RNS Number:2674J
Chesterton International PLC
27 March 2003
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Chesterton International PLC ("Chesterton" or "the Group") is an international
property services group, whose activities include commercial and residential
estate agency, facilities management and structured finance
HIGHLIGHTS
* 7% increase in total group turnover to #85.5m (2001: #80.0m)
* Trading results affected by weaker market conditions and higher costs
* Operating loss before exceptionals for the six months of #2.7m (2001: loss
of #2.9m)
* New management team appointed on 13 February, with Neil List becoming
Chief Executive and Mike Backs appointed Chief Operating Officer
* Cost savings in excess of #3.5m p.a. already identified by new management
team
Neil List, Chief Executive, comments:
"Since Mike Backs and my arrival in February, I have been impressed by what I
have seen of the Group's business and its staff. Chesterton has an excellent
brand and is highly respected amongst its clients for expertise and service
delivery. We intend to build on that to grow each of our businesses by
attracting and retaining the best professionals in the industry."
27 March 2003
ENQUIRIES:
Chesterton International Tel: 020 7499 0404
Neil List, Chief Executive
College Hill Tel: 020 7457 2020
Gareth David Email: gareth.david@collegehill.com
Matthew Gregorowski Email: matthew.gregorowski@collegehill.com
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
CHAIRMAN'S STATEMENT
Weaker market conditions, together with higher professional indemnity and other
costs, have adversely affected the Group's trading performance during the first
half of its current financial year. Total group turnover rose by 7% to #85.5
million (2001: #80.0 million), with the loss before taxation reduced to #4.1
million (2001: loss of #6.5 million).
Our operating loss before exceptional items of #2.7 million represents a small
decrease over the loss of #2.9 million in the comparable period last year. A
reduction in exceptional costs has helped us achieve an improvement in the
overall loss before taxation to #4.1 million (2001: #6.5 million). Our loss per
share for the period was 5.4p (2001: loss of 7.5p).
Net borrowings at 31 December 2002 were #4.3 million, an increase from the
year-end position of #1.3 million, but still comfortably within our facility.
This increase in borrowings reflects the impact of the trading loss for the
first half.
Despite this overall loss, it is encouraging to note that we have seen an
improvement in the Commercial business, reflecting higher income and lower
costs. This was partially offset by a reduction in the contribution from
Management Services, due to higher accommodation and support costs.
On 31 May 2002, the Board announced that it had received preliminary approaches
that could lead to an offer for the Group. These discussions proceeded with a
number of parties throughout the period under review. None of the parties was
able to put forward a firm offer for the Group that the Board was able to
recommend to shareholders.
This extended period of uncertainty had a markedly detrimental effect on the
Group's personnel and also on the client relationships on which Chesterton rely.
The Board therefore resolved to end the uncertainty over the ownership of the
Group. On 13 February, the Board announced that it was terminating
discussions, would not entertain further approaches and would pursue independent
action with a view to maximizing returns to shareholders.
At the same time, Neil List was appointed as Chief Executive Officer and Michael
Backs as Chief Operating Officer. They bring a fresh dedication to the
entrepreneurial culture, which had become submerged within the Group during this
difficult period. As you will see from Neil List's statement, they have made a
vigorous start to addressing the business's challenges.
Mr List has held a number of executive and non-executive positions including
Executive Chairman of Bridgend Group plc, Executive Director of Softtechnet.com
plc and non-executive Director of Hanover International plc. He founded a
residential estate agency, Bentleys, in 1983 and was a member of the team that
established Bentleys as a top residential sales and lettings agency in North
London, prior to its sale in 1989.
As part of the management changes, Lorraine Baldry, our former Chief Executive,
left the Board on 13 February. In addition, Tim Redburn steps down as a
non-executive director, with effect from today. I would like to thank Lorraine
and Tim for their work on behalf of the Group over the past year.
For the majority of 2002, the impact on staff and management of the corporate
activity surrounding offer talks for the Group has been significant and this has
no doubt contributed to these disappointing results. However, the determination
and resilience of our staff during this time is a great credit to them and will
be an enormous asset for the Group as it goes forward.
PETER BROOKS
Chairman
27 March 2003
Copies of the interim results will be sent to all shareholders. Additional
copies will be available from Chesterton International plc, 54 Brook Street,
London W1A 2BU.
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
CHIEF EXECUTIVE'S REVIEW
These results cover a period prior to my appointment as Chief Executive and are
discussed in more detail in the Trading Review below. As Peter Brooks indicated
in his Chairman's Statement, the principal factors affecting the Group's trading
performance during this period were weak market conditions and higher costs,
together with the impact of uncertainty surrounding the Group's future
ownership.
Since my arrival in February, I have been impressed by what I have seen of the
Group's business and its staff. Chesterton has an excellent brand and is highly
respected amongst its clients for expertise and service delivery. We intend to
build on that to grow each of our businesses by attracting and retaining the
best professionals in the industry.
Mike Backs and I have concluded that the Group has become burdened by excessive
central costs and administrative routines that hinder rather than assist client
service. These costs have previously been forced down onto operating
subsidiaries and departments irrespective of their requirement for these
services. Not surprisingly, this process is rightly resented by those forced to
bear costs not under their direct control.
This problem has grown over time. It is now being properly addressed and as a
matter of urgency. A substantial exercise to reduce these costs has been
commenced that will, when completed, result in annualised savings in excess of
#3.5 million in a full year. In addition, further significant savings over the
next two years are anticipated from a rationalisation of the Group's surplus
property portfolio. A further review of working practices will undoubtedly
reveal further efficiencies and opportunities to instigate improvements in our
delivery to clients.
These savings will not involve a reduction in the number of fee earners in the
Group nor in a diminution in the comprehensive services provided to clients.
The principal objective remains to attract high quality fee earners to the
existing team.
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
CHIEF EXECUTIVE'S REVIEW (cont'd)
The full benefits of these cost savings will not be felt until the next trading
year, although provision for their implementation will be contained in the
annual results for the period to 30 June 2003. I am pleased to report that in
the light of the Group's action plan to reduce costs and its revised strategy as
described below, our bankers remain supportive in regard to facilities required
through to 2004, subject to certain conditions.
Our guiding principle is empowerment of the local management, by bringing back a
partnership style culture to the Group. This will include individual profit
centres having full control over their business and costs, with no departments
being burdened with excessive central Group costs for services they do not use
or require.
My vision for Chesterton is for a firm made up of quality fee earners, who are
keen to be in a sales-orientated culture in which local management is firmly in
control of its business. After an initial round of visits to our offices across
the UK, I am pleased to report that management has enthusiastically embraced
this fresh approach and is participating fully in its implementation.
House prices in London have adjusted to a lower level from peak values and we
expect to see moderate but sustainable rises from this base during the rest of
the year. Activity in the commercial market is largely opportunity driven but
again at lower levels than at the equivalent time last year. In common with
others we have seen a weakening in Commercial and Residential agency order books
since the start of the financial year although demand for outsourcing has
remained steady.
The markets in which the Group is operating are experiencing difficult times and
we are taking the appropriate action to maintain market share, whilst reducing
the cost base. The Group has suffered the loss of some staff but the great
majority has remained loyal to the Group and represents Chesterton's greatest
asset. My colleagues and I wish to thank them for their dedication, patience
and support through trying times.
NEIL LIST
Chief Executive
27 March 2003
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
TRADING REVIEW
The Group's results before tax for the six months ended 31 December 2002 are
analysed by business as follows:
Six months ended 31 December
#m 2002 2001
Commercial Services 15.6 14.9
Management Services 11.8 9.8
Residential Services 9.1 7.9
Other Services 1.1 1.3
Total Fee Income 37.6 33.9
Commercial Services (0.4) (2.2)
Management Services (0.2) 0.7
Residential Services 0.4 0.2
Other Services (0.9) (0.5)
Central Costs (1.6) (1.1)
Operating Loss Before Exceptional items (2.7) (2.9)
Associated undertakings and joint ventures 0.2 -
Operating Exceptional Items (1.6) (3.6)
Net Loss Before Tax (4.1) (6.5)
Commercial Services
In spite of a weakening agency market, particularly in London, the Commercial
business achieved an increase in fee income of 5% compared with the six months
to 31 December 2001. The valuation and investment teams made good progress
whilst London agency reduced, in line with the fall in market activity.
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
TRADING REVIEW (cont'd)
Following the cost reduction exercise in late 2001, costs were reduced compared
with the same period last year by 6%. This mainly reflects a reduction in staff
numbers, as previously announced. Following renewal of the Group's professional
indemnity insurance programme in October 2002, however, the benefit of the cost
reduction programme has been offset by an increased professional indemnity
insurance premium in the last three months of the period.
Management Services
Fee income has continued to grow in the Management Services business, reflecting
continuing growth from within existing contracts and new business opportunities
for Chesterton Workplace Management (CWM).
In particular, the successful mobilisation of two PFI contracts, one for the
first phase of the newly refurbished Treasury offices in Westminster and the
second for primary and secondary schools for the London Borough of Newham, will
provide CWM with FM contracts for 35 years and 25 years respectively. The
contract for the second phase of the Treasury offices will extend for 33 years
from early 2005 following finalisation of the PFI agreement in January of this
year.
Further prestigious contract gains have been announced with Crown Castle and Six
Continents Retail, both won against strong competition.
Support and accommodation costs for the division escalated in 2002 in
anticipation of further growth. Existing business saw some reduction in margins
and market conditions reduced opportunities to increase project related work in
the short term. Following a change in management in November 2002, the business
has addressed its overhead and support costs accordingly. Such action should
deliver reductions in operating costs starting in early 2003.
Residential Services
The Residential business achieved growth in agency sales and profit compared
with the first half of last year, which had been particularly affected by weaker
market conditions between September and December 2001. The number of
transactions increased by 12 % compared with the first half of last year and the
average price of houses sold increased by 23%. Since 31 December, however,
volumes have reduced significantly compared with last year.
Activity in the lettings function reduced during the period, particularly in the
late Summer, and as a result profits fell. Chesterton's lettings department
however remains a leader within the London market.
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
TRADING REVIEW (cont'd)
The new activity of residential offices in the regions has made further progress
with significant successes in Manchester and, more recently, in the newly opened
Newcastle office.
Other Services
This activity includes Strategic Services, Structured Finance, the International
business (incorporating the results of our associated operations in China,
Singapore and India) and Group Business Development.
Strategic Services achieved continued growth in both income and contribution,
gaining a number of important public and private sector appointments. It was
also responsible for managing the Group's involvement in the second phase of the
Treasury offices PFI transaction which reached financial close in January 2003,
bringing a fee of #0.9m for the business for the second half.
In addition to the up front fees arising from each phase of the Treasury
contracts, the Group also has two highly profitable FM contracts extending for
more than 30 years and a 15% investment in equity and loan stock in the PFI
company delivering the services.
Structured Finance continues to develop its student accommodation and
distribution products although the contribution fell in the first half due to
the deferral of major transactions until after 31 December. Its order book
continues to be encouraging.
Central and Unallocated Costs
Central and unallocated costs increased in the period as a result of an
increased charge in respect of unoccupied offices and increased provisioning for
potential shortfalls on subletting certain properties given the recent weakening
in market conditions.
Following action announced today, it is expected that central and unallocated
costs will reduce significantly in the future.
Operating Exceptional Items
The exceptional charge of #1.6 million, includes a write down in the carrying
value of shares in the Employee Benefit Trust from 24.75p to 12.5p per share
being the market value of the Group's shares on 31 December 2002. The charge
also includes the costs of corporate activity discussions and advice arising in
the first half and further termination costs related to headcount reductions.
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Unaudited Group Profit & Loss Account
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
Total Total Total
Notes #'000 #'000 #'000
Group and share of joint ventures' turnover 86,672 81,343 169,857
Less: share of joint ventures' turnover (1,159) (1,382) (2,648)
Group turnover 2 85,513 79,961 167,209
Operating costs before exceptional items (88,224) (82,907) (168,693)
Operating loss before exceptional items,
associated undertakings and joint ventures (2,711) (2,946) (1,484)
Operating exceptional items 3 (1,631) (3,584) (4,638)
Group operating loss before associated
undertakings and joint ventures (4,342) (6,530) (6,122)
Share of operating profit/(loss) in
associated undertakings 115 (14) (137)
Share of operating profit in joint ventures 138 34 155
Total operating loss (4,089) (6,510) (6,104)
Net interest payable and similar items (44) (32) (1)
Loss on ordinary activities before tax (4,133) (6,542) (6,105)
Tax on loss on ordinary activities 4 - 781 1,121
Retained deficit for the period (4,133) (5,761) (4,984)
Deficit per ordinary share
- basic and diluted 5 (5.4)p (7.5)p (6.5)p
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Unaudited Group Balance Sheet as at 31 December 2002
Unaudited Audited
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Fixed assets
Intangible fixed assets 2,396 2,870 2,650
Tangible fixed assets 5,249 5,416 5,750
Investments 4,007 4,630 4,536
11,652 12,916 12,936
Current Assets
Stock 2,539 3,145 2,942
Debtors 27,707 21,619 28,450
Cash - 2,241 932
30,246 27,005 32,324
Creditors: amounts falling due within one year (35,079) (29,002) (33,666)
Net current liabilities (4,833) (1,997) (1,342)
Total assets less current liabilities 6,819 10,919 11,594
Creditors: amounts falling due after more than one year (4,249) (6,527) (4,518)
Provisions for liabilities and charges (3,745) (2,099) (4,072)
(1,175) 2,293 3,004
Capital and reserves
Called up share capital 4,230 4,230 4,230
Share premium account 6,571 6,571 6,571
Profit and loss account (11,976) (8,508) (7,797)
Equity shareholders' funds (1,175) 2,293 3,004
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Unaudited Group Cash Flow Statement
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Net cash (outflow)/inflow from operating activities
before exceptional items (1,560) 2,399 4,018
Net cash outflow from operating exceptional items (667) (1,297) (2,570)
Net cash (outflow)/inflow from operating activities (2,227) 1,102 1,448
Dividends received from joint ventures 130 - 137
Returns on investments and servicing of finance 8 304 331
Taxation 490 247 178
Capital expenditure and financial investment (966) (1,281) (2,730)
Acquisitions and disposals (232) (117) (33)
Net cash (outflow)/inflow before financing (2,797) 255 (669)
Financing (172) (2,737) (1,122)
Decrease in cash (2,969) (2,482) (1,791)
Reconciliation of operating loss to net cash (outflow)/inflow from operating
activities
Unaudited Audited
six months ended year ended
31 December 30 June
Total Total Total
2002 2001 2002
#'000 #'000 #'000
Group operating loss before associated undertakings and
joint ventures (4,342) (6,530) (6,122)
Depreciation and amortisation of fixed assets 1,432 1,452 2,880
Amounts written off own shares 964 - 403
Movement in working capital and provisions (281) 6,180 4,287
Net cash (outflow)/inflow from operating activities (2,227) 1,102 1,448
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Reconciliation of net cash flow to movement in net debt
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Decrease in cash (2,969) (2,482) (1,791)
Repayment of loans 1,800 2,400 2,600
New loans (1,854) - (2,000)
Cost of loan issue 30 25 25
Repayment of capital elements of finance leases and
hire purchase contracts 226 312 522
Change in net debt resulting from cash flows (2,767) 255 (644)
New finance leases (231) (139) (209)
Other (20) (9) 127
Movement in net debt (3,018) 107 (726)
Net debt at 1 July (1,296) (570) (570)
Net debt at 31 December/30 June (4,314) (463) (1,296)
Statement of total recognised gains and losses
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Loss attributable to shareholders (4,133) (5,761) (4,984)
Currency translation differences on foreign currency
net investments (46) (8) (74)
Total recognised gains and losses for the period (4,179) (5,769) (5,058)
Reconciliation of movements in shareholders' funds
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Total recognised gains and losses for the period (4,179) (5,769) (5,058)
Opening shareholders' funds 3,004 8,062 8,062
Closing shareholders' funds (1,175) 2,293 3,004
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
Notes
1. Basis of preparation of interim financial information
The comparative figures for the year ended 30 June 2002 do not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985 but are extracted from the audited statutory accounts. The statutory
accounts for the year ended 30 June 2002, upon which the auditors issued an
unqualified report, have been delivered to the Registrar of Companies.
The interim information for the six months ended 31 December 2002
has been prepared on a discrete basis with the exception of taxation where an
estimated effective tax rate has been used. The accounting policies applied are
those set out in the annual report and accounts for the year ended 30 June 2002.
In the light of the first half results and the Group's action plan to reduce
costs, facilities have been discussed with the bank. The bank has indicated
that it remains supportive in regard to facilities through to 2004, subject to
certain conditions.
2. Turnover
Turnover comprises commissions and fees receivable and rechargeable costs
incurred as principal on behalf of clients. Turnover is exclusive of appropriate
sales taxes.
Unaudited Audited
Analysis of Group turnover six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Net fee income 37,551 33,947 74,480
Costs recharged to clients 47,962 46,014 92,729
85,513 79,961 167,209
CHESTERTON INTERNATIONAL PLC
Interim Results for the six months to 31 December 2002
3. Exceptional Items
Unaudited Audited
six months ended year ended
31 December 30 June
2002 2001 2002
#'000 #'000 #'000
Provision to reduce carrying
value of investment in own shares 964 - 403
Corporate activity costs 140 - 100
Termination costs 527 1,461 1,512
CPAM restructuring costs - 555 555
Office moves - 568 568
Repairs and refurbishment costs - 1,000 1,500
1,631 3,584 4,638
In line with the practice adopted at 30 June 2002, the carrying value of the
Employee Benefit Trust's investment in the Company's own shares has been reduced
to reflect the share price at the period end.
Corporate activity costs relate to financial advisers' fees and legal costs
incurred during the now terminated offer talks.
The termination costs relate to headcount reductions arising from
reorganisations in the first half.
The CPAM costs in year ended 30 June 2002 of #555,000 comprise costs associated
with restructuring and streamlining the CPAM business.
Office moves relate to the cost of certain office moves in the period to 31
December 2001, including relocating central and administrative staff from
Central London to Bracknell, together with the write-down of assets no longer in
use.
The prior year repairs and refurbishment costs relate to the costs associated
with one of the Group's leasehold properties following a court decision in
January 2002.
4. Taxation
The interim tax charge is based on a nil estimated effective tax rate (2001:12%)
after adjusting for the Group's share of tax on the profit/losses from
associated undertakings and joint ventures. The tax charge relating to the
exceptional items is nil (2001: #428,000).
5. Deficit per share
The calculation of basic deficit per share is based on the loss on ordinary
activities after tax of #4,133,000 (2001: loss #5,761,000) and on the weighted
average number of shares in issue during the period, excluding shares held by
the Employee Benefit Trust, of 76.7 million (2001: 76.7 million) ordinary
shares. Diluted deficit per share is calculated based on the same loss after
tax and weighted average number of shares in issue, adjusted for the dilutive
effect of potential ordinary shares.
This information is provided by RNS
The company news service from the London Stock Exchange
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