Final Results
Associated British Engineering PLC
29 July 2003
A • B • E
CHAIRMANS' STATEMENT
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The Group made a pre-tax loss of £297,000 on the continuing operations compared
with a pre-tax loss of £296,000 last year. However, the losses reported for this
year include legal and actuarial adviser costs of £90,000 relating to the
pension scheme and costs to date of £58,000 relating to the potential disposal
of British Polar Engines. These amounts are significant, but the Board decided
that the possible impact of the pension fund deficit was such that the legal
position had to be clarified. The proposed disposal of British Polar Engines
would involve a reorganisation of the corporate structure and has required the
need to involve outside advisers on valuation, in view of the participation of
the previous Chairman in the transaction.
I am pleased to report that British Polar Engines made an operating profit of
£28,000 against a loss of £380,000 last year. We have continued to rationalise
the Group and, following the closure of a trading division of British Polar
Engines, ABE Diesels, the shareholders approved the sale of the unoccupied site
at St Helens at the Extraordinary General Meeting on 3 July 2003. The net
proceeds of approximately £285,000 from the sale of St Helens will be used to
provide working capital for the continuing Group. It is not the present
intention of the Board to return these monies to Shareholders as we may wish to
make acquisitions, which would benefit the Group, but no specific acquisition
has been identified at the current time.
The previous Chairman has reported that the Company has been notified of
significant deficits in the funding for its pension scheme. This is an extremely
complicated issue, which has been further affected by the Government announcing
a new pension strategy, and draft regulations in June of this year. The
principal change, which is already in force, is that, in the event of a wind-up
of a pension scheme, the employer is liable for the full cost of the actuarial
liabilities, which is typically a greater sum than that under the Minimum
Funding Requirement rules.
At the date of the last full triennial actuarial valuation on 1 April 2002 the
deficit on the pension scheme was £1,763,000. This valuation has been updated to
31 March 2003 by a qualified independent actuary giving a deficit of £4,427,000.
This sum is closer to the anticipated liability under the new rules. The ABE
pension scheme actually has four main employers within it, one of which has left
the group, and another is in administration, and will shortly be liquidated. The
Board have been advised by its lawyers and leading counsel that each employer
within the scheme is only responsible for the liability attaching to its own
past and present employees, both as to ongoing contributions and on a wind up of
part or all of the scheme. British Polar Engine's share of this deficit is
approximately one third and the Company's share is less than 1%. The advisers to
the trustees of the scheme are mounting an argument that any remaining employers
in a scheme are liable for other employers who are not in a position to meet
their obligations. Whilst the law is not clear enough to be 100% certain, our
counsel has advised us that the advisers to the trustees argument is incorrect.
The Board is currently reviewing the overall situation with its advisers and
will announce the results of this review once it is completed.
The conditional offer for BPE from an MBO team, which involves three of the
current directors of BPE, is now being renegotiated in order to achieve terms
which are acceptable to the Board of ABE. If terms were agreed, this would also
be the subject of a circular and shareholder approval in due course.
The Board is considering further acquisition targets and will keep Shareholders
fully informed of developments and will seek the appropriate permissions for any
acquisition when required.
D.A.H. Brown
Chairman
28 July 2003
A • B • E
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2003
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2003 2002
£'000 £'000
Turnover:
Continuing operations 2,692 3,007
Discontinued operations - 580
2,692 3,587
Operating loss:
Continuing operations (323) (344)
Discontinued operations - (176)
(323) (520)
Loss arising on closure of trading division - (340)
Loss on ordinary activities before finance costs:
Continuing operations (323) (344)
Discontinued operations - (516)
(323) (860)
Net finance income
Continuing operations 26 48
Loss on ordinary activities before taxation:
Continuing operations (297) (296)
Discontinued operations - (516)
(297) (812)
Taxation 5 -
Loss on ordinary activities after taxation (292) (812)
Appropriation in respect of non-equity shares (51) (51)
Retained loss (343) (863)
Loss per ordinary share
Continuing operations (26)p (26)p
Basic (26)p (66)p
A • B • E
RECONCILIATION OF MOVEMENTS IN
SHAREHOLDERS FUNDS
FOR THE YEAR ENDED 31 MARCH 2003
--------------------------------------------------------------------------------
2003 2002
£'000 £'000
Retained loss (343) (863)
Appropriation in respect of non-equity shares 51 51
Shareholders' funds at 1 April 2002 3,175 3,987
Shareholders' funds at 31 March 2003 2,883 3,175
The were no recognised gains or losses other than the result for the financial
year.
A • B • E
GROUP BALANCE SHEET
AS AT 31 MARCH 2003
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2003 2002
£'000 £'000
FIXED ASSETS
Tangible assets 473 553
CURRENT ASSETS
Stock 1,279 1,400
Property held for sale 138 116
Debtors - amounts falling due within one year 621 621
Cash at bank and in hand 1,138 1,518
3,176 3,655
Creditors - amounts falling due within one year 734 991
Net current assets 2,442 2,664
Total assets less current liabilities 2,915 3,217
Creditors - amounts falling due after one year 10 15
Provisions for liabilities and charges 22 27
Net assets 2,883 3,175
CAPITAL AND RESERVES
Called up share capital 3,339 3,339
Share premium account 5,038 5,038
Other reserves 11 11
Profit and loss account (5,505) (5,213)
Equity shareholders' funds 2,018 2,361
Non-equity shareholders' funds 865 814
Total shareholders' funds 2,883 3,175
A • B • E
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2003
--------------------------------------------------------------------------------
2003 2002
£'000 £'000
OPERATING ACTIVITIES
Cash outflow from operating activities (313) (314)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Finance income received 34 52
Finance costs paid (3) (3)
Finance cost element of finance lease rental payments (5) (1)
Net cash inflow from returns on investments and servicing 26 48
of finance
TAXATION
UK taxation paid 5 (5)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Properties held for sale (22) -
Purchase of tangible fixed assets (27) (42)
Net proceeds on sale of tangible fixed assets 17 3
Net cash outflow from capital expenditure and financial investment (32) (39)
ACQUISITIONS AND DISPOSALS
Acquisition of Kelvin Diesels - (148)
Discontinued catering equipment operations - (74)
Net cash outflow from acquisitions and disposals - (222)
Cash outflow before financing (314) (532)
FINANCING
Decrease in debt (12) (12)
Capital element of finance lease repayments (5) (6)
Net cash outflow from financing (17) (18)
Decrease in cash in the year (331) (550)
A • B • E
NOTES
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1 BASIS OF PREPARATION
The preliminary announcement has been prepared in accordance with
applicable accounting standards and under the historical cost convention.
The principal accounting policies of the group have remained unchanged from
those set out in the group's 2002 annual report and financial statements.
2 ANALYSIS OF TURNOVER BY GEOGRAPHICAL DESTINATION
2003 2002
£'000 £'000
United Kingdom 1,201 2,435
Europe 424 485
Middle East 114 80
Far East and Australasia 836 263
Africa 33 124
North and South America 84 200
2,692 3,587
All of the above turnover arises from diesel and related engineering activities
and originates in the United Kingdom.
3 OPERATING LOSS
Total Continued Discontinued Total
2003 2002 2002 2002
£'000 £'000 £'000 £'000
Turnover 2,692 3,007 580 3,587
Changes in stocks of finished goods and work 121 (953) (159) (1,112)
in progress
Raw materials and services 1,499 2,621 669 3,290
Staff costs 1,069 1,374 223 1,597
Auditors' remuneration for audit 34 27 - 27
Depreciation
Tangible fixed assets 93 82 23 105
Exceptional items 148 150 - 150
Operating lease rentals on plant and 51 50 - 50
machinery
Net operating expenses 3,015 3,351 756 4,107
Operating loss (323) (344) (176) (520)
A • B • E
NOTES
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4 EXCEPTIONAL ITEMS
Exceptional operating item
(a) 2003
The Group incurred exceptional professional costs relating to the potential
sale of British Polar Engines business of £58,000 and professional costs of
£90,000 in respect of advice regarding the ABE pension scheme.
2002
As a result of a downturn in trading activity, an additional provision
of £150,000 was made against the stock held by British Polar Engines
Limited.
Discontinued activities
(b) 2002
On 31 March 2002 a trading division of British Polar Engines Limited was
closed resulting in costs of £340,000.
5 LOSS PER ORDINARY SHARE
The calculation of loss per ordinary share is based on the loss
attributable to ordinary shareholders divided by the weighted average
number of shares in issue during the year.
The calculation of diluted loss per share is based on the basic loss per
share, adjusted to allow for the issue of shares and the post tax effect of
dividends. There has been no dilution in the year or the prior year.
2003 2002
Loss Weighted average Per shares Loss Weighted average Per shares
number of shares amount pence number of shares amount pence
£'000 £'000
Basic loss per share (343) 1,313,427 (26) (863) 1,313,427 (66)
Discontinued activities - 1,313,427 - (516) 1,313,427 (40)
Loss per share on (343) 1,313,427 (26) (347) 1,313,427 (26)
continuing operations
A • B • E
NOTES
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6 NOTES TO THE CASH FLOW STATEMENT 2003 2002
£'000 £'000
Reconciliation of operating loss to net cash inflow from operating
activities:
Operating loss (323) (520)
Depreciation charges 93 105
Decrease in stocks 121 231
Decrease in debtors - 430
Decrease in creditors (199) (555)
Decrease in pension provision (5) (5)
Net cash outflow from operating activities (313) (314)
Reconciliation of net cash flow to movement in net cash/(debt):
Decrease in cash in the year (331) (550)
Change in net debt 12 12
Capital element of finance lease payments 5 6
New finance leases (3) (18)
(317) (550)
Net funds at the beginning of the year 1,441 1,991
Net funds at the end of the year 1,124 1,441
Analysis of changes in net funds/(debt):
Other non cash
2002 Cash flow changes 2003
£'000 £'000 £'000 £'000
Cash at bank and in hand 1,518 (380) - 1,138
Bank overdraft (49) 49 - -
1,469 (331) - 1,138
Debt due within one year (12) 12 - -
Finance leases (16) 5 (3) (14)
Total 1,441 (314) (3) 1,124
A • B • E
NOTES
_____________________________________________________________________
7 PENSIONS
The Group operates a defined benefit pension scheme, holding the assets in
a separate trustee administered fund ('The ABE Pension Fund'). The required
contributions are assessed with the advice of an independent qualified
actuary using the projected unit method and charged to the profit and loss
account so as to spread the cost of pensions over employees' working lives
with the Group. At 31 March 2003, the Pension Fund had 20 active members,
195 deferred members, and 178 funded pensioners. The group also has a
designated group personal pension plan which meets stakeholder
requirements.
The ABE pension scheme actually has four main employers within it, one of
which has left the group, and another is in administration, and will
shortly be liquidated. The Board has been advised by its lawyers and
leading counsel that each employer within the scheme is only responsible
for the liability attaching to its own past and present employees, both as
to ongoing contributions and on a wind up of part or all of the scheme.
British Polar Engine's share of this deficit is approximately one third and
the Company's share is less than 1%. The advisers to the trustees of the
scheme are mounting an argument that any remaining employers in a scheme
are liable for other employers who are not in a position to meet their
obligations. Whilst the law is not clear enough to be 100% certain, our
counsel has advised us that the advisers to the trustees argument is
incorrect. The Board is currently reviewing the overall situation with its
advisers and will announce the results of this review once it is completed.
The disclosures set out below are for the whole scheme.
The principal assumptions used in the most recent actuarial valuation as at
1 April 2002 are based upon price inflation of 2.8% per annum, an investment
return of 6.3% per annum prior to retirement and 5.3% per annum in
retirement, pay growth of 4.5% per annum (including allowance for
promotions) and increases in present and future pensions in payment (where
subject to increases in line with RPI capped at 5% per annum) at 2.6% per
annum. At that date, the market value of the assets of the fund was
£8,102,000 (including the value of insured pensions) and was sufficient to
cover 76% of the benefits which had accrued to members after allowing for
expected future increases in earnings.
Ionian Investment Management, a division of Fiske plc, of which Mr S J
Cockburn is Deputy Chairman and a shareholder, manages the pension fund
investments.
Employer contributions of £93,000 were paid into the scheme over the year
(2002: £120,000). This is stated after a reduction of £5,000 (2002 £5,000)
representing the amortization, over the expected average remaining service
lives of the employees, of a provision made in previous years as a result of
a preceding actuarial valuation. This provision was £22,000 at 31 March 2003
(2002 £27,000). Following the results of the formal actuarial valuation
carried out as at 1 April 2002, the level of employer contributions being
paid into the Scheme increased from 13% per annum of pensionable salaries to
16.5% per annum of pensionable salaries from 1 March 2003.
In November 2000, the Accounting Standards Board issued FRS 17 'Retirement
Benefits', replacing SSAP 24 'Accounting for Pension Costs'. Certain
disclosures are required in the transition period, for periods which end on
or after 22 June 2001. These further disclosures are set out below.
A • B • E
NOTES
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The company operates a defined benefit scheme in the UK. A full actuarial
valuation was carried out at 1 April 2002 and updated to 31 March 2003 by a
qualified independent actuary. The major assumptions used by the actuary
were:
2003 2002
Rate of increase in salaries 2.60% 2.80%
Rate of increase of pensions in payment increasing at RPI 2.40% 2.55%
Discount rate 5.40% 6.00%
Inflation assumption 2.60% 2.80%
The assets in the scheme and the expected rates of return (net of expenses)
were:
2003 2002
% £'000 % £'000
Equities 5.10 2,949 6.90 4,787
Bonds 2.60 2,558 4.40 2,449
Cash 1.50 818 2.60 557
Insured pensions 5.40 321 6.00 -
Total market value of assets 6,646 7,793
Actuarial value of liability (11,073) (9,556)
Deficit in the scheme (4,427) (1,763)
Related deferred tax asset 1,328 529
Net pension liability (3,099) (1,234)
2003
£'000
Movement in deficit during the year
Deficit in scheme at beginning of year (1,763)
Movement in year:
Current service cost (88)
Contributions 85
Finance cost (120)
Actuarial loss (2,541)
Deficit in scheme at end of year (4,427)
A • B • E
NOTES
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2003
£'000
Analysis of finance cost on pension scheme
Expected return on pension scheme assets 444
Interest on pension liabilities (564)
Net return (120)
2003
£'000
Analysis of the amount that would have been charged to operating profit
Service cost 88
Past service cost -
Total operating charge 88
2003
£'000
Analysis of amount that would have been recognised in statement of total
recognised gains and losses
Actual return less expected return on assets (1,603)
Experience gains and losses on liabilities (93)
Changes in assumptions (845)
Actuarial loss recognised (2,541)
Had the Group fully adopted FRS 17 in these financial statements the group
profit and loss account would have stated as follows:
2003 2002
£'000 £'000
Profit and loss account at 31 March (5,505) (5,213)
Deficit relating to the pension fund (4,427) (1,763)
Profit and loss account at 31 March as adjusted (9,932) (6,976)
The deferred taxation asset relating to the pension liability has not been
included above because it is not sufficiently certain to crystallise.
A • B • E
NOTES
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% of scheme
2003 assets/
£'000 liabilities
The following disclosure will be built up over time as a five year history:
Difference between expected and actual return on scheme assets (1,603) (24)
Experienced gains and losses on scheme liabilities (93) 1
Total amount recognised in statement of total recognised gains and losses (2,541) 23
8 The financial information set out in this preliminary announcement
does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985.
The summarised balance sheet at 31 March 2003 and the summarised profit and
loss account, summarised cash flow statement and associated notes for the
year then ended have been extracted from the Group's 2003 statutory
financial statements upon which the Auditors' opinion is unqualified and
does not include any statement under Section 237 of the Companies Act 1985.
Those financial statements have not been delivered to the Registrar of
Companies.
9 The comparative figures for the year ended 31 March 2002 are abridged
from the accounts for that year and do not constitute full accounts within
the meaning of Section 240 of the Companies Act 1985 (as amended). Statutory
accounts for that period, on which the Auditors gave an unqualified opinion,
have been delivered to the Registrar of Companies.
10 The board does not recommend a dividend on ordinary shares for the
year. (2002 Nil).
D A H Brown
28 July 2003
Enquiries:
Mr D A H Brown (Chairman)
Mrs K M Good (Finance Director)
Te: 01223 873600
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