ZHG Zenith Hygn.

RNS Number:3884D
Zenith Hygiene Group plc
06 September 2007


06 September 2007

                            Zenith Hygiene Group plc


                              Update Announcement


Zenith Hygiene Group plc ("Zenith" or "the Company" or "the Group"), the leading
independent supplier of hygiene products to the leisure, healthcare and
education sectors, today issues the following update regarding recent trading,
its financial position, restructuring plans and Board changes.


Recent Trading


Net turnover for the year ended 31 August 2007 is expected to increase by more
than 10 per cent against 2006 (FY2006 #35 million).


As stated in the Company's announcement on the 25 June 2007, the Group still
expects to be loss making at an operational level in the year ending 31 August
2007.


Significant new contracts have been won during the year which include Starbucks,
Travelodge, Gaucho Grill, Luton and Dunstable Hospital, Leeds Teaching Hospital,
Ely Hospital, Golden Jubilee Hospital in Scotland and Gordon Ramsay's
restaurants. In addition to these contract wins the Group has recently been
successful in becoming one of two national companies nominated to supply to the
catering and domestic departments of the National Health Service Regional
Distribution Centres, with core machine dishwashing and associated products.


These new gains and opportunities are expected to contribute to 2008
performance.


Internal Business Review


As a result of the Group's ongoing internal business review, the Board
identified a number of weak operational processes which have reduced gross
margins. These were compounded by further issues in financial controls and
management information. The Board has now introduced new processes and controls
to address these issues. The expected synergies from the integration of our
recent acquisitions were not achieved on time and they are now expected to be
realised during 2008.


The Group has completed the integration and reorganisation of the acquired
customer base, and is now manufacturing the large majority of its chemical
products at the Group's Lisburn factory.


In the second half of the year, certain remedial actions were taken which
reduced inventory and debtor days from the levels recorded at 28 February 2007.
An ongoing programme of cost reductions was implemented, the results of which
should benefit the fourth quarter and subsequent periods. These have helped
control the increase in net debt so that at 31 August 2007 it stood at #10.2
million (excluding leasing effects) which is within the Group's existing banking
facility. The Directors are confident of remaining within the Group's current
banking facility.


The abortive private equity bid and restructuring costs will result in
exceptional items of approximately #0.7 million in this financial year (FY2006
#1.2million).


Prior Period Adjustment


The review referred to in the Group's announcement of 25 June 2007 covered
provisions for customer rebates, marketing support arrangements and other
accruals. It is currently expected that the aggregate of these items will mean
that liabilities at 31 August 2006 were understated by approximately #0.9
million. This is subject to the final audit for the year ended 31 August 2007.



Board and Senior Management Changes


Alex Watson, who has been a Non Executive Director since February 2005, will be
retiring from the Board on the 10 September 2007. The Board would like to thank
Alex for his contribution.


Simon Barrell will join the Board on 10 September 2007 as a Non Executive
Director and Chairman of the Audit Committee. He qualified as a chartered
accountant with Arthur Young in 1983, before working with Binder Hamlyn. He was
most recently Finance Director of Napier Brown Foods Plc which had revenues of
approximately #200 million and was quoted on AIM. Napier Brown Foods Plc was
sold in August 2005 for #68 million to The Real Good Food Company plc. He is a
non executive director of Toluna plc, which is also quoted on AIM.


Gavin Gracie will be working with the Board as interim Chief Operating Officer.
He is a chartered accountant with a strong track record in turnaround situations
within manufacturing companies and will work with the Board in the next few
months to develop and implement plans for gross margin improvement, working
capital management, sales optimisation and cost reductions.


The Board is pleased to announce that a new Finance Director will be joining the
Group in November. Julie Rowlands, who was appointed interim Finance Director in
April 2007, will remain with the Company during this transition.


It is intended to further strengthen both the Board and the senior management
team in the coming months.



Future Strategy


The Board is currently finalising its business plan for the year ending 31
August 2008 and beyond. These plans will return the Group to profitability and
make significant reductions in net debt. The focus will be on gross margin
maximisation, operational cost reductions, working capital optimisation, the
completion of acquisition integration, and alternative uses of company assets.
This plan will encompass all areas of operations.


The new Finance Director will continue the work started by Julie Rowlands in
strengthening the Finance Department and its internal controls and reporting.


Despite the difficulties faced by the Group in 2007 the Board is confident about
the future of the Group. It believes that recent customer wins combined with a
strengthened management team, revised operating processes, improved financial
controls and ongoing support from the bank will allow the Group to generate
cash, increase profitability and reduce net debt in the next twelve months.


Ringo Francis, Chairman and Chief Executive, Zenith Hygiene Group, said:


"In line with our announcement on 12 July 2007, I can now confirm that we have
introduced new measures to tighten financial controls and improve operational
efficiency.


"The Group is also strengthening its Board and management; Simon Barrell is
joining us as a non executive director and will chair the audit committee; Gavin
Gracie - a proven turnaround expert - joins us as interim Chief Operating
Officer. A new Finance Director with quoted company experience will be joining
us in November and further details of his appointment will be announced as soon
as possible."



For further information please contact:


Zenith Hygiene Group plc                           01707 255081
Ringo Francis, Chairman and Chief Executive



Blythe Weigh Communications                       020 7138 3204
Tim Blythe / Paul Weigh / David Murphy



Oriel Securities Limited (Nominated Adviser)      020 7710 7600
Malcolm Strang / Michael Shaw




                      This information is provided by RNS
            The company news service from the London Stock Exchange

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