RNS Number:5474K
Conder Environmental PLC
17 October 2006
Conder Environmental plc
Preliminary results for the year ended 30 April 2006
Conder Environmental plc, an AIM listed company providing products which combat
water pollution from oil and sewage discharges, announces its preliminary
results for the year ended 30 April 2006.
Financial Overview
Loss before tax #3.74m (2005: loss #0.89m) comprising:
* loss on discontinued operations #4.03m
* profit from continuing operations #0.41m
* net interest payable #0.12m
Discontinued business of Hydroserve Ltd placed into Administration 23 June 2006
Raised #2.01m of equity through a market placing 22 December 2005
Conder Products trading profit #0.54m (2005: loss #0.65m) before Group costs and
provisions against amounts due from discontinued business
Vikoma trading profit #0.11m (2005: #0.68m) before Group costs
Developments since year-end
May: Vikoma reorganisation: 20% headcount reduction and consolidation onto Isle
of Wight manufacturing site.
June: Working capital re-financed
June: Board reduced to 2 executive and 2 non-executive members
September: Cerva business sold on 29 September 2006 for initial consideration of
#0.14m
October: Registered Office relocated to Kingsley Service operation
Mike Killingley, Chairman, said:
"We expect the Group's underlying trading to be profitable for the year ending
April 2007, with both Conder Products and Vikoma making a contribution.
In the first half, which ends on 31 October 2006, both businesses have been
severely hampered by the reduced working capital available in the Group,
following the failure of Hydroserve. Despite this we expect that in the first
half the Group will achieve a result around break-even, before reorganisation
costs, interest, tax, depreciation and amortisation.
As we move into the second half, the Board expects the Group as a whole to make
further progress as it emerges from the difficulties caused by the failure of
Hydroserve."
For further information please contact:
Mike Killingley, Chairman 01962 711395
Jon Varney, Group Managing Director 01420 470801
17 October 2006
Chairman's statement
Year ended 30 April 2006
The Group suffered a loss before tax for the year of #3.74 million (2005: loss
#0.89 million). This is almost entirely as a result of losses incurred in
Hydroserve Limited. This subsidiary was placed into Administration in June 2006
and its activities are treated in these accounts as discontinued operations.
The Group's continuing operations made an operating profit in the year of #0.41
million (2005: loss of #0.76 million).
Hydroserve Limited
The principal activity of Hydroserve was the repair and maintenance of the clean
water mains distribution system.
In March 2006 we reported that internal investigations, headed by the new Group
Finance Director, had led to the discovery of accounting irregularities at
Hydroserve. The Board appointed independent accountants to undertake a review of
the findings of the internal investigation. This review confirmed that the
management accounting information of Hydroserve was materially mis-stated from
May 2005. By 31 December 2005, the overstatement of Hydroserve's revenues and
the understatement of their costs had given rise to a total mis-statement of
just over #1 million.
The losses increased substantially in January and February with the expansion of
the trade, principally in two major long-term contracts, which internal
investigations have subsequently shown to have been making significant losses.
Hydroserve terminated the loss making contracts in accordance with their
contractual terms. It would not have been possible for the Group's cash flow to
sustain the termination of these contracts at the time the errors were first
discovered, because of the substantial level of working capital tied up in them,
and the risk of incurring significant exit penalties.
Hydroserve was placed in Administration in June this year. This decision was
not taken lightly but was considered to be the only way to safeguard the
remainder of the Group.
The General Manager and the Finance Director of Hydroserve have left the Group.
All other Hydroserve Cleanwater employees have been made redundant. The
contracts of Hydroserve Wastewater have been purchased and transferred into
Conder Products Limited along with the relevant employees.
Conder Products
Conder Products had a very successful year firmly establishing itself as a
consistently profitable and cash generative subsidiary. Through the launch of
new products combined with improved manufacturing processes, the Company has
delivered a profit of #0.54m compared to the prior year loss of #0.65m before
the allocation of Group costs and before provisions for amounts due from
Hydroserve. The Company is now well positioned in its markets and continues to
trade profitability.
Vikoma
During the year Vikoma acquired Bohus Innovation AB, a distributor of commodity
oil spill products. The product range and customer base of Bohus is
complementary to that of Vikoma. In a difficult market, this helped Vikoma
achieve a profit of #112,000 (2005: #681,000) before allocation of Group costs.
These strategic changes have continued into the new financial year with the
consolidation of UK operations into the Cowes manufacturing facility.
Cerva
Cerva achieved a turnover during the year of #1.4m (2005: #1.2m) on which it
broke-even before the allocation of Group costs and provisions for amounts due
from Hydroserve (2005: Profit of #131,000).
The business and assets of Cerva were sold on 29 September 2006 for an initial
consideration of #140,000 of which #40,000 was utilised to acquire the minority
shareholding in Cerva. The Cerva business was largely built around a 5-year oil
containment and maintenance contract with the National Grid, which expires in
May 2007. It was anticipated that, when this contract was renewed, there would
be an increased emphasis on the requirement for response and waste management
services, which the acquirer is better placed to provide.
Auditors' report
Our auditors have drawn attention to the accounting irregularities at the
discontinued Hydroserve business, by qualifying their report in respect of the
inadequacy of the accounting records at that subsidiary. This qualification does
not extend to the continuing operations of the Group.
Financing
In December 2005 the Group raised #2.01 million of additional equity, net of
expenses, through the placing of 20 million new ordinary shares at 10.5p per
share.
The closure of Hydroserve Limited has made cash management in the Group
extremely difficult, and throughout the period, and subsequently, the Board has
monitored the cash requirements closely.
In June 2006 we re-financed the working capital of the Group with a mixture of
invoice discounting and asset backed finance, which is believed will meet the
requirements of the business in the medium term.
While the lack of capital has severely hampered our operations during the last 6
months, your Board, which keeps the matter under constant review, believes that
the cash position will continue to improve in the coming months.
The Board
John Dixon, Group Finance Director, resigned from the Board and was replaced by
David Griffith who joined on 6 February 2006.
Paul Herbert was appointed Group Operations Director on 12 December 2005. The
reduced scale of the Group's operations following the closure of the Hydroserve
business no longer justified the enlarged Board structure. Consequently, Paul
Herbert and Robert Turner, Group Commercial Director, resigned from the Board on
20 June 2006. Robert remains with the Group in an operational role utilising
his extensive experience in the environmental marketplace.
Staff
The past nine months have placed enormous pressure on staff throughout the
Group. They have responded to this pressure with great commitment and
dedication and on behalf of the Board I thank them for their support.
Dividend
The Board is not recommending the payment of a dividend.
Outlook
We expect the Group's underlying trading to be profitable for the year ending
April 2007, with both Conder Products and Vikoma making a contribution.
In the first half, which ends on 31 October 2006, both businesses have been
severely hampered by the reduced working capital available in the Group,
following the failure of Hydroserve. Despite this we expect that in the first
half the Group will achieve a result around break-even, before reorganisation
costs, interest, tax, depreciation and amortisation.
As we move into the second half, the Board expects the Group as a whole to make
further progress as it emerges from the difficulties caused by the failure of
Hydroserve.
Mike Killingley
16 October 2006
Business Review
Business Organisation
The Group's operations are organised into the following business divisions:
* Vikoma designs, manufactures and markets a range of oil spill containment
and recovery systems;
* Conder Products develops, manufactures and distributes a range of water
and wastewater treatment systems primarily involving sewage treatment and
oil/water separation;
* under the trading name of Hydroserve, Conder Products also provides
installation, repair and maintenance of its wastewater products; and
* during the year it also engaged in the maintenance of the water
distribution network in the UK, but this business activity has now ceased.
Business Strategy and Objectives
The Board aims to manage the Group to increase shareholder value over the long
term. The intention has been to develop the existing product ranges and to
extend into complementary products and services where the commercial opportunity
exists. The way to succeed with the long term aim is to provide a quality
delivery to all customers that is competitive.
Group Overview
The Group result was overshadowed by the business failure of the Clean Water
operation within the Service Division. However, Conder Products achieved its
best result under the Group's ownership with a trading profit which was in
excess of #0.5m before allocation of Group costs and provisions for amounts due
from Hydroserve.
Hydroserve Ltd was placed into Administration on 23 June 2006. This followed a
concerted effort to scale down the operation whilst trying to avoid any third
party incurring a loss. The financial results of this now discontinued business
are disclosed separately on the face of the profit and loss account.
The impact of the closure of Hydroserve has been significant across the Group
and has detracted from the developments and successes achieved elsewhere.
Senior management time has been diverted heavily into managing the closure of
this business. The impact on working capital liquidity has reduced
profitability in the short term. The Group companies continue to manage working
capital closely as the underlying situation gradually improves. Since the year
end, the working capital of the Group has been re-financed with new facilities
to provide a stronger platform from which to operate, which the Directors
believe to be sufficient for the foreseeable future.
Conder Products
Following the introduction of Czech labour in 2005 and the continued development
of the product range, Conder Products achieved a turnover of #10.8m, a 24%
increase on the prior year #8.8m. The introduction of the membrane sewage
treatment plants has led to a number of major installations in the UK.
Additionally, a new generation of oil/water separator was launched in the second
half of the year with enthusiastic uptake from the market. Furthermore, at the
start of the new financial year, a new range of small sewage treatment plants
has been launched.
Conder Products made a profit in the year of #0.54m , before allocation of Group
costs and before provisions for amounts due from Hydroserve. After adding back
interest, depreciation and amortisation of #0.36m its EBITDA was #0.86m (before
providing for amounts due from Hydroserve which is now in Administration).
Conder Products is expected to remain profitable in the new financial year
albeit that trading has been affected by the cash flow issues arising following
the Administration of Hydroserve.
Following the purchase of the Wastewater contracts from Hydroserve and the sale
of the business of Cerva, Conder Products now manages the servicing of its own
products.
Vikoma
Vikoma achieved a turnover of #11.7m (2005: #10.3m) which included a major
contract for the delivery of 3 marine vessels to Russia for #3.8m. This
particular contract was undertaken at low margin but is a strategically
important entry into the marine vessel market. The underlying turnover of #7.9m
was a positive achievement in a difficult market. Through the acquisition of
Bohus, Vikoma has strengthened its position in Europe and enhanced its product
offering. The combination of the two companies will help mitigate the high
volatility in sales levels that Vikoma has traditionally encountered.
Vikoma achieved a profit of #0.11m before allocation of Group costs (2005:
#0.68m).
The development of Vikoma has continued in the new financial year which has seen
the headcount reduced by 20% through the consolidation of its operations at its
manufacturing site in Cowes and the closure of the Southampton office.
Service
As the Group Overview highlights, the business failure of Hydroserve has had a
major impact on the year. The Directors believed that an increasingly
profitable and growing business was being developed until the final quarter of
the year. At that point, an internal investigation discovered multiple
accounting errors and failures that had resulted in an over-statement of
profitability in excess of #1m by December 2005. This was despite the
appointment of senior staff, both financial and non-financial, with relevant
industry knowledge to manage the trading of the business. Additionally, the
local finance team had been staffed to allow for the expectations of growth.
The Company was operating a major repair and maintenance contract in North East
London which was reported in monthly accounts as being increasingly profitable.
The decision was made on the back of these results to undertake a similar
contract which was started in Birmingham at the end of December 2005. In late
February 2006, it became evident that the accounting records did not reflect the
actual cash situation of the business. Following immediate internal
investigations it was apparent that these contracts were generating significant
losses and had to be closed. Unfortunately, due to contractual penalty clauses,
the closure of the contracts could not be effected immediately, exacerbating the
problem. Whilst the contracts were closed down in a controlled fashion, it
proved impossible to generate sufficient cash to meet the remaining creditors
and Hydroserve Ltd was regrettably placed into Administration on 23 June 2006.
The accounting for the Service division was maintained at a separate location
from other parts of the Group and with dedicated staff, which has meant that
these issues were solely applicable to this division.
Jon Varney
Group Managing Director
16 October 2006
Consolidated profit and loss account
for the year ended 30 April 2006
2006 2006 2006 2005 2005 2005
#000 #000 #000 #000 #000 #000
Continuing Discontinued Total Continuing Discontinued Total
operations operations operations operations
Turnover 25,908 5,692 31,600 21,760 1,286 23,046
Operating costs (including a
net exceptional cost of
#17,000
(2005: #231,000)) (25,494) (9,725) (35,219) (22,524) (1,342) (23,866)
Operating profit/(loss) 414 (4,033) (3,619) (764) (56) (820)
Interest receivable 2 -
Interest payable and similar
charges (118) (66)
Loss on ordinary activities (3,735) (886)
before taxation
Tax on loss on ordinary 36 50
activities
Loss on ordinary activities (3,699) (836)
after taxation
Minority interest - equity (6) (32)
Loss for the financial year
and retained loss for the year (3,705) (868)
Basic (loss)/profit per share 0.7p (9.1p) (8.4p) (2.2p) (0.1p) (2.3p)
Diluted loss per share 0.7p (9.1p) (8.4p) (2.2p) (0.1p) (2.3p)
Consolidated balance sheet
at 30 April 2006
2006 2005
#000 #000 #000 #000
Fixed assets
Intangible assets
Goodwill 1,853 1,818
Negative goodwill - (178)
Other intangible assets 10 13
1,863 1,653
Tangible assets 1,427 1,697
3,290 3,350
Current assets
Stocks 2,328 2,036
Debtors 6,753 7,209
Cash at bank and in hand - 198
9,081 9,443
Creditors: amounts falling due within one year (9,182) (7,942)
Net current (liabilities)/assets (101) 1,501
Total assets less current liabilities 3,189 4,851
Creditors: amounts falling due after more
than one year (32) -
Net assets 3,157 4,851
Capital and reserves
Called up share capital 5,725 3,725
Share premium account 3,902 3,897
Merger account (644) (644)
Profit and loss account (5,794) (2,089)
Equity shareholders' funds 3,189 4,889
Minority interest - equity interest (32) (38)
3,157 4,851
Consolidated cash flow statement
for the year ended 30 April 2006
2006 2005
#000 #000
Net cash (outflow)/inflow from operating activities (2,482) 345
Returns on investments and servicing of finance (91) (64)
Taxation 77 68
Capital expenditure (266) (153)
Acquisitions (235)
Cash (outflow)/inflow before financing (2,997) 196
Financing 2,465 (167)
(Decrease)/Increase in cash in the year (532) 29
Reconciliation of group net cash flow to movement in net debt
for the year ended 30 April 2006
2006 2005
#000 #000
(Decrease)/increase in cash in the year (532) 29
Repayment of bank loan 110 167
Loans acquired (570) -
Change in net debt resulting from cash flows (992) 196
Loans acquired with subsidiary (37) -
Movement in net debt in the year (1,029) 196
Net debt at the beginning of the year (648) (844)
Net debt at the end of the year (1,677) (648)
Reconciliation of movements in shareholders' funds
for the year ended 30 April 2006
2006 2005
#000 #000
Group
Loss for the financial year (3,705) (868)
New share capital subscribed 2,100 -
Cost of placing (95) -
Dividends - -
Net reduction in shareholders' funds (1,700) (868)
Opening equity shareholders' funds 4,889 5,757
Closing equity shareholders' funds 3,189 4,889
1. Segmental analysis
Turnover represents the amounts (excluding value added tax) derived from the
sale of environmental products to third party customers.
All turnover arose in the United Kingdom and Sweden and is analysed by
destination as follows:
2006 2005
#000 #000
Arising in the United Kingdom
United Kingdom 18,833 13,120
Continental Europe 1,050 2,239
North America 821 4,084
Middle East and North Africa 1,806 680
Former Soviet Union 6,271 1,574
South America 200 310
Rest of World 1,863 1,039
30,844 23,046
Arising in Sweden
Continental Europe 756 -
31,600 23,046
The table below sets out information for each of the group's industry segments,
including discontinued operations:
Vikoma Conder Products, Total
Hydroserve and Cerva
2006 2005 2006 2005 2006 2005
#000 #000 #000 #000 #000 #000
Turnover 12,384 10,291 19,216 12,755 31,600 23,046
(Loss)/profit before
tax
Segment operating
(loss)/profit (87) 169 (3,532) (808) (3,619) (639)
Group exceptionals - (181)
Net interest (116) (66)
Group loss before
taxation (3,735) (886)
Net assets
Segment net assets 1,900 2,266 2,247 3,175 4,147 5,441
Unallocated net (990) (590)
liabilities
Total net assets 3,157 4,851
2. (Loss)/profit per ordinary share
Basic (loss)/profit per share for the year ended 30 April 2006 has been
calculated based upon the weighted average number of ordinary shares in issue
for the year of 44,158,419 (2005: 37,254,309), a discontinued loss after
taxation and minority interest of #4,033,000 (2005:#56,000) and a continuing
profit after taxation and minority interest of #328,000 (2005:loss of #812,000).
The diluted loss per share in 2006 is restricted to 8.4p (2005: 2.3p) as it is
not permitted to exceed basic loss per share.
The profit per share before exceptional items for continuing operations totals
0.7p (2005: loss of 2.2p) and the loss before exceptional items for discontinued
operations totals 9.1p (2005: 0.1p).
Continuing Discontinued 2006 Continuing Discontinued 2005
Operations Operations Total Operations Operations Total
#000 #000 #000 #000 #000 #000
As for basic loss per share 328 (4,033) (3,705) (812) (56) (868)
Net exceptional items - 17 17 231 - 231
As for adjusted basic loss per share 328 (4,016) (3,688) (581) (56) (637)
3. Analysis of group net debt
At 1 May Cash flow Acquisitions Other At 30 April
non-cash
2005 flows 2006
#000 #000 #000 #000 #000
Cash at bank and in hand 198 711 - - 909
Overdrafts (753) (1,243) - - (1,996)
(555) (532) - - (1,087)
Debt due within one year (93) (460) (37) 32 (558)
Debt due after one year - - - (32) (32)
Total (648) (992) (37) - (1,677)
4. Financial information
The financial information set out above does not constitute statutory accounts
within the meaning of Section 254 of the Companies Act 1985 for the years ended
30 April 2006 and 2005 but is derived from the Group's audited accounts which
have been approved and signed by the directors. Financial statements for 2005
have been delivered to the Registrar of Companies, and those for 2006 will be
delivered following the Group's Annual General Meeting. The auditors have
reported on those accounts; their report in respect of 2005 was unqualified and
did not contain statements under either Section 237(2) or 237(3) of the
Companies Act 1985; their report in respect of 2006 was qualified by a
limitation in audit scope regarding the discontinued business within Hydroserve
Limited. This reported that proper accounting records in respect of that part
of the business had not been kept, as required under Section 237(2) of the
Companies Act 1985.
5. Report and Accounts
Copies of the Report and Accounts will be sent to shareholders and the AIM team.
Copies will be available to the public for one month, from the Group's
Registered Office at Chandlers House, Ganders Business Park, Kingsley, Bordon,
Hants, GU35 9LU and from the Company's nominated adviser Shore Capital &
Corporate Limited, at The Corn Exchange, Fenwick Street, Liverpool, L2 7RB
This information is provided by RNS
The company news service from the London Stock Exchange
END
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