16th May 2006 07:00
Tandem Group PLC16 May 2006 TANDEM GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2006 Chairman's statement Turnover was £42,760,000 compared to £52,683,000 last year. The operatingprofit, after including the trading losses from Pot Black and before exceptionalcosts of £1,382,000 and goodwill amortisation and impairment of £640,000, was£226,000 compared to £1,725,000 in the prior year. After deducting exceptionalcosts and goodwill amortisation and impairment the operating loss was£1,796,000. There was a loss before taxation of £2,157,000 compared to a profitlast year of £1,179,000. Falcon and Dawes Turnover in the bicycle business, with the well known brands of Falcon, Dawes,Claud Butler, Shogun, British Eagle and Optima, was lower than the previous yearas we maintain the policy of withdrawing from low margin business withquestionable profitability. Although there are no reliable statistics producedit was generally believed that sales in the U.K. of lower priced bikes in 2005were down on the previous year in line with the difficult market conditions. Ourcontinuing policy of reducing costs resulted in an increase in profitability. With our reputation for product design and service our customer base continuesto grow, from which we should benefit as the retail environment improves.Further sales resources have been added. Production at the Group's manufacturingfacilities in the U.K. has been reducing over the last few years and has beenconcentrating on the higher value bikes. This will cease in the summer of 2006as production is moved abroad. Overhead savings will be made which, togetherwith a reduction in working capital, should lead to increased profitability. MV Sports MV distributes a range of products featuring high profile brand and characterlicences including Barbie, Groovy Chick, Bang on the Door Baby, Thomas the TankEngine, Bob the Builder and a range of football training equipment under theKickmaster brand. Following a record year to 31 January 2005, turnover for the year to 31 January2006 was somewhat lower. A significant catalogue shop customer closed. There wasincreased competition against some of our longer established licences and achallenging retail sector. Sales opportunities with low margins were notpursued. Lower overheads failed to compensate for the reduced turnover. The success of the MV business is down to having the right brands and licencesand product innovation. More resources have been placed in these areas. Newranges including Barbie Fairytopia, Barbie Mermaidia, Barbie 12 DancingPrincesses, Fireman Sam and Winx Club have been developed for 2006. Pot Black The management of Pot Black failed to deal with the increased competition fromunbranded imports and the changes required following the introduction of newBritish Standards on outdoor play products' safety regulations. It was decidedthat, with losses mounting, the Devon operations should be closed. Exceptionalcosts of £1,382,000 were incurred in closing down the operations of which£410,000 was cash outflow for employee severance payments, lease terminationsand removal costs. The balance of £972,000 was in respect of writing down thebook value of plant and machinery, stock and debtors to their recoverableamount. In view of the losses, a provision of £434,000 has been made against thegoodwill of Pot Black in accordance with Financial Reporting Standard 11. The profitable products within the Pot Black range are being continued andfurther developed to meet market requirements to contribute a useful marginwithin the MV business. Ben Sayers Although Ben Sayers is our smallest business, the brand is one of the oldest ingolf, having been established in 1876. We have withdrawn from low margin business and turnover was slightly down on theprevious year but with a much improved customer base. The results were betterthan last year but still not up to the potential. New systems have been put in place to ensure improved product availability andcustomer service. The new M Series range for 2006 has received good trade andconsumer press coverage and has been enthusiastically received by retailers. Pensions As required by Financial Reporting Standard 17 (FRS17) we have included theactuarial deficits on the Group's pension schemes' defined benefit sections onthe balance sheet for the first time. We have restated the previous year'sfigures accordingly. The Group operates two pension schemes that have defined benefit liabilities.There is only one active member receiving defined benefit pension accruals andnew members of both schemes can join the defined contribution sections, where nodeficit can be incurred. In accordance with the advice from the schemes'actuaries, payments totalling £188,000 per annum are currently being made toreduce the deficit of the schemes. The schemes' actuaries calculate the deficitusing guidelines that the government and Institute of Actuaries agree could beinappropriate and which consequently are being withdrawn. Nevertheless we areobliged to make these payments which deplete funds available for investment togrow the business. The two schemes had funds invested totalling £10.6 million at 31 January 2006compared with £9.2 million at 31 January 2005. Investment income and growthduring the year was £1.8 million. Pensions and transfer payments paid outtotalled £443,000, representing 4.2% of the funds invested at 31 January 2006. Summary The losses at Pot Black and the cost of stopping them are now behind us. We havereviewed our forecasting procedures to ensure that any loss making activitiesare swiftly dealt with so that in the future we do not incur similar problemssuch as those experienced at Pot Black. Reporting controls, particularly thoserelating to stock, have been improved. Whilst these events have clearly had anadverse effect on our balance sheet, careful control of working capital hasincreased net funds. Current trading Trading in the first quarter of the current financial year is in line withbudget on a reduced turnover following the withdrawal from low margin orunprofitable business. As in previous years our profits will be concentrated inthe second half of the financial year. Your board and the management in the businesses are fully aware of the need toreturn to the level of progress that the Group made in previous years. Graham WaldronChairman16 May 2006 Consolidated profit and loss account Year ended 31 January 2006 Year ended Before goodwill Goodwill After goodwill 31 January amortisation/ amortisation/ amortisation/ 2005 impairment and impairment impairment and Restated exceptional and exceptional items exceptional items items £'000 £'000 £'000 £'000 Turnover 42,760 - 42,760 52,683 Cost of sales (30,819) - (30,819) (35,794) -------- -------- -------- -------- Gross profit 11,941 - 11,941 16,889 -------- -------- -------- -------- Net operating expenses (11,715) (1,382) (13,097) (15,155) Goodwill amortisation and - (640) (640) (9) impairment -------- -------- -------- -------- Total operating expenses (11,715) (2,022) (13,737) (15,164) -------- -------- -------- -------- Operating profit/(loss) 226 (2,022) (1,796) 1,725 -------- -------- Finance charges (361) (546) -------- -------- (Loss)/profit on ordinary activities before taxation (2,157) 1,179 Tax charge on (loss)/profit on ordinary activities (152) (74) -------- -------- (Loss)/profit on ordinary activities after taxation transferred(from)/to reserves (2,309) 1,105 -------- -------- (Loss)/earnings per share Pence Pence Basic (6.14) 2.94 --------- -------- Diluted (6.14) 2.89 --------- -------- Consolidated balance sheet At 31 January 2006 2005 2006 Restated £'000 £'000Fixed assetsIntangible assets 2,677 3,317Tangible assets 563 919 -------- -------- 3,240 4,236 -------- -------- Current assetsStocks 5,664 8,494Debtors 5,527 7,731Cash at bank and in hand 2,426 2,855 -------- -------- 13,617 19,080 Creditors - amounts falling due within one year (11,076) (15,138) -------- -------- Net current assets 2,541 3,942 -------- -------- Net assets before pension schemes' deficits 5,781 8,178 Pension schemes' deficits (2,839) (2,055) -------- -------- Net assets after pension schemes' deficits 2,942 6,123 -------- -------- Capital and reservesCalled up share capital 1,503 1,503Share premium account 5,258 5,258Merger reserve 1,036 1,036Other reserves 1,426 1,426Profit and loss account (6,281) (3,100) -------- -------- Equity shareholders' funds 2,942 6,123 -------- -------- Consolidated cash flow statement Year ended 31 January 2006 Cash flow Notes 2006 2005 Restated £'000 £'000 Net cash inflow from operating activities 1 1,046 2,566 ------- ------- Returns on investments and servicing of financeInterest paid (358) (532)Interest element of hire purchase rentals (3) (14) ------- ------- Net cash outflow from returns on investments andservicing of finance (361) (546) ------- ------- Taxation (43) (4) ------- ------- Capital expenditurePurchase of tangible fixed assets (119) (141)Sale of tangible fixed assets 49 77 ------- ------- Net cash outflow from capital expenditure (70) (64) ------- ------- Net cash inflow before financing 572 1,952 ------- ------- FinancingPurchase of subsidiary companies' preference shares - (163)Repayments of amounts borrowed (980) (800)Capital element of hire purchase rentals (21) (99) ------- ------- Net cash outflow from financing (1,001) (1,062) ------- ------- (Decrease)/increase in cash 2 & 3 (429) 890 ------- ------- Notes to consolidated cash flow statement 1. Reconciliation of operating profit to net cash inflow from operating activities 2006 2005 £'000 £'000 Operating (loss)/profit (1,796) 1,725Depreciation charges 307 570Provision for impairment/amortisation of goodwill 640 206Negative goodwill released - (197)Loss/(profit) on sale of tangible fixed assets 119 (29)Decrease/(increase) in stocks 2,830 (203)Decrease in debtors 2,095 1,523Decrease in creditors (3,024) (1,008)Adjustment for pension funding (125) (21) ------- ------- Net cash inflow from operating activities 1,046 2,566 ------- ------- 2. Reconciliation of net cash inflow to movement in net funds 2006 2005 £'000 £'000 (Decrease)/increase in cash (429) 890Cash to repay finance leases and hire purchase contracts 21 99Bank loan 900 800Other loans 80 - ------- ------- Changes in net funds resulting from cash flows 572 1,789Net funds at 1 February 1,853 64 ------- ------- Net funds at 31 January 2,425 1,853 ------- ------- 3. Analysis of net funds At At 1 February 31 January 2005 Cash flow 2006 £'000 £'000 £'000 Cash at bank and in hand 2,855 (429) 2,426Bank loan due within 1 year (900) 900 -Other loans (80) 80 -Hire purchase creditors (22) 21 (1) -------- -------- -------- 1,853 572 2,425 -------- -------- -------- Notes to the preliminary results 1. The financial information in this preliminary announcement does notconstitute the Group's statutory accounts for the years ended 31 January 2006 or2005. The financial information for 2005 is derived from the statutory accountsfor the year ended 31 January 2005, restated for the adoption of FRS 17, whichhave been delivered to the Registrar of Companies. The auditors have reported onthe accounts for the financial years ended 31 January 2005 and 31 January 2006.Their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. The statutory accounts for the year ended 31 January 2006 will bedelivered to the Registrar of Companies following the Group's Annual GeneralMeeting. 3. The adoption of FRS 17 has required changes in the method ofaccounting for defined benefit pension schemes. As a result of this change inaccounting policy the comparatives have been restated as follows: Pension P&L scheme Reserve deficits £'000 £'000 2005 as previously reported - (1,045) ------- ------- Adoption of FRS 17 at 1 February 2004 (1,832) (1,832)During the year ended 31 January 2005 (223) (223) ------- ------- Adoption of FRS 17 at 31 January 2005 (2,055) (2,055) ------- ------- 2005 restated (2,055) (3,100) ------- ------- The effect of the adoption of FRS 17 on the 2005 profit and loss account is toincrease the previously reported operating profit by £35,000 to £1,725,000 andincrease the previously reported other finance costs from £nil to £56,000. 4. No dividend on the ordinary shares is being proposed (2005 - £nil). 5. Earnings per share 2006 2005 £'000 £'000 Profit for the year used for basic anddiluted earnings per share calculation (2,309) 1,105 ------- -------- Number NumberWeighted average number of ordinary sharesin issue during the year used for basic andadjusted earnings per share calculation 37,584,412 37,584,412Weighted average number of shares under option - 1,635,000Number of ordinary shares that would have tobe issued at fair value - (942,926) ------- -------Weighted average number of ordinary sharesin issue during the year used for dilutedearnings per share calculation 37,584,412 38,264,486 ------- ------- Earnings per share Pence PenceBasic (6.14) 2.94Diluted (6.14) 2.89 FRS 14 requires presentation of diluted earnings per share ("EPS") when acompany could be called upon to issue shares that would decrease net profit orincrease net loss per share. For a loss making company with outstanding shareoptions, net loss per share would only be increased by the exercise ofout-of-the-money options. Since it seems inappropriate to assume that optionholders would act irrationally and there are no other diluting future shareissues, diluted EPS equals basic EPS. 6. The Annual Report and Accounts will be posted to shareholders shortly. 7. The Annual General Meeting will be held at 11:00 a.m. on 27 June 2006at Eversheds LLP, 1 Royal Standard Place, Nottingham NG1 6FZ. 16 May 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Tandem Group