RNS Number:6983U
Howle Holdings PLC
28 January 2004
Howle Holdings Plc
28 January 2004
Chairman's Report
The year to 30 September 2003 has been an extremely difficult year for the Howle
Group. Trading continued its decline from 2002, with turnover reducing by
#1,326,000 (10%) from last year, and the general decline in the manufacturing
and engineering sectors hitting the Group hard. In particular Richard Lloyd
Limited ("RLL") and NPE-Innotek Limited ("NPE") experienced substantial
reductions in turnover.
To combat this reduction in turnover the new Board has undertaken a Group wide
review of all the operating companies. This review has resulted in a number of
redundancies across the Group and a major management reorganisation at RLL and
NPE with Chris Fletcher taking over as Managing Director of RLL and John Gibson
taking on responsibility for operations at NPE.
The objectives of the new Board are to reduce borrowings to an acceptable level,
therefore ensuring the continuing viability of the Group, reduce working capital
to improve cash flow and focus on core activities with a view to maximising
shareholders return from the existing asset base.
The Group is now entering a restructuring period, and it will take some time to
achieve the Board's objectives.
Financial Results
Loss before tax was #3,181,000 (2002: #1,231,000). This loss is after the write
down of goodwill arising from the acquisition of NPE of #657,000 and exceptional
items of #935,000, relating to redundancy costs, loss on disposal of fixed
assets and a depreciation charge related to diesets at Howle Carbides Limited ("
Carbides"). The loss per share for the year was 4.5p before amortisation of
goodwill and exceptional items (2002 earnings 0.9p). In view of these results
the Directors are unable to recommend a dividend for the year.
The Group reduced borrowings during the year to #6,163,000 which is a reduction
of #464,000 from 2002. Cash inflow from normal operating activities was
#1,256,000 as improvements in working capital management offset the poor trading
performance of the Group.
The Board commenced a Group wide stock reduction programme earlier in the year
in an attempt to reduce working capital and improve cash flow. The Board has
also reviewed the basis of stock valuation at Carbides and the provision for
obsolete stock at Carbides and Titman Tip Tools Limited ("Titman"). The impact
of these actions has resulted in Group stocks reducing by #1,479,000 (39%) for
the year. This stock reduction has had an adverse impact on the Groups profit &
loss account but going forward the Group has a more sensible level of stock
holding.
Operating Companies
Howle Carbides Limited marginally increased their turnover for the year by 2% on
the back of difficult trading conditions with increased volumes from customers
in the oil industry more than making up for reduced volumes from customers in
the general manufacturing and engineering sectors. Included in the results for
the year is an exceptional depreciation charge of #520,000 related to a revision
in the useful economic life of dieset tooling. The revised economic life now
reflects more accurately the life cycle of products manufactured using diesets,
based upon more accurate usage data.
The system for valuing stocks has been reviewed during the period and the
Company now has stock valuations, which more accurately reflect the processes
involved in the manufacture of Tungsten Carbide. The Company has reviewed
historical usage data for all its product lines and as a result has fully
provided for obsolete stock. The results for the period have been adversely
affected by the destocking programme, which was implemented during the period in
line with the Group's policy for reducing working capital and generating cash to
reduce borrowings.
A review of the business was carried out towards the end of the year, which
identified a number of areas in which savings to operating costs could be made.
As a result of the review a number of redundancies were implemented which will
reduce the Company's operating costs significantly. The oil industry remains
buoyant and Carbides are seeing increased volumes from customers in this sector.
Titman Tip Tools Limited saw a reduction in turnover for the year of 9% as a
result of the continuing decline in furniture manufacturing in the United
Kingdom and increased competition from imports of router cutters from overseas.
Titman has carried out a number of redundancies to align its operating costs
with this reduced sales volume.
The Company has reviewed historical usage data for all its product lines and as
a result has fully provided for obsolete stock. The results for the period have
been adversely affected by the destocking programme, which was implemented
during the period in line with the Group's policy for reducing working capital
and generating cash to reduce borrowings.
Looking forward into 2004, the Company will see a further reduction in turnover
due to the loss of a major customer. The company has implemented a number of
redundancies to reduce the impact of losing this business. In addition the
company will seek to penetrate new markets for its products to counter the
reduced turnover.
RLL experienced another substantial reduction in turnover for the year, with
this year's turnover coming in at 15% lower than 2002. The general decline in
the manufacturing and engineering sectors has hit RLL hard, however the Board
recognises that the weakness in the sales & marketing function at the company
was also a contributing factor to the reduced turnover. The Board commissioned
an initial review of the business in light of the reduced turnover and, as a
result, a number of redundancies have been implemented. A major management
reorganisation has taken place, with Chris Fletcher taking up the position of
Managing Director. The sales and engineering departments have been merged to
create a new enlarged department which will improve internal communication and
provide an improved service to the customer.
The results for the period have been adversely affected by the destocking
programme, which was implemented during the period in line with the Group's
policy for reducing working capital and generating cash to reduce borrowings.
Looking forward into 2004, a further review of the business will be carried out,
the outcome of which could result in provisions for reorganisation costs and a
write down of fixed assets. Tungsten Carbide Taps is one product line which is
experiencing growth as customers realise the benefits of improved tool life and
reduced down time. The order intake started to recover towards the end of the
year.
NPE saw turnover reduce substantially in the year with turnover for the year,
being 47% lower than 2002. The reduced turnover is a result of a significant
drop in sales to the motorsport sector, the decline in general manufacturing and
engineering and a lack of a sales and marketing presence. The reduction in sales
to the motorsport sector is a result of the company's decision to focus on
traditional customers in the canning sector. During the year the company was the
subject of a failed MBO. The MBO proved to be a big distraction to the
management, with resources diverted away from the management of operations. In
particular the sales and marketing function suffered severely. The turnover for
2002 did include an element for Innotek, which ceased operations in November
2002.
The Board commissioned an internal review of the business in the second half of
the year. As a result a number of redundancies were announced, including the
departure of two senior managers. A major management reorganisation has taken
place, with John Gibson taking on the responsibility for operations at NPE. The
new management has made significant progress in stabilising the business and has
focused on improving productivity and concentrating sales & marketing resources
on the traditional canning customers where the company has experienced
substantial reductions in business over the last two years.
Looking forward into 2004 with an improved order book and reduced operating
costs the Company has begun to recover from the heavy losses of the past two
years. The company provides a valuable sub-contract machining service to
Carbides, in particular for work related to the oil industry and this will
assist the recovery of NPE's turnover in 2004.
Richard Lloyd Pension
The Board have decided to adopt the provisions of Financial Reporting Standard
('FRS')17 early. As a result the deficit on the pension has increased from
#46,000 under MFR to #220,000 under FRS17. The company has fully provided for
this deficit in the accounts.
People
The Group reduced headcount by 18% during the year and currently has 222
employees. During the year a number of Board changes have taken place. On 12
December 2002, David Abell joined the Board as a non-executive director. David
Abell is chairman of Jourdan plc, a major shareholder of Howle Holdings plc.
David Abell brought to the Board extensive operational experience and helped the
Board to focus on reducing working capital and reducing borrowings.
Unfortunately David Abell resigned on 27 August 2003. The Board would like to
thank him for his efforts in the short time he was with us. George Govan and
Paul Sandford both resigned on 31 July 2003. Chris Fletcher and John Gibson were
appointed to the Board as executive directors. Chris Fletcher has been with the
Howle Group for over 15 years and has been the Managing Director of Carbides for
the last 12 years. John Gibson has been with the Howle Group since 1997 and has
been Managing Director of Titman for over 16 years. Matthew Chaloner was
appointed Group Chief Executive on 28 August 2003. Matthew'Chaloner continues
with his Finance responsibilities. Professor Garel Rhys was appointed acting
Chairman on 28 August 2003. The Board will seek to appoint a permanent Chairman
in the next twelve months.
I would like to thank all our dedicated employees for their hard work during
this very difficult year.
Outlook
The objective of the Board is to reduce borrowings to an acceptable level. To
this end the Board will continue to seek improvements in working capital
management and review the cost base in line with sales volumes. There is no
quick solution to the difficulties faced by the Group, it will take time and, as
mentioned earlier in this statement, the restructuring period could take some
time to complete. On the positive side we have started to see a recovery in the
orderbooks across the Group, which provides the Group with a good chance of
meeting our realistic budgets for 2004.
Consolidated Profit and Loss Account
for the year ended 30 September 2003
Continuing Exceptional As restated
operations before items
exceptional items
Note 2003 2003 2003 2002
#'000 #'000 #'000 #'000
TURNOVER 3 11,593 - 11,593 12,919
Cost of sales (8,947) (520) (9,467) (8,802)
------- ------- ------- -------
GROSS PROFIT 2,646 (520) 2,126 4,117
Net operating costs: ------- ------- ------- -------
Distribution costs (1,543) - (1,543) (1,768)
Administrative expenses (2,249) (288) (2,537) (2,323)
Other operating income 48 - 48 79
Amortisation of goodwill - (657) (657) (37)
------- ------- ------- -------
OPERATING (LOSS)/PROFIT (1,098) (1,465) (2,563) 68
Loss on disposal of fixed assets - (127) (127) (127)
Provision for costs of - - - (621)
fundamental reorganisation
------- ------- ------- -------
LOSS ON ORDINARY ACTIVITIES (1,098) (1,592) (2,690) (680)
BEFORE INTEREST
Interest payable and similar (466) - (466) (551)
Charges
Other finance income - - - 23
Other finance charges (25) - (25) (23)
------- ------- ------- -------
LOSS ON ORDINARY (1,589) (1,592) (3,181) (1,231)
ACTIVITIES BEFORE TAXATION
Tax on loss on 248 - 248 273
ordinary activities
------- ------- ------- -------
LOSS FOR THE FINANCIAL YEAR (1,341) (1,592) (2,933) (958)
======= ======= ======= =======
Loss per ordinary share (10.1p) (3.2p)
======= =======
Equity dividend per ordinary share 0.0p 0.0p
======= =======
Consolidated Balance Sheet
as at 30 September 2003
Note 2003 2002
#'000 #'000
as restated
FIXED ASSETS
Intangible assets 42 703
Tangible assets 8,483 9,784
------- -------
8,525 10,487
------- -------
CURRENT ASSETS
Stocks 2,281 3,760
Debtors 2,612 2,942
Cash at bank and in hand 53 218
------- -------
4,946 6,920
CREDITORS - amounts falling (5,407) (5,126)
due within one year
------- -------
NET CURRENT (LIABILITIES)/ASSETS (461) 1,794
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 8,064 12,281
CREDITORS - amounts falling (3,255) (4,290)
due after more than one year
PROVISIONS FOR LIABILITIES (85) (333)
AND CHARGES
PENSION SCHEME LIABILITY (220) (103)
------- -------
4,504 7,555
======= =======
CAPITAL AND RESERVES
Share capital 1,956 1,956
Share premium 2,770 2,770
Merger reserve 2,780 2,780
Revaluation reserve 92 92
Profit and loss account (3,094) (43)
------- -------
SHAREHOLDERS' FUNDS (including non-equity) 4,504 7,555
======= =======
Consolidated Cash Flow Statement
for the year ended 30 September 2003
Note 2003 2002
#'000 #'000
RECONCILIATION OF OPERATING
(LOSS)/PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
Operating (loss)/profit (2,563) 68
Depreciation and amortisation 1,829 797
Decrease in stocks 1,479 55
Decrease in debtors 330 363
Decrease in creditors (128) (103)
Loss/(Profit) on sale of fixed assets 30 (45)
Net cash outflow in respect of re-organisation costs - (90)
Cash outflow in respect of final salary pension scheme (9) (9)
deficit
------- -------
Net cash inflow from operating activities 968 1,036
======= =======
CASH FLOW STATEMENT
Net cash inflow/(outflow) from operating activities
- normal 1,256 1,443
- exceptional (288) (407)
------- -------
968 1,036
Returns on investments and servicing of finance (466) (551)
Taxation (14) (76)
Capital expenditure (24) (784)
------- -------
464 (375)
Equity dividends paid - (174)
------- -------
Cash inflow/(outflow) before financing 464 (549)
Financing 692 (510)
------- -------
Increase/(decrease) in cash 1,156 (1,059)
======= =======
Notes to the Financial Statements
for the year ended 30 September 2003
1 GOING CONCERN
The financial statements have been prepared adopting the going concern basis of
accounting.
The loss of #3,181,000 for the year ended 30 September 2003 includes write down
of goodwill arising from the acquisition of NPE of #657,000 and an exceptional
depreciation charge of #520,000 related to a revision in the useful economic
life of dieset tooling. These items have had an adverse impact on the profit &
loss account for the period but are non-cash items. In addition, the Group's
stocks have reduced by #1,479,000, which has arisen from a combination of the
destocking programme initiated by the directors to reduce working capital and
improve cash flow, revised methods of providing for obsolete stock and a review
of stock costings across the Group.
The Group has focused on reducing working capital during the period and as a
result working capital reduced by #1,681,000. Therefore despite the loss of
#2,933,000 the Group generated cash of #1,256,000 from operating activities
(before exceptional items) and reduced net borrowings by #464,000 (7%). This
supports the directors view that the underlying activities of the Group's
operations are sound, generate cash and are able to meet its liabilities as they
fall due.
The directors have undertaken extensive reviews of the Group's operations and as
a result have made a number of redundancies and major management reorganisations
at Richard Lloyd Limited ("RLL") and NPE-Innotek Limited ("NPE"). The annualised
cost savings made to date total #700,000. NPE, which has shown significant
operating losses in each of the last two years, is now approaching break-even
and is not absorbing cash.
The directors have prepared budgets for 2004, which show the Group generating
cash and significantly paying down borrowings. Since October 2003, the Group has
consistently met budget and the order intake across the Group has increased in
the first quarter of the new period. These factors give the board comfort that
it is appropriate to adopt the going concern basis of accounting.
The margin of headroom within current borrowing facilities against forecast cash
requirements is not large. Obviously, given the nature of the business, there
are risks. As with all manufacturing Groups, achievement of budgets will be
impacted by a number of economic factors which are impossible to predict with
any certainty. The directors have however prepared prudent budgets which should
be met based upon current market conditions and other factors.
The directors believe that it is appropriate for the financial statements to be
prepared on a going concern basis based on the information disclosed above and
on current trading performance.
2 ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost convention
as modified by the revaluation of certain tangible fixed assets, adopting the
following principal accounting policies, all of which are in accordance with
applicable accounting standards.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Howle
Holdings Plc and all of its subsidiaries made up to 30 September each year.
The results of businesses acquired are consolidated from the effective dates of
acquisition, using the 'acquisition' method of consolidation.
Goodwill
Goodwill, including negative goodwill arising on consolidation, arising prior to
1 January 1998 has been written off against the merger reserve. Goodwill on
subsequent acquisitions was capitalised and was being amortised over an
estimated useful economic life of 20 years. During 2003 the company undertook an
impairment review in the carrying value of the goodwill arising from the
acquisition of NPE Precision Toolroom Limited. As a consequence of losses
incurred the goodwill has been written off in full to the profit and loss
account in the year.
Depreciation
Freehold land and buildings are not depreciated. The buildings have not been
depreciated as the value of the sites rest substantially with the land element
and it is the directors' policy to maintain company properties in good repair.
As a result any depreciation charge would not be material. The Company's
properties are stated at valuations carried out prior to 23 March 2000, the
effective date of Financial Reporting Standard 15. The Company has undertaken
an impairment review on the carrying value of land and buildings in the balance
sheet at 30 September 2003 and concluded no impairment has arisen. The cost of
other fixed assets is written off over their expected useful lives as follows:
Machine tool fixtures 5% of cost per annum
Other plant and equipment 5%-25% of cost per annum
Motor vehicles 25% of cost per annum
Patent costs Over 17 years
During the year, the Group reviewed the useful economic life of certain items of
plant and machinery. The review resulted in certain items which were previously
deemed to have a life of 20 years now being deemed to have a life of 5 years.
The effect of this change in depreciation method is disclosed in note 4.
Stocks and work in progress
Stocks and work in progress are valued at the lower of cost and estimated net
realisable value after making due allowance for any obsolete or slow moving
items. In the case of finished goods and work in progress, cost comprises
direct materials, direct labour and an appropriate proportion of manufacturing
fixed and variable overheads.
Deferred taxation
In accordance with Financial Reporting Standard 19 Deferred Tax, full provision
is made for deferred tax arising from timing differences between the differing
treatment of certain items for taxation and accounting purposes. The provision
is calculated at the rates of taxation at which it is estimated the liability
will arise and is not discounted. No provision is made in respect of timing
differences arising from the sale of revaluation of fixed assets unless there is
a commitment to the disposal of the assets at the balance sheet date. Deferred
tax assets are recognised only to the extent that the directors consider there
to be suitable taxable profits from which the underlying timing differences can
be deducted.
Research and development
Expenditure on research and development is written off as incurred.
Operating leases
The cost of, and income from, operating leases has been charged and credited to
profit and loss account on a straight line basis over the lease term.
Hire purchase and finance lease agreements
Assets held under hire purchase and finance lease agreements have been recorded
in the balance sheet as tangible fixed assets at their equivalent capital value.
The capital element of the related lease has been included under creditors due
within or after one year. The interest element is charged to profit and loss
and represents a constant proportion of the balance of capital repayments
outstanding.
Pension costs
Certain employees of the Group are members of The Richard Lloyd Group Pension
Scheme. This is a defined benefit pension scheme and requires contributions to
be made to a separately administered fund. In December 1993 the scheme was made
"paid up". This means that the accrued benefits earned to date by the members
are secured, but that no future benefits can accrue. The scheme remains subject
to actuarial valuations to ensure assets are sufficient to secure accrued
benefits. Provision is made for actuarial deficits, which must be funded by the
Group at such time that these are identified.
The Group has adopted Financial Reporting Standard 17 "Retirement Benefit" in
full, having previously applied the transitional arrangement. The full adoption
of the Standard represents a change in accounting policy, the details of which
are shown in note 24.
Pension contributions under defined contribution pension schemes are charged
against the profit for the year in which they become payable.
Finance costs
All finance costs in connection with borrowings are allocated to profit and loss
account at a constant rate on the carrying amount shown in the balance sheet.
Accrued finance costs are included in accruals to the extent that they will be
paid in the next accounting year, but otherwise are added to the carrying amount
of the borrowings.
Government grants
Government grants received in respect of capital expenditure are treated as
deferred income which is credited to the profit and loss account by instalments
over the expected useful economic life of the related asset on a basis
consistent with the depreciation policy.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at the rates of exchange ruling at the balance sheet date, or if
appropriate at the forward contract date. Transactions denominated in foreign
currencies are translated into sterling at the rate of exchange ruling at the
date of the transaction, or at the contracted rate if the transaction is covered
by a forward exchange contract. All revaluation differences and realised
foreign exchange differences are taken to the profit and loss account.
Gains and losses arising on the translation of the net assets of overseas
subsidiaries are taken to reserves, net of exchange differences arising on
related foreign currency borrowings.
3 TURNOVER
Turnover represents the invoice value of goods and services supplied by the
Group exclusive of VAT and intra Group transactions.
2003 2002
#'000 #'000
Geographical analysis of turnover by the country of
destination:
United Kingdom 9,419 10,176
Rest of Europe 1,649 2,154
North America 274 320
Other 251 269
------- -------
11,593 12,919
======= =======
The Group's net assets and operating results by country of origin at 30
September were:-
As restated
2003 2002
#'000 #'000
Operating (loss)/profit
United Kingdom (2,499) 123
Rest of Europe (64) (55)
-------- -------
(2,563) 68
======== =======
Net assets/(liabilities):
United Kingdom 4,476 7,653
Rest of Europe 28 (98)
-------- -------
4,504 7,555
======== =======
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UBONRSWRAUAR
