Mpac Group Plc Regulatory News (MPAC)

27 February 2013

Molins PLC

Preliminary Announcement for the twelve months ended 31 December 2012

Molins PLC, the international engineering and services company, announces its results for the twelve months ended 31 December 2012.

Group Highlights

·; Sales increase of 3% to £93.0m (2011: £89.9m)

·; Underlying profit before tax increase of 9% to £4.9m (2011: £4.5m)

·; Underlying earnings per share increase of 19% to 21.8p (2011: 18.3p)

·; Net funds of £7.4m

·; Increase in final ordinary dividend to 3.0p per share, leading to 5% increase in full year dividend

Dick Hunter, Chief Executive, commented:

"The Group continued to show good progress during the year, delivering both increased sales and underlying earnings. We have also continued to invest across the Group, with a particular emphasis on opportunities within the Scientific Services division. Looking ahead, we have entered 2013 with a good order book and are well placed to make further progress with our various growth initiatives during the year."

Divisional Highlights

Scientific Services

·; Arista captured significant market share of externally sourced FDA related work whilst continuing to invest in infrastructure, systems and personnel in anticipation of increased short to medium-term demand

·; Sales at Cerulean were at similar levels to the previous year and order intake was 10% ahead, with a continued focus on product development

Packaging Machinery

·; Increase in sales of 12% leading to significantly improved trading performance

·; Order book for current year delivery 5% ahead of the prior year

Tobacco Machinery

·; Strong sales in aftermarket products, leading to improved margins

·; Ongoing investment in new and enhanced products

For further information, please contact:

MOLINS is an international business providing high performance machinery and instrumentation, as well as services and support for the production, packaging and analysis of consumer products. The Group serves its customers through its wide geographic spread of sales, service and manufacturing locations. The Group is focused on the organic development of its businesses, through targeted product development, excellence in customer service and ongoing operational efficiency improvements, supported by acquisitive growth where appropriate.

1 Before exceptional credit of £0.5m (2011: £1.0m)

2 Before exceptional credit of £0.5m (2011: £1.0m) and net financing income on pension scheme balances of £4.4m (2011: £4.9m)

3 Before exceptional credit of £0.4m (2011: £0.5m) and net financing income on pension scheme balances of £3.1m (2011: £3.1m), all figures after tax

CHAIRMAN'S STATEMENT

The Group continued to progress well. Sales increased by 3% to £93.0m (2011: £89.9m) and underlying profit before tax increased by 9% to £4.9m (2011: £4.5m). Underlying earnings per share increased by 19% to 21.8p (2011: 18.3p), reflecting the improvement in trading performance and a more favourable tax position. Basic earnings per share amounted to 40.0p (2011: 37.4p). The Group ended the year with net funds at £7.4m (2011: £7.1m).

Within Scientific Services the investment in a new Arista Laboratories facility has been completed in Richmond, Virginia, USA. The move from the previous premises was finalised in the early part of 2013. Arista secured a significant market share of the FDA related work that was externally sourced in the year. The extent of FDA related testing required for 2013 has yet to be announced. Also in Scientific Services, Cerulean continued its product development programme and maintained its market-leading position. The benefits of work to enhance the Packaging Machinery division's market position, through both focused product development and key account management, helped the division improve its performance significantly in the year. The Tobacco Machinery division also performed well, as it maintained its focus on excellence in customer service and developing both new and enhanced machinery.

The Group has entered 2013 with a good order book, up by 6% on the previous year. The focus on organic development of the three divisions continues, with each maintaining clear product and customer service development plans. The Group continues to take advantage of its geographic reach and ability to share resources and customer contacts across the divisions.

Although mindful of ongoing difficulties in the global economy, we are cautiously optimistic that the Group will continue to demonstrate progress.

The Board is recommending increasing the final dividend to 3.0p, resulting in a 5% increase in the full year dividend to 5.5p (2011: 5.25p).

Avril Palmer-Baunack

Chairman

27 February 2013

OPERATING REVIEW

Scientific Services

The division, which comprises Arista Laboratories and Cerulean, delivered an increase in sales of 9% to £23.1m (2011: £21.2m). Operating profit, before exceptional items, decreased to £1.2m (2011: £1.9m), mainly as a result of increased infrastructure costs and a particularly uneven work-load at Arista.

Arista Laboratories, based in Richmond, Virginia, USA, is an independent tobacco and cigarette smoke constituent testing laboratory for regulatory, research and product development purposes. Cerulean is the market-leading supplier of quality control instruments and analytical smoke constituent capture machinery to the tobacco industry, as well as other instruments and machinery to other industrial sectors. The business is based in Milton Keynes, UK, with sales and service offices in a number of key locations that support the needs of its global customer base.

At Arista sales increased in the year, although the 2012 US Food and Drug Administration (FDA) testing requirements were a part of the full range of testing that is expected in the medium-term. Arista was successful in securing a significant market share of the externally sourced FDA related work, the testing results for which were submitted at the end of the year. The consequence of this work only being placed in the second half of the year was that the laboratory was not efficiently loaded through the first half of the year, as costs were increasing and investment in Arista's infrastructure continued. This resulted in the business' trading performance being lower than the previous year. The fit-out of the new laboratory premises in Richmond was finished in the year and the move was completed in the early part of 2013. Following investment in personnel, equipment and systems the business is well placed to grow as testing requirements in the USA and elsewhere increase.

In addition to the opportunity that regulation by the FDA brings, Arista is targeting greater market penetration in Europe and Asia, as well as medium-term entry into non-tobacco markets. Following the investment in the new laboratory, the business took the opportunity to plan the closure of the small facility in the UK, which was completed in the early part of 2013. All customers globally are now serviced from the new facility in the USA.

Sales at Cerulean were maintained at the same levels as in the previous year. Demand was strong from China, Cerulean's largest market, and generally the market remained buoyant. Sales of instrumentation increased in the year, although following strong sales in the previous year related to regulatory driven demand, sales of machines that capture smoke constituents declined. Cerulean's performance reflected slightly reduced margins, resulting from a greater incidence of bespoke engineering customisation for specific projects. Also, there remain competitive pricing pressures, which the business is combating with its continued focus on quality of service and operational efficiency initiatives. Order intake was particularly strong towards the end of the year, resulting in an increase in orders of 10% compared with the previous year.

Cerulean continued to invest significant levels of resource in enhancing the current product range and enlarging the product portfolio, both for the tobacco industry and other markets.

With the investment in Arista's infrastructure and its strong market positioning, the business is well placed to benefit from the increasing regulation of tobacco products globally, and most particularly in the USA. Although it is clear that the level of regulatory testing will increase in the USA over the medium-term, the FDA has yet to publish the testing requirements for 2013. In the meantime the business is focused on continuing to serve its existing customers and positioning itself for the expected increase in testing over the next few years. Cerulean's market share remains strong, but the business remains alert to the potential for a market softening and increased competitive pressures. Cerulean's order book is particularly good for the early part of 2013, following strong order intake at the end of 2012. The division operates to short order lead-times which can change its outlook quite quickly.

Packaging Machinery

Sales in the year increased by 12% to £38.8m (2011: £34.6m). Operating profit, before exceptional items, also increased significantly to £1.5m (2011: £0.4m). The division benefited from a relatively even spread of activity throughout the year, which together with more efficient project delivery resulted in improved performance.

The division comprises the Langen Packaging Group, based in Mississauga, Canada and in Wijchen, the Netherlands, which supplies highly automated product handling, cartoning and robotic end-of-line machinery and systems, and ITCM, based in Coventry, UK, which provides innovative machinery and engineering solutions to packaging and processing needs.

Langen Packaging Group's order intake was at similar levels to the previous year. Strong intake in the first half of 2012 helped the loading in the business, but whilst order activity in the North American market in particular continued to be strong in the second half of the year, there was evidence of customers delaying ordering activity within the European markets. Sales increased by 20% compared with the previous year, which was mainly driven by a strong order book entering 2012 in Europe, as well as strong aftermarket sales. Good progress has been made in establishing strong positions with a number of multinational consumer products businesses, as well as with more regional customers. In order to serve existing customers more effectively in Asia, and to develop the market, the business has established a sales and service operation in Asia, sharing the established Group infrastructure in Singapore. Langen continues its policy of developing both its product range and the range of applications the machinery and systems can handle. Although sales levels were strong, gross margins were reduced as competitive pricing pressures were felt, particularly within Europe. Focus has been maintained on developing the manufacturing and logistics efficiency of the business, including sourcing more work with the Group's Czech Republic machining and assembly operation.

ITCM delivered an improved performance in the year, with a more even loading of work and an increase in sales. Importantly, order intake increased significantly in the year, as the business' strategy to develop a broader customer base started to take effect. The efficiency of the business improved as the activity levels were more evenly loaded and higher margin projects were delivered. The business is progressing with the establishment of a broader range of products and services, and is focused on supporting its traditional key customers as well as developing new relationships, through a stronger engagement across customers' engineering, development and product teams. The business is well positioned to continue to improve its trading performance.

Although markets remain uncertain and the global economic conditions continue to be challenging, the businesses within the division have established strong credibility within their sectors. The division entered 2013 with an order book 5% higher than twelve months previously, with good visibility of strong order prospects over the first part of the year.

Tobacco Machinery

Sales in the year decreased by 9% to £31.1m (2011: £34.1m). Operating profit, before exceptional items, was maintained at £2.2m (2011: £2.2m). Margins were improved in the division, with a favourable product mix compensating for the decrease in revenue.

The division designs, manufactures, markets and services specialist machinery for the tobacco industry and provides extensive aftermarket support to its customers. The business is headquartered in Princes Risborough, UK, where the division's central engineering and logistics teams are located, along with the main warehouse for spare parts. It is also the base for the sales and service teams for Europe, Middle East and Africa (EMEA). South American markets are served from the facility in Curitiba, Brazil, which includes a full manufacturing capability. Sales, service and distribution operations are located in Richmond, Virginia, USA and in Singapore, from where the North American and Asia Pacific regions are supported. Additionally the division is supported by a sales office in Moscow, Russia. The division's main machining and assembly operation is in Plzen, Czech Republic, which also supports the other divisions in the Group, as well as a number of non-tobacco industry related customers.

Sales of spare parts increased by 10% for the second consecutive year, which helped lift overall profit margins. The increase was delivered mainly in the EMEA region where demand from a number of customers continued to be particularly strong. Aftermarket sales in North and South America showed modest increases but in the Asia Pacific region sales declined slightly in the second half. The division continues to focus on serving its global customer base efficiently, with over 600,000 part designs available to be supplied to the industry.

Although order intake of new and rebuilt machinery was at similar levels to that of the previous year, sales reduced. A machinery sale that was expected to be made towards the end of the year was delayed into 2013; otherwise sales would have been at broadly similar levels to the previous year. Orders for new machines remain hard fought and subject to considerable competitive pressure. Machinery activity in the Middle East and South American markets was quite strong; the North American market was quieter than the previous year. Although immediate order prospects for new and rebuilt machinery are not extensive, there remain good opportunities over the medium-term.

The division continued its product development initiatives during the year. Particular focus has been on the Alto making machine, which produces cigarettes at 10,000 per minute and the division is also coming towards the end of the development of a new filter making machine. These developments will offer customers new features and competitive commercial propositions, and will help to develop further Molins' position within the tobacco industry.

The division entered 2013 with an order book at a similar level to the previous year. Prospects for new machinery are subject to strong competition, which the business continues to combat with the efficiency of its operations and logistics, product development and a strong focus on the service and support of its customers.

FINANCIAL REVIEW

Underlying profit before tax increased by 9% to £4.9m (2011: £4.5m) and underlying earnings per share by 19% to 21.8p (2011: 18.3p), both measures being before exceptional items and net financing income on pension scheme balances. Profit for the period was £7.6m (2011: £7.1m) and basic earnings per share amounted to 40.0p (2011: 37.4p). Net funds at the end of the year were £7.4m (2011: £7.1m).

Operating results

The trading performance of the Group is discussed in the Operating review.

Group revenue increased by 3% to £93.0m (2011: £89.9m). Sales in the Scientific Services division were £23.1m (2011: £21.2m) and operating profit before exceptional items was £1.2m (2011: £1.9m). Packaging Machinery division sales were £38.8m (2011: £34.6m) and operating profit before exceptional items was £1.5m (2011: £0.4m). Tobacco Machinery division sales were £31.1m (2011: £34.1m) and operating profit before exceptional items was £2.2m (2011: £2.2m).

Exceptional items

The Group has reported a net exceptional credit in the year of £0.5m (2011: £1.0m) before tax, which comprises aggregate credits of £1.5m (2011: £1.4m) arising from actions taken in the Group's pension schemes (see Pension schemes section for more detail), net of costs of £1.0m (2011: £0.4m) in respect of reorganisations within the Scientific Services division (£0.9m), Packaging Machinery division (£0.1m, and in 2011 £0.2m) and in 2011 only in the Tobacco Machinery division (£0.2m). The costs in the Scientific Services division arise mainly as a result of a decision to close the small laboratory in Kingston-upon-Thames, UK and consolidate its activities with the laboratory in Richmond, Virginia, USA, and include £0.4m in respect of the non-cash cost of the writing-off of capitalised leasehold improvements.

Interest and taxation

Net interest income was £4.4m (2011: £4.9m). Included within net interest is net financing income on pension scheme balances of £4.4m (2011: £4.9m), which is explained in the Pension schemes section. The tax charge on underlying profits (before exceptional items and net financing income on pension scheme balances) was £0.8m (2011: £1.0m), an effective rate of 16% (2011: 22%). The total taxation charge on the Group's profit before tax was £2.2m (2011: £3.3m), an effective rate of 22% (2011: 32%).

Dividends

The Board is recommending an increase in the final dividend to 3.0p per ordinary share which, together with the interim dividend of 2.5p paid in October 2012, results in a total dividend of 5.5p per ordinary share in respect of 2012 (2011: 5.25p per ordinary share). The dividend, if approved, will be paid on 10 May 2013 to shareholders registered at the close of business on 19 April 2013.

Cash, treasury and funding activities

Group net funds were £7.4m (2011: £7.1m) at the end of the year. Net cash inflow from operating activities was £6.6m (2011: £3.8m), which was after a decrease in working capital of £0.5m (2011: £1.2m increase), reorganisation payments of £0.5m (2011: £0.7m), pension payments of £1.6m (2011: £2.2m) and net taxation payments of £0.8m (2011: £0.8m). Capital expenditure on plant and equipment of £3.9m (2011: £2.3m) and capitalised product development expenditure of £1.2m (2011: £2.3m) were invested in the year. The sale of plant and equipment returned cash receipts of £0.1m (2011: £0.1m). Dividends of £1.0m (2011: £1.0m) were paid in the year.

There were no significant changes during the year in the financial risks, principally currency risks and interest rate movements, to which the business is exposed and the Group treasury policy has remained unchanged. The Group does not trade in financial instruments and enters into derivatives (principally forward foreign exchange contracts) solely for the purpose of minimising currency exposures on sales or purchases in other than the functional currencies of its various operations.

The Group maintains bank facilities appropriate to its expected needs. These comprise secured, committed borrowing facilities with Lloyds TSB Bank plc and Santander UK plc of £11.0m in aggregate. These facilities are committed until November 2015 and are subject to covenants covering leverage, interest cover, tangible net worth and capital expenditure and are both sterling and multi‑currency denominated. Additionally, ancillary facilities are in place with these banks, covering bonds, indemnities and guarantees. The Group is operating well within its covenant levels. Short‑term overdrafts and borrowings are utilised in certain parts of the Group to meet local cash requirements and these are typically denominated in local currencies. Foreign currency borrowings are used to hedge investments in overseas subsidiaries where appropriate.

Pension schemes

The Group accounts for pension costs under IAS 19 Employee Benefits. The 2012 accounting valuation of the UK scheme's assets and liabilities was undertaken as at 31 December 2012 based on the preliminary funding valuation work being carried out as at 30 June 2012, updated to reflect conditions existing at the 2012 year end and to reflect the specific requirements of IAS 19. The smaller USA defined benefit schemes were valued as at 31 December 2012, using actuarial data as of 1 January 2012, updated for conditions existing at the year end. Under IAS 19 the Group has elected to recognise all actuarial gains and losses outside of the income statement.

The IAS 19 valuation of the UK scheme resulted in a net deficit at the end of the year of £13.9m (2011: £1.6m surplus), before tax. The value of the scheme's assets at 31 December 2012 was £322.5m (2011: £322.5m) and the value of the scheme's liabilities was £336.4m (2011: £320.9m), before tax. The main cause of the change from a small net surplus to a deficit was that the interest rate used to calculate the value of the scheme's liabilities, which is based on AA rated corporate bond yields, fell in the year from 4.7% to 4.2% and the long-term CPI inflation assumption increased from 1.7% to 2.0%.

The accounting valuations of the USA pension schemes showed an aggregated netdeficit of £5.3m (2011: £5.0m), all amounts being before tax, with total assets of £14.7m (2011: £15.0m).

The last completed scheme specific funding valuation of the Group's UK defined benefit scheme, which was carried out as at 30 June 2009, showed a funding level of 96% of liabilities, which represented a deficit of £12.1m. The solvency position of the scheme at that date, which reflects the scheme's position if it was wound up, showed a funding level of 60%. Valuations are extremely sensitive to a number of factors outside the control of the Group, including discount rates. The trustee of the scheme and the Company agreed a deficit recovery plan, which commits the Company to paying to the scheme £1.2m per annum, in monthly instalments from July 2010, with a then estimated recovery period of nine years. The deficit recovery plan is scheduled to be formally reassessed following the next scheme specific funding valuation, which is currently being carried out as at 30 June 2012.

The aggregate pension service cost relating to the defined benefit schemes charged to operating profit was £0.9m (2011: £1.1m), before a credit of £1.5m arising as a result of all UK employees ceasing to accrue benefits in the Group's UK scheme from November 2012. The credit arises as a result of past service obligations accrued prior to 2006 which will now increase in line with inflation, rather than in line with salary increases. In 2011 an aggregate credit of £1.4m was reported, arising from the results of an offer made to certain pensioners in the UK scheme to exchange part of their entitlement to future pension payment increases for an immediate, but non-increasing, uplift to their current pensions and a reduction in past service obligations resulting from the closure to future accrual of the only then open USA defined benefit scheme. Net financing income in respect of the schemes was £4.4m (2011: £4.9m), comprising expected return on scheme assets of £19.9m (2011: £22.4m) and interest on obligations of £15.5m (2011: £17.5m).

Changes to IAS 19 will take effect for 2013 reporting. One of the main changes as they affect the Group will be that the net financing income on the schemes' assets will be calculated using the discount rate used for valuing the schemes' liabilities, rather than using the expected return on assets. As the discount rate in most circumstances will be lower than the return on assets, the net financing income will be lower than has been reported under IAS 19 to date, and will in effect equate to the value of the net surplus or deficit at the beginning of each financial year multiplied by the discount rate. If this change to IAS 19 had been applied to the 2012 income statement, the net financing expense would have been £0.2m. Additionally for 2013 reporting, the expense of administering the pension schemes can no longer be accounted for as a reduction in the expected return on schemes' assets, and must instead be charged separately to operating profit within the income statement.

During the year the Company made payments to the UK defined benefit scheme of £0.4m for the regular cost of benefits, £1.2m in respect of the deficit recovery plan and £0.3m in respect of curtailment costs arising from actions in 2010. Negligible payments were made to the USA schemes in the year.

Equity

Group equity at 31 December 2012 was £30.5m (2011: £41.0m). The movement arises mainly from profit for the period of £7.6m less currency translation losses on foreign currency net investments of £0.7m, actuarial losses in respect of the Group's defined benefit schemes of £17.0m and dividend payments of £1.0m, all figures net of tax where applicable.

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO PRELIMINARY ANNOUNCEMENT

1. The Group's accounts have been prepared in accordance with International Accounting Standards and International Financial Reporting Standards that were effective at 31 December 2012 and adopted by the EU.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011. Statutory accounts for 2011 have been delivered to the Registrar of Companies. The auditors have reported on the 2012 and 2011 statutory accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

2. Operating segments

Segment information

Geographical information

3. The net exceptional credit of £0.5m in the year comprises a credit of £1.5m in respect of the Group's defined benefit pension scheme in the UK and costs of £1.0m relating to reorganisations carried out during the year within the Scientific Services division, principally resulting from the closure of a laboratory facility in the UK, and Packaging Machinery division. The exceptional credit of £1.5m arises following the ceasing of future benefit accruals from November 2012 in the Group's UK defined benefit pension scheme as a result of past service obligations accrued prior to 2006 now increasing in line with inflation, rather than in line with salary increases. Cash payments in respect of reorganisation costs of £0.5m were made in the year, including £0.3m in respect of curtailment costs arising in 2010 (in respect of which a final £0.3m is expected to be paid in 2013).

The net exceptional credit of £1.0m in 2011 comprises credits of £1.4m in respect of the Group's defined benefit pension schemes in the UK and USA and costs of £0.4m relating to reorganisations carried out during the year within the Packaging Machinery and Tobacco Machinery divisions. The exceptional credits of £1.4m comprise a past service credit of £0.6m arising in the UK pension scheme (resulting from the offer, and acceptance by some pensioner members, to exchange part of their entitlement to future increases to their pension payments for an immediate, but non-increasing, uplift to their pension payments) and a curtailment credit of £0.8m following the closure during 2011 of the remaining USA pension scheme that was open to future accrual. Cash payments in respect of reorganisation costs of £0.7m were made in 2011, including £0.2m in respect of curtailment costs arising in 2010.

4. The Group accounts for pensions under IAS 19 Employee benefits. The 2012 accounting valuation of the UK scheme's assets and liabilities was undertaken as at 31 December 2012 based on the preliminary funding valuation work being carried out as at 30 June 2012, updated to reflect conditions existing at the 2012 year end and to reflect the specific requirements of IAS 19. The smaller USA defined benefit schemes were valued as at 31 December 2012, using actuarial data as of 1 January 2012, updated for conditions existing at the year end. Operating profit includes a net pension credit of £0.6m (2011: £0.3m), comprising current service costs of £0.9m (2011: £1.1m) in respect of ongoing benefits and a credit of £1.5m arising from the cessation of future benefit accruals from November 2012 in the Group's UK defined benefit scheme (2011: £1.4m in respect of pension past service and curtailment credits in the UK and USA). Net financing income includes the expected return on pension scheme assets of £19.9m (2011: £22.4m) and the interest cost on pension scheme obligations of £15.5m (2011: £17.5m).

5. Basic earnings per ordinary share is based upon the profit for the period of £7.6m (2011: £7.1m) and on a weighted average of 19,067,302 shares in issue during the year (2011: 18,968,324). The weighted average number of shares excludes shares held by the employee trust in respect of the Company's long-term incentive arrangements.

Underlying earnings per ordinary share amounted to 21.8p for the year (2011: 18.3p) and is based on underlying profit for the period of £4.1m (2011: £3.5m), which is calculated on profit before exceptional items and net financing income on pension scheme balances.

6. Employee benefits include the net pension liability of the UK defined benefit pension scheme of £13.9m (2011: £1.6m asset) and the net pension liability of the USA defined benefit pension schemes of £5.3m (2011: £5.0m), all figures before tax.

7. Reconciliation of net cash flow to movement in net funds

8. Analysis of net funds

9. The Annual Report and Accounts will be sent to all shareholders in March 2013 and copies will be available on the Group's website at www.molins.com, or from the Company's registered office at Rockingham Drive, Linford Wood East, Milton Keynes MK14 6LY.