11th Mar 2005 07:00
Sherwood Group PLC11 March 2005 Sherwood Group plc Preliminary results for the year ended 31 December 2004 Sherwood Group plc ("Sherwood" or "the Group") is a designer and supplier ofladies intimate apparel Highlights • Turnover in continuing operations £26.4m (2003: £25.3m) - up 4% • Operating profit from continuing operations £655,000 (2003: £1,529,000) • Group net loss after tax £3.9m after Goodwill recycling of £4.5m • Cash inflow £3.2m including £5.1m from asset sales • Further asset sales and working capital reduction scheduled in 2005 • Strong balance sheet, with £9.7m cash • Acquisition of rights to Lepel name in UK and certain other markets • The Board continues to seek advice on returning cash to shareholders Noel Jervis, Chairman, comments: "The Group's order books are generally satisfactory, although we have been awarefor some time of a substantial loss of swimwear business, which will reduce theGroup's 2005 sales. The branded operations are poised for further growth in2005, with the launch of new ranges under the name of Miss Lepel and the secondand third seasons for Discover Mademoiselle. Investment in new systems andprocedures made substantially in 2004 is also anticipated to deliver progressivebenefits. I expect 2005 will be a year of consolidation in the continuinggarment operations in what remains a highly competitive market place." 11 March 2005 ENQUIRIES: Sherwood Group plcNoel Jervis, Chairman Tel: 07710 491 083Martin Webster, Finance Director Tel: 0115 946 1070 College HillGareth David Tel: 020 7457 2020 [email protected] SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 CHAIRMAN'S STATEMENT Continuing operations The continuing operations finished the year in slightly stronger form than wehad envisaged earlier in the year. Excellent design, tighter operationalcontrol and better sourcing made a contribution to the improvement. Most of ourcustomers enjoyed decent retail performance through until the end of the yearand this reflected in our strengthened order books. We announced in September 2004 the acquisition of the Lepel name; this will havethe effect of reducing our future cost base through the elimination of royaltypayments in 2005 by approximately £150,000, although this will be offset byamortisation of the brand at a cost of £65,000 per annum. The brandedactivities performed particularly strongly in 2004 with sales growth of 55%. Weexpect further progress in 2005. Discontinued operations We sold the Group's lace business to Guy Birkin Limited on 1 March 2004 and,accordingly, have been able to realise the majority of the assets in the courseof the year and this process will continue into 2005. A total of at least£10.5m cash flow is expected to be generated when the process is complete,hopefully during 2005. The one major outstanding item is the sale of theBorrowash property, where a sale for residential use is pending the outcome ofan appeal for planning permission after it was initially refused. Subsequentlythe Guy Birkin Limited business, in which we are a 33% shareholder, has closedits UK manufacturing operations and we have written-off our small £333,000equity investment. The decision was taken by Guy Birkin Limited in the light ofa decline in order intake as the company's cost base and selling prices becameincreasingly uncompetitive. Pensions We continue in dialogue with the Pension Trustees to whom we have made an offerof a one-off cash injection of £3m and, at the request of the Trustees, Deloitteand Touche are conducting a financial review of the Group and its ability tomeet its pension obligations. One of the purposes of the cash injection is toseek to reduce the future burden of additional contributions from the presentlevel of £710,000, and to seek to enhance the Group's future operating cash flowpotential. Against this background it has been a major disappointment to beadvised that the Group's final salary pension scheme deficit has increased onceagain from a gross £7.4m at the Interim stage to £8.1m at 31 December 2004. Thedeficit increase is linked to the application of longer mortality rates and thelower discount rate used by the Actuary to value liabilities. A cash injectionwould have the effect of reducing this deficit. Under the Pensions Act 2004, new rules on the valuation of pension schemes willcome into force from September 2005. These rules, known as the 'scheme specificfunding rules', have yet to be published even in draft form. The next valuationof the pension scheme is due as at 1 January 2006 and this will be preparedunder the new rules. Until guidance with respect to the new rules is produced(expected before September 2005) the Group's actuary is unable to indicate tothe Board the extent of the Group's obligations to make increased contributionsto the pension scheme. Shareholder value As previously reported the Board has been taking advice on the most efficientroute for returning cash to shareholders, whilst at the same time continuing togenerate the cash flow that makes this possible and ensuring that there aresufficient enabling distributable reserves. The Board hopes to be able towrite to shareholders, in due course, with details of a proposed share buy-back.However the directors have been advised to delay the announcement of anybuy-back until sufficient guidance of the pension scheme specific funding ruleshas been published. SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 We have also signalled our plan to move across to AIM, which will be justifiedby the smaller and simplified operations of the Group going forward. This willbring the further benefit of reducing the regulatory burden and compliance costsof a full listing, as well as a reduction in head office costs. The Board also expects to seek shareholders' approval for the introduction of anExecutive share option scheme, details of which will be circulated in duecourse. Outlook The Group's order books are generally satisfactory, although we have been awarefor some time of a substantial loss of swimwear business, which will reduce theGroup's 2005 sales. It is in this context that we have recently secured a newjoint venture agreement with a Nanjing-based supplier that will help rebuild2006 turnover. The branded operations are poised for further growth in 2005 with the launch ofnew ranges under the name of Miss Lepel and the second and third seasons forDiscover Mademoiselle. Gross margins are at present static, but we haveincreased our fixed operating costs to ensure efficient customer orderexecution, and also increased both our promotional and marketing activity. Investment in new systems and procedures made substantially in 2004 is alsoanticipated to deliver progressive benefits, through a reduction of the cost offailures and in improved turn-round times. I expect 2005 will be a year ofconsolidation in the continuing garment operations in what remains a highlycompetitive market place. Noel Jervis Chairman 11 March 2005 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 CHIEF EXECUTIVE'S REVIEW Strategy As one of my main objectives for 2004 I set out to re-engineer the garmentbusiness to offer first class design, quality and delivery at the best possibleprices. I believe the business has made good progress on all these fronts.Broadly we have maintained our position as a flexible private label supplier, atthe same time growing our branded portfolio of ranges and products to a widercustomer base, in order to exert greater control over market positioning andprofitability. Private label Lingerie has continued to grow. Strong manufacturing partnerships have beenconsolidated and newly relocated Hong Kong-based staff have improved control.The division exceeded its sales and profit targets for 2004. In Nightwear, wehave been working at improving our supply chain and I am pleased to reportprogress both in strengthening the supply base and its quality performance. Thisputs us in a strong position to win back business lost following the supplierupheaval of 2003 and to eliminate the costs of supply failure in the 18 monthsthat followed. In Swimwear, sales and profits fell in 2004 due to dislocation in the supplybase, which will result in a further substantial decline in 2005. Thisdifficult situation has been addressed and a joint venture has been signed witha Nanjing-based vertical manufacturer with operations in fabrics, printing andgarment making. Our customers are excited by this development and we expect toregain business lost for 2005 during 2006. Brands Sales grew by 55% in 2004. The purchase of the rights to the Lepel name in theUK and certain other markets has been a building block in our ambition tofurther grow branded turnover and profits. Lepel is now considered a core storebrand, with beautifully designed, feminine and colourful lingerie, at affordableprices. Accessory products, such as sarongs, hats, bags and sandals, have beenadded to strengthen the swimwear offer. During the year we announced the launch of Miss Lepel for the teenage market andwe expect good sales in 2005. After its successful first season in Autumn 2004,the Discover Mademoiselle label will run for the full year in 2005, increasingits share of the glamour sector. More recently, Lepel has added a luxuriousnightwear range to broaden its potential for growth. Objectives In 2005 I will be continuing to seek further operational improvements throughoutthe Group following the investment in new systems, giving customers access toshorter lead times and cutting the cost of internal failure. Whilst the privatelabel business remains very tough, I will seek out further opportunities forexpansion of our branded activities. Carol Duncumb Chief Executive 11 March 2005 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Financial Review Profit and loss account The financial statements reflect the progressive transformation of the Groupduring the year with a number of asset realisations and the adoption of FRS 17 'Retirement Benefits' having a substantial impact on the balance sheet inparticular. The Group incurred an operating loss of £945,000 for the year ended 31 December2004 (2003: loss of £1.6 million). Losses after tax of £3.9 million wereincurred after recycling £4.5 million of goodwill (2003: £2.0 million afterrecycling £463,000 of goodwill). Continuing operations Despite an increase of 4% in turnover to £26.4m (2003: £25.3m), the continuingactivities reported an operating profit of £655,000 before the share ofassociate company losses and after the application of FRS 17 (2003: £1.5million). The Group continues to experience downward pressure on prices. Volumesrose by 12%. Underlying gross margins were better than expected underpinned by afavourable US dollar exchange rate, better sourcing and a greater influence ofbranded product in the overall sales mix. The brand focus was enhanced by the acquisition of the rights to the Lepel namefor £968,000. This will save a projected £150,000 per annum in royalty paymentsin 2005 but will be offset by annual amortisation of £65,000 over fifteen years.Of equal importance is the confidence and certainty this will provide in futurerevenue investment to support brand expansion. Profitability was held back further by £468,000 of advisory costs incurredduring the year in connection with the Pension Fund, resolution of litigation ina former US subsidiary and the circular to shareholders seeking approval for thesale of land and buildings at Borrowash, Derbyshire. In addition the Group haswritten off its equity investment of £333,000 in its new associated company GuyBirkin Limited, which announced on 23 December 2004 that manufacturing in the UKwould cease, due to very difficult trading conditions and a declining orderbook. Discontinued operations The discontinued lace business incurred an operating loss of £1.3 million, whichincluded depreciation of £575,000 on lace machines leased to Guy Birkin Limited.The asset realisation programme yielded £6.0m cash in 2004, representing £5.1mof machine sales and £0.9m of working capital recovery. The sale of machinesrealised a profit of £1.9m, which was partly offset by the transfer at a nominalvalue of various ancillary equipment with a net book value of £204,000 to theassociate company on 1 March 2004. The value of further working capital realisations will be curtailed by difficulttrading conditions and as a result the Group has written off £350,000 of debtrelating to stock transferred on the start-up of Guy Birkin Limited. A directconsequence of the cessation of UK manufacturing is that the remaining machines,which generated lease income to the Group of £208,000 in 2004, will now be soldto third-parties and are expected to raise a minimum of a further £1.7m in thecourse of the next few months against a net book value at 31 December 2004 of£300,000. By the end of June 2005 we expect to have realised around £6.8m of cash from thesale of assets. The balance of cash receivable on further asset sales isdependent on the price realised for the sale of the property formerly occupiedby Birkin International at Borrowash. The Group has exchanged contracts withDavid Wilson Homes Ltd for residential development. The planning application hasbeen refused and is likely to result in both an appeal involving a publicenquiry and the submission of a second application to address some of theplanning committee's initial objections. The Group expects this process to takeseveral months. Accordingly, the timing and amount of such proceeds cannot bereliably predicted at present. As a consequence of the sale of Birkin International, goodwill amounting to£4.5m has been recycled, representing the amount arising at the time of itsacquisition in 1987. This is matched by an equivalent movement in reserves and,accordingly, there is no diminution in net asset value. SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Pensions The Group adopted FRS 17 'Retirement Benefits' in its 2004 half yearannouncement. The pension deficit on an FRS 17 basis has increased to £8.1m(2003: £7.2m) before the related deferred taxation credit, despite theadditional cash injection of £710,000 during the year and good investmentperformance. This is attributed to lengthening mortality rates and falling bondyields, the latter directly resulting in a lower discount rate of 5.4% (2003:5.6%) used to value the schemes' liabilities. The proposal to inject a one-offsubstantial payment into the fund may be expected to reduce the gross and netdeficit carried on the Group's balance sheet and to reduce the burden ofon-going future annual additional contributions. Taxation The tax charge reflects the adoption of FRS 17, the exceptional level of capitaltransactions in 2004 and the associated level of disallowable advisory fees. Thetax charge is also impacted by a one-off cash refund from a tax credit ondividends received in earlier years from a former Italian subsidiary. Consolidated balance sheet After the application of FRS 17, net assets have fallen marginally to £14.0m(12.6 pence per share) from £14.6m (13.1 pence per share) due mainly to theincreased pension deficit. The 31 December 2004 cash balance is valued at 8.8pence per share. Fixed assets The Group invested £968,000 in September 2004 to secure the rights to the Lepelname. This asset will be amortised over 15 years, which the directors believe isa reasonable estimate of its useful economic life. The Group also invested £229,000 in a new management information system duringthe year. This system incorporates a new order management and product designsolution, which will improve operational performance. Within discontinued activities, 31 lace machines were sold above net book value,and certain ancillary equipment was transferred to Guy Birkin Limited at anominal cost. Following the anticipated sale of its Borrowash property, the Long Eaton site,housing the continuing garment operations, will be the only freehold propertyremaining within the Group. Cash flow The Group suffered an operational cash outflow of £660,000 during the year,partly due to exceptionally early debtor receipts at the end of 2003. Inaddition, the Group invested £968,000 in the rights to the Lepel name, aspreviously reported. Net cash flow was boosted by the asset realisationprogramme, which generated £5.1m from the sale of lace knitting machines. Netcash balances were increased by £3.2m in the year to 31 December 2004. Treasury activities and policies Treasury operations are managed within policies and procedures approved by theBoard. The main financial exposure risk is exchange rate movement on the valueof its purchases. The Group entered into a number of forward foreign exchangecontracts based on forecast payments to suppliers. The amount of currencycovered at 31 December 2004 was US$9.5m. Impact of transition to International Financial Reporting Standards (IFRS) onconsolidated group financial statements. The Group plans to move to AIM very shortly, which will defer the requirement tocomply with IFRS to 1 January 2007. The Group, however, is mindful of the impactof the new financial standards on its results and will continue to monitor veryclosely any developments. Annual General Meeting The will be held on 26 April 2005 at Risley Hall, Derby Road, Risley,Derbyshire, DE72 3SS at 10.30 am. Martin Webster Finance Director 11 March 2005 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Group profit and loss account Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total As restated As restated As restated 2004 2004 2004 2003 2003 2003 £'000 £'000 £'000 £'000 £'000 £'000 Turnover 26,382 949 27,331 25,286 10,122 35,408 Cost of sales (20,401) (1,773) (22,174) (19,481) (9,343) (28,824)Gross profit / (loss) 5,981 (824) 5,157 5,805 779 6,584 Distribution costs (3,590) (186) (3,776) (3,159) (1,500) (4,659)Administrative expenses Excluding impairment (1,736) (257) (1,993) (1,117) (1,422) (2,539) Impairment - - - - (936) (936)Administrative expenses (1,736) (257) (1,993) (1,117) (2,358) (3,475)Operating (loss) / profit 655 (1,267) (612) 1,529 (3,079) (1,550)Share of operating loss of (333) - (333) - - -associateTotal operating (loss) / profitincluding share of associate 322 (1,267) (945) 1,529 (3,079) (1,550) Profit on sale of fixed assets - 1,931 1,931 - - - Loss on sale of operations - (204) (204) - (361) (361) Goodwill previously written-off - (4,522) (4,522) - (463) (463) Cost of fundamental - - - - (625) (625)restructuring (Loss) / profit on ordinaryactivities before interest 322 (4,062) (3,740) 1,529 (4,528) (2,999) Other interest receivable andsimilar income 1,057 795 Interest payable and similar (998) (916)chargesLoss on ordinary activities before taxation (3,681) (3,120) Tax on loss on ordinary (217) 1,098activitiesLoss for the year (3,898) (2,022)Amount transferred from reserves (3,898) (2,022)Basic and diluted loss per share (3.5p) (1.8p) On 11 August 2003 the Group announced that it would withdraw from lace designand manufacturing operations. Consequently only those operations relating to thedesign and sale of ladies intimate apparel would remain as continuingactivities. SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Group balance sheet 2004 2003 As restated £'000 £'000Fixed assetsIntangible assets 950 -Tangible assets 3,789 7,692 4,739 7,692 Current assetsStock 4,712 6,420Debtors 4,967 5,136Cash at bank and in hand 9,735 6,495 19,414 18,051 Creditors: amounts falling due within one year (4,469) (6,149)Net current assets 14,945 11,902 Total assets less current liabilities 19,684 19,594 Net pension scheme deficit (5,658) (5,008) Net assets 14,026 14,586 Capital and reservesCalled up share capital 5,547 5,547Share premium account 89 89Capital redemption reserve 138 138Special reserve - 4,215Profit and loss account 8,252 4,597Equity shareholders' funds 14,026 14,586 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Statement of total recognised gains and losses 2004 2003 As restated £'000 £'000Loss for the year (3,898) (2,022) Currency translation differences on overseas net investment (62) 102 Actuarial loss on pension scheme (1,400) (623) Tax on actuarial loss 278 98Total gains and losses recognised in the year (5,082) (2,445)Prior year adjustment (5,008) -Total gains and losses recognised since the last annual report (10,090) (2,445) Reconciliation of movements in equity shareholders' funds 2004 2003 As restated £'000 £'000Opening equity shareholders' funds as previously reported 19,594 21,348Prior year adjustment (5,008) (4,780)Opening equity shareholders' funds as restated 14,586 16,568 Loss for the year (3,898) (2,022) Other recognised gains and losses (1,184) (423) Goodwill previously written-off 4,522 463Net decrease in equity shareholders' funds (560) (1,982)Closing equity shareholders' funds at 31 December 14,026 14,586 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Group cash flow statement 2004 2004 2003 2003 £'000 £'000 £'000 £'000Net cash (outflow)/inflow from operating activities (660) 2,290 Returns on investments and servicing of finance Interest received 274 100 Net cash inflow from returns on investments and servicing 274 100of finance Taxation Overseas tax 108 -Net cash inflow from taxation 108 - Capital expenditure and financial investment Purchase of intangible asset (968) - Purchase of tangible fixed assets (265) (378) Deposit on sale of tangible fixed assets - 495 Sale of tangible fixed assets 5,084 2Net cash inflow from capital expenditure 3,851 119 and financial investment Acquisitions and disposals Purchase of investment (333) - Disposal of subsidiary undertakings and businesses - 450 Net cash (outflow)/inflow from acquisitions and disposals (333) 450 Equity dividends paid - (277) Increase in cash resulting from cash flows 3,240 2,682 Reconciliation of net cash flow to movement in net funds 2004 2003 £'000 £'000Increase in cash resulting from cash flows 3,240 2,682 Exchange adjustments - 3Movement in net funds in the year 3,240 2,685 Net funds at 1 January 6,495 3,810Net funds at 31 December 9,735 6,495 SHERWOOD GROUP PLC Preliminary results for the year ended 31 December 2004 Reconciliation of operating loss to net cash (outflow)/inflow from operatingactivities 2004 2003 as restated £'000 £'000Operating loss (612) (1,550) Depreciation and amortisation 830 1,750 Impairment of fixed assets - 936 Redundancy payments - (938) (Profit) / loss on disposal of fixed assets (1) 2 Decrease in stock 1,708 338 (Increase)/decrease in debtors (156) 3,403 (Decrease) in creditors (1,742) (1,133) Pension contributions in excess of operating charge (687) (518)Net cash (outflow)/inflow from operating activities (660) 2,290 NOTES 1. The financial information set out above does not constitutethe Group's statutory accounts for the years ended 31 December 2004 or 2003. Theresults for the year ended 31 December 2004 have been prepared on the basis ofthe accounting policies set out in the accounts for the year ended 31 December2003 with the exception of the adoption of FRS 17 'Retirement Benefits' by theGroup from 1 January 2004. The results for the year ended 31 December 2003 arebased on those extracted from the full accounts for that period but restated toreflect the adoption of FRS 17. The original accounts for the year ended 31December 2003 on which the auditors had given an unqualified report, weredelivered to the Registrar of Companies. 2. The calculation of earnings per share is based on a lossfor the year of £3,898,000 (2003: £2,022,000 as restated) and the weighted average number of shares inissue during the year of 110,941,178 (2003: 110,941,178). 3. The adoption of FRS 17 on 1 January 2004 required thecomparative figures for the period ending 31 December 2003 to be restated. Thefollowing prior year adjustments have been made: 2003 £'000Operating profit adjustment 518Interest (221)Adjustments for the period 297Loss previously reported (2,319)Revised loss transferred from reserves (2,022) Other recognised gains and losses as previously reported 102Actuarial loss net of tax (525)Other recognised gains and losses (423) Increase in net pension liability (5,008)Reduction in equity shareholders' funds (5,008) 4. Copies of the 2004 Annual Report and Accounts will be sentto all shareholders. Copies will be available from the Company Secretary atSherwood Group plc, Fields Farm Road, Long Eaton, Nottingham NG10 1GT andavailable on the website www.sherwoodgroup.co.uk. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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