RNS No 2568a
ACORN GROUP PLC
27 April 1999
ACORN GROUP PLC ("ACORN")
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED
31 DECEMBER 1998
Chairman's Statement
Offer by MSDW Investment Holdings for Acorn
The Board of Acorn has today announced that it has reached
agreement on the terms of a recommended offer by MSDW
Investment Holdings for Acorn, and I therefore expect that
this will be my last report to shareholders as Chairman of
Acorn. The offer is being made on the basis of 2 shares in
ARM for every 5 shares in Acorn, which (based on the closing
share prices immediately prior to the announcement of the
offer) values each Acorn share at 279 pence and represents a
premium of approximately 14 per cent. to Acorn's closing share
price yesterday. I am delighted that we have been able to
generate a value enhancing solution which enables Acorn
shareholders to participate directly in ARM's extraordinary
success.
In April 1998, Acorn supported and participated in ARM's
initial public offering. During the year, the Group sold just
over a fifth of its interest in ARM, mostly to repay
borrowings and to finance its own core operating businesses.
Over the six months prior to the date of this announcement,
Acorn's share price has traded at an average discount of 16
per cent. to the post-tax market value per share of its
investment in ARM.
Recognising that many shareholders have invested in the
Company primarily because of its interest in ARM, the major
focus for your Board has been to maximise this value for
shareholders either as a direct shareholding in ARM, or as
cash. Your Board believes that it has examined all the
options for achieving this objective.
The Acorn Board (other than Stan Boland, who is precluded from
expressing an opinion by virtue of his interest in the option
agreement described below) considers that the offer by MSDW
Investment Holdings represents the best available solution for
Acorn shareholders and offers greater value than that which
would be achieved in either a demerger or distribution in
specie of ARM shares or by any other practical alternative.
The offer also enables Acorn shareholders to receive this
value as a direct holding in ARM shares. It is for these
reasons that your Board (other than Stan Boland) has
recommended acceptance of the offer for Acorn.
Acorn's operating businesses
Acorn's operating businesses underwent significant changes
during the year. In 1998 they collectively generated revenues
of #11.5m and operating losses of #(10.0)m, compared with
revenues of #25.2m and operating losses of #(3.7)m in 1997.
In June 1998, Stan Boland succeeded David Lee as Chief
Executive Officer of the Group. Following his appointment the
operating company was significantly rationalised and
redefined, focusing on the development of set-top boxes and on
silicon and software development. Shortly after the end of
the year, the operating company sold its 50% interest in
Xemplar Education Limited to its joint venture partner, Apple,
providing further working capital for these businesses.
Both the set-top box business and the silicon and software
development activity are at early stages of development and
there is no certainty that either or both can be successfully
brought into sustainable profit and growth. In order to
remain competitive, Acorn would need to fund the development
of next generation digital set-top box designs, despite the
current relatively low revenue basis for such an investment.
Successful development of the silicon and software business
would similarly require very significant investment in design
tools and in engineering resources over a sustained period.
Furthermore, the grouping of these two businesses together is
ultimately unsatisfactory from a market, investment and
management viewpoint.
Given the above, your Board has concluded that it is
inappropriate for their development to be funded through the
public markets, either directly, or indirectly through further
disposals of ARM shares. Your Board therefore entered into
negotiations with a trade purchaser in respect of the set-top
box business and agreed that Stan Boland, Chief Executive, and
certain senior management of Acorn should be permitted to
explore the possibility of obtaining external finance in
respect of the silicon and software development activity. In
the course of discussions with MSDW Investment Holdings, these
negotiations were accelerated to minimise any liabilities
attaching to these businesses which would otherwise be
reflected in the terms of the offer. As a result of these
negotiations your Board has agreed to sell the set-top box
business to Pace Micro Technology plc for net asset value of
approximately #0.2 million and to grant an option to a company
owned by Stan Boland and certain senior management to purchase
(subject to obtaining external financing) the silicon and
software design activity for net asset value of approximately
#1.0 million. The offer reflects the value of these
transactions, both of which are conditional on the offer by
MSDW Investment Holdings being declared unconditional in all
respects. The outcome of either transaction will not affect
the terms of the offer.
Chief Executive's Review
During the first half of 1998, considerable management time
was devoted to achieving a successful initial public offering
of ARM Holdings plc. ARM's IPO on 18th April 1998 allowed the
Group to repay its indebtedness and enabled the management to
focus on the future strategic direction for the core operating
businesses and the Group as a whole.
In June 1998, I was appointed CEO of the Group. Management
changes were made immediately following my appointment and a
full-scale review of the core operating businesses commenced.
In September 1998, the operating company cancelled its Risc
PC2 workstations development program, and cut its staff
numbers by almost 40% to reduce on-going losses. During the
period January to September 1998, operating losses had
amounted to #(9.0)m. The operating company was redefined as
encompassing two businesses: (i) a set-top box business,
targeting primarily the emerging interactive digital TV market
delivered to the home via xDSL or cable, and (ii) a silicon
and software development activity, targeting the design and
development of a high performance media digital signal
processor (DSP).
Since September, the set top-box business has seen some
success at gaining market acceptance. After several years of
annual set top box shipments being less than 1,000, the
operating company secured firm orders for over 3,000 set top
boxes and two frame agreements, each for 10,000 set top boxes.
The operating company's relationships with pioneering
companies in this market have also been preserved, notably
with Oracle and Funai Electric Co. Ltd.
The silicon and software development activity has been focused
on building a new software and services relationship with a
major US silicon vendor and, for the longer-term, has been
targeted on developing a silicon and software platform for a
high performance media DSP. Revenues from this activity
amounted to approximately #0.8m in 1998. This business was
strengthened in November 1998 with the recruitment of a team
of seven silicon design engineers previously with
STMicroelectronics. These engineers will form the basis of a
new silicon design centre in Bristol.
Despite the restructuring referred to above, both business
areas were lossmaking during the last quarter of 1998 and were
required to invest further capital in product development. As
a result, the operating company continued to lose money, but
at a lower rate of #(0.9)m, during this last quarter of 1998,
and these losses have continued into the first quarter of
1999.
Although I believe we have put the operating businesses in a
stronger position than at the start of this year, given the
strong desire of Acorn shareholders to enjoy direct access to
the ARM shares, I do not believe their future plans can or
should be executed within the existing corporate structure.
Finance Director's Review
During 1998, the Group generated revenues of #11.5m (1997:
#25.2m) and an operating loss of #(10.0)m (1997: #3.7m).
The disposals in 1998 of just over one fifth of Acorn's
holding in ARM generated a pre-tax profit of #18.1m (1997:
nil), whilst the Group's share of associates pre-tax profits
amounted to #3.1m (1997: #2.1m).
After accounting for a small loss of #(0.1)m due to the
dilutive effect of the exercise of employee share options over
new ARM shares by ARM employees (1997: #(0.4)m), the Group
recorded a pre-tax profit in 1998 of #11.1m (1997: loss of
#(2.3)m).
Interest and other finance charges for the year were nil
(1997: charge of #(0.5)m). The Group suffered tax charges in
1998 of #(2.9)m (1997: #(0.5)m). The 1998 charge includes a
liability of #(1.9)m in respect of capital gains tax on the
ARM share disposals. No dividend is proposed (1997:nil).
As at 31 December 1998, the Group held net cash balances of
#5.4m (1997: net borrowings of #(6.6)m) and equity
shareholders' funds amounted to #18.8m (1997: #1.6m).
On 8th January 1999, the Group sold its 50% interest in
Xemplar Education Limited to Apple Computer for a cash
consideration of #3.0m. This investment was therefore
reclassified as a current asset in the 31 December 1998
balance sheet.
27th April 1999
Consolidated Profit and Loss Account
YEAR ENDED 31 DECEMBER 1998 1998 1997
#000 #000
Turnover 11,516 25,192
Cost of Sales (8,596) (18,632)
Gross Profit 2,920 6,560
Distribution costs (3,238) (4,496)
Administration expenses (5,058) (2,892)
Research and development (4,608) (2,858)
Operating loss (9,984) (3,686)
Share of operating profit in
associated undertakings
ARM Holdings plc 2,787 2,063
Xemplar Education Ltd 331 80
Profit on disposal of shares 18,126 -
Loss incurred on dilution of (130) (417)
shareholding in associate
Loss incurred on closure of - (376)
overseas subsidiaries
Profit/(loss) on ordinary 11,130 (2,336)
activities before finance
charges
Finance charges (net) (29) (547)
Profit/(loss) on ordinary 11,101 (2,883)
activities before taxation
Tax on profit/(loss) on ordinary (2,858) (479)
activities
Retained profit/(loss) for the 8,243 (3,362)
year
Earnings per share
Basic 3 8.9 p (3.7)p
Diluted 3 8.4 p -
All operations of the Group continued throughout both periods.
Consolidated Statement of Total Recognised Gains and Losses
YEAR ENDED 31 DECEMBER 1998 1998 1997
#000 #000
Profit/(loss) for the financial
year
Group 6,083 (4,814)
Associates 2,160 1,452
Gain on increase in share of 8,397 -
associate's net assets on
flotation
Tax credit in relation to 36 -
associate's employee stock
option
Loss on foreign currency (2) (53)
translation
Total recognised gains and 16,674 (3,415)
losses relating to the year
Consolidated Balance Sheet
AT 31 DECEMBER 1998
1998 1997
#000 #000
Fixed assets
Intangible assets 249 969
Tangible assets 1,094 1,267
Investments 12,078 6,602
Current assets 13,421 8,838
Stocks 837 775
Debtors 3,176 3,905
Investments 2,214 -
Cash at bank and in hand 5,409 1,325
11,636 6,005
Creditors
Amounts falling due within one (6,079) (13,019)
year
Net current 5,557 (7,014)
assets/(liabilities)
Total assets less current 18,978 1,824
liabilities
Creditors
Amounts falling due after more (204) (204)
than one year
Net assets 18,774 1,620
Capital and reserves
Called-up share capital 9,261 9,204
Share premium account 13,684 13,261
Other reserves 7,923 (58)
Profit and loss account (12,094) (20,787)
Equity shareholders' funds 18,774 1,620
Consolidated Cash Flow Statement
YEAR ENDED 31 DECEMBER 1998 Notes 1998 1997
#000 #000
Net cash outflow from 4 (8,748) (2,858)
operating activities
Returns on investment and
servicing of finance
Interest received 205 67
Interest paid (234) (249)
Net cash outflow from
returns on investment
and servicing of finance (29) (182)
Capital expenditure and
financial investment
Purchase of intangible (182) (971)
fixed assets
Purchase of tangible fixed (453) (659)
assets
Net cash outflow from (635) (1,630)
capital expenditure
Net cash outflow before (9,412) (4,670)
financing
Financing activities
Issue of ordinary shares 480 1,684
Redemption of loan stock - (26)
Net proceeds on disposal of
shares
in associated 19,403 -
undertaking
Repayment of unsecured loan (7,883) -
Dividend received 1,496 -
Net cash inflow from 13,496 1,658
financing
Increase/(decrease) in cash 5 4,084 (3,012)
Notes
1. The figures for the year ended 31 December 1998 do not
comprise full statutory accounts within the meaning of Section
240 of the Companies Act 1985.
2. The accounting policies have been applied consistently
throughout the year and the preceding year.
3. Profit/(loss) per Ordinary Share
The calculation of profit/(loss) per Ordinary Share is based
on a profit of #8,243,000 (1997:loss of #3,362,000) and on
92,488,000 (1997:90,837,500) ordinary 10p shares, being the
weighted average number of shares in issue during the year.
The fully diluted earnings per share is calculated allowing
for the full exercise of outstanding share options in the
Company and its subsidiaries and associates at the beginning
of the year or date of grant if later. The adjusted weighted
average number of shares is 92,656,000. No comparative figure
has been given for the fully diluted earnings per share due to
losses generated in 1997.
4.conciliation of Operating Loss to Cash Outflow from
Operating Activities
1998 1997
#000 #000
Operating loss (9,984) (3,686)
Depreciation and amortisation 818 1,223
Loss on disposal of fixed 710 106
assets
(Increase)/decrease in stock (62) 1,344
Decrease in debtors 729 3,468
Decrease in creditors (957) (4,548)
Profit on redemption of loan - (336)
stock
Loss incurred on closure of - (376)
New Zealand subsidiary
Foreign exchange losses (2) (53)
(8,748) (2,858)
5.Reconciliation of Net Cash Flow to Movement in Net
Funds/(Debt)
1998 1997
#000 #000
Increase/(decrease) in cash 4,084 (3,012)
for the year
Cash outflow from redemption - 26
of loan stock
Cash outflow from repayment 7,883 -
of unsecured loan
Change in net funds from cash 11,967 (2,986)
flows
Non-cash changes:
Profit on redemption of loan - 336
stock
Interest on unsecured loan - (365)
Movement in net funds in the 11,967 (3,015)
year
Net cash/(debt) at start of (6,762) (3,747)
period
Net cash/(debt) at end of 5,205 (6,762)
period
END
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