Final Results
Torex Retail PLC
16 March 2006
Thursday 16 March 2006
Torex Retail Plc ('Torex Retail' or 'the Group')
Preliminary Results
Torex Retail Plc, the market leading international provider of innovative IT
retail solutions, today announces its preliminary results for the twelve months
ended 31 December 2005.
Highlights:
Strong Operating and Financial Performance:
• Turnover up 133% to £167.4 million (2004: £71.8 million, pro forma**)
• *Adjusted Operating profit increased by 123% to £27.9 million (2004:
£12.5 million, pro forma**)
• Underlying organic growth of 15% and operating margins of 19% from
continuing businesses
• *Adjusted EPS up by 58% to 7.9p (2004: 5.0p pro forma**)
• Financial results in line with expectations
* Adjusted EPS and operating profit have been calculated excluding exceptional
items, share scheme charges and amortisation of goodwill
** Pro forma results for the twelve months ended 31 December 2004 as previously
reported in the 2004 financial statements
Business
• Torex Retail is now the number one provider of retail systems and
services in the UK and Mainland Europe
• Critical mass achieved in chosen markets creating strong platform for growth
• Key additions made to main senior executive team ensuring growth is managed
and opportunities are fully exploited
• Role of Chairman and CEO to be separated reflecting best corporate practice
• Integration of acquired companies substantially complete in the UK and
progressing well in Germany
• Strong order intake and positive start to 2006
• New global investment bank and auditor appointed
Commenting on the results Chris Moore, Chairman and Chief Executive of Torex
Retail said,
'2005 was the first full year of the five year plan to make Torex Retail the
global leading provider of application software and services to our chosen
market sectors. We have developed a robust strategy to ensure this vision and
ambition is fulfilled. Moving ahead we are looking to continue the delivery of
sustainable and profitable growth for the long term.
The integration of the acquired businesses is well advanced and this, coupled
with our market leading solution set, means we are well placed to deliver
exceptional customer service and enhanced shareholder value. Key to achieving
these goals will be the continuation of strong organic growth and the
exploitation of the business opportunity in North America, whilst minimising
business risks in the marketplaces where we already have a leading position.
The next 12 to 24 months are set to be an immensely exciting period within the
retail sector and I believe Torex Retail is ideally positioned to capitalise on
the significant opportunities which present themselves'.
- Ends -
Enquiries:
Torex Retail Plc +44 (0) 870 300 6061
Chris Moore, Chairman and Chief Executive
Mark Pearman , Finance Director
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Ginny Pulbrook / Seb Hoyle
Notes to Editors:
About Torex Retail Plc
Torex Retail is a leading independent provider of cutting edge retail technology
solutions to many of the world's principal retailers. Since the company's
flotation in spring 2004 Torex Retail has achieved rapid growth across all of
its markets and has rigorously pursued its goal of becoming the provider of
choice. As a result, the company now has a presence in all of the major markets
around the world and has built a strong platform for future growth in line with
its strategy. Torex Retail's product and solution set spans general and food
retail as well as the hospitality and petroleum and convenience sectors. With
over 6,000 customer relationships, including Tesco, Woolworth, Selfridges, Shell
and Argos, the company has earned a leading reputation amongst retailers. Torex
Retail has more than 2,800 staff based in 17 countries. www.torexretail.com
Chairman and Chief Executive Officer's Statement
On behalf of the Board, I am delighted to present the results of the business
for the year ended 31 December 2005.
Overview
The reported results show turnover of £167.4 million and Operating Profit before
amortisation of goodwill, share scheme charges and exceptional items ('Adjusted
Operating Profit') of £27.9 million. Earnings per share before amortisation of
goodwill, share scheme charges and exceptional items ('Adjusted EPS') grew by
58% to 7.9p, compared to the proforma twelve month period to 31 December 2004.
During the period under review the Group achieved underlying revenue growth in
its core business of 13%. Significant organic growth was also achieved post
acquisition: 9% at RSS, 11% at RPS, 12% at Hoffman, 31% at CTN and 32% from XN
Checkout. Overall, underlying organic growth was 15%.
Reflecting the large one-off acquisition related restructuring costs and the
non-cash share scheme and amortisation of goodwill charges of £35.7 million the
Group realised an Operating Loss of £7.8 million (2004: £9.0 million profit) and
Basic Loss per Share was 5.4 pence (2004: 3.0p Earnings Per Share).
I am pleased to report we are on track to achieve our five year plan and in that
respect the Group is now the number one provider of retail systems and services
in both the UK and Mainland Europe. In 2005, we achieved strong organic growth
whilst also completing a number of strategic acquisitions. We have significant
scale and customer base and solution set to deliver sustainable, long term
organic growth.
Issues of year 2000 compliance had the effect of synchronising the replacement
cycles of the majority of retailers worldwide. Given the typical five to eight
year product life of most retail systems, the technology replacement cycle is
approaching a point where a significant number of retailers will be looking to
refresh their systems. In many cases, particularly in North America, this
process has already started and we believe this concentrated increase in
customer demand represents a substantial opportunity for Torex Retail.
As reported in September, we achieved significant organic growth from both our
UK and European businesses during the first half. Robust, underlying organic
growth continued throughout the second half of the year, in both revenue and
profit terms. This, coupled with strong order intake and substantial progress in
integrating the businesses acquired last year, has resulted in very pleasing
financial results which are in line with market expectations.
The business doubled in size twice during 2005 primarily as a result of
acquisitions. To manage this growth and capitalise on the opportunities this
presents we have made a number of key additions to both the Group Board and the
senior executive team.
Operational Developments
Torex Retail is implementing a long term strategy to achieve leading market
positions, superior scale and profitability throughout our business. A single-
minded focus on sustainable organic development is central to our plans and I am
therefore delighted to report that we achieved an impressive underlying sales
growth of 15% in 2005.
I am also encouraged to report that the integration of the businesses we
acquired in 2005 is substantially complete in the UK and it is ahead of schedule
in Germany, and due for completion later this year.
The integration of the acquired companies has represented a major undertaking
and its success to date is a tribute to the talents and abilities of our
management team, coupled with the responsiveness and flexibility of our staff.
One of the main aspects of integration is the elimination of duplicated
resource, which has resulted in a significantly greater level of ongoing cost
savings than we had originally indicated.
The scale of change we managed in 2005 is illustrated by the comparative
statistics of key indicators detailed below:
INDICATOR 2005 2004 (Pro forma)
Turnover £167.4 million £71.7 million
Gross Profit £105.2 million £48.4 million
Adjusted Operating Profit £27.9 million £ 12.5 million
Average No of Employees 2,285 1,000
The integration of Alphameric Retail, which was acquired in November 2004, was
fully completed in 2005 with minimal customer losses and a number of customers
have migrated to our leading Lucas software solution. The Alphameric Retail
integration also involved a significant amount of work on resolving product and
service issues arising out of a number of loss making hardware contracts.
Following the restructuring of the business, which was loss making on
acquisition, and the elimination of non profitable revenue streams, the business
made an encouraging contribution to Group profits in 2005.
Most importantly, the integration programmes have greatly increased the
efficiency of our business processes with a resulting improvement in our ability
to deliver the highest levels of service to our customers. Consequently the
Group is in a stronger position to benefit from the numerous opportunities that
lie ahead and we now have the structure and team to become the leading provider
of retail systems worldwide.
UK
Mainstream Retail
The year saw eight major roll outs of Lucas Java into the existing customer base
including RD Scott, Slaters, Co-op Home Stores, Bargain Crazy, Yeomans, Reiss,
Clinkards and Texas Department Stores.
Other successes included the implementation of Lucas Java in the Japanese
department store, Mitsukoshi, in Regent Street which went live in December 2005
as well as deployments of our Lucas OSM solution into Roadchef and Alpha Retail
in contracts worth in excess of £2.6 million.
Significant new wins were enjoyed in our Productivity and Performance Management
division with major contracts secured with a range of customers from blue chip
high street retailers to convenience store groups, taking advantage of the
growing realisation that there are innovative ways to budget, reduce and manage
staffing costs and increase job satisfaction levels. Contracts included
significant orders from Tesco, Somerfield and Hendersons.
With growing awareness within retail that merchandise planning delivers real
cost savings, increased margins and enhanced customer satisfaction we expect
this area of our business to continue on its current rapid growth curve.
Significant wins include Cortefiel Group and a major new order from Ann Taylor.
Additionally we saw our Warehouse Management product set enjoy strong growth
during the year adding Bargain Crazy and LPC Pharmaceuticals to significant
clients already installed such as Littlewoods, EMI Music, WH Smith and Cow &
Gate.
Hospitality
As well as considerable success within our retail business, I am equally pleased
to be able to report a number of key achievements within our Hospitality
division. Since acquiring XN Checkout in July 2005, we have secured a number of
significant new UK business wins including a major project worth in excess of £5
million in the first phase with Mitchells & Butlers. A commitment of similar
size with leading pub company, Pathfinder, was also secured in addition to a
record number of new wins in the wider hospitality market, including Caffe Nero
and Rocco Forte Hotel Group.
In entering the hospitality market we became a leading provider of EPoS
solutions to the UK pub and restaurant market with more than 40,000 installed
devices. The acquisition also gave us entry into important niche sectors of the
hospitality industry including the hotel sector as well as casinos and gaming.
Progress in both of these areas has been significant with a number of
prestigious wins achieved in 2005 including a first phase roll out of electronic
gaming terminals to Stanley Leisure Casinos.
Moving forward, we expect the hospitality sector to make a key contribution to
the Group's overall performance and we believe there are significant
opportunities to cross sell a number of our market leading applications such as
loss prevention, business intelligence and productivity management to
hospitality customers.
Torex Retail's strong service capability has helped the hospitality division
capture new service related business, which had previously been outsourced.
The order pipeline for 2006 is looking very promising and since the start of the
year we have already secured a number of new contract wins including Elior and
the conversion by Punch Taverns of a number of Spirit-managed houses to lease
format. New orders in excess of £2 million have also been received from our fast
growing Middle Eastern channel.
Petroleum and Convenience
Progress in the Petroleum Retailing and Convenience Division has been
significant with major support and maintenance contracts secured with Tesco and
Somerfield. The acquisition of Flexiline Forecourt Services in February 2005 has
enabled us to broaden our offering to the sector and we are now able to deliver
a turnkey solution to both forecourt operators and the convenience sector.
In Europe, we won the unmanned forecourt business of DATS 24, and commenced a
pilot with JoPetrol (Jordanian state oil company) where the opportunity is for
385 sites. A similar pilot is also underway for RomPetrol in Romania, where the
opportunity is for 1,000 sites.
As well as success with major multiple operators we have continued to grow our
share of the important independent marketplace and have more than 8,000
installed solutions across the independent sector.
Continental Europe
In Continental Europe, the breadth and depth of our business has changed
significantly following the acquisition of Anker in 2005. The opportunity for
the Group is clear - to sell the full range of Torex Retail's products across
the vast Anker customer base to maximise software, service and maintenance
revenues on a much reduced cost base. In this we are making excellent progress.
In Germany, we have secured additional contract wins with Peek & Cloppenburg and
Kaufland, and significant new customer wins with Charles Vogele, Gerry Weber,
Tegut and Cult Company Our increased scale has enabled us to undertake in-house
the major roll-outs for a number of customers including Tedi and Sport Scheck in
Germany, Deichmann in Denmark and Switzerland, and Triumph in Hong Kong,
In Western Europe (Holland, France and Belgium) major 2005 wins included
Panelux, Zeeman, Jan Linders, Hema, Bruna, Servex, Decathlon, Platte-Forme Du
Batiment and Norma.
In Scandinavia, where we have traditionally been strong in hospitality, we
continue to win the majority of the Nordic Ferry business (the market in Denmark
and Estonia is especially strong). Major software contracts for Lucas OSM in
2005 included Nordesgruppen and the Finnish Post Office. We have already secured
a major Lucas OSM sale with Avecra Oy for high class restaurant and catering
services at railway stations and on trains in Finland.
The Lucas Java pipeline across Continental Europe for 2006 is at record levels.
North America
In North America, the positive news on consumer spending and retail sales
figures is driving new business levels beyond those experienced previously.
With the EPoS replenishment cycle gaining momentum in 2006, Torex is well placed
as an operator of growing scale with a broadening product platform.
In 2005, we secured significant new contracts with Syms, Stein Mart and Marukai,
as well as new customer wins with Mervyns and KTA. Additionally, we secured new
revenues from the North American roll-out for Mont Blanc, and increased business
from long term customer BJ's Wholesale Club.
Our strategic acquisitions of Retail Store Systems and Systech have provided us
with a solid platform from which to launch the Torex Retail brands, solution set
and capability into this key marketplace. Having already achieved significant
organic growth from both our existing and acquired customer bases, we will be
looking at appropriate targeted acquisitions to broaden our geographic footprint
and market penetration in this territory; as remaining subscale in the world's
largest market for retail systems would represent a lost opportunity.
Looking at 2006, we are delighted by the broad and increasing opportunity for
our lead products. Our Lucas Java product was adopted by our North American
business upon its acquisition, and already has a healthy new prospect pipeline
for 2006. With new pilots being arranged and North American installations for
European based retailers, we expect to demonstrate increasing reference sites as
the product gains traction.
We are receiving strong interest from food and grocery retailers for our
Microsoft .NET EPoS application, ISIS. This industry leading product was
acquired from Systech in September 2005.
Following the success of our relationship with Ann Taylor, our Lucas Planning
product is attracting very strong interest from a large number of Tier 1
retailers in the US. We were delighted to see this product win the 'Best Supply
Chain Solution' category at the recent prestigious Microsoft Retail Application
Developer Awards.
Management
2005 has seen a significant strengthening of our senior management. We have a
proven reputation for delivering results organically and by acquisition . As we
grow , particularly into new territories and customer segments, we will be
looking to make further additions to the board in the year ahead.
I originally joined the business as Chief Executive and, following Rob
Loosemore's decision to step down from the Board, also assumed the role of
Chairman. As a publicly quoted company on AIM we recognise the need for the
highest levels of transparency and corporate governance and to ensure this
continuing commitment is fulfilled, we are currently looking to appoint an
independent Non-Executive Chairman, allowing me to focus entirely on the
responsibilities of the Chief Executive.
At the present time our Finance Function is in the highly capable hands of Mark
Pearman following the departure of Michael Meade earlier this year. With Mark's
plc finance background and having been involved in the business for almost 10
years, he is very well positioned to oversee the company's finances. The new
Chairman will be instrumental in undertaking the process of appointing a new
Finance Director.
Additions to the senior management team include Doug Hargrove, previously UK
Managing Director of Anker, who is now responsible for the whole of our UK
business as Chief Operating Officer. Doug brings high levels of professionalism,
energy and pragmatism to the operational board resulting in significant benefits
being achieved.
Elsewhere, Brendan Kavanagh, previously the owner of RPS, not only looks after
our operations in Ireland but also is a driving force in our rapidly growing
Petroleum Retailing activities. Finally, Ed Dayan was appointed in July as Chief
Technology Officer. He combines this role with his immense experience in
Hospitality and has also joined the Board.
Product Development Strategy
One of the cornerstones of our business plan is the delivery of an integrated
solution set to our customers and during 2005 we have invested some £12 million
in research and development. We are committed to maintaining and enhancing our
technology lead in the market place and the Group will continue to invest
approximately 10% of annual revenue in the area of product development.
We are totally committed to a strategy of technological leadership allied to the
creation of business enhancing products and I am pleased to be able to report
that 2005 saw us confirm our product strategy for customers. We have committed
to support customers with our existing systems whilst providing them with a road
map to migrate to more contemporary solutions at their own pace. We believe this
approach will allow customers to replace their current solutions with the latest
technology in a smooth and timely manner and derive the business benefits
arising from our investment in product development.
Over the medium term, our product set is being brought together under a common
business platform called the 'Torex Enterprise Portal', which will provide
customers with the benefits of a single and familiar view of all their
applications and data.
Group Acquisition Strategy
In a consolidating market, which is experiencing buoyant trading conditions,
growth through acquisition is an important part of our strategy to build an
international group with superior critical mass and substantial market
positions. We were extremely active in making acquisitions in 2005 but, looking
ahead, we anticipate a much reduced acquisition programme designed to provide
increased penetration of selected geographical territories (in particular North
America) and vertical market segments as well as enabling us to further broaden
our product offering in certain niche areas.
Appointment of new Financial Advisers and Joint Brokers
We have also established considerable interest in the North American investor
community and we now have a number of American based institutional shareholders.
Reflecting the increasing US investor base we have today appointed Jefferies, a
leading international investment bank as our joint brokers and financial
advisers. Jefferies has one of the largest banking teams globally dedicated to
the technology industry and in 2005 was the No. 3 trader by volume of NASDAQ
stocks.
This appointment will strengthen our representation, particularly in the US, and
increase our access to international capital markets.
Appointment of Auditors
Reflecting the increased size of the business in 2005 the Board has appointed
BDO Stoy Hayward LLP ('BDO') as auditors to the Group. As the fifth largest
accountancy network worldwide, BDO have the necessary expertise and resources to
service our international and growing business.
Broadening Partnerships
As we have grown over the past twelve months we have aligned ourselves more
closely with strategic partners that will enable us to deliver solutions to
customers globally. These partnerships span hardware, solutions, services and
consultancy with key alliances now in operation with IBM, Hewlett Packard,
Microsoft, SAP, Oracle and service delivery and distribution partners such as
Fujitsu in Asia.
Outlook
2005 was the first full year in our five year plan to make Torex Retail the
global leading provider of application software and services to our chosen
market sectors. Moving ahead we expect to continue to deliver sustainable and
profitable growth.
We have already made a strong start for 2006 and our order intake for January
and February is especially pleasing, and our new business pipeline is at its
strongest in the Company's history.
The integration of the acquired businesses is well advanced and this, coupled
with our broader solution set and exceptional customer service, means we are
well placed to deliver enhanced shareholder value.
The next 12 to 24 months are set to be an immensely exciting period within the
retail sector and I believe we are ideally positioned to capitalise on the
significant opportunities which present themselves to Torex Retail.
Chris Moore
Chairman and Chief Executive
16 March 2006
Financial Review
Accounting policies and presentation
The financial statements have been prepared on the basis of accounting policies
which are consistent with those used in the previous financial year with the
exception that Financial Reporting Standards 17, 21, 22 and 25 have been
adopted. Financial Reporting Standard 21 requires that dividends which are
proposed by the Company are recognised in the period in which they are approved
rather than declared. The previous period's financial statements have been
restated to reflect this change.
The profit and loss account bears large non-cash charges for goodwill
amortisation due to the acquisitive nature of the Group, and the notional cost
of share option schemes. The Group has incurred or is committed to incur
significant one-off restructuring costs in order to derive the maximum immediate
benefit from acquired businesses. To aid understanding of the financial
statements, Adjusted Operating Profit and Adjusted Profit Before Tax are shown
before these charges on the face of the profit and loss account. For the same
reason Adjusted EPS has also been presented.
Torex Retail Plc was formed following the acquisition of the Torex Retail Group
companies from iSOFT Group in February 2004. Its shares were first admitted and
traded on AiM on 2 March 2004. In order to provide a better understanding of our
trading results we have produced comparative pro forma information for the year
ended
31 December 2004, shown below. This information shows the results for the Group
as if it had been trading for a full twelve month period in 2004. The 2004 pro
forma information has been prepared on the basis set out in the notes to the
accounts.
Results review
12 months Pro forma 12 months
ended ended
31 December 2005 31 December 2004
£'000 £'000
Turnover 167,366 71,760
Cost of Sales (62,200) (23,321)
Gross Profit 105,166 48,439
Gross margin 62.8% 67.5%
Overheads (77,312) (35,931)
Adjusted Operating Profit* 27,854 12,508
Adjusted return on sales 16.6% 17.4%
Interest (5,785) (1,253)
Adjusted Profit on ordinary activities before tax* 22,069 11,255
Exceptional restructuring costs (19,995) (242)
Share scheme costs (5,663) (545)
Goodwill amortisation ( 10,031) (2,938)
(Loss)/Profit on ordinary activities before tax (13,620) 7,530
Pro forma earnings per share
Adjusted EPS 7.9p 5.0p
Basic EPS (5.4p) 3.0p
* Stated before exceptional items, share scheme costs and goodwill amortisation
Overall group revenues increased 133% over the pro forma period in 2004 whilst
Adjusted Operating Profit improved by an equally pleasing 123%.
Revenue from continuing activities increased by 23% to £88.0 million reflecting
strong underlying organic growth of 13% in the core business together with the
full year impact of 2004 acquisitions. The growth in continuing revenues would
have been even higher but for the planned downsizing of the Alphameric Retail
business which was acquired in November 2004. On acquisition this business was
still loss making and required substantial restructuring work during 2005. As a
result of this exercise a significant amount of low margin hardware and
maintenance revenue (including the closure of Channel Connect, Alphameric
Retail's Tier 3 & 4 hardware distribution business) was deliberately not
pursued, and this in combination with a 40% reduction in the cost base gave rise
to a satisfactory operating profit for the business in 2005 on significantly
reduced revenues.
Adjusted operating margins from the Group's continuing business increased to an
impressive 19% from a combination of an improved sales mix and the economies of
scale realised as a result of the Alphameric Retail and KPOS acquisitions. The
improvement in sales mix benefited from the Group's strategy to focus on higher
margin software and services with hardware sales decreasing as a proportion of
total revenues from 33% in 2004 to 30% in 2005.
Revenue from businesses acquired during 2005 amounted to £79.4 million. Adjusted
operating margins from acquired operations were 14.0%, lower than those achieved
within the Group's continuing operations reflecting the higher hardware content
in the sales mix of Retail Store Systems and Anker.
The underlying growth in 2005 pro forma revenues over the prior period (assuming
all the acquisitions the Group has made in both in 2004 and 2005 are included in
revenue from 1 January 2004) was a very pleasing 15%.
Exceptional Items, Share Scheme Charges and Goodwill Amortisation
Exceptional charges of £20 million have been included in the Profit and Loss
Account in 2005. These charges in the main relate to one-off restructuring costs
following the acquisitions of Alphameric Retail and Anker. These costs
principally comprise termination and notice payments to staff who have been or
will be made redundant following these acquisitions.
Of the total exceptional charge some £14.5 million relates to the restructuring
of the Anker business in the UK and Continental Europe. The charge is higher
than was initially expected at the time of the acquisition as additional savings
have been identified which has increased the level of potential redundancies
within the business. The restructuring process has been largely completed within
the UK operation but is still in progress in Continental Europe where local
legislation requires the agreement of a detailed Social Plan and court approval.
Once complete, it is anticipated that the total savings arising on an annual
basis will be some £12 million representing a payback period of some 20 months.
A non-cash charge of £5.7 million has been incurred in the period in respect of
the various share schemes operated by the Group to retain and motivate
management and staff. Of this £5.3 million represents a charge required under
UITF Abstract 17 to reflect the intrinsic value of share options issued at 1p as
detailed in the Company's AiM Admission Document.
A £10 million charge for the amortisation of goodwill has been made during the
period in accordance with the Group policy of amortising goodwill over a period
of twenty years.
Tax
The overall tax credit on ordinary activities of £1.3 million was 9% of the Loss
on Ordinary Activities. This is less than the UK standard rate of taxation of
30% mainly as a result of goodwill amortisation, which is not allowed for UK tax
purposes.
It is anticipated that the expected tax rate going forward will be in the region
of 28% to 30% on profit on ordinary activities before goodwill amortisation.
Earnings per share ('EPS')
Adjusted EPS increased by 58% over 2004 pro forma to 7.9 pence. EPS growth is
one of the Group's main objectives as the Board believes that this is the best
practical measure of shareholder value so this significant increase is
particularly pleasing.
Basic EPS per Financial Reporting Standard 22 was a loss of 5.4 pence reflecting
the significant one-off restructuring costs and the non-cash share scheme and
amortisation of goodwill charges.
Balance sheet
The balance sheet as at 31 December 2005 shows net assets of £223.5 million,
including goodwill of £361.8 million, after the current period's charge for
amortisation.
Goodwill increased during the period by a total of £283.6 million primarily as a
result of the following acquisitions in 2005:
• Retail Store Systems was acquired in May 2005 for a total consideration of
£14.9million, which comprised of £9.2million in cash and £5.7million in
shares
• XN Checkout was acquired in July 2005 for a total consideration of
£84.4million, all in shares
• Anker was acquired in August, for a total consideration of £99.3million,
which comprised £31.1million in cash and £68.2million in shares
• Systech was acquired in November for a total consideration of £5.7million,
which comprised £3.3 million in cash and £2..4 million in shares
• The Group made other smaller acquisitions during the year for a total
consideration of £16.1million, comprising £10.2million in cash, £3.1million
in shares and £2.8m deferred consideration.
The deferred consideration in respect of the acquisition of Alphameric Retail in
November 2004 has been crystallised at £2 million, which resulted in a £1
million reduction in goodwill .This was offset against additional goodwill
arising out of the final review of the closing balance sheet at the date of
acquisition. The Directors have carried out a goodwill impairment review on the
2004 acquisitions and are satisfied that the carrying value of goodwill in
respect of these acquisitions is fully justified by the current profitability
and future prospects of those businesses.
The balance sheet as at 31 December 2005 includes a provision of £3.5 million,
net of deferred tax in respect of pension fund liabilities.
The Group operates or contributes to a number of pension schemes worldwide all
of which are of the defined contribution type with the exception of the defined
benefit schemes that were in operation within parts of the Anker group that was
acquired in August 2005. All of these defined benefit schemes are now closed
and in the largest UK, scheme benefits ceased to accrue a number of years ago.
Under FRS 17, the scheme's assets were £20.6 million at 31 December 2005 with a
deficit of £4.9 million equivalent to a £3.6 million deficit after tax. Current
funding levels which were set in September 2005 are planned to recover the
deficit over a five year period by way of additional annual contributions of
£0.9 million.
Cash Flow
During the 12 months to December 2005, the Group has experienced strong cash
inflows from operating activities before exceptional items, generating £18.1
million of cash (101% of Adjusted Operating Profit ignoring goodwill
amortisation).
This represents a particularly strong second half performance where the Group
generated £13.6 million of cash on Adjusted Operating Profit of £12.2 million.
Included within other creditors is an amount of £9.3 million in respect of
deferred consideration and included within trade creditors is an amount of £1.3
million in respect of costs relating to 2005 acquisitions. These items together
with the provision for restructuring costs of £14.1 million will affect the 2006
cash flow.
Net debt at 31 December was £130.1 million, of which bank debt was £126.9
million compared to available facilities with the Group's bank syndicate of £140
million.
International Financial Reporting Standards ('IFRS')
The Group intends to publish its first set of results under IFRS for the year
ended 31 December 2007 in accordance with the requirements of AiM, with
comparatives for the year ended 31 December 2006. An IFRS transition project is
underway and is being steered by the Board as this change has potentially far
reaching implications. The adoption timetable for AiM companies is behind that
for the full market and Torex Retail Plc is expecting the areas of impact to be
pensions and other employee benefits including share based payments, business
combinations, intangible assets including capitalisation of qualifying
development expenditure and treatment of goodwill, and financial instruments.
Mark Pearman
Group Finance Director
16 March 2006
Group profit and loss account
Year 11 months
ended ended
31 December 31 December
2005 2004
Note £'000 £'000
Turnover
Existing operations 87,994 67,935
Acquisitions 79,372 -
Total turnover 4 167,366 67,935
Cost of sales (62,200) (22,022)
Gross profit 105,166 45,913
Total administrative expenses 4 (113,001) (36,949)
Operating (loss)/profit
Existing operations before exceptional items, employee share schemes and
goodwill amortisation 16,753 12,689
Acquisitions before exceptional items, employee share schemes and goodwill
amortisation 11,101 -
27,854 12,689
Exceptional items 3 (19,995) (242)
Charge in respect of employee share schemes (5,663) (545)
Goodwill amortisation (10,031) (2,938)
Operating (loss)/profit
Existing operations 1,393 8,964
Acquisitions (9,228) -
(7,835) 8,964
Net interest payable 5 (5,785) (1,253)
(Loss)/Profit on ordinary activities before taxation (13,620) 7,711
Taxation on ordinary activities 6 1,272 (2,813)
(Loss)/Profit on ordinary activities after taxation (12,348) 4,898
Minority interest (184) (226)
(Loss)/Profit for the financial period (12,532) 4,672
Basic (loss)/earnings per 1p ordinary share (5.4)p 3.0p
Diluted (loss)/earnings per 1p ordinary share (5.4)p 2.9p
Group balance sheet
31 December 31 December
2005 2004
(Restated)
£'000 £'000
Note
Fixed assets
Intangible assets 361,814 78,218
Tangible assets 9,385 2,944
Investment in associate 140 -
371,339 81,162
Current assets
Stocks 23,974 8,728
Debtors 9 76,517 31,785
Cash at bank and in hand 13,442 9,235
113,933 49,748
Creditors: amounts falling due within one year 10 (102,494) (34,589)
Net current assets 11,439 15,159
Total assets less current liabilities 382,778 96,321
Creditors: amounts falling due after more than one year 11 (134,432) (27,684)
Provisions for liabilities and charges (21,302) -
Net assets excluding pension liabilities 227,044 68,637
Pension liabilities (3,556) -
Net assets 223,488 68,637
Capital and reserves
Called up share capital 3,265 1,824
Share premium account 61,733 61,586
Merger reserve 164,357 -
Other reserve 5,603 545
Profit and loss account (11,823) 4,721
Employee benefit trust (39) (39)
Shareholders' funds 223,096 68,637
Minority interest 392 -
223,488 68,637
Consolidated cashflow statement
11 months
Year ended ended
31 31
December December
2005 2004
£'000 £'000
Net cash inflow from operating activities 12,192 11,475
Return on investments and servicing of finance
Interest paid (4,570) (1,141)
Issue costs of new bank loan (1,608) -
Interest paid on finance leases (577) (38)
Interest received 111 91
Net cash outflow from returns on investments and servicing of finance (6,644) (1,088)
Taxation (619) (1,281)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,943) (477)
Proceeds from sale of tangible fixed assets 78 -
Net cash outflow from capital expenditure and financial investment (1,865) (477)
Acquisitions and Disposals
Purchase of subsidiary undertakings (60,835) (80,403)
Disposal of investments 92 -
(Overdraft)/Cash acquired with subsidiary undertakings (4,737) 4,374
Deferred consideration payments (3,200) (724)
Net cash outflow from acquisitions and disposals (68,680) (76,753)
Equity dividends paid (1,474) (167)
Net cash outflow before financing (67,090) (68,291)
Financing
Issue of ordinary share capital - 52,553
Exercise of share options 151 -
Expenses of share issues - (2,890)
Loan advances 111,312 30,100
Loan repayments (39,499) (2,100)
Capital element of finance lease payments (612) (267)
Net cash inflow from financing 71,352 77,396
Increase in cash 4,262 9,105
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 4,262 9,105
Cash inflow from increase in debt (71,201) (27,733)
Changes in net debt resulting from cash flow (66,939) (18,628)
Debt acquired with acquisitions (41,930) (615)
New finance leases incepted in the period (1,981) (243)
Other non cash movements 1,354 -
Exchange movement (1,206) 130
Movement in net debt in the period (110,702) (19,356)
Net debt at the beginning of the period (19,356) -
Net debt at 31 December (130,058) (18,765)
Analysis of change in net debt
At 1 January At 31 December
2005 2005
On acquisition Cash flows Non cash Exchange
movements movement
£'000 £'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 9,235 4,262 - (55) 13,442
9,235 4,262 - (55) 13,442
Short term loans (3,600) - (5,422) - - (9,022)
Long term loans (24,400) (40,723) (66,391) 1,354 (1,149) (131,309)
Finance leases (591) (1,207) 612 (1,981) (2) (3,169)
(19,356) (41,930) (66,939) (627) (1,206) (130,058)
Net cash inflow from operating activities
11 months
Year ended ended
31 31
December December
2005 2004
£'000 £'000
Operating (loss)/profit (7,835) 8,964
Depreciation charge 2,249 732
Goodwill amortisation 10,031 2,938
Translation differences 210 -
Loss on sale of tangible fixed assets 64 -
Non-cash share scheme charges 5,058 545
Increase in stocks (2,661) (1,121)
Increase in debtors (7,882) (2,282)
Increase in creditors 4,869 1,699
Increase in provisions 8,089 -
Net cash inflow from operating activities 12,192 11,475
Statement of group total recognised gains and losses
11 months
Year ended ended
31 31
December December
2005 2004
(Restated)
£'000 £'000
(Loss)/Profit for the financial period (12,532) 4,672
Actuarial adjustments to defined benefit pension liabilities (406) -
Exchange difference on retranslation of net assets of subsidiary undertakings (2,132) 216
Total recognised (losses)/gains for the financial period (15,070) 4,888
Notes to the financial statements
1. The preliminary results for the year ended 31 December 2005 have
been extracted from the audited financial statements for the year ended 31
December 2005 which have not been delivered to the Registrar of Companies. The
financial information set out in this statement does not constitute the Group's
statutory financial statements for the periods ended 31 December 2005 and 31
December 2004. The Group's independent auditors' have reported on the 2005 and
2004 financial statements; their reports were unqualified under section 237(2)
or (3) of the Companies Act 1985. The statutory financial statements for the
period ended 31 December 2004 have been delivered to the Registrar of Companies,
whilst the financial statements for the year ended 31 December 2005 will be
delivered to the Registrar following the Company's Annual General Meeting. This
financial information has been prepared in accordance with the accounting
policies adopted in the 2005 financial statements.
2. Changes in accounting policy
FRS 21 has been adopted from 1 January 2005. This standard requires that
liabilities for dividends are recognised if the dividends are appropriately
authorised and if they are no longer at the discretion of the Company. The
accounting practice pre FRS 21 as applied to last year's annual report and
accounts was to recognise the liability associated with the performance period
and therefore the 2004 final dividend as recommended by the directors to the
annual general meeting was recognised as a liability as at 31 December 2004.
Accounting in accordance with FRS 21 would not have recognised this liability of
£1.0 million and it would not have appeared as a deduction from retained
reserves and therefore the comparative balance sheets have been restated. The
deduction from retained reserves for the final 2004 dividend appears in the year
ended 31 December 2005.
FRS 25 has similarly been adopted and requires, in certain circumstances, that
equity based financial instruments be treated as liabilities rather than equity
reserves. The Group had in place equity reserves at 31 December 2004 in respect
of contingent consideration amounting to £5.0 million. FRS 25 requires that
these be disclosed as creditors and therefore the comparative balance sheet has
been restated to include additional creditors due within one year of £2.0
million and creditors due after more than one year increased by £3.0 million.
3. Exceptional items
Restructuring costs comprise redundancy costs from rationalising and
reorganising the companies acquired during the current and previous period.
4. Profit and Loss Account
Acquisitions Year
£'000 ended
31 December
2005
Existing £'000
Operations
£'000
Turnover 87,994 79,372 167,366
Cost of Sales (27,758) (34,442) (62,200)
Gross profit 60,236 44,930 105,166
Administrative expenses
- exceptional items (4,935) (15,060) (19,995)
- charge in respect of employee share schemes (5,663) - (5,663)
- goodwill amortisation (4,762) (5,269) (10,031)
- other administrative expenses (43,483) (33,829) (77,312)
Total administrative expenses (58,843) (54,158) (113,001)
Operating (loss)/profit 1,393 (9,228) (7,835)
5. Interest
Year 11 months
ended ended
31 31
December December
2005 2004
£'000 £'000
Bank loans and overdraft interest (5,318) (1,223)
Other interest payable (577) (121)
Interest payable and similar charges (5,895) (1,344)
Interest receivable 110 91
(5,785) (1,253)
6. Tax on (loss)/profit on ordinary activities
Year 11 months
ended ended
31 31
December December
2005 2004
£'000 £'000
United Kingdom corporation tax - 2,503
Overseas tax 661 1,665
661 4,168
Adjustment in respect of prior years 40 -
Current taxation 701 4,168
Deferred tax current period credit (2,222) (1,355)
Deferred taxation charge in respect of prior years 249 -
United Kingdom deferred tax (1,973) (1,355)
(1,272) 2,813
7. Dividends
11 months
Year ended ended
31 31
December December
2005 2004
(Restated)
£'000 £'000
Ordinary shares of 1p each
Final 2004 (0.58p per ordinary share) 1,059 -
Interim (0.125p per ordinary share, 2004:0.1p) 415 167
1,474 167
8. (Loss)/Earnings per share
Loss per share for the year ended 31 December 2005 is based on a loss after
taxation and minority interests of £12.5 million divided by the weighted average
number of shares during the year. Underlying earnings per share excludes the
effect of goodwill amortisation, exceptional items and charges in respect of
employee share schemes and is provided because the directors consider that it
gives a better indication of the underlying performance. Adjusted EPS of 7.9p
compares to 5.3p for 2004. FRS 22 does not consider shares and securities to be
dilutive where they serve to reduce a loss per share and therefore the dilutive
loss per share is equivalent to the basic loss per share in 2005.
2005 2005
weighted Pence per
average share
2005 number of
Earnings shares
£'000 '000
Basic loss per share (12,533) 232,698 (5.4)
Goodwill amortisation 10,031 - 4.3
Exceptional items and employee share schemes (after tax) 20,939 - 9.0
Underlying earnings per share 18,437 232,698 7.9
9. Debtors
2005 2004
£'000 £'000
Trade debtors 54,781 19,611
Other debtors 11,003 -
Prepayments 4,320 8,897
Deferred tax 6,413 3,277
76,517 31,785
10. Creditors: amounts falling due within one year
2005 2004
(Restated)
£'000 £'000
Trade creditors 23,853 10,183
Bank loans 9,022 3,600
Finance leases 1,345 307
Deferred income 26,030 7,994
Corporation tax 3,131 980
Other taxes and social security 10,194 3,458
Other creditors and accruals 28,919 8,067
102,494 34,589
11. Creditors: amounts falling due after more than one year
2005 2004
£'000 £'000
Bank loans 131,309 24,400
Finance leases 1,421 284
Other creditors 1,645 3,000
Deferred income 57 -
134,432 27,684
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