RNS Number:2540K
Malcolm Group PLC (The)
23 April 2003
23 April 2003
THE MALCOLM GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JANUARY 2003
The Malcolm Group (MAL), a UK transport group, reports its preliminary results
for the year ended 31 January 2003.
Operating performance - Continuing Businesses:
* Turnover up 24% to #107.2m due to retaining existing customers and important new contract wins
* Operating profit after goodwill amortisation and exceptional items up 39% to #8.4m
* Operating profit before goodwill amortisation and exceptional items #8.8m, up #0.2m on last year
* Increased utilisation of our rail freight facilities at Grangemouth and Crick
* Successful launch of artificial sports pitch operations within Construction Services
Operating performance - Total Group:
* Headline earnings per share up 17% to 6.9p
* Proposed final dividend 3.3p, making a total of 5.0p for the year (2001/02 5.0p excluding
non-recurring 1.0p in respect of EWM's contribution prior to disposal)
* Profit before tax #6.7m
Corporate activity:
* #45.0m returned to shareholders in March 2002
* David Mackay appointed Non Executive Director, and will become new Chairman
Andrew Malcolm, Chief Executive, The Malcolm Group, said:
"In its first year as a stand-alone business, The Malcolm Group has delivered a
strong performance in highly competitive and challenging economic conditions,
with both Logistics and Construction Services gaining significant increases in
market share. In the short-term, market conditions are likely to remain
difficult, with pressure on operating margins. However, the Group's business
mix, customer base and strong balance sheet enable us to view the future with
confidence."
Enquiries:
The Malcolm Group PLC Today: 020 7554 1400
Sir Donald MacKay, Chairman Thereafter: 01505 324 321
Andrew Malcolm, Chief Executive
Alan Palmer, Group Accountant
Gavin Anderson & Company 020 7554 1400
Byron Ousey, Lindsey Harrison
www.malcolmgroup.co.uk
CHAIRMAN'S STATEMENT
In its inaugural year as a stand-alone business, The Malcolm Group's Logistics
and Construction Services divisions have continued to compete successfully in
their respective sectors. Both divisions have increased activity levels from a
combination of organic growth, contract tendering and outsourcing opportunities.
In common with the transport sector as a whole, the Group faced a challenging
trading environment in 2002/03. The deterioration in market conditions and
economic slowdown over the last year particularly affected UK manufacturing.
Industry has generally recognised that levels of sales growth and profitability
will likely be tempered in the short-term and attention has therefore focused on
cost reduction measures. This has, in turn, resulted in pricing pressure for
both Logistics and Construction Services.
Against this background, the Group's 24% increase in turnover for the continuing
operations represents considerable progress albeit increased competition,
together with an unavoidable rise in operating costs, mean that operating
profits for the continuing business have increased by only #0.2m. Nonetheless,
this represents a resilient performance in the prevailing market conditions.
Group Results
Turnover for continuing operations of #107.2m rose 24% from 2001/02 largely on
the strength of contract wins in Logistics Services and through growth in our
groundwork contracting activities in Construction Services.
Operating profit for continuing operations of #8.8m, before goodwill
amortisation and exceptional items was #0.2m higher than the prior year.
Discontinued activities in 2001/02 represent the results of Edinburgh Woollen
Mill ("EWM") prior to disposal on 25 July 2001. EWM generated an operating
profit of #3.8m, before goodwill amortisation and exceptional items, during this
period.
Overall, operating profit before goodwill amortisation and exceptional items,
fell #3.6m to #8.8m. This reflects the disposal of EWM during 2001/02. After
taking account of the corporate disposals and share cancellation, Headline
earnings per share increased by 1.0p to 6.9p. UKSIP earnings per share also
rose to 6.9p (2001/02: 4.2p) due to the corporate restructuring and exceptional
items in the comparative period.
As a consequence of the resolution of a historic tax issue during the year, and
strategic changes made during 2001/02, the Group's results have been
significantly affected by a number of exceptional items which are covered in
detail in the Financial Review.
Dividend
The Board proposes a final dividend for 2002/03 of 3.3p per ordinary share
making a total of 5.0p for the year. This is in line with the total dividend
for 2001/02 of 5.0p per share, excluding the non-recurring dividend of 1.0p per
share in respect of the contribution of EWM prior to disposal.
The Board's policy remains that it should set a dividend which reflects the
Group's earnings and growth potential.
Capital Restructuring
On 4 March 2002, the Board completed the rationalisation of the Group's
structure with the return of #45.0m to shareholders by means of a cancellation
of shares at an 8% premium to the prevailing market price. The Group
subsequently renewed its banking facilities, establishing a long-term funding
structure and providing a financial platform for the development of the Group.
Extraordinary General Meeting
Shortly after the year-end, the Group received shareholder approval for the
renewal of its occupancy arrangements for three properties owned by members of
the Malcolm family. These properties form an important part of the Group's
ongoing operations.
The arrangements approved at the EGM on 21 February 2003 have been based on
independently assessed commercial terms and are in the interests of both the
Group and shareholders as a whole. As stated previously, the Board does not
intend to enter into any new property leases with members of the Malcolm family.
Board Changes
The Board was understandably disappointed that Mike McGill resigned as Finance
Director to take up a position with another organisation. During his tenure,
however, he made significant progress in establishing a stable financial
platform from which to develop the Group. An announcement on his successor will
be made in due course.
The Group was also delighted to welcome David Mackay to the Board as a Non
Executive Director. Through his experience and commercial acumen, David is
already making a significant contribution to the Group. With our restructuring
now complete, I will be passing the chairmanship of the Group to David at the
Annual General Meeting. I have much confidence in the team who are taking the
Group forward.
Management and Employees
Our management team and members of staff throughout the Group have continued to
demonstrate tremendous commitment and professionalism. This dedication has
enabled the Group to develop the business significantly in a difficult trading
environment. I would therefore like to take this opportunity to express the
Board's gratitude to the whole team.
Prospects
Looking ahead whilst the trading environment continues to be extremely
competitive, the Board remains confident that the Group's robust balance sheet
and financial strength will enable the business to meet the challenges ahead.
Sir Donald I MacKay
Chairman
CHIEF EXECUTIVE'S REVIEW
In an extremely challenging year, our Logistics and Construction Services
activities have continued to compete successfully in their respective sectors.
Activity levels in both divisions have increased from a combination of organic
growth, contract tendering and outsourcing opportunities.
The deterioration in economic conditions has, however, impacted the Group. In
response to the slowdown in levels of growth, industry is becoming reliant on
cost reduction measures to support profitability improvement. Price, as opposed
to service quality, has become a key driver in contract negotiation and
tendering processes.
Coping with tough trading environments is not a new factor for the transport
sector. The markets in which our Logistics and Construction Services Divisions
operate have always been competitive. Rivalry amongst service providers has,
however, become more marked during 2002/03. We therefore consider that a 24%
increase in turnover coupled with operating profits #0.2m ahead of last year
represents a strong performance in difficult market conditions.
Highlights for the year include:
Logistics Services
* Contract wins with British Gypsum, Diageo and IKEA
* Further organic growth in our core warehousing and distribution operations
* Increased utilisation of our rail freight facilities at Grangemouth and Crick
* Continued diversification of the customer base and mix of product stored and distributed
Construction Services
* Continued growth of our groundworks contracting activities
* Successful launch of artificial sports pitch operations within our groundwork contracting
activities
Logistics Services
2002/03 2001/02 Change
#m #m #m
Turnover 68.8 55.4 +13.4
Operating profit before goodwill amortisation 8.1 7.9 +0.2
Operating margin 11.8% 14.3% -2.5%
Logistics Services delivered a 24% increase in turnover to #68.8m, largely on
the strength of contract wins secured during 2002/03. The majority of the rise
is attributable to new contract activity, which commenced with British Gypsum in
April, Diageo in June and IKEA in August. The remainder of the increase
reflects continued organic growth from the existing blue-chip customer base of
Logistics Services.
Operating profit of #8.1m before goodwill amortisation was #0.2m higher than
2001/02. While activity levels have been broadly in line with expectation, we
have encountered problems in recruiting staff in certain areas of the country.
During the first half of 2002/03 start-up costs were incurred during the initial
phase of new contracts. On contract commencement, temporary shortages of HGV
drivers and warehouse staff are almost inevitable, particularly where the
response time is short.
Logistics Services has continued to utilise higher levels of agency labour and
sub-contracting to meet customer requirements. Both of these factors have
adversely impacted operating margins. As a result Logistics Services spent #1.2m
on agency labour in 2002/03 compared to #0.1m in 2001/02.
We have already taken action to reduce our reliance on this resource and the
resulting cost implications through recruitment drives and securing discounts
from suppliers of agency labour. The issue, however, is not merely one of cost
but also quality of resource and the churn of agency staff.
In our interim report, we highlighted significant annual insurance premium
increases. These amounted to approximately 40% and took effect in the second
half of the year. Logistics Services is, wherever reasonably possible, seeking
to pass operating cost increases on to customers.
Rail freight activities have continued to expand in line with our expectations.
The rail freight hub at Grangemouth became operational in February 2001 and was
completed in April 2002. The Grangemouth to Crick connection has been operating
6 trains per week and is on track to increase to 10 trains per week over the
medium-term. Based on the frequencies achieved, the link has transferred
approximately 300 vehicle loads of haulage per week from the road system and
removed in excess of 3 million vehicle miles from the M74/M6 axis.
We remain confident of realising the full benefits of our substantial investment
in rail freight activities over the medium to long-term. However, any further
significant investment will be dependent on clarifying the current uncertainty
surrounding the future of the rail network and the spending commitments of
Network Rail.
Rail distribution is one of a number of initiatives undertaken to mitigate the
impact of the EU Working Time Directive in 2005. The Directive limits the
average working week to 48 hours. Given that our staff typically work 55 to 60
hours per week, in theory the broad impact of the Directive would be to require
an additional staff member for every five current employees. As rail freight
distribution is less labour intensive, it mitigates the cost impact of the
Directive and delivers obvious environmental benefits.
The customer base of Logistics Services has continued to expand in 2002/03 but
remains focused on bulk storage and distribution in defensive market sectors
including food, soft and alcoholic drinks, glass and paper. Market sectors
added to this core during the year include furnishings and clothing.
Logistics Services is constantly assessing strategic options to extend its
geographic and distribution coverage to the benefit of existing and potential
customers. This primarily comprises warehouse expansion through green field
site development and strategic acquisition. Our balance sheet strength means
that we can explore a wide range of opportunities and financing alternatives.
Investment is, however, not limited to the development of our depot
infrastructure. Logistics Services is in the final stages of implementing a new
warehouse management system, which introduces improved customer focus,
accessibility and flexibility.
In addition, we continue to replenish and replace our vehicle fleet on an
ongoing basis. As opposed to outsourcing maintenance and repair, these
functions have been retained in-house to control costs and ensure vehicles are
kept to the highest specification.
Our strategic focus remains concentrated on increasing profitability over the
mid to long-term by both generic and acquisitive growth together with our
quality service offering and service levels. Our objective is to service the
majority of customer requirements using our own fleet and sub-contract a
minority of business. This approach, based on ownership and responsibility for
physical service delivery, differentiates us from a number of our competitors
who are increasingly focused on contract management.
Commitment to customer requirements and quality of service has enabled Logistics
Services to establish and maintain long-term client relationships. These
relationships provide a platform for growth and have earned the Group a
reputation as a quality, value for money, service provider.
Construction Services
2002/03 2001/02 Change
#m #m #m
Turnover 38.4 30.8 +7.6
Operating profit before goodwill amortisation 1.6 1.7 -0.1
Operating margin 4.2% 5.5% -1.3%
In a competitive market, Construction Services increased turnover by 25% to
#38.4m while operating profit before goodwill decreased by #0.1m to #1.6m. In
the prior year, Construction Services performed a limited amount of work to
assist the Government during the foot and mouth outbreak. This crisis required
dedicated resource on short response times and utilised vehicles 24 hours a day,
7 days a week. As a result, operating margins in 2001/02 were higher than
normal. Excluding the impact of foot and mouth related activity, turnover and
operating profit levels for 2002/03 are both ahead of those for the prior year
period. Given the economic climate, this represents a creditable performance.
Growth in activity levels primarily centred on contract groundworks activities.
This included the launch of our sports and leisure operations, comprising the
installation of artificial sports pitches. Contract groundworks activities
comprise earthworks, drainage, foundations, kerbing, retaining walls and
surfacing. Sports and leisure operations incorporate the same functions while
the final surfacing stage comprises laying an artificial sports pitch instead of
tarmac. This activity therefore represents a natural extension of the core
operations of Construction Services.
Despite the growth in turnover, operating profit levels have fallen slightly to
#1.6m. Temporary delays to project commencement dates hindered the development
of Construction Services during the first half of 2002/03. These delays
suppressed turnover levels and operating margins. Since the beginning of the
second half, activity levels in Construction Services picked up, particularly in
groundworks contracting.
As with Logistics Services, the Division has been impacted by increased
insurance premiums. Construction Services is seeking to incorporate these into
pricing negotiations and tenders.
Construction Services offers a wide range of products to customers from earth
removal, plant/tipper hire, recycling demolition waste, landfill sites,
foundations, retaining walls and surfacing. These are fully integrated with
each individual product forming an essential component part of an overall
groundworks contract.
Groundworks contracts performed by Construction Services utilise all the
products under the one-stop-shop umbrella. External customers may select
individual elements from the complete offering. This approach differentiates us
from management contractors with Construction Services utilising its skills and
assets to undertake the work physically as opposed to managing the outsourcing
of elements of a project. In this regard, Construction Services operates in a
very similar manner to Logistics Services.
The summary above also endorses the fact that, as our groundwork contracting
activities expand, internal utilisation of our asset base increases.
People
The Malcolm Group remains dependent on the skills, commitment and experience of
its 1,474 people. I would like to pay tribute to their achievements, resilience
and dedication, and gratefully acknowledge the support given.
Health & Safety
The Group aims to achieve the highest standard of health, safety and welfare.
Procedures and working practices are constantly reviewed and we aim to install a
culture of responsibility within each employee and activity.
Environmental Responsibility
Given our involvement in transport and construction, The Malcolm Group
recognises the environmental impact of its activities. The development of rail
freight activities in Logistics Services has obvious benefits in terms of a
reduction in road haulage activities. In Construction Services, our waste
recycling and landfill sites are closely monitored in conjunction with the
Scottish Environmental Protection Agency.
Outlook
Trading levels for both Logistics and Construction Services in the current year
remain consistent with the second half of 2002/03.
In Logistics Services, lower manufacturing output has impacted volumes and has
resulted in an element of de-stocking. Volumes are likely to remain softer
pending a recovery in trading conditions.
Operating margins are likely to remain under pressure in existing market
conditions. In addition, the Group's operating costs are rising from a
combination of wage inflation, annualised impact of insurance premium rates and
the Chancellor's additional national insurance increase from April 2003. As
mentioned previously, we are seeking to mitigate the impact of these, including
appropriate customer charges.
Although progress may be hindered by the challenging economic climate, The
Malcolm Group is well placed to capitalise on business prospects as they arise.
Summary
The first year for The Malcolm Group as a stand-alone business has been
challenging but we have responded robustly. Both Logistics and Construction
Services delivered significant increases in market share in their respective
sectors while operating profit tracked slightly ahead of the prior year. This
represents a strong performance in highly competitive economic conditions.
In the short-term, market conditions are likely to remain difficult with
commentators remaining divided on the timing of economic recovery. However, the
Group's business mix, customer base and strong balance sheet enable us to view
the future with confidence.
Andrew B Malcolm
Chief Executive
FINANCIAL REVIEW
An overview of the Group's performance is provided in the Chairman's Statement.
The Chief Executive's Review has discussed the results and activities of the
continuing operations of The Malcolm Group. This review gives further
information on financial and accounting matters.
Segmental Results
Logistics and Construction Services activities are reported as segments,
reflecting the split of continuing business in the Group. The segmental
analysis continues to show Corporate and Central Service costs separately.
The core businesses showed strong growth in activity levels. As explained in
the Chief Executive's Review, despite increased operating costs the Group
produced operating profit levels slightly ahead of last year. A summary of the
Group's trading results for the continuing activities is set out below.
2002/03 2001/02 Growth
#m #m %
Sales
Logistics Services 68.8 55.4 24%
Construction Services 38.4 30.8 25%
107.2 86.2 24%
Operating Profit Change
(before goodwill amortisation) #m #m #m
Logistics Services 8.1 7.9 0.2
Construction Services 1.6 1.7 (0.1)
Corporate and Central Services (0.9) (1.0) 0.1
8.8 8.6 0.2
Discontinued Activities
The Group completed the disposal of EWM for a gross consideration of #49.0m on
25 July 2001. EWM's contribution during 2001/02 has therefore been reflected as
a discontinued activity. Prior to disposal, EWM generated sales of #72.3m and
operating profit of #3.8m. There are no discontinued activities in 2002/03.
On 19 December 2001, the Group separately sold a number of properties occupied
by EWM for gross consideration of #12.9m. In total, #61.9m was generated from
the disposal of EWM and related property assets.
Cash Flow
A summary of the Group's cash flow for 2002/03, together with comparatives, is
set out below:
2002/03 2001/02
#m #m #m #m
Operating profit before goodwill
amortisation and operating exceptionals 8.8 12.3
Depreciation 9.6 11.5
Movement in working capital 0.3 (3.5)
Non-cash items (1.3) (1.3)
Operating exceptionals (0.5) (1.9)
Operating Cash flow 16.9 17.1
Analysed as:
Continuing business 16.9 14.7
Discontinued business - 2.4
16.9 17.1
Purchase of fixed assets (11.6) (11.7)
Grants received 0.4 0.2
Sale of fixed assets 3.0 2.3
Net capital expenditure (8.2) (9.2)
Interest (1.4) (1.8)
Taxation (3.1) (2.2)
Free cash flow 4.2 3.9
Dividends paid (3.4) (9.3)
Acquisitions and disposals 0.2 44.2
EWM property disposal - 12.1
Net Shares (cancelled)/issued (41.5) 0.1
Change in net debt resulting from cash flows (40.5) 51.0
Loan notes issued (3.5) (4.4)
Net movement (44.0) 46.6
Opening net funds/(debt) 14.8 (31.8)
Closing net (debt)/funds (29.2) 14.8
Operating cash flow from continuing operations of #16.9m was #2.2m higher than
2001/02, largely due to rationalisation costs in the prior year and lower
working capital requirements in the current year. Overall operating cash flow
of #16.9m broadly matched 2001/02.
Despite a significant increase in turnover, working capital movements reflected
a reduction of #0.3m compared to an increase of #3.5m in the prior year. This
reduction is mainly due to good working capital management while the prior year
increase was largely attributable to a seasonal increase in EWM's working
capital prior to disposal.
Net capital expenditure was below depreciation levels but after allowing for
warehouse depreciation, represents continued investment to support the Group's
development.
Interest paid of #1.4m reflects the revised debt and capital structure. Tax
paid increased to #3.1m from #2.2m largely due to the exceptional items in 2001/
02 not qualifying for tax relief.
Dividend payments of #3.4m are based on the number of shares in existence
following the share cancellation. The payments include the final dividend of
3.7p for 2001/02 and the interim dividend of 1.7p for 2002/03. The former
includes a non-recurring dividend of 1.0p per ordinary share attributable to the
contribution of EWM prior to disposal.
On 4 March 2002, the Group returned #45.0m of proceeds from the corporate
disposals to shareholders. Of this, #41.5m was returned in cash with #3.5m of
loan notes issued.
The year-end net debt position reflects gearing of 51% and leaves sufficient
funding capacity to support the Group's development.
Taxation
The Group's effective tax rate expressed as a percentage of profit before
goodwill and exceptional items of 34.5% (2001/02: 34.9%) continues to be higher
than the UK standard rate of 30.0%. This is primarily attributable to
depreciation on assets that do not qualify for capital allowances. A
significant portion of this is attributable to the acquisition of the Malcolm
Family companies where assets were acquired at market values in excess of their
tax written down values.
Return of Capital to Shareholders
Following completion of the corporate disposals in 2001/02 the Group obtained
court and shareholder approval to return #45.0m to shareholders. This was
achieved during 2002/03 by means of a cancellation of shares. The cancellation
price was fixed at 85p per share with options to elect for additional cash or
shares and a loan note alternative. The impact of the cancellation was to
reduce shareholders' funds by #45.0m as analysed in note 7.
Exceptional Items
During 2002/03, the Group concluded a dispute with the Inland Revenue in
relation to the disposal of Grampian Pharmaceuticals in 1997. The settlement
agreed with the Inland Revenue was reflected in the interim accounts and
comprised a payment of #0.7m of corporation tax and estimated interest of #0.2m,
together with the surrender of capital losses of #1.1m in existence at the time
of the disposal. Following finalisation of corporation tax payments made by the
Group, the interest element of the settlement has been reduced to #138,000.
The strategic changes made during the last few years gave rise to a number of
exceptional items in 2001/02. These are disclosed in greater detail in Note 3
to the accounts.
Financing
Although the Group had an option to extend its historic bank facilities beyond
May 2002, this was not exercised. Instead, new facilities were negotiated
following a tendering process. These facilities reflect the Group's size,
prospects and capital structure following the return of capital to shareholders
and comprise a combination of term loans, multi-option and short-term facilities
totalling #50m. Banking arrangements now in place provide sufficient headroom
and a suitable platform to support the future development of the Group.
Treasury Operations
As The Malcolm Group's operations are virtually all situated within the United
Kingdom, the principal financial risk is associated with interest rates. With
the exception of the purchase of artificial sports turf for Construction
Services amounting to approximately #0.5m, the Group had minimal currency
dealings during 2002/03. The Group's significant historic exposure to foreign
currency risks was effectively eliminated following the disposal of EWM in 2001/
02.
The Board has agreed policies for interest rate and foreign currency risks to be
managed by the central treasury function on a day to day basis. The purpose of
these policies is twofold. Firstly, they ensure that the Group has adequate
funding at all times. Secondly, the policies are designed to carefully manage
all interest rate and any foreign currency exposures. Transactions of a
speculative nature are not permitted.
Operations have been financed through a combination of bank borrowings,
long-term loans and short-term cash deposits. The Group borrows in sterling at
floating rates of interest and utilises derivative transactions to generate the
desired effective interest rate and foreign currency profiles. Derivatives used
for this purpose are primarily interest rate swaps, interest rate caps and
collars, currency options and forward currency contracts.
Going Concern
On the basis of current financial projections and facilities available, the
directors are satisfied that the Group has adequate resources to continue in
operational existence for the foreseeable future and accordingly, consider that
it is appropriate to adopt the going concern basis in preparing the accounts.
Accounting Developments
During the year, no new Financial Reporting Standards were issued by the
Accounting Standards Board although the process towards international
convergence of accounting standards has gathered pace. Under European
legislation, the Group will require to adopt International Accounting Standards
("IAS") in preparing its accounts for the year ending 31 January 2006.
Considerable harmonisation of accounting practice is, however, required to
establish the IAS to be utilised in 2005/06.
To avoid changing the accounting policy for retirement benefits twice, The
Malcolm Group has elected to defer full adoption of FRS17 - Retirement Benefits
("FRS17"). However, in order to enable shareholders to assess the impact of
FRS17 on the Group we have elected to provide information in addition to that
required by the accounting standard.
The Group operates two defined benefit pension schemes, The Malcolm Group Staff
Pension Scheme (the "Staff Scheme") and The Malcolm Group Pension Scheme (1989)
(the "1989 Scheme"). During the prior year, the Group also operated the EWM
Pension Scheme although the assets and liabilities associated with this were
transferred with the disposal of EWM.
FRS17 was introduced by the ASB to ensure that companies reflect the fair value
of and changes to the underlying assets and liabilities in pension schemes,
record all costs associated with providing such schemes and provide adequate
disclosure on retirement benefits. Mandatory application of FRS17 has been
deferred for accounting periods beginning on or after 1 January 2005. However,
full disclosure of data on an FRS17 basis will be required for accounting
periods ending on or after 22 June 2003.
Under FRS17, the full notional cost of servicing pension provision relating to
the period, together with the cost of any benefits relating to past service, is
charged against operating profit. Two new items require to be included in the
profit and loss account, classified as "other finance income". These are:
(1) Credit equating to the Group's expected long-term return on pension scheme
assets, based on the market value of assets at the commencement of the period
using an estimated rate of return provided by the directors; and
(2) Debit equal to the expected increase in the present value of scheme
liabilities as the retirement benefits are closer to settlement.
Any difference between the market value of scheme assets and the present value
of pension liabilities is shown as a pension asset or liability on the balance
sheet, net of deferred tax. Variances between expected and actual rates of
return on assets are recognised in the Statement of Total Recognised Gains and
Losses together with differences arising from experience or changes in actuarial
assumptions.
Set out below is a comparison of the accounting entries required in the
financial statements for the continuing activities of The Malcolm Group in 2002/
03 and 2001/02 under FRS17 and SSAP24. This information relates solely to the
effect of the Staff Scheme and 1989 Scheme and is provided in addition to the
disclosure requirements detailed in Note 31 to the accounts.
2002/03 2001/02
FRS17 SSAP24 FRS17 SSAP24
#m #m #m #m
Profit and loss account impact
Operating profit (1.7) (1.1) (1.9) (1.0)
Other finance income
Expected return on assets 3.8 - 4.3 -
Interest on pension scheme liabilities (3.3) - (3.3) -
Total other finance income 0.5 - 1.0 -
Profit before tax (1.2) (1.1) (0.9) (1.0)
Tax 0.4 0.3 0.3 0.3
Profit after tax (0.8) (0.8) (0.6) (0.7)
Statement of total recognised
Gains and losses impact
Retained earnings (0.8) (0.8) (0.6) (0.7)
Actuarial loss (16.1) - (8.7) -
Tax 4.8 - 2.6 -
Total (12.1) (0.8) (6.7) (0.7)
Balance sheet impact
Current asset - 0.8 - 0.8
Pension liability (18.5) - (2.2) -
Deferred tax asset / (liability) 5.6 (0.2) 0.7 (0.2)
Net pension (liability) / asset (12.9) 0.6 (1.5) 0.6
Pension reserve (12.9) - (1.5) -
In comparison with the results of the actuarial valuations, which are set out in
Note 31 to the accounts, FRS17 has reduced or eliminated surpluses and increased
deficiencies in existence. The deterioration in the FRS17 funding position of
the Group's pension schemes reflects the significant fall in equity markets
during the last two years and reflects the lower discount rate which FRS17
prescribes for discounting pension fund liabilities.
Although the funding position of the Group's pension schemes indicates a
deficiency of #12.9m, it is important to record that this is not immediately
payable. Pension liabilities are by their nature, long-term, as evidenced by an
average remaining service life in excess of 13 years for members for both the
Staff Scheme and 1989 Scheme.
Following a review of the cost of funding the defined benefit schemes, the Group
closed both the Staff Scheme and 1989 Scheme to new members with effect from 30
June 2002. Employees joining after this date have been offered membership of a
defined contribution scheme as part of their remuneration packages. In
addition, the Board continues to monitor the funding position of both schemes.
Although the Group has enjoyed a contribution holiday in respect of the Staff
Scheme for a number of years, the Board has decided to recommence employer
contributions from February 2003, one year in advance of the next formal
actuarial review. In relation to the 1989 Scheme, the Board made a lump sum
contribution of #0.8m in January 2002 and increased the contribution rate during
2002/03.
These measures are geared towards restoring the funding position of the pension
schemes in order to match the quantum and the timing of pension liabilities
maturing.
In accordance with FRS 18, the Board has reviewed its accounting policies to
ensure that they remain appropriate to its particular circumstances. No
adjustments are considered necessary.
Group Profit and Loss Account
For the year ended 31 January 2003
2002/03 2001/02
Before Before
Goodwill & Goodwill & Goodwill & Goodwill &
Exceptional exceptional Exceptional exceptional
Items items Total Items items Total
Note (#000) (#000) (#000) (#000) (#000) (#000)
Turnover
Continuing operations 107,248 - 107,248 86,202 - 86,202
Discontinued operations - - - 72,267 - 72,267
Group turnover 2 107,248 - 107,248 158,469 - 158,469
Net operating costs (98,486) - (98,486) (146,110) (3,495) (149,605)
excluding goodwill
amortisation
Goodwill amortisation - (395) (395) - (522) (522)
Operating profit / 2,3 8,762 (395) 8,367 12,359 (4,017) 8,342
(loss)
Analysed as:
Continuing operations 8,762 (395) 8,367 8,566 (2,537) 6,029
Discontinued operations - - - 3,793 (1,480) 2,313
Group operating profit / 8,762 (395) 8,367 12,359 (4,017) 8,342
(loss)
Discontinued operations: 4
Loss on disposal of - - - - (56,215) (56,215)
business
Gain on disposal of - - - - 4,747 4,747
fixed assets
Provision against - - - - (501) (501)
deferred disposal
consideration
Profit / (loss) before 8,762 (395) 8,367 12,359 (55,986) (43,627)
interest and taxation
Interest excluding (1,565) - (1,565) (1,771) - (1,771)
exceptional interest
Interest relating to tax 4 - (138) (138) - - -
on exceptional items
Net interest payable (1,565) (138) (1,703) (1,771) - (1,771)
Profit / (loss) on 7,197 (533) 6,664 10,588 (55,986) (45,398)
ordinary activities
before taxation
Tax excluding tax on (2,486) - (2,486) (3,696) - (3,696)
exceptional items
Tax on exceptional items 4 - (700) (700) - 590 590
Taxation (2,486) (700) (3,186) (3,696) 590 (3,106)
Profit / (loss) 4,711 (1,233) 3,478 6,892 (55,396) (48,504)
attributable to
shareholders
Dividends 5 (3,180) - (3,180) (5,034) - (5,034)
Transferred to / (from) 1,531 (1,233) 298 1,858 (55,396) (53,538)
reserves
Earnings per ordinary 6
share
Headline 6.9p 5.9p
UKSIP 6.9p 4.2p
FRS14 5.1p (41.7p)
FRS14 (diluted) 5.1p (41.7p)
Dividend per share 5 5.0p 6.0p
Group Statement of Total Recognised Gains and Losses
For the year ended 31 January 2003
2002/03 2001/02
(#000) (#000)
Profit / (loss) attributable to shareholders 3,478 (48,504)
Exchange differences on net assets of subsidiaries - (29)
Total recognised gains / (losses) 3,478 (48,533)
Group Balance Sheet
As at 31 January 2003
2003 2002
(#000) (#000) (#000) (#000)
Fixed assets
Intangible assets 1,110 1,505
Tangible assets
Land and buildings 61,926 61,086
Plant and machinery 4,270 4,752
Motor vehicles 22,415 22,352
Fixtures and fittings 1,668 917
90,279 89,107
91,389 90,612
Current assets
Stocks 601 645
Debtors 20,484 18,969
Cash at bank and in hand 2,279 20,090
23,364 39,704
Creditors: amounts falling due within one year 27,291 23,327
Net current (liabilities) / assets (3,927) 16,377
Total assets less current liabilities 87,462 106,989
Creditors: amounts falling due after one year 25,451 649
Accruals and deferred income
Deferred government grants 590 431
Provisions for liabilities and charges 3,856 3,692
Net assets 57,565 102,217
Capital and reserves
Called up share capital 15,900 29,121
Share premium account - 19,073
Capital redemption reserve - 2,811
Revaluation reserve 14,591 14,823
Profit and loss account 27,074 36,389
Shareholders' funds 57,565 102,217
Note
Net assets per share 6
Net assets per share 90.5p 87.8p
Diluted net assets per 90.5p 87.6p
share
Group Cash Flow Statement
For the year ended 31 January 2003
2002/03 2001/02
Note (#000) (#000) (#000) (#000)
Cash inflow from operating activities 8 16,919 17,145
Returns on investments and servicing of finance 9 (1,454) (1,844)
Taxation (3,153) (2,237)
Capital expenditure and financial investment 9 (8,207) (9,187)
Exceptional property disposal 9 - 12,132
Net capital expenditure and financial investment (8,207) 2,945
Acquisitions and disposals 9 213 44,160
Equity dividends paid (3,434) (9,311)
Cash inflow before use of liquid resources and 884 50,858
financing
Management of liquid resources
Decrease in short term cash deposits - 161
Financing 9
Net (cancellation) / issue of shares (41,459) 143
Increase / (decrease) in debt and lease financing 23,017 (34,713)
(18,442) (34,570)
(Decrease) / increase in cash (17,558) 16,449
Reconciliation of net cash flow to movement in net (debt) / funds
2002/03 2001/02
(#000) (#000) (#000) (#000)
(Decrease) / increase in cash (17,558) 16,449
Cash (inflow) / outflow from (increase) / decrease (23,017) 34,713
in debt and lease financing
Cash inflow from short term deposits - (161)
Change in net debt resulting from cash flows (40,575) 51,001
Loans and finance leases disposed of with - 13
subsidiaries
Loan notes issued on share cancellation (3,491) -
Loan notes issued on acquisition - (4,407)
(Increase) / decrease in net (debt) / funds (44,066) 46,607
Opening net funds/(debt) 14,847 (31,760)
Closing net (debt) / funds (29,219) 14,847
Notes
1 The abridged information in this document does not constitute full group accounts. The financial information
contained in this document has been prepared on the basis of the accounting policies set out in the accounts for the
year ended 1 February 2002. The financial information for the year ended 31 January 2003 is derived from the full
statutory audited accounts, which will shortly be sent to shareholders and filed with the Registrar of Companies
with an unqualified audit opinion. The financial information for the year ended 1 February 2002 is derived from the
full group accounts for that year, which have been filed with the Registrar of Companies.
2 Segmental analysis
Operating
Turnover profit / (loss) Net assets
2002/03 2001/02 2002/03 2001/02 2002/03 2001/02
(#000) (#000) (#000) (#000) (#000) (#000)
By class of business
Malcolm Logistics Services 68,874 55,431 8,120 7,912
Malcolm Construction Services 38,374 30,771 1,584 1,689
Logistics and Construction Services 107,248 86,202 9,704 9,601
Corporate and central services - - (942) (1,035)
Continuing operations before 107,248 86,202 8,762 8,566 86,583 86,464
goodwill amortisation
Discontinued operations:
EWM - 72,267 - 3,793 - -
Group total 107,248 158,469 8,762 12,359 86,583 86,464
Goodwill amortisation (395) (522)
Operating exceptional items - (3,495)
Group total 8,367 8,342
Reconciliation of net assets:
Unallocated net (liabilities) / (29,018) 15,753
assets
Net assets 57,565 102,217
Due to the close integration of the Group's Logistics and Construction Services
assets and operations, it is not possible to provide a segmental split of net
assets for these divisions.
Unallocated net (liabilities) / assets consist primarily of core group cash and
borrowings, dividends payable, taxation and centrally held assets less centrally
held liabilities.
Turnover by origin, operating profit and net assets relate principally to
operations in the UK.
Turnover by destination
2002/03 2001/02
(#000) (#000)
Segmental analysis:
United Kingdom 107,248 157,610
Europe - EU - 508
America - 323
Rest of the world - 28
107,248 158,469
3 Operating profit
2002/03 2001/02
Total
Continuing Continuing Discontinued
operations operations operations Total
(#000) (#000) (#000) (#000)
Group turnover 107,248 86,202 72,267 158,469
Cost of sales * 84,134 64,352 65,915 130,267
Gross profit 23,114 21,850 6,352 28,202
Distribution costs - - 1,544 1,544
Selling and marketing 931 1,343 - 1,343
expenses
Administrative expenses 13,441 14,596 2,419 17,015
Other operating (income) / (20) (640) 76 (564)
expense
Net operating expenses 14,352 15,299 4,039 19,338
Operating profit before 8,762 6,551 2,313 8,864
goodwill amortisation
Goodwill amortisation * (395) (522) - (522)
Operating profit 8,367 6,029 2,313 8,342
* Goodwill amortisation has been separately disclosed as operating profit before goodwill amortisation is
increasingly used by the investment community.
4 Exceptional items
2002/03 2001/02
(#000) (#000)
Operating exceptional items
Head office reorganisation and redundancy costs - (783)
Impairment in the value of property - (900)
Abortive property developments - (332)
Total continuing operations - (2,015)
Discontinued operations: EWM supply chain project - (1,480)
Total operating exceptional items - (3,495)
Non-operating exceptional items
Gain on disposal of business - 7,104
Goodwill previously written off to reserves - (63,319)
Total loss on disposal of business - (56,215)
Provision against recovery of deferred consideration on - (501)
historic disposals
Gain on disposal of EWM properties - 4,747
Total non-operating exceptional items - (51,969)
Tax settlement relating to the disposal of Grampian (838) -
Pharmaceuticals
Total exceptional items (838) (55,464)
Tax settlement relating to the disposal of Grampian Pharmaceuticals
Following extensive discussions with the Inland Revenue, the Group resolved a
dispute with the Inland Revenue relating to the tax treatment of the disposal of
Grampian Pharmaceuticals Limited in 1997. This settlement was reached with the
Inland Revenue in order to bring the matter to a close and consists of a payment
of #838,000 comprising #700,000 of tax and #138,000 of interest. These costs
have been classified as tax on exceptional items and interest relating to tax on
exceptional items.
Until discussions with the Inland Revenue were concluded, it was the opinion of
the directors that it was too early to form a clear view as to the extent of any
liability which might arise from the disposal. In accordance with generally
accepted accounting practice no tax provision was therefore made in relation to
the disposal in the Group's accounts at 1 February 2002.
5 Dividends
2002/03 2001/02
(#000) (#000)
Equity - Ordinary - interim paid 1.7p per share (2001/02 : 3,180 5,034
2.3p) and final proposed 3.3p per share (2001/02 : 3.7p)
The directors are recommending a final dividend of 3.3p per share making a total
for the year of 5.0p per share.
The final dividend will be paid on 7 July 2003 to shareholders on the register
on 6 June 2003.
6 Earnings per ordinary share
(a) Weighted average number of shares
2002/03 2001/02
Number Number
of shares Of shares
(000) (000)
Basic weighted average number of ordinary shares in issue
during the year:
(excluding shares owned by the Grampian Employee Share Trust) 68,106 116,297
Dilutive potential ordinary shares - employee share options 56 42
Diluted weighted average number of ordinary shares in issue 68,162 116,339
(b) Actual
The calculations of earnings per 25p ordinary share are based on the following:
2002/03 2001/02
EPS EPS
(p) (#000) (p) (#000)
FRS14 earnings 5.1 3,478 (41.7) (48,504)
Goodwill amortisation 0.6 395 0.4 522
Fixed asset impairment provision - - 0.8 900
Non-operating exceptional items - - 44.7 51,969
Interest relating to exceptional items 0.2 138 - -
Tax on exceptional items 1.0 700 - -
UKSIP earnings 6.9 4,711 4.2 4,887
Exceptional items included in UKSIP EPS
Operating exceptional items (excluding fixed - - 2.2 2,595
asset impairment provision)
Tax - - (0.5) (590)
Headline earnings (profit attributable to 6.9 4,711 5.9 6,892
shareholders before goodwill and exceptional
items)
Headline EPS 6.9p 5.9p
UKSIP EPS 6.9p 4.2p
FRS14 EPS 5.1p (41.7p)
Diluted FRS14 EPS 5.1p (41.7p)
Headline EPS has been presented as this performance measure is commonly used by
quoted companies. Headline earnings are defined as the profit on ordinary
activities before goodwill amortisation and exceptional items but after interest
and taxation.
UKSIP EPS has been presented as this figure is used by the investment community.
The UKSIP EPS calculation excludes goodwill amortisation, non-operating
exceptionals items and impairment in the value of fixed assets, net of tax.
The weighted average number of fully paid shares in issue is calculated
excluding those held by employee share trusts. The diluted weighted average is
calculated by adjusting for all outstanding share options which are potentially
dilutive ordinary shares.
(c) Unaudited Pro Forma
The significant restructuring of the Group during the last two years means that
direct comparison of earnings per share for 2002/03 and 2001/02 is difficult.
The directors therefore consider that it is appropriate to provide an indication
of earnings per share for the continuing business based on the capital structure
following the share cancellation. The basis of the estimated calculation of this
figure is set out in the table and notes below:
Continuing Business
2002/03 2001/02
(#000) (#000)
Before goodwill amortisation and exceptional items
Operating profit 8,762 8,566
Interest (1,729) (1,450)
Taxation (2,437) (2,650)
Headline earnings 4,596 4,466
No. of shares following capital reduction and return of cash to 63,602 63,602
shareholders
Headline EPS 7.2p 7.0p
Headline earnings are defined as the profit on ordinary activities before
goodwill amortisation and exceptional items but after interest and taxation.
The interest charge for the current year has been adjusted to reflect the
additional interest payable had the share cancellation and return of capital to
shareholders taken place at the beginning of the financial year. Tax relief
has been assumed on this interest charge.
The interest charge attributable to the continuing business for 2001/02 has been
estimated by applying an assumed interest rate to net debt on the Group's
unaudited pro forma balance sheet disclosed in the 2001/02 Annual Report and
Accounts following the share cancellation and return of capital to shareholders.
The effective tax charge has been estimated using the effective underlying
rate for the Group's continuing business, after adjusting for interest.
(d) Net assets per share
2003 2002
(#000) (#000)
Net assets 57,565 102,217
Net assets per share 90.5p 87.8p
Diluted net assets per share 90.5p 87.6p
Net assets per share are defined as the Group's net assets at the balance sheet
date divided by the number of shares in issue at the balance sheet date.
Diluted net assets per share are defined as the Group's net assets at the
balance sheet date divided by the number of shares in issue together with
potentially dilutive shares at the balance sheet date.
2002/03 2001/02
Number Number
of of
shares shares
Number of shares at the balance sheet date (000) (000)
Basic number of ordinary shares in issue: 63,602 116,484
(excluding shares owned by the Grampian Employee Share Trust)
Dilutive potential ordinary shares - employee share options 40 160
Diluted number of ordinary shares in issue 63,642 116,644
7 Reconciliation of movements in shareholders' funds
2002/03 2001/02
(#000) (#000)
Total recognised gains / (losses) 3,478 (48,533)
Dividends (3,180) (5,034)
Other movements:
New shares issued - 4,788
Cancellation of shares (44,950) -
Goodwill reinstated on disposals - 63,319
Total movements during the year (44,652) 14,540
Shareholders' funds at beginning of year 102,217 87,677
Shareholders' funds at end of year 57,565 102,217
8 Reconciliation of operating profit to net cash inflow from operating activities
2002/03 2001/02
(#000) (#000)
Operating profit 8,367 8,342
Amortisation of goodwill 395 522
Operating exceptional items - 3,495
Depreciation of fixed assets 9,604 11,490
Gain on disposal of tangible fixed assets (1,333) (1,160)
Grants released (54) (14)
Decrease in capital contributions - (141)
Decrease / (increase) in stocks 44 (4,450)
Increase in debtors (3,227) (938)
Increase in creditors 3,618 1,583
(Decrease) / increase in provisions for liabilities and (15) 295
charges
17,399 19,024
Net cash outflow in respect of operating exceptional items (480) (1,879)
Net cash inflow from operating activities 16,919 17,145
The cash outflow in respect of operating exceptional items of #480,000 relates
to 2001/02 operating exceptional items.
9 Analysis of cash flows for headings netted in the cash flow statement
2002/03 2001/02
(#000) (#000)
a) Returns on investments and servicing of finance
Interest received 130 303
Interest paid (1,581) (2,141)
Interest element of finance lease rental payments and hire (3) (6)
purchase contracts
Net cash outflow for returns on investments and servicing of (1,454) (1,844)
finance
b) Capital expenditure and financial investment
Purchase of tangible fixed assets (11,569) (11,662)
Receipt of government grants 424 220
Sale of tangible fixed assets 2,938 2,255
Net cash outflow for capital expenditure and financial investment (8,207) (9,187)
c) Acquisitions and disposals
Purchase of subsidiaries - (313)
Net overdraft disposed of - 981
Sale of - during year - 43,089
businesses
- in respect of prior year disposals 213 403
Net cash outflow for acquisitions and disposals 213 44,160
d) Exceptional property disposals - 12,132
e) Financing
(Net cancellation) / issue of ordinary share capital (41,459) 143
Debt due within one year:
Repayment of borrowings (1,963) (51,540)
Unsecured loans drawn - 16,982
Debt due beyond one year:
Secured loans drawn 25,000 -
Capital element of finance lease rental payments and hire (20) (155)
purchase contracts
Increase / (decrease) in debt and lease financing 23,017 (34,713)
Net cash outflow from financing (18,442) (34,570)
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR NKBKDCBKDNQB