ISA International PLC
31 March 2000
ISA International plc
'the international distributor of electronic office supplies'
Preliminary Results for the year ended 31 December 1999
1999 was a year of significant change for ISA as we
implemented a number of important organisational, operational
and management changes. In our Annual Report last year I
noted that the Group was undergoing a fundamental evaluation
of the business and the way in which we operate. During the
course of 1999 it became apparent that the number of issues
were greater and more serious in magnitude than had initially
been identified. In addition to the significant cost of the
changes we have made, implementing them has also led to
substantial disruption to some parts of our business. Whilst
a number of these changes are still ongoing and will take some
time to complete, we believe the outcome will position ISA
well for the medium term.
Financial Results
Our financial statements are rather complex this year
reflecting the significant changes to the business structure
that have been made.
For the year ended 31 December 1999 turnover for the Group was
£371.6 million (1998: £385.3 million). Turnover from
continuing businesses amounted to £288.0 million (1998: £301.8
million). Profit before taxation and non-recurring items was
£4.0 million (1998: £4.5 million). Non-recurring items
amounted to £6.9 million (1998: £1.8 million), being: the
result of further rationalisation of our operating locations,
including the short term impact of outsourcing our German
logistics operation; Board and senior management settlements; some
accelerated IT depreciation; and the provision for potential
bad debts arising in John Heath prior to disposal, which only
came to light recently. This amount also includes £1.4
million related to our share of the non-recurring items
charged by our associate, Kingfield Heath, for the first phase
of the integration of the enlarged branch network and the
closure of surplus central functions. As a result of the non-
recurring items and a high effective tax rate, losses per
share were 7.3 pence (1998: earnings of 3.4 pence).
Earnings per share prior to non-recurring items fell to 4.1
pence (1998: 5.8 pence).
Dividend
The Board does not propose a dividend for the year ended 31
December 1999. The dividend policy of the Group remains under
review and the Board intends to return to the payment of
dividends as soon as appropriate.
Operating Review
ISA now operates in three geographical divisions: Continental
Europe; United Kingdom & Ireland; and Scandinavia, which are
all focused on the distribution of electronic office supplies
('EOS').
Turnover arising from Continental Europe fell to £150.1
million (1998: £164.6 million) as the business was disrupted
by senior management changes and the relocation of our German
logistics. Turnover from continuing operations in the UK was
slightly lower than in 1998 at £92.0 million (1998: £96.4
million). Revenue grew slightly in the Direct channel, but
declined in the Indirect or Wholesale channel.The Scandinavian
division had a good year with turnover increasing to £46.0
million (1998: £40.7 million).
Gross margins remain under pressure across the EOS market in
Europe. However, despite this, and the significant disruption
to our European business as the changes were implemented, the
overall gross margin, before exceptional items, in our
continuing business was 17% (1998: 16.7%).
Work continues on reducing the fixed cost base of the business
and good progress has been made in 1999. We aim to maintain
this progress in 2000.
Trading in Kingfield Heath, our associated commercial
stationery and office supplies company, for the last quarter
of the year was in line with the business plan produced when
we acquired our shareholding in the group.
Disposals
The disposal in September 1999 of John Heath (Holdings)
Limited to Kaye Office Supplies Limited, which now trades as
Kingfield Heath, was strategically important to the Group. It
allows the ISA business to focus on its core market area, the
distribution of electronic office supplies, whilst retaining a
46.9% holding in the Kingfield Heath business. Kingfield
Heath is expected to be a major contributor to the Group's
performance in the foreseeable future. Through representation
on the board, ISA maintains a careful review of progress and
contributes to strategic policy decisions, although day to day
operational management of the Kingfield Heath business is
carried out independently of ISA. The cash generated by the
sale of John Heath has enabled the Group to significantly
reduce debt by £14.1 million, ending the year with net debt of
£22.4 million.
On 22 November 1999, our small re-manufacturing business, The
Little Red Book Company (UK) Limited, was sold to EXY Group
Limited in exchange for a 32% shareholding in the enlarged
company.
Strategy and the Internet
ISA is the leading supplier of EOS products in Europe.
Following the disposal of John Heath we are now clearly
focused and market ourselves primarily in the Direct channel,
with a major presence in the end-user corporate market, while
at the same time being supported by a strong Indirect
business. This balance is central to the Group's future
strategic direction and will provide a solid platform for
future growth.
As we broaden our service to our customers, leveraging on our
existing product range and service expertise, we recognise the
opportunity that the Internet provides, and have already in
place a website (www.supplies-team.com) for selected customers
to place orders online. We are currently working
on a significant expansion of this pilot project in
conjunction with Computer Sciences Corporation. We see the
development of e-business as being a vital component of
enabling our customers and suppliers to trade with us in the way
that best suits them. In addition, we see e-business as an
opportunity to provide customers with a broader range of products
and services. Order fulfilment can be a major problem for a large
number of e-commerce related companies, however, we believe our
long experience in this area positions us well.
Management
As mentioned above, the operational and management structure
of the Group has been simplified into three geographical
divisions: Continental Europe; United Kingdom & Ireland; and
Scandinavia. General Managers have been appointed to each
division and they all sit on an Executive Management Board
with other senior Group management, which meets regularly to
evaluate progress and to take appropriate action. Each
division is responsible for the development of both its Direct
and Indirect sales channels.
In January 2000, Bruce Robinson, who joined the Group in June
1999 as General Manager for the United Kingdom & Ireland, was
promoted to the newly created Board position of Group Chief
Operating Officer, with day to day responsibility for Group
wide operating matters, reporting directly to me.
People
As the next stage of our staff development plan we have launched an
Investors in People programme in the UK business. Once
successfully implemented we intend that this will then be
extended to our European operations as a means of improving
the management, training, motivation and therefore retention
of our staff.
Inevitably during a time of significant change,
a great burden is placed on all our staff. May I take this
opportunity to thank each of them for their skill, support and
dedication in helping to implement these change programmes.
Current Trading and Prospects
Trading in the early part of 2000 has begun slightly weaker
than expected, partly due to a slow post Millennium pick up.
A number of the significant restructuring projects are still
in progress and will hold back profitability in the short
term. These, together with the investment of resource in our
e-commerce solution, are expected to negatively impact the
overall results for the year.
The challenges facing the business when I joined in October
1998 were enormous and we were able to overcome a large number
of them during 1999. Although, a number still remain, I'm
confident that, with the progress made to date and with the
quality senior management team we are building, we are well
positioned to deal with them. In particular, I am excited
about the opportunity the Internet provides the Group over the
next 12 to 18 months. ISA has a business model that is well
suited to meet the e-commerce demands of the 21st Century.
David Heap 31 March 2000
Chairman and Chief Executive
For further information, please contact:
ISA International plc
David Heap, Chairman & Chief Executive 020 8614 7814
Mike Murphy, Group Finance Director 01274 306787
Square Mile Communications
Louise Robson 020 7601 1000
ISA International plc
Group Profit and Loss Account
For the year ended 31 December 1999
Continuing Discontinued
Operations Operations
1999 1999 1999 1998
Note £000 £000 £000 £000
Turnover 3 288,027 83,573 371,600 385,269
Cost of sales - normal (239,206) (62,215)(301,421) (314,205)
Cost of sales -
exceptional 4 (1,532) - (1,532) -
----------------------------------------------
Cost of sales (240,738) (62,215)(302,953) (314,205)
---------------------------------------------
Gross profit 47,289 21,358 68,647 71,064
----------------------------------------------
Distribution costs (18,481) (10,225) (28,706) (33,120)
Administrative expenses (28,123) (7,205) (35,328) (30,736)
Amortisation of goodwill (197) (329) (526) (355)
Non-recurring items 4 (2,701) (1,267) (3,968) (1,785)
----------------------------------------------
Operating Expenses (49,502) (19,026) (68,528) (65,996)
----------------------------------------------
Operating(loss)profit (2,213) 2,332 119 5,068
Share of associates
- normal 546 -
- non recurring 4 (1,366) -
-------------------
(Loss)profit before interest & tax (701) 5,068
Interest charges (net) (2,203) (2,349)
-------------------
(Loss)profit before taxation (2,904) 2,719
Taxation 5 (987) (1,004)
-------------------
(Loss)profit after taxation (3,891) 1,715
Dividends - (537)
===================
Transfer(from)to reserves (3,891) 1,178
===================
(Losses)earnings per
ordinary share 6 (7.3)p 3.4p
Fully diluted (losses)
earnings per ordinary share (6.6)p 3.1p
Earnings per share
before non-recurring items 4.1p 5.8p
Dividend per ordinary share - 1.01p
ISA International plc
Summarised Group Balance Sheet
As at 31 December 1999
1999 1998
£000 £000
Fixed assets
Tangible assets 4,706 12,695
Goodwill 15,437 8,660
Investments 3,262 -
------------ ------------
23,405 21,355
------------ ------------
Current assets
Stocks 18,873 37,759
Debtors due within one year 45,968 67,835
Cash at bank and in hand 1,860 6,346
------------ ------------
66,701 111,940
Creditors due within one year (63,382) (86,411)
------------ ------------
Net current assets 3,319 25,529
------------ ------------
Total assets less current liabilities 26,724 46,884
------------ ------------
Creditors due after more than one year (618) (17,453)
Deferred taxation (37) (406)
============ ============
26,069 29,025
============ ============
Capital and reserves
Share capital and share
premium account 3,694 3,694
Shares to be issued 3,976 3,976
Reserves 18,399 21,355
============ ============
26,069 29,025
============ ============
Reconciliation in Movement of Shareholders' Funds
1999 1998
£000 £000
Retained (loss) profit for the year (3,891) 1,178
New share capital issues - 12,505
New share capital to be issued - 3,976
Goodwill written back - 227
Unrealised gain on disposal of subsidiaries 815 -
Translation differences on foreign
currency net investments 120 (157)
---------- -----------
Net (deduction from) addition to
shareholders' funds (2,956) 17,729
Opening shareholders' funds 29,025 11,296
========== ===========
Closing shareholders' funds 26,069 29,025
========== ===========
ISA International plc
Summarised Group Cash Flow Statement
For the year ended 31 December 1999
1999 1998
£000 £000
Net cash inflow (outflow) from
operating activities
Operating profit 119 5,068
Depreciation 3,898 3,745
Increase in working capital (1,845) (7,290)
--------- ---------
2,172 1,523
--------- ---------
Returns on investment and
servicing of finance (2,645) (1,795)
--------- ---------
Taxation paid (1,349) (2,132)
--------- ---------
Capital expenditure and financial
investment
Purchase of tangible fixed assets (2,245) (3,710)
Sale of tangible fixed assets 1,716 689
--------- ---------
(529) (3,021)
--------- ---------
Acquisitions and disposals
Purchase of subsidiary undertakings (99) (3,807)
Net cash transferred with subsidiary
undertakings (2,142) 763
Pre-sale dividend received 2,500 -
Repayment of intra-group debt 16,500 (16,500)
Investment in associates (648) -
--------- ---------
16,111 (19,544)
--------- ---------
Equity dividends paid - (1,477)
--------- ---------
Net cash inflow(outflow)
before financing 13,760 (26,446)
--------- ---------
Financing
New loan - 16,500
Repayment of amounts borrowed (16,500) (445)
Capital element of hire purchase
payments (489) (579)
---------- ----------
(16,989) 15,476
---------- ----------
========== ==========
Decrease in cash in the period (3,229) (10,970)
========== ==========
Analysis of movement in net debt
Balance at beginning of year (36,432) (8,516)
Decrease in cash in the year (3,229) (10,970)
Cash outflow from movement in debt 16,989 1,024
Loans/hire purchase contracts disposed
of with subsidiaries 10 -
New loans - (16,500)
New hire purchase contracts (36) (1,319)
Effect of foreign exchange rate changes 347 (151)
========== ===========
Balance at end of year (22,351) (36,432)
========== ===========
ISA International plc
Notes to the Financial Information
1. There has been no change to any of the accounting policies set out in
the 1998 statutory accounts.
2. On 30 September 1999 the Company completed the disposal of John Heath
(Holdings) Ltd; i.e.the holding company of John Heath & Company Ltd. The
disposal proceeds were:
£16,500,000 repayment of intra-group debt
£2,500,000 pre-sale dividend
47% of the enlarged share capital of the aquiring company
On 22 November 1999 the Company completed the disposal of The Little Red Book
Company (UK) Ltd. The disposal proceeds were: 32% of the enlarged share
capital of the aquiring company.
3. The segmental analysis of turnover and operating profit by origin is as
follows:
Turnover Operating Profit
1999 1998 1999 1998
£000 £000 £000 £000
United Kingdom Continuing 91,939 179,950 388 2,455
Discontinued 83,573 - 2,332
Continental Europe 150,099 164,587 (3,889) 1,694
Scandinavia 45,989 40,732 1,288 964
------------------------------------------
371,600 385,269 119 5,068
------------------------------------------
4. The non-recurring items consist of the following:
1999 1999 1999 1998
£000 £000 £000 £000
Contin- Discon-
uing tinued
Exceptional cost of sales
Stock losses and customer claims 1,532 - 1,532 -
--------------------------------------------
Non-recurring operating expenses
Board and senior management
settlements 1,305 120 1,425 706
Property and location
rationalisation 838 151 989 863
Exceptional bad debts - 996 996 -
Accelerated IT depreciation 558 - 558 216
--------------------------------------------
2,701 1,267 3,968 1,785
--------------------------------------------
Share of associates 1,366 - 1,366 -
--------------------------------------------
5,599 1,267 6,866 1,785
--------------------------------------------
5. The taxation charge comprises UK corporation tax £373,000 (1998: £700,000),
overseas tax £605,000 (1998: £711,000), deferred tax credit of £(31,000)
(1998: £(407,000)) and share of associates tax £40,000 (1998: £nil).
6. The calculation of loss per ordinary share is based on the loss after
taxation of £3,891,000 (1998: profit of £1,715,000) and on 53.2
million (1998: 50.97 million) ordinary shares, being the weighted
average number of shares in issue during the year. The calculation of
fully diluted earnings per ordinary share includes 5.54 million shares
issued on 9 March 1999 under the terms of the acquisition of John
Heath (Holdings) Ltd. in 1998.
7. Total recognised gains and losses since the last Annual Report are:
1999 1998
£000 £000
(Loss)profit for the financial year (3,891) 1,715
Translation differences on foreign
currency net investments 120 (157)
Unrealised gain on disposal of subsidiaries 815 -
-------------------
(2,956) 1,558
-------------------
8. The preceding financial information does not constitute statutory
accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the year to 31 December 1998 is based on the
statutory accounts for that year. These accounts, upon which the auditors
issued an unqualified opinion, and which did not contain any
statement under 237(2) or (3) of the Companies Act 1985, have been
delivered to the Registrar of Companies. This preliminary announcement
was approved by the Board on 31 March 2000.
The auditors have not yet reported on the full statutory accounts for
the year ended 31 December 1999, which will be posted to shareholders in
mid-April. After that time they will also be available at the
Company's registered office: 66/70 Vicar Lane, Bradford, West
Yorkshire, BD1 5AG.