RNS Number:2627Q
FII Group PLC
29 September 2003
26 September 2003
Fii Group plc
PRELIMINARY ANNOUNCEMENT
OF
THE UNAUDITED RESULTS FOR THE YEAR ENDED 31 MAY 2003
Fii Group plc (the "Company" or "the Group") announces its unaudited preliminary
results for the year ended 31 May 2003.
Fundamental Uncertainty - Going concern
Although the financial statements, and therefore the financial information
contained within this Preliminary Announcement are as yet unaudited, the
Auditors have informed us that they intend to modify their audit report to
highlight and refer to the disclosures relating to a fundamental uncertainty in
respect of the going concern basis used in the preparation of the financial
statements.
We have prepared the unaudited financial statements on the going concern basis
which assumes that the company and its subsidiaries will continue in operational
existence for the foreseeable future.
The validity of this assumption depends on the successful conclusion of both the
directors' efforts to negotiate a compromise agreement with the trustees of the
Fii defined benefit occupational benefit scheme (as outlined in the Chairman's
statement below), which may reduce the ongoing cash cost to the Group, and the
securing of additional funding through an issue of shares in the company to fund
the settlement of the proposed compromise agreement with the pension trustees.
Whilst we as directors are presently uncertain as to the outcome of the matters
mentioned above, we believe that it is appropriate for the financial statements
accounts to be prepared on the going concern basis.
For further information please contact:
Douglas Ware, Chairman and CEO Telephone: 01604 593600
Fii Group plc
Roland Cornish, Chairman Telephone: 0207 628 3396
Beaumont Cornish Limited
Chairman's Statement
The year ending 31st May 2003 has marked a significant change of direction for
the Group. As has already been announced, we withdrew from UK manufacturing,
closing our facility in Banbridge, Northern Ireland on 21st March 2003. Our
remaining retail outlet, also in Banbridge, was sold at the same time. This
final withdrawal from manufacturing meant that I was able to develop and focus
our strategy on Brand Management and Distribution of our core footwear brands -
Lotus, Frank Wright and PerTu. I have had to make some difficult and costly
decisions to enable me to transform the business from one steeped in a history
of manufacturing into the brand-aware business we are today. It is my ongoing
strategy to seek new geographical markets, to maximise the potential of existing
brands, to grow other brands within our portfolio, to expand our brands into
other product lines and seek to acquire previously unprofitable or
under-utilised brands for development.
As has been reported, the critical issue facing your Group, of course, remains
the substantial deficit within our final salary pension scheme. The final
payment to the Pension Fund of #475,000 due under the 1999 agreement was made,
as required, in June of this year. The triennial actuarial valuation of the
fund to 31st May 2002 resulted in a deficit being reported of some #27 million.
The pension fund actuary has served notice on the Group for future contributions
starting in June 2004. The level of these contributions, if paid, would render
the Group insolvent as disclosed in the circular to shareholders in February
2003. However, I can report that we are in negotiations with the Pension Fund
Trustee Board in an attempt to reach a compromise of the debt (under section 75
of the Pensions Act 1995) which would fall on the Group in the event of
insolvency. This course of action is strengthened following the "Bradstock"
ruling by the courts in 2002 which created a precedent for employers and
trustees in this situation.
As expected, turnover for the year fell from #17.4 million to #13.9 million.
This was mainly due to the rundown and closure of the Banbridge site and the
resultant withdrawal from the unprofitable private label business.
Historically, as a manufacturer, our historic stock levels were not commensurate
with the current profile of the Group. Accordingly, we have pursued an
aggressive policy of clearance of dated stock, with a consequential adverse
impact on margins for this year only.
As part of our rationalisation programme, our Stafford-based accounts department
is being reduced in size and moved to our head office in Northampton, reducing
costs by an estimated #160,000 per annum thus centralising our operation into
one location. This coincides with the implementation of a software solution
designed to address the needs of a modern distribution business. This will
streamline our accounting function, allow us to communicate more effectively
with our customers and suppliers and provide e-commerce business opportunities.
Provided that we can agree and bring into effect a compromise with the Pension
Fund, I believe that the Group is well-positioned to deliver value to
shareholders. I firmly believe that under the focused and motivated management
now in place, your Company has a bright future. I hope to make a further
announcement regarding the pension fund settlement in due course.
Douglas Ware
Chairman and CEO
26th September 2003
OPERATING AND FINANCIAL REVIEW
Sales
Lotus maintained its volume with sales of #10.9 million compared with #11.1
million last year. The cost base of Frank Wright was addressed and the range
rationalised . This necessary reorganisation caused an expected drop in sales
from #2.5 million to #1.9 million but returned the brand to a profit of #0.138
million after a loss of #0.105 million the previous year.
Private label sales fell from #3.8 million to #1.1 million. As had been
reported, Private Label business had become increasingly unprofitable. Falling
volumes combined with costly UK manufacture necessitated complete withdrawal
from this sector. By the end of the year under review, that process was
complete.
Margins
The overall Group gross profit margin was down to 16% from 23.2 % last year.
This fall is the result mainly of our private label business producing a
negative margin of 17.7% compared to a 4.4% positive margin last year. This
confirms the rationale behind our withdrawal from the private label
manufacturing business and the consequent closure of the Banbridge facility.
The overall gross profit margin excluding private label business, would have
been 21.4%. This compares favourably with last year bearing in mind the
sustained strength of the Euro; this reduced our gross margin across Lotus and
Frank Wright by #0.436 million against a foreign exchange gain the previous
year. Without the Euro and private label effects the overall margin would have
been 24.8%. Whilst we have always hedged against currency exposure using the
various financial instruments available to us, we are also now expanding sales
into Europe generating Euro income that will help offset this exposure in
future.
The closure of Banbridge allowed a reduction in overall stock levels and more
efficient utilisation of our centralised warehouse at Northampton. However,
this exercise cost a further #0.148 million in stock write downs. If all three
factors are removed, the overall gross profit would have been 26%.
Operating Expenses
Operating expenses in 2000/2001 including exceptional items on continuing and
discontinued operations were #6.931 million. In 2001/2002 when I had executive
responsibility for the full year, these operating expenses fell by some
#2.323million to #4.608 million.
In the year under review, operating expenses fell a further #0.251million to
#4.357 million. I am confident that further significant savings will be
apparent at the interim stage and more so at the year-end in 2004. These savings
have been achieved despite increases in pension fund legal and professional fees
of #0.096 million.
Non operating Exceptional Items
After the profits on the disposal of the Banbridge site and its associated plant
and machinery are offset against the costs of closure, there was a loss of
#0.725 million.
Pension fund costs
The additional pension fund costs totalled #0.695 million during the year, being
the additional annual contribution of #0.475million, together with #0.220
million in respect of legal and other professional fees paid on behalf of the
scheme.
Balance sheet and cash flow
As was to be expected with the disposal of our freehold site in Banbridge, fixed
assets have reduced by #0.995 million. Current assets reduced from #5.666
million to #4.401 million largely due to the planned reduction in stock levels.
Net cash outflow for the year on operating activities was #2.9 million. This was
mainly attributable to exceptional items of #2.211 million.
The future
Managing our way out of manufacturing in Banbridge was always going to be a
difficult, costly and thankless task. I would like to extend my personal thanks
to the workforce in Northern Ireland for the mature and professional way in
which this painful exercise was handled.
Expected improvements in the margin on product previously sourced from Banbridge
will benefit Lotus in the year ending in 2004. Along with the reduced layers of
management that I have implemented we can now move forward into 2004 on a vastly
reduced cost base from which the business can be grown.
We have now obtained firm orders for new business in Canada, the USA and
Bermuda. A licence agreement has been entered into with a Spanish manufacturer
and we are also now dealing directly with Spain's leading department store
chain. After a successful ten store trial, we now have a major new multiple
outlet client in the UK with over 100 sites. We will have a presence in all of
these stores starting in Spring / Summer 2004.
We will continue to nurture our mainstream Lotus business in the UK and Eire
while further developing our other brands, Lotus of England, Frank Wright, PerTu
and Thomas Bostock both in the UK and in specific markets overseas.
Douglas Ware
Chairman and CEO
26th September 2003
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MAY 2003
Unaudited Audited
2003 2002
-------------------------------- -----------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
#'000 #'000 #'000 #'000 #'000 #'000
Turnover 12,868 - 12,868 13,646 - 13,646
- continuing
- discontinued 1,061 - 1,061 3,836 - 3,836
------- -------- ------- ------- ------- -------
13,929 - 13,929 17,482 - 17,482
Cost of sales (10,110) - (10,110) (9,861) - (9,861)
- continuing
- discontinued (1,583) - (1,583) (3,573) - (3,573)
------- -------- ------- ------- ------- -------
(11,693) - (11,693) (13,434) - (13,434)
Gross profit 2,758 - 2,758 3,785 - 3,785
- continuing
- discontinued (522) - (522) 263 - 263
------- -------- ------- ------- ------- -------
2,236 - 2,236 4,048 - 4,048
Operating
Expenses-continuing (3,927) - (3,927) (4,152) - (4,152)
- discontinued (430) - (430) (301) (155) (456)
------- -------- ------- ------- ------- -------
(4,357) - (4,357) (4,453) (155) (4,608)
Operating loss
-continuing (1,169) - (1,169) (367) - (367)
-discontinued (952) - (952) (38) (155) (193)
------- -------- ------- ------- ------- -------
(2,121) - (2,121) (405) (155) (560)
Non-operating
exceptional
items
Loss on termination of
an operation -
discontinued - (1,769) (1,769) - - -
Fundamental
restructuring -
discontinued - (254) (254) - - -
------- -------- ------- ------- ------- -------
Profit on
disposal of
fixed assets -
discontinued - 1,298 1,298 - - -
------- -------- ------- ------- ------- -------
- (725) (725) - - -
Net interest & (171) - (171) (130) - (130)
similar charges ------- -------- ------- ------- ------- -------
payable
Loss on
ordinary
activities
before
taxation (2,292) (725) (3,017) (535) (155) (690)
Taxation on loss on - - - 21 - 21
ordinary activities ------- -------- ------- ------- ------- -------
Loss on
ordinary
activities
after
taxation (2,292) (725) (3,017) (514) (155) (669)
Dividends - - - - - -
------- -------- ------- ------- ------- -------
Loss for thefinancial(2,292) (725) (3,017) (514) (155) (669)
year ------- -------- ------- ------- ------- -------
Loss per share (9.9)p (3.1)p (13.0)p (2.2)p (0.7)p (2.9)p
- basic ------- -------- ------- ------- ------- -------
Loss per share - - (13.0)p - - (2.9)p
- diluted ------- -------- ------- ------- ------- -------
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT 31 MAY 2003
Group Company
Unaudited Audited Unaudited Audited
2003 2002 2003 2002
#'000 #'000 #'000 #'000
Fixed assets
Intangible fixed assets - - - -
Tangible fixed assets 393 1,388 - -
Investments - - 5,360 5,863
--------- -------- --------- --------
393 1,388 5,360 5,863
--------- -------- --------- --------
Current assets
Stocks 1,268 2,545 - -
Assets held for resale 64 - - -
Debtors 3,069 2,910 468 470
Cash at bank and in hand - 211 2,038 2,035
--------- -------- --------- --------
4,401 5,666 2,506 2,505
--------- -------- --------- --------
Creditors - amounts falling due (4,059) (3,318) (7,651) (5,401)
within one year
Net current assets/(liabilities) 342 2,348 (5,145) (2,896)
--------- -------- --------- --------
Total assets less current 735 3,736 215 2,967
liabilities
Creditors falling due after more (14) (28) - -
than one year
Provisions for liabilities and (39) (9) - -
charges --------- -------- --------- --------
Net assets 682 3,699 215 2,967
--------- -------- --------- --------
Capital and reserves
Called up share capital 5,798 5,798 5,798 5,798
Share premium account 10,238 10,238 10,238 10,238
Capital redemption reserve 331 331 331 331
Profit and loss account (15,685) (12,668) (16,152) (13,400)
--------- -------- --------- --------
Equity shareholders' funds 682 3,699 215 2,967
--------- -------- --------- --------
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY 2003
Unaudited Audited
2003 2002
#'000 #'000 #'000 #'000
Net cash outflow from operating (2,907) (747)
activities
Returns on investments and servicing
of finance
Interest received 16 2
Interest paid (169) (135)
Interest element of finance lease (2) (1)
payments -------- ------- -------- -------
Net cash outflow for returns on
investments and servicing of finance (155) (134)
Taxation - 21
Capital expenditure
Payments to acquire tangible fixed (58) (65)
assets
Sales of tangible fixed assets 2,484 94
-------- ------- -------- -------
Net cash inflow for capital 2,426 29
expenditure
Acquisitions and disposals
Sale of businesses 33 253
-------- ------- -------- -------
Net cash inflow from acquisitions and 33 253
disposals
Financing
Invoice discounting 239 726
Capital element of finance leases (82) (134)
-------- ------- -------- -------
Net cash inflow from financing 157 592
------- -------
(Decrease)/increase in cash (446) 14
======= =======
UNAUDITED RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN
NET DEBT AS AT 31 MAY 2003
Unaudited Audited
2003 2002
#'000 #'000
(Decrease)/increase in cash for the year (446) 14
Additional finance leases - (28)
Cash from increase in financing (157) (592)
--------- --------
Change in net debt (603) (606)
Net debt at 1 June (625) (19)
--------- --------
Net debt at 31 May (1,228) (625)
========= ========
UNAUDITED EARNINGS PER SHARE CALCULATION
FOR THE YEAR ENDED 31 MAY 2003
The calculation of earnings per share, in accordance with FRS 14, is based on
the loss on ordinary activities after taxation.
Unaudited Audited
2003 2002
#'000 pence per #'000 pence per
share share
Loss for the financial (3,017) (13.0) (669) (2.9)
year: -------- ------- -------- --------
Exceptional items: 725 (3.1) 155 (0.7)
Loss before exceptional (2,292) (9.9) (514) (2.2)
items -------- ------- -------- --------
Loss per ordinary share (13.0) (2.9)
fully diluted ======== ======= ======== ========
The weighted average number of shares used in the earnings per share calculation
is as follows:
Unaudited Audited
2003 2002
number number
Weighted average Ordinary Shares in issue during 23,191,679 23,191,679
the year
Potentially dilutive share options under the - -
Group's share option scheme ---------- ----------
Weighted average Ordinary Shares for fully 23,191,679 23,191,679
diluted earnings per share ========== ==========
The earnings per share before exception items, and the effect of the exceptional
items, are presented to show the earnings per share attributable to the
underlying business of the Group.
Notes to the preliminary Announcement:
1. The financial information set out in this announcement does not constitute
statutory accounts for the purposes of Section 240 Companies Act 1985.
2. The financial information contained within this announcement has been
extracted from the unaudited draft financial statements in respect of the
year ended 31 May 2003.
3. The Preliminary Announcement is prepared on the same basis as set out in
the audited accounts in respect of the year ended 31 May 2002.
4. Copies of this announcement, which will be sent to shareholders, are
available for the next 14 days from the company's registered office,
19 Gambrel Road, Northampton, NN5 5DJ.
END
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