20th Jun 2005 07:01
Faupel PLC20 June 2005 20 June 2005 FAUPEL PLC PRELIMINARY RESULTS Faupel Plc, which imports quality textile goods mainly from China for sale toleading retailers and wholesalers, has today announced preliminary results forthe year ended 31st March 2005. KEY POINTS • Pre-tax loss of £52,000 (2004: loss £18,000). • Operating profit £228,000 (2004: profit £232,000). • As predicted at the time of the interim announcement, the profit in the second half almost compensates for loss in the first half. • Premises relocation plan more costly than expected. Now completed. • Loss per share 0.3p (2004: loss per share 0.1p). • The Board is not recommending a final dividend and no interim dividend was paid in the year (2004: nil). Commenting on the results David Newbigging, Chairman, said: "Trading and costs in the first two months of the current financial year are inline with our expectations but it is too early to be definitive about prospectsgoing forward". Enquiries: Faupel PlcLaurence Mead, Chief Executive Tel: 01372 384100James McClean, Finance Director Chairman's Statement Results The Group's consolidated loss before tax for the year ended 31st March 2005 was£52,000 (2004: £18,000). The loss per share was 0.3p (2004: loss per share0.1p). As reported at the time of the announcement of our interim results in December2004, the profit and loss account in the first half of the year was adverselyaffected by group turnover being £640,000 (5.1%) less than the previous year,and by significant over spending arising from the relocation of the Group'swarehouse facilities. In the second half, however, Group sales were ahead of thesame period in the previous year by 2.8%, and the warehouse move was completedsuccessfully. While this still left the Group turnover 1.1% behind the previousyear it enabled the Group to recover most of the loss made in the first half ofthe year. At the time of the announcement of our results last year I reported that weexpected the trend in the improvement of our operating profits at that time tocontinue. As discussed further below, this would have been the case had it notbeen for the operational disruption we experienced at the time of the warehousemove, with the consequential slow down in fulfilling sales orders, together withthe extra costs incurred. This disruption is now behind us. In the first fivemonths of the financial year the operating profits were less than the sameperiod in the previous year. In the following seven months only two months'operating profits were less than the previous year. Dividend Given the loss for the year, the Board is not recommending the payment of afinal dividend. No interim dividend was paid during the year. Turnover Group turnover was £24,607,000; £285,000 (1.1%) less than the previous year. The decline in turnover was in the Home Furnishings division, which was 0.9%less than the previous year, and the Industrial Products division, which was19.9% less than the previous year. The Garments division continued to grow, achieving £584,000 (21.7%) more salesthan the previous year. The sales team was increased by one person during theyear. As reported in the interim results, the decline in Home Furnishings sales wasdue to a number of factors. Some senior staff left at the beginning of the yearand the move of the warehouse caused service levels to fall behind our requiredstandards. Both these problems have now been resolved. A new position of SalesDirector for Home Furnishings was filled during the year and gaps in the salesteam were identified and resolved by the end of December 2004. While the newwarehouse has consistently achieved acceptable service levels since August 2004a new warehouse manager has been appointed recently and further improvements areexpected in this area. Chairman's Statement Also as reported in the interim results, the decline in the Industrial Productsturnover against the previous year was due to the loss of a key customer and theslower than expected start to the new Faupel Safety Products range. Asignificant new contract has since been won on the Airlines side of the businessand the Proforce business is now making a more meaningful contribution toturnover. The Proforce sales team was increased from two people at the start ofthe year to four people by the end of the year and we believe that Proforce hasnow crossed over from being a start-up to being a fledgling business in its ownright. Gross Profit As was the case in the first half, despite the decline in turnover compared tothe previous year, gross profit was up by £669,000 more than the previous year.Gross profit margins increased from 25.9% for the year to 31st March 2004 to 29%for the year to 31st March 2005. While this is consistent with the Group'sobjective and is the result of specific actions, it may not continue at thehigher level achieved in the second half of the financial year. One-off factorsincluding a switch to buying more product in US Dollars and the negotiation oflower prices from suppliers worked to the Group's advantage. Operations Overhead costs were significantly up on the previous year. Distribution costsincreased by £565,000 (14.8%) and administration costs increased by £108,000(4.5%). Distribution costs had been expected to rise through additional staff coststogether with increases in the size of the sales force. In addition thewarehouse move had been expected to add non-recurring additional costsassociated with the move itself and the cost of occupying two sites during themove period. However, bringing the warehouse service up to standard took longerthan expected and unplanned labour and temporary storage costs were incurred. Administration costs had been expected to rise through additional staff costsand additional rent on office premises to house staff previously working atFaupel House in Surrey. However, the actual cost of recruitment of a number ofsenior brand management and sales personnel proved higher than expected. Inaddition while travel costs fell more in line with the previous year for theyear as a whole, the extra travel costs incurred in relation to the temporaryrelocation of staff to assist with the warehouse move were significant. Finance The sale of Faupel House was completed in the first half of the financial yearfor £1,225,000. £250,000 was used to settle dilapidation claims previouslyprovided for, and £492,000 was invested in our new premises and furtherimprovements in the Group's computer systems. The remaining £483,000 was used topay off short-term debt. However, increases in debtors by £370,000 andsettlement of creditors led to an increase in net bank debt of £391,000 to£2,661,000. This in turn led to an increase in interest costs net of interestincome of £30,000 over the previous year to £280,000. Chairman's Statement Finance The level of borrowing, net of cash balances at the year end, is notsignificantly different to that reported a year ago. Since September 2004,management have focussed on driving stock levels down (which had grown duringthe disruptive warehouse move) through a selective clearance programme andtighter control over buying. By the year end stock levels were closer to thelevels they had been a year before, than was the case at 30th September 2004. The increase in debtors is only partly attributable to increased sales over theprevious year in the last two months of the year. A significant proportion canbe attributed to less favourable trading terms being agreed with our customersin response to normal commercial pressures. During the year the Group restructured its bank lending such that it now onlyhas facilities with The Royal Bank of Scotland Group plc and its subsidiariesrather than with four banks as before. The new facilities are more flexible thanthose provided previously and the Group will therefore be able to use availablecash to offset debt more easily. This will reduce interest costs going forward.In addition, more favourable settlement terms have been negotiated with a numberof the Group's suppliers which will further reduce the expected level of bankcredit required. People As covered elsewhere in my report, all those who work for Faupel have had tocope with another year of significant change and the inevitable stress thesechanges bring. All concerned have worked extremely hard to ensure that customerservice is maintained in the process. I thank all our staff for their continuedsupport and enthusiasm. Prospects The introduction of the new Faupel Safety Products business proved to be muchslower than anticipated. Concurrently, the warehouse move was more costly thanexpected. Since the end of the first half of the financial year the sales forcein key areas has been further strengthened and the warehouse service levelsimproved. The Group has now completed the relocation programme for all three of itspremises and has a fully staffed and motivated work force. Key managementchanges have also been implemented. No new business streams are planned and sothe period of relative calm will enable management to focus on improving theexisting ones. Trading and costs in the first two months of the current financial year are inline with our expectations but it is too early to be definitive about prospectsgoing forward. David NewbiggingChairman 17 June 2005 Chief Executive's Report Key issues On the face of it the financial year ended 31st March 2005 was a backward step;and while it is true that it was a difficult year for Faupel, there were somepositive elements that should not be under played. Nonetheless, no one takespleasure in reporting an increased loss and I am unhappy with our performancethis year. On a positive note, at the trading level, while turnover was down slightly onthe previous year, there was a 3% increase in margin to 29%, which resulted ingross profit being £669,000 higher than the previous year (2004: £6,457,000).Margins and balance sheet management have been our primary objectives over thepast two years and are the bedrock of future profitability, so progress in theseareas is welcome. Secondly, the year saw the completion of a number of significant property andstaff moves that caused a degree of hiatus and took some time to bed down. InDecember 2003 the Manchester office moved in to more modern open plan officesand the opportunity was taken to centralise the design, accounting and shippingfunctions entirely to these premises in the early part of the financial year. InApril 2004, in time for the completion of its sale, Faupel House was closed andthe remaining, much slimmed down team, moved to a single, open plan office inLeatherhead. In May 2004, the Group commenced the move of its stock and 65staff, into a single, newly leased warehouse. Over a three month period the fourexisting warehouses in Oldbury, West Midlands, were closed and the stock movedto the new premises near West Bromwich. One year on, all the teams are wellestablished in their new premises and focus is being brought to bear onimprovement programmes without the distraction of getting to grips with new workenvironments and procedures. A new warehouse manager has recently beenappointed and further improvements are expected in this area. Finances During the course of the year the warehouse move contributed to an increase instock levels and readers will recall that the stock figure reported in theinterim results was £1,286,000 higher than it had been at the same time in theprevious year. By the end of the year stock was £3,826,000, £398,000 higher thanit was at the end of the previous financial year. With the warehouse movecomplete and the busy period for sales in September, October and Novembersuccessfully navigated, management were able to turn their attention to drivingstock figures down. This was done through a combination of controlled clearanceof older lines and tighter control over stock orders in the last four months ofthe financial year. The clearance sales were well orchestrated and were achievedwithout damaging overall margins or future sales prospects. We said last yearthat further shrinking of the balance sheet was unrealistic and we remain ofthat view. Our year end stock position is unlikely to reduce further in thefuture. During the second half of the financial year the company also introduced toughercredit terms with its suppliers in China and elsewhere. These terms, togetherwith the tighter stock holding regime, has meant that the Group has been able toreduce its bank debt net of cash balances from £5,129,000 at 30th September 2004to £2,661,000 at 31st March 2005; a reduction of £2,468,000. This compares to areduction of £1,818,000 in the last six months of the previous financial year.In absolute terms bank debt net of cash balances was £2,661,000 at 31st March2005; an increase of £391,000 over the position a year before. Much of thisincrease is attributable to an increase in trade debtors. This is partially dueto higher sales in the last three months of the year than in the previous year,and partially due to less favourable trading terms being agreed with customers. Chief Executive's Report Home Furnishings The sales of the Home Furnishings division during the year were less than theprevious year but the sales in the second half were encouraging. A salesdirector with a proven track record was recruited during the year and her work,along with that of all the sales team should lead sales to increase goingforward. The newer Faupel brands of Humming Bird and Ditton Hill continue toincrease sales and make a worthwhile addition to the existing well establishedPure Opulence brand. Sales of own label product to larger retail customerssuffered during the year but the Sales Director and Design Director have goodcontacts here and efforts are being renewed to increase sales in this market.Sales to mail order customers of own label and Faupel branded Arditti productgrew significantly during the year. Garments Sales of Garments grew 22% year on year with the second half year showing 26%year on year growth. It is felt that this number could have been even better ifthe warehouse move had not intervened. Having brought in a new salesman inFebruary 2004 a further one was recruited in August. Consequently, further salesgrowth is expected in the next financial year. Our garments business has beenfully resurrected after the Rivers Edge difficulties of three years ago andChampion, our outdoor clothing brand, is an important part of the Group goingforward. Industrial products This division comprises three separate lines of business. The Airline Products division that supplies in-cabin textile products to theAirline industry improved sales a little over the previous year. Towards the endof the year a sizeable new contract was won but even then this will not seesales grow to the levels experienced before 9/11. This sector remains difficultbut our overheads are low and our reputation in the industry is good. The Directs division which sources a variety products for delivery direct to thecustomer lost a sizeable contract and the decision has been taken to close thispart of Faupel's business. Mike Duffy has retired from the business after 10years with the Group and we wish him well for the future. The Proforce Brand of personal protective equipment and tools were launched atthe start of the financial year. The rate of growth at the outset was verydisappointing and sales growth undershot expectations throughout the year.However, two new salesmen were recruited and sales are now reaching worthwhilelevels, growing month on month. Some significant contracts have been won whichshould deliver further sales growth in the year ahead. While our products arecompetitively priced and of good quality, overcoming customer loyalty to theirexisting suppliers has been harder than we expected despite these obviousadvantages. The early slow start lead the Group to be overstocked in thisdivision. However, the product does not devalue over time and as I write thestock levels are more in line with the levels of sales currently being achieved. Chief Executive's Report People It has been a hard year for our staff, with many making big personal sacrificesto support the Group through the particularly difficult six month period leadingup to Christmas. The feature that most impressed me was that many people weremore willing and able to work together with others from across the Group to findsolutions to problems. This demonstrates that the changes made over the last fewyears have created a stronger team and a more resilient company as a result. My thanks goes to all my colleagues for the effort made this year. I lookforward to a more prosperous year ahead. Laurence MeadGroup Chief Executive 17 June 2005 Consolidated Profit and Loss Accountfor the year ended 31st March 2005 Notes 2005 2004 £'000 £'000 Turnover 3 24,607 24,892 Cost of sales (17,481) (18,435) _____________ _____________ Gross profit 7,126 6,457 Distribution costs (4,380) (3,815) Administration expenses (2,518) (2,410) _____________ _____________ Operating profit 3 228 232 Interest receivable 21 27 Interest payable (301) (277) _____________ _____________ Loss on ordinary activitiesbefore taxation (52) (18) Tax on loss on ordinary activities - - _____________ _____________Loss on ordinary activitiesafter taxation and for the financial year (52) (18) _____________ _____________ Loss per ordinary share, basic and diluted 4 (0.3p) (0.1p) _____________ _____________ Consolidated Balance Sheetat 31st March 2005 2005 2004 Note £'000 £'000 Fixed assets Tangible assets 679 334 _____________ _____________ Current assets Stock 3,826 3,428 Debtors 3,983 3,613Proceeds due on the sale of Faupel House 5 - 1,225 _____________ _____________ Total debtors 3,983 4,838 Cash at bank and in hand 622 1,384 _____________ _____________ 8,431 9,650 Creditors: amounts falling due within one year 6 (4,873) (5,445) _____________ _____________ Net current assets 3,558 4,205 _____________ _____________ Total assets less current liabilities 4,237 4,539 Provisions for liabilities and charges - (250) _____________ _____________ Net assets 4,237 4,289 _____________ _____________ Capital and reserves Called up share capital 785 785Share premium account 2,882 2,882Other reserve 93 93Profit and loss account 477 529 _____________ _____________ Equity shareholders' funds 4,237 4,289 _____________ _____________ Consolidated Cash Flow Statementfor the year ended 31st March 2005 2005 2004 Notes £'000 £'000 Cash (outflow)/inflow fromoperating activities 7 (844) 1,380 Returns on investments and servicing of finance 8 (280) (197) Taxation - 4 Capital expenditure and financial investment 8 733 (129) _____________ _____________ Cash (outflow)/inflow before management of liquidresources and financing (391) 1,058 Management of liquid resources 8 (371) (746) _____________ _____________ Increase/(decrease) in cash in the year (762) 312 _____________ _____________ Reconciliation of net cash flow to movement in cash 2005 2004 £'000 £'000 (Decrease)/increase in cash in the year (762) 312 Cash at beginning of year 1,384 1,072 _____________ _____________ Cash at end of year 622 1,384 _____________ _____________ Consolidated Cash Flow Statementfor the year ended 31st March 2005 (continued) Reconciliation of net cash flow to movement in net bank debt 2005 2004 £'000 £'000 Bank debt at beginning of year (3,654) (4,400)Cash at beginning of year 1,384 1,072 _____________ _____________ Bank debt net of cash at beginning of year (2,270) (3,328) _____________ _____________ Management of liquid resources 371 746(Decrease)/increase in cash in the year (762) 312 _____________ _____________ (Increase)/decrease in bank debtnet of cash (391) 1,058 _____________ _____________ Bank debt at end of year (3,283) (3,654)Cash at end of year 622 1,384 _____________ _____________ Bank debt net of cash at end of year (2,661) (2,270) _____________ _____________ Notes: 1. The financial information set out above does not constitute theCompany's statutory financial statements for the years ended 31st March 2005 or2004. The financial information for 2005 and 2004 is derived from the statutoryfinancial statements for those years. The statutory financial statements for2004 have been delivered to the Registrar of Companies. The statutory accountsfor 2005 will be delivered to the Registrar of Companies following the Company'sAnnual General Meeting. The Group's auditors, KPMG Audit Plc, have reported onthe 2005 and 2004 financial statements. Their reports were unqualified and didnot contain a statement under 237(2) or (3) of the Companies Act 1985. 2. It is anticipated that the report and financial statements will beposted to shareholders on 31st July 2005. The Annual General Meeting will beheld on 1st September 2005. 3. Turnover and operating profit/(loss) 2005 2004 2005 2004 Operating Operating Sales Sales Profit/(loss) Profit/(loss) £'000 £'000 £'000 £'000Business sector analysisHome Furnishings 18,524 18,698 1,250 1,210Garments 3,277 2,693 131 153Industrial Products 2,806 3,501 (65) 2Central admin costs - - (1,088) (1,074) -------- -------- ------- --------Before one-off, non-recurring items 24,607 24,892 228 291 --------- -------- Cost incurred on aborted acquisitions - (59) -------- --------Operating profit/(loss) 228 232 -------- -------- 4. Loss per ordinary share Loss per share is based on the Group loss after taxation of £52,000 (2004: loss£18,000) and the weighted average number of ordinary shares in issue during theyear of 15,709,447 (2004:15,709,447). Diluted loss per share, calculated in accordance with FRS 14, is unchanged fromthe basic loss per share. 5. Faupel House, the Company's freehold property, was sold during theyear. The transaction was successfully completed on 1st June 2004. 6. Creditors include £3,283,000 (2004: £3,654,000) of bank borrowings. Notes (continued): 7. Cash flow from operating activities Reconciliation of operating profit to operating cash flow 2005 2004 £'000 £'000 Operating profit 228 232 Profit on disposal of freehold property - (19)Loss on disposal of fixed assets 4 -Depreciation 143 126Impairment of fixed assets - 19Increase in stocks (398) (21)(Increase)/decrease in debtors (370) 1,325Decrease in creditors (201) (282)Decrease in provisions for liabilities and charges (250) - _____________ _____________ Net cash (outflow)/inflow from operating activities (844) 1,380 _____________ _____________ 8. Analysis of cash flows for headings netted in the cash flow statement 2005 2004 £'000 £'000Returns on investments and servicing of financeInterest received 21 27Interest paid (301) (224) _____________ _____________ Net cash outflow for returns on investments and servicingof finance (280) (197) _____________ _____________ Capital expenditure and financial investmentPurchase of tangible fixed assets (492) (129)Proceeds from sale of investment 1,225 - _____________ _____________ Net cash inflow/(outflow) for capital expenditure andfinancial investment 733 (129) _____________ _____________ Management of liquid resourcesDecrease in bills payable and bank borrowings (371) (746) _____________ _____________ Net cash outflow frommanagement of liquid resources (371) (746) _____________ _____________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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