Final Results

Rap Group PLC 2 March 2001 Preliminary Announcement of the Audited Results of RAP Group plc ('RAP') for the year ended 31 December 2000 2000 was a year of momentous change for RAP during which the fundamental restructuring of the Group included the sale of both the conveyor and rubber and safety businesses against the background of continued decline in the activity levels of each business. A one-for-one rights issue in June, raised £1.9 million and provided the refinancing necessary to implement the disposal programme. It also supported the Company in its move into IT and e-commerce activities. In November the Company transferred from the Official List to AIM and shortly after appointed Rowan Dartington as its nominated adviser and broker. The fixings business has continued its recovery and the gardening division's decline has been partially arrested. However, the Board believes these hardware businesses will only show their full potential in the medium term. The Board now wishes to focus on its IT and e-commerce activities. Approaches from third parties for the hardware businesses failed to deliver the expected values. The Board has therefore decided, subject to shareholders' approval, to sell these businesses to Paddico, a company owned by Peter Gyllenhammar, one of RAP's major shareholders, for a deferred consideration, which is structured around an expected realisation of £1m. This price is in excess of offers from third parties. The sale contract provides for 80 per cent. of any increase in value over £1 million and 10 per cent. of any decrease below £1 million on the subsequent sale of this business by Paddico to be paid to RAP. In the meantime, RAP will provide Paddico with the accounting and administrative support and the businesses will continue to be managed by Brian Shaw. In the autumn of 2000 the Board identified certain acquisitions which it wished to make, but which it was not in a position to conclude due to the disposal programme and the timing problems associated with its full listing status. The Board therefore approached Peter Gyllenhammar with a view to him acquiring these businesses whilst RAP concluded its disposal programme. As a result, Silverslaggan AB, a company owned by Peter Gyllenhammar, acquired certain Enterprise Resource Planning (ERP) businesses of Kewill Systems plc. RAP announced today that it has now exchanged conditional contracts with Silverslaggan AB to acquire those ERP businesses now known as K3 Business Technology Group Limited and K3 Business Technology Software Limited. These companies are to be acquired for an aggregate consideration of £3,742,000 (' the Consideration'), in addition RAP will assume a loan of £310,000. The Consideration will be satisfied as to £3,352,000 in cash or in new ordinary shares issued at a value of 15p per share on completion, the balance of the Consideration being £390,000, will be paid in instalments over the next 21 months. To help fund the cost of the acquisitions and to provide additional working capital the Company is making available 25.65 million new ordinary shares to existing shareholders through a one for one open offer. The acquisitions and open offer are conditional upon shareholders' approval which will be sought at an EGM to be held on 26 March 2001. Further details regarding the acquisitions, the open offer and various related proposals are set out in a separate announcement made today and in a circular which has been despatched to shareholders today. Following the acquisition RAP intends to change its name to K3 Business Technology Group plc. Financial Results The results for the year to 31 December 2000 show further decline in sales of 27.6 per cent. to £14.25 million (1999: £19.68 million). This reflects both a contraction in the old core businesses of rubber, safety products and glove distribution and the sale of these businesses and RAP Conveyors Limited during the year. This resulted in a loss in the period of £5.19 million (1999: £1.63 million) after losses on disposal of £1.7 million (including goodwill written off of £0.3 million) and profits on property disposals of £0.3 million. Operational Review During the year the group implemented its programme of restructuring as it progressed its IT and e-commerce strategy. (S) In May it disposed of RAP Conveyors Limited for approximately £0.4 million. (S) In June it agreed to buy Touchline Network Television Limited, a company specialising in multimedia and e-commerce development. (S) In July it completed a rights issue raising £1.9 million. (S) In August it completed the sale of its property in Hamilton, Scotland, for £475,000. (S) In November it completed the disposal of its rubber, safety products and glove divisions for approximately £3.60m. Board Changes As previously reported, Mr Andy Makeham joined the Board on 1 July 2000 as Marketing Director, e-Commerce. Following the sale of the rubber and safety products divisions, Mr John Savage resigned as Chairman and Chief Executive. Mr John Grimshaw also resigned as Operations Director. Following the acquisition of the ERP businesses, Mr Makeham will become Chief Executive. Mr John Griffith, managing director of Intershop (UK) Limited, will join the Board following the EGM in March. Mr Johan Claesson, the Company's major shareholder and chairman of Claesson and Anderzen AB, a substantial Swedish property company, has also been invited to join the board as non-executive Chairman following the EGM. Trading and Prospects Sales in the traditional rubber and safety businesses continued to decline, the deterioration being exaggerated by the sale of these businesses during the period, with a year on year reduction of £4.07m, resulting in heavy losses. The fixings business registered a modest increase in the second half of 2000, with sales for the year up 30 per cent. on 1999. Major new contracts secured during the year should provide further growth in revenues. Sales of the gardening products businesses have started to stabilise, holding at 84 per cent. of the 1999 level. Touchline reported revenues of £0.31m in its first six months of operation within the group, reflecting the continued growth in its multimedia and e-commerce development activities. The proposed disposal of the fixings and gardening divisions will finalise the divestment of the company's legacy businesses. The proposed acquisitions will complement the remaining activities, creating a Group that is well placed to sell ERP software solutions and which can develop into a provider of wider e-business solutions to the SME sector. Consolidated profit and loss account for the year ended 31 December 2000: _____ 2000 ______ ________ 1999 __________ Dis- Dis- Continuing continued Continuing operations operations Total Continuing* operations Total Acquisitions Continuing* operations £'000 £'000 £'000 £'000 £'000 £'000 £'000 Turnover 305 3,553 10,392 14,250 3,077 16,608 19,685 Cost of sales (161) (3,414) (7,122) (10,697) (2,237) (12,073) (14,310) Gross profit 144 139 3,270 3,553 840 4,535 5,375 Selling and distribution costs - (429) (1,083) (1,512) (593) (1,165) (1,758) Administrative expenses (59) (2,884) (2,656) (5,599) (1,771) (3,214) (4,985) Operating profit (loss) 85 (3,174) (469) (3,558) (1,524) 156 (1,368) Loss on disposal of operations - - (1,667) (1,667) - - - Profit on disposal of property - - 305 305 - - - Profit (loss) on ordinary activities 85 (3,174) (1,831) (4,920) (1,524) 156 (1,368) before interest Interest payable and similar (271) (267) charges Loss on ordinary activities (5,191) (1,635) before taxation Tax on loss on - - ordinary activities Loss for the financial year (5,191) (1,635) * With the exception of Administrative expenses of £530,000 in 2000, continuing operations are to be discontinued subject to the motion proposing the disposal of Welpac Hardware Limited, Harwood Hardware Limited and Anderson & Firmin Limited being passed at the EGM scheduled to be held on 26 March 2001. Loss per share Basic (29.2p) (13.3p) Diluted (29.2p) (13.3p) Basic before exceptional items (19.7p) (7.8p) Consolidated statement of total recognised gains and losses for the year ended 31 December 2000 2000 1999 £'000 £'000 Retained loss for the financial year (5,191) (1,635) Unrealised deficit on revaluation of freehold - (10) property Total recognised losses since the last annual report (5,191) (1,645) and accounts Consolidated balance sheet as at 31 December 2000 2000 1999 £'000 £'000 Fixed assets Goodwill 127 28 Tangible assets 235 2,829 Investments 7 - 369 2,857 Current assets Properties for resale 260 75 Stocks 1,071 4,538 Debtors 1,088 4,720 2,419 9,333 Creditors: amounts falling due within one year (2,071) (8,022) Net current assets 348 1,311 Total assets less current liabilities 717 4,168 Creditors: amounts falling due after more than one - (360) year Provisions for liabilities and charges (243) (482) Net assets 474 3,326 Capital and reserves Called up share capital 1,283 616 Share premium account 6,601 5,259 Shares to be issued 59 - Revaluation reserve - 462 Profit and loss account (7,469) (3,011) Equity shareholders' funds 474 3,326 Consolidated cash flow statement for the year ended 31 December 2000 2000 1999 £'000 £'000 Net cash (outflow) inflow from operating activities (1,595) 193 Returns on investments and servicing of finance (271) (267) Capital expenditure and financial investment 288 (94) Acquisitions and disposals 3,100 - Cash inflow (outflow) before financing 1,522 (168) Financing 1,064 (418) Increase (decrease) in cash in the year 2,586 (586) Notes: 1. Cost of sales, gross profit and other operating expenses The operating loss for the year included exceptional items within administrative expenses as summarised below: 2000 1999 £'000 £'000 Re-organisation and closure: Centralisation of group functions - 201 Redundancy and closure costs - 160 Re-organisation - 75 Fixed asset impairment 327 20 Dilapidations provision - 28 Provision for legal claims - 200 Disposal of properties - (5) 327 679 2. Acquisition of subsidiary undertaking On 26 June 2000 the company acquired 100 per cent. of the issued share capital of Touchline Network Television Limited for consideration comprising the issue of 500,000 ordinary shares of 5p each in the company, and a further 330,000 ordinary shares of 5p each within twelve months should certain profit targets be met by Touchline. The fair value of the total consideration was £169,000. The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the group: Accounting Book value policy Fair value adjustments to group £'000 £'000 £'000 Fixed assets Tangible 25 (4) 21 Current assets Work in progress 50 (15) 35 Debtors 45 - 45 Cash 24 - 24 Total assets 144 (19) 125 Creditors Trade creditors (37) - (37) Other creditors (40) - (40) Accruals (13) - (13) Total liabilities (90) - (90) Net assets 54 (19) 35 Goodwill 134 169 Satisfied by Shares issued 110 Shares to be issued 59 169 The fair value adjustments were made in order to reflect alignment with the Group's accounting policies. £'000 Net cash inflows in respect of the acquisition comprised: Cash at bank and in hand acquired 24 Touchline Network Television Limited earned a profit after taxation of £68,000 in the nine months ended 31 December 2000 (year ended 31 March 2000 - £ 45,000), of which a loss of £17,000 arose in the period from 1 April 2000 to 26 June 2000. There were no recognised gains or losses other than the profit for the period. 3. Sale of subsidiary undertaking On 3 May 2000 the group sold its 100 per cent. interest in the ordinary share capital of RAP Conveyors Limited. The loss of RAP Conveyors Limited up to the date of disposal was £9,000 and the profit for its last financial year was £ 88,000. Net assets disposed of and the related sales proceeds were as follows: £'000 Fixed assets 95 Current assets 934 Creditors (422) Net assets 607 Transaction costs of disposal 127 Loss on sale (377) Sale proceeds 357 Satisfied by: Cash 500 Adjustment to consideration (143) 357 4. Sale of trade and assets of subsidiaries On 6 November 2000 certain subsidiaries of the group sold their trade and assets to Zika Rapid Distribution Limited, a subsidiary of Zika Electrode Works Limited (a company listed on the Tel Aviv Stock Exchange). The subsidiaries were: RAP Industrial Distributions Limited Rubber and Allied Products (R.A.P.) Limited Potter Cowan & Co Limited Waugh of Hamilton Limited Safety Specialists Limited Planet Gloves (Industrial) Limited Poplar Industrial Supplies (Stourbridge) Limited Man-equip Limited Net assets disposed of the related sales proceeds were as follows: £'000 Fixed assets 1,657 Current assets 4,138 Creditors (2,191) Net assets 3,604 Related goodwill previously written off to reserves 271 Transaction costs of disposal 1,019 Loss on sale (1,290) Sale proceeds 3,604 Satisfied by: Cash 3,400 Deferred consideration to be satisfied by cash 204 3,604 5. Reconciliation of operating loss to operating cash flow 2000 1999 £'000 £'000 Operating loss (3,558) (1,368) Depreciation charges and fixed asset impairment 683 392 Write down of property held for resale 28 53 Amortisation of goodwill 12 6 Profit on sale of tangible fixed assets - (17) Decrease in stocks 1,277 385 Decrease in debtors 1,062 890 Decrease in creditors (860) (330) (Decrease) increase in provisions (239) 182 Net cash (outflow) inflow from operating activities (1,595) 193 6. Analysis of cash flows Acquisitions and disposals 2000 1999 £'000 £'000 Bank balances acquired with subsidiary 24 - Sale of subsidiary 500 - Sale of businesses 3,400 - Costs of disposal (824) - 3,100 - Financing Issue of ordinary share capital 1,899 - Repayment of secured loan (687) (225) Capital element of finance lease rental payments (148) (193) 1,064 (418) 7. Analysis and reconciliation of net debt 31 December 1 January 2000 Cash 2000 flow £'000 £'000 £'000 Overdraft (2,930) 2,586 (344) Bank loans (687) 687 - Finance leases (203) 148 (55) (3,820) 3,421 (399) Debt due after one year (274) 274 - Debt due within one year (3,343) 2,999 (344) Finance leases (203) 148 (55) Net debt (3,820) 3,421 (399) 2000 1999 £'000 £'000 Increase (decrease) in cash in the 2,586 (586) year Cash outflow from decrease in debt and lease 835 418 financing Change in net debt resulting from 3,421 (168) cash flows New finance leases - (98) Movement in net debt in year 3,421 (266) Net debt at 1 January 2000 (3,820) (3,554) Net debt at 31 December 2000 (399) (3,820) 8. Reserves Share Profit premium and loss account Revaluation account reserve Total £'000 £'000 £'000 £'000 At 1 January 2000 5,259 462 (3,011) 2,710 Retained loss for - - (5,191) (5,191) the year Disposal of - (462) 462 - revalued property Goodwill - - 271 271 previously written off to reserves Share capital 1,667 - - 1,667 issued Expenses of (325) - - (325) equity share issue At 31 December 6,601 - (7,469) (868) 2000 9. The basic loss per share has been calculated on the loss before and after taxation of £5,191,000 (1999: £1,635,000) and on the weighted average number of shares in issue of 17,805,487 (1999: 12,325,841). The basic before exceptional items loss per share has been calculated on a loss of £ 3,502,000 (1999: £956,000) and on the weighted average number of shares in issue of 17,805,487 (1999: 12,325,841). 10. The directors do not recommend the payment of a final dividend and the dividend for the year is therefore nil (1999: nil). 11. The results have been prepared under the historical cost convention as modified for the revaluation of certain fixed assets and in accordance with applicable accounting standards. The accounting policies have been applied consistently with those stated in the previous accounts. 12. The financial information set out above does not comprise the company's statutory accounts. Statutory accounts for the previous financial year ended 31 December 1999 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The auditors have not reported on accounts for the year ended 31 December 2000, nor have any such accounts been delivered to the Registrar of Companies. 13. This preliminary announcement was approved by the Board of directors on 2 March 2001 on the assumption that the approval of the proposed sale of the fixings and gardening divisions is obtained at the EGM to be held on 26 March 2001. 14. The directors intend to approve the full financial statements following shareholder approval of the proposed sale of the fixings and gardening divisions at the EGM to be held on 26 March 2001.

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