24 Jul 2009 12:10
24th July 2009
Findel plc ('Findel', 'the Company' or 'the Group')
Annual Results for the financial period ended 3 April 2009
Findel, one of the UK's leading home shopping and educational supplies businesses, today announces its Annual Results for the financial period ended 3 April 2009.
Financial Highlights
Sales from continuing operations £599.8 million (2008: £610.6 million)
Benchmark* profit before tax £33.4 million (2008: £50.6 million)
Statutory loss before tax £51.9 million (2008 PBT: £25.2 million)
Benchmark* basic earnings per share 30.04p (2008: 43.02p)
Statutory basic loss per share 49.45p (2008 EPS: 19.90p)
Current trading is in line with expectations, with Group sales from continuing operations for the 15 week period ended 17 July 2009 4 per cent. below the same period last year
Fully underwritten proposed capital raising to raise gross proceeds of approximately £81 million by way of a Firm Placing and a Placing and Open Offer (the "Capital Raising") in order to accelerate the Group's debt reduction plan
Amended credit facilities with the Group's lenders
On track to deliver £100 million of cash generation by 31 March 2011
Stock levels reduced by £19.0 million in the year
£8.0 million of annualised savings achieved from the closure of Letterbox and The Cotswold Company
Sale and leaseback of property at Hyde
Acquisition of the 70 per cent. ordinary share capital of Webb Group Limited ("Webb") not already owned by the Group
Future strategy to concentrate on core divisions, Home Shopping and Education Supplies, with a focus on stability, cash generation and efficiency
Keith Chapman, Chairman of Findel said:
"The financial period ended 3 April proved a challenging year for Findel. Faced with difficult trading conditions the Board responded early with a strategy to tightly control costs and bad debts, and to maximise cash flow in order to pay down debt. The Group is on track to deliver £100 million of cash generation by 31 March 2011."
"The Group has today separately announced a proposed Capital Raising to raise approximately £81 million in order to accelerate the Group's debt reduction plan. In addition, the Board has agreed amended credit facilities with the Group's lenders. These actions, together with a focused strategy on stability, efficiency and cash generation, means the Group is well positioned to weather the current economic environment and to emerge well placed for future growth."
- Ends -
For further information, please contact:
| Findel plc Keith Chapman, Chairman Patrick Jolly, Chief Executive Chris Hinton, Finance Director | Today: +44 (0)207 831 3113 Thereafter: +44 (0)1943 864686 |
| Financial Dynamics Jonathon Brill/Billy Clegg/Caroline Stewart | T: +44 (0)207 831 3113 |
Introduction
The financial period ended 3 April 2009 was a challenging year for Findel, with overall sales from continuing operations lower at £599.8 million (2008: £610.6 million) and Benchmark* profit before tax, (which was reduced by £4.0 million as a result of the accounting policies and practice changes detailed below) reduced to £33.4 million (2008: £50.6 million). The termination of certain businesses, and associated impairments, changes in accounting policies, practices or estimates in respect of debtors, stock and labour capitalisation, and exceptional charges in respect of restructuring activities, resulted in a statutory loss before tax for the year of £51.9 million (2008: profit of £25.2 million). Benchmark* earnings per share was 30.04p (2008: 43.02p) and basic loss per share was 49.45p (2008: earnings per share 19.90p).
The Group has today announced a proposed fully underwritten Capital Raising to raise gross proceeds of approximately £81 million by way of a Firm Placing and a Placing and Open Offer. The proceeds of the placing will be used to accelerate the Group's debt reduction plan. Further details of this Capital Raising are set out in a separate announcement made today.
Home Shopping
Sales from ongoing businesses reduced by 4 per cent. to £366.7 million (2008: £380.0 million), with Benchmark* operating profit of £32.2 million (2008: £48.9 million) reflecting the difficult trading conditions. Statutory sales for the Home Shopping Division were £384.4 million (2008: £409.8 million) with statutory operating loss of £30.2 million (2008: profit of £37.3 million).
The strategy of the Home Shopping Division for the year was implemented to mitigate the difficult economic conditions. In the core credit business, the division reduced marketing spend and concentrated on existing customer base. This assisted customer retention, which is steady at just under 70 per cent., however, the conservative approach to customer recruitment resulted in a decline in the division's total customer base year-on-year. Bad debts remain firmly under control and whilst there was some increase in defaults during the year, this was anticipated and was in line with the Board's expectations. The Group will increase its investment in customer recruitment with a view to returning the customer base to growth when market conditions are appropriate.
Due to the different customer demographic, the cash with order businesses were particularly impacted by the poor market conditions. In response to this, the Board took the decision to close both Letterbox and The Cotswold Company, a decision which will generate £8.0 million of annualised savings. The cash cost to the Group as a result of these actions was less than £1.0 million.
IWOOT and Kitbag successfully increased sales, however, this was at a reduced average margin. Kleeneze also traded at a reduced average margin and experienced slightly lower sales. The Board continues to believe that these businesses have unique qualities and are capable of profitable growth as market conditions improve.
The internet continues to present real opportunities for the division with over 60 per cent. of all sales being transacted online. Average order value to the established credit base was 7 per cent. higher for online orders.
Home Shopping is a solidly profitable business and the Board has identified key areas for expansion and improved efficiency. Recent consumer testing has identified that the division's current clothing offering can be materially expanded and, for the first time, this Autumn's catalogue will contain over 240 pages of apparel and accessories. The clothing offering will principally comprise non-critical fit items which tend to have attractive margins, low rates of customer return and do not require the existing infrastructure to be reconfigured to provide for hanging space.
The division currently operates from seven warehouses across the North West of England. Plans are well advanced for the construction of a single 55,000 pallet location high bay bulk storage warehouse to supply the division's major distribution site in Accrington. Leasing such a facility would enable the division to release five of its existing warehouses and is estimated to produce a tangible net cost saving of c. £3.3 million a year. This facility will also release space in the Accrington site enabling the division to introduce a dynamic picking system which it is envisaged will lead to further net cost savings of c. £2.5 million a year. The construction and commissioning of the new high bay warehouse is expected to take approximately 18 months.
Sales from continuing operations for the first 15 full weeks of the financial year were 3 per cent. down on the same period last year.
Education Supplies
Sales from ongoing operations in the Education Supplies Division were 4 per cent. down at £168.3 million (2008: £174.7 million), with most of the shortfall arising in March. Benchmark* operating profit was £15.2 million (2008: £22.0 million). Statutory sales for the Education Supplies Division were £168.3 million (2008: £179.4 million) with statutory operating loss of £0.8 million (2008: profit of £11.5 million).
Sales were in line with last year until mid-February. In March, where the division has previously seen a significant increase in sales due to it being the end of the public sector financial year, the level of activity was subdued with a sales shortfall of over £6.0 million against last year. The growing concerns about the levels of future public sector spending given the issues in the wider economy led to a more conservative purchasing pattern from schools. Whilst the sale of commodity products was relatively stable, sales of discretionary items were disappointing. The reduction in volume together with a change in sales mix negatively affected gross margin. Online sales grew to £15.8 million (2008: £9.1 million), a 74 per cent. increase, and they continue to grow well.
The Education Supplies Division is positioning itself to grow its market share aggressively. The division has recently installed a new computer system, which is fully operational and has also constructed and occupied a new head office allowing administrative functions to be consolidated. This is estimated to produce a cost saving of £2.0 million per year from the next financial year. The rationalisation of stock-keeping units, together with the increased efficiency of the product supply channel will result in a reduction in warehousing requirements, producing further net cost savings of c. £2.0 million per annum.
Sales from continuing operations for the first 15 full weeks of the financial year were 6 per cent. below the same period last year due substantially to the timing of Easter and the phasing of international project sales together with continued caution in discretionary spend.
The Board believes that continued uncertainty over public sector spending will lead schools to pay greater attention to price. The division has recognised this changing dynamic and has identified further efficiencies of approximately £2.0 million that can be achieved. These efficiencies will enable the division to invest in and improve its customer offering. The Board believes that these savings, together with the division's position as market leader, will enable it to become a key value operator in the market and further grow market share.
Healthcare
NRS, the Group's Healthcare business, has enjoyed a strong year with improvements in sales and operating profit. Sales increased by 16 per cent. to £64.8 million (2008: £55.8 million) and Benchmark* operating profit increased by 80 per cent. to £4.9 million (2008: £2.7 million). The statutory operating profit was £4.3m (2008: loss of £0.7m).
After a considerable period of uncertainty during the government review of the ICES market, there are a number of new contracts coming out for tender. The Directors believe that the division is well placed to take advantage of this development in the market and make further strong progress. In Primary Care, a new catalogue and more frequent mailings is proving successful, with customer numbers increasing by 30 per cent. over the course of the last financial year. The Directors expect further good progress in Primary Care during the course of this year. Sales in the Healthcare Division for the first 15 weeks of the new financial year are in line with last year.
Cash Generation
The Group's net cash inflow from operating activities was £38.9 million compared to an outflow of £17.1 million in 2008, an improvement of £56.0 million reflecting good progress from the Group's strategic cash generation programme. In particular, stock levels were reduced by £19.0m in the year. The Group is on track to deliver its targeted c.£100.0 million of cash generation by 31 March 2011.
Further to the announcement on 22 May 2009, the Board continues to review the Group's operating structure. As part of this review, the Board plans to supplement its cash generation programme through the potential disposal of certain non-core assets, including, possibly, the disposal of NRS.
Amended credit facilities
The Group entered into agreements for the provision of the Amended Credit Facilities on 24 July 2009, which replace its previous credit facilities, and which comprise:
a £250 million revolving credit facility;
a £77.3 million revolving credit facility which was used to refinance the Group's previous uncommitted bilateral overdraft facilities; and
a super senior facility which was used to refinance the balance of the Group's previous uncommitted bilateral overdraft facilities and which also provides for an additional facility of up to £20 million to provide new working capital to the Group.
The amended credit facilities provide for two scenarios, firstly where the Capital Raising announced today is completed, and secondly where the Capital Raising announced today is not completed. If the Capital Raising is completed, the terms of the amended credit facilities that will apply will include, inter alia, lower aggregate margins and fees and a less restrictive dividend policy. The specific details of the amended credit facilities are included in a separate announcement issued today.
Sale and leaseback of property at Hyde
In support of the cash generation plan, the Group has successfully completed the sale of a 999 year leasehold interest of its newly constructed head office for its Education Supplies division at Ashton Road, Hyde ("the Hyde Property") for a total consideration of £9.0 million plus VAT to Hamsard 3157 Limited. Of the total £9.0 million consideration, £5.0 million has been received with two further instalments of £2.0 million being payable on each of the first and second year anniversaries of the lease commencement. The proceeds of the sale will be used to reduce net debt.
The Hyde Property, which has been constructed over the last 12 months and occupies 55,000 square feet, was purpose-built to act as the administrative headquarters of the Group's Educational Supplies business. The Hyde Property was stated in the Group's last interim accounts for the six months ended 30 September 2008 at a value of £2.15 million. The disposal realised a profit of £0.55 million. As part of the arrangement, the Group has entered into a 25 year occupational lease over the Hyde Property. The rent of this lease is £852,000 per annum, with a five yearly rent review. The leaseback arrangement will enable the Group to continue to conduct business as usual at the Hyde Property.
Acquisition of Webb
The Group has also successfully completed the acquisition of the 70 per cent. ordinary share capital of The Webb Group Limited ("Webb") not already owned by Findel. As a result, Webb is now a wholly-owned subsidiary of Findel. The 70 per cent. voting share capital was acquired for a total consideration of three pounds sterling, paid in cash; one pound sterling being paid to each Bernard Kumeta and David Robinson (as management shareholders), and one pound sterling being paid to Harness Hill Trustee Company Limited (as trustee of the Webb Employee Share Ownership Trust).
Webb comprises two main trading companies, Choices Group UK Limited ("Choices UK") and Webb Ivory Burton Limited ("WIB"). Choices UK is one of the UK's largest supplier of retail home entertainment products, including games, DVDs, music and gifts. WIB is a consumer mail order business which sells a range of classic TV, film and entertainment DVDs. The current management team, headed by Bernard Kumeta, will remain with the business.
Following losses for the financial year ended 31 March 2008, for the period to 3 April 2009 Webb's benchmark profit after tax was £1.3 million. At 3 April 2009 Webb had net liabilities of £36.0 million. Webb's principal liabilities comprise amounts owing to the group which at 3 April 2009 totalled £38.7 million. The Webb acquisition will be accounted for under acquisition accounting which will give rise to substantial goodwill in the group financial statements. The fair value of the assets acquired and the goodwill will be included in the group's interim statement for financial year 09/10. The integration of the Choices UK business into Webb has been successfully completed with resulting cost savings of over £7.0 million a year transforming a loss making group into one generating a good level of profitability. The Findel Board believes that the acquisition of Webb will be earnings enhancing for the Group.
Dividends
The Board believes that the Group's existing financial resources should be used to ensure liquidity and to invest in the Group's operations. As such, the Board has decided not to pay a final dividend for the 2009 financial year. Pursuant to the terms of the amended credit facilities, no dividend is to be paid in respect of the 2010 financial year. Thereafter, dividend payments are dependant on certain leverage ratios being met. If the Capital Raising does not complete, no dividend payments are permitted before 1 July 2011.
Subject to the above, the Board aims to resume dividend payments when possible and appropriate, consistent with Findel's operational and financial performance.
Other items
During the year, the Group incurred certain one-off charges which have been grouped together as "Other Items" in the income statement. These charges have been excluded from Benchmark* results.
The charges were incurred in part as a result of the implementation of the Group's cash generation programme and in part as a result of initiatives targeted at increasing the operational efficiency of the Group. Whilst the charge in the income statement for the year was £85.4 million, the cash cost was only £25.5 million, of which the Group has already recovered approximately £9.0 million through corporation tax repayments following the year-end. It is anticipated that the Group will recover an additional £6.0 million through corporation tax deductions in future years, which will bring the total cash cost of these charges to approximately £10.0 million.
The primary elements of Other Items are:
- Debtor provisioning (£14.4 million) - The Group's historic approach to debtor provisioning has been to provide for debtor balances which were in excess of 180 days overdue, based on estimated irrecoverable amounts. In the current period, the provisioning basis has been reviewed in the light of changes in the UK economy so as to be aligned with current practices in the retail credit market. The revised policy makes provision for customers' balances where an event of default has occurred at the balance sheet date but has not yet been reported to the Group. If the new basis had been adopted at the start of the financial year, the additional charge for the current year would have been eliminated.
- Stock Provisioning (£14.3 million) - The drive to reduce working capital is a fundamental element of the Group's commitment to cash generation and this year stock holdings have already been reduced by £19.0 million. To bring forward cost savings, the Company has also taken the decision to accelerate the disposal of discontinued stock lines which will generate cash and release warehouse capacity. The value of the affected stock lines, was a further £14.3 million. The Group will benefit from reduced storage costs of £2.0 million per annum going forward.
- Exceptional charges (£16.4 million) - Exceptional charges comprised costs in relation to the restructuring and integration of acquisitions in previous years. These charges include employee severance costs, duplicated operational costs, onerous lease costs, reorganisation of warehousing facilities and provisions for future operating losses following the announcement of business closures.
- Terminated operations (£27.2 million) - On 2 April 2009, the Group announced the termination of Letterbox and The Cotswold Company. As a result of the challenging consumer environment these brands were incurring significant losses (£9.9 million) and cash outflows, a position which the board concluded would remain, at least in the short term. Given the Group's focus on cash generation, these businesses were closed, thereby eliminating the losses and associated cash outflows. In addition, the carrying value of intangible assets for both businesses (amounting to £17.3 million) was written off in full.
- Goodwill Impairment (£4.7 million) - Webb has partially closed its loss-making charity business to eliminate losses and to enable the recently acquired Choices business to be fully integrated into Webb's infrastructure. Whilst the integration process has been a success and the business is now positioned to generate a substantial increase in operating profit, the goodwill associated with the terminated business has been written off.
Changes in accounting policies and practice
In the period ended 3 April 2009 the Board reviewed its accounting policies and practices in respect of IT Development costs and Brochure costs.
- IT Development costs (£3.7 million) - Over the past three years, the Group has significantly increased its investment in developing and maintaining software systems for inventory management, customer relationship management and its associated internet trading capabilities. This activity has been largely the result of recent acquisitions.
Over this period, as business units enhanced their underlying systems, the capitalisation policy was supported by future cash flows from the businesses involved. Under IAS 38 Intangible assets, such capitalisation should cease when the asset is in the condition necessary for it to be capable of operating in the manner intended by management.
The Board has reviewed the historic, current, and ongoing level and nature of the amounts incurred in software development. They have determined that the previous practice should be amended such that the cessation of capitalisation of software development costs occurs when the main projects involving external contractors cease and thus
that the subsequent internal costs of maintaining and enhancing the existing systems should be expensed.
Whilst this change has reduced Benchmark* profit by £3.7 million in the current year, the Board believes that the impact in future years will be limited due to the reduction in development activities following the strategic decision to focus on the Group's two core divisions.
- Brochure costs (£0.3 million) - Following Endorsement by the European Union of 'Improvements to IFRSs' changes to IAS 38 Intangible Assets requires expenditure on catalogue costs to be written off as incurred. Whilst application of this change is not required until the financial year ending March 2010, the Board have decided to adopt this policy early and this is reflected in the statements of the Group's Annual Results to 3 April 2009.
Employees
When problems arise as they did last year, the pressure on all employees at all levels increases. It is extremely gratifying that the Group's employees met the challenges they faced and on behalf of the Board and shareholders I would like to express sincere appreciation for their support and contribution.
Board Changes
The Board was advised following the AGM in 2008 that it was the intention of Ivan Bolton and Tony Johnson not to seek re-election at this year's AGM and to retire from the Board. Both Ivan and Tony have each served the Board for over 20 years and I wish to thank them for the invaluable contribution they have made during that period. I wish them well for the future. The Group is actively seeking to strengthen the board with new independent non executive directors and is making good progress in the recruitment process.
Outlook
The Group's future strategy is focused on improving profitability through the implementation of identified efficiencies in the two core operating divisions of Home Shopping and Education Supplies. We have strong positions in these two core markets and well invested infrastructure from which to trade and drive future growth.
We continue to operate all divisions in a manner that recognises the current economic environment, with a focus on stability and cash generation.
* Benchmark results are defined as being before results of businesses sold or terminated in the current or previous periods, exceptional stock rationalisation costs, amortisation of acquired intangibles in business combinations, share option expenses, other one off exceptional operating items, (including profits and losses on sale of investments and businesses, goodwill and tangible fixed asset impairment, one off additional debtor provisions, negative goodwill income, and other exceptional items including net restructuring charges) and net fair value re-measurements adjustments to financial instruments, together with the associated tax effect, but includes interest receivable from its associate.
Findel plc.
Group Financial Information
Condensed Consolidated Income Statement
Period ended 3 April 2009
| 2009 | 2008 | |||||||
| Benchmark | Other items* | Total | Benchmark | Other items* | Total | |||
| results |
|
| results |
|
| |||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | ||
| Continuing operations | (Restated) | (Restated) | (Restated) | |||||
| Revenue | 2 | 599,756 | 17,680 | 617,436 | 610,605 | 34,453 | 645,058 | |
| Cost of sales | ||||||||
| Other cost of sales | (290,319) | (11,156) | (301,475) | (283,556) | (17,164) | (300,720) | ||
| Exceptional stock rationalisation | 3 | - | (14,321) | (14,321) | - | - | - | |
| Total cost of sales | (290,319) | (25,477) | (315,796) | (283,556) | (17,164) | (300,720) | ||
| Gross profit | 309,437 | (7,797) | 301,640 | 327,049 | 17,289 | 344,338 | ||
| Trading costs | (251,224) | (15,305) | (266,529) | (243,612) | (21,166) | (264,778) | ||
| Amortisation of intangible assets | (1,949) | (1,775) | (3,724) | (1,007) | (2,252) | (3,259) | ||
| Exceptional operating costs (net) | 3 | |||||||
| - Impairment of intangible assets | - | (17,346) | (17,346) | - | (3,000) | (3,000) | ||
| - Additional debtors provision | - | (14,429) | (14,429) | - | - | - | ||
| - Impairment of property, plant and equipment | - | (3,075) | (3,075) | - | - | - | ||
| - Other exceptional items | - | (16,443) | (16,443) | - | (15,869) | (15,869) | ||
| - Negative goodwill arising on acquisition in the period | - | - | - | - | 222 | 222 | ||
| - Loss on disposal of businesses | - | - | - | - | (561) | (561) | ||
| Effect of changes in accounting policies and practice | ||||||||
| - Brochure costs | (339) | - | (339) | (1,338) | - | (1,338) | ||
| - IT development costs | (3,662) | (1,108) | (4,770) | (7,431) | (33) | (7,464) | ||
|
|
|
|
|
|
| |||
| Total operating costs | (257,174) | (69,481) | (326,655) | (253,388) | (42,659) | (296,047) | ||
| Share of result of associate | 403 | (4,743) | (4,340) | (1,350) | - | (1,350) | ||
| Operating (loss)/profit | 2 | 52,666 | (82,021) | (29,355) | 72,311 | (25,370) | 46,941 | |
| Finance income | 12,471 | - | 12,471 | 9,735 | - | 9,735 | ||
| Finance costs | (31,693) | (3,361) | (35,054) | (31,479) | (35) | (31,514) | ||
| (Loss)/profit before tax | 33,444 | (85,382) | (51,938) | 50,567 | (25,405) | 25,162 | ||
| Income tax expense | 5 | (8,207) | 18,609 | 10,402 | (14,465) | 6,003 | (8,462) | |
| (Loss)/profit for the period attributable to the equity holders of the parent | 25,237 | (66,773) | (41,536) | 36,102 | (19,402) | 16,700 | ||
| (Loss)/earnings per share | 6 | |||||||
| Basic | 30.04p | (49.45)p | 43.02p | 19.90p | ||||
| Diluted | 30.04p | (49.45)p | 42.36p | 19.60p | ||||
* "Other items" relate to the results from operations sold or terminated in the current or previous periods, exceptional stock rationalisation costs, amortisation of acquired intangible assets arising on business combinations, share-based payments, exceptional operating costs (net) and derivative remeasurements, together with the associated tax effects, but excludes interest receivable from associates. "Other items" have been disclosed separately in order to give an indication of the benchmark results of the ongoing businesses of the group.
Condensed Consolidated Statement of Recognised Income and Expense
Period ended 3 April 2009
| 2009 | 2008 | |
| £000 | £000 | |
| (Restated) | ||
| Currency translation differences | 1,783 | (87) |
| Net income/(expense) recognised directly in equity | 1,783 | (87) |
| (Loss)/profit for the period | (41,536) | 16,700 |
| Total recognised income and expense for the period | (39,753) | 16,613 |
| Attributable to: | ||
| Equity holders of the parent | (39,753) | 16,613 |
| Effects of changes in accounting policy and practice | ||
| Attributable to: | ||
| Equity holders of the parent | ||
| Brought forward at beginning of period | (18,819) | (11,670) |
| Expense for the period | (2,462) | (7,149) |
| Carried forward at end of period | (21,281) | (18,819) |
Condensed Consolidated Balance Sheet
At 3 April 2009
| 2009 | 2008 | |||
| Notes | £000 | £000 | ||
| (Restated) | ||||
| ASSETS | ||||
| Non-current assets | ||||
| Goodwill | 54,073 | 64,431 | ||
| Other intangible assets | 80,724 | 86,923 | ||
| Property, plant and equipment | 53,034 | 55,043 | ||
| Investments in associates | 622 | 4,962 | ||
| Loans and receivables due from associates | 33,654 | 34,430 | ||
| 222,107 | 245,789 | |||
| Current assets | ||||
| Inventories | 75,168 | 108,690 | ||
| Trade and other receivables | 240,538 | 274,751 | ||
| Current tax receivable | 1,954 | - | ||
| Derivative financial instruments | - | 457 | ||
| Cash at bank and in hand | 9,924 | 12,767 | ||
| 327,584 | 396,665 | |||
| Total assets | 549,691 | 642,454 | ||
| LIABILITIES | ||||
| Current liabilities | ||||
| Trade and other payables | 90,757 | 101,791 | ||
| Current tax liabilities | - | 7,672 | ||
| Obligations under finance leases | 1,393 | 595 | ||
| Bank overdrafts and loans | 42,204 | 66,107 | ||
| Derivative financial instruments | 3,219 | 315 | ||
| Provisions | - | - | ||
| 137,573 | 176,480 | |||
| Non-current liabilities | ||||
| Bank loans | 341,558 | 332,287 | ||
| Obligations under finance leases | 854 | 494 | ||
| Deferred tax liabilities | 6,752 | 10,324 | ||
| Retirement benefit obligation | 8,212 | 11,887 | ||
| 357,376 | 354,992 | |||
| Total liabilities | 494,949 | 531,472 | ||
| NET ASSETS | 54,742 | 110,982 | ||
| EQUITY | ||||
| Capital and reserves | ||||
| Share capital | 4,257 | 4,255 | ||
| Capital redemption reserve | 403 | 403 | ||
| Share premium account | 24,003 | 23,944 | ||
| Merger reserve | 29,518 | 29,518 | ||
| Own shares | (976) | (2,974) | ||
| Liability for share-based payments | 1,342 | 1,342 | ||
| Translation reserve | 1,292 | (491) | ||
| Retained earnings | (5,097) | 54,985 | ||
| TOTAL EQUITY | 8 | 54,742 | 110,982 |
Condensed Consolidated Cash Flow Statement
Period ended 3 April 2009
| 2009 | 2008 | ||
| £000 | £000 | ||
| Operating activities | |||
| Operating (loss)/profit | (29,355) | 46,941 | |
| Adjustments for: | |||
| Depreciation of property, plant and equipment | 7,997 | 3,131 | |
| Impairment of property, plant and equipment | 3,075 | - | |
| Amortisation of intangible assets | 3,724 | 3,259 | |
| Negative goodwill arising on acquisitions in the period | - | (222) | |
| Impairment of goodwill and intangible assets | 17,346 | 3,000 | |
| Loss on disposal of businesses | - | 561 | |
| Share-based payment expense | - | 973 | |
| Loss/(gain) on disposal of property, plant and equipment | 1,440 | (2,012) | |
| Pension contributions less income statement charge | (3,543) | (2,865) | |
| Share of result of associate | 4,340 | 1,350 | |
| Operating cash flows before movements in working capital | 5,024 | 54,116 | |
| Decrease/(increase) in inventories | 33,886 | (11,723) | |
| Decrease/(increase) in receivables | 38,343 | (33,226) | |
| (Decrease)/increase in payables | (11,261) | 5,836 | |
| Cash generated from operations | 65,992 | 15,003 | |
| Income taxes paid | (2,797) | (4,439) | |
| Interest paid | (24,344) | (27,697) | |
| Net cash from operating activities | 38,851 | (17,133) | |
| Investing activities | |||
| Interest received | 1,497 | 1,079 | |
| Proceeds on disposal of property, plant and equipment | 209 | 1,011 | |
| Purchases of property, plant and equipment | (13,106) | (8,746) | |
| Movements on loan with associate | 776 | (34,430) | |
| Acquisition of subsidiaries | - | (5,122) | |
| Disposal of subsidiaries | - | 8,856 | |
| Net cash used in investing activities | (10,624) | (37,352) | |
| Financing activities | |||
| Dividends paid | (16,548) | (17,027) | |
| Repayments of obligations under finance leases | (614) | 102 | |
| Proceeds on issue of shares | 60 | 381 | |
| Movements on bank loans | (10,851) | 53,612 | |
| Movement on securitisation loan | (5,729) | 8,076 | |
| Net cash from financing activities | (33,682) | 45,144 | |
| Net decrease in cash and cash equivalents | (5,455) | (9,341) | |
| Cash and cash equivalents at the beginning of the year | (10,255) | (904) | |
| Effect of foreign exchange rate changes | 664 | (10) | |
| Cash and cash equivalents at the end of the year | (15,046) | (10,255) |
Findel plc
Notes to the Group Financial Information
1. Basis of preparation of consolidated financial information
The Group financial information has been approved by the board, but has not been reviewed or audited by the auditors.
The Group financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use within the European Union and in accordance with the accounting policies included in the Annual Report for the period ended 3 April 2009, which have been applied consistently throughout the current and preceding periods.
Restatements in respect of 2008
Brochure costs
Following endorsement by the European Union of 'Improvements to IFRSs', changes to IAS 38 Intangible Assets require expenditure on catalogues to be written off as incurred. Historically, and in line with a number of similar companies, the group has carried the costs of preparing catalogues until the catalogues have been distributed at which point the benefits of sales associated with the costs of the catalogue are being obtained. Whilst not required to be applied until the financial year ending March 2010, the directors have decided to adopt this early in the current Annual Report.
As a result of this change in policy the amounts disclosed in the accounts have been changed, and the comparatives restated, as follows:
| 2008 | ||
| £000 | ||
| Inventories (as previously reported) | 109,724 | |
| Prior year adjustment | (1,034) | |
| Inventories (restated) | 108,690 | |
| Trade and other receivables (as previously reported) | 277,911 | |
| Prior year adjustment | (3,160) | |
| Trade and other receivables (restated) | 274,751 |
As a result of this change in policy, the impact on the results for 2009 was to increase costs in the year by
£339,000 (2008: £1,338,000) and reduce inventories and trade and other receivables by £970,000 and £3,563,000 respectively.
Software development costs disclosure
On transition to IFRS it was considered appropriate to classify the amounts relating to software development costs within property, plant and equipment and this treatment continued to be applied thereafter. Having reflected on current practice, and in conjunction with the changes in the capitalisation policy noted below, the directors have decided that it would be more appropriate to disclose software development costs within intangible assets. The amounts reclassified to software development costs are disclosed below. This reclassification has had no effect on total fixed assets, net assets, or profit or loss.
| 2008 | ||
| £000 | ||
| Software and IT development costs - net book value (as previously reported) | - | |
| Prior year adjustment | 8,150 | |
| Software and IT development costs - net book value (restated) | 8,150 |
Software development costs capitalisation
In preparing the Annual Report the directors have reviewed the accounting policy and the costs incurred in
developing and maintaining software for use by the group.
The group has significantly increased its investment in developing and maintaining software systems for managing the group's diverse inventory and customer base and associated internet trading capacity over the past 3 years. The development of software is a continuous process as the business units continue to enhance the underlying systems and operations, and capitalisation of these costs can continue to be supported against future cashflows of the businesses involved. Under IAS 38 'Intangible assets' the cessation of capitalisation should occur when the asset is in the condition necessary for it to be capable of operating in the manner intended by management.
The directors have been reviewing the historic, current, and ongoing level and nature of the amounts incurred in software development. They have determined that the previous practice should be amended such that the cessation of capitalisation of software development costs occurs when the main projects involving external contractors cease and thus that the subsequent internal costs of maintaining and enhancing the existing systems should be expensed.
The directors consider that this is a more robust approach than that adopted in previous years, reflecting the
judgemental nature of deciding between whether upgrades to core software systems create a new asset, or
enhance or maintain an existing asset.
As a result of this review the amounts disclosed in the accounts have been changed, and the comparative restated, as follows:
| 2008 | ||
| £000 | ||
| Property, plant and equipment - net book value (as previously reported) | 83,248 | |
| Prior year adjustment | (20,055) | |
| Property, plant and equipment - net book value (restated) | 63,193 |
As a result of this review, the impact on the results for 2009 was to increase the income statement charge for IT development costs by £4,770,000 (2008: £7,464,000) and reduce property, plant and equipment by £24,825,000.
The financial information relating to the period ended 3 April 2009 comprises non-statutory accounts. The full financial statements for that period have been reported on by the company's auditors and have been filed with the Registrar of Companies. The audit report was unqualified and did not contain a statement under either s237(2) or s237(3) of the Companies Act 1985.
Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRSs.
2. Segmental analysis
| Ongoing businesses | Terminated businesses | 2009 Total | Ongoing businesses | Terminated businesses | 2008 Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Revenue | ||||||
| Home Shopping | 366,720 | 17,680 | 384,400 | 380,049 | 29,750 | 409,799 |
| Educational Supplies | 168,252 | - | 168,252 | 174,730 | 4,703 | 179,433 |
| Healthcare | 64,784 | - | 64,784 | 55,826 | - | 55,826 |
| 599,756 | 17,680 | 617,436 | 610,605 | 34,453 | 645,058 | |
| Operating profit | ||||||
| Home Shopping | 32,216 | (9,889) | 22,327 | 48,944 | (1,515) | 47,429 |
| Educational Supplies | 15,182 | - | 15,182 | 22,011 | (1,422) | 20,589 |
| Healthcare | 4,865 | - | 4,865 | 2,706 | - | 2,706 |
| Share of result of associate | 403 | - | 403 | (1,350) | - | (1,350) |
| 52,666 | (9,889) | 42,777 | 72,311 | (2,937) | 69,374 | |
| Share of result of associate | ||||||
| Home Shopping | (4,743) | - | ||||
| Amortisation of intangible assets arising on business combinations | ||||||
| Home Shopping | (815) | (1,293) | ||||
| Educational Supplies | (930) | (930) | ||||
| Healthcare | (30) | (29) | ||||
| Exceptional cost of sales | ||||||
| Stock rationalisation | ||||||
| Home Shopping | (3,002) | - | ||||
| Educational Supplies | (11,319) | - | ||||
| Exceptional operating costs | ||||||
| Impairment of intangible assets | ||||||
| Home Shopping | (17,346) | - | ||||
| Heathcare | - | (3,000) | ||||
| Additional debtors provision | ||||||
| Home Shopping | (14,429) | - | ||||
| Impairment of property, plant and equipment | ||||||
| Home Shopping | (3,075) | - | ||||
| Other exceptional items | ||||||
| Home Shopping | (9,506) | (9,961) | ||||
| Educational Supplies | (3,732) | (5,333) | ||||
| Healthcare | (511) | (364) | ||||
| Unallocated corporate costs | (2,694) | (211) | ||||
| Negative goodwill arising on acquisitions in the year | ||||||
| Educational Supplies | - | 222 | ||||
| Loss on disposal of businesses | ||||||
| Home Shopping | - | 2,481 | ||||
| Educational Supplies | - | (3,042) | ||||
| Share-based payment expense | ||||||
| Unallocated corporate costs | - | (973) | ||||
| Operating Profit | ||||||
| Home Shopping | (30,186) | 37,306 | ||||
| Educational Supplies | (799) | 11,506 | ||||
| Healthcare | 4,324 | (687) | ||||
| Unallocated corporate costs | (2,694) | (1,184) | ||||
| (29,355) | 46,941 | |||||
3. Exceptional items
| 2009 | 2008 | ||
| £000 | £000 | ||
| Exceptional cost of sales | |||
| Stock rationalisation | 14,321 | - | |
| Exceptional operating costs | |||
| Impairment of intangible assets | 17,346 | 3,000 | |
| Additional debtors provision | 14,429 | - | |
| Impairment of property, plant and equipment | 3,075 | - | |
| Negative goodwill arising on acquisition in the period | - | (222) | |
| Loss on disposal of businesses | - | 561 | |
| Restructuring costs | 9,739 | 11,758 | |
| Warehouse reorganisation costs | 1,881 | 3,402 | |
| Costs in relation to business closures | 4,823 | - | |
| Costs in relation to businesses disposed of in prior year | - | 709 | |
| 65,614 | 19,208 |
The costs of exceptional stock rationalisation, impairment of intangible assets, additional debtors provision, impairment of property, pant and equipment, negative goodwill arising on acquisition in the period and loss on disposal of businesses are split by business segment in note 2.
Restructuring costs relate to the Home Shopping business segment £4,683,000 (2008: £7,946,000), the Educational Supplies business segment £1,851,000 (2008: £3,237,000) and the Healthcare business segment £511,000 (2008: £364,000), with the remainder £2,694,000 (2008: £211,000) unable to be allocated to a specific business segment. Warehouse reorganisation costs relate to the Home Shopping business segment £nil (2008: £1,306,000) and the Educational Supplies business segment £1,881,000 (2008: £2,096,000). Costs in relation to both business closures and businesses disposed of in the prior year relate to the Home Shopping business segment.
4. Terminated businesses
In the prior year the group incurred gains and losses on the disposal of the following businesses, each being the proceeds of disposal less the carrying amount of the net assets of the relevant business and any attributable goodwill. The gain on the sale of James Galt & Co Limited related to the Home Shopping business segment. All other losses in the prior year related to the Educational Supplies business segment.
(Gain)/loss on disposal
| 2009 | 2008 | ||
| £000 | £000 | ||
| James Galt & Co | - | (2,481) | |
| Percussion Plus | - | 1,355 | |
| Weston | - | 419 | |
| Didax | - | 1,036 | |
| Protus | - | 232 | |
| - | 561 |
The results of these operations, together with the terminated businesses in 2009, The Cotswold Company and Letterbox, from the Home Shopping business segment, have been separately disclosed within the "other items" column on the face of the income statement.
| Turnover | Loss before tax and exceptionals | |||
| 2009 | 2008 | 2009 | 2008 | |
| £000 | £000 | £000 | £000 | |
| Terminated businesses | 17,680 | 34,453 | (9,889) | (2,967) |
5. Tax expense
| 2009 | 2008 | |
| £000 | £000 | |
| Current tax | (6,830) | 10,035 |
| Deferred tax | (3,572) | (1,573) |
| (10,402) | 8,462 |
6. Earnings per share
| 2009 | 2008 | |
| £000 | £000 | |
| Net (loss)/profit attributable to equity holders of the parent for the purposes of basic and diluted earnings per share | (41,536) | 16,700 |
| Losses from terminated businesses (net of tax) | 7,120 | 2,788 |
| Exceptional stock rationalisation (net of tax) | 10,311 | - |
| Share-based payment expense and derivative remeasurements (net of tax) | 3,361 | 978 |
| Amortisation of intangible assets arising on business combinations (net of tax) | 1,278 | 1,577 |
| Impairment of intangible assets (net of tax) | 15,039 | 3,000 |
| Additional debtor provision (net of tax) | 10,389 | - |
| Impairment of property, plant and equipment (net of tax) | 2,214 | - |
| Exceptional items (net of tax) | 12,978 | 11,641 |
| Negative goodwill arising on acquisitions in the period | - | (222) |
| Loss on disposal of businesses (net of tax) | - | (360) |
| Share of result of associate (non-benchmark) | 4,744 | - |
| Prior period adjustments in respect of tax on non-benchmark items | (661) | - |
| Net profit attributable to equity holders of the parent for the purposes of benchmark earnings per share | 25,237 | 36,102 |
| Weighted average number of shares | 83,998,501 | 83,912,540 |
| Dilutive share options | - | 1,305,035 |
| Adjusted weighted average number of shares | 83,998,501 | 85,217,575 |
| (Loss)/earnings per share - basic | (49.45)p | 19.90p |
| Earnings per share - benchmark basic | 30.04p | 43.02p |
| (Loss)/earnings per share - diluted | (49.45)p | 19.60p |
| Earnings per share - benchmark diluted | 30.04p | 42.36p |
7. Dividends
| 2009 | 2008 | |
| £000 | £000 | |
| Amounts recognised as distributions to equity holders in the period | ||
| Final dividend for the year ended 31 March 2008 of 17.60p (2007: 15.60p) per share | 14,700 | 13,081 |
| Interim dividend for the period ended 3 April 2009 of 2.20p (2008: 4.70p) per share | 1,848 | 3,946 |
| 16,548 | 17,027 |
8. Reconciliation of movement in shareholders' funds
| £000 | ||
| At 1 April 2007 (as previously reported) | 121,712 | |
| Prior year adjustment | (11,670) | |
| At 1 April 2007 (restated) | 110,042 | |
| Share issues | 381 | |
| Exchange differences arising on translation of foreign operations | (87) | |
| Credit to equity for share based payments | 973 | |
| Dividends paid | (17,027) | |
| Profit for the period attributable to equity holders of the parent | 16,700 | |
| At 1 April 2008 | 110,982 | |
| Share issues | 61 | |
| Exchange differences arising on translation of foreign operations | 1,783 | |
| Dividends paid | (16,548) | |
| Loss for the period attributable to equity holders of the parent | (41,536) | |
| At 3 April 2009 | 54,742 |
9. Related party transactions
Transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not discussed in this note.
During the period to 3 April 2009, the group made purchases from its associate on normal commercial terms of £6.91m (2008: £4.26m) and in the same period the group supplied goods and services to its associate of £7.61m (2008: £7.15m). At 3 April 2009 the group had trade payables due to its associate of £1.74m (2008: £0.03m) and trade receivables due from its associate of £6.70m (2008: £10.04m). At 3 April 2009, the group had loans receivable from its associate of £33.7m (2008: £34.4m). During the current period, interest income of £3.5m (2008: £2.2m) has been recognised on the loan. The loan carries interest at 12%, is unsecured and is repayable on demand. The directors consider that the fair value of this receivable is not materially different to its carrying value. The receivable is not past due and has not been impaired.
The group has a trading relationship with Herbert Walker & Son (Printers) Limited ("Herbert Walker"), a commercial printing company which is controlled by Mr K Chapman, a director. During the period to 3 April 2009, group purchases from Herbert Walker on normal commercial terms amounted to £0.32m (2008: £0.51m) and in the same period the group supplied goods and services to Herbert Walker of £0.11m (2008: £0.12m). At 3 April 2009, the group indebtedness to Herbert Walker was £0.04m (2008: £0.03m) and that of Herbert Walker to the group was £0.02m (2008: £0.03m).
On 1 April 2008, the company entered into a five-year agreement with A F K Nelson Limited on normal commercial terms in respect of premises at Nelson which it uses for warehouse and distribution. The annual rent is £175,000 and the lease is terminable on six months' notice by either party. The directors of A F K Nelson Limited are Jonathan Chapman and James Chapman, who are related to Mr K Chapman, a director.
The company is currently party to a five-year lease with Shawbrook Developments Limited on normal commercial terms in respect of premises at Padiham which it uses for warehouse and distribution. The annual rent is £0.3m and the lease is terminable on six months' notice by either party. James Chapman is a director of, and shareholder in, Shawbrook Developments Limited and is related to Mr K Chapman, a director.
During the year ended 3 April 2009 an initial deposit of £0.5m was repaid by Shawbrook Developments Limited in relation to a proposed joint venture property project to improve the warehouse and distribution capacity of the group. This was cancelled as a consequence of current market conditions.
10. Acquisition of business
On 22 July 2009, the group acquired the remaining 70% of the entire share capital of Webb Group Limited ("Webb") for a nominal consideration of £3. The transaction will be accounted for by the purchase method of accounting.
The results of the business in respect of the financial periods ended 31 March 2009 and 31 March 2008 are as follows:
| 2009 | 2008 | |
| £000 | £000 | |
| Revenue | 99,109 | 75,502 |
| Loss for the period | (14,467) | (4,500) |
Due to the proximity of the purchase of Webb to the time of issuing the financial statements, it is not practicable to provide the book values and fair values of the business acquired. At 31 March 2009, Webb Group had net liabilities of £36m, reflecting total assets of £51m and total liabilities of £87m.
11. Principal risks and uncertainties
There are a number of risks and uncertainties that could impact the performance of the group. The group has a comprehensive system of risk management installed within all parts of its business to mitigate these risks as far as possible. The risks relate to four key areas of review by the Group being those specific to the Group's divisions, economic and regulatory risks, operational risks and treasury risk.
Risks specific to the Group's divisions
The business of the Home Shopping Division is seasonal, and is more heavily weighted towards the second half of the financial year. In the Education Division, the September and March "Back-to-School" periods account for much of the market's annual sales and profits. The Group is focused on delivering high quality of service and being well prepared for managing peak demand in all of its businesses.
The Education Supplies Division could be adversely affected if a local authority were to withdraw "Approved Supplier" status. Furthermore the Healthcare Division may fail to successfully renew existing contracts or win new contracts. The Group is focused on maintaining appropriate quality of service to ensure it retains this supplier status and retains and wins new contracts.
Any downward movement in government spending on healthcare may adversely impact the performance of the Healthcare Division. As the Healthcare Division is a large, efficient supplier of Healthcare products, this may widen the opportunities available to the Group due to its scale and efficiency.
Economic and regulatory risks
The Group may be negatively affected by the impact of the recent economic downturn on consumer spending or the ability of its customers to service their debts. The Group has a long track record of managing its customer base to achieve its twin goals of sales growth and customer credit risk management.
Any reduction in government spending on education may adversely impact the performance of the Education Supplies Division and may in turn have a material adverse effect on the Group's business. As the Educational Supplies Division is a large, efficient supplier of educational products, this may widen the opportunities available to the Group due to its scale and efficiency.
Continued or prolonged withdrawal of credit insurance traditionally provided to the Group's suppliers could have an adverse effect on the Group's business. In addition the failure of the Group to meet its debt obligations or comply with the terms of its credit facilities could have a similar impact. The Group has today announced plans to raise equity and secure its financing facilities on a long term basis which will assist in managing supplier relations and continues to seek to implement its debt reduction programme announced earlier this year.
Interruptions in the availability or flow of stock from third party product suppliers or defaults by tenants on sub-let properties could have an adverse effect on the Group's business. To mitigate this risk, the Group purchases products from a wide variety of domestic and international third party product suppliers.
The Group's operations may be adversely affected by legal, regulatory and other developments in countries in which it operates. The Group is subject to a range of legal and regulatory requirements originating from the UK (particularly the Consumer Credit Act and Data Protection), the other countries in which it operates and the European Union, particularly in areas of consumer protection, product safety, competition, provision of credit, selling of financial services and extended warranties, copyright royalties, levies, health and safety, taxation, environment, labour and employment practices (including pensions). The Group manages all of these risks in conjunction with third party professionals.
Deteriorating markets and reputational risks could result in the impairment of goodwill, intangible assets (including brands) and property, plant and equipment, which may adversely affect the Group's financial position. The Group focuses on maintaining the highest quality of service to mitigate against any impairment in the value of its businesses.
Operational risk
The Group is dependent on its senior management. The Group has entered into employment contracts and taken other steps to encourage the retention of these individuals, and to identify and retain additional personnel.
The Group's business may be affected by the default of third parties in respect of monies owing by them to the Group. However the majority of amounts owed to the Group comprise small balances spread across a large number of accounts and active consideration of credit risk is carried out throughout the Group.
The Group has funding risks relating to its defined benefit pension schemes. These schemes are subject to risks regarding the relative amount of each of the scheme's assets, which is affected by the value of investments held by the scheme and the returns derived from such investments, as compared to its liabilities, which are affected by changes in life expectancy, inflation and future salary increases. To improve the funding of these schemes the Group has agreed funding plans with the schemes' trustees and as a result makes additional contributions to the schemes.
The Group may fail to keep up with advances in internet technology. Furthermore information technology systems failure or disruption could impact the Group's day-to-day operations. The Group relies heavily on its information technology systems to record and process transactions and manage its operations as well as to enable its customers to purchase products on-line and over the phone. The Group has seen significant growth in the proportion of its home shopping sales which are derived from the internet, and these now represent over 60 per cent. of the total sales of the Home Shopping Division. The group is focused on investing appropriately in its information technology systems and maintaining its e-commerce capabilities.
The Group is dependent on third parties for outsourcing functions. The Group carries out extensive reviews of any potential outsourcing partner.
Loss of, or disruption to, the Group's distribution centres and administrative sites would have a material adverse effect on the Group's business. The Group has established disaster recovery procedures designed to minimise the impact of any such disruption.
Treasury risk
The group's treasury function seeks to reduce or eliminate exposure to foreign exchange, interest rate and other financial risks, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. It does not engage in speculative transactions and transacts only in relation to underlying business requirements. It operates policies and procedures which are periodically reviewed by the board and is subject to regular audit control reviews.
12. Going concern basis
In determining whether the Group's 2008/09 financial statements can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current economic climate. The key risks and uncertainties are set out in further detail above.
The Directors have recommended to shareholders that the equity funds be raised for the reasons set out in the Prospectus sent separately. In forming their conclusions over the adoption of the going concern basis, the Directors have considered the possibility of the relevant resolutions at the Extraordinary General Meeting, relating to the proposed firm placing and placing and open offer not being approved and on the basis of the available evidence have considered this possibility to be remote.
In addition, the Directors have considered the Group's facilities which in varying amounts are available until September 2012. These facilities will be available both in the event of additional equity funds being raised, or without additional equity but including more onerous conditions as highlighted in the Chairman's Statement above. The Directors have also considered the possibility of the relevant resolution at the Extraordinary General Meeting relating to the changes to the Company's articles associated with its level of financing not being approved, and on the basis of the available evidence have considered this possibility to be remote.
The Directors have reviewed the Group's trading and cash flow forecasts as part of their going concern assessment, including reasonable downside sensitivities which take into account the uncertainties in the current operating environment.
In the event of additional equity funds being raised, or without the additional equity, the Directors believe that the Group will be able to comply with its covenants and satisfy its repayment obligations in respect of the banking facilities within the 12 months following the date of signing the accounts. To the extent the Group may be unable to continue to do so over the longer term, it may be required to refinance or renegotiate the terms of those facilities, including the covenants.
Taking into account the above uncertainties and circumstances, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's annual consolidated financial statements.
By order of the board
P E Jolly C D Hinton
Chief executive Finance director
24 July 2009 24 July 2009
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the annual announcement, prepared in accordance with the applicable set of accounting standards, 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
2. the management report, which is incorporated into the Chairman's Statement 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.