21st Jul 2005 07:00
Sherwood Group PLC21 July 2005 Sherwood Group plc Trading, pension deficit and share buy-back update Sherwood Group plc ("Sherwood", "the Company" or "the Group") is a designer andsupplier of garments, principally for the lingerie, swimwear and nightwearmarkets. Following the completion of the first six months of the current financial yearon 30 June 2005, the board of Sherwood wishes to provide a trading update.Trading conditions have been very tough for Sherwood in the last few months asUK consumer spending on clothing has fallen. Highlights • Overall sales in six months to June 2005 £10m (£13.4m in 2004)• Continued growth in branded sales of 12%• Substantial fall in private label sales of 38%• Overall gross margins 5% higher• May 2005 share buy-back cost £590,000• Cash resource at 30 June 2005 £10m• Fresh planning application for Borrowash building disposal• Final offer to pension trustees 19 July 2005• Prospect of settlement with trustees will unlock share buy-back Trading update Positively, following 55% sales growth in calendar 2004, branded sales have seena healthy increase in the six months to 30 June to £3.7 million (£3.3 million inthe six months to 30 June 2004), an increase of 12%. This growth rate isexpected to accelerate with the launch of the licenced Ted Baker product linesin store before the end of 2005. On the other hand, private label sales have fallen sharply in the last fewmonths influenced not only by the general lower level of consumer spending butalso through the dislocation of the swimwear supply base, first reported in theCompany's 2004 Preliminary Results in March, which meant a £3 million loss ofturnover in the current financial year as a result of one of our major suppliersgoing direct to the customer. Since March, our second major swimwear supplier has now also chosen to go directto the customer, which will result in further dislocation in 2006. Trading inthe 2005 swimwear season has been poor in any event and UK retail sales aresharply down due to poor Spring and early Summer weather. In addition, the lossof lingerie business with Allders will represent £750,000 in lost sales during2005, and progressively into 2006 the recent sale of the Littlewoods stores willresult in a further £3 million per annum in lost lingerie and nightwear sales asthe new owners buy direct from manufacturers. As a result, in the six months to 30 June 2005, private label sales have fallento £6.3 million (£10.1 million in the six months to 30 June 2004), a fall of38%. Gross margins are 6% higher on branded sales and 3% higher on private label.The overall improvement of 5% is due to the higher proportion of branded sales.The recent strengthening of the US$, if sustained, will put pressure on futuregross margins, especially in the private label sector. As has already been clearly reported, the Company's strategy has been to developits branded product portfolio and widen its distribution; this, if anything isbeing achieved faster than we had planned - especially with the forthcomingintroduction of the Ted Baker product lines. Nevertheless, the decline inprivate label activity is happening faster than envisioned. We had anticipated that over a three year period private label sales losseswould be offset by branded gains, but external events have now substantiallydented this prospect, influenced especially by the very substantial demands onChinese manufacturing capacity and distribution choices now open to them sincetrading controls were loosened on 1 January 2005. Despite an immediate review of the cost structure it is inevitable that salesand net earnings will fall in the 12 months to 31 December 2005, compared to thesame period in 2004. Costs are being cut now and a further review of theresidual private label business is underway. Update on the pension scheme deficit and possible share buy-back Negotiations continue with the Pension Trustees on a resolution of the finalsalary scheme deficit and agreement over future investment policy. A finaloffer has been made by the Company to the Trustees to resolve the matter. Ameeting is scheduled for 2 August. As soon as agreement is reached, we willapply to the Pension Regulator for clearance to allow us to progress a sharebuy-back scheme using our excess cash without further delay. The settlement with the Pension Trustees and the planned share buy-back areunderpinned by the Group's strong balance sheet. At 30 June 2005, after the£590,000 spent on share buy-backs during May, the Group had cash resources ofsome £10 million, which will be increased further by the anticipated future saleof the Company's Borrowash site. Proceeds from this sale are expected to fall within a range of £2.4 to £3.8million, depending on planning permission and a satisfactory resolution of therestrictive covenant. A second planning application is currently being finalisedfor early submission, which addresses fully, in our view, the planningcommittee's concerns over the first application. A further update will be provided in the Company's Interim Results, which willbe published on 23 September 2005. 21 July 2005 ENQUIRIES: Sherwood Group plcNoel Jervis, Chairman Tel: 07710 491 083Carol Duncumb, Chief Executive Tel: 0115 946 1070Laurence Ford, Finance Director Tel: 0115 946 1070 College HillGareth David Tel: 020 7457 2020 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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