RNS Number:7095L
Pilkington's Tiles Group PLC
30 May 2003
PILKINGTON'S TILES GROUP PLC
PRELIMINARY RESULTS FOR YEAR ENDED 31 MARCH 2003
30 May 2003
Pilkington's Tiles Group plc, one of the UK's leading suppliers of ceramic and
terrazzo tiles and installers of flooring systems, announces Preliminary results
for the year ended 31 March 2003.
The Chairman, Tony Palmer, commented:
""The year ended 31 March 2003 has been a very difficult one for the Group. The
Ceramic business, which continues to operate in a highly competitive market, has
experienced an overall reduction in sales compared with the previous year. It
has also seen a change in product mix toward outsourced products, particularly
into the multiple retail sector. This shift away from manufactured products had
a significant impact on factory overhead recovery. The Terrazzo operation, after
achieving record results last year, has suffered from a reduction in activity
levels in its major markets, whilst Access Flooring performed creditably despite
a significant drop in turnover. The Supply and Fix business, in line with
previous announcements, is now effectively closed".
Key Points
- Turnover of continuing operations reduced to #25.8m. (2002 : #29.2m)
- Loss before tax at #2.7m (2002 : profit #0.8m)
- Loss per share 1.04p (2002 : earnings 0.35p)
- Operating cash flow #211,000 (2002 : #2.9m)
- Net debt #5.2m (2002 : #3.1m)
- Gearing 42.6% (2002 : 21.9%)
Operational Matters
- Previously announced strategic initiatives underway and on schedule
- Board committed to maximising the value of Poole land
- Plan to address Pension Fund deficit revealed
On an FRS17 basis, as at 31 March 2003 the final salary section of the pension
scheme is reported as being in deficit by #7.2m after tax. The Board has been
advised that as a result of the deficit, the costs of funding the final salary
section of the pension scheme could increase very significantly in the future.
Consequently the Board is proposing certain changes to the final salary section
of the pension scheme designed to maintain its commitment to fund the existing
accrued benefits of the members and to control the future cost of the pension
scheme. With immediate effect the Group will be entering into consultation,
regarding the proposed changes, with the members of the final salary section of
the pension scheme.
The proposed course of action may still result in a substantial increase in the
Group's contributions to the pension scheme which would underline its continuing
commitment to it. The Board believes that the proposed changes to the pension
scheme represent a fair balance between maintenance of the pension scheme and
benefits to its members, and the ability of the Group to fund these benefits and
the risk of future increases.
Regarding prospects, Chairman, Tony Palmer said:
"The next financial year will see further work on the initiatives identified
which are crucial to our commitment to improve the fortunes of the Group. We
anticipate that those initiatives, combined with the cost reductions already in
place, will produce substantial improvement in the next financial year".
For further information please contact:
Mary-Lorraine Hughes, Chief Executive 0161 727 1015
Mark Hesketh, Finance Director 0161 727 1015
Pilkington's Tiles Group PLC
Kevin Wilson 0121 710 4504 / 07796 697594
Arbuthnot Securities Ltd
Chairman's Statement
The year ended 31 March 2003 has been a very difficult one for the Group. The
Ceramic business, which continues to operate in a highly competitive market, has
experienced an overall reduction in sales compared with the previous year.
It has also seen a change in product mix toward outsourced products,
particularly into the multiple retail sector. This shift away from manufactured
products had a significant impact on factory overhead recovery and led to the
manpower and cost reductions which were noted in our Interim Statement and have
now taken place.
The Terrazzo operation, after achieving record results last year, has suffered
from a reduction in activity levels in its major markets, partly as a result of
the unusually high level of activity in the last quarter of 2001/2. This has of
course impacted on profitability. Access Flooring performed creditably despite a
significant drop in turnover as we temporarily reduced activity in certain
markets in which margins had become unacceptably low.
The Supply and Fix business, from which we announced last year that we would
withdraw by March 2003, has now largely finished its outstanding contracts and
is effectively closed. The closure programme has been completed in line with
expectations and in the coming year activity will be confined largely to the
collection of outstanding debts.
Results
Group turnover of #27.4m (2002: #33.5m) reflects the issues noted above and in
particular the loss of #2.6m of Supply and Fix turnover. The Group made an
operating loss before interest, tax and exceptional items of #1.9m compared to a
profit of #1.4m in the previous financial year. Exceptional items, which related
to the closure of the supply and fix business and the cost reduction programme
in Ceramics, amounted to #0.4m compared to #0.2m in the previous year. The loss
before tax after exceptionals of #2.7m compares to a profit of #0.8m in 2002.
The performance of the individual trading divisions is discussed in the Chief
Executive's Review.
Group gearing has increased at 31 March 2003 to 42.6% from 21.9% at last
year-end. This is due to the poor trading noted above, and the final payment of
#1.3m on the small tile kiln, which was noted in last year's Annual Report.
Total borrowings, including finance leases, were #5.2m compared to #3.1m at last
year-end.
Strategy
In the Interim Statement it was noted that we had, together with independent
advisors, undertaken a strategic and operational review of Group corporate
issues as well as of each of the operating companies.
The operational review identified a number of initiatives to increase sales into
certain chosen market sectors and to reduce the cost base of the businesses,
designed to change substantially the fortunes of those operations. These
initiatives are underway and on schedule, and it is expected that the benefit
will begin to be seen in the current financial year.
The Board's position with regard to the land at Poole remains largely unchanged
in that ultimately the potential development value of that land may be such that
it will be in excess of its value as an operational site. That point has not yet
been reached. However, the Board remains committed to maximising the value of
the site, and also wishes to maintain the supply of products currently
manufactured there, which make a valuable contribution to the Group.
Consequently, the Group is likely to continue to maintain a presence on that
site in the medium term.
Dividend
As a result of the current trading position the Directors do not recommend the
payment of a dividend (2002: Nil). The Board is focussed on the restoration of
the trading fortunes of the Group and dividends are unlikely to be resumed until
that process is well advanced.
Pensions
The Group's pension scheme consists of two sections: the defined benefit (or
final salary) section and the defined contribution section .
It was announced earlier in the year that we believed the final salary section
to be in deficit and were undertaking a detailed review of its future funding :
this review is now complete.
The analysis of the final salary section of the pension scheme revealed a
substantial deficit of some #4.2m on an actuarial basis as at 30 November 2002.
On an FRS17 basis as at 31 March 2003 the deficit is #7.2m after tax. The Board
has been advised that as a result of the deficit, the costs of funding the final
salary section of the pension scheme could increase very significantly in the
future. Consequently the Board is proposing certain changes to the final salary
section designed to both maintain its commitment to fund the existing accrued
benefits of the members and also to control the future cost of the pension
scheme. The proposal is to close the final salary section to further accrual
and enable affected members to join the defined contribution section of the
pension scheme to accumulate future pension benefits. The Group will be
entering into consultation, regarding the proposed changes, with the members of
the final salary section .
The proposed course of action may still result in a substantial increase in the
Group's contributions to the pension scheme which would underline its continuing
commitment to the pension scheme. The Board believes that the proposed changes
to the pension scheme represent a fair balance between maintenance of the
pension scheme and benefits to its members, and the ability of the Group to fund
these benefits and the risk of future increases.
Management and Employees
The Group is committed to a programme of operational improvement which
inevitably involves considerable change. This, combined with the redundancies
which have recently taken place, the difficult trading conditions and the
rapidly changing dynamics in the ceramic industry in particular, has meant that
it has been a tough year for all our employees and we thank them all for their
efforts. The pace of change is unlikely to slacken and we will be faced with
continuing challenges, but I believe that we now have a team capable of facing
the future with skill and determination.
Prospects
The result for the year to 31 March 2003 was extremely disappointing and fell
well below our expectations. The next financial year will see further work on
the initiatives identified which are crucial to our commitment to improve the
fortunes of the Group. We anticipate that those initiatives, combined with the
cost reductions already in place, will produce substantial improvement in the
next financial year.
H A (Tony) Palmer
Chairman
Chief Executive's Review
Introduction
The results for the year ended March 2003 were extremely poor. Sales at #27.4m
were 18% down on the previous year (#33.5m). The Group made an operating loss
before exceptional costs of #1.9m, #224,000 of which was associated with the
Supply & Fix business which was closed during the year as planned.
It was noted in the Interim Report issued in November 2002 that the already
difficult trading conditions faced by all the operating businesses had
deteriorated further. Despite this, and the traditionally weaker second half
trading, the Group sales level in the second half year did remain similar to
that of the first half.
The loss of the Supply and Fix sales had of course been anticipated when the
closure of that business was announced in May 2002, but beyond this, all three
continuing businesses contributed to the decline in sales. The depressed
manufacturing activity in the Manchester ceramic and terrazzo factories,
consequent upon the lower sales, contributed significantly to the operating
losses.
Ceramics
2003 2002
#'000 #'000
Sales 20,382 21,715
_____ _____
Operating (loss)/profit before exceptionals (1,377) 566
Exceptional items (206) (110)
_____ _____
Operating (loss)/profit (1,583) 456
_____ _____
In the second half of the year ceramic sales maintained parity with the same
period in the previous year, compared to a 12% fall in the first half. This
reflects some of the planned remedial actions beginning to take effect, albeit
to date largely in relation to sourced products, with which the business has
recently achieved notable pockets of success. The focus now is actively to grow
sales of our own manufactured products and so avoid the under-recovery of
overhead which contributed to the operating loss of #1.6m in this year.
The ceramic action plan, referred to in the Interim Report last November, is
being pursued vigorously. Of the sales related initiatives, work to develop
activity with multiple retailers is most advanced : declining accounts are being
reversed and new accounts opened. A pilot project is currently underway, as a
precursor to a national programme, to raise the Pilkington's brand profile in
the independent retail sector: early feedback is encouraging. A new team is
dedicated to pursuing 'new build' opportunities. Both new products and new
people have been introduced to support and drive these activities during the
second half of the year, including a new sales director who joined the business
in April 2003. The rebuilding of sales is the highest priority, despite the
increasing complexity of the routes to market and the unrelenting downward
pressure on prices.
A diverse range of new product collections has been introduced over the past
twelve months: smaller wall tile for the kitchen and larger format for
bathrooms, with co-ordinating floor tiles. New items within established ranges
were also launched at the Kitchen and Bathroom Exhibition in London in May 2003,
which was acknowledged to be a first class showcase of all Pilkington's branded
products. Further new introductions are scheduled for the current year.
The need to improve manufacturing efficiency and flexibility and to reduce
inventory and obsolescence is being driven by the transition to 'Lean'
principles. Considerable effort has been concentrated on the various elements
of this programme at the Manchester factory, with sustainable improvements
finally becoming apparent towards the year end. It was regrettable that in
order to align the cost base with demand, a cost reduction programme last
December meant the loss of over 40 jobs at Manchester, which account for the
exceptional costs. The floor tile factory at Poole continued to contribute
positively to the ceramic division's performance.
Proactive management of both the lifecycle of products and the increasingly
complex supply chain are two important initiatives that support the targeted
improvements in manufacturing and in sales.
Terrazzo
2003 2002
#'000 #'000
Sales 3,196 4,768
_____ _____
Operating profit before exceptionals 101 1,146
Exceptional items - -
_____ _____
Operating profit 101 1,146
_____ _____
In the year, sales of terrazzo fell by 33%, leading to very depressed
profitability. The second half of the year was particularly disappointing, and
entirely due to the poor sales performance. None of the major contractors, who
the business supplies, enjoyed an increase in their terrazzo activity during the
period of our financial year. As reported at the interim stage, the reduced
factory order book was in part due to exceptionally heavy demand in the fourth
quarter of the previous financial year.
An independent piece of market research has been commissioned to establish
customer perception of the terrazzo product and its market, and to identify
potential future trends and avenues for development. An additional sales person
has been recruited to enable our approach to market to capitalise on the
research findings.
Innovative new products are finding receptive audiences. Micro terrazzo, which
emulates natural stone, is being well received, and new slip resistant products
for both internal and external installation are generating interest at the
market testing stage.
Complete customer satisfaction will be key to maintaining market share when
demand returns and so work is also being done on both process and plant to
ensure the consistent output of high quality product for which the factory is
known.
Access Flooring
2003 2002
#'000 #'000
Sales 2,303 3,106
_____ _____
Operating profit before exceptionals 212 464
Exceptional items - -
____ ____
Operating profit 212 464
_____ _____
The decline in sales, and particularly the halving of profit, was due to the
increasingly keen competition in the sector because of fewer contracts being
available, particularly larger sized projects. The traditional
steel-encapsulated product came under particular pressure, especially in the
second half of the year, whereas hardwood flooring installation, in contrast, is
a growing area of activity. An installation service for other related products
is under consideration.
Sales, purchasing and operational aspects of the business have all been
subjected to close scrutiny in an effort to maintain share and brand equity. As
in so many other industries, the order book is becoming shorter which can lead
to the temptation to reduce its calibre. However, although margins have reduced
during the past year, the business remains sound and efficient.
Supply & Fix
2003 2002
#'000 #'000
Sales 1,603 4,239
_____ _____
Operating loss before exceptionals (224) (156)
Exceptional items - (54)
_____ _____
Operating loss (224) (210)
_____ _____
As expected, sales fell dramatically once the announcement to withdraw from the
Supply & Fix business had been made last May. There was an operating loss of
#224,000 in the year and linked to the closure of the business were
non-operating exceptional costs of #188,000.
The well-managed closure programme has proceeded to plan throughout the year and
the last two major contracts are on schedule and effectively complete. The
collection of outstanding cash will be the only residual activity during the
current year as payments become due.
The professionalism shown by everyone in this business during the closure
process is worthy of special note and thanks.
Conclusion
The most pressing issue in all the ongoing operating businesses is to increase
sales and it is to this end that resources are being concentrated. The main
driver is innovation: new introductions, fuelled by both technical and aesthetic
developments, in the product supply businesses and new services in the
installation business. To support this, marketing efforts are being heightened
with new communication tools being developed for every sector.
Despite the successful introduction of a sourced ceramic offer in the past year,
the performance of our own UK manufacturing resources is extremely important:
this still represents nearly 70% of our sales as a Group.
The various initiatives on which we have embarked are scheduled to bear fruit at
various stages of the coming year. Within each business there is a set of
clearly established plans and a tangible determination to achieve them.
M-L Hughes
Chief Executive
Consolidated Profit and Loss account
for the year ended 31 March 2003
2003 2003 2003 2002 2002 2002
Before Exceptional Total Before Exceptional Total
exceptional costs exceptional costs
costs costs
(Note 2) (Note 2)
Notes #'000 #'000 #'000 #'000 #'000 #'000
Turnover:
Continuing operations 1 25,771 --- 25,771 29,240 --- 29,240
Discontinued operations 1 1,603 --- 1,603 4,239 --- 4,239
1 27,374 27,374 33,479 33,479
Changes in stocks of 50 --- 50 244 --- 244
finished goods and work
in progress
Raw materials and 9,170 --- 9,170 9,624 --- 9,624
consumables
Other external charges 8,604 --- 8,604 8,897 54 8,951
Staff costs 9,341 206 9,547 11,153 110 11,263
Depreciation of 2,056 --- 2,056 2,123 --- 2,123
tangible fixed assets
Amortisation of 46 --- 46 47 --- 47
Goodwill
29,267 206 29,473 32,088 164 32,252
Operating (loss)/
profit:
Continuing operations 1 (1,669) (206) (1,875) 1,547 (110) 1,437
Discontinued operations 1 (224) --- (224) (156) (54) (210)
1 (1,893) (206) (2,099) 1,391 (164) 1,227
Loss on closure of 2 --- (188) (188) --- --- ---
discontinued operations
Interest payable and (408) --- (408) (387) --- (387)
similar charges
(Loss)/profit on 1&2 (2,301) (394) (2,695) 1,004 (164) 840
ordinary
activities before
taxation
Taxation 3 676 94 770 (233) 49 (184)
(Loss)/profit for the (1,625) (300) (1,925) 771 (115) 656
financial year
Dividends
- ordinary dividend --- ---
paid
- ordinary dividend --- ---
proposed
(Loss)/profit (1,925) 656
transferred to reserves
(Loss)/Earnings per
Ordinary share
- basic (0.88p) (1.04p) 0.42p 0.35p
- diluted (0.88p) (1.04p) 0.42p 0.35p
There is no difference between the results stated above and those under an
historical cost basis.
Consolidated Statement of Total Recognised Gains and Losses
for the year ended 31 March 2003
2003 2002
#'000 #'000
(Loss)/profit for the financial year (1,925) 656
Revaluation of freehold property --- 471
Total recognised gains and losses relating to the year (1,925) 1,127
Reconciliation of Group Shareholders' Funds
2003 2002
#'000 #'000
Total recognised gains and losses (1,925) 1,127
Shareholders' funds at 1 April 14,163 13,036
Shareholders' funds at 31 March 12,238 14,163
Consolidated Balance Sheet
as at 31 March 2003
2003 2002
#'000 #'000
Fixed assets:
Intangible assets 790 836
Tangible assets 14,904 16,390
15,694 17,226
Current assets:
Stocks 5,083 5,044
Debtors 4,368 4,785
Cash at bank and in hand 1 500
9,452 10,329
Creditors:
Amounts falling due within one year (10,093) (10,121)
Net current (liabilities)/assets (641) 208
Total assets less current liabilities 15,053 17,434
Creditors:
Amounts falling due after more than one year (2,315) (2,178)
Provisions for liabilities and charges (500) (1,093)
Net assets 12,238 14,163
Capital and reserves:
Called up share capital 9,247 9,247
Share premium account --- 25,429
Capital redemption reserve --- 645
Special reserve 13,130 ---
Merger reserve (1,001) (1,001)
Revaluation reserve 1,581 1,581
Profit and loss account (10,719) (21,738)
Equity Shareholders' funds 12,238 14,163
These financial statements were approved by the Board on 30 May 2003.
Consolidated Cash Flow Statement
for the year ended 31 March 2003
2003 2002
#'000 #'000 #'000 #'000
Cash inflow from operating activities (note 4) 211 2,927
Returns on investment and servicing of finance:
Interest paid (321) (352)
Interest element of finance lease rental payments (36) (63)
Net cash outflow from returns on investments and servicing of (357) (415)
finance
Taxation:
UK corporation tax paid (79) (69)
UK corporation tax refunded --- 536
Net Tax (paid)/refunded (79) 467
Capital expenditure:
Payments to acquire tangible fixed assets (1,774) (841)
Receipts from sales of tangible fixed assets 19 9
(1,755)
Net cash outflow from investing activities (832)
(1,980) 2,147
Equity dividends paid --- ---
Cash (outflow)/inflow before financing (1,980) 2,147
Financing
Capital element of finance lease rental payments (429) (367)
New bank loans 1,250 3,000
Repayment of bank loans (1,000) ---
Net cash (outflow)/inflow from financing (179) 2,633
(Decrease)/increase in cash (Note 5) (2,159) 4,780
1. SEGMENTAL INFORMATION
The analysis of sales by business group and geographical area and of profit or
loss before taxation and net assets by business group is set out below:
2003 2002
(a) Analysis of sales by business group #'000 #'000
Continuing operations:
Terrazzo 3,196 4,768
Raised access flooring 2,303 3,106
Ceramics 20,382 21,715
Inter Company sales (110) (349)
25,771 29,240
Discontinued operations: Supply & fix 1,603 4,239
Total Sales 27,374 33,479
(b) Analysis of sales by destination
UK & Republic of Ireland 26,535 32,118
Other Europe 531 762
Rest of the world 308 599
Total Sales 27,374 33,479
All sales originate from the United Kingdom
(c) Profit/(loss) before tax by business group
Continuing operations:
Terrazzo 101 1,146
Raised access flooring 212 464
Ceramics (1,377) 566
Central costs (605) (629)
(1,669) 1,547
Discontinued operations: Supply & fix (224) (156)
(1,893) 1,391
Exceptional costs (394) (164)
(2,287) 1,227
Finance costs (408) (387)
(Loss)/profit before taxation (2,695) 840
Of the exceptional costs of #394,000 in 2003, operating exceptionals of #206,000
relate to ceramics and non-operating exceptionals of #188,000 to supply and fix.
(2002: #110,000 relates to ceramics and #54,000 to supply and fix).
2003 2002
#'000 #'000
(d) Net assets (all UK) by business group
Continuing operations:
Terrazzo 2,798 3,245
Raised access flooring 198 171
Ceramics 14,942 14,844
17,938 18,260
Discontinued operation: Supply & fix 109 444
Net operating assets 18,047 18,704
Tax and other corporate items (596) (1,443)
Net debt (5,213) (3,098)
Net assets 12,238 14,163
2. EXCEPTIONAL COSTS
Operating exceptional costs comprise:
2003 2002
Continuing Discontinued Total Continuing Discontinued Total
#'000 #'000 #'000 #'000 #'000 #'000
Provision against contract debts --- --- --- --- 54 54
Redundancy costs 206 --- 206 110 --- 110
206 --- 206 110 54 164
Redundancy costs in both years related to the reduction of production facilities
following the installation of new production capacity. The provision against
contract debts in 2002 related to additional items identified following the
fundamental review of the business in the previous year.
Non-operating exceptional costs of #188,000 related to the closure of the supply
and fix activity.
3. TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
2003 2002
a) Analysis of the (credit)/charge in the year #'000 #'000
Current tax: UK corporation tax on (losses)/profits of the year (101) 254
Adjustments in respect of prior years (76) (184)
Total current tax (177) 70
Deferred tax : Origination and reversal of timing differences (593) 114
Tax on (loss)/profit on ordinary activities (770) 184
b) Factors affecting the tax charge for the year
The tax credit assessed for the period is lower than the standard rate of
corporation tax in the UK (30%). The differences are explained below.
2003 2002
#'000 #'000
(Loss)/profit on ordinary activities before tax (2,695) 840
(Loss)/profit multiplied by the standard rate of corporation (809) 252
tax in the UK of 30%
Effects of:
Expenses not deductible for tax purposes 47 111
Capital allowances not claimed 535 ---
Capital allowances in excess of depreciation --- (104)
Short term timing differences (2) (10)
Adjustment in respect of prior period (76) (184)
Losses arising in the year not relievable against current tax 128 ---
Other differences --- 5
Current tax (credit)/charge for the year (177) 70
4. Reconciliation of operating profit to net cash inflow from operating
activities:
2003 2002
#'000 #'000
Operating (loss)/profit (2,099) 1,227
Depreciation charges 2,056 2,123
(Profit)/loss on sale of fixed assets (1) 33
Amortisation of goodwill 46 47
(Increase)/decrease in stocks (39) 232
Decrease in debtors 417 803
Decrease in creditors (169) (1,538)
Net cash inflow from operating activities 211 2,927
5. Reconciliation of net cash flow to movement in net debt:
2003 2002
#'000 #'000
(Decrease)/increase in cash in the period (2,159) 4,780
Cash outflow from repayment of finance leases 429 367
Cash outflow from repayment of bank loans 1,000 ---
Cash inflow from new bank loans (1,250) (3,000)
Change in net debt resulting from cash flows (1,980) 2,147
Other non-cash movements (135) ---
Net debt at 1 April (3,098) (5,245)
Net debt at 31 March (5,213) (3,098)
6. BASIS OF PREPARATION
The preliminary statement was approved by the Board on 30 May 2003.
The figures for the year ended 31 March 2003 are unaudited and do not constitute
full accounts within the meaning of Section 240 of the Companies Act 1985. The
figures for the year ended 31 March 2002 have been extracted from the accounts
for 2002, which have been delivered to the Registrar of Companies. The auditors
have reported on these accounts; their report was unqualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985.
The preliminary statement of results should be read in conjunction with the
accounts for the year ended 31 March 2002. It has been prepared on the basis of
accounting policies which are in accordance with the accounting principles
generally accepted in the United Kingdom and have been applied on a basis
consistent with those applied in 2002.
The Annual Report and Accounts for the year ended 31 March 2003 will be posted
to shareholders by 13 June 2003 prior to the Annual General Meeting on 24 July
2003. Copies of the Annual Report and Accounts will be available to members of
the public from 13 June 2003 at the Group's registered office at PO Box 4, Rake
Lane, Clifton Junction, Manchester M27 8LP.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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