RNS No 8378a
QUADRANT GROUP PLC
24th November 1997
Quadrant Group plc ("Quadrant")
(The Precision Engineering and Electronic Systems Group)
Preliminary Results for the fifteen months ended 31 May 1997
CHAIRMAN'S STATEMENT
Due to a change in Quadrant's year end from February to May, we are this
year reporting on results for the fifteen month period ended on 31 May
1997.
During this period, the Group's continuing operations produced a slightly
reduced operating loss of #0.7 million (12 months to 29 February 1996:
#0.9 million). The overall result however, was a loss before tax of #9.8
million (1996: #15.7 million) deriving in large part from #7.4 million of
pre-interest losses and exceptional charges (including goodwill) relating
to Yewlands Engineering, which was sold shortly after the year end. No
dividend is proposed.
In the period, the Group also disposed of its Photographics activities,
producing a loss on disposal of #1.5 million, the majority of which was
provided for in last year's accounts.
The reasons behind these poor results have been set out at length in the
two Interim Statements issued during the period and in the circular sent to
shareholders in May in connection with the Placing & Open Offer. The
dominant factor has been the decision not to persevere further with the
turnaround of Yewlands necessitated by problems revealed soon after
acquisition. Although much positive progress had been made and indications
received from customers of significant future volume increases, the timing
of Yewlands' recovery remained uncertain and it became likely that cash
limits imposed by the Board would be exceeded. The company was therefore
sold in August 1997, for a price in line with expectations but inevitably
at a substantial loss.
Within the same sector of aerospace component manufacture, Quadrant
Precision Manufacturing enjoyed considerable success over the period in
strengthening its volumes with its major customer, Boeing. This has
culminated in the recent award of long term contracts estimated to be worth
in excess of $35 million in revenues over the next five years.
Rapid sales growth was also achieved in Quadrant Systems' flight simulation
activities and in Quadrant Video Systems' closed circuit television
security business. This is covered in some detail in the Chief Executive's
Report.
Aggregate Group borrowings were reduced in the period from #10.8 million to
#5.9 million. Borrowings have been further reduced in the current year by
receipt of the proceeds of disposal of Yewlands and the building it
occupies, totalling approximately #1.5 million net of costs.
1996/7 was clearly a period of considerable turbulence and uncertainty
throughout the Group. I would like to pass on the Board's thanks to all
our employees for their continuing dedication and goodwill.
Four Board changes occurred in August of this year. Michael Dunlop left
the Group Board to concentrate further on the successful development of
Quadrant Precision Manufacturing, where he remains President. Peter Rae
joined us as an Executive Director bringing considerable experience of
manufacturing businesses and has made positive contributions to the Group.
Stephen Eldred, who was Group Finance Director since 1994 and recently also
acted as Managing Director of Yewlands, left Quadrant to take up a post in
the United States. We will miss his talents and enthusiasm and wish him
well for the future. We were fortunate to have an able replacement in
Nigel Poultney, who has been the Group's Company Secretary since 1994 and
has now additionally joined the Board as Finance Director.
Trading in recent months, though still unsatisfactory, has improved in most
areas, particularly in Quadrant Video's CCTV activities and in the US
manufacturing business. With the benefit of favourable markets, this trend
is expected to continue. We have taken significant and robust steps to put
the set-backs of the past two years behind us and, although uncertainties
remain, we look forward to a positive future for the Group.
Lord Rees
Chairman
24 November 1997
For further information contact:
David Coghlan (Chief Executive) 01527 850080
Brian Coleman-Smith (Binns & Co Public Relations) 0171 786 9600
CHIEF EXECUTIVE'S REPORT
Overview
1996/7 was, in plain language, an awful period for Quadrant overall. It
was dominated by the final cost of what turned out to be the disastrous
acquisition of Yewlands Engineering.
The period was also marked by progress in the four continuing businesses,
although this is as yet more evident in revenues and order book than in
profits. Turnover on continuing operations grew by over 40% on an
annualised basis.
Results improved in most areas, though more slowly than expected and to
levels that are still unsatisfactory overall.
Quadrant Precision Manufacturing, Inc.
Quadrant's aerospace component manufacturing activities comprised Yewlands
Engineering in the UK, now sold, and Quadrant Precision Manufacturing
("QPM") in the USA.
At QPM, annualised sales grew by 98% last year primarily due to increased
volume at its existing facilities and a new factory coming on line in
Seattle. Anticipated profit growth did not materialise because of one-time
costs associated with a major shift in the business away from short term
off-load work into more consistently profitable long term contracts. This
has since resulted in the award to QPM of several five year contracts, the
most notable of which involve manufacture of Main Landing Gear Beam kits
for Boeing's newest aircraft types, the 777 and new series 737. Actual
revenues from these contracts will depend on the number of aircraft
produced over the period, but are estimated at $7-8 million per year.
Quadrant Video Systems
1996/7 was a mixed period for Quadrant Video Systems ("QVS"). The branch-
based professional video sales and hire operations produced unsatisfactory
returns, with planned growth not materialising. On the other hand, the
CCTV security activities saw increasing demand and market penetration, both
for installation and maintenance and for proprietary control
systems.Further restructuring of QVS is planned for the current year to
enable increased focus on developing the full potential of the CCTV
operations.
Further growth and improved results have been achieved in the current year
so far.
Quadrant Systems
The Quadrant Systems B727 and B747 full flight simulators now have high
training loads and are producing contributions in line with plan. The B747
in particular is benefiting from long term contracts and partnership
arrangements with its major airline customers.
A number of contracts were won during the period for simulator equipment
services, the largest allowing for the prototype application of a
proprietary computer emulation product. The contracts completed so far
have achieved budgeted profits and schedules. Nevertheless this side of
the business continued to experience a frustrating level of delays,
cancellations and postponements of contract awards. For this reason,
losses still continued although at a reduced level.
Acceptable profitability will depend on having either two additional
simulators in the available bays or a greater volume of equipment business
than has so far been achieved. Options are been pursued to ensure that
rapid progress is made on both of these issues.
Quick Imaging Centre
Quick Imaging Centre grew annualised revenues by 21% over the period and
continues to make progress in the commercial design and print market.
Outlook
It is hard to overstate the degree of dissatisfaction felt by all concerned
over Yewlands and the impact it has had over the past three years on a
company of Quadrant's size and stage of development. A difficult and
bitter pill has now been swallowed.
The objectives for the immediate future involve:
- focus on organic growth
- tighter operational and financial control as new systems introduced
over the past year come on stream
- cost reductions in all areas
A number of steps have already been taken or agreed in these areas,
including big cuts in central costs.
Results in the current year are improving in each business, but for the
moment caution is still in order.
As Chief Executive, and as a shareholder, I am deeply conscious of the
value that has been lost in this Company over the past two years. Having
in May significantly increased my personal financial commitment to
Quadrant, I am determined that the Company will develop successfully and
produce acceptable returns for all shareholders as soon as possible.
David Coghlan
Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the 15 months ended 31 May 1997
Unaudited
15 months to Year to
31 May 29 February
Notes 1997 1996
#'000 #'000
Turnover
Continuing operations 1 26,807 14,827
Discontinued operations 1 20,873 37,494
-------- --------
4680 52,321
Cost of sales 38,282 42,866
-------- --------
Gross profit 9,398 9,455
Net operating expenses 12,352 11,026
-------- --------
Operating loss
Continuing operations (735) (872)
Discontinued operations (2,219) (699)
(2,954) (1,571)
Exceptional items 2
- discontinued operations
loss on disposal of subsidiaries (1,481) -
provision utilised 1,315 -
provision for loss on
disposal of subsidiary (2,547) (1,315)
other exceptional items (2,534) (12,131)
- continuing operations
provision for loss
on disposal of fixed assets (450) -
provision for restructuring (300) -
costs
(5,997) (13,446)
-------- --------
Loss before interest (8,951) (15,017)
Net interest payable (842) (726)
-------- --------
Loss before taxation (9,793) (15,743)
Tax credit/(charge) on
ordinary activities (26) 70
-------- --------
Loss on ordinary activities
after taxation (9,819) (15,673)
Minority interests (13) 137
-------- --------
Loss for the financial period (9,832) (15,536)
Dividends - -
-------- --------
Retained loss for the
financial period (9,832) (15,536)
====== ======
Loss per ordinary share 3 (470)p (838)p
====== ======
IIMR loss per ordinary share 3 (198)p (113)p
====== ======
BALANCE SHEET
31 May 1997
Unaudited
31 May 29 February
1997 1996
#'000 #'000
Fixed assets
Intangible assets 136 158
Tangible assets 8,166 11,767
-------- --------
8,302 11,925
-------- --------
Current assets
Stocks 3,515 6,122
Debtors 5,127 9,057
Freehold property held for resale 1,200 1,884
Cash at bank and in hand 176 88
-------- --------
10,018 17,151
Creditors: amounts falling due
within one year (including convertible 9,411 16,243
debt) -------- --------
Net current assets 607 908
-------- --------
Total assets less current 8,909 12,833
liabilities
Creditors: amounts falling due
after morethan one year (including 2,056 4,178
convertible debt)
Provisions for liabilities and charges 3,543 1,612
-------- --------
Net assets 3,310 7,043
====== ======
Capital and reserves
Called-up share capital 4,613 3,748
Share premium account 6,789 3,519
Other reserves 1,038 1,088
Goodwill write-off account (1,030) (2,952)
Profit and loss account (8,192) 1,640
------- -------
Equity shareholders' funds 3,218 7,043
Equity minority interests 92 -
-------- --------
3,310 7,043
====== ======
Notes
1)Continuing operations comprise the businesses of Quadrant Systems,
Quadrant Video Systems, Quadrant Precision Manufacturing, Inc. and Quick
Imaging Centre. Discontinued operations comprise the photographics
businesses of Sangers, Leeds Photovisual, Premier Distribution and
Prisma (Europe) which were sold on 28 August 1996, and Yewlands
Engineering Co. Ltd, which was sold on 6 August 1997 (see note 4).
2)Exceptional items comprise the following charges:
15 months to Year to
31 May 29 February
1997 1996
#'000 #'000
Loss on disposal of Photographics 1,481 -
Group
Provision utilised (1,315) -
Provision for loss on disposal
of subsidiaries 2,547 1,315
Goodwill on disposals 1,931 3,864
Other goodwill previously
written off to reserves - 7,393
Provisions in respect of properties 603 874
Provision for loss on
disposal of fixed assets 450 -
Provision for restructuring costs 300 -
--------- ---------
5,997 13,446
======= =======
3)The calculation of earnings per ordinary share is based on the loss
after taxation and minority interests for the period of #9,832,000
(1996: loss #15,536,000) and on 2,091,638 shares (1996: 1,854,253) being
the weighted average number of shares in issue and ranking for dividend
during the period. The average number of shares in issue prior to the
splitting and consolidation of ordinary shares of 10p each into ordinary
shares of 20p each has been calculated as though an equivalent number
of ordinary shares of 20p each had been in issue throughout the period.
The earnings per share measure recommended by the Institute of
Investment Management and Research (the "IIMR earning per share") has
been calculated on the loss attributable to shareholders excluding
exceptional capital costs.
4)On 6 August 1997 the Company sold the entire issued share capital of
Yewlands Engineering Co. Limited ("Yewlands") for a nominal
consideration. The purchaser also assumed Yewlands' debt of
approximately #0.6 million. In addition deferred consideration of up to
approximately #0.6 million may be payable by the purchaser dependent on
the utilisation of tax losses in Yewlands.
5)The figures for the 15 months to 31 May 1997 are unaudited and do not
constitute statutory accounts.
6)The figures for the year ended 29 February 1996 have been abridged from
the statutory accounts for that year. The Auditors' opinion on these
accounts was unqualified and the statutory accounts have been filed with
the Registrar of Companies.
END
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