Ronson Plc
Announcement of Results
For year ended 31 December 2002
Managing Director's Statement
Strategy
During 2002, the Group has continued to pursue its strategy to protect and
develop the Ronson brand in its core markets, by focusing resources on building
distribution for disposable cigarette lighters and flame product accessories.
This strategy has had to be executed within severe financial constraints which
have prevented additional marketing expenditures, further product development
or category diversification.
Results
The Group's strategy was successfully implemented in its core UK market, where
sales of disposable lighters and flame accessories grew 23% versus 2001, and in
Poland where sales grew 53% versus 2001. Overall sales grew 7% to �9.6m (2001:
�9.0m). However, this growth did not flow through to financial results, with a
disappointing pre-tax profit of �15,000 achieved. The profit compares
unfavourably with both 2001 at �390,000 and first half year, as reported in
August 2002, of �122,000.
Overall turnover only increased by 7.2% as a result of continued planned
reductions in gift product sales, down 32% versus 2001, and lower than planned
growth in international markets, up 11% versus 2001. Profits were consistently
limited by customers' pressure on margins and additionally almost eradicated by
unforeseen costs of �305,000 charged by the year-end. These costs are explained
in more detail in the Operating and Financial Review.
The 2001 figures have been restated to reflect changes brought about by FRS19
deferred taxation, as detailed in the operating and financial review.
Current Trading and Prospects
The results of the first quarter of 2003 are in line with the Board's
expectations but trading continues to be tough under highly competitive
conditions.
In light of these market conditions, the Group is continuing to reduce fixed
costs by outsourcing certain operations wherever possible, which the executive
directors consider should deliver net cost and efficiency benefits visible in
the second half of 2003.
The UK Market
Growth in core products was fuelled by new accounts gained throughout the year
and organic sales growth to existing customers. The 23% growth in sales of
disposable lighters and flame accessories would have been higher still if
operations with certain major accounts had begun earlier, as planned, a fact
that supports future growth projections.
Gift sales were impacted by surrender of the YSL pen licence which accounted
for sales of �208,000 in 2001, discontinuation of health and beauty products
(relics of a Group business terminated in 2000) and rationalisation of Ronson's
overlong gift lighter product line.
Prospects for Ronson's disposable lighters continue to look positive given
distribution opportunities for the Group's most recent innovative products. In
particular, the unique Slyda model has a child-resistant system of particular
relevance as Child Resistance Legislation is imposed across Europe (currently
anticipated for July 2004). The Board is already reviewing further product
systems to address this anticipated legislation, although precise relevant
criteria within the legislation have not yet been finalised.
The new cigarette paper and accessory range, introduced in spring 2002, has not
yet realised its potential in what is the UK's fastest growing related market.
However, its ability to enhance brand awareness and reach new users has
persuaded the executive directors to maintain pressure on building
distribution.
The potential for increased sales of Ronson's exclusive candle lighter design
has recently been indicated by listings with Argos which will significantly
strengthen its presence in the direct mail market as well as the high street
retail market.
The International Market
Modest 11% growth in International sales contrasts unfavourably with strong
performance by the Group's Poland subsidiary up 53% versus 2001. Following the
strong performance in Poland the Group opened a similarly structured sales
operation in Germany in April 2002; initial sales here are modest but already
suggest that a growth opportunity exists.
Beyond these markets, International sales opportunities have not yet been
properly realised and, in particular, Ronson sales have shown vulnerability to
economic and political events in South America and the Middle East.
With a view to unlocking the potential of international markets, an independent
study has been commissioned to assess opportunities and modus operandi. The
conclusions of this work are now being reviewed to evaluate resources required
and map the way forward for the brand outside the UK.
Anti-Dumping
Two important announcements were made to shareholders in December 2002 and
April 2003 regarding the position of potential Anti-Dumping taxation duties
under investigation by the European Commission.
The European Commission is still considering whether it is appropriate to levy
additional Anti-Dumping duties on a broader range of imports of disposable
lighters into Europe from a wider group of exporting countries. This action is
as a result of a complaint to the Commission from European manufacturers which
was notified to the Company in late June 2002.
The provisional results of those deliberations were due on the 27th March 2003.
However, due to the level of detail passed to the Commission by those opposing
the action, the outcome is not now expected until later in 2003, although the
exact timing is currently unclear.
Through a co-ordinated effort with our importers' organisation, we continue to
defend our position, with specialist lawyers representing our and all other
importers' interests.
If any such duties are imposed, this may well present further challenges to the
business. The Board continues to keep all possible alternatives under review
and will of course inform shareholders of all relevant developments as they
occur.
Summary
The Group continues to grow sales of core products by seeking increased
distribution and visibility, within strict financial controls and significant
cost savings.
The Ronson brand has evidenced responsiveness to the introduction of its
distinctive designs in markets where the Company has its own sales operations.
Future sales growth is expected, particularly once international opportunities
have been grasped, provided that sufficient resources can be generated to
sustain sales momentum.
The Executive team would like to thank the non-executive directors who have
held office during the year, Jim Clark, Stephen Hazell-Smith and Anthony
Hodges, for their input. Their advice has enabled the Board to carry on its
duties without the costs of appointing a new Chairman.
John M Graham
Managing Director
30th April 2003Operating and Financial Review
Profit and Loss Account
The Board reports a trading profit for the second year in succession, albeit
with a disappointing pre-tax profit for the year of �15,000. Operating profit
for the year was �66,000, against �421,000 in 2001 and �153,000 at the half
year. Trading during 2002 has proven difficult despite promising indications at
the half-year point.
Shareholders were notified in December 2002 that expectations for the year
would be at a level only slightly ahead of the half year. During the last
quarter of 2002 the sales targets were not achieved as anticipated, falling
short by an expected margin contribution slightly in excess of �350,000.
Additionally, a number of items of expenditure were identified at the end of
the year. These costs, which were not accrued, primarily related to three
areas: the result of an award by an industrial tribunal; revaluation of assets
held in foreign currencies; and increased auditors' remuneration. The combined
effects of reduced sales for the last quarter and excess costs identified at
year end reduced the profits for the year as a whole to a level below the first
half result.
Turnover increased from �8,996,000 in 2001 to �9,641,000 for 2002, although the
7.2% increase is much lower than expectations.
The margin is 2.5% lower than 2001 but in line with expectations of a revised
product mix, given the planned reduction in gift range available.
Service levels to customers continue to be excellent and our commitment to
controlling spending has continued. However, significant upward pressure from
external sources, notably insurance and audit, has led to increased costs for
the year.
The difficulties reflected in profits have flowed primarily from failure to
achieve sales targets, customers' downward pressure on margins, together with a
number of material one off costs. Costs of �305,000 which were not predicted at
this level, and which are in addition to those outlined above, were as follows:
Investment in set up of new retail accounts - �115,000
As with any new business, start-up costs have been incurred and these relate to
unprecedented negotiations with particular customers. As a result these costs
are significant compared to previous years and have been expensed in 2002.
Additional Tax and Social Security Costs - �65,000
The Group has been the subject of a Pay As You Earn investigation during the
period 2001/2002 covering the period 1996 through to 1999. The result of that
investigation was concluded in 2002 and cost the Group �98,000 in total. An
accrual was made in 2001 although this was ultimately insufficient for the
final charges levied. The additional cost in 2002 of �65,000 is therefore
included in Administration Expenses for 2002. The additional Tax and National
Insurance charges were levied as a direct result of the lack of financial and
operational control during the periods 1996 to 1998 as previously reported to
shareholders.
Defence against Anti-Dumping Tax - �20,000
As previously reported to shareholders, the Group has incurred significant time
and expense on defending itself against possible additional taxation duties on
certain imports. This process continues and further costs are expected during
2003, although not at a material level.
Cost of Board Changes - �55,000
These costs were incurred as a result of changes to the Board, namely the
resignation of Jim Clark and the appointment of Stephen Hazell-Smith and
Anthony Hodges.
Additional Auditors' Remuneration and Insurance Fees - �50,000
Due to the changes in the accounting and reporting world, particularly in the
public arena, increased responsibilities for both the auditors and the audit
committee have resulted in increased audit and related costs for the year.
Costs going forward for a publicly quoted company are expected to continue at a
level significantly higher than previously experienced.
With world-wide changes across the insurance industry, premiums have inevitably
increased and it is anticipated that they will continue to increase if the
Group is to enjoy appropriate insurance cover.
Balance Sheet
The Group has not made any significant investment in fixed assets during the
year. During 2001, investment of �291,000 was made to develop innovative
disposable products and the Board considered this expenditure sufficient for
the short-term and for growth of the core business.
Stocks and Debtors have continued to be carefully managed.
Due to the provisions of FRS19 Deferred Taxation, the Board has decided on a
limited recognition in the Financial Statement of previous losses incurred. Tax
losses have been adjusted through the profit and loss accounts and the
statement of total recognised gains and losses, as a prior year adjustment for
2001 of �117,000 and for the current year of �4,000. The total increase in
asset value in the balance sheet is �479,000 to the year ended 31st December
2002 as a result of this limited recognition.
Total unrecognised tax losses available for set-off against future profits are
in the region of �12,200,000 subject to usual Inland Revenue approval.
Cash and Banking
At the end of June 2002 the Group changed bankers to the HSBC Bank; the move is
seen by the Board as a positive initiative. The Board is pleased to report that
the change of financing from an overdraft basis to asset based financing gave
the Group the resources to continue the development of the core business.
During the year however, limited profitability for the year put significant
cash constraints on the business as a whole.
The facilities available are confidential invoice discounting of our debtor
book, termed documentary credits for our main import supplier base, a loan
account and a foreign exchange facility. The loan account will be used to allow
an additional line of credit on our termed documentary credits now being
written with HSBC and functions as a consequence of purchase orders raised and
is secured against stock.
The bank overdraft at 31st December 2001 was �612,000 and increased to �
1,115,000 at the half year. With the introduction of asset based financing the
level of financing is now �1,034,000, consisting of a termed loan of �522,000,
taken as a result of the bank changeover, invoice discounting of �358,000 and
termed documentary credits of �154,000 reduced by cash at bank of �86,000. Cash
resources going forward will continue to be a scarce resource for the Group and
will continue to be dependent on sales and profitability going forward.
At the last Annual General Meeting, on the 28th May 2002, resolutions were put
to shareholders to enable the Board to seek additional funding by way of a
share issue. These resolutions had been proposed annually and agreed for many
years, but in 2002 the resolutions presented were not approved by shareholders
and therefore the Board does not now have the ability to issue shares for cash.
The resolutions will be put to shareholders again at the Annual General Meeting
and the Board hopes that the resolutions will be approved so that any
opportunity which may arise can be acted upon by the Board in the best
interests of all shareholders.
The net asset value of the Group at the 31st December 2002 is �1,920,000.
Additionally the Group has the assets of unrecognised tax losses, (in the
region of �12.2m with an asset value at a maximum of �3.6m) and intellectual
property rights associated with trademarks, patents and the Ronson brand name
which do not form part of the Balance Sheet.
In Summary
The results for 2002 are lower than the Board's original expectations and
although significant progress has been made in improving the working capital
position of the Group, thereby reducing capital and interest costs for future
years, resources are very limited. Improvement in cash resources will only be
seen with improvements in revenue and continued control of costs.
Top line revenue has improved over 2001 and it is the Board's intention that
the development of our distribution network, both at home and abroad, continues
to be a high priority. Upward pressure on costs has been experienced, although
a large proportion of additional costs represents investment in trading
accounts, the benefits of which will be seen in the current year and beyond.
The Board is confident that further growth in turnover can be achieved in 2003
and, with continued control over spending, the improved pre-tax profit targeted
for the coming year can also be achieved.
P A Hulme FCCA
Finance Director
30th April 2003
Consolidated Profit and Loss Account
for the year ended 31 December 2002
2002 2001
�'000 Restated
�'000
Turnover 9,641 8,996
Cost of sales 6,103 5,467
Gross Profit 3,538 3,529
Distribution costs (486) (447)
Administrative expenses (2,986) (2,661)
Operating profit 66 421
Interest receivable 11 2
Interest payable (62) (33)
Profit on Ordinary Activities before 15 390
Taxation
Tax on profit on ordinary activities (11) (123)
Profit on Ordinary Activities after 4 267
Taxation Retained
Basic earnings per ordinary share 0.0 0.0
Fully diluted earnings per ordinary 0.0 0.0
share
The turnover and operating result in both 2002 and 2001 relate to continuing
activities.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December 2002
2002 2001
�'000 Restated
�'000
Profit for the Financial year 4 267
Total gains relating to the year 4 267
Prior year adjustment 483
Total gains recognised since last annual 487
report
Balance Sheets
at 31 December 2002
Group Company
2002 Restated 2002 2001
�'000 2001 �'000 �'000
�'000
Fixed assets
Intangible assets 111 179 - -
Tangible assets 586 682 - -
Investments - - 2,350 1,900
697 861 2,350 1,900
Current assets
Stocks 2,183 2,553 - -
Debtors 1,684 1,938 - -
Deferred taxation 479 483 - -
Cash at bank and in hand 86 8 -
4,432 4,982 - -
Creditors:
Amounts falling due within one (3,207) (3,925) (345) (347)
year
Net current assets/(liabilities) 1,225 1,057 (345) (347)
Total assets less current 1,922 1,918 2,005 1,553
liabilities
Provisions for liabilities and (2) (2) - -
charges
1,920 1,916 2,005 1,553
Capital and reserves
Called up share capital 4,579 4,579 4,579 4,579
Share premium account 21,651 21,651 21,651 21,651
Special reserve - - 13,631 13,631
Profit and loss account (24,310) (24,314) (37,856) (38,308)
Equity shareholders' funds 1,920 1,916 2,005 1,553
P A Hulme FCCA
Director
Consolidated Cash Flow Statement
for the year ended 31 December 2002
2002 2001
�'000 �'000
Net cash outflow from operating (210) (176)
activities
Returns on investments and servicing
of finance
Interest received 11 2
Interest paid (62) (33)
(51) (31)
Taxation
Overseas corporation tax paid - (4)
- (4)
Capital expenditure
Purchase of tangible and intangible (78) (359)
fixed assets
(78) (359)
Cash outflow before financing (339) (570)
Financing
Debt due within one year: increase in 1,029 -
short term borrowings
Proceeds from the issue of ordinary - 1
share capital
Net cash inflow from financing 1,029 1
Increase/(decrease) in cash in the 690 (569)
year
Enquiries:
Mrs P A Hulme
Finance Director and Company Secretary
Notes to the Preliminary Announcement for the year ended 31 December 2002
1. Basis of preparation and accounting
The preliminary announcement has been prepared on the basis of the accounting
policies set out in the Group's published accounts for the year ended 31
December 2001.
The figures for the year ended 31 December 2001 are based on the audited
accounts for that year, which have been delivered to the Registrar of Companies
and on which the opinion of the auditors was unqualified.
The statutory accounts for the year ended 31 December 2002 have been completed
and an unqualified opinion has been issued.
The figures contained in the preliminary announcement are an extract and do not
constitute statutory accounts within the meaning of the Companies Act 1985.
2. Turnover
Analysis by geographical area
The Group's turnover and result were generated from its operations in the
United Kingdom, Poland and Germany. �8,301,000 of turnover was generated in the
United Kingdom, �1,089,000 in Poland and �251,000 in Germany. The United
Kingdom operation generated a profit on ordinary activities of �39,000 whilst
the Poland operation generated a profit of �18,000 and Germany generated a loss
of �22,000. �1,869 of the Group's net assets is held in the United Kingdom, �
56,000 in Poland and net liabilities of �5,000 in Germany.
A geographical analysis of turnover by destination is given below:
2002 2001
�'000 �'000
United Kingdom 4,667 4,630
Rest of Europe 4,147 3,424
Asia 207 109
Rest of the World 620 833
9,641 8,996
3. Tax on ordinary activities
2002 2001
�'000 �'000
Current Tax
UK corporation tax on profit of period - -
Overseas taxation 7 4
Current tax charge for the year 7 4
Transfer from deferred taxation 4 119
Tax on profit on ordinary activities 11 123
Factors affecting tax charge for the period
The tax assessed for the period is higher than the
standard rate of
Corporation tax in the UK of 30% as explained
below:
Profit on ordinary activities before tax 15 390
Profit on ordinary activities multiplied by the
standard rate
of corporation tax in the UK of 30% (2001 : 30%) 5 117
Effects of:
Expenses not deductible for tax purposes 8 5
Capital allowances less/(more) than depreciation 45 (34)
Other tax adjustments 3 2
Losses utilised (54) (86)
Current tax charge for the period 7 4
It is estimated that the Group has taxable losses of �13.8m carried forward and
available for offset against future trading profits.
4. Dividends
No dividend has been paid or is proposed in respect of the year ended 31
December 2002 (2001: �Nil).
5. Earnings per ordinary share
Profit per ordinary share has been calculated by reference to 1,075,197,407
weighted average ordinary shares in issue (2001: 1,068,530,740) and profits of
�4,000 (2001: profit �267,000 as restated).
Fully diluted earnings per ordinary share are based upon identical figures as
the effect of the issues of ordinary shares in relation to options would be
non-dilutive.
6.Creditors: amounts falling due within one year
Group Company
2002 2001 2002 2001
�'000 �'000 �'000 �'000
Bank overdrafts - 612 - -
Other loans 1,034 5 - -
Trade creditors 1,073 1,817 - -
Amounts owed to group undertakings - - 275 277
Other taxation and social security 401 456 - -
Other creditors 78 67 56 56
Accruals and deferred income 621 968 14 14
3,207 3,925 345 347
The bank overdraft is secured by a fixed and floating charge over all current
and future assets of the Group.
Included within other loans are amounts due from debt factors which are secured
on trade debtors with a value of �358,000
8. Deferred taxation
2002 2001
�'000 �'000
Balance at 1 January 2002 (as restated) 481 600
Transfer to profit and loss (4) (119)
Balance at 31 December 2002 477 481
2002 2001
� �
Provision for deferred tax comprises:
Excess of tax allowances over depreciation (2) (2)
Tax losses carried forward 479 483
Net deferred tax asset 477 481
The deferred tax liability of �2,000 arises in Ronson Polska SP z.o.o. and is
therefore shown separately as required by the Financial Reporting Standard 19.
9.Reconciliation of operating profit to net cash outflow from operating
activities
2002 2001
�'000 �'000
Operating profit 66 421
Depreciation of tangible fixed assets 151 122
Amortisation on intangible assets 91 8
(Increase)/decrease in stocks 370 (803)
(Increase)/decrease in debtors 254 (801)
Increase/(decrease) in creditors (1,142) 877
Net cash outflow from operating activities (210) (176)
10.The Report and Accounts will be available from the Company's offices and
will be sent to shareholders in due course.
END
