RNS No 7475d
CASSELL PLC
8th April 1998
CASSELL PLC
Preliminary results
for the year ended 31 December 1997
KEY POINTS
* Turnover of #23.3 million, following the disposal of the Victor Gollancz
children's list in the first half and difficult trading in overseas markets
(1996: #24.4 million)
* The sale of the children's list in April resulted in a profit of #234,000
* Pre-tax profit of #396,000, after an exceptional charge of #210,000
(1996: #712,000 after an exceptional charge of #127,000)
* Final dividend of 1.5p per share recommended, making a total of 3.0p for
the year (1996: 4.5p)
* Overhead reduction programme, in line with group strategy of a
streamlined publishing programme
* Progress in working capital management resulted in gearing reduced to 20%
at the year end (1996: 35%)
* New marketing agreement with, and option to buy, US publisher Continuum
Publishing
* Promising first quarter - the release of new Nick Hornby, About a Boy
leads a strong publishing programme which will also include a mass market
edition of Poems on the Underground, Jools Holland's Beat Route - with TV
tie in and Terry Pratchett's The Death Trilogy
Issued on behalf of Cassell plc through Biddick Associates Limited.
Tel: 0171 377 6677
Enquiries:
Philip Sturrock, Chairman and Chief Executive
Tel: 0171 420 5555
Zoe Biddick/Katie Tzouliadis, Biddick Associates
Tel: 0171 377 6677
CHAIRMAN'S STATEMENT 1997
On behalf of the Board I have pleasure in presenting our Annual Report and
Accounts for the year ended 31 December 1997.
Results
Following our success in 1996, we had expected that our 1997 results would
show further improvement in operating profit. In the event, despite several
high profile successes and chart appearances for our bestsellers, our good
performance in the UK was insufficient to offset the difficulties in
international markets widely shared by other book publishers.
Although UK turnover advanced to #15.9 million (1996: #15.4 million) the last
quarter of the year did not match up to our expectations and, together with
disappointing sales to international markets, this meant that total sales
reduced to #23.3 million from #24.4 million in 1996. Of this reduction, about
#650,000 related to the strategic sale of our children's list in April 1997.
Whilst gross margins improved overall, the relatively fixed nature of our
overheads meant that the effect of this reduced turnover dropped to the bottom
line with the result that operating profit for 1997 was #549,000 (1996:
#1,022,000). In both 1997 and 1996, there were exceptional charges. In 1997,
the charge of #210,000 relates primarily to rationalisation designed to
improve productivity in 1998, to legal and professional fees incurred in the
reorganisation of the group's subsidiaries and to an acquisition that was
terminated after due diligence enquiry. In 1996 the exceptional charge of
#127,000 was in relation to group restructuring.
Adding in the profit on the sale of our small children's list in the first
half which delivered #234,000, profit before tax for 1997 was #396,000
compared with #712,000 for 1996.
We have made good progress in improving our working capital management.
Inventory was reduced from #7.6 million in 1996 to #7.2 million in 1997 and
gearing dropped to 20% (1996: 35%). The reduction in bank borrowings to #1.9
million at 1997 year end (1996: #3.3 million) resulted in a positive net cash
flow of #1.4 million, roughly half of which came from trading and half from
the disposal of the children's list.
Dividend
In line with the results for 1997, the directors have recommended a final
dividend of 1.5p per share payable on 2 June 1998 to shareholders on the
register on 24 April 1998. This makes the total dividend for the year 3.0p
(1996: 4.5p).
Divisional Performance
General Division
Turnover in this division fell from #18.9 million in 1996 to #18.1 million in
1997. As mentioned previously, we estimate that about 80%, #650,000, of this
reduction is due to the strategic sale of the children's list in April 1997.
UK turnover grew by 4.1% but the international markets declined. In the USA
this was due to both currency and difficulties in the retail market. In
Australia the main reason was an agency change at the end of 1996 where we
sold opening inventory to the new agent in late 1996 and it took longer than
anticipated for replenishment orders to come through in 1997. However, despite
a drop in turnover, our focus on gross margins was particularly successful,
raising margins by 2.7 percentage points.
Raising margins at a time when retailers are demanding higher discounts to
fund price discounting is no mean achievement. It is in part the result of
our strategy of concentrating our publishing on the bigger books with their
longer print runs and consequent lower unit costs. It is also due to good
housekeeping across the whole of the list. In relation to the 'best-sellers'
aspect, the division scored notable successes. High Fidelity and Fever Pitch,
both from Nick Hornby, continued to appear in the paperback charts. The Lost
Gardens of Heligan was number one in hardback non-fiction and at the British
Book Awards for 1997 won the BCA Illustrated Book of the Year award. Our
latest edition of the Cassell Concise English Dictionary, with a CD-ROM
option, sold well as did another authoritative reference work - the Cassell
Atlas of World History. Mrs Beeton's Best of British Cookery was a favourite
Christmas title and Practical Feng Shui led the list of books on this popular
subject. Jingo, the last Discworld novel from Terry Pratchett that we shall
publish, was in the hardback fiction charts for 16 weeks, four of them at
number one.
Academic Division
This division performed less well with both turnover and margins failing to
match the 1996 performance. Gross margins reduced by 5.5 percentage points.
UK sales remained steady year on year at #3.1 million, but international sales
were down to #2.1 million (1996: #2.4 million). As with the general division,
one of the main reasons was a change in agency arrangements in late 1996 but,
in this division, the change was in the USA. Whilst we retained the same
agent, we changed the basis from consignment to firm sales and sold backlist
stock in late 1996. New stock orders took longer than anticipated to come
through in 1997. This factor, together with currency issues, saw US sales
fall from #1.2 million in 1996 to #0.7 million in 1997.
Nonetheless the Division had some notable publishing successes in the year.
The Revised Common Lectionary, which was introduced in the Church of England
from Advent Sunday 1997, was published in both Lectern and Pew editions by our
Mowbray imprint. The textbook programme scored several successes with
Production & Operations Management, Reflective Teaching in Primary Schools and
The Theory & Practice of Counselling.
Improving Profitability
We have been focusing our programme to improve profitability on three
particular areas. These are improving margins, developing our US academic
marketing and reducing group overheads. As I have discussed above, our
attention to generating increased gross margins has been particularly
successful in the general division. In addition, by concentrating on margins,
we will also continue the trend evidenced in 1997 of improving working capital
management. We are examining carefully the rates of return on capital
employed in each of our imprints.
In relation to academic business in the USA, I am pleased to report a
significant positive move. We would like our marketing to be alongside
another US academic publishing company. Ideally we would like to have such a
company as part of our group but our focus in 1998 is to ensure that our core
UK business performs better. We believe that we have got the best of both
worlds by negotiating an arrangement with The Continuum Publishing Company
Incorporated, based in New York, whereby we appoint them as our marketing
agent for the academic division and in return obtain an option to purchase the
business which in 1997 had a turnover of about $2.8 million. This option,
which is at an agreed but confidential price, is exercisable at our
discretion, at any time before 31 March 1999. During the period of the option
Continuum's owner and chief executive, Werner Mark Linz, will advise us on
international publishing, especially in the USA, and I shall join the Board of
Directors of Continuum.
Continuum's publishing programmes are complementary to our own. Our marketing
needs coincide, our publishing culture is shared and we have established a
good rapport with Mr Linz. While the new arrangements cannot be expected to
produce instant results they will strengthen our marketing and give
our commissioning editors more power when they compete for good authors.
The profile of academic publishing, with its strong backlist and more
predictable performance, is a useful balance to the potentially more
volatile trade publishing.
In line with our new strategy of streamlining our publishing programme, we
have completed a major review of our overheads and have reduced our staff
overheads and consequently our space requirement. We estimate that this will
produce significant cost savings.
Prospects
The first quarter of the year is never a guide to the full year. Most of our
sales and profit comes from the last quarter. However, the first quarter of
1998 has seen the release of a new book, About a Boy, from Nick Hornby, the
publication of the mass market edition of Poems on the Underground and a
strong paperback programme from Indigo and Vista, the paperback imprints we
launched in 1996.
Trading so far in 1998 is in line with our expectations. Despite a
disappointment in 1997 the Board is determined to implement its clear strategy
and deliver enhanced shareholder value.
Philip Sturrock
Chairman and Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1997
Notes
1997 1996
#'000 #'000
Turnover 1 23,250 24,434
Cost of sales (14,736) (15,682)
__________ __________
Gross profit 8,514 8,752
Net operating expenses (7,755) (7,603)
Exceptional operating expenses 2 (210) (127)
__________ __________
Operating profit 549 1,022
Profit on sale of operations 3 234 -
__________ __________
Profit before interest and
taxation 783 1,022
Interest receivable and similar
income 3 7
Interest payable and similar
charges (390) (317)
__________ __________
Profit on ordinary activities
before taxation 396 712
Taxation 4 (55) (83)
__________ __________
Profit on ordinary activities
after taxation 341 629
Dividends 5 (220) (330)
__________ __________
Retained profit for the year 121 299
__________ __________
Earnings per share 6 4.6p 8.6p
All of the group's operations are continuing.
The group has no recognised gains and losses other than those included in the
profits above and therefore no separate statement of total recognised gains
and losses has been presented.
There is no difference between the profit on ordinary activities before
taxation and retained profit for the year stated above and their historical
cost equivalents.
BALANCE SHEET
as at 31 December 1997
Notes 1997 1996
#'000 #'000
Fixed assets
Intangible fixed assets 7 4,035 3,810
Tangible fixed assets 379 461
_______ _______
4,414 4,271
_______ _______
Current assets
Stocks 7,222 7,632
Debtors 8,186 9,864
_______ _______
15,408 17,496
Creditors: amounts
falling due within one year (9,883) (11,888)
_______ _______
Net current assets 5,525 5,608
_______ _______
Total assets less
current liabilities 9,939 9,879
Creditors: amounts falling
due after more than one year (58) (82)
_______ _______
Net assets 9,881 9,797
_______ _______
Capital and reserves
Called up share capital 1,468 1,468
Share premium account 8,004 8,004
Profit and loss account 409 325
_______ _______
Equity shareholders'funds 9,881 9,797
_______ _______
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1997
1997 1996
#'000 #'000
Net cash inflow/(outflow) from
operating activities 2,006 (1,178)
(reconciliation to operating
profits on next page) _________ _________
Returns on investments and
servicing of finance
Interest received 3 7
Interest paid (391) (307)
Interest paid on hire purchase
contracts (11) (10)
_________ _________
(399) (310)
_________ _________
Taxation
Advance corporation tax paid (83) (83)
_________ __________
Capital expenditure
Publishing rights expenditure - (106)
Dictionary database expenditure (266) -
Purchase of tangible fixed assets (27) (36)
_________ _________
(293) (142)
_________ _________
Acquisitions and disposals
Additional consideration for
subsidiary undertakings (65) -
Net proceeds from sale of operations 666 -
_________ _________
601 -
_________ _________
Equity dividends paid (330) (330)
_________ _________
Cash inflow/(outflow) before financing 1,502 (2,043)
Financing
Repayment of principal under hire
purchase contracts (68) (43)
_________ _________
Increase/(decrease) in cash in the
year (see next page) 1,434 (2, 086)
_________ _________
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1997
1997 1996
#'000 #'000
NET CASH FLOW FROM OPERATING ACTIVITIES
Operating profit 549 1,022
Amortisation on intangible fixed assets 41 -
Depreciation on tangible fixed assets 145 160
Decrease/(increase) in stocks 158 (249)
Decrease/(increase) in debtors 1,498 (1,069)
Decrease in creditors (385) (1,042)
________ _______
Net cash inflow/(outflow) from operating
activities 2,006 (1,178)
________ _______
1997 1996
#'000 #'000
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
Increase/(decrease) in cash in the year 1,434 (2,086)
Cash outflow from repayment of debt 68 43
________ ________
Change in net debt resulting from cash flows 1,502 (2,043)
Other non-cash items:
New hire purchase contracts (36) (102)
________ _______
Movement in net debt in the year 1,466 (2,145)
Net debt at 1 January 1997 (3,475) (1,330)
________ _______
Net debt at 31 December 1997 (2,009) (3,475)
________ _______
At Other At 31
1 January Cash non cash December
1997 flow changes 1997
#'000 #'000 #'000 #'000
ANALYSIS OF NET DEBT
Bank overdraft (3,330) 1,434 - (1,896)
Hire purchase (145) 68 (36) (113)
contracts ________ ________ _________ _________
Total (3,475) 1,502 (36) (2,009)
________ ________ _________ _________
NOTES
1. The geographical analysis of turnover by destination is stated below:
1997 1996
#'000 #'000
United Kingdom 15,913 15,410
United States of America 3,231 4,262
Australia 767 1,234
Rest of the World 3,339 3,528
_____________ ___________
23,250 24,434
_____________ ___________
2. An analysis of exceptional items is stated below:
1997 1996
#'000 #'000
Group reorganisation costs 183 127
Terminated acquisition costs 27 -
__________ __________
210 127
__________ ___________
Exceptional operating expenses comprise #183,000 (1996: #127,000) in
respect of redundancy and other costs resulting from a reorganisation of
the group's operations and #27,000 (1996: #nil) in respect of costs
arising from a terminated acquisition.
3. On 7 April 1997, the group sold the Victor Gollancz children's list for a
cash consideration of #862,000. The profit on the sale of the operation,
amounting to #234,000, represents the consideration of #862,000 less the
assets that were the subject of the disposal, amounting to #432,000 and
less the associated costs of disposal, amounting to #196,000.
4. The taxation charge represents irrecoverable advance corporation tax.
5. The Board recommends a final dividend of 1.5p per share (1996: 3p). If
approved at the AGM, the dividend will be paid on 2 June 1998 to
shareholders on the Register on 24 April 1998 and will bring the total
dividend for the year to 3p per share (1996: 4.5p).
6. The calculation of earnings per share on the net basis is based on the
profit on ordinary activities after taxation, namely #341,000 (1996:
#629,000) and on 7,339,540 (1996: 7,339,540) shares in issue and ranking
for dividend during the year.
The earnings per share on a nil distribution basis are 5.4p (1996: 9.7p).
The calculation of earnings per share on the nil distribution basis
assumes no dividend and therefore no write-off of advance corporation tax.
7. Intangible fixed assets consist of publishing rights and the dictionary
database. Publishing rights are recorded at acquisition cost, being fair
values at the date of acquisition determined by the directors, or direct
external costs associated with the creation of the group's own imprints.
The dictionary database has been reclassified from a tangible asset to an
intangible asset, reflecting the directors' view that this represents a
fairer reflection of the nature of this asset. The asset consists of
external and directly identifiable internal staff costs incurred in
establishing the database. The database is being amortised over a period
of 10 years, its estimated economic life, on a straight line basis from
the date sales commenced.
8. The consolidated profit and loss account, consolidated balance sheet and
cash flow statement do not constitute financial statements within the
meaning of section 240 of the Companies Act 1985. The financial
statements for the year ended 31 December 1996 received an unqualified
auditors' report and have been delivered to the Registrar of Companies.
Copies of the financial statements for the year ended 31 December 1997
will be available to all shareholders and further copies will be
available from the Company Secretary, Cassell plc, Wellington House,
125 Strand, London WC2R OBB.
END
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