Interim Results
Sirdar PLC
16 March 2005
Sirdar PLC
Interim results for the six months ended 31st December 2004
Summary
• Group turnover up 3% to £36.0m
• Operating profit before exceptional items up 44% to £2.2m
• Adjusted earnings per share up 58% to 2.46p
• Interim dividend up 17% to 0.70p per share
• Net debt down £3.0m to £9.4m
• Specialist Yarns reorganisation complete, current trading ahead of
expectations
• Significant challenges remain within the Floor Coverings division
• New senior management appointments in all divisions
• Increased emphasis on innovation and customer service
• Cost of product recall of hand knitting yarn, Fizz, to be quantified
Introduction
The Chairman's Statement in the last Annual Report outlined the board's
commitment to review the group's strategy. The conclusion of this review
reaffirmed our intention to focus on achieving the profitable growth of our
existing operations and a number of intiatives have been implemented to achieve
this. We will continue to build on the strength of our brands, drive innovation
and seek to increase our competitive advantage and shareholder value.
The results
Turnover for the half year to 31st December 2004 was £36.0m (2003: £34.8m)
generating operating profit before exceptional items of £2.2m (2003: £1.5m).
After net exceptional credits of £0.4m, the operating profit amounted to £2.6m
(2003: £1.5m). Earnings per share increased 99% to 3.11p (2003: 1.56p). Adjusted
earnings per share, calculated after excluding exceptional items, net of tax,
was 2.46p (2003: 1.56p).
Cash inflow from operating activities amounted to £3.8m (2003: £2.6m). Efficient
stock management compensated for the adverse debtor movement created by the
increased activity. Tight control over capital expenditure, a reduced dividend
and effective tax planning helped reduce net debt by £3.0m to £9.4m.
The board has declared an increased interim dividend of 0.70p per share (2003:
0.60p). The dividend is payable on 9th May 2005 to those shareholders on the
register of members at the close of business on 15th April 2005.
Specialist Yarns
Whilst sales remained static at £7.6m (2003: £7.6m), the sales mix changed
substantially. Sales of hand knitting yarns increased significantly,
compensating for the planned reduction in the, lower margin, machine yarns
business. Operating profit increased to £1.0m (2003: nil) before net exceptional
income of £0.4m, relating to the settlement following legal action against
former directors and profit on sale of fixed assets offset by the write off of
recalled stock.
The success to date provides more evidence that the concept of a marketing and
distribution company, focused on innovation and customer service, represents a
good strategy for this business. The board is aware of the division's changing
risk profile and the new opportunities and challenges it presents. However, we
believe the structure of the business and the dedication and professionalism of
its staff, will secure a continuation of the encouraging performance to date.
Floor Coverings
Despite increased sales in this division of £28.3m (2003: £27.2m), it is
disappointing to report a reduced operating profit of £1.5m (2003: £1.8m).
Sales of Contract Floor Coverings held up well in the period. However, profit
has been impacted as a result of continued pressure on margins, coupled with an
adverse sales mix. The change in managing director at the division brings fresh
impetus and new initiatives to improve performance and provides optimism for the
future.
Residential Floor Coverings experienced a continuing trend of increased imports
of lower quality, lower price, carpet, in a fiercely competitive but stagnant
market. This environment continued to prove challenging for this highly geared
operation and has resulted in a disappointing performance in the period. The
business structure requires strict risk management procedures to control costs
and maximise opportunities. Managing the operational risks within a disciplined
financial foundation is vital to the future success of this business.
Management changes
As announced on 21st February 2005, Jim Gatherum stepped down from his position
as managing director of the group's Residential Floor Coverings operation. With
effect from 1st March 2005 Kevin Henry, group finance director, assumed the
role, relinquishing his position as managing director of the Specialist Yarns
division. Russell Morris, the former sales and marketing director, was appointed
to the position of managing director of the Specialist Yarns division.
Product recall
As announced on 9th February 2005, the Specialist Yarns division instigated a
product recall of a fashion hand knitting yarn, Fizz, due to concerns over its
flammability. Appropriate mechanisms have been put in place to communicate the
product recall and deal efficiently with the collection and indemnification
process. An exceptional charge of £0.2m has been recognised relating to the
write off of stock. The cost of recalling product already sold by retailers
cannot be quantified at present and has therefore, been disclosed as a
contingent liability. A further announcement will be made when a clearer picture
of the cost is available. However, we expect that the final cost will be
considerably lower than the retail sales value of the yarn of £2.7m. Procedures
have been implemented to ensure no current or future products encounter similar
issues.
Pension costs
To provide greater consistency of pension provision across the group and to
reduce the risks of volatility in pension costs, amendments have been made to
the benefit structure within the group's final salary scheme. Accrual of salary
related benefits ceased from 28th February 2005, being replaced by a money
purchase arrangement from 1st March 2005.
Current trading and future prospects
Trading to date in 2005 has reflected substantially the patterns displayed to
December 2004.
Continued drive and focus has maintained the strong underlying performance of
the Specialist Yarns division. The demand for hand knitting yarn remains strong,
providing justifiable optimism regarding the future prospects of this division.
The timing of many of the changes in the Floor Coverings division means that,
although the board remains confident with the changes it has made, it is too
early to report on progress.
We have taken steps to improve management and employee quality and to focus them
on customer service and innovation. The board believes that we can build a
stronger business from this firm foundation.
17th March 2005
Enquiries:
Duncan Verity 01924 371 501
Group Chief Executive, Sirdar PLC
Kevin Henry 01924 371 501
Group Finance Director, Sirdar PLC
Consolidated Profit and Loss Account
6 months ended 31st December 2004
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31st December 31st December 30th June
2004 2003 2004
Note £000 £000 £000
Turnover 2 35,979 34,840 68,770
Operating costs (33,780) (33,309) (66,004)
Exceptional income/(cost) 3 432 - (1,606)
Net operating costs (33,348) (33,309) (67,610)
Operating profit 2 2,631 1,531 1,160
Net interest payable and similar charges (372) (367) (783)
Profit before taxation 2,259 1,164 377
Taxation (819) (442) 147
Profit for the period 1,440 722 524
Dividends 4 (324) (277) (832)
Retained profit/(loss) for the period 7 1,116 445 (308)
Earnings per share
(basic and diluted) 5 3.11p 1.56p 1.13p
(adjusted) 5 2.46p 1.56p 3.56p
There were no recognised gains or losses in the period other than the profit
shown above.
The results shown in the profit and loss account derive wholly from continuing
activities.
There is no difference between the profit on ordinary activities before taxation
and the profit/(loss) for the period stated above and their historical cost
equivalents.
Consolidated Balance Sheet
as at 31st December 2004 Unaudited Unaudited Audited
31st December 2004 31st December 2003 30th June 2004
Note £000 £000 £000 £000 £000 £000
Fixed assets
Intangible 14,177 15,053 14,617
Tangible 15,966 17,128 16,421
30,143 32,181 31,038
Current assets
Stocks 14,791 17,571 16,853
Debtors 15,312 14,243 14,694
Cash at bank and in hand 565 1,013 614
30,668 32,827 32,161
Creditors (due within one year) (16,140) (17,694) (18,126)
Net current assets 14,528 15,133 14,035
Total assets less current liabilities 44,671 47,314 45, 073
Creditors (due after more than one (5,253) (8,290) (6,772)
year)
Deferred taxation 6 (3,260) (3,229) (3,259)
36,158 35,795 35,042
Equity shareholders' funds
Called up share capital 11,561 11,561 11,561
Share premium account 504 504 504
Capital redemption reserve 2,395 2,395 2,395
Profit and loss account 7 21,698 21,335 20,582
36,158 35,795 35,042
Consolidated Cash Flow Statement
6 months ended 31st December 2004 Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31st December 2004 31st December 2003 30th June 2004
Note £000 £000 £000 £000 £000 £000
Net cash inflow from operating activities 9 3,848 2,635 5,823
Returns on investments and servicing of finance
Interest paid and similar charges (375) (345) (754)
3,473 2,290 5,069
Corporation tax 620 (1,495) (1,994)
Capital expenditure
Purchase of tangible fixed assets (681) (856) (1,464)
Sale of tangible fixed assets 192 202 429
(489) (654) (1,035)
Equity dividends paid (555) (1,850) (2,127)
Cash inflow/(outflow) before financing 3,049 (1,709) (87)
Financing
Redemption of loan notes (14) (35) (137)
Repayment of bank loans (1,505) (1,411) (2,827)
(1,519) (1,446) (2,964)
Increase/(decrease) in cash 10 1,530 (3,155) (3,051)
A reconciliation of net cash flow to movement in net debt is set out in
note 11.
NOTES
1 BASIS OF PREPARATION
The financial information has been prepared using the accounting policies set out in the group's
report and financial statements for the year ended 30th June 2004.
The comparative figures for the year ended 30th June 2004 do not constitute statutory financial
statements within the meaning of section 240 of the Companies Act 1985. Statutory financial
statements for the year ended 30th June 2004 have been delivered to the Registrar of Companies. The
auditors have reported on those financial statements. Their report was not qualified and did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985.
2 SEGMENTAL INFORMATION
Analysis of results by class of business
Turnover 6 months ended 6 months ended Year ended
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Floor Coverings 28,348 27,222 54,605
Specialist Yarns 7,631 7,618 14,165
35,979 34,840 68,770
6 months ended 6 months ended Year ended
31st December 31st December 30th June
2004 2003 2004
Operating profit
£000 £000 £000
Floor Coverings 1,472 1,811 3,143
Specialist Yarns 1,441 13 (1,414)
2,913 1,824 1,729
Central group costs (282) (293) (569)
2,631 1,531 1,160
The operating result for the Specialist Yarns division for the 6 months ended 31st December 2004 is
stated after net exceptional income of £432,000 (year ended 30th June 2004: after net exceptional
costs of £1,606,000) as described in note 3.
Net operating assets 31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Floor Coverings 36,194 39,208 38,098
Specialist Yarns 7,570 10,186 8,789
43,764 49,394 46,887
Central group assets 2,318 431 1,177
46,082 49,825 48,064
Net operating assets are stated excluding inter-company financing and are
derived from the balance sheet total by excluding bank borrowings, loans and
loan notes totalling £9,924,000 (31st December 2003: £14,030,000, 30th June
2004: £13,022,000).
3 EXCEPTIONAL INCOME/(COST)
6 months ended 6 months ended Year ended
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Settlement of legal action 250 - -
Profit on sale of fixed assets 337 - 273
Raw materials and consumables (155) - (434)
Other external charges - - (653)
Staff costs - - (792)
432 - (1,606)
The exceptional item in the 6 months ended 31st December 2004 relates to
settlement following legal action, for breach of contract, against former
directors, profit on the sale of fixed assets and the write off of recalled
stock on hand and held at retailers. All exceptional items relate to the
Specialist Yarns division.
The exceptional costs incurred in the year ended 30th June 2004 related
principally to redundancies, stock write downs and provisions for additional
charges associated with the reorganisation of the Specialist Yarns division.
4 DIVIDENDS
6 months ended 6 months ended Year ended
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Interim 324 277 277
Final - - 555
324 277 832
The interim dividend of 0.70p (2003: 0.60p) per share will be paid on 9th May
2005 to members registered at the close of business on 15th April 2005. The
final dividend in respect of the year ended 30th June 2004 amounted to 1.20p per
share.
5 EARNINGS PER SHARE
The calculation of basic earnings per share is based on earnings of £1,440,000 (31st December 2003:
£722,000, 30th June 2004: £524,000) and on 46,242,455 (31st December 2003: 46,242,455, 30th June
2004: 46,242,455) ordinary shares, being the weighted average number in issue during the period.
Adjusted earnings per share, as set out below, is calculated after excluding net exceptional items,
net of tax, and is presented in order to demonstrate the underlying performance of the group.
6 months ended 6 months ended Year ended
31st December 2004 31st December 2003 30th June 2004
£000 pence £000 pence £000 pence
Earnings and basic 1,440 3.11 722 1.56 524 1.13
earnings per share
Exceptional (income)/cost (302) (0.65) - - 1,124 2.43
Adjusted earnings and 1,138 2.46 722 1.56 1,648 3.56
basic earnings per share
There is no dilution caused by share options.
6 DEFERRED TAX
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Brought forward 3,259 3,237 3,237
Profit and loss account 1 (8) 22
Carried forward 3,260 3,229 3,259
7 PROFIT AND LOSS ACCOUNT
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Brought forward 20,582 20,890 20,890
Profit/(loss) for the period 1,116 445 (308)
Carried forward 21,698 21,335 20,582
8 RECONCILIATION OF MOVEMENTS IN GROUP EQUITY SHAREHOLDERS' FUNDS
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Profit for the period 1,440 722 524
Dividends (324) (277) (832)
Net increase/(decrease) in equity shareholders' 1,116 445 (308)
funds
Opening equity shareholders' funds 35,042 35,350 35,350
Closing equity shareholders' funds 36,158 35,795 35,042
9 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
6 months ended 6 months ended Year ended
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Operating profit 2,631 1,531 1,160
Depreciation 1,001 1,149 2,278
Goodwill amortisation 440 444 880
Profit on sale of tangible fixed assets (352) (237) (286)
Decrease in stocks 2,062 320 1,038
(Increase) in debtors (1,551) (1,189) (418)
(Decrease)/increase in creditors (383) 617 1,171
Net cash inflow from operating activities 3,848 2,635 5,823
10 ANALYSIS OF CHANGES IN NET DEBT
31st December Cash flows Loan note 30th June
2004 redemption 2004
£000 £000 £000 £000
Cash at bank and in hand 565 (49) - 614
Bank overdrafts (1,633) 1,579 - (3,212)
(1,068) 1,530 - (2,598)
Loan notes (498) - 14 (512)
Bank loan (7,793) 1,505 - (9,298)
Total net debt (9,359) 3,035 14 (12,408)
11 RECONCILIATION OF MOVEMENT IN NET DEBT
31st December 31st December 30th June
2004 2003 2004
£000 £000 £000
Increase/(decrease) in cash 1,530 (3,155) (3,051)
Redemption of loan notes 14 35 137
Repayment of bank loans 1,505 1,411 2,827
Movement in net debt 3,049 (1,709) (87)
Net debt at start of period (12,408) (12,321) (12,321)
Net debt at end of period (9,359) (14,030) (12,408)
12 CONTINGENT LIABILITY
As detailed in the announcement on 9th February 2005, the Specialist Yarns
division has instigated a product recall of Fizz, a fashion hand knitting yarn.
The cost of compensating customers for returns cannot be quantified at present
due to uncertainty surrounding the level of returns.
OTHER INFORMATION
The interim results are unaudited.
Further copies of this report are available from the Company Secretary at the
registered office at Flanshaw Lane, Alverthorpe, Wakefield, West Yorkshire WF2
9ND.
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