Final Results

Trifast PLC 18 June 2001 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Monday, 18 June 2001 Embargoed: 7.00am Trifast plc Preliminary Results for the year ended 31 March 2001 * Turnover £121 million * International businesses contributed 25% of sales and operating profit * Profit before tax - pre bad debt provision, up 10% to £12.23 million * Adjusted diluted EPS up 10.2% to 12.00p * Final dividend 2.49p - total for the year 3.75p, up 9.3% * Gross margins slightly ahead at 28.8% * Gearing 14.6% * Logistics operations expanded in Mexico, Hungary and Shanghai * Post year end Group strengthened its global network through Taiwanese acquisition 'By the end of the third quarter, the Trifast Board was looking forward to a record last three months of sales and profitability as we went into 2001. 'However, the last quarter did not generate the anticipated growth, and demand especially in the Information Technology sector fell sharply with no warning. Our geographic spread normally absorbs 'peaks and troughs' in customer activity; however this time, the fall in demand was evident in most sectors and on all three Continents at the same time. 'The current year has got off to a disappointing start with the first two months sales being 14% down on the same period last year. Performance for the rest of the year is difficult to predict and will depend on whether the current slow down develops into a recession or turns out to be merely a short term period of unprecedented destocking. 'Nevertheless, we will continue to invest so that when demand does return we will be able to take full advantage of this recovery with an even broader spread of geographic supply facilities, lower internal supply-chain costs and additional specialist managers. £1million of direct costs have already been removed so as not to impede alternative investments required in order to gain maximum benefit from the up-turn.' FULL STATEMENT ATTACHED Enquiries: Malcolm Diamond, Chief Executive Today: 020 7282 8000 (8.15am - 10.30am) John Wilson, Group Finance Director Mobile: 07979 518493 (MMD)/07711 103915 (JW) Trifast plc Thereafter: 01825 747600 Web-site: www.trifast.com Email: ceooffice@trifast.com Fiona Tooley Today: 020 7282 8000 Citigate Dewe Rogerson Mobile: 07785 703523 Thereafter: 0121 455 8370 -2- Trifast plc Preliminary Results for the year ended 31 March 2001 JOINT STATEMENT BY THE CHAIRMAN, DAVID DUGDALE and CEO MALCOLM DIAMOND, MBE We are pleased to be able to report to you on a year where the uninterrupted growth of your company has continued, although at a slower rate than in the past. It has been a challenging year, particularly in the second half of the financial year when we saw a slow down of customer activity and where we implemented a significant amount of restructuring across the Group to lay the foundations for the future. Despite this, we have remained focused and achieved what we believe to be a creditable set of results. Financial Highlights The Group's profit for the year before tax and goodwill increased by 6.6% from £11.12 million to £11.85 million. The increase would have been 10.0% to £12.23 million had we not decided it was prudent to fully provide for a possible bad debt of £383,000. This arose late in March this year when the Dutch subsidiary of a major US sub-contractor had its assets frozen as a result of its parent filing for Chapter 11 protection from its creditors. Up until then the customer had been paying on time and we continue to trade with them on a cash against delivery basis. Adjusted diluted earnings per share (before goodwill amortisation) rose by 10.2% from 10.89 pence to 12.00 pence. Turnover was £121.4 million compared with £113.3 million in 2000, an increase of 7.2%. Gross margins were slightly up on the comparable period at 28.8%. Our overseas operations contributed 25% of our operating profit pre goodwill and 25% of our turnover, an improvement over the previous year when the figures were 23% and 21% respectively. Shareholders' funds increased by 19% to £39.6 million and gearing remained broadly unchanged at 14.6% Dividend The Board is recommending a final dividend of 2.49 pence net per share (2000: 2.29p re-stated following the 3 for 1 bonus issue in August 2000) which together with the interim paid of 1.26 pence (2000: 1.14p restated) makes a total of 3.75 pence net per share for the year (2000:3.43p restated), an increase of 9.3%. The total dividend is covered three times by earnings. If approved at the Annual General Meeting on 23 August 2001, the final dividend will be paid on 4 September 2001 to shareholders on the Register as at 29 June 2001. Trading Up until December 2000 we were achieving plan, but from January to March a large number of strategic customers reported excess inventory, from components to finished product, and consequently froze incoming deliveries. However, this unprecedented blockage in the supply chain can only be temporary, therefore, we have continued our investment plan in premises and personnel for Mexico and Hungary expansion. continued... -3- Acquisitions Since the year-end, we are delighted to have concluded the acquisition of Special Fasteners Engineering Co. Ltd (SFE) in Taiwan in May 2001 as the first tangible success resulting from our current planned acquisition programme. SFE, which has QS9000 quality approval, was established 18 years ago and employs 105 staff. Based in Kaohsiung Taiwan, SFE manufactures and distributes industrial fasteners supplying a large number of major distribution companies across a variety of industries both in Europe and the U.S.A. Trifast will pay a maximum consideration of New Taiwanese dollars ('NT$') 722m (approximately £15.26m) of which 80% was paid in cash on completion with the balance being retained to cover normal warranties and which will be released over the next three years. In the year ended 31st December 2000, SFE had unaudited sales of NT$550.7m (approximately £11.64m), and unaudited operating profits after adjustment for various non recurring items of NT$79m (approximately £1.67m). Unaudited net assets at 31st December 2000 were NT$233.6m (approximately £4.94m). We are focusing strongly on the Asian market for three reasons: a) it is a highly fragmented market within the fastener supply sector, and so lends itself to substantial benefits by developing a market leading vendor position; b) Asia continues to be the favoured region for high volume/low cost assembly - especially in electronics; and c) the Trifast Asia management team has the skills and the appetite for driving high levels of growth by acquisition. Our reasons for inviting SFE to join our team revolve principally around their 'best of breed' status as a QS9000 fastener manufacturer, thus providing high profitability performance whilst delivering high quality/low cost components for our international logistics distribution teams. SFE's highly developed management skills also enable Trifast to develop SFE in Taiwan as an Asian purchasing/stocking Hub, in order to lower prices, costs and delivery times to Europe and the USA. We see this as essential, both for the preservation of our premium profit margin requirements in a deflationary price market, and for reducing our exposure to stock obsolescence in supplying JIT programmes to customers with limited forward vision on production quantity demand. Continuing strategy in the current market Growing our international network as a key strategy is not solely dependent on acquisitions. We are also capitalising on web based IT in the form of our 'New Horizons' framework and closely managed alliances with synergistic internationally spread component manufacturers whose products can be delivered by us alongside our fasteners. The 'New Horizons' network will be fully linked by the end of June 2001, from Europe to the USA and Asia, and the Alliance initiative is now bringing in new major customer bidding activities for product supply to each of the partners. continued... -4- By the end of the third quarter, the Trifast Board was looking forward to a record last three months of sales and profitability as we went into 2001. Following our re-organisation last year, there is very clear visibility on customer sector trends, now that we have separate sales management functions for Information Technology, Household Appliances, Automotive Sub-Assemblies and General Industrial. However, the last quarter did not generate the anticipated growth, and demand especially in the Information Technology sector fell sharply with no warning. Our geographic spread normally absorbs 'peaks and troughs' in customer activity; however this time, the fall in demand was evident in most sectors and on all three Continents at the same time. The impact on our year-end result due to the last quarter drop was negated by our bonus system, which accrues every month in anticipation of hitting our predicted profit target. At the end of this year, despite supreme efforts by our Directors, managers and staff, virtually no bonuses were awarded. At the time of writing, the global message from major players in the Information Technology manufacturing sector is 'no visibility'. Extensive research into this hitherto unprecedented collapse in demand mainly attributes this to a massive build-up of excessive inventory caused first by electronic component shortages, followed by panic doubling-up of orders in 2000, exacerbated by over-optimistic demand forecasting for finished products, in particular internet-enabled mobile phones. Clearly, this has proved to be a disappointing interruption in our growth record, albeit that it is only temporary; however, the implications are undoubtedly more serious for some of the major sub-contract assemblers that have grown up so rapidly in recent years. Many of these will find 2001 very challenging as they are highly geared, with cash flow and profitability being extremely 'volume-sensitive'. However for Trifast, given its strong financial and strategic position, we believe that 2002 is going to be extremely exciting. Rule 410.C Our shares were dropped from the FTSE All share index in early December 2000 - a move which resulted in a number of tracker funds being obliged to sell their Trifast holdings. This exit from the index was due to a directive by FTSE International designed to weed out shares that are rarely traded, such as those companies which have large family holdings. However, it also catches high growth companies such as ours whose shares are in demand from institutions and which have been bought to hold for the long term. This directive needs some modification to avoid this happening again. We will therefore be working with other smaller companies to lobby on this particular issue, and to this end our CEO, Malcolm Diamond has been nominated Chairman of the Smaller Quoted Companies (SQC) Working Committee under the auspices of the CBI. People In August 2000, we strengthened our non-executive team through the appointment of Ben Stevens. Ben's considerable operational and international expertise will be invaluable to Trifast as we roll-out our plans for further overseas expansion. He has been with BAT plc since 1990. He has held a number of senior roles within the BAT Group both in the UK and overseas and currently focuses on M&A and e-business as Development Director. In addition, we also further strengthened the executive team on the main board with the appointments of Steven Tan and Steven Franklin with effect from April 1st this year. continued... -5- Steven Tan joined the Group when it acquired Formac Technologies in 1997. Since then Steven has been responsible for our fast growing Asian Operations whilst also playing a key role in the subsequent acquisition in Malaysia and in setting up Trifast's distribution company in China. Post year end, Steven played a pivotal role in negotiating our acquisition of SFE, in Taiwan. Steven Franklin joined the Group in 1999 after having spent a number of years with a major European distributor. With his considerable experience of working with acquired subsidiaries he has operational responsibility for TR Europe. We would also like to welcome the founder and managing director of SFE, Leon Huang to the Group. He will work closely with Steven Tan in the Far East region. In early June 2001 we welcomed our new TR Europe Group Purchasing Director Wendy Stopher, who joins us from BAe Systems. There is no doubt that the addition of these capable individuals and the wealth of international experience that they bring to the Group will contribute greatly to the continuing development of Trifast's worldwide network. The board and staff would also like to congratulate our Chief Executive, Malcolm Diamond on his MBE awarded in the New Year's Honours list for services to industrial entrepreneurship and links with the business community. He openly acknowledges the contribution that the people within Trifast have made to this honour. Our philosophy has always been that our people are our most vital asset. On behalf of the Directors and shareholders we would like to thank every member of staff around the Group for their considerable amount of hard work and dedication in a year where we have experienced many changes both from within the organisation and from external factors. Prospects The current year has got off to a disappointing start with the first two months sales being 14% down on the same period last year. Performance for the rest of the year is difficult to predict and will depend on whether the current slow down develops into a recession or turns out to be merely a short term period of unprecedented destocking. Nevertheless, we will continue to invest so that when demand does return we will be able to take full advantage of this recovery with an even broader spread of geographic supply facilities, lower internal supply-chain costs and additional specialist managers. £1million of direct costs have already been removed so as not to impede alternative investments required in order to gain maximum benefit from the up-turn. We strongly believe that Trifast is well balanced, both geographically and by customer mix, financially strong, highly competitive and well positioned to benefit from the increased growth in our market place when it occurs. Therefore, Trifast's continuing growth is not a question of 'if', it is a matter of 'when', and we are planning for momentum to return in 2002 onwards. 18 June 2001 -6- Trifast plc Preliminary Results for the year ended 31 March 2001 FINANCIAL REVIEW BY THE GROUP FINANCE DIRECTOR, JOHN WILSON Despite the economic situation that exists as I write this review and which appears to be pandemic, Trifast performed in line with expectations in the year to March 2001. Sales increased organically by 7% to £121.4m and when compared to our interim results, it is apparent that the economic pressure manifested itself in our second half, and particularly our last quarter. I am pleased to report that gross margins increased slightly to 28.8%, both from last year and our interim, and that sales from our overseas operations increased to 25% of the total. Overheads, before goodwill, held as a percentage of sales (18.7%), which is encouraging as we also incurred a large amount of revenue expenditure to support our planned investment strategy. This provided an operating profit pre goodwill of £12.2m and a profit before tax of £11.5m both of which maintained the same percentages of sales as last year, as did the EBITDA of £13.9m. Our interest payments only marginally increased with interest paid covered 22 times. I am also pleased with our effective tax rate improvement to 27.6% which is a combination of both improved rates in some of the areas in which we operate, and tax planning. My disappointment concerns the provisioning on a potential unrecoverable debt due to our Dutch subsidiary. The customer concerned is an American owned sub contractor to Compaq. The parent company in the US has applied for protection under Chapter 11 which also covers their subsidiary in the Netherlands and it was only on 26 March that we received the notification. There were no major amounts overdue, indeed payments had been drawn up for us before the court order stopped them, and we continue to trade with the customer on a pro forma basis, which protects our stock investment. There is a possibility that the debt will be honoured but we have taken the view to provide for the debt due to the uncertainty. We now operate an even more stringent credit control procedure as we do trade with a number of highly geared, top line sensitive companies. In addition, we will be making a major precautionary provision just in case any other bad debts materialise within this specific customer sector during the current year. Overall, our credit control performance was still good during the year with debtor days being 76, with 90 and 120 day balances being 1.7% of total debtors. Turning to our balance sheet, net assets improved by 19% to £39.6m and with net debt of only £5m, there are opportunities for future growth. Our capital expenditure of £2.9m was similar to last year with depreciation slightly up at £1.7m. continued... -7- Gearing and return on capital were broadly consistent with last year, showing percentages of 14.6% and 22.0% respectively. Following the adjustment for the bonus issue instigated after approval at last year's AGM, our earnings per share (adjusted diluted before goodwill amortisation) increased by 10.2% to 12.00p. So all in all, another good year for Trifast, with ratios generally moving in the right direction. During the year, we made the decision to close our business in Arundel, West Sussex (Ivor Green (Exports) Ltd). This was because the subsidiary had fulfilled its primary function of providing the rest of the Group with a large amount of trading stock. All closure costs, which were minimal, associated with Ivor Green have been accounted for in this year's accounts. This has not been disclosed in the Group Financial Statements as a discontinued operation, on the basis of materiality. Of our total cash balances of £3.3m, £1.7m relates to currencies other than Sterling and as we trade in a number of foreign currencies, particularly the US dollar, we match inflows and outflows which minimises risk. We also monitor exchange rates and occasionally purchase or sell currencies to maximise return, but we do not enter into hedging contracts as a matter of course. During the year we made a net gain on trading of £67k. The largest use of our cash during the period was the funding of the inventory level which reflected the continued investment in stock for new contracts and sites as well as further consignment stock arrangements that proliferate within our customers. This resulted in an increase in our gross stock turn of 8 days which is a far smaller percentage increase than our stock value, but which does indicate the work we have to do to manage this further along the supply chain in order to preserve cash flow. In previous years our aggressive stock write down policy has been widely praised, but in this current year it will undoubtedly impact our profit performance. Turning to current assets, these increased during the year to £53.3m from £ 51.0m, at the end of the previous year, and £52.6m at the interim. Since the year end we have increased our borrowings by nearly £12.5m to cover the initial consideration for our Taiwanese acquisition. Obviously this increases our debt, but our financial position still provides adequate scope to pursue further acquisitions. Finally, as my colleagues and I view the current year and beyond, we are very much aware of the current position within the electronics and telecommunications sector, our main market. Following the new structure operating within TR Europe, our revitalised sales team, in addition to those in Asia and America, are very focused on increasing the levels of business within existing customers and securing new target accounts. From the finance perspective, my team will ensure the additional business is not at the expense of margin and also that operating expenses match the level of business. It is a challenge that all of us face, but it is one we relish as we see it as an opportunity to further improve the operational efficiencies within Trifast. 18 June 2001 -8- Trifast plc Preliminary Results Consolidated profit and loss account for the year ended 31 March 2001 2001 2000 £000 £000 £000 £000 Turnover - continuing operations 121,426 113,313 Cost of sales (86,430) (80,774) Gross profit 34,996 32,539 Distribution costs (3,760) (2,624) Administrative expenses (before (18,996) (18,434) goodwill) Goodwill (327) (317) Total administrative expenses (19,323) (18,751) Other operating expenses 3 (20) Profit on ordinary activities 11,916 11,144 before interest Interest receivable 155 191 Interest payable and similar (545) (534) charges Profit on ordinary activities 11,526 10,801 before taxation Tax on profit on ordinary (3,185) (3,317) activities Profit for the financial year 8,341 7,484 Dividends paid and proposed (2,680) (2,451) Retained profit for the financial 5,661 5,033 year Earnings per share: Basic 11.67p 10.55p Diluted (after goodwill 11.54p 10.44p amortisation) Adjusted diluted (before goodwill 12.00p 10.89p amortisation) There is no material difference in profit on ordinary activities before taxation and profit for the financial year stated above and the historical cost equivalents and therefore no separate note of historical cost profits and losses has been presented. -9- Trifast plc Preliminary Results Consolidated Balance sheet at 31 March 2001 2001 2000 £000 £000 £000 £000 Fixed assets Intangible assets - goodwill 5,741 6,068 Tangible assets 14,579 13,621 20,320 19,689 Current assets Stocks 24,961 19,627 Debtors 25,050 26,331 Cash at bank and in hand 3,264 5,051 53,275 51,009 Creditors: amounts falling due within (26,659) (29,566) one year Net current assets 26,616 21,443 Total assets less current liabilities 46,936 41,132 Creditors: amounts falling due after more than one year (6,615) (7,038) Provisions for liabilities and (723) (874) charges Net assets 39,598 33,220 Capital and reserves Called up share capital 3,590 891 Share premium account 4,470 5,872 Revaluation reserve 1,017 1,017 Merger reserve 726 947 Profit and loss account 29,795 24,493 Equity shareholders' funds 39,598 33,220 -10- Trifast plc Preliminary Results Consolidated cash flow statement for the year ended 31 March 2001 2001 2000 £000 £000 £000 £000 Cash flow from operating 8,003 11,071 activities Return on investments and (376) (338) servicing of finance Taxation (3,869) (3,553) Capital expenditure (2,558) (2,913) Acquisitions and disposals (446) (1,863) Equity dividends paid (2,533) (2,290) (9,782) (10,957) Cash (outflow)/ inflow before (1,779) 114 financing Financing Issue of ordinary share capital 407 425 (Decrease)/Increase in debt (309) 1,641 Net cash flow from financing 98 2,066 (Decrease)/Increase in cash in the (1,681) 2,180 year -11- Trifast plc Preliminary Results for the year ended 31 March 2001 Reconciliation of net cash flow to movement in net debt 2001 2000 £000 £000 £000 £000 (Decrease)/Increase in cash in the year (1,681) 2,180 Cash inflow from decrease/(increase) in debt 309 (1,641) and lease financing _______ _______ Change in net debt resulting from cash flows (1,372) 539 Loans and finance leases acquired with - (365) subsidiaries Translation difference (7) (2) Movement in net debt in the year (1,379) 172 Net debt at beginning of year (3,678) (3,850) Net debt at end of the year (5,057) (3,678) Consolidated statement of total recognised gains and losses for the year ended 31 March 2001 2001 2000 £000 £000 Profit for the financial year 8,341 7,484 Currency translation differences on foreign 199 (192) currency net investments Unrealised surplus on revaluation of land and - 1,017 buildings Total recognised gains relating to the financial 8,540 8,309 year -12- Trifast plc Preliminary Results for the year ended 31 March 2001 NOTES 1 Geographical segments The Group's turnover, analysed by geographical market of destination, is as follows: 2001 2000 £000 £000 United Kingdom 83,477 82,547 European Union (excluding UK) 21,500 15,963 Europe - other 4,039 4,878 North and South America 6,417 5,240 Far East 5,678 4,509 Other 315 176 121,426 113,313 The Group's turnover, profit before tax and net assets, analysed by geographical market of origin, are as follows: UK Asia Rest of World Group 2001 2000 2001 2000 2001 2000 2001 2000 £000 £000 £000 £000 £000 £000 £000 £000 Turnover Total sales 96,765 92,895 8,998 7,653 25,423 20,309 131,186 120,857 Inter segment (5,825) (3,769) (2,558)(2,293)(1,377)(1,482) (9,760) (7,544) sales Sales to third 90,940 89,126 6,440 5,360 24,046 18,827 121,426 113,313 parties Profit before taxation Segment profit 9,170 9,040 2,368 1,647 705 774 12,243 11,461 before goodwill Goodwill (88) (88) - - (239) (229) (327) (317) amortisation Profit before 9,082 8,952 2,368 1,647 466 545 11,916 11,144 interest Net interest (390) (343) Profit on ordinary activities 11,526 10,801 before taxation Segment net 32,985 28,499 6,196 3,918 417 803 39,598 33,220 assets Turnover is predominantly derived from the manufacture and logistical supply of industrial fasteners and category 'C' components. continued... -13- 2 Profit on ordinary activities before taxation 2001 2000 £000 £000 Profit on ordinary activities before taxation is stated after charging and (crediting): Auditors' remuneration: Audit 152 142 Other fees paid to the auditors and their associates 164 186 Depreciation and other amounts written off tangible fixed assets: Owned 1,629 1,439 Leased 29 35 Hire of plant and machinery - operating leases 45 47 Hire of other assets - operating leases 1,125 1,061 Loss on disposal of fixed assets 78 192 Rents receivable from property (41) (44) Net exchange gains (67) (67) Goodwill amortisation 327 317 Exceptional bad debt provision 383 - The total amount charged for the hire of plant and machinery amounted to £49,000 (2000: £51,000). This comprises rentals payable under operating leases as well as depreciation on plant and machinery held under finance leases together with the related finance charges. The audit fee included for the Company was £32,000 (2000: £30,000). The auditors also received Nil (2000: £14,000) which had been capitalised as part of the cost of the acquisitions. The tax effect of the above exceptional bad debt provision is £130,000 (2000: Nil). 3 Interest payable and similar charges 2001 2000 £000 £000 On bank overdraft 5 46 Finance charges payable in respect of finance leases 7 10 and hire purchase contracts Loans and mortgages 524 476 Other 9 2 545 534 4 Taxation 2001 2000 £000 £000 UK corporation tax at 30% (2000: 30%) 2,597 2,793 Overseas taxes 770 608 Deferred taxation (151) (55) Adjustment relating to an earlier year (31) (29) 3,185 3,317 continued... -14- 5 Dividends Ordinary shares: 2001 2000 £000 £000 Interim paid - 2001: 1.26p per share (2000: 1.14p 905 810 restated) Final proposed - 2001: 2.49p per share (2000: 2.29p 1,775 1,641 restated) Total dividend 2,680 2,451 6 Earnings per share Earnings per share 2001 2000 £000 £000 Post tax profit for the financial year 8,341 7,484 Goodwill amortisation charge 327 317 Post tax profit for the year before goodwill 8,668 7,801 amortisation 7 Reconciliations of movements in shareholders' funds Group Company 2001 2000 2001 2000 £000 £000 £000 £000 Profit for the financial year 8,341 7,484 3,035 2,750 Dividends (2,680) (2,451) (2,680) (2,451) Retained profit for the year 5,661 5,033 355 299 Capitalisation of reserves on issue (887) (448) - - of shares to QUEST Issue of ordinary shares 1,403 1,422 1,403 1,422 Exchange gains/(losses) 199 (192) - - Revaluation - 1,017 - 945 Reduction in Goodwill 2 - - - Net addition to shareholders' funds 6,378 6,832 1,758 2,666 Opening shareholders' funds 33,220 26,388 27,943 25,277 Closing shareholders' funds 39,598 33,220 29,701 27,943 8. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2000 or 2001 but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies, and those for 2001 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. 9. This statement is not being posted to shareholders. The Report & Accounts for the year ended 31 March 2001 will be posted to shareholders in July 2001. Further copies will be available from the Company's Registered Office: Trifast House, Bellbrook Park, Uckfield, East Sussex, TN22 1QW. 10. The Annual General Meeting will be held on Thursday, 23 August 2001, 12noon, at the Company's Registered Office as above.

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