Final Results
Worthington Nicholls Group plc
11 March 2008
FOR IMMEDIATE RELEASE 11 March 2008
Worthington Nicholls Group plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2007
Worthington Nicholls Group plc announces its preliminary results for the twelve
months ended 30 September 2007.
KEY POINTS
• Loss before tax £42.1 million.
• Goodwill impairment £21.9 million
• Statutory basic loss per ordinary share 54.75p
• Further restructuring under way
• Targeting breakeven trading
• Net cash balance at 30 September 2007, £11.4 million, net cash balance at
28 February 2008 £6.5 million
• Dividend payment NIL
• Proposed name change to Managed Support Services plc
Commenting on the results, Simon Beart, Chief Executive said:
'These results document a failure of management and Corporate Governance by the
previous Board. However, the new Board, appointed on 21 November 2007, has
addressed the major issues and has made the appropriate cost reductions. As a
result, whilst the next reporting period to 31 March 2008 will show further
substantial losses, following the second restructuring, we expect Group trading
to stabilise, thereby protecting our net cash balances'.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Worthington Nicholls Group plc:
Simon Beart, Chief Executive 07710 444370
William Good, Group Finance Director 01483 735703
Cenkos Securities plc:
Nick Wells 020 7397 8900
Stephen Keys
Buchanan Communications:
Richard Darby 020 7466 5000
Nicola Cronk
CHIEF EXECUTIVE'S REVIEW
The new Board was appointed in late November 2007 following a series of profit
warnings and a fall in the share price of some 90 per cent. The changes to the
Board were brought about by the Company's major shareholders, since it was
evident that the Company was confronting a number of serious issues.
Shortly after appointment, the new Board became aware of the poor underlying
trading, previously disguised by the inappropriate treatment of certain costs
and revenue in the main trading subsidiary, WN Trading ('WNT') as identified in
a report by KPMG. It was also clear that management failings had led to high
staff turnover, poorly executed acquisitions, negative cash flows and the
uncontrolled pursuit of loss-making contracts.
The Board announced its estimate of the resultant underlying losses on 7
December 2007. At that stage write-offs and provisions totalling approximately
£15.9 million were required in order to reflect the reality of underlying
trading. The majority of these adjustments were made to the accounts of the
original Worthington Nicholls trading units which had made up the Group at
flotation. A proportion of the write offs related to prior years since the
incorrect recognition of revenue had taken place over a substantial period of
time. The accounts of the more recently acquired businesses, Woods
Environmental Ltd ('Woods'), Euro-Property Services ('EPS') and Classic
Interiors ('Classic') were largely unaffected.
In light of the poor current trading, the Board immediately undertook a
substantial headcount reduction and withdrew from certain unprofitable
activities. Headcount across the Group was reduced by approximately one third
and businesses with operating losses of some £150,000 per month were immediately
closed. The Board also inherited a number of loss-making contracts and onerous
contractual obligations for which no provision at that time had been taken.
Following recent trading in the quarter to 31 December 2007, it became apparent
that a further retrenchment of activity was required. This was necessary in
order to ensure that all parts of the Group could operate with certainty, at no
worse than break even. As a result, an additional headcount reduction has
commenced and certain installation and project operations that were duplicated
on multiple cost bases will now be rationalised. It is expected that these
actions will incur a further cash cost of some £500,000. The Group has retained
a full sales engagement with customers but can now deliver an improved service,
from a rationalised delivery platform.
The Board, as would be expected, has taken steps to improve senior management
and has implemented internal controls in order to provide a sharper focus on
margin management and cash flow. In the opinion of the Board, these management
actions will enable the Group to operate at break even, on an underlying basis
before exceptional costs and to improve the historically poor cash flow.
The restructurings and the consequences of correcting the accounting
irregularities have led to the carrying value of the Group's subsidiaries being
materially overstated. The associated impairment of goodwill was £21.9 million.
TRADING ACTIVITIES
The Group is now focused on the performance of Classic, EPS and Woods, all of
which were acquired in May 2007, and the rationalised operations at WNT.
Classic offers customers a broad range of shop fitting and design skills, which
are primarily focused on the hotel industry and the retail industry. Profits
have reduced from the historic peak at the time of acquisition, but the business
has a strong management team, which has been increased and is currently enjoying
good activity levels. Debtor write offs have been an issue but controls have
been improved and the team is working well in the new environment.
EPS, based in London, is a specialist supplier of kitchen equipment and catering
facilities to the hotel industry whilst also undertaking certain air
conditioning contracts. The majority of activity is concentrated within the M25
area. EPS was acquired under earn out arrangements. As a result of poor
trading post acquisition, no payment was due in respect of the calendar earn out
period to December 2007.
Woods is an air conditioning supplier specialising in the commercial markets.
Woods undertook a poorly executed expansion programme immediately after
acquisition, which incurred substantial losses. This process was unwound by the
new Board, requiring office closures and the sale of a loss-making subsidiary.
Rationalisation, rapid management action and cost cutting will enable Woods to
return to improved levels of profitability, admittedly at reduced levels of
turnover. The remaining Woods management team is capable and experienced and is
already delivering the benefits of the recent rationalisation.
The activities of WNT, the original Group entity, incurred the majority of
headcount reductions and provisions for losses. Unprofitable contracts are now
being completed and a reduced level of new business is being taken on at
reasonable margins. Pricing in the hotel sector remains highly competitive, but
the unit will continue to develop its maintenance and building services
offerings, which offer higher quality income and less exposure to high risk
contracts.
Clearly the recent events and substantial changes to the Group have raised
concerns amongst customers and suppliers. Considerable time and effort is
therefore being spent re-engaging with customers and suppliers in order to
emphasise improvements in operating performance and the benefits of the strong
balance sheet which the Group enjoys.
BOARD CHANGES, CORPORATE GOVERNANCE
The former Chief Executive Mark Worthington was dismissed for gross misconduct
in November 2007. Mr Worthington had previously been asked to resign from his
former position as Group Chief Executive following the profit warning of 17
August 2007.
Arrangements were made to effect the resignation of the Corporate Development
Director, Mr D Levis on 21 November 2007. The Group Finance Director Mr T Hunt
had previously stepped down and had been replaced by a part-time, interim
director Mr C Nielson. Arrangements were made for Mr Nielson and Mr Hunt to
leave the Group shortly after the appointment of the new Board.
The former Chairman, Mr A Stoddart resigned at the time of the disclosure of
further losses and accounting failures on 7 December 2007. Mr Stoddart had been
a non-Executive Director since flotation and Chairman since July 2007. Mr
Stoddart operated as interim Chief Executive for three months prior to his
departure. The previous Chairman was Peter Worthington who resigned in July
2007.
The remaining non-Executive Director, Mr S Mulligan, tendered his resignation
during September 2007 and this was accepted and agreed on 21 November 2007.
Messrs Beart, Good and Mann were appointed on 21 November 2007.
It is clear to the new Board that there was a complete failure of corporate
governance at all levels during 2006 and 2007. In particular, the Board notes
that financial information made available to the previous Board directors was
both poor and materially incomplete until April 2007, and that this state of
affairs had been allowed to prevail for over two years. In addition, the Board
is currently unable to reconcile the statements made in respect of current
trading during April and May 2007 with the evidence of the available management
accounts. There would also appear to have been no effective action by the Board
and in particular the Non Executive Directors in respect of the preparation of
the accounting records, inappropriate trading statements and lack of contract
management, leading to unmonitored, severe adverse cash flows.
In the light of these failings, the Board has instituted a number of operational
and financial controls at Main Board level and operational level. Headcount and
cash disciplines have been imposed at all levels and all material financial
authorisations have been reserved for the Main Board, including headcount
control, cost base management, capital expenditure, banking arrangements and
regulatory disclosures.
In due course, the Board regards it as important to appoint a Non Executive
Director. However, at the current state of the Company's development and in the
face of considerable legal uncertainty relating to previous events, the Board
regards it as unlikely that a suitably qualified and experienced Non Executive
Director will be available. It is to be hoped that once the issues arising from
the recent period of instability have been resolved, a suitable candidate can be
attracted. In the meantime, the Board is receiving detailed advice from the
Group's advisors in order to ensure that appropriate corporate governance is
imposed, delivered and supervised, in particular with respect to any
communications with shareholders.
William Good has indicated to the Board that during mid to late 2008 he intends
to leave the Group, having completed the initial phase of delivering and
implementing suitable financial controls across the Group. In due course, the
Board will seek to identify an appropriate replacement. William Good has been
instrumental in improving and managing the Company's previously poor systems and
has made a significant contribution to the recent strengthening of financial
controls. The Directors wish to express their gratitude for William's
exceptional efforts during what has been a difficult time for the Company.
LEGAL MATTERS
The Group is inevitably incurring continuing, material legal costs as the Board
examines the various options available, in the event that the previous
accounting irregularities and trading statements give rise to criminal or civil
proceedings.
NAME CHANGE
It is not appropriate that the Group should continue to trade under its existing
branding and the Board is therefore proposing that the Group be renamed Managed
Support Services plc by a resolution to be proposed at the forthcoming Annual
General Meeting, which has been convened for 14 April 2008.
LONG TERM INCENTIVE PLAN
The Group has suffered from a substantial reduction in market value and a
necessary but wide ranging series of management changes. It is important that
if shareholder value is to be re-built and capable management attracted to the
Group, an attractive incentive scheme is made available that can offer the
prospect of material capital gain in the event that the share price recovers.
Accordingly, a draft scheme has been proposed and a summary of this scheme is
set out in the Notes to the Annual General Meeting. In due course, the Board
expects that all senior managers charged with delivering material profit growth
will participate in the scheme.
The Board has decided that approval of the scheme by shareholders is
appropriate.
PROSPECTS
The Board is of the opinion that it will take until mid year in order to impose
the correct level of effective internal controls and to upgrade further staff
and processes where appropriate. The historical lack of contract management and
the absence of management KPIs have represented a considerable short term
challenge.
However, the Board believes that current trading will shortly stabilise and the
Board has curtailed or closed loss-making activities. The Group is therefore
focused on those trading units which have capable and experienced management,
proven market positions and the historical achievement of good levels of
profitability. In addition, the Group retains a considerable net cash balance.
The Board will be preparing full statutory accounts for the period ending 31
March 2008. These accounts will inevitably reflect the trading losses incurred
during the recent rationalisations and the costs of restructuring the Group.
The March 2008 results will be released in late June 2008 at which time the
Board hopes to confirm that trading and cash flow have stabilised.
Simon Beart
Chief Executive
FINANCIAL COMMENTARY
Results
Turnover from continuing operations and acquisitions was £25.9 million for the
year to September 2007. After write-offs and provisions in respect of September
2007, of £8.3 million (detailed below), the Group recorded an operating loss
before goodwill impairment of £20.2 million (see note 2 for reconciliation).
Provisions and Write-offs
On 7 December 2007 the Group announced that, following work undertaken by the
Board and a limited scope review by KPMG, provisions and write downs totalling
some £15.9 million would be required to provide an accurate accounting treatment
in respect of sales and debtors.
Following this initial announcement, the Board asked its new auditors, Deloitte
& Touche LLP to consider, as part of the audit for 30 September 2007, the impact
of the investigation that had occurred on the financial statements. The audit
has now been finalised, producing a reduced total adjustment of £13.7 million as
detailed below:
Period ended Year ended
30 September 30 September
2006 2007 Total
£000s £000s £000s
Matched costs 2,407 715 3,122
Trade debtors and retentions 260 2,242 2,502
Specific contract issue 699 - 699
Unallocated accrued income 1,367 1,787 3,154
Stock 184 270 454
WIP 150 462 612
Debit notes not recovered 300 - 300
Fixed assets - 103 103
Investment property write down - 500 500
Other prepayments - 364 364
Loss making contracts - 592 592
Other items - 1,272 1,272
Total 5,367 8,307 13,674
Due to the issues identified, the comparative figures for the year ended 30
September 2006 are considered potentially unreliable. The prior year adjustment
is disclosed within note 3. The current year adjustment, including the
exceptional charge, is disclosed within note 2.
Movement in provisions
The announcement of the original provision of £15.9 million was made on the 7
December 2007, two weeks after the new Board were appointed. Subsequently, the
Directors concentrated on reducing losses and improving cash flow. A number of
loss making contracts were finalised and a number of project disputes settled.
These efforts released previously written off work in progress and secured the
payment of old debtors previously provided against, leading to a corresponding
reduction in the total provision.
Balance Sheet
Following the implementation of the write-offs and provisions, the Group had net
assets of £13.6 million as at 30 September 2007, a significant proportion of
which related to net cash. Although there will be additional losses in the
current financial period to March 2008, the Directors believe that the Group is
robustly financed and that further working capital improvements are possible.
Restructuring
Approximately 90 employees were made redundant in late 2007 and certain
operations and offices closed.
Following a further review of trading in February 2008, additional cost
reductions have been undertaken. These reductions will remove duplicated cost
centres and will focus the resources of the Group where the best service
delivery can be achieved. These cost reductions are expected to be fully
implemented by July 2008.
The total cost of the restructuring programmes will be in the region of £1.5
million. This cost is in addition to the write offs and provisions detailed
above and will be charged to the profit and loss account in the current
financial period ending 31 March 2008.
Accounting structure
At flotation there were no qualified accountants employed by the Group. During
the current year an appropriate finance department has been established and
since November 2007, detailed reporting processes and controls have been
introduced.
Cash
During the year to September 2007 the Group raised £25.2 million from the issue
of new equity. The fundraisings were described as required in order to finance
new acquisitions and in particular to fund organic growth in newly acquired
businesses. In the opinion of the Board, the additional funding was required to
allow the Group to continue trading.
A total of £25.2 million was raised net of fees, of which only £4.8 million was
used to finance acquisitions (net of cash received from the sale of an
investment property to a vendor), £1.0 million for corporation tax, £2.0 million
to repay opening debt and £0.5 million on capital expenditure. The Group
finished the year with net cash of £11.6 million. Accordingly, some £6.7
million of cash was used to fund trading losses.
Trade creditor balances at 30 September 2007 were inflated due to a number of
large supplier payments being overdue. These overdue amounts have now been paid
in full.
As at 28 February 2008 the Group had a net cash balance of £6.5 million. Since
the year end the Group has paid £0.7 million in corporation tax, issued £0.7
million in vendor loan notes and has spent some £0.4 million on restructuring
and advice and has spent £0.2 million on capital expenditure.
Acquisitions, Deferred consideration
The Group made four acquisitions during the period: Lumenglow, Classic, EPS and
Woods. The initial consideration for these businesses totalled £4.8 million in
cash and £2.3 million in shares valued at £1.70 each.
The final earn out payment for Classic of £250,000 was earned and will be paid
in 2008 in cash. As a result of the Group reorganisation, and the concentration
of service delivery at Woods, the Woods earn out has been restructured with an
in principle agreement to a cash payment of £250,000 payable in the current year
and £250,000 payable thereafter. These payments will represent the full and
final payment in respect of the acquisition of Woods.
The remaining earn out payment obligation for EPS is in relation to levels of
profitability to be achieved in calendar 2008. The poor performance of the
business in calendar 2007 meant that no payment was due. The EPS acquisition
contract contains a number of errors and does not, in the opinion of the Board,
reflect the intention of the parties at the time of acquisition. A revised
proposal, designed to replicate the expectations at the time of acquisition has
been made to the vendor.
Impairment of Goodwill
Goodwill totalling £24.4 million has been fully impaired (including
amortisation) relating to the assets of the original Worthington Nicholls
trading divisions. The Board has also fully impaired the goodwill of £4.4
million relating to Project Air Ltd, acquired in July 2006.
Lumenglow has continued to be loss making, accordingly the goodwill of £0.3m has
been fully impaired. The Directors also believe it is prudent to write down the
carrying value of EPS and Woods to £4.5 million, generating an impairment of
£3.6 million.
Taxation
The Group has paid £1.6 million in corporation tax since flotation. A
significant proportion of this tax payment relates to tax owed on profits made
in the acquired companies before acquisition.
Dividend
The Company paid a maiden dividend during the previous financial year. However,
following the substantial write offs and provisions made in the year ending
September 2007, there are insufficient reserves to allow the payment of a
dividend. The Directors are considering a corporate reconstruction that may
allow the directors to recommend the payment of a dividend in the future.
William Good
10 March 2008
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEAR ENDED 30 SEPTEMBER 2007
Restated (note 3)
3 February 2006 to
30 September 2006
£'000
Year ended 30 September 2007
Continuing Group
operations Acquisitions total
£'000 £'000 £'000
TURNOVER 17,279 8,621 25,900 3,265
Cost of Sales (15,092) (7,811) (22,903) (6,009)
Gross profit/(loss) 2,187 810 2,997 (2,744)
Administrative expenses - normal (18,260) (2,242) (20,502) (1,349)
Administrative expenses - exceptional (24,504) (163) (24,667) -
Administrative expenses - total (42,764) (2,405) (45,169) (1,349)
Other operating income 96 8 104 16
OPERATING LOSS (40,481) (1,587) (42,068) (4,077)
Interest receivable and similar income 212 22 234 10
Interest payable and similar charges (227) (18) (245) (76)
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION (40,496) (1,583) (42,079) (4,143)
Tax on loss on ordinary activities - - - (360)
LOSS FOR THE FINANCIAL PERIOD (40,496) (1,583) (42,079) (4,503)
BASIC AND DILUTED LOSS PER ORDINARY
SHARE (54.75p) (14.74p)
There is no material difference between the result as disclosed in the profit
and loss account and the result on an unmodified historical cost basis for the
period.
Statement of total recognised gains and losses for
Year ended 30 September 2007
2007 2006
£'000 £'000
Loss for the financial year (42,079) (4,503)
Total recognised gains and losses relating to the year (42,079) (4,503)
Prior year adjustments (5,491)
Total gains and losses recognised since last annual report (47,570)
CONSOLIDATED BALANCE SHEET
30 SEPTEMBER 2007
Restated
(note 3)
2007 2006
£'000 £'000
FIXED ASSETS
Intangible fixed assets 6,270 28,713
Tangible fixed assets 1,601 1,770
7,871 30,483
CURRENT ASSETS
Stocks and WIP 1,894 247
Debtors 8,001 5,503
Cash at bank and in hand 12,712 519
22,607 6,269
CREDITORS: amounts falling due
within one year (13,841) (7,616)
NET CURRENT ASSETS/(LIABILITIES) 8,766 (1,347)
TOTAL ASSETS LESS CURRENT LIABILITIES 16,637 29,136
CREDITORS: amounts falling due after more
than one year (1,589) (1,463)
PROVISIONS FOR LIABILITIES (1,477) -
NET ASSETS 13,571 27,673
CAPITAL AND RESERVES
Called up share capital 870 662
Share premium reserve 56,491 30,802
Merger reserve 2,845 588
FRS 20 reserve 241 124
Profit and loss account (46,876) (4,503)
SHAREHOLDERS' FUNDS 13,571 27,673
The balance sheet as at 30 September 2006 has been restated for the adoption of
FRS 20 'Share-based payments' and for the correction of the fundamental errors
(note 3).
These financial statements were approved by the Board of Directors on 10 March
2008.
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 30 SEPTEMBER 2007
Restated
3 February 2006
12 Months to 30 to 30 September
September 2007 2006
£'000 £'000
Net cash outflow from operating (6,686) (2,457)
activities
Returns on investments and servicing of finance (11) (51)
Taxation (1,060) -
Capital expenditure and financial investment
Purchase of tangible fixed assets (531) (10)
Sale of tangible fixed assets 1,341 -
Acquisitions
Purchase of subsidiary undertakings (4,681) (16,259)
Dividends paid (294) -
Net cash outflow before financing (11,922) (18,777)
Financing
Receipts from new loans - -
Net loan repayments (181) (12)
Issue of equity share (net of expenses) 25,204 18,352
Capital element of hire purchase payments (14) (11)
25,009 18,329
Increase/(decrease) in cash in the period 13,087 (448)
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET CASH
YEAR ENDED 30 SEPTEMBER 2007
2007 2006
£'000 £'000
Increase/(decrease) in cash in the period 13,087 (448)
Cashflow from change in debt and lease financing 193 23
Change in net cash resulting from cash flows 13,280 (425)
Loan notes cancelled 326 -
New hire purchase agreements - (15)
Finance leases, loan and notes acquired with subsidiaries (208) (1,533)
Movement in net cash in the period 13,398 (1,973)
Net debt at 1 October 2006 (1,973) -
Net cash/(debt) at 30 September 2007 11,425 (1,973)
1. Segmental Reporting
Heating and Air
Conditioning Systems Other Segments Group
Restated Restated Restated
2007 2006 2007 2006 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 23,963 3,265 3,505 - 27,468 3,265
Inter-segment turnover (431) - (1,137) - (1,568) -
Net turnover 23,532 3,265 2,368 - 25,900 3,265
Loss before tax (41,112) (4,143) (967) - (42,079) (4,143)
Loss before tax and exceptional items (16,551) (4,143) (861) - (17,412) (4,143)
Segment net assets - continuing 10,512 27,673 3,059 - 13,571 27,673
Included within heating and air conditioning are the results for Worthington
Nicholls Group plc, A S Nicholls Limited, Worthington Nicholls Facilities
Limited, Project Air Limited, Woods Holdings Wilmslow Limited, Woods
Environmental Limited, Woods Environmental (North East) Limited, Woods
Environmental (South) Limited, Woods Facilities Limited, Woods Plumbing and
Heating Limited and Woods Ventilation Limited.
Included within other segments are the results for Lumenglow Limited,
Euro-Property Services (London) Limited and Classic Interiors Contractors
Limited.
The prior year restatement had no impact upon the segmental disclosures because
prior to the current year acquisitions, the Group operated in only one segment.
2. Exceptional items
As noted in the Directors' report, the group has incurred exceptional costs in
the period.
2007 2006
£'000 £'000
Investment property impairment 500 -
Bad debt provision 1,470 -
Legal fee provisions 795
2,765
Goodwill impairment 21,902 -
Total exceptional items 24,667
The financial commentary makes reference to a non-statutory balance. This is
reconciled below.
2007 2006
£'000 £'000
Operating loss per profit and loss account (42,068) (4,077)
Goodwill impairment 21,902 -
Operating loss before goodwill impairment (20,166) (4,077)
The reconciliation to the £13,674,000 as disclosed in the directors' report is
as follows:
Adjustment
Fundamental to
error - prior Admin Admin management
year Gross margin - exceptional -normal accounts
£'000 £'000 £'000 £'000 £'000
Matched costs (being irrecoverable
revenue) 2,407 - - - 715
Trade debtors and retentions 260 - 1,470 - 772
Specific contract issue 699 - - - -
Unallocated accrued income 1,367 - - - 1,787
Stock 184 - - 270 -
WIP 150 - - 462 -
Fixed assets - - - 103 -
Investment property impairment - - 500 - -
Other prepayments - - - 364 -
Loss making contracts - 592 - - -
Other items 300 - 795 477 -
Total 5,367 592 2,765 1,676 3,274
Total 13,674
3. Prior period adjustments
During the year the company has adopted FRS 20 'Share based payment' which
required changes in the method of accounting for share based payments. Also, as
noted in the directors' report, there were fundamental errors in the prior year
accounts. Accordingly the 2006 results have been restated; the effects are
summarised below:
Group Operating
Share- profit/
Trade FRS 20 holders' (loss)
Debtors creditors Stock reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
2006 as previously reported 10,236 (3,347) 581 - 33,040 1,414
Adoption of FRS 20 during period
ended 30 September 2006 - - - (124) - (124)
Correction of fundamental error
during period ended 30 September
2006 (4,733) (300) (334) - 5,367 (5,367)
2006 restated 5,503 (3,647) 247 (124) 27,673 (4,077)
With the exception of £90,000, the prior period adjustment relates to the parent
company. Accordingly no additional table showing the effect upon the parent
company balance sheet has been disclosed.
The effect upon operating profit is split accordingly:
Operating
Cost of Admin profit/
Turnover sales expenses (loss)
£'000 £'000 £'000 £'000
2006 as previously reported 7,998 (5,375) (1,225) 1,414
Adoption of FRS 20 during period ended 30 September 2006 - - (124) (124)
Correction of fundamental error during period ended 30
September 2006 (4,733) (634) - (5,367)
2006 restated 3,265 (6,009) (1,349) (4,077)
Fundamental errors
There were found to be fundamental errors in last year's accounts that were
considered to be of such significance that they alter the true and fair view of
the previous period's figures. It was therefore considered necessary to restate
the comparatives in these financial statements arising from:
- Stock and WIP balances were included at their cost price but did not have
a net realisable value to the business.
- Retentions were being included as trade debtors before the period of
retention had lapsed. No creditor was being held for the work required
before the retention would be recoverable.
- 'Matched' costs held on balance sheet. These were excess costs raised as
revenue but not recoverable from customers.
- At 30 September 2006 rebates agreed in respect of future purchases from a
supplier were recognised as an asset.
- Amounts recoverable on contracts. These amounts were not and are not
expected to be received.
4. INTEREST PAYABLE AND SIMILAR CHARGES
2007 2006
£'000 £'000
Bank loan and overdraft interest 151 70
Hire purchase interest 47 6
Unwinding of discount on Project Air
deferred consideration
47 -
245 76
5. LOSS PER ORDINARY SHARE
Loss per ordinary share is based on the loss for the year of £42.08 million
(2006 (revised loss): £4.50 million) and 76,854,682 (2006: 30,548,045) ordinary
shares being the weighted average number of ordinary shares in issue during the
year.
FRS 22 requires presentation of diluted earnings per share when a company could
be called upon to issue shares that would decrease net profit or increase net
loss per share. For a loss making company with outstanding share options, net
loss per share would only be increased by the exercise of out-of-the-money
options. Since it seems inappropriate to assume that option holders would act
irrationally and there are no other diluting future share options, diluted
earnings per shares equals basic earnings per share.
2007 Loss No, of Loss per
£'000 shares share pence
Basic loss per share (42,079) 76,854,682 (54.75)
Revised 2006 Loss No, of Loss per
£'000 shares share pence
Basic loss per share (4,503) 30,548,045 (14.74)
ADJUSTED LOSS PER ORDINARY SHARE
Adjusted, basic loss per ordinary share has been based on the loss on ordinary
activities after taxation for each period but excluding exceptional items and
goodwill impairment since the Directors believe that this gives a more
meaningful measure of the underlying performance of the group.
3 February
2006
12 Months to to 30
30 September September
2007 2006
£'000 £'000
Loss on ordinary activities after taxation (42,079) (4,503)
Exceptional items (see note 4) 2,765 -
Goodwill impairment 21,902 -
Revised loss after taxation (17,412) (4,503)
Adjusted basic loss per ordinary share (22.6p) (14.74p)
In November 2007 a further 3,201,898 shares were issued as part of the deferred
consideration in respect of EPS.
6. STOCKS AND WORK IN PROGRESS
Group Company
Restated Restated
(note 3) (note 3)
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Stocks - 247 - 92
Work in progress 2,754 - 1,408 -
Less provision for work in progress (860) (860)
1,894 247 548 92
7. DEBTORS
Group Company
Restated Restated
(note 3) (note 3)
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Trade debtors 7,246 3,699 2,604 2,161
Amounts owed by group undertakings - - 2,380 487
Other debtors 325 1,687 268 1,340
Prepayments and accrued income 430 117 69 99
Corporation tax - - 319 -
8,001 5,503 5,640 4,087
8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company
Restated Restated
(note 3) (note 3)
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Bank loans and overdrafts 1,140 986 1,070 813
Obligations under finance leases
and hire purchase contracts 83 43 39 43
Trade creditors 6,733 3,647 2,886 2,805
Amounts owed to group undertakings - - 3,660 480
Corporation tax 301 732 - 253
Social security and other taxes 952 1,155 526 611
Other creditors 3,038 1,013 2,970 1,001
Accruals and deferred income 1,594 40 781 14
13,841 7,616 11,932 6,020
Included in other creditors is deferred and contingent purchase consideration of
£2,948,925 (2006: £1,000,000). The bank loan of £1,069,778 was repaid on 20
December 2007.
9. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group Company
Restated Restated
(note 3) (note 3)
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Bank loans and overdrafts - 1,077 - 1,077
Obligations under finance leases
and hire purchase contracts 64 60 40 60
Contingent consideration 1,525 - 1,525 -
Loan notes - 326 - 325
1,589 1,463 1,565 1,462
10. CALLED UP SHARE CAPITAL
2007 2006
£'000 £'000
Authorised
115,000,000 ordinary shares of 1 pence each 1,150 850
Called up, allotted and fully paid
87,002,078 ordinary shares of 1 pence each (2006: 66,165,000) 870 662
During the year ended 30 September 2007 a total of 20,837,078 new ordinary
shares were issued by the Company. In November 2006 the Company issued
6,666,067 shares at 90 pence per share in a placing. In May 2007 the Company
issued 11,764,706 new ordinary shares at 170 pence per share to finance the
acquisitions of Classic, EPS and Woods. In addition, Blue Oar Securities
exercised an option over 650,000 new ordinary shares at 50 pence per share, at
which time the market price was 122 pence. The Company also issued new ordinary
shares in respect of acquisitions totalling 1,756,305.
On 1 November 2007 a further 3,201,898 shares were issued as part of the
deferred consideration in respect of EPS.
11. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOWS
Restated
2007 2006
£'000 £'000
Operating loss (42,068) (4,077)
Goodwill amortisation 11,082 -
Goodwill impairment 21,902 -
Depreciation 233 27
FRS 20 charge 117 124
Loss on disposal of fixed assets 104 -
Investment property impairment 500 -
(Increase)/decrease in stocks (777) 637
(Increase)/decrease in debtors (144) 1,378
Increase/(decrease) in creditors 2,365 (546)
Net cash outflow from operating activities (6,686) (2,457)
12. ANALYSIS OF NET DEBT
Acquisitions
(excl cash and
1 October Cash overdraft) 30 September
2006 flow £'000s Other 2007
£'000s £'000s £000 £'000s
Cash at bank and in hand 519 12,193 - - 12,712
Bank overdraft (961) 894 - - (67)
Net cash (442) 13,087 - - 12,645
Debt due within one year (25) 206 (177) (1,077) (1,073)
Debt due after one year (1,403) - - 1,403 -
Hire purchase (103) 15 (59) - (147)
Change in debt (1,531) 221 (236) 326 (1,220)
Net (debt)/cash (1,973) 13,308 (236) 326 11,425
13. POST BALANCE SHEET EVENTS
On 31 December 2007, the trade and certain assets of Worthington Nicholls Group
plc were transferred to a new Group company, W N Trading Limited. W N Trading
Limited is a direct subsidiary of Worthington Nicholls Group plc.
On 5 January 2008 Woods Environmental (North East) Limited (turnover-£1,611,400;
loss before tax-£48,777) was sold for £53,000.
The operations of Worthington Nicholls Facilities Limited (turnover-£1,956,721;
loss before tax-£532,684), Woods Environmental (South) Limited
(turnover-£2,414,819; profit before tax £77,470) and Project Air Limited
(turnover-£3,089,596; loss before tax-£268,234) are ceasing, this process will
be completed by 31 March 2008.
14. The accounting policies adopted in the preparation of this preliminary
announcement are consistent with those set out in the Group financial statements
for the year ended 30 September 2007. The financial information does not
constitute the Company's Statutory Accounts.
The Statutory Accounts for the year ended 30 September 2007 have been reported
on with the following qualification by the Company's auditors, extracts of the
qualification read as follows:
'In respect of the unsubstantiated journal entries the auditors were unable to
determine whether proper accounting records have been kept. Also in respect of
these unsubstantiated journal entries and the limitation on the audit relating
to the group profit and loss account and cash flow statement for the period
ended 30 September 2006, the auditors have not obtained all the information and
explanations that they considered necessary for the purposes of their audit.
Except for any adjustments to the corresponding amounts that might have been
found to be necessary had the auditors been able to obtain sufficient evidence
concerning the group profit and loss account and group cash flow statement for
the period ended 30 September 2006, the financial statements for year ended 30
September 2007 are unqualified'.
The Statutory Accounts for the year ended 30 September 2007 will be delivered to
the Registrar in due course.
It is intended to post the Annual Report to shareholders on 14 March 2008,
copies of this report will be available from the Company Secretary at Barons
Court, Manchester Road, Wilmslow, Cheshire SK9 1BQ and from the Company's
website www.worthington-nicholls.co.uk from the 18 March 2008.
The Annual General Meeting of the Company has been scheduled for 10.00 am on
Monday 14 April 2008 to be held at the offices of the Company's legal advisers,
Osborne Clarke, One London Wall, London EC2Y 5EB.
This announcement was approved by the Board of Directors on 10 March 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
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