KLEENEZE plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 30TH APRIL 2003
Disposal of DMG
Kleeneze plc ('Kleeneze') announces the disposal of DMG, its display marketingbusiness, to Premier Direct Group plc ('Premier') for up to £3.8 million in cashplus 190,763 shares in Premier, valuing the total consideration at up to
£4.1 million. £1.0 million cash is payable today and the balance of the cash is
payable in five instalments ending on 30th April 2005. The retention of the
shares in Premier will allow our shareholders to benefit from any upside arising
out of the combination of the two businesses.
DMG made an operating loss of £10.8 million, which is worse than expected due to
a stock write down of £7.0 million, during the year ended 30th April 2003 (2002:
profit of £1.7 million) on turnover of £32.2 million (2002: £42.6 million). In
the three months ending 31st July 2003 DMG is expected to record an operating
loss of £2.5 million on turnover of
£3.5 million. The net assets being disposed of are £6.0 million.
DMG's total loss before tax was £44.2 million in the year ended 30th April 2003,
including £33.4 million of goodwill written off.
The disposal will enable us to concentrate on the excellent opportunities for
growth in Kleeneze UK and cash generation at Farepak, which are demonstrated by
today's improved results from these businesses.
Results for the year
Excluding DMG, turnover of the continuing activities Kleeneze UK and Farepak has
grown 6.2% to £164.1 million (2002: £154.5 million) and operating profit on
continuing activities has grown by 19.7% to £8.5 million (2002: £7.1 million).
This reflects strong performances from both businesses. We are comfortable with
our interest cover on continuing activities.
Profit after tax of continuing activities rose 37.0% to £7.1 million (2002: £5.2
million), including an exceptional tax credit of £1.1 million arising from the
acquisition of Kleeneze UK in 1995. Excluding this exceptional tax credit
earnings per share from continuing activities grew by 15.7% to 12.70 pence
(2002: 10.98 pence).
Including DMG the Group recorded a loss before tax of £36.0 million (2002:
profit of £6.3 million) after the £44.3 million loss for discontinued
activities. Basic losses per share were 74.7 pence (2002: earnings per share of
8.5 pence).
The Group's continuing activities generated net cash from Group operating
activities in the year of £12.7 million (2002: £7.4 million). Including DMG the
Group generated net cash of £4.2 million (2002: outflow £4.3 million) after
repayment of £1.1 million (2002: £3.3 million) of loan notes. Net debt at the
year-end decreased to £16.0 million (2002: £20.2 million).
At 30th April 2003 the Group had net liabilities of £8.7 million (2002: net
assets of £26.3 million)
Dividend
Having regard to these results, which have been substantially reduced due to the
impact of the disposal of DMG, the Board does not recommend the payment of a
final dividend for the year, which will result in no dividend being paid for the
year as a whole (2002: final dividend 6.21 pence per share; full year dividend
8.36 pence per share). We plan to declare a small dividend following the
announcement of interim results in line with market expectations in December
this year.
Kleeneze UK
Kleeneze UK provides good value, everyday products through catalogues delivered
direct to the home by self-employed distributors covering the UK and Ireland.
Kleeneze UK had a successful year with turnover growing 5.5% to £86.3 million
(2002: £81.8 million) and operating profit growing 21.3% to £6.6 million (2002:
£5.5 million).
The growth in turnover was underpinned by the growth in distributor numbers.
Record levels of recruitment led to average active distributor numbers growing
12.7% to 16,900 (2002: 15,000). The higher distributor numbers were also
reflected in record attendance at conferences with over 15,000 attendees across
the three UK conferences compared to 13,000 last year. We continue to offer one
of the most attractive multi-level compensation plans for distributors in the UK
direct selling market place and the increased quality of our distributors bears
witness to that.
During the year we shipped 417,000 orders to our distributors compared to
385,000 last year. There was a slight decrease in the average sales value per
distributor ordering from £545 to £510, which was primarily due to the inclusion
of lower priced products in the main catalogue. We have addressed this in our
newest catalogues and as a result we anticipate an increase in average sales
values during the current year. The average sale to the end customer has,
however, remained steady at about £10 per sale.
Turnover in all Kleeneze's catalogues grew year on year. It was notable that in
our newer Health & Beauty catalogue growth was particularly strong which
reflects the creativity and innovation that we have put into that product range.
The sourcing of quality original products is one of our core competencies and
we have recently strengthened our Buying team. This will help us to drive growth
through our fresh and original product range. We source about 50% of our
products from the Far East.
The large increase in the number of orders processed and shipped has lead to
capacity issues in the current site at Hanham in Bristol. We have therefore
decided to re-locate the whole business to a purpose built distribution centre
at Warmley, also in Bristol, some 2.5 miles from the current site. Warmley is a
165,000 sq.ft. facility which we will be modernising to provide sufficient
capacity for our current needs and future expansion. We are investing £2.5
million in new systems to create a state of the art facility. To finance this
move we have sold the Hanham site, which the business has occupied since 1928,
for £4.0 million in cash. The proceeds are expected to be received after we
have vacated the site and we are planning to begin fulfilment from Warmley in
Spring 2004. The profit on disposal has not been recognised in these accounts
as the proceeds are conditional on our vacating the site which we expect to do
by July 2004.
We have already started to use the Warmley site for receiving goods and storing
them before transfer to the pick-pack operation at Hanham. This has allowed us
to consolidate our stock from five separate locations giving better storage
conditions, improved stock control and increased service levels. Improved stock
management systems have allowed us to reduce overall stock levels by over 12%
despite the 5.5% increase in turnover. Together with other improvements in
operating efficiencies this has contributed to the overall increase in operating
margins.
Use of the internet by our distributors has continued to increase and over 80%
of our orders are now received electronically. This greatly speeds order
processing, reduces administrative costs and allows a next day delivery service
to be provided. We are continually improving the service we provide to our
distributors through our
website and are developing a new
generation information platform for re-launch later this year. We would expect
this to lead to increased use of the service.
Kleeneze UK is an exciting dynamic business operating in a growing part of the
UK's retail environment. We continue to develop its potential by sourcing new
innovative 'every day' products and increasing the number and quality of our
distributors.
Farepak
Farepak provides Christmas hampers, gifts and shopping vouchers on a monthly
instalment basis through catalogues distributed by independent agents across the
UK. Farepak operates under two brands, Farepak Food & Gifts and Home Farm
Hampers, a joint venture, which is 60% owned by Findel plc.
Farepak had another good year with turnover growing by 7.0% to £77.9 million
(2002: £72.8 million) and operating profit by 14.4% to £1.9 million (2002: £1.6
million).
Agent numbers grew organically by 1.6% year on year to 63,000 (2002: 62,000).
We have a large number of high quality agents who have been with Farepak for
many years and we have concentrated our marketing and recruitment activities on
retaining those agents. As a result our retention rate increased to 71.9% from
65.3% last year. We review annually the way in which we recruit new agents and
our targeted campaigns across the UK consistently produce high quality agents
who remain with us for a long time.
To enhance further the quality of our agents in April this year we acquired
Goodway Hampers Limited ('Goodway'), a small profitable family owned hamperbusiness based in Liverpool, for £0.4 million in cash. This brought Farepak
1,300 new agents who have been seamlessly integrated into our operation. We
have closed the Liverpool site and are servicing the agents from our dedicated
service centre in Swindon. Goodway had a higher percentage of hamper sales than
Farepak and this will bring more volume into our Swindon site. As a result the
acquisition will be earnings enhancing in the first year.
Shopping vouchers across the Christmas savings market as a whole have become
very popular as they provide flexibility for the customer and these vouchers
have driven growth in the market as a whole. The Choice shopping vouchers, which
can be redeemed in a number of different shops in the UK, continue to be very
popular and overall voucher sales grew by 11.0% year on year. The Choice voucher
can now be redeemed in over 12,000 shops. We also sell individual vouchers for
18 retailers including Marks & Spencer, Boots, Argos and Debenhams.
The budget in April this year changed the way in which VAT is accounted for on
vouchers and we are looking at ways to offset any additional VAT that we may
have to bear as a result of the changes. These changes will not, however, affect
our sales of Choice vouchers as they are exempt from any changes in the
legislation. As Choice vouchers represent over 70% of our total sales of
shopping vouchers any additional costs that we have to bear should not be
material.
Sales from our third party business packing gift hampers for Marks & Spencer,
Littlewoods and Provident Financial remain strong.
We continue to address our cost base and are concentrating in particular on the
sourcing of our products. The purchasing environment has changed significantly
over the past few years and the advent of the internet has made price comparison
and product sourcing much easier. We are ensuring that we remain competitive.
Over 16% of our agents correspond with us via the internet compared to 6% last
year and we are looking at ways in which we can encourage increased use of the
internet by our agents. This will speed up the communication process, eliminate
errors and increase efficiency. We have already seen the benefits of this at
Kleeneze UK and we are looking to replicate that success at Farepak with our
market leading web site
Farepak is a stable highly cash generative business which continues to perform
well in an interesting niche of the mail order market. We will continue to grow
the business through innovative gift voucher and hamper offers whilst reducing
the cost base wherever possible.
Prospects
Following the disposal of DMG the Group now comprises Kleeneze UK, with its high
growth potential, and the highly cash generative Farepak. The disposal of DMG
will enable us to exploit much more quickly the excellent opportunities for
Kleeneze UK and Farepak.
At Kleeneze UK we continue to work on increasing the number of distributors and
widening the range of products offered in our catalogues. During the financial
year we will be completing the move to our new, dedicated warehouse, which will
provide sufficient capacity for our future needs both in the UK and for any
expansion into continental Europe. The growth in turnover since the year-end is
encouraging especially against the background of the weak economic environment.
At Farepak we continue to focus on cash generation and controlling our cost
base. We look forward to further improvements in performance during the year and
the increased volume in our Swindon site as a result of the Goodway acquisition.
We believe there will be further consolidation in this sector and we are in a
strong position to take advantage of this.
Overall for the Group we are confident about the market expectations for our
continuing activities for turnover, profit and the very strong cashflow.
Kleeneze plc
Consolidated Profit and Loss Account
For the year ended 30th April 2003
2003
Continuing Discontinued
Notes Activities Activities Total
£'000 £'000 £'000
Turnover 1 164,120 34,091 198,211
Cost of sales (130,072) (31,462) (161,534)
Gross profit 34,048 2,629 36,677
Selling and distribution expenses (8,072) (3,309) (11,381)
Administrative expenses (7,929) (5,623) (13,552)
Other operating expenses 2 (10,233) (4,576) (14,809)
Other operating expense -
impairment of intangible asset 2 - (33,400) (33,400)
Group operating profit/(loss) 7,814 (44,279) (36,465)
Share of operating profit of
associated company 697 - 697
Total operating profit/(loss) 1 8,511 (44,279) (35,768)
Provision for loss on sale of
business - - -
Profit/(loss) on ordinary activities
before interest and tax 8,511 (44,279) (35,768)
Net interest payable (557) - (557)
Share of interest of associated
company 292 - 292
Profit/(loss) on ordinary
activities before tax 8,246 (44,279) (36,033)
Tax on profit/(loss) on ordinary
activities 3 (2,248) 2,184 (64)
Exceptional tax credit 3 1,115 - 1,115
Profit/(loss) for the year
attributable to shareholders 7,113 (42,095) (34,982)
Dividends including non-equity
dividends 4 (45) - (45)
Retained profit/(loss) for the
year 7,068 (42,095) (35,027)
Earnings/(loss) per ordinary
share - basic and diluted 5 15.08p (89.78)p (74.71)p
Earnings/(loss) per ordinary share
- excluding exceptional items 5 12.70p (89.78)p (77.09)p
Kleeneze plc
Consolidated Profit and Loss Account
For the year ended 30th April 2003 - CONTINUED
2002
Continuing Discontinued
Notes Activities Activities Total
£'000 £'000 £'000
Turnover 1 154,543 58,069 212,612
Cost of sales (122,556) (42,045) (164,601)
Gross profit 31,987 16,024 48,011
Selling and distribution expenses (7,594) (3,622) (11,216)
Administrative expenses (7,735) (5,611) (13,346)
Other operating expenses 2 (10,210) (5,268) (15,478)
Other operating expense -
impairment of intangible asset 2 - - -
Group operating profit/(loss) 6,448 1,523 7,971
Share of operating profit of
associated company 663 - 663
Total operating profit/(loss) 1 7,111 1,523 8,634
Provision for loss on sale of
business - (2,306) (2,306)
Profit/(loss) on ordinary activities
before interest and tax 7,111 (783) 6,328
Net interest payable (366) - (366)
Share of interest of associated
company 338 - 338
Profit/(loss) on ordinary
activities before tax 7,083 (783) 6,300
Tax on profit/(loss) on ordinary
activities 3 (1,892) (368) (2,260)
Exceptional tax credit 3 - - -
Profit/(loss) for the year
attributable to shareholders 5,191 (1,151) 4,040
Dividends including non-equity
dividends 4 (3,965) - (3,965)
Retained profit/(loss) for the
year 1,226 (1,151) 75
Earnings/(loss) per ordinary share
- basic and diluted 5 10.98p (2.45)p 8.52p
Earnings/(loss) per ordinary share
- excluding exceptional items 5 10.98p 2.46p 13.44p
Kleeneze plc
Consolidated Balance Sheet
At 30th April 2003
2003 2002
Notes £'000 £'000 £'000 £'000
Fixed assets:
Intangible assets 442 33,400
Tangible assets 13,117 13,984
Investments 457 81
14,016 47,465
Current assets:
Stocks 14,313 22,079
Debtors 6 12,232 13,667
Cash at bank and in hand 2,430 1,004
28,975 36,750
Creditors: Amounts falling due within one year 7 (50,968) (57,909)
Net current liabilities (21,993) (21,159)
Total assets less current liabilities (7,977) 26,306
Creditors: amounts falling due after more than
one year (330) -
Provision for liabilities and charges:
Deferred taxation (364) (18)
1 (8,671) 26,288
Capital and reserves:
Called up share capital:
Ordinary 2,344 2,344
Preference 500 500
2,844 2,844
Share premium account 1,139 1,139
Revaluation reserve 411 411
Profit and loss account (13,065) 21,894
(8,671) 26,288
Shareholders' funds:
Equity (9,171) 25,788
Non-equity 500 500
(8,671) 26,288
Kleeneze plc
Company Balance Sheet
At 30th April 2003
2003 2002
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets 49 79
Investments 3,306 18,674
3,355 18,753
Current assets
Debtors 10,353 7,367
Creditors: Amounts falling due within
one year (9,225) (20,074)
Net current assets/(liabilities) 1,128 (12,707)
Total assets less current liabilities 4,483 6,046
Capital and reserves
Called up share capital:
Ordinary 2,344 2,344
Preference 500 500
2,844 2,844
Share premium account 1,139 1,139
Profit and loss account 500 2,063
4,483 6,046
Shareholders' funds
Equity 3,983 5,546
Non-Equity 500 500
4,483 6,046
Kleeneze plc
Consolidated Cash Flow Statement
For the year ended 30th April 2003
2003 2002
Note £'000 £'000 £'000 £'000
Net cash inflow from operating activities 8 8,033 3,601
Dividends received from associated company 700 848
Returns on investments and servicing of
finance
Interest received 404 388
Interest paid (823) (638)
Issue costs on bank facilities (200) -
Preference dividends paid (45) (45)
Net cash outflow from returns on investments
and servicing of finance (664) (295)
Taxation
UK corporation tax paid (415) (2,424)
Capital expenditure and financial investment
Purchase of tangible assets (1,628) (2,263)
Proceeds from sale of tangible assets 146 196
Net cash outflow from capital expenditure and
financial investment (1,482) (2,067)
Acquisitions and disposals
Proceeds of sale of business 762 -
Purchase of subsidiary undertakings (224) -
Cash balances acquired with subsidiary 351 -
undertakings
Net cash inflow from acquisitions and
disposals 889
Equity dividends paid (2,912) (3,920)
Net cash inflow/(outflow) before use of liquid
resources and financing 4,149 (4,257)
Financing
New long term loans 424 -
Repayment of loans (31) -
Repayment of loan notes (1,146) (3,349)
Increase/(decrease) in cash 3,396 (7,606)
Reconciliation of Net Cash Flow to Movement in Net Debt
2003 2002
£'000 £'000
Increase/(decrease) in cash 3,396 (7,606)
Loan notes repaid 1,146 3,349
New long term loans (424) -
Repayment of loans 31 -
Movement in net debt 4,149 (4,257)
Net debt at start of period (20,180) (15,923)
Net debt at end of period (16,031) (20,180)