RNS Number:8390B
Bakery Services PLC
30 September 2002
Bakery Services plc ("the Company")
Preliminary Results for the year ended 31 March 2002
Chairman's Statement
HIGHLIGHTS
* Successful demerger of the coffeeheaven business (Bakery Services Polska
SA) via dividend in specie to shareholders and subsequent AIM listing.
* Group operating losses from continuing operations before exceptional items
#329,710.
* Significant reduction in overhead costs initiated following failure to win
expected additional business for the in-store bakery division (Inbake
Limited) and demerger of Bakery Services Polska SA.
* Franchise business expansion plans put on hold pending resolution of
contemplated legal action by the Company.
* Current business downsized to operate profitably.
CHAIRMAN'S STATEMENT
OVERVIEW
The past year has been extremely challenging for your Board.
The successful demerger of the Group's Polish business to shareholders is in
contrast to some major disappointments in the UK businesses.
As previously announced, following a demerger of the Polish business and lack of
expansion opportunities for the in-store bakery business in the UK, the Group
has made, and continues to make, significant reductions in overhead costs
targeted to return the Group to modest levels of profitability.
Results for the current year include a number of material exceptional and other
one off costs.
These comprise:
1. A write down of #366,194 in the value of bakery equipment assets which, for
reasons set out below, the Directors consider as having no economic value to
the Group.
2. In view of on-going obligations, which have materialised in respect of the
lease of a single managed unit in the Group's franchise business, the
Directors have considered it prudent to write off the balance of goodwill
arising from the 2000 acquisition of this business amounting to #622,736.
3. A write off of intangible assets relating to the demerged Polish business
amounting to #97,910.
The above items, which do not affect cash flows, amount to #1,086,840 and are
disclosed in the financial statements as Exceptional Operating Expenses and Loss
on Disposal of Fixed Assets. This amount, together with the loss for the year
associated with discontinued operations amounting to #215,917, totals #1,302,757
and represents the greater part of the reported pre and post tax loss on
ordinary activities of #1,754,651.
The retained Group loss for the period is #1,384,329 and is stated after
charging demerger costs of #131,613 and crediting an increase in reserves on
demerger of a subsidiary, together with minority interests amounting to
#370,322.
As described above, the substantial Group loss for the year arises primarily
from a number of exceptional charges together with losses attributable to the
Polish business prior to its demerger on 29 November 2001.
Despite the above, underlying trading in the Group's two remaining subsidiaries
(Inbake Limited and Don Millers Limited) has been broadly in line with Directors
expectations.
As part of the reduction in overhead cost, the Board accepted with great regret
the resignation of Jonathan Cooper from the Board in April 2002. At the same
time all Board members took a salary reduction of 20%.
Trading Results
Total Group sales for the year ended 31 March 2002 were #4,452,709 (2001 -
#4,484,358).
Sales are broken down as follows:
2002 2001
Inbake Limited 3,577,743 3,828,616
Don Miller Limited 510,823 456,979
Bakery Services Polska SA 464,143 198,763
__________ __________
Total 4,452,709 4,484,358
========== ==========
Total sales from continuing operations in the period were #4,088,566 (2001 -
#4,285,595)
Inbake Limited
The decline in sales revenues from our in-store bakery business, Inbake Limited,
continues last year's pattern and is due in the main to store closures. In
addition like- for- like store sales declined 1.9% in the period.
However Gross margins improved to 33.7% (2001 - 32.4%)and operating profits from
Inbake increased over the same period last year to #52,578 (2001 - #21,578).
Don Millers Limited
Franchise revenue in Don Millers Limited is received in the form of fees based
on the underlying turnover of each franchise business. Underlying sales revenues
generated by Don Millers franchises were #4.1M (2001 - #3.9M) an increases of 5%
over the prior year on like- for- like sales.
The performance of Don Miller continues to meet the expectations of your Board
at the time of acquisition. However expansion of the business has been blighted
by the performance of a single unit, which is not franchised but managed by the
Company. This is currently the subject of contemplated legal action to which I
refer later in this report.
Don Miller revenues are split as follows:
2002 2001
Franchise Income (11 units) 250,932 236,921
Managed Store Sales (1 unit) 259,891 220,058
__________ __________
Total 510,823 456,979
========== ==========
Franchise fee income grew a respectable 5.9% against the prior year same period
on a like- for-like number of stores.
Operating profits (before exceptional items) are as follows:
2002 2001
Operating Profit Franchise (11 units) 161,726 128,053
Operating Loss Managed Store (1 unit) (49,750) Nil
__________ __________
Total Operating Profit 111,976 128,053
========== ==========
The loss shown for the Managed Store for 2002 is the balance of the loss for
this year in excess of amounts provided (at the date of acquisition) in respect
of the expected losses before disposal or sub letting of this unit. The total
trading loss for the unit in the period amounted to #102,140 (2001 - #131,653)
of which #52,390 in the current year has been covered from a release of the
balance of the goodwill provision.
Bakery Services Polska SA
Sales for Bakery Services Polska S.A. cover the period to 29 November 2001 when
this business was demerged from the Group. The Board's reasons for demerging
this business from the Group have been previously addressed in a separate
circular to shareholders dated 5 November 2001.
Group Summary
Retained losses for the year were #1,384,329 and are made up as follows:
2002
Operating losses from continuing businesses 329,710
Operating losses from discontinued businesses 215,917
__________
Total operating losses (before exceptional items) 545,627
Exceptional expenses:
Goodwill written off 622,736
Surplus equipment written off 366,194
Intangible assets written off 97,910 1,086,840
__________
Other items:
Demerger expenses 131,613
Interest receivable and Payable (net) (9,429)
Minority Interests (42,086)
Increase in reserves on demerger of (328,236) (248,138)
subsidiary __________
__________
Retained loss for period 1,384,329
==========
Basic losses per share were 1.26p (2000 - 0.39p loss)
Cash at bank and in hand at 31 March 2001 was #61,319 (2001 -#210,852). This
position is enhanced by 33% (#131,950 - 2001 #151,843) of total debtors
representing cash collected by third parties. The Group's Balance Sheet remains
materially debt free (other than trade related) and bank overdraft facilities
(recently renewed) of #200,000 are available to the Group.
During the year the Group raised #236,875 (net of expenses) through the placing
of 25,000,000 million new ordinary shares to support the further development of
the Group.
In view of current losses your Board proposes no dividend for the year.
Operational Review
Bakery Division -Inbake (R)
The Company's principal customer base remains the various regions of the
Co-operative Group (CWS) Limited. Outlets are generally operated as
in-store bakery concessions within supermarkets and are located
throughout the United Kingdom.
Bakery concessions fall into three classifications broadly reflecting activity.
. "Scratch" bakeries where the finished product is made from ingredients
mixed and baked as one process by craft bakers. These bakeries are
equipped with Company assets and operated by Company staff. As
many as 200 product lines are manufactured daily at each of these
locations.
. "Mini" bakeries where French bread and rolls are finished, cream cakes
are made and traditional breads delivered from one of our "scratch"
bakeries.
. "Satellites" where all products are "delivered-in" from one of our
"scratch" bakeries.
Sales from most outlets are made direct to the consumer and the cash
collected through the supermarket check-out tills.
As indicated in previous reports, revenues for Inbake continue to decline as its
principal customer, the CWS, increasingly focuses on smaller market town stores.
Earlier in the year we reported that an expected opportunity to expand the
in-store business resulting from the merger of the CWS and Cooperative Retail
Services Limited ('CRS') would not materialise. Whilst the Board believes this
will not affect the Company's existing business with the CWS, it does means that
equipment earmarked for this new business has no foreseeable economic use for
the Company. Accordingly the carrying value of this equipment has been written
down in the financial statements as an exceptional item.
The Inbake business, although declining, remains profitable. Your Board's
challenge is to manage this decline in a way that maximises the cash flow and
profit potential yet is consistent with maintaining the Company's high standard
of customer service.
Franchise Division -Don Miller's (R)
Don Millers Limited operates eleven retail bakery and sandwich cafe franchises
from high street and shopping centre locations, predominantly in the midlands
and north of England, under the brand name Don Miller's(R).
Don Millers is an established retail bakery business and has been trading since
1972. Your Board believes that the brand has strong consumer awareness and can
be revitalised into a major franchise business.
As mentioned in previous statements, a period of operational consolidation
followed the acquisition and your Board then commenced a phased programme of
brand re-positioning.
The first phase focussed on the development of a fresh corporate image for the
existing retail estate. This visual re-branding has been underpinned with new
product offerings and supply chain consolidation, and is being introduced
through the existing eleven stores.
The second phase has been targeted at broadening the appeal of the Don Millers
name through incorporating most of the Group's in-store bakery operations under
the Don Millers name. This phase is now complete and has been well received at
the retail level.
The third phase is to relaunch Don Millers as an attractive contemporary
franchise opportunity. In our Interim Statement dated 28 December 2001 we
indicted that the roll out of new franchise stores was being planned cautiously
so that the Group's limited financial resources could be applied to developing
potential new Inbake business. Since then it has become evident the potential
new Inbake business as described above will not now materialise. The Don Miller
business is now is a position to take on new franchise shops and have a number
of prospective franchisees. However your Board believes that at the present time
it may be difficult to secure adequate additional funding to support an
expansion of the franchise business until the legal matter to which I refer
below has been resolved.
When the Don Millers franchise business was acquired from the Receivers of Fresh
Connection Limited the Receivers also offered the Group the Don Millers managed
shop estate. The Group declined this offer and agreed to acquire only the
franchise assets. One of the leased units that formed part of the purchased
estate was in reality a managed unit operating under a temporary licence
arrangement. Since this date your Directors have made every effort to dispose of
this unit and have in the meanwhile traded from it to minimise losses. To date,
total losses incurred on this unit amount to #229,750 of which #180,000 was
provided on acquisition.
An issue has now arisen in relation to this managed property and the
Company is contemplating legal action in relation to the advice received at the
time of acquisition.
Future Prospects
Although results for the current year are clearly unacceptable they have to some
extent, for the reasons set out above, been unavoidable.
The Group retains two fundamentally sound businesses with strong cash generative
potential. Your Board believes that appropriate steps have been taken to reduce
the cost base of the Group commensurate with present revenues and compatible
with returning the Group to modest levels of profitability. The Group retains
the confidence of its bankers and satisfactory overdraft arrangements have
recently been renewed.
Although there are no immediate prospects for expanding the Inbake business your
Board will continue to seek appropriate opportunities.
The Don Millers franchise business remains a growth opportunity for the Group
and your Board will be making every effort to satisfactorily resolve the legal
issue outlined previously in this report.
In addition your Board is continuing to explore a number of other options for
increasing shareholder value of the Group.
Richard D. Worthington
Non-Executive Chairman and Financial Director
30 September 2001
Group Profit and Loss Account for the year ended 31 March 2002
2002 2001
# # # # # #
Continuing Discontinued Total Continuing Discontinued Total
restated restated
Note
Turnover 4,088,566 464,143 4,552,709 4,285,595 198,763 4,484,358
Cost of sales (2,574,010) (239,246) (2,813,256) (2,765,355) (106,041) (2,871,396)
__________ __________
___________ __________ __________ __________
Gross profit 1,514,556 224,897 1,739,453 1,520,240 92,722 1,612,962
Distribution costs (621,654) - (621,654) (620,267) - (620,267)
Administrative expenses (1,845,348) (538,724) (2,384,072) (1,034,425) (493,500) (1,527,925)
(including exceptional items)
__________ __________ __________ ___________ __________ __________
Operating loss before (329,710) (215,917) (545,627) (134,452) (400,778) (535,230)
exceptional items
Exceptional operating expenses (622,736) (97,910) (720,646) - - -
__________ __________ __________ __________ __________ __________
Operating loss (952,446) (313,827) (1,266,273) (134,452) (400,778) (535,230)
Restructuring Costs (131,613) (131,613) -
Loss on disposal of fixed assets (366,194) (366,194)
Interest receivable 16,984 27,783
Interest payable (7,555) (6,679)
__________ _________ __________ __________ __________ __________
Loss on ordinary
Activities before tax (1,754,651) (514,126)
Taxation on loss on
Ordinary activities - -
__________ ___________ __________ __________ __________ ___________
Loss on ordinary
activities after tax (1,754,651) (514,126)
Minority interests 42,086 87,995
Increase in reserves on demerger 328,236 -
of subsidiary
__________ __________ __________ __________ __________ __________
Retained loss
for the period (1,384,329) (426,131)
Loss per share 3
- Basic (1.26 p) (0.39 p)
- Fully diluted (1.26 p) (0.39 p)
Group Balance Sheet as at 31 March 2002
2002 2001
# #
Fixed assets
Intangible assets - 808,785
Tangible assets 418,255 1,204,642
Investments 990,000 -)
__________ __________
1,408,255 2,013,427
Current assets
Stocks 131,236 149,401
Debtors 398,193 585,260
Cash at bank and in hand 61,319 210,852
__________ __________
590,748 945,513
Creditors: amounts falling due within one (813,192) (672,453)
year
Net current assets (222,444) 273,060
__________ __________
Total assets less current 1,185,811 2,286,487
liabilities
__________ __________
Creditors: amounts falling due after more (21,719) (7,035)
than one year
Provisions for liabilities and - (52,390)
charges
Minority interests - All equity - 84,484
__________ __________
Net assets 1,164,092 2,311,546
========= =========
Capital and reserves
Called up share capital 140,833 115,833
Share premium 2,569,162 2,357,287
Profit and loss account (1,545,903) (161,574)
Shareholders' funds: __________ __________
- All equity 2 1,164,092 2,311,546
========= =========
Company Balance Sheet as at 31 March 2002
2002 2001
# #
Fixed assets
Tangible Assets 17,060 8,887
Investments 1,837,659 2,263,027
__________ __________
1,854,719 2,271,914
Current assets
Debtors 9,430 260,813
Cash at bank and in hand 31,447 79,334
__________ __________
40,877 340,147
Creditors: amounts falling due (106,098) (26,868)
within one year
__________ __________
Net current (liabilities)/assets (65,221) 313,279
__________ __________
Total assets less current liabilities 1,789,498 2,585,193
========= =========
Capital and reserves
Called up share capital 140,833 115,833
Share premium 2,569,162 2,357,287
Profit and loss account (920,497) 112,073
Shareholders' funds: __________ __________
- All equity 1,789,498 2,585,193
========= =========
Group Cash Flow Statement for the year ended 31 March 2002
2002 2001
# #
Net cash inflow from operating activities (182,072) (193,343)
Returns on investments and servicing of 9,429 20,104
finance
Capital expenditure (158,212) (869,897)
__________ __________
(330,855) (1,043,136)
Equity dividends paid - -
__________ __________
(330,855) (1,043,136)
__________ __________
Financing 206,258 698,690
__________ __________
Increase/(decrease) in cash (124,597) (344,446)
__________ __________
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period (124,597) (344,446)
========= =========
Decrease in debt and lease financing 30,617 23,310
New finance leases (42,778) (9,187)
Other non-cash changes (43,974) -
__________ __________
Change in net debt (180,732) (330,323)
Net funds at 1 April 83,837 414,160
__________ __________
Net (debt) / funds at 31 March (96,895) 83,837
__________ __________
Notes
1 Preliminary Results
These preliminary results have been extracted from the company's audited accounts which have been approved and
signed by the directors and auditors, but have not yet been delivered to the Registrar of Companies. The audited
accounts have been prepared under the historical cost convention using the accounting policies set out in the
admission document.
2 Movements in Shareholders Funds
2002 2001
# #
At 1 April 2,311,546 1,979,028
Retained profit (1,384,329) (426,131)
Foreign exchange translation difference - 36,649
Shares issued 236,875 722,000
__________ __________
As at 31 March 1,164,092 2,311,546
========== ==========
3 Loss Per Share
Loss per ordinary share is calculated as follows:
Basic Fully Diluted
2002 2001 2002 2001
# # # #
Loss attributable to ordinary (1,754,651) (426,131) (1,754,651) (426,131)
shareholders
Weighted average number of ordinary 139,463,470 109,825,613 139,463,470 109,825,613
shares
Loss per ordinary share (1.26p) (0.39p) (1.26p) (0.39p)
========== ========== ========== ==========
4 2002 Report and Accounts
The 2002 report and accounts have been published and copies have been sent to shareholders. Further copies are
available from the nominated adviser: Smith & Williamson Corporate Finance, No 1 Riding House Street, London, W1A
3AS.
5 Copy of Announcement
A copy of this announcement will be available from the nominated adviser: Smith & Williamson Corporate Finance ,
No 1 Riding House Street, London, W1A 3AS for one month from the date of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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