Final Results

MULBERRY GROUP PLC 26 August 1999 Mulberry Group plc Preliminary Results for the Year to 31 March 1999 HIGHLIGHTS Major license and distribution deal in Japan with world fibre leader Toray - should see sales in Japan of £50m in 5 years. Key partnership agreement with Kravet US Home furnishing giant - £1.5million consideration and world- wide licence income. Loss before tax £(1.8m) - (1998 1.0m) in line with market expectations. Overheads, stock and borrowings reduced. Worldwide website Mulberry E-Commerce trial goes live. New handbag collection 'Technique' successful launch for Spring/Summer 2000. Commenting on the results, Mulberry Chairman, Roger Saul, said: 'Our results are in line with market expectations despite difficult trading conditions which persisted throughout last year. During the year the Company has strengthened its management team in order to implement the changes required in order to make a rapid return to profit. The changes include licensing key product areas in order to simplify the business and investing in design in order to update our core accessory product offer. By far the most significant steps we have taken are the two recent deals that we have struck with Kravet in the US and Toray in Japan - both leaders in their own markets. The Toray Agreement in particular endorses our unwavering belief that Japan will continue to be the major market for Luxury Brands for some time to come. Finally we believe that E-Commerce represents a very exciting sales opportunity for key product areas. Luxury goods brands are not usually associated with selling through the internet. However, early indications are that a carefully identified and priced selection of our accessories will increase the availability of the Mulberry brand to new customers.' For further information: Roger Saul, Chairman and Designer Mulberry Group plc 01749 340500 Godfrey Davis, Finance Director Mulberry Group plc Alex Mackey GCI Focus 0171 600 1392 CHAIRMAN'S STATEMENT The last two years have been one of the most difficult periods of change that Mulberry has had to face. We have needed to move from a UK design, manufacture and export base to a world-wide sourcing and distribution operation. Clearly this has meant substantial changes to our modus operandi; management and staff have had to embrace change on a major scale. We have invested strongly in both design and marketing with the result that the Mulberry collection has been updated without losing its lifestyle and quality attributes. However during this process we have had to accept that it is not possible for us to finance the development of all product areas ourselves. We have concentrated on finding major world-wide partners to help us develop Mulberry into a truly global luxury brand. To this end we have recently secured two major partnership agreements with Toray in Japan and Kravet in the USA. Trading continues to be challenging with little change in the UK, European and Far East markets. Sterling continues to be strong, affecting our export markets and the buying power of tourists in the important London market. Despite this our Bond Street flagship store continues to be highly profitable with sales of £3 million last year. These adverse trading conditions resulted in an operating loss for the year to 31 March 1999 of £0.9m (1998: £0.2m); a loss before tax of £1.8m (1998: £1.0m) and lower sales of £27.4m (1998: £30.9m) . These results were in line with market expectations. Overheads have been cut by £1 m. Stocks have been reduced during the year by £1.5 m. Cashflow has been improved by the concerted action to reduce stocks and as a result borrowings reduced by £0.8 m. OPERATING OVERVIEW In previous statements I have referred to a number of initiatives which we have undertaken. We have achieved a great deal already and expect a progressive improvement in our operating performance from this point as the benefits flow through. FOCUS ON ACCESSORIES Our core activity remains our accessory collection and innovative product development remains the very lifeblood of the Mulberry Brand. To further reinforce this division we have invested in design and marketing during the year with strong new product lines reaching our shops in Autumn 1999 and with further introductions in Spring 2000 supported by distinctive and focused advertising campaigns. We have successfully halved the number of products offered whilst enhancing the attractiveness of the product range, introducing exciting new products such as Flight and Team Luggage and our new hi-tech Business Accessories collection. For Spring/Summer 2000 we introduce a new contemporary handbag collection 'Technique' which has already had a very positive response from customers around the world. SIMPLIFICATION OF THE BUSINESS Our goal continues to be the simplification of our business. This has been, in a large part, achieved through the rationalisation of our existing product ranges and the recently signed agreement to licence our Home furnishings collection. We have been very successful in developing our Home furnishings business and it has become a recognised market leader in its sector. However, it is not our core business. We concluded that there was substantial scope for growth, especially in the US market which is principally driven through wholesalers and interior designers. As a result, we sought to identify the optimum specialist partner in this field and have signed a world-wide licence agreement with Kravet, the leading home furnishings specialist in the USA. This agreement will take effect from 1 September 1999. As part of the agreement, Kravet will invest in expanding the product range to drive a substantial increase in sales. Kravet currently has showrooms in 23 major US and Canadian cities and an experienced and dedicated sales force throughout the USA. Kravet will combine Mulberry's UK and Europe sales operation with their own to build on the success of both brands. Kravet will pay a consideration of £1.5m to Mulberry followed by royalties based on sales. It is envisaged that sales of these products, on which royalties will be paid, will increase by 400% over the next 5 years. This transaction is a major step in the simplification of our business and the competition from interested parties is testament to the success of our team in this area. WORLD-WIDE SOURCING We have an outstanding manufacturing facility and workforce in Somerset which achieves industry leading standards of materials utilisation due to our investment in CADCAM systems for leather cutting. While this facility is competitive for low labour content high material value products, it cannot compete on high labour content products. This has formed the basis for our production outsourcing programme. We have outsourced approximately 50% of our manufacturing to Southern Europe and the Far East where they are able to meet our demanding quality standards. While these facilities have been developed over the last 2 years, the real benefits in margin will be achieved progressively over the next 2 years. STRENGTHEN THE OPERATIONAL MANAGEMENT Over the last year we have invested in developing our operational management team at the level below the Group board. We have successfully changed the operational management of our own shops and have strong new team members in marketing, merchandise selection and finance. We are committed to the process of ensuring management succession. At main Board level, Godfrey Davis, who has taken the leading role in negotiating the transactions with Kravet and Toray, will take up the position of Deputy Chairman in an executive capacity and Guy Rutherford, who joined the Group in January 1999 will be appointed Group Finance Director, with effect from 30 September 1999. WORLD-WIDE WEBSITE Over the last 12 months we have been working on our plans for E-Commerce. Our first phase web-site went live at Easter 1999 (www.mulberry-england.co.uk). In the meantime we have addressed our international pricing policy which means that currency fluctuations provided, Mulberry is now priced on a comparable basis world-wide - something that many other Brands are not. We plan further developments in the New Year. MAJOR MARKET DEVELOPMENT IN JAPAN We began the re-organisation of our Japanese operation last year, having taken over control of our Tokyo stores following the collapse of our local partner. Strongly believing in the Japanese market, we doubled the size of our Tokyo 'flagship' store to include our home interiors collection. As a result, the Japanese flagship store sales have increased by approximately 50%, despite the worst recession in Japan since the war, which saw retail sales fall 11% in the clothing industry. This continued commitment to Japan enabled us to enter into successful negotiations with Toray Industries to whom we have granted a master license to manufacture and distribute 23 different categories of Mulberry product throughout Japan and an exclusive import licence for products manufactured by Mulberry. Toray forecast sales in Japan of licensed and imported Mulberry product totaling approximately £50 million over the first 5 years. Toray will make an investment in the Group of £250,000 in 1% redeemable preference shares to show their commitment. The authorisation for this share issue will be included in the agenda for the Annual General Meeting. Toray are the world's largest textile manufacturer and are another world class partner for Mulberry. DIVIDEND As announced on 13 April, your Board has decided not to recommend a final dividend, due to the continued adverse trading conditions. OUTLOOK As a result of our strategy of simplification, the focus on our core activities and the future benefits of the transactions outlined above, we believe that, although trading conditions remain challenging and forward orders are currently unpredictable, Mulberry Group is well positioned for the future. Roger Saul, Chairman and Chief Executive 26 August 1999 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 March 1999 1999 1998 £'000 £'000 TURNOVER 27,393 30,926 Cost of sales (14,974) (16,175) -------- -------- - - GROSS PROFIT 12,419 14,751 Other operating expenses (net) (13,291) (14,354) Other operating expenses - exceptional re-organisation costs - (602) -------- -------- - - OPERATING LOSS (872) (205) Finance charges (860) (794) Group share of loss of related (47) - companies -------- -------- - - LOSS ON ORDINARY ACTIVITIES BEFORE (1,779) (999) TAXATION Tax on loss on ordinary activities (8) 272 -------- -------- - - LOSS ON ORDINARY ACTIVITIES AFTER TAXATION, BEING LOSS FOR THE FINANCIAL (1,787) (727) YEAR Dividends paid and proposed on equity - (239) shares -------- -------- - - LOSS FOR THE YEAR (1,787) (966) -------- -------- - - LOSS PER ORDINARY SHARE (8.57p) (3.51p) -------- -------- - - CONSOLIDATED BALANCE SHEET 31 March 1999 1999 1998 £'000 £'000 FIXED ASSETS Tangible assets 6,124 6,195 Investments 44 117 --------- --------- 6,168 6,312 CURRENT ASSETS --------- --------- Stocks 6,396 7,934 Debtors 4,856 6,384 Cash at bank - 36 --------- --------- 11,252 14,354 CREDITORS: Amounts falling due within one year (10,986) (11,200) --------- --------- NET CURRENT ASSETS 266 3,154 --------- --------- TOTAL ASSETS LESS CURRENT 6,434 9,466 LIABILITIES CREDITORS: Amounts falling due after more than one year (2,050) (3,292) PROVISIONS FOR LIABILITIES AND - (10) CHARGES --------- --------- NET ASSETS 4,384 6,164 --------- --------- CAPITAL AND RESERVES Called-up share capital 1,049 1,036 Share premium account 3,245 3,257 Revaluation reserve 297 328 Capital redemption reserve 154 154 Profit and loss account (361) 1,389 --------- --------- EQUITY SHAREHOLDERS' FUNDS 4,384 6,164 --------- --------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 March 1999 1999 1998 £'000 £'000 NET CASH INFLOW FROM OPERATING 2,315 47 ACTIVITIES Returns on investments and servicing of (843) (794) finance Taxation 233 (242) Capital expenditure and financial (806) (779) investment Equity dividends paid (55) (239) --------- --------- Cash inflow (outflow) before financing 844 (2,007) Financing (429) (367) --------- --------- INCREASE (DECREASE) IN CASH IN THE YEAR 415 (2,374) --------- --------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 1999 1998 £'000 £'000 Increase (decrease) in cash in the year 415 (2,374) Cash outflow from decrease in debt and lease financing 429 367 --------- --------- 844 (2,007) Inception of finance leases (54) (518) --------- --------- Movement in net debt 790 (2,525) NET DEBT, BEGINNING OF YEAR (9,637) (7,112) --------- --------- NET DEBT, END OF YEAR (8,847) (9,637) --------- --------- CASH FLOW INFORMATION Reconciliation of operating loss to net cash inflow from operating activities 1999 1998 £'000 £'000 Operating loss (872) (205) Depreciation charge 879 837 Loss on sale of tangible fixed assets 4 44 Decrease (Increase) in stocks 1,538 (27) Decrease in debtors 1,256 372 Decrease in creditors (417) (775) Effect of foreign exchange rate changes (73) (199) --------- --------- Net cash inflow from operating 2,315 47 activities --------- --------- Consolidated statement of total recognised gains and losses For the year ended 31 March 1999 1999 1998 £'000 £'000 Loss for the financial year (1,787) (727) Currency translation differences on (93) (247) foreign currency net investments -------- -------- - - Total recognised gains and losses in (1,880) (974) the year -------- -------- - - NOTES 1. The financial information set out above does not constitute the Company's statutory accounts. Statutory accounts for the year ended 31 March 1998 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 March 1999 will be filed at Companies House upon receiving the approval of the Annual General Meeting. The auditors have reported on the accounts for the year ended 31 March 1998 and their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. The results contained in this report, which have not been audited have been prepared using accounting policies consistent with those used in the preparation of the Annual Report and Accounts for the year ended 31 March 1998. 3. Earnings per share are calculated on 20,849,442 (1998:20,772,941) ordinary shares being the weighted average number of shares in issue during the year. 4. Copies of the Annual Report and Accounts will be posted to shareholders. Further copies can be obtained from Mulberry Group plc's registered office at Kilver Court, Shepton Mallet, Bath, BA4 5NF. 5. The Annual General Meeting will be held at Mulberry Group plc's registered office, Kilver Court, Shepton Mallet, Bath, BA4 5NF on 1 October 1999. Copies of this announcement are available for a period of 14 days from the date hereof from the Company's registered office, Kilver Court, Shepton Mallet, Bath, BA4 5NF and from the Company's nominated adviser, Teather & Greenwood Limited, 12-20 Camomile Street, London, EC3A 7NN.
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