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Stoddard International PLC
30 April 2003
Stoddard International PLC
Preliminary results for the year
ended 31 December 2002
30 April 2003
* Turnover down 10% at #32.3m due to difficult trading conditions and withdrawal from low margin business.
* Pre-exceptional operating loss before tax of #2.2m (2001 - #0.3m profit) due to lower sales and current
inefficiencies of operating on three sites.
* Programme to consolidate the company on to a single site moving forward with net exceptional costs of #1.9m
incurred. Funding in place to complete the consolidation by end 2003.
* Loss on ordinary activities of #5.1m (2001 - #2.2m profit)
* Property disposal programme progressing as anticipated with likely overall proceeds of #10 - #13m expected to be
realised over next 12 - 18 months.
Enquiries:
Alan Lawson, Chief Executive Tel: 01505 577000
CHAIRMAN'S STATEMENT
As announced last year we have begun a major restructuring of the Company to consolidate three sites into one and
thereby drive substantial costs from our business. We expect to complete this relocation to the Riverside site in
Kilmarnock by the end of 2003. This move is essential for the Company's future as are the cash proceeds from the sale
of the resultant surplus sites. Until this restructuring is complete the cost base of the Company will remain high
and that coupled with the toughest trading conditions in recent years and exceptional costs incurred in the
consolidation process itself resulted in the overall loss of #5.1m for 2002 (2001 - #2.2m profit).
Turnover for 2002 fell by 10% at #32.3m (2001 - #36.0m) broadly in line with the decline reported for the first half
of the year. Both our retail and contract businesses at home and overseas were affected. A pre-exceptional loss
before tax for the year of #3.1m was recorded (2001 - #0.7m loss). In addition exceptional costs of #1.9m were
incurred during the year in relation to the restructuring of our manufacturing operations. Total net debt at the
year-end rose to #12.6m (2001 - #10.8m). The directors do not recommend the payment of any dividend.
The decrease in sales was due primarily to two main factors. Firstly we experienced a continuing reduction in demand
for traditional axminster products. This downward trend has been established for several years as consumer preference
moves towards less patterned and cheaper tufted products and led to the decision in early 2002 to close our Elderslie
factory and relocate a downsized axminster production facility to our Riverside plant in Kilmarnock. The other main
reason for the fall in sales was the planned withdrawal from low margin unbranded business with certain large
customers following the decision to rebalance our manufacturing capacity. However we have continued to invest in our
key Colortec products during the year and we achieved further growth, especially in our UK retail business.
The full cost benefits of the restructuring will be realised from 2004 once manufacturing on the two surplus sites
ceases and closure is effected. Therefore we continue to carry most of the operating costs of the three sites at
present. However, manufacturing at Elderslie has ceased recently and we anticipate the full consolidation onto one
site by the end of 2003. The operating costs incurred in 2002 do not reflect therefore the underlying cost profile
that we anticipate from 2004 onwards.
We are progressing the disposal of the two surplus sites. The Mill Street site was sold to Safeway at the end of 2001
and as part of that arrangement we continue to operate on the site under licence. Outline planning consent for a food
retail store was obtained in December 2002. This was the key condition of the disposal and the final net payment from
Safeway of #2.9m will be due once the remaining consents are obtained and we vacate the site later this year.
The outline planning application for the main part of the Elderslie site will be considered by the Council's Planning
Committee shortly and has been recommended for approval by the Council planning officers. Subject to that approval
the bulk of the proceeds for the site would be received in late 2003/early 2004. The expected proceeds from the sale
of the entire site remain at between #7m and #10m.
As previously highlighted we have taken action to address the under-funding position in our defined benefit pension
scheme. The scheme was closed to new entrants in 2002 and a revised investment strategy put in place reducing the
level of equity investment. Plans are being finalised currently to address future pension provision for employees,
which will involve lower cost and risk to the company.
The company is going through a major reorganisation to reposition itself for the future by slimming down the cost
base and reducing its substantial debt burden. Our banks remain supportive of the company's strategy and we have
recently secured additional funding assistance related to the relocation from HBOS and Scottish Enterprise Ayrshire.
This remains a challenging time for the company in a fast changing marketplace. We believe that the strategy adopted,
namely developing key markets, investing in new manufacturing technology, achieving cost savings through site
rationalisation and reducing borrowings through surplus site disposals, represents the most appropriate response to
those market conditions and will be for the long-term benefit of shareholders. I would like to thank our customers
and employees for their support and understanding during this time of great change for the company.
Alan Scott
Chairman
Operating Review
2002 was a difficult year not only in a trading sense but also as a result of major restructuring and rationalisation
work that began in the year and will complete later in 2003. The depressed trading position at the half year
continued and the historically busy period prior to Christmas did not generate the sales level anticipated.
TRADING
Retail market conditions were weaker than expected, demand for hard flooring and textured plain carpets remained
strong and the decline in patterned carpets continued. With overcapacity in the flooring sector, competition was
fierce. We experienced some short-term difficulties in servicing our customers when implementing the new IT software
system, although we are now achieving benefits of our investment in the integrated system. There was also some
disruption to stock service levels associated with the restructuring and with external yarn supplies that resulted in
delays to product launches.
Our retail business overall fell by 9% at #26.1m although selling prices generally were maintained against last year.
Following the trend of the last two years, axminster sales were 22% lower than 2001, however this decline was partly
offset by an encouraging 18% growth in our key retail Colortec programmes. The profile of our customer base also
changed during the year with sales to independent buying groups and independent retailers up 6% and 2% respectively.
Sales to the multiples were down 28% mainly through our planned exit from some low margin unbranded business.
The Louis de Poortere programme was significantly revamped during the first half of 2002. Although sales for the year
were some 6% below 2001, customer reaction to the relaunch was positive and, in the second half, sales were 7% higher
than the equivalent period in 2001.
At the end of the year we entered into an agreement with Gaskell plc, a business well established in the flooring
sector, to share their warehouse facilities based in Kidderminster and their distribution network. This will provide
an enhanced service to our customers including named-day deliveries. This agreement creates a cost effective solution
for both our distribution and warehousing requirements and avoided the need for substantial investment in our own
warehousing.
The contract sector both at home and overseas was disappointing with many hotel groups slow to release refurbishment
work during 2002, as budgets were restricted. As a result price competition was fierce. Turnover was down 13% at
#6.3m with the economic downturn in the USA hitting in particular with a drop in sales of 23% to #2.4m in that
market.
Several initiatives are underway with product and market developments particularly around our Colortec wool pattern
tufted technology where we remain the market leader. Despite market conditions there are opportunities both in the UK
and overseas. We will continue to develop closer relationships with supply chain partners
RESTRUCTURING
The difficulties facing UK manufacturing are widely acknowledged. Within our sector we have seen further
rationalisation as a response to market conditions. Those in the sector with a greater exposure to weaving have been
hit harder than those in tufting vindicating our decision to substantially downsize our weaving operation.
Our major short-term challenge during 2002 has been to fund the substantial restructuring programme while at the same
time continuing to develop and manage our business in tough trading conditions. Standing still is not an option.
Substantial progress has been made already with the move. The Elderslie woven manufacturing operation ceased in April
2003 and we will complete the final closure of the whole site, including the head office and warehouse, by the end of
2003. We also expect to complete the relocation of the spinning mill in Kilmarnock and install the new dyehouse in
2003, which will be the final element of the restructuring programme. Once established at Riverside, Kilmarnock we
will employ a workforce of around 500.
The substantial reduction in labour and overhead costs resulting from the restructuring will impact in full from 2004
onwards. 2003 will, however, be another transitional year with further one-off costs and inefficiencies being
incurred before the company has been fully reshaped for the start of 2004.
Alan Lawson
Chief Executive
Financial Review
TRADING RESULTS
Turnover in the year fell 10% from #36.0m to #32.3m due to the impact of lower axminster sales partly offset by
growth in sales of Colortec tufted products. This decline in axminster was spread across domestic and overseas
markets. Gross profit before exceptional items declined by #2.5m from the previous year and in percentage terms fell
from 23% to 18% of sales. This was due partly to the lower axminster sales but also inevitable inefficiencies arising
from the ongoing restructuring. A large element of these inefficiencies in 2002 related to labour costs, which we
will reduce during the course of 2003. Our anticipated final employee numbers following the restructuring are
expected to be around 500 compared to an average of 689 during 2002.
Overheads were tightly controlled during the year. Selling and distribution costs were reduced by 8% to #6.6m while
administrative expenses were down 7% at #1.4m.
EXCEPTIONAL ITEM
The exceptional operating cost of #1.9m (2001 - nil) related to costs incurred in the reorganisation of the
manufacturing facilities. #1.2m of this expenditure was redundancy costs from the closure of our Elderslie site.
The post-operating exceptional item of #3.1m in the comparative period related to the profit on the disposal of the
Kilmarnock properties to Safeway Stores plc. A final #2.9m of net proceeds from this disposal will become due to the
company from Safeway when Safeway achieve all remaining consents for the properties and Stoddard give vacant
possession. The board expects this to be achieved in the final quarter of 2003. Included within this final amount is
#2.3m which was conditional on the anticipated consents and which will therefore be recognised in the accounts when
payment is due.
TAXATION AND DIVIDEND
The company continues to carry forward substantial trading and capital tax losses, which are available to reduce
future tax liabilities.
The dividend charge of #124,500 (2001 - #124,500) represents the accrued dividends on the non-equity preference
shares. No ordinary or preference dividends were paid during the year (2001 - nil).
CASH FLOW AND FUNDING
Net debt at the year-end increased to #12.6m (2001 - #10.8m) as a result of the losses incurred and the costs of
relocation and restructuring partly offset by further property disposal proceeds. Capital expenditure at #1.6m (2001
- #3.5m) related mostly to setting up the new manufacturing facility in Kilmarnock and was partly funded by #0.8m of
RSA grant received (2001 - #1.2m). A further #1.0m of the #2.5m term loan facility was drawn down during the year.
EARNINGS PER SHARE
The basic loss per ordinary share for the year including exceptional items was 7.8p (2001 - 3.1p earnings). There is
no difference between the basic and diluted earnings per ordinary share.
PENSION SCHEME
The triennial actuarial valuation of the company's defined benefit pension scheme, due on 1 April 2003, is now
underway but it is expected to show that, as a result of the substantial falls in equity markets over the last two
years, the funding level of the scheme has reduced significantly. This is in line with many other schemes of this
type across the UK.
As a result it is likely that the company will recommence contributions to the scheme following confirmation of the
valuation later this year. The scheme actuary has indicated that the scheme was 90% funded under the Government
Minimum Funding Requirement ("MFR") regulations at 31 December 2002. If this remains the position it is intended that
the contributions required to make good the MFR shortfall of #4.4m would be spread over 10 years as permitted under
the regulations.
Under the transitional arrangements of the new accounting standard FRS 17, the scheme had a deficit of #14.8m at 31
December 2002. This is an indication of the long term funding position of the scheme as at that date and reflects the
particularly low levels of current equity markets. In the meantime it is intended that cash contributions to the
scheme will be managed in line with the Government MFR regulations.
Michael Stewart
Finance Director
Consolidated Profit & Loss Account
For the Year ended 31 December 2002
2002 2001
Before After
Exceptional Exceptional Exceptional
Items Items Items
#000 #000 #000 #000
Restated
Turnover - continuing operations 32,301 - 32,301 35,987
Cost of sales (26,505) (2,092) (28,597) (27,712)
Gross profit 5,796 (2,092) 3,704 8,275
Selling & distribution costs (6,636) - (6,636) (7,181)
Administrative expenses (1,420) - (1,420) (1,531)
Other operating income 51 154 205 725
(8,005) 154 (7,851) (7,987)
Operating (loss)/profit (2,209) (1,938) (4,147) 288
Exceptional item - - - 3,108
(2,209) (1,938) (4,147) 3,396
Net interest payable (923) - (923) (955)
(Loss)/profit on ordinary activities before taxation (3,132) (1,938) (5,070) 2,441
Taxation - - - (278)
(Loss)/profit on ordinary activities after taxation (3,132) (1,938) (5,070) 2,163
Accrued dividends (125) - (125) (124)
Retained (loss)/profit for the year (3,257) (1,938) (5,195) 2,039
Basic and diluted (loss)/profit per ordinary share (4.9)p (2.9)p (7.8)p 3.1p
The 2001 figures are restated to reflect the release of deferred government grants against cost of sales rather than
as previously to administration expenses. As the grant was received in relation to the purchase of plant and
machinery it is considered more appropriate to classify the amortisation of this grant income to cost of sales where
the corresponding depreciation has been reflected. The adjustment is a #0.4m reduction in cost of sales and a similar
increase in administrative expenses.
Statement of Total Recognised Gains and Losses
For the Year ended 31 December 2002
2002 2001
#000 #000
(Loss)/Profit on ordinary activities after tax (5,070) 2,163
Unrealised surplus on revaluation of properties - 2,017
Total gains and losses recognised (5,070) 4,180
Consolidated Balance Sheet
As at 31 December 2002
2002 2001
#000 #000
Fixed Assets
Tangible assets 14,361 14,287
Current Assets
Stocks 8,050 10,547
Debtors 11,859 14,068
Cash at bank and in hand 237 228
20,146 24,843
Creditors: amounts falling due within one year (18,341) (18,675)
Net current assets 1,805 6,168
Total assets less current liabilities 16,166 20,455
Creditors: amounts falling due
after more than one year (3,814) (3,649)
Provisions for liabilities and charges (508) (60)
Accruals and deferred income
Deferred government grants (1,392) (1,099)
Net assets employed 10,452 15,647
Capital and reserves
Called up share capital 8,430 8,430
Share premium account 331 331
Revaluation reserve 3,536 3,574
Other reserves 1,762 1,762
Profit and loss account (3,607) 1,550
Shareholders' funds (including non-equity interests) 10,452 15,647
Consolidated Statement of Cash Flows
For the year ended 31st December 2002
2002 2001
#000 #000
Cash (outflow)/inflow from operating activities note 2 (2,820) 3,397
Returns on investments and servicing of finance
Interest received 1 -
Interest paid (692) (798)
Interest paid under finance lease and hire purchase agreements (233) (191)
(989)
Net cash outflow from returns on investments and servicing of finance (924)
Taxation
Tax paid on pension fund refund - (278)
Capital expenditure and financial investment
Payments to acquire tangible assets (1,619) (3,470)
Receipts from sales of tangible assets 212 97
Government grants received 850 1,250
Net proceeds received in respect of exceptional property disposal 2,570 1,800
Net cash inflow/(outflow) for capital expenditure and financial investment 2,013 (323)
Cash (outflow)/inflow before financing (1,731) 1,807
Financing
New term loan 1,000 1,000
Capital element of finance lease rental payments (745) (522)
Net cash inflow from financing 255 478
(Decrease)/Increase in cash (1,476) 2,285
Notes
1. Exceptional item
2002 2001
#000 #000
Recognised in arriving at operating profit:
Re-organisation and relocation costs:
Redundancy costs 1,203 -
Disposal of surplus assets (154) -
Other relocation costs 889 -
1,938 -
Recognised below operating profit:
Profit on disposal of land and buildings - 3,108
2. Reconciliation of Operating (Loss)/Profit to Operating Cash Flows
2002 2001
#000 #000
Operating (loss)/profit before exceptionals (2,209) 288
Depreciation charge 1,159 1,076
Gain on sale of tangible assets - (97)
Government grant release (557) (360)
Decrease/(Increase) in stocks 2,125 (539)
Increase in debtors (301) (405)
(Decrease)/increase in creditors (1,784) 3,434
Net cash (outflow)/inflow from operating activities before exceptionals (1,567) 3,397
Cash outflow related to exceptional items (1,253) -
Net cash (outflow)/inflow from continuing activities (2,820) 3,397
3. Reconciliation of Net Cash Flow to Movement in Net Debt
2002 2001
#000 #000
(Decrease)/Increase in cash (1,476) 2,285
New term loan (1,000) (1,000)
Finance lease inception - (1,888)
Cash outflow from decrease in lease financing 745 522
Change in net debt (1,731) (81)
Net debt at beginning of the year (10,849) (10,768)
Net debt at end of the year (12,580) (10,849)
4. Statutory Accounts
The financial statements for Stoddard International PLC have yet to be signed for the year ended 31 December 2002.
The financial information set out in the announcement does not constitute the Company's statutory accounts for the
years ended 31 December 2002 or 31 December 2001. The financial information for the year ended 31 December 2001 is
derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The
auditors reported on those accounts; their report was unqualified and did not contain a statement under either
Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December
2002 will be finalised on the basis of the financial information presented by the directors in this preliminary
announcement, which has been agreed by the auditors, and will be delivered in due course to the Registrar of
Companies.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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