30th Mar 2005 07:01
Watermark Group PLC30 March 2005 Strictly Embargoed until: 07.00 Wednesday 30 March 2005 WATERMARK GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Watermark Group plc ("Watermark," "Group," or the "Company"), the leadingprovider of in-flight products and cabin-management services to the airline andtravel industry, announces preliminary results for the year ended 31 December2004. Financial highlights Comparing consolidated operations in 2004 with 2003: Turnover Up 88% to £77.6m (£41.2m)Gross profit margin % Up 22% to 33.0% (27.0%)Operating profit Up 50% to £5.1m (£3.4m)EBITDA Up 43% to £6.3m (£4.4m)Normalised EBITDA* Up 95% to £8.0m (£4.1m)Normalised profit (pre-tax)* Up 84% to £7.0m (£3.8m)Normalised EPS (diluted)* Up 18% to 12.74p (10.79p)Dividend per share Up 10% to 1.96p (1.78p)Share owners' funds Up 141% to £37.6m (£15.6m) * Normalised EBITDA, profit (pre-tax) and EPS (diluted) exclude amortisation of goodwill and exceptional costs, and are presented as the underlying measure of profitability. John Caulcutt, Chief executive of Watermark, commented: "Notwithstanding theongoing challenges being faced by the airline sector, and a significant bad debttaken during the first half, the year 2004 has been another period of growth forWatermark with revenues, normalised profits and earnings per share, againreaching all-time highs. As well as organic growth from the core products division, and a claw back inmargins during the second half of the year, the acquisitions that we made in2003 have all continued to increase sales and pre-tax profits during the year,whilst strengthening the foundations for the future growth of the company." For further information please contact: John Caulcutt / Crispin Quail Gemma Chandler/ Jeremy CareyWatermark Group plc Tavistock CommunicationsTel: 01489 897800 Tel: 020 7920 [email protected] [email protected] Chairman's and Chief executive's letter to share owners The year in brief Notwithstanding the ongoing challenges being faced by the airline sector, and asignificant bad debt taken during the first half, the year 2004 has been anotherperiod of growth for Watermark with revenues, normalised profits and earningsper share, again reaching all-time highs. As well as organic growth from the core products division, and a claw back inmargins during the second half of the year, the acquisitions that we made in2003 have all continued to increase sales and pre-tax profits during the year,whilst strengthening the foundations for the future growth of your company. Dividend policy The board is recommending a 10% increase in the annual dividend from 1.78p pershare to 1.96p. General Traffic recovery in 2004 at 15.3% exceeded the original IATA (International AirTransport Association) forecast of 7%-8%, which compared with a reduction of2.4% in 2003 against the previous year. The number of airlines and travelclients with whom the group trades also continued to grow. Re-organisation Following the acquisition of Air Fayre, the group has undergone a fundamentalre-organisation, both in terms of the nature and focus of its operations, toprovide savings to its clients through its enhanced products and services range.Since the acquisition was completed the group has relocated its catering andnewspaper and magazine distribution services operations to the new groupheadquarters at Heathrow. Space has been reserved for further expansion ofservices within this dedicated location. Since the year end, head office financeand administration has been repositioned to Heathrow. These fundamentalre-organisation costs are reflected in the exceptional costs disclosedseparately on the face of the profit and loss account. Also during thisre-organisation period, we took advantage of integration efficiencies tocomplete the absorption of a number of complementary businesses acquired overthe last three years to restructure our non-catering services for the future,and manage them on a unified basis. This has allowed us to enter 2005 with asubstantially reduced central cost base. As part of this process, the group hasinvested in new operational and accounting IT systems, incurring both externaland incremental internal costs. The business now operates in two main divisions, namely products and services(including catering). Products division The positive trends in passenger numbers have enabled the products division tosee organic growth in sales, as well as a partial reversal of the margin erosionexperienced in the first half as a result of the increase in raw materialsassociated with the rise in the price of oil. Services division Air Fayre's successful transition to our new 140,000 sq. ft. facility atHeathrow, and the commencement in September of a 6 year contract with Air Canada(coupled with fees paid for consultancy) has meant that Air Fayre, in its firstfull year within the group, has made a substantial contribution to overall groupprofits. M'n'H Recycling and Media on the Move have both seen meaningful growthduring the course of the year. Investments AeroTV Limited AeroTV, an onboard entertainment company in which Watermark holds a 16% stake(and receives a commission of 10% of all sales revenue), completed a successful3-month trial with National Express. Subsequent to the year-end, it has beenagreed to extend this service across the National Express fleet, with animmediate roll-out on 100 coaches. This 3-year contract, valued at £7.2 million,now forms the bedrock for AeroTV's future expansion. Aerobox plc A favourable settlement with Aerobox, the AIM listed manufacturer of compositecargo containers, resulted in Watermark being issued with 7.5% of Aerobox'sshare capital, as well as receiving a payment for marketing services. Thisequity stake was sold during 2004, realising a net gain of £0.7m after takinginto account associated costs which include an appropriate charge for theinvolvement of some of the directors in resolving this. FlightStore Group plc FlightStore, an AIM listed new media company in which the group holds a 7.7%stake, has seen its market capitalisation reduce during the year toapproximately £2 million, necessitating the balance sheet valuation of ourinvestment being adjusted accordingly. Personnel Once again, we offer our sincere thanks to all the staff across the group, whohave shown tremendous dedication and loyalty in a year in which the airlineindustry has again been subjected to difficult market forces. Outlook The challenge for the industry now is to turn traffic growth into profitability.Airlines entered 2005 with a renewed determination to improve efficiency, andincreasingly look at the benefits of outsourcing as a means of reducingoperational cost structures. The value of new contract wins during the first part of 2005 has beenencouraging, and our relocated and refocused operations at Heathrow allows groupcompanies and our Encompass JV partners to operate from a single location. John A-G-Calthorpe John CaulcuttChairman Chief executive Consolidated profit and loss accountfor the year ended 31 December 2004 2004 2003 £'000 £'000 Turnover 77,581 41,215Cost of sales (51,962) (30,098) -------- --------Gross profit 25,619 11,117 Other operating expenses (excluding exceptional items) (19,601) (7,750)Exceptional bad debt (591) - Exceptional contract start-up costs (302) - -------- -------- (20,494) (7,750) -------- -------- Operating profit 5,125 3,367 Profit on sale of investment 676 233Exceptional re-organisation costs (1,436) -Interest receivable and similar income 64 28Amount written off investment (89) -Interest payable and similar charges (505) (304) -------- -------- Profit on ordinary activities before taxation 3,835 3,324Taxation on profit on ordinary activities (1,713) (944) -------- -------- Profit for the financial year 2,122 2,380Dividends (885) (678) -------- -------- Retained profit for the year 1,237 1,702 -------- -------- Earnings per shareNormalised earnings per share*Basic earnings per share 13.15p 11.20pDiluted earnings per share 12.74p 10.79p Standard earnings per shareBasic earnings per share 5.78p 9.73pDiluted earnings per share 5.60p 9.37p All of the activities of the group are continuing. * Normalised earnings per share excludes amortisation of goodwill and exceptional costs. The calculation of normalised earnings per share is presented as note 9. Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2004 Total Total 2004 2003 £'000 £'000 Profit for the financial year 2,122 2,380 Currency translation 60 (468) -------- -------- Total recognised gains relating to the year 2,182 1,912 -------- -------- Consolidated balance sheetas at 31 December 2004 2004 2003 £'000 £'000Fixed assetsIntangible assets 28,534 30,202Tangible assets 10,433 1,606Investments 217 330 -------- -------- 39,184 32,138 Current assets Stocks 4,096 3,381Debtors 20,611 18,157Cash at bank and in hand 1,823 7,102 -------- -------- 26,530 28,640 Creditors: Amounts falling due within one year (22,998) (39,351) -------- -------- Net current assets/(liabilities) 3,532 (10,711) Total assets less current liabilities 42,716 21,427 -------- -------- Creditors: Amounts falling due after more than one year (4,612) (5,778) -------- -------- 38,104 15,649 Provisions for liabilities and charges (523) (48) -------- -------- Total assets 37,581 15,601 -------- -------- Capital and reservesCalled-up share capital 404 249Share premium account 22,803 599Shares to be issued 6,496 8,172Capital redemption reserve 24 24Merger reserve (527) (527)Profit and loss account 8,381 7,084 -------- --------Equity share owners' funds 37,581 15,601 -------- -------- Consolidated cash flow statementfor the year ended 31 December 2004 2004 2003 £'000 £'000 Net cash inflow from operating activities 6,180 2,333 Returns on investments and servicing of finance (441) (276) Taxation (2,066) (617) Capital expenditure and financial investment (7,038) (104) Acquisitions and disposals (19,308) 2,652 Equity dividends paid (719) (396) -------- -------- Cash (outflow)/inflow before financing (23,392) 3,592 Financing 17,747 1,191 -------- --------(Decrease)/increase in cash in the year (5,645) 4,783 -------- -------- Reconciliation of operating profit to net cash inflowfrom operating activities 2004 2003 £'000 £'000 Operating profit 5,125 3,367Depreciation and amortisation charges 2,385 785(Increase)/decrease in stocks (816) 1,080(Increase)/decrease in debtors (2,654) 1,398Increase/(decrease) in creditors 3,576 (4,297)Cash outflows relating to exceptional re-organisation costs (1,436) - -------- --------Net cash inflow from operating activities 6,180 2,333 -------- -------- Analysis and reconciliation of net debt (Decrease)/increase in cash in the year (5,645) 4,783Cash flow from movement in bank loans 2,981 (983)Cash flow from movement in hire purchase agreements 102 23 -------- --------Change in net debt resulting from cash flows (2,562) 3,823Inception of hire purchase agreements (1,940) -Currency translation (66) (93)Acquisitions - (20)Net debt as at 31 December 2003 (438) (4,148) -------- --------Net debt as at 31 December 2004 (5,006) (438) -------- -------- Notes to the preliminary announcement for the year ended 31 December 2004 1 Basis of preparation The preliminary announcement has been prepared in accordance with applicableaccounting standards and under the historical cost convention. The principal accounting policies of the group have remained unchanged fromthose set out in the group's 2003 annual report and financial statements. 2 Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised balance sheet at 31 December 2004 and the summarised profit andloss account, summarised cash flow statement and associated notes for the yearthen ended have been extracted from the group's unaudited 2004 statutoryfinancial statements. 3 EBITDA (earnings before interest, taxation, depreciation and amortisation) Reconciliation of group profit before taxation to EBITDA: 2004 2003 £'000 £'000Group profit before taxation 3,835 3,324Interest receivable (64) (28)Interest payable 505 304Depreciation 514 256Amortisation of goodwill 1,541 523 -------- -------- 6,331 4,379 -------- -------- 4 Normalised EBITDA (earnings before interest, taxation, depreciation, amortisation and exceptional costs) Reconciliation of group before taxation to normalised EBITDA: 2004 2003 £'000 £'000Group profit before taxation 3,835 3,324Exceptional bad debt (note 6) 591 -Exceptional contract start-up costs (note 6) 302 -Exceptional re-organisation costs (note 6) 1,436 -Profit on sale of investment (676) (233)Interest receivable (64) (28)Interest payable 505 304Depreciation 514 256Amortisation of goodwill 1,541 523 -------- -------- 7,984 4,146 -------- -------- 5 Normalised profit before taxation Reconciliation of group profit on ordinary activities before taxation tonormalised profit on ordinary activities before taxation: 2004 2003 £'000 £'000Profit on ordinary activities before taxation 3,835 3,324Exceptional bad debt (note 6) 591 -Exceptional contract start-up costs (note 6) 302 -Exceptional re-organisation costs (note 7) 1,436 -Profit on sale of investment (676) (233)Amortisation of goodwill 1,541 523 -------- -------- 7,029 3,614 -------- -------- 6 Exceptional items The exceptional bad debt relates to the net amount written off following thecollapse of Duo Airways Limited. The exceptional start-up costs relate to the costs associated with the settingup of a new catering contract. The group has undergone a fundamental re-organisation of its operations, both interms of physical location, management and staffing. The new Heathrow facility,has been developed into the group's main UK operating unit. It is intended tohouse the majority of the group's operations, historically carried out from arange of disparate facilities, together with the newly centralised finance andadministration for the enlarged group. It also acts as a base for the group'sEncompass partners. The costs associated with the re-organisation relateprincipally to the closure costs in the UK, the catering relocation and thegroup integration. £'000Property closures 154Assets write off 644Redundancy and salary costs 581Legal and professional 26Other 31 -------- 1,436 -------- 7 Taxation The rate of corporation taxation on current year profits at 34.8% (2003: 27.0%)is significantly higher in 2004 because of the effect of a higher amortisationof goodwill figure of £1.5 million (2003: £0.5 million). However, if thisamortisation of goodwill is excluded, the underlying rate of corporation tax onprofits for 2004 is 25% (2003: 26.5%). The full taxation charge, inclusive of deferred taxation and adjustments inrespect of previous years is 44.7% (2003: 28.4%). 8 Dividends 2004 2003 £'000 £'000Dividend payable at 1.96p per share (2003: 1.78p) 841 675Under provision in prior year 44 3 -------- -------- 885 678 -------- -------- The under provision arises as a result of new shares ranking for dividend beingissued during the year. 9 Earnings per share Basic and diluted earnings per share have been calculated in accordance withFRS14 - Earnings per share. Diluted earnings per share takes into account the effect of the exercise ofemployee share options and shares to be issued where these are expected todilute earnings. In order to show results from operating activities on a comparable basis, anormalised earnings per share has been presented which excludes amortisation andexceptional costs from the adjusted earnings calculation. The calculations of earnings per share are based on the following profits andnumbers of shares: Weighted Total Weighted Total average Earnings average Earnings Earnings shares Per share Earnings shares per share 2004 2004 2004 2003 2003 2003 £'000 Number (pence) £'000 Number (pence)Basic earnings per share 2,122 36,720,161 5.78 2,380 24,466,277 9.73 Add dilutive effect of share options - 1,181,095 (0.18) - 926,935 (0.36) -------- ---------- -------- -------- ---------- -------- Dilutedearnings pershare 2,122 37,901,256 5.60 2,380 25,393,212 9.37 Add amortisation of goodwill 1,541 - 4.07 523 - 2.06 Add exceptional costs 1,638 - 4.32 - - - Less profit on sale of investment (473) - (1.25) (163) - (0.64) -------- --------- -------- -------- --------- -------- Normalised earnings per share 4,828 37,901,256 12.74 2,740 25,393,212 10.79 Less dilutive effect of share options - (1,181,095) 0.41 - (926,935) 0.41 -------- ---------- -------- -------- --------- --------Basic earnings per share 4,828 36,720,161 13.15 2,740 24,466,277 11.20 -------- ---------- -------- -------- --------- -------- 10 Annual accounts The annual report and accounts will be posted to all share owners in April 2005and will be available at the company's registered office: Belmore ParkUphamHampshireSO32 1HQUK This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
JNY.L