Feedback Regulatory News (FDBK)

27 Sep 2007 07:01

Feedback PLC27 September 2007 Feedback plc Preliminary Results for the 14 month period ended 31 May 2007 Chairman's and Chief Executive's Statement The past few years have been very challenging for the Group. We have had toadapt to changing market conditions in all the subsidiary businesses whilstaddressing legacy issues such as the pension deficit and operating in unsuitablebuildings in Crowborough. We are well advanced in finding permanent solutions toall these difficulties and, although most of the considerable associated costshave been borne during the period ending 31 May 2007, the benefits will becomeapparent over the coming years. As part of the restructuring process thefinancial year end was extended from 31 March to 31 May. The attached results for the 14 month period to 31 May 2007 show an operatingprofit of £325,600 on a turnover of £9,639,400 compared to £159,500 and£7,638,600 respectively for the 12 months to 31 March 2006. This continues thetrend of improving profits at a trading level in recent years. Exceptional costs associated with the solution to the pension situation, whichoccurred after the end of this financial period, dilapidations on leasedbuildings which have been vacated and restructuring amounted to £763,900 (2006 -£nil) and costs associated with the pension fund, which was ongoing during theperiod, interest and accrued dividends on the now fully converted PreferenceShares totalled £391,200 (2006 - £454,800). The loss before tax was £521,900(2006 - £295,300). As previously reported the main freehold premises in Park Road, Crowborough hadbeen sold subject to residential planning permission being granted for the site.Three applications were rejected by the local authorities but, after going toappeal, permission was granted for the development of the site in early February2007. Alternative premises are being investigated with a view to relocating thewhole UK company. All the fundamental difficulties the Group has experienced have been, or arebeing addressed. This together with the improving trading performance andreduced costs across the Group allow us to be more confident about the futurethan we have been for some time. Feedback Instruments Limited There was another strong performance during the year from the largest of thesubsidiary companies. The strategic initiatives that have been referred to inprevious Statements; the introduction of new products, improved communicationswith agents and reductions in costs are continuing to deliver results and helpedto increase turnover. The overall export performance was significantly ahead of the previous year. Inparticular there were continued strong sales in the Middle East and Far East anda number of our international agents showed an improved commitment and producedstrong growth. Some agency arrangements were changed in territories where it wasfelt performance should improve. Funding within the Higher Education sector in the UK has been weak for a numberof years but the UK sales team, under their new manager, is producing veryencouraging results in this challenging market. Of particular note is thesuccess being achieved with the distributed line of science apparatus forschools which is showing significant growth reflecting both the effort beingmade and the relatively strong funding in this market sector. In anticipation of the move to new premises two of the leased sites inCrowborough were vacated and all personnel were relocated to Park Road. Thetemporary loss of some of our metalworking capability, together with theimproved level of orders, necessitated the use of more subcontracting. Outputhas been therefore somewhat restricted for a time. In recent years the company has suffered from a lack of new products but anumber of items of equipment have been introduced recently as part of theongoing development strategy. Of particular note is a new range of Controlteaching systems which addresses the market sector in which Feedback started andin which it established its reputation for quality and reliability. These newproducts have been well received and will help the company restore its dominantposition in this market. Feedback Data Limited Feedback Data produces terminals for collecting data to improve efficiency andsecurity in the workplace. Although it operates in a very competitive marketturnover was up on the previous year. It was also encouraging to monitor theimproving sales of some of the newer products which had taken longer to gainmarket acceptance than had been anticipated. Strategic partnerships with new and established Value Added Resellers wererenegotiated which has resulted in stronger sales and less dependence on too fewchannels to market. More emphasis has been put on obtaining end-user sales and anumber of niche markets were identified which are being investigated and arealready producing results. A significant proportion of the company's revenue is derived from field supportof installed products. Turnover in this area has been maintained over recentyears and ways to increase efficiency and service are being considered. A new data terminal, the TR1000 was developed to address the mid-range marketand to eventually replace the Kestrel and the new platform for the accesscontrol market, Evolution, continues to be expanded. Feedback Incorporated After the disappointing performance in the preceding year the company returnedto profitability. The continuing weakness of the Dollar is however puttingpressure on margins and funding in the educational sector in the USA can beuncertain. The extra field sales personnel have started to contribute and the new products,introduced over the previous 12 months, have been well received by the market.To maintain this momentum a new marketing campaign has been initiated tocomplement the direct sales effort. The recent launch of the new range of Control experiments at the AmericanControl Conference in New York went very well. This is a market segment thatFeedback had dominated in North America and it is hoped that, with theintroduction of these new products, this position can be re-established. Post Balance Sheet Events Of most significance is the solution to the deficit in the defined benefitFeedback Pension Scheme. This scheme was closed during 2004 but due the size ofthe deficit, relative to Group turnover and profitability, the future viabilityof the Group was seriously compromised. At the same time as the scheme wasclosed an agreement was reached with Opra (Occupational Pensions RegulatoryAuthority) to address the deficit over 15 years. With the change in funding requirements brought in by The Pensions Regulator,which succeeded Opra, and the adoption of FRS17 a different, permanent solutionwas required. After lengthy and complex negotiations with the Trustees of the scheme, ThePensions Regulator and the Pension Protection Fund (PPF) an agreement wasreached whereby responsibility for the deficit was assumed by the PPF in returnfor certain conditions being met. A formal Company Voluntary Arrangement (CVA)was announced under which all creditors other than the PPF were to be paid infull. The Group would pay the PPF £1,200,000 (£700,000 from the proceeds of a£1,400,000 placing and £500,000 after vacation of the Park Road premises) plusprovide shares totalling 18% of the enlarged share capital after restructuring.The CVA and restructuring was agreed at meetings of shareholders and creditorsheld on 2 July 2007. The company will be formally released from the CVA oncethe final £500,000 is paid to the Trustees. The following proforma Balance Sheet is for illustrative purposes only. If thechanges to the pension scheme and the completion of the sale of the Park Roadpremises had taken place on 31 May 2007 the table shows how the Balance Sheetwould have changed (the proforma Balance Sheet is unaudited and is not astatutory Balance Sheet under S.240 of the Companies Act 1985). CONSOLIDATED PRO FORMA BALANCE SHEET Actual Proforma 31 May 31 May 2007 2007 £000 £000 (audited) (unaudited)Fixed assetsTangible assets 59.9 59.9Current assetsStocks 1,179.5 1,179.5Debtors 2,630.9 1,725.9Cash at bank and in hand 486.4 1,387.9 4,296.8 4,293.3Creditors: amounts falling due within one yearBorrowings (414.8) (414.8)Other creditors (2,117.8) (2,067.7) (2,532.6) (2,482.5) Net current assets 1,764.2 1,810.8 Total assets less current liabilities 1,824.1 1,870.7 Creditors: amounts falling due after more than one yearBorrowings (505.5) - Net assets excluding pension liability 1,318.6 1,870.7 Pension liability (7,974.4) - Net (liabilities)/assets including pension liability (6,655.8) 1,870.7 Finding the solution to this problem has been extremely time consuming and hascaused a significant diversion of management attention. We would like to thankall the advisors who have worked tirelessly on our behalf. For furtherinformation please see note 8. Current Trading & Future Prospects The inflow of orders is satisfactory and the Order Book is healthy. However,production bottlenecks, arising from the consolidation of all the UK companies'operations onto one site at Park Road, ahead of moving to new premises, haveresulted in some delays in the dispatch of sales. These problems are beingactively addressed. This has been a year of tremendous achievement and theBoard looks forward to the future with renewed confidence. David Harding David SawyerChairman Chief Executive 26 September 2007 Enquiries: David Sawyer 01892 653322Feedback plc Philip Davies 020 7149 6000Charles Stanley & Co. Limited CONSOLIDATED PROFIT AND LOSS ACCOUNT for the 14 month period ended 31st May 2007 Total Total 2007 2006 £000 £000 14 months TURNOVER 9639.4 7638.6 Cost of Sales (5534.8) (4255.9) Gross profit 4104.6 3382.7 Other Operating Expenses (3779) (3223.2) OPERATING PROFIT 325.6 159.5Profit on sale of fixed asset 307.6 -Exceptional reorganisation costs (763.9) - Net interest payable (143.2) (148.8)Other finance costs (248) (306) LOSS ON ORDINARYACTIVITIES BEFORE TAXATION (521.9) (295.3) Tax on loss on ordinary activities - - RETAINED LOSS AFTER TAXATION (521.9) (295.3) LOSS PER SHARE (pence) Basic (3.34) (2.4)Diluted (3.34) (2.4) The results for 2007 relate to continuing operations. CONSOLIDATED BALANCE SHEET AT 31st MAY 2007 2007 2007 2006 2006 £000 £000 £000 £000Fixed assetsTangible assets 59.9 714.9 Current assetsStocks 1179.5 1000.3Debtors 2630.9 1616.3Cash at bank and in hand 486.4 805.7 4296.8 3422.3 Creditors: amounts falling due within one yearBorrowings (414.8) (1132.1)Other creditors (2117.8) (1447.4) (2532.6) (2579.5) Net current assets 1764.2 842.8 Total assets less current liabilities 1824.1 1557.7 Creditors: amounts falling due after more than oneyear:Borrowings (505.5) (579) Net assets excluding pension liability 1318.6 978.7 Pension liability (7974.4) (8233) Net liabilities including pension liability (6655.8) (7254.3) Capital and reservesCalled up share capital 1761.2 1234.5Share premium account 936.6 409.9Revaluation reserve - 595.6Capital reserve 299.9 299.9Profit and loss account (9653.5) (9794.2) Total reserves (8417) (8488.8) Deficiency of shareholders' funds - equity (6655.8) (7254.3)interest CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Group 2007 2006 £000 £000 14 months Loss for the financial period (521.9) (295.3)Unrealised surplus on revaluation of land and buildings - 223.2Currency translation differences on foreign currencynet investments 22.9 86.5Actual return less expected return on pension scheme assets (265.0) 1,315.0Experience gains and losses arising on liabilities - 596.0Changes in the assumptions underlying the present value of thescheme liabilities 285.0 (2,068.0) Total losses relating to the period (479.0) (142.6) CONSOLIDATED CASH FLOW STATEMENT 2007 2007 2006 2006 £000 £000 £000 £000 14 months Net cash (outflow) / inflow from operating activities (527.2) 62.7 Returns on investments and servicing of financeFinance lease interest paid (1) -Interest paid (49.9) (47.8)Interest received 3.7 - Net cash outflow from returns oninvestments and servicing of finance (47.2) (47.8) Capital expenditure and financial investmentPurchase of tangible fixed assets (32.2) (26)Sale of tangible fixed assets 50 - Net cash inflow / (outflow) from capital expenditure 17.8 (26)and financial investments FinancingRepayments of bank and other loans (32.5) (30)Capital element of finance leases and rental payments (8.1) - (40.6) (30)Net cash outflow from financing Decrease in cash in the year (597.2) (41.1) Notes Note 1: The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985 nor the Group's statutory accounts for the period ended 31 May 2007 or theyear ended 31 March 2006. The financial information for the year ended 31 March 2006 is extracted from theGroup's financial statements to that date which received an unqualifiedauditor's report and have been filed with the registrar of companies. Thefinancial information for the period ended 31 May 2007 is extracted from theGroup's financial statements to that date which received an unqualifiedauditor's report and will be filed with the registrar of companies. Theauditor's report did not contain a statement under section 237(2) or (3) of theCompanies Act 1985 in either period. The auditor's report for the period ended31 May 2007 includes an emphasis of matter paragraph describing a materialuncertainty concerning the impact of the post balance sheet Company VoluntaryArrangement and restructuring which may cast significant doubt about the abilityof the Group to continue as a going concern. This is further described in Notes3 and 8. The financial information does not include the adjustments that wouldresult if the Group was unable to continue as a going concern. Note 2: The financial information is prepared in accordance with the historical costconvention as modified by the revaluation of the freehold property (disposed ofduring the period) and in accordance with applicable accounting standards,except in the case of FRS 17, as described in Note 4. The Group changed its Accounting Reference Date from 31 March to 31 May, witheffect from 31 May 2007. Therefore the financial information presented is forthe fourteen month period from 1 April 2006 to 31 May 2007. The comparativesfor the previous year are for the twelve month period 1 April 2005 to 31 March2006. Note 3: At the Extraordinary General Meeting held on 2 July 2007, the proposal forresolving the pension deficit was adopted by the shareholders and consequentlythe Group entered a Company Voluntary Arrangement (CVA). At the date ofapproval of the accounts, the CVA has not been completed. The final requirementis to remit to the Pension Protection Fund the amount of £500,000 on completionof the sale of the Park Road site. The Directors are not aware of any matterswhich are likely to prevent the successful conclusion of the CVA, and thereforehave prepared the accounts on a going concern basis. Note 4: As part of the CVA negotiations, an actuarial valuation of the defined benefitpension scheme was carried out as at 28 February 2007, and this formed the basisfor computing the deficit. Consequently the Directors have used this valuation,amended to reflect payments made between 28 February and 31 May 2007, asrepresenting the liability in the balance sheets of the Group. This representsa departure from Financial Reporting Standard 17 "Retirement Benefits" but theDirectors believe that this gives a true valuation of the liability at thebalance sheet date. Note 5: The Report and Accounts will be posted to shareholders by 28 September 2007 andthe Annual General Meeting will be held at 11.00am on 30 October 2007. Statutoryfinancial statements will be filed with the Registrar of Companies following theAnnual General Meeting. Note 6: This preliminary announcement was approved by the Board and authorised for issueon 27 September 2007. Note 7: Loss per share Basic loss per share for the period ended 31 May 2007 is based on the Group losson ordinary activities after taxation of £521,900 (2006 loss of £295,300)attributed to 15,623,305 Ordinary Shares, being the weighted average number ofshares in issue throughout the period (2006 - 12,319,645). Note 8: Post Balance Sheet Events a) Agreement with the Pension Protection Fund (PPF) and Company VoluntaryArrangement (CVA) On 2 July 2007, the Company and its trading subsidiaries, Feedback InstrumentsLimited (FIL) and Feedback Data Limited (FDL) entered into a Company VoluntaryArrangement with its creditors under which all external creditors will be paidin full save for: (i) the liability to the Trustees of the Feedback Pension Scheme and (ii) the liability to Mr T.W.G. Charlton in respect of the loan made by him tothe Company. In connection with the CVA, the Company announced a Proposed Share CapitalReorganisation and Reduction of Capital and Placing of 46,666,667 New OrdinaryShares of 3 pence per share. The Company, together with FIL and FDL, agreedterms with the Board of the PPF whereby the Company: (i) is required to pay the net sum of £1,200,000 in cash to the Trustees ofthe Feedback Pension Scheme, £700,000 of which is to be paid from the proceedsof the Placing and £500,000 of which is to be paid from the proceeds of the saleof the Company's freehold premises at Park Road, Crowborough and (ii) allocates to the Trustees of the Feedback Pension Scheme such number ofNew Ordinary Shares as equal 18% of the enlarged share capital of the Company. At the date of this financial information, £700,000 has been paid to theTrustees from the proceeds of the Placing. The Company is in ongoing negotiations for therelocation from its Park Road site, and the final amount of £500,000 due will bepaid upon completion of the contract for sale. In addition, the Company agreed with Mr Charlton that the loan of $1,000,000provided by him would be written down by 80% and the balance to be satisfied bythe allotment of 3,355,141 New Ordinary Shares at the Placing price. b) Placing of 46,666,667 New Ordinary Shares at 3 pence per share The Placing, which was successfully completed on 3 July 2007, raised £1,400,000before expenses. These shares, which represented 56.58% of the total issuedshare capital of the Company following the proposals were admitted to theAlternative Investment Market on 3 July 2007. Certain of the Group's directorsagreed to participate in the Placing. Of the Company's directors, Messrs. Sawyerand Bushell agreed to acquire 500,000 shares and 250,000 shares respectively andMrs H. Westcott, spouse of Professor J.H. Westcott, agreed to acquire 3,333,333shares. c) Share Capital Reorganisation At an Extraordinary General Meeting of the Company and separate ShareholderMeetings held on 2 July 2007, it was resolved that: (i) each of the existing 17,611,841 issued Ordinary Shares of 10 pence in thecapital of the Company would be subdivided in one New Ordinary Share of 0.25pence and one Deferred Share of 9.75pence; (ii) the remaining authorised but unissued Ordinary Shares of 10 pence each besubdivided into 40 New Ordinary Shares of 0.25 pence each; (iii) subject to the approval of the Court, the Company's Share Premium Accountbe cancelled; (iv) the ordinary share capital of the Company be reduced from £3,000,000divided into 513,138,201 New Ordinary Shares of 0.25 pence and 17,611,841Deferred Shares of 9.75 pence each to £1,282,845.5025 divided into 513,138,201New Ordinary Shares of 0.25 pence each and such reduction be effected bycancelling and extinguishing altogether the 17,611,841 Deferred Shares of 9.75pence each. Application has been made to the Court for the hearing of the Company'spetition, and this is provisionally scheduled to take place in November 2007. d) Pro Forma Balance Sheet A pro forma balance sheet, for illustrative purposes only, has been includedwithin the Chairman's and Chief Executive's Statement. This information is provided by RNS The company news service from the London Stock Exchange