Final Results

Mentmore Abbey Plc 2 July 2002 FOR IMMEDIATE RELEASE 2 JULY 2002 MENTMORE ABBEY plc PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 30 APRIL 2002 MENTMORE ABBEY IS A RESILIENT AND HIGHLY CASH GENERATIVE GROUP OPERATING IN GROWTH MARKETS. RESULTS REFLECT THE CONTINUED SUCCESS OF OUR BUSINESSES IN WHAT WAS PLANNED AS A YEAR OF INVESTMENT. • Before goodwill amortisation and profit on disposal of investment: - EBITDA before property disposals increased 4.4% to £35.4 million (2001: £33.9 million) - Total operating profit before property disposals of £29.2 million (2001: £29.2 million) - Interest covered 3.4 times (2001: 2.9 times) - Profit before tax up 3.7% to £22.4 million (2001: £21.6 million) - Earnings per share increased 1.4% to 8.93p (2001: 8.81p) • After goodwill amortisation and profit on disposal of investment: - Profit before tax of £24.9 million (2001: £15.3 million) - Earnings per share of 10.07p (2001: 5.24p) • Proposed final dividend increased by 3.7% to 0.85p per share (2001: 0.82p) giving a total of 1.252p per share for the year (2001: 1.222p). Final dividend payable on 1 October 2002 to shareholders on the register on 13 September 2002. • Operating cash flow of £31.5 million (2001: £33.2 million) representing 122% of operating profit before goodwill amortisation (2001: 111%). All figures before share of joint venture. • Net debt at 30 April 2002 was £153.1 million (2001: £156.3 million) giving gearing of 71% (2001: 78%). • Internal property revaluation undertaken at 31 October 2001. Whilst not reflected in balance sheet, disclosed uplift of £90 million or 50p per share. If reflected, gearing would reduce to 50% and net asset value per share would increase to 168.9p. • Personal storage made good progress. UK operating profits increased 13% to £8.4 million (2001: £7.4 million). As expected, the accelerated opening programme in France increased losses to £0.8 million (2001: losses of £0.2 million). • Serviced business space focused on development and upgrade, with investment of £33.9 million in the year. 23 sites were completed which lowered current year profits by £1.9 million. As a consequence, operating profits were £18.2 million (2001: £20.1 million). • Records management demonstrated the benefits of last year's operational improvements and has established itself as market leader in service and product quality. Our share of operating profits increased by 81% to £3.5 million (2001: £2.0 million). Commenting on the results and prospects, Nick Smith, chairman said: 'Our income for the year reflects the continued success of our ongoing businesses and our decision last year to increase the focus of our serviced business space division on development and upgrades rather than the acquisition of income producing properties. As anticipated, this change had the effect of slowing profit growth in its initial year but results in this division, as in personal storage, have fully met our expectations in a challenging economic environment. Iron Mountain Europe, our records management joint venture, continued to deliver improved results after the investment made last year in their operations. We are a resilient and highly cash generative group operating in growth markets. We have capable management with a clear vision of where we are going. We will be driving our personal storage and records management divisions and selected parts of serviced business space even faster. We are confident that all our businesses have potential for continued growth. We have made a positive start in our programme to upgrade the products and the services we offer our customers. We start the new financial year with a significant amount of space to be filled and a high level of enquiries. We remain confident that we shall now be able to build our future on a stronger base.' Contacts: Mentmore Abbey plc 020 8946 3159 Nick Smith, Chairman Clive Drysdale, Finance Director Bridgewell Corporate Finance 020 7003 3000 Ian Dighe Greg Aldridge Buchanan Communications 020 7466 5000 Charles Ryland Catherine Miles Dresdner Kleinwort Wasserstein 020 7623 8000 Robert Petch EDITORS NOTE: Personal storage The group has 41 centres with 180,600m(2) of space providing self-managed storage units for over 11,000 personal customers and small and medium-sized businesses on flexible terms. Serviced business space The group has 218 serviced business space centres with a capacity of 778,900m(2) offering trading, office and retail space on flexible terms to over 5,000 businesses of all kinds. Records management Our records management business is a partnership with Iron Mountain Incorporated, the world's leading records management company. It services customers across Europe. Chairman's statement Overview Our income for the year reflects the continued success of our ongoing businesses and our decision last year to increase the focus of our serviced business space division on development and upgrades rather than the acquisition of income producing properties. As anticipated, this change had the effect of slowing profit growth in its initial year but results in this division, as in personal storage, have fully met our expectations in a challenging economic environment. Iron Mountain Europe, our records management joint venture, continued to deliver improved results and increased operating profits before goodwill amortisation by 81%. Results Group profits before tax, goodwill amortisation and the profit on the disposal of our investment in Workspace Group grew to £22.4 million (2001: £21.6 million). The disposal of the Workspace investment provided a further £9.6 million of pre tax profit. Earnings per share before goodwill amortisation and the profit on the disposal of investment grew 1.4% to 8.93p (2001: 8.81p). After including these items earnings per share grew 92% to 10.07p (2001: 5.24p). Personal storage made good progress in starting to let the record amounts of the space that we added last year. Those investments more than met our needs in the current year and therefore we only added a small amount of new capacity. The market continued to grow and we maintained our position. In Paris, Une Piece en Plus has more than doubled its capacity since we acquired it and continues to set the standards in that market. Service business space focused its attention on the development and upgrade of sites and the addition of new services. We upgraded 15 locations, developed new space on 8 of our sites and have a further 19 sites in various stages of upgrade or development. The remainder of our industrial and serviced space traded in line with expectations demonstrating the continuing resilience of the small business sector in the UK. InShops took the first steps in its modernisation programme. We shall shortly open the first InShops Selections in Port Talbot. The concept has been well received and we look forward to positive trading. These moves are designed to enable us to offer the small and medium sized business a full solution to its space requirements whether for manufacture, office, retail, storage or other service areas. Our steadily growing service offering coupled with our totally flexible approach provides an excellent solution to the special needs of smaller businesses. Iron Mountain Europe ('IME'), our joint venture records management company, demonstrated the benefits of operational improvements, the costs of which adversely affected last year's results. IME has established itself in the UK as market leader in service and product quality. We have gained significant new business from major national and international banks and continue to build on this success. In the rest of Europe we are pursuing a similar philosophy and seeing similar positive responses in the market. Based on this success we have invested in new capacity in South East London, Livingstone in Scotland, Deganza in Spain and near Marseilles in France. Balance sheet At the year end net debt was £153.1 million (2001: £156.3 million) leaving the group with gearing of 71% (2001: 78%). Our decision in early 2001 to focus on developments and upgrades was driven by the high prices in the property market. This change lowered earnings in the current year but we have enjoyed increases in our property values. At 31 October 2001 we undertook a valuation of our property assets for financing purposes in consultation with external valuers. Whilst not reflected in the balance sheet, this identified an uplift in asset value of £90 million or 50 pence per share. Had this valuation uplift been reflected in the balance sheet at 30 April 2002 it would have had the effect of reducing our gearing level to 50%. Whilst we do not intend revaluing assets on a regular basis, this uplift demonstrates an underlying increase in value to shareholders that is not apparent from just considering the trading performance of the group. Three year strategic development Our investment strategy over the past three years has changed the profile of the business and that process will continue. Personal storage has added 148% more space and moved into the Paris market. It has been re-branded to be the most effective competitor in a market where growth potential remains enormous. 32% of our investment has been in this business and we expect this to continue to be our investment priority. This investment and growth has been achieved while growing operating profits by 19.4% per annum, compound. In serviced business space we have been engaged on a carefully targeted investment programme. We have concentrated on adding value to our base as well as investing in a higher service product in the better parts of our portfolio. We have also identified those parts of our portfolio that do not fit our longer-term plans. These will be sold over time and the proceeds reinvested into higher quality, growth product across the group's activities. We have created a new division, Argo spaces, to concentrate on our higher service level products. We invested £23.5 million last year in this business. Results are beginning to reflect this investment with annualised revenues increasing by 62.7% over the year. The remainder of the division has continued to trade successfully while upgrading the product offering. Since acquiring this business in 1999 we have grown revenues by 17%. Despite the costs associated with the development and upgrade programme we have also grown operating profits by 17%. In records management we have grown this business into a pan European operation to meet the needs of our blue chip customer base. We have also introduced new IT systems which have improved our efficiency and enabled us to become market leader in service delivery. The business is now in good shape, continues to take market share from competitors and more importantly to persuade important customers of the benefits of outsourcing. Over the past three years, despite the operational costs incurred in achieving the above, revenues have almost doubled and operating profits increased by 25%. People Shareholders will have seen that we are taking steps to strengthen our Board and management to meet the challenges that lie ahead. We have appointed a new independent director who brings proven senior management experience to our Board. Richard Wright is chairman of the Board of National Savings and was, until his retirement in April, Sales Director of Ford Motor Company UK. He will become our senior independent non-executive director. Kim Taylor-Smith resigned as group chief executive in June. Kim served Birkby and ourselves for 15 years and has made a significant contribution throughout. Anthony Lewis, non-executive director, has expressed a wish to reduce his commitments in order to concentrate on his own property interests and will stand down at the annual general meeting later this year. Anthony joined the Board from Birkby plc where he had been a non-executive director for 10 years. He has provided us with valuable help and assistance in the integration of that company and the development of our combined group. We thank both Anthony and Kim for their contributions and wish them continued success. In the short term I shall assume the additional role of chief executive. It is our intention to recruit a new chief executive to lead the group forward as a focused provider of serviced space solutions. We have already started that search. When we find the right candidate and he has established himself I shall revert to my role as chairman. Our staff have responded positively to the new challenges that both we and the market place have given them. On behalf of the Board and the shareholders, I thank them most sincerely for their contribution to these results. Dividends We are proposing to increase the final dividend payment by 3.7% to 0.85 pence per share bringing the total for the year to 1.252 pence. The Board recognises the attraction to shareholders of a progressive dividend policy and intends to revert to such a policy as earnings grow. Group name We are asking shareholders to approve a shortening of the group name to Mentmore. This reflects both the way that many people already know the group and the fact that we are dropping Abbey from our trading names. Mentmore was part of the original group name when it first floated in 1935 as Mentmore Manufacturing. Summary We are a resilient and highly cash generative group operating in growth markets. We have capable management with a clear vision of where we are going. We will be driving our personal storage and records management divisions and selected parts of serviced business space even faster. We are confident that all our businesses have potential for continued growth. We have made a positive start in our programme to upgrade the products and the services we offer our customers. We start the new financial year with a significant amount of space to be filled and a high level of enquiries. We remain confident that we shall now be able to build our future on a stronger base. Operating review Personal storage spaces personal storageTM centres provide individual lockable storage units for use by private and business customers and is a leading operator in the UK and in Paris. Although the numbers of centres are increasing rapidly, per capita penetration is still a fraction of that seen in the United States. The market continues to grow and has enormous potential. The personal storage division accounts for 25.9% (2001: 24.6%) of group operating profit excluding property disposals and goodwill amortisation. For the year to 30 April 2002, spaces personal storage generated an operating profit of £7.6 million (2001: £7.2 million) an increase of 5.7% on the previous year. Key statistics for UK based spaces personal storage are: 2002 2001 No. of centres 34 32 Total storage capacity ('000 sq. m.) 156.7 152.2 Current utilisation (%) 65.1 60.6 Current annualised storage revenue (£m) 16.5 15.0 Other income (% of storage revenue) 9.4 8.5 spaces personal storage has performed well this year both in terms of revenue and space let. In the UK revenue grew by 23.8% to £19.0 million and operating profit by 12.8% to £8.4 million compared to last year, reflecting strong market position. As at 30 April 2002 occupancy was 102,009 sq. metres representing a range of occupancy from zero to 93%, depending on the maturity of the centre. We recently opened our 34th centre which is located in Bedford. In common with other recent openings, the Bedford centre will be 'mixed use' offering both serviced business space and personal storage. This combination broadens the range of properties on which we can generate our target returns and provides customers with additional options. We have personal storage centres in prominent locations in many major cities in the UK. We continue to target areas of high demand or new locations where the combination of storage and serviced business space is likely to prove successful. The majority of the spaces personal storage centres were re-branded during the year. This has been well received and has generated increased enquiry levels and lettings. They present a modern, bright image to our customers and enhance our reputation for excellent service. The high levels of repeat business we generate substantiate our belief in the benefits of providing efficient, localised and personal service to our customers. Last year was our first full year since the acquisition of Une Piece en Plus (' UPP'), our Paris based storage operator. We have established ourselves as the premier brand in central Paris and recently opened our seventh centre in the north of Paris in St. Denis. The centre has been configured to provide 'drive through' units, a first in the Paris market and customer response has been positive. Our decision to accelerate the investment program in Paris resulted in losses of £0.8 million (2001: loss of £0.2 million) during the period but we believe this will generate substantial returns in the longer term. Key statistics for UPP are given below: 2002 2001 No. of centres 7 4 Total storage capacity ('000 sq. m.) 23.9 11.7 Current utilisation (%) 48 89 Current annualised storage revenue (£m) 2.1 1.5 Other income (% of storage revenue) 3.1 2.4 Serviced business space Our national network of serviced work and retail space provides flexible accommodation to a wide range of customers. In an ever-changing environment, our SME customers need space that can be rapidly adapted to their specific requirements, allowing them to modify their accommodation as their circumstances change. The serviced business space division accounts for 62.0% (2001: 68.7%) of group operating profit excluding property disposals and goodwill amortisation. For the year to 30 April 2002, the division generated an operating profit of £18.2 million (2001: £20.1 million), a reduction of 9.6% on the previous year reflecting the impact of the investment programme. We have subdivided this division into three operations to provide management teams focused on specific market segments. Argo spaces will focus on the higher service end of the market, accelerating our efforts to add value for our customers. Imex and In Shops will continue to service their traditional markets whilst adding value and service at a faster rate than before. Our customers are demanding better quality accommodation and a greater range of services with a shift towards office and studio accommodation. This higher value product generates an attractive return and has been the focus of our investment. 15 centres have been upgraded this year and we have identified a further 21 to be upgraded in the coming year. Service revenue has increased by 12% in part due to the success of Synex, our telecoms business, and their ability to provide a comprehensive and efficient telephony service to our customers. We shall continue to invest in selected properties and land where we can generate high levels of return. We shall dispose of some mature centres and will re-invest the proceeds into the faster growing parts of the group. Argo spaces represents our higher service content product supplied through fully manned sites. We completed the upgrades of 6 sites and have a further 8 in progress. The upgraded sites have been well received by customers with revenue generation meeting our expectations even in a market that, in London especially, has seen heavy discounting at the higher end. Key statistics for Argo spaces, whose space represents 18.3% of the division, are: 2002 2001 No. of centres 18 15 Total space ('000 sq. m.) 142.5 112.0 Physical occupancy rate (%) 79.4 80.0 Number of units available 1,397 1,077 Maximum annualised rental income (£m) 10.3 6.5 Current annualised rental income (£m) 8.3 5.1 Imex spaces provides a mixture of office, industrial and technology space. Sites are typically unmanned although we continue to work to increase the service content we provide. Our success can be attributed to our ability to replace tenants quickly at enhanced rental levels. Historically this has proven to be the case in both good times and bad. On a like for like basis, our average charge for accommodation increased by 4.6% during the year to £4.13 per sq. ft. Key statistics for Imex spaces, whose space represents 68.0% of this division, are: 2002 2001 No. of centres 147 149 Total space ('000 sq. m.) 529.9 528.2 Physical occupancy rate (%) 84.1 88.9 Number of units available 3,661 3,578 Maximum annualised rental income (£m) 22.6 21.2 Current annualised rental income (£m) 17.6 17.2 In Shops provides small units to independent traders within centres that represent good quality retailing locations. The business has now started a modernisation programme that will keep its centres abreast of modern retail requirements and improve our returns. Minor upgrade programmes have achieved encouraging returns. A new concept, In Shops Selections - a strongly branded shopping environment with higher standards of infrastructure and retail presentation has been established. The first centre opens in Port Talbot in July. This product will improve returns in this business. Key statistics for In Shops, whose space represents 13.7% of this division, are: 2002 2001 No. of centres 53 57 Total space ('000 sq. m.) 106.5 112.7 Physical occupancy rate (%) 86.4 86.0 Number of units available 2,898 3,100 Maximum annualised rental income (£m) 26.2 26.7 Current annualised rental income (£m) 20.0 21.5 Records management The market for records management is undergoing rapid transformation. To be a serious provider in this business it is no longer good enough simply to provide space for secure records storage. Customers are demanding more sophisticated information management as well as faster retrieval, better tracking and more active management, via the Internet, of their paper documents and magnetic media. The records management division accounts for 12.1% (2001: 6.7%) of group operating profit excluding property disposals and goodwill amortisation. For the year to 30 April 2002, the division generated an operating profit of £3.5 million (2001: £2.0 million), an increase of 81.4% on the previous year reflecting the benefits of last year's operational improvements. During the current year we saw profits grow based on a rapid improvement in customer service levels and the accompanying improvements in customer satisfaction. Costs were under better control and productivity continues to improve as we saw the benefits of the investment during 2001. We have made significant market share gains most notably in the financial services sector, where three of the largest UK banks and two major US banks entrusted us with their data management. In addition, we have used Iron Mountain Incorporated's many years of experience, sophisticated systems and consultative services to design and implement a number of specialised, active records programmes to meet the growing needs of the financial service community for better, more efficient and economic information management. We have strengthened our sales and account management teams and they have begun to penetrate the mid sized business market with a transactional based sales effort. These successes are being achieved in both archive and active storage. Our customers are increasingly recognising the higher value they can derive from our systems, our facilities and critically our people. These improvements have been seen across Europe but most markedly in the UK. However we are seeing a building momentum for outsourcing in other markets and are well placed to take advantage of that trend. The growth of the company is also being fueled by using Iron Mountain's global account base. Customers around the world are recognising the advantages and efficiencies of a one partner relationship. We see this avenue of growth both in the UK and across our continental European businesses. Efficient and economic real estate is an on-going focus of the company. The majority of our customers want their records local to their users. By carefully identifying locations and utilising our history of efficient design we provide economic storage and services to support our customers, whether that be through physical or electronic delivery. Our success in the market place has accelerated our need for new capacity in the London, Scotland, Manchester and Birmingham markets. These new facilities are generally offering customers the highest levels of security and reliability in the market. In continental Europe we have followed a similar path to that in the UK, building our processes, facilities and people into a market leading force. In our media business, which provides off site data storage as part of customers' disaster recovery planning, we have now established leadership in the UK and across Europe. In this business, as others, we have strengthened our management and our systems and improved our facilities. Our geographic footprint and expanding services are designed to support the growing needs of both disaster recovery and business continuity. We continue to build on our success and are optimistic about the future. Financial review EBITDA (earnings before interest, taxes, depreciation and amortisation) is a key performance indicator for the group - it broadly equates to cash flow generated from operations and is the principal component in determining the group's debt capacity. EBITDA before property profits for the year was £35.4 million (2001: £33.9 million) growing 4.4% on last year. Group results FRS3 (Reporting Financial Performance) requires certain transactions, principally those that are considered individually material or of a non-recurring nature, to be reported separately below operating profit. The results to 30 April 2002 include three such transactions of which two are considered to be part of the normal trading operations of the group. To aid comparison with last year a summary of the group's results is given below: 2002 2001 For the year ended 30 April £ million £ million Turnover 77.4 75.0 Continuing operations 75.3 72.0 Discontinued activities 2.1 3.0 Trading profit 31.9 31.8 Total operating profit 29.4 31.8 Share of JV profit on disposal of fixed asset 1.0 - Profit on disposal of operations 1.5 - Net interest payable (9.5) (10.9) Profit before tax - trading 22.4 20.9 Profit on disposal of investment 9.6 - Income from fixed asset investment - 0.7 Goodwill amortisation (7.1) (6.3) Profit before tax 24.9 15.3 Underlying earnings per share*+ 8.93p 8.81p Basic earnings per share+ 10.07p 5.24p * before goodwill amortisation and profit on disposal of investment + as restated for adoption of FRS19 (Deferred Tax) Group turnover above (which excludes our share from joint ventures) increased by 3.2% to £77.4 million (2001: £75.0 million). Excluding discontinued activities group turnover increased 4.6%. Our share of turnover from the Iron Mountain Europe ('IME') joint venture increased by 45.3% to £27.7 million (2001: £19.1 million). The share of joint venture profit on disposal of fixed asset relates to one property sale. The profit on disposal of operation arose following the sale of the Dutch serviced business space business; this was effectively the sale of two trading properties. The sale of properties is an ongoing and important part of the group's operations and therefore these profits have been included above with total operating profit to reflect the true trading profit in the year. As planned, trading profit was flat at £31.9 million (2001: £31.8 million). This reflects our decision last year to increase the focus of our serviced business space division on developments and upgrades rather than income producing properties. EBITDA in this division fell by £1.4 million to £20.9 million (2001: £22.3 million). In personal storage and records management EBITDA grew by 10.7% and 69.3% to £9.5 million (2001: £8.6 million) and £5.1 million (2001: £3.0 million) respectively. Net interest cost reduced by £1.4 million to £9.5 million (2001: £10.9 million). Whilst this principally reflects lower UK interest rates, the proceeds from the sale of the Workspace investment in May 2001 reduced debt levels early in the year. Interest cost for the year was covered 3.4 times (2001: 2.9 times) by trading profit. The group's tax charge represents an effective rate of 27.9% (2001: 28.5%) on profits before goodwill amortisation and the profit on disposal of investments. Tax attributable to the profit on disposal of investment was limited to £0.5 million due to the crystallisation of capital losses. The effective cash tax rate remained at 20%. Before goodwill amortisation and the profit on disposal of investment profit after tax increased by 4.7% to £16.2 million (2001: £15.4 million). On the same basis, basic earnings per share increased by 1.4% to 8.93 pence (2001: 8.81 pence) reflecting the higher average number of shares in issue during the year. Goodwill amortisation increased to £7.1 million (2001: £6.3 million) reflecting the inclusion of prior year acquisitions for a full year. The profit on disposal of investment arose following the sale of the group's investment in Workspace Group PLC in May 2001. After taking these into account profit after tax and basic earnings per share were £18.2 million (2001: £9.2 million) and 10.07 pence (2001: 5.24 pence) respectively. Segmental analysis Segmental information which shows sales, EBITDA, operating profit and operational net assets for each division of the group is provided in note 1. EBITDA has been included for the first time this year by segment so that shareholders can assess each division's success by this key performance measure. Cash flows Operating cash flow as a percentage of operating profit before goodwill amortisation improved to 121.5% (2001: 111.4%) demonstrating the cash generative nature of the group. Operating activities generated £31.5 million (2001: £33.2 million) which principally funded net capital expenditure of £39.3 million (2001: £26.1 million). In addition, the group paid £15.7 million to fund IME's new London facility and received £5.7 million (2001: paid £1.9 million) of loan repayments from them. Net interest payments reduced by £1.4 million to £6.9 million and tax payments increased to £5.1 million (2001: £1.7 million). Cash inflow from disposals was £2.5 million (2001: acquisition outflow of £31.1 million). Cash inflow before financing was £0.7 million (2001: outflow of £37.3 million). Balance sheet Included in current assets is £16.3 million relating to the development of IME's new records centre in South East London. This is now substantially complete and will be sold to a third party and leased back to IME on an arm's length basis. Net debt at 30 April 2002 amounted to £153.1 million (2001: £156.3 million) and comprised bank debt of £149.1 million (2001: £148.1 million) and deferred acquisition loan notes of £4.0 million (2001: £8.2 million). Net assets at 30 April 2002 were £215.7 million (2001: £199.3 million) giving gearing of 71% (2001: 78%). Had the uplift in property values of £90 million referred to in the chairman's statement been reflected in the financial statements as at 30 April 2002 then net assets would have been £305.7 million and gearing 50%. Equity shareholders funds increased by £16.3 million in the year as a result of the retained profit for the year of £15.9 million and £0.4 million for shares issued primarily in respect of share options being exercised. Treasury management The group is primarily exposed to interest rate, liquidity and foreign exchange risks. These are managed at group level and are controlled by the Board. Treasury management is undertaken to minimise these risks with transactions only being made in relation to underlying business requirements. There are no transactions undertaken of a speculative nature and financial instruments are not traded. The group's policies are outlined below. Interest rate risk The group's policy is to minimise interest cost. Exposure to interest rate movements on group borrowings is managed by maintaining a mixture of fixed and variable rate financing. Fixed interest rates are usually achieved through the use of interest rate swaps. The group also uses financial instruments which cap interest rate exposure and allow interest rates to fluctuate within upper and lower limits. The relevant proportion of each type of financing is adjusted to take account of prevailing market conditions. At 30 April 2002, after taking into account swaps, £10 million of group borrowings were fixed and £75 million operated within specified upper and lower interest rate limits. Liquidity risk The group's policy is to maintain a mixture of committed and uncommitted borrowing facilities with dates of maturity varying to meet anticipated borrowing requirements in relation to its current business plan. Committed facilities are maintained to cover what is perceived as core debt with uncommitted facilities maintained to support day-to-day operations. The primary source of funds is bank debt. The level and type of facility is regularly reviewed, particularly in the event of corporate transactions. At 30 April 2002 the group's UK banking facilities amounted to £168 million. The principal elements of these were: • a £98 million committed facility of which £63 million is an amortising term loan with all but £4 million having a repayment due in February 2007 and £35 million is a revolving credit facility with a bullet repayment due in February 2007; • a £52 million uncommitted facility which is due for review in June 2003; • a £15 million facility to finance the development of IME's new records centre. In addition the group has bank facilities in France amounting to €2.4 million. As at 30 April 2002 the group had unutilised bank facilities of £15.3 million. During the year the group complied with all debt covenants. Foreign exchange risk Although the group is becoming more exposed to foreign exchange risk due to its expansion in Continental Europe this still remains immaterial to the group as a whole. The group's policy covers three areas of exposure - balance sheet net assets, earnings and transactions: • where considered material balance sheet net assets are protected from currency exposures by borrowing in relevant currencies; • at present the group does not protect earnings of overseas operations against currency fluctuations; • foreign currency transactions, where significant, are protected by way of forward exchange contracts. At 30 April 2002 the group had no forward exchange contracts. Accounting standards The group's accounting policies fully reflect the requirements of the Accounting Standards Board ('ASB'). Three new Financial Reporting Standards have recently been issued: FRS17 (Retirement Benefits), FRS 18 (Accounting Policies) and FRS 19 (Deferred Taxation). Under the transitional arrangements contained within FRS 17, the requirements of this standard are being introduced over the three years ending 30 April 2004. In the meantime, retirement benefits will be accounted for under the rules set out in SSAP24. Note 18 sets out the additional disclosures required this year by FRS 17. The requirements of FRS 18 have been fully implemented this year. No changes were required as a result of adopting this standard. The requirements of FRS 19 have also been implemented this year. The adoption of this standard results in a change in the accounting policy for deferred taxation, the effect of which is shown in note 5. Group profit and loss account for the year ended 30 April 2002 2002 2001 as restated Notes £'000 £'000 Turnover 1 77,405 75,019 Continuing operations: Group and share of joint venture 102,988 91,055 Less: group's share of joint venture (27,705) (19,074) Group 75,283 71,981 Discontinued activities 2,122 3,038 77,405 75,019 Cost of sales (42,397) (38,502) Gross profit 35,008 36,517 Administrative expenses (14,912) (12,048) Operating profit 2 20,096 24,469 Continuing operations: Existing activities 25,911 29,816 Goodwill amortisation (5,726) (5,334) 20,185 24,482 Discontinued activities (89) (13) 20,096 24,469 Share of operating profit in joint venture: Before goodwill amortisation 3,546 1,955 Goodwill amortisation (1,365) (917) 2,181 1,038 Total operating profit 1 22,277 25,507 Before goodwill amortisation 29,368 31,758 Goodwill amortisation (7,091) (6,251) Share of joint venture profit on disposal of fixed asset 1,021 - Profit on disposal of operations 3 1,529 - Profit on disposal of investment 13 9,646 - Income from other fixed asset investments - 683 Profit on ordinary activities before interest 34,473 26,190 Net interest payable 4 (9,525) (10,854) Profit on ordinary activities before taxation 24,948 15,336 Before goodwill amortisation and profit on disposal of investment 22,393 21,587 Goodwill amortisation and profit on disposal of investment 2,555 (6,251) Taxation 5 (6,739) (6,152) Profit on ordinary activities after taxation 18,209 9,184 Before goodwill amortisation and profit on disposal of investment 16,154 15,435 Goodwill amortisation and profit on disposal of investment 2,055 (6,251) Dividends 6 (2,270) (2,237) Retained profit for the year 15,939 6,947 Earnings per share 7 Basic 10.07p 5.24p Basic before goodwill amortisation and profit on disposal of 8.93p 8.81p investment Diluted 10.01p 5.12p Diluted before goodwill amortisation and profit on disposal of 8.88p 8.61p investment Dividends per share 1.252p 1.222p Group balance sheet at 30 April 2002 Group 2002 2001 as restated Notes £'000 £'000 Fixed assets Intangible assets 8 100,906 106,508 Tangible assets 9 250,965 214,416 Investments 10 IME joint venture 28,096 33,273 - share of gross assets 60,457 58,708 - share of gross liabilities (42,781) (41,567) - share of net assets 17,676 17,141 - loans to joint venture 10,420 16,132 Own shares 14 222 Other 250 250 380,231 354,669 Current assets Stocks 11 1,824 2,315 Development in progress 11 16,312 - Assets held for resale - 5,231 Debtors 12 8,757 9,491 Investments 13 - 20,238 Cash at bank and in hand 4,093 8,465 30,986 45,740 Creditors: amounts falling due within one year 14 (54,796) (49,560) Net current liabilities (23,810) (3,820) Total assets less current liabilities 356,421 350,849 Creditors: amounts falling due after more than one year 15 (136,278) (148,199) Provisions for liabilities and charges 16 (4,475) (3,345) Net assets 215,668 199,305 Capital and reserves Called up share capital 18,131 18,097 Share premium account 130,148 129,804 Other reserve 27,226 27,226 Profit and loss account 40,163 24,178 Equity shareholders' funds 215,668 199,305 Group cash flow statement for the year ended 30 April 2002 2002 2001 Notes £'000 £'000 Cash flow from operating activities 20(a) 31,490 33,219 Returns on investments and servicing of finance 20(b) (6,854) (7,619) UK corporation tax (5,061) (1,692) Capital expenditure and financial investment (19,109) (28,007) Proceeds from sale of investments 20(b) 30,155 36 Development on behalf of joint venture (15,688) - Loans repaid by/(made to) joint venture 5,712 (1,929) Capital expenditure 20(b) (39,288) (26,114) Acquisitions and disposals 20(b) 2,452 (31,056) Equity dividends paid (2,214) (2,162) Cash inflow/(outflow) before financing 704 (37,317) Financing - issue of shares 340 3,259 - (decrease)/increase in debt and lease financing 20(b) (10,179) 39,268 (Decrease)/increase in cash in the year (9,135) 5,210 Reconciliation of net cash flow to movement in net debt for the year ended 30 April 2002 2002 2001 Notes £'000 £'000 (Decrease)/increase in cash in the year (9,135) 5,210 Cash outflow/(inflow) from change in debt and lease financing 10,179 (39,268) Change in net debt resulting from cash flows 1,044 (34,058) Loans and finance leases divested/(acquired) with subsidiary 2,219 (6,141) undertakings Non-cash movements (63) (8,531) Movement in net debt in the year 3,200 (48,730) Net debt at 1 May 2001 (156,351) (107,621) Net debt at 30 April 2002 20(c) (153,151) (156,351) Statement of total recognised gains and losses for the year ended 30 April 2002 2002 2001 as restated £'000 £'000 Group profit for the year 17,764 10,251 Share of profit/(loss) in joint venture for the year 445 (1,067) Profit for the year 18,209 9,184 Currency translation differences on foreign currency net investments 46 283 Total recognised gains and losses in the financial year 18,255 9,467 Prior year adjustment for deferred tax (note 5) (3,283) - Total recognised gains and losses since last annual report 14,972 9,467 Reconciliation of movements in shareholders' funds for the year ended 30 April 2002 2002 2001 as restated £'000 £'000 Profit for the year 18,209 9,184 Other recognised gains and losses in the year 46 283 Shares issued net of expenses 378 15,872 Dividends (2,270) (2,237) Net addition to shareholders' funds 16,363 23,102 Opening shareholders' funds as previously stated 202,588 177,656 Prior year adjustment for deferred tax (note 5) (3,283) (1,453) Opening shareholders' funds as restated 199,305 176,203 Closing shareholders' funds 215,668 199,305 Notes to the preliminary announcement 1. Segmental analysis Total operating Operational profit Turnover Ebitda* net assets 2002 2001 2002 2001 2002 2001 2002 2001 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 By activity: Continuing operations: Personal storage 20,916 16,276 9,486 8,565 7,589 7,177 85,210 83,870 Serviced business space 53,575 51,360 20,904 22,324 18,160 20,098 248,736 220,944 Records management - - 5,122 3,026 3,546 1,955 28,096 33,273 Property disposals 792 4,345 - - 162 2,541 - 5,231 Goodwill amortisation - - - - (7,091) (6,251) - - 75,283 71,981 35,512 33,915 22,366 25,520 362,042 343,318 Discontinued operations: Other 2,122 3,038 (84) (3) (89) (13) - 787 77,405 75,019 35,428 33,912 22,277 25,507 362,042 344,105 *Earnings before interest, taxes, depreciation and amortisation Operational net assets are net assets excluding own shares, current and other fixed asset investments, development in progress, cash, borrowings, current and deferred tax and dividends payable. Turnover all originated in the United Kingdom with the exception of £2.3 million (2001: £1.7 million) which was supplied in other European countries. Turnover by destination was as follows: 2002 2001 £'000 £'000 United Kingdom 75,143 73,361 Other Europe 2,262 1,658 77,405 75,019 Total operating profit before goodwill amortisation all arose in the United Kingdom with the exception of losses of £0.7 million (2001: £0.9 million) which were generated in other European countries. Further analysis of total operating profit after goodwill amortisation is as follows: 2002 2001 Dis- Dis- Continuing continued Continuing continued operations activities Total activities activities Total £'000 £'000 £'000 £'000 £'000 £'000 Turnover 75,283 2,122 77,405 71,981 3,038 75,019 Cost of sales (40,842) (1,555) (42,397) (36,400) (2,102) (38,502) Gross profit 34,441 567 35,008 35,581 936 36,517 Administrative expenses (8,530) (656) (9,186) (5,765) (949) (6,714) Goodwill amortisation (5,726) - (5,726) (5,334) - (5,334) Operating profit 20,185 (89) 20,096 24,482 (13) 24,469 Share of IME operating profit: Before goodwill amortisation 3,546 - 3,546 1,955 - 1,955 Goodwill amortisation (1,365) - (1,365) (917) - (917) Total operating profit 22,366 (89) 22,277 25,520 (13) 25,507 2. Operating profit Operating profit is stated after charging the following: 2002 2001 £'000 £'000 Goodwill amortisation 5,726 5,334 Depreciation - on owned assets 4,646 3,623 - on assets held under finance leases - 2 Operating lease rentals - land and buildings 10,437 9,865 - other 239 263 Auditors' remuneration - audit work 62 55 During the year, the group's auditors were paid £22,000 (2001: £32,000) for services other than as auditors. 3. Profit on disposal of operations The trade and assets of Homeware Brands were sold on 30 November 2001 at book value. Its contribution to the group's results are shown under discontinued activities in note 1. Imex Holland, which comprises two operating sites, was sold on 4 January 2002 at a profit of £1.5 million. In the year to 30 April 2002 it contributed turnover of £0.4 million and operating profit of £0.1 million. 4. Net interest payable 2002 2001 £'000 £'000 On bank loans and overdrafts 8,472 11,280 On deferred acquisition loan notes 372 343 Other financing costs 4 24 Share of IME joint venture interest 1,916 2,033 Interest payable and similar charges 10,764 13,680 Bank and other interest receivable (370) (1,550) Interest receivable from IME joint venture (869) (1,276) Net interest payable 9,525 10,854 5. Taxation FRS19 (Accounting for deferred tax) has been adopted with effect from 1 May 2000. FRS19 requires that deferred tax be recognised in respect of all timing differences that have originated but not reversed by the balance sheet date. The group's previous accounting policy in respect of deferred tax was only to recognise deferred tax to the extent that a liability would crystallise. As a result of the change of accounting policy a prior year adjustment of £3.3 million has been made. Comparative figures have been restated to take into account the following: 2001 £'000 Profit for the year Group tax charge increase 1,860 Share of IME joint venture tax charge reduction (30) Reduction in reported profit for the financial year 1,830 Balance sheet Group deferred tax provision increase 2,492 Share of IME joint venture net assets reduction 791 Reduction in shareholders' funds 3,283 5. Taxation continued The tax charge for the year comprises: 2001 2002 as restated £'000 £'000 Current tax UK corporation tax at 30% 5,192 4,468 UK prior year (707) (248) Total current tax 4,485 4,220 Deferred tax Origination and reversal of timing differences 1,413 1,860 Group tax charge 5,898 6,080 Share of IME joint venture tax 841 72 Total tax charge 6,739 6,152 The UK current tax charge includes £0.5 million (2001: £nil) relating to the profit on disposal of investment. The total current tax charge for the year varied from the standard rate of corporation tax in the UK for the following reasons: 2001 2002 as restated £'000 £'000 Profit on ordinary activities before taxation 24,948 15,336 Standard rate of UK corporation tax @ 30% 7,484 4,601 Effects of: Deducting joint venture tax (charge)/credit at the standard rate (788) 299 Goodwill amortisation for which no tax relief is available 2,127 1,600 Capital losses crystallised (2,394) - Capital allowances in excess of depreciation (1,253) (1,249) Utilisation of tax losses (107) (565) Other timing differences (53) (46) Adjustments to tax charge in respect of prior periods (707) (248) Unrelieved overseas trading losses 140 65 Other permanent differences 36 (237) Actual total current tax charge 4,485 4,220 Future tax charges may be affected by the following factors: (1) based on current capital investment plans the group expects to continue to be able to claim capital allowances in excess of depreciation in future years at a similar level to the current year. (2) no provision has been made for potential liability to deferred taxation of £5.8 million (2001: £6.2 million) which would arise in the event of freehold and long leasehold properties being sold at their balance sheet value. Such tax would become payable only if the property were sold without it being possible to claim rollover relief. At present it is not envisaged that any tax will become payable in the foreseeable future. 6. Dividends 2002 2001 £'000 £'000 Interim paid 0.402p per ordinary share (2001: 0.402p) 729 752 Final proposed 0.85p per ordinary share (2001: 0.82p) 1,541 1,485 2,270 2,237 7. Earnings per share Basic earnings per share are calculated on profit after tax of £18.2 million (2001: £9.2 million as restated), divided by 180.8 million ordinary shares (2001: 175.1 million ordinary shares) being the weighted average number of shares in issue during the year. Diluted earnings per share are calculated after allowing for the dilutive effect of conversion into ordinary shares of the weighted average number of share options outstanding during the year. The number of shares used for the diluted earnings per share calculation was 181.9 million (2001: 179.3 million). The weighted average number of shares used to calculate earnings per share excludes shares held by the Quest (see note 10). Basic earnings per share before goodwill amortisation and profit on disposal of investment has been separately disclosed on the face of the profit and loss account to facilitate comparison of the underlying performance of the group. The calculation uses the same weighted average number of shares in issue as for the basic earnings per share but reflects the following items: 2002 2001 Profit Earnings Profit Earnings after tax per share after tax per share as restated as restated £'000 p £'000 p As for basic earnings per share 18,209 10.07 9,184 5.24 Goodwill amortisation 7,091 3.92 6,251 3.57 Profit on disposal of investment (after tax) (9,146) (5.06) - - Basic earnings per share before goodwill amortisation and profit on disposal of investment 16,154 8.93 15,435 8.81 Diluted earnings per share before goodwill amortisation and profit on disposal of investment similarly reflects the above adjustments but uses the same weighted average number of shares in issue as for diluted earnings per share. 8. Intangible assets Goodwill £'000 Cost At 1 May 2001 114,491 Arising on acquisition 141 Exchange movements (17) At 30 April 2002 114,615 Amortisation At 1 May 2001 7,983 Charge for the year 5,726 At 30 April 2002 13,709 Net book value At 30 April 2002 100,906 At 30 April 2001 106,508 9. Tangible assets Plant, equipment Land and and buildings vehicles Total £'000 £'000 £'000 Cost At 1 May 2001 215,359 25,119 240,478 Arising on acquisition - 14 14 Arising on disposal of operations (2,998) - (2,998) Exchange movements (2) (3) (5) Additions 34,517 5,729 40,246 Transfers from assets held for disposal 4,744 - 4,744 Disposals (819) (1,357) (2,176) At 30 April 2002 250,801 29,502 280,303 Depreciation At 1 May 2001 12,689 13,373 26,062 Arising on disposal of operations (1) - (1) Charge for the year 2,606 2,040 4,646 Disposals (192) (1,177) (1,369) At 30 April 2002 15,102 14,236 29,338 Net book value At 30 April 2002 235,699 15,266 250,965 At 30 April 2001 202,670 11,746 214,416 Land and buildings at cost comprise: 2002 2001 £'000 £'000 Land 97,869 84,509 Freehold buildings 115,113 94,630 Long leasehold 20,632 20,015 Short leasehold 17,187 16,205 250,801 215,359 The net book value of the group's plant, equipment and vehicles includes £nil (2001: £18,000) in respect of assets held under finance leases. 10. Investments Own IME joint Other shares venture as restated £'000 £'000 £'000 At 1 May 2001 250 222 33,273 Disposals - (208) - Loans repaid by IME - - (5,712) Share of profit retained by joint - - 445 venture Exchange movements - - 90 At 30 April 2002 250 14 28,096 The group's other investment, which is held at cost, represents a 15% equity interest amounting to £0.25 million in Citib@se plc, an unlisted company, which operates in England in the provision of serviced office space. The company operates a Qualifying Employee Share Ownership Trust ('Quest') which holds shares issued by the company in relation to the group's employee share save schemes. At 30 April 2002 the number of shares held by the Quest was 102,290 (2001: 434,136) and are included above at the price at which employees can subscribe for the shares on exercise of their options. Dividends in respect of these shares have been waived whilst being held by the Quest. During the year the Quest disposed of 331,846 shares on exercise of employee share options. The group's investment in its IME joint venture comprises its share of their net assets of £17.7 million (2001: £17.1 million as restated) and loans of £10.4 million (2001: £16.1 million). Comparative figures for share of net assets have been restated following the adoption of FRS19. Details are given in note 5. The group's principal operating subsidiaries, all of which are wholly owned, are: Country of operation Company Activity and registration Abbey Storage Limited Personal storage UK British Self Storage Limited Personal storage UK Une Piece en Plus S.A. Personal storage France Imex Spaces Limited Serviced business space UK Inshops Centres Limited Serviced business space UK Synex Network Services Limited Serviced business space UK On 4 January 1999 Iron Mountain Europe Limited became a 49.9% owned joint venture undertaking following the disposal of shares to Iron Mountain Incorporated. The principal operating subsidiaries of the joint venture, all of which are wholly owned and provide records and information management services are: Country of operation Company and registration Iron Mountain (UK) Limited UK Datavault Limited UK Archive Services Limited UK Beverly Records Management Limited Eire Memogarde S.A. France Datavault S.A. Spain Documentalia S.A. Spain Iron Mountain Deutschland GmbH Germany 10. Investments continued Further details of the group's share (49.9%) of the joint venture's net assets as at 30 April 2002 and its share of profits for the year then ended are given below: 2001 2002 as restated £'000 £'000 Fixed assets 50,309 47,651 Current assets 10,148 11,057 Share of gross assets 60,457 58,708 Liabilities due within one year (19,551) (20,211) Liabilities due after more than one year (23,230) (21,356) Share of gross liabilities (42,781) (41,567) Share of net assets 17,676 17,141 Share of net debt included in net assets above (13,044) (13,708) The share of net debt disclosed above excludes loans due to the joint venture partners. 2001 2002 as restated £'000 £'000 Turnover 27,705 19,074 EBITDA 5,122 3,026 Profit/(loss) before tax 1,286 (995) Taxation (841) (72) Profit/(loss) after tax 445 (1,067) During the year the group charged IME a management fee of £48,000 (2001: £48,000), property rentals of £0.6 million (2001: £0.6 million), labour costs of £nil (2001: £0.1 million) and had interest receivable of £0.9 million (2001: £1.3 million). All transactions were undertaken on an arm's-length basis. 11. Stocks and development in progress 2002 2001 £'000 £'000 Stocks comprise: Raw materials 111 150 Work in progress 1,678 1,594 Finished goods 35 571 1,824 2,315 The development in progress of £16.3 million comprises a new records management facility for IME in South East London. This is now substantially complete and will be sold to a third party at cost and leased back to IME on an arms length basis. 12. Debtors 2002 2001 £'000 £'000 Trade debtors 3,290 3,072 Net investment in finance lease and hire purchase agreements 86 108 Other debtors 1,082 1,161 Prepayments and accrued income 4,299 5,150 8,757 9,491 Group debtors falling due after more than one year amounted to £0.1 million (2001: £0.2 million). 13. Current asset investments The group's 20% equity interest in Workspace Group PLC, a listed company which operates in England in the provision of serviced business space, was sold on 21 May 2001. 14. Creditors: amounts falling due within one year 2002 2001 £'000 £'000 Bank loans and overdrafts 21,403 12,494 Deferred acquisition loan notes - 4,200 Obligations under finance leases - 8 Trade creditors 10,193 10,651 Social security and other taxes 1,300 811 Corporation tax 3,914 4,490 Other creditors 1,811 1,930 Accruals and deferred income 14,634 13,491 Proposed dividend 1,541 1,485 54,796 49,560 15. Creditors: amounts falling due after more than one year 2002 2001 £'000 £'000 Bank loans and overdrafts 131,798 144,071 Deferred acquisition loan notes 4,043 4,043 Borrowings 135,841 148,114 Other creditors 437 85 136,278 148,199 The above borrowings are repayable as follows: 2002 2001 £'000 £'000 Between one and two years 62,781 56,354 Between two and five years 71,671 37,112 After five years 1,389 54,648 135,841 148,114 The aggregate amount of all loans repayable by instalment, of which any instalment is due for repayment after five years is £1.4 million (2001: £70.0 million). These were bank loans which were secured on certain property assets of the group and attracted interest at LIBOR plus a margin of 1.0%. 16. Provisions for liabilities and charges Charged At 1 May to profit 2001 and loss Arising on Paid in Exchange At 30 April as restated account disposal the year movements 2002 £'000 £'000 £'000 £'000 £'000 £'000 Pensions 161 100 - (130) - 131 Deferred tax 3,184 1,413 (249) - (4) 4,344 3,345 1,513 (249) (130) (4) 4,475 Following the adoption of FRS19 the group's deferred tax provision as at 30 April 2001 has been restated. Full details are given in note 5. The group's deferred tax provision comprises: 2001 2002 as restated £'000 £'000 Accelerated capital allowances 6,668 5,664 Short-term timing differences (822) (871) Losses (1,502) (1,609) 4,344 3,184 17. Commitments and contingent liabilities (a) Operating lease commitments The group was committed to make the following payments over the forthcoming 12 months in respect of operating leases which expire: 2002 2001 Land and Land and buildings Other buildings Other £'000 £'000 £'000 £'000 Within one year - 8 - 14 Between one and two years 80 17 - 83 Between two and five years 910 213 161 78 Over five years 9,870 - 9,809 - 10,860 238 9,970 175 (b) Contingent liabilities The group had contingent liabilities on documentary credits amounting to £nil at 30 April 2002 (2002: £35,000). 18. Pensions The group operates both defined benefit and defined contribution pension schemes. The assets of the schemes are held in separate trustee administered funds. The total pension cost for the group was £0.4 million (2001: £0.2 million) of which £0.1 million (2001: £16,000) related to defined benefit schemes. An actuarial valuation of the group's defined benefit scheme was carried out at 1 April 2000 by an independent actuary using the projected unit method. The principal assumptions adopted were that investment returns would be 5% and that investment returns would be equal to future salary increases and exceed pension increases by 2%. At 1 April 2000 the market value of the scheme's assets were £2.7 million, sufficient to cover 93% of accrued benefits after allowing for expected future increases in earnings. As recommended by the actuary, employers' contributions to the scheme recommenced on 1 April 2001 and are currently at the rate of £130,000 per annum. The company processes transactions and makes payments on behalf of the trustees of the principal pension scheme. These items are recharged on an arm's-length basis with the company making no gain or loss. At 30 April 2002 the pension scheme owed the company £17,000 (2001: £49,000) in respect of transactions processed but not yet recharged. Additional discloures are given below regarding the group's defined benefit scheme which are required under the transitional provisions of FRS17 - Retirement Benefits. The disclosures relate to the first year of the transitional provisions and provide information which will be necessary for full implementation of FRS17 in the year ending 30 April 2004. The actuarial valuation described above has been updated to 30 April 2002 by a qualified actuary using revised assumptions that are consistent with the requirements of FRS17. Scheme assets are stated at their market value at 30 April 2002. The key assumptions used for the actuarial valuation under FRS17 were: Valuation method Projected unit Discount rate 5.9% Inflation rate 2.8% Increase in LPI linked pensions in payment 2.8% The fair value of the assets in the scheme, the present value of the scheme's liabilities and the expected rate of return at the balance sheet date were: % £'000 Equities and property 8.0 1,007 Bonds 5.5 1,169 Other 5.0 72 Total market value of scheme's assets 6.6 2,248 Present value of scheme's liabilities (2,615) Net deficit in the scheme (367) Related deferred tax asset 110 Net pension liability (257) Had FRS17 been adopted and the above pension liability recorded in place of the current provision of £0.1 million (note 16) less the related deferred tax asset it would impact the balance sheet as follows: Profit and loss reserve Net assets £'000 £'000 As currently reported 40,163 215,668 Increase in pension liability (net of deferred tax) (166) (166) On FRS17 basis 39,997 215,502 19. Financial instruments The major financial risks facing the group, treasury policy and the use of financial instruments are discussed in the financial review. The group has taken advantage of the exemption under FRS 13 to exclude short term debtors and creditors from the following disclosures. Currency and interest rate risk profile of financial assets and liabilities After taking into account interest rate swaps the currency and interest rate profile of the group's financial assets and liabilities was: Non- Floating interest Total rate bearing Financial assets £'000 £'000 £'000 At 30 April 2002: Sterling 14,932 14,668 264 Euro 15 15 - 14,947 14,683 264 At 30 April 2001: Sterling 45,509 24,799 20,710 Financial assets comprise: cash £4.1 million (2001: £8.5 million), loans to joint ventures £10.4 million (2001: £16.1 million), own shares £14,000 (2001: £0.2 million), other fixed asset investments £0.3 million (2001: £0.3 million), current asset investments £nil (2001: £20.2 million) and long-term debtors £0.1 million (2001: £0.2 million). Cash at bank and in hand bears interest at prevailing market rates. Loans to the joint venture bears interest at rates agreed between the joint venture partners and during the year ranged from 4.2% to 8.0%. It is not possible to compute the weighted average period until maturity for financial assets on which no interest is paid. Weighted Weighted average Non- average period for interest Floating Fixed fixed which rate Total bearing rate rate rate fixed Financial liabilities £'000 £'000 £'000 £'000 % Years At 30 April 2002: Sterling 156,875 577 146,298 10,000 7.05 0.56 Euro 946 - 946 - 157,821 577 147,244 10,000 At 30 April 2001: Sterling 160,882 85 150,789 10,008 7.05 1.56 Euro 4,019 - 4,019 - 164,901 85 154,808 10,008 Financial liabilities comprise: borrowings £157.2 million (2001: £164.8 million) and long term creditors £0.4 million (2001: £0.1 million). The weighted average period until maturity for financial liabilities on which no interest is paid is 8 years (2001: 1 year). Floating rate liabilities bear interest based on LIBOR with the exception of £75 million which is subject to an interest rate collar which caps LIBOR at 7.26%, has a floor of 5.50% and which expires in May 2004. 19. Financial instruments continued Maturity of financial liabilities The maturity of financial liabilities was as follows: 2002 2001 Total Borrowings Other Total Borrowings Other £'000 £'000 £'000 £'000 £'000 £'000 Within one year 21,543 21,403 140 16,702 16,702 - Between one and two years 62,836 62,781 55 56,439 56,354 85 Between two and five years 71,836 71,671 165 37,112 37,112 - After five years 1,606 1,389 217 54,648 54,648 - 157,821 157,244 577 164,901 164,816 85 Other financial liabilities comprise indirect taxation and government grants. Fair values of financial assets and liabilities The book values and estimated fair values of financial assets and liabilities was as follows: 2002 2001 Book value Fair value Book value Fair value £'000 £'000 £'000 £'000 Other fixed asset investments 250 250 250 250 Financial assets excluding other fixed asset investments 14,697 14,697 45,259 54,959 Borrowings (157,244) (157,244) (164,816) (164,816) Interest rate swaps - (866) - (281) Other financial liabilities (577) (577) (85) (85) Other matters At 30 April 2002 the group did not have outstanding any forward currency contracts or any undrawn amounts under its committed banking facilities. Currency gains and losses taken through the profit and loss account during the year were immaterial. 20. Cash flow statement a) Reconciliation of operating profit to cash flow from operating activities 2002 2001 £'000 £'000 Operating profit 20,096 24,469 Goodwill amortisation 5,726 5,334 Depreciation charge 4,646 3,625 Loss/(profit) on sale of tangible fixed assets 21 (612) Decrease in stocks and assets held for resale 320 928 Decrease/(increase) in debtors 613 (235) Increase/(decrease) in creditors 98 (306) (Decrease)/increase in provisions for liabilities and charges (30) 16 Net cash inflow from operating activities 31,490 33,219 b) Analysis of cash flows for headings netted in cash flow statement 2002 2001 £'000 £'000 Returns on investments and servicing of finance Dividends received from other fixed asset investments - 683 Interest received 370 1,550 Interest paid (7,224) (9,852) Net cash outflow for returns on investments and servicing of (6,854) (7,619) finance Proceeds from sale of investments Workspace Group PLC 29,947 - Own shares 208 36 Net cash inflow for sale of investments 30,155 36 Capital expenditure Purchase of tangible fixed assets (40,074) (28,734) Sale of tangible fixed assets 786 2,620 Net cash outflow for capital expenditure (39,288) (26,114) Acquisitions and disposals Acquisitions (note 20d) (38) (28,199) Cash at bank/(bank overdrafts) acquired with acquisitions 3 (2,857) Sale of Homeware Brands (note 20e) 658 - Sale of Imex Holland (note 20e) 1,829 - Net cash inflow/(outflow) for acquisitions and disposals 2,452 (31,056) Financing Debt due within one year - increase in borrowings 4,134 7,790 Debt due beyond one year - increase in borrowings 7,191 32,205 Debt due within one year - repayment of borrowings (4,200) (676) Debt due beyond one year - repayment of borrowings (17,296) - Capital element of finance lease rental payments (8) (51) Net cash (outflow)/inflow from financing (10,179) 39,268 20. Cash flow statement continued c) Analysis of changes in net debt Other At 1 May non-cash At 30 April 2001 Cash Disposals movements 2002 flow £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 8,465 (4,372) - - 4,093 Overdrafts (4,313) (4,763) - - (9,076) 4,152 (9,135) - - (4,983) Debt due within one year (12,381) 66 127 (139) (12,327) Debt due after one year (148,114) 10,105 2,092 76 (135,841) Finance leases (8) 8 - - - (160,503) 10,179 2,219 (63) (148,168) Total net debt (156,351) 1,044 2,219 (63) (153,151) Other non-cash movements relate to loan amortisation costs written off during the year and foreign exchange differences. d) Acquisitions 2002 2001 £'000 £'000 Cash consideration and acquisition costs paid 38 26,648 Shareholder loans repaid on acquisition - 1,551 38 28,199 e) Sale of Homeware Brands and Imex Holland Homeware Imex Brands Holland £'000 £'000 Net assets disposed of: Tangible fixed assets - 2,997 Stocks 658 - Debtors - 245 Bank loans - (2,219) Other creditors - (474) Deferred tax - (249) 658 300 Profit on disposal - 1,529 658 1,829 Satisfied by: Cash proceeds received (net of costs) 658 1,829 21. Financial statements and annual general meeting This preliminary statement, which has been agreed with the auditors was approved by the Board on 2 July 2002. It is not the company's statutory accounts. Statutory accounts will be sent to shareholders in due course. The statutory accounts for the year ended 30 April 2001 have been delivered to the Registrar of Companies and received an audit report which was unqualified and did not contain statements under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 30 April 2002 have not yet been approved, audited or filed. The annual general meeting will be held on 4 September 2002. This information is provided by RNS The company news service from the London Stock Exchange

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