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Stylo plc

Interim results for the six month period ended 2 august 2003 - Chairman's interim statement

London (ots)

After the positive progress made over the last
three years, the trading performance of the group in the six months
ended 2 August 2003 has been disappointing. The loss of £4.6m on
ordinary activities after tax and exceptional items was £1.3m higher
than last year. As in previous years, no interim dividend is declared
at this stage.
In relation to the existing business, the loss on ordinary
activities before taxation and exceptional items was slightly lower
than the previous year at £2.9m (2002 loss of £3.4m). However, the
impact of Shellys and various exceptional items such as the cost of
restructuring the warehouse and distribution activities, a reduction
in the pension fund prepayment in accordance with SSAP24, offset by
profits on the disposal of properties, have led to the overall
increase in the total pre-tax loss.
In the year-end Chairman's Statement and Operating Review, I made
mention of three main areas of concern, all of which have affected
these results:
· The increased concession commission arrangements, which cost the
   business an extra £0.7m in the six months;
· Economic uncertainty surrounding the conflict in Iraq, which
modestly dampened sales in the first quarter;
· The potential for further deterioration in the pension fund
deficit, which led to an adverse impact on the profit and loss
account as a result of a reduction in the pension prepayment of
£0.7m, in addition to the increased cash contribution of £0.2m in the
six month period.
Trading in the Barratts division has been below expectations,
primarily due to the lack of depth of seasonal product. The PriceLess
division has continued to grow, with excellent results throughout the
season. Trading in both divisions has unfortunately been adversely
affected by changes in our distribution arrangements and the
underperformance of our distribution centre.
On 4 April 2003 we acquired Shelly's Shoes Limited for a purchase
price of £1.5m. Turnover in Shellys has been broadly in line with
expectations, albeit margin has been adversely affected both by the
significant amount of surplus stock carried by Shellys on
acquisition, which we have been addressing by means of an aggressive
and ongoing clearance programme, and by the delay experienced in
placing orders for the Autumn season, which has made the margin
recovery slower than anticipated. A new management team has been put
in place to take this business forward.
Shellys has very strong brand recognition and design capability
and we remain confident that the business will be an important
contributor to group profits in the coming years.
Profit and Loss
Total turnover of £102.7m is £7.4m (7.8%) ahead of last year, of
which £5.8m comes from the acquisition of Shellys with £1.6m from the
existing business. This represents a like-for-like increase in sales
in the existing business of 2.6% for the six months ended 2 August
2003. The improvement in sales performance in the existing business
was supported by an improvement in the margins achieved on those
sales.
Costs of sales of £94.7m were £6.6m higher than last year, of
which £6.0m comes from Shellys and £0.6m from the existing business.
Overall gross profit increased by £0.8m (11.7%) to £8.1m, with the
existing business increasing by £1.2m (16.7%), despite a £0.5m
increase in the depreciation charge resulting from the significant
investment in stores last year and the decision to shorten the
expected lives of capitalised refurbishment expenditure from 9
to 5 years. This has generated an increase in the gross profit margin
from 7.6% last year to 7.9% this year (8.7% for the existing
business).
Distribution and administrative expenses have increased by £2.7m
to £11.8m. Pre-exceptional distribution and administrative expenses
have increased by £1.9m to £10.7m. Whilst there has been an increase
in variable costs as sales volumes have grown, there has been a
growth in costs in the warehouse following the  change of management
earlier in the year and the underperformance in the distribution
centre which was experienced as a result. These have been tackled.
Administrative expenses in the existing business have increased by
£0.2m in the period as a result of increased pension fund
contributions. In addition, the Group has absorbed £1.2m of
distribution and administrative expenses with the    acquisition of
Shellys.
There have been a number of exceptional costs incurred in the six
month period, including accelerated depreciation (£218k), warehouse
and distribution restructuring (£345k), legal and professional fees
for the share buyback completed in February (£123k), and the
reduction in the pension fund prepayment in accordance with SSAP24
(£671k).
In the six-month period we made an exceptional profit of £1.1m on
property disposals compared with £0.4m for the equivalent period last
year.
Balance Sheet
Net assets of £52.1m at 2 August 2003 reflect both the loss for
the first half of £4.6m on ordinary activities after tax and
exceptional items and the capital reduction and share buyback schemes
over the past twelve months.
Fixed tangible assets of £76.2m are £1.2m lower than at 3 August
2002 as a result of net disposals of property in the twelve-month
period. Provisional goodwill of £1.6m has arisen on the acquisition
of Shelly's Shoes Limited.
Investment in both Barratts and PriceLess has continued, leading
to a total capital expenditure of £2.3m for the six months. At 2
August 2003 we had net debt of £35.9m compared with £29.2m at 3
August 2002 (within this, restricted cash deposits of £3.1m are held
for reinvestment in property, compared with £2.2m in 2002). This is
after paying out £13.6m to shareholders in the form of capital
repayment and share buybacks over the course of the last twelve
months.
Pension Fund
The Report and Accounts for the fifty-two weeks ended 1 February
2003 highlighted the impact of the deterioration in the stock market
during that year and the consequent impact on the underlying pension
fund deficit at that date. As noted at the time, action was taken to
address the imbalance over the medium term by way of an increase in
contributions and a reduction in future service benefits. In
accordance with SSAP24 this deficit is being spread over the average
service lives of employees resulting in an exceptional non-cash
charge of £671k for the six-month period. There is likely to be a
similar charge in the second half of the year.
Future Prospects
Shareholders will be aware that our second half performance is
traditionally better than the first half. It is very difficult to
predict the outcome of the full year particularly as we are so
dependent on the sale of Autumnal products and Christmas trading.
However, at this stage, sales in the second half have started slowly.
The future benefits from Shellys are unlikely to materialise in the
results until 2004.
People
I am delighted to welcome Howard Stanton to the Board as a
non-executive director. Howard joined us on 1 October 2003 and will
make a very positive contribution to the development of the business.
My thanks as ever go to the staff for their continued support and
commitment.
Michael Ziff
Chairman and Chief Executive
16 October 2003
Consolidated Profit & Loss Account
   for the 26 weeks ended 2 August 2003
Unaudited 
                    26 Weeks ended 2 August 2003
Before
               Acquisition    Exceptionals    Exceptionals     Total 
                      £000            £000            £000      £000
Turnover          5,819          96,926              -    102,745
Cost of Sales   (5,968)        (88,471)          (218)   (94,657)
Gross profit/
   (loss)            (149)           8,455          (218)      8,088
Distribution      (311)         (3,266)          (345)    (3,922)
   costs
Administrative    (931)         (6,196)          (794)    (7,921)
   expenses
Operating       (1,391)         (1,007)        (1,357)    (3,755)
   (loss)/         
   profit
Operating                       (2,398)
   loss)/                                 
   profit before 
   exceptionals
Profit on disposal of                 -          1,072      1,072
   fixed assets
Net interest payable            (1,936)              -     (1,936)
(Loss)/profit on                (4,344)           (285)    (4,619)
   ordinary activities
   before taxation
Taxation payable/                    -                -          -
   (credit)
(Loss)/profit on                (4,334)           (285)    (4,619)
ordinary       
   activities after
   taxation
Dividend proposed                                                -
(Deducted                                                  (4,619)
   from)/
   added to                                                          
   reserves
Basic         (11.38)                                      (11.55)
   (loss)/
   earnings 
   per           
   share (pence)
Diluted       (11.38)                                      (11.55)
   (loss)/
   earnings 
   per            
   share 
   (pence)
Dividend per                                                     -
   share (pence)
Consolidated Profit & Loss Account
   for the 26 weeks ended 2 August 2003
Unaudited
                    26 Weeks ended 3 August 2002
Before
                        Exceptionals    Exceptionals      Total     
                                £000            £000       £000
Turnover                   95,332               -     95,332
Cost of Sales            (88,089)               -   (88,089)
Gross profit/(loss)         7,243               -      7,243
Distribution costs        (2,828)               -    (2,828)
Administrative            (5,997)           (288)    (6,285)
   expenses
Operating (loss)/         (1,582)           (288)    (1,870)
   profit
Operating loss)/          (1,582)
   profit before 
   exceptionals
Profit on disposal of          -              357        357
   fixed assets
Net interest payable     (1,793)                -    (1,793)
(Loss)/profit on         (3,375)               69    (3,306)
   ordinary activities
   before taxation
Taxation payable/              -                -          -
   (credit)
(Loss)/profit on ordinary(3,375)               69    (3,306)
   activities after 
   taxation
Dividend proposed                                           -
(Deductedfrom)/added to                              (3,306)
   reserves
Basic (loss)/earnings per      (5.90)                 (5.76)
   share (pence)
Diluted (loss)/earnings per    (5.90)                 (5.76)
   share (pence)
Dividend                                                  -
   per share (pence)
Consolidated Profit & Loss Account (contd.)
   for the 52 weeks ended 1 February 2003
Audited
                           52 Weeks ended 1 February 2003
Before      
                           Exceptionals    Exceptionals       Total
                                   £000            £000        £000
Turnover                     208,851               -     208,851
Cost of Sales              (184,100)           (566)   (184,666)
Gross profit/(loss)           24,751           (566)     24,185
Distribution costs           (5,727)               -    (5,727)
Administrative expenses     (12,560)           (873)   (13,433)
Operating ((loss)/profit       6,464         (1,439)      5,025
Operating loss)/profit before 
   exceptionals                   6,464
Profit on disposal of fixed assets -           5,411      5,411
Net interest payable         (3,564)               -     (3,564)
(Loss)/profit on ordinary 
   activities                     2,900           3,972       6,872
   before taxation
   Taxation payable/(credit)          -               -           -
(Loss)/profit on ordinary activities
   after taxation                 2,900           3,972       6,872
Dividend proposed                                          (541)
(Deducted from)/added to 
   reserves                                                   6,331
Basic (loss)/earnings 
   per share                       5.16                       12.23
   (pence)
Diluted (loss)/earnings 
   per share                       5.14                       12.17
   (pence)
Dividend per share (pence)                                        
            1.25
Consolidated Balance Sheet
   as at 2 August 2003
Unaudited        Unaudited      Audited
                        As at 2 August   As at 3 August      As at 1
                                                            February
                                  2003             2002         2003
                                 £'000            £'000        £'000
Fixed assets
   Goodwill                      1,576                -            -
   Tangible assets              76,171           77,330       77,061
   Investments                   1,474              773          886
79,221           78,103       77,947
Current assets
   Stocks                       32,517           31,703       24,407
   Debtors                      12,064            2,495       12,191
   Cash at bank and in hand      3,632            6,186       11,085
48,213           50,384       47,683
Creditors due within one year
   Borrowings                    9,013            4,410        6,713
   Other creditors              36,055           32,819       28,211
45,068           37,229       34,924
Net current assets            3,145           13,155       12,759
Total assets less current    82,366           91,258       90,706
   liabilities
Creditors due after one year
   Borrowings                   30,000           30,000       30,000
   Other creditors                 231              501        1,357
52,135           60,757       59,349
Capital and reserves
   Called up share capital         865           14,895        1,015
   Share premium                    41           11,667           41
   Revaluation reserve          41,618           47,105       43,508
   Profit and loss account       9,611          (12,910)      14,785
   Equity shareholders' funds   52,135           60,757       59,349
Group Cash Flow Statement
Unaudited           Unaudited               Audited
            26 weeks ended      26 weeks ended        52 weeks ended
                  2 August            3 August            1 February
                      2003                2002                  2003
            £000      £000      £000      £000       £000       £000
   Net cash 
   (outflow)/
   inflow           (3,090)                426                12,636
   from operating activities
Returns on investment and
   servicing of finance
Interest 
   received     -                   -                  104
Interest 
   element of(40)                (41)                 (80)
   finance lease payments
Interest 
   paid   (1,896)             (1,752)              (3,700)
Net cash 
   outflow 
   from              (1,936)             (1,793)              (3,676)
   returns on investment and
   servicing of finance
Taxation               -                   -                     -
Capital expenditure and
   financial investment
Purchase of 
   tangible  (2,573)             (3,239)             (11,227)
   fixed assets
Purchase 
   of 
   subsidiary  (880)                  -                    -
   undertaking
Cash 
   acquired 
   with          15                   -                    -
   subsidiary undertaking
Purchase of 
   shares for  (520)               (196)                (309)
   Employee Benefit Trust
Sale of 
   tangible 
   fixed        2,944              3,339               14,102
   assets
Net cash 
   (outflow)/
   inflow              (1,014)                (96)              2,566
   from capital expenditure 
   and financial investment
Capital repayment   (2,595)                   -           (10,154)
Repayment to 
   ex-management         (894)                   -                  -
   shareholders
Cash (outflow)/
   inflow              (9,529)             (1,463)              1,372
   before financing
Financing
   Net 
   (decrease)/
   increase    (2,500)                  -                6,500
   in bank loans
   Net decrease/
   (increase)    3,185              (2,183)              (6,245)
   in restricted cash
   deposits
Capital element 
   of             (224)               (248)                (487)
   finance lease payments
                              461              (2,431)          (232)
(Decrease)/increase 
   in cash                (9,068)              (3,894)          1,140
Reconciliation of net
   cash flow movement to
   movement in net debt
(Decrease)/            (9,068)             (3,894)           1,140
   increase in cash
   Net decrease/
   (increase)               2,500                   -         (6,500)
   in bank loans
Net (decrease)/
   increase               (3,185)               2,183           6,245
   in restricted cash deposits
Reduction in 
   finance leases             224                 248             487
Change in net
   debt from              (9,529)             (1,463)           1,372
   cash flows
Net debt at
   beginning of
   year                  (26,322)            (27,694)        (27,694)
Net debt at 
   end of 
   period                (35,851)            (29,157)        (26,322)
Reconciliation of operating (loss)/profit to net cash
   (outflow)/inflow from operating activities
26 weeks ended   26 weeks ended   52 weeks ended
                           2 August         3 August       1 February
                               2003             2002             2003
                               £000             £000             £000
Operating (loss)/profit  (3,755)          (1,870)            5,025
Depreciation charge        2,763            2,250            4,697
FRS 11 Impairment              -                -              204
Goodwill written off          54                -                -
EBT provision released      (68)                -            (309)
Increase in stocks       (4,784)          (7,490)            (194)
Decrease in debtors        1,032            1,302            1,865
Increase in creditors      1,668            6,234            1,348
Net cash (outflow)/inflow (3,090)             426           12,636
   from operating activities
Notes to the Accounts
1   Exceptional items    Unaudited      Unaudited        Audited
                       26 weeks ended 26 weeks ended 52 weeks ended
                             2 August       3 August     1 February
                                 2003           2002           2003
                                 £000           £000           £000
Impairment adjustment            -              -          (204)
Accelerated depreciation     (218)              -          (362)
Distribution restructuring 
   costs                        (345)              -              -
(563)              -          (566)
Professional fees            (123)          (288)          (672)
Decrease in SSAP 24 
   pension asset                (671)              -          (201)
(1,357)          (288)        (1,439)
Profit on disposal of 
   fixed assets                 1,072           357           5,411
(285)            69           3,972
2   Analysis of net debt   At       Cashflows    Other        At
                      1 February                 movement  2 August
                            2003                               2003
                            £000            £000     £000      £000
Cash at bank and in 
   hand                    4,840         (4,268)        -       572
Bank overdraft          (213)         (4,800)        -   (5,013)
4,627         (9,068)        -   (4,441)
Restricted cash         6,245         (3,185)        -     3,060
   deposits
Bank loans                  -               -        -         -
Debt due within one   (6,500)           2,500        -   (4,000)
   year
Debt due after one   (30,000)               -        -  (30,000)
   year
Finance leases          (694)             224        -     (470)
Total                (26,322)         (9,529)        -  (35,851)
3   On 4 April 2003, the Group acquired the entire share capital
of Shelly's Shoes Limited for a consideration of £1.5m, incurring
acquisition costs of £130,000. Of the £1.5m, £750,000 was paid on
completion with the balance payable 12 months thereafter. The
provisional fair value of the net assets acquired amounted to £nil
with a resultant goodwill of £1,630,000. The book value of assets and
liabilities are based on management accounts, and whilst a
provisional fair value exercise has been carried out, the review is
not complete and certain provisional amounts are yet to be    
finalised. The expected useful life of the goodwill has provisionally
given rise to a £54,000 amortisation in the current period to
administrative expenses within acquired operations. A full review of
the expected useful economic life of the resultant goodwill will be
completed by the 31 January 2004 year end. The provisional period may
be revised once this review is complete.
4   The financial information set out herein does not constitute
full financial statements within the meaning of the Companies Act
1985. The financial information for the 26 weeks ended 2 August 2003
is unaudited and has been prepared on the basis of the accounting
policies set out in the Group's 2003 Report and Accounts. The
accounts for the period ended 1 February 2003 received an unqualified
audit report and have been filed with the Registrar of Companies.
5    Copies of the report are being sent to all shareholders and
are available at the company's registered office.
This information is provided by RNS
          The company news service from the London Stock Exchange

Contact:

Stylo plc
Telephone
Michael Ziff
Phone: +44/1274/617'761

Dawnay Day Corporate Finance plc
David Floyd
Phone: +44/20/7509'4570