23rd Sep 2005 07:00
Sherwood Group PLC23 September 2005 SHERWOOD GROUP PLC Interim results for the six months to 30 June 2005 Sherwood Group plc ("Sherwood" or "the Group") is a designer and supplier ofladies' intimate apparel HIGHLIGHTS • Sales £10m (2004: £14.4m); Branded sales increased by 10% • Profit before tax £0.9m (2004: Loss £3.8m), after non-recurring items • Cash resources £9.9m (2004: £7.1m) • Significant cost reduction plan in response to reduced Private Label sales • Strategic importance of Branded activity for future success • Pension Trustees rejected Company's final offer to reduce scheme deficit • Application with Pension Regulator seeking share buy back clearance Noel Jervis, Chairman, comments: ''So far this has been a year of considerable challenge and change. We plan tostart the next financial year in much stronger shape'' 23 September 2005 ENQUIRIES: Sherwood Group plc Noel Jervis, Chairman Tel: 07710 491 083 Carol Duncumb, Chief Executive Tel: 0115 946 1070 Laurence Ford, Finance Director Tel: 0115 946 1070 College Hill Gareth David Tel: 020 7457 2020 CHAIRMAN'S STATEMENT Trading The growth strategy for the Branded operations will build on the excellentprogress so far made, and will bring further benefits progressively over thenext three years. We expect to deliver Branded growth of 10% for 2005 as awhole, following 55% growth in 2004. The newly licenced Ted Baker ranges willfuel further growth during 2006. The reasons behind the large fall in overall sales were explained in the Group'sUpdate statement released 20 July 2005. The Group will exit all unprofitablePrivate Label business in the light of diminished competitive supply sources andthe progressive switch to direct buying, recently accelerated by the purchase ofLittlewoods Retail by Primark. A further fall in sales within this sector isinevitable and will take place throughout 2006, with the loss of the Littlewoodsaccount alone accounting for around £3m of sales revenue. The cost base has already been reduced to protect profitability, althoughshort-term revenue investments in Branded growth will be necessary for futuresuccess. Non-recurring items include a £1.6m gain on the sale of assets, offset byre-organisation costs of £0.2m, costs in respect of discontinued businessespecially site clearance of £0.2m, fees for both parties in the resolution ofthe pension fund deficit so far of £50,000 and legal and professional expensesincurred in transferring the Company to AIM and the share buy back scheme of£0.1m. Cash The cash balance at 30 June 2005 (£9.9m) will be enhanced by the completion ofthe sale of the Borrowash building. A second planning application by thePurchaser to the Local Authority is imminent and expected to be discussed inearly Autumn by the relevant Planning Committee. This fresh applicationaddresses fully, in the Company's view, the grounds on which the firstapplication was refused and in particular reduces the housing density proposed.A successful application should boost the Group's cash funds to approaching £13monce contracts are finally exchanged. Due entirely to the planning complexities, negotiations with the Purchaser haveresulted in the long-stop date for this transaction being extended to Autumn2007, whilst the formula contained in the shareholder circular (dated 5 October2004) was based on the date of an exchange of contract plus two years. A numberof other contractual amendments have been agreed but these are not consideredmaterial. A final rejection of the sale of the Borrowash building withoutplanning permission for change of use might be expected to reduce the cashresource by up to £1m. It is from this cash resource that the pension deficit will be at least partlysatisfied, following the Regulator's judgement on the Company's proposal for acash injection into the Pension Fund, and its consequent clearance of a sharebuy back scheme. The Board believes it is necessary to retain certain funds toensure that the more intense working capital requirements of a Branded growthstrategy can be fully funded internally. Pension Scheme The present estimated actuarial valuation of the scheme suggests that the FRS17deficit has fallen to £7.5m (£8.1m at 31 December 2004). Against thisbackground, the Company's final offer to the Pension Scheme Trustees wasrejected on 13 September. The offer consisted of: • the immediate payment of a £3m cash sum • a further £2m cash sum to be made available to top-up transfer values for deferred members who, upon receipt of independent financial advice, might choose to put their pension funds into schemes of their own choice and with particular regard to the Government's new more flexible proposals for private pensions • the cashing out of members with small funds or lump sum arrangements • the prospect of a further cash injection representing the excess of the price yielded from a sale of the Borrowash site based on a successful planning application over and above the value of an existing use basis • the balance of any residual deficit, after the application of the above proposals, to be paid down over a timescale to be agreed • a negative pledge in respect of shareholder dividends (unless paid out of earnings) and borrowings (except for the prospect of a debtor finance scheme and a normal overdraft), plus a first charge over the Long Eaton freehold building and a secondary charge, after the Bank, over working capital assets both of which will remain until such time as the FRS17 deficit is fully satisfied The advantage of an agreement on this basis would have been greater certaintyfor all parties, a smaller fund with much reduced risk and administrative burdenand an 'agreed' application to the Pension Regulator. Following the Trustee rejection, the Company has now filed a clearanceapplication with the Regulator. The application seeks to obtain the Regulator'sagreement to a share buy-back scheme on the basis that the Company's obligationsto the Pension Fund are satisfactorily met by the proposals rejected by theTrustees. The Regulator might be expected to reach a decision within five tosix weeks. Share buy-back It is clear that the Board cannot determine either the timing or quantum of itsproposals to buy-back shares until it has the Regulator's judgement on itsclearance application and the implications that a distribution to shareholdersmight have on the pension fund. However, any immediate buy-back will beconstrained by the level of distributable reserves which are presently £6.7m(6.4 pence per share). Future distributable reserves will be created throughfuture operating profits and the sale of the Borrowash building, but also, ifnecessary, by application to the Court. The Court process is a costly one andthe Board did not consider it wise to incur an unwelcome and perhaps unnecessarycost at this stage. Immediate Action Plans and Future Strategy Following the decision to control an exit out of unprofitable Private Labelbusiness, the Board have recently undertaken a full strategic review anddeveloped an action plan which will be implemented over the next six months,with the objective of accelerating the growth in the Branded operations andenhancing profitability. This strategy will be centred on the Lepel, MissLepel, Discover Mademoiselle, Ted Baker labels and other new brand launchesplanned over the next six months as we extend the market sector, consumer andproduct breadth of our activities. A number of major initiatives have now been identified, each with a definedtimescale. In particular, margin improvement will be achieved through tighteroperational controls, both internally and through the supply chain, as well asby extending the pricing and perceived value of the ranges on offer and throughbetter buying. In addition, we are putting in place measures to improve customerservice levels, with higher stock availability, more intense merchandising andimproved point of sale activity. Parallel to this, our brands require investmentin order to raise their profile in the market and enlarge product range anddistribution options. On completion, the Group will consist of a more diverse portfolio of ladies'intimate apparel brands, targeting all major market segments and age groups.Our longer-term objective, based on a driven, progressive improvement inconsumer awareness of our brands, is to overtake some of the more traditionalbrands in the UK market place in terms of market share by creating andcapitalising on fashion trends which we can deliver faster and better than thecompetition. Outlook The Company will return to a continuing business operating profit in the secondhalf of 2005, before charging the final balances of reorganisation costs andfees to be incurred in respect of the resolution of the pension fund deficit,including independent advice for the Trustees in addition to the Group's owncosts. We have experienced relatively minor delay problems in relation to shipmentsfrom China to date, but the incompetent Brussels administration may yet have anadverse impact on future availability from China. In our Branded operations, wehave well established relationships with Thailand manufacturers which, givensufficient notice, could be encouraged to provide a higher level of productionif appropriate. Order books for the period to the end of the calendar year are now virtuallyclosed and we expect to be able to deliver all these orders. However, HighStreet sales lag our customers' expectations and it may well be that there aresome orders which may not be called off until early into the New Year. On a much reduced cost base and a progressively increasing Branded turnoverwhich is forecast to increase by one-third in 2006, the Company expects to growprofitability over the next three years to a more acceptable and competitivelevel. NOEL JERVIS Chairman 23 September 2005 GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED) Half year ended 30 June 2005 Half year ended 30 June 2004 Continuing Discontinued Total Continuing Discontinued Total £'000 £'000 £'000 £'000 £'000 £'000 Turnover 10,011 - 10,011 13,424 951 14,375Operating (loss)/profit (636) (219) (855) 452 (651) (199) Share of operating loss of - - - (9) - (9)associateTotal operating (loss)/profit including share ofassociate (636) (219) (855) 443 (651) (208) Profit on sale of fixed - 1,635 1,635 - 1,197 1,197assetsLoss on sale of operations - - - - (204) (204)Goodwill previously written - - - - (4,522) (4,522)offProfit/(loss) on ordinaryactivities before (636) 1,416 780 443 (4,180) (3,737)interestNet interest receivable/ 95 (29)(payable)Profit/(loss) on ordinary 875 (3,766)activities before taxTax on profit/(loss) on (214) (103)ordinary activitiesAmount transferred to/(from) 661 (3,869)reserves Earnings/(loss) per share 0.6p (3.5p) Year ended 31 December 2004 Continuing Discontinued Total £'000 £'000 £'000Turnover 26,382 949 27,331 Operating (loss)/profit 655 (1,267) (612) Share of operating loss of (333) - (333)associateTotal operating (loss)/profit including share ofassociate 322 (1,267) (945) Profit on sale of fixed - 1,931 1,931assetsLoss on sale of operations - (204) (204)Goodwill previously written - (4,522) (4,522)offProfit/(loss) on ordinaryactivities before 322 (4,062) (3,740)interestNet interest receivable/ 59(payable)Profit/(loss) on ordinary (3,681)activities before taxTax on profit/(loss) on (217)ordinary activitiesAmount transferred to/(from) (3,898)reserves Earnings/(loss) per share (3.5p) STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (UNAUDITED) Half year Half year Year ended ended ended 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000 Result for the period 661 (3,869) (3,898)Currency translation differences on overseas net investment (48) (72) (62)Actuarial loss on pension scheme-note 2 - (485) (1,400)Deferred tax movements relating to pension scheme (62) 146 278Total gains and losses recognised in the period 551 (4,280) (5,082) Prior year adjustment - (5,008) (5,008) Total gains and losses recognised since the last annual 551 (9,288) (10,090)report GROUP BALANCE SHEET (UNAUDITED) 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Fixed assets Intangible assets 917 - 950Tangible assets 1,879 5,590 3,789Investments - 324 - 2,796 5,914 4,739 Current assets Asset held for resale - note 8 1,653 - -Stock 3,785 4,725 4,712Debtors 3,527 6,152 4,967Cash at bank and in hand 9,931 7,093 9,735 18,896 17,970 19,414 Creditors: amounts falling due within one year (2,194) (3,870) (4,469)Net current assets 16,702 14,100 14,945 Total assets less current liabilities 19,498 20,014 19,684 Net pension scheme deficit - note 2 (5,511) (5,186) (5,658) Net assets 13,987 14,828 14,026 Capital and reserves Called up share capital 5,270 5,547 5,547Share premium account 89 89 89Capital redemption reserve 415 138 138Profit and loss account 8,213 9,054 8,252Equity shareholders' funds 13,987 14,828 14,026 GROUP CASH FLOW STATEMENT (UNAUDITED) Half year Half year Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Net cash outflow from operating activities (1,164) (1,817) (660) Returns on investments and servicing of financeNet interest received 210 82 274 Net inflow from taxation - 109 108 Capital expenditure and financial investmentPurchase of intangible assets - - (968)Purchase of tangible fixed assets (196) (142) (265)Sale of tangible fixed assets 1,936 2,703 5,084 Acquisitions and disposals Purchase of investment - (333) (333)Share buy-back (590) - - Increase in cash resulting from cash flows 196 602 3,240 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS (UNAUDITED) 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Increase in cash resulting from cash flows 196 602 3,240 Exchange adjustments - (4) -Movement in net funds in the period 196 598 3,240 Net funds at 1 January 9,735 6,495 6,495 Net funds at period end 9,931 7,093 9,735 NOTES TO THE ACCOUNTS 1. Segmental analysis (a) Business activity The Group's principal activity is the design and sale of ladies intimateapparel. (b) Geographical area of operation All activities are in the United Kingdom (c) Geographical analysis of turnover by destination Half year ended Half year ended Year ended 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000 Turnover to:United Kingdom 9,906 13,714 26,650Rest of Europe 81 314 360Far East 12 287 257The Americas - 8 8Rest of the World 12 52 56 10,011 14,375 27,3312. Pension deficit 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Deficit at the end of the period (7,873) (7,408) (8,082) Related deferred tax asset 2,362 2,222 2,424 Net pension scheme deficit (5,511) (5,186) (5,658) In accordance with FRS 17 the movements in the period to 30 June 2005 have beencalculated using the assumptions disclosed in the annual report for the yearended 31 December 2004. No account has been taken of any actuarial gains orlosses. 3. Abridged accounts The results for the year ended 31 December 2004 are an abridged version of thefull accounts for that year. The interim report is unaudited. The full 2004accounts incorporating an unqualified audit report have been filed with theRegistrar of Companies. 4. Tax charge The tax charge for the six months ended 30 June 2005 has been based on theestimate of the tax charge for the full year results with the effective rate oftax applied to the half year result before tax. 5. Earnings/(loss) per share Earnings/(loss) per share has been calculated on the earnings/(loss) for theperiod divided by the weighted average number of shares in issue: 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Earnings/(loss) for basic earnings/(loss) per share 661 (3,869) (3,898) Weighted average number of ordinary shares 109,625,520 110,941,178 110,941,178 6. Reconciliation of operating loss to net cash outflow from operatingactivities Half year ended Half year ended Year ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Operating loss (855) (199) (612)Depreciation and amortisation 176 538 830Loss/(profit) on disposal of fixed assets 8 - (1)Decrease in stock 927 1,695 1,708Decrease/(increase) in debtors 1,226 (974) (156)Decrease in creditors (2,322) (2,877) (1,742)Pension contributions in excess of operating charge (324) - (687) Net cash outflow from operating activities (1,164) (1,817) (660) 7. Reconciliation of movements in equity shareholders' funds 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Result for the period 661 (3,869) (3,898)Other recognised gains and losses (110) (411) (1,184)Share buy-back (590) - -Goodwill previously written off - 4,522 4,522Net (decrease)/increase in shareholders' funds (39) 242 (560) Shareholders' funds at 1 January 14,026 14,586 14,586Shareholders' funds at period end 13,987 14,828 14,026 8. Asset held for resale The Borrowash property has been reclassified as a current asset. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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