RNS No 6156k
KENWOOD APPLIANCES PLC
30th June 1998
KENWOOD APPLIANCES PLC
Preliminary results for the year ended 3 April 1998
KENWOOD PROFITS UP 37% DESPITE STRENGTH OF STERLING
# million 1997/98 1996/97
Sales
170.3 203.2
Operating profit
10.3 8.8
Profit before exceptionals and tax
5.6* 4.1
Exceptional items -operating
-non-operating 0.0 (0.9)
0.6 (14.6)
Profit before tax
6.2 (11.4)
Net borrowings
35.5 41.6
Gross margins
35.2%** 32.4%
Earnings per share
8.7p (29.3p)
* #9.6m at constant exchange rates
** 36.9% at constant exchange rates
David Nash, Chairman, said today:
"The Kenwood recovery continues, with a 37% increase in pre-
tax profits before exceptionals. This was achieved despite
the continuing strength of sterling which reduced full year's
profits by #4m. On a constant currency basis profits would
have been 134% ahead. Tight cash control resulted in
borrowings reducing by #6.1m to #35.5m, after spending #3.6m
on restructuring charges.
"Whilst these results are encouraging, there is still more to
do to restore the Group to a stronger trading and financial
position, and, at this stage, the Board is not recommending
the payment of a dividend."
Colin Gordon, Chief Executive, said today:
"Following my appointment last year, I announced a profit
improvement programme designed to improve margins, lower the
fixed cost base and reduce borrowings. Since then, margins
have increased from 32.4% to 35.2%, the fixed cost base has
been cut by #4.8m and borrowings have been significantly
reduced.
In addition a number of other issues have been addressed:
* Our workforce has been reduced by 19%;
* The non core UK printing business was sold making an
exceptional profit of #0.6m;
* The Group has exited low added value basic engineering
activities in the UK without disruption;
* Mizushi, the Italian air conditioning business, has achieved
breakeven and significantly reduced its working capital
despite adverse weather conditions in Italy last Summer; and
* A Group marketing function has been established in line with
our strategy of becoming an agile brand led business.
Trading in the first quarter in the two core businesses of the
UK and Ariete is satisfactory and in line with expectations.
However, trading in export markets has been impacted
commercially and financially by the continuing strength of
sterling and the Far East crisis. Action has been taken to
reduce costs further but it will take some time to recover the
export sales which have been lost in the past year as a result
of the strength of sterling. Nevertheless the Board
anticipates, that whilst profits in the first half are
expected to be somewhat lower than last year, the full year
should show further progress in the Kenwood recovery
programme."
For further enquiries:
Kenwood T: 0171 282 8000 (today only)
Colin Gordon,Chief Executive 01705 476 000(thereafter)
Citigate Communications T: 0171 282 8000
Simon Rigby or Alex Brown
KENWOOD APPLIANCES PLC
PRELIMINARY RESULTS FOR YEAR ENDED 3 APRIL 1998
Financial Results
Following a year of product rationalisation and a strong focus
on margins, sales for the year were #170.3m compared to
#203.2m last year. This represents a fall of 16%, of which
currency accounted for a reduction of nearly #16m (8%).
Profit before tax and exceptional charges was #5.6m (and would
have been #4.0m higher at constant exchange rates) compared to
#4.1m for 1996/7, an increase of 37% (134% at constant
currency). Margins improved from 32.4% to 35.2% as a result of
improved sales mix, manufacturing fixed cost reductions and
purchasing savings. Margins would have been 36.9% at constant
exchange rates.
The sale of Print 4, the UK printing business, resulted in an
exceptional profit of #0.6m.
Profit before tax was #6.2m compared to a loss of #11.4m in
1996/7. Earnings per share were 8.7p (1996/7 loss per share of
29.3p).
Whilst these results are encouraging, there is still more to
do to restore the Group to a stronger trading and financial
position. The Board is therefore not recommending a dividend
payment for the year 1997-98.
Borrowings
During the year net borrowings were reduced by #6.1m to #35.5m
after spending #3.6m of the restructuring charges provided in
1996/7. Stocks were #2.0m higher at the year-end, partially as
a result of the longer supply chain with more products being
sourced in China. Debtors were reduced by #7.2m, of which
Mizushi accounted for #4.1m.
Gearing was reduced from 129% to 105%.
Increased interest rates offset the impact of reduced
borrowings and as a result the net interest charge was only
slightly lower at #4.7m. Interest cover improved from 1.8 to
2.2 times.
Kenwood Recovery Programme
A profit improvement programme was introduced last year with
the objectives of improving margins, lowering the fixed cost
base and reducing borrowings. The results achieved in the past
year have been as follows: -
* Gross margins have increased from 32.4% to 35.2%;
* Fixed costs fell by #4.8m and at the year end the Group
employed 534 fewer people than in March 1997 - a reduction of 19%;
* Borrowings were reduced by #6.1m at the year-end;
* In addition, a Group marketing function has been established
in line with the strategy of becoming an agile brand-led
business.
#9.9m of the exceptional charges taken in 1996/7 were for
fundamental restructuring of the business. In the year #3.6m
was spent primarily on redundancies and on reshaping the UK
manufacturing operation.
Trading Report
UK
Turnover fell by 15% reflecting a soft market in core
Kenwood categories such as food processors, where the
market declined by 11.5%. Overall Kenwood market share
declined from 13.9% to 12.1%, partly as the result of
rationalising the product range. There were share gains
in the stand mixer, toaster and liquidiser categories.
The strategy of focusing on profit rather than turnover
resulted in the prior year's margin decline being
reversed and a significant overall increase in gross
margin being achieved.
Italy - Ariete
A strong performance was achieved with domestic sales
increasing 13% to 73.9 billion lire (#26m) and exports
increasing 26% to 23.3 billion lire (#8m). Market share
in Italy grew 0.2% to 6.3%. Passi, the puree machine,
maintained its sales at over 350,000 units. The most
successful new product introduction in the Group was
Vapori, a steam broom, which was launched in July 1997.
Backed by television advertising in Italy, this product
sold 260,000 pieces.
Italy - Mizushi
A breakeven position was achieved despite another poor
summer for the portable air conditioning business which
resulted in a further sales decline. Extended credit
balances were reduced by one third to 8bn lire (#2.6m).
Overseas Subsidiaries
France, following the appointment of new supervisory
management and the launch of the Passi showed a second
half recovery, but Germany continued to disappoint and
was hard hit by continuing difficult market conditions.
South Africa, one of the more important Kenwood
subsidiaries, performed well.
In Asia Pacific, New Zealand had an excellent year, but
the other subsidiaries still suffered as a result of the
financial crisis. However, the Group's exposure to the
Far East markets was limited to 7% of turnover.
Third Party Distributors
Export sales to third party distributors were hard hit in
the second half of the year by the strength of sterling.
For the full year turnover declined by 9.5% to #27.6m.
Margins, however, were slightly better than in the
previous year. Good growth was achieved in some of the
larger markets, particularly Australia (+52%) and Israel
(+15%).
MANUFACTURING
UK
A major transformation of the Havant plant has been
commenced in the year, with the size of the facility cut
by 50% and direct manufacturing headcount reduced by 28%
to 671 employees.
The lower added value basic engineering activities of die
casting and metal stamping have been out sourced. "Build
to order" capability was introduced on the high value
Chef and new Cuisine mixer lines with the objective of
driving down stock and increasing service levels.
Negotiations are well advanced for the sale of the lease
of a UK warehouse, which will close in September 1998.
Italy
The Ariete operation is now a pilot plant for new
products and the Mizushi plant has been further down
sized to reflect the reduced trading levels.
China
The transfer of the kettle production to China was
successfully completed in May 1997 and the motor winding
capacity was also increased during the year. Tricom
turnover increased by 19% and now represents 28% of the
Group's production. A partnership agreement was signed
with a key supplier and a new food processor and the
latest deep fryer sourced from this Company.
FUTURE PROSPECTS
Trading in the first quarter in the two core businesses of the
UK and Ariete is satisfactory and in line with expectations.
However, trading in export markets has been impacted
commercially and financially by the continuing strength of
sterling and the Far East crisis. Action has been taken to
reduce costs further but it will take some time to recover the
export sales which have been lost in the past year as a result
of the strength of sterling. Nevertheless the Board
anticipates that whilst profits in the first half are expected
to be somewhat lower than last year, the full year should show
further progress in the Kenwood recovery programme.
Group Profit and Loss Account
for the year ended 3 April 1998
1998 1997
Total Total
Note #'000 #'000
Turnover 1
Continuing operations 168,371 201,273
Discontinued operations 1,966 1,920
170,337 203,193
Cost of sales (110,465) (137,272)
Gross profit 59,872 65,921
Distribution costs (34,518) (38,653)
Administrative expenses (13,314) (17,290)
(47,832) (55,943)
12,040 9,978
Other operating expenditure (1,745) (2,018)
Operating Profit
Continuing operations 9,935 7,784
Discontinued operatons 360 176
10,295 7,960
Exceptional items:
Continuing operations - (14,575)
Discontinued operations 569 -
Income from listed investments - 57
Bank interest receivable 603 358
Interest payable (5,297) (5,159)
(4,694) (4,744)
Profit/(Loss) before taxation 6,170 (11,359)
Tax on profit on ordinary activities (2,191) (2,064)
Profit/(Loss) attributable to
members of the parent Company 3,979 (13,423)
Dividends - (1,490)
Retained Profit/(Loss) for the year 3,979 (14,913)
Earnings/(Loss) per share 8.7p (29.3p)
Adjusted earnings per share 9.0p 2.9p
Group Balance Sheet
3 April 4 April
1998 1997
#'000 #'000
Fixed Assets
Tangible fixed assets 37,809 41,571
Investments 1,927 1,927
39,736 43,498
Current Assets
Stocks 32,203 30,236
Debtors 45,776 52,960
Cash at bank and in hand 20,470 20,652
98,449 103,848
Creditors: amounts falling
due within one year (103,046) (107,996)
Net current liabilities (4,597) (4,148)
Total Assets less
Current Liabilities 35,139 39,350
Creditors: amounts falling
due after more than one year (1,328) (7,032)
Provision for Liabilities
and Charges (55) (121)
33,756 32,197
Capital and Reserves
Called up share capital 4,586 4,586
Share premium 25,101 31,101
Special reserve 2,180 -
Profit and loss account 1,889 (3,490)
Shareholders' funds-equity interest 33,756 32,197
Group Statement of Cash Flows
Year to Year to
3 April 4 April
1998 1997
#'000 #'000
Cash flow from operating activities 16,253 12,873
Returns on investment and
servicing of finance (4,686) (4,724)
Taxation (3,477) (2,147)
Capital expenditure (4,539) (8,729)
Acquisitions and disposals 646 (763)
Equity dividends paid - (4,585)
Financing 33,446 (7,950)
Increase/(decrease) in cash
in the period 37,643 (16,025)
Reconciliation of net cash flow to movement in net debt (note 17)
Increase/(decrease) in
cash in the period 37,643 (16,025)
Cash (inflow)/outflow from (increase)/
decrease in debt and lease financing (33,446) 7,950
Change in net debt resulting
from cash flows 4,197 (8,075)
Net financing leases - -
Translation difference 1,987 4,273
Movement in net debt in the period 6,184 (3,802)
Net debt at 4 April 1997 (41,640) (37,838)
Net debt at 3 April 1998 (35,456) (41,640)
Notes
1. Turnover and segmental analysis for the year ended 3rd
April 1998
Year ended Year ended
3.4.98 4.4.97
#'000 #'000
Turnover
Turnover by destination:
Sales to third parties
United Kingdom 46,337 54,806
Continental Europe 85,748 105,263
Rest of the World 38,252 43,124
________ ________
170,337 203,193
________ ________
Turnover by origin:
United Kingdom 86,073 96,358
Continental Europe 82,289 98,916
Rest of the World 53,297 57,250
________ ________
221,659 252,524
________ ________
Inter-segment sales:
United Kingdom (12,109) (9,412)
Continental Europe (26,100) (25,569)
Rest of the World (13,113) (14,350)
________ ________
(51,322) (49,331)
________ ________
Sales to third parties:
United Kingdom 73,964 86,946
Continental Europe 56,189 73,347
Rest of the World 40,184 42,900
________ ________
170,337 203,193
________ ________
The above accounts do not constitute full accounts within the
meaning of the Companies Act. Full accounts to the year 3
April 1998, which have not yet been delivered to the Registrar
of Companies, will be circulated 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,
Hampshire PO9 2NH.
END
FR AKUKKWKKNUAR
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