MOSB.L Regulatory News (MOSB)

3 Apr 2008 07:01

Moss Bros Group PLC03 April 2008 MOSS BROS GROUP PLC Preliminary results for the year ended 26 January 2008 For Release 3 April 2008 at 7.00 am HEADLINES Financial • Adjusted profit before tax and non-recurring items £0.2m (Ly: £3.4m). Adjusted EBITDA before non-recurring items of £6.5m (Ly: £9.2m) • Loss before tax of £1.4m (Ly: profit before tax of £5.1m) • Results are after non-cash impairment of retail assets £0.7m, non-recurring costs for exiting leases £0.6m and business restructuring £0.3m • Like for like retail sales flat • Gross profit up 20 basis points at 54.3% • Year-end cash balance of £15.5m (Ly: £16.6m). Average cash balance of £7.6m (Ly: £7.5m) • Closing inventory £19.2m (Ly: (restated) £20.0m) • Current trading: total like for like sales in the first nine weeks of the new financial year 0.9% up on same period last year Further to the announcement made by the Company on 25 February 2008, the Companyconfirms that talks are continuing with Baugur Group hf ("Baugur"), followingreceipt of an indicative offer in cash at 42p per share from a new company to beformed by Baugur and certain investment partners ("Newco"). As announced on 25February 2008, the Company has granted Newco due diligence access, which iscontinuing. Mr Mark Bernstein dissented from the Board of Director's decision togrant due diligence access to Newco. In view of the possible offer for the Company, the Board is not proposing a final dividend this year - total dividends for the year, following declaration and payment of the interim dividend are 0.5 pence (Ly: 1.80 pence for the year), the cost of which is £0.5m. It is the intention of the Board to declare a special dividend of 1.30 pence per Share if Newco does not announce a firm intention to make a takeover offer for the Company or any such offer is withdrawn or lapses without becoming or being declared unconditional in all respects. The declaration of a special dividend by the Board will be subject to considerations relevant at the time. OVERVIEW The results for the year are in line with expectations and reflect the effect ofdeteriorating retail markets, particularly in menswear and continuing increasesin property and utility costs. Management has already taken action to react tothe market conditions and prepare for what will be a challenging year. Theinternal structure within the business is being aligned to the ongoing economicclimate whilst at the same time reducing the complexities and processes, whichoperate within the business. Action has been taken to ensure that the inventory position is satisfactory. TheCompany has benefited from a stable IT infrastructure during the year followingits introduction in the previous two years, which has facilitated the reductionin the overall inventory balance and reduced the ageing of the inventoryconsiderably. At the same time, the business has had a full year of operationsin the new distribution centre and as a result the strategic direction for thisfacility has become clearer. Increasingly efficient and professional supplychain practices are being introduced to limit the length of time new inventorytakes to pass through the distribution centre. The Company has also maintained its strong cash position while continuing itsnew store rollout program along with its plan to refit all mainstream storesacross the portfolio. New stores in aggregate are meeting the investmentcriteria set during the approval process and the refits are justified whencomparing the refitted store performance to the non-refitted store performance.These strategies will continue where it makes good commercial sense throughoutthe coming year. The continuing diligent control of cash within the business from working capitalmanagement to cost awareness will allow the business to take advantage ofopportunities which may present themselves in the current environment. BUSINESS REVIEW STORES BUSINESS KEY PERFORMANCE INDICATORS Following on from the extensive customer research conducted into the Moss fasciain 2006, the business continues to use stores, products and suppliers as its keyperformance drivers. Within each of these there are measures, UPT (units pertransaction - the number of units purchased on average per transaction), ATV(average transaction value - the average price paid per transaction), sales persquare foot, gross margins, and contribution being the most prominent. For thecoming year, the business is undertaking a commercial audit of all its stores toidentify the best practices, which can be mirrored across all other stores. Thisaudit will be both operational and financial based and address both product andprocess across all stores by fascia. MAINSTREAM The mainstream Moss stores bore the brunt of the consumer fall out during thelatter part of the year, as their focus has tended to be in the mid pricedmarket segment. Whilst like for like sales recorded a decline of 3.2% retailgross margin recorded an increase of 50 basis points. The business is movingMoss away from the highly competitive lower priced end of the menswear market,which is increasingly being eroded by greater competitive pressures, includingsupermarkets. This is reflected in an increasing average selling price anddecreasing units sold. The margin gains have been achieved through a carefulchoice of suppliers across all product categories and the consolidation ofvolume into fewer suppliers. This gain was partially offset by promotionalstrategies to generate footfall, particularly in the final quarter of the year. Expansion Two new stores were opened in the year and three were relocated into more primeretail sites. During 2008, at least three more sites will be opened and twostores will be re-sited to more prime retail locations in the same town or city. Refits All non-refitted stores across the Moss fascia will undergo a store refit overthe next three years. Twenty five stores were refitted in 2007 ranging from arefresh to a full refit. The consistent focus across all refits is not only toprovide an improved shopping environment but also to optimise trading space andincrease linear footage. This refit program will continue throughout 2008. Factory Outlets Like the Moss fascia, the outlets saw a last quarter fall in footfall in thecentres in which they are located which curtailed like for like sales and leftthem down 4.4%. Despite the need for investment of margin gains into promotingand encouraging footfall, the retail gross margin increased 10 basis pointsthrough better sourcing. Management is committed to the focused rollout of the factory outlet concept andthis was borne out in the year with three new outlets. One of these stores wasin Kildare in Ireland, which has proved a great success. Further openings werein Bridgewater Park in Northern Ireland and Gunwharf Quay in Portsmouth. Ourfascia is now represented in all the major outlet locations and as new sites areopened we will consider each new site on our strict commercial criteria. FASHION Fashion recorded a credible like for like sales increase of 3.8% at the marginalcost of a reduction in retail gross margin of 40 basis points. The fashionconscious customers, whom our fashion fascias attract, have been less affectedby the macro economic adversities in the UK economy. Management continues toensure that the best and most fashionable brands are represented in its storesso as to remain the destination of choice for fashion led customers. The gross margin decline is a direct result of a strategy to reduce theinventory cycle within the business. Hugo Boss The Company now operates 15 Hugo Boss stores in the UK with a further two toopen in 2008. In addition our Meadowhall Cecil Gee store will close to allow forthe expansion of the Hugo Boss store on the existing site. The Hugo Boss brandcontinues to grow internationally and the Company works closely with the brandsharing ideas and initiatives that continue to drive impressive sales figuresfrom this fascia. Two stores have been refurbished in early 2008. Canali The continuing success of the only stand alone Canali retail franchise in the UKhas led to a further site being identified and is scheduled to open in themiddle of 2008, subject to contract finalisation. There is further opportunityto expand this brand in the UK and potential new locations have been identifiedwhich it is hoped will lead to further openings in 2009. The Company is workingwith this icon brand to introduce and make more individuals aware of luxuryfashionable tailoring. Simon Carter Our continuing success with retail franchises has provided the Company theopportunity to work with the fashion brand, Simon Carter, which has considerablepotential in the UK. The first Simon Carter retail store opened in Covent Gardenduring 2007 and a second store opened in Manchester in March 2008. Cecil Gee Cecil Gee performed better in a very competitive retail fashion environment. Thefascia has reduced the number of brands it offers to concentrate on key sellinglines, and to help reduce the complexities across the business of supplying sucha large number of SKUs (stock-keeping units). HIRE Moss Bros Hire remains the number one recognised brand name in the UK hiremarket. The market itself remains stable with a slight decline in weddingnumbers offset by the continuing growth in university related events and inevents styled on the US school prom model. The latter segment of the market hascome under pressure from the retailing of cheap black tie garments insupermarkets, a product which, although lacking a certain quality, does appealto the value orientated customer. The business is committed to retaining its market leader position by providingfirst class customer service fulfillment, greater product awareness through itson-line presence and its superior product offering. To this end it is investing£1.8m introducing a new Hire supply chain infrastructure, which will be ready inearly 2009. INTERNET SHOPPING A new Moss.co.uk website was 'soft-launched' in November 2007 to trial the siteand test run the in-house product fulfillment. A full launch took place in March2008. The new site includes well over 700 products and replicates the specialistcustomer service that has come to be expected from the largest retailer ofbranded suits in the UK, including style guides and help in deciding what towear to certain specialist events. SUPPLY CHAIN The business has strategically shifted the mix in its supply chain from mainlandEurope to China and as a result has achieved a greater buying gross margin. Thebuying team regularly visits China to inspect factories and find the lowest costbase where our product can be produced whilst retaining the quality ourcustomers have come to expect. DISTRIBUTION CENTRE The distribution centre has had its first full year of operations in its newlocation in Barking. Throughout this first year procedures have been put inplace for managing key trading events, peak periods of product handling and moreefficient methods of inventory handling. This learning has helped to develop adistribution centre strategy to allow for supply chain enhancements, Moss BrosHire growth, new product introduction and the removal of complexity from oursupply chain. The key objective going forward will be to reduce the number oftimes product is handled across its supply chain, and the business is workingwith its suppliers to make this a reality. IMPROVING OPERATIONAL EFFICIENCY Having new and fashionable product with enviable value for money and quality isa prerequisite for our customers, but any business needs quality staff to sellthis product, particularly as a specialist product retailer. It remains a key part of the Company's strategy to develop people within thebusiness. This runs from the people bringing the product into the businessthrough to the people selling the product onto our customers. It also includesthe back office functions, which support the business. The interface between the buyer, merchandiser and seller is key and the businessplaces huge emphasis on this to ensure the end-to-end customer experience issatisfactory. As the business achieves these objectives its ability to sellquality branded merchandise in ever increasing volumes and at higher sellingprices becomes self-evident. UPT achieved was 1.89 and the ASP (average sellingprice - the average price paid per item across all product categories) rose3.5%, testament to a collaborative strategy across the business. RISK AND UNCERTAINTIES Cash One of the Company's key objectives in the current challenging retailenvironment is to maintain cash flow, credit and strong cash balances. This hasbeen achieved by managing cash on a daily basis and committing funds only onprojects that meet appropriate financial hurdles. The average daily cash balancehas been maintained year on year at £7.6m. Inventory and Continuity of Supply Too much inventory can lead to a terminal inventory issue and too littleinventory can result in lost sales. The business spends a lot of time workingwith existing and new suppliers to ensure the continued flow of fashionable andleading inventory through the business. The business has a demand-forecastingtool to predict the levels of inventory required to meet the expected demand foreach and every stock-keeping unit. This business tool has resulted in 38% lessAutumn/Winter 2007 and older inventory at the year-end compared to last year(Autumn/Winter 2006 and older inventory). Property The business operates from a portfolio of high street, shopping centre andfactory outlet stores all held under operating leases. Each store is evaluatedon a year-to-year basis to assess its ongoing commercial viability. There are anumber of locations in the UK and Ireland, which would suit one of thebusinesses' fascias, and the Company engages property agents to identifyopportunities for the development of its store portfolio. The Company is havingincreasing success negotiating attractive retail arrangements on new stores. Staff Hiring and Retention The Company has the reputation for attracting some of the brightest youngtalents in fashion and it tries to ensure that it not only maintains thisattraction but also retains this talent. Training, support and remuneration areall recognised as playing their role in helping to achieve this retention. Retail Market Downturn Management expects the coming year to be challenging and has already takenaction to react to the market conditions and prepare for further adverse marketmovements. The internal structure within the business is being aligned to theongoing economic climate whilst at the same time reducing the complexities andprocesses, which operate within the business. The business has alsostrategically lowered its overall average inventory holding, significantlyreducing the level of inventory older than one year. FINANCIAL REVIEW TRADING RESULTS 2007/2008 1st half 2nd half Full yearRetail sales v last year (like for like)* +3.0% -2.8% -0.2%% Gross profit 55.6% 53.1% 54.3%% Gross profit v last year +0.4% - +0.2%(Loss)/profit before taxation and non-recurring items £(0.8)m £1.0m £0.2m *Like for like represents financial information for stores open during thecurrent and prior financial years. The year was a tough period for retail generally, particularly the finalquarter, which combined with continuing increases in fixed operational coststook profits lower. SALES The higher end priced product continued to see increases despite the challengingretail sector. This is borne out by the performance of both Hugo Boss andCanali, which saw like for like sales increases of 6.4% and 5.6% respectivelyfor the year ended 26 January 2008. Cecil Gee achieved a flat like for likesales performance. Moss and the Outlets bore the brunt of the consumer slow down with menswearnormally seeing the first effects of any slowing of economic growth. Lookingbehind the performance, however, shows resilience in the branded higher endpriced product, which helps to explain the increase in ASP by 3.5%. OPERATING COSTS Administrative expenses, shops selling and marketing costs ('operating costs')increased by 7.1% in the year, 2.2% after adjusting for non-recurring items.After adjusting for new and closed stores, like for like operating costs in theyear increased by 3.5%, despite like for like occupancy costs including rent,rates, service charges and utilities increasing 4.5%. Cost responsibility isoperated across the business and this has helped to control payroll costs withlike for like labour costs up only 1.5% and total like for like controllablecosts down 10.6%. During the year the Company chose to exit from a number of stores, which,alongside some property asset impairments, produced a net property related lossof £1.3m. In the face of what has been and what continues to be a challenging retailsector the business is seeking to reduce duplication and complexity acrosscertain support functions within the business. This will ultimately lead to someredundancies which management hopes to keep to a minimum by keeping existingvacant roles unfilled. A provision of £0.3m has been made in the accounts toallow for these redundancy costs. TAXATION An adjustment to prior year's deferred tax has resulted in a one off catch upcharge of £0.5m, which adjusts prior year figures. (LOSS)/EARNINGS PER SHARE (Loss)/earnings per share (1.44) pence per share compared to 3.44 pence pershare (restated) last year. DIVIDEND In view of the possible offer for the Company, the Board is not proposing a final dividend this year - total dividends for the year, following declaration and payment of the interim dividend are 0.5 pence (Ly: 1.80 pence for the year), the cost of which is £0.5m. It is the intention of the Board to declare a special dividend of 1.30 pence per Share if Newco does not announce a firm intention to make a takeover offer for the Company or any such offer is withdrawn or lapses without becoming or being declared unconditional in all respects. The declaration of a special dividend by the Board will be subject to considerations relevant at the time. INVESTMENT Capital expenditure in the year included the purchase of property, plant andequipment for £8.5m (Ly: £9.3m); this included £1.4m (Ly: £1.9m) for new hireinventory. Capital expenditure also included the purchase of intangible assets(IT software) for £0.5m (Ly: £1.9m); this included £0.2m for a new transactionalwebsite www.moss.co.uk. Depreciation of property, plant and equipment is £7.0m(Ly: 6.0m), of which £1.7m (Ly: £1.3m) relates to hire inventory. Amortisationof intangible assets is £0.3m (Ly: £0.2m). Reclassifications are discussed asper the Notes to the Preliminary Results. CASH Despite a lower trading performance, the year-end cash balance is still ahealthy £15.5m compared to £16.6m last year. Effective working capitalmanagement has maintained an average daily cash balance in line with last yearat £7.6m. INVENTORY Inventory has been very diligently monitored throughout the year resulting in alower inventory balance and an inventory ageing mix very close toindustry-recognised standards. The business continues to operate its buying andselling practices to ensure the right inventory is in the right place at theright time; the level of terminal inventory in the business is kept to a minimumby promotionally selling it through as we come to the end of each season. TRADE AND OTHER PAYABLES The renegotiated terms and conditions with our suppliers had a full effectduring the year and this helped maximise the average cash balance whilstimproving the product gross margin. For further information please contact: Moss Bros Group Plc: 0207 447 7200Philip Mountford, Chief ExecutiveMichael Hitchcock, Finance Director Tulchan Communications: 0207 353 4200Celia Gordon Shute Print resolution images are available for the media to view and download free ofcharge from http://www.vismedia.co.uk or http://www.prshots.co.uk Consolidated Income Statement For the 52 weeks ended 26 January 2008 52 weeks to 52 weeks to 27 January 2007 26 January 2008 (restated) Audited Audited £'000 £'000--------------------------------------------------------------------------------Revenue 130,171 133,876Cost of sales (59,467) (61,469)--------------------------------------------------------------------------------Gross Profit 70,704 72,407Administrative expenses (4,853) (4,518)Shops' selling and marketing costs (67,618) (63,135)--------------------------------------------------------------------------------Operating (Loss)/Profit (1,767) 4,754Financial income 387 354--------------------------------------------------------------------------------(Loss)/Profit before Taxation (1,380) 5,108Taxation 28 (1,912)--------------------------------------------------------------------------------(Loss)/Profit Attributable to EquityHolders of the Parent (1,352) 3,196--------------------------------------------------------------------------------Basic (loss)/earnings per share (1.44)p 3.44pDiluted (loss)/earnings per share (1.44)p 3.40p-------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and ExpenseFor the 52 weeks ended 26 January 2008 52 weeks to 52 weeks to 27 January 2007 26 January 2008 (restated) Audited Audited £'000 £'000--------------------------------------------------------------------------------(Loss)/Profit Attributable to EquityHolders of the Parent (1,352) 3,196-------------------------------------------------------------------------------- Consolidated Balance Sheet As at 26 January 2008 27 January 2007 26 January 2008 (restated) Audited Audited £'000 £,000 -------------------------------------------------------------------------------AssetsIntangible assets 1,904 1,707Property, plant and equipment 28,192 26,699Lease prepayments 2,787 2,812--------------------------------------------------------------------------------Total Non-Current Assets 32,883 31,218--------------------------------------------------------------------------------Inventories 19,179 19,964Trade and other receivables 7,752 7,491Cash and cash equivalents 15,541 16,590Current tax asset 73 149--------------------------------------------------------------------------------Total Current Assets 42,545 44,194--------------------------------------------------------------------------------Total Assets 75,428 75,412--------------------------------------------------------------------------------EquityIssued capital 4,724 4,678Share premium account 8,666 8,400Retained earnings 36,177 39,219--------------------------------------------------------------------------------Equity Attributable to Equity Holders ofParent 49,567 52,297--------------------------------------------------------------------------------LiabilitiesOther payables 1,290 1,337Deferred tax liabilities 3,897 4,001--------------------------------------------------------------------------------Total Non-Current Liabilities 5,187 5,338--------------------------------------------------------------------------------Trade and other payables 20,374 17,777Provisions 300 ---------------------------------------------------------------------------------Total Current Liabilities 20,674 17,777--------------------------------------------------------------------------------Total Liabilities 25,861 23,115--------------------------------------------------------------------------------Total Equity and Liabilities 75,428 75,412-------------------------------------------------------------------------------- Consolidated Statement of Cash Flows For the 52 weeks ended 26 January 2008 52 weeks to 52 weeks to 27 January 2007 26 January 2008 (restated) Audited Audited £,000 £'000--------------------------------------------------------------------------------Cash flows from Operating Activities (Loss)/profit before taxation (1,380) 5,108 Adjustments for: Finance income (387) (354)Depreciation of property, plant and equipment 7,032 6,006 Amortisation of intangible assets 350 155Equity settled share-based payment write-back - (211)Profit on sale of property, plant and equipment - (2,189)(Increase)/decrease in inventories 785 (2,128)Increase in receivables (261) (181)Increase in payables 2,850 2,179Taxation paid - (587)--------------------------------------------------------------------------------Net Cash from Operating Activities 8,989 7,798--------------------------------------------------------------------------------Cash flows from Investing Activities Finance income 387 354Grant for the purchase of non-current assets - 1,027Purchase of property, plant and equipment (8,500) (9,267)Purchase of intangible assets (547) (1,862)Proceeds from sale of property, plant and equipment - 2,758--------------------------------------------------------------------------------Net Cash from Investing Activities (8,660) (6,990)--------------------------------------------------------------------------------Cash flows from Financing Activities Dividends paid (1,690) (1,675)Proceeds from the issue of shares 312 20Purchase of own shares - (218)--------------------------------------------------------------------------------Net Cash from Financing Activities (1,378) (1,873)--------------------------------------------------------------------------------Cash and cash equivalents at beginning of year 16,590 17,655Decrease in cash and cash equivalents (1,049) (1,065)--------------------------------------------------------------------------------Cash and cash equivalents at end of year 15,541 16,590-------------------------------------------------------------------------------- Notes to the Preliminary ResultsFor the 52 weeks ended 26 January 2008 1. Accounting policies adopted are consistent with those adopted in the financial statements for the 52 weeks ended 27 January 2007. These can be seen via www.moss.co.uk. During the 52 weeks to 26 January 2008 hire inventory (NBV £4.1m at 26 January 2008; £4.4m at 27 January 2007) was reclassified from inventories to property, plant and equipment. Intangible assets included within total non-current assets were reclassified and relate to expenditure by the Company on IT software. Prior year comparatives have been adjusted to reflect these reclassifications. Deferred tax has been amended in the prior year for an adjustment to additions eligible for capital allowances. The deferred tax liability has been increased by £0.5m. 2. Statement of Changes in Equity 52 weeks to 52 weeks to 27 January 2007 26 January 2008 (restated) £,000 £'000--------------------------------------------------------------------------------Total Equity at beginning of year 52,297 51,185(Loss)/profit for the year (1,352) 3,196Dividends paid (1,690) (1,675)Issue of shares 312 20Purchase of own shares - (218)Share based payments - (211)--------------------------------------------------------------------------------Net movement in equity during the year (2,730) 1,112--------------------------------------------------------------------------------Total equity at end of year 49,567 52,297-------------------------------------------------------------------------------- 3. Basic (loss)/earnings per ordinary share are based on the weighted average of 94,254,486 (2007: 92,895,454) ordinary shares in issue during the year (which excludes the shares held by the Quest and the shares held by a third party on behalf of the Company) and are calculated by reference to the loss attributable to shareholders of £1,352,000 (2007: profit of £3,196,000). Diluted earnings per ordinary share are based upon the weighted average of 94,254,586 (2007: 93,939,019) ordinary shares, which takes into account share options outstanding and are calculated by reference to the profit attributable to shareholders as stated above. 4. The financial information set out above does not constitute the Company's statutory accounts for the 52 weeks ended 26 January 2008 or the 52 weeks ended 27 January 2007 but, to the extent that amounts are not denoted as 'Restated', are derived from those accounts. Statutory accounts for the 52 weeks ended 27 January 2007 have been delivered to the Registrar of Companies, and those for the 52 weeks ended 26 January 2008 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 5. The provisions are for redundancies following the restructuring of central functional services. These are expected to be utilised during the course of the coming year. 6. Like for like comparatives remove the impact of new store openings. 7. Net property related gains/(losses) comprise: 52 weeks to 52 weeks to 27 January 2007 26 January 2008 (restated) £'000 £'000--------------------------------------------------------------------------------Profit on disposal of property, plant & equipment - 2,189Costs to exit leasehold property (580) -Accelerated depreciation - former Distribution Centre - (290)Write-off of receivable in respect of store move costs - (135)Impairment charge (included within depreciation) (670) (61)--------------------------------------------------------------------------------Net property related gains/(losses) (1,250) 1,703-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange