Reece PLC - Final Results
02 Juni 1999 - 9:32AM
UK Regulatory
RNS No 1489x
REECE PLC
2 June 1999
REECE PLC - PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER
1998
CHAIRMAN'S STATEMENT
RESULTS
1998 was a difficult year for Reece PLC. During the year the
loss on ordinary activities after taxation increased to
#1,640,000 compared with #238,000 in 1997. These results were
significantly affected by the increased losses from fasteners
and the one-off costs incurred in the disposal of the fastener
operations. This was compounded by the collapse of Service
(Engineers') order book.
DISPOSAL
On 5 October 1998 the sale of the principle assets of the
fastener division completed our withdrawal from this market.
The proceeds from the sale and the collection of trade debtors
amounted to cash of #877,000, which was used to reduce bank
borrowings. However, the assets were sold for #600,000 less
than the book value reflecting the persistent loss-making
nature of the operations.
EXCEPTIONAL ADMINISTRATIVE EXPENSES
The disposal of the fastener operations left us with another
surplus leasehold property. As a result the exceptional costs
arising from rents on surplus properties increased further in
1998. However, many of these properties were successfully let
by the year end so that all but #46,000 of these rents were
being paid by third parties.
DIVIDEND
The Directors do not recommend the payment of a dividend.
CHANGE OF DIRECTOR
In August, Jock Worsley resigned as a director. The Board
would like to thank him for his valuable contribution.
REVIEW OF OPERATIONS
APP
#,000 1998 1997 % Change
Sales 3,104 3,329 (6.8)
Operating 220 240 (8.3)
Profit
Return on 48.5% 48.4%
Capital
As consumer confidence fell in the UK so did sales. This was
particularly marked in the second half of 1998. However the
recovery in Europe gathered pace during the year enabling
export sales to increase by 44%. Whilst the strength of
sterling compared to the European currencies imposed a strain
on profit margins, APP generated significantly higher cash
returns in 1998 from overseas markets than in any previous
year. A resin glass decorating system was installed in
Gillingham to enable APP to enter new markets. A new
computer system is in the process of being installed which
will give greater control and information on all aspects of
production, sales and accounting.
Cycles
#'000 1998 1997 % Change
Sales 5,973 7,412 (19.4)
Operating 87 113 (23.0)
Profit
Return on 5.7% 6.5%
Capital
The strategy for 1998 was to eliminate unprofitable or
marginally profitable areas of activity and concentrate
resources on those product lines with higher returns. In
practical terms this meant more emphasis on higher margin
agency business in cycle accessories at the expense of budget-
priced mountain bikes. It is against this background that the
decline in sales should be judged. The very difficult
Christmas selling season increased the incidence of bad debts
reducing profits below last year's level. Once again sales
of the premium Univega bikes were strong. The computer system
installed in October 1998 enables salesmen to check, from a
remote location, current stock holdings, delivery schedules,
price lists and promotional offers as well as to ensure that
the customer's account is up to date.
Service (Engineers)
#'000 1998 1997 % Change
Sales 2,676 3,713 (27.9)
Operating (185) 343 (153.9)
Profit
Return on (7.7%) 11.1%
Capital
During the second half of 1998, manufacturers and decorators
of tableware and glassware around the world postponed ordering
new manufacturing equipment from Service (Engineers). In
particular, many of our UK based customers suffered from
declining sales and profits in a very competitive retail
market where price competition from overseas suppliers has
been particularly aggressive. Customers in many emerging
markets curtailed new capital expenditure as local economic
conditions deteriorated.
This lower level of activity resulted in operating losses of
#185,000, the first losses seen by Service (Engineers) in 20
years. During the year it was necessary to restructure the
business so as to bring costs more into line with sales. In
the last twelve months the number of employees has been
reduced by 31%. Flat glass decorating machines have not yet
achieved sales expectations. We have restructured the product
marketing approach and hope that the more focussed in-house
sales team will achieve greater success in the future.
FUTURE
From an APP perspective, the slower pace of UK economic growth
experienced in the second half of 1998 has yet to be reversed.
Overall home demand remains subdued despite the fall in
interest rates even though the important housing sector has
responded positively to recent interest rate cuts. Export
activity remains buoyant.
The launches of new BMX and character bikes under the Postman
Pat and Paddington Bear names together with several new
accessory ranges are expected to make a significant impact in
the current year. However, it may be difficult to improve upon
the success of Univega in 1999. The Cycle business has yet to
show the necessary signs of producing an adequate return on
capital.
The prime task is to restore Service (Engineers) to profit.
Initially this will be achieved by reducing the fixed costs of
the business which, we hope, will include the relocation from
the current site in Stoke-on-Trent to smaller premises nearby
once the factory is sold. In addition a higher proportion of
the manufacturing operations will be subcontracted. The result
will be a concentration on the core skills of Service
(Engineers) namely the design and marketing of automated
forming and decorating solutions for the ceramic and glass
industries.
CONTACT: MIKE NORRIS, MANAGING DIRECTOR - 01634 373551
Preliminary Results for the year ended 31 December 1998
1998 1997
#'000 #'000
#'000 #'000
TURNOVER
- continuing operations 11,753 14,454
- discontinued operations 2,565 4,002
------- --------
14,318 18,456
Cost of sales (10,579) (13,385)
------- --------
GROSS PROFIT 3,739 5,071
Selling and distribution expenses (2,141) (2,855)
Administrative expenses: (2,312) (2,150)
recurring
: Exceptional (232) (155)
------- --------
(4,685) (5,160)
------- --------
OPERATING (LOSS) PROFIT
- continuing operations (411) 184
- discontinued operations (535) (273)
------- --------
(946) (89)
Loss on sale of discontinued (600) -
operations
------- --------
(1,546) (89)
Net interest payable (94) (149)
------- --------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (1,640) (238)
Taxation - -
------- --------
DEFICIT FOR THE FINANCIAL YEAR (1,640) (238)
======= ========
LOSS PER ORDINARY 1P SHARE (0.93p) (0.13p)
======= ========
Notes :
1. The financial information above is unaudited and does not
constitute the Company's statutory accounts for the year
ended 31 December 1998 or 31 December 1997. The financial
information for the year ended 31 December 1997 is derived
from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors
reported on those accounts and their report was
unqualified and did not contain a statement under either
Section 237(2) or Section 237(3) of the Companies Act
1985. The statutory accounts for the year ended 31
December 1998 have not yet been delivered to the
Registrar, nor have the auditors yet reported on them.
2. The financial statements, from which the financial
information included in the preliminary announcement has
been extracted, have been prepared on a going concern
basis, the validity of which depends on the outcome of the
uncertainties described below.
During the year the Group incurred an operating loss on
continuing operations of #411,000 compared with a profit
of #184,000 on continuing operations in 1997. Further
losses have been incurred during the first 3 months of
1999.
As a result of the loss for the year, the Group breached
covenants attaching to the bank loan which has become
repayable on demand. The bank has agreed not to seek
early repayment of the loan.
The Group's defined benefit pension scheme has been closed
with a deficit of #513,000. Whilst the Trustees
understand that they could seek an early winding up of the
scheme, in which case any deficit would become immediately
repayable by the Company, they have indicated that they do
not envisage doing so until the deficit has been
eliminated.
The cash flow forecast for the 18 month period to 30 June
2000 indicates that provided forecast receipts from
trading activities are achieved and assumed debt
repayments do not exceed those forecast to be required,
the Group will require an overdraft facility at certain
times to meet its day to day working capital requirements.
The Directors have discussed the position with the Group's
bankers who have confirmed that they would give favourable
consideration to a request for a short term facility up to
an agreed amount which the Directors consider should be
adequate to meet any potential shortfall.
Should the above prove inadequate the Directors would
realise certain assets in order to ensure that any
additional shortfall in the forecast is covered.
Whilst the directors recognise the inherent uncertainty as
to the outcome of the matters mentioned above, they
believe that it remains appropriate for the financial
statements to be prepared on a going concern basis.
3. The basic loss per ordinary 1p share is calculated on the
deficit for the year of #1,640,000 (1997 - #238,000) and
on 177,054,416 (1997 - 177,054,416) ordinary 1p shares
being the weighted average number of ordinary 1p shares in
issue and ranking for dividend during the year.
4. The preliminary announcement was approved by the Board of
Directors on 1st June 1999.
5. Copies of this announcement are available to the public
from the Company's offices at Grosvenor Road, Gillingham
Business Park, Gillingham, Kent ME8 0HW and for a period
of 14 days from the offices of Teather & Greenwood, 12-20
Camomile Street, London EC3A 7NN.
END
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