RNS Number : 7340W
Wallgate Group PLC
16 June 2008
Embargoed Release: 07:00hrs Monday 16 June 2008
Wallgate Group plc
('Wallgate' or the 'Group', previously 'Hitchens Group')
Interim Results for the six month period to 31 March 2008
Wallgate Group plc (AIM: WGT.L), the AIM-listed reverse logistics operator and multi-channel retailer, is pleased to announce the
interim results for the six month period to 31 March 2008.
The highlights for the period are:
* Conclusion of the acquisition and successful integration of Wallgate into what was formerly known as the Hitchens Group
* Like for like sales increased by 31 per cent post acquisition
* New supply partnership discussions progressing well
* Considerable cost savings since acquisition
* Consumer returns market growing rapidly
Howard Strowman, newly appointed CEO of the enlarged Group, commented:
'Since the acquisition of Wallgate, the Group has been transformed and we see substantial opportunities to grow the enlarged business
through new partnership agreements as well as from the dramatic increase in the returns market that we are witnessing. I am convinced we are
entering a very exciting growth phase for Wallgate, which should benefit both the Group and its shareholders.'
Enquiries:
Wallgate Group plc
Howard Strowman, CEO tel: 020 7559 1313
Simon Fine, Finance Director tel: 01204 706624
Hansard Group
Adam Reynolds tel: 020 7245 1100
Daniel Stewart & Company Plc
Oliver Rigby tel: 020 7776 6550
Chairman's Statement
The overall trading results for the six month period to 31 March 2008 reported a pre tax loss of �774,350. Turnover was �3,673,757 and
shareholders* funds were �10,793,335
The retail performance of the pre-acquisition Hitchens Group for the first quarter to 31 March remained difficult in light of the
challenging retail environment. The lack of refurbished electrical stock, upon which we have traditionally relied, continued to have an
impact on sales performance and highlighted our urgent requirement to secure a constant and consistent supply of product. However, our
business model is ideally placed to weather and potentially prosper from the prevailing economic downturn, as we target the value end of the
market place and provide what many customers currently require; namely substantial savings against recommended retail prices (RRP) on graded
and end of line products.
As a prudent measure and as part of the previously announced cost reduction plan, the Group's head office has been re-located to one of
its other premises, situated in Farnworth, and warehouse and distribution costs were consequently reduced through renegotiated arrangements
with suppliers. Staff numbers were also reduced at store level both by way of redundancy and through natural wastage.
In the last Chairman's Statement, the Company reported that it had identified a transformational acquisition
and was in detailed discussions with Wallgate Services Limited ('Wallgate Services'), a UK reverse logistics
company and online retailer of consumer electronics in the graded goods CE sector. After fruitful negotiations, Wallgate Services and its
e-commerce subsidiary Best Price Trading Limited were acquired in early April. Howard Strowman, chief executive officer of Wallgate Services
has been appointed Group chief executive officer and is the largest shareholder of the enlarged group.
Howard's team brings a wealth of experience and, as expected, the acquisition of Wallgate Services has had an immediate and marked
positive effect on the performance of the Hitchens retail stores and online businesses, due to the increased availability of refurbished
electrical product on a regular and reliable basis from Wallgate Services' clients. I believe the outlook for the enlarged group presents
many positive opportunities.
Hitchens Group has been renamed Wallgate Group Plc and its business now offers a vertically integrated solution to manufacturers, major
retailers, supermarkets and distributors to sell their customer returns and end of line products through it's wholesale, online and retail
stores.
I recently reached the age of 69 and would like to inform shareholders that I have decided to reduce my business commitments.
Accordingly, I would like to report my retirement from the position of your Non-Executive Chairman.
With the newly organised group consisting of Hitchens and Wallgate, I consider that the forward commercial strategy of the business is
well formulated and that there is a strong management team in place to deliver that strategy.
I believe it is in the Company's interests for a new Chairman to be appointed who can devote time to the next steps in the Company's
evolution. Over the short-term, Howard Strowman will take over as interim executive chairman until such time as a replacement is found.
I finally would like to thank the management and staff of the Group for their continued hard work and efforts and I wish them every
success for the future.
Paul Harris
Chairman
16th June 2008
Chief Executive Officer's Statement
I am delighted to be making my first statement as the new Chief Executive Officer of the renamed Wallgate Group plc. As expected, the
management's decision to acquire the Wallgate businesses has been transformational for the Group and the immediate impact on Hitchens has
been dramatic.
For the seven-week period post acquisition from 13 April, the Hitchens retail stores have experienced a 31 per cent increase in average
like for like retail sales. For the seven week period pre-acquisition, like for like sales were down 28 per cent. This is a significant
turnaround. In addition weekly store sales have increased by almost 90 per cent and large gains have also been made in Hitchens Hot Deals
online sales.
The Wallgate Group is split into 3 divisions: services, retail and internet.
Services
Wallgate is a well-established and successful provider of outsourcing services to manufacturers, major retailers, supermarkets and
distributors, working in partnership to maximise their net asset recovery percentage on consumer returns. It provides an end-to-end solution
for returns management including store collection, inventory management, refurbishment, repackaging, recycling under the European WEEE
legislation as well as the remarketing of consumer returns.
The acquisition of Wallgate Services added another channel of distribution for the Group to provide a true multi-channel route to market
utilising traditional wholesale, retail stores and e-commerce via two independent outlets, Best Price Trading and Hitchens Hot Deals. We now
can offer a totally vertically integrated solution to our partners.
Whilst Wallgate is a specialist in the consumer electronics market, its partnership philosophy has also been very successful in other
product areas, and our business model has proven that it can be expanded to other categories, which will be beneficial to our clients. Post
acquisition, our 'Bricks and Clicks' model will sell in higher volumes through our expanded routes to market.
One of our objectives is to educate the UK buying public that purchasing a refurbished product that is fully guaranteed and up to 40 per
cent cheaper than buying new product is a little known retail possibility. The product being sold has often previously been returned by the
consumer with no fault for various reasons, for example they may have changed their mind, may not understand the instruction manual or do
not want the product purely for aesthetic reasons.
According to the Cranfield Business School, in 2004, the market for consumer returns in the UK was estimated to be valued at over �5.75
billion with approximate logistics costs of �500 million. I am convinced it has grown dramatically since 2004 due largely to the explosion
of online and hypermarket retailing of consumer electronics and other high-ticket products.
For major retailers and increasingly their online and mail order divisions, these problems will not cease to exist and in fact are more
likely to increase. Wallgate solves this issue for its clients. Many manufacturers, OEM's and major retailers experience consumer returns
reaching as high as 20 per cent of sales and in fashion clothing; it can be over 40 per cent of sales. The opportunities for Wallgate are
therefore tremendous.
The combined management team of the enlarged group has an in-depth knowledge of the UK retail market and in particular, the consumer
electronics segment. Working in partnership with those in the retail sector has enabled the Group to demonstrate its ability to solve the
reverse logistic problems of its partners and to increase their share of asset recovery. Our past experience establishes the potential
growth that exists for Wallgate to source products for its distribution channels.
Since the period that Wallgate Services became incorporated into a larger listed plc, several new partnership opportunities have
presented themselves as increasing numbers of major retailers; manufacturers, OEM's and distributors seek to recover more for their consumer
returns. We are currently in discussions with several more manufacturers and major retailer partners at this point in time.
The 'Green Factor'
By re-marketing consumer returns as graded products, we are playing our part in being ecologically friendly as in many cases perfectly
saleable products are currently being scrapped. Legislation requires manufacturers to control non-reusable products by disposing of them in
a licensed and controlled manner. Through the controlled refurbishment and remarketing of returned stock, Wallgate provides its clients with
data that enables them to meet and measure their obligations towards protecting the environment and ultimately the environmental benefits we
present are obvious: we give consumer returns a completely new "second life" that are offered to the end user at considerable savings.
Retail
The current UK retail market is clearly suffering under difficult conditions although it can be argued that a value retailer such as
Hitchens is insulated from economic downturns. Given the economic climate the availability of retail space for organic expansion appears to
be plentiful particularly in the format and locations sought after by Hitchens, and it is fair to say that it is a 'tenant's market'. Our
management team recently held discussions with property companies indicating that they are looking to let units on a short term zero rent
basis in order to cover the rates which empty properties currently incur under new legislation. This is currently being explored.
With the influx of new stock expected to increase as the Wallgate model expands there will be opportunities to grow the retail chain,
which is not anticipated to be adversely affected by challenging market conditions, as we believe the discount and value retail model
applied by businesses such as Primark exemplifies current consumer requirements; to extract maximum value from their hard earned cash.
Discussions are underway with a third party to facilitate multi-channel opportunities for providing extended credit. This is expected to
lead to higher sales, greater customer retention and the ability to 'up sell'. I anticipate that the product will be on offer to both in
store and online customers within the next two months. In addition, as a result of providing extended credit, a greater penetration in the
sales of our existing extended warranty products is also expected.
Internet
The Company has two online trading sites: www.hitchenshotdeals.co.uk and www.bestpricetrading.com. Currently the vast majority of sales
are transacted through eBay although it is the Company's intention to trade via one or more standalone e-commerce sites. We plan to increase
our marketing and public relations efforts to grow our business and build awareness of the great deals we offer the general public.
One of the key issues in the creation of a successful standalone site is driving 'surfers' to your own site. I am delighted to announce
that we have recruited an expert in the field of e-commerce who is tasked with spearheading the project to launch and market our own sites.
I can also report the potential for an exciting new development. Together with our software provider we have won a tender to form a
joint venture with a national distributor and fulfilment house to provide an end-to-end e-commerce solution for its retail clients. This
will allow the joint venture to offer a full e-
commerce / fulfilment and returns management solution, the potential for which is enormous. We are currently discussing terms and conditions
but look forward to an announcement in due course.
Acquisitions
There are a number of opportunities that we are investigating including acquiring another online retailer and a strategic stake or
acquisition of a service provider. Naturally there will be further store openings at the very favourable terms that I mentioned earlier.
Board
On behalf of the Board of Directors, I would like to thank Paul Harris, our retiring chairman, who has been of invaluable service and
consistently offered wise counsel. We all wish him a happy and healthy retirement. I shall be assuming the role of interim Executive
Chairman until such time as we find a suitable replacement.
Conclusion
I truly believe we are very well placed in this economic climate for significant growth by being able to offer real value for money to
the buying public. I see our returns management and asset recovery platform being used by many other manufacturers, OEM's, major retailers,
supermarkets and distributors who are coming to the conclusion that the problem of consumer returns is here to stay and that the more they
sell, the more they will get back. From this perspective, in my opinion Wallgate Group plc is extremely well placed for future growth.
Howard Strowman
Chief Executive Officer
16th June 2008
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2008
As at 31 March As at 30 September
2008 2007
Unaudited Audited
� �
Assets
Non-current assets
Property, plant and equipment 228,977 259,956
Intangible assets 8,654,264 8,654,264
Investment in subsidiary - -
Deferred tax asset 337,659 113,727
9,220,900 9,027,947
Current assets
Inventories 658,936 706,867
Trade and other receivables 489,540 658,082
Cash and cash equivalents 423,959 652,334
1,572,435 2,017,283
Total assets 10,793,335 11,045,230
Capital and reserves
attributable to equity holders
of the Company
Ordinary shares 932,500 932,500
Share premium 6,791,970 6,791,970
Retained earnings (1,314,977) (540,627)
6,409,493 7,183,843
Liabilities
Non-current liabilities
Borrowings 30,645 44,505
Financial liabilities 1,851,250 1,851,250
1,881,895 1,895,755
Current liabilities
Trade and other payables 2,479,020 1,910,092
Borrowings 22,927 55,540
2,501,947 1,965,632
Total liabilities 4,383,842 3,861,387
Total equity and liabilities 10,793,335 11,045,230
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2008
Six month Eight month
period ended period ended
31 March 30 September
2008 2007
Unaudited Audited
Note � �
3,673,757 952,383
Revenue
Cost of sales (2,455,084) (701,906)
Gross profit 1,218,673 250,477
Administrative expenses (2,213,037) (922,906)
-
Impairment losses -
Operating loss (994,364) (672,429)
Finance income 78 18,075
Finance costs (3,996) -
Finance income - net (3,918) 18,075
Loss before tax (998,282) (654,354)
Taxation 223,932 113,727
Loss for the period (774,350) (540,627)
Attributable to:
Equity holders of the Company (774,350) (540,627)
Loss per share for the equity holders
of the Company during the period
(expressed in pence per share)
- basic 4 (0.623) (0.780)
- diluted 4 (0.518) (0.571)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2008
Attributable to equity holders
Share premium Retained earnings Total
Issued capital � � �
�
At 1 October 2007 932,500 6,791,970 (540,627) 7,183,843
Loss for the period - - (774,350) (774,350)
Total income and expense for
the period - - (774,350) (774,350)
At 31 March 2008 932,500 6,791,970 (1,314,977) 6,409,493
AUDITED FOR THE EIGHT MONTH PERIOD ENDED 30 SEPTEMBER 2007
Attributable to equity holders
Share premium Retained earnings Total
Issued capital � � �
�
Loss for the period - - (540,627) (540,627)
Total income and expense for
the period - - (540,627) (540,627)
Issue of share capital 932,500 7,450,000 - 8,382,500
Share issue costs paid - (658,030) - (658,030)
At 30 September 2007 932,500 6,791,970 (540,627) 7,183,843
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTH PERIOD ENDED 31 MARCH 2008
Note Six month Eight month
period period ended
ended 30 September
31 March 2007
2008
Unaudited Audited
� �
Cash flows from operating activities
Cash used in operations 5 (154,645) (1,633,696)
Net cash used in operating activities (154,645) (1,633,696)
Cash flows from investing activities
Acquisition of subsidiaries, net of - (531,015)
overdraft acquired
Purchases of property, plant and (69,812) (5,000)
equipment
(PPE)
Proceeds from the sale of PPE - 4,500
Interest received 78 18,075
Interest paid (3,996) -
Net cash used in investing activities (73,730) (513,440)
Cash flows from financing activities
Net proceeds from issue of ordinary - 3,457,500
share capital
Share issue costs paid - (658,030)
Net cash generated from financing - 2,799,470
activities
Net (decrease)/increase in cash and cash
equivalents (228,375) 652,334
Cash and cash equivalents at start of 652,334 -
period
Cash and cash equivalents at the end of
the period 423,959 652,334
1 BASIS OF PREPARATION
The consolidated financial statements of Hitchens Group plc and all its subsidiaries ("Group") have been prepared in accordance with EU
Endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 1985 applicable to companies
reporting under IFRS. The Group has chosen not to apply International Accounting Standard ("IAS 34") 'Interim Financial Reporting' as this
is not required by the AIM Rules for Companies.
Comparative figures have not been provided for the period ended 31 March 2007, as Hitchens Group plc did not commence trade until 31
July 2007 when it acquired Novabrand Limited (the parent company of Hitchens Limited) and Hot Deals Limited. Consequently only two months of
the results of these subsidiaries, from 1 August 2006 to 30 September 2007, are included in the comparatives for the eight month period
ended 30 September 2007.
2 SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are
presented in sterling.
The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as
were applied in the preparation of the Group's financial statements for the period ended 30 September 2007.
3 SEGMENTAL INFORMATION
* Primary reporting format - business segments
At 31 March 2008, the Group was organised into the following main business segments:
* Retail sales
* Internet trading
The segment results for the period ended 31 March 2008 are as follows:
Period ended 31 March 2008 Period ended 30 September 2007
Retail sales Internet sales Unall-ocated Total Retail sales Internet sales Unall-ocated Total
� � � � � �
� �
Revenue 3,343,470 330,287 - 3,673,757 874,480 77,903 - 952,383
Operating profit/(loss)
(925,022) (34,787) (34,555) (994,364) (562,967) (26,328) (83,134) (672,429)
Finance costs
(3,996) -
Finance income
78 18,075
Finance income - net
(3,918) 18,075
Loss before income tax
(998,282) (654,354)
Income tax credit
223,932 113,727
Loss for the year
(774,350) (540,627)
Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, trade and other receivables, and cash
and cash equivalents. Unallocated assets comprise deferred taxation and investments in associates. Segment liabilities comprise operating
liabilities.
Capital expenditure comprises additions to property, plant and equipment, intangible assets and investments, including additions
resulting from acquisitions through business combinations.
The segment assets and liabilities at 31 March 2008 and capital expenditure for the period then ended are as follows:
Business segment Retail Internet sales Unallocated Group
sales � � �
�
Assets 7,676,890 2,772,774 6,012 10,455,676
Liabilities (2,031,957) (20,845) (2,331,040) (4,383,842)
Capital expenditure 69,812 - - 69,812
NOTE 3 CONTINUED
Comparatives for the period ended 30 September 2007;
Business segment Retail Internet sales Unallocated Group
sales � � �
�
Assets 8,161,691 2,761,439 8,373 10,931,503
Liabilities (1,989,871) (9,140) (1,862,376) (3,861,387)
Capital expenditure 5,950,128 2,724,446 - 8,674,574
Segment assets and liabilities are reconciled to entity assets and liabilities as follows:
As at 31 March 2008 As at 30 September 2007
Assets Liabilities Assets Liabilities
� � � �
Segment assets/liabilities 10,455,676 4,383,842 10,931,503 3,861,387
Unallocated: 337,659 - 113,727 -
Deferred tax
Total 10,793,335 4,383,842 11,045,230 3,861,387
* Secondary reporting format - geographical segments
The Group's revenue arises entirely in the UK.
All the Company's assets are held in the UK and all capital expenditure has arisen in the UK.
4 EARNINGS PER SHARE
* Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during the year.
Six month Eight month
period ended 31 period ended
March 2008 30 September
2007
(restated)
Loss attributable to the equity holders (774,350) (540,627)
of the Company (�)
Weighted average number of ordinary 124,333 69,283
shares in issue (thousands)
Basic loss per share (pence per share) (0.623) (0.780)
* Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. For the Group this represents share options outstanding as at 31 March 2008.
For these share options, a calculation is performed to determine the number of shares that could have been acquired at fair value
(determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights
attached to the outstanding share options.
The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the
share options.
Eight month
period ended
Six month 30 September
period 2007
ended (restated)
31 March
2008
Loss attributable to the equity holders of the (774,350) (540,627)
Company used to
determine diluted earnings per share (�)
Weighted average number of ordinary shares in 124,333 69,283
issue (thousands)
Adjustments for:
- share options (thousands) 25,289 25,459
Weighted average number of ordinary shares for 149,622 94,742
diluted earnings
per share (thousands)
Diluted loss per share (pence per share) (0.518) (0.571)
On 21 December 2007, the shareholders approved a capital reorganisation of Hitchens Group PLC whereby the Ordinary Shares of 0.075 pence
per share were consolidated into "New Ordinary Shares" of 0.75 pence per share. The comparatives above have been restated to reflect this
share consolidation.
5 CASH INFLOW FROM OPERATIONS
Six month period ended Eight month
31 March period ended
2008 30 September 2007
� �
Loss before income tax (998,282) (654,354)
Adjustments for:
- Depreciation 100,791 35,854
- Goodwill impairment charge - -
- Profit on sale of plant and - (3,996)
equipment
Finance income (78) (18,075)
Finance cost 3,996 -
Changes in working capital
(excluding the effects of
acquisition)
- Inventories 47,931 (208,060)
- Trade and other receivables 168,542 (435,301)
- Trade and other payables 522,455 (349,764)
Cash inflow from operations (154,645) (1,633,696)
6 EVENTS AFTER THE BALANCE SHEET DATE
On 2 April 2008, the Group agreed to acquire the entire issued share capital of Wallgate Services Limited, for a total consideration of
�8.76 million. The consideration was satisfied by a cash payment of �750,000 and the issue of 61,660,562 ordinary shares of 0.75p each by
the Hitchens Group plc.
The Group, also on 2 April 2008, raised funds of �1.61 million via a placing of 8,553,846 new Ordinary Shares at a price of 13p per
share and via the acquisition of Flarepilot plc, a PLUS listed cash shell, with cash or cash equivalents of �500,000. The acquisition of the
entire issued share capital of Flarepilot plc was made for a consideration of 10,492,308 ordinary shares of 0.75p each in Hitchens Group
plc. In addition, Hitchens Group plc agreed to issue a further 1,049,230 Ordinary Shares in respect of fees payable pursuant to the
acquisition of Flarepilot plc.
This information is provided by RNS
The company news service from the London Stock Exchange
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