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The Group has in 1999 changed its reporting currency to pounds Sterling, as all of its operating activities are carried out in the United Kingdom. The financial information contained in the profit and loss account and balance sheet is also expressed in Euros, solely for convenience, at the rate of ,¬1 = STG£0.621624, the closing rate for the period. Reference throughout the Annual Report to pounds refers to sterling unless otherwise stated.
All of the Group's turnover during the year under review arose in the United Kingdom. Turnover in the cold storage division reduced by 14.4% to £7.33m, mainly due to the ongoing impact of the decision taken in 1998 to rationalise certain uneconomic distribution activities. The gross profit in this division was £1.90m, representing 26.0% of turnover. Some weakening of demand in part of this division was experienced, counteracted by strong performances in the remaining cold stores.
BWA, the ambient warehousing business acquired in May 1999, performed well, recording turnover of £5.29m and a gross profit of £1.22m (23.1%).
The contribution from BWA enabled Group operating profit to increase by 43.4% to £2.38m.
Income from the Group's interest in its Irish associate company was £0.196m compared with £0.346m in respect of the previous year. The associate company suffered reducing occupancies due to the removal of most intervention beef stocks during the year.
The exchange rate used in translating income from the associate was IR£1 = STG£0.8343.
Group profit before taxation increased by 15.5% to £2.32m.
The tax charge of £0.71m represents an effective rate of tax on profits of 30.5% compared with 28.4% in 1998.
Basic earnings per share increased by 12.4%, from 17.0p to 19.1p. Adjusted earnings per share (excluding goodwill and exceptional items) increased by 20.0% from 17.0p to 20.4p.
The Group's return on average capital employed reduced from 25.4% in 1998 to 23.3% in 1999.
Interest cover was 10.1 in 1999 (1998: net interest receivable of £6,000).
Dividend cover was 5.7 compared with 4.9 in 1998.
Year-end gearing was 64%. There was no gearing at the end of 1998.
The total consideration for the purchase of BWA was £7m, of which £4m was paid in cash on completion, with £3m in non-interest bearing loan notes to be paid in three equal annual instalments commencing in May 2000.
Capital expenditure was £0.33m (1998: £1.1m) while depreciation and goodwill amortisation totalling £0.85m (1998: £0.58m) was charged.
The Group's operating cash flow for the year was £3.11m (1998 £1.91m). Net debt, including loan notes, at the year-end was £5.04m (1998: net funds £0.49m). The Group retains adequate term loan and overdraft facilities and is well placed to support future growth and development.
The treasury function, which is managed centrally, is responsible for all Group funding, debt, cash, working capital and foreign exchange exposures. Group treasury policy concentrates on the minimisation of risk in all of the above areas and is overseen and approved by the Board. Speculative positions are not taken.
The Group's financial instruments comprise borrowings, cash and liquid resources, and various items, such as trade debtors, trade creditors etc., that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The Group may enter into derivative transactions such as interest rate swaps or forward foreign currency transactions in order to minimise its risks. The purpose of such transactions is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance. It is Group policy not to trade in financial instruments.
The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and foreign exchange risk. The Group's policies for managing each of these risks are summarised below.
The Group finances its operations through a mixture of retained profits, bank borrowings and working capital, at both fixed and floating rates of interest. The Group determines the level of borrowings at fixed rates of interest having regard to current market rates and future trends. At the year-end, interest rates on all of the Group's borrowings were fixed in advance for three months.
The Group's policy is that, in order to ensure continuity of funding, at least 50% of its borrowings should mature in more than one year. At the year-end, 73% of the Group's borrowings were due to mature in more than one year.
The Group achieves short-term flexibility by means of a revolving credit facility and overdraft facilities.
As all of the Group's trading activities take place in the United Kingdom the Group borrows in sterling currency only, and now reports its results in sterling currency.
Shareholders' funds increased during the year by 20.4% to £7.84m as follows: -
| £'m | |
| Shareholders' funds at 31 December 1998 | 6.51 |
| Attributable profit | 1.61 |
| Dividends | (0.28) |
| Shareholders' funds at 31 December 1999 | 7.84 |
Greg O'Hara
Finance Director
2 March 2000