Final Results
March 11 2003 - 2:02AM
UK Regulatory
RNS Number:5446I
Heywood Williams Group PLC
11 March 2003
Date: Embargoed until 7.00 am, Tuesday 11 March, 2003
Contacts: Ian Stuart, Chief Executive
Laurence Campbell, Finance Director
Heywood Williams Group PLC Tel: 020 7831 3113 (11.03.03)
Tel: 01484 487200 (thereafter)
Jon Simmons/Meg Baker Tel: 020 7831 3113
Financial Dynamics
Heywood Williams Group PLC
Preliminary Results
In the UK Heywood Williams is the market leader in the manufacture and
distribution of PVC windows, doors and conservatories; in the US it is a leading
supplier of components to the manufactured housing and recreational vehicle
markets; and a major producer of plastic pipe products.
Heywood Williams Group PLC, the building products group, announces its
preliminary results for the year ended 31 December 2002.
Highlights
Results
* EPS* flat at 14.6p
* Pre-tax profit* at #16.7million (2001: #18.1million)
* Due to previously announced exceptional charge, net pre-tax profit of
#3.2 million (2001: #4 million)
* Final dividend of 9.75p making 15p for the full year (2001: 15p)
* Growth of operating profit in 4 out of 6 divisions
* Year-end gearing of 31% and interest cover of 11.4 times*
Operations
* Restructuring in Plastic Systems and operational issues at Coldseal
depressed second half profitability
* UK Hardware continued to make progress
* US operating profits increased by 68% with strong performances in all
divisions in volatile markets
* Strengthened management teams in both UK and US focused on turnaround
* Product and sales channel development continuing
* Consistent strategy based on our strong market positions and product
development capabilities
Ian Stuart, Chief Executive, comments:
"With major step change largely behind us and with a strengthened management
team, we are now focused on achieving a reliable path to a turnaround in
performance during 2003. We are concentrating on achieving payback on our
investments in products and more efficient business structures to deliver the
profit growth and cash flows that our market positions deserve."
*before goodwill amortisation and exceptional items
HEYWOOD WILLIAMS GROUP PLC
Chairman's Statement
It has been a year of action and change in the Heywood Williams Group. In our UK
businesses we are tackling the major challenge of restructuring which was
necessary to create a lower cost base for the future and establish the
infrastructure and capability for growth. In the US we continue to deal with the
difficulties of volatile markets whilst achieving a significant increase in
profitability. In addition, we have strengthened the management of the group,
across the divisions, bringing in new skills to raise our level of performance.
Performance
Operating profit (before exceptionals and goodwill amortisation) was #18.3
million (2001 : #20.5 million), reflecting a significant improvement in our US
businesses, offset by lower second half in the UK due to restructuring costs and
Coldseal's operational performance. Profit before tax (before exceptionals and
goodwill amortisation) was restricted to a decline to #16.7 million (2001 :
#18.1 million) as a result of lower interest charges. Earnings per share before
exceptionals and goodwill amortisation were flat at 14.6p (2001: 14.6p
(restated)) and basic earnings per share after exceptional items and goodwill
amortisation were 1.3p (2001 : loss of 0.3p (restated)).
As previously announced, an operating exceptional item of #10 million was
charged to provide for the estimated lifetime cost of a legacy product
rectification issue of a cosmetic nature, with the related claims expected to
arise over the next 2 to 3 years. The group has taken legal action against the
raw material suppliers and is seeking full recovery.
The profit before tax, post exceptionals and goodwill amortisation, was #3.2
million (2001 : #4.0 million).
Our seasonally low year-end debt level at #34.9 million was achieved through
effective cash management and represented gearing of 31% and interest cover,
pre-exceptionals and goodwill amortisation, was 11.4 times.
Dividend
The board is confident that the group's turnaround will continue in 2003 and
therefore recommends an unchanged final dividend of 9.75p per share, payable on
15 May 2003 to shareholders on the Register of Members on 21 March 2003, making
a total for the year of 15p per share (2001 : 15p). Before exceptionals and
goodwill amortisation, the dividend cover is just below 1.0 times.
Focus on UK restructuring
UK restructuring remains an overriding priority for the group both in terms of
delivering short term earnings improvement and providing a platform for long
term growth. This led to higher costs in 2002. We are already making progress
in eliminating these costs and realising the benefits which the restructuring
was designed to achieve.
In Coldseal, the operational issues identified in 2002 are being addressed and
we are working vigorously to achieve immediate improvement. At the same time we
are developing the business model to deliver further step-changes in performance
during 2003.
Maintained emphasis on growth and innovation
The group's key strength is the leading market positions enjoyed in our areas of
activity, namely windows and doors in the UK and manufactured housing,
recreational vehicles and pipe in the US. Each division continues to focus on
innovation in new product development, improved processes and new ways of
improving customer service.
Four of our six divisions, which are not directly involved in the UK
restructuring programme, have placed a particular emphasis on innovation and
made good progress in 2002, increasing operating profits by 40%. There are many
examples of new products, which are giving life to our philosophy of growing the
group organically by building on its leading market positions.
Employees and directors
On behalf of the board, I would like to thank all Heywood Williams' employees
for the commitment, enthusiasm and energy, which they give to the group and its
operations. This has been particularly important in the demanding times of
change in the UK and difficult markets in the US.
Following the retirement of John Pinder and Richard Fortin at our AGM last year,
we have been delighted to welcome Roger Boyes and Edward Roderick as
non-executive directors. They bring a wealth of relevant experience and a fresh
dimension to the group board's discussions.
Prospects
The outlook for the world economy is clearly more uncertain than for many years.
Conditions in the UK window, door and conservatory market have been reasonably
sound to date, but the future is less predictable. In the US, market conditions
continue to be volatile.
In the UK we are dealing successfully with the challenge of restructuring and
are confident that we will emerge much stronger. In the US, we continue to
perform extremely well within the constraints of the markets in which we
operate. Overall the competitive position of the group is being enhanced and we
are confident that this will be fully reflected in future performance.
Hamish Bryce
Chairman
11 March 2003
HEYWOOD WILLIAMS GROUP PLC
Chief Executive's Report
Delivering turnaround
We have continued to lay the base for a successful turnaround in Heywood
Williams, despite the turbulence experienced in the second half of 2002. Major
changes have been effected in the UK, with a consequent short-term impact on our
profits. Our US companies have continued to outperform their markets, which
themselves generally moved off the bottom in 2002.
With major step change largely behind us and with a strengthened management
team, we are now focused on achieving a reliable path to a turnaround in
performance during 2003. We are concentrating on achieving payback on our
investments in products and more efficient business structures to deliver the
profit growth and cash flows that our market positions deserve.
UK windows, doors & conservatories
Our UK strategy continues to be driven by the belief that our #1 market position
provides both scale benefits and growth potential. Our restructuring programme
was essential to turn mere size into true scale. Product and sales channel
initiatives have been put in place and will begin to deliver in 2003.
Rapid and focused action succeeded in stabilising performance at our new Plastic
Systems distribution centre in Stoke-on-Trent by the end of 2002. With factory,
administrative and computer consolidations achieved to time and cost budgets,
the division will begin to benefit from restructuring benefits in the first half
of 2003 and its remaining task now is to achieve full warehousing efficiencies.
Resumption of its growth path will be significantly assisted by the launch in Q2
of the new Elite 70 profile suite, which will offer market leading benefits to
fabricators, installers and final consumers.
The performance issues arising at Coldseal, our retail fabrication and
installation subsidiary, in late 2002 are being addressed by an urgent action
programme which will progressively eliminate problems during the first half of
2003. In the meantime, our business-to-business fabrication activities have
been integrated with Cestrum to focus delivery of our new sales channel
initiatives in new build, DIY and builders' merchants.
The Hardware Division continued to deliver sales and profit growth in 2002 and
will continue its path of incremental product innovation and superior customer
service levels during 2003. Additionally, the groundbreaking Centralock, our
unique remote control central locking system for the home, is being launched in
early 2003 - initially in sales channels that can provide high levels of
technical and customer support.
Our emergent businesses in e-commerce and Eastern Europe will continue to
achieve high growth in 2003, building on our progress in 2002.
US activities
The strength of our market positions and consistency of our management
performance was demonstrated by our progress in 2002. Markets continued their
volatile paths of recent years, with manufactured housing continuing its
decline, recreational vehicles achieving an all-time peak in the second half and
PVC pipe showing a distinct recovery before falling back in the final quarter.
We successfully grew operating profit by 68% across the US business as a whole,
with each division moving forward.
Our Pipe Division is already experiencing a renewed recovery in market pricing
levels in early 2003 and will continue to drive forward its initiatives to
develop new sales channels and to raise productivity in the Georgia plant.
In MH/RV we will continue to grow, based on our expertise in delivering product
and service programmes that are tailored to the needs of individual customers
and market sectors. In 2002, our upgrading strategy was particularly successful
in the flooring, plumbing, vinyl siding, doors and speciality glass categories
and we anticipate further benefits going forward. Additionally, we will
continue to attack our cost base across our factories and warehouses by
developing our lean approach.
Ian Stuart
11 March 2003
HEYWOOD WILLIAMS GROUP PLC
Finance Director's Report
Sales decreased to #603.6 million (2001: #621.2 million) and operating profit
(before exceptionals and goodwill amortisation) was down 10.7% to #18.3 million
(2001: #20.5 million). Profit before tax (before exceptionals and goodwill
amortisation) was #16.7 million (2001: #18.1 million). On the same basis
diluted earnings per share were 14.6p, the same as prior year. This was restated
for the effect of FRS 19-Deferred Tax, which was adopted by the group during the
year.
As previously announced, the operating exceptional charge of #10 million relates
to the estimated lifetime cost of a legacy product rectification issue. Due to
the effect of this factor, profit after tax was #1 million (2001: loss #0.1
million (restated)).
Operating exceptional charge
The claims on the above item are expected to arise over the next 2 to 3 years.
This isolated problem concerns a cosmetic condition on certain extruded
profiles, manufactured during a defined period ending in 2000. The effect arises
from the use of bought-in additives, with a time lag between the date of profile
manufacture and the appearance of the condition. The exceptional charge taken
follows an extensive review of the claims experience to date.
The group has commenced legal action against the raw material suppliers, seeking
full recovery. No account has been taken for subsequent recovery from these
suppliers in the calculation of the exceptional charge.
Taxation
The effective tax rate was, as expected, 31% of profit before goodwill
amortisation and exceptional items (2001: 36.5% (restated)). The rate benefited
in 2002 by the effect of one-time taxation credits such that the current ongoing
rate for 2003 is expected to be in the region of 38%. This underlying higher
rate reflects the increased proportion of US profits in 2002 as well as the
effect of FRS 19-Deferred Tax.
Cash flow
Despite the effect of exceptional items and capital expenditure associated with
restructuring, year-end borrowings were restricted to #34.9 million (2001: #25.7
million). In the light of this increase, the management of cash will receive an
even greater emphasis in 2003.
We are targeting lower working capital levels through lower debtors, and by
concentrating on achieving the benefits of prior year capital investments rather
than on new projects. In relation to the exceptional items, we anticipate the UK
restructuring provision will be sufficient to achieve its defined objectives and
that the product rectification cash flows are broadly as expected. Within the
cash flow for 2002, there was a positive #6.5 million realised from our US
dollar asset hedge position, which has been rolled forward to January 2004.
The table below re-analyses the cash flow statement, in order to provide a more
informative presentation.
#m 2002 2001
Operating profit* 18.3 20.5
Working capital (5.2) 4.5
Capital expenditure less depreciation (3.7) 2.5
Taxation (4.1) (4.2)
Free cash flow before exceptionals 5.3 23.3
Exceptionals (5.6) (0.7)
Acquistions/disposals/other 4.3 (12.4)
Dividends/interest (13.2) (14.1)
Decrease in net funds (9.2) (3.9)
Opening borrowings (25.7) (21.8)
Closing borrowings (34.9) (25.7)
*before goodwill amortisation and exceptional items
Treasury policies and financial notes
The group's policies have not changed with respect to these risks and remain as
stated in note 27 to the report and accounts.
The group's principal foreign exchange exposure is the translation of US dollar
denominated results and net assets into sterling. The average rate for 2002 was
$1.50 (2001: $1.44) and the year end rate $1.60 (2001: $1.44).
Almost all the tangible net assets of the US operations are hedged by means of
forward exchange contracts but the remaining European investments are unhedged
due to their low magnitude. The interest element of the US dollar hedge is
credited or debited to interest costs.
The translation of the group's US operating results into sterling are unhedged
and if a rate of $1.60 emerged as the average rate for 2003, the negative effect
would be approximately #1m, based on 2002 profit levels.
Transaction exposures, from the limited amount of trade denominated in overseas
currencies, are hedged by the use of forward exchange contracts.
Pension schemes
Based on the disclosures under FRS 17, there was a deficit at 31 December 2002
of #22.8 million and #2.3 million on the UK and US schemes respectively. The
equivalent values at 31 December 2001 were nil and #1 million. This
deterioration was principally, but not exclusively, as a result of adverse
movements in the market value of the investments in the schemes.
The triennial UK actuarial valuation will be carried out during 2003, based on
the position of the fund at 5 April 2003, with the results available towards the
end of the year. The group has been advised to expect an increase in
contributions with effect from January 2004. Although it is too early to
predict the valuation with any degree of certainty, it is thought that the group
will probably increase its cash contributions by around #1.8 million a year.
The pension cost under SSAP24 is estimated to increase by around #2.3 million a
year from April 2003 onwards. The corresponding amounts for the two US schemes
are estimated to be not significant.
Accounting policies and standards
FRS 19-Deferred Tax and the increased disclosure requirements of FRS
17-Retirement Benefits, were implemented during the year. Prior period taxation
charges have been restated with the effect that the deferred tax provision at 1
January 2002 was increased by #12.6 million and the tax charge for 2001 was
increased by #0.4 million.
Laurence Campbell
11 March 2003
HEYWOOD WILLIAMS GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
year ended 31 December 2002
2002 2001
#m #m
restated*
Turnover 603.6 621.2
Costs and overheads excluding goodwill amortisation and exceptional items (585.3) (600.7)
Operating profit before goodwill amortisation and exceptional items 18.3 20.5
Goodwill amortisation (3.5) (3.1)
Operating exceptional items (10.0) (6.0)
Operating profit 4.8 11.4
Exceptional losses less profits on disposal of operations - (5.0)
Interest (1.6) (2.4)
Profit on ordinary activities before taxation 3.2 4.0
Taxation (2.2) (4.1)
Profit/(loss) attributable to members of the parent company 1.0 (0.1)
Equity and non-equity dividends (11.7) (11.8)
Retained deficit for the financial year (10.7) (11.9)
Earnings per ordinary share
Basic 1.3p (0.3)p
Diluted 1.3p (0.3)p
Diluted, excluding goodwill amortisation and exceptional items 14.6p 14.6p
*Prior year figures have been restated to reflect the implementation of FRS 19 -
Deferred Tax.
HEYWOOD WILLIAMS GROUP PLC
CONSOLIDATED BALANCE SHEET
at 31 December 2002
2002 2001
#m #m
restated*
Fixed assets
Intangible assets 56.3 59.8
Tangible assets 70.7 70.9
Other investments 3.4 3.4
130.4 134.1
Current assets
Stocks 63.4 63.0
Debtors due within one year 70.8 68.3
Cash at bank and in hand 21.7 12.9
155.9 144.2
Creditors: due within one year
Borrowings 56.6 38.5
Other creditors 88.8 89.9
145.4 128.4
Net current assets 10.5 15.8
Total assets less current liabilities 140.9 149.9
Creditors: due after one year - borrowings - 0.1
Provisions for liabilities and charges 28.3 25.1
28.3 25.2
112.6 124.7
Capital and reserves
Called up share capital 19.6 20.1
Share premium account 7.2 7.1
Other reserves 8.5 8.0
Profit and loss account 77.3 89.5
Shareholders' funds 112.6 124.7
*Prior year figures have been restated to reflect the implement of FRS 19 - Deferred Tax.
HEYWOOD WILLIAMS GROUP PLC
CONSOLIDATED CASH FLOW
year ended 31 December 2002
2002 2001
#m #m #m #m
Net cash inflow from operating activities (analysed below) 19.5 36.9
Returns on investments and servicing of finance
Interest paid (2.9) (2.5)
Interest received 1.4 0.2
Preference share dividends paid - (0.1)
(1.5) (2.4)
Taxation (4.1) (4.2)
Capital expenditure and financial investment
Purchase of tangible fixed assets (17.3) (11.4)
Sale of tangible fixed assets 1.5 1.2
Other investments (0.2) (1.1)
(16.0) (11.3)
Acquisitions and disposals
Acquisitions of subsidiary undertakings and businesses - (10.5)
Disposals of subsidiary undertakings and businesses - 5.1
- (5.4)
Equity dividends paid (11.7) (11.7)
Cash (outflow)/inflow before financing (13.8) 1.9
Financing
Issue of ordinary share capital 0.1 -
Redemption of preference shares (1.8) -
Forward exchange hedging contracts 6.5 (1.9)
Additional loans 22.9 12.6
Repayment of loans (5.7) (13.3)
22.0 (2.6)
Net increase/(decrease) in cash 8.2 (0.7)
Reconciliation of net cash flow to movement in net debt
Net increase/(decrease) in cash 8.2 (0.7)
(Increase)/decrease in borrowings (17.2) 0.7
Increase in net debt resulting from cash flows (9.0) -
Other non-cash changes - (3.7)
Exchange fluctuations (0.2) (0.2)
Increase in net debt (9.2) (3.9)
Opening net debt (25.7) (21.8)
Closing net debt (34.9) (25.7)
Analysis of cash inflow from operating activities
Operating profit before exceptional items and goodwill
amortisation 18.3 20.5
Depreciation less profit on fixed asset disposals and other
adjustments 12.0 12.6
30.3 33.1
Outflow in respect of operating exceptional items (5.6) (0.7)
(Increase)/decrease in working capital and other provision
movements (5.2) 4.5
19.5 36.9
HEYWOOD WILLIAMS GROUP PLC
NOTES ON THE FINANCIAL STATEMENTS
1. Segmental analysis
2002 2001
#m #m
Turnover by geographical location
UK (including Europe) 266.5 268.8
US 337.1 352.4
603.6 621.2
Operating profit by geographical location
UK (including Europe) 2.0 10.8
US 16.3 9.7
Operating profit before goodwill amortisation and exceptional items 18.3 20.5
UK goodwill amortisation (3.2) (2.8)
US goodwill amortisation (0.3) (0.3)
UK exceptional items (10.0) (6.0)
Operating profit 4.8 11.4
2. The 2002 operating exceptional item relates to the estimated lifetime cost
of a legacy product rectification issue of a cosmetic nature, with the
related claims expected to arise over the next 2 to 3 years. A #3.0m tax
credit has been recognised in relation to the charge. The 2001 operating
exceptional item related to estimated costs associated with the
restructuring plan for the UK operations and a tax credit of #1.7m
(restated under FRS 19) was recognised in relation to the charge.
3. The 2001 non-operating exceptional losses are after reversing goodwill of
#4.3m, previously written off to reserves. A tax credit of #0.8m was
recognised in relation to the charge.
4. Prior period taxation charges have been restated to reflect the
implementation of FRS 19 - Deferred Tax. The effect of the restatement was
to increase the deferred tax provision at 31 December 2001 by #12.6m and
the tax charge for 2001 was increased by #0.4m.
5. Payment of the recommended final dividend of 9.75p per ordinary share, if
approved at the annual general meeting of the company on 8 May 2003, will
be made on 15 May 2003 to shareholders registered on 21 March 2003.
6. The accounting policies used in the preparation of the preliminary
financial information are the same as those used in the statutory accounts
for the year ended 31 December 2001, as amended for FRS 19 - Deferred Tax.
The 2002 figures have been abridged from the audited accounts for the year,
which will be posted to shareholders on 2 April 2003. The figures for the
year ended 31 December 2001, except for where amended for FRS 19 - Deferred
Tax, are abridged and have been extracted from the statutory accounts filed
with the Registrar of Companies on which the auditors issued an unqualified
opinion. The preliminary financial information does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1986.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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