Feedback Regulatory News (FDBK)

27 Sep 2006 07:01

Feedback PLC27 September 2006 Feedback Plc Preliminary Results for the year ended 31 March 2006 Chairman's Statement During the year ending 31 March 2006 the Group produced an operating profit of£159,500 before pension adjustments. This compares to an operating profit of£129,000 during the previous financial year. Interest, and cost adjustmentsassociated with the closed pension scheme, made to comply with FRS17, were£454,800 producing a loss on ordinary activities before taxation of £295,300compared to a profit of £16,600 in 2005 after a one time gain of £480,000associated with the closure of the pension fund during that year. A poor performance by the subsidiary company in the USA, referred to later,undermined what would have been a more impressive result. As made clear in previous statements the financial position of the Group isseverely compromised by the deficit in the now closed defined benefit pensionscheme. Payments into the scheme, in line with the agreement reached with Oprain February 2005, continued throughout the year but, due primarily to theincreased life expectancy of employees and pensioners, the deficit continued toincrease. Information regarding the pension position is shown in Note 5. This situation is being actively reviewed by the Directors in conjunction withthe Group's professional advisors with the intention of finding a solution tothis ongoing pension fund problem. Shareholders will, of course continue to bekept informed of any significant developments. As previously reported the sale has been agreed for the company's main businesspremises in Crowborough subject to planning permission being granted forresidential development. Unfortunately this permission has not yet beenforthcoming from the local council but the process is continuing. Feedback Data Limited The performance of Feedback Data, together with its German subsidiary wasslightly down on the previous year. Some of the new products in the core data terminal market, which were introducedin previous years, have been rather slow to gain the acceptance which wasanticipated. New software tools are being developed which will make it easierfor these products to replace earlier units and improvements in sales volumeswill ensue. It was encouraging to note that sales of the established range ofterminals exceeded expectation and largely compensated for the slowerperformance of the new products. A significant new development for the Access Control market was introduced andinitial response has been very favourable. Products for other market segments,utilising the core technical competencies of the company, are beinginvestigated. The majority of the business continues to be obtained in the UK although effortsare continuing to build on the small but significant dealer network in Europe. Feedback Instruments Limited The restructuring and reorganisation which has been performed at FeedbackInstruments is beginning to show real benefits. In all respects this was a muchbetter year than the company has enjoyed recently. New personnel in Manufacturing and Sales have made significant contributions.Product quality has improved and the manufactured costs of products have beenreduced. The sub-contract facility in Hungary is no longer utilised althoughthere is significant outsourcing in the UK. Final assembly and test is performedby direct employees enabling us to maintain quality and to control timescales. The core UK market in post secondary education continues to be challenging dueto a lack of available funds but it is pleasing to note that the distributionagreement with the American manufacturer of apparatus for schools continues tobe very successful. Overseas the company has a very loyal and competent network of agents andefforts were continued throughout the year to present a clear and coherentstrategy to them. This process culminated in a very successful InternationalSales Conference held in Kuala Lumpur which was attended by more than 40 of themost significant agents from Europe and Asia. Three significant new products were introduced at the Conference, in the rangesof Telecommunications, Process Control and Control, and other establishedproducts were repositioned. Due to the improvements made in manufacturing it wasalso possible to announce some price reductions in sensitive areas withoutimpacting margins. Overall performance in export territories showed a marked improvement althoughthere are political sensitivities in certain countries. Feedback Incorporated After a very encouraging performance in the previous year, and a promising startto this year, the final outturn was a significant loss. There were a number of reasons for this result. The reasons within the company'scontrol have all been addressed but the situation was exacerbated by theweakness of the dollar throughout the year. The new products introduced byFeedback Instruments should prove very significant in this very competitivemarket. The company now has a full complement of field sales personnel and is, I am gladto report, performing far more strongly again. Current Trading and Future Prospects The new financial year started slowly with regard to sales but with a good buildup in the level of orders received and the present order book is healthy. Thisparticularly applies to our American subsidiary which had disappointing resultsin the year to 31 March 2006. The gradual re-structuring of the business is continuing and there has been afurther consolidation of premises which will give rise to a reduction inoccupancy costs. There has also been a small reduction in staff numbers throughnatural wastage. The problem relating to the pension fund, referred to above, is continuing to bea significant drain on our cash resources but it is hoped that resolution ofthis will prove to be possible. Under difficult circumstances, your executive directors and staff have workedwell and I am most grateful to them. D. H. Harding Chairman Enquiries: David Sawyer 01892 653322Feedback plc Philip Davies 020 7953 2000Charles Stanley & Co. Limited CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31st March 2006 2006 2005 £000 £000 restated TURNOVER 7,638.6 9,179.2 Cost of Sales (4,255.9) (5,993.4) Gross profit 3,382.7 3,185.8 Other Operating Expenses (3,223.2) (2,716.1) Operating profit before reorganizationcosts and pension adjustments 159.5 129.0Reorganisation costs 0.0 (139.3)Gains on settlements and curtailments arising on closure of pension scheme 0.0 480.0 Operating profit 159.5 469.7 Net interest charge (148.8) (143.1)Other finance costs - net negative returns on pension scheme (306.0) (310.0) (LOSS) / PROFIT ON ORDINARY (295.3) 16.6ACTIVITIES BEFORE TAXATION Tax on (loss) / profit on ordinaryActivities 0.0 39.2 RETAINED (LOSS) / PROFITAFTER TAXATION (295.3) 55.8 (LOSS) / EARNINGS PERSHARE (pence) (Note 4) Basic (2.40) 0.46Diluted (2.40) 0.46 CONSOLIDATED BALANCE SHEET AT 31st MARCH 2006 2006 2006 2005 2005 £000 £000 £000 £000 restated restatedFixed assetsTangible assets 714.9 526.3 714.9 526.3Current assetsStocks 1,000.3 1,210.7Debtors 1,616.3 1,753.6Cash at bank and in hand 805.7 760.4 3,422.3 3,724.7 Creditors: amounts falling duewithin one yearBorrowings (1,132.1) (64.4)Other creditors (1,447.4) (1,669.6) (2,579.5) (1,734.0) Net current assets 842.8 1,990.7 Total assets less current 1,557.7 2,517.0liabilities Creditors: amounts falling dueafter more than one year:Borrowings (579.0) (1,517.2) Net assets excluding pension 978.7 999.8liabilities Pension liabilities (8,233.0) (8,187.0) Net liabilities including pension (7,254.3) (7,187.2)liabilities Capital and reservesCalled up share capital 1,234.5 1,208.4Share premium account 409.9 383.7Revaluation reserve 595.6 379.7Capital reserve 299.9 299.9Profit and loss account (9,794.2) (9,458.9) Total reserves (8,488.8) (8,395.6) Shareholders' funds - equity (7,254.3) (7,187.2)interest CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Group 2006 2005 £000 £000 restated (Loss)/profit for the financial year (295.3) 55.8Unrealised surplus on revaluation of land and buildings 223.2 0.0Currency translation differences on foreign currencynet investments 86.5 (55.1)Actual return less expected return on pension scheme 1,315.0 74.0assetsExperience gains and losses arising on liabilities 596.0 (494.0)Changes in the assumptions underlying the present valueof the scheme liabilities (2,068.0) (352.0) Total losses relating to the period (142.6) (771.3)Prior year adjustment (7,156.0) Total recognised gains and losses since last annual (7,298.6)report CONSOLIDATED CASH FLOW STATEMENT 2006 2006 2005 2005 £000 £000 £000 £000 restated restated Net cash inflow from operating activities 62.7 986.5 Returns on investments and servicing of financeFinance lease interest paid 0.0 (4.2)Interest paid (47.8) (34.0) Net cash outflow from returns oninvestments and servicing of finance (47.8) (38.2) Corporation tax recovered 0.0 28.7 Capital expenditure and financial investmentPurchase of tangible fixed assets (26.0) (23.2)Sale of tangible fixed assets 0.0 0.7 Net cash outflow from capital expenditure andfinancial investments (26.0) (22.5) FinancingRepayments of bank and other loans (30.0) (30.0)Capital element of finance leases and rental 0.0 (51.4)payments Net cash outflow from financing (30.0) (81.4) (Decrease)/increase in cash in the year (41.1) 873.1 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 years ended 31 March 2006 or2005. The financial information for the year ended 31 March 2005 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 year ended 31 March 2006 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 year. The auditor's report for the year ended 31March 2006 includes an emphasis of matter paragraph describing a materialuncertainty which may cast significant doubt about the ability of the Group tocontinue as a going concern. This is further described in Note 6. The financialinformation does not include the adjustments that would result if the Group wasunable to continue as a going concern. The financial information is prepared in accordance with the historical costconvention as modified by the revaluation of freehold property and the principalaccounting policies of the group as set out in the financial statements for theyear ended 31 March 2005. The principal policies remain unchanged except forthe adoption of FRS17 and FRS25. The impact of FRS17 is further explained inNote 5. FRS25 has resulted in the reclassification of preference shares to debtand preference share dividends of £101,000 being included as interest. (2005:£104,900) Note 2: The Report and Accounts will be posted to shareholders in due course and theAnnual General Meeting will be held at 11.00am on 30 October 2006. Note 3: This preliminary announcement was approved by the Board and authorised for issueon 27 September 2006. Note 4: Loss per share Basic loss per share for the year ended 31 March 2006 is based on the Group losson ordinary activities after taxation of £295,300 (2005 restated - profit of£55,800) attributed to 12,319,645 Ordinary Shares, being the weighted averagenumber of shares in issue throughout the year (2005 - 12,057,060). The diluted loss per share is calculated allowing for the full conversion of thePreference Shares. However, in accordance with Financial Reporting Standard 14,as these conversions do not have a dilutive effect the earnings per share figureremains unaltered. Note 5: Pension commitments At 31 March 2006 the Group operated three pension schemes, two of the definedcontribution type, and one of the defined benefit type. a) Defined contribution schemes The UK scheme commenced on 1 August 2004 and is open to all employees, includingexecutive directors. Two Company directors were members of the scheme at 31March 2006 (2005 - two). The assets of the scheme are held separately from thoseof the Group in an independently administered fund. The pension cost representscontributions payable by the company and amounted to £115,900 (2005 - £75,700).There were no outstanding contributions at the year end. Feedback Incorporatedalso operates a defined contribution scheme. b) Defined benefit scheme This scheme was closed to new members with effect from 1 April 2004, and tofuture benefit accrual for existing members at 1 August 2004. Two Companydirectors were members of the scheme at 31 March 2006 (2005 - two). The Schemeis funded with the assets being held by the Trustees separately from the assetsof the Company. The pension costs are determined in accordance with the adviceof a professionally qualified independent actuary. A valuation update wascarried out on 31 March 2006, under the assumptions prescribed in FinancialReporting Standard 17 "Retirement Benefits". At the valuation date, the market value of the assets in the scheme was£11,579,000. The value of these assets represented 58.4% of the value of thebenefits that had accrued to members, after allowing for future increases inearnings. As the scheme is closed the current service cost will risesignificantly as the members approach retirement. This financial information reflects the change in the Group's accountingpolicies in relation to pension scheme accounting, as explained in Note 1. Afterfull consultation with the Scheme's trustees and advisors, in March 2004 theCompany made an application to the Occupational Pensions Regulatory Authority(Opra, now the Pensions Regulator) to extend the period in which the fundingshortfall can be rectified. Opra's acceptance of this application was confirmedin February 2005. The Company continues to make contributions in line with thisagreement, although other provisions within that agreement no longer apply. TheGroup pension contributions for the year were £417,100 (2005 - £775,000). Theoutstanding deficit in the funding of the scheme at the year end was £8,233,000(2005 restated - £8,187,000). The information to be disclosed as described by FRS 17 is as follows: No additional contributions were paid in respect of scheme expenses. The major assumptions used by the actuary were: As at 31st March 2006 As at 31st March 2005 As at 31st March 2004Discount rate 5.00% 5.40% 5.50%Salary growth - - 4.00%Price inflation 2.90% 2.90% 2.90%LPI 2.70% 2.75% 2.75% The expected rates of return and the market value of the scheme's assets were: As at 31st March 2006 As at 31st March 2005 As at 31st March 2004 £000s £000s £000sEquities 7.00% pa 6,590 7.40% pa 7,127 7.50% pa 6,391Bonds 5.00% pa 4,970 5.40% pa 2,599 5.50% pa 2,466Cash 4.50% pa 19 4.75% pa 56 4.25% pa 150 The valuation of the scheme's assets and liabilities were: £000s £000s £000sTotal value of assets 11,579 9,782 9,007Present value of liabilities 19,812 17,969 17,102 Deficit in the scheme (8,233) (8,187) (8,095) Analysis of the amount charged to operating profit 2006 2005 £000 £000Current service cost - 116Past service cost - -Gain on settlements and curtailments - (480)Total operating credit - (364) Analysis of the amount credited to other finance income 2006 2005 £000 £000Expected return on assets 664 623Interest on liabilities (970) (933)Net return (306) (310) Analysis of the amount to be recognised in the Statement of Recognised Gains andLosses (STRGL) 2006 2005 £000 £000 Actual return less expected return on assets 1,315 74Experience gains and losses arising on liabilities 596 (494)Changes in the assumptions underlyingpresent value of liabilities (2,068) (352)Actuarial loss recognised in STRGL (157) (772) Movement in deficit during the year 2006 2005 £000 £000Deficit in scheme at start of year (8,187) (8,095)Employer current service cost - (116)Employer contributions received 417 626Past service costs - -Gain on settlements and curtailments - 480Other finance income (306) (310)Actuarial loss (157) (772)Deficit in scheme at end of year (8,233) (8,187) History of experience gains and losses: 2006 2005 2004 2003 £000 £000 £000 £000Difference between actual and expected return onscheme assetsAmount 1,315 74 916 (2,680)Percentage of scheme assets 11% 1% 10% -36% Exchange gains and losses on schemeliabilitiesAmount 596 (494) (1,593) (368)Percentage of scheme assets 3% -3% -9% -3% Amount recognised in STRGLAmount (157) 0 (1,128) (4,157)Percentage of scheme assets -1% -5% -7% -29% Note 6: Going concern The financial information for the year ended 31 March 2006 show that, afterincluding the pension scheme liability of £8,233,000, the group has a deficiencyof shareholders' funds of £7,254,300. The financial statements have beenprepared on the going concern basis which assumes that the group will be able tocontinue in operational existence for the foreseeable future, as a minimum for aperiod of at least one year from the date of approval of the financialstatements. The validity of this assumption depends on the successful outcome ofdiscussions with the pension fund trustees and the group's bankers. The group iscurrently paying additional contributions to the pension fund under an existingagreement (as set out in note 5). A full actuarial valuation as at 31 March 2006is currently being prepared by the Scheme Actuary. This valuation will includethe actuary's estimate of the Scheme's solvency and, given the expectedshortfall, will require the trustees of the Scheme to review and update theexisting agreement to eliminate the ,shortfall. The directors are in the courseof discussions with the pension fund trustees and are taking specialistprofessional advice as to the most appropriate action to take to address thepension scheme deficit. This process is not yet complete and therefore theoutcome is uncertain. Nevertheless the directors believe that a conclusionacceptable to all parties is achievable. In addition, whilst the group iscurrently operating within its overdraft facilities the directors have not yetagreed the continuance of the overdraft facilities with the group's bankers. Thedirectors are in regular discussions with the group's bankers and are of theview that there is no reason why the overdraft facilities will not be renewed.Whilst the directors are presently uncertain as to the outcome of the mattersreferred to above they believe that it is appropriate to continue to prepare thefinancial statements on the going concern basis. 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