRS 17, this has been charged to the statement of total recognised gains
and losses.
Balance sheet and cash flow
Net cash inflow from operating activities increased by #13.8 million to #100.7
million (2001 - #86.9 million), reflecting a #18.8 million improvement (2001 -
#10.1 million deterioration) in working capital. The disposal of businesses and
surplus assets generated #17.7 million (2001 - #57.1 million).
Capital expenditure was #56.9 million (2001 - #54.9 million), including key
projects in Mexico, China and Indonesia. After adjusting for year-end creditors,
actual cash outflow was #48.6 million (2001 - #54.7 million). #11.6 million
(2001 - #22.4 million) was spent on acquisitions, primarily the purchase of
minority interests.
Net debt fell from #128.1 million at the start of the year to #104.4 million.
Shareholders' funds fell from #515.4 million to #463.7 million, reflecting the
#28.5 million actuarial loss and a #25.4 million (2001 - #12.2 million) exchange
loss charged to the statement of total recognised gains and losses. Gearing was
20.8% (2001 - 22.1%).
Treasury
At the year end, the Group had undrawn committed facilities which expire after
more than one year of #117.8 million (2001 - #86.5 million). The Group's
convertible bonds of #60.4 million come due for redemption at their principal
value on 9 August 2003. The Group was not in breach of any of its borrowing
covenants.
The Group's policy is to minimise exposure to changing interest rates by
ensuring an appropriate balance of fixed and floating rates. The exposure is
managed through the use of interest rate swaps and forward rate agreements, the
nominal principal of which does not exceed the underlying debt and cash
positions covered.
Following the restructuring of the UK businesses, the majority of the Group's
profits, cash flows and assets relate to its overseas Thread operations and are
denominated in a range of currencies. The principal exchange rates used in
preparing the financial statements were as follows:
2002 2001
__________ ________ ____________________ _________________
Average US$ 1.50 1.44
Euro 1.59 1.61
Year End US$ 1.61 1.46
Euro 1.53 1.63
Borrowings are drawn or swapped into US dollars to hedge the impact of changes
in the sterling/US dollar exchange rate on the translation of US dollar
denominated assets. Further details are contained in Note 19 of the accounts.
The Group's translation exposure in the profit and loss account is not hedged.
The translation of 2001 overseas turnover and operating profit at 2002 average
rates reduces sales and operating profit by #30.1 million and #2.0 million
respectively.
Going concern basis
The financial statements have been prepared on a going concern basis.
Under the terms of the Company's #172 million committed bank facilities, in the
event of a change in control, the Company must negotiate with a view to agreeing
terms and conditions acceptable to the lenders for continuing to make the
facilities available.
In recommending the current offer from Avenue Acquisition for the ordinary share
capital of the Company, the Directors have assessed the likelihood of the
facilities not continuing to be made available and, if they are not available,
whether alternative facilities can be negotiated and agreed. In forming their
assessment, the Directors have had regard to the considerable investment made in
the share capital of the Company by the acquiror and the structure of that
investment, as well as to certain representations made by Avenue Acquisition and
Guinness Peat Group plc regarding their intentions either to invite the
Company's existing banks to continue making the facility available with changes
acceptable to the various parties or to re-finance the facility through Avenue
Acquisition's own bankers. In the circumstances, the Directors have no evidence
to suggest that the facilities will be withdrawn or that a re-financing would
not be achievable and accordingly the Directors continue to believe that it
remains appropriate to adopt the going concern basis in preparing the Company's
financial statements.
After making enquiries, and based on the above the Directors have formed a
judgement that at the time of approving the financial statements, there is a
reasonable expectation that the Group has sufficient resources to continue in
operational existence for the foreseeable future.
Reconciliation of Thread like-for-like figures with published segmental
information
External 2001 Exchange 2001 2002 %
Sales Reported Retranslation Acquisitions Disposals Adjusted Reported Inc/(Dec)
#m
Europe 325.9 1.9 0.3 328.1 321.6 -2%
N America 304.5 (12.4) (6.7) 285.4 291.0 2%
S America 103.7 (4.2) 99.5 87.6 -12%
Asia 203.8 (12.8) 191.0 222.4 16%
_________ _________ _____________ ___________ _________ ________ _________ ________
TOTAL 937.9 (27.5) 0.3 (6.7) 904.0 922.6 2%
_________ _________ _____________ ___________ _________ ________ _________ ________
Operating
Profit pre-
reorganisation 2001 Exchange 2001 2002 %
Cost Reported Retranslation Acquisitions Disposals Adjusted Reported Inc/(Dec)
#m
Europe 18.1 0.2 (0.1) 18.2 12.8 30%
N America 11.7 (0.5) (0.9) 10.3 12.0 17%
S America 12.6 (0.5) 12.1 11.5 -5%
Asia 29.5 (1.4) 28.1 35.7 27%
Corporate 0.8 0.8 5.3
____________ ________ ____________ __________ ________ ________ ________ ________
TOTAL 72.7 (2.2) (0.1) (0.9) 69.5 77.3 11%
____________ ________ ____________ __________ ________ ________ ________ ________
Consolidated profit and loss account
2002 2001
________ ________
Restated
Total Total
For the year ended 31 December 2002 Notes #m #m
__________________________________________________________ ______ ________ _______
Turnover 1&2
Continuing operations 1031.4 1069.4
Discontinued operations 124.2 177.6
________ _______
1155.6 1247.0
Cost of sales 1&3 (741.6) (810.6)
________ _______
Gross profit 414.0 436.4
Distribution costs 1 (266.4) (287.1)
Administrative expenses 1&3 (110.9) (117.9)
Other operating income 1&3 3.5 4.5
________ _______
Operating profit 1,2&3 40.2 35.9
________ _______
Continuing operations 55.0 41.6
Discontinued operations (14.8) (5.7)
________ _______
Share of operating profits of associated companies 0.9 0.6
Profit on sale of fixed assets of continuing operations 3.4 9.2
Profit on sale of fixed assets of discontinued operations 5.3 4.4
Losses on sale or termination of continuing operations (7.0) (24.1)
Losses on sale or termination of discontinued operations (3.1) (2.7)
________ _______
Profit on ordinary activities before interest 39.7 23.3
___________________________________________________________ ______
Interest receivable and similar income 6 9.7 12.0
Interest payable and similar charges 7 (19.1) (22.5)
________ _______
Net interest payable (9.4) (10.5)
________ _______
Other finance income 29 14.3 10.2
________ _______
Profit on ordinary activities before taxation 44.6 23.0
Tax on profit on ordinary activities 8 (9.1) (11.0)
________ _______
Profit on ordinary activities after taxation 35.5 12.0
Equity minority interests (5.2) (1.1)
________ _______
Profit for the financial year 9 30.3 10.9
Preference dividends on non-equity shares (0.7) (0.7)
________ _______
Profit attributable to ordinary shareholders 29.6 10.2
Ordinary dividends on equity shares 10 (28.4) (21.1)
________ _______
Transferred to/(from) reserves 24 1.2 (10.9)
__________________________________________________________ ______ ======== =======
Basic earnings per Ordinary share of 20p 11 4.2p 1.4p
__________________________________________________________ ______ _______ _______
Headline earnings per Ordinary share of 20p 11 3.8p 2.8p
__________________________________________________________ ______ _______ _______
Balance sheets
Group Company
________ _________ _________ _______
2002 2001 2002 2001
Restated
At 31 December 2002 Notes #m #m #m #m
______________________________________________ _____ ________ _________ _________ _______
Fixed assets
Goodwill 21 48.3 51.8 - -
Negative goodwill 21 (11.2) (4.7) - -
______________________________________________ _____ ________ _________ _________ _______
37.1 47.1 - -
Tangible assets 12 379.8 402.5 - -
Investments 13 5.5 6.3 1161.7 2116.7
______________________________________________ _____ ________ _________ _________ _______
422.4 455.9 1161.7 2116.7
______________________________________________ _____ ________ _________ _________ _______
Current assets
Stocks 14 255.6 291.9 - -
Debtors due within one year 15 241.8 239.0 3.5 5.0
Debtors due in more than one year 15 10.0 16.2 - 0.7
Investments 16 24.3 24.5 - -
Cash at bank and in hand 19 62.2 88.9 3.1 19.7
______________________________________________ _____ ________ _________ _________ _______
593.9 660.5 6.6 25.4
Creditors - amounts falling due within one year
Bank overdrafts 19 (26.8) (24.9) (26.5) (22.6)
Other creditors 17 (335.3) (360.5) (97.3) (111.1)
Convertible debt 17 (60.4) - (60.4) -
______________________________________________ _____ ________ _________ _________ _______
(422.5) (385.4) (184.2) (133.7)
______________________________________________ _____ ________ _________ _________ _______
Net current assets/(liabilities) 171.4 275.1 (177.6) (108.3)
______________________________________________ _____ ________ _________ _________ _______
Total assets less current liabilities 593.8 731.0 984.1 2008.4
______________________________________________ _____ ________ _________ _________ _______
Creditors - amounts falling due after
more than one year
Other creditors 18 (8.1) (22.3) (423.4) (1245.3)
Convertible debt 18 - (60.2) - (60.2)
______________________________________________ _____ ________ _________ _________ _______
(8.1) (82.5) (423.4) (1305.5)
______________________________________________ _____ ________ _________ _________ _______
Provisions for liabilities and charges 20 (54.3) (68.7) (1.2) (1.5)
______________________________________________ _____ ________ _________ _________ _______
Net assets excluding pension assets and
liabilities 531.4 579.8 559.5 701.4
Pension assets 29 31.1 50.7 - -
Pension liabilities 29 (60.9) (49.8) - -
______________________________________________ _____ ________ _________ _________ _______
Net assets including pension assets and
liabilities 501.6 580.7 559.5 701.4
______________________________________________ _____ ________ _________ _________ _______
Capital and reserves
Equity share capital 22 141.6 141.1 141.6 141.1
Non-equity share capital 22 14.6 14.6 14.6 14.6
_____ ________ _________ _________ _______
Called up share capital 156.2 155.7 156.2 155.7
Share premium account 23 207.2 206.7 207.2 206.7
Other reserves 23 34.1 34.1 35.6 35.6
Pension reserve 23 (29.8) 0.9 - -
Profit and loss account 24 96.0 118.0 160.5 303.4
_____ ________ _________ _________ _______
Shareholders' funds 463.7 515.4 559.5 701.4
Equity minority interests 25 37.9 65.3 - -
______________________________________________ _____ ________ _________ _________ _______
Total capital employed 501.6 580.7 559.5 701.4
______________________________________________ _____ ________ _________ _________ _______
Cash flow statement
2002 2001
For the year ended 31 December 2002 Notes #m #m
_______________________________________________________________ _____ __________ __________
Net cash inflow from operating activities 31 100.7 86.9
_______________________________________________________________ _____ __________ __________
Returns on investments and servicing of finance
Interest received 7.2 15.5
Interest paid (13.9) (17.4)
Cost of financing convertible debt (3.8) (3.8)
Interest element of finance lease rental payments (0.3) (0.7)
Income from investments 0.1 -
Preference dividends paid (0.7) (0.7)
Dividends paid to minority shareholders (5.9) (3.7)
_______________________________________________________________ _____ __________ __________
Net cash outflow for returns on investments and servicing of
finance (17.3) (10.8)
_______________________________________________________________ _____ __________ __________
Taxation (5.7) (11.1)
_______________________________________________________________ _____ __________ __________
Capital expenditure and financial investment
Purchase of tangible fixed assets (48.6) (54.7)
Purchase of fixed asset investments - (0.5)
Sale of tangible fixed assets 16.7 24.0
Sale of fixed asset investments 0.5 1.7
_______________________________________________________________ _____ __________ __________
Net cash outflow for capital expenditure and financial investment (31.4) (29.5)
_______________________________________________________________ _____ __________ __________
Acquisitions and disposals
Purchase of subsidiary undertakings 31 (11.6) (22.4)
Net cash acquired with subsidiaries 0.4 3.5
Sale of subsidiary undertakings 31 1.0 36.6
Net cash disposed with subsidiaries - (3.5)
_______________________________________________________________ _____ __________ __________
Net cash inflow for acquisitions and disposals (10.2) 14.2
_______________________________________________________________ _____ __________ __________
Equity dividends paid (21.2) (21.1)
_______________________________________________________________ _____ __________ __________
Management of liquid resources
Decrease in short-term deposits 12.0 1.8
Purchase of current asset investments - (1.7)
Sale of current asset investments 0.6 -
_______________________________________________________________ _____ __________ __________
Net cash inflow from management of liquid resources 12.6 0.1
_______________________________________________________________ _____ __________ __________
Financing
Issue of ordinary share capital 1.0 0.6
Issue of shares to minorities 0.6 0.1
Decrease in borrowings 31 (44.4) (35.2)
_______________________________________________________________ _____ __________ __________
Net cash outflow from financing (42.8) (34.5)
_______________________________________________________________ _____ __________ __________
Decrease in cash 31 (15.3) (5.8)
_______________________________________________________________ _____ __________ __________
Reconciliation of net cash flow to movement in net debt
_______________________________________________________________ _____
Decrease in cash (15.3) (5.8)
Cash outflow from change in debt and lease financing 44.4 35.2
Cash inflow from change in short-term deposits (12.0) (1.8)
_______________________________________________________________ _____ __________ __________
Change in net debt resulting from cash flows 17.1 27.6
New finance leases (0.2) (0.3)
Loan notes issued in respect of acquisitions - (2.5)
Loans and finance leases acquired with subsidiaries - (0.4)
Other (0.2) (0.1)
Exchange 7.0 (4.2)
_______________________________________________________________ _____ __________ __________
Decrease in net debt 23.7 20.1
Net debt at 1 January (128.1) (148.2)
_______________________________________________________________ _____ __________ __________
Net debt at 31 December 31 (104.4) (128.1)
_______________________________________________________________ _____ __________ __________
Analysis of free cash flow
2002 2001
For the year ended 31 December 2002 #m #m
____________________________________________________________ ______ ______
Net cash inflow from operating activities 100.7 86.9
Returns on investments and servicing of finance (17.3) (10.8)
Tax paid (5.7) (11.1)
Capital expenditure and financial investment (31.4) (29.5)
______ ______
Free cash flow 46.3 35.5
____________________________________________________________ ______ ______
Statement of total recognised gains and losses
2002 2001
Restated
For the year ended 31 December 2002 Notes #m #m
____________________________________________________________ ______ ________
Profit for the financial year 30.3 10.9
Currency translation differences on foreign currency net (25.4) (12.2)
investments
Actuarial losses 29 (28.5) (4.4)
______ ________
Total recognised gains and losses relating to the year (23.6) (5.7)
__________________________________________________________ ========
Prior year adjustment - Deferred tax (27.3)
______
Total gains and losses recognised since the last Annual (50.9)
Report
__________________________________________________________ ______
Reconciliation of movements in shareholders' funds
2002 2001
Restated
For the year ended 31 December 2002 #m #m
____________________________________________________________ ______ ________
Profit for the financial year 30.3 10.9
Dividends (29.1) (21.8)
______ ________
1.2 (10.9)
Other recognised gains and losses relating to the year (53.9) (16.6)
New share capital subscribed 1.0 0.6
Goodwill attributable to businesses sold or terminated - 12.5
______ ________
Net reduction of shareholders' funds (51.7) (14.4)
Opening shareholders' funds (see note) 515.4 529.8
______ ________
Closing shareholders' funds 463.7 515.4
____________________________________________________________ ______ ________
Equity shareholders' funds 449.1 500.8
Non-equity shareholders' funds 14.6 14.6
______ ________
463.7 515.4
____________________________________________________________ ______ ________
Note
Opening shareholders' funds as reported 542.7 556.9
Prior year adjustment - Deferred tax (27.3) (27.1)
______ ________
Opening shareholders' funds as restated 515.4 529.8
______ ________
Statement of accounting policies
Basis of accounting
The financial statements have been prepared on the basis of historical cost and
in accordance with applicable accounting standards.
The Group' s accounting policies are unchanged from the year ended 31 December
2001 except for the adoption of FRS 19 - Deferred Tax. In accordance with this
financial reporting standard, deferred tax is now stated on a full liability
basis, instead of on a partial provisioning basis. Comparative figures have
been restated to reflect this change of accounting policy, as a result of which
the Group's net deferred tax liability as at 31 December 2001 was increased by
#30.9 million and the Group's pension liabilities were reduced by #3.1 million.
This has resulted in reductions in the Group's profit and loss account and
equity minority interests of #30.4 million and #0.5 million respectively, and an
increase in the Group's pension reserve of #3.1 million. Accordingly,
shareholders' funds at 31 December 2001 have fallen by #27.3m.
For the year ended 31 December 2001, the tax charge and equity minority interest
in the profit and loss account have been reduced by #0.1 million and #0.2
million respectively and currency translation losses on foreign currency net
investments have increased by #0.5 million. The Group's tax charge for the year
to 31 December 2002 is #1.7 million lower than it would have been if deferred
tax had been calculated on a partial provisioning basis. The detailed
accounting policy arising from the adoption of this financial reporting standard
is set out below.
Consolidation and results
For all subsidiary undertakings the accounts include the results for those
companies controlled throughout the year or to the date of disposal or from the
date of acquisition as appropriate.
Where local fiscal and company legislation prevents foreign subsidiaries and
associated companies from complying with the Group's accounting policies,
adjustments are made on consolidation to present the Group accounts on a
consistent basis.
Acquisitions and disposals
In accordance with FRS 6 and 7, on the acquisition of a business, including an
interest in an associated company, fair values are attributed to the Group's
share of the identifiable assets and liabilities of the business existing at the
date of acquisition and reflecting the conditions at that date.
Where the cost of acquisition exceeds the values attributable to such net
assets, the difference is treated as purchased goodwill and, prior to 1 January
1998, was written off direct to reserves in the year of acquisition.
Following the issue of FRS 10 - Goodwill and Intangible Assets, purchased
goodwill arising after 1 January 1998 is capitalised and amortised to the profit
and loss account over its estimated useful life which will not exceed twenty
years.
Negative goodwill is capitalised in accordance with FRS 10 and is amortised over
the expected useful economic lives of the non-monetary assets acquired. As a
matter of accounting policy, goodwill written off directly to reserves prior to
1 January 1998 in respect of businesses still retained remains written off
against reserves.
In accordance with FRS 11 - Impairment of Fixed Assets and Goodwill, any
impairment of capitalised goodwill will be written off to the profit and loss
account in the period in which the impairment is recognised.
If a business is subsequently sold or closed, any goodwill arising on
acquisition that was written off directly to reserves or that has not been
amortised through the profit and loss account is taken into account in
determining the profit or loss on sale or closure.
A business is classified as a discontinued operation if it is clearly
distinguishable, has a material effect on the nature and focus of the Group's
activities, represents a material reduction in the Group's operating facilities
and either its sale is completed or, if a termination, its former activities
have ceased permanently prior to the approval of these financial statements.
Foreign currencies
Assets and liabilities in foreign currencies are translated into sterling at the
rates of exchange ruling at the year end or related forward contract rates.
Trading results are translated at the average rates of exchange for the year
after eliminating the effects of hyper-inflation in certain countries by using
an appropriate stable currency as the functional currency for operations in
these countries.
Profits and losses on exchange arising in the normal course of trading and
realised exchange differences arising on the conversion or repayment of foreign
currency borrowings are dealt with in the profit and loss account. Unrealised
exchange differences arising on the translation of overseas net assets and
matched long-term foreign currency borrowings or forward exchange contracts are
taken direct to reserves.
Turnover
All turnover and profit figures relate to external transactions and turnover
represents the value of goods and services supplied net of returns.
Exceptional items
Exceptional items are those that need to be disclosed by virtue of their size or
incidence. Such items are included within operating profit unless they
represent profits or losses on the sale or termination of an operation, costs of
a fundamental reorganisation or restructuring having a material effect on the
nature and focus of the Group, or profits and losses on the disposal of fixed
assets. In these cases, separate disclosure is provided on the face of the
profit and loss account after operating profit.
Grants
Revenue based grants are credited against related expenditure.
Operating lease rentals
Rentals on operating leases are charged to the profit and loss account in the
year to which they relate.
Research and development expenditure
Expenditure is charged to the profit and loss account in the year it is
incurred.
Pensions and other post retirement benefits
It is the policy of the Group to comply with legal requirements and established
practice in the various countries in which there are employees or former
employees.
The Group operates various defined benefit and contribution pension schemes
throughout the world. Contributions to the defined contribution schemes are
charged to the accounts as incurred.
The defined benefits schemes provide benefits based on the final pensionable
salary. The assets of most of the defined benefit schemes, particularly those in
the UK and North America, are held separately from those of the Group. In
certain countries in Europe, pension liabilities are unfunded and are carried on
those companies' balance sheets.
Defined benefit pension scheme assets are measured using closing market values.
Pension scheme liabilities are measured using the projected unit method and are
discounted at the current rate of return on a high quality corporate bond of
equivalent term and currency to the liability. Under FRS 17, any surplus arising
as a result of these valuations is restricted to the present value of any
pension contribution holiday. No account is taken of any potential refund from
the scheme as these can only be included once agreed by the trustees. The
amount included in the accounts is defined as the recognised recoverable
surplus.
The increase in the present value of the liabilities of the Group's defined
benefit pension schemes expected to arise from employee service in the period is
charged to operating profit. The expected return on the scheme's assets and the
increase during the period in the present value of the scheme's liabilities,
arising from the passage of time, are included in other finance income.
Actuarial gains and losses are recognised in the statement of total recognised
gains and losses.
Liabilities for US post-retirement medical benefits have been accounted for in
accordance with FRS 17.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation and,
where appropriate, provision for impairment or estimated losses on disposal.
Depreciation is provided to write off the cost of the assets by equal
instalments over their expected useful lives.
The rates used are:
Freehold and long leasehold land Nil Motor vehicles 20%
Freehold and long leasehold buildings 2% Electronic office equipment 25%
Short leasehold property Over period of lease All other plant and machinery 5% to 25%
Assets held under finance leases are included in tangible fixed assets at a
value equal to the original cost incurred by the lessor less depreciation, and
obligations to the lessor are shown as part of creditors. The interest element
is charged to profit and loss account under the reducing balance method.
Investments
Fixed asset investments are stated at cost unless, in the opinion of the
Directors, there has been an impairment, in which case an appropriate adjustment
is made.
Listed current asset investments are stated at the lower of cost or market
value, and other current asset investments are stated at the lower of cost and
estimated net realisable value.
Associated companies
Investments, excluding those classified as subsidiaries, are regarded as
associated companies where the Group has a long term interest in more than 20%
of the equity and exercises a significant influence over their affairs on a
continuing basis. These are stated in the Consolidated Balance Sheet at the
Group's share of net assets after adjustment for goodwill or discount on
acquisition.
In accordance with FRS 9 - Associates and Joint Ventures, the Group's share of
associated companies' operating profits or losses, net interest and exceptional
items are shown separately in the financial statements.
Stocks
Stocks are valued on bases consistent with those used in previous years at the
lower of cost and net realisable value. Cost is the invoiced value of materials
plus, in the case of work in progress and finished goods, labour and factory
overheads based on a normal level of production.
Provisions
In accordance with FRS 12, provisions are only made for losses arising as a
result of restructuring when the Group is constructively obligated to implement
the restructuring.
Deferred taxation
Deferred tax is recognised on a full provision basis on timing differences that
result in an obligation at the balance sheet date to pay more tax, or a right to
pay less tax, at a future date, at rates expected to apply when they crystallise
based on current tax rates and law, and is not discounted. Timing differences
arise from the inclusion of items of income or expenditure in taxation
computations in periods different from those in which they are included in the
financial statements.
Deferred tax is not recognised on timing differences arising on property
revaluation surpluses where there is no commitment to sell the asset nor on
gains on asset sales that are rolled over into replacement assets for tax
purposes. In addition, no provision is made for taxation that would arise on the
remittance of retained profits by overseas subsidiaries and associated companies
subsequent to the balance sheet date as there is no present intention to remit
these retained profits.
Deferred tax assets are recognised only to the extent that it is considered more
likely than not there will be suitable future taxable profits to permit tax
relief of the underlying timing differences. Unrelieved advance corporation tax
is carried forward only when it can be set against provisions for taxation or to
the extent it is recoverable against tax liabilities in respect of the following
period.
Capital instruments
Capital instruments are accounted for in accordance with the principles of FRS 4
and are classified as equity share capital, non-equity share capital, minority
interest or debt as appropriate. Convertible debt is separately disclosed and
is regarded as debt unless conversion actually occurs. Provision is made for
any accrued premium payable on redemption of redeemable debt or non-equity
interests.
Capital instruments are initially carried at the amount of the net proceeds.
The finance costs and issue expenses are allocated to the profit and loss
account over the life of the debt at a constant rate on the carrying amount.
Reporting the substance of transactions
In accordance with FRS 5, transactions entered into by the Group are recorded in
the financial statements taking into account their full commercial substance.
Liquid resources
The Group defines liquid resources as short-term deposits and current asset
investments maturing or capable of being realised within one year.
Going concern
The financial statements have been prepared on a going concern basis.
Under the terms of the Company's #172 million committed bank facilities, in the
event of a change in control, the Company must negotiate with a view to agreeing
terms and conditions acceptable to the lenders for continuing to make the
facilities available.
In recommending the current offer from Avenue Acquisition for the ordinary share
capital of the Company, the Directors have assessed the likelihood of the
facilities not continuing to be made available and, if they are not available,
whether alternative facilities can be negotiated and agreed. In forming their
assessment, the Directors have had regard to the considerable investment made in
the share capital of the Company by the acquiror and the structure of that
investment, as well as to certain representations made by Avenue Acquisition and
Guinness Peat Group plc regarding their intentions either to invite the
Company's existing banks to continue making the facility available with changes
acceptable to the various parties or to re-finance the facility through Avenue
Acquisition's own bankers. In the circumstances, the Directors have no evidence
to suggest that the facilities will be withdrawn or that a re-financing would
not be achievable and accordingly the Directors continue to believe that it
remains appropriate to adopt the going concern basis in preparing the Company's
financial statements.
After making enquiries, and based on the above the Directors have formed a
judgement that at the time of approving the financial statements, there is a
reasonable expectation that the Group has sufficient resources to continue in
operational existence for the foreseeable future.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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