Interim Results

Sirdar PLC 29 March 2007 Sirdar PLC Interim Report to 31st December 2006 Operating Review Introduction The six months to 31st December 2006 has been a very challenging period for the group. Sales and margins have been under pressure in the Floor Coverings division and the fashion led boom in hand knitting yarns, which boosted the results of the Specialist Yarns division, has come to an end. Following consideration of various strategic options, the board has now concluded that further action is needed to streamline the group to enable it to focus on its core activity of Floor Coverings. Details are set out in the section on future strategy below. The results Turnover for the half year to 31st December 2006 was £34.3m (2005: £38.4m) generating operating profit, before exceptional costs, of £1.5m (2005: £3.5m). After exceptional costs of £0.5m (2005: £nil), operating profit was £1.0m (2005: £3.5m). Earnings per share were 0.05p and adjusted earnings per share were 0.76p (2005: earnings per share and adjusted earnings per share 3.84p). Cash inflow from operating activities amounted to £3.0m (2005: £1.7m) with £1.6m being generated from working capital (2005: £2.5m absorbed) as a result of the continued focus on this area. Net debt reduced by £0.5m to £4.9m. The board has declared a maintained interim dividend of 0.80p per share (2005: 0.80p). The dividend is payable on 8th May 2007 to those shareholders on the register of members at the close of business on 10th April 2007. Floor Coverings Sales of Floor Covering products reduced by 9% to £26.1m (2005: £28.8m) and operating profit fell to £0.6m before exceptional costs and to £0.2m after exceptional costs (2005: £1.3m before and after exceptional items). Although the commercial sector of the market remains challenging, the recent investment in people, products and processes within Burmatex enabled this part of the business to maintain turnover and profitability. As reported previously, the residential sector has been difficult and our operations in this area have been the subject of significant attention as we seek to counter the adverse trading conditions which have affected most players within this market. We have made a number of changes to this operation over the last twelve months including the relocation of the bespoke manufacturing operation from Rochdale to a centre of excellence at Wakefield, the closure of Spenbrook Mill manufacturing plant and the cessation of yarn spinning activities at Oxford Mill, Bury. A number of other changes are planned for the near future including the setting up of a second centre of excellence in Lancashire and the closure and sale of the operation's headquarters and main manufacturing site in Rochdale. Our original target was to complete the necessary changes by December 2007 and we are on schedule to achieve this. The total cost to date is approximately £0.6m and we expect the final total to amount to £1.5m. In addition, the changes have necessitated additional capital expenditure to date of £0.5m and the final total capital expenditure is likely to amount to £1.5m. We expect the total cost of £3.0m to be covered by the proceeds of sale of the Rochdale site. At the conclusion of the restructuring process the residential floor coverings business will have been reconfigured from seven sites to three centres of excellence and will operate with a significantly lower headcount with no adverse impact on potential sales. Specialist Yarns Sales in this division reduced by 16% to £8.1m (2005: £9.6m) and operating profit reduced to £1.1m (2005: £2.4m). Sales of the division's standard ranges of hand knitting yarns held steady and sales of technical products under the Tilsatec brand continued to grow. However, the downturn in the market for fancy hand knitting yarns resulted in the lower overall level of sales. The impact on the Specialist Yarns division of the decision to streamline the group and concentrate on Floor Coverings is set out in the section on future strategy below. Future strategy As we approach completion of the changes within our two Floor Coverings businesses, we believe that the time is now right to amalgamate these activities into one operation. The Floor Coverings division represents approximately 75% of our turnover and the market in which it operates is large and growing. Having modernised our businesses, we believe that we are now in a position to increase our share of this market and that this should be the focus of our activities going forward. As well as the current sectors of commercial carpet and residential carpet, the existing businesses are increasingly targeting the contract market and we believe that this will be more successful if it is done on a combined basis rather than as two separate businesses. As the first step towards integrating our two Floor Coverings businesses, we have appointed Gordon Donald, the current managing director of Burmatex, as managing director of the group's Floor Coverings division with effect from 1st July 2007. In reaching our view that the needs of the group's shareholders would be best served by focusing on our Floor Coverings business, it becomes clear that the needs of the Specialist Yarns division would be better served under different ownership and we will therefore be seeking to sell that division. Once the future of the Specialist Yarns division is decided we will to be able to merge the management of the Floor Coverings division with that of the PLC operation and discontinue the majority of the central group costs. As part of the above process, we have also considered our property strategy and, in particular, our ownership of the site at Flanshaw Lane, Wakefield. This site is currently occupied by a mixture of group businesses and external tenants. As part of the focus on Floor Coverings, the board believe it will be beneficial to dispose of this site and lease back those parts required for our ongoing operations. It is anticipated that this disposal and the planned sale of the Rochdale site will generate funds that will be used to finance the restructuring of the group. This may offer scope to reduce the group's bank debt and/or pension deficit and we will discuss this with our bankers and the trustees of the pension scheme in due course. Current trading and future prospects Trading conditions in the early part of 2007 have continued to be very difficult. Sales in both divisions have fallen further behind last year over the first three months of 2007. The short term prospects for both divisions are very challenging. The Floor Coverings division is focusing on new product development and innovation but recent increases in interest rates and uncertainty over the level of public sector spending mean that the market remains difficult. However, we believe that our modernised Floor Coverings division will be well placed to increase its market share. The Specialist Yarns division expects growth in technical products to continue but sales of hand knitting yarns are likely to be subdued over the next few months as the business reverts to its normal pattern of seasonality. The board would like to record their continued appreciation of the effort and commitment of all group employees. This commitment combined with the strategic changes detailed above should enable the group to put in place a sound base for the future. 29th March 2007 Consolidated Profit and Loss Account 6 months ended 31st December 2006 Unaudited Unaudited Audited 6 months ended 6 months ended year ended 31st December 2006 31st December 2005 30th June 2006 Note £000 £000 £000 Turnover 2 34,260 38,421 74,811 Operating costs (32,774) (34,940) (69,490) Exceptional costs 3 (468) - - Total operating costs (33,242) (34,940) (69,490) Operating profit 2 1,018 3,481 5,321 Net interest payable and similar charges (237) (329) (609) Other finance costs (250) (350) (590) Profit before taxation 531 2,802 4,122 Taxation (508) (1,026) (1,509) Profit for the period 23 1,776 2,613 Earnings per share (basic and diluted) 5 0.05p 3.84p 5.65p The results shown in the consolidated profit and loss account derive wholly from continuing activities. There is no difference between the profit before taxation and the profit for the period stated above and their historical cost equivalents. Statement of Total Recognised Gains and Losses 6 months ended 31st December 2006 Unaudited Unaudited Audited 6 months ended 6 months ended year ended 31st December 2006 31st December 2005 30th June 2006 £000 £000 £000 Profit attributable to shareholders of the group 23 1,776 2,613 Actuarial gains recognised in the pension scheme - 1,260 2,814 Total recognised gains relating to the period 23 3,036 5,427 Consolidated Balance Sheet as at 31st December 2006 Unaudited Unaudited Audited 31st December 31st December 30th June 2006 2005 2006 Note £000 £000 £000 £000 £000 £000 Fixed assets Intangible 12,417 13,297 12,857 Tangible 15,226 15,340 15,107 27,643 28,637 27,964 Current assets Stocks 14,613 17,708 16,517 Debtors 10,322 13,355 10,416 Cash at bank and in hand 770 273 537 25,705 31,336 27,470 Creditors (due within one year) (17,179) (20,316) (17,399) Net current assets 8,526 11,020 10,071 Total assets less current liabilities 36,169 39,657 38,035 Creditors (due after more than one year) - (2,214) (739) Deferred taxation 6 (2,151) (2,217) (2,071) Net assets excluding pension deficit 34,018 35,226 35,225 Net pension deficit (9,100) (11,612) (9,590) 24,918 23,614 25,635 Equity shareholders' funds Called up share capital 11,561 11,561 11,561 Share premium account 504 504 504 Capital redemption reserve 2,395 2,395 2,395 Profit and loss account 7 10,458 9,154 11,175 24,918 23,614 25,635 Consolidated Cash Flow Statement 6 months ended 31st December 2006 Unaudited Unaudited Audited 6 months 6 months ended year ended ended 31st 31st December 30th December 2005 June 2006 2006 Note £000 £000 £000 £000 £000 £000 Net cash inflow from operating activities 9 3,006 1,654 7,584 Interest paid and similar charges (224) (374) (654) 2,782 1,280 6,930 Corporation tax paid (553) (247) (1,121) Capital expenditure Purchase of tangible fixed assets (1,282) (556) (1,227) Sale of tangible fixed assets 295 163 207 (987) (393) (1,020) Equity dividends paid (740) (647) (1,017) Cash inflow / (outflow) before financing 502 (7) 3,772 Financing Redemption of loan notes - - (226) Repayment of bank loans (1,519) (1,519) (2,811) (1,519) (1,519) (3,037) (Decrease)/increase in cash 10 (1,017) (1,526) 735 A reconciliation of net cash flow to movement in net debt is set out in note 11. NOTES 1 BASIS OF PREPARATION The financial information has been prepared using the accounting policies set out in the group's annual report and financial statements for the year ended 30th June 2006. The comparative figures for the year ended 30th June 2006 do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 30th June 2006 have been delivered to the Registrar of Companies. The auditors have reported on those accounts. Their report was not qualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2 SEGMENTAL INFORMATION Analysis of results by class of business Turnover 6 months ended 6 months ended Year ended 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Floor Coverings 26,138 28,779 56,218 Specialist Yarns 8,122 9,642 18,593 34,260 38,421 74,811 Operating profit 6 months ended 6 months ended Year ended 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Floor Coverings Underlying 1,059 1,759 2,933 Exceptional costs (468) - - Goodwill (440) (440) (880) 151 1,319 2,053 Specialist Yarns 1,076 2,441 3,719 1,227 3,760 5,772 Central group costs (209) (279) (451) 1,018 3,481 5,321 Net operating assets 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Floor Coverings 32,778 37,573 34,470 Specialist Yarns 7,704 8,099 7,541 40,482 45,672 42,011 Central group liabilities (759) (957) (812) 39,723 44,715 41,199 Net operating assets are stated excluding inter-company financing and are derived from the balance sheet total by excluding bank borrowings, loans and loan notes totalling £5,705,000 (31st December 2005: £9,489,000, 30th June 2006: £5,974,000) and a net pension deficit of £9,100,000 (31st December 2005: £11,612,000, 30th June 2006: £9,590,000). 3 EXCEPTIONAL COSTS 6 months ended 6 months ended Year ended 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Staff costs 315 - - Other external charges 68 - - Write down of fixed assets 85 - - 468 - - The exceptional costs in the period relate to redundancies, fixed asset write offs and additional charges associated with the reorganisation of the residential floor coverings operation. 4 DIVIDENDS 6 months ended 6 months ended Year ended 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Paid during the period: Final dividend for the year ended 30th June 2006 - 1.60p per share 740 - - Interim dividend for the year ended 30th June 2006 - 0.80p per share - - 370 Final dividend for the year ended 30th June 2005 - 1.40p per share - 647 647 740 647 1,017 Proposed after the period end (not recognised as a liability): Interim dividend for the year ending 30th June 2007 - 0.80p per share 370 - - Final dividend for the year ended 30th June 2006 - 1.60p per share - - 740 Interim dividend for the year ended 30th June 2006 - 0.80p per share - 370 - 370 370 740 The interim dividend will be paid on 8th May 2007 to members registered at the close of business on 10th April 2007. 5 EARNINGS PER SHARE The calculation of basic earnings per share is based on earnings of £23,000 (31st December 2005: £1,776,000, 30th June 2006: £2,613,000) and on 46,242,455 (31st December 2005: 46,242,455, 30th June 2006: 46,242,455) ordinary shares, being the weighted average number in issue during the period. Adjusted earnings per share, as set out below, is calculated after excluding exceptional costs, net of tax, and is presented in order to demonstrate the underlying performance of the group. 6 months ended 6 months ended Year ended 31st December 2006 31st December 2005 30th June 2006 £000 pence £000 pence £000 pence Earnings and basic earnings per share 23 0.05 1,776 3.84 2,613 5.65 Exceptional costs 328 0.71 - - - - Adjusted earnings and basic earnings 351 0.76 1,776 3.84 2,613 5.65 per share 6 DEFERRED TAX 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Brought forward 2,071 2,230 2,230 Profit and loss account 80 (13) (159) Carried forward 2,151 2,217 2,071 7 PROFIT AND LOSS ACCOUNT 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Brought forward 11,175 6,765 6,765 Profit for the period 23 1,776 2,613 Other recognised gains - 1,260 2,814 Equity dividends paid (740) (647) (1,017) Carried forward 10,458 9,154 11,175 8 RECONCILIATION OF MOVEMENTS IN GROUP EQUITY SHAREHOLDERS' FUNDS 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Profit for the period 23 1,776 2,613 Other recognised gains - 1,260 2,814 Equity dividends paid (740) (647) (1,017) Net (decrease)/increase in equity shareholders' funds (717) 2,389 4,410 Opening equity shareholders' funds 25,635 21,225 21,225 Closing equity shareholders' funds 24,918 23,614 25,635 9 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 6 months ended 6 months ended Year ended 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 Operating profit 1,018 3,481 5,321 Depreciation 877 896 1,769 Goodwill amortisation 440 440 880 Loss/(profit) on disposal of tangible fixed assets 71 (18) (31) Current service pension cost 130 130 170 Decrease/(increase) in stocks 1,904 (364) 827 (Increase)/decrease in debtors (23) (1,532) 1,432 Decrease in creditors (331) (584) (1,044) Contributions to defined benefit pension scheme (1,080) (795) (1,740) Net cash inflow from operating activities 3,006 1,654 7,584 10 ANALYSIS OF CHANGES IN NET DEBT 31st December 30th June 2006 Cash flows 2006 £000 £000 £000 Cash at bank and in hand 770 233 537 Bank overdrafts (3,490) (1,250) (2,240) (2,720) (1,017) (1,703) Loan notes (168) - (168) Bank loans (2,047) 1,519 (3,566) Total net debt (4,935) 502 (5,437) 11 RECONCILIATION OF MOVEMENT IN NET DEBT 31st December 31st December 30th June 2006 2005 2006 £000 £000 £000 (Decrease)/increase in cash (1,017) (1,526) 735 Redemption of loan notes - - 226 Repayment of bank loans 1,519 1,519 2,811 Movement in net debt 502 (7) 3,772 Net debt at start of period (5,437) (9,209) (9,209) Net debt at end of period (4,935) (9,216) (5,437) OTHER INFORMATION The interim results are unaudited. Further copies of this report are available from the Company Secretary at the registered office at Flanshaw Lane, Alverthorpe, Wakefield, West Yorkshire WF2 9ND. For further information please contact: Sirdar PLC Steve Harrison Chief Operating Officer 01924-371501 Kevin Henry Finance and Planning Director 01924-371501 Brewin Dolphin Securities Andrew Kitchingman Director - Corporate Finance 01132-410130 ENDS This information is provided by RNS The company news service from the London Stock Exchange

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