ISA International PLC
3 September 2001
ISA International plc
('ISA' or 'The Group')
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2001
Progress has been made during the first half of this year in
returning the Group to an operating profit. However, servicing
the increased level of debt, primarily incurred through
financing the losses associated with the now terminated
outsourced logistics contract, has held back the return to
overall profitability. The UK and Scandinavia, which represent
more than half of the Group's turnover, have performed very
well with significant increases in both turnover and operating
profit. However, following the exit from the outsourced
logistics contract in September 2000, Continental Europe has
seen the recovery of gross margins more difficult to achieve
than the restoration of revenue volumes.
Financial results
Turnover for the six months ended 30 June 2001 was £178.3m
(2000: £145.0m) an increase of 23% on the comparable period
last year and up 17% compared with the second half of 2000.
Gross margins have in general been under pressure but due to
the increased volume have increased by £2.8m year on year.
Overheads, excluding non-recurring items, have increased by
11% year on year reflecting the increase in volume. Overall
operating profits of £0.7m have been achieved compared to
losses of £0.6m in the prior year and £7.7m in the second half
of 2000. Prior to non recurring items, the operating loss for
the second half of 2000 was £1.6m. The first half of 2001
therefore represents a substantial improvement.
Our associates, Kaye Office Supplies and EXY Group, have
contributed operating profits of £0.2m, but added £0.6m to the
Group's interest charge.
The Group's overall loss before tax is £1.5m. A tax charge of
£0.4m has been provided for as losses in Continental Europe
cannot be fully relieved in this period.
Net debt at 30 June 2001 was £35.5m, an increase of £6.5m from
the same period last year. This reflects the losses incurred
in the second half of 2000. Net working capital is £4.1m less
than at June 2000.
Dividend
The Board does not propose a dividend for the six months ended
30 June 2001.
Operational review
We have been successful in growing revenue in excess of the
market rate and therefore have won market share. In the first
half of 2001 UK revenue has increased by 34% year on year
whilst in Continental Europe it has increased by 21%.
With our initial objective of revenue recovery achieved,
following the return to in-house logistics, our focus is now
on the restoration of gross margins. As cash availability has
tightened we have not been able to maximise the benefit from
early settlement discounts and other buying opportunities,
which has delayed the recovery in gross margins. A number of
programs and initiatives are now in place to accelerate this
process, although the full impact may not be seen for a period
of time.
As we emerge from the lengthy period of disruption we
experienced in Europe it is pleasing to note that overheads,
as a percentage of turnover, are at their lowest level for
five years. We are aware that further efficiencies are
required and we will be continuing our business process review
to seek further improvements.
The return to operating profit has been achieved by the
continuing growth of the UK and Scandinavia and the reduction
of losses in Continental Europe. Operating profit in the UK
and Scandinavia grew by 24% year-on-year to £3.4m, as we
continue to build on solid foundations. In Continental Europe
the operating losses seen in the second half of 2000 have been
reduced by 28%, but are still significant at £2.2m.
Our e-commerce programmes have been highly successful with
over 12% of Group revenue now being generated by electronic
means. A number of significant customers across all channels
now trade with us electronically. In addition, activities with
key vendors have begun to reduce the processing cost of
product procurement. As electronic integration develops,
further benefits are anticipated in improved product
availability and reduced stockholding costs.
Revenue for the first half at Kaye was close to target at
£106.5m and was marginally ahead of the previous year. As
previously reported Kaye suffered some service problems late
in 2000. The short-term additional costs of restoring
acceptable service levels continued well into this year. Also,
increased costs have been incurred in preparation for the
commissioning of Kaye's new state-of-the-art distribution
facility. It is expected that the improvements in Kaye's
distribution network will be significant following this
investment. The continuing investment programme in Kaye
requires a refinancing of the company, likely to include an
equity injection by existing shareholders, which is expected
to take place within the next few weeks.
Proposed investment & Strategic Alliance
A circular was sent to shareholders on 10 August 2001,
detailing the terms of the proposed Strategic Alliance with
Daisytek International Corporation, a Nasdaq quoted
distributor of computer and office supplies, and investment by
Daisytek of up to £10.0m in the Group. An Extraordinary
General Meeting, held earlier today, ratified the proposals by
passing the resolution set out in the circular.
In addition to its investment, the board of Daisytek has
indicated that it may be willing to advance up to £5.0m of
credit facilities to the Group for investment purposes,
subject to negotiation and execution of a legally binding
agreement on commercial arm's length terms. This funding would
enable the Group to participate in any equity call from Kaye.
Admission to trading on AIM
As set out in more detail in the circular, the terms of the
Investment by Daisytek contain provisions which, whilst
required by Daisytek as a precondition of investing in ISA,
would breach or potentially breach certain provisions of the
Listing Rules. The Board believes that it is in the best
interests of shareholders for there to be a continued market
for their ISA shares and has therefore decided to cancel the
Company's Listing and to make application for the Company's
ordinary shares to be admitted to trading on the Alternative
Investment Market ('AIM'). The Listing will be cancelled on 10
September 2001 and it is expected that the entire issued
ordinary share capital of the Company will be admitted to
trading on AIM the same day.
Prospects
The first foundation stone for the future was laid when in-
house logistics in Continental Europe was restored in late
2000. The investment by Daisytek is the second key stage of
this plan, providing a sound financial base for the business.
In those parts of the Group unaffected by the logistics
problems, we have been able to demonstrate that the ISA hybrid
model is highly successful and well adapted to the market
needs. Our chief goal remains to return the Group to
sustained profitability.
Approved by the Board
3 September 2001
Copies of the Interim Report will be mailed to shareholders on
4 September, 2001 and will also be available from the Company's
Head Office at 66-70 Vicar Lane, Bradford BD1 5AG.
Enquiries:
ISA International plc 01274 306 787
Mike Murphy, Chief Financial Officer
KPMG Corporate Finance 0121 232 3000
Maura Dunne
Square Mile BSMG Worldwide 020 7601 1000
Louise Robson or Susanne Walker
ISA International plc
Group Profit and Loss Account
For the Six Months Ended 30 June 2001
Unaudited Unaudited Unaudited
6 months to 6 months to 6 months to
30 June 2001 30 June 2000 31 December 2000
£000 £000 £000
Turnover 178,292 144,966 151,837
Cost of sales - normal (151,589) (120,598) (128,318)
Cost of sales - exceptional - (491) (2,345)
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Gross profit 26,703 23,877 21,174
Overheads (26,023) (23,415) (25,070)
Non recurring items - (1,103) (3,763)
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Operating profit (loss) 680 (641) (7,659)
Share of associates - normal 221 1,445 13
- non recurring - (515) (517)
Amortisation of goodwill (398) (391) (408)
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Profit/(loss) before interest & tax 503 (102) (8,571)
Net interest (2,028) (1,288) (1,940)
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Loss before taxation (1,525) (1,390) (10,511)
Tax (374) (698) 249
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Loss after taxation (1,899) (2,088) (10,262)
Dividends - - -
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Transfer from reserves (1,899) (2,088) (10,262)
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Losses per ordinary share
Basic (3.2)p (3.7)p (17.7)p
Before non-recurring items (3.2)p (0.3)p (6.0)p
Fully diluted (3.2)p (3.6)p (17.4)p
ISA International plc
Summarised Group Balance Sheet
As at 30 June 2001
Unaudited Unaudited Audited
30 June 30 June 31 December
2001 2000 2000
£000 £000 £000
Fixed assets
Goodwill 14,594 15,046 14,993
Tangible assets 5,431 5,859 6,085
Investments 2,364 3,598 2,609
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22,389 24,503 23,687
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Current assets
Stocks 19,019 19,180 18,488
Debtors due within one year 51,424 47,494 46,268
Cash at bank and in hand 116 435 4,153
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70,559 67,109 68,909
Creditors due within one year (81,110) (66,993) (79,233)
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Net current (liabilities)/assets (10,551) 116 (10,324)
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Total assets less current liabilities 11,838 24,619 13,363
Creditors due after more than one year (382) (545) (544)
Deferred Taxation (49) (46) (81)
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Net assets 11,407 24,028 12,738
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Capital and Reserves
Share capital and share
premium account 3,980 3,980 3,980
Reserves 7,427 20,048 8,758
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11,407 24,028 12,738
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RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Unaudited
6 months to 6 months to 6 months to
30 June 30 June 31 December
2001 2000 2000
£000 £000 £000
Loss for the period (1,899) (2,088) (10,262)
New share capital issued - 10 (1)
Adjustment to unrealised
gain on disposal of investments - - (182)
Translation differences on foreign
currency net investments 568 37 (845)
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Net deduction from shareholders' funds(1,331) (2,041) (11,290)
Opening shareholders' funds 12,738 26,069 24,028
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Closing shareholders' funds 11,407 24,028 12,738
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ISA International plc
Summarised Group Cash Flow Statement
For the Six Months Ended 30 June 2001
Unaudited Unaudited Unaudited
6 months to 6 months to 6 months to
30 June 30 June 31 December
2001 2000 2000
£000 £000 £000
Net cash inflow (outflow)
from operating activities
Operating profit (loss) 680 (641) (7,659)
Depreciation 1,037 803 1,045
(Increase) decrease in working capital (9,159) (4,341) 13,220
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(7,442) (4,179) 6,606
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Returns on investments and
servicing of finance (1,858) (809) (830)
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Taxation (paid) received (608) 340 (395)
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Capital expenditure and financial
investment
Purchase of tangible fixed assets (490) (2,222) (987)
Sale of tangible fixed assets 20 212 14
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(470) (2,010) (973)
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Acquisitions and disposals
Investment in associates (1) (24) (137)
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(1) (24) (137)
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Equity dividends paid - - -
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Net cash (outflow) inflow
before financing (10,379) (6,682) 4,271
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Financing
Issue of ordinary share capital - 10 (1)
Capital element of hire purchase
payments (183) (163) (280)
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(183) (153) (281)
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(Decrease) increase in cash in
the period (10,562) (6,835) 3,990
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Analysis of movement in net debt
Balance at beginning of period (25,834) (22,351) (29,026)
(Decrease) increase in cash
in the period (10,562) (6,835) 3,990
Cash outflow from movement in debt 183 163 280
New hire purchase contracts - - (261)
Effect of foreign exchange rate changes 668 (3) (817)
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Balance at end of period (35,545) (29,026) (25,834)
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ISA International plc
Notes to the Financial Information
For the Six Months Ended 30 June 2001
1. The interim financial information has been prepared
on the basis of the accounting policies set out in the
2000 statutory accounts.
2. The segmental analysis of turnover and operating
profit (loss) by origin is as follows:
Turnover Operating profit (loss)
before non-recurring items
6 months 6 months 6 months 6 months 6 months 6 months
to to to to to to
30th June 30th June 31st Dec 30th June 30th June 31st Dec
£000 £000 £000 £000 £000 £000
United Kingdom 69,687 51,971 59,450 2,830 2,232 2,198
Scandinavia 23,067 22,210 21,587 587 531 (27)
Continental
Europe 85,538 70,785 70,800 (2,209) (1,291) (3,057)
Unallocated
Central Costs - - - (528) (519) (665)
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178,292 144,966 151,837 680 953 (1,551)
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3. The taxation charge is calculated by applying the
Directors' best estimate of the annual effective tax rate
to the loss for the period. The net charge arises as
losses incurred in Continental Europe can not be relieved
in this period.
4. The calculation of loss per ordinary share is based
on the loss after taxation of £1,899,000 (2000:
£2,088,000) and on 58.7 million (2000: 56.7 million)
ordinary shares being the weighted average number of
shares in issue during the period. The calculation of
fully diluted earnings per ordinary share includes the
impact of 5.54 million shares issued on 9 March 2000
under the terms of the acquisition of John Heath
(Holdings) Ltd in 1998, in addition to the dilutive
effect of outstanding share options.
5. A statement of total recognised gains and losses is
not included as there have been no material movements
other than those reported in the Profit & Loss Account
and the translation differences on foreign currency net
investments shown in the Reconciliation of Movements in
Shareholders' Funds.
6. There have been no discontinued activities in the
period.
7. The preceding financial information does not
constitute statutory accounts as defined in Section 240
of the Companies Act 1985. Statutory accounts for the
previous year, ended 31 December 2000, 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.