RNS Number:5206S
Dowding & Mills PLC
26 November 2003
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Wednesday, 26 November 2003
IMMEDIATE RELEASE
Dowding & Mills PLC
Preliminary Results
for the 14 month period ended 31 August 2003
STATEMENT BY THE CHAIRMAN, TUDOR DAVIES
Introduction
Following the Board changes at last year's Annual General Meeting on 29 November
2002, I was appointed Chairman of Dowding & Mills PLC ("the Group" or "the
Company") and immediately began an urgent review of the Group's financial
position and business performance.
With market conditions continuing to deteriorate, it was vital that we
re-organised and re-structured the Group's business and finances. This required
an announcement on 20 December 2002 that the Company would be preserving its
resources to fund the costs of re-organisation and would not be paying a
dividend.
We have made good progress in reviewing and re-organising the Group's finances
and operations and although this task is not complete, the considerable changes
we have introduced provide a base for the beginning of a recovery and on-going
improvement.
Dowding & Mills has a market leading position operating from 48 business units
in the UK and overseas and we intend to build upon this position by working with
all our employees to be efficient and productive to deliver the best level of
service to our customers.
Board and Management
The decline in shareholder value and the lack of success in securing an
acceptable offer for the Group between 2001 and September 2002 resulted in
shareholder pressure for change.
The new Board appointments during the course of the period were Doug Rogers
appointed as Deputy Chairman on 31 August 2002, followed by my own appointment
as Chairman after the AGM on 29 November 2002, and the appointment of Peter
Guest as a Non-Executive Director on 31 January 2003.
Doug Rogers in a consultancy capacity and Peter Guest from 1 April 2003 in an
interim Managing Director role have, along with senior managers Graham Hartley
and Colin Brewster, provided valuable assistance in the re-organisation of the
Group. Peter Guest will revert to a non-executive Director role during this year
as the projects he is involved with are completed. At that stage Graham Hartley
and Colin Brewster will take over responsibility for the UK businesses reporting
directly to me.
Brian Gibbon resigned on 14 November 2002, whilst Stuart Moberley, David Sankey
and Henk Hammendorp decided not to seek re-election at the AGM on 29 November
2002. Martin Habgood resigned on 29 November 2002 and Roger Feaviour resigned on
31 January 2003. Compensation payments to the Executive Directors totalled #1.2
million and are included in the exceptional items.
Strategic Review
The previous growth strategy to become an international integrated engineering
services group had resulted in high levels of spend on capital projects,
acquisitions, computer systems and a rising cost base. With more challenging
trading conditions and the burden of increased borrowings, the expected returns
were not achieved therefore directly impacting on shareholder value. Attempts to
sell the Group between 2001 and September 2002 did not lead to acceptable offers
and an alternative strategy to sell the USA and Australian businesses was
announced in September 2002.
continued...
-2-
The first stage of our strategic review concluded that we should end the
uncertainty connected with the sale process and instead concentrate on the major
problems that the Group was facing: rising levels of debt on short-term banking
arrangements; a pension fund deficit; a rising cost base at all levels of the
business at a time of declining volume and prices; unclear lines of
accountability and responsibility for sales and business performance; inadequate
expensive and unwieldy information systems and a lack of clarity of underlying
performance from some of the individual business units.
The second stage of the review is on-going and focuses on the performance of the
individual business units operating as separate and accountable businesses,
responsible to their local customers for a first-class service. The emphasis is
firmly on local responsibility for individual business performance under strict
financial controls and the provision of assistance through the free flow of
information and inter-branch comparison. Managers are responding positively to
the change in direction and aligning costs and service with the needs of their
local markets.
Re-organisation
The review of the Group's finances revealed that there had been insufficient
emphasis on containing borrowings, which had risen from #6.0 million to #36.1
million over the past 5 years. Financing was mainly under short-term
arrangements, which were inappropriate for a Group in need of fundamental
re-organisation.
We have agreed new terms with our bankers to re-structure our debt under longer
term arrangements with repayments and covenants to allow for us to concentrate
on the immediate priority of re-organising the Group. The focus now is to
reverse the trend of rising borrowings through the strict control of working
capital and capital expenditure.
A complete review of our pension scheme by independent actuaries has been
commissioned, in advance of the triennial valuation due in April 2004, to
establish, firstly, the long term funding level to protect past benefits and,
secondly, the affordability of the current benefits going forward.
The current situation is that the defined benefit scheme has a deficit of #22
million under FRS17 and between #10 million and #15 million on a long term
funding basis. It is important that we find a solution and pension strategy that
works for the Company and the members of the scheme, and it is a priority to
clarify the position for our employees. We are involved in positive discussions
with the Trustees and will be making presentations to our employees in February/
March next year.
Our review of operations and management structure identified that although in
most cases satisfactory returns were being made at branch level, volumes and
prices were declining, employee costs were rising and increasingly, profits
earned at branch level were being absorbed by overhead costs at the Group and
regional functions.
At Group and regional level we have significantly reduced the management, sales,
marketing and administration overheads and pushed management responsibility and
accountability for sales and profits down to the individual business units.
Although our policy is to work closely with branch managers to improve
performance, in some cases we have had no alternative but to close branches and
transfer the work to other locations. In total, the headcount has been reduced
by 341 and this has already produced substantial savings.
It was evident from our review of the financial reporting that management
information was being hampered by a complex combination of computer systems. A
much simpler and cost effective system at a cost of #0.5 million was
successfully implemented in the UK in July 2003 and we are planning a similar
change for our businesses in the USA and Australia. The changes implemented now
provide a better understanding of the underlying performance of all business
units, backed by a more conservative approach, however this action has
contributed to the write-downs and exceptional charges shown in the accounts.
continued...
-3-
Results
The uncertain economic conditions during the period affected business levels and
margins. In particular the UK suffered from the general slow-down in
manufacturing that was very noticeable in the period from January to May when
the year on year decline in sales was in the region of 10%. Our businesses in
the USA and Australia that serve the mining industries suffered a similar slow
period of trading. During the summer all our businesses have experienced a pick
up in business from these depressed levels but levels of revenue are still
behind the same period last year.
These difficult trading conditions resulted in turnover for the 14 month period
ended 31 August 2003 being #137.4 million (2002: #122.0 million), a reduction of
3.5% on an annualised basis.
The decline in revenues combined with a continuing increase in employment costs
of National Insurance (#0.3 million) and pension contributions (#0.5 million),
and insurance premiums (#0.4 million) all of which contributed to a reduction in
operating margins from 6% to 3%.
Operating profits before exceptional items were #3.8 million (2002: #7.6
million).
Profit before tax and exceptional items was #1.4 million (2002: #5.6 million).
Exceptional charges of #31.1 million were incurred (2002: #7.1 million), the
main items being the cost of redundancies and restructuring (#5.2 million) and
the primarily non-cash effects of the review of the carrying values of the fixed
assets (#7.3 million), goodwill (#6.8 million), and working capital of the
business (#11.8 million). Further costs are anticipated in respect of the
on-going re-structuring programme although these are expected to be
substantially less than those referred to in the period being reported.
Borrowings increased from #31.8 million at 1 July 2002 to #36.1 million at 31
August 2003, although the strict control over costs, capital expenditure and
working capital reduced the outflow to #0.5 million in the last eight months,
despite #3.1 million being incurred on re-organisation in the same period.
The decision not to pay a dividend was taken last December as a result of all
the issues raised above and it is unlikely that the dividend will be restored in
the short to medium term as our focus must be to preserve cash for the future
recovery and development of the business.
Outlook
The last few months have seen an improving situation as sales begin to return
nearer to normal levels and the benefits of the re-organisation flow through.
This is an improvement on the low levels of revenues experienced in the period
from January to May, but sales are still behind last year and with a high level
of operational gearing, our recovery is dependent on improving economic
conditions.
We have been encouraged by the positive approach from our managers and the
dedication of our workforce to the need to adapt and improve to restore the
fortunes of the business. Dowding & Mills has a leading position in its
market-place and whilst much remains to be done, the plan is to improve
profitability and cash generation for the benefit of the business, employees and
shareholders.
Enquiries:
Tudor Davies, Chairman Fiona Tooley Graeme Cull
Dowding & Mills PLC Citigate Dewe Rogerson Arbuthnot Securities
Today: 020 7282 8000 Today: 020 7282 8000 Tel: 0121 632 2100
Thereafter: 0121 766 6161 Thereafter: 0121 455 8370 Mobile: 07976 228397
Mobile: 07785 703523
-4-
Dowding & Mills PLC
Consolidated Profit and Loss Account
for the 14 month period ended 31 August 2003
14 months to 12 months to
31 August 2003 30 June 2002
Restated
Before Exceptional Total Before Exceptional Total
Exceptional Items #'000 Exceptional Items #'000
Items (Note 2b) Items #'000
#'000 #'000 #'000
Turnover 137,389 - 137,389 121,983 - 121,983
Cost of (107,156) (18,375) (125,531) (91,442) (1,928) (93,370)
sales
-------- -------- ------- -------- -------- ------
Gross profit 30,233 (18,375) 11,858 30,541 (1,928) 28,613
Selling and
distribution
costs (8,007) (183) (8,190) (7,541) (2) (7,543)
Administration
expenses (18,465) (12,575) (31,040) (15,423) (5,128) (20,551)
-------- -------- ------- -------- -------- ------
Operating
profit/(loss) 3,761 (31,133) (27,372) 7,577 (7,058) 519
Net interest
payable (2,317) - (2,317) (1,938) - (1,938)
-------- -------- ------- -------- -------- ------
Profit/(loss)
on ordinary
activities
before tax 1,444 (31,133) (29,689) 5,639 (7,058) (1,419)
Tax on
ordinary
activities (292) 2,606 2,314 (1,744) 1,456 (288)
-------- -------- ------- -------- -------- ------
Profit/(loss)
on ordinary
activities
after tax 1,152 (28,527) (27,375) 3,895 (5,602) (1,707)
Minority
interests 1 - 1 (9) - (9)
-------- -------- ------- -------- -------- ------
Profit/(loss)
for the
financial
period 1,153 (28,527) (27,374) 3,886 (5,602) (1,716)
Dividends - - - (2,466) - (2,466)
-------- -------- ------- -------- -------- ------
Retained
profit/(loss)
for the period 1,153 (28,527) (27,374) 1,420 (5,602) (4,182)
-------- -------- ------- -------- -------- ------
Earnings per
share (EPS) -
pence 0.75 (18.51) (17.76) 2.53 (3.64) (1.11)
EPS before
amortisation
of goodwill -
pence 0.98 (14.08) (13.10) 2.89 (2.46) 0.43
Dividend per
share - pence - 1.60
-------- -------- ------- -------- -------- ------
There is no difference between the profit/(loss) on ordinary activities before
taxation and the retained profit/(loss) for the period stated above and their
historical cost equivalents.
The above result relates to continuing activities.
-5-
Dowding & Mills PLC
Preliminary Results
for the 14 month period ended 31 August 2003
Statement of Group Retained Profits
14 months to Restated
31 August 2003 12 months to
#'000 30 June 2002
#'000
At 1 July 2002 17,462 23,352
Prior period adjustment - (1,028)
----------- -----------
Restated 1 July 2002 17,462 22,324
Retained loss for the period (27,374) (4,182)
----------- -----------
(9,912) 18,142
Exchange differences 544 (680)
----------- -----------
At 31 August 2003 (9,368) 17,462
----------- -----------
Consolidated Statement of Total Recognised Gains and Losses
14 months to Restated
31 August 2003 12 months to
#'000 30 June 2002
#'000
Loss for the financial period (27,374) (1,716)
Currency translation differences on overseas
investments 544 (680)
----------- -----------
Total recognised gains and losses relating to
the financial period (26,830) (2,396)
Prior period adjustment (1,341) -
----------- -----------
Total loss recognised since last annual report (28,171) (2,396)
----------- -----------
Reconciliation of Movements in Group Shareholders' Funds
14 months to Restated
31 August 12 months
2003 to
#'000 30 June
2002
#'000
Loss for the financial period (27,374) (1,716)
Dividends - (2,466)
----------- -----------
(27,374) (4,182)
Other recognised gains and losses relating to
the period 544 (680)
----------- -----------
(26,830) (4,862)
Opening equity shareholders' funds 41,770 46,632
(after 1 July 2001 prior period adjustment:
#1,028,000)
----------- -----------
Closing equity shareholders' funds 14,940 41,770
----------- -----------
-6-
Dowding & Mills PLC
Preliminary Results
Consolidated Balance Sheet
as at 31 August 2003
31 August 2003 Restated
30 June 2002
#'000 #'000 #'000 #'000
NET ASSETS EMPLOYED
Fixed assets
Goodwill 2,120 9,291
Negative goodwill (84) (90)
------- -------
Intangible assets 2,036 9,201
Tangible assets 34,652 45,166
------- -------
36,688 54,367
Current assets
Stock and work in progress 8,743 13,414
Debtors 25,702 29,840
Taxation receivable/(payable) 101 -
Bank and cash balances 3,452 3,416
------- -------
37,998 46,670
Creditors - amounts falling due within one
year
Creditors 18,808 25,280
Bank overdrafts 695 5,671
Dividend payable - 1,233
------- -------
19,503 32,184
Net current assets 18,495 14,486
------- -------
Total assets less current liabilities 55,183 68,853
Creditors - amounts falling due after more
than one year 37,343 23,068
Provisions for liabilities and charges 2,900 3,741
------- -------
(40,243) (26,809)
------- -------
Net assets 14,940 42,044
------- -------
REPRESENTED BY
Called up share capital
Allotted and fully paid: 154,095,548
Ordinary 15,410 15,410
Shares of 10p each
(2002: 154,095,548)
Reserves
Share premium account 8,145 8,145
Merger reserve 753 753
Profit and loss account (9,368) 17,462
------- -------
Equity shareholders' funds 14,940 41,770
Minority interests - 274
------- -------
14,940 42,044
------- -------
-7-
Dowding & Mills PLC
Preliminary Results
Consolidated Cash Flow Statement
for the 14 month period ended 31 August 2003
14 months to 12 months to
31 August 2003 30 June 2002
#'000 #'000 #'000 #'000
Net cash inflow from continuing operating
activities 1,919 11,389
Returns on investments and servicing of
finance
Interest received 170 106
Interest paid (2,272) (2,147)
-------- -------
(2,102) (2,041)
Tax paid (484) (1,524)
Capital expenditure
Purchase of fixed assets (2,509) (5,621)
Sale of fixed assets 540 752
-------- -------
(1,969) (4,869)
Acquisitions and disposals
Acquisition of minority interests (264) -
-------- -------
(264) -
Equity dividends paid (1,233) (3,637)
------- -------
Cash flow before financing (4,133) (682)
Financing
New loans 37,933 17,900
Loan Notes repaid in respect of prior year
acquisitions - (1,400)
Repayments of amounts borrowed (28,812) (14,160)
-------- -------
9,121 2,340
------- -------
Increase in cash 4,988 1,658
------- -------
RECONCILATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
14 months to 12 months to
31 August 2003 30 June 2002
#'000 #'000
Increase in cash in the period 4,988 1,658
Cash inflow from financing (9,121) (2,340)
----------- ----------
(4,133) (682)
Other non-cash items:
Translation difference (101) (77)
----------- ----------
Movement in net debt in the period (4,234) (759)
Net debt at 1 July 2002 (31,844) (31,085)
----------- ----------
Net debt at 31 August 2003 (36,078) (31,844)
----------- ----------
-8-
Dowding & Mills PLC
Preliminary Results
Notes to the Financial Statements
for the 14 month period ended 31 August 2003
1. Segmental Reporting
Geographical analysis (restated 2002)
Turnover Profit/(loss) before Net assets
tax
14 months 12 months 14 months 12 months 31 30 June
to to to to August
31 August 30 June 31 August 30 June 2003 2002
2003 2002 2003 2002 #'000 #'000
#'000 #'000 #'000 #'000
Europe 110,730 99,116 (26,001)* (648)+ 38,375 52,667
Australia 12,194 9,071 (683)* 710+ 6,380 6,328
United
States 14,465 13,796 (688)* 457+ 8,185 11,549
of America
--------- -------- --------- -------- --------- --------
Continuing
operations 137,389 121,983 (27,372) 519 52,940 70,544
Net
interest - - (2,317) (1,938) - -
payable
Group debt
facility - - - - (38,000) (28,500)
--------- -------- --------- -------- --------- --------
Total 137,389 121,983 (29,689) (1,419) 14,940 42,044
--------- -------- --------- -------- --------- --------
* Europe: Profit/(loss) before tax is after exceptional costs of #29,495,000
(note 2b).
Australia: Profit/(loss) before tax is after exceptional costs of #408,000 with
respect to impairment of certain assets (note 2b).
USA: Profit/(loss) before tax is after exceptional costs of #1,230,000 with
respect to impairment of certain assets (note 2b).
+ Europe: Profit/(loss) before tax is after exceptional costs of #7,068,000.
Australia: Profit/(loss) before tax is after an exceptional gain of #364,000.
USA: Profit/(loss) before tax is after exceptional costs of #354,000.
Turnover by destination is not materially different from the turnover by origin
shown above.
2. Operating Profit/(loss) on Ordinary Activities
a) Operating profit/(loss) on ordinary activities is stated after charging/
(crediting):
14 months to 12 months to
31 August 2003 30 June 2002
#'000 #'000
Loss/(profit) on sale of fixed assets 132 (183)
Depreciation (including exceptional impairment
of #7,281,000 (2002: #970,000)) 12,431 5,400
Amortisation of goodwill (including
exceptional impairment of #6,827,000 (2002:
#1,808,000)) 7,187 2,366
Auditors' remuneration - audit (Company:
#4,000 (2002: #4,000)) 100 209
- non-audit - 94
Lease rentals on Group properties 1,407 1,203
---------- ----------
b) The exceptional items incurred during the period can be analysed as follows:
Cost of Administration Selling and 14 months 12 months
Sales to to
#'000 Expenses Distribution 31 August 30 June
2003 2002
#'000 Costs Total Total
#'000 #'000 #'000
Re-organisation 2,072 2,929 183 5,184 2,863
Goodwill
impairment - 6,827 - 6,827 1,808
Fixed asset
impairment 5,631 1,650 - 7,281 970
Review of
accounting
estimates 8,613 1,169 - 9,782 (385)
Provision for
onerous leases 1,559 - - 1,559 495
Other 500 - - 500 1,307
--------- ----------- ---------- ----------- ----------
18,375 12,575 183 31,133 7,058
--------- ----------- ---------- ----------- ----------
continued...
-9-
Re-organisation
The re-organisation of the business has continued throughout the period,
including the Board changes in November 2002. The charge includes settlement of
the former Directors' contracts, the cost of redundancies at both management and
operational level, and other costs involved in restructuring the branch network.
Goodwill impairment
A review of the carrying value of the goodwill associated with the acquisitions
of Fridgemotors Limited in 1997 and ATS Limited, Scotlec Services Ltd and
Peebles Field Services in 1998 indicates that the anticipated future cash flows
generated by those operations does not support the continued recognition of the
goodwill. As a consequence, the relevant intangible assets have been provided
for in full.
The review of the remaining goodwill assets indicated that the anticipated
future cash flows support the carrying value and no impairment has occurred.
Fixed asset impairment
The Board has reviewed the carrying values and useful economic lives of certain
fixed assets as required by FRS11 - Impairment of fixed assets and goodwill and
has concluded that in certain instances an impairment provision is required. The
impairment has been calculated by considering the discounted cash flows of the
relevant operating units for a 12.5 year period, being the useful economic life
of the relevant assets. In calculating the impairment loss during the period,
the Group has used a discount rate of 7%, being inline with the Group's cost of
capital.
Review of accounting estimates
The Board has performed an in-depth review of the working capital balances of
the Group in accordance with FRS18 and concluded that revised accounting
estimates are appropriate in the light of current and expected future trading.
These revisions have resulted in additional provisions.
Provision for onerous leases
The branch restructuring programme has left the Group with a number of
properties which are either empty or not being fully utilised by the Group.
Efforts are made to sub-let these properties, but where a contract has not been
signed, provision has been made for the present obligation under these leases on
a discounted basis.
Provision has also been made for certain property related operating leases where
the Directors consider the sites are commercially redundant.
3. Earnings per Share
Both the loss per share and diluted loss per share are calculated on
attributable losses of #27,374,000 (2002: #1,716,000), and on a weighted average
of 154,095,548 ordinary shares in issue during the course of the year (2002:
154,095,548 shares).
An additional adjusted earnings per share has also been presented, based on a
consistent approach of earnings before the amortisation of goodwill.
The effect of the adjustments is as follows:
14 months to 12 months to
31 August 2003 30 June 2002
Before Total Before Total
Exceptional #'000 Exceptional #'000
Items Items
#'000 #'000
Operating
profit/(loss) 3,761 (27,372) 7,577 519
Net interest payable (2,317) (2,317) (1,938) (1,938)
Tax on ordinary
activities (292) 2,314 (1,744) (288)
Minority interests 1 1 (9) (9)
-------- -------- -------- --------
Attributable
earnings/(losses) 1,153 (27,374) 3,886 (1,716)
Amortisation of
goodwill 360 7,187 558 2,366
-------- -------- -------- --------
Attributable
earnings/(losses)
before amortisation of
goodwill 1,513 (20,187) 4,444 650
-------- -------- -------- --------
Weighted average of
ordinary shares in
issue 154,095,548 154,095,548 154,095,548 154,095,548
-------- -------- -------- --------
Earnings per share
(EPS) - pence 0.75 (17.76) 2.53 (1.11)
-------- -------- -------- --------
EPS before
amortisation of
goodwill - pence 0.98 (13.10) 2.89 0.43
-------- -------- -------- --------
continued...
-10-
4. Notes to the Cash Flow Statement
14 months Restated
to
31 August 12 months
2003 to
#'000 30 June
2002
#'000
Reconciliation of operating profit to net cash inflow
from operating activities
Pre-exceptional operating profit 3,761 7,577
Exceptional cost (31,133) (7,058)
---------- ---------
Operating (loss)/profit (27,372) 519
Depreciation charge 5,150 4,430
Impairment of fixed assets 7,281 970
Amortisation of goodwill 360 558
Impairment of goodwill 6,827 1,808
Loss/(profit) on sale of tangible fixed assets 132 (183)
Decrease/(increase) in stock and work in
progress 4,671 (401)
Decrease in debtors 4,166 5,661
Decrease in creditors (1,124) (1,957)
Decrease in provisions for liabilities and
charges 1,828 (16)
---------- ---------
Net cash inflow from operating activities 1,919 11,389
---------- ---------
Analysis of net debt
30 June 2002 Cash flow Exchange 31 August 2003
#'000 #'000 Movements #'000
#'000
Cash at bank and in
hand 3,416 (35) 71 3,452
Overdrafts (5,671) 5,023 (47) (695)
---------- -------- --------- ----------
(2,255) 4,988 24 2,757
Debt due after one year (23,068) (14,210) (65) (37,343)
Debt due within one
year (6,521) 5,089 (60) (1,492)
---------- -------- --------- ----------
(31,844) (4,133) (101) (36,078)
---------- -------- --------- ----------
5. The Annual Report will be posted to shareholders later this week. Further
copies will be available from the Company's Registered Office: Camp Hill,
Birmingham, B12 OJJ
6. The Annual General Meeting will be held at the offices of Citigate Dewe
Rogerson, 26 Finsbury Square, London, EC2A 1DS on Tuesday, 23 December 2003 at
10.00am.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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