BAE.L Regulatory News (BAE)

 BEALE PLC

27 January 2011

Beale PLC, the specialist department store operator, announces Preliminary Results for the 52 weeks ended 30 October 2010 (comparative period - 52 weeks ended 31 October 2009).

·; Two New Stores acquired in year: Hexham (4 June 2010) & Rochdale (5 September 2010).

·; Group gross sales increased by 2.7% to £87.25m (2009: £84.95m).

·; Group revenue amounted to £48.6m (2009: £47.6m), up 2.1%.

·; Gross margins declined slightly from 54.5% to 53.7%; 54.2% on a like for like basis.

·; Administrative expenses reduced by a further £0.1m.

·; Like for like administration expenses reduced by £1.3m.

·; Operating loss reduced by 44% to £0.42m (2009: loss £0.76m)

·; Excluding acquisitions, Group operating loss reduced to £0.15m.

·; Group loss before tax reduced by 32% to £0.67m (2009: loss £0.99m).

·; Gross sales including VAT during the key 5 week trading period ending on 15 January 2011, were 16.3% above those of the previous year. Retail sales in January 2010 were affected by snow.

·; Gross sales including VAT for the 11 weeks to 15 January 2011 were 4.6% higher than the previous year. Retail sales were seriously affected by snow in November and early December.

Mike Killingley, Chairman commented: "The increase in VAT on 4 January 2011, and the effect of the Government's tighter fiscal policy, continues to make the retail sector challenging. Despite this, we believe that our trading strategy will generate further improvements in the Group's underlying performance. We shall also continue to seek new opportunities to increase the size of the Group with the acquisition of additional stores, which could be managed without a material increase in the size of our head office."

Tony Brown, Chief Executive commented: "It has been a seminal year for Beales with two acquisitions: Robbs of Hexham; and Westgate Department store in Rochdale now trading under the Whitakers brand. This demonstrates the confidence the Board has in our trading strategy and in the future of the business. We continue to challenge our cost centres and have been able to reduce the cost of doing business, which we will continue to focus on. Earnings before interest, tax and depreciation remain positive at £1.5 million (2009: £1.2 million) and our losses have been substantially reduced for the third year."

For further information:

Chairman's Statement

Results

The Group loss before taxation of £668,000 showed further progress on the previous year, when the loss was £987,000. The underlying improvement was more substantial than this, as we incurred a loss of £271,000 in the two stores acquired during the year, much of which was attributable to start-up costs.

Our two new stores were Robbs of Hexham and the former Westgate department store in Rochdale. Robbs was acquired from administrators in June and we signed a new 15 year lease, in respect of which we received significant commercial inducements. Following an extensive review of the business, we made substantial changes, refurbished the store and relaunched it in September. It is now one of our larger stores by turnover.

In September we signed a 25 year lease on the Rochdale store, with significant commercial inducements, and relaunched it under the name of Whitakers in October.

The Group's gross sales increased by 2.7% to £87.2 million; these include concession sales and VAT, as well as the sales of the new stores. The VAT increase during the year contributed about 1.4% of the increase.

Revenue, which excludes VAT and includes only the commission element of concession sales, was 2.1% higher than in the previous year at £48.6 million. Like for like revenue, excluding the new stores, declined by 2.1%.

Like for like gross margins were comparable to those in the previous year at 54.2% (2009: 54.5%). Robbs of Hexham includes a substantial food store, which operates at lower margins than our usual department store business, with the result that the overall margin declined slightly to 53.7%.

Despite the new acquisitions administrative expenses were well controlled, and were £148,000 lower at £26.5 million.

Our net debt increased, and at the year-end was £8.1 million (2009: £6.4 million). The seasonality of our business means that our borrowings are at their highest around the year end. The increase was largely attributable to the costs of acquiring and refurbishing our new stores and supporting the higher working capital investment in the enlarged Group.

A full review of developments in the business can be found in Tony Brown's Chief Executive's Statement. Our financial results, balance sheet and working capital are discussed in greater detail in Ken Owst's Finance Director's Review.

Trading update

Retail Sales were seriously affected by snow throughout the country in November and early December. Gross sales for the 11 weeks ended 15 January 2011 were 4.6% higher than for the equivalent period last year.

For the 5 week period from 6 December 2010 to 15 January 2011, following the worst of the adverse weather conditions, gross sales were 16.3% higher than in the previous year. The comparison is flattered to some degree by the snow which affected parts of the country in the first half of January 2010.

Dividend

No dividend is proposed.

Shareholders and Board

In February 2010, Panther Securities plc, a listed property investment company, acquired shares which lifted the shareholding of Panther and its major shareholder Andrew Perloff, from just under 10% to 29.72%. These shares were acquired from Lawdene, previously our largest shareholder, whose interest in the Company is now 4.5%.

In April 2010 Simon Peters, finance director of Panther Securities, joined the Board as a non-executive director.

Staff

The steady improvement in the Group's performance in the difficult trading environment would not have been possible without the exceptional commitment of our staff. On behalf of the Board and shareholders I thank them for their unstinting contribution.

Banking facilities and going concern

During September 2010 we were pleased to announce that the Group's £9.0 million term loan facility, which was due to expire in February 2011, had been replaced by a new 2 year revolving loan facility, also of £9.0 million, expiring on 31 August 2012. We also have a modest overdraft facility.

We have continued to trade comfortably within our facilities throughout the past year, and have met all our banking covenants. Our forecasts show that the Group should be able to operate within its borrowing facilities and the Board has therefore continued to adopt the going concern basis in preparing the annual report and accounts.

Outlook

The increase in VAT on 4 January 2011, and the effect of the Government's tighter fiscal policy, continues to make the retail sector challenging.

Despite this, we believe that our trading strategy will generate further improvements in the Group's underlying performance. We shall also continue to seek new opportunities to increase the size of the Group with the acquisition of additional stores, which could be managed without a material increase in the size of our head office.

Mike Killingley

Chairman

Chief Executive's Statement

Introduction

Once again and, as in last year's Accounts, I have to report another challenging year. We saw significant political change during the year which has resulted in a dip in consumer confidence whilst the government goes about its task of putting the economy back into order. However, whilst our like for like sales were slightly down on the year it has been a seminal year for Beales with two acquisitions, Robbs of Hexham and Westgate Department store in Rochdale now trading under the Whitakers brand. This demonstrates the confidence the Board has in our trading strategy and in the future of the business. Both stores are trading in line with our expectations and Hexham, particularly, is demonstrating good growth. These two stores will improve the business's overall performance. We continue to challenge our cost centres and have been able to reduce the cost of doing business, which we will continue to focus on. Earnings before interest, tax and depreciation remain positive at £1.5 million (2009: £1.2 million) and our losses have been substantially reduced for the third year.

Buying in margin

Our buying in margins have continued to improve and we have seen our achieved margins starting to reflect this increase. Achieved margins take significantly longer to filter through than the buying in margin due to the backlog of lower margin purchases within our stock profile. We have achieved these increases through a rigorous review of our own bought product mix, supplier base, trading terms, concession mix and a commercial approach to stock management. Through consistently applying this strategy, I believe we will continue to improve our margins and reduce our stock levels. We will continue our policy of purchasing in bulk from the Far East and reducing our supplier base so we become more important to our current suppliers and are able to achieve better trading terms. Our margins have been slightly affected by the acquisition of the Robbs department store which has a food hall which delivers lower margins than non-food.

Sales

Because of the acquisitions our gross sales will now continue to be above those of the prior year. Our like for like sales are slightly down on the prior year reflecting the challenging environment in which we work. It is pleasing to say we now have more stores trading on a like for like basis above the prior year than before and we continue to work on our underperforming stores to get them above the prior year as well.

We continue with our sales and promotional strategy featuring quality brands at great prices. This approach is still proving to be very popular with our customers. Our promotional calendar continues to give customers new and exciting monthly promotions on top brands across the whole store. We continue our promotional strategy on furniture, which is proving successful. We have supported our sales strategy with a far more aggressive marketing campaign focusing on our local strategic importance in towns in which we trade through our 'Love Beales' campaign and we were delighted that our industry peers voted the 'Love Beales' campaign as highly commended in the Drapers Industry Awards for the Best Marketing Campaign, where we came second only to John Lewis.

Service and people

Customer service is pivotal to our proposition and a core value of ours. We have invested time, energy and money in training programmes aimed at improving our customer service levels. We continue to invest in our stores to improve the customer experience whilst shopping with us and our ambition continues to be to deliver service that our customers simply can't get anywhere else. The Board thanks all of our staff for their hard work and contribution throughout the year.

Cost controls

We continue to challenge ourselves in all our cost areas and it remains uppermost in our minds whilst ensuring that we balance this with maintaining our service levels, sales drive and operating systems and central support. We will continue to look for cost savings throughout the coming year.

Principal risks and uncertainties

As previously noted, all retailers face a very challenging and competitive trading environment. The greatest risk to our business continues to be a sustained economic downturn with the need for increased discounting and promotions to drive sales. The major feature for 2009/2010 trading year has been the political uncertainty due to the General Election and the focus the current government has on returning the economy to a much healthier balance. This, of course, will have an effect as people have become more cautious. The increase in VAT will also have an effect on large ticket purchases and we continue our promotional strategy to try and alleviate the effects that these actions will have by:

·; Balancing concession and own bought merchandise;

·; Ensuring that challenging cost saving targets are achieved;

·; Implementation of the Group Corporate Plan;

·; Focusing on improvement in our product ranges, maximising margins from direct Far East sourcing whilst managing the impact of the decline in Sterling against the Dollar and the Euro;

·; Full utilisation of the new management accounting systems, which will ensure, inter alia, improved stock control and replenishment and

·; Regular monitoring of strategic key performance indicators.

We continue to work within our banking facilities and covenants and have secured a further two year facility.

Environment

We believe in working with and supporting the communities in which we operate and we are closely involved with the town centre and councils in many of the towns in which we trade. We continue to seek ways to reduce product packaging and bag usage in addition to increasing the recycling of cardboard, plastic and other waste. We also continue to pay particular attention to reducing the environmental impact of the Group's carrier bags and with assistance from the Carbon Trust seek opportunities for greater energy efficiency in our stores, service buildings and offices. The reported changes in last year's Accounts to the carbon limits have been delayed by the Government who are seeking new methods of incentivising businesses to reduce their carbon footprint. We continue to work with the relevant Government agencies.

Outlook and summary

Since my last statement, the economic outlook has changed significantly following the General Election. Quite simply it is hard to forecast the public's reaction to the spending cuts and the increased VAT. We will continue to monitor our customers' reaction to these changes and adjust our trading strategy accordingly but in my view it will continue to make our customers cautious throughout the year. Our increased focus on purchasing from the Far East has assisted us to date in achieving increases in our input margins; however, the euro/sterling exchange rate continues to be disadvantageous to us and I cannot see this improving in the near term. Our pricing and buying strategies are designed to ensure that our margins are protected from currency fluctuations. Our balance sheet remains strong and our strategies are rigorously focused on improving our business and we continue to enjoy a strong and healthy relationship with our bank, HSBC. The Board will work hard to continue the improvement in results achieved in 2009/2010 with the ultimate objective of returning the Company to profitability.

Tony Brown

Chief Executive

Finance Director's Review

Results

Gross sales for the Group for the 52 weeks ended 30 October 2010 were £87.2m being 2.7% above the previous year (2009: £84.9m). This includes £3.3m of gross sales relating to the acquisitions made during the year, the like for like comparison shows a small decline of 1.2%. The revenue was £48.6m being 2.1% above the previous year (2009: £47.6m). It should be noted that own bought sales excluding VAT in the year increased by 1.5%, while concession sales excluding VAT increased by 1.1%. Due to the increase in the VAT rate to 17.5% (2009: 15.0%) on 1 January 2010 the gross sales increase of 2.7% limited the total sales excluding VAT to being only 1.3% up on previous year. This with an improvement in concession margins resulted in the revenue increase being 2.1%, as analysed in note 2 of the financial statements, like for like revenue declined by 2.1%.

Gross profit for the year was £26.1m (2009: £25.9m) and was achieved at a margin of 53.7% (2009: 54.5%). This includes the gross profit generated by the acquisitions of £0.9m at a margin of 43.2% due to the mix of lower margin food and electrical products. During the year the Group has continued to focus on improving the Group buying in margins to negate the effect of increases in VAT imposed from 1 January 2010 (17.5%) and from 4 January 2011 (20.0%).

The Group has continued to maintain a close focus on administrative expense control. The total expenses for the year of £26.5m are 0.6% lower than the previous year (2009: £26.7m). Furthermore this reduction is after incurring administrative expenses in relation to the acquisitions of £1.1m; a like for like comparison shows administrative expenses were reduced by 4.8%. This was as a result of staffing efficiencies, central cost reduction and reduced pension charges due to the closure of the Beales final salary scheme in the previous year.

Operating loss for the Group at £421,000 (2009: £757,000 loss) was 44% lower than in the previous year and included the adverse impact of absorbing and operating the new acquisitions. The sub analysis of the acquisition trading for the Group is shown below.

The net cost of financing the business at £247,000 (2009: £230,000) increased, primarily due to higher borrowings in the year. The resulting loss on ordinary activities before taxation of £668,000 (2009: £987,000 loss) was a reduction of 32.3% from the previous period, which exceeded market expectation from earlier in the year excluding the acquisition impact.

Taxation

Due to the reduction in the deferred tax liability associated with the result for the year and the reduction of the tax rate to 27% from April 2011, the tax credit for the year was £85,000 (2009: £70,000 credit).

The loss for the period after taxation was £583,000 (2009: £917,000 loss) a reduction of 36.4%.

Earning per share

The loss per share was 2.84p (2009: 4.47p loss). No dividends were paid during the year (2009: nil per share). The Board considers that a significant trading improvement will be necessary before further dividends are paid.

Acquisitions

On 4 June 2010 the Group acquired the trade, fixed assets, inventories and certain liabilities of the Robbs Department store in Hexham from the administrator for a total consideration of £250,000. The store trades from approximately 65,000 square feet and in the previous full year's accounts produced a trading loss of £338,000 after market rent. The Group has entered into a fifteen year lease with the landlord, receiving commercial inducements to do so.

On 5 September 2010 the Group acquired the trade, fixed assets, inventories and certain liabilities of The Westgate department store in Rochdale. The store trades from approximately 30,000 square feet and in the previous full year's accounts produced a trading loss of £153,000 after market rent. The Group has entered into a twenty five year lease with the landlord, receiving commercial inducements to do so. The Rochdale store name was changed to Whitakers following a relaunch on October 2010.

Both stores received considerable investment from the Group in the second half of the financial year in order that they could be prepared to maximise the Christmas trade. As detailed earlier the acquisitions contributed a trading loss for the residual few months of the financial year that they were acquired in. The Group is pleased with the acquisitions and confident that they will make a positive contribution to the Group's results in future.

Accounting policies and standards

In the year IFRIC 11, IFRS 2 Group and Treasury Share Transactions and IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction were issued by the International Financial Reporting Interpretations Committee. The adoption of these accounting standards interpretations has not led to any changes in the Group's accounting policies. The accounting policies applied are detailed in note 1 of the financial statements. Noting the requirements of IFRS 8, the Board considers that the Group operates as a single operating segment.

Pensions

The Group offers new employees the opportunity to join the Beales defined contribution pension scheme. During April 2009 the Group closed its defined benefit pension scheme to future accrual, having been closed to new entrants in April 1997. The scheme is operated by the main trading subsidiary of J E Beale plc, which also has responsibility for the Denners' pension scheme, which was closed to new members and future accrual when Denners Limited was acquired by the Group in 1999. The net liability for both schemes will remain on balance sheet.

The Group's total final salary pension liability under IAS 19 at the year-end reduced by £2.0m to £2.5m (2009: £4.5m) details of this are shown in note 27 of the financial statements. The total actuarial gains for the period were £1.2m (2009: £3.9m loss). The Beales scheme has an IAS 19 deficit of £2.9m (2009: £4.8m deficit). The Denners scheme has an IAS 19 surplus of £0.4m (2009: £0.3m surplus).

During the year the Group continued to meet the contribution schedules agreed for both schemes, contributing £1.1m (2009: £1.1m). The next Beales scheme's triennial valuation is based upon the year end of October 2010. Agreement as to that valuation and a new schedule of contributions is required to be reached by January 2012. The next Denners pension scheme's triennial valuation will be based upon the year end to October 2011.

Group systems

During the year the Group's systems have continued to operate in an efficient and consistent manner. The upgrade of its major systems platform in earlier years has provided the Group with the platform to acquire new stores and quickly assimilate accounting of the new businesses into a consistent Group format.

Balance sheet and cash flow

Group capital expenditure in the year was £1.6m (2009: £1.1m) with the major spending relating to refurbishment in stores, predominantly in the newly acquired stores of Hexham and Rochdale. The landlord's contributions for the acquired stores helped to fund the acquisition purchases, capital expenditure and increased working capital requirements.

Inventories valued at cost were £9.5m (2009: £8.2m) an increase of 15.3%. This sum includes the peak stock volumes prior to Christmas and notably the additional inventories required for the new stores. The year end stock at cost relating to the acquisitions was £1.0m. Trade and other receivables were £4.4m (2009: £4.3m). Trade payables at year-end reduced to £5.5m (2009: £5.8m). Accruals and deferred income increased to £4.1m (2009: £2.9m) as a result of the accounting treatment of landlord's contributions in the acquired stores. These liability increases had a consequential favourable impact on borrowings in the year under review. The Group has continued to ensure that creditor payments have been prioritised in order to benefit from maximum early settlement discount. As a direct result of the corporate expansion in the year, the year-end net debt increased by £1.7m.

Group net assets at year-end increased to £14.6m (2009: £13.8m) primarily as a result of the variation in retirement benefits obligations. Net assets per share at year end increased to 71.1p (2009: 67.3p)

Treasury

Treasury activities are governed by procedures and policies approved by the Board. The Group's policy is to take a conservative stance on treasury matters and no speculative positions are taken in financial instruments. The treasury function manages the Group's financial resources in the most appropriate and cost-effective manner, minimising the Group's exposure to risk arising from interest rate and foreign exchange fluctuations.

During the year the Group renewed its banking facilities with effect from September 2010, putting in place a further two year term in agreement with HSBC Bank, who have remained continually supportive of the Group's expansion strategy. The Group has continued to operate within its banking facility, which comprises a £9.0m two-year revolving loan which is due to expire on 31 August 2012 and an operating overdraft of £112,000. The Group net debt at year-end was £8.1m (2009: £6.4m). Year end gearing was 55.7% (2009: 46.6%).

Ken Owst

Finance Director

Responsibility statement of the directors on the annual report

The responsibility statement below has been prepared in connection with the Group's full annual report for the year ending 30 October 2010. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·; The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·; The management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the board of directors on 27 January 2011 and is signed on its behalf by

Mike Killingley Tony Brown

Chairman Chief Executive

Consolidated Income Statement

For the 52 weeks ended 30 October 2010

* Gross sales reflect revenue from concession sales and VAT from continuing operations.

Consolidated Balance Sheet

As at 30 October 2010

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

For the 52 weeks ended 30 October 2010

Notes to the financial statements

1. Accounting policies

General Information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 October 2010 or 31 October 2009. The financial information for 2010 and 2009 is derived from the statutory accounts for those years. The statutory accounts for 2009 have been delivered to the Registrar of Companies. The statutory accounts for 2010 will be delivered to the Registrar of Companies following the Companies following the Company's annual general meeting. The Group auditors, Deloitte LLP, have reported on the 2010 and 2009 accounts, their reports were unqualified and did not contain any statements required under either s498(2) or s498(3) of the Companies Act 2006. The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the 52 week period ended 30 October 2010. While the information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS on 14 February 2011.