RNS Number : 1468X
Reflec PLC
20 June 2008
Reflec plc ("the Company" or "the Group")
Preliminary Statement of Financial Results
Introduction
The financial statements for the year to 29th February, 2008 show a loss before tax of �832,000 (2007: Profit �102,000). This result is
significantly affected by decisions that your Board have made to impair 100% of an intangible asset of �339,000 in the books of Perseus
Global Security Technologies Limited (Perseus), to impair by �361,000 a loan due from Reflec USA Corp. (Reflec USA) (the group's 50% joint
venture in the United States) and to impair by �70,000 goodwill relating to that joint venture.
A new Strategy
On 15th May 2008 the Board decided to implement a new strategy for the Group and allow Perseus to continue trading for three months only
from that date while efforts were made to sell or dispose of the company. These efforts are continuing. The overall losses from Perseus
which are included in these financial statements amount to �529,000 (2007: Loss �154,000). Of this, �339,000 relates to the impairment,
described above of the costs of developing risk and resilience products which had been capitalised in past periods. This does not affect
current cash flow. The remainder relates to operating losses of �140,000 in the year together with the 100% impairment of a �50,000
receivable booked in the first half.
In the light of the disappointing performance of Perseus during the second half of the year and also given the current difficult
financial environment the Directors decided that they should, for the moment, give priority to the development and growth of Reflec
Evolution Limited (Evolution) and Reflec Media Limited (Media) which have continued to perform well with strong cash generation. The Board
believes that significant opportunities will emerge over the next 18 months for growth and acquisition and that they should consolidate for
the moment so that the group can accumulate cash and other resources in order to take advantage of those opportunities.
Before Group management charges Evolution recorded operating profits of �303,000 (2007: �524,000) and Media profits of �377,000 (2007:
�270,000). Reflec USA recorded operating profits of �26,000 (2007: �32,000) of which �13,000 (2007: �16,000) is included in these financial
statements.
As part of an impairment review the Board has provided for the impairment of the loan due from Reflec USA and also the goodwill which is
included in the Group balance sheet and which is associated with the purchase of Reflec USA in 2002. The results of Reflec USA are
consolidated on a proportionate basis and 50% of the loan is not eliminated on consolidation. The total loan outstanding from Reflec USA at
29th February, 2008 amounted to �1,044,000 (2007: �1,048,000) of which �522,000 (50%) was included in the Group balance sheet before the
impairment charge. The Board believes that significant opportunities continue to exist in the reflective products that Reflec USA sells in
the United States, especially given the sound technological base provided by Reflec plc. Nevertheless the current financial and business
environment in the United States persuade the Board that they should take a prudent view and provide for the impairment of the assets
mentioned above. As a result the financial statements include an impairment charge of �361,000 against that section of the loan due from Reflec USA which is included within the balance sheet and �70,000
against the goodwill mentioned above. These provisions have had no impact on the Group's cash flow and reflect the current cautious views
taken by the Board in the light of current circumstances.
The impairment of the loan due from Reflec USA is a necessary provision for risk and uncertainty. This is a correctly conservative
approach, which demonstrates the intention of the board to improve the transparency of its results and their presentation. This impairment
provision does not affect or reduce the liability of Reflec USA to repay the loan in full or our determination to work to achieve this.
A note in the financial statements will provide further information as to how the Board have evaluated the forward prospects of Reflec
USA and the manner in which the impairment has been calculated.
Core businesses
It is the Board's view that the Evolution and Media businesses form a reliable and consistent foundation for the Group's profitability
and cashflow - with a platform for growth especially in Media. The operating profits of these businesses before depreciation and group
management charges over the past three years were as follows:-
�000's
Year to 28th February Evolution Media Total of Evolution & Media
�'000 �'000 �'000
2006 523 190 713
2007 606 282 888
2008 390 384 774
A note in the financial statements will show how these figures reconcile to the segmental analysis in the annual financial statements.
Board Restructuring
Given the decision not to pursue immediate growth in the security market, Mr. Tim Hearley decided to resign as Chairman and Director of
the Company with effect from the 20th June 2008. Mr. Hearley believes in the light of the recent board decisions set out above that his
skills and experience will not be needed. In the same way, given the decision not to expand in the security market, Mr. Ian Proud resigned
as Director of the Company with effect from 20th June 2008. As a consequence of these changes I was unanimously elected as chairman of the
Board from 20th June 2008.
In order to strengthen the Board and improve shareholder relations I became a Director on 15th March 2008 together with Mr. Jason James.
Jason and I have, to the point of this statement and Board restructure, provided our services to the Company without remuneration.
Mr Angus MacPherson joined the Board on 3 December 2007.
Perseus
Perseus recorded operating losses in the twelve months to 29th February 2008 of �190,000 (2007: loss - �154,000) on sales of �211,000
(2007: �52,000). As already mentioned costs of �339,000, which had been incurred in developing security products and which had been
capitalised in past periods were written off in these financial statements as a result of an impairment exercise. Further losses which have
not been included in these financial statements amounted to a further �50,000 in the two months to 30th April 2008 according to management
accounts. In addition no account has been taken of the further costs of selling or otherwise disposing of Perseus which are not expected to
exceed �150,000.
Overall there was an operating cash deficit (operating losses less depreciation) relating to Perseus during the twelve months of
�192,000 (2007: �203,000).
Reflec Evolution
Reflec Evolution's customers are facing tough competition from Asia and Eastern Europe. However Evolution is currently ahead of budget
and our continuing efforts to strengthen relationships with our customers is creating an environment for long term business. Evolution also
constantly attempt to win new business with existing and new customers, in order to optimise production capacity.
Reflecmedia
Our chromakey and visual communication division continues to perform well. The revenue for the financial year was similar to the prior
year at �1,300,000 and the profits were up by 41% to �384,000 before management charges.
Sales in Europe were particularly strong but our expectations were not met in the USA because of the writers strike and uncertain
economic conditions.
A lot of time and effort was spent this year with the development of Microlite, which was successfully launched in April of this year
and we continued to develop MoViset which is a new version of the chromakey technology in 3. We expect that both of these products will help
to grow sales in the coming year. �100,312 of development costs have been capitalised in the year in relation to these two products.
Reflecmedia is an exciting business. As well has having significant scope for development, it benefits from an efficient business model
that I believe to be scalable. By this I mean that fixed costs for this business are not envisaged to increase proportionately or step
significantly ahead of or with growth, minimising risk and maximising return.
Reflec USA
Reflec USA recorded profits of �26,000 (2007: �32,000) on revenue of �2,445,000 (2007: �2,112,000). These results were impacted by
inclusion of a provision of �55,000 in respect of possible additional US import duty payable in respect to past periods.
Sales of the IllumiNITE sportswear were 30% ahead of the prior year with good margins. Given the current business environment, growth is
likely to be more moderate in the current financial year. Further the margin on sales of reflective vests to a major US customer almost
disappeared due to inflation in China and an appreciation in the Chinese Yuan as compared to the US$. Steps are being taken to address this
issue.
The group consolidates the Reflec USA joint venture on a proportionate basis and the business is run on a day-to-day basis by our
partner Mr. Peter Smith. During the year Reflec plc invested a further �25,000 in Reflec USA in parallel to a similar investment by our
partner. The purpose of this investment was to fund the setting up of a purchasing office in China and other infrastructure and thus provide
the resources for further growth. Reflec USA has its own banking facilities which are tailored to the seasonal needs of the business. At
29th February 2008Reflec USA had a bank balance of �264,000 (2007: �152,000).
Reflec plc
During the year the shares in Reflec plc were consolidated on the basis of 50:1, and, by court decision and after shareholder approval
in April, the share premium account was cancelled and netted against retained earnings. Given the resulting positive retained earnings the
Group can now pay dividends as and when the trading position of the group allows.
At the same time an Employee Benefit Trust was set up to provide a vehicle for distributing shares to employees under a remuneration
scheme. All UK Directors and executives surrendered all their existing share options prior to the year end pending the setting up of such a
scheme - which will be fair, incentivising and performance based.
The results were impacted by substantial legal fees which were incurred as a result of these changes. In addition the adoption of the
International Financial Reporting Standards at the 2007 year end proved costly as a result of a precipitate staff resignation. Accounting
and legal charges of �87,000 resulted from these measures. Given the current emphasis on cost reduction, central costs are likely to be
substantially lower in the current year.
Cash Flow
After adding back depreciation, impairments and other non cash items the Group recorded an operating cash surplus of �55,000 (2007:
�198,000) before changes in working capital. Changes in inventories, receivables and payables resulted in a cash flow surplus of �59,000
(2007: deficit �2,000) while investing and financing activities of the Group absorbed �264,000 (2007: deficit �500,000). Overall there was a
reduction in cash resources during the twelve months of �150,000 (2007: �304,000).
Marketing
A key and immediate priority is to improve both marketing and shareholder relations. Although this process is ongoing and we have
significant further scope for improvement, I am pleased to report swift progress in beginning to address this priority.
A key initial achievement is the much improved ReflecMedia website (www.reflecmedia.com), which was launched at the start of this year,
and the process established to ensure that this is updated regularly. Reflecmedia also exhibited successfully at a key exhibition in the
USA. This was supported by a co-ordinated marketing and trade PR campaign, that achieved considerable news coverage, reinforced
reseller/customer relationships, generated enquiries and new business. As this report is being issued, Reflecmedia is exhibiting at a key
trade show in Singapore, supporting our colleagues in that important region and later in the year will exhibit at IBC in Holland which is
the largest exhibition in Europe.
Evolution maintains its proven relationship marketing approach and is pursuing further opportunities to improve its marketing approach
and effectiveness.
Reflec USA is developing a number of ecommerce websites which will enable it to complement its retail business with a higher-margin
online direct selling approach, reduce the impact of retail seasonality and utilise residual inventory. This approach is less geographically
restricted and offers scalability. A PR programme is also underway. Reflec plc is actively working with our joint venture partner in the US
to develop markets beyond the USA.
Future prospects
The Board is very much aware that it is important the Group achieves significant growth both organically and by acquisition. Given the
circumstances explained above, and the very uncertain financial environment the board are quite certain that it is in the best interests of
shareholders to, in the short term, consolidate, concentrate on the cash generative core businesses.
The Board is immediately implementing a comprehensive strategic review and business improvement programme that will enable Reflec to
capitalise on both internal and external growth/profit opportunities as they arise.
Finally I would like to thank our employees both here and in the United States who have shown great dedication and commitment to the
Group during year in often difficult and demanding circumstances.
Tim Robinson
Chairman Designate
Extracts from the Financial Statements for the year ended 29th February, 2008
Reflec plc
Consolidated income statement for the year ended 29 February 2008
2008 2007
�'000 �'000
Revenue 4,079 4,839
Cost of sales 1,393 2,488
Gross Profit 2,686 2,351
Distribution costs 88 20
Administrative costs before exceptional impairment 2,661 2,156
charges
Impairment of development costs 339 -
Impairment of loan to Reflec USA 361 -
Impairment of goodwill 70 -
Administrative costs 3,431 2,156
Loss on partial disposal of subsidiary - 75
Finance costs 3 3
Finance income (4) (5)
3,518 2,249
(Loss)/profit before tax (832) 102
Tax expense/income - 123
(Loss)/profit for the year attributable to equity (832) 225
holders of the parent
(Loss)/earnings per share
- Basic (pence) (7.45) 2.01
- Diluted (pence) (7.38) 2.00
For clarity, the earnings per share figures for 2007 have been restated to take into account the share consolidation.
Consolidated statement of recognised income and expense for the year ended 29 February 2008
2008 2007
�'000 �'000
Exchange differences on translation of the financial statements (13) (141)
of foreign entities
Exchange differences realised in year transferred to income - 39
statement
Net losses recognised directly in equity (13) (102)
Net (loss)/profit (832) 225
for the period
Total recognised income and expense for the year attributable to (845) 123
equity holders of the parent
Consolidated balance sheet at 29 February 2008
2008 2008 2007 2007
�'000 �'000 �'000 �'000
Assets
Non-current assets
Property, plant and 917 995
equipment
Intangible assets 551 888
Deferred tax asset 123 119
Total non-current assets 1,591 2,002
Current assets
Inventories 438 372
Trade and other 898 1,387
receivables
Income tax - 4
receivable
Cash and cash 203 356
equivalents
Other financial 7 -
assets
Total current assets 1,546 2,119
Total assets 3,137 4,121
Liabilities
Current liabilities
Bank overdraft - 1
Trade and other 528 536
payables
Total current liabilities 528 537
TOTAL NET ASSETS 2,609 3,584
Capital and reserves attributable to equity holders
of the parent
Share capital 558 558
Share premium - 13,749
reserve
Foreign exchange (113) (100)
reserve
Retained earnings 2,234 (10,623)
Employee Benefit (70) -
Trust share reserve
2,609 3,584
Minority interest - -
TOTAL EQUITY 2,609 3,584
Consolidated cash flow statement for the year ended 29 February 2008
2008 2008 2007 2007
�'000 �'000 �'000 �'000
Cash flow from operating activities
Net (loss)/profit (832) 102
before tax
Adjustments for:
Amortisation 15 22
Depreciation 112 136
Exchange differences (13) 13
Interest expense 3 -
Impairment Losses in relation to 409 -
intangible assets
Effect of joint venture - exchange - (39)
differences realised
Effect of joint venture - intercompany 361 (36)
write down
887 96
Cash flows from operating activities before changes in working capital and 55 198
provisions
Working capital and provisions
Decrease/(increase) in trade and other 137 (388)
receivables (excluding write down of joint
venture debt)
(Increase)/decrease in inventories (69) 415
Decrease in trade and other payables (9) (29)
59 (2)
Cash generated from operations 114 196
Investing activities
Purchases of property, plant, and (34) (222)
equipment
Disposals - 103
Interest received 4 5
Product development (100) (383)
costs
Additional investment in joint venture (25) -
Additional investment joint venture 25 -
partner
(130) (497)
Financing activities
Purchase of shares in Employee Benefit (70) -
Trust
Costs of share (61) -
consolidation
Interest (3) (3)
received/(paid)
(134) (3)
Decrease in cash and cash equivalents (150) (304)
Changes in foreign exchange (2) (13)
Cash and cash equivalents at beginning of year 355 672
Cash and cash equivalents at end of year 203 355
The financial information set out above does not constitute the company's statutory accounts for the years ended 28th February 2007 or
29th February 2008. Statutory accounts for the year ended 28th February 2007 have been delivered to the Registrar of Companies. The auditors
have reported on those accounts; their report was unqualified, did not include reference to any matters to which the auditors drew attention
by way of emphasis without qualifying their report and did not contain statements under the Companies Act 1985, s 237(2) or (3). The
statutory accounts for the year ended 29th February 2008 will be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general
meeting.
Contacts
Reflec Plc
Tim Robinson, Chairman 01606 593 911
Paul Holdcroft, Managing Director 01606 593 911
John Kinder, Finance Director 01606 593 911
Seymour Pierce Limited
Mark Percy 0207 107 8000
This information is provided by RNS
The company news service from the London Stock Exchange
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