RNS Number:2716N
Kenwood Appliances PLC
4 July 2000
KENWOOD APPLIANCES PLC
Preliminary Results for the Year ended 31st March 2000
Strong Second Half Performance at Kenwood
# Million
1999/2000 1998/99
Sales
from
continuing
business 143.4 145.0
Gross
Margins*
36.6% 35.6%
Operating
Profit* 5.8 4.1
Profit
before
exceptionals
& tax 2.9 0.1
Exceptional
items -
operating 0.3 (1.0)
- non-operating (4.3) (8.9)
(Loss)
before Tax (1.1) (9.8)
Net Borrowings 24.0 29.2
Earnings/
(Loss) per
Share
before exceptionals 3.3p (3.0)p
after exceptionals (3.0)p (24.6)p
* before exceptional charges
David Nash, Chairman said today: -
"Profit before tax and exceptionals moved strongly ahead from
#0.1m to #2.9m fuelled by a particularly robust second half
sales performance in the UK, and in a number of export
markets. Profits before tax and exceptionals in the second
half were #3.1m compared to a loss of #0.8m in 1998/99. These
results were achieved despite the adverse impact of currency
movements and on a constant currency basis, full year PBT
would have been approximately #1.5m higher.
"The restructuring programme resulted in the Group's committed
cost base being reduced by #7.6m. The associated exceptional
charges were in line with previous forecasts at #4.0m.
"Tight cash controls resulted in net borrowings reducing by a
further #5.2m to #24.0m after spending #3.5m cash on
restructuring charges."
Colin Gordon, Chief Executive said today: -
"The benefits from the programme to transform Kenwood from a
vertically integrated manufacturing company to an agile brand
led business are now beginning to show through.
In the year to 31st March 2000: -
- 67 new products were launched, the most successful being
the Kenwood fryers and food processors and the Ariete
steam gun;
- Over 20% of sales were generated by new products;
- These new products fuelled growth in our core markets
with, for example, Kenwood sales in the UK, our largest
market, increasing by 13%;
- Despite the further strengthening of sterling, gross
margins improved 1.0% to 36.6% as more product was
sourced from the Far East;
- The programme to reduce UK manufacturing content was
implemented successfully and the number of UK employees
fell by almost half from 691 to 361;
- The Group is now outsourcing both its international
warehousing and 66% of manufacturing;
- The long-standing arbitration proceedings arising from
the acquisition of Ariete in 1994 were finally resolved.
"Since the year-end, the 12 acre site in Havant has been sold
for #5.4m with an agreement to lease back warehousing and
refurbished office space. Net proceeds are anticipated to be
#4.5m. In addition a freehold property in Florence, Italy has
been sold for #2.0m. These two disposals were slightly above
book value and the net proceeds will be used to reduce
borrowings.
"In the absence of unforeseen circumstances, the Board
anticipates continued progress as the restructuring programme
is completed. Sales momentum has continued in the first
quarter, although there is increased pressure on margins
arising from currency and retail price deflation. The final
outcome will, of course, be dependent upon the level of
sterling relative to the Euro and the US dollar."
For further information contact:
Colin Gordon Kenwood Appliances plc 0239 247 6000
Simon Rigby Citigate Dewe Rogerson 020 7638 9571
Alex Brown Citigate Dewe Rogerson 020 7638 9571
FINANCIAL RESULTS
Sales were #145.4m compared to #154.1m in the previous year.
After stripping out discontinued activities, sales were
#143.4m compared to #145.0m.
The first half had been difficult in a number of markets and
sales from continuing business declined by 9%. However, the
second half recovered strongly and sales were up by 6%
compared to the previous year. Sales growth was good in the
UK, the Far East and a number of export markets.
Continuing progress was made on gross margins, which increased
to 36.6% compared to 35.6% last year, as more product was
sourced from China. Tight controls resulted in distribution
and administration costs falling by 7.6% to #47.1m. Total
fixed costs including manufacturing fell by #7.6m.
Profit before exceptionals and tax increased strongly from
#0.1m to #2.9m. In the second half profits before tax and
exceptionals were #3.1m compared to a loss of #0.8m in
1998/99.
In line with other UK exporters, the Group was hampered by the
strength of Sterling, and at constant exchange rates PBT would
have been approximately #1.5m higher.
Exceptional charges of #4.0m were booked, which was in line
with previous forecasts and, as a result, the loss after
exceptionals was #1.1m compared to a loss of #9.8m in 1998/99.
Earnings per share before exceptionals were 3.3p (loss 3.0p in
1998/99). After exceptionals losses per share were 5.4p (24.6p
in 1998/99).
Net borrowings were reduced by #5.2m to #24.0m. Despite
spending #3.5m on exceptional charges, #3.4m of cash was
generated.
The net interest charge fell from #4.0m to #3.0m. Pre-
exceptional interest cover was 2.0 times (1.0 times in
1998/99).
The Board is not recommending a dividend payment for the year
1999/2000.
TRADING REPORT
UK
Building upon a successful first half, sales of Kenwood
products rose by 13% to #41.6m. The market grew 8% and Kenwood
gained share overall. Particularly strong performances were
recorded on deep fryers, kettles and food processors - one in
every two food processors sold in the UK last Christmas was
branded Kenwood. Margins were higher and as a result
profitability increased significantly. Kenwood is strongly
positioned as the clear brand leader in food preparation with
a market share over twice that of its nearest competitor.
Italy
Ariete achieved record profits, despite difficult conditions
in the Italian market where a number of the categories in
which Ariete is strong showed significant declines. After a
first half decline of 16%, sales in the second half were up
12% against the previous year. The strongest performance was
recorded in the export markets, which grew 26% to 47.2bn lire
(#15.4m). For the full year, sales were marginally ahead at
112.2bn lire (#36.5m). Ariete's second half sales growth was
generated by the continuing success of its new product
development programme which contributed 34% of the total sales
and the Vapori steam cleaning gun sold 146,000 units in the
first six months following its launch. Mizushi, the air
conditioning business, had a good season and as a result its
working capital declined by 13.3bn lire (#4.1m).
Overseas Subsidiaries
In Europe, turnover fell by #4.5m to #25.0m (-15%) as the
Group focused on more profitable products and sales channels.
Consequently profits increased in France and losses were
reduced in Germany. The loss making Polish sales subsidiary
was closed at the end of March 2000. Ireland, which had been
reorganised at the end of the last financial year, showed
improved sales and significantly enhanced profitability.
In the rest of the world, all the Kenwood sales companies
showed progress. Sales in aggregate were up 16% at #11.9m.
After a difficult start, the strength of the new product
programme delivered a significant profit improvement in South
Africa and the Asian subsidiaries - Malaysia, Singapore and
Hong Kong - all reported profits that were sharply higher.
Third Party Distributors
After a difficult first half in which sales declined by 21% to
#9.5m, there was a significant recovery in the second half
resulting in a sales increase of 24%. For the full year,
therefore, sales were in line with those achieved in 1998/99.
There were strong performances from a number of markets
including Greece, Belgium and the Middle East, but overall
this sector of business was impacted by the high sterling
exchange rate.
Manufacturing and Sourcing
The transformation of the Group's manufacturing facilities was
largely completed in the year. The final products were
successfully transferred to China leaving the UK to focus on
the manufacture of the Kenwood Chef and of water filter
cartridges. The number of employees in UK manufacturing fell
by two thirds to 174.
In China, from where the Group is now sourcing over half its
products, the strategic alliance with Allan International has
been developed following their acquisition of the majority of
the UK manufacturing plant and machinery.
In Italy there has been a further consolidation of
manufacturing activity following the merger of the Mizushi and
Ariete production facilities. As a result it was possible to
reduce the labour force by 17%.
KENWOOD RESTRUCTURING PROGRAMME
In 1997 a strategy was initiated to transform Kenwood from a
vertically integrated, predominantly UK manufacturing company,
into an agile brand led business. The target date for the
completion of this programme was identified as December 2000.
The Board indicated that profits would improve by #4m per year
in the first full year following the completion of the
programme.
In the year to the 31st March 2000, and particularly in the
second half, those benefits have started to materialise.
Revitalised Products
New products are the lifeblood of this business. In the year,
there were 54 new products launched under the Kenwood brand.
The most successful of these included our patented dishwasher
safe fryer and the updated food processors. A comprehensive
range of chromium finished products has also been successfully
launched.
In the core categories, the number of Kenwood Chefs sold
increased by 4%.
Ariete has a consistent track record of innovation; last year
13 new products were launched including the Vapori steam gun
which has sold 146,000 units since it was introduced in
September 1999. Sales of ironing systems and coffee makers in
Italy were encouraging with Ariete enjoying third and fourth
positions respectively in the market in these two important
categories.
Cost Reduction Programmes
Since the start of the Kenwood restructuring programme the
Group has reduced its workforce by over 40 % to 1626. In the
year to 31st March 2000, headcount was reduced by 329 and with
the closure of the UK motor winding facility during July, the
Group is a long way to delivering its target employment level
of approximately 260 staff in the UK.
In total, the fixed cost base of the Group was further reduced
by #7.6m.
Reductions in Borrowings
Borrowings fell by a further #5.2m to #24.0m having peaked at
over #50m in 1996/97. Interest charges fell by #1.0m to
#3.0m. Interest cover is now 2.0 times compared to 1.0 times
in the last financial year.
Since the year end there have been two developments which will
impact borrowings in the current year: -
- Two property sales have been finalised. On 30 June the
12 acre site in Havant in the UK was sold for #5.4m. A
lease back arrangement has been agreed for part of the
site which will be comprehensively refurbished to provide
new offices, distribution and manufacturing facilities in
line with the current scope of the UK Group's operations.
Net proceeds will be #4.5m. Also in June, the former
Ariete site in Calenzano, Florence was sold for 6.1bn
lire (#2.0m). The Italian operations have been
consolidated on to the Mizushi site in Prato, Florence.
These sales were achieved at slightly above book value
and the proceeds will be used to reduce borrowings.
- The litigation on the purchase price of Ariete was
resolved resulting in a settlement of #4.5m to the
Vendor.
Restructuring Costs
In July 1999 the Board forecast that restructuring charges of
#4.0m would be incurred in 1999/2000, with a further #1.1m in
2000/01.
Exceptional charges of #4.0m were incurred in 1999/2000 of
which #2.6m were cash items largely representing redundancy
payments. For the current year the bulk of the exceptionals
will again be for redundancies which have already been
announced.
Future Prospects
In the absence of unforeseen circumstances, the Board
anticipates continued progress as the restructuring programme
is completed. Sales momentum has continued in the first
quarter, although there is increased pressure on margins
arising from currency and retail price deflation. The final
outcome will, of course, be dependent upon the level of
sterling relative to the Euro and the US dollar.
Group Profit & Loss Account
Year to Year to
31 March 2000 2 Apr
1999
Before
Except- Except-
ional ional Total Total
#000 #000 #000 #000
Turnover:
Continuing
operations 143,359 - 143,359 145,016
Discontinued
operations 2,021 - 2,021 9,105
---- ---- ---- ----
145,380 - 145,380 154,121
Cost
of sales (92,203) - (92,203) (100,206)
---- ---- ---- ----
Gross profit 53,177 - 53,177 53,915
Distribution
costs (34,568) - (34,568) (37,181)
Administrative
expenses (12,490) 267 (12,223) (13,766)
---- ---- ---- ----
(47,058) 267 (46,791) (50,947)
---- ---- ---- ----
6,119 267 6,386 2,968
Other
operating
expenditure (271) - (271) 166
Operating
profit:
Continuing
operations 6,146 267 6,413 3,680
Discontinued
operations (298) - (298) (546)
5,848 267 6,115 3,134
Exceptional
items:
Continuing -
fundamental
reorganisation - (2,765) (2,765) (8,884)
Discontinued -
loss on
sale of
operation - (1,483) (1,483) -
Bank
interest
receivable 282 - 282 704
Interest
payable (3,269) - (3,269) (4,708)
---- ---- ---- ----
(2,987) - (2,987) (4,004)
---- ---- ---- ----
(Loss)/
Profit on
ordinary
activities
before
taxation 2,861 (3,981) (1,120) (9,754)
Tax on
ordinary
activities (1,366) - (1,366) (1,519)
---- ---- ---- ----
(Loss)/
Profit
attributable
to members
of the
parent
company 1,495 (3,981) (2,486) (11,273)
Earnings /
(loss) per
share 3.3p (5.4)p (24.6)p
Adjusted
earnings /
(loss) per
share (3.0)p
Fully
diluted
earnings /
(loss) per
share 3.3p (5.4)p (24.6)p
Group Balance Sheet
31 March 2 April
2000 1999
#000 #000
Fixed
assets
Tangible
fixed
assets 20,588 27,467
Investments 1,927 1,927
---- ----
22,515 29,394
---- ----
Current
assets
Stocks 25,760 21,698
Debtors 36,839 40,658
Cash at
bank and
in hand 10,773 9,670
---- ----
73,372 72,026
---- ----
Creditors:
amounts
falling due
within
one year (72,550) (76,489)
---- ----
Net current
assets /
(liabilities) 822 (4,463)
---- ----
Total assets
less current
liabilities 23,337 24,931
Creditors:
amounts
falling due
after more
than one year (3,635) (602)
Provision
for liabilities
and charges (506) (1,005)
---- ----
19,196 23,324
====== ======
Capital
& reserves
Called up
share capital 4,586 4,586
Share
premium 25,101 25,101
Special
reserve 2,180 2,180
Profit
and loss
account (12,671) (8,543)
---- ----
19,196 23,324
====== ======
Group Statement of Cash Flows
Audited Audited
31 March 2 April
2000 1999
#000 #000
Net cash
inflow from
operating
activities 7,037 15,997
Returns
on investments
and servicing
of finance (2,987) (4,004)
Taxation (716) (763)
Capital
expenditure
- net (930) (4,666)
Acquisitions
& disposals 990 -
Financing -
loans repaid (1,521) (21,402)
---- ----
Increase /
(Decrease)
in cash
in the
period 1,873 (14,838)
---- ----
Reconciliation
to net debt:
Increase /
(Decrease)
in cash
in the period 1,873 (14,838)
Cash outflow
from decrease
in debt and
lease financing 1,521 21,402
---- ----
Change in
net debt
resulting
from cash
flows 3,394 6,564
Translation
difference 1,815 (324)
---- ----
Movement in
net debt
in the period 5,209 6,240
Opening
net debt (29,216) (35,456)
---- ----
Closing
net debt (24,007) (29,216)
---- ----
The above accounts do not constitute full accounts within the
meaning of the Companies Act. Full accounts for the year to
31st March 2000, which have not yet been delivered to the
Registrar of Companies, will be sent to shareholders.
The auditors have issued an unqualified audit report.
Copies of this announcement are available to members of the
public at the Company's registered office. New Lane Havant
Hants PO9 2NH.
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