RNS No 6893b
KENWOOD APPLIANCES PLC
1 July 1999
KENWOOD APPLIANCES PLC
Preliminary results for the year ended 2nd April 1999
# million 1998/99 1997/98
Restated
*
Sales 154.1 170.3
Gross margins** 35.1% 35.2%
Operating Profit** 4.1 10.3
Profit before exceptionals and tax 0.1 5.6
Exceptional items operating (1.0) -
non operating (8.9) (3.1)
(Loss)/Profit before tax (9.8) 2.5
Net borrowings 29.2 35.5
(Loss)/Earnings per share (24.6)p 0.6p
*Restated for FRS 12
**Before exceptional charges
David Nash, Chairman said today: -
"Difficult trading conditions, in both the UK and a
number of export markets, led to sales declining from
#170.3m to #154.1m and pre-tax profits before
exceptionals declining from #5.6m to #0.1m. At this
stage, the Board is not recommending the payment of a
dividend.
"In response to these conditions, we have accelerated the
restructuring programme, initiated in 1997, to transform
Kenwood from a vertically integrated, predominantly UK,
manufacturing company into an agile brand led business.
This programme, which is nearing completion, has led to
exceptional restructuring charges in the year of #9.9m
primarily in connection with asset write-downs.
"Tight cash control resulted in borrowings reducing by
#6.3m to #29.2m after spending #2.8m on restructuring
charges."
Colin Gordon, Chief Executive said today: -
"This has been a year of significant progress in
reshaping the underlying structure of the business,
against a background of difficult trading conditions in a
number of key markets and the short term impact of that
radical restructuring.
In the year to 2nd April 1999: -
Our product range has been dramatically improved with the
launch of 28 new Kenwood products and the complete
redesign of the Ariete kitchen range;
The transfer of sourcing to achieve the optimum mix of
cost and quality is well underway;
The gains made last year on gross margins were
maintained;
The international sales structure was reorganised with
the closure of the New Zealand subsidiary and cost
reduction programmes implemented in a number of markets;
Year-end borrowings were reduced from #35.5m to #29.2m.
"Since the year-end, we have announced further major
moves including the proposed sale and closure of the
Havant site with the transfer of more products to lower
cost areas and the sale, to the management, of a non core
engineering business.
"Given the continuing depressed state of consumer sales
in key markets and the high level of the pound, the Board
anticipates that the first half will show a loss after
interest. In the second half, the benefit from the new
products and reduced costs will show through and a profit
before tax and exceptional charges is anticipated for the
full year. The restructuring moves, which the Company has
announced, are not scheduled to be completed until
December 2000. These will progressively benefit profits
over the next two years and are projected to add
approximately #4m annually to profits before tax once
fully implemented."
For further information:
Colin Gordon Tel: 0171 638 9571 (today)
Chief Executive,
Kenwood Appliances Tel: 01705 476 000
(thereafter)
Simon Rigby, Alex Brown Tel: 0171 638 9571
Citigate Dewe Rogerson
KENWOOD APPLIANCES Plc
PRELIMINARY RESULTS FOR YEAR ENDED 2ND APRIL 1999
FINANCIAL RESULTS
Sales were #154.1m compared to #170.3m, in the previous
year. After stripping out discontinued activities, sales
were #148.0m compared to #160.7m in 1997/98, a decline of
8%. Sales were weak in both the UK and a number of export
markets, particularly those affected by the economic
crises in Asia and Eastern Europe.
The progress made on margins was maintained and gross
margin stabilised at 35.1% compared to 35.2% last year.
Profit before exceptionals and tax was #0.1m compared to
#5.6m in 1997/98.
Exceptional charges of #9.9m have been provided. As
announced on 7th June 1999, the restructuring of UK
operations resulted in an exceptional charge of #8.8m in
1998/99. #7.8m was non cash asset write downs principally
affecting the value of UK properties and the balance of
#1.0m cash was in respect of redundancy and associated
restructuring costs. A further #1.1m was provided in
respect of redundancy and other cash restructuring costs
for the overseas sales operations.
The loss after exceptionals and before tax was #9.8m
compared to a profit of #2.5m in 1997/8. The loss per
share was 24.6p (1997/8 earnings per share 0.6p).
Net borrowings were reduced by #6.3m to #29.2m despite
spending #2.8m on the restructuring charges. Although
borrowings were significantly lower, gearing increased
from 103% to 125% reflecting the effect of the asset
write-downs on the net asset base. The positive cash flow
was generated by tight working capital controls; in
particular stocks were #10.5m lower at the year-end at
21.7m.
The net interest charge fell from #4.7m to #4.0m. Pre
exceptional interest cover was 1.0 times.
The Board is not recommending a dividend payment for the
year 1998/99.
TRADING REPORT
UK
Turnover from continuing businesses fell by 7.7%
reflecting poor consumer confidence and a weak
performance in core Kenwood categories such as food
processors where the market declined by 8.1%. Total
Kenwood market share declined from 12.1% to 10.4% but
share gains were posted in some important categories
including kettles. Kenwood remains the clear brand leader
in food preparation products. Once again significant
margin improvement was achieved principally from new
products and improved purchasing benefits.
Italy
Overall Ariete grew turnover by 15.0% to 111.8bn lire
(#39.6m) largely as a result of strong export sales. In
Italy, Ariete has achieved a 5% market share and in the
year saw growth in its market shares in coffee makers and
ironing systems. The relaunch of its core Grati cheese
grater was very encouraging and the Vapori steam broom
performed well in its launch in the USA.
For Mizushi the strategy is to manage the business for
cash whilst trading at break even. This was achieved.
Debtors reduced by two thirds to 5.5bn lire (#1.9m) and
stocks were cut by over one third to 9.6bn lire (#3.3m).
Overseas Sales Subsidiaries (IKBs)
During the year a full review of each subsidiary was
conducted. This resulted in the decision to close the IKB
in New Zealand and aggressively to reduce costs in
Germany, Austria, Poland, Ireland, Malaysia and South
Africa. An agreement has been signed with UPS Worldwide
Logistics to outsource the warehousing and transport for
our continental European IKBs. After a difficult period
our businesses in both Germany and France improved
performance and posted share growth in the core stand
mixer category.
Third Party Distributors
Export sales to third party distributors fell by 17% to
#24.3m. Half of the decline occurred in Australia, our
largest export market, where there was a change of
distributor. These sales should be recovered in the
current year. Sales to Eastern Europe fell by over #1m
reflecting the region's financial crisis. The strength of
sterling continues to impact this business.
Manufacturing and Sourcing
This has been another year of major change for the UK
manufacturing team. Over 60% of the Group's manufacturing
is now outsourced and over 40% of our products are
produced in China. Whilst we clearly regret the loss of
UK jobs that these moves have entailed, this development
is absolutely essential if Kenwood is to remain
competitive in the market place.
Tricom, Kenwood's 100% owned Chinese facility, has also
seen considerable change. In future it will focus on the
production of motors and components for the Chef and a
number of our products formerly produced in Tricom are
being transferred to a Chinese partner company.
As these two manufacturing sites are reshaped, there has
been a negative impact on profits as a result of the
lower levels of overhead recovery. The recently announced
restructuring programmes are addressing this.
In Italy, where only 5% of production is now in house, a
25% reduction in the labour force was achieved.
As a result of the Asian crisis there have been
significant deflationary pressures on products sourced
from the Far East. Prices now are showing signs of
firming.
KENWOOD RESTRUCTURING PROGRAMME
A strategy was initiated in 1997 to transform Kenwood
from a vertically integrated predominantly UK
manufacturing company into an agile brand led business.
To achieve this a number of programmes were introduced: -
To focus the business on small domestic appliances;
To revitalise the product range
To cut the cost base;
To reduce borrowings; and
To deliver low cost flexible manufacturing.
Despite the disappointing trading performance,
significant progress has been made against all of these
objectives: -
Focus
Following the sale in 1997/8 of the UK printing business,
in June 1999, a UK engineering business, where 60% of the
output was unconnected to our products, was sold to the
management. The unprofitable sales subsidiary in New
Zealand was closed.
Refreshed Product Ranges
A complete review of the Kenwood product range has been
undertaken. This had led to the introduction of new
models in all of the key categories such as kettles,
irons, toasters and food processors. In 1998/99 28 new
products were introduced and it is planned to match that
number in the current year. The processes are now in
place to deliver a continuing programme of new products.
Ariete continues to lead the way in innovation and has
launched a completely new kitchen essentials range, a new
coffee machine range, which has captured a 5% share of
the Italian market and a new range of irons.
Cost Reduction
Since the start of the Kenwood restructuring programme,
the Group has reduced its workforce by almost one-third
(917) to 1955. The effect of the moves announced in
February and June 1999 will reduce this by approximately
a further 450 jobs. The full benefit of the cost savings
will occur in 2000/01.
Borrowings Reduction
A major management programme to focus on cash led to a
33% reduction in stock levels and an 11% reduction in
debtors at the year-end. As a result borrowings fell 18%
to #29.2m. At the same time the Group increased
investment in tooling for new products and spent #2.8m on
the cash costs of restructuring.
Flexible Low Cost Manufacturing
During the year, the Company sold its UK plastic moulding
operations and this transfer will be completed by March
2000. The programme to transfer the balance of production
to China except for the Kenwood Chef and water filter
business is underway. This development was only initiated
once rigorous testing of the quality of the new products
had been undertaken.
Restructuring Costs
The UK restructuring programme involving the transfer of
production to China and the relocation of the Head office
and remaining UK manufacturing will result in exceptional
charges of approximately #11.6m. The sale of Freshwater,
a non-core engineering business, will result in a book
loss of #2.3m. A further #1.1m restructuring charge has
been incurred in the reorganisation of the overseas sales
companies.
Of this total of #15m of exceptional charges, #9.9m has
been incurred in 1998/9 and has been recognised in that
year's accounts in accordance with current accounting
standards. This comprises #8.0m in respect of the UK
reorganisation, #0.8m for the write down of property at
Freshwater and #1.1m for overseas sales companies.
In 1999/2000, a further #4.0m of restructuring costs is
anticipated: #1.5m being the balance of the loss on
disposal of Freshwater and #2.5m in respect of redundancy
and associated costs. The balance of the exceptional
charges will be incurred in 2000/01.
FUTURE PROSPECTS
Given the continuing depressed state of consumer sales in
key markets and the high level of the pound, the Board
anticipates that the first half will show a loss after
interest. In the second half, the benefit from the new
products and reduced costs will show through and a profit
before tax and exceptional charges is anticipated for the
full year. The restructuring moves, which the Company has
announced, are not scheduled to be completed until
December 2000. These will progressively benefit profits
over the next two years and are projected to add
approximately #4m annually to profits before tax once
fully implemented.
Group Profit & Loss Account
For the year ended 2nd April 1999
1999 1999 1999 1998
Before Excep-
Exceptional tional Total Restated
Items Items Total
#000 #000 #000 #000
Turnover:
Continuing operations 148,028 - 148,028 160,659
Discontinued operations 6,093 - 6,093 9,678
----- ----- ----- -----
154,121 154,121 170,337
Cost of sales (100,072) (1,005) (101,077)(110,465)
----- ----- ----- -----
Gross profit 54,049 (1,005) 53,044 59,872
----- ----- ----- -----
Distribution costs (35,721) - (35,721) (36,201)
Administrative expenses(14,248) - (14,248) (13,314)
----- ----- ----- -----
(49,969) - (49,969) (49,515)
----- ----- ----- -----
4,080 (1,005) 3,075 10,357
Other operating
expenditure 59 - 59 (62)
----- ----- ----- -----
Operating profit:
Continuing operations 4,589 (1,005) 3,584 9,673
Discontinued operations (450) - (450) 622
----- ----- ----- -----
4,139 (1,005) 3,134 10,295
Exceptional items:
Continuing operations - - - (3,713)
Discontinued operations - (8,884) (8,884) 569
Bank interest receivable 704 - 704 603
Interest payable (4,708) - (4,708) (5,297)
----- ----- ----- -----
(4,004) - (4,004) (4,694)
(Loss)/Profit on
ordinary activities
before taxation 135 (9,889) (9,754) 2,457
Tax on profit
on ordinary
activities (1,519) - (1,519) (2,191)
----- ----- ----- -----
(Loss)/Profit attributable
to members of
the parent company (1,384) (9,889) (11,273) 266
(Loss)/Retained
profit for the year (1,384) (9,889) (11,273) 266
===== ===== ===== =====
(Loss)/Earnings
per share (24.6)p 0.6p
Diluted (loss)/
earnings per share (24.6)p 0.6p
Group Balance Sheet
Restated
2nd April 3rd April
1999 1998
#000 #000
Fixed assets
Tangible fixed assets 27,467 37,058
Investments 1,927 1,927
----- -----
29,394 38,985
----- -----
Current assets
Stocks 21,698 32,203
Debtors 40,658 45,776
Cash at bank and in hand 9,670 20,470
----- -----
72,026 98,449
Creditors: amounts falling
due within one year (76,489)(100,368)
----- -----
Net current (liabilities)/assets (4,463) (1,919)
----- -----
Total assets less
current liabilities 24,931 37,066
----- -----
Creditors: amounts falling
due after more
than one year (602) (1,328)
Provisions for
liabilities and charges (1,005) (1,153)
----- -----
23,324 34,585
=== ===
Capital and reserves
Called up share capital 4,586 4,586
Share premium 25,101 25,101
Special reserve 2,180 2,180
Capital reserve - -
Profit and loss account (8,543) 2,718
----- -----
Shareholders' funds-equity interest 23,324 34,585
=== ===
Group Statement of Cash Flows
Year to Year to
2nd April 3rd April
1999 1998
#000 #000
Cash flow from
operating activities 15,997 16,253
Returns on investments
and servicing of finance (4,004) (4,686)
Taxation (763) (3,477)
Capital expenditure (4,666) (4,539)
Acquisitions and disposals - 646
Equity dividends paid - -
Financing (21,402) 33,446
----- -----
(Decrease)/increase
in cash in the period (14,838) 37,643
==== ====
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in
cash in the period (14,838) 37,643
Cash outflow/(inflow)
from decrease/(increase)
in debt and lease financing 21,402 (33,446)
----- -----
Change in net debt
resulting from
cash flows 6,564 4,197
Translation difference (324) 1,987
----- -----
Movement in net
debt in the period 6,240 6,184
Net debt brought forward (35,456) (41,640)
----- -----
Net debt carried forward (29,216) (35,456)
==== ====
The above accounts do not constitute full accounts within
the meaning of the Companies Act. Full accounts for the
year to 2nd April 1999, 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.
END
FR ARSBKKKKNOAR
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