Mpac Group Plc Regulatory News (MPAC)

22 Feb 2005 07:01

Molins PLC22 February 2005 22 FEBRUARY 2005 FOR IMMEDIATE RELEASE 2004 PRELIMINARY ANNOUNCEMENT Molins PLC, the international specialist engineering company, announces itsresults for the year ended 31 December 2004. 2004 2003 (restated)#Sales £122.9m £121.8mUnderlying operating profit* £2.0m £12.1mUnderlying earnings per share* 1.1p 43.6pDividend - 12.6p • Results in line with December market update • Weak performance of the Tobacco Machinery division resulting in a majorrestructuring and exceptional charges of £11.5m • Improved sales and profits from Packaging Machinery division • Strong recovery in the Scientific Services division in the second halfof the year # Restated for the impact of UITF Abstracts 17 & 38 on accounting for employeeshare schemes * Before goodwill amortisation and exceptional items Peter Byrom, Chairman, commented: "2004 has proved to be a particularly disappointing year for the Group, due to asharp reversal in the performance of the Tobacco Machinery division. This hasled to a significant restructuring of that part of the business. In the Tobacco Machinery division the order book at the beginning of 2005 isbelow that at the beginning of 2004. The division has a number of projectsunder negotiation but they have yet to be secured and timing is uncertain. Weplan for further operational improvements in 2005 to build on the major changeseffected in the second half of 2004. The Packaging Machinery division entered2005 with satisfactory order books and we expect its performance to bemaintained in 2005. The order books for the Scientific Services businesses atthe beginning of the year are also satisfactory and ahead of the previous yearand we expect an improved performance in 2005." Enquiries: Molins PLC Tel: 020 7638 9571 Peter Byrom, Chairman David Cowen, Group Finance Director Issued by: Citigate Dewe Rogerson Tel: 020 7638 9571 Margaret George CHAIRMAN'S STATEMENT 2004 has proved to be a particularly disappointing year for the Group, due to asharp reversal in the performance of the Tobacco Machinery division. This hasled to a significant restructuring of that part of the business. Excluding Sasib, which was acquired in August 2003, sales increased by 3% to£111.4m from £108.1m in 2003. In local currency terms this represents anincrease of 6%. Sasib contributed £11.5m to sales compared with £13.7m for fourmonths of 2003. Underlying operating profit (before goodwill amortisation and exceptional items)reduced substantially to £2.0m (2003: £12.1m). After interest and taxationcosts, underlying earnings per share was 1.1p (2003: 43.6p). The Tobacco Machinery division entered 2004 with a reasonable order book. Salesof spare parts and services, which represent more than half of the sales ofMolins Tobacco Machinery, were maintained at similar levels to 2003. Grossmargins were also maintained. Orders for new equipment were less than half ofthat planned at the beginning of the year and orders for rebuild machinery weredown one third against plan. This was principally as a result of an unforeseendownturn in capital investment plans by newer manufacturers based in NorthAmerica. The manufacturing resources of the division and its inventory levels had beengeared to meet the growth planned for 2004. Consequently, the facilities becameunder-utilised, resulting in operational inefficiencies. Lower margins onoriginal equipment and rebuild machinery, reflecting pricing pressures, adversecurrency movements and cost overruns on some projects, led to an underlyingoperating profit for the division, excluding Sasib, of £0.4m, down from £6.5m in2003. In addition the division received significantly reduced property rentalincome of £0.1m (2003: £1.1m). Sasib has performed disappointingly. It entered the year with a low order bookbut despite good levels of orders in the early months of 2004, and also towardsthe end of the year, activity levels overall were well below plan. Sasibreturned an underlying operating loss of £2.4m in 2004 compared with anunderlying operating profit of £0.3m for the four months of Molins' ownership in2003. In response to the lower levels of demand and the consequent impact onefficiency and performance, we have re-organised the Tobacco Machinery division.Molmac's rebuild activities have been merged into the Saunderton and CzechRepublic facilities, Sasib Corporation of America has been merged into MolinsRichmond's facility and Sasib has ceased the development of a hinge-lid packingmachine. The re-organisation has resulted in a total of 310 redundancies.Additionally, we have taken some further inventory provisions, in response tothe downturn in demand. This has resulted in a charge to the year's operatingprofit of £9.9m before tax credits. The annualised cost saving is estimated at£7m. The Kunming Molins joint venture in China has been closed. This resulted in anet write off of the investment in that company of £1.6m. Molins Packaging Machinery division has built on the progress it made in 2003and improved further its sales and profitability, notwithstanding an adverseimpact from the weakened US dollar. The division benefited from a strong orderbook at the beginning of the year and an increased level of order intake in thefirst half. Continued focus on operational improvements and selective productdevelopment has positioned the division's businesses to maintain progress,although order intake in the second half of the year was a little lower than inthe comparable period in 2003. Although the Scientific Services businesses, reported as a separate division forthe first time, returned a lower profit overall than in 2003, they demonstrateda strong recovery in the second half of the year. Cerulean, which had a slowstart to the year, benefited from a strong sales performance in the second half,resulting in sales and profits at similar levels to 2003. Its new productrange, MC(2), contributed to sales in the period and interest in the product isencouraging. Arista Laboratories underperformed against 2003, with an expectedorder for a series of tests not materialising in the first half of the year,adversely affecting profitability. However, the business has continued toexpand its customer base and services, and enters 2005 with an encouraging levelof order potential. Property We continue to examine the prospects for the redevelopment of the 26 acre siteat Saunderton and are progressively taking steps to transfer manufacturingoperations from the site, principally to Plzen in the Czech Republic. With ouradvisors, we are making representations for the future of the site to the localplanning authority as it prepares its development framework planning document,with a view to making formal planning applications in 2005. We expect tomaintain certain Tobacco Machinery operations on the site. Board In June 2004, Dick Hunter and Adam Robson were appointed to the Board asexecutive directors. They both joined the Company in the early part of 2003.Dick Hunter is Managing Director, Molins Tobacco Machinery, including SasibS.p.A., and Adam Robson is Managing Director, Molins Packaging Machinery andScientific Services. Sam Saw, a non-executive director, retired from the Boardin April 2004 and Amar Sabberwal, chairman of the Tobacco Machinery division,left the Board in June 2004. Dividend The Board decided not to pay an interim dividend, following the results in thefirst half of the year. In view of the results for the whole year, in which theGroup has incurred considerable further re-organisation costs, the Board hasalso decided not to recommend the payment of a final dividend. Outlook In the Tobacco Machinery division the order book at the beginning of 2005 isbelow that at the beginning of 2004. The division has a number of projectsunder negotiation but they have yet to be secured and timing is uncertain. Weplan for further operational improvements in 2005 to build on the major changeseffected in the second half of 2004. The Packaging Machinery division entered 2005 with satisfactory order books andwe expect its performance to be maintained in 2005. The order books for the Scientific Services businesses at the beginning of theyear are also satisfactory and ahead of the previous year and we expect animproved performance in 2005. Peter ByromChairman 22 February 2005 OPERATING REVIEW TOBACCO MACHINERY The division experienced a sharp reversal in performance during the year and asignificant restructuring of the businesses has taken place. The division comprises the Molins Tobacco Machinery (MTM) and Sasib S.p.A.businesses. Sasib was acquired in August 2003. Excluding Sasib, turnover inlocal currencies remained at similar levels to 2003. Sasib's turnover of £11.5mfor the year was lower than that in the four months of Molins' ownership in 2003(£13.7m), when a number of non-repeating projects were delivered. Combinedturnover of the division was £61.8m in 2004 compared with £66.2m in 2003. MTM Underlying operating profit of MTM, excluding re-organisation costs, wassignificantly lower, at £0.4m compared with £6.5m in 2003. In addition, and asexpected, MTM received a much reduced level of rental income in 2004, £0.1mcompared with £1.1m in 2003. Sales of spare parts and services were maintained at similar levels to those in2003 and at similar margins. This part of the business represents over half oftotal MTM sales. MTM entered 2004 with strong order books for original equipment and for rebuildmachinery, and with the expectation of additional orders in the early part of2004. However, during the first half of the year orders for new and rebuildequipment were disappointingly low. In particular MTM experienced the impact ofa slow down in the investment plans of some of the US independent cigarettemanufacturers. Order intake for rebuild machinery from other regions was alsolower than expected. Sales of original equipment were therefore lower than in 2003 and the order bookat the end of 2004 was significantly lower than twelve months earlier. Whilstsales of rebuild machinery were a little ahead of 2003, order book levels at theend of 2004 were also lower than they were at the beginning of the year. In expectation of original equipment and rebuild machinery sales growth in 2004,the manufacturing resources of the division were structured to meet increasedactivity through the year. As the expected level of order intake did notmaterialise, the manufacturing operations across the division becameunder-utilised in the first half of the year. This in turn resulted inoperational inefficiencies and a reduction in profitability. In addition, a number of rebuild contracts suffered from cost overruns thatsignificantly impacted the profitability of this part of the business. Pricingpressures were also felt throughout MTM, as were adverse currency movements,particularly the weakening of the US dollar and a number of linked Far Eastcurrencies. These factors have all played a part in lowering the profitabilityof the division. In response to the conditions being experienced by the businesses, a majorre-organisation of the division has been carried out, in order to lower the costbase of MTM and to deliver greater efficiencies. All of the activities of Molmac, the division's UK rebuild machinery business,have been transferred to other locations within MTM. Molmac completed its 2004programme in its Milton Keynes factory but all subsequent machine rebuilds arebeing carried out at MTM's facility in Saunderton, UK or at Molins sro in Plzen,Czech Republic. Activities in Plzen are focused on the rebuilding of MK9cigarette making machinery and ancillary equipment. The activities at Saunderton have also been restructured, with a furthertransfer of parts manufacture to Molins sro and other manufacturers in lowercost economies, and this process continues. Saunderton remains the centre forparts distribution and assembles the Passim cigarette maker, the PM5 filtermaker and the Concord and Pegasus handling systems. Molins sro continues to develop its capabilities in both machining and assembly.It employed 168 people at the end of 2004. Molins Richmond and Molins do Brasil were both restructured during the year.Molins Richmond, MTM's sales and service business in North America, ceasedmanufacturing operations, with all work transferred to the UK. This business isfocused on delivering services and spare parts to its North American customers.Molins do Brasil has a full range of manufacturing and assembly capabilities,which have been maintained at a lower level, as sales to other parts of thedivision reduced during the year. Its prime focus is to serve its SouthAmerican customers with spare parts and rebuild machinery. The Kunming Molins joint venture in China, in which Molins held a 48% stake, hasbeen closed. Consolidation and modernisation within the Chinese tobaccoindustry resulted in a decline in demand for its rebuild equipment and theshareholders took a collective decision to close the operation. This companyreported a loss attributable to Molins of £0.3m in 2003. Molins received apartial repayment of loans outstanding from the joint venture which, net ofMolins' direct costs in contributing to effecting the closure, amounted to£0.2m. The net write off of the investment was £1.6m. The spares and service facility in Shanghai has not been affected by there-organisation. Molins Far East in Singapore increased sales of spare partsand services by nearly 10% and is being developed further to meet increasingbusiness opportunities in its region. Sasib Sasib, acquired in August 2003, performed disappointingly, returning anunderlying operating loss of £2.4m (2003: £0.3m profit for four months). Havingentered 2004 with a low order book it received a good level of orders fororiginal equipment in the early part of the year. But this was not sustainedand order intake during the second and third quarters was low. The positionimproved in the last quarter of the year and Sasib entered 2005 with an improvedorder position for delivery in the current year. In conjunction with MTM, Sasib is developing its rebuild business, an area ofthe market that it has not focused on in the past. A number of rebuild machineswere sold during the year, although margins were relatively low. The businessis developing its effectiveness in this area. Sales of spare parts were lower than expected. In order to support the Sasibsales function, and to maximise the use of the sales and distribution channelsthroughout the division, Molins Far East, Molins Richmond and Molins do Brasilhave taken on responsibility for the sale of Sasib parts in their regions. Theyalso work with the Sasib sales team on original equipment and rebuild sales.Additionally, Molins do Brasil is developing its capabilities in rebuilding theSasib 3000 packer. During the year Sasib relocated to new leased premises close to the previousfacilities and this will help improve its operational efficiencies. 49 peopleleft the business during the year and a further 45 employees will have left bythe end of the first quarter of 2005. An appraisal of the Sasib product rangeresulted in the announcement in July 2004 of the suspension of the developmentof the Fenix packing machine, owing to insufficient market opportunities. Summary Overall the division had a challenging year. Market opportunities were notfavourable. The division entered 2004 expecting growth and was not structuredto withstand the decline in demand that occurred. The experiences of 2004 havegiven added impetus to the relocation of production activities to lower costeconomies and to the continuing simplification of operations in the UK and US.Sasib has suffered from the same reduction in market activity and had aparticularly high cost base, which is being reduced. Significant restructuring has taken place in the year in all parts of thebusiness and the division is better placed to withstand lower volumes oforiginal equipment and rebuilds. Overall 310 employees will have left thebusiness by the end of the first quarter of 2005, most having departed prior tothe end of 2004. The total cost of the re-organisation, including the costs ofclosing Molmac and Sasib Corporation of America, amounted to £5.4m before taxcredits. Additionally, in view of the restructuring of the business and thechanges to the market, inventories have also been written down and £1.7m wastaken as an exceptional charge in the year. The costs incurred in thedevelopment of the Fenix packing line of £2.8m were also taken as an exceptionalcharge. It is estimated that the annualised cost savings following thisre-organisation will be £7m. Notwithstanding the difficult market conditions the businesses have a number ofpotential opportunities for new orders, although lead times are hard todetermine. The division continues to assess the market opportunities for eachof its key product groups. PACKAGING MACHINERY The Molins Packaging Machinery (MPM) division has made good progress in the yearwith sales up 17% from £39.1m to £45.8m and operating profit up from £1.6m to£2.3m. Overall, the markets in which the MPM businesses operate showed some improvementin 2004 over the previous year, although the market conditions have beenvariable. The division makes over half of its sales to the food sector whichhas continued to experience mixed trading conditions, with further consolidationof the sector leading to rationalisation of product lines and plant closures.This has been particularly felt in the UK, with Sandiacre Rose Forgrove mostaffected. The other key markets for MPM are non-durable consumer goods and personal careproducts, both markets having strengthened during the year, and thepharmaceuticals sector which remains strong. In all sectors the marketcontinues to be driven by the need for an innovative approach to new productsand pack styles and MPM is well placed to respond to customers' requirements. The other major driver for customers is the need for continuous cost reductionsand improvements in capital efficiency in the face of a high rate of productchange. To this end, MPM has focused product developments on increased outputand additional machine flexibility. Machine speeds have been increased andfast-change features enhanced. In addition, the use of robotics has increased;ITCM has undertaken major projects in this area and Langen has launched the LRC400i, the first of a new family of modularised robotic cells. These cells willalso be sold by Langenpac in the European market. Robots are predominantly usedfor top-load carton filling which requires specialist carton erecting andsealing machines. MPM has entered into a distribution partnership with Imballof Italy to meet this requirement. The weakness of the US dollar has remained a significant challenge to thebusiness and impacted markedly on profitability. This has been especially feltby Sandiacre Rose Forgrove and Langen, for whom the US is a very importantmarket. Its impact is being addressed through efficiency improvements and amove towards lower cost sourcing of parts and assembly of some machines inEastern Europe. The assembly facility within Molins sro in Plzen is nowestablished and is running well and there is an on-going programme of machinetransfers. This is supported by the development of a supply base in the region. ITCM, based in Coventry, UK, had a very good year. Sales increasedsignificantly as the business benefited from a growing number of long-termrelationships with multinational customers in the pharmaceutical, personal careand FMCG sectors. ITCM offers its customers a unique service to support newproduct and packaging introductions, from the initial concept stage through toprototype production machine development and then to the supply of theproduction lines. ITCM helps its customers achieve innovation and productivityincreases, which is risk-reduced by the on-going commitment of the engineeringteam throughout the process. During the year, ITCM delivered record sales andprofit and invested in developing its processes and people to support increasedbusiness levels in the coming years. Langen and Langenpac, based respectively in Mississauga, Ontario and Wijchen,the Netherlands, address the markets for product handling and cartoningmachinery in North America and Europe. The businesses offer their customers arange of standard products, able to operate at high output levels, which arealso used as the base for creating highly customised solutions. Their strongengineering teams are able to develop full project solutions, with complex highspeed product collation and handling capabilities and they have increased theirnew product development activity. Their emphasis is on superior flexibility andhigher throughput speeds, coupled with the use of robotics. Together, thesefeatures enable our customers to increase output and so increase their capitalefficiency and they protect their investments against changing productionrequirements. These businesses also have strong project management capability, and are able todeliver full turnkey solutions integrating other suppliers' equipment. Duringthe year the two companies have delivered a number of major projects of thistype. There is a growing demand for these services as customers are reducingtheir in-house capabilities and replacing them by third party solutionsproviders. Both businesses increased their machine order intake during the year, comparedwith the previous year, and both achieved higher levels of profitability. Theaftermarket service part of the businesses also developed in the year. Thisincludes servicing, retrofits and rebuilds and is aimed at helping customers toachieve the best performance from their production lines. Sandiacre Rose Forgrove, based in Nottingham, UK and Lancaster, Pennsylvania,had a difficult year. Sales were below the 2003 level, with particular weaknessin the UK in the second half of the year as customers experienced difficulttrading conditions. The business was also significantly affected by the weak USdollar. The net result has been a near break-even position for the year. Anumber of actions have been taken to improve profitability; fixed overheads havebeen reduced substantially, transfer of manufacturing to Eastern Europecontinues and manufacturing efficiency is being improved. Despite these adverse conditions the business has made progress in a number ofways in the year. Sales in the USA have grown strongly, albeit at relativelylow margins and the aftermarket business has maintained strong sales levels.This was on the back of product innovations such as a new light weight formingset design and continuous improvement in meeting customer needs. SandiacrePackaging launched its 250RC high speed reciprocating vertical bagger in thespring and this has received a good level of market acceptance in Europe and theUSA. Rose Forgrove has upgraded its range of horizontal flow-wrapping machineswith new electronics, which has increased both their speed and flexibility,providing customers with a more versatile and economic product offering. Cerulean Packing, based in Milton Keynes, UK, has continued to serve its nichemarket for tube handling and maintained sales and profit at similar levels toprevious years. The division ended the year with strong order books across all of itsbusinesses. Although markets remain challenging, the division expects to obtainfurther benefits from its investments in new products, improved engineering,project management and lower cost production in Eastern Europe. The divisioncontinues to evaluate new alliance and acquisition opportunities consistent withits focused sales and profit growth strategy. SCIENTIFIC SERVICES Sales in the division, which comprises Cerulean and Arista Laboratories, were£15.3m, down on the £16.5m achieved in 2003. This had a disproportionate impacton profit, £1.6m in 2004 against £2.6m the previous year, owing to a reductionin higher margin sales. However, the performance in the second half of the yearwas much stronger, as anticipated, with both businesses experiencing animprovement in trading. Cerulean, based in Milton Keynes, UK, suffered from weak trading in the firsthalf of the year, mainly driven by consolidation of its customer base. Duringthe second half of the year, order intake improved considerably and Ceruleanended the year with sales slightly ahead of the previous year's level. Thisimprovement was driven by a recovery in market demand and by a strongperformance from new products, notably the SM 450 smoking machine and the MC(2)quality test instrument. The MC(2) launch has proceeded well; a first batch of nine instruments has beenshipped and the product is being evaluated at four other leading manufacturersof cigarettes and filters. This first version of the product performs at-linesampling of the production flow and hence can be used to monitor processcapability. This has great performance benefits, unavailable from thetraditional off-line methods of cigarette and filter testing. From this firstmachine, further variants of the C(2) family are being developed, to supporthopper sampling from multiple machines and for laboratory testing. Cerulean has also maintained a high level of research and developmentexpenditure across its product range. The family of smoking machines continuesto be improved and both the SM 450 and the ASM 500 have achieved a good level ofsales during the year. In addition improvements have been made to the QTMfamily of laboratory testing instruments. The business has also developed further its manufacturing processes. It hascontinued to develop its just-in-time material supply through improved supplychain management and its Kaizen programme has delivered significant benefitsduring the year. The business was a finalist in several categories of theInstitution of Mechanical Engineers' 2004 Manufacturing Excellence awards.Customer support on spares and service continues to be improved and overall thebusiness has reinforced its position as the leader in its field. After six years of growth from its inception in 1998, Arista Laboratories, basedin Richmond, Virginia and Kingston upon Thames, UK had a more difficult year.It has been subject to opposing trends in the marketplace. New legislation andthe search for greater efficiencies are driving its customers to greater use ofexternal laboratory testing services. In this respect, Arista is wellpositioned, as one of only two major independent, accredited cigarette testinglaboratories in the world today. However, Arista's larger customers are alsoseeing the economic benefits of in-sourcing certain test procedures as theirvolumes increase and the work becomes more mainstream. In 2004 Aristaexperienced a trend to in-sourcing by customers, which outweighed the growth inother new services, and consequently sales declined from the record levelsachieved in 2003. In 2005, Arista is positioned to benefit from demand createdby new Canadian toxicology testing legislation and from its new agrochemicalresidue services. Toxicology and agrochemical residues are two areas of business which Arista hasdeveloped in the year. The business has invested in state-of-the art laboratoryequipment and has developed its testing protocols which are now fullyaccredited, where appropriate, in accordance with ISO and relevant nationaltesting requirements. Arista has also successfully extended its services internationally and has agrowing customer base worldwide. It is the only supplier in its sector to havebases in both North America and Europe. Arista Laboratories Europe is serving agrowing European market, in part driven by pending European Union legislation.The ratification of the Framework Convention on Tobacco Control, which requiresemission testing of cigarette products, bodes well for the future of thebusiness. Overall, the division is well placed to support its customers' new productdevelopment and efficiency programmes and to meet the ever growing regulatoryrequirements impacting their businesses. The Scientific Services division ended the year with a strong order book and,although business can be volatile, we expect the division to benefit from thegood prospects we see for the many new products and services available fromCerulean and Arista Laboratories. FINANCIAL REVIEW Group underlying operating profit (which excludes goodwill amortisation andexceptional charges) for the year was £2.0m, sharply down from 2003 levels.Additionally, the Group incurred exceptional charges of £11.5m, before taxcredits, relating to the restructuring of the Tobacco Machinery division,including the liquidation of a joint venture company in China. Underlyingearnings per share fell to 1.1p from 43.6p in 2003. The basic loss per sharewas 62.1p (2003: earnings per share 39.9p). Operating results The trading performance of the Group is discussed in the Operating review. Theresults of Cerulean and Arista Laboratories, which have previously been reportedwithin those of the Tobacco Machinery division, are reported separately underScientific Services. Group turnover was £122.9m (2003: £121.8m). Tobacco Machinery division sales,including those of Sasib S.p.A. acquired in August 2003, were £61.8m (2003:£66.2m). Underlying operating profit of the MTM businesses, excluding Sasib,was £0.4m (2003: £6.5m). As expected, the business received much reduced rentalincome of £0.1m (2003: £1.1m). Sasib incurred an underlying operating loss of£2.4m (four months 2003: £0.3m profit). The Packaging Machinery division increased its sales by 17% to £45.8m (2003:£39.1m) and the division's operating profit increased to £2.3m, from £1.6m in2003. Scientific Services turnover fell by 7% to £15.3m (2003: £16.5m) andprofit reduced to £1.6m from £2.6m. Exceptional charges Exceptional charges amounted to £11.5m (£10.4m after tax credits), of which£1.6m is non-operating, being the net write down of the Company's 48% investmentin Kunming Molins Tobacco Machinery Company. Included within the balance of exceptional charges of £9.9m, charged tooperating profit, are redundancy and other re-organisation costs of £5.4m.These charges resulted from the closure of Molmac's facility at Milton Keynesand its relocation to the Saunderton site, and cost reduction programmes inother parts of the Tobacco Machinery division, principally in the UK operationsand in Sasib in Italy. This re-organisation programme will result in a total of310 people leaving the business, of which 235 had left by the end of the year.This represents more than a quarter of the division's work force at December2003 and it is expected that the re-organisation will reduce operating costs byapproximately £7m per annum. With the restructuring of the business and the changes to the product range,inventories have been written down and £1.7m has been taken as an exceptionalcharge. Additionally, a specific write down of £2.8m has been incurred atSasib, representing costs and inventories associated with the development of theFenix hinge-lid packing machine, which was suspended owing to insufficientmarket opportunities. Purchased goodwill has been increased by £1.7m in respectof the further write down of inventory at the date of acquisition, mainlyrelated to this project. Interest and taxation Net interest expense in 2004 was £1.1m (2003: £0.5m), reflecting the higheraverage level of debt in the year following the acquisition of Sasib in August2003, which was financed from bank borrowings. The 2004 Group tax credit of £0.4m comprises a charge of £0.7m in respect ofprofit before exceptional charges and a net credit of £1.1m in relation to theexceptional charges. Earnings per share Underlying earnings per share (before exceptional charges and goodwillamortisation) was 1.1p (2003: 43.6p). Basic loss per share was 62.1p (2003:earnings per share 39.9p) and diluted loss per share was 62.1p (2003: dilutedearnings per share 36.0p). Dividend The Board did not pay an interim dividend and has recommended that no finaldividend should be paid. In 2003 a final dividend of 8.0p was paid, making atotal of 12.6p for the year. Cash, treasury and funding activities Group net debt at the end of 2004 amounted to £25.1m (2003: £21.5m). Net cashinflow from operating activities before exceptional costs was £6.5m (2003:£5.7m). Working capital reduced by £1.9m in 2004, mainly as inventories werereduced in the Tobacco Machinery division to match more closely current marketdemands. Additionally, exceptional re-organisation and redundancy payments weremade in the year of £3.5m (2003: £0.1m), with a further £3m of payments to bemade in 2005 in relation to costs incurred in 2004. Operating cash inflow was offset by net capital expenditure of £3.4m. Netinterest and tax of £1.1m and £0.8m respectively was paid. Net proceeds fromthe disposal of the Chinese joint venture amounted to £0.2m. Equity dividendsof £1.4m 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 isexposed and the Group treasury policy has remained unchanged. The Group doesnot trade in financial instruments and enters into derivatives (principallyforward exchange contracts) solely for the purpose of minimising currencyexposures on sales or purchases not in the functional currencies of its variousoperations. Since the end of the year, the Company has entered into new secured, committedfacilities with its two principal UK bankers. The total amount of suchborrowing facilities has remained unchanged at the same level as in 2004, £31m.This commitment will reduce by £5m at 31 December 2005, with a further £5mreduction in commitment over 2006 and 2007. The balance of the commitment of£21m expires on 31 July 2008, in line with the previous facility. These newfacilities are appropriate to meet the Group's expected requirements over thisperiod. The committed facilities are subject to covenants covering earnings andcash flow levels. These facilities are denominated in both sterling andmulti-currency. In addition, the Group maintains committed facilities fromoverseas banks of £5.7m. Short-term overdrafts and borrowings are utilisedaround the Group to meet local cash requirements. These are typicallydenominated in local currencies. Foreign currency borrowings are used to hedgeinvestments in overseas subsidiaries where appropriate. Reporting standards Preparation for the implementation of International Financial ReportingStandards (IFRS) in 2005 has progressed significantly during 2004. The mainimpact of IFRS to the Group's reported financial position is expected to be thecapitalisation of product development expenditure and a change in accounting forthe Group's pension schemes. It is intended that the financial results for2004, modified as if the IFRS regime had been in place, will be presented in2005. The only material change in accounting policy in the financial statements to 31December 2004 is as a result of adopting revised UITF Abstract 17 (Employeeshare schemes) and UITF Abstract 38 (Accounting for ESOP trusts). As a resultof implementing these new standards, the results for 31 December 2003 have beenrestated and the Company's investment in own shares, which are held under trustin respect of the Company's long-term incentive plan (LTIP), has beenreclassified from Investments to Reserves. Pension valuations The Company continues to account for pension costs under SSAP 24 Accounting forpension costs. A formal valuation of the UK pension fund was carried out as at30 June 2003 and its assumptions have been applied in the financial statements,updated to reflect conditions at 1 January 2004. The result of the 2003valuation was that a surplus in excess of three years' worth of employer'scontributions existed at that date and the fund's trustees and the Companyagreed that the employer's contribution holiday would continue to 30 June 2006at which time the next triennial valuation will take place. The net pensioncredit for the year was £nil (2003: £nil). In line with many similar pension schemes, the valuation of the UK fund underFRS 17 Retirement benefits continues to show a deficit at the end of 2004. Onthe basis of the assumptions used the deficit had reduced to £13.6m (net ofdeferred tax) at 31 December 2004 (2003: £16.0m). Shareholders' funds Group shareholders' funds at 31 December 2004 were £51.5m (2003: £64.0m). Thereduction arises from the £11.1m loss for the year, preference dividends of£0.1m, adverse exchange movements on the net assets of overseas operations of£1.1m and a £0.2m reduction in reserves arising from the new accountingrequirements in relation to the LTIP. David CowenGroup Finance Director 22 February 2005 Group profit and loss account for the year ended 31 December 2004 Before exceptional Exceptional 2003 items items Total (restated) Notes £m £m £m £m (notes 6, 7) (note 3)Turnover - continuing operations 4,5 122.9 - 122.9 121.8 Operating (loss)/profit - continuing 4 1.1 (9.9) (8.8) 11.4operations Loss on closure of associate - (1.6) (1.6) - Net interest payable (1.1) - (1.1) (0.5) (Loss)/profit on ordinary activities beforetaxation - (11.5) (11.5) 10.9 Taxation (0.7) 1.1 0.4 (3.6) (Loss)/profit for the financial year (0.7) (10.4) (11.1) 7.3 Dividends (including non-equity) (0.1) - (0.1) (2.3) (Accumulated loss)/retained profit for theyear (0.8) (10.4) (11.2) 5.0 Underlying earnings per ordinary share 10 1.1p 1.1p 43.6p Basic (loss)/earnings per ordinary share 10 (4.1)p (58.0)p (62.1)p 39.9p Diluted (loss)/earnings per ordinary share (4.1)p (58.0)p (62.1)p 36.0p Dividend per ordinary share - 12.6p The calculations of earnings per share are based on the following weightedaverage number of shares:Underlying and basic - 18,023,181 (2003: 18,072,665). Diluted - 19,212,153(2003: 20,043,765). Group balance sheet as at 31 December 2003 2004 (restated) Notes £m £m (note 3)Fixed assetsIntangible assets - goodwill 11 15.4 14.8Tangible assets 22.9 22.6Investments 3,7 - 1.8 38.3 39.2 Current assetsStocks 35.2 40.3Debtors - due within one year 27.4 37.0Debtors - due after more than one year 9 24.8 28.1Cash and short-term bank deposits 5.1 7.0 92.5 112.4 Creditors - amounts falling due within one yearBorrowings (1.7) (4.0)Other creditors (33.3) (46.0)Proposed dividend - (1.4) (35.0) (51.4) Net current assets 57.5 61.0 Total assets less current liabilities 95.8 100.2 Creditors - amounts falling due after more than one yearBorrowings (28.5) (24.5) Provisions for liabilities and charges (15.8) (11.7) Net assets 51.5 64.0 Capital and reservesCalled up share capital 5.9 5.9Share premium account 25.9 25.9Revaluation reserve 5.6 5.6Capital redemption reserve 3.9 3.9Profit and loss account 3 10.2 22.7 Shareholders' funds(including £0.9m of non-equity interests) 51.5 64.0 Group cash flow statement for the year ended 31 December 2004 2003 Notes £m £m Net cash inflow from operating activities 12 3.0 5.6 Returns on investments and servicing of finance (1.2) (0.6)Taxation (net) (0.8) (3.3)Capital expenditure (net) (3.4) (4.2)Acquisitions and disposals 0.2 (9.3)Equity dividends paid (1.4) (2.1) Net cash outflow before financing (3.6) (13.9) Financing 13 2.9 17.4 (Decrease)/increase in cash in the year (0.7) 3.5 Reconciliation of net cash flow to movement in net debt for the year ended 31December 2004 2003 £m £m (Decrease)/increase in cash in the year (0.7) 3.5 Cash inflow from increase in debt and lease financing (2.9) (17.8) Change in net debt resulting from cash flows (3.6) (14.3) Net debt acquired with business - (2.9)Translation movements - 0.4 Movement in net debt in the year (3.6) (16.8) Net debt at 1 January (21.5) (4.7) Net debt at 31 December (25.1) (21.5) Statement of total recognised gains and losses for the year ended 31 December 2003 2004 (restated) Note £m £m(Loss)/profit for the year (11.1) 7.3 Currency translation movements arising on foreigncurrency net investments (1.1) (0.8) Total recognised gains and losses for the year (12.2) 6.5 Prior year adjustment 3 (0.3) Total recognised gains and losses since the last Annual Reportand Accounts (12.5) Reconciliation of movements in shareholders' funds for the year ended 31December 2004 2003 Note £m (restated) £mOpening shareholders' funds - as previously reported 66.0 61.6Prior year adjustment 3 (2.0) (1.9) Opening shareholders' funds - as restated 64.0 59.7 (Loss)/profit for the year (11.1) 7.3Dividends (0.1) (2.3)Currency translation movements arising on foreign currency netinvestments (1.1) (0.8) Issue of new shares - 0.1Sale/(purchase) of own shares 0.1 (0.5)Net amortisation of own shares (0.3) 0.5 Net (decrease)/increase in shareholders' funds (12.5) 4.3 Closing shareholders' funds 51.5 64.0 Notes to preliminary announcement 1. The Group's accounts have been prepared in accordance withapplicable accounting and financial reporting standards. 1. The financial information set out above does not constitute theGroup's statutory accounts for the years ended 31 December 2003 or 2004.Statutory accounts for 2003 have been delivered to the registrar of companies,which have been subsequently restated as described in note 3. The statutoryaccounts for 2004 will be delivered following the Group's Annual GeneralMeeting. The auditors have reported on those accounts, their reports wereunqualified and did not contain statements under 237(2) and (3) of the CompaniesAct 1985. 2. The financial statements have been prepared on the basis of theaccounting policies set out in the Group's 2003 financial statements except thatthe Group has implemented revised UITF Abstract 17 (Employee share schemes) andUITF Abstract 38 (Accounting for ESOP trusts), which changes the way the Companyaccounts for its investment in own shares (LTIP). As a result of implementingthese new standards, the results for 31 December 2003 have been restated and theCompany's investment in own shares has been reclassified from Investments toReserves. The effect of these changes has been to reduce Investments andShareholders' funds by £2.0m at 31 December 2003 and to reduce operating profitby £0.1m at 31 December 2003. 4. Segmental analysis for the year ended 31 December Turnover Operating (loss)/profit Net assets 2003 2003 2004 2003 2004 (restated) 2004 (restated) £m £m £m £m £m £mBy activity: Continuing operations Tobacco Machinery - trading 61.8 66.2 (2.0) 6.8 - property rental income - - 0.1 1.1 Tobacco Machinery 61.8 66.2 (1.9) 7.9 30.1 39.0 Packaging Machinery 45.8 39.1 2.3 1.6 10.0 10.7 Scientific Services 15.3 16.5 1.6 2.6 4.3 4.1 122.9 121.8 Net pension credit/ prepayment - - 16.8 16.9 Goodwill (0.9) (0.7) 15.4 14.8 1.1 11.4 76.6 85.5 Exceptional items (9.9) -(Tobacco Machinery) Operating (loss)/profit (8.8) 11.4 Net debt (25.1) (21.5) Net assets 51.5 64.0 5. Turnover by geographical destination of goods for the yearended 31 December 2004 2004 2003 2003 £m % £m % United Kingdom 18.5 15 15.1 13Continental Europe 21.8 18 18.5 15North America 34.1 28 45.5 37Asia 27.9 23 29.4 24Rest of the world 20.6 16 13.3 11 122.9 100 121.8 100 6. The exceptional items of £9.9m included within theoperating loss arise from the re-organisation of the Tobacco Machinerybusinesses, and comprise costs and provisions of £2.8m relating to thesuspension of the development of the Sasib Fenix packing machine, £1.7m relatingto the write down of inventory and £5.4m of redundancy and other re-organisationcosts incurred. The £9.9m has been charged as follows; cost of sales £7.2m,distribution costs £0.3m and administrative expenses £2.4m. 7. The non-operating exceptional item of £1.6m, loss onclosure of associate, relates to the net write off of the investment held in theKunming Molins joint venture company in China, which closed in June 2004. 8. If the average exchange rates prevailing in 2004 had beenthe same as in 2003 in respect of the existing businesses, reported turnover forthe Group in 2004 would have increased by £3.4m (£1.9m increase in TobaccoMachinery, £1.0m increase in Packaging Machinery and £0.5m increase inScientific Services). 9. Operating (loss)/profit includes a net pension credit of£nil (2003: £nil). Debtors due after more than one year includes a pension fundprepayment of £24.3m (2003: £24.4m), which after taking account of deferredtaxation nets to £16.8m (2003: £16.9m). 10. Basic (loss)/earnings per ordinary share of (62.1)p (2003:39.9p) is based upon (loss)/profit after taxation less preference dividends.Underlying earnings per share of 1.1p (2003: 43.6p) has been calculated beforenet pension credit, goodwill amortisation and exceptional items. 11. A revision to the fair values of the assets of SasibS.p.A., acquired on 29 August 2003, has been made, which results in an increaseto purchased goodwill of £1.7m. This reflects the write down of the value ofstock relating to the Fenix prototype on acquisition of £1.4m and additionalstock provisions of £0.3m. 12. Reconciliation of operating (loss)/profit to net cash flowfrom operating activities for the year ended 31 December 2003 2004 (restated) £m £m Operating (loss)/profit (8.8) 11.4 Exceptional items included in operating loss 9.9 - Amortisation of goodwill 0.9 0.7 Depreciation 2.9 2.5 Other movements (0.3) 1.4 Cash movements on exceptional restructuring and rationalisation provisions (3.5) (0.1)Working capital movements: - stocks 1.2 (6.0) - debtors 12.7 (3.3) - creditors and other provisions (12.0) (1.0) Net cash inflow from operating activities 3.0 5.6 Cash flows from exceptional items excluding tax effect (3.5) (0.1)Other cash flows 6.5 5.7 Net cash inflow from operating activities 3.0 5.6 13. Financing for the year ended 31 December 2004 2003 £m £m Issue of new shares - 0.1Purchase of own shares for long-term incentive plan - (0.5)Debt due within one year: decrease in borrowings (1.2) -Debt due after more than one year: increase in borrowings 4.1 17.8 Net cash inflow from financing 2.9 17.4 14. Group statutory accounts will be sent to all shareholdersshortly and additional copies will be available from the Group's registeredoffice at 11 Tanners Drive, Blakelands, Milton Keynes MK14 5LU. This information is provided by RNS The company news service from the London Stock Exchange