Journeo Regulatory News (JNEO)

16 Mar 2005 07:00

Embargoed Release: 07:00hrs Wednesday 16 March 2005 Toad Group Plc (`Toad' or the `Group') Preliminary Results Announcement for the Year Ended 31st December 2004 Highlights * Operating profit before intangibles up on last year * Strong growth in hands-free installations * 25% stake taken in high growth business supplying CCTV for public transport vehicles * Net debt down despite ‚£1.78m spend on above investment * Move to AIM proposed for Spring `05 Chairman's StatementTrading ResultsI am pleased to report that despite a difficult year for our mature businesseswe have recorded a slight increase in operating profit after interest payablebut before amortisation and impairment of intangibles at ‚£1.5m (2003: ‚£1.4m).This has been achieved by tight control of all operations combined withshifting the focus of the business into new growth markets. This has requiredsome investment, but disciplined working capital management has meant that wehave been able to fund a ‚£1.8m cash investment (including costs) in a highgrowth business and at the same time actually reduce our net debt to ‚£3.7m(2003: ‚£3.9m).Our results are summarised as follows: 2004 2003 ‚£m ‚£m Turnover 34.6 33.2 Gross profit 14.2 13.3 Gross profit percentage 41% 40% Operating expenses excluding amortisation and impairment of (12.2) (11.3)intangibles Operating profit before amortisation and impairment of 2.0 2.0intangibles Operating profit before amortisation and impairment of 1.5 1.4intangibles but after interest payable Sales overall increased by ‚£1.4m to ‚£34.6m (2003: ‚£33.2m) mainly due tosignificant growth by our Technical Services Division where sales are up by ‚£3.2m (160%) boosted by mobile phone hands-free installations. We are nowhandling around 3,000 hands-free installations a month from virtually astanding start at the end of 2003.Conversely our mature businesses have seen some inevitable decline. Car audioinsurance replacement was down by ‚£2.4m (23%) on 2003 and car securitydistribution sales were down ‚£1.3m (21%) on the prior year, but by sourcing newproducts, extending our ranges, increasing market penetration and looking tonew markets, sales in our other business areas increased by ‚£1.9m althoughmargins have been under pressure. This ‚£1.9m includes ‚£0.8m from the sale ofdistribution rights for Actra in the UK public transport sector to 21st CenturyCrime Prevention Services Limited ("21st Century"), a company in which thegroup subsequently took a 25% stake (see below).Increases in operating expenses in the period (excluding amortisation andimpairment of intangibles) reflect our investment in training andinfrastructure to support new growth areas. Our biggest single operationalinvestment this year has been to enhance our engineering and call centreresource to support the growth in the hands-free installation business. Thebenefit of this can be seen in the enhanced gross margin with the relatedlabour cost included in operating expenses.Operating expenses also include product development costs written off of ‚£170,000 and costs of ‚£110,000 incurred to investigate several acquisitionopportunities in the year.Amortisation and impairment of intangibles and tax 2004 2003 ‚£m ‚£m Operating profit before amortisation and impairment of intangibles 1.5 1.4but after interest payable Amortisation and impairment of intangibles (0.7) (0.3) Net profit before tax 0.8 1.1 Tax - 0.2 Minority interests - (0.1) Net profit after tax and minority interests 0.8 1.2At the end of the year the directors undertook a detailed review of thecarrying value of the group's intangible fixed assets. After due considerationof all the factors it was decided that the remaining balances in respect ofMetvale (the acquisition of an audio insurance replacement business dating fromJanuary 1999) and Actra (development costs in respect of our telematics productaccumulated since 2001) should be written off. This has resulted in a one-offimpairment charge of ‚£0.4m in the year but as a result there will be no furtheramortisation charges in respect of these intangibles in future years.Last year's results were enhanced by a tax credit resulting from an accountingrequirement to recognise a deferred tax asset in respect of previous years'trading losses. An equivalent asset remains in the balance sheet at 31 December2004. The net tax charge is ‚£nil in 2004 (2003: credit of ‚£0.2m) and the grouphas ‚£2.6m (2003: ‚£4.0m) of tax losses available for carry forward.Investment in associateIn December we acquired a 25% stake in 21st Century for ‚£1.65m (before costs)in cash together with options to acquire the remaining 75% in two tranches of24% and 51%, for a further total cash payment of ‚£5.05m. 21st Century is a fastgrowing supplier of specialist CCTV security systems for public transportvehicles. These systems have the support of transport authorities and operatingcompanies who are keen to increase passenger numbers by reducing crime onpublic transport vehicles and defeat fraudulent or bogus insurance claims. Aswell as supplying security solutions to numerous public transport companies,21st Century is the preferred supplier to Arriva's UK Bus Division with whom ithas developed a bespoke system. Synergy from this acquisition comes fromleveraging our installation and customer services capabilities to accelerategrowth. We are excited by the prospects for this business and our close workingrelationship will enable us to assess the progress of the company before weexercise our options to take 100% ownership.In view of the encouraging early progress of 21st Century the directors arekeen to exercise the company's first option to acquire a further 24% of 21stCentury at the option price of ‚£750,000 in cash. These additional preferenceshares yield a dividend entitlement of ‚£245,000 per annum which will bring thecumulative dividend entitlement to ‚£500,000 per annum. The directors intend toexercise this option only once the company has moved across to AIM (see below)to avoid the disproportionate costs which would otherwise be associated withthe transaction if the company were to remain on the Official List.Proposed move to AIMThe board is planning to move the company's ordinary shares from the OfficialList of the United Kingdom Listing Authority (the "Official List") to the AIMmarket of the London Stock Exchange ("AIM") in the second quarter of 2005.As an AIM company, the company will continue to be subject to the regulatoryand disciplinary controls of the London Stock Exchange. The board believes thatAIM, with its lower cost of complying with continuing obligations, is a moreappropriate market for the company given its size and shareholder base andwould allow the company to pursue acquisitions in the most cost effectivemanner. Shareholders should be reassured that, so far as is known to thedirectors, with the exception of shares held in a Personal Equity Plan or anIndividual Savings Account, the transfer to AIM will in no way affect theirability to hold shares in the company and existing share certificates willremain valid. Shareholders should note that shares held in companies trading onAIM are treated as unquoted for purposes of certain tax reliefs, althoughshareholders should seek their own financial advice on this point.Board changeIn January this year Stuart Gall our Marketing Director gave notice of hisintention to leave the company in the Spring of 2005 to pursue other interestsin the biotechnology sector. Stuart has been with the company from the verybeginning and I would like to thank him for his invaluable contribution overthe past 11 years.StaffI would also like to take this opportunity to thank all the staff for theirhard work over the last year. It is through their dedication and enthusiasmthat we have been able to maintain the profitability of the group in the faceof significant market pressure within a number of the businesses in which weoperate.Strategy and current tradingWhile it is pleasing to be able to report an operating profit beforeamortisation and impairment of intangibles in line with the prior year, weremain determined to grow this business. Current trading is in line with marketexpectations. We continue to generate cash from our mature businesses to fundgrowth opportunities and we are actively looking to grow by acquisition.Peter WardChairmanOperating ReviewThe Toad Group of companies operate in two divisions:Services: Insurance Services is the provision of claims handling and fulfilmentfor the UK's major insurance companies. The core business is founded on thereplacement of stolen in-car audio equipment. Insurance Services represents 25%(2003: 33%*) of group turnover.Technical Services is the supply and installation of mobile phone hands-freekits, security, telematics and sat-nav systems to fleet and other non-insurancecustomers. Technical Services represents 15% (2003: 6%*) of group turnover.Distribution: Supply of third party in-car entertainment systems, own-brandsecurity systems and interface cables to the retail or wholesale trade, vehicleand motorcycle manufacturers. Distribution represents 60% (2003: 61%*) of ourtotal turnover.*Note that 2003 comparative figures have been amended to reclassify certaincategories of income in line with classifications adopted in the current yearServicesInsurance Services turnover at ‚£8.7m was down 21% on the previous year (2003sales: ‚£11.0m). The fall in sales is attributable to the maturity of the caraudio insurance replacement market. We are actively looking for otheropportunities in insurance services.Technical Services turnover increased by 260% to ‚£5.2m (2003 sales: ‚£2.0m). ‚£3.3m (2003: ‚£0.3m) of the total sales figure was attributable to income fromthe installation of mobile phone hands-free car kits - most of which comes fromour contract with UTL who manage the installation logistics on behalf ofVodafone. Technical Services turnover also includes ‚£0.8m from the sale ofcertain distribution rights in Actra.DistributionDistribution turnover increased to ‚£20.7m (2003: ‚£20.2m). Sales of satellitenavigation and in-car entertainment systems performed strongly to reach ‚£12.7man increase of 18% on the previous year and this offset the decline in saleswithin the car security market.The extension of the product range within Datatool, our motorcycle security andaccessories business has yielded some early success - in particular, with salesof motorcycle battery chargers which increased by over 150% in the year. Salesof the Reevu crash helmet, for which we have the UK distribution rights, aredue to start during 2005.Operating expensesGroup operating expenses excluding amortisation and impairment of intangibleshave increased to ‚£12.2m up ‚£0.9m on the prior year. More than half of thisincrease is attributable to our investment in recruitment and training ofengineers and call centre staff to service the growing hands-free installationbusiness. These costs are however covered by the enhanced gross margin whichhas arisen from the hands-free installation revenue included in sales. Theremainder of the increased operating expenses representing a rise of 3.5%includes the costs of relocating Datatool at the beginning of the year to shareour head office facility, R&D costs for new products and services, increasedadvertising and marketing spend for new products and services and professionalcosts associated with several acquisition opportunities which were reviewed inthe year.In addition, at the year end the directors undertook a review of the carryingvalue of investments in the company and made a provision against these of ‚£7.3m. This provision does not impact on the group balance sheet or groupresults for the year.21st CenturyOn 18 December 2004 we completed a transaction to acquire 25% of 21st Centurywith an option to acquire the remaining 75%. 21st Century supplies and installsCCTV security systems for use on public transport vehicles and has preferredsupplier status with Arriva's UK Bus Division. 21st Century employssub-contract labour to carry out its installations. We are training ourengineers to carry out this work alongside existing contractors and therebyaccelerate the growth of this business. We will also be able to draw on oursales and support infrastructure to enhance the existing service andaccommodate growth in the customer base.21st Century has two classes of shares, being ordinary and preference shares.The preference shares and ordinary shares rank pari-passu in all respectsexcept to the extent that the preference shareholders have the firstentitlement to dividends before the ordinary shareholders.Our initial 25% investment of ‚£1.65m in cash was made by way of preferenceshares in 21st Century which yield a cumulative dividend entitlement of ‚£255,000 per annum. 49% of the share capital is represented by preference sharesand our initial investment included an amount in respect of options to buy theremaining preference shares for ‚£750,000 which will bring our dividendentitlement to ‚£500,000 per annum. We then have an option to acquire theremaining 51% of the business for ‚£4.3m.Working capital and net debtNet cash flow from operations was ‚£3.0m (2003: ‚£2.6m). Interest and financecosts paid were ‚£0.5m (2003: ‚£0.5m). Net capital expenditure was ‚£0.5m (2003: ‚£0.6m) and the cash paid in respect of the acquisition of the stake in 21stCentury including professional fees was ‚£1.8m (2003: ‚£nil). As a result netdebt at the year end was reduced to ‚£3.7m (2003: ‚£3.9m).Conversion of redeemable preference sharesOn 23 December 2004 the preference shareholder, Carglass Luxembourg Sarl - ZugBranch, converted its 3,114,582 convertible redeemable preference shares in thecompany into new ordinary shares of 10p each in accordance with the terms ofthe preference shares. These new ordinary shares rank pari-passu with theexisting ordinary shares and represent 3.8% of the enlarged ordinary sharecapital.Revaluation of freehold propertyThe group's freehold property at Mitcham was revalued on 10 December 2004, onthe basis of open market valuation by independent qualified valuers. Thisvaluation has been incorporated into the financial statements and the resultingrevaluation adjustment has been taken to revaluation reserve. The revaluationresulted in a revaluation surplus of ‚£1,406,000.PeopleWe have continued our investment in training with particular emphasis on ourengineering workforce to support the growth in the mobile phone installationbusiness. The experience and facilities developed in this exercise will beinvaluable in helping us meet the growth in CCTV installations into publictransport vehicles, which our alliance with 21st Century will bring.Nick GrimondManaging DirectorConsolidated profit and loss accountFor the year ended 31 December 2004Continuing operations Before Amortisation 2004 2003 amortisation and (restated) and impairment impairment of of intangibles intangibles Notes ‚£'000 ‚£'000 ‚£'000 ‚£'000 Turnover 1 34,574 - 34,574 33,235 Cost of sales (20,380) - (20,380) (19,910) ________ __________ ________ ________ Gross profit 14,194 - 14,194 13,325 Other operating (12,187) (687) (12,874) (11,679)expenses _________ __________ ________ ________ Group operating 2,007 (687) 1,320 1,646profit Share of operating (3) (3) (6) -profit in associate-acquisition __________ __________ ________ _________ Total operating 2,004 (690) 1,314 1,646profit Interest payable and (547) - (547) (586)similar charges __________ __________ ________ _________ Profit on ordinary 1,457 (690) 767 1,060activities before taxation Taxation - - - 200 __________ __________ ________ _________ Profit on ordinary 1,457 (690) 767 1,260activities after taxation Minority (1) - (1) (86)interests-equity __________ __________ ________ _________ Profit for the year 1,456 (690) 766 1,174attributable to members of the parent company ========= ========= ======= ======== Earnings per 1.85p 0.97p 1.55pshare-basic -diluted 1.79p 0.94p 1.48pThere are no differences between the historical cost profit and the resultsshown above for both periods.Consolidated statement of total recognised gains and lossesFor the year ended 31 December 2004 2004 2003 ‚£'000 ‚£'000 Profit/(loss) for the financial year - Group 772 1,174 - Associate company (6) - _______ _______ 766 1,174 Unrealised surplus on revaluation of 1,406 -freehold property _______ _______ Total recognised gains for the year 2,172 1,174 ====== ====== - Group 2,178 1,174 - Associate company (6) - _______ _______ Total recognised gains for the year 2,172 1,174 ====== ======Balance sheetsAt 31 December 2004 Notes 2004 Group 2004 Company ‚£'000 2003 ‚£'000 2003 ‚£'000 ‚£'000 Fixed assets Intangible assets 634 1,321 - - Tangible assets 4,406 2,906 - - Investments 2 1,774 - 10,562 16,115 ________ _________ ________ ________ 6,814 4,227 10,562 16,115 ________ _________ ________ ________ Current assets Stocks 3,678 3,755 - - Debtors 5,000 5,153 4,184 6,950 Cash at bank and in 809 541 - 29hand ________ __________ _________ ________ 9,487 9,449 4,184 6,979 Creditors: amounts (7,626) (6,281) (1,099) (1,049)falling due within one year ________ __________ _________ ________ Net current assets 1,861 3,168 3,085 5,930 ________ __________ _________ ________ Total assets less 8,675 7,395 13,647 22,045current liabilities Creditors: amounts (975) (1,892) (975) (1,890)falling due after more than one year ________ __________ _________ ________ Net assets 7,700 5,503 12,672 20,155 ======= ========= ======== ======= Capital and reserves Called up share 8,169 8,144 8,169 8,144capital Share premium account 12,110 12,110 12,110 12,110 Share capital to be 43 43 43 43issued Merger reserve - - 1,001 1,001 Revaluation reserve 1,406 - - - Profit and loss (14,028) (14,794) (8,651) (1,143)account ________ __________ _________ ________ Total shareholders' funds Equity 7,700 4,724 12,672 19,376 Non-equity - 779 - 779 7,700 5,503 12,672 20,155 ________ __________ _________ ________ Minority interest - - - - ________ __________ _________ ________ Capital employed 3 7,700 5,503 12,672 20,155 ======= ========= ======== ======= Consolidated statement of cash flowsFor the year ended 31 December 2004 Notes 2004 2003 ‚£'000 ‚£'000 Net cash inflow from operating 4 3,002 2,551activities _______ ______ Returns on investments and servicing of finance Interest paid (461) (493) Interest paid on finance leases (2) (8) _______ ______ (463) (501) _______ ______ Taxation UK corporation tax refunded - 155 _______ ______ Capital expenditure Purchase of intangible fixed - (9)assets Purchase of tangible fixed assets (513) (668) Sale of tangible fixed assets 5 38 ________ ________ (508) (639) ________ ________ Acquisitions Purchase of investment in (1,780) -associate ________ ________ Cash inflow before financing 251 1,566 ________ ________ Financing Issue of shares 25 691 Repayment of long term borrowings (1,000) (1,000) Repayment of principal under (13) (103)finance leases ________ ________ (988) (412) ________ ________ (Decrease)/increase in cash in 6 (737) 1,154the year ======= ======= Notes to the financial statementsat 31 December 20041. Segmental reportingTurnover consists primarily of sales made in the United Kingdom. Export salesare not material. The analysis by business area is based upon the group'sreporting structure. Sales between segments are not material.Turnover Profit before tax Restated Before After After amortisation amortisation amortisation and and and impairment impairment impairment of of of intangibles intangibles intangibles 2004 2003 2004 2004 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Business analysis Services 13,897 12,986 1,147 575 679 Distribution 20,677 20,249 310 192 381 _______ _______ _______ _______ _______ 34,574 33,235 1,457 767 1,060 ======= ======= ======= ======= ======= Net assets Excluding Including Including Intangible Intangible Intangible assets assets assets 2004 2004 2003 ‚£'000 ‚£'000 ‚£'000 Business analysis Services 3,479 3,479 1,809 Distribution 3,387 4,021 3,494 _____ _____ ______ 6,866 7,500 5,303 Central 200 200 200 _____ _____ _____ Total 7,066 7,700 5,503 ===== ===== =====Central net assets comprise assets, partially offset by liabilities, thatcannot practicably be divided between the segments and comprise the deferredcorporation tax asset.2. Fixed asset investmentsDetails of the group's investments are: Interest in associate ‚£'000 Cost: At 1 January 2004 - Addition -Net assets 94 -Goodwill 1,686 Share of loss in period (3) _____ At 31 December 2004 -Net assets 91 -Goodwill 1,686 _____ 1,777 _____ Accumulated amortisation of goodwill: At January 2004 - Charge for the period (3) _____ At 31 December 2004 (3) _____ Net book amount: At 31 December 2004 -Net assets 91 -Goodwill 1,683 _____ 1,774 =====Purchase of an associateOn 18 December 2004 the company acquired a 25% interest in 21st Century CrimePrevention Services Limited ("21st Century") by way of preference shares whichwill yield an annual dividend entitlement of at least ‚£255,000. The company hasalso acquired (i) an option to buy further preference shares for ‚£750,000 incash which will bring its holding in 21st Century up to 49% and its annualdividend entitlement up to at least ‚£500,000 and; (ii) an option to acquire theremaining 51% of the business for ‚£4.3m in cash. Should the company notexercise these options by 18 December 2006, the majority shareholders in 21stCentury have the option to buy back the 25% interest currently held by thecompany.Details of the company's investments are: Interests in group Undertakings ‚£'000 Cost: 18,931 At 1 January 2004 Additions 1,780 _____ At 31 December 2004 20,711 _____ Amounts provided: At 1 January 2004 (2,816) Provided in the year (7,333) _____ At 31 December 2004 (10,149) _____ Net book amount: At 31 December 2004 10,562 ===== Net book amount: At 31 December 2003 16,115 =====At the year end the directors undertook a review of the carrying value of thecompany's investments which comprise its interests in group undertakings andincreased the amount provided against these investments to ‚£10,149,000.3. Reconciliation of movements in shareholders' funds 2004 2003 ‚£'000 ‚£'000 Group Opening shareholders' funds 5,503 3,638 Placing of shares - 691 Exercise of share options 25 - Revaluation surplus 1,406 - Profit for the year 766 1,174 _______ _______ Closing shareholders' funds 7,700 5,503 ====== ====== 2004 2003 ‚£'000 ‚£'000 Company Opening shareholders' funds 20,155 17,721 Placing of shares - 691 Exercise of share options 25 - (Loss)/profit for the year (7,508) 1,743 _______ _______ Closing shareholders' funds 12,672 20,155 ====== ====== 4. Reconciliation of operating profit to net cash inflow from operatingactivities 2004 2003 ‚£'000 ‚£'000 Operating profit 1,314 1,646 Depreciation on tangible fixed assets 414 417 Amortisation and impairment of intangible fixed 690 304assets Decrease in stocks 77 350 Decrease/(increase) in debtors 153 (540) Increase in creditors 354 374 _______ _______ Net cash inflow from continuing operating activities 3,002 2,551 ======= =======5. Reconciliation of net cash flow to movement in net debt 2004 2003 ‚£'000 ‚£'000 (Decrease)/increase in cash in the year (737) 1,154 Cash outflow from movement in debt 1,013 1,103 _______ _______ Change in net debt arising from cash flows 276 2,257 Other - amortisation of loan issue costs (85) (85) _______ _______ Movement in net debt in the year 191 2,172 Net debt at 1 January (see note 6) (3,916) (6,088) _______ _______ Net debt at 31 December (see note 6) (3,725) (3,916) ======= =======6. Analysis of net debt At Cash flow Non cash At 31 December movement 31 December 2003 2004 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash at bank and in 541 268 - 809hand Bank overdrafts (1,552) (1,005) - (2,557) _______ _______ _______ _______ (1,011) (737) - (1,748) _______ _______ _______ _______ Finance leases (15) 13 - (2) Short term bank loans (1,000) 1,000 (1,000) (1,000) Other loans (1,890) - 915 (975) _______ _______ _______ _______ (3,916) 276 (85) (3,725) ======= ======= ======= =======The net non cash movement relates to amortised loan issue costs during theyear.7.RestatementsThe company has reviewed its presentation of certain amountsThe group receives rebates from suppliers and pays rebates to customersrepresenting contributions to marketing costs. Previously these contributionswere included in turnover and cost of sales respectively. Rebates received andpaid have been reclassified to other operating expenses. Rebates received in2004 were ‚£553,000 (2003: ‚£541,000) and rebates paid were ‚£223,000 (2003: ‚£312,000)In previous years bought ledger discounts received were included in turnover.These have now been reclassified as a deduction from cost of sales. Boughtledger discounts received in 2004 were ‚£300,000 (2003: ‚£326,000)In previous years intercompany sales by Integrated Technologies (International)Limited to Toad (UK) Limited were not eliminated on consolidation. Theconsolidated turnover and cost of sales figures have been reduced byintercompany sales in 2004 of ‚£418,000 (2003: ‚£259,000).The impact of the restatement of the above amounts on the results for 2003 canbe summarised as follows: Restatement 2003 Increase/ Increase/ (Decrease)/ (decrease) in (decrease) in increase in sales cost of sales operating expenses ‚£'000 ‚£'000 ‚£'000 Rebates received (541) - (541) Rebates paid - (312) 312 Bought ledger discounts (326) (326) - Intercompany sales (259) (259) - _______ _______ _______ (1,126) (897) (229) ====== ======= ======= 8. Related party transactions21st Century Crime Prevention Services Limited ("21st Century")Mr Paul Frodsham, Managing Director and majority shareholder in 21st Century,is the brother-in-law of Mr Wilson Jennings a main board director and CompanySecretary of Toad Group plc.On 17th D