BAE.L Regulatory News (BAE)

Beale PLC, the specialist department store operator, announces Interim Results for the 26 weeks ended 3 May 2014

•

Loss on ordinary activities before tax reduced 75% to £0.2m (H1 2013: loss before tax £0.75m)

•

The strategic exit from certain stores and categories and the withdrawal from heavy discounted promotions, took gross sales 5.9% lower to £62.0m (H1 2013: £65.9m)

•

Total gross profit improved 0.7% to £18.5m (H1 2013: £18.4m), with gross margin 1.5 percentage points higher

•

Administrative expenses before exceptional items were marginally higher with targeted cost savings offset by the decision to take in house a majority of catering operations

•

Net debt increased £2.0m to £ 15.7m (H1 2013: £13.7m) largely due to positive steps working with key stakeholders to improve the timing of key trade and other payables and fixed asset purchases

Notes

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

Audited

52 weeks to

2 November 2013

£000

Gross sales*

2

62,025

65,919

120,526

Revenue - continuing operations

2

34,835

35,588

64,098

Cost of sales

(16,339)

(17,215)

(30,698)

Gross profit

18,496

18,373

33,400

Administrative expenses

Exceptional administrative income/(expenses)

3

(18,445)

122

(18,228)

(479)

(35,797)

(800)

Total administrative expenses

(18,323)

(18,707)

(36,597)

Operating profit/(loss) before exceptional items

51

145

(2,397)

Operating profit/(loss) - continuing operations

173

(334)

(3,197)

Finance expense

(359)

(413)

(789)

Finance income

-

1

1

Loss on ordinary activities before tax

(186)

(746)

(3,985)

Taxation credit/(charge) on loss

5

-

-

112

Loss for the period from continuing operations attributable to equity members of the parent

(186)

(746)

(3,873)

Basic loss per share

6

(0.91)p

(3.63)p

(18.9)p

Diluted loss per share

6

(0.91)p

(3.63)p

(18.9)p

*

Gross sales reflect revenue inclusive of concession sales and VAT, all from continuing operations.

Notes

3 May

 2014

£000

4 May

 2013

£000

Audited

2 November

 2013

£000

Non-current assets

Goodwill

7

892

892

892

Property, plant and equipment

23,399

24,775

23,852

Financial assets

40

-

-

Derivative asset

8

1,466

1,496

1,407

Retirement benefit asset

12

1,340

-

789

27,137

27,163

26,940

Current assets

Inventories

13,639

14,475

15,254

Trade and other receivables

1,942

3,061

2,649

Cash and cash equivalents

194

606

194

Restricted cash

9

-

1,000

1,000

15,775

19,142

19,097

Total assets

42,912

46,305

46,037

Current liabilities

Trade and other payables

(11,111)

(12,547)

(14,504)

Provisions

-

(170)

(100)

Tax liabilities

(35)

(35)

(35)

Preference shares

10

(389)

-

-

Borrowings, bank loan & overdrafts

(1,828)

(250)

(1,816)

(13,363)

(13,002)

(16,455)

Net current assets

2,412

6,140

2,642

Non-current liabilities

Preference shares

10

(6,226)

(6,445)

(6,426)

Borrowings

(7,430)

(8,591)

(7,798)

Retirement benefit obligations

12

-

(1,171)

-

Lease incentives

(4,623)

(4,260)

(4,389)

Deferred tax liabilities

(2,615)

(3,072)

(2,610)

Obligations under finance leases

(976)

(977)

(977)

Total liabilities

(21,870)

(35,233)

(24,516)

(37,518)

(22,200)

(38,655)

Net assets

7,679

8,787

7,382

Equity

Share capital

1,026

1,026

1,026

Share premium account

440

440

440

Revaluation reserve

9,170

9,026

9,226

Capital redemption reserve

570

361

570

ESOP reserve

(7)

(14)

(8)

Retained earnings

(3,520)

(2,052)

(3,872)

Total equity

7,679

8,787

7,382

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

Audited

52 weeks to

2 November 2013

£000

Actuarial gain on pension scheme

484

-

1,465

Revaluation

-

-

-

Tax on revaluation reserve

(1)

-

258

Tax on items taken directly to equity

-

-

(1)

Net income recognised directly in equity

483

-

1,722

Loss for the period

(186)

(746)

(3,873)

Total comprehensive income/(loss) for the period

297

(746)

(2,151)

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

52 weeks to

2 November 2013

£000

Opening equity

7,382

9,533

9,533

Total comprehensive income/(loss) for the period

297

(746)

(2,151)

Total movements in equity for the period

297

(746)

(2,151)

Closing equity

7,679

8,787

7,382

Share

 Capital

£000

Share

 premium account

£000

Revaluation

reserve

£000

Capital redemption reserve

£000

ESOP

reserve

£000

Retained

earnings

£000

At 4 November 2012

1,026

440

9,082

54

(15)

(1,054)

Loss for the period

-

-

-

-

-

(746)

ESOP reserve loss for the period

-

-

-

-

1

(1)

Redemption of preference shares

-

-

-

307

-

(307)

Transfer from revaluation reserve

-

-

(56)

-

-

56

4 May 2013

1,026

440

9,026

361

(14)

(2,052)

Loss for the period

-

-

-

-

-

(3,127)

Redemption of preference shares

-

-

-

209

-

(209)

Tax on Comprehensive income

-

-

-

-

-

(1)

Deferred tax change on revaluation reserve

-

-

258

-

-

-

ESOP reserve loss for the period

-

-

-

-

6

(6)

Transfer from revaluation reserve

-

-

(58)

-

-

58

Net actuarial gain

-

-

-

-

-

1,465

3 November 2013

1,026

440

9,226

570

(8)

(3,872)

Loss for the period

-

-

-

-

-

(186)

Redemption of preference shares

-

-

-

-

-

-

Tax on comprehensive income

-

-

(1)

-

-

-

Transfer

-

-

(55)

-

-

55

Net actuarial gain

-

-

-

-

-

484

ESOP reserve loss for period

-

-

-

-

1

(1)

3 May 2014

1,026

440

9,170

570

(7)

(3,520)

Note

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

Audited

52 weeks to

2 November 2013

£000

Cash (outflow)/inflow from operating activities before interest and tax

11

(244)

2,340

1,927

Interest paid

(169)

(177)

(368)

Interest received

-

1

1

Net cash (used in)/generated from operating activities

(413)

2,164

1,560

Cash flows from investing activities

Purchase of property, plant and equipment

(191)

(302)

(675)

Purchase of investment

(40)

Proceeds from maturing of investment

-

37

37

Net cash used in investing activities

(231)

(265)

(638)

Cash flows from financing activities

Preference shares redeemed

-

(307)

(515)

Decrease in bank loans

(243)

(309)

(977)

Repayment of loan

(125)

(125)

(125)

Net repayments from obligation under finance lease

(1)

(1)

(1)

Net cash used in financing activities

(369)

(742)

(1,618)

Net (Decrease)/increase in cash and cash equivalents in the period

(1,013)

1,157

(696)

Cash and cash equivalents at beginning of period

(247)

449

449

Cash and cash equivalents at end of period (including restricted cash)

(1,260)

1,606

(247)

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

52 weeks to

2 November

2013

£000

Cash at bank

Restricted cash

Bank overdrafts

194

-

(1,454)

606

1,000

-

194

1,000

(1,441)

Cash and cash equivalents (including overdrafts)

(1,260)

1,606

(247)

Borrowings:

Debt due within one year - Preference shares

- Loan

(389)

(375)

-

(250)

-

(375)

(764)

(250)

(375)

Debt due after one year

Preference shares

(6,226)

(6,445)

(6,426)

Loan

(750)

(1,000)

(875)

Bank loan

(6,680)

(7,591)

(6,923)

(13,656)

(15,036)

(14,224)

Total borrowings

(14,420)

(15,286)

(14,599)

Net debt

(15,680)

(13,680)

(14,846)

1.

Accounting Policies

Basis of preparation

The Interim Financial Statements for the 26 weeks ended 3 May 2014 have been prepared on the basis of the accounting policies set out in the Group's financial statements for the 52 weeks ended 2 November 2013.

Going Concern

On 1 February 2013 the Group entered into a new loan facility with Burdale Financial Limited. The terms of that loan facility are for up to a maximum of £12m Senior Secured Credit Facilities. The facilities are secured by a debenture over most of the present and future assets and undertakings of the Group. The new bank facilities include one financial covenant which requires the Group to procure that trading cash flow in respect of each review period as set out in the facility agreement shall not be less than the amounts agreed between the Group and the lender based on financial projections. At the moment the trading cash flow covenants are only stated to the end of October 2014. The bank facility states that, for covenant levels beyond October 2014, the Lender, acting reasonably, will determine new trading cash flow covenant levels for the following financial year based on the Annual Revised Forecasts and consistent with the methodology applied by the Lender in determining the financial covenant levels set out in the agreement. In addition there is a condition that for a period of 14 days between 1 December and 31 January each year drawings do not exceed £2.5m other than the period 1 December 2013 to 31 January 2014 where the limit was £3.0m.

The Group is subject to a number of risks and uncertainties which arise as a result of the current economic environment. In determining that the Group is a going concern, these risks, the most significant of which are the impact on consumer behaviour and in turn the impact on the level of the Group's sales, have been considered by the Directors.

The Directors have prepared forecast information for the 2013/14 year and a three year corporate plan. Based on these forecasts, forward covenant tests to October 2014 after applying financial sensitivities based on reasonably possible alternative trading scenarios and mitigating actions, show that the covenant is not forecast to be breached in the period to October 2014. The forecast and corporate plan are based on market data and past experience and the Directors have formed a judgement that at the time of approving these interim statements, based on those forecasts and projections, there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus the going concern basis is adopted in preparing these interim statements.

2.

Revenue

All the Group's revenue is derived from retail sales made in the UK. Revenue excludes VAT and the non-commission element of sales made by concession outlets.

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

52 weeks to

2 November

2013

£000

Gross sales

62,025

65,919

120,526

VAT

(10,235)

(10,869)

(19,934)

Gross sales (excluding VAT)

Agency sales less commission

51,790

(16,955)

55,050

(19,462)

100,592

(36,494)

Revenue

34,835

35,588

64,098

Seasonality of sales

The Group sales are more heavily weighted towards the first half of the financial year on a like for like basis, with 54.11% (2012: 53.82%) of gross annual sales of the previous year being made in the first half on a like for like basis

3.

Exceptional administrative expenses

The Group had an exceptional credit of £122,000 (24 April 2013: £479,000 charge, 2 November 2013: £800,000 charge). The exceptional credit of £122,000 consists of an exceptional credit on the Tonbridge lease agreement (referred to in the annual report) less refinancing and redundancy costs. The £479,000 exceptional debit consisted of costs associated with refinancing the Group and the move from premium to standard listing on the stock exchange. The £800,000 arising in the period to 2 November 2013 relates to fixed asset impairment, refinancing, move to standard listing and the Tonbridge lease agreement.

4.

Segment information

The Board have reviewed the requirements of IFRS 8. The individual department stores have similar economic characteristics, products and services, class of customer, method of service provision and regulatory environment. Consequently the directors consider the individual stores can be aggregated into one segment.

5.

Tax

A tax charge has arisen of £Nil (2013: £Nil). The total tax credit for the 52 weeks ended 2 November 2013 was calculated at 2.81%.

Tax for the six month period is charged at nil% (26 weeks ended 4 May 2013 Nil%; 52 weeks ended 2 November 2013 credited at 2.81%).

6.

 Loss per share

26 weeks to

3 May

2014

26 weeks to

4 May

2013

52 weeks to

2 November

2013

Weighted average number of shares in issue for the purpose of basic earnings per share

20,524,797

20,524,797

20,524,797

Dilution - share reward schemes

198,312

228,312

228,312

20,723,109

20,753,109

20,753,109

£000

£000

£000

Loss for basic and diluted earnings per share

(186)

(746)

(3,873)

Pence

Pence

Pence

Basic loss per share

(0.91)

(3.63)

(18.9)

Basic loss per share before exceptional item

(1.50)

(1.30)

(14.97)

Diluted loss per share

(0.91)

(3.63)

(18.9)

7.

Goodwill

As at 3 May 2014 the directors assessed the business for indicators of impairment and none were found.

8.

 Derivative asset

3 May

2014

£000

4 May

2013

£000

2 November

2013

£000

Embedded Derivative

1,466

1,496

1,407

The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, as with the 8m preference shares (4 May 2013 8.2m, 2 November 2013 8.0m) (see note 10 for the reduction in preference shares), a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

No dividend accrues on the preference shares until 22 May 2016. Thereafter a preferential dividend of 8% per annum will be payable on each of the preference shares for 4 years, increasing to 9% thereafter. The preference shares can be repaid at any time at no penalty.

An embedded derivative in relation to the prepayment option arising on the 8,500,000 preference shares was valued at inception on 22 May 2011 to be £1,078,000. As at 3 May 2014 the derivative was valued at £1,466,000 (4 May 2013: £1,496,000; 2 November 2013: £1,407,000). It has been assumed the Group can borrow at 5% (4 May 2013 5%, 2 November 2013 5%) over LIBOR without security in determining the credit spread required to value this instrument. The valuations were supplied by an independent third party.

9.

 Restricted cash

As at 3 May 2014 the Group has £Nil (3 May 2013: £1m; 2 November 2013: £1m) deposited with HSBC as security over cash deposits.

10

 Preference Shares

3 May

2014

£000

4 May

2013

£000

2 November

2013

£000

Redeemable within one year

389

-

-

Redeemable after one year

6,226

6,445

6,426

Preference Shares

6,615

6,445

6,426

At the EGM on 17 May 2011 the shareholders approved the issue of 8,500,000 new redeemable preference shares of £1 each in capital of the Company to ARCS. On 7 December 2012, 306,612 preference shares were redeemed, equivalent to the value of stock held by the Skipton store as at 22 May 2011. On 30 September 2013 209,435 preference shares were redeemed equivalent to the value of stock held by Cinderford. Both Skipton and Cinderford closed shortly before the relevant redemption.

The preference shares were recorded at their estimated initial fair value of £5.97m on 22 May 2011. The initial value was established by an independent third party valuer, based on assumptions provided by management including an estimate of the Group's credit spread and based on the interest and cashflows arising in relation to the preference shares and the fact that no dividend will accrue on the preference shares until five years from their date of issue. The preference shares carrying value is stated above on an amortised cost basis. The effective rate of interest arising on the shares is 7.11%. Furthermore the preference shares can be repaid at any time without penalty. The terms of the preference shares are such that an embedded derivative is recognised, details of which are included in note 8.

In addition, the preference shares must be immediately redeemed on a change of control of the Company or on a sale of all, or substantially all, of the assets of the enlarged Group. Furthermore, should the Group cease trading and fully close down and cease to operate any of the stores acquired from ARCS on 22 May 2011, then an amount of preference shares equivalent to the value of the stock relating to that store as at 22 May 2011 will be redeemed. It is anticipated 164,000 and 225,000 preference shares will be redeemed following closure of the Keighley Home and Harrogate stores respectively later this year

Please see note 14 in relation to the change in ownership of the preference shares.

11.

Reconciliation of operating loss to cash generated from/(used in) operating activities

26 weeks to

3 May

2014

£000

26 weeks to

4 May

2013

£000

52 weeks to

2 November

2013

£000

Operating profit/(loss)

173

(334)

(3,197)

Adjustments for:

Cash disbursements of pension obligations (net of charge included within the income statement)

(67)

-

(495)

Loss on disposal

-

-

33

Fixed asset impairment

-

33

582

Depreciation

643

698

1,412

Profit on disposal of investment

-

(21)

(21)

Fair value movement of derivative

(59)

(80)

9

Decrease in inventories

1,615

1,341

562

Decrease in trade and other receivables

708

2,234

2,646

Decrease in trade and other payables

(3,257)

(1,531)

396

Cash (outflow)/inflow from operations

(244)

2,340

1,927

12.

Retirement benefit asset

The defined benefit asset at 3 May 2014 has been changed from the figures recorded at 2 November 2013. The change in value takes in to account the updated asset and liability values having received information from the Group's actuary. The surplus has taken into account the requirements of IAS 19R.

13.

Post balance sheet event

In August 2014 the Keighley Home and Harrogate stores will cease trading. The stores closure will not have a significant effect on the business profitability. The closure of these stores will mean the Group will have to redeem preference shares to the value of approximately £389,000, as this was the value of stock at Keighley Home and Harrogate on acquisition as at 22 May 2011 (see note 10). On 26 June 2014 John Chillcott resigned as a director of the Group.

14.

Related Party Transactions

Panther Securities PLC/Maland Pension Fund/Perloff own 29.72% of Beale PLC ordinary share capital. J.E. Beale PLC is a tenant in ten freeholds owned by Panther Securities PLC and one freehold where the purchase is deferred. Portnard Limited which is owned by A S Perloff and family trusts, together with Maland Pension Fund and a member of the Perloff family own 7,000,000 Beale PLC preference shares and a loan for £1.1m.

Director

John Chillcott is a Director of AHF Ltd with whom J.E. Beale PLC have a concession agreement. J.E. Beale PLC received revenue of £451,000 (26 weeks ended 4 May 2013 £359,000, 52 weeks ended 2 November £0.9m).

15.

Basis of financial information

The condensed set of financial statements included in this interim financial report, approved by the Board of directors on 2 July 2014, does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. This condensed set of financial statements has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. This Interim Report and Accounts will be sent to shareholders. Further copies may be obtained from the Company Secretary, Beale PLC, The Granville Chambers, 21 Richmond Hill, Bournemouth BH2 6BJ or directly from the Company website www.beales.co.uk.

The information included in this Interim Financial Statement for the 52 weeks ended 2 November 2013 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the 52 weeks ended 2 November 2013, which were prepared under International Financial Reporting Standards, have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement made under Section 498(2) or (3) of the Companies Act 2006.

The financial year ending 1 November 2014 is a 52 week year.