24th Oct 2005 06:00
FOR RELEASE 7.00AM 24 OCTOBER 2005 Scott Tod Plc ("Scott Tod" or "Group") (Multi-faceted group focusing on cash and cash handling systems including: the deployment of ATMs, card vending and change machines and a Cash-in Transit business) PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 ‚£'000 ‚£'000 Turnover 10,261 6,676 Operating (loss) / profit before tax and goodwill (552) 629amortisation & impairment (Loss) / profit before tax, goodwill amortisation and (1,085) 399impairment (Loss) / profit after goodwill, amortisation and (4,071) 399impairment but before tax Loss / earnings per share before goodwill amortisation (2.5p) 2.7p Loss / earnings per share after goodwill amortisation (12.1p) 1.4p Dividend Nil 0.75p * Loss before tax, goodwill amortisation and impairment in line with the Group's announcement of 23 August 2005 * New Chief Executive appointed * New Finance Director joins in December * ATMs * + Implementation of Chip & Pin Technology' and Security coding involved significant costs + New staff appointments in anticipation of new contracts + Loss of major contract as previously announced + Non / low performing sites * Change machines performed broadly in line with expectations * Cash-in-Transit business * + Operationally successful + Needs economies of scale * Major card vendor customer substantially completed the roll out across NHS * The Future * Benefits of divisional structure * Ongoing cost review and improved efficiency * Further work necessary to balance resources * Results of actions taken should be clearer at the half year For further information:Scott Tod PlcDavid Massie (Chairman) 020 7389 1770Lawrence Watts (Chief Executive) 01873 811 634Beattie FinancialBrian Coleman Smith / Nia Thomas / Grace Dewhurst 020 7053 6400 Scott Tod Plc PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2005 Chairman's Statement The results as set out in this Annual Report are not those that I would havewished to report or in accordance with the optimistic view expressed at thistime last year. At that time, the Group had been recently admitted to AIM, wasgrowing rapidly, and seemed to be set to move on to increased revenues andincreased profits. In reality, instead of the anticipated profits, asignificant pre-tax loss was made. The announcements made earlier this year andin our trading update do give some of the background to this change of fortunesbut I would also like to explain matters further here.In certain areas the Group did incur additional unforeseen costs. Theimplementation of `Chip & Pin' technology, together with an improvement in thesecurity coding of our ATMs, did involve quite significant costs, bothinternally and in terms of the use of engineers to visit and programme the newsoftware. The Group also incurred costs by gearing up on personnel inanticipation of some new contracts in advance of the date when the staffactually became needed. As previously announced, a major contract was lost, dueto a change of policy by one of our customers, in a situation where the Groupbelieved that it was providing an excellent service.However, it is also clear that a number of poor business decisions were madeduring the year. At one level it can be considered the Group expanded verysuccessfully over the last two years. At 30 June 2003, it had approximately 700ATMs. This had grown to over 1,900 ATMs by 30 June 2004 and increased furtherto over 2,000 ATMs by 30 June 2005, even after the loss of a major contract asmentioned above. However, a significant number of the new ATMs installed werein under performing sites and not generating sufficient revenues to justify thecapital expenditure incurred. Much of our current emphasis is to relocate asmany of those machines as possible, rather than focus upon growth in absolutenumbers and there is evidence that this is producing a significant benefit interms of increased transaction numbers. The Group still has further work to doin improving its systems for evaluating potential sites.Our change machine business performed in line with previous years and whilesales of card vendors held up, this was largely due to one significant orderand activity has been very much lower in recent months.The Group also rolled out its in house Cash-in Transit ("CiT") service duringthe year whereby it takes responsibility for filling its Fully Managed ATMs inhouse rather than using an external carrier. At an operational level it hasbeen a success, dramatically reducing the overall level of cash needed to keepATMs filled and operational, radically improving reliability. However, the likefor like cost compared with an external carrier is more expensive. This can bereduced significantly by increasing the number of ATMs serviced as thetransport and labour cost are then amortised over more machines. As our ownbusiness emphasis will not lead to a dramatic increase in Fully Managed ATMsthis year we are actively seeking third party business to provide thoseeconomies of scale.I announced on 23 August 2005 that Nicholas Tod, the Chief Executive of theGroup was to leave this appointment. Nicholas has now resigned from the Boardof Directors. While Nicholas can be seen to be directly responsible for thegrowth in the size of the Group over the last few years, the Board of Directorsresolved that a different set of skills was necessary to take the Group forwardinto its next phase of development.Lawrence Watts, previously the Chief Operating Officer of the Group, has beenappointed Chief Executive Officer and will lead the Group through the currentevaluation and repositioning exercise, during which time we hope to bringstability to the business. Lawrence joined Scott Tod in 1997 having previouslybeen Regional Service Manager for Initial Textile Services, a division ofRentokil plc.I am also pleased to announce that John Dixon, an experienced Finance Directorwith Public Group experience, has accepted an offer to join the Group asFinance Director and will start work at the beginning of December 2005.As a result of the financial results no dividend is payable for this year.The Group is taking steps to improve its divisional reporting by the creationof clearer profit centres in order to be able to measure the underlyingperformance of each business and evaluate its contribution or otherwise to theGroup overall. The new Chief Executive's review provides further detail.In accordance with current accounting practice, the Directors must considereach year the carrying value of goodwill. As a result of the loss announced,the Directors decided there has been an impairment of the goodwill purchased aspart of the acquisition of Scott Tod Developments Limited. Correspondingly thecarrying value of goodwill has been impaired in the year ended 30 June 2005,reducing the carrying value to ‚£nil at that date. This is a non-cash item.At the time of the original reverse takeover by Scott Tod Developments Limited,the vendors were issued with 10 million Ordinary Shares of Scott Tod Plc withan "earn out" based upon the level of anticipated profits for the year to 30June 2005 of up to another 10 million shares and ‚£500,000 cash. In view of theloss incurred, no shares or payments will be made under the earn out.In last year's Annual Report, I also mentioned that an EIS Option Scheme hadbeen set up for staff to participate in. The options granted all contained acondition, linking their exercise to the profitability for the year to 30 June2005 and due to the loss, those have lapsed. With hindsight it seems that thelatter condition, affected a significant number of employees, whose ownpersonal contribution could not be said to be linked to Group results. However,the Board consider it would be wrong to retrospectively change that conditionbut are giving active consideration to how to motivate the Group's staff forthe future.The Group made a loss for the first three months of this year. I do not believea "turnaround" can be achieved overnight. However, the Group does have a "core"ATM estate, considerable customer goodwill and a reputation for excellentservice, We need build on these foundations and with the application of betterbusiness skills, I hope the Group can return to profitable growth and becomecash flow positive in the not too distant future.To that end, we are splitting the business into distinct profit centres andhave eliminated certain obvious areas of waste. Further work is necessary tobalance the resources available with the overall size of the Group. Theemphasis in the business is in a) building better controls; b) redeployingunprofitable ATMs and c) increasing transparency and reporting of the differentbusiness lines.In what have been unusual times the commitment of staff has been exceptionaland they are setting about the task of rebuilding the Group with vigour. By thetime of our interim results in March 2006, the results of the actions takenshould be very much clearer and I hope then to be able to report on progressand our plans for the Group.David L. MassieNon-Executive Chairman24 October 2005 Chief Executive's Review Our first full year as a public company has been extremely challenging indifficult market conditions. The Chairman's Statement deals with a number ofthe strategic issues that confronted us but I want to give more details on theunderlying business.Our profitability is driven by the number of ATMs we operate and the number oftransactions processed through those ATMs. While the former grew the number oftransactions per ATM was considerably lower than the Company planned due toseveral factors, including:The unprecedented press criticism of fee paying ATMs at different timesthroughout the year which undoubtedly influenced the public's attitude towardspaying a fee to withdraw cash. During the year, we found that each time therewas such publicity the transaction levels fell only to recover to previouslevels over the next few months as the customer again realised the benefits ofusing convenience ATMs.The upgrading of the estate to comply with Chip and Pin technology and theintroduction of a new encryption standard from LINK were also disruptive.There was of course a report on the whole industry by the Treasury SelectCommittee and it is interesting to note that HM Treasury's paper to thecommittee supported the introduction of fee paying ATMs as increasing customerchoice and service.Our ATMs are almost universally in "convenience" locations such as pubs, clubsetc where there is no realistic alternative to a fee paying ATM and during thefirst few months of this financial year we have seen a modest improvement intransaction volumes per ATM. Part of this is the result of the processdescribed in the Chairman's statement to relocate underperforming ATMs but wefeel that customer sentiment has also improved.We are confident that with our main strategic objective of improving our returnon capital coupled with a falling away of the above external factors thisimprovement will continue.Divisional ReviewWe are reorganising and streamlining our business with a view to loweringoperating costs at every level whilst still looking to develop new profitablebusiness. The new management team now has its full attention on deliveringshareholder value.The three distinct business areas of the company have now been made individualprofit centres to ensure that we can effectively measure their performance andgive us more control of the overall cost baseDeployment and operating of ATMs is the largest division of the group andaccounted for 74% of turnover, ‚£7.62m, thereby missing our projection for ATMincome by ‚£2.3m. This shortfall was mainly due the transaction volumes per ATMbeing lower than projected which in turn led to us not installing as many ATMsas we forecasted. This resulted in us having fewer machines in the field andfewer transactions per ATM than we projected at the start of the year. Whilstthe focus for most of last year, as described in the Chairman's Statement, wason installing as many ATMs as possible, the focus this year is on the number oftransactions per machine. We are in the process of completing a major exerciseof relocating under performing ATMs which has had a positive effect on bothtransaction volumes and capital spend.This process will be ongoing as we constantly seek to improve our financialperformance by uplifting under performing ATMs and install them in potentiallybetter locations. It is therefore important that there is this constant reviewof individual ATM performance to maximise return on capital with the overridingobjective of returning the group back to profitability.Change machine sales and rental is part of the second division in the group,which accounted for 7.5% of turnover, (‚£755,000). The change in law whichallowed for gaming machines to have integral note validators fitted to them wasseen as a very real threat to change machine sales but this threat failed tomaterialise and our change machine performance was in line with expectations.We are optimistic that with the new structure and increased focus on this areawe can successfully build this area of the business.We see the export market as a growth area for change machines and have recentlywon an order to supply a large European chain of casinos. Change machine rental(‚£354,000 turnover) is also buoyant and we are hopeful of increasing thissource of income.Card vendor sales is the other part of the second division of the group andaccounted for 14.3% (‚£1.5m) of turnover last year. The performance of thisdivision missed budget (‚£1.8m) by ‚£300,000 which was due to our main cardvending customer finishing its roll out across the NHS earlier than expected.Due to ongoing regulatory issues that this same customer is experiencing we areforecasting much lower activity for this product range in the current year.However, we still have some other exciting opportunities in place for thesupply of card vending and payment solutions, especially in the export market,which may significantly surpass our projections and contribute to both thelevel of activity and profitability of the group.ATM Services, the cash in transit division, is the third division of the groupand continues to provide an excellent service to our estate of ATM's. Howeverto operate efficiently it needs significantly more volume than we have at themoment and to this end we are currently in negotiations with other ATM serviceproviders to fill their machines. We are confident that we can provide a farsuperior service than the other national cash in transit operators and see thisas a major growth opportunity.The Market PlaceDuring the last twelve months the industry has become very competitive whichhas put severe pressure on gross margins. This has resulted in the industrygoing through a major phase of consolidation activity culminating inCardpoint's recent acquisition of Moneybox. With continued pressure on grossmargins and further economies of scale to be achieved I believe that thisconsolidation activity will continue. The group remains committed to a growthstrategy to be achieved by both organic growth and strategic alliances.The FutureI have already outlined the restructuring of the group into separate divisionsand the ongoing cost review which will lead to the rebalancing of the cost baseto more appropriately match the level of business. I believe that thisreduction in the cost base, the generation of greater efficiencies and therelocation of underperforming machines are going to be the main drivers ofprofitability at our current stage of the business cycle.I would like to thank, on behalf of the board, all our staff for their effortsover the past twelve months and their continued support moving towards this newphase of Scott Tod Plc. They are a committed, enthusiastic team with whom it isa pleasure to work.Lawrence WattsChief Executive24 October 2005Consolidated profit and loss accountfor the year ended 30 June 2005 Year ended 30 June 2005 Notes Before Impairment Total Year impairment and goodwill ended and goodwill amortisation 30 June amortisation 2004 ‚£000 ‚£000 ‚£000 ‚£000 Turnover 10,261 - 10,261 6,676 Cost of sales (8,777) - (8,777) (4,901) Gross profit 1,484 - 1,484 1,775 Net operating expenses (2,036) (2,986) (5,022) (1,146) Operating (loss)/profit (552) (2,986) (3,538) 629 Interest receivable 42 19 Interest payable (575) (249) (Loss)/profit on ordinary (4,071) 399activities before taxation Taxation 310 (127) (Loss)/profit for the (3,761) 272financial year after taxation Dividends - (234) (Loss)/profit for the year (3,761) 38 Earnings per 1p share Basic 2 (12.1) 1.4 Diluted 2 (11.9) 1.4 Earnings per 1p share before goodwill amortisation Basic 2 (2.5) 2.7 Diluted 2 (2.5) 2.7 All operations are continuing operations.There are no material differences between the (loss)/profit on ordinaryactivities before taxation and the related (loss)/profit for the year statedabove and their historical cost equivalents.There have been no recognised gains or losses in the year other than the (loss)/profit for the year set out above.Consolidated balance sheetat 30 June 2005 Notes 2005 2004 ‚£000 ‚£000 Fixed assets Intangible fixed assets 4 - 4,061 Tangible fixed assets 5 6,012 4,420 6,012 8,481 Current assets Stocks 622 923 Debtors 1,761 2,171 Cash at bank and in hand 6,369 4,549 8,752 7,643 Creditors: amounts falling due within 6 (9,466) (5,897) one year Net current (liabilities)/assets (714) 1,746 Total assets less current liabilities 5,298 10,227 Creditors: amounts falling due after 7 (1,628) (1,398) more than one year Provisions for liabilities and charges - (132) Deferred income (57) (73) Net assets 3,613 8,624 Capital and reserves Share capital 312 312 Share capital to be issued - 50 Share premium account 7,024 8,224 Profit and loss account (3,723) 38 Equity shareholders' funds 11 3,613 8,624 Consolidated cash flow statementfor the year ended 30 June 2005 Notes 2005 2004 ‚£000 ‚£000 Net cash inflow from operating activities 8 1,476 632 Returns on investments and servicing of finance Interest received 42 19 Interest paid (575) (249) Net cash (outflow) from returns on (533) (230) investments and servicing of finance Taxation - - Capital expenditure and financial investment Purchase of tangible fixed assets (994) (976) Sale of tangible fixed assets 39 82 Receipt of capital government grant - 79 Net cash (outflow) for capital expenditure (955) (815) and financial investment Acquisitions Purchase of subsidiaries - (525) Acquisition costs - (91) Net bank overdraft acquired with subsidiary - (477) Net cash (outflow) from acquisitions - (1,093) Equity dividends paid (234) - Cash (outflow) before financing (246) (1,506) Financing Issue of ordinary shares - 4,703 Repayment of finance leases (1,524) (834) Loan repayments (13) (18) Net cash (outflow)/inflow from financing (1,537) 3,851 (Decrease)/increase in cash in the year 9 (1,783) 2,345 Notes to the financial statementsfor the year ended 30 June 20051 Basis of preparation The financial information contained in this preliminary announcement has beenprepared using accounting policies that have been consistently applied and arethose used in the preparation of the financial statements for the period ended30 June 2004. The financial information in this document does not constitutethe company's statutory accounts for the year ended 30 June 2005, but isderived from those accounts. Statutory accounts for the period ended 30 June2004 have been delivered to the Registrar of Companies and those for the yearended 30 June 2005 will be delivered following the company's Annual GeneralMeeting. The auditors have reported on these accounts, their reports wereunqualified and did not contain statements under sections 237(2) or (3) of theCompanies Act 1985. Impairment of fixed assetsFixed assets are stated at the lower of their depreciated cost and theirrecoverable value. Impairment is calculated as the difference between thecarrying value (being the depreciated cost) of fixed assets and theirrecoverable value. Recoverable value is the higher of the net realisable valueand the value in use of the assets. Value in use represents the present valueof expected future cash flows discounted on a pre tax basis. If incurred,impairment is recognised in the profit and loss account.2 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares inissue during the year.For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Company has two classes of dilutive potential ordinary sharesbeing: share options granted to employees where the exercise price is less thanthe average market price of the Company's ordinary shares during the year andare contingently issuable together with the contingently issuable shares underthe Company's long term incentive plan. At 30 June 2005, as the criteria formeeting awards under the employee share option scheme have not been met, theseshares have been excluded from the diluted earning per share calculation.Reconciliation of the earnings and weighted average number of shares used inthe calculation are set out below: 2005 2004 Earnings Weighted Per share Earnings Weighted Per share average amount average amount number of pence number of pence shares shares ‚£000 000 ‚£000 000 Basic EPS: Profit (3,761) 31,200 (12.1) 272 19,286.5 1.4attributable to shareholders Effect of dilution - 312 0.2 - 186.0 - Diluted EPS (3,761) 31,512 (11.9) 272 19,472.5 1.4 Earnings per share before impairment and goodwill amortisation: Profit before (775) 31,200 (2.5) 530 19,286.5 2.7impairment and goodwill amortisation Effect of dilution - 312 - - 186.0 - (775) 31,512 (2.5) 530 19,472.5 2.73 Acquisitions On 6 October 2003 the Company acquired 20% of the issued share capital of ScottTod Developments Limited for a cash consideration of ‚£525,000. On 26 November2003, the Company acquired the remaining 80% of the issued share capital forconsideration of ‚£2,500,000 satisfied by the issue of 10,000,000 ordinaryshares. Further consideration was to be payable contingent upon the achievementof certain performance targets. The directors provided for ‚£1,250,000 of thedeferred contingent consideration that would have arisen if the targets hadbeen met in the year ended 30 June 2004. As these targets have not been met thedeferred consideration is no longer due to be paid and accordingly this amounthas been deducted from the provisional fair value amounts calculated as at 30June 2004, in determining the fair value of assets and liabilities acquired.The table below sets out the book values of the identifiable assets andliabilities acquired and their fair value to the Group.The book values and fair values of the assets and liabilities acquired on 26November 2003, as at 30 June 2005, were as follows: Book value Fair value Fair value adjustment ‚£000 ‚£000 ‚£000 Intangible fixed assets 47 (47) - Tangible fixed assets 3,088 - 3,088 Stock 696 - 696 Debtors 1,504 - 1,504 Trade and other creditors (1,820) 50 (1,770) Finance lease and hire purchase (2,641) - (2,641)liabilities Provision for liabilities and charges (84) (138) (222) Loans (31) - (31) Cash at bank (320) - (320) Bank overdraft (157) - (157) 282 (135) 147 Less non-equity shares (100) Total net assets acquired 47 Goodwill arising 3,069 Consideration 3,116 Satisfied by: Cash 525 Issue of shares 2,500 Contingent consideration Acquisition costs 91 3,116The fair value adjustment above relates to onerous contracts, intangible assetsthat are not considered to be separately identifiable and taxation in relationto results in the period between 1 July 2003 and the date of acquisition.On 31 December 2003 Scott Tod Developments Limited issued an additional ‚£100,000 of ordinary shares, which were acquired by Scott Tod plc at nominalvalue.4 Intangible fixed assets Group Goodwill ‚£000 Cost At 1 July 2004 4,319 Elimination of deferred consideration (1,250) At 30 June 2005 3,069 Amortisation At 1 July 2004 258 Charge for the year 306 Impairment 2,505 At 30 June 2005 3,069 Net book amount At 30 June 2005 - At 30 June 2004 4,061 5 Tangible fixed assets Group Leasehold Plant and Computer Motor Operated ATM Total improvements machinery equipment vehicles machines machines ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Cost or valuation At 1 July 2004 252 91 83 732 687 2,945 4,790 Additions 12 20 22 275 29 2,682 3,040 Disposals - - - - (29) - (29) At 30 June 2005 264 111 105 1,007 687 5,627 7,801 Accumulated depreciation At 1 July 2004 12 8 11 37 58 244 370 Charge for the 29 17 35 226 85 863 1,255year Impairment - - - 175 - - 175 Disposals - - - - (11) - (11) At 30 June 2005 41 25 46 438 132 1,107 1,789 Net book amount At 30 June 2005 223 86 59 569 555 4,520 6,012 At 30 June 2004 240 83 72 695 629 2,701 4,4206 Creditors: amounts falling due within one year 30 June 30 June 2005 2004 ‚£000 ‚£000 Bank loans and overdrafts 5,704 2,114 Obligations under finance leases and hire purchase 1,502 1,210agreements Trade creditors 1,470 1,648 Other taxation and social security 61 60 Other creditors 631 461 Corporation tax - 63 Accruals and deferred income 98 107 Proposed dividend - 234 9,466 5,8977 Creditors: amounts falling due after more than one year 30 June 30 June 2005 2004 ‚£000 ‚£000 Obligations under finance leases and hire purchase 1,628 1,398agreements Analysis of debt:Obligations under finance leases and hire purchase agreements 30 June 30 June 2005 2004 ‚£000 ‚£000 Due in less than one year 1,502 1,210 Due in one to two years 1,270 835 Due in two to five years 358 563 3,130 2,6088 Reconciliation of operating profit to net cash inflow from operating activities 30 June 30 June 2005 2004 ‚£000 ‚£000 Continuing activities Operating (loss)/profit (3,538) 629 Depreciation of tangible fixed assets 1,255 373 (Profit) on disposal of fixed assets (21) (10) Impairment of goodwill 2,505 - Impairment of tangible fixed assets 175 - Amortisation of intangible fixed assets 306 258 Release of capital government grant (16) (6) Decrease/(increase) in stocks 301 (227) Decrease/(increase) in debtors 525 (654) Share scheme option charged to shareholders funds - 25 (Decrease) in provision for liabilities and charges - (198) (Decrease)/increase in creditors (16) 442 Net cash inflow from operating activities 1,476 6329 Reconciliation of net (debt) At 1 Other Cash flow New At 30 July non-cash finance June 2004 changes leases 2005 (excluding cash and overdrafts) ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Cash at bank and in hand 4,549 - 1,820 - 6,369 Bank overdraft (2,101) - (3,603) - (5,704) Net cash at bank and in 2,448 - (1,783) - 665hand UK term loans due within (13) - 13 - -one year Finance lease obligations (1,210) (1,816) 1,524 - (1,502)due within one year Finance lease obligations (1,398) 1,816 - (2,046) (1,628)due after more than one year Net (debt) (173) - (246) (2,046) (2,465)10 Reconciliation of net cash flow to movement in net (debt) 2005 2004 ‚£000 ‚£000 Net (debt)/funds at 1 July 2004 (173) 103 (Decrease)/increase in cash in the period (1,783) 2,345 Movement in borrowings (509) 51 Borrowings acquired with subsidiaries - (2,672) Net (debt) at 30 June 2005 (2,465) (173)11 Reconciliation of movements in equity shareholders' funds 30 June 30 June 2005 2004 ‚£000 ‚£000 Opening equity shareholders' funds 8,624 108 New share capital subscribed (net of expenses) - 8,453 (Loss)/profit for the year (3,761) 38 Elimination of deferred consideration (1,250) - Adjustment in respect of share option scheme - 25 Closing equity shareholders' funds 3,613 8,62412 The Annual Report will be sent to all shareholders in due course and furthercopies will be available from the Company Secretary, Centurion House, 37 JewryStreet, London EC3N 2ER.ENDSCOTT TOD PLCRelated Shares:
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