/raid1/www/Hosts/bankrupt/TCREUR_Public/030526.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Monday, May 26, 2003, Vol. 4, No. 102
Headlines
* G E R M A N Y *
BFI BANK: Banking and Securities Regulator Declares Insolvency
BINTEC COMMUNICATIONS: Funkwerk Acquires BinTec Access Networks
JENOPTIK AG: Loss in First Quarter Up Due to Sale of DEWB Shares
MMO2 PLC: Exceptional Charges Drives Before-Tax Loss of GBP10 MM
REPOWER SYSTEMS: Significantly Narrows Net Loss in First Quarter
* I R E L A N D *
ELAN CORP.: Sets Date for Special Shareholders Meeting in June
* N E T H E R L A N D S *
KLM ROYAL: Still in Dilemma Over Plans to Join an Alliance
* P O L A N D *
DAEWOO-FSO: Shareholders Meeting Postponed for the Third Time
NETIA HOLDINGS: Applies for Listing of Warrants and Shares
NETIA HOLDINGS: Presents Outline of Medium-Term Strategy
* R U S S I A *
METROMEDIA INTERNATIONAL: Receives Notice Regarding Disclosure
* S P A I N *
AVANZIT S.A.: Secures Credit Guarantee From Banco Popular
* S W E D E N *
SONG NETWORKS: Subsidiary Completes Exchange of Senior Notes
* S W I T Z E R L A N D *
SWISS INTERNATIONAL: To Suspend Service to Beijing Due to SARS
SWISS RE: Lloyd's Survey of Firm's Payments Fuels Speculations
ZURICH FINANCIAL: Returns to Profit in First Quarter of 2003
* U N I T E D K I N G D O M *
ANITE GROUP: Warns of Lower Profits Due to Further Restructuring
ANITE GROUP: Chief Resigns After Issuance of Trading Statement
AQUILA INC.: Agrees to Sell Interest in Midlands Electricity
AQUILA INC.: Agrees to Sell Aquila Sterling Limited to SSE
ARBRE ENERGY: New Owner Intent on Reviving Operations Soon
AVON ENERGY: Ratings Down to 'CC' After Bid; on Watch Negative
BALTIMORE TECHNOLOGIES: Results in line With Expectations
BOOTS PLC: Acquires Two Logistics Outsourcing Contracts
BRITISH ENERGY: Wants to Extend Deadline for Asset Sale--Report
BT GROUP: Fitch Says Pension Deficit Won't Affect Bondholders
COMPASS GROUP: Presents Interim Unaudited Results for Six Months
HOLMES PLACE: Recommends 25p a Share Offer From Health Club
IMPERIAL CHEMICAL: Reveals Resolutions Passed in Annual Meeting
IMPERIAL CHEMICAL: Chairman Admits Difficulty in Past Months
IMPERIAL CHEMICAL Chief Executive Outlines Future Direction
LONDON CLUBS: Shareholders Approve Sale of Palm Beach Club
MOTHERCARE PLC: Posts Before-Tax Loss of GBP25M; Skips Dividend
ROYAL MAIL: Posts Pre-Tax Loss of GBP611 Million in Results
ROYAL & SUNALLIANCE: Three-Month Results Shows Improvement
ROYAL & SUNALLIANCE: Fitch Says Ratings Remain Unchanged
SIMON GROUP: Chairman Provides Trading Update at General Meeting
=============
G E R M A N Y
=============
BFI BANK: Banking and Securities Regulator Declares Insolvency
--------------------------------------------------------------
Germany's banking and securities regulator BaFin declared the
former East Germany's only private bank BFI Bank AG insolvent
after failing to present a viable reorganization plan.
A Dresden court on Tuesday appointed attorney Hans Jorg Derra of
Ulm, Germany-based Derra, Meyer & Partner as administrator for
the bank.
BFI Bank, victim to the widespread crash in the German market,
suffered investment losses that eroded half of its share capital, and
shares in the bank lost 90% of their value in the past several months.
BFI's market capitalization stands at EUR3.2 million.
Its troubles prompted BaFin to halt deposits and payments at the
bank in April. "BaFin assumes that the bank isn't able to repay all
deposits or fulfill its liabilities from investments," the regulator said.
Depositors can only retrieve 90% of their deposits up to
EUR20,000 ($23,406) because deposits were secured through
the German banking association and not the federal deposit fund.
The bank sustained a EUR1.1 million loss in 2001 and has yet to
release its 2002 results, which were expected to be favorable.
BFI had about EUR260 million in assets and 50,000 customers, and
relied on some 400 representatives throughout Germany, with offices
in Dresden, Wurzburg and Luxembourg.
About 80% of the shares, which are traded only in Berlin and
Stuttgart, are widely held, while founder and supervisory board
chair Karl-Heinz Wehner holds nearly 9%.
BINTEC COMMUNICATIONS: Funkwerk Acquires BinTec Access Networks
---------------------------------------------------------------
Funkwerk AG will be taking over BinTec Access Networks GmbH and
with it, the entire fixed assets and any rights of BinTec
Communications AG, currently in the process of winding up. With
this investment, the leading supplier of professional
communication systems for traffic and logistics will be extending
its Private Networks business segment according to plan. Thanks
to the BinTec Access systems, Funkwerk will in future be able to
operate as a supplier of complete network solutions for
companies. At the same time, the company will be opening up a new
sales channel, in particular for markets in Western and Southern
Europe. Both sides have agreed not to disclose the purchase
price.
With retroactive effect from 1 May 2003, Funkwerk will acquire
all of the shares in the Nuremberg manufacturer of network access
solutions. To maintain the business operations of BinTec
Communications AG i.L., BinTec Access Networks GmbH was
established as a marketing company in February 2003. In addition
to the tangible and intangible assets, this includes 100 per cent
of the BinTec subsidiary, DERIF S.A.S., France, operating
successfully on the markets in France, Portugal, Italy, and
Spain.
BinTec Access Networks GmbH with its current staff of around 75
will continue to be managed as a legally independent organisation
seated in Nuremberg by its Managing Directors, Stephan Feige and
Thomas von Baross.
With the acquisition of BinTec, Funkwerk will be gaining a sales
potential of around 15 million Euro for 2003. Thus, the previous
sales and profit planning for the current financial year (sales:
126 million Euro, EBIT: 11 million Euro) can be adjusted upwards.
*****
Bintech, the European manufacturer of IP-based Remote Access
Solutions filed for insolvency proceedings after unsuccessful
talks with investors over further financing.
JENOPTIK AG: Loss in First Quarter Up Due to Sale of DEWB Shares
----------------------------------------------------------------
Report of JENOPTIK AG on the first quarter of 2003
-- Jenoptik Group sales up 4 percent in first quarter of 2003.
Operating income negative due to accounting deadlines as in
previous year.
-- Order intake up 20 percent; order backlog at new record of
nearly 2.8bn euros.
-- Outlook: group to return to 2001's sales figures in 2003.
The Jenoptik Group saw it sales increase four percent in the
first three months of the fiscal year to 263.0m euros (2002:
253.0m euros). The sales rise was attained in both business
divisions, Clean Systems and Photonics. Asset Management business
division sales are no longer included in the figures, reflecting
the deconsolidation of DEWB AG from the group as of June 30,
2002.
The Jenoptik Group saw another strong rise in order intake, which
was up 20.0 percent year-on-year to 659.8m euros (549.9m euros).
As of March 31, 2003, order backlog climbed to a new all-time
high of 2,791.6m euros (2,003.1m euros). Both business divisions,
Clean Systems and Photonics contributed to this increase of 39.4
percent.
The group saw a negative operating income in the first quarter of
2003 of -8.4m euros (-4.3m euros). The group's income for the
period was correspondingly negative at -12.8m euros (-7.6m
euros). The difference to last year's figures was primarily the
result of the sale of DEWB shares to a U.S. institutional
investor in the first quarter of 2002.
The Jenoptik Group's sales and income development strongly
depends on contractually determined accounting deadlines in
facility engineering, which are normally set towards the end of
the year. The figures of the first quarter cannot therefore be
used to project figures for the entire fiscal year.
Following the first quarter of 2003, the Jenoptik Group has
adhered to the goals and statements put forward in the 2002
Annual Report and at its balance sheet press conference. Jenoptik
expects a considerable sales increase for fiscal year
2003, group sales shall once again reach two billion euros. This
rise in sales will be accounted for primarily by the Clean
Systems business division, assuming that all projects are fully
paid and accounted for within deadlines.
CONTACT: JENOPTIK AG
Investor Relations
Steffen Schneider
Phone/Fax: +49-3641-652290/2157
MMO2 PLC: Exceptional Charges Drives Before-Tax Loss of GBP10 MM
----------------------------------------------------------------
Improved operating performance across the Group delivered:
-- 11% growth in customer base, to 19.4 million;
-- 14% total revenue growth, to GBP4,874 million;
-- 18% service revenue growth, to GBP4,327 million;
-- EBITDA before exceptionals almost doubled, to GBP859 million;
-- Operating loss before exceptionals and goodwill reduced to
GBP(104) million;
-- Exceptional charges of GBP(9,664) million gave rise to a
reported loss before tax of GBP(10,203) million;
Net debt was reduced by GBP68 million, to GBP549 million.
David Varney, Chairman of mmO2 plc, commented:
"In these year-end results, the size of the exceptional charges
we have taken has masked the strong underlying performance
delivered in our first full year as an independent company.
However this impairment enables us to go forward with a balance
sheet that reflects realistic assumptions about the potential of
our business to grow, and to deliver attractive returns for
shareholders.
"Looking ahead, following the disposal of our sub-scale business
in the Netherlands, we will build on the momentum created since
the demerger in our continuing operations. We will maintain our
focus on delivering growth, and improving the operational and
financial performance of all our businesses without, as we have
stated previously, ruling out any other potential opportunities
to deliver enhanced shareholder value."
Year ended Year ended
31 March 31 March
2003 2002
GBPm GBPm
Turnover 4,874 4,276
EBITDA before
exceptional items 859 433
Operating loss before
goodwill and exceptional items (104) (337)
Exceptional items (9,664) (150)
Loss on ordinary
activities before taxation (10,203) (873)
Year-end net debt 549 617
Peter Erskine, Chief Executive of mmO2 plc, commented:
"In mmO2's first full year as an independent company, it was
vital for us to deliver on the commitments made at the time of
the demerger; these results demonstrate this was achieved, with
the Group delivering strong growth and performance improvement.
"We launched the O2 brand, and across the Group it has achieved
awareness and appeal well ahead of expectations. We successfully
restructured our businesses in the U.K. and Germany, making them
more efficient and getting them closer to their customers. We
implemented a lower cost 3G strategy in Germany that will allow
us to compete on equal terms with the market leaders. We acquired
a 3G license in Ireland. We maintained our strong position in
mobile data, leading in the fast-growing U.K. text market, and
launching a stream of innovative data products. All these factors
contributed to the growth, and improvement in performance, that
we are determined to sustain going forward".
PERFORMANCE HIGHLIGHTS (comparative period: 12 months to 31 March
2002)
Group
-- Total customer base grew by 11% to 19.372 million
-- Total revenue grew by 14% to GBP4,874 million
-- Service revenue grew by 18%, to GBP4,327 million
-- EBITDA before exceptionals increased to GBP859 million (2002 :
GBP433 million)
-- Capital expenditure reduced to GBP944 million (2002 : GBP1,142
million)
-- Net debt at 31 March was GBP549 million (31 March 2002 :
GBP617 million)
-- Data as proportion of service revenue grew to 17.3% (2002 :
11.7%)
-- Total number of SMS messages sent grew by 60% to 8.5 billion
O2 U.K.
-- Total customer base grew by 9% to 12.05 million
-- Service revenue grew by 13% to GBP2,738 million
-- EBITDA before exceptionals grew by 25% to GBP837 million
-- EBITDA margin increased to 27.7% (2002 : 24.3%)
-- Capital expenditure reduced to GBP362 million (2002 : GBP556
million)
O2 Germany
-- Total customer base grew by 24% to 4.812 million
-- Service revenue grew by 36% to GBP944 million
-- EBITDA before exceptionals increased to GBP27 million (2002 :
GBP(166) million)
-- Capital expenditure reduced to GBP141 million (2002 : GBP250
million)
O2 Ireland
-- Service revenue grew by 13% to GBP415 million
-- EBITDA before exceptionals grew by 29% to GBP157 million
-- EBITDA margin increased to 35.5% (2002 : 30.9%)
To See Financial Statements:
http://bankrupt.com/misc/MMO2_PRELIMINARY_RESULTS.pdf
REPOWER SYSTEMS: Significantly Narrows Net Loss in First Quarter
----------------------------------------------------------------
Results Q1 2003
-- Gross revenue up 69 percent
-- Net loss substantially reduced in first quarter of 2003
-- Gross revenue target of EUR 330 million for 2003 confirmed
REpower Systems AG (TecDAX, WKN 617703), a wind energy industry
leader, recorded gross revenue of EUR 36.4 million in the first
three months of 2003, as against EUR 21.6 million in 2002. This
represents an increase of 69 percent.
18 wind turbines with a total rated output of 25.0 megawatts were
installed in the first quarter 2003. Traditionally the first
quarter is relatively weak compared to the rest of the year due
to seasonal fluctuations. Most wind turbines are erected in the
fourth quarter.
EBIT was still negative at EUR -1.2 million due to the
traditionally weak development of gross revenue in the first
quarter of 2003. However, favorable cost developments, among
other things, meant that it improved by around EUR 2 million
(EBIT in the first three months of 2002: EUR -3.2 million).
The net loss in the first quarter 2003 amounted to EUR 1.1
million, compared with a net loss of EUR 2.2 million in the first
three months of 2002. Earnings per share totaled EUR -0.20 (2002:
EUR -0.62).
REpowers growth targets for 2003 are largely covered by its
current order intake and project business. As of the end of March
2003, booked business comprised purchase agreements for 140 wind
turbines with a total rated output of 233.0 megawatts.
This corresponds to a volume of around EUR 196.2 million. These
turbines will be erected partly in 2003, and partly in 2004.
These figures are virtually unchanged on the same high level as
against the end of March 2002 (142 wind turbines with a rated
output of 231.4 megawatts and a volume of EUR 188.9 million). In
addition, the Groups consolidated associate, Denker & Wulf AG, is
expecting to realize projects involving a total of 80 wind
turbines (approx. 120 megawatts) in 2003.
On the basis of its booked business and the projects realized to
date, Repowers performance is in line with its projections for
the current fiscal year. Repower expects to realize its growth
targets for 2003 mainly in the second half of fiscal year.
The complete interim report and further information is available
at http://www.repower.deor by contacting:
CONTACT: REPOWER SYSTEMS AG
Isabelle von Grone*
Investor Relations
Phone:+49 40 53 93 07 23
Fax: +49 40 53 93 07 77
E-mail: i.grone@repower.de
*vormals: Isabelle von Wrede
Bettina Linden
Corporate Communications & Public Relations
Phone:+49 40 53 93 07 14
Fax: +49 40 53 93 07 37
E-mail: b.linden@repower.de
=============
I R E L A N D
=============
ELAN CORP.: Sets Date for Special Shareholders Meeting in June
--------------------------------------------------------------
Elan Corporation, plc (NYSE: ELN) on Thursday set the date for
its special shareholders meeting (an 'Extraordinary General
Meeting') in connection with the proposed divestment, on the
amended terms announced by Elan on May 20, 2003, of its primary
care franchise (principally certain commercial rights to
Sonata(TM) (zaleplon) and Skelaxin(TM) (metaxalone) and certain
associated assets) to King Pharmaceuticals, Inc. (NYSE: KG).
The Extraordinary General Meeting ('EGM') will be held at 10.30
a.m. on June 12, 2003 at The Davenport Hotel, Merrion Square,
Dublin 2, Ireland. Additionally, Elan announces the publication
of a letter to shareholders (the 'Letter') seeking shareholder
approval for the divestment on the amended terms at the EGM.
In compliance with their respective Listing Rules, a copy of the
Letter has been submitted to the Irish Stock Exchange and the
U.K. Listing Authority, and will be available for inspection at
the following locations:
(1) Company Announcements Office
Irish Stock Exchange
28 Anglesea Street
Dublin 2
Ireland
Tel: + 353 1 6174200
(2) Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom
Tel: + 44 20 7676 1000.
The Letter, Notice of the EGM and the circular issued to
shareholders dated February 24, 2003, relating to the sale on the
original terms, are available on Elan's website at
http://www.elan.com
Elan is focused on the discovery, development, manufacturing,
selling and marketing of novel therapeutic products in neurology,
pain management and autoimmune diseases. Elan shares trade on the
New York, London and Dublin Stock Exchanges.
=====================
N E T H E R L A N D S
=====================
KLM ROYAL: Still in Dilemma Over Plans to Join an Alliance
----------------------------------------------------------
KLM Royal Dutch Airlines has not yet made a decision on its future
European partner and is weighing whether to team up with British
Airways PLC and Air France Group.
KLM spokesman Bart Koster said: "We have made no decision, there
are still issues on the table. We are still in the phase of initial talks
and if
we do make a decision, it will be about who we enter into exclusive
negotiations with and if we can start cooperation or not."
Reports say KLM is considering whether to join British Airways in
its OneWorld Alliance with AMR Corp's American Airlines or join
Air France Group in the competing Sky Team grouping.
Mr. Koster confirmed KLM is involved in initial talks with TAP
Air Portugal, but said no conclusions have been reached between
the airlines.
"Regarding TAP Air Portugal, they are also considering which
alliance, Sky Team or One World, to join, though they have in the
past been aligned with BA. We are also in initial talks with
them, to see if we could mean anything to each other. No
conclusions there yet either," he said.
KLM recently reported an operating loss of EUR252 million for the
fourth quarter ended March 31, 2003. This result is an increase from
an operating loss of EUR124 million last year.
CONTACT: KLM ROYAL
Investor Relations
Phone: 31 20 649 3099
===========
P O L A N D
===========
DAEWOO-FSO: Shareholders Meeting Postponed for the Third Time
-------------------------------------------------------------
The Extraordinary Shareholders' Meeting of Daewoo-FSO Motor
Polska plant in Zeran failed to come up with results because it
was terminated only 11 minutes after the management's motion.
A Daewoo-FSO management member said a lack of agreement with
banks did not permit those present to vote on any of the items on
the agenda. Michael Relewitz said a new ESM, however, will be
called on June 26.
He did not exclude the possibility that a team concerned with the
company's restructuring would meet bank representatives for the
next phase of negotiations as early as this week.
According to the Warsaw Business Journal, rumors have been
spreading that the banks are waiting for new bankruptcy laws that
are favorable to creditors. These laws are believed to come into
force from October.
An insider was quoted saying: "In the event of Daewoo-FSO's
bankruptcy the situation of banks towards the Treasury will be
much better".
The news agency also said that at June's meeting, the
shareholders would have to give their consent to reducing the
company's employment by almost half from the present 3,300
workers.
This is the third time the ESM has been postponed.
Daewoo-FSO's financial trouble started when it posted a net loss
of PLN2.3 billion in 2000. General Motors took over most of the
operations, although it did not include the Polish investments in
its acquisition.
However, GM has offered to hand over intellectual property rights
that concern production of the company's Matiz and Lanos models
by the plant owned by Daewoo-FSO.
CONTACT: DAEWOO-FSO MOTOR CORPORATION
Ul. Jagielloivska 88
03-215 Warszawa
Phone: +48-22-676-3955
Fax: +4822-676-1501
Homepage: http://www.daewoo.com.pl
NETIA HOLDINGS: Applies for Listing of Warrants and Shares
----------------------------------------------------------
Netia Holdings S.A. (WSE: NET, NET2), Poland's largest
alternative provider of fixed-line telecommunications services,
on Thursday announced that on May 21, 2003, Netia filed the
following motions with the Warsaw Stock Exchange: (i) a motion to
introduce to trading 32,424,221 two-year subscription warrants,
entitling their holders to subscribe for series J shares by April
29, 2005; (ii) a motion to introduce to trading 32,424,221 three-
year subscription warrants, entitling their holders to subscribe
for series J shares by April 29, 2006; and (iii) a motion to
introduce 64,848,652 ordinary bearer series J shares to be issued
as a result of exercise of the subscription warrants by their
holders, PLN 1 par value per share, to trading on the main market
of the Warsaw Stock Exchange.
In addition, Netia announced that following a correctional
transaction effected on May 21, 2003, Netia Holdings Incentive
Share Company Limited has transferred a total of 486 subscription
warrants in accordance with the provisions of the Netia's
prospectus for notes and shares dated April 17, 2002, prepared
under Polish law which was made publicly available on December 2,
2002, together with the amendments which were made publicly
available on April 14, 2003.
This correctional transaction involved transferring 243 two-year
subscription warrants and 243 three-year subscription warrants to
24 persons holding Netia's shares as at December 22, 2002, who
submitted the valid subscription orders for subscription warrants
detached from series II notes.
The series II notes do not give rise to substantial long- or
medium-term indebtedness of Netia and have been issued solely in
order to provide a means of distributing the subscription
warrants.
NETIA HOLDINGS: Presents Outline of Medium-Term Strategy
--------------------------------------------------------
Netia Holdings S.A. (WSE: NET, NET2), Poland's largest
alternative provider of fixed-line telecommunications services,
announced the outline of its five-year business strategy, as
approved by Netia's Supervisory Board. The recently adopted
strategy includes the following major objectives:
Vision: To be Poland's provider of choice for business
communications services.
Mission
To provide a comprehensive range of value added
telecommunications services focusing future growth and product
development on meeting the needs of business clients while
maintaining its commitment to best practice in delivering
services to the mass market. We will strive to ensure the highest
level of customer satisfaction and offer advanced solutions,
including data transmission, Internet and broadband services in
addition to traditional voice products.
Strategy
To continue to build on Netia's record of double-digit revenue
growth and increasing EBITDA margins by expanding its range of
business-based services. This will be achieved through: (i)
acquisitions, (ii) economically justified network extensions,
increasing our available footprint through organic build-out
and/or assets acquisitions, and (iii) introduction of new
products and services. Investment in the mass market segment will
be allocated to customer retention, churn reduction and
maintenance of the existing customer base. Netia's development
will be financed from Netia's own resources and savings created
by: (i) optimization of the mass market segment, (ii)
implementation of additional operational improvements within
Netia, and (iii) financial synergies arising from mergers with
acquired companies. However, the acquisitions of large entities,
including mergers, may require additional financing.
Key Business Objectives
(1) Introduce new products and services for the business segment
following client needs and technological trends;
(2) Reorganize the way in which commercial services are delivered
to business clients by providing key accounts and significant
corporate customers, i.e., those clients generating or expected
to generate a substantial portion of Netia's revenues, with
improved levels of service. This will require a reorganization of
the relevant units within Netia and appropriate reallocations of
operating and capital investments;
(3) Optimize the level of service and expenses allocated to the
mass market segment by capitalizing on efficiencies available
with the newly implemented customer relationship management (CRM)
system;
(4) Acquire other telecommunications operators which support
Netia's strategic focus on the business segment as demonstrated
by the recent acquisition of TDC Internet Polska S.A.; and
(5) Deliver attractive average annual growth rates in double
digits and consistent earnings for investors demonstrated by
steady year-on-year operating margin improvements, with revenues
doubling and EBITDA margins reaching 35% by 2008.
===========
R U S S I A
===========
METROMEDIA INTERNATIONAL: Receives Notice Regarding Disclosure
--------------------------------------------------------------
Metromedia International Group, Inc. (OTCBB:MTRM - Common Stock
and OTCBB:MTRMP - Preferred Stock), the owner of interests in
various communications and media businesses in Eastern Europe,
the Commonwealth of Independent States and other emerging markets
announced that it had received notification from the trustee of
its Series A and B 10 1/2 % Senior Discount Notes Due 2007
concerning compliance with the covenants as outlined in the
indenture governing the Senior Notes (the Indenture).
The trustee reported that the Company had not yet filed with the
Securities and Exchange Commission and furnished to the trustee
certain statements, the timely public filing of which is required
under Section 4.3(a) of the Indenture. The required statements
include the Company's Form 10-K and Form 10-Q for periods ending
December 31, 2002 and March 31, 2003, respectively. The trustee
reported that, under the terms of the Indenture, the Company must
resolve this compliance item within 60 days of receipt of the
trustee's letter or the trustee will be required to declare an
event of default. If such default were declared, the trustee or
holders of at least 25% aggregate principal value of Senior Notes
outstanding could demand all Senior Notes to be due and Payable
immediately. On May 15, 2003, the trustee reported these
Indenture compliance items to the Securities and Exchange
Commission and holders of the Senior Notes as part of the
trustee's annual reporting duty required by Section 7.6 of the
Indenture.
In making this announcement, Ernie Pyle, Senior Vice President
Finance and Chief Financial Officer of MIG, commented, "The
Company anticipates completing its 2002 annual audit and
associated SEC reporting for fiscal year 2002 and first quarter
2003 within weeks. Work on these items is well underway and is a
significant corporate priority. We do not expect that there will
be any compliance items outstanding with respect to the Indenture
by the end of the 60 day time period set out by the trustee."
About Metromedia International Group
Metromedia International Group, Inc. is a global communications
and media company. Through its wholly owned subsidiaries and its
business ventures, the Company owns and operates communications
and media businesses in Eastern Europe, the Commonwealth of
Independent States and other emerging markets. These include a
variety of telephony businesses including cellular operators,
providers of local, long distance and international services over
fiber-optic and satellite-based networks, international toll
calling, fixed wireless local loop, wireless and wired cable
television networks and broadband networks and FM radio stations.
=========
S P A I N
=========
AVANZIT S.A.: Secures Credit Guarantee From Banco Popular
---------------------------------------------------------
Spanish media and telecoms engineering company Avanzit will now
be able to cover early retirement plan at its telecom unit
Avanzit Telecom, thanks to a credit guarantee from Banco Popular
Espanol SA.
Avanzit was able to secure a EUR4 million guarantee from the
bank, according to Dow Jones.
The firm went under creditor protection in May 2002 after being
left crippled by difficulties in the telecom and media
industries.
Avanzit's revenue was cut to EUR35.4 million from EUR85.2 million
in the first quarter of 2002. Last week, Avanzit posted a net
loss of EUR7.9 million in the first quarter. The figure is down
from a net loss of EUR9.9 million the previous year.
The sharp decline in spending from Spanish telecom giant
Telefonica SA, the crisis in the telecom and media industries,
and the downturn in Latin America had all contributed to the
troubles of the company.
Avanzit plans to cut jobs, close some of its Latin American
units, and sell its media unit Telson to bring the company back
to profitability.
Dow Jones pegs Avanzit's market capitalization at EUR39 million.
===========
S W E D E N
===========
SONG NETWORKS: Subsidiary Completes Exchange of Senior Notes
------------------------------------------------------------
Song Networks Holding AB (Stockholm:SONW) (Other OTC:SONWF)
announces that the exchange of Senior Notes issued by the
subsidiary Song Networks N.V. for new shares in Song Networks now
is completed.
At the closing of the final subscription period on May 2, 2003,
all outstanding Senior Notes not already held by Song Networks
had been surrendered in exchange for new shares pursuant to the
issuance resolutions adopted by the general meeting of
shareholders on November 11, 2002 and the Plan of Composition
(Akkoord) confirmed by the District Court of Amsterdam on
December 4, 2002.
The total number of Senior Notes exchanged during the entire note
exchange corresponds in aggregate to 31,518,188 ordinary shares
and 3,412,645 preference shares.
About Song Networks,
(Stockholmsborsen: SONW) Song Networks is a data and
telecommunications operator with activities in Sweden, Finland,
Norway and Denmark. The Company's business concept is to offer
the best broadband solution for data communication, Internet and
voice to businesses in the Nordic region. The Company has built
local access networks in the largest cities in the Nordic region.
The Company was founded in 1995 in Sweden and have approximately
830 employees per March 2003. The head office is located in
Stockholm and Song Networks have 24 offices located in the Nordic
region.
CONTACT: Song Networks Holding AB
Tomas Franzen, Chief Executive Officer
Phone: +46 8 5631 0111
Mobile: +46 701 810 111
E-mail: tomas.franzen@songnetworks.net
Homepage: http://www.songnetworks.net
=====================
S W I T Z E R L A N D
=====================
SWISS INTERNATIONAL: To Suspend Service to Beijing Due to SARS
--------------------------------------------------------------
SWISS has decided to suspend its scheduled services to Beijing in
view of the continuing SARS crisis. The action, which is being
taken for economic reasons, applies to all SWISS flights to and
from Beijing between May 29 and August 15, 2003.
Services to Beijing were reduced from five to three weekly
flights in mid-April in response to the outbreak of SARS and the
corresponding decline in demand. But seat load factors on these
flights have been below 20 per cent for the last two weeks; and
advance bookings offer little prospect of recovery in the short-
term future.
Scheduled service to Beijing will thus be suspended on May 29,
and the suspension will remain in force until August 15, 2003.
SWISS is currently assessing suitable alternative arrangements
with other air carriers.
*****
Swiss is currently seeking a partner after posting a net loss of
CHF1 billion in 2002. The carrier created from bankrupt Swissair
and regional carrier Crossair cuts its fleet and staff to counter
losses, but current conditions dashed its hope to return to black
this year.
Swiss' stock fell more than 70% this year after going down by
more than a half last year.
CONTACT: SWISS
Corporate Communications
P.O. Box, CH-4002 Basel
Phone: +41 848 773 773
Fax: +41 61 582 3554
E-mail: communications@swiss.com
Homepage: www.swiss.com
SWISS RE: Lloyd's Survey of Firm's Payments Fuels Speculations
--------------------------------------------------------------
People in the fund management business are suspicious of the
motive behind the current move of Lloyd's of London of asking
managing agents if Swiss Re is delaying or refusing payment on
outstanding claims.
The firm's fanchise performance director, Rolf Tolle, reportedly
inquired about details of any such instances in the past six
month.
It is known that Lloyd's is in dispute with Swiss Re and five
other reinsurers about a GBP290 million claim that the reinsurers
are refusing to pay to its central fund for losses made from the
September 11 terrorist attacks. The matter is being taken to
binding arbitration.
According to the Telegraph, one chief executive speculated that
Lloyd's could be "trying to gather market muscle together so
there can be a more concerted influence on Swiss Re."
Another said: "People do not seem to know what capacity Rolf
Tolle is writing in. Is he writing as our supervisor asking
whether we are having any problems working with Swiss Re or in
relation to the problem that the market as a whole is having?"
Lloyd's spokesman Julian James denied the inquiry has any
relation to the arbitration issue saying Mr. Tolle is "writing in
his capacity as franchising performance director responsible for
managing the financial performance of the market.'
Mr. James also said the amount Lloyd's insurers expect to recover
from reinsurers stood at GBP13.7 billion at the end of last year.
He said Lloyd's is trying to assess in "greater depth" the risk
of the unrecoverability of reinsurance that the Lloyd's market is
facing.
Swiss Re spokesman Tim Dickenson said the reinsurer has not been
advised about the move.
He said: "...[W]e will not speculate. We are confident that any
fair assessment will confirm that Swiss Re pays all valid claims
promptly."
ZURICH FINANCIAL: Returns to Profit in First Quarter of 2003
------------------------------------------------------------
-- Net income increased to USD 114 million from USD 6 million
-- Premium growth in Non-life insurance of 32% to USD 9.8 billion
over the first quarter of 2002 and 5.9 percentage point
improvement in combined ratio to 98.2%
-- Growth in Life insurance premiums and deposits of 17% to USD
5.6 billion while new business premiums increased to USD 503
million, largely due to acquisitions and foreign exchange impacts
-- Business Operating Profit increased to USD 785 million from
USD 391 million
-- Total shareholders' equity of USD 16.4 billion, down from USD
16.8 billion at December 31, 2002 driven by declining equity
markets
-- Challenges in the Life Business and in the Other Businesses
segment
Zurich Financial Services announced a net income of USD 114
million for the first quarter of 2003 in spite of financial
market headwinds, characterized by low interest rates, as well as
equity markets declining now for more than three consecutive
years, causing impairment charges totaling USD 927 million. This
net income, which was determined in accordance with International
Financial Reporting Standards (IFRS), compared with USD 6 million
for the first quarter of the previous year.
Business Operating Profit, Zurich's internal metric for assessing
performance defined in our 2002 Annual Report, doubled to USD 785
million. These results were supported in particular by Non-life
premium growth of 32% (21% in local currency terms) to USD 9.8
billion.
James J. Schiro, Chief Executive Officer of Zurich Financial
Services, said, "We inherited a great franchise as well as
significant challenges. I welcome the first quarter result as it
underscores the continuing progress in our recovery program. We
will continue to deal with future issues as they arise."
In the first quarter of 2003, Zurich recorded total gross written
premiums, policy fees and deposits of USD 15.5 billion, an
increase of 23% over the same period in 2002. Including the
premiums of the Farmers P&C Group Companies, which Zurich does
not own but to which it provides management services, first
quarter gross written premiums, policy fees and deposits
increased 18% to USD 18.4 billion in 2003. In the Non-life
Insurance segment, gross written premiums and policy fees grew by
32% to USD 9.8 billion and the combined ratio improved by 5.9
percentage points to 98.2%. The Life Insurance segment recorded
17% growth in gross written premiums, policy fees and deposits to
USD 5.6 billion for the first quarter of 2003 and an increase of
0.8 percentage points in new business profit margins to 6.3%. The
Farmers Management Services segment has seen an increase in
management fees and related revenues of 7% to USD 468 million and
recorded an increase in operating margin.
The Group's investment results (investment income, realized and
unrealized capital gains/losses and impairments) were affected by
the continued weakness of financial markets in the first quarter
of 2003. Net investment income and net realized and unrealized
capital gains declined by USD 810 million, or 63% (57% in local
currency terms), to USD 467 million for the first quarter of
2003. Investment income increased by 14% to USD 1.7 billion as
compared with the same period in 2002. This is primarily due to
the acquisition of the Deutsche Bank insurance operations in
Continental Europe and higher invested balances resulting from
increased premiums, which have been largely invested in debt
securities and is partially offset by lower yields in the first
quarter of 2003. Realized and unrealized capital losses have
increased from capital losses of USD 258 million in the first
quarter of 2002 to USD 1.3 billion in the first quarter of 2003.
Included in the 2003 realized capital losses is an impairment
charge of USD 927 million as compared with only USD 56 million in
the same period of 2002. Certain types of life insurance
policyholders shared a portion of these capital losses and
impairments. The Group was able to partially offset this
impairment with realized capital gains on certain of its fixed
income portfolio.
The underlying improvements in the core businesses' results in
the first quarter of 2003 led to an increase in the business
operating profit by 101% from USD 391 million to USD 785 million.
No special provisions were recorded in the first quarters of 2003
and 2002.
Performance by Business Segment
Non-life Insurance
The Non-life Insurance segment recorded gross written premiums
and policy fees of USD 9.8 billion in the first quarter of 2003,
an increase of 32% over the same period in the previous year. In
local currency terms, the growth was lower at 21%, reflecting the
strong appreciation of the British pound, Euro and Swiss franc
against the U.S. dollar, the Group's reporting currency. This
premium growth, which was recorded in each of our regions, was
primarily driven by rate increases in our key markets as compared
with the prior year. These rate increases have, in general, been
higher on our commercial lines of business than our personal
lines of business. Net earned premiums have increased by USD 1.4
billion, or 31%, to USD 5.9 billion as the rate increases on
business written in 2002 are recognized as income. Insurance
benefits and losses have increased by 24% to USD 4.4 billion in
the first quarter of 2003, primarily driven by higher premiums
and the weakening dollar. The combined ratio for the quarter
ended March 31, 2003 improved by 5.9 points to 98.2% from 104.1%
in the same period of the previous year. This improvement was
primarily due to underwriting and pricing discipline, coupled
with continuous claims improvement. Business Operating Profit
increased by 241% to USD 536 million as compared with the first
quarter of 2002.
Life Insurance
Gross written premiums, policy fees and insurance deposits in the
Life Insurance segment grew by 17% compared with the prior year
to USD 5.6 billion at March 31, 2003. The growth in local
currency terms was lower at 2%. Gross written premiums and policy
fees increased by 45% to USD 3.6 billion in the first quarter of
2003, while insurance deposits, which are not recorded as
revenue, declined by 13% to USD 2.0 billion. The acquisition of
the Deutsche Bank life insurance operations contributed USD 593
million of gross written premiums and policy fees and USD 163
million of insurance deposits to this total. Insurance benefits
and losses increased by USD 1.1 billion to USD 3.3 billion in the
first quarter of 2003, primarily due to the acquisition of the
Deutsche Bank life operations and the weakening of the U.S.
dollar.
In spite of additional amortization of deferred acquisition costs
(DAC) resulting from declining stock markets, Business
Operating Profit for our Life Insurance segment increased to
USD 256 million for the first quarter of 2003 as compared
with USD 206 million for the same period of 2002.
However, net income for our Life Insurance segment has
declined from an income of USD 116 million for the first quarter
of 2002 to a loss of USD 24 million in 2003, largely due to asset
impairment charges.
Gross new business premiums, measured on an annual premium
equivalent (APE) basis (new annual premiums plus 10% of single
premiums), increased by 16% in local currency terms when compared
to the first quarter 2002, to USD 503 million. This increase is
primarily due to the acquisition of the former Deutsche Bank
insurance operations, which contributed USD 83 of APE to our
first quarter 2003 production. Value added by new business, after
tax, was USD 32 million for the first quarter this year, a growth of
38% in local currency terms over the period, corresponding to an
increase in new business profit margin to 6.3% from 5.5%, due to
improvements in both North America and Continental Europe.
Farmers Management Services
Management fees and related revenue increased by 7% from USD 436
million to USD 468 million in the Farmers Management Services
segment. This increase resulted from higher premium volumes in
the Farmers P&C Group Companies (which Zurich manages, but does
not own). In the first quarter of 2003, these premiums were USD
3.4 billion as compared with USD 3.3 billion in the same period
of 2002. This premium growth is largely attributable to rate
increases implemented in 2002. As a result of higher management
fee income and related revenue along with improved operating
efficiencies, our Farmers Management Services segment has
recorded an increase in its operating margin to 56.3% for the
first quarter of 2003. Business Operating Profit grew by 16%, or
USD 35 million, to USD 260 million in the first quarter of 2003.
Other Businesses
Our Other Businesses segment, composed of the formerly separate
Asset Management, Centre, Capital Markets & Banking and
Reinsurance-runoff segments, has recorded a net loss of USD 41
million for the first quarter of 2003 as compared with net income
of USD 8 million for the previous year. The Business Operating
Profit of the Other Businesses segment declined from a loss of
USD 3 million to a loss of USD 103 million for the first quarter
2003.
The net loss is primarily driven by increased losses at
Centre Group partially offset by lower losses at the former Asset
Management operations. The Reinsurance-runoff and Capital Markets
& Banking operations each recorded small declines in net income.
The decline in net income at Centre Group is largely due to lower
premium volumes as it discontinued writing credit enhancement and
life settlement deals while at the same time, it has incurred
higher losses on these lines of business. The lower net loss in
the former Asset Management segment was due to Zurich Scudder
Investments, which had generated net losses until its disposal in
the second quarter of 2002.
Disposals and repositioning of non-core activities
The Group has continued to dispose and reposition non-core
activities during the first quarter of 2003. On March 31, 2003,
it completed the sale of Rod, Blass & Cie AG to Deutsche Bank. In
March, the agreements were announced to sell its asset management
business in India to Housing Development Finance Corporation and
to exit its insurance operations in the Baltic countries through
both portfolio sales and runoff. The Group announced in April
that it was reviewing its options for its business interests in
Sri Lanka. In May, the Group also announced it was transferring
the mutual fund portfolio of its subsidiary, Zurich Securities
Investment Trust Company Ltd., in Taiwan to Taiwan Life
Securities Investment Trust Co. Ltd. Finally, the Group signed an
agreement in May to sell all its Life operations and its Non-life
consumer and small business operations in the Netherlands to SNS
Reaal Groep.
Balance sheet and capital base management
Total assets were USD 290.9 billion at March 31, 2003, an
increase of 2% compared with USD 285.9 billion at December 31,
2002. The change is primarily due to the investment of premiums
received and foreign currency impacts, partially offset by
declining equity markets. Substantially all of the new investment
has been in debt securities. The Group has reduced its exposure
to equity securities for which it bears investment risk to 6.1%
of the total investment portfolio at March 31, 2003 from 8.3% at
December 31, 2002.
At March 31, 2003, total insurance reserves, net of reserves
ceded to reinsurers, were USD 139.5 billion. This compares with
total net reserves of USD 133.8 billion at December 31, 2002.
This increase of 4% is largely attributable to a 15% increase in
net reserves for unearned premiums, which is a result of the
growth in premiums since December 31, 2002.
Shareholders' equity was approximately USD 16.4 billion at March
31, 2003 as compared with USD 16.8 billion at December 31, 2002.
The movement is primarily due to the net increase in the
unrealized losses on investment securities available for sale,
offset only partly by positive translation adjustments due to the
decline of the U.S. dollar against the Euro and the Swiss franc.
Zurich Financial Services is an insurance-based financial
services provider with an international network that focuses its
activities on its key markets of North America, the United
Kingdom and Continental Europe. Founded in 1872, Zurich is
headquartered in Zurich, Switzerland. It has offices in
approximately 60 countries and employs about 68,000 people.
CONTACT: ZURICH FINANCIAL SERVICES
Media and Public Relations
8022 Zurich, Switzerland
Phone: +41 (0)1 625 21 00
Fax: +41 (0)1 625 26 41
Home Page: http://www.zurich.com
===========================
U N I T E D K I N G D O M
===========================
ANITE GROUP: Warns of Lower Profits Due to Further Restructuring
----------------------------------------------------------------
Full Year Trading Statement
Anite Group plc, the worldwide IT solutions and services company,
on Thursday announces a trading update for its financial year
ended 30 April 2003; highlights include:
-- Underlying profit before tax* at the lower end of expectations
(30 April 2002: GBP28.3m)
-- Net debt of GBP16m (30 April 2002: GBP11.5m), in line with
expectations and after GBP27.6m paid in earnouts
-- Revenues have grown in line with expectations; strong order
intake of GBP220m giving an opening order book of GBP91m for the
current year
-- 100% of the Group's total potential earnout liabilities
renegotiated and capped; only one small acquisition made in the
financial year and none currently planned
-- Goodwill impairment and amortisation of GBP100m (first half
GBP52.7m); plus exceptional items and restructuring costs of
approx GBP10m, mainly in Public Sector but with no future cash
impact; plus a GBP16m net loss on disposal/closure of businesses
including a GBP14m net loss incurred on disposal of GMO completed
1 Jan 2003)
-- Christopher Humthrey commenced as new Group Finance Director
on 3 February 2003
-- Similar trading pattern expected in current year; however
first half profits will be less than those of the first half of
the previous year as a result of further restructuring and
continued R&D spending
*continuing businesses, before exceptional items and
restructuring costs, and amortization of goodwill
-- The Board has today [Thursday] separately announced that John
Hawkins has ceased to be a Director and the Chief Executive of
the Company with immediate effect.
A search for a new Chief Executive will commence immediately and
David Thorpe, a non-executive Director since June 2002, will
assume the responsibilities of Chief Executive in the interim
period.
Commenting on the trading update, Alec Daly, Chairman of Anite,
stated:
'The Group has been undergoing a significant period of transition
with associated one off issues in a very challenging market.
Profit has been at the lower end of expectations affected by a
significant increase in development expenditure
'Two major issues, namely the earnout renegotiations and the
appointment of a new finance director, have now been resolved, in
January and February 2003, respectively.
'Markets remain very tough with no immediate signs of
improvement. The focus will be on organic growth, tightly
managing the continuing businesses and working to position the
Group for recovery.'
Performance for the year ended 30 April 2003
Anite is a worldwide IT solutions and services company. As was
indicated at the time of the interim results in December 2002,
the Group has been undergoing a significant period of transition
with associated one off issues in a very challenging market, and
our underlying performance (profit before tax of continuing
businesses, before exceptional items and restructuring costs, and
amortisation of goodwill) was at the lower end of expectations.
Against this background, we have continued to look critically at
our cost base, the structure of the Group and to review the
carrying value of our goodwill. As a result there has been a
further impairment charge and other one off costs during the
period. Exceptional items and goodwill impairment and
amortization for the year as a whole are thus expected to total
around GBP126m (first half: GBP53.6m), which will result in an
overall loss being incurred.
Two major issues, namely the earnout renegotiations and the
appointment of a newfinance director, have now been resolved, in
January and February 2003, respectively.
Current Trading
Whilst markets remain very tough with no immediate signs of
improvement, our focus will be on organic growth, tightly
managing the continuing businesses and working to position the
Group for recovery.
In particular we continue to invest in our Public Sector
applications, particularly in housing solutions, and this,
coupled with continued investment in revenues and benefits
applications (Pericles), will enable us to exploit the
opportunities available in this sector.
We therefore expect a similar trading pattern this year, with
continued investment in R&D and the costs of continued
restructuring impacting margins especially in Public Sector, most
noticeably in the first half. Overall, however, a greater second
half bias in our profitability is anticipated.
Order Book
The Group has seen strong order intake of GBP220m for the year
just ended with a healthy Group book to bill ratio of 1.0x giving
an opening order book of GBP91m for the current year; the order
intake last year was as follows:
-- Public Sector - an order intake to revenue ratio of 1.2x
giving the business a strong opening order book of GBP48m, up 23%
-- Travel - an order intake to revenue ratio of 0.9x. However,
First Choice have recently renewed their relationship with Anite
for a further 3 years
-- Telecoms - an order intake to revenue ratio of 1.0x
-- International (Consultancy) - an order intake to revenue ratio
of 0.9x. Approximately 25% of consultancy sales were represented
by applications management and support on longer term contracts
Key financial and operational points for the year as a whole
include:
-- At the Group level, organic revenue growth has been achieved
but margins have been impacted, as expected, by higher R&D costs
of approx GBP10m (2002: GBP6.2m) and tough market conditions,
leading to performance at the lower end of the range of
expectations
-- Restructuring to focus the business continues:
- during the year - there has been a headcount reduction of
c.100 principally in Public Sector but also in other
divisions
- current year - because of market uncertainties we will
continue to focus on operating costs in all businesses
-- Earnouts:
- 100% of the Group's total potential earnout liabilities
have now been renegotiated and capped, resulting in a
reduction in the number of shares needing to be issued
- as a result of the renegotiations, over the three year
period ending 30 April 2005 the actual number of shares
in issue is expected to increase by around 14% to 350.1m
when compared to the number in issue at the year ended 30
April 2002 of 306.8m.
- The actual number of shares in issue at 30 April 2003 was
340.5m
-- Net debt:
- there has been strong cash generation and control of
working capital during the year and the Group is
operating comfortably within its banking facilities
- at the year end - net debt (including outstanding loan
notes) stood at around GBP16m (30 April 2002: GBP11.5m),
after GBP27.6m of earnout payments.
- current year - payment in respect of loan notes issued
and remaining earnouts are expected to be a maximum of
GBP14m based on performance, leaving a further maximum of
GBP11.5m in future years
-- Goodwill:
- the total goodwill charge is expected to be GBP100m for
the year as a whole, made up as follows:
- goodwill amortisation for the year is expected to be
GBP25m (2002: GBP24.3m)
- goodwill impairment for the year is expected to be:
- first half - c.GBP39m was included in the interim
results, principally Anite Calculus
- second half - a further GBP36m principally
relating to reviews of acquisitions in Public
Sector and of Datavance
- after the above, total net carrying value of
goodwill will be GBP107m
--Exceptional items:
- the total exceptional items are expected to be GBP26m of
which GBP16m relates to losses and closures of businesses
(GBP14m relating to GMO disposal completed 1 Jan 2003)
- first half: redundancy costs as previously reported
second half:
-- write off of Dati option including
accumulated associated costs
-- write down of own shares held to market value
--costs of closure and restructuring of
businesses including redundancy costs, including those
previously reported, of GBP1.6m
--impairment of product software licences and
contracts
-- Tax:
- the Group benefited from an exceptional tax credit of
approximately GBP2m
- the tax rate for the year was 24%, which level is
expected to be maintained for the immediate future
-- Total R&D costs for the Group:
- during the year - approx GBP10m (2002: GBP6.2m)
- current year - an increased level of spending is expected
Divisional review
Public Sector
Public Sector has seen a combination of strong organic and
acquisition led revenue growth, although, as indicated at the
time of the interim results, its profitability was significantly
impacted during the year by restructuring, increased R&D and the
timing of deliveries.
The integration of the thirteen acquisitions made in the division
in recent years and the requirement to continue to invest in our
products has proved a greater task than was anticipated. We have
continued to focus and restructure its activities and
organisation (around its seven principal product streams, across
its three markets focused respectively on local and regional
government, central government and Scotland) whilst maintaining a
high level of R&D in order to complete existing and new
generation products in revenues and benefits (Pericles), and more
recently a new housing application (included in the State of
Victoria contract). These applications will enable us to exploit
market opportunities over the coming years.
The current year is therefore expected to see a similar pattern
of influences as last; revenue growth in line with or better than
the growth in its markets and a focus on its cost base, whilst
completing product development, with an inevitable impact on
short term margins. Therefore the underlying margins we have
targeted from Public Sector will be only realizable once the
investment in new products has finished and R&D begins to reduce.
Travel
During the year Travel benefited from the integration of the FSS
acquisition and cost savings made and its performance for the
year as a whole was satisfactory and was maintained in the second
half. However, market conditions have worsened into one of the
most uncertain periods ever experienced by the travel industry,
and that is inevitably leading to the deferral of major customer
projects.
Our long-term managed services contract for MyTravel continues to
be implemented successfully and without interruption and this
customer in return continues to meet all its obligations to us.
First Choice, our largest customer, has recently renewed two
contracts for 2 and 3 years respectively, with significant multi
million pound revenues expected over that period.
Telecoms
The core testing business, which represents over 90% of the
turnover of this business, continues to grow its revenues but
reported a reduction in its profitability for the second half and
the year as a whole, due to pricing pressure in a highly
competitive market. 2G sales remained very strong and R&D
investment in 3G solutions continued to be high. Calculus, the
other part of the continuing Telecoms' business, returned to
profit in the second half.
As part of the Group's restructuring, we have exited from the
loss making Networks products business through a combination of
closure and disposal, thus allowing management to focus on
developing the two continuing businesses.
Profitability in the short term is not expected to improve
because of continued sector issues and restructuring against a
background of yet to be fulfilled prospects for 3G.
International
The International business now consists of our overseas
consultancy businesses and our applications management and
support operations outside the UK. The business had a creditable
year in the circumstances with the margin of its continuing
business following the disposal of GMO being sustained in double
digits despite a tough trading background. It has continued to
benefit from its application and management support contracts,
public sector contracts and annualised application management
contracts in Germany.
The continuing German businesses performed well following the
sale completed on 1 January 2003 of our loss making German
subsidiary, Anite Consulting GmbH, previously known as GMO, which
was sold to its management team for a nominal consideration.
The overall market for consultancy services remains very
difficult with continued pressure on day rates, especially in the
Netherlands. The division therefore continues to focus on its
utilisation levels and costs, in order to sustain profitability
and generate cash.
Offshore development
We have decided not to proceed, on its original terms, with the
acquisition of Dati, the Latvian based software development
group. This resulted in a write off of the option and associated
accumulated costs of GBP0.9m. However, we continue to trade with
Dati and to utilise their development teams who are involved with
a number of projects in Public Sector and other divisions. We may
consider structuring a more appropriate deal in the future.
CONTACT: ANITE GROUP PLC
Phone: 0118 945 0129
Alec Daly, Chairman
David Thorpe, Interim Chief Executive
Christopher Humphrey, Group Finance Director
Home Page: http://www.anite.com
WEBER SHANDWICK SQUARE MILE
Phone: 020 7067 0700
Sara Musgrave
ANITE GROUP: Chief Resigns After Issuance of Trading Statement
--------------------------------------------------------------
The Company published a trading statement relating to its
performance in 2002 - 2003 and its prospects.
The Board announces that John Hawkins has ceased to be a Director
and the Chief Executive of the Company with immediate effect. A
search for a new Chief Executive will commence immediately and
David Thorpe, a non-executive Director since June 2002, will
assume the responsibilities of Chief Executive in the interim
period.
David was until recently Corporate Vice President and President
of Europe for Electronic Data Systems Inc ('EDS'). Before
joining EDS in 1994 he was at Bull Information Systems, where he
was a member of the U.K. Board and Managing Director of Bull's
largest operating unit, Systems Integration and Services. David
is a member of The Institute of Public Finance and Accountancy
and has 25 years of experience in the IT software, services and
outsourcing market.
Alec Daly, Chairman of the Company, commented:
'The Board thanks John for his past contributions to the Group
and wishes him every success for the future.'
CONTACT: ANITE GROUP PLC
Phone: 0118 945 0129
Alec Daly, Chairman
David Thorpe, Interim Chief Executive
Christopher Humphrey, Group Finance Director
Home Page: http://www.anite.com
WEBER SHANDWICK SQUARE MILE
Phone: 020 7067 0700
Sara Musgrave
AQUILA INC.: Agrees to Sell Interest in Midlands Electricity
------------------------------------------------------------
Aquila, Inc. (NYSE:ILA) on Thursday announced that it and
FirstEnergy Corp. (NYSE:FE) have signed an agreement to sell
Aquila Sterling Limited, the owner of Midlands Electricity plc,
to a subsidiary of Scottish and Southern Energy plc (LSE:SSE).
Aquila Sterling is held by a joint venture company that is owned
79.9 percent by Aquila and 20.1 percent by FirstEnergy. The
purchase price under the sales agreement is approximately US$70
million, which Aquila and FirstEnergy will share in accordance
with their ownership percentages.
Midlands is the fourth largest electric utility in the United
Kingdom, serving 2.4 million network customers through a 38,000-
mile distribution network. Midlands also owns interests in a
combined 884 megawatts of net generation capacity in the United
Kingdom, Turkey, and Pakistan.
The closing of the sale is subject to conditions, including the
successful redemption of outstanding bonds issued by Avon Energy
Partners Holdings, an Aquila Sterling subsidiary, at 86 percent
of their face value. The parties will work to satisfy all closing
conditions and close the sale in the third quarter of this year.
The completion of this transaction will be another important
milestone in Aquila's restructuring efforts, allowing management
to focus more of its attention on Aquila's core businesses.
"Selling Midlands will be a significant step forward in returning
to our roots as an operator of domestic electric and natural gas
distribution networks," said Keith Stamm, Aquila's chief
operating officer.
Based in Kansas City, Mo., Aquila operates electricity and
natural gas distribution networks serving customers in seven
states and in Canada, the United Kingdom and Australia. The
company also owns and operates power generation assets. More
information is available at www.aquila.com.
CONTACT: AQUILA, INC.
Neala Clark
Phone: 816/467-3562
AQUILA INC.: Agrees to Sell Aquila Sterling Limited to SSE
----------------------------------------------------------
Avon Energy Partners Holdings (AEPH) announces that Aquila, Inc.
(NYSE:ILA) and FirstEnergy Corp. have reached a definitive
agreement to sell their respective shareholdings of 79.9% and
20.1% in Aquila Sterling Limited (ASL) to Scottish and Southern
Energy plc (SSE) for GBP43m.
ASL through AEPH owns Midlands Electricity plc, the holding
company for Aquila Networks plc, a U.K. electricity distribution
company. Based on net debt as at 31 March 2003, SSE's offer
represents an enterprise value of approximately GBP1,112m for
ASL.
SSE's obligation to acquire ASL is conditional upon a commitment
of the bondholders of the outstanding U.S. Dollar notes and U.K.
Sterling bonds of AEPH to sell their bonds to ASL (or one of its
subsidiaries) (the "Bond Offer") for 86% of their nominal value
plus all accrued interest. The AEPH bonds subject to the Bond
Offer are the GBP360m Variable Coupon Bonds due 2006, the US$250m
Senior Notes due 2007 and the US$250m Senior Notes due 2008
(collectively, the Bonds).
As at 31 March 2003, consolidated net debt of AEPH was
approximately GBP1,162m and the regulatory asset base ("RAB") of
the distribution business was approximately GBP981m. As at 31
December 2002, Midlands had a pre-tax unfunded pension liability
of approximately GBP106m.
The Sale is conditional upon the following:
-- successful completion of the Bond Offer;
-- no material adverse change in the Midlands business; and
-- no insolvency event at either of the Sellers or Aquila
Sterling Holdings LLC (parent company of ASL).
Background to the Bond Offer
The Sale is the result of a comprehensive auction process
initiated by Aquila and FirstEnergy in August 2002. Following the
submission of final bids by interested parties in December 2002,
the Sellers decided to pursue the transaction with SSE, the only
offeror for all the businesses of ASL. This decision to pursue
the transaction with SSE was based on the Sellers receiving a
minimum level of cash proceeds. Since that time, SSE has
completed its due diligence on ASL and submitted a revised offer
which has been accepted by the Sellers.
In electing to accept this offer from SSE, the Sellers have taken
into account the following:
-- the uncertainty surrounding the outcome of the electricity
distribution price review set to take effect from April 2005;
-- the high level of consolidated net debt at AEPH, which
represented a multiple of 1.18x RAB as at 31 March 2003, and the
pension deficit at Midlands;
-- the deterioration in the credit ratings of AEPH (currently
rated B with negative outlook by Standard & Poor's and B2 with
negative outlook by Moody's) and the strengthening of the ring-
fencing of the distribution business by Ofgem in December 2002;
-- the uncertainty surrounding the ability of AEPH to
refinance the Bonds in 2006, 2007 and 2008;
-- increased reliance on cash distributions from unregulated
businesses to service the Bonds following the strengthening of
the Ofgem ring-fence;
-- the uncertainty surrounding the level of dividends from
the Midlands generation assets, particularly in light of upcoming
tariff renegotiations likely to affect generation projects in
Turkey, including that of Midlands; and
-- risk of further credit downgrade at AEPH and of tightening
of Ofgem ring-fencing provisions around the distribution
business.
Position of the Shareholders
Following a strategic review of its business portfolio in mid
2002, Aquila decided to pursue sale processes for certain non-
strategic assets, including Midlands, with the aim of
repositioning the company as a domestic utility, restoring credit
quality and enhancing near-term liquidity. Following downgrades
by Standard & Poor's and Moody's in 2002 and 2003, Aquila's
credit ratings are B with credit watch and Caa1 with negative
outlook respectively. Aquila's focus over the last twelve months
has been its liquidity position.
FirstEnergy has joined Aquila's effort to dispose of its interest
in Midlands; Midlands has never been a strategic focus of
FirstEnergy.
Bond Offer Process
Given the different voting requirements and approval processes
for the U.K. Sterling bonds and U.S. Dollar notes, mechanics for
repurchasing the Bonds will differ.
It is currently expected that a meeting of the U.K. Sterling
bondholders will be convened to approve a resolution to amend the
terms of the Trust Deed for the U.K. Sterling bonds. If votes are
cast in favor of the resolution in respect of U.K. Sterling bonds
representing 75% or more in nominal value of all the U.K.
Sterling bonds in respect of which votes are cast at a meeting of
such bondholders at which a quorum is present, all of the U.K.
Sterling bonds will be acquired by ASL (or a newly incorporated
wholly-owned U.K. subsidiary of it) at a price equivalent to 86%
of their nominal value plus all accrued interest.
The repurchase of the U.S. Dollar notes is expected to be
implemented through a tender offer. If the tender offer becomes
unconditional, the U.S. Dollar notes will be acquired for a
payment equivalent to 86% of their nominal value plus all accrued
interest. The Sellers and SSE may elect to utilize a scheme of
arrangement (a Scheme) in conjunction with the tender offer. A
Scheme, if utilized, would also provide for the U.S. Dollar notes
to be acquired for a payment equivalent to 86% of nominal value
plus all accrued interest.
The closing of the offer for the U.K. Sterling bonds and U.S.
Dollar notes will be interdependent and immediately follow the
closing of the Sale.
AEPH understands that Close Brothers are acting on behalf of the
holders of the Bonds. The Sellers and SSE intend to work closely
with the bondholders and Close Brothers to facilitate their
evaluation of the Bond Offer.
This document does not constitute, and shall not be relied upon
as constituting, investment advice and is not (and is not
intended to form the basis of) any offer or solicitation of an
offer or an invitation for the sale or purchase of any
securities.
This document includes forward-looking statements based on
information currently available to management. Such statements
are subject to certain risks and uncertainties. These statements
typically contain, but are not limited to, the terms
"anticipate," "potential," "expect," "believe," "estimate" and
similar words. Actual results may differ materially due to the
speed and nature of increased competition and deregulation in the
electric utility industry, economic or weather conditions
affecting future sales and margins, changes in markets for energy
services, changing energy market prices, legislative and
regulatory changes or approvals (including revised environmental
requirements), availability and cost of capital, inability to
accomplish or realize anticipated benefits of strategic goals and
other similar factors. Past performance of the price of a
security or of any company or entity cannot be relied on as a
guide to future performance.
This document is only being distributed in the United Kingdom to
persons who (i) have professional experience in matters relating
to investments falling within Article 19(1) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2001
(as amended) or (ii) are persons falling within Article 49(2) (a)
to (d) ("high net worth companies, unincorporated associations
etc.") of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001 (as amended) or to whom this document may
otherwise be lawfully distributed (all such persons together
being referred to as "relevant persons"). This document is
directed only at relevant persons and must not be acted on or
relied upon by persons which are not relevant persons. Any
investment or investment activity to which this document relates
is available only to relevant persons and will be engaged in only
with relevant persons.
CONTACT: AQUILA, INC.
Don Bacon
Phone: +44 1905 761487
ARBRE ENERGY: New Owner Intent on Reviving Operations Soon
----------------------------------------------------------
Energy specialist Bio Development International, the rescuer of
renewable energy power plant Arbre Energy, wants to put the
pioneering project up into operation again, according to
Yorkshire Today.
The report cited chair and founder Anthony DiNapoli saying to
Selby MP John Grogan in a meeting Tuesday that he wants to keep
it running as soon as possible.
Majority shareholder Energy Power Resources put the GBP40 million
prototype wood-burning plant at Eggborough, near Selby, into
liquidation in August last year, after Yorkshire owner, Kelda,
withdrew financial support for the plant.
The fate of Arbre was believed to have remained in the dark
despite the buy-out and the promise of financial assistance to
prevent the permanent closure of the site from the European
Commission and the Department of Trade and Industry.
At present, there are fears that the facility could be stripped
of its technology. The plant uses willow trees for fuel as a
condition under the Non Fossil Fuel Obligation contract that gave
its previous owner a premium electricity price. The terms are
not believed to be part of the current deal.
BDI, which specializes in highly-efficient fossil fuel
technologies as well as wind, water and biomass-generated
electricity, assured that the company intends to continue using
willow for fuel.
Previously a spokeswoman said: "We already run similar projects
to Arbre and they are very successful. However, we are still in
discussion with the British Government over any funding."
During the meeting Mr. DiNapoli confirmed he had been in talks
with a number of Government ministers this week, but warned there
were still a few more "obstacles" to overcome.
A spokesman for Mr Grogan said the meeting had proved very
positive.
He said: "BDI has now asked Mr Grogan to speak on their behalf
over a number of issues with the Energy Minister Brian Wilson.
Renewable Energy Growers, a co-operative of 50 farmers which
secured contracts to grow willow for the plant, meanwhile, said
it had not been officially approached, although informal
discussions had taken place with BDI's solicitors, according to
the report.
AVON ENERGY: Ratings Down to 'CC' After Bid; on Watch Negative
-----------------------------------------------------------
Standard & Poor's Ratings Services said it lowered its long-term
corporate credit and senior unsecured debt ratings on U.K.-based
electricity holding company Avon Energy Partners Holdings (AEPH)
to 'CC' from 'B'. The ratings remain on CreditWatch with negative
implications, where they were placed on Dec. 24, 2002.
The rating action follows the announcement that U.K.-based
electricity company Scottish and Southern Energy PLC (AA-
/Stable/A-1+; SSE) has made a conditional offer to acquire AEPH.
The offer is conditional on the AEPH bondholders accepting a
discounted valuation for their bonds.
At the same time, Standard & Poor's revised the CreditWatch
implications on its 'B' corporate credit ratings on AEPH
subsidiary Midlands Electricity PLC (Midlands) to positive from
negative, and placed its 'BBB-' guaranteed senior unsecured debt
ratings on CreditWatch with positive implications. The 'BBB-'
long-term and 'A-3' short-term corporate credit ratings on the
Aquila Networks PLC subsidiary were also placed on CreditWatch
with positive implications. The CreditWatch placements reflect
the possibility that the companies' credit quality will improve
if the acquisition proceeds because of the higher rating on SSE.
"If the acquisition proceeds, Standard & Poor's will need to
review SSE's strategies and objectives for the companies, but it
expects their operations to be integrated into SSE, thereby
materially improving the ratings," said Standard & Poor's credit
analyst Daniela Katsiamakis. "If the acquisition does not
proceed, the ratings on Aquila Networks will remain at 'BBB-',
while those on Midlands could deteriorate."
SSE has offered to purchase AEPH's predominantly U.K. electricity
distribution business for GBP1.1 billion. The value reflects
assumed debt at Midlands and Aquila Networks of about GBP500
million, equity of about GBP45 million, and valuation of the
bonds at AEPH at GBP567 million (this represents 86% of the
outstanding amount and equates to SSE's offer to bondholders). In
accordance with Standard & Poor's criteria, acceptance of the
offer by AEPH bondholders would amount to a default because SE's
offer is less than the nominal value of the bonds. The
bondholders may not reach a decision until the end of August
2003, at which time Standard & Poor's will seek to resolve the
CreditWatch placements.
BALTIMORE TECHNOLOGIES: Results in line With Expectations
---------------------------------------------------------
Baltimore Technologies PLC (LSE:BLM) (Other OTC:BTPSF):
commencement of Controlled Sale Process, Trading Update and
Results of Annual General Meeting.
Baltimore Technologies plc announced at its Annual General
Meeting that it is commencing a controlled sale process to select
a strategic partner. The main highlights of the sale process and
current trading are:
- Baltimore to take opportunity to select strategic partner
through controlled sale process to best exploit its long-term
growth potential.
- JPMorgan appointed to manage controlled sale process, to seek
binding offers by 30 June 2003.
- GBP15.6 million cash balance at 30 April 2003, not including
GBP2-3 million due in the next 6 months from earlier divestments.
- Cash burn rate at the lowest level since end 2000.
- Loss before interest, tax and amortization for the four months
ended 30 April 2003 is broadly in line with management's
expectations.
- Revenues for the second quarter are currently anticipated to be
better than in the first quarter.
The loss before interest, tax and amortization (LBITA) for the
first four months ended 30 April 2003 was broadly in line with
management's expectations, despite revenue in the same period
being below expectations. Management anticipates that revenues
for the second quarter, ending on 30 June 2003, will be better
than in the first quarter. Due to the commencement of the
controlled sale process, further detailed financial information
is not publicly available.
Comment
Peter Morgan, Chairman, said: "The Board believes that a
controlled and short sale process should best protect the
interests of our shareholders, customers and employees. To that
end, JPMorgan has been engaged as financial adviser to manage
this process and to seek binding offers by 30 June 2003."
Bijan Khezri, Chief Executive Officer, said: "Why now. We have
identified promising growth initiatives such as the broadening of
our access to market for network security and the further
productisation of our core technologies for digital signature-
based transaction security. A strong strategic partnership would
facilitate and accelerate achievement of these initiatives."
"Today's cash burn rate is the lowest in both absolute terms as
well as in relation to the overall cash balance, since the end of
2000. Continuing strict cost control has ensured that at 30 April
2003 there was a GBP15.6 million cash balance representing a
reduction of GBP2.3 million since 31 December 2002. This cash
balance does not include GBP2-3 million due in the next 6 months
from earlier divestments."
Results of Annual General Meeting
All of the resolutions at the annual general meeting were passed.
The votes received in respect of the same were as follows:
For Against
Abstain
Resolution A 5,164,219 20,119
13,944
Resolution B 5,135,186 52,905
10,191
Resolution C 3,995,509 339,956
862,817
Resolution 1. 5,106,518 85,085
6,679
Resolution 2. 5,101,027 90,834
6,421
Resolution 3. 5,088,684 91,434
18,164
Resolution 4. 5,082,008 95,259
21,015
Resolution 5. 5,068,953 103,551
25,778
Footnote
All financial information is based on unaudited management
accounts as at 30 April 2003
About Baltimore Technologies
Baltimore Technologies' products, services and solutions solve
the fundamental security and trust needs of e-business.
Baltimore's e-security technology gives companies the necessary
tools to verify the identity of who they are doing business with
and securely manage which resources and information users can
access on open networks. Many of the world's leading
organizations use Baltimore's e-security technology to conduct
business more efficiently and cost effectively over the Internet
and wireless networks. Baltimore also offers worldwide support
for its authorization management and public key-based
authentication systems.
Baltimore's products and services are sold directly and through
its worldwide partner network, Baltimore TrustedWorld. Baltimore
Technologies is a public company, principally trading on London
(BLM). For more information on Baltimore Technologies please
visit http://www.baltimore.com
Certain statements that are not historical facts including
certain statements made over the course of this document may be
forward-looking in nature. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance and achievements
of the Company to be materially different from any future
results, performance or achievements implied by such forward-
looking statements.
CONTACT: SMITHFIELD FINANCIAL
Andrew Hey
Phone: 020 7903 0676
Nick Bastin
Phone: 020 7903 0633
BOOTS PLC: Acquires Two Logistics Outsourcing Contracts
-------------------------------------------------------
As part of the plans to transform its supply chain over the next
two years, Boots announced outsourcing partnerships with two
leading logistics service providers - Unipart and Tibbett &
Britten.
These are expected to generate initial net savings of around
GBP7m on an annualised basis by 2006/7. They are part of a wider
programme to transform the supply chain, which will deliver a
significant part of the GBP100m cost reduction initiative
announced by Boots last October. This includes the closure of the
Airdrie manufacturing plant in Scotland, which was announced in
February and is expected to deliver GBP16 million of annual cost
savings.
The details of the proposed changes are as follows:
Warehousing
Boots will be working in partnership with Unipart in the future
to develop its transformation plans. It will also transfer the
management of a major Nottingham warehouse to Unipart. The
Nottingham warehouse supplies about a third of Boots' inventory
to its stores. Boots will benefit from Unipart's expertise in
this area, resulting in a more efficient supply chain and further
improvement in the on-shelf availability programme. This initial
contract is worth GBP7 million a year to Unipart over ten years.
It is proposed that 300 employees will transfer their employment
to Unipart.
Transport Management
Boots will transfer management of all its transport services to
Tibbett & Britten. The contract means that external contractors
will manage all of Boots transport. The contract will be worth
GBP40 million a year to Tibbett & Britten; representing a slight
reduction in Boots current annual transport costs.
Around 200 people will transfer overall as a result of this
proposal.
Other incumbent Boots transport providers in the U.K. will
continue to operate as external outsourced contracts but will be
managed by Tibbett & Britten.
Logistics Management and Support Activities
Boots has also announced proposed changes to its internal
management structures in logistics, with the aim of simplifying
operations and increasing efficiency, as well as reducing the
overall costs. It is anticipated that this will lead to around 30
redundancies. Employees and their representatives will be
consulted on all of the proposed changes.
Boots Group Operations Director, Paul Bateman said: "Our goal is
to simplify our operations and the way that we deliver products
to stores. The proposals announced are a part of our aim to
transform our supply chain over the next two years. We will
channel the savings we make to benefit our customers and the
business.
"The changes will allow Boots to focus on what we do best -
retailing. It is logical to use third party expertise to help us
in areas that are not our core business. The suppliers we have
chosen are two of the UK's leading third party logistics
providers and bring with them specialised expertise that will
help to contribute to a leaner and more agile supply chain."
Supplementary Information:
Unipart: http://www.unipartdcm.com/
Unipart DCM is one of Europe's leading providers of outsourced
aftermarket logistics and distribution services. It specialises
in managing complete supply chains from manufacturers through to
retail distributors and seeks to add value at every level of the
chain.
DCM has a well-established track record working with clients such
as Jaguar, MG Rover, Vodafone, Hewlett Packard and JCB.
It is anticipated that employees will transfer to Unipart on 1
August 2003.
The contract is for ten years.
Tibbett & Britten: http://www.tibbett-britten.com
Tibbett & Britten is one of the world's leading logistics and
supply chain management companies. They are a UK-quoted
international logistics service provider working under long-term
contract on behalf of major retailers and multi-national
manufacturers.
Tibbett & Britten manage this type of contract for B & Q,
Sainsbury's, Tesco, Homebase, Big Food Group and Debenhams.
The contract is for seven years.
BRITISH ENERGY: Wants to Extend Deadline for Asset Sale--Report
---------------------------------------------------------------
Cash-strapped British Energy, which is currently selling its U.S.
arm AmerGen Energy Co., is hinting it would like to delay the
government-required June deadline for the sale, magazine Utility
Week says.
The U.K. power generator has been effectively under the
government's hand after it received a GBP650 million emergency
loan that sustained its operation last year. As part of a rescue
deal, British Energy has to sell its North American asset by June
30.
The report says, the electricity generator wants to extend the
deadline to get the best possible price for its 50 percent share
in the asset.
In March, talks about the sale of the joint venture with U.S.
utility Elexon Corp fell through because Exelon refused to sell
its stake on failure to find a bid that reflects the asset's true
value. British Energy then said it was still planning to sell
its half.
The report said British Energy did not say whether it has
informed the government on the matter. A company spokesman
maintained it is working towards meeting the deadline, adding
that talks are ongoing with "a number of interested parties"
The U.K. Department of Trade and Industry also declined to say
whether British Energy had sought to extend the deadline. He
reaffirmed that the deadline is still June 30.
CONTACT: BRITISH ENERGY PLC
3 Redwood Crescent, Peel Park
East Kilbride, Strathclyde G74 5PR,
United Kingdom
Phone: +44-135-526-2000
Fax: +44-135-556-5656
Home Page: http://www.british-energy.com
Contact:
Paul Heward, Investor Relations
Phone: 01355 262201
BT GROUP: Fitch Says Pension Deficit Won't Affect Bondholders
-------------------------------------------------------------
Fitch Ratings, the international rating agency, said BT Group
plc's GBP9.0 billion (GBP6.3bn post tax credit) pension deficit
does not materially affect bondholders' position and, therefore,
the company's rating.
BT on Thursday announced its FYE03 financials, which included the
FRS17 pension deficit. Fitch does not believe this will affect
the company's rating for the following reasons:
1) BT undertook a funding valuation during FYE03 which determined
the company's contribution to the scheme. The valuation findings
required an increase in company pension contribution to 12.2% of
salary from 11.6%, as well as increasing the special contribution
from GBP200 million per annum to GBP232m per annum to eliminate
the actuarial funding deficit (rather than FRS17) over a 15 year
period. Fitch calculates that the increased cash outflow as a
result of both changes is c.GBP46.5m per annum from FYE04. In the
context of an annual free cash flow generation of GBP1.7bn this
is not material. Fitch underlines its opinion that there is no
requirement to fund a FRS17 pension deficit at the present time.
2) Fitch recognises the long-term nature of the obligation and
the possibility of some degree of stock market recovery over this
period, reducing the FRS17 deficit.
3) The key difference between the actuarial and the FRS17 method
is the valuation of the liabilities, as a result of the discount
rate prescribed by FRS17. This is lower than the actuarially
calculated rate, resulting in a higher liability, and hence
deficit under FRS17.
4) Measured against the minimum funding requirement (MFR) the
company's funding at the valuation date of 31 December was 101%.
To reach the MFR threshold of 90% a reduction in excess of 25% in
the value of the pension fund's equity portfolio compared to the
return on bonds would be required. Fitch believes that there is
no immediate risk of additional cash outflow under the MFR.
5) The membership profile is in flux as the number of active
members declines following the closure of the scheme in March
2001. This is reflected in the increased rate of company
contribution for those active members. However, the scheme is not
at the stage of maturity where it has to sell assets to service
current pensioners and is not expected to be for a number of
years.
7) Fitch notes that in line with expectations the equity
investment portion has reduced year on year to 64.75% from 71% as
a result of the changing profile of scheme members. The actuarial
valuation is based upon a 64.75% equity component within the
fund.
8) While net leverage, on an adjusted sale and leaseback basis
has declined in line with Fitch's expectations to 2.1x from 2.7x
(See press release dated 10 September 2002), pension and lease
adjusted leverage has remained broadly stable year on year at
2.8x, reflecting the increased deficit as measured by FRS17 at
the balance sheet date. This is consistent with the parameters
for the current rating.
For further information on how Fitch treats European pension
obligations please refer to The European Pensions Debate (March
2003).
CONTACT: FITCH RATINGS
Susan Hunter, London,
Phone: +44 (0)207 417 6347,
E-mail: susan.hunter@fitchratings.com
Albert Jan Hofman, London
Phone: +44 (0)207 417 4282,
E-mail: albert.hofman@fitchratings.com
Trevor Pitman, London
Phone: +44 (0)207 417 4280
E-mail: trevor.pitman@fitchratings.com
COMPASS GROUP: Presents Interim Unaudited Results for Six Months
----------------------------------------------------------------
Compass Group Plc: Continuing Strong Performance
2003 2002 Change
Turnover from continuing activities
(GBPm)5,450 4,847 +12%
Total operating profit from continuing activities (1)
(GBPm) 327 290 +13%
Free cash flow (GBPm) 83 23 GBP60m
Basic earnings per share
- reported 2.5p 2.2p +14%
- underlying (2) 8.1p 7.1p +14%
Interim dividend per share 2.7p 2.1p +29%
Net debt (GBPm) 2,338 2,998 GBP660m
Highlights
-- Like for like turnover growth up 6%.
-- Like for like margin up 20 basis points.
-- Underlying basic earnings per share up 14%.
-- Significant increase in free cash flow, up GBP60 million to
GBP83 million.
-- Interim dividend up 29%.
-- Disposal of Little Chef and Travelodge for GBP712 million and
on-going share buyback program of up to GBP300 million.
-- Contract retention rate of 96%.
-- New business wins in the half year representing GBP600 million
in annual turnover, with clients such as Met Life, BAA and the
Art Institute of Chicago.
(1) Total operating profit excludes goodwill amortization of
GBP130 million (2002: GBP117 million) and exceptional items of
GBPnil (2002: GBP15 million).
(2) Underlying basic earnings per share has been presented to
highlight the results excluding discontinued activities,
translation rate movements, goodwill amortization and exceptional
items as detailed under Financial Performance (see attached).
Michael J. Bailey, Chief Executive
'This has been another period of continued strong growth by
Compass Group. The GBP600 million of new business wins and a
contract retention rate of 96% reinforces our confidence in
delivering at least 6% like for like turnover growth for the full
year. Looking ahead our top priorities are to continue to
deliver like for like turnover growth and margin improvement, to
build upon last year's strong free cash flow performance and to
maintain our focus on enhancing return on capital employed.'
Francis Mackay, Chairman
'We have held firm to our strategic focus on foodservice and
vending. Our unique business model, employing sectorisation,
brand ownership and international coverage, allied to our scale
and global purchasing strength, continues to help us retain
clients, whilst attracting new ones as the trend to outsourcing
continues.'
COMPASS GROUP PLC
FINANCIAL PERFORMANCE
The Group is pleased to report that it has enjoyed a very
successful half year achieving increased turnover and operating
profits.
Reported turnover from continuing activities grew by 12% to
GBP5,450 million, whilst like for like turnover growth was 6%.
The Group continues to deliver significant new business gains and
a strong contract retention rate of 96% demonstrating the
continuing focus on improving client and customer satisfaction
levels and the benefit of our employee development and retention
programs.
This continuing focus on new business and contract retention is
reflected in the announcement of major new contract gains and the
retention of some significant accounts. These are detailed in
the notes section. New business gains in the first half of the
year amount to GBP600 million in annual turnover. This represents
an 11% increase in turnover on an annualized basis.
Total operating profit from continuing activities (before
goodwill amortization and exceptional items) was up 13% at GBP327
million (2002:GBP290 million). On a like for like basis, total
operating profit before exceptional items and goodwill
amortization increased by 11%.
Like for like operating margins in all divisions continue to
improve. The like for like increase in the Group's overall
margin for the half year is 20 basis points, 10 basis points in
North America, 10 basis points in Continental Europe and the rest
of the world, and 60 basis points in the UK. Margins within the
U.K. business continue to benefit from the on-going Granada
merger synergies.
Profit before taxation, goodwill amortization and exceptional
items was up 4% at GBP269 million (2002:GBP258 million) when
compared with the first half of last year, the increase having
been held back by the inclusion of only three months trading
results from Little Chef and Travelodge prior to their disposal
compared to a full six month's contribution in 2002.
Reported basic earnings per share for the six months to 31 March
2003 is 2.5 pence, an increase of 14% on 2002's first half
reported earnings per share of 2.2 pence. Adjusting earnings per
share for discontinued activities, goodwill amortization,
exceptional items and translation rate movements results in
underlying earnings per share for the six months to 31 March 2003
of 8.1 pence and 7.1 pence for the first half of 2002, an
increase of 14%.
Little Chef and Travelodge were sold with effect from the end of
December 2002 and contributed GBP16 million to total operating
profit for the three months period October to December 2002
(GBP43 million total operating profit for the six months to 31
March 2002). These have been disclosed separately as
discontinued activities. After interest and tax, it is estimated
that Little Chef and Travelodge contributed approximately GBP5
million and GBP18 million to attributable profit for basic
earnings per share in the six months to 31 March 2003 and 2002
respectively. Applying 2003's translation rates to the first
half of 2002 reduces that half year's attributable profit by GBP3
million.
Free cash flow for the half year is GBP83 million, a GBP60
million increase over the first half of 2002. The Group's
business profile is such that its cash flows are seasonal and
free cash flow generation will be second-half weighted, as in
previous years. Net debt as at 31 March 2003 was GBP2,338
million.
Divisional Performance
2003 Reported Like
GBPm Growth % for
Like
Growth
%
Turnover
U.K. (continuing activities) 1,208 10 5
Continental Europe and the rest of the world
2,196 25 6
North America 1,808 0 7
________ ________ _________
5,212 12 6
________ ________ =========
Fuel 238 23
________ ________
5,450 12
Discontinued activities (UK) 80 (52)
________ ________
Total 5,530 10
======= =======
Total Operating Profit
U.K. (continuing activities) 125 18 16
Continental Europe and the rest of the world
110 17 8
North America 83 (3) 9
Associates 9 125 0
________ ________
327 13 11
========
Discontinued activities (UK)
16 (63)
________ ________
Total 343 3
======== ========
Like for like growth adjusts for acquisitions (by excluding
current year acquisitions and by including a full six months in
respect of prior year acquisitions), disposals (which are
excluded from both periods) and exchange rate movements and
compares the results against the half-year for 2002, which have
been prepared on a consistent basis. Total operating profit is
before goodwill amortisation of GBP130 million. Fuel turnover
comprises GBP220 million in the U.K. and GBP18 million in CE&ROW.
UK
The U.K. has had a good first half of the year despite continuing
weakness in rail and air passenger numbers and the impact of a
more challenging economic environment on business and industry.
Strong new business gains in education along with continued
progress on margin development contributed to a solid first half
performance.
Turnover from continuing operations (excluding fuel) of GBP1,208
million was 10% up on 2002 and operating profit excluding
associates (before goodwill amortisation and exceptional items)
of GBP125 million was 18% up on the preceding year (2002: GBP106
million). On a like for like basis turnover and operating profit
increased by 5% and 16% respectively.
The roll-out of Marks & Spencer Simply Foods across the U.K. rail
network continues with five stores now open, two due to open
imminently and five more scheduled to open before the year end.
Where Marks & Spencer Simply Foods has replaced an existing
convenience store, weekly sales have increased by an average of
400%.
North America
North America had an excellent first half with double-digit like
for like turnover growth in healthcare and education. Despite
the weakness in the American economy, like for like turnover
growth in business and industry was up 4% and vending was flat.
Reported turnover of GBP1,808 million and operating profit
(before goodwill amortisation and exceptional items) of GBP83
million are flat and down 3% respectively when compared with the
first half of 2002. This reflects the adverse translation effect
of the U.S. dollar which has moved from 1.37 to 1.58. However,
the business is materially protected from any adverse economic or
cash effect through the Group's policy of matching its principal
cashflows by currency to borrowings in the same currency. Using
2003's translation rates to restate 2002, turnover and operating
profit grew by 15% and 12% respectively.
The year on year effect of acquisitions has contributed 8% and 3%
to turnover and operating profit respectively. On a like for
like basis turnover and operating profit increased by 7% and 9%
respectively.
Margin improvement initiatives, including the rollout of Au Bon
Pain products into business and industry sites and the
introduction by Canteen of new technology to improve route
planning, are beginning to take effect.
Continental Europe and the rest of the world
Despite the challenging global environment, the division had an
excellent half year with strong new business gains and a solid
performance in concession operations.
Turnover (excluding fuel) of GBP2,196 million represented an
increase of 25% over the previous year (2002: GBP1,753 million)
and operating profit excluding associates (before goodwill
amortisation and exceptional items) of GBP110 million was up 17%
from GBP94 million in the preceding year. The translation effect
of exchange rate movements added 2% to turnover and 3% to
operating profit growth. The year on year effect of acquisitions,
principally Seiyo Foods and Onama, has contributed 17% and 6% to
turnover and operating profit respectively. On a like for like
basis turnover and operating profit increased by 6% and 8%
respectively.
In Italy, the integration of the existing Compass Group business
into Onama is on track. The Group has also formed a joint
venture with Cremonini S.p.A. that will bid for concessions using
the Moto brand on the Italian motorway network. The expiration of
a large number of motorway service area concessions in Italy over
the next two years presents a major opportunity for the Group to
leverage its U.K. experience in order to establish a significant
presence in this important market.
In Japan, the Group has completed the organisational restructure
of Seiyo Foods and has cancelled a number of loss making
contracts. The Group has also increased its holding in Seiyo
Foods from 68% as at 30 September 2002 to 79% as at 31 March 2003
for a cost of GBP35 million and has purchased a number of small
minority interests in its subsidiary companies for GBP5 million.
The Group is pleased with the sales performance in the first
half, with significant new business gains achieved.
Weakness in the German economy is creating a difficult trading
environment. France continues to show steady progress following
the introduction of a new management team a year ago. Strong
performances in Spain and in the defence, off-shore and remote
site sector have contributed to the strong divisional
performance.
Disposals
On 4 February 2003, the Group successfully completed the sale of
Little Chef and Travelodge for a total consideration of GBP712
million. Proceeds were used to reduce borrowings and fund an on
market share buy back program of up to GBP300 million, which
began on 4 February 2003. As of 31 March 2003, the Group had
purchased 19,501,000 shares at a total cost of GBP55 million, of
which GBP45 million has been paid for in the half year.
Acquisitions
The Group expects that the aggregate value of acquisitions made
in the current financial year will be approximately GBP200
million, including the acquisition in Italy of a 60% stake in
Onama S.p.A. The Group's strategic focus continues to be on the
organic development of its core foodservice and vending
businesses.
Cash Flow
The Group is committed to building on the strong free cash flow
performance achieved in 2002 notwithstanding the loss of some
GBP50 million of free cash flow generated by Little Chef and
Travelodge. Free cash flow generation in the first half of the
year has increased to GBP83 million (2002: GBP23 million).
Adjusting for cash flows in respect of discontinued activities
and exceptional items, free cash flow for the half-year increased
from GBP30 million to GBP73 million. Working capital from
continuing activities absorbed GBP105 million (2002 : GBP106
million) prior to taking into account the seasonal working
capital absorbed by Little Chef and Travelodge for the three
months prior to their disposal of GBP17 million. Acquisition
payments of GBP189 million comprise GBP137 million in respect of
current year acquisitions (before debt acquired with subsidiaries
of GBP18 million), GBP40 million purchasing further shares in the
Seiyo Foods group and GBP12 million of deferred consideration
paid. Net proceeds from businesses held for resale generated
GBP31 million in the first half of the year comprising the final
GBP35 million in respect of the sale of Heritage Hotels and GBP4
million of costs paid. The disposal of Little Chef and
Travelodge has realized a net GBP661 million in the half year.
The net cash inflow for the half year is GBP542 million, before
paying GBP45 million for shares repurchased, GBP18 million of
debt acquired with subsidiaries and a translation loss on net
debt for the half year of GBP116 million principally as a result
of the Euro moving from 1.59 to 1.45 over the half year.
Closing net debt as at 31 March 2003 was GBP2,338 million. The
average maturity profile, following the recent refinancing of the
Group's principal banking facility, is 61/2 years. This
refinancing has been concluded with no increase in the cost of
debt.
Exceptional items and goodwill amortization
The net exceptional item for the half year is GBP1 million
comprising the loss on disposal of Little Chef and Travelodge of
GBP27 million, associated tax of GBP7 million and an exceptional
tax receipt of GBP33 million. The goodwill amortization charge
for the half year is GBP130 million.
Taxation
The tax rate for the first half of 2003 is 26.0% of the profit on
ordinary activities before taxation, goodwill amortization and
exceptional items. The Directors believe this to be a prudent
estimate of the full year rate.
The current tax charge of GBP61 million (excluding deferred tax,
prior year items and exceptional items) is 22.7% of profit on
ordinary activities before taxation, goodwill amortization and
exceptional items. The main reasons for this being below the U.K.
corporate tax rate of 30% are the utilization of tax losses
brought forward, 6%, the tax deductibility of part of the Group's
goodwill amortization, 2%, and capital allowances in excess of
depreciation, 1%, offset by higher overseas tax rates, 2%.
The exceptional tax credit of GBP26 million consists of a charge
of GBP7 million arising on the disposal of the Little Chef and
Travelodge businesses and a prior year credit of GBP33 million
that relates to the recovery of tax not previously recognized in
respect of acquired businesses where the hindsight period for
adjustments to goodwill has passed.
Dividend
An interim dividend of 2.7 pence per share has been declared on
the existing share capital, an increase of 29% over last year's
figure. This reflects the step change in dividends announced in
December 2002. The increase in the total dividends for the year
is expected to be broadly in line with the increase in underlying
earnings with the interim dividend representing approximately
one-third of the total annual dividend.
Payment of the interim dividend will be made on 3 October 2003 to
shareholders on the register at the close of business on 22
August 2003. The ex dividend date will be 20 August 2003.
Outlook
The strong first half performance, particularly in the healthcare
and education sectors, highlights the strength of the Group's
business model even though sustained weakness in the global
economy continues to create challenging trading conditions.
International travel has been further weakened by the war in Iraq
and the SARS outbreak in South East Asia and Canada, however,
these areas account for less than 2% of the Group's turnover.
The Group's broad geographic spread and business sector portfolio
means that it is not particularly exposed to any one country,
sector or client whilst the Group's unique business model
continues to deliver solid like for like turnover growth,
continued margin improvement and strong free cash flow
generation. The Group's focus on organic turnover growth allied
to a contract retention rate of 96% and a strong pipeline of new
business gives confidence that the Group is on track to deliver
at least 6% like for like turnover growth this year as well as
giving a solid base on which to build for 2004.
MJ Bailey FH Mackay
Chief Executive Chairman
NOTES
(a) CONTRACT GAINS AND RENEWALS
Today the Group is pleased to announce the following new
contracts:
North America
-- Met Life: a six-year contract worth over $10 million in annual
revenues to cater for 13,500 employees of the leading American
insurance company in 20 locations.
-- P3: a contract with The Healthcare Infrastructure Company of
Canada for the new William Osler Health Centre in Brampton
Ontario worth over $20 million in annual revenues.
-- University of North Carolina - Charlotte: a ten-year contract
worth $10 million in annual revenues. Other gains in the
education sector include: University of San Francisco, University
of Texas - San Antonio, Tennessee Tech and Ottawa University with
combined annual revenues of $18 million.
-- Art Institute of Chicago: a five-year contract worth $8
million in annual revenues.
U.K.
-- BAA: Eurest has been awarded a five-year contract worth GBP4
million in annual turnover by BAA to provide foodservice for
5,000 construction workers at Heathrow's Terminal 5.
-- Belfast International Airport: Select Service Partner (SSP)
has been awarded a new twelve-year contract with annual turnover
of GBP13 million and a five-year contract with Mersey Ferries
with annual revenues of GBP0.5 million.
-- Medway Council: Scolarest have been awarded a five-year
contract by Medway Council for 84 schools in the Medway area and
a three-year contract by the London Borough of Camden for 55
schools with combined annual turnover of nearly GBP5 million.
Continental Europe and the rest of the world
-- Coega Development Corporation: Eurest Support Services, ESS,
has been awarded a five-year contract in South Africa worth over
GBP4 million in annual revenues.
-- Portuguese State Hospitals: a new contract with annual
revenues of EUR12 million.
-- ANE/Renfe: Rail Gourmet has renewed this important contract
for a
further 18 months with annual revenues of EUR17 million.
-- KIP Karachaganak International Oil Company: in Kazakhstan, ESS
has been awarded a three-year contract worth GBP4 million in
annual revenues.
-- Wincor Nixdorf: in Germany, Eurest has been awarded a contract
with this leading IT supplier worth EUR4 million in annual
revenues. Eurest has also renewed contracts with SAP AG,
Dresdner Bank, Flughafen Munchen and Commerzleasing und
Immobilien with combined annual revenues of EUR6 million.
-- Cegetel: Eurest has won a contract with this leading French
telecoms
company worth over EUR2 million in annual revenues.
-- Qualisante Group: Medirest has won a previously self-operated
contract with France's leading private retirement home group
worth EUR5 million in annual revenues.
-- Sevran and Ville de Toulon: Scolarest in France has been
awarded contracts with the cities of Sevran and Toulon with
combined annual revenues of over EUR4 million.
-- Conoco/Phillips and ExxonMobil: ESS has renewed existing
contracts in Venezuela with combined annual revenues of EUR4
million.
-- Salen Conference: Eurest has renewed its contract with Salen
Conference in Stockholm for a further eight years with annual
revenues of over GBP1 million and has been awarded a three-year
contract with the Forsmark Nuclear Power Plant worth GBP0.5
million in annual revenues.
-- Spare Banken 1 Group: in Norway, Eurest has been awarded a
five-year contract worth GBP1 million in annual revenues.
-- Royal New Zealand Air Force: a three-year contract worth over
GBP1.5 million annually.
Summary of previously announced contract gains and renewals
U.K.
Business and Industry
-- BT: a seven-year contract renewal, worth GBP25 million in
annual turnover, and a four-year contract with KPMG LLP worth
over GBP7 million in annual turnover.
-- Orange: a new three-year deal with an annual turnover of
GBP4.5 million providing catering for 10,000 employees across 11
sites.
-- Computer Associates: a new five-year foodservice contract
covering the company's Slough-based European headquarters plus 14
other sites across Europe.
-- The Sanctuary: a three-year contract to manage the catering
services for the relaxation spa, The Sanctuary in London's Covent
Garden, with annual turnover of GBP0.75 million.
Leisure & Hospitality
-- Imperial War Museum & Old Royal Naval College, Greenwich: two
five-year contracts with a combined annual turnover of more than
GBP2 million.
Education
-- London Borough of Richmond upon Thames: Scolarest won a five-
year extension to its contract providing meals to 40 primary and
three special schools worth over GBP1 million in annual turnover.
Richmond's school catering service was praised as a key strength
in an Ofsted report on the Local Education Authority released in
January.
Healthcare
-- Royal National Orthopaedic Hospital NHS Trust: Medirest has
retained the contract to provide catering, housekeeping,
portering and security for a further five years with an annual
turnover of over GBP2.5 million.
Retail & Travel
-- Bournemouth Airport: SSP has won a new ten-year contract worth
GBP2 million in annual turnover and a new seven-year contract at
Derry Airport, worth over GBP0.5 million in annual turnover.
North America
Business and Industry
-- Best Buy: the electrical retailer has awarded Eurest a ten-
year contract for its corporate headquarters with annual revenues
of $4 million.
-- Exxon Mobil, Pfizer and Suncor: have renewed contracts worth
over $28 million in annual revenues.
Healthcare
-- Children's Hospital, Washington D.C.: Morrison has been
awarded a new ten-year contract with the Children's Hospital in
Washington D.C. worth over $5 million in annual revenues.
-- Simpson House in Philadelphia and Simpson Meadows in
Downington: a three-year contract worth $3 million in annual
revenues.
Education
-- Morgan House at Baylor University: has awarded Chartwells a
five-year contract worth over $10 million in annual revenues.
-- University of Nevada and the University of Wisconsin: with
combined annual turnover of $12 million.
Sports and Events
-- Wachovia Golf: Restaurant Associates have been awarded a four-
year contract with annual revenues of $3 million for the Wachovia
golf tournament in Charlotte, North Carolina.
Continental Europe and the rest of the world
Business and Industry
-- Tele-Danmark: Eurest has won a four-year contract with TDC
(Tele-Danmark) for 11 restaurants with annual revenues of GBP3
million.
-- European Commission: in Belgium, Eurest has been awarded a
three-year contract with annual revenues of EUR18 million to
cater for staff at the European Commission in Brussels.
-- TPG: in the Netherlands, Eurest has been awarded a five-year
contract with annual revenues of EUR20 million by TPG the holding
company for The Royal TPG Post and TNT.
-- Deutsche Telecom: In Germany, Eurest has won contracts with T-
System (part of Deutsche Telecom), Philip Morris and four
previously self-operated restaurants with DZ Bank with combined
annual revenues of EUR6 million.
Education
-- ROC, Amsterdam: Selecta Netherlands has signed a five-year
contract with the ROC of Amsterdam, the biggest schools'
association in Europe, worth more than EUR2 million annually.
Selecta will serve more than 40,000 students with coffee, cold
drinks and snacks following the installation of approximately 400
machines.
Compass Group is the world's largest foodservice company with
annual revenues in excess of GBP10 billion. Compass Group has
over 375,000 employees working in more than 90 countries around
the world providing foodservice and hospitality. For more
information visit http://www.compass-group.com
To see financials: http://bankrupt.com/misc/COMPASS_GROUP.htm
INDEPENDENT REVIEW REPORT TO COMPASS GROUP PLC
Introduction
We have been instructed by the company to review the financial
information for the six months ended 31 March 2003 which
comprises the consolidated profit and loss account, the
consolidated statement of total recognised gains and losses, the
reconciliation of movements in consolidated shareholders' funds,
the consolidated balance sheet, the consolidated cash flow
statement, the notes to the consolidated cash flow statement and
related notes 1 to 10. We have read the other information
contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies
with the financial information.
This report is made solely to the company in accordance with
Bulletin 1999/4 issued by the Auditing Practices Board. Our work
has been undertaken so that we might state to the company those
matters we are required to state to them in an independent review
report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for
the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
interim report in accordance with the Listing Rules of the
Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are
consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are
disclosed.
Review work performed
We conducted our review in accordance with the guidance contained
in Bulletin 1999/4 issued by the Auditing Practices Board for use
in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures
to the financial information and underlying financial data and,
based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards
and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material
modifications that should be made to the financial information as
presented for the six months ended 31 March 2003.
Deloitte & Touche
Chartered Accountants
London
CONTACT: COMPASS GROUP PLC
Michael J Bailey, Group Chief Executive
Phone: 020 7404 5959
01932 573000
Andrew Lynch, Group Finance Director
Phone: 020 7404 5959
01932 573000
BRUNSWICK GROUP LTD
Timothy Grey
Phone: 020 7404 5959
Home Page: http://www.compass-group.com
HOLMES PLACE: Recommends 25p a Share Offer From Health Club
-----------------------------------------------------------
Recommended Offer by N M Rothschild & Sons Limited on behalf of
Health Club Group plc for Holmes Place PLC
The Independent Directors of Holmes Place and the board of HC
Group, which following completion of the Offer will be
effectively controlled by funds managed or advised by Bridgepoint
and Permira, announce the terms of a recommended offer, to be
made by Rothschild on behalf of HC Group, to acquire the entire
issued and to be issued share capital of Holmes Place. The Offer
is a cash offer but also allows Holmes Place Shareholders to
elect to receive a Unit Alternative in relation to a proportion
of their holding of Holmes Place
Shares.
The Offer, which is unanimously recommended by the Independent
Directors of Holmes Place, values each Holmes Place Share at 25
pence and values the entire issued and to be issued share capital
of Holmes Place at approximately GBP25.4 million.
The following is a summary of the key reasons why the Offer is
being unanimously recommended by the Independent Directors:
-- the Company is currently in material breach of its existing
banking arrangements;
-- the Company has committed capital obligations of approximately
GBP73 million during the next three years which could not be
funded out of its existing debt facilities;
-- the Company's trading deteriorated significantly during 2002;
and
-- the Company continues to underperform against budget and the
outlook remains uncertain.
The Independent Directors believe that the Offer fairly values
the Company and provides an opportunity for Holmes Place
Shareholders to derive fair value from their investment when the
Company's future prospects are uncertain. In the event that
Holmes Place Shareholders choose not to accept the Offer, the
Company will have to renegotiate its banking arrangements in
order to continue trading. There is no guarantee that the
Company's banks will continue to support the Group.
Furthermore, if the Offer becomes or is declared unconditional in
all respects, Holmes Place's restructured debt facilities will
only come into effect if HC Group immediately reduces the overall
debt burden of Holmes Place by GBP87 million.
HC Group has agreed to acquire the shareholdings in Holmes Place
of Allan Fisher and Lawrence Alkin and persons connected with or
deemed to be connected with them, amounting to, in aggregate,
26,670,996 Holmes Place Shares representing 26.3 per cent. of the
issued share capital of Holmes Place. The acquisitions are
conditional on the Offer becoming or being declared unconditional
in all respects. The condition is capable of being waived by the
HC Group at any time.
The Independent Directors of Holmes Place, and Lee Ginsberg and
Ian Turley, together owning or controlling an aggregate of
124,436 Holmes Place Shares, representing approximately 0.12 per
cent. of Holmes Place's issued share capital, have signed
irrevocable undertakings to accept, or procure the acceptance of,
the Offer. These undertakings remain binding even in the event
of a higher competing offer being made for Holmes Place.
Accordingly, HC Group has agreed to acquire, or has received
irrevocable undertakings to accept, or procure the acceptance of,
the Offer in respect of a total of 26,795,432 Holmes Place
Shares, representing, in aggregate, approximately 26.4 per cent.
of Holmes Place's issued share capital.
The Independent Directors, who have been so advised by Hawkpoint,
consider the terms of the Offer to be fair and reasonable.
Accordingly, the Independent Directors, who have been so advised
by Hawkpoint, unanimously recommend Holmes Place Shareholders to
accept the Offer, as they have irrevocably undertaken to do in
respect of their own personal holdings of 111,649 Holmes Place
Shares representing, in aggregate, approximately 0.11 per cent.
of the existing issued share capital of Holmes Place. In
providing advice to the Independent Directors in relation to the
terms of the Offer, Hawkpoint has taken into account the
commercial assessments of the Independent Directors.
The Independent Directors are making no recommendation in respect
of the Unit Alternative.
Commenting on the announcement, Guy Weldon, a director of
Bridgepoint, commented:
'We are pleased to support this institutional buyout which
reunites us with a company that we first backed successfully in
1996. The Offer is a fair one that comes with the full
recommendation of the Company's Board to its shareholders and
which will allow the Company to resume its expansion plans in a
way that it was unable to as a quoted business.'
Charlie Troup, a Permira partner, commented:
'Although the U.K. health and fitness market has experienced a
period of intense competition, in our view Holmes Place remains
the leading pan-European premium operator. We look forward to
building on the operational improvements identified by Holmes
Place and delivering future growth through the provision of fresh
capital to fund the Group's development program.'
Graham Reddish, Non-Executive Chairman and an Independent
Director of Holmes Place, added:
'Holmes Place's ability to create shareholder value has been
significantly constrained by difficult market conditions and a
considerable debt burden.
Given these circumstances, the Independent Directors believe that
the Offer fairly values the prospects of the Group and that
Holmes Place will be better able to develop as a private
company.'
Expressions used in this summary are defined in the attached
announcement.
This summary should be read in conjunction with the full text of
the attached announcement.
An analysts' conference call will be held at 12.15 on 22 May
2003. Joining details can be obtained from Hudson Sandler.
To See Recommended Offer:
http://bankrupt.com/misc/Holmes_Place.htm
IMPERIAL CHEMICAL: Reveals Resolutions Passed in Annual Meeting
---------------------------------------------------------------
ICI announces that the following Resolutions were passed at the
Annual General Meeting of ICI shareholders held on Thursday, 22nd
May 2003 and the results of the poll are shown below.
Ordinary Resolutions
(1) To receive the Annual Report and Accounts for the year ended
31 December 2002
Votes for: 604,265,431
99.38% (of the shares voted)
Votes against: 3,760,091
0.62% (of the shares voted)
(2) To approve the Directors' Remuneration Report
Votes for: 529,461,913
93.14% (of the shares voted)
Votes against: 38,975,316
6.86% (of the shares voted)
(3) To confirm the first and second interim dividends
Votes for: 624,928,384
99.96% (of the shares voted)
Votes against: 271,970
0.04% (of the shares voted)
(4) To re-elect Mr J T Gorman as a Director
Votes for: 616,042,849
98.55% (of the shares voted)
Votes against: 9,088,340
1.45% (of the shares voted)
(5) To re-elect Mr R N Haythornthwaite as a Director
Votes for: 615,449,804
98.53% (of the shares voted)
Votes against: 9,206,824
1.47% (of the shares voted)
(6) To re-elect Mr T A Scott as a Director
Votes for: 618,045,008
98.87% (of the shares voted)
Votes against: 7,075,329
1.13% (of the shares voted)
(7) To re-appoint KPMG Audit plc as Auditor and to authorise the
Directors to agree their remuneration
Votes for: 587,854,894
95.33% (of the shares voted)
Votes against: 28,817,984
4.67% (of the shares voted)
(8) To renew the Directors' general authority to allot shares
Votes for: 619,884,616
99.17% (of the shares voted)
Votes against: 5,176,641
0.83% (of the shares voted)
Special Resolutions
(9) To renew the Directors' authority to disapply pre-emption
rights
Votes for: 623,097,733
99.21% (of the shares voted)
Votes against: 4,945,111
0.79% (of the shares voted)
(10) To renew the Company's authority to purchase its own shares
Votes for: 624,258,805
99.85% (of the shares voted)
Votes against: 937,330
0.15% (of the shares voted)
Please note that voting on a poll does not facilitate the
recording of votes withheld.
IMPERIAL CHEMICAL: Chairman Admits Difficulty in Past Months
------------------------------------------------------------
Ladies and Gentlemen, I would like to talk to you now about what
has been happening at ICI over the last year.
I am not going to beat around the bush this morning. The last 12
months have been very difficult for ICI and for you, our
shareholders. Since our AGM last May, which followed on the heels
of a successful rights issue, there is no denying that we have
not delivered the results we aspired to. We know that and we know
we have to take steps to improve. So I am not going to pretend
that there aren't challenges - there are - but what I say to you
is that I believe the right actions are all being taken and the
right changes are being made and we will improve this business -
deliver better results, and provide better returns for you, our
shareholders.
Let me just go through some of the events that we have been
dealing with since I talked to you a year ago, and give you my
thoughts on where we are on each of
the issues.
Let me start with the share price. Twelve months ago the price
was GBP3.24. Last night, we closed at GBP1.371/2. It would be
convenient to argue that that was as a result of the general
state of the global equities markets. There has been a lot
written about the lack of confidence in the markets, resulting in
collapsing stock values, prices affected by threats of war,
terrorism, and a host of other issues which we are all familiar
with. And a lot of that hashit us. There are always external
factors beyond a company's control - a particular issue for us
recently has been fluctuations in oil and natural gas pricing for
example. But a couple of recent issues that have hit ICI's share
price have unfortunately been very specific to us.
If I look back to earlier this year, it was February when we
announced our Full Year results for 2002 and we described our
performance as 'satisfactory' - Group profit stood at GBP400m,
essentially the same as the previous year, which under the then
prevailing market conditions, we felt wasn't too bad. We had
topline growth in the International Businesses, cash flow was
much improved in the year, and debt was down. Nevertheless, the
results were a disappointment to the investment community - one
of the major factors being Quest - and there was a dramatic
negative reaction - some analysts have subsequently said over-
reaction - and the price fell some 30% from around GBP1.90p to
around GBP1.25p.
Our share price then appeared to have stabilised, when we hit the
problems that led us, in March, to issue a profits warning. What
happened was that towards the end of the quarter we realized that
our performance was being impacted by two main factors: first,
sharp increases in raw material costs that had hit National
Starch in particular; and, second it became clear that even
though we had fixed last year's production problems in Quest
Foods, we had upset some customers sufficiently for them to take
some of their business elsewhere. The first of those issues - raw
materials - is something that in a business like National Starch
we are used to, and we can - and do - deal with it by putting up
our own prices. What we were caught in was the timing gap between
having to pay more for materials and being able to recoup those
costs from our customers.
But the issue in Quest is a lot more difficult. We have lost the
confidence of some of our customers for Quest food products, and
we have an uphill struggle to regain that confidence. I can
assure you that the top priority in Quest is to get this problem
sorted out. We have made some changes to do this, and I will deal
with those in a moment.
It was primarily those two performance issues that led to our
profits warning. They came as a surprise to the markets and they
reacted negatively, taking the share price down by some 40% (from
around GBP1.50p to about 90p). It shook the confidence of the
investment community, causing us to review the management of the
Group. As a consequence of the profits warning, and the 21% fall
in first quarter profits that we announced on May 1 - (which was
by the way, no worse than we had predicted in the profits
warning), we now have new Chief Executives in place in both the
Quest unit, and ICI itself.
Looking at Quest first, we have moved Charles Knott from National
Starch and appointed him to the leadership role at Quest.
Charles has broad experience in the specialty products industry
and has held senior leadership roles in Europe, USA and Asia,
with commercial, market and finance experience. During his time
in Asia, National Starch grew sales by 70% and trading profits by
170%.
Under Charles, we have also made some significant changes to the
Quest Foods management structure and I think we have the right
people in place now to put Quest back on track.
At the Group level, Dr John McAdam was appointed as Chief
Executive after Brendan O'Neill stood aside in April. Many of you
know John. He has been sitting here alongside me on the Board
since 1999. In his career, John has run three out of our four
business units, most recently running our successful Paints
operation, and has held Board responsibility for our global
research and technology development, and our total Group
performance in Asia Pacific. Under his leadership, from 1998 to
2002, Paints trading profits grew by more than one third, adding
over GBP45m to the Group's reported profits, return on net assets
in the business unit improved from 18% to 30%, and we saw our
comparable overall Group sales in Asia grow by more than a third.
He is a no-nonsense, results-orientated businessman who has in
depth knowledge of ICI's business, and the Board and I have full
confidence in his ability to address aggressively the operational
issues that we face. He has only been in the job six weeks, but
he has already formed a very clear idea about what needs to be
done, and I will hand over to him in a moment for him to share
some of his thinking about the immediate priorities.
Against that backdrop, it would be quite easy to conclude that it
has only been a year of problems for ICI, but during the last
year there have been some really positive developments across the
Group that we are proud of, and which demonstrate that our
International Businesses are fundamentally sound businesses. Let
me give you a few examples.
Throughout 2002 the management delivered significant working
capital improvements, we made good progress on cashflow, and our
year end debt position was improved - excluding any effects of
the rights issue. We improved our interest cover, which is one of
the important performance measures we use, from 3.5 to 4.3 times.
In addition, we completed the sale of Synetix to Johnson Matthey,
achieving a good value for the business, and just a couple of
weeks ago we received a cash inflow of $305m - the final
instalment of the monies for the sale of our remaining holding in
the Huntsman International joint venture. This marks another
major milestone in our divestment program.
Looking at a few new product developments from the year, some of
which you can experience upstairs after the meeting, we've won
awards in National Starch for 'Novelose' 260, a resistant starch
which adds dietary fibre in cereals, snacks, bread and baked
goods and improves quality. It's been a big success - it provides
not just healthier food for consumers but it brings an
environmental advantage as its manufacturing process produces
minimal effluent.
We continue to have successes in Quest fragrances - we've been
nominated for 9 awards - 15% of all the nominations - at this
year's fragrance Oscars, (called, believe it or not, the FiFis),
being presented next month in New York.
Another recent product launch from Quest is their new 'Sensory
Perception Technology'. This puts fragrances into textiles so
that they smell fresh, or can repel tobacco smoke or even
mosquitoes! This is generating real excitement in the textile and
fabrics manufacturing industries, and has big market potential.
It's another example of the sort of creativity which
differentiates our products.
In National Starch we've seen sales doubling year on year for our
'Aerobond' range of foaming adhesives, which reduces by half the
amount of adhesive required for paper laminating applications,
improving customers efficiencies and reducing customer costs.
Our sustainability performance across the Group continues to
improve and we were delighted to announce only last month that
Uniqema had won a U.K. Queen's Award (ICI's 70th, incidentally)
in the Sustainable development category for our 'Emkarate'
lubricants. Since it was launched, Uniqema's technology has
enabled the reduction of millions of tonnes of ozone depleting
gases.
In summary, I don't wish to minimise the performance issues that
we face, but I do want you to see that across the Group we are
continuing to innovate, delivering new products to our customers
that add value to their products and to our top line. And in that
context, let me pay tribute to our employees around the world.
The energy and commitment of our people to constantly challenge
conventional thinking, develop new products for our customers and
bring creativity, scientific, commercial and technical skill to
bear on our business is exemplary. We have to keep them motivated
and committed during challenging times.
That's not easy for any business facing difficulties, but we know
it is imperative, and it is a priority on the management agenda.
Finally, just a word on strategy. As you would expect, the Board
and I have taken a hard look at the strategy of the Group to see
how we can best enhance value for you, our shareholders. We have
looked very hard at all the alternatives and, with our external
advisers, have concluded that your interests are best served at
the moment by us dealing with the performance issues within our
business units and making each of our assets work better. Now is
not the time to be making any major divestments. Now is the time
to add real value to the businesses. It is our responsibility as
the Board to keep our strategic options open and we keep
everything under constant review, but with the single-minded
priority right now to make ICI's businesses as good as they
possibly can be. We have a collection of fundamentally strong,
high value assets, which we intend to run more efficiently in
order to serve you, our shareholders, better.
Now I would like to introduce our new Chief Executive, John
McAdam. He will share with you his thoughts on the Group and the
immediate priorities he has to improve our performance.
IMPERIAL CHEMICAL Chief Executive Outlines Future Direction
-----------------------------------------------------------
Thank you, Alex and Good Morning, Ladies and Gentlemen. I am
delighted to be speaking at my first AGM as your new CEO, and am
looking forward to the challenge of improving ICI's performance.
I am quite clear that there are 2 imperatives for ICI going
forward:
The first is strategic - determining if ICI is pursuing the
optimal strategy given the current global economic outlook, and
the second is operational - driving short to medium-term
improvement from the business; increasing sales growth; improving
margins; and, in particular, reducing the cost and capital we
employ to run the business.
As the Chairman said, over the last month or so the Board has
undertaken an intensive review of major strategic options. And as
he also said, the conclusion reached by the Board is that we do
not believe, at this time, that shareholders' best interests
would be served by a major divestment. Divestments are not
attractive at this point in time due to the recent
underperformance of the businesses and the potential disposal
costs.
To be clear, this doesn't mean forever, but it does mean that
shareholder value needs to be delivered in the near-term by
achieving substantial performance improvement throughout today's
ICI. I'm under no illusions - we need to improve our performance.
So that means substantial re-definition of the operational
agenda, given that we can't assume favourable market conditions
to drive profit growth.
In the short-term there are 3 things we need to do:
First, we need to increase prices and margins in National Starch
and Uniqema. In National Starch, we must secure price increases
in Adhesives and Emulsions in particular, in order to restore
what has been lost by the rise in raw material costs. A good
start has been made, but further increases are needed. National
has been through periods of raw material price inflation before,
and successfully rebuilt margins.
Second, and much more difficult, we need to restore Quest's
market positions in Food, where last year's production problems
in Naarden in the Netherlands have obviously undermined customer
confidence. We have made a start, and Alex mentioned the
management changes we have made and specifically the appointment
of Charles Knott to lead the Quest team.
Let me touch on work underway on the operational and customer
side.
Restoring customer service levels to where they were, before the
problems occurred, was obviously crucial. That's been done, and
provides a basis for rebuilding confidence. But we are doing
more. Plans are in place in Naarden to further reduce lead times
and improve delivery reliability.
One of the most important things for Quest is that, whilst we
have recently lost business and the confidence of some of our
customers in Europe, we continue to do business with all key
customers and maintain relationships with them at all levels.
This at least gives Quest the basis for winning business, and
confirms the quality of technology and innovation that exists
within the unit.
Ultimately, this is what we need to bring to bear through new
product introductions if we're to rebuild our market position,
and regain the trust and confidence of our customers.
Our third priority is to reduce our costs across the whole
company - both in the operating units and the Head Office -
immediately.
In the first quarter this year our International Business fixed
costs increased by some 3%. Obviously, as we're not generating
growth in gross margin, this is something we simply can't afford.
So we've put plans in place to limit fixed costs across the
Group, for the remainder of the year, to last year's levels.
And we have announced the first stage of a worldwide
restructuring program. In this first stage we are driving some
minor cost reduction programs across all the Specialty Products
businesses - National Starch, Quest and Uniqema - but in our
European Paints units we're accelerating a programme of
structural change we've been working on for some time that is
designed to take our supply chain productivity to world-class
levels. The Paints programme involves intensive productivity
improvements at each site, rationalisation of solvent-borne
production across Europe and restructuring of all European supply
chain support functions.
In National Starch we are implementing 8 relatively
straightforward projects, all aimed at improving operating
efficiency. In Quest, the program comprises 5 individual
initiatives that will improve their operational effectiveness and
in Uniqema we are taking some action to streamline the management
structure.
Unfortunately, it seems impossible to implement cost reduction
programs nowadays that do not lead to job losses, and we had to
announce that as a result of the program some 700 jobs would be
lost from our facilities around the world over the next two
years.
This plan is important. It is designed to deliver GBP30m of
sustainable bottom-line improvement by 2005. It must be delivered
quickly and effectively.
It responds to the particular issues we have and the uncertain
economic environment. If we can get these things right they'll
make a substantial difference.
But clearly it's not enough - it is merely the short-term
operational agenda that I'm driving. To really perform in the
long term, we need to do more.
So I am now engaged with the management team in a rigorous
assessment of further cost reduction opportunities and
restructuring across all our business units, and in the Head
Office.
But my agenda is not only about cutting costs. Sustained success
will require the Group to grow both its sales around the world,
and, most importantly, its margins. If we look at our performance
during 2002, our International Businesses did deliver some top
line growth - admittedly only 1%, but that headline number
disguised some creditable growth across all regions except Latin
America - and Asia merits particular mention. You may be
interested to know that today around 25% of ICI's employees are
in Asia.
Our trading profit, however, was down in the International
Businesses for the year by 1% because we had the production
problems in Quest Foods and raw material price issues that
affected Uniqema.
If I now look at the first quarter this year, the period we
reported on last month, the International Businesses again
achieved 1% sales growth in total.
Regionally, sales were ahead in both Asia and Latin America, with
Europe and North America both similar to last year. By business,
sales for National and Uniqema were both up by 4%, Paints was in
line with last year, but Quest was 5% lower.
At the trading profit level, Paints delivered good growth, but
profits in National, Uniqema and Quest were all significantly
lower than last year. For the Group, there was good progress on
cash flow during the quarter and the lower level of profit was
offset by improvement in working capital efficiency, lower
capital expenditure, and lower interest payments. This meant that
the Group's cash flow before financing was GBP78m better than
last year and we ended the quarter with net debt GBP500m better
than a year ago.
Gross margin percentages for the International Businesses for Q1
were about 1% lower than for Q4, and about 2% lower than a year
ago. The major factors were, as Alex has said, the significant
rise in petrochemical-based raw material prices experienced by
National Starch, and both Uniqema and Quest being affected
by adverse product mix and the relative weakening of the U.S.
dollar. But with fixed costs for the International Businesses, as
we've said, 3% higher for the quarter, trading profit for the
International Businesses in total was 31% lower overall.
We know we have to improve on this, and I am determined to bring
costs down, push margins up, and deliver real, long-term value
growth. It's not going to be easy and the management team will be
taking some tough decisions over the next year or so, but I'm
confident that they are all motivated to achieve these goals and
will not shy away from doing what must be done to get this
Company back on track.
Thank you.
LONDON CLUBS: Shareholders Approve Sale of Palm Beach Club
----------------------------------------------------------
London Clubs International plc is pleased to announce that at its
EGM held earlier Thursday, the resolutions put to shareholders
were duly passed.
Accordingly, completion of the disposal of Palm Beach Club
Limited is expected to take place on 23 May 2003. Completion of
the proposals relating to the 50 St James casino remains subject
to the execution of definitive agreements and is expected to take
place no later than 30 June 2003.
*****
London Clubs is disposing the Palm Beach casino for GBP36.25
million in cash to Stanley Casinos Ltd, a subsidiary of Stanley
Leisure Plc to reduce indebtedness. It is also planning to offer
for sale and leaseback 50 St Jame's, and form a joint venture
with Celebrity Gaming Limited.
CONTACT: LONDON CLUBS INTERNATIONAL
Phone: 020 7518 0000
Barry Hardy, Chief Operating Officer
Linda Lillis, Finance Director
COLLEGE HILL
Phone: 020 7457 2020
Matthew Smallwood
Justine Warren
MOTHERCARE PLC: Posts Before-Tax Loss of GBP25M; Skips Dividend
---------------------------------------------------------------
-- Group sales up 1.1% to GBP431.7m (2002: GBP426.9m)
-- Gross margins up 0.2 percentage point to 41.8%, with a 1.3
percentage point improvement in
-- Adjusted operating loss* GBP10.4m (2002: GBP3.0m)
-- Exceptional charges and one-off items totalling GBP14.5m
-- Loss before tax of GBP24.8m (2002: profit before tax of
GBP0.1m)
-- Balance sheet cash positive: operating cash inflow of GBP8.3m
(2002: outflow of GBP10.5m)
-- Strong performances from Mothercare Direct and Mothercare
International
-- Basic loss per share 22.0p (2002: earnings per share 0.2p)
*Adjusted operating loss refers to the operating loss excluding
exceptional charges and one-off items of GBP14.5m. (See Results
Summary).
-- Encouraging current trading with U.K. like-for-like sales for
the seven weeks to 16 May 2003 up 2.8% and an increase in gross
margins.
"Since joining Mothercare as Chief Executive in December 2002,
Ben Gordon and his management team have moved quickly to
stabilize the business. While much remains to be done to restore
Mothercare to proper levels of profitability, encouraging
progress is being made."
"The business is now on a stable platform and we have developed a
plan to turn Mothercare around. We are focusing on five key
areas:- the store proposition, product and sourcing, supply
chain, customer service and infrastructure. While the turnaround
program will take some three years to complete, we are making
good progress in delivering our plan.
"During the fourth quarter of the year trading strengthened. We
have continued to build on this performance in the current year
and, whilst it is too early to say whether it is the start of a
sustained improvement, the first seven weeks have been
encouraging."
RESULTS SUMMARY
Group sales for the year rose by 1.1% to GBP431.7m (2002:
GBP426.9m). The gross margin before exceptional items for the
year increased by 0.2 percentage point to 41.8%. The loss before
tax was GBP24.8m (2002: GBP0.1m profit). The Group adjusted
operating loss before exceptional and one-off items was GBP10.4m.
The reduction in adjusted operating performance of GBP13.4m, from
a profit of GBP3.0m in 2002 to a loss of GBP10.4m in 2003, was
primarily caused by an GBP11m increase in distribution costs due
to the problems encountered with the distribution network in the
year.
The results for the second half of the year show an operating
loss of GBP1.5m before exceptional and one-off items, compared to
an operating loss of GBP8.9m before exceptional items in the
first half. The gross margin in the second half year was up 1.3
percentage points to 42.7%.
Mothercare had a disappointing start to the second half, leading
to the profit warning in January 2003. However performance
improved in the final quarter with like for like sales up
2.4%. The sales performance, combined with margin improvements
and reducing distribution costs, were the major causes of the
adjusted operating performance being ahead of our expectations in
January.
The results can be summarised as follows:
2003 2002
GBPm GBPm
Turnover (ex VAT) 431.7 426.9
Adjusted operating (loss)/profit (10.4) 3.0
One-off items (9.3) -
Exceptional operating charges (2.8) -
Operating (loss)/profit (after exceptional operating charges)
(22.5) 3.0
Non-operating exceptional charges (2.4) (4.1)
Interest 0.1 1.2
(Loss)/profit on ordinary activities before tax
(24.8) 0.1
Group turnover and operating (loss)/profit before exceptional
operating charges and one off
items:
Turnover Operating
(Loss)/Profit
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
U.K. Stores 369.3 374.7 (15.9) (1.0)
Mothercare Direct 16.2 13.3 0.7 -
Mothercare International46.2 38.9 4.8 4.0
Total 431.7 426.9 (10.4) 3.0
U.K. Stores
Turnover was 1.4% down on last year at GBP369.3m together with a
1.0% reduction in like-for like sales. The primary cause of this
reduction being the poor product availability to customers caused
by the distribution problems during the year.
Five new stores opened in the year adding 2.1% to sales, however,
this was offset by nine closures in the year to give a net 0.5%
sales decline due to space changes. The operating loss (before
exceptional operating charges and one-off items) was GBP15.9m
compared to a loss of GBP1m last year.
Mothercare Direct
Mothercare Direct, which includes our catalogue and website
businesses, had a successful year generating its first operating
profit in its third year of operation. Sales grew by 21.9% to
GBP16.2m with an operating profit of GBP0.7m compared to
breakeven last year.
The Direct platform is also being used to support stores, by
providing a home delivery service for larger products, and
offering a wider range to customers served by smaller Mothercare
stores. Sales of GBP8.5m were ordered through stores for home
delivery.
Mothercare International
Mothercare International achieved another strong sales and profit
performance, despite a short term set-back in the last quarter
due to the impact of the Gulf War, with sales up 19% to GBP46.2m
and operating profit up 20% to GBP4.8m.
The Franchise model continues to work successfully with all our
core partners investing in the brand either with refurbishments
or new stores during the coming year. We currently have 174
franchise stores open, of which 19 were opened in the year, and a
further 20 are planned to open in the current financial year.
Adjusted operating loss (before exceptional items) The reported
operating loss (before exceptional charges) of GBP19.7m includes
a number of oneoff items which do not fall within the accounting
definition of exceptional items and have therefore been included
within the operating loss. These one-off items amount to GBP9.3m
and are analysed as follows:
GBPm
Pensions 3.0
Fixed asset impairment 2.5
Clearance stock 1.7
Business stabilisation costs 1.1
Other 1.0
Total 9.3
Additional pension costs of GBP3.0m are described in more detail
under "Pension Accounting" below. The fixed asset impairment
provision of GBP2.5m resulted from a review of the accounting
policies and practices of the Group. This review did not identify
any material accounting policies that were considered
inappropriate. A provision of GBP1.7m has been taken against the
value of exceptional levels of old season clothing stock held for
clearance. Business stabilisation costs of GBP1.1m are
principally the cost of consulting services provided to support
stabilisation of the business and the start of the turnaround.
Other items of GBP1.0m comprise a number of smaller items
including an adjustment to the stock valuation methodology.
3 Adjusting for the above items reduces the operating loss to
GBP10.4m.
Exceptional items
Exceptional operating charges of GBP2.8m comprise redundancy
costs of GBP2.0m and exceptional distribution costs of GBP0.8m.
The redundancy costs of GBP2.0m represent the severance payments
made to Board members and other employees, including the
redundancy costs arising from store closures in the year. The
exceptional distribution costs relate to one-off costs incurred
in renegotiating the Group's warehouse and distribution contract
during the year.
Net non-operating exceptional charges of GBP2.4m have also been
incurred. These comprise provisions for losses on disposal of
stores of GBP3.1m, off-set by a GBP0.7m profit on stores closed
during the year.
Interest and Taxation
Net interest income decreased to GBP0.1m from GBP1.2m last year,
as a result of lower average cash balances. There was no overall
tax charge in either year due to the tax losses brought forward
from prior years. The effective rate of tax will therefore remain
below the standard rate of corporation tax until the group has
used all of these losses. The losses carried forward at the end
of the year are approximately GBP58m.
The GBP10.0m exceptional tax credit relates to lease back
arrangements made in 1996/1997, the treatment for tax purposes
having been finally agreed during the year resulting in the
release of the prior year provision held.
Dividends
The Board have recommended no final dividend for the year be paid
(last year 1.5p per share).
Cash Flow and Financing
The Group had a net cash inflow from trading of GBP8.3m (2002:
outflow of GBP10.5m). This net inflow arose from the operating
loss before exceptional items of GBP19.7m plus exceptional cash
costs of GBP3.8m, adjusted for depreciation of GBP14.3m, and
favorable working capital improvements of GBP17.5m. The working
capital improvement was due to a reduction in stock levels of
GBP3.8m, a reduction in debtors of GBP4.7m, and an increase in
creditors of GBP9.0m.
Capital expenditure in the year was GBP13.4m (2002: GBP10.7m).
The largest element of this capital expenditure related to the
five new stores opened in the early part of the year at a cost of
GBP4.3m.
Taking account of the payment of the final dividend for 2002 of
GBP1.0m, this resulted in a net cash outflow of GBP4.6m (2002:
outflow of GBP22.5m).
In May 2003 the Group agreed a new three year committed bank
facility of GBP20.0m which is secured by a fixed and floating
charge over the assets of the Group. We anticipate that this
facility, combined with the underlying cash generation of the
business, will provide sufficient funding to complete the
turnaround of the business and commence the future development.
Pension Accounting
A full actuarial valuation of the Group defined benefit pension
schemes is being undertaken as at 31 March 2003, the previous
full valuation was at 31 March 2000, which showed a net surplus
of GBP24.1m. The full results of the 31 March 2003 valuation are
not yet known, but early estimates suggest that the schemes will
be close to 100% funded. In accordance with SSAP 24, the Board
considers it appropriate for the last valuation to be adjusted
for this change in the valuation of the schemes' assets. This has
given rise to the GBP3.0m pension charge in the year due to the
elimination of the prepayment held on the Company balance sheet.
The Group is planning to increase its cash pension contributions
to some GBP2.0m per annum, from GBP1.5m in 2002, with effect from
the new financial year to ensure the pension fund continues to be
adequately funded.
A valuation on an FRS17 basis has also been prepared at 30 March
2003. This showed a net deficit at 31 March 2003 of GBP31.7m. On
an FRS17 basis the charge to profits would have been GBP1.2m. At
31 March 2002 the FRS17 basis showed a net surplus of GBP9.4m.
CHIEF EXECUTIVE'S REVIEW
BUSINESS STABILISATION
In December 2002, the Company was still suffering from the poor
performance of the distribution centre, working capital was not
being managed sufficiently tightly and the underlying strategy
had fragmented with the U.K. stores business delivering
unacceptable returns. The supply chain was generating significant
availability problems and costs were unacceptably high.
Urgent priorities were identified to stabilise the business
performance, and to provide the foundation for delivery of the
necessary turnaround. These were to:
(i) Address the distribution issues
A review of our Daventry warehouse was undertaken that identified
areas of significant performance improvement. We have re-
negotiated our contract with Tibbett & Britten, who operate the
Daventry warehouse for us, which has increased our flexibility
and will drive down costs. Product availability has improved by
some 10%. However our more rigorous measurements show that
availability on our top 100 lines is currently still well below
industry averages at 75%. Costs have reduced from 8.0% of sales
in the last year to a current running rate of some 7% of sales.
We anticipate a further reduction of the running rate to some
6.5% by March 2004.
(ii) Strengthen the cash position
Changes to cash management were introduced that have resulted in
a significant uplift in our cash position together with a much
tighter control over working capital and costs. The effect
of these initiatives has been to improve the Company's cash
position by some GBP12 million since December 2002, resulting in
net cash balances at the year end of GBP7.7 million.
(iii) Re-invigorate trading
In January 2003 new ranges were introduced that, coupled with an
increase in availability and the early results of our enhanced
sourcing relationships, improved performance. Our focus on
full price trading together with buying our best sellers in
greater depth has resulted in the like for like sales increases
and improved margins which we have experienced for the first four
months of the calendar year.
TURNAROUND
In addition to working to stabilise the business, we have carried
out an operational review.
The review looked at every aspect of the business in order to
define the turnaround program which is now fully underway. Our
plans are focused on five key priorities: Store Proposition,
Product and Sourcing, Supply Chain, Customer Service and our
Infrastructure.
Store Proposition
Over the last few years, Mothercare has invested time and
resources in the development of our out of town portfolio, which
has performed well. However, at the same time, the high street
stores have suffered from a lack of attention and clarity of the
customer proposition. We have developed two merchandise
propositions Mother and Baby and Mothercare Lite. These are
currently being trialled together with different refit concepts.
Although the trials only started in April, customer feedback has
been positive and, from a financial perspective, the signs are
also encouraging. A full evaluation of the trials will be
conducted before finally deciding on both the merchandise
proposition and store refit concept to rollout. We would
anticipate investing some GBP4m this year on the second stage of
the trials program this Summer and the start of the roll out next
Spring. We will anticipate the cost of our high street refit
program will cost some GBP15m over the next three years, this
amount is included within our capital expenditure and funding
plans.
Our out-of-town stores remain a key part of our store portfolio.
Whilst our current focus is on improving the high street, we do
not need to invest significant further capital in our out of town
stores in the short term. However, we expect the improvements we
are making in the areas of product and supply chain to lead to an
enhanced performance of both the high street and outof-town
stores.
Product and Sourcing
Improving our clothing range is critical to the successful
development of the business. We have taken urgent steps to
improve our offer to meet customer needs in design and quality
and ensuring that the pricing strategy is right. Our aim is to
ensure we provide high quality basic items whilst reinvigorating
the contemporary and premium element of the range.
This strategy, supported by improved availability, and buying
best sellers in greater depth, is giving greater choice and
clarity to the customer. Customer response to the later phases of
our Spring/Summer 2003 range shows that these actions are having
a beneficial impact. The nature of the clothing business with
seasonal ranges and lengthy lead times between design of product
and its availability to customers means that this process will
take time. We continue to focus on improving quality within our
Home and Travel ranges, and Toys remain an important part of the
product offer.
Mothercare currently sources product from over 200 suppliers in
45 countries. In order to simplify the process and improve
efficiency, we will reduce our global supply base progressively
over the next three years.
Supply Chain
We have already taken urgent action to resolve the short-term
distribution issues. Our focus now is on designing and
implementing a supply chain which will support the future
development of the business and significantly and consistently
improve our availability.
Mothercare currently has an overly complex supply chain. To
address this, we are undertaking a review to define the best
route by product category from factory to store, so that we can
achieve seamless and cost-effective delivery of products. Once
this review is complete, we will then design a supply chain to
meet these requirements. This will be a challenging program as it
will involve changes to our core logistics infrastructure and
therefore we expect it will take three years to fully implement.
In the meantime, we are addressing the cost base through
efficiency and productivity improvements and implementing
measures to increase product availability and enhance data
integrity.
Customer Service
Significantly improving our customer service is a vital step in
turning round Mothercare's performance. Following a review of
what matters to our customers, we have a clear view of the
service they want. We are developing and putting in place the
procedures and providing our staff the necessary training, to
deliver these service levels in a consistent way.
Our objective is to provide enhanced customer service levels
without additional staff costs.
Our analysis shows that our staff spend only some 40% of their
time on "customer-facing" tasks. To address this imbalance we
will eliminate unnecessary tasks and improve their work
processes. In the short term we will need to invest in staff
costs to make a difference to our customers whilst the
improvements in our underlying processes are made.
Infrastructure
Underpinning all these areas is the need to support the business
through appropriate management practices. We need to ensure they
are best in class and to upgrade our management disciplines to
achieve consistent performance levels. As part of this process we
are looking at ways to apply the right resources and management
focus to the turnaround program to ensure that the changes are
fully delivered to plan. In addition, because our core systems
have lacked investment, we are investing in new systems and
planning to improve data accuracy and to support the changes we
need to make our business operate more effectively.
To achieve a successful turnaround the business has to be more
cost effective. We are conducting a full review of the cost base
of our business. Central costs have already been reduced by some
GBP2m on a full year basis and further savings will come as we
challenge all that we spend. In addition we have reviewed our
store portfolio and identified a limited number of stores that
are loss making and, despite all the improvements to trading we
are making, will not achieve acceptable levels of profitability.
These stores are to be closed, further reducing our cost base.
The cost of making these changes, together with the ongoing
support of our turnaround program, is expected to result in
further restructuring costs of approximately GBP1m in the year.
THE LONGER TERM FUTURE
We anticipate that it will take some three years to realise the
full benefits of the turnaround program. The decisions we have
taken will lead to sustainable business performance improvements
in the long term. Whilst our focus in the medium term is on the
turnaround, looking ahead, we believe there is considerable
opportunity to improve the profitability of the U.K. portfolio
and drive the potential of our International and Direct
businesses.
CURRENT TRADING
Current trading is encouraging with U.K. like-for-like sales for
the seven weeks to 16 May 2003 up 2.8%. Gross margins have
continued the improvement in performance experienced in the
second half of last year, reflecting the benefits of better
availability and our focus on full price trading.
To See Financial Statements:
http://bankrupt.com/misc/Mothercare.pdf
CONTACT: MOTHERCARE
Ben Gordon, Chief Executive
Phone: 01923 206001
Steven Glew, Finance Director
Phone: 01923 206140
Susan Gilchrist/Philippa Power
Phone: 020 7404 5959
ROYAL MAIL: Posts Pre-Tax Loss of GBP611 Million in Results
-----------------------------------------------------------
Royal Mail announced a pre-tax loss of GBP611 million for the
year ending March 2003 - almost half the loss in the previous
year - and is aiming to return to profit this current year.
Chairman Allan Leighton said last year had been a year of
progress. The underlying loss from day-to-day operations was
GBP197 million - over GBP120 million, 38% better than a year ago.
It is the first improvement in trading performance for five years
and Mr Leighton said:
"Our people have stopped the rot. They deserve the credit that
for the first time in five years, trading performance is getting
better, not worse. They have laid the foundations for a
turnaround and put the company at the start of the road to
profitability."
But Mr Leighton cautioned: "The really hard work is ahead of us
as the middle year of any company's recovery plan is always the
hardest. We have to keep the company's pension scheme on a
sustainable footing and we face major regulatory pressure as
Postcomm attempts to impose the price at which competitors will
be allowed access to our network.
"The task this year is to make the necessary changes in mail
deliveries and transportation that will deliver the large cost
savings essential for future profits and reward for our people."
Adam Crozier, Royal Mail's new Chief Executive who joined the
leadership team in February, paid tribute to the efforts made to
achieve the improved performance.
"We've got to not just maintain the momentum of change, but to
increase the pace. Since joining the company, I've been hugely
impressed by the pride and commitment of our people. I'm
confident that we can move into profit this current financial
year," said Mr Crozier.
Making Royal Mail a great place in which to work was a crucial
objective and he added: "Improving our people's pay will play a
key part in improving morale. I'm determined that savings made by
making our operations more efficient will be shared fairly with
our people.
"A priority is to eliminate unacceptable behavior in the
workplace. The launch of an independent helpline to stamp out
bullying, harassment and discrimination, together with continued
close working with the Equal Opportunities Commission,
underscores Royal Mail's commitment to its people."
Progress was being made on making operational changes, Mr Crozier
said: "There have been positive discussions with our unions on
streamlining the transport network and introducing a single daily
mail delivery, instead of the current two. I'm confident there
will be an agreement to enable these crucial cost-saving programs
to move forward with consensus and buy-in by our people.
"I'm pleased the results show we are on target to pay a 'Share in
Success' dividend to all our people by hitting profit targets
next year, the final year of the renewal plan," said Mr Crozier.
Mr Crozier said the most tangible evidence to date showing how
Royal Mail was restructuring to cut its costs was the way in
which Parcelforce Worldwide had now created a structure giving
the prospect of ending losses stretching back for more than a
decade.
"The company has ended or renegotiated loss-making contracts,
halved its nationwide network of depots to just over 50, closed
five parcel distribution centres, exited from the Standard parcel
market and transferred this work to Royal Mail.
"The business, based around its domestic and international hubs
at Coventry, now handles 40 million parcels a year - compared to
120 million before restructuring - and provides 30,000 business
customers a variety of next-day and two-day guaranteed services
in the U.K. and world-wide.
"Sadly, job numbers have reduced from 10,700 to around 5,700 but
we managed to do this entirely by voluntary means," said Mr
Crozier.
Elmar Toime, the Executive Deputy Chairman who joined the
leadership team in March, said Royal Mail's First Class mail
service over the year had achieved its best performance in seven
years with 91.8% of First Class letters arriving the next working
day after posting.
"We know there is substantially more work to do to improve our
overall level of service to customers. But there have been
encouraging improvements over the year. Across the 15 product and
service categories in our license, 14 of them saw a better
cumulative performance last year than in the previous 12 months,
and one equaled the prior year performance. Nonetheless, it is
disappointing that we met only three of the 15 targets set out in
the license. We are determined to build further on the progress
made.
"Last year was also the best year for industrial relations in a
decade and that has meant that service to customers has been
almost uninterrupted."
Mr Toime added: "Much needed new technology is also being
installed in our mail centers, including a new generation of
electronic systems capable of reading poorly addressed mail. This
should lead to further improvements in performance and service to
customers."
David Mills, Post Office Ltd's Chief Executive, said the last
year had seen the end of an era for payment of benefits and
pensions. "The Post Office's 17,200 branches were fully ready for
the switch," he said.
"The banking technology we've installed has hugely expanded the
Post Office network's capabilities. We're handling more than 2
million banking transactions a month from a wide range of
accounts and we have also launched the Post Office Card Account,
providing pensioners and benefit recipients with a no-frills,
Post Office-based way of continuing to collect their benefit in
cash at network branches.
"The challenge will be to retain as many of our customers as
possible as the switch to direct payment of benefits and pensions
gathers momentum."
Mr Mills said funding had been secured for the maintenance of
rural branches, as well as investment in urban offices and
compensation for those urban subpostmasters who had signaled
their intention to leave the business under a planned and staged
program to close some 3,000 urban branches.
"We are determined that in urban areas, there will be a Post
Office branch within a mile of 95% of our customers," said Mr
Mills.
He added that 1,300 managers and support staff in Post Office Ltd
had left the business last year - as part of the overall 16,600
job reductions company-wide.
Allan Leighton said that there remained an urgent need to make
substantial further progress in the company's renewal plan
because of a hypothetical deficit of GBP4.6 billion in the Royal
Mail pension fund, following adoption of FRS17 accounting
standards. He stressed however that: "Our people currently in the
scheme should have nothing to fear. We have factored into our
business plans additional payments to the fund by the company
until the deficit is cleared
"We are committed to the ongoing funding of the plan and will
manage the shortfall as part of our everyday activities, pumping
some GBP100 million into pensions each year until the deficit is
cleared. It is, however, an ongoing risk for the organization and
increases our need to deliver the fundamental change that
underpins our renewal plan."
He also warned that a further threat to the company's future was
pressure from the postal regulator, Postcomm, to impose an
unrealistically low price that other companies would pay Royal
Mail for use of its sorting and delivery network.
"It's absolutely essential the regulator gets the price of access
for competitors right. Our initial view is that the sums are
again wrong, and that once again we are looking at flawed
proposals which will produce a significant negative margin for
Royal Mail - not the claimed profit. If this is the case, we
won't hesitate to challenge the plan in the High Court."
Allan Leighton concluded: "This year will be testing for Royal
Mail but I'm confident the worst results are behind us. The
enormous goodwill we have in our people, our brands and our
customers means that we're now within sight of regaining our
position as the world's best postal service."
Highlights
The key points of the 2002/2003 results are:
Financial
-- Turnover from continuing operations of GBP8,299 million was
down by GBP109 million on the previous year. However, as
2001/2002 was a 53-week year for accounting purposes, while last
year had 52 weeks, the underlying picture was a small rise year-
on-year in turnover of GBP50 million, a rise of 0.6%.
-- Losses from operations were, on average, GBP0.75 million per
working day, compared to GBP1.2 million the previous year.
-- Exceptional costs totalled GBP695 million, compared to GBP1.1
billion the previous year. Most of the new exceptionals related
to provisions for voluntary redundancy.
-- Post Office Ltd's losses grew to GBP194 million before
exceptionals, up GBP31million on the previous year. The loss
underlines the need for the current urban re-invention program
which will, by 2005, see some 3,000 fewer urban sub post offices.
-- Parcelforce Worldwide, which has successfully completed its
transformation to an express-only service for time-guaranteed
deliveries for business customers, lost GBP187 million on
operations, up from GBP94 million the previous year. It remains
on course to break even in 2004/2005.
-- Royal Mail's U.K. mails operation made a profit of GBP66
million, including philatelic sales and Royal Mail's Special
Delivery guaranteed and insured, next-day delivery service. Royal
Mail made a loss on its core mail business.
-- International mail and Royal Mail's European parcels business,
made an operating loss of GBP12 million, an improvement of the
previous year's loss of GBP58 million.
Operational
-- Days lost to strike action fell by 90%.
-- Mail volumes grew by just 0.3% and the average daily mail bag
last year contained just over 82 million letters.
-- 16,600 jobs have gone from the company - around 5,500 people
have taken voluntary redundancy, some 6,500 other jobs have
transferred to other firms, mainly as a result of outsourcing
deals, but also because of the contract for TV licensing going to
Capita, while around 4,600 people were not replaced when they
left the company.
CONTACT: ROYAL MAIL GROUP PLC
148 Old Street
London
EC1V 9HQ
Home Page: http://www.royalmail.com/group
ROYAL & SUNALLIANCE: Three-Month Results Shows Improvement
-----------------------------------------------------------
-- General business combined ratio of 99%, reflecting improved
performance from most areas.
-- Benign weather in the U.K. and Europe; contingent weather
reserve of GBP30m set up in the U.K. for future claims events
-- IPO of Australasia successfully completed on 16 May 2003
-- Good progress on capital plans. Risk based capital shortfall
now eliminated.
Regulatory capital position further improved.
Andy Haste, Group Chief Executive said, "We have made a good
start to our actions to reshape the Group and strengthen our
capital position. Our risk-based capital is back in balance and
the underwriting result has improved. There is more to do, but we
are on the right track."
3 Months 3 Months
2003 2002
Revenue
General business net premiums written
(after impact of quota share - page 11)
GBP1,945m GBP2,023m
Group operating result (based on longer
term investment return (LTIR) 1 GBP175m GBP160m
Group operating profit
(based on LTIR) 1,2 GBP95m GBP110m
Profit / (loss) for the period
attributable to shareholders GBP2m GBP(64)m
Balance sheet 31 March 31 Dec
2003 2002
Shareholders' funds GBP3,103m GBP3,043m
Net asset value per share (adding back
equalisation provisions net of tax) 222p 217p
Tangible net asset value per share 205p 199p
BUSINESS OVERVIEW
Group Operating Result*
The Group operating result* was GBP175m (2002: GBP160m (on the
old investment return assumptions basis)). There were three major
features of this result. Firstly, the improvement of GBP96m in
the general business underwriting result for the Group. Secondly,
the reduction in the longer term investment return following the
changes in investment return assumptions that were introduced at
the beginning of the year, and that would have reduced the 2002
comparative by GBP41m if applied then. Finally, there is an
GBP18m reduction in the life contribution. Further details on all
of these developments are given later in this release.
The combined ratio of 99% (2002: 104.2%) reflects the improving
performance of the Group worldwide.
Excluding the results of Promina and U.K. healthcare the Q1
combined ratio would have been 99.6%.
Andy Haste, Group Chief Executive, commented,
"The improvement in performance that can be seen in most areas of
these results is encouraging. However, we cannot look at one good
quarter in isolation, particularly when it has also benefited
from strong results from operations that we have already disposed
of in 2003 and from operations such as RSUI that we are in the
course of disposing. Our challenge is to produce sustained
performance improvements from our ongoing businesses over a
number of quarters and across the insurance cycle.
"The rating increases that have been achieved over the year have
helped to turn around our underwriting performance and we have
also benefited from particularly benign weather in the U.K. and
Europe. As a prudent measure we have set up a GBP30m contingent
weather reserve in the U.K. to cover future losses.
"Elsewhere we detail the results of individual regions but there
are a number of points to note.
The U.K. personal lines result remains unacceptable. We need to
eliminate unprofitable segments of personal intermediated
business and are currently renegotiating corporate partner
contracts.
We must also reduce the expense base of MORE TH>N. Across the
U.K. operation, disposals, outsourcing and redundancies already
actioned will reduce headcount by 3,800 and we have reduced
premises by 17 sites.
In the U.S., the market has remained strong but there is evidence
that rating is beginning to moderate. The result was driven by
the strong performance of the commercial business, particularly
the excellent results from RSUI, while personal was impacted by
the East Coast winter storms. We have reduced headcount by over
800 and the majority of our planned office closures are now
complete.
Canada showed some underlying improvement but remains
unsatisfactory, partly as a result of seasonal weather. We are
significantly reducing underperforming sectors of personal lines
and refocussing our commercial portfolio on small risks and
selected mid market segments.
Scandinavia produced a strong improvement, helped by benign
weather and rate increases and a reduction of large losses. We
are focussing on retaining profitable customers and identifying
further improvements to enable us to sustain performance through
the cycle.
"The results also reflect GBP22m of expense reductions that have
been achieved out of the GBP350m overall improvement that we
targeted in November. Through a combination of disposals,
outsourcing and redundancies our worldwide staff numbers have
reduced by nearly 12,000 to 38,000. Obviously, it is still early
days but, together with the successful IPO of Promina and the
sale of our U.K. healthcare & assistance business, which returned
our risk based capital position to equilibrium, it is a good
start towards achieving our November objectives.
"These objectives are only a beginning. I am establishing a
rigorous review process to assess plans and progress in view of
changing business and market conditions. I've made a number of
changes to the management team, in the key areas of performance
and change management. We will also be progressively changing our
structure over the next few months to reflect the new geographic
focus of the Group. I have hired a business leader for the new
International region that will be created and will include all
operations outside our primary markets of U.K., USA, Canada and
Scandinavia. One of his first jobs will be to review the
performance, value and strategic fit of all of our smaller
operations.
"I am a strong believer in instilling a performance culture into
any organisation that I'm involved with and my approach to Royal
& SunAlliance will be no different. I am setting challenging
targets, measuring performance and making people accountable for
the consequences of their actions. I recognise that there is much
still to be done but I also believe that the Group can emerge
from this period of change with a better, more sustainable
business."
OPERATIONS REVIEW
General Business Result*
The general business result* is a profit of GBP169m (2002:
GBP120m) with the improvement in the underlying underwriting
result of GBP96m being partly offset by the GBP41m variance in
the longer term investment return. As we indicated we would do at
the third quarter last year, we have adjusted down our investment
return assumptions from the beginning of this year to reflect
lower levels of long term returns.
While weather conditions were benign in the U.K. and Europe,
severe East Coast winter weather hit the USA, and Canada
experienced its usual weather affected first quarter. The USA and
Canada also saw an increased frequency of large losses and there
was a major bushfire in Australia in January. Despite this we saw
an improvement in the combined operating ratio in every Region of
operation.
An analysis of weather and large losses is as follows:
3 Months 3 Months
2003 2002
GBPm GBPm
Weather 54 92
Large losses 113 127
Personal
The differing fortunes of the U.K. direct and intermediated motor
business have continued into 2003. MORE TH>N has seen strong
motor sales in the first quarter, while there has been a
significant fall in broker as we have exited some market segments
and continued to apply market leading rate increases.
The growth in household premiums in the U.K. is driven by rate
increases across the MORE TH>N book of business and growth in
business through major corporate partner connections. During the
first quarter weather reserves were increased by GBP15m as a
precautionary margin for the rest of the year but there was still
a 10-point improvement in the combined ratio to 108.5% on the
household account.
In Canada, auto saw a 6-point improvement in combined ratio,
however the market continues to be challenging and underwriting
action continues. It produced another quarter of underwriting
profit on the household account. An important contributor to this
was the Johnson Corporation, which continued to grow strongly
while producing an underwriting profit. U.S. auto improved to an
underwriting profit for the quarter. The combined ratio for
household deteriorated by 23 points due to adverse weather and a
number of large fire losses.
The Scandinavian result improved significantly helped by
favourable weather and large loss experience, as well as
underwriting actions. Other EMEA, which now comprises Ireland,
Italy and the Middle East operations, also produced strong
results, benefiting from the disposals made last year and good
weather.
Commercial
U.K. commercial continued its strong performance with
underwriting profits from property, casualty and motor and an
overall underwriting profit of GBP20m reflected in a combined
ratio of 94.4%. During the quarter weather provisions were
increased by GBP15m as a precautionary margin for the remainder
of 2003.
In the U.S., we continue to apply strong rating increases across
the commercial book and have seen an increase in lapses as a
result. This has been particularly marked in risk managed and
global and workers' compensation. The RSUI result continued to be
excellent, underpinning the whole commercial result and
particularly commercial property. Looking forward, we recognize
that the sale of this business will change the overall shape of
the U.S. result, underlining the need for us to continue our
tough underwriting stance.
In Canada, there was a small improvement in the motor result.
Premium income has declined markedly following the withdrawal
from long haul trucking business. The property account was hit by
a seasonal increase in weather related claims following
relatively benign experience in 2002.
EMEA saw an 11-point improvement in combined ratio to 88.9%, with
a 13 point improvement in Scandinavia to 94.4%, helped by
favourable weather. Ireland, Italy and the Middle East all made
underwriting profits.
Current Year Result
The comparison of the accident year combined ratios with those
reported is as follows:-
3 Months 3 Months 3 Months
2003 2003 2002
Accident Year Reported Reported
% % %
U.K. personal 109.0 106.7 111.3
U.K. commercial 96.7 94.4 98.8
EMEA 92.8 93.7 104.8
USA 96.1 100.8 102.0
Canada 106.6 108.7 114.2
LA&C 94.3 93.2 98.7
Asia Pacific 97.2 97.9 103.1
Total 98.5 99.0 104.2
The only development of note was in the U.S. where the run off
was attributable to workers' compensation and an increased
unrecoverable reinsurance provision.
Life Business Result
The life business result of GBP39m shows an GBP18m decrease on
2002. The principal reason is a decrease in the U.K. contribution
reflecting the continued lower levels of equity markets and the
consequent impact on bonus levels. Additionally, there was the
one off release of GBP6m in the first quarter of 2002, in respect
of the Danish operation where the Regulator changed the way in
which it allowed companies to recognise the value of surplus.
Other Activities Result
The analysis of the other activities result is as follows:
3 Months 3 Months
2003 2002
(unaudited) (unaudited)
GBPm GBPm
Development expenses (8) (4)
Other non insurance - 3
Non insurance activities (8) (1)
Associates 5 1
Central expenses (13) (9)
Investment expenses (9) (10)
Loan interest (11) (16)
Balance of LTIR 3 18
Other activities result (33) (17)
The non insurance activities result has reduced mainly due to the
sale of Royal & SunAlliance Investments. Central expenses have
increased due to costs arising from the Operating and Financial
Review, announced in November 2002, and ongoing work on
restructuring.
The other activities result also includes a surplus of GBP3m in
respect of the balance of LTIR. The primary reason for the
reduction compared to the prior period is the use of lower
investment returns. Equity returns are now calculated at 7.5%
(2002: 9%) and fixed at 5% (2002: 6%), per annum.
Group Operating Profit*
The difference of GBP80m (2002: GBP50m) between Group operating
result* and Group operating profit* comprises a number of items
outlined below. Movements comprise amortisation of goodwill of
GBP8m (2002: GBP18m), amortisation of goodwill in acquired claims
provisions of GBP5m (2002: GBP7m), amortisation of the present
value of acquired in force business of GBP3m (2002: GBP3m),
charges in respect of interest on dated loan capital of GBP14m
(2002: GBP13m) and reorganisation costs of GBP40m (2002: GBP5m),
plus the increase in equalisation provisions of GBP10m (2002:
GBP4m).
Other Profit & Loss Movements
The main difference between Group operating profit* and profit
for the financial year attributable to shareholders is short-term
investment fluctuations. U.K. accounting rules require us to
reflect in profit before tax (PBT) the full market value movement
in our investment portfolio. This volatility can distort each
year's PBT and is one of the main reasons that we use Group
operating result* based on the longer term investment return as
our primary measure of performance.
Short-term investment fluctuations for the year were a charge of
GBP75m (2002: GBP182m) reflecting the poor investment market
conditions during the period.
Other movements also include the loss on disposal of subsidiaries
of GBP1m (2002: GBPnil). The disposal of U.K. healthcare and the
IPO of Australasia will be accounted for in the second quarter.
The underlying rate of tax on the Group operating result* was 31%
(2002: 31%). After a tax charge of GBP10m (2002: credit of GBP5m)
and eliminating minority interests of GBP7m (2002: credit of
GBP3m), the profit for the period attributable to shareholders
was GBP2m (2002: loss of GBP64m).
Movement in Total Capital
Total capital has increased from GBP4,221m at 31 December 2002 to
GBP4,318m at 31 March 2003. The movement in shareholders' funds
comprises the after tax profit attributable to shareholders of
GBP2m, preference dividend of GBP2m, a reduction in embedded
value of GBP94m and an exchange gain of GBP154m, primarily
attributable to a strengthening in the U.S., Canadian, Australian
and New Zealand dollar and the Danish kroner. Dated loan capital
has increased due to foreign exchange movements of GBP24m and
minority interests have increased by GBP13m.
Capital Position
On a regulatory basis, the overall regulated entity and its
overseas subsidiaries had an estimated excess over required
minimum margin at the end of March 2003 of around GBP840m. Taking
account of the effect of the disposals of U.K. healthcare &
assistance and Promina would increase this estimate to
approximately GBP1,300m.
Risk Based Capital
The capital available to support general business of GBP2.8bn is
in equilibrium with the projected requirement. This requirement
is calculated by assuming the annualised value of net written
premium at the end of 2003 will be around GBP7bn. This is
estimated after deducting achieved disposals and other actions.
The Group's risk based capital requirement of 40% is then applied
to this projection.
Any projection of net written premium and capital requirement is
subject to variation in the light of market conditions and other
factors and is regularly monitored.
General Insurance Requirements for 2003
The capital position shown above compares the actual capital at
31 March 2003, adjusted for the disposals of healthcare and
assistance and Promina, with the projected general business
requirement at the end of 2003. The actual capital comprises the
published position, adjusted by excluding intangible items such
as goodwill. The total shareholders' interest in life is then
deducted. The shareholders' interest in life is analysed on page
A3 of the detailed business review. It comprises both the
embedded value of future profits and shareholders' funds of life
companies. It does not represent the capital requirements of the
life operations, however, for prudence, the whole amount is
deducted from available capital and only recognised to support
the general business where the capital is clearly available for
this purpose.
On a risk based capital basis, the position was as follows:
GBPm
Total capital, reserves and dated loan capital 4,320
Adjusted for:
Profits on disposals to date in Q2 70
Goodwill (300)
Equalisation provisions (net of tax) 210
Available capital (tangible) 4,300
Shareholders' interest in life 1,750
Less Promina (250)
1,500
General business available capital 2,800
Prospective general business requirement
(@40% of prospective 2003 NWP) 2,800
Indicated position - equilibrium -
Projected further capital release from general business
reductions, releases from life and profits on disposal are
targeted to bring the RBC capital position up to a surplus of
GBP800m.
Inevitably our current capital position is subject to the
uncertainties in preparing the accounts for an insurance company,
which are set out on page A5 to A9 of the detailed business
review. In addition the overall capital projection is subject to
uncertainty, because of factors such as future movements in
investment markets, regulatory change and the execution risk of
our planned actions.
Net Asset Value Per Share
The net asset value per share, after adding back claims
equalisation provisions net of tax, increased to 222p (31
December 2002 217p). At 19 May 2003 the net asset value per share
(adding back equalisation provisions net of tax) was estimated at
233p.
To see financials: http://bankrupt.com/misc/ROYAL_SUNALLIANCE.pdf
CONTACT: ROYAL & SUNALLIANCE
Malcolm Gilbert, Director Communications
Phone: +44 (0)20 7569 6138
ROYAL & SUNALLIANCE: Fitch Says Ratings Remain Unchanged
--------------------------------------------------------
Fitch Ratings, the international rating agency, said its ratings
and outlook remain unchanged following the Q103 result
announcement made by Royal & SunAlliance Insurance plc (RSAIP)
today [Thursday]. It acknowledged, however, that the group has
made good early progress towards reshaping its business as
outlined in the Operating and Financial Review dated 7 November
2002.
The Insurer Financial Strength ratings of RSAIP and its U.S.
insurance subsidiaries remain at 'BBB+' and RSAIP's Long-term
rating is 'BBB-' ('BBB minus'). The rating on the junior
subordinated debt issued by Royal & SunAlliance Insurance Group
plc (RSAIG) is 'BB+'. The Rating Outlook is Negative.
Today [Thursday], RSAIP announced a group operating result of
GBP175 million (2002: GBP160m) and a profit attributable to
shareholders of GBP2m (2002: GBP64m). Fitch welcomes the
improvement in the combined ratio to 99% (2002: 104.2%), however,
the agency remains concerned that some of the group's core
operating entities continues to produce unacceptable results,
notably the U.K. personal lines business and Canadian personal
and commercial businesses. Before further rating action would be
considered, the agency believes a longer-term trend needs to
emerge to support the group's claim that it can produce a net
real return on risk-based capital of 10% or better. This equates
to a non-life combined ratio over the cycle of 102% and assumes a
return on equities of 7.5% and a fixed interest return of 5%.
This may prove difficult to achieve as the group is already
witnessing a slow down in rate increases in certain business
lines that could start to impact results as early as 2004.
Although the ratings remain unchanged following today's
[Thursday's] announcement, the agency believes the recent sale of
the group's U.K. Healthcare & Assistance business, together with
the success of the Promina IPO in Australia means the group's
risk based capital and statutory solvency positions have been
substantially improved during 2003. Since November 2002, these
two actions are estimated to have released capital of GBP792m. As
a result of these and other transactions, the group's risk based
capital is deemed to be adequate to support the projected general
business premium income level of GBP7 billion in 2003 and
GBP5.5bn longer-term when further disposals or down-sizing
actions are completed.
Fitch is also expecting no further significant reserve
strengthening will be required. In 2002 the total prior year
reserve strengthening was GBP595m, however prior deterioration in
1Q03 was modest and added only 0.5% to the reported combined
ratio of 98.5%. Fitch is concerned that further significant
reserve strengthening in 2003 could reduce the solvency margin
towards minimum statutory levels. But Fitch notes that the
group's regulatory margin is currently estimated to be GBP1.3bn,
representing a significant improvement on GBP600m at YE02.
Fitch will continue to follow the group's progress closely during
2003 as it continues to execute its strategic plan, and will be
assessing if any further rating action is required.
NOTE: These ratings were initiated by Fitch as a service to users
of Fitch ratings. These ratings are based primarily on public
information.
CONTACTS: FITCH RATINGS
David Wharrier, London
Phone: +44 (0)207 417 6292
Greg Carter, London
Phone: +44 (0)207 417 6327
Andrew Murray, London
Phone: +44 (0)207 417 4303
Donald Thorpe, Chicago
Phone: +1 312 606 2353
SIMON GROUP: Chairman Provides Trading Update at General Meeting
----------------------------------------------------------------
As set out in my Chairman's Statement of 28 March, work has
continued towards unlocking the potential that lies within the
Ports and Logistics Divisions.
In the Ports Division we now have the necessary statutory and
other consents to construct Phase II of the Humber Sea Terminal,
which will comprise up to two further river berths and double the
capacity of the Terminal. Due to environmental constraints, which
prevent key marine works from being undertaken in the winter and
in order to meet anticipated customer requirements, it is
necessary to commence construction as soon as possible.
Accordingly, as the Board is satisfied with customer support for
this new berth, construction contracts are now being placed for
Berth 3, a third Ro/Ro berth. This new berth will provide two
further berthing slots, one day time and one night time and is
expected to come into operation in Spring 2004. The placing of
the contracts for the construction of Phase II's fourth berth is
not anticipated to occur before the Spring of 2004. The marine
works for Berth 3 will cost approximately GBP10.8 million. The
new Berth 3 will increase HST's capacity by 50% and significantly
enhance shareholder value.
In the Logistics Division the new Seawheel management has
continued to address the business' poor performance and has made
a number of significant changes. Progress remains slow and we do
not anticipate Seawheel returning to profit in 2003. The Group
will continue to keep its investment under review and is
considering a number of options to achieve the best result for
shareholders.
*****
In April, Simon Group posted a continuing loss (pre exceptional
items) of GBP7.6 million for 2002. Exceptional losses of GBP22.3
million (of which GBP15.6 million related to the writing off of
Logistics' goodwill) resulted in a loss before taxation for the
year of GBP22.5 million.
CONTACT: SIMON GROUP PLC
Phone: 01737 372660
Timothy Chadwick, Chairman
Tim Redburn, Chief Executive
Gavin Anderson & Co
Phone: 020 7554 1400
Liz Morley
*************
S U B S C R I P T I O N I N F O R M A T I O N
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