ISA International PLC
30 April 2001
30 April 2001
ISA International plc
'Europe's leading distributor of electronic office supplies'
Strategic Alliance Announcement and Preliminary Results
Financial Year ended 31 December 2000
The Board of ISA International plc ('ISA' or the 'Group') is
delighted to announce that Heads of Agreement have been signed with
a strategic, global trade partner who proposes to make a cash
investment of £10 million in ISA. This strategic alliance will
address both the future financial needs of ISA and its requirement
to have strong global partnerships with vendors and to service
global customers. The Board expects contracts to be exchanged and a
circular to shareholders to be distributed in the next few weeks.
Subject to shareholders' approval, the transaction is
anticipated to complete by the end of July 2001.
2000 was a year of contrasting financial performance for ISA:
record profits in the UK and Ireland were offset by significant
losses incurred in Continental Europe. The European outsourced
logistics partner, who commenced operations in October 1999, failed
to attain customer service performance or financial controls
satisfactory to ISA. The contract was therefore terminated in
September 2000 and logistics was re-established as an ISA core
competence in both Germany and France. The consequential impact of
the European logistics failure was that Group turnover only grew by
3% to £296.8 million (1999 continuing operations: £288.0 million)
whilst operating losses, excluding non-recurring costs and before
share of associates, of £0.6 million were recorded (1999 continuing
operations: £2.2 million operating profit). One-off costs directly
attributable to the outsourced European logistics contract amounted
to £7.2 million (total non-recurring items: £7.7 million).
The Group has returned to an operating profit in the first quarter
of 2001, with record profits in the UK and Ireland, a strong profit
performance in Scandinavia and rapidly declining losses in
Continental Europe. The Hybrid distributor model fully developed in
the UK during 2000 now provides the platform for Group-wide future
success.
OPERATIONAL MILESTONES 2000
- Hybrid Distributor Model fully developed in the UK
- New Senior Management Team recruited and deployed (country and
functional)
- Record Operating Profits in the UK and Ireland
- Ecommerce Programmes successfully launched
- Total Recovery of European Logistics
Hybrid Distributor Model: ISA has capitalised upon its Hybrid
structure, providing specialist distribution channels to service
Reseller, Retail and End User customers across Europe with
electronic office supplies. The Hybrid business model maximises
growth opportunities in both existing and emerging markets;
leverages vendor agreements; balances sales volume with sales
margin - all within a low cost infrastructure. The diverse customer
mix and core competencies of sales, marketing and logistics allow a
total focus on profitable growth. Value added, high quality
distribution solutions have an increasing appeal to customers
seeking to reduce transaction costs, particularly during an
economic slow-down.
Senior Management: The Operational Board was significantly
strengthened during 2000 to meet the strategic requirements of the
Group going forward. Managing Directors were hired for France and
Norway, together with the appointment of Pan European functional
heads for: Sales, Logistics, Marketing, Ecommerce, IT, Management
Information Systems, Purchasing and Human Resources.
UK & Ireland: Record operating profits were achieved in each
quarter and for the year as a whole. The expanded distribution
facility at Bradford, together with an enhanced presence in the
Republic of Ireland, Northern Ireland, Scotland the South East of
England, facilitated sales growth in excess of the market average.
Profits were further improved by Ecommerce, capturing 9% of
customer transaction volume. This is targeted to increase to 30% by
the end of 2001.
- Turnover grew by 21% to £111.4 million (1999 continuing
operations: £91.9 million)
- Operating profits increased to £4.4 million (1999 continuing
operations: £3.0 million)
Scandinavia: The 'dot com' mania in early 2000 and the emergence
of short lived, but highly competitive, computer supplies
websites led to a challenging year as margins came under
pressure. Following the implementation of our Ecommerce platform,
Sweden in particular enjoyed rapid success, ending the year with
over 30% of customer transactions placed electronically - setting
a benchmark for the Group.
- Turnover decreased to £43.8 million (1999: £46.0 million) but
declined by less than 1% at constant exchange rates
- Operating profits were £0.5 million (1999: £1.3 million)
Continental Europe: Continuous customer service problems with the
outsourced logistics operation in Belgium seriously damaged the
European business. Restoring ISA's logistics required the sourcing,
fit-out and commissioning of warehouses in Dusseldorf and Paris
within three months. A programme, supported by UK expertise, was
successfully completed by the end of the third quarter. The return
to excellent customer service resulted in sales growth in the
fourth quarter. Gross margins sacrificed during 2000 to retain
customer loyalty have taken longer to recover.
- Turnover decreased to £141.6 million (1999: £150.1 million)
- Operating losses (before non-recurring items) were £4.3
million (1999: £1.0 million)
Vendors: The support provided by Original Equipment Manufacturers
(OEMs) during 2000 reflected the importance of ISA's long standing
relationships. The Board very much appreciated the participation of
OEMs in the European recovery plan. With logistics re-established
as a core competence, the Group was able to develop a number of
initiatives launched in conjunction with OEMs to address global
market changes in customer procurement requirements for electronic
office supplies. During the third and fourth quarters, Ecommerce
programmes were trialled in the UK and Sweden that focused on the
reduction of back room costs, whilst improving product availability
through just-in-time supply chain solutions. Stock turn increased
to 13.5 times for 2000 (1999: 12.7 times) and in the UK the return
on working capital employed increased to 35% (1999: 30%). A Pan
European purchasing programme was also launched in September 2000.
Customers: Excellent customer relationships were also a crucial
constituent of the European recovery plan - no major customer
losses were incurred. Elsewhere, customer development programmes
benefited from an expanded product offering and the use of
'customer friendly' Ecommerce tools. A number of major new customers
were acquired on the strength of ISA Ecommerce solutions.
Pan European sales initiatives were successfully launched during the
fourth quarter. A number of existing and new major corporate
customers entered into European supply agreements, estimated to
have an incremental annualised sales value of approximately
£11 million.
Kingfield Heath: Our 47% associate Kingfield Heath contributed £0.2
million to profit before tax, prior to exceptional costs of £1.0
million. On a like-for-like basis Kingfield Heath's turnover was
broadly unchanged at £206.4 million in the first full year since
its creation. It enjoyed reasonable early success in executing its
integration plan, but suffered service difficulties late in the
year. The service level has now been recovered and Kingfield Heath
is moving forward with the second phase of its strategic plan.
Financial Results: Losses for the year before non-recurring items,
share of associates and tax were £2.6 million (1999 continuing
operations: profit of £0.9 million). Non-recurring items, excluding
our share of associates were £7.7 million (1999 continuing
operations: £4.2 million). The Group's share of the associates,
including non-recurring items and amortisation of goodwill was a
loss of £1.6 million (1999: £1.0 million).
The one-off costs directly attributable to the service failure of
the outsourced logistics contract were:
- Stock losses and customer claims £2.8 million
- Duplicated logistics costs £1.8 million
- Non recoverable debts £1.2 million
- Termination fee £1.4 million
During the period of disruption, a further £0.5 million of non-
recurring costs were incurred.
As a result of the non-recurring items and tax losses in
Continental Europe which cannot be relieved this year, losses per
share were 21.4 pence (1999: 7.3 pence). Losses per share prior to
non-recurring items were 6.3 pence (1999: earnings of 4.1 pence).
Cash and Balance Sheet: The impact of the problems with the
outsourced logistics in Continental Europe contributed to an
increase in the net debt of the Group by £3.5m to £25.8m.
Shareholders' funds have reduced to £12.7m giving net gearing of
203%.
Net debt has increased further during the early part of 2001 due
to a significant uplift in the level of business combined with
seasonal working capital requirements. Whilst the Board considers
that its banking facilities are adequate to support the Group's
predicted cash flow, the Board believes an equity injection
will strengthen the Group's balance sheet and help ISA to grow
and to seize commercial opportunities as and when they arise. After
detailed consideration of a number of alternatives, the Board
intends to put a proposal to shareholders, as referred to in the
introduction, concerning a £10 million convertible redeemable
instrument as soon as possible. This instrument can, inter alia,
convert over the next five years into ordinary shares of ISA
representing 50% plus one share of the company's existing share
capital, reflecting a conversion price of circa 16p per ordinary
share. The proposal will be subject to shareholder approval.
Dividends: The Board does not propose a dividend for the year ended
31 December 2000.
Outlook: The market growth of electronic office supplies (EOS) in
Europe is projected to continue at 15% per annum for at least the
next five years. The relative spend on EOS as a percentage of
general office consumable products continues to grow and is
predicted to reach 50% in 2001. Margins remain under constant
pressure, but ISA's Hybrid status and low cost infrastructure
provide a clear advantage in this competitive market.
In the current year, signs from Continental Europe are encouraging
and are broadly in line with the Board's expectation of the pace of
recovery leading to monthly profitability. Our chief goal is the
return to sustained profits for the Group as a whole.
ISA has proven through the UK business model that an attractive
return on sales can be attained. Logistics has been re-established
as a core competence and, as Continental Europe returns to profit,
the Board believes the Group has the potential to achieve a 3-4%
operating return on sales, in the medium term.
For further information, please contact:
ISA International plc
Bruce Robinson, Chief Executive Officer 01274 892007
Mike Murphy, Chief Financial Officer 01274 892007
Square Mile BSMG
Louise Robson / Susanne Walker 020 7601 1000
Results Conference Call - Tuesday 1 May, 10:00-11:00am
Dial in No. 0208 8394710 Pin No.598554
ISA INTERNATIONAL plc
GROUP PROFIT & LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2000
Continuing Discontinued
Operations Operations Total
2000 1999 1999 1999
Note £000 £000 £000 £000
Turnover 2 296,803 288,027 83,573 371,600
Cost of sales - normal (248,916) (239,206) (62,215) (301,421)
Cost of sales - exceptional 3 (2,836) (1,532) - (1,532)
-------------------------------------------
Gross profit 45,051 47,289 21,358 68,647
Distribution costs (19,814) (18,481) (10,225) (28,706)
Administrative expenses (28,671) (28,123) (7,534) (35,657)
Non-recurring items 3 (4,866) (2,701) (1,267) (3,968)
-------------------------------------------
Operating (loss) profit (8,300) (2,016) 2,332 316
Share of associates
- normal 239 546 - 546
- non-recurring (1,032) (1,366) - (1,366)
Amortisation of goodwill (799) (197) - (197)
-------------------------------------------
(Loss) profit before
interest & taxation (9,892) (3,033) 2,332
(701)
Interest charges (net) (2,009) (1,291) (912) (2,203)
-------------------------------------------
(Loss) profit before taxation (11,901) (4,324) 1,420 (2,904)
--------------------
Taxation 4 (449) (987)
========== =========
Loss after taxation (12,350) (3,891)
========== =========
(Losses) earnings per
ordinary share 5
Basic (21.4)p (7.3)p
Fully diluted (21.0)p (6.6)p
Before non-recurring items (6.3)p 4.1p
ISA INTERNATIONAL plc
SUMMARISED GROUP BALANCE SHEET
AT 31 DECEMBER 2000
2000 1999
£000 £000
Fixed assets
Goodwill 14,993 15,437
Tangible assets 6,085 4,706
Investments 2,609 3,262
---------- ----------
23,687 23,405
---------- ----------
Current assets
Stocks 18,488 18,873
Debtors due within one year 46,268 45,968
Cash at bank and in hand 4,153 1,860
---------- ----------
68,909 66,701
Creditors due with in one year (79,233) (63,382)
---------- ----------
Net current (liabilities) assets (10,324) 3,319
---------- ----------
Total assets less current liabilities 13,363 26,724
---------- ----------
Creditors due after more than one year (544) (618)
Deferred taxation (81) (37)
========== ==========
Net assets 12,738 26,069
========== ==========
Capital and reserves
Share capital and share premium account 3,980 3,694
Shares to be issued - 3,976
Reserves 8,758 18,399
========== ==========
12,738 26,069
========== ==========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
2000 1999
£000 £000
Loss after taxation for the year (12,350) (3,891)
New share capital issued 9 -
Unrealised gain on disposal of investments (182) 815
Translation differences on foreign currency
net investments (808) 120
---------- ----------
Net deduction from shareholders' funds (13,331) (2,956)
Opening shareholders' funds l26,069 29,025
========== ==========
Closing shareholders' funds 12,738 26,069
========== ==========
ISA INTERNATIONAL plc
SUMMARISED GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2000
2000 1999
£000 £000
Net cash inflow (outflow) from operating activities
Operating (loss) profit (8,300) 316
Depreciation 1,848 3,701
Decrease (increase) in working capital 8,879 (1,845)
---------- ----------
2,427 2,172
---------- ----------
Returns on investments and servicing of finance (1,639) (2,645)
---------- ----------
Taxation paid (55) (1,349)
---------- ----------
Capital expenditure and financial investment
Purchase of tangible fixed assets (3,209) (2,245)
Sale of tangible fixed assets 226 1,716
---------- ----------
(2,983) (529)
---------- ----------
Acquisitions and disposals
Purchase of subsidiary undertakings - (99)
Net cash transferred with subsidiary undertakings - (2,142)
Pre-sale dividend received - 2,500
Repayment of acquired debt - 16,500
Investment in associates (161) (648)
---------- ----------
(161) 16,111
---------- ----------
Net cash (outflow) inflow before financing (2,411) 13,760
---------- ----------
Financing
Issue of ordinary share capital 9 -
Repayment of amounts borrowed - (16,500)
Capital element of hire purchase payments (443) (489)
---------- ----------
(434) (16,989)
---------- ----------
========== ==========
Decrease in cash in the year (2,845) (3,229)
========== ==========
Analysis of movement in net debt
Balance at beginning of year (22,351) (36,432)
Decrease in cash in the year (2,845) (3,229)
Cash outflow from movement in debt 443 16,989
Loans/hire purchase contracts
disposed of with subsidiaries - 10
New hire purchase contracts (261) (36)
Effect of foreign exchange rate changes (820) 347
========== ==========
Balance at end of year (25,834) (22,351)
========== ==========
ISA INTERNATIONAL plc
NOTES TO THE FINANCIAL INFORMATION
1. There has been no change to any of the accounting policies set out in
the 1999 statutory accounts.
2. The segmental analysis of turnover and operating (loss) profit by origin
is as follows:
Turnover Operating (loss) profit
before non-recurring items
2000 1999 2000 1999
£000 £000 £000 £000
United Kingdom
- continuing 111,421 91,939 4,430 3,026
- discontinued - 83,573 - 3,599
Scandinavia 43,798 45,989 504 1,303
Continental Europe 141,584 150,099 (4,348) (961)
Unallocated central costs - - (1,184) (1,151)
-----------------------------------------------
296,803 371,600 (598) 5,816
-----------------------------------------------
3. The non-recurring items consist of the following:
Continuing Discontinued
Total Operations Operations Total
2000 1999 1999 1999
£000 £000 £000 £000
Cost of sales
Stock losses and
customer claims 2,836 1,532 - 1,532
-------------------------------------------
Distribution costs
Duplicated costs during
logistics transfer 1,745 - - -
Contract termination costs 1,420 - - -
-------------------------------------------
3,165 - - -
-------------------------------------------
Administrative expenses
Board and senior management
settlements 513 1,305 120 1,425
Property and location
rationalisation 270 838 151 989
Non-recoverable debts 1,197 - - -
Exceptional bad debts (279) - 996 996
Accelerated IT depreciation - 558 - 558
-------------------------------------------
1,701 2,701 1,267 3,968
-------------------------------------------
Total before share of
associates 7,702 4,233 1,267 5,500
Share of associates 1,032 1,366 - 1,366
-------------------------------------------
8,734 5,599 1,267 6,866
-------------------------------------------
4. The taxation charge comprises UK corporation tax £736,000 (1999:£373,000),
overseas tax credit £(5,000)(1999:charge of £605,000), deferred tax charge
of £52,000 (1999: credit of £(31,000)) and share of associates tax credit
£(334,000) (1999: charge of £40,000)
5. The calculation of loss per ordinary share is based on the loss after
taxation of £12,350,000 (1999: £3,891,000) and on 57.8 million (1999: 53.2
million) ordinary shares, being the weighted average number of shares in
issue during the year. The calculation of fully diluted loss per ordinary
share is based on 58.9 million (1999: 58.9 million) ordinary shares which
includes 5.5 million shares issued on 9 March 2000 under the terms of the
acquisition of John Heath (Holdings) Ltd in 1998, as well as the dilutive
effect of outstanding share options.
6. 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 unrealised gain on disposal of subsidiaries and
translation differences on foreign currency net investments which are both
shown in the Reconcilliation of Movements in Shareholders' Funds.
7. 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 1999 is based on the satutory
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 29 April 2001.
The auditors have not yet reported on the full statutory accounts for the
year ended 31 December 2000, which will be posted to shareholders in May.
After that time they will also be availible at the Company's registered
office: 66/70 Vicar Lane, Bradford, West Yorkshire, BD1 5AG.