THE HARTSTONE GROUP PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2003
GROUP RESULTS
The Hartstone Group incurred a severe downturn in sales and profitability in the
year to 31 March 2003. Group turnover of £75.1 million was 25% lower than in
the previous year (2002: £99.6 million). There was an operating loss of £5.5
million (2002: £3.4 million profit) before central costs of £0.4 million (2002:
£0.7 million) and non-recurring costs of £0.7 million (2002: £0.5 million).
After finance charges of £0.5 million, the group incurred a loss after tax of
£7.0 million (2002: £1.8 million profit). This has had the effect of reducing
shareholders' funds from £23.5 million to £13.0 million. However, with a
substantial decrease in stocks and debtors, there was a cash inflow before
financing of £2.0 million (2002: £0.2 million outflow).
ETIENNE AIGNER
The relentless pressure on prices and sales volume in the US department stores,
our major customers, on which I reported at the half year, continued unabated in
the second half. Average unit prices of our footwear fell by 17% and the
allowances which we had to provide in order to keep our listings in the stores,
amounted to $9.8 million in the year. However, our secondary and recently
introduced range of footwear, 'EA by Etienne Aigner', increased in sales by 76%.
Sales in our accessory business were down by 17%, largely due to stock
problems with one customer, whilst retail sales were down by 7%. In total, net
sales at Etienne Aigner were down by 17.3% and this led to an operating loss of
$9.1 million, inclusive of an impairment loss of $1.0 million on the property
and equipment in full price stores and higher reserves for inventories and
allowances. As reported at the half year, management responded by cutting
overheads by $4.1 million, but regrettably this was not enough to offset the
losses.
Over the last seven months we have been negotiating with a US purchaser and his
partners to divest the Aigner business and return cash to shareholders. The
issuing of the group results was delayed until negotiations were complete, the
principal terms having been agreed. However, I regret to report that the
negotiations were terminated on 21 July.
FUNDS FLOW
Etienne Aigner breached its banking covenants in September 2002 and again in
March 2003. This has triggered a halt on payments of group interest to the
parent company in the UK.
DIVIDENDS
The directors do not propose to recommend payment of a dividend on the ordinary
shares this year and the company was not in a position to pay the dividend on
preference shares due on 2 January and 2 July 2003.
PROSPECTS
We expected our business to recover last year from the effects of 11 September
2001, but it has certainly not done that. In these circumstances, it would be
foolish to forecast a recovery with any degree of confidence in the coming year.
However, forward orders at Etienne Aigner are higher than at this time last
year, and overheads in this year's budget have been cut back further. Aigner's
future therefore depends on the recovery of sales in the major department stores
and the willingness of American shoppers to buy better quality shoes and
accessories.
In the meantime, given current market conditions, the directors are evaluating
strategic options for the future of the group.
SHAUN DOWLING
Chairman
29 July 2003
THE HARTSTONE GROUP PLC
Preliminary announcement of results
Consolidated results for the year ended 31 March 2003
2003 2002
(restated)
(see note 2)
£000 £000
Turnover - continuing operations 75,080 99,588
Cost of sales (51,718) (62,742)
Gross profit 23,362 36,846
Net operating expenses (29,939) (34,683)
Operating (loss) / profit before non-recurring and central costs (5,491) 3,373
Non-recurring costs (725) (526)
Central costs (361) (684)
Operating (loss) / profit (6,577) 2,163
(Loss) / profit on ordinary activities before finance charges (6,577) 2,163
Net interest (payable) / receivable and similar (charges) / income (note 3) (464) (1,079)
Other finance (charges) / income - 36
(Loss) / profit on ordinary activities before taxation (7,041) 1,120
Tax credit on (loss) / profit on ordinary activities 75 703
(Loss) / profit on ordinary activities after taxation (6,966) 1,823
Dividends on non-equity shares (800) (818)
(Loss) / profit for the financial year transferred from / to reserves (7,766) 1,005
Basic and diluted (loss) / earnings per ordinary share (note 5) (4.9)p 0.6p
Adjusted (loss) / earnings per ordinary share (excluding non-recurring (4.4)p 0.9p
costs)
THE HARTSTONE GROUP PLC
Preliminary announcement of results
Consolidated balance sheets at 31 March 2003
2003 2002
(restated)
(see note 2)
£000 £000
Fixed assets
Intangible assets - 59
Tangible assets 3,948 4,683
3,948 4,742
Current assets
Stocks 18,019 25,230
Debtors 9,000 13,500
Cash at bank and in hand 1,151 2,144
28,170 40,874
Current liabilities
Creditors - amounts falling due within one year (16,428) (3,805)
Net current assets 11,742 37,069
Total assets less current liabilities 15,690 41,811
Creditors - amounts falling due after more than one year (876) (16,910)
Provisions for liabilities and charges (31) (560)
Net assets excluding pension liabilities 14,783 24,341
Pension liabilities (1,804) (793)
Net assets including pension liabilities 12,979 23,548
Capital and reserves
Share capital 2,584 2,584
Capital redemption reserve 329 329
Profit and loss account 10,066 20,635
Shareholders' funds 12,979 23,548
Shareholders' funds represent:
Equity interests 2,981 13,550
Non equity interests 9,998 9,998
12,979 23,548
THE HARTSTONE GROUP PLC
Preliminary announcement of results
Consolidated statement of cash flows for the year ended 31 March 2003
2003 2002
(restated)
£000 £000
Net cash flow from operating activities:
Operating (loss) / profit (6,577) 2,163
Depreciation 1,032 1,216
Impairment of fixed assets 607 -
Amortisation and permanent diminution in value 59 29
Other non-cash items 122 -
Working capital movement:
- decrease / (increase) in stocks 4,766 (1,159)
- decrease / (increase) in debtors 3,219 796
- increase / (decrease) in creditors 775 (350)
Net cash inflow from operating activities 4,003 2,695
Returns on investments and servicing of finance (808) (1,745)
Taxation 62 (298)
Capital expenditure and financial investments (1,208) (841)
Cash inflow / (outflow) before financing 2,049 (189)
Financing:
- purchase of own shares - (886)
- (decrease) / increase in debt (2,813) 473
(Decrease) in cash in the year (764) (602)
Reconciliation of net cash flow to movement in net debt:
2003 2002
£000 £000
(Decrease) in cash in the year (764) (602)
Cash outflow / (inflow) from movement in debt 2,813 (473)
Change in net debt resulting from cash flows 2,049 (1,075)
Other non cash changes - issue costs to be amortised (14) (10)
Translation difference 1,301 23
Movement in net debt 3,336 (1,062)
Opening net debt (13,754) (12,692)
Closing net debt (10,418) (13,754)
THE HARTSTONE GROUP PLC
Preliminary announcement of results
Statement of total recognised gains and losses
for the year ended 31 March 2003
2003 2002
(restated)
£000 £000
(Loss) / profit on ordinary activities after taxation (6,966) 1,823
Exchange (losses) / gains (2,086) 119
Release of deferred tax on exchange gains 362 649
(Loss) on pension assets (1,079) (537)
Total recognised (losses) / gains for the year (9,769) 2,054
Prior year adjustment - adoption of FRS 17 (523)
Total recognised (losses) since the last annual report (10,292)
Reconciliation of movements in shareholders' funds
for the year ended 31 March 2003
2003 2002
(restated)
£000 £000
Total recognised (losses) / gains for the year (9,769) 2,054
Dividends (800) (818)
(10,569) 1,236
Purchase of own shares - (886)
Net (decrease) / increase in shareholders' funds (10,569) 350
Opening shareholders' funds (originally £24.1m before deducting
prior period adjustment of £0.5m
prior period adjustment of £0.5m) 23,548 23,198
Closing shareholders' funds 12,979 23,548