RNS Number:5989N
Reflec PLC
16 July 2003
Reflec plc
("Reflec" or "the Group" or "the Company")
Preliminary results for the year ended 28 February 2003
Chairman's Statement
The Group experienced a further year of challenging trading conditions and
significant change in 2002/3.
Whilst the results for the year are unsatisfactory they do represent an
improvement on last year and on the outcome indicated for this year at the time
of the announcement of the Interim results.
Turnover reduced from #3.4m to #3.2m but operating losses were reduced from
#2.6m to #1.8m before exceptional costs, and from #6.9m to #2.1m after
exceptional costs.
The reduced level of turnover reflected the focussing of the Group on more
profitable and sustainable businesses and the reduced level of loss reflected
both this focus and very significant cost reductions which will impact fully in
the current financial year.
These initiatives are detailed in the Chief Executive's Review and will enable
the Group to approach a cash neutral position in the current financial year and
to grow profitably from this more secure base.
No dividend is payable.
The composition of your Board has also changed through the year with my
appointment on 12th August 2002, the resignations of Nick Rowbottom on 13th
September 2002 and Stuart Dootson on 8th November 2002, and the promotion to
Finance Director of David Chiverton on 8th November 2002.
Now that the actions have been taken to focus the strategy of the Group and to
commence its financial turnaround, and to contribute to minimising our fixed
costs, I have decided to resign.
With immediate effect and for the time being, Peter Smith will again combine the
roles of Chairman and Chief Executive.
I would like to thank my colleagues on the Board and all the management and
employees for their continued hard work and commitment and to wish the Group
every success in the future.
J M Gilliatt
Chairman
Chief Executive's Review
In February 2002 your Board completed a strategic review of all the Company's
activities evaluating the overall financial situation of the Group as well as
each of the Reflec businesses in terms of their ability to create value for the
shareholders. A new strategy was developed with a focus on exploiting the
Company's IPR and brands in markets where we have the potential to be a market
leader. At the same time, we identified businesses within the Group that would
not create either short or longer term value. In these cases we have taken the
tough but necessary decisions to close down the business or dramatically reduce
our activities within it.
The past year has seen your Company's turnover fall by approximately 6%, while
operating losses before exceptional costs have been reduced by approximately 37
%.
The past 12 months have been focused on the financial turnaround of the Group,
the actions from which we are only now beginning to see the financial benefits.
Today, your Company is focused on higher margin and more sustainable business.
It is operating at an expense level half that of a year ago whilst maintaining
the same level of turnover. Profit margins are increasing. We are focused on
moving towards positive cash flow with the objective of being able to fund
future profitable growth.
The Company is now organised into three divisions, Reflec Media, Reflec
Evolution and Reflec Reflectives and operates in two locations Winsford in the
UK and Ashland, USA.
The Operating Subsidiaries
Reflec Media
In a difficult transition year the new Reflec Media business is performing well
having moved from a loss of #818k in 2001/2002, when the business was part of
the Viewercom joint venture, to a #115k loss prior to group overheads in 2002/
2003.
Following the closure of the unprofitable Viewercom joint venture, we
established Reflec Media as a division of Reflec Technology. The initial focus
of this new team was centred on assessing the needs of the marketplace and the
fit of our technology. The work was revealing and has guided us to redesign our
product range in the form of our award winning Chromaflex and Chromatte
curtains. Market launches were successfully implemented at the world's most
important trade shows including IBC in Amsterdam, AsiaMedia in India and most
recently at NAB in Las Vegas, the world's largest media trade show. A new
relationship with the Manchester Metropolitan University is helping to improve
our understanding of our technology and its role in the media market. A series
of new products is expected to arise from this relationship.
Today Chromatte and Chromaflex are being marketed in 40 countries worldwide
through a growing network of resellers who are equipped by the Reflec Media team
to sell value added services to customers at the local level.
In March this year agreement was reached with two major US distributors to
market the Chromatte systems in North America. These important partnerships are
performing as planned.
Finally, to further reduce expenses and improve overall coordination within the
Group, the Reflec Media team will be moving to the Winsford site in mid July
2003.
We are expecting this business to achieve a modest profit and positive cash flow
over the coming 12 months.
Reflec Reflectives
This business comprises of two entities: Reflec Technology and Reflec USA.
Technology is responsible for research, development, and manufacturing. The
sales and marketing activities are concentrated in the US. As our licensing
model develops, the need for an Asian sourcing location has decreased. In an
effort to further reduce operating costs we decided to close the Hong Kong
operation.
At the time of announcing the last Interim results your Board informed you of
its decision to seek a variety of strategic options for the Reflectives business
including alliances, joint ventures or the sale of the business. At this time no
specific agreement has been reached although discussions are on going with a
number of potential candidates.
Reflec Technology
Your Company had high hopes for the launch of its new EN471compliant
retroreflective tape following more than seven years of development.
Unfortunately, with the entry of a number of low cost Asian manufacturers the
market price for tape has fallen by up to 50% with obvious impact on
profitability for a new entrant like us. The gross margin of 20 per cent
compared to 45 per cent in the previous year. Your Board decided to exit the
commodity end of this market and to offset this lost revenue by reducing its
costs.
Today, Reflec Technology is focused on its core businesses of manufacturing its
proprietary reflective ink system and in partnership with a number of third
parties the company's range of reflective fabrics sold under its illumiNITE
brand. Reflec Technology now operates with 25 per cent of the staff compared to
a year ago.
ReflecUSA
Reflec USA operates as sales and marketing conduit to the important North
American market.
The Company is the world's largest supplier of retroreflective fabrics promoting
what the Directors believe to be the next generation of high visibility products
for the occupational and consumer personal safety markets.
The results of Reflec USA's operations were disappointing with sales of #1,012k
this year compared to #1,126k in the previous year. The primary shortfall
resulted from the poor retail environment, the loss of a key account and slower
than anticipated adoption of our technology in the occupational markets.
Profitability was unchanged at a loss of #675k versus #661k a year earlier.
Measures have been implemented to better focus the business and reduce costs in
order to achieve profitability in this coming year.
The Company launched its range of ANSI 107 compliant products but unfortunately
sales were below plan. We now only expect modest growth until the ISEA/ANSI 107
high visibility clothing committee (of which Reflec USA is an active member)
address the current thinking relating to the conspicuity of the human form.
A new branded fabric licensing model was developed and successfully launched
through the year. A number of licensing agreements have been signed with many
more in negotiation.
Unfortunately, an important US military contract was lost to our major
competitor as a result of price. Work is underway to win back this contract
using the Company's Intellectual Property and its leadership in retroreflective
fabrics.
Sales of our branded Sportswear line of apparel and accessories were negatively
impacted by the generally poor retail climate in the United States which
continued to be affected by the tragic events of September 11th 2001 and the
general economic slowdown. There are indications that consumer confidence is
beginning to pick up fuelled by lower interest rates and reductions in personal
taxation. On a positive note, the Company's new range of solar reflective
sportswear was a winner of the Dupont/ISPO New Brands of the Year award at last
summers ISPO tradeshow in Munich, Germany.
Reflec Evolution
Reflec Evolution is based at the Company's Winsford site. It business activities
are focused on offering services to third parties to change the physical state
of powders including micro grinding, compaction, drying and mixing. Due to the
service requirements of this business the majority of its customers are located
in the United Kingdom.
Our new strategy of focusing on specific capabilities and serving higher margin
target accounts has proven to be the correct one. We are concentrating on work
where we have a competitive advantage and, through improved operating
efficiency, we can earn higher margins.
We are currently negotiating on a number of new contracts.
During this financial year, Reflec Evolution turned over #1.13m down from the
previous year of #1.5m but losses were more than halved to #359k compared to
#809k for last year. We anticipate that the business will make a contribution
and generate cash in this coming year.
Reflec Asia (Kelvar)
In 2000, Reflec acquired the trademark of Kelvar, the company's anticorrosion
powder. The main market for Kelvar was seen as the Far East. CCI (Asia) Limited
was acquired to act as sales conduit to the local market.
During the year, our sales of Kelvar and ancillary products were #34,000.
Unfortunately, neither the profitability of the product or the market potential
justified the expenditure and risk associated with the business. Your Board
decided to stem the losses and has closed down the Asia operation.
Sales of Kelvar are now limited to exports to Asian applicators and coaters
operating in the United Kingdom.
Summary: The Company's Future
The new strategy of your Company is now focused on achieving profitability and
positive cash flow in the short term as well as striving for longer term growth
in shareholder value. Today, we only market products and/or services where we
have a real competitive advantage and where we have identified markets that are
willing and able to reward us for our efforts.
The improved marketing capabilities of the Group will help us to better exploit
our technology and trademarks by positioning our branded products and/or
services in to our target market niches around the world. At the same time, the
Company will accelerate its efforts to license its proprietary technology and
brands.
Finally, I would like to thank John Gilliatt for his services to the Company
over the past year. During this period of transition, John's financial insights
to the business have been invaluable in driving the changes we have implemented.
Reflec is that much stronger as a result.
P R Smith
Chief Executive
Consolidated profit and loss account for the year ended 28 February 2003
Note Continuing Discontinued
operations Operations Total
2003 2003 2003 2002
#'000 #'000 #'000 #'000
Turnover 2 3,071 134 3,205 3,405
Cost of sales 1,349 64 1,413 1,510
_____ _____ _____ _____
Gross profit 1,772 70 1,792 1,895
Distribution 31 149 180 187
costs
Administrative 3,362 98 3,460 4,350
expenses -
ordinary
Administrative 4 266 - 266 4,276
expenses -
exceptional
Total 3,628 98 3,726 8,626
administrative
expenses
_____ _____ _____ _____
Operating 4 (1,937) (177) (2,114) (6,918)
loss
Interest 40 183
receivable
Interest 11 81
payable and
similar
charges
_____ _____
Loss on
ordinary
activities
before
taxation (2,085) (6,816)
Tax credit on (62) -
loss on
ordinary
activities
_____ _____
Loss for the (2,023) (6,816)
financial
year
===== =====
Loss per share 5 0.48 pence 1.6 pence
- basic and
diluted
========== =========
Consolidated statement of total recognised gains and losses for the year ended
28 February 2003
Group Group
2003 2002
#'000 #'000
Loss for the financial year after taxation (2,023) (6,816)
Currency translation differences on foreign
currency net investment 48 27
______ ______
Total recognised gains and losses for the year (1,975) (6,789)
====== ======
Consolidated balance sheet at 28 February 2003
Note 2003 2002
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 711 1,069
Tangible assets 1,365 1,544
______ ______
2,076 2,613
Current assets
Stocks 714 797
Debtors - due within 999 781
one year
Cash at bank and in 549 2,613
hand
______ ______
2,262 4,191
Creditors: amounts
falling due within one
year 849 1,242
______ ______
Net current assets 1,413 2,949
______ ______
Total assets less 3,489 5,562
current liabilities
Creditors: amounts
falling due after more
than one year 24 122
______ ______
3,465 5,440
====== ======
Capital and reserves
Called up share 6 425 425
capital
Share premium account 12,915 12,915
Profit and loss (9,875) (7,900)
account
______ _______
Equity shareholders' 7 3,465 5,440
funds
===== ======
Consolidated cash flow statement for the year ended 28 February 2003
2003 2002
#'000 #'000
Net cash outflow from operating activities (2,063) (3,100)
Returns on investments and servicing of finance 29 102
Taxation 62 -
Capital expenditure (83) (525)
Acquisitions - (123)
______ ______
Cash outflow before management of liquid resources (2,055) (3,646)
and financing
Management of liquid resources 2,020 3,300
Financing 16 (9)
______ ______
(Decrease) - in cash (19) (355)
===== =====
Reconciliation of operating loss to net cash outflow
from operating activities
2003 2002
#'000 #'000
Operating loss (2,114) (6,918)
Amortisation 386 2,718
Depreciation 135 805
Loss on disposal of fixed assets 99 58
Decrease/(increase) in stock 59 (234)
(Increase)/decrease in debtors (224) 116
(Decrease)/increase in creditors (404) 355
______ ______
Net cash outflow from operating activities (2,063) (3,100)
===== =====
Reconciliation of net cash flow to movement in net
funds
2003 2002
#'000 #'000
Decrease in cash in the year (19) (355)
Cash (inflow)/outflow from movement in debt and (16) 11
lease financing
Cash inflow from movement in liquid resources (2,020) (3,300)
______ ______
Change in net funds resulting from cash flows (2,055) (3,644)
Translation differences (25) -
______ ______
Movement in net funds in the year (2,080) (3,644)
Net funds at beginning of year 2,581 6,225
______ ______
Net funds at end of year 501 2,581
===== =====
Notes
1 Financial Information
The financial information for the year ended 28 February 2003 is extracted
from the Group's financial statements to that date which received an
unqualified auditors' report and will be filed with the Registrar of
Companies.
The financial information for the year ended 28 February 2002 is extracted
from the Group's financial statements to that date which received an
unqualified auditors' report and have been filed with the Registrar of
Companies.
The preliminary announcement has been prepared on the basis of the
accounting policies set out in the statutory financial statements for the
year ended 28 February 2003.
2 Turnover, losses and net assets
Turnover is the total gross external sales excluding VAT. Turnover and
loss before taxation are derived from net assets situated in the United
Kingdom, United States of America and Hong Kong.
Turnover Pre-tax profit/ Net assets/
(loss) (liabilities)
2003 2002 2003 2002 2003 2002
#'000 #'000 #'000 #'000 #'000 #'000
Analysis by
class of
business:
Retro-reflective 1,764 1,401 (1,607) (1,628) (5,339) (3,782)
products
Grinding and 1,075 1,501 (359) (809) (3,204) (2,845)
Kelvar
Anti-corrosion
coating services
&
sub contract 134 291 (177) (625) (1,312) (1,140)
cable
containment
Visual
Communication
Technology
Group 232 212 (112) (817) - 58
- - 170 (2,937) 6,390 13,149
______ ______ ______ ______ ______ ______
3,205 3,405 (2,085) (6,816) 3,465 5,440
______ ______ ______ ______ ______ ______
Turnover Pre-tax profit/ Net assets/
(loss) (liabilities)
2003 2002 2003 2002 2003 2002
#'000 #'000 #'000 #'000 #'000 #'000
Analysis by
geographical
market:
By origin
United 2,059 1,988 (1,403) (2,593) (7,250) (5,908)
Kingdom
Asia/ 134 291 (177) (625) (1,312) (1,140)
Pacific
USA 1,012 1,126 (675) (661) (1,293) (661)
Group - - 170 (2,937) 6,390 13,149
_______ _______ _______ _______ _______ _______
3,205 3,405 (2,085) (6,816) 3,465 5,440
_______ _______ _______ _______ _______ _______
By
destination
United 1,547 1,040
Kingdom
Other 703 800
European
countries
Asia/ 127 388
Pacific
USA 798 1,177
Rest of 30 -
World
______ ______
3,205 3,405
______ _____
In accordance with FRS 3 'Reporting Financial Performance', the results of
Corrosion Control International (Asia) Limited are classified as discontinued.
The segmental analysis, as detailed above, in relation to discontinued
activities is as follows:
Turnover Pre-tax profit/ Net assets/
(loss) (liabilities)
2003 2002 2003 2002 2003 2002
#'000 #'000 #'000 #'000 #'000 #'000
Analysis by
class of
business:
Anti-corrosion
coating
services &
sub contract 134 291 (177) (625) (1,312) (1,140)
cable
containment
______ ______ ______ ______ ______ ______
Analysis by
geographical
market:
By origin and
by destination
Asia/Pacific 134 291 (177) (625) (1,312) (1,140)
______ ______ ______ ______ ______ ______
3 Exceptional costs
During the year the Board has continued the strategic review of the
group, which resulted in further adjustments to the carrying values of
intangible fixed assets.
2002 2003
#'000 #'000
Impairment of patent licenses - Kelvar 266 1,234
Impairment of goodwill - 1,300
Impairment of tangible fixed assets - 390
Property reorganisation expenses - 409
Reorganisation expenses - 1121
______ ______
266 4,454
===== =====
4 Operating loss
2003 2002
This is arrived at after charging/(crediting): #'000 #'000
Auditors' remuneration - audit services (company 41 25
#11,000 (2002 #10,000))
- non audit services 5 9
Depreciation - normal 135 415
- exceptional (see above) - 390
Amortisation of goodwill and patent licenses
- normal 58 94
- exceptional (see above) 266 2,534
Research and development - current year's 105 134
expenditure
- amortisation of capitalised expenditure 62 90
Operating leases - hire of plant and machinery 15 15
- other 146 146
Other exceptional expenses (see above) - 1,352
Exchange loss - 59
Loss/(Profit) on sale of fixed assets 99 58
===== =====
The audit fee is dealt with on a Group basis.
5 Loss per share
The basic loss per share has been calculated on the weighted average number
of shares in issue during the year, namely 424,699,774 (2002 - 423,949,774)
and losses of #2,022,674 (2002 - #6,816,160). There are no dilutive potential
ordinary shares in issue.
6 Share capital
Allotted, Allotted,
called up called up
and fully and fully
Authorised paid Authorised paid
2003 2003 2002 2002
Group and
Company
#'000 #'000 #'000 #'000
424,699,774 600 425 600 425
Ordinary shares
of 0.1p each
=== === === ===
7. *Reconciliation of movements in shareholders' funds
Group Company Group Company
2003 2003 2002 2002
#'000 #'000 #'000 #'000
(Loss)/profit for the (2,023) (1,684) (6,816) (4,313)
financial year
Other recognised gains and 48 - 27 -
losses relating to the year
New share capital subscribed, - - 2 2
net of issue costs
Movement in other reserve - - (10) (10)
______ ______ ______ ______
Net movement to shareholders' (1,975) (1,684) (6,797) (4,321)
funds
Opening shareholders' funds 5,440 9,027 12,237 13,348
______ ______ ______ ______
Closing shareholders' funds 3,465 7,343 5,440 9,027
===== ===== ===== =====
8. Annual General Meeting
The Annual General Meeting of the Company will be held at 10.00 am on 18th
September 2003 at The Quality Hotel, London Road, Northwich, Cheshire CW9 5HD.
9. The Annual Report & Accounts
The annual report and accounts of the Company for the year ended 28 February
2003 will be posted to shareholders on 15th August 2003 and copies of the report
and accounts will be available from the Company's registered office, Road One,
Winsford Industrial Estate, Winsford, Cheshire, CW7 3QQ from 15th August 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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