RNS Number:3874S
fountains PLC
24 November 2003
FOR IMMEDIATE RELEASE 24 November 2003
PRELIMINARY RESULTS
'Confident of continued progress in 2004'
fountains plc the leading provider of a range of environmental services in the
United Kingdom, Ireland and Eastern USA.
Main business streams are as follows:
Utility Services and Grounds Maintenance
Vegetation management for telecom, electrical and rail utility companies. The
management of open spaces, parks, sports fields, streets and highway care for
local authorities, housing associations, government agencies and commercial
organisations. Tree surgery. Environmental management.
Landscaping
Hard and soft landscaping and related project management.
Forestry Services - UK & USA
Management of over 600,000 acres of forestry properties. UK forestry services
undertakes the management of mainly softwood crops on 200,000 acres in England,
Wales and Scotland. In the USA, Fountain Forestry Incorporated manages over
400,000 acres of naturally regenerating hardwood forests. The operations are
principally in the states of New Hampshire, Vermont, New York, West Virginia and
Tennessee.
HIGHLIGHTS
* Profit before tax up 17% to #1,202,000 (2002: #1,025,000)
* Turnover up to #35.6 million (2002: #34.5 million)
* Operating cashflow #2.0 million - no net borrowings
* Earnings per share at 8.20 pence (2002: 9.35 pence) increased by 22%
over normalised earnings per share for 2002 of 6.67 pence.
* Dividend up 12% to 2.77 pence per share (2002: 2.48 pence)
* #70 million order book stretching to 2007
Barry Gamble, Chairman, commented:
"I am delighted with these results which represent solid progress. Whilst we
recognise that we still have work to do to fully realise the potential of the
business, we remain fully focussed on the customer, safe and measured service
delivery and profitable growth. As such, I am confident we can continue to make
further progress in 2004."
For further information, please contact:
Barry Gamble/Doug Eadie Tel: 01295 750000
fountains plc
www.fountainsplc.com
Tim Thompson/Catherine Miles Tel: 0207 466 5000
Buchanan Communications
CHAIRMAN'S STATEMENT/OPERATING REVIEW
Results
I am pleased to report on a further year of progress - we have again increased
turnover, profit before tax and dividends.
Profit before tax at #1,202,000 (2002: #1,025,000) has increased by 17%.
Turnover of #35.6 million (2002: #34.5 million) has benefited from a 6% increase
from utilities and grounds maintenance activities and a 25% increase from
forestry services.
Operating cashflow at #2.00 million (2002: #1.36 million) has remained strong
and, for the third year running, the business is operating with no net
borrowing. As at 30 September 2003, net cash was #1,569,000 (2002: #542,000) an
increase of over one million pounds on last year.
We have, for a number of years, benefited from tax losses brought forward but
this year, as anticipated, the tax charge of #366,000 is at the full rate of
30%. As a result, profits after tax were #836,000 (2002: #951,000) and
corresponding earnings per ordinary share were 8.2 pence (2002: 9.35 pence).
Earnings before goodwill were 9.53 pence (2002: 10.62 pence). Earnings per
share of 8.2 pence show an increase of 22% over normalised earnings per share
for 2002 of 6.7 pence, after adjusting for a notional tax charge of 30%.
Dividend
Our business model and strategy place strong emphasis on cash generation as a
measure of business performance. Whilst managing our balance sheet prudently,
we recognise the contribution dividends make to total shareholder return. In
this our fourth year of good progress in profits and cash generation, we have
again raised the dividend to shareholders.
We are therefore recommending a final dividend of 1.92 pence per share for
approval by the shareholders at the annual general meeting Tuesday 10 February
2004. With the interim dividend payment of 0.85 pence per share, this makes a
total dividend for the year of 2.77 pence per share (2002: 2.48 pence per share)
a rise of 12%; the same level of increase as for 2002. The dividend is covered
three times by earnings. The final dividend will be marked ex-dividend on 4
February 2004 and paid on 27 February 2004 to shareholders on the register 6
February 2004, the record date.
Management
A key development during the year has been the appointment of managing directors
to each of the operating businesses as follows:
UTILITY SERVICES AND GROUNDS MAINTENANCE
Managing director, Peter Neighbour
Deputy managing director, Richard Jowett
UK FORESTRY SERVICES
Managing director, Alastair Sandels
US FORESTRY SERVICES
President, Bruce Jacobs
Vice president, David Daut
This change has increased the day to day focus on operational delivery and will
improve governance and accountability at all levels.
Utility Services and Grounds Maintenance
A key focus of our business development is to grow this division. The
management changes we have made and which are described above, reinforce this
approach. However, we continue to be selective in the work we are undertaking
so as to raise the overall quality and hence profitability of the business.
In pursuit of this policy we closed or re-negotiated some underperforming
contracts during the year. We have also reviewed the form of contract under
which we undertake vegetation management work for electrical utilities. Since
we now see increasing growth rates of vegetation, it is essential that this is
reflected in the cost of continuing maintenance, particularly under long term
contracts. These now better reflect ongoing maintenance liabilities and the
balance of risk between fountains as supplier and the utility company as
customer.
Following the October 2002 storms, the Department of Trade and Industry and the
regulator Ofgem have taken a close interest in better understanding how
vegetation impacts upon the reliability of electrical networks. The next Ofgem
price review is, we understand, likely to provide greater latitude for utilities
to allocate funds for more structured programmes of infrastructure maintenance
including the control of vegetation. There is a higher awareness of the likely
impact of vegetation on network reliability following recent powercuts in the
United States and Italy both of which, in preliminary assessment, cited trees as
being contributing factors.
We have continued to develop our off track services for the UK rail network with
clearing and maintenance on 1,000 route miles. Contracts in place include a
number for tree removal, the clearing of embankments and ongoing weed control.
Following the recent announcement by Network Rail of their intention to take
track maintenance in house, we do not anticipate any changes to our working
arrangements.
On the highway network we have maintained over 1,000 kilometres. The soft
estate represents a specialist service which we supply to maintenance companies
working ultimately for the Highways Agency. Our grounds maintenance business
has reinforced its positioning in the marketplace with a high level of customer
retention and increased revenues. Local authority, government and corporate
customer relationships continue to be developed.
Calls to our 24 hour emergency response service, which enables us to assist
customers by responding to out of hours requests for help, have more than
doubled. During the October 2002 storms we mobilised 200 staff to help restore
power supplies, clear roads and railways.
Safety and compliance
We have continued our investment in safety, management compliance and commercial
controls. Our 2002 Employee Safety Report included a commitment to
substantially reduce the number of personal injuries occurring to employees at
work. To reinforce this commitment we have, during the year, introduced a zero
tolerance approach to unsafe working. This is being achieved through more
rigorous site responsibility for safety, better risk assessment as a basis for
briefings to staff and more directed training.
Asplundh
Our alliance with the largest vegetation management company in the world,
Asplundh of the USA, has been given further impetus. Working assignments during
the year have included:
* Liaison on service delivery for utility companies operating in both the
UK and USA
* The development of sole sourcing arrangements for equipment
* Integrated vegetation management using growth inhibitors to support
cutting programmes
* A review of video and photographic techniques for surveying
Staff at all levels have benefited from contact with their opposite numbers in
both organisations. This alliance continues to provide us with a unique
positioning in the UK vegetation management marketplace.
Landscaping
Our policy of carefully assessing the risk related to landscaping work has
resulted in a further planned reduction in the proportion of turnover from this
activity. Six per cent of our business is now derived from landscaping, down
from 10% in 2002 and 19% in 2001. We continue to see scope for these services
provided we are able to target the type of work, form of contract and
geographical areas of operation.
UK Forestry Services
UK forestry services raised sales and broadened its customer base during the
year. We have re-established forestry operations in northern England and
achieved growth in our operations in the Midlands and the south east of England.
During the year we planted three quarters of a million trees. Demand for the
relatively small number of properties on the market has remained strong,
particularly in the lowlands. There has been signs of a revival in interest in
UK forestry as private individuals recognise the asset diversification it
provides.
UK timber prices, the principal driver of forestry property values fell further
during the year. There is an increasing view within the private sector of UK
forestry that the state owned Forestry Commission may be acting as a seller of
last resort further weakening timber prices. The position of the Forestry
Commission may be being compromised further in its role as UK regulator and
advisor to the Government on forestry policy. In conjunction with trade
organisations we have been proactive in seeking to identify how this situation
can be addressed to improve timber prices and activity within the market.
US Forestry Services
The US forestry business posted a substantial increase in revenue. This
reflects increased activity levels and long term incentive fees billed during
the year. This has arisen through consistent work from year to year and the
establishment of a strong track record for forestry stewardship by the US
management team. As a result we achieved a strong contribution from our US
activities.
Our US forestry services business continues to grow vigorously having increased
its management base this past year by 22% to over 425,000 acres - an increase of
more than 60% over two years. Operations now cover the Appalachian region from
Maine to Tennessee. Our environmental credentials are at the forefront of the
industry as we are the largest certified resource manager in the eastern USA
under the standard of the internationally recognised Forest Stewardship Council.
Our forestry real estate division has also grown significantly.
US timberland as an alternative asset continues to gain acceptance and
visibility with increasing attention being given to the natural hardwood forests
of eastern USA. Prices of quality hardwood timber have continued to perform
well and we have been encouraged by initial interest from some continental
European institutions investigating this socially responsible investment.
We have achieved a repositioning of our UK and US forestry business over the
last two years with over 600,000 acres now under management. The total value of
this forestry portfolio owned by institutions, resident landowners, wealthy
private individuals and well funded conservation groups, is approximately #300
million. Implicit in our business model is a recognition of secured future
activity from these properties which are owned by 1,000 customers.
Order book
We estimate that our current order book, stretching through to 2007, is #70
million. Our bidding pipeline continues to run at well over #10 million.
Recent business wins with an estimated revenue value of some #12 million
include:
Customer Work Estimated value #
AmScott Highways vegetation maintenance and tree cutting in To 2,000,000
the North Midlands
Aquila Vegetation management over three years on 3,000 km To 7,000,000
of distribution network in the Midlands
National Grid Transco Landscape enhancement - initial works plus 5 year 1,200,000
maintenance, North England
Network Rail Vegetation management - South West England and Wales 2,000,000
Somer Housing Urban tree management in Somerset 300,000
Staff
We continue to raise the standard of our work particularly with field teams. We
have been delighted for this to be recognised with fountains teams being placed
first and third overall at the National Arboricultural Association tree climbing
competition.
Staff at every level in the business have worked hard to achieve these results.
I would like to thank my colleagues for their commitment, energy and drive to
the success we have achieved.
Board
Arthur Kent who has been a non executive director of the company since 1993,
retired during the year. We very much value the input he has made to the
company's development both pre and post flotation. We would like to thank him
for his considerable contribution and wish him well in his retirement.
Doug Eadie has joined us as group finance director. He was formerly group
finance director at Parkwood Holdings plc. Michael Holmes joined the board as a
non executive director. He has extensive operational experience in support
services, including a period as regional managing director for Rentokil North
America. Peter Neighbour, formerly group finance director, remains an executive
director of the board following his appointment to managing director of our
principal UK operating subsidiary. We consider these changes have considerably
strengthened our overall management capability.
Overview
These results represent solid progress. Whilst we recognise that we still have
work to do if we are to fully realise the potential of the business, we do
remain fully focussed on the customer, safe and measured service delivery and
profitable growth. As such, I am confident we can continue to make further
progress in 2004.
B T Gamble
Chairman
24 November 2003
FINANCIAL REVIEW
Profits and Interest
The group operating profit increased by 11.8% to #1,223,000 (2002: #1,094,000).
This figure is stated after goodwill amortisation of #136,000 (2002: #130,000).
Operating margins before goodwill amortisation increased to 3.8% (2002: 3.5%).
Although gross profit margins showed a small decline in the year, this is
attributable to the introduction of new systems which allowed a greater
proportion of costs to be charged directly to contracts. A reduction in the
interest charge to #21,000 (2002: #69,000) led to an increase of 17.3% in profit
before tax to #1,202,000 (2002: #1,025,000).
Taxation
The overall tax charge of 30.4% (2002: 7.2%) is now in line with the statutory
rate. The group used most of its historic trading losses during 2003 and
benefited from disclaimed capital allowances brought forward.
Earnings per share
Earnings per share were 8.20 pence (2002: 9.35 pence). Earnings before goodwill
were 9.53 pence (2002: 10.62 pence). However, basic earnings per share of 8.20
pence increased by 22.9% compared to normalised earnings of 6.67 pence stated
after providing a full tax charge in 2002. We consider that the increase in
normalised earnings per share is the most relevant measure of the performance of
the business.
Dividend
A final dividend of 1.92 pence is proposed which, together with the interim
dividend of 0.85 pence gives a total for the year of 2.77 pence - an increase of
12% on the previous year. The total cost of the dividend to ordinary
shareholders for the year is #284,000 (2002: #253,000). The dividend is covered
2.9 times by earnings even after the increase in the tax charge in 2003. The
dividend policy takes account of current and likely future earnings.
Balance sheet and cashflow
The continuing focus on working capital management enabled the generation of an
operating cash inflow of #1,998,000 (2002: #1,359,000). This represents 163% of
operating profit and gave rise to strong net cash inflow in the year of
#679,000. This was achieved despite the resumption of taxation payments during
the year. Capital expenditure in the year of #767,000 (2002: #908,000) was
mainly made up of operational machinery including #124,000 of expenditure on
chainsaws, which were previously owned by employees.
Actual closing cash balances of #1,875,000 were offset by residual finance
leases and other loans of #306,000 to leave net cash of #1,569,000 (2002:
#542,000).
Shareholders funds at #6.4 million, equivalent to 62 pence per share, increased
by 10%.
Accounting standards
There were no new accounting standards which required adoption in this year,
although the transitional disclosure provisions of FRS 17 in respect of pensions
continue to be applied.
During the year the net deficit arising on an FRS 17 basis on the group's
defined benefit pension scheme reduced to #767,000 (2002: #823,000) on a total
asset value of #2,862,000 (2002: #2,518,000). This defined benefit scheme has
been closed to new members since April 2000. The group has agreed in
consultation with the scheme trustees that future benefit accrual will be on a
career average, rather than a final salary, basis.
The latest actuarial valuation at 30 September 2002 has led to a reassessment of
the group's contributions. As a result, additional contributions of
approximately #100,000 per annum have been agreed commencing from January 2004.
Under SSAP 24 this is not expected to lead to a material increase in pension
costs reported in the profit and loss account.
The changes made in the year are designed to ensure that members of the defined
benefit scheme have their interests protected whilst at the same time reducing
the group's exposure to uncontrollable liabilities. None of the changes have
any impact on the group money purchase scheme, which continues to be offered to
all new starters.
Controls and reporting
Reports on internal financial controls and going concern are set out in the
corporate governance statement. A full review of the group's internal reporting
procedures is currently under way. The initial objective of this review is to
improve the quality of financial and non financial information provided at all
levels. It is expected that this should facilitate a better connection with
operational issues and improve cost management.
Risks and sensitivities
The group's internal control processes routinely ensure that key risks are
identified and managed. The risks that are believed by the board to be most
significant, together with the approach taken to manage these risks are as
follows:
* As the group operates near railways and power lines, it is important to
be able to demonstrate effective procedures for the management of health and
safety. Good safety processes are essential to protect staff, minimise
consequential costs arising from accidents, control insurance expenses and
safeguard the reputation of the group.
* The group is entering into more long term contracts to improve the
quality and visibility of its earnings. It is therefore essential to ensure
that prices submitted for work are accurately assessed in order to minimise
the risk of entering into a loss making contract. Rigorous controls are in
place to ensure that bids are only submitted after a full review. A major
project is also underway to improve the measurement and monitoring of
productivity so as to enhance the accuracy of bids and ongoing cost control.
* Notwithstanding the group's strong order book, failure to secure and
maintain work levels at budgeted capacity may cause the total contribution
to be inadequate to support the largely fixed cost base. Levels of work are
monitored on a monthly basis to ensure that any income shortfalls are
identified and acted upon as soon as possible.
Summary
The group's overall financial performance in 2003 is encouraging. However,
there still remains significant scope to further increase earnings by improving
the quality of information used to monitor business performance. The group
enters 2004 with a strong balance sheet that should enable it to take advantage
of profitable opportunities.
D Y Eadie
Finance Director
24 November 2003
GROUP PROFIT AND LOSS ACCOUNT
Year ended 30 September 2003
Year ended 30 September 2003 Year ended 30 September 2002
Note Before Before
goodwill goodwill
Goodwill Total Goodwill Total
#'000 #'000 #'000 #'000 #'000 #'000
Turnover 2 35,606 - 35,606 34,491 - 34,491
Cost of sales (27,099) - (27,099) (25,861) - (25,861)
Gross profit 8,507 - 8,507 8,630 - 8,630
Administration expenses (7,148) (136) (7,284) (7,406) (130) (7,536)
Operating profit 1,359 (136) 1,223 1,224 (130) 1,094
Interest (21) - (21) (69) - (69)
Profit on ordinary activities before 1,338 (136) 1,202 1,155 (130) 1,025
taxation
Taxation 3 (366) - (366) (74) - (74)
Profit on ordinary activities after 972 (136) 836 1,081 (130) 951
taxation
Dividends on equity shares - - (284) - - (253)
Retained profit for the financial - - 552 - - 698
year
Earnings per share 4 FRS3 FRS3
Basis Basis
Basic 9.53p (1.33)p 8.20p 10.62p (1.27)p 9.35p
Diluted 8.00p 9.09p
Normalised 9.53p (1.33)p 8.20p 7.94p (1.27)p 6.67p
The above results are all derived from the continuing operations of the group.
GROUP BALANCE SHEET
As at 30 September 2003
2003 2002
Note #'000 #'000
Fixed assets
Intangible assets 1,745 1,881
Tangible assets 1,690 1,810
Investments 1 1
3,436 3,692
Current assets
Stocks - 20
Debtors 7,117 7,819
Cash at bank and in hand 5 1,875 1,200
8,992 9,039
Current liabilities: due within one year
Creditors (5,617) (6,056)
Bank and other borrowings 5 (216) (318)
(5,833) (6,374)
Net current assets 3,159 2,665
Total assets less current liabilities 6,595 6,357
Liabilities: due after more than one year
Bank and other borrowings 5 (90) (340)
Provisions for liabilities and charges (101) (186)
Net assets 6,404 5,831
Capital and reserves
Called up share capital 513 509
Share premium account 2,310 2,270
Capital redemption reserve 444 444
Profit and loss account 3,137 2,608
Equity shareholders' funds 6,404 5,831
GROUP CASH FLOW STATEMENT
Year ended 30 September 2003
2003 2002
Note #'000 #'000
Net cash inflow from operating activities 6 1,998 1,359
Returns on investments and servicing of finance
Interest received 42 33
Interest paid (31) (44)
Interest element of finance lease rental payments (32) (58)
(21) (69)
Taxation (222) 14
Capital expenditure
Purchase of tangible fixed assets (767) (908)
Less financed by leases - 516
(767) (392)
Sale of tangible fixed assets 259 97
(508) (295)
Acquisitions and disposals
Purchase of subsidiary undertaking - (140)
Net overdrafts acquired with subsidiary - (138)
- (278)
Equity dividends paid (260) (233)
Cash inflow before financing 987 498
Financing
Proceeds from share issues 44 1
Bank loan repayments (17) (13)
Other loan repayments (7) (98)
Capital element of finance lease rental payments (328) (410)
(308) (520)
Increase/(Decrease) in cash in the year 679 (22)
PRELIMINARY RESULTS 2003 - NOTES
1. These results have been extracted from the full audited financial
statements.
2. TURNOVER 2003 2002
#'000 #'000
Geographical analysis by origin and
ultimate destination
United Kingdom 33,971 33,728
United States of America 1,635 763
______ ______
TOTAL 35,606 34,491
______ ______
The group's activities of utility services, grounds maintenance, landscaping and
forestry comprise one business segment, however, in order to provide
shareholders with additional information, the turnover has been analysed by
business streams as follows:
% %
Utility services and grounds maintenance 78 27,611 76 26,134
Landscaping 6 2,118 10 3,657
Forestry services 16 5,877 14 4,700
____ ____ ____ ______
TOTAL 100 35,606 100 34,491
____ ____ ____ ____
3. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
2003 2002
#'000 #'000
Current tax
UK Corporation Tax at 30% (2002: 30%)
- on income for the year 242 -
- adjustments in respect of prior years (9) 62
233 62
Overseas tax
- on income for the year 148 -
- adjustment in respect of prior years 31 (11)
179 (11)
Total current tax 412 51
Deferred tax
- overseas deferred tax (46) 23
Tax on profit on ordinary activities 366 74
4. EARNINGS PER SHARE
The basic earnings per ordinary share is calculated on the profit for the period
and the weighted average number of shares in issue. Diluted earnings per
ordinary share is based on the profit for the period and on the weighted average
number of ordinary shares in issue increased by the weighted average number of
ordinary shares which would have been issued if the outstanding options to
acquire shares in the group had been exercised at the average share price during
the period. The weighted average number of ordinary shares for the relevant
periods are as follows:
2003 2002
Basic 10,196,206 10,172,704
Diluted 10,445,899 10,456,913
Earnings before goodwill amortisation
Earnings before goodwill amortisation are presented in addition to the basic
earnings per share calculated in accordance with FRS14 in order to provide
shareholders with additional information.
Normalised earnings
Normalised earnings per share for 2002 is based on the profit on ordinary
activities adjusted for a notional corporation tax charge of 30% of profits
before goodwill and taxation. Normalised earnings per share is reconciled to
basic earnings per share as follows:
2003 2002
Normalised earnings per share 8.20p 6.67p
Effect of full tax adjustment - 2.68p
Basic earnings per share 8.20p 9.35p
5. RECONCILIATION OF MOVEMENT IN NET CASH/DEBT
Cash and Borrowings Borrowings
deposits under 1 year over 1 year Net cash/(debt)
#'000 #'000 #'000 #'000
At 1 October 2002 1,200 (318) (340) 542
Cashflow - cash and deposits 679 - - 679
- bank loans - 16 1 17
- other loans - - 7 7
- finance leases - 86 242 328
Exchange movements (4) - - (4)
______ ______ ______ ______
At 30 September 2003 1,875 (216) (90) 1,569
______ ________ ______ ________
6. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM
OPERATING ACTIVITIES
2003 2002
#'000 #'000
Operating profit 1,223 1,094
Amortisation charges 136 130
Depreciation charges 770 774
Profit on disposal of tangible fixed assets (149) (12)
Decrease/(Increase) in stocks 20 (8)
Decrease in debtors 729 731
Decrease in creditors less than one year (692) (1,253)
Decrease in provisions (39) (97)
______ ______
1,998 1,359
______ ______
8. Basis of preparation
The auditors have issued an unqualified report on the full financial statements
which will be distributed to shareholders and delivered to the Registrar of
Companies in due course. The financial information for 2002 does not comprise
statutory accounts. Statutory accounts for 2002, on which the auditors gave an
unqualified opinion, have been delivered to the Registrar of Companies. Further
copies of these preliminary results will be available at the company's
registered office:
fountains plc Company number: 2391409
PO Box 307
Malthouse Walk
Banbury
Oxon OX16 5PU
Tel: 01295 750000
Fax: 01295 753253
email: info@fountainsplc.com
This information is provided by RNS
The company news service from the London Stock Exchange
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