RNS Number:7545N
Faupel PLC
20 June 2005
20 June 2005
FAUPEL PLC
PRELIMINARY RESULTS
Faupel Plc, which imports quality textile goods mainly from China for sale to
leading retailers and wholesalers, has today announced preliminary results for
the year ended 31st March 2005.
KEY POINTS
* Pre-tax loss of #52,000 (2004: loss #18,000).
* Operating profit #228,000 (2004: profit #232,000).
* As predicted at the time of the interim announcement, the profit in the
second half almost compensates for loss in the first half.
* Premises relocation plan more costly than expected. Now completed.
* Loss per share 0.3p (2004: loss per share 0.1p).
* The Board is not recommending a final dividend and no interim dividend
was paid in the year (2004: nil).
Commenting on the results David Newbigging, Chairman, said:
"Trading and costs in the first two months of the current financial year are in
line with our expectations but it is too early to be definitive about prospects
going forward".
Enquiries:
Faupel Plc
Laurence Mead, Chief Executive Tel: 01372 384100
James McClean, Finance Director
Chairman's Statement
Results
The Group's consolidated loss before tax for the year ended 31st March 2005 was
#52,000 (2004: #18,000). The loss per share was 0.3p (2004: loss per share
0.1p).
As reported at the time of the announcement of our interim results in December
2004, the profit and loss account in the first half of the year was adversely
affected by group turnover being #640,000 (5.1%) less than the previous year,
and by significant over spending arising from the relocation of the Group's
warehouse facilities. In the second half, however, Group sales were ahead of the
same period in the previous year by 2.8%, and the warehouse move was completed
successfully. While this still left the Group turnover 1.1% behind the previous
year it enabled the Group to recover most of the loss made in the first half of
the year.
At the time of the announcement of our results last year I reported that we
expected the trend in the improvement of our operating profits at that time to
continue. As discussed further below, this would have been the case had it not
been for the operational disruption we experienced at the time of the warehouse
move, with the consequential slow down in fulfilling sales orders, together with
the extra costs incurred. This disruption is now behind us. In the first five
months of the financial year the operating profits were less than the same
period in the previous year. In the following seven months only two months'
operating profits were less than the previous year.
Dividend
Given the loss for the year, the Board is not recommending the payment of a
final dividend. No interim dividend was paid during the year.
Turnover
Group turnover was #24,607,000; #285,000 (1.1%) less than the previous year.
The decline in turnover was in the Home Furnishings division, which was 0.9%
less than the previous year, and the Industrial Products division, which was
19.9% less than the previous year.
The Garments division continued to grow, achieving #584,000 (21.7%) more sales
than the previous year. The sales team was increased by one person during the
year.
As reported in the interim results, the decline in Home Furnishings sales was
due to a number of factors. Some senior staff left at the beginning of the year
and the move of the warehouse caused service levels to fall behind our required
standards. Both these problems have now been resolved. A new position of Sales
Director for Home Furnishings was filled during the year and gaps in the sales
team were identified and resolved by the end of December 2004. While the new
warehouse has consistently achieved acceptable service levels since August 2004
a new warehouse manager has been appointed recently and further improvements are
expected in this area.
Chairman's Statement
Also as reported in the interim results, the decline in the Industrial Products
turnover against the previous year was due to the loss of a key customer and the
slower than expected start to the new Faupel Safety Products range. A
significant new contract has since been won on the Airlines side of the business
and the Proforce business is now making a more meaningful contribution to
turnover. The Proforce sales team was increased from two people at the start of
the year to four people by the end of the year and we believe that Proforce has
now crossed over from being a start-up to being a fledgling business in its own
right.
Gross Profit
As was the case in the first half, despite the decline in turnover compared to
the previous year, gross profit was up by #669,000 more than the previous year.
Gross profit margins increased from 25.9% for the year to 31st March 2004 to 29%
for the year to 31st March 2005. While this is consistent with the Group's
objective and is the result of specific actions, it may not continue at the
higher level achieved in the second half of the financial year. One-off factors
including a switch to buying more product in US Dollars and the negotiation of
lower prices from suppliers worked to the Group's advantage.
Operations
Overhead costs were significantly up on the previous year. Distribution costs
increased by #565,000 (14.8%) and administration costs increased by #108,000
(4.5%).
Distribution costs had been expected to rise through additional staff costs
together with increases in the size of the sales force. In addition the
warehouse move had been expected to add non-recurring additional costs
associated with the move itself and the cost of occupying two sites during the
move period. However, bringing the warehouse service up to standard took longer
than expected and unplanned labour and temporary storage costs were incurred.
Administration costs had been expected to rise through additional staff costs
and additional rent on office premises to house staff previously working at
Faupel House in Surrey. However, the actual cost of recruitment of a number of
senior brand management and sales personnel proved higher than expected. In
addition while travel costs fell more in line with the previous year for the
year as a whole, the extra travel costs incurred in relation to the temporary
relocation of staff to assist with the warehouse move were significant.
Finance
The sale of Faupel House was completed in the first half of the financial year
for #1,225,000. #250,000 was used to settle dilapidation claims previously
provided for, and #492,000 was invested in our new premises and further
improvements in the Group's computer systems. The remaining #483,000 was used to
pay off short-term debt. However, increases in debtors by #370,000 and
settlement of creditors led to an increase in net bank debt of #391,000 to
#2,661,000. This in turn led to an increase in interest costs net of interest
income of #30,000 over the previous year to #280,000.
Chairman's Statement
Finance
The level of borrowing, net of cash balances at the year end, is not
significantly different to that reported a year ago. Since September 2004,
management have focussed on driving stock levels down (which had grown during
the disruptive warehouse move) through a selective clearance programme and
tighter control over buying. By the year end stock levels were closer to the
levels they had been a year before, than was the case at 30th September 2004.
The increase in debtors is only partly attributable to increased sales over the
previous year in the last two months of the year. A significant proportion can
be attributed to less favourable trading terms being agreed with our customers
in response to normal commercial pressures.
During the year the Group restructured its bank lending such that it now only
has facilities with The Royal Bank of Scotland Group plc and its subsidiaries
rather than with four banks as before. The new facilities are more flexible than
those provided previously and the Group will therefore be able to use available
cash to offset debt more easily. This will reduce interest costs going forward.
In addition, more favourable settlement terms have been negotiated with a number
of the Group's suppliers which will further reduce the expected level of bank
credit required.
People
As covered elsewhere in my report, all those who work for Faupel have had to
cope with another year of significant change and the inevitable stress these
changes bring. All concerned have worked extremely hard to ensure that customer
service is maintained in the process. I thank all our staff for their continued
support and enthusiasm.
Prospects
The introduction of the new Faupel Safety Products business proved to be much
slower than anticipated. Concurrently, the warehouse move was more costly than
expected. Since the end of the first half of the financial year the sales force
in key areas has been further strengthened and the warehouse service levels
improved.
The Group has now completed the relocation programme for all three of its
premises and has a fully staffed and motivated work force. Key management
changes have also been implemented. No new business streams are planned and so
the period of relative calm will enable management to focus on improving the
existing ones.
Trading and costs in the first two months of the current financial year are in
line with our expectations but it is too early to be definitive about prospects
going forward.
David Newbigging
Chairman
17 June 2005
Chief Executive's Report
Key issues
On the face of it the financial year ended 31st March 2005 was a backward step;
and while it is true that it was a difficult year for Faupel, there were some
positive elements that should not be under played. Nonetheless, no one takes
pleasure in reporting an increased loss and I am unhappy with our performance
this year.
On a positive note, at the trading level, while turnover was down slightly on
the previous year, there was a 3% increase in margin to 29%, which resulted in
gross profit being #669,000 higher than the previous year (2004: #6,457,000).
Margins and balance sheet management have been our primary objectives over the
past two years and are the bedrock of future profitability, so progress in these
areas is welcome.
Secondly, the year saw the completion of a number of significant property and
staff moves that caused a degree of hiatus and took some time to bed down. In
December 2003 the Manchester office moved in to more modern open plan offices
and the opportunity was taken to centralise the design, accounting and shipping
functions entirely to these premises in the early part of the financial year. In
April 2004, in time for the completion of its sale, Faupel House was closed and
the remaining, much slimmed down team, moved to a single, open plan office in
Leatherhead. In May 2004, the Group commenced the move of its stock and 65
staff, into a single, newly leased warehouse. Over a three month period the four
existing warehouses in Oldbury, West Midlands, were closed and the stock moved
to the new premises near West Bromwich. One year on, all the teams are well
established in their new premises and focus is being brought to bear on
improvement programmes without the distraction of getting to grips with new work
environments and procedures. A new warehouse manager has recently been
appointed and further improvements are expected in this area.
Finances
During the course of the year the warehouse move contributed to an increase in
stock levels and readers will recall that the stock figure reported in the
interim results was #1,286,000 higher than it had been at the same time in the
previous year. By the end of the year stock was #3,826,000, #398,000 higher than
it was at the end of the previous financial year. With the warehouse move
complete and the busy period for sales in September, October and November
successfully navigated, management were able to turn their attention to driving
stock figures down. This was done through a combination of controlled clearance
of older lines and tighter control over stock orders in the last four months of
the financial year. The clearance sales were well orchestrated and were achieved
without damaging overall margins or future sales prospects. We said last year
that further shrinking of the balance sheet was unrealistic and we remain of
that view. Our year end stock position is unlikely to reduce further in the
future.
During the second half of the financial year the company also introduced tougher
credit terms with its suppliers in China and elsewhere. These terms, together
with the tighter stock holding regime, has meant that the Group has been able to
reduce its bank debt net of cash balances from #5,129,000 at 30th September 2004
to #2,661,000 at 31st March 2005; a reduction of #2,468,000. This compares to a
reduction of #1,818,000 in the last six months of the previous financial year.
In absolute terms bank debt net of cash balances was #2,661,000 at 31st March
2005; an increase of #391,000 over the position a year before. Much of this
increase is attributable to an increase in trade debtors. This is partially due
to higher sales in the last three months of the year than in the previous year,
and partially due to less favourable trading terms being agreed with customers.
Chief Executive's Report
Home Furnishings
The sales of the Home Furnishings division during the year were less than the
previous year but the sales in the second half were encouraging. A sales
director with a proven track record was recruited during the year and her work,
along with that of all the sales team should lead sales to increase going
forward. The newer Faupel brands of Humming Bird and Ditton Hill continue to
increase sales and make a worthwhile addition to the existing well established
Pure Opulence brand. Sales of own label product to larger retail customers
suffered during the year but the Sales Director and Design Director have good
contacts here and efforts are being renewed to increase sales in this market.
Sales to mail order customers of own label and Faupel branded Arditti product
grew significantly during the year.
Garments
Sales of Garments grew 22% year on year with the second half year showing 26%
year on year growth. It is felt that this number could have been even better if
the warehouse move had not intervened. Having brought in a new salesman in
February 2004 a further one was recruited in August. Consequently, further sales
growth is expected in the next financial year. Our garments business has been
fully resurrected after the Rivers Edge difficulties of three years ago and
Champion, our outdoor clothing brand, is an important part of the Group going
forward.
Industrial products
This division comprises three separate lines of business.
The Airline Products division that supplies in-cabin textile products to the
Airline industry improved sales a little over the previous year. Towards the end
of the year a sizeable new contract was won but even then this will not see
sales grow to the levels experienced before 9/11. This sector remains difficult
but our overheads are low and our reputation in the industry is good.
The Directs division which sources a variety products for delivery direct to the
customer lost a sizeable contract and the decision has been taken to close this
part of Faupel's business. Mike Duffy has retired from the business after 10
years with the Group and we wish him well for the future.
The Proforce Brand of personal protective equipment and tools were launched at
the start of the financial year. The rate of growth at the outset was very
disappointing and sales growth undershot expectations throughout the year.
However, two new salesmen were recruited and sales are now reaching worthwhile
levels, growing month on month. Some significant contracts have been won which
should deliver further sales growth in the year ahead. While our products are
competitively priced and of good quality, overcoming customer loyalty to their
existing suppliers has been harder than we expected despite these obvious
advantages. The early slow start lead the Group to be overstocked in this
division. However, the product does not devalue over time and as I write the
stock levels are more in line with the levels of sales currently being achieved.
Chief Executive's Report
People
It has been a hard year for our staff, with many making big personal sacrifices
to support the Group through the particularly difficult six month period leading
up to Christmas. The feature that most impressed me was that many people were
more willing and able to work together with others from across the Group to find
solutions to problems. This demonstrates that the changes made over the last few
years have created a stronger team and a more resilient company as a result.
My thanks goes to all my colleagues for the effort made this year. I look
forward to a more prosperous year ahead.
Laurence Mead
Group Chief Executive
17 June 2005
Consolidated Profit and Loss Account
for the year ended 31st March 2005
Notes 2005 2004
#'000 #'000
Turnover 3 24,607 24,892
Cost of sales (17,481) (18,435)
_____________ _____________
Gross profit 7,126 6,457
Distribution costs (4,380) (3,815)
Administration expenses (2,518) (2,410)
_____________ _____________
Operating profit 3 228 232
Interest receivable 21 27
Interest payable (301) (277)
_____________ _____________
Loss on ordinary activities
before taxation (52) (18)
Tax on loss on ordinary activities - -
_____________ _____________
Loss on ordinary activities
after taxation and for the financial year (52) (18)
_____________ _____________
Loss per ordinary share, basic and diluted 4 (0.3p) (0.1p)
_____________ _____________
Consolidated Balance Sheet
at 31st March 2005
2005 2004
Note #'000 #'000
Fixed assets
Tangible assets 679 334
_____________ _____________
Current assets
Stock 3,826 3,428
Debtors 3,983 3,613
Proceeds due on the sale of Faupel House 5 - 1,225
_____________ _____________
Total debtors 3,983 4,838
Cash at bank and in hand 622 1,384
_____________ _____________
8,431 9,650
Creditors: amounts falling due within one year
6 (4,873) (5,445)
_____________ _____________
Net current assets 3,558 4,205
_____________ _____________
Total assets less current liabilities 4,237 4,539
Provisions for liabilities and charges - (250)
_____________ _____________
Net assets 4,237 4,289
_____________ _____________
Capital and reserves
Called up share capital 785 785
Share premium account 2,882 2,882
Other reserve 93 93
Profit and loss account 477 529
_____________ _____________
Equity shareholders' funds 4,237 4,289
_____________ _____________
Consolidated Cash Flow Statement
for the year ended 31st March 2005
2005 2004
Notes #'000 #'000
Cash (outflow)/inflow from
operating activities 7 (844) 1,380
Returns on investments and servicing of finance 8 (280) (197)
Taxation - 4
Capital expenditure and financial investment 8 733 (129)
_____________ _____________
Cash (outflow)/inflow before management of liquid
resources and financing (391) 1,058
Management of liquid resources 8 (371) (746)
_____________ _____________
Increase/(decrease) in cash in the year (762) 312
_____________ _____________
Reconciliation of net cash flow to movement in cash
2005 2004
#'000 #'000
(Decrease)/increase in cash in the year (762) 312
Cash at beginning of year 1,384 1,072
_____________ _____________
Cash at end of year 622 1,384
_____________ _____________
Consolidated Cash Flow Statement
for the year ended 31st March 2005 (continued)
Reconciliation of net cash flow to movement in net bank debt
2005 2004
#'000 #'000
Bank debt at beginning of year (3,654) (4,400)
Cash at beginning of year 1,384 1,072
_____________ _____________
Bank debt net of cash at beginning of year (2,270) (3,328)
_____________ _____________
Management of liquid resources 371 746
(Decrease)/increase in cash in the year (762) 312
_____________ _____________
(Increase)/decrease in bank debt
net of cash (391) 1,058
_____________ _____________
Bank debt at end of year (3,283) (3,654)
Cash at end of year 622 1,384
_____________ _____________
Bank debt net of cash at end of year (2,661) (2,270)
_____________ _____________
Notes:
1. The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31st March 2005 or
2004. The financial information for 2005 and 2004 is derived from the statutory
financial statements for those years. The statutory financial statements for
2004 have been delivered to the Registrar of Companies. The statutory accounts
for 2005 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting. The Group's auditors, KPMG Audit Plc, have reported on
the 2005 and 2004 financial statements. Their reports were unqualified and did
not contain a statement under 237(2) or (3) of the Companies Act 1985.
2. It is anticipated that the report and financial statements will be
posted to shareholders on 31st July 2005. The Annual General Meeting will be
held on 1st September 2005.
3. Turnover and operating profit/(loss)
2005 2004
2005 2004 Operating Operating
Sales Sales Profit/(loss) Profit/(loss)
#'000 #'000 #'000 #'000
Business sector analysis
Home Furnishings 18,524 18,698 1,250 1,210
Garments 3,277 2,693 131 153
Industrial Products 2,806 3,501 (65) 2
Central admin costs - - (1,088) (1,074)
-------- -------- ------- --------
Before one-off, non-recurring items 24,607 24,892 228 291
--------- --------
Cost incurred on aborted acquisitions - (59)
-------- --------
Operating profit/(loss) 228 232
-------- --------
4. Loss per ordinary share
Loss per share is based on the Group loss after taxation of #52,000 (2004: loss
#18,000) and the weighted average number of ordinary shares in issue during the
year of 15,709,447 (2004:15,709,447).
Diluted loss per share, calculated in accordance with FRS 14, is unchanged from
the basic loss per share.
5. Faupel House, the Company's freehold property, was sold during the
year. The transaction was successfully completed on 1st June 2004.
6. Creditors include #3,283,000 (2004: #3,654,000) of bank borrowings.
Notes (continued):
7. Cash flow from operating activities
Reconciliation of operating profit to operating cash flow
2005 2004
#'000 #'000
Operating profit 228 232
Profit on disposal of freehold property - (19)
Loss on disposal of fixed assets 4 -
Depreciation 143 126
Impairment of fixed assets - 19
Increase in stocks (398) (21)
(Increase)/decrease in debtors (370) 1,325
Decrease in creditors (201) (282)
Decrease in provisions for liabilities and charges (250) -
_____________ _____________
Net cash (outflow)/inflow from operating activities (844) 1,380
_____________ _____________
8. Analysis of cash flows for headings netted in the cash flow statement
2005 2004
#'000 #'000
Returns on investments and
servicing of finance
Interest received 21 27
Interest paid (301) (224)
_____________ _____________
Net cash outflow for returns on investments and servicing
of finance (280) (197)
_____________ _____________
Capital expenditure and financial investment
Purchase of tangible fixed assets (492) (129)
Proceeds from sale of investment 1,225 -
_____________ _____________
Net cash inflow/(outflow) for capital expenditure and
financial investment 733 (129)
_____________ _____________
Management of liquid resources
Decrease in bills payable and bank borrowings
(371) (746)
_____________ _____________
Net cash outflow from
management of liquid resources (371) (746)
_____________ _____________
This information is provided by RNS
The company news service from the London Stock Exchange
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