Mpac Group Plc Regulatory News (MPAC)

1 Mar 2006 07:01

Molins PLC01 March 2006 1 March 2006 2005 PRELIMINARY ANNOUNCEMENT Molins PLC, the international specialist engineering company, announces itsresults for the year ended 31 December 2005. 2005 2004Sales £121.4m £122.9mUnderlying operating profit* £5.7m £2.3mReorganisation costs and goodwill impairment £(8.4)m £(12.9)mLoss before tax £(3.3)m £(11.8)mBasic loss per share (21.9)p (61.1)pUnderlying earnings per share* 19.1p 1.9pCash generated from operations before reorganisation £13.2m £7.7mNet debt £19.0m £26.0m * Before net pension credit, reorganisation costs and goodwill impairment (seenote 2) Note: All results are reported under International Financial Reporting Standards(IFRS). An analysis of the impact of adopting IFRS was published on 30 June2005 and can be found on the Group's website at www.molins.com/corporate, or acopy can be obtained from the Company's registered office. • Significant improvement in underlying operating profit • Strong cash flows and debt reduction • Further reorganisation in the year and Sasib goodwill of £6.7m written down Peter Byrom, Chairman, commented: "The Group returned to a more satisfactory level of underlying profitability,following the continued restructuring of the Tobacco Machinery division in 2005.Cash flow was strong in the year, with £13.2m generated from operatingactivities before reorganisation payments and net debt reducing by £7.0m to£19.0m. "MTM's order book at the beginning of 2006 is a little higher than at the sametime last year. The business continues to improve its operational performance,although this is against a background of a competitive market. Sasib's orderbook for original equipment is weak and actions are being taken to reduce costs,and it is expected that further reorganisation costs will be incurred in 2006. "The Packaging Machinery division also faces competitive markets but is wellplaced to progress in the year, through a combination of sales opportunities andoperational efficiency improvements. "The Scientific Services division entered 2006 with an increased order bookcompared with 2005 and prospects for maintaining its improved performance aregood." 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 The Group returned to a more satisfactory level of underlying profitability,following the continued restructuring of the Tobacco Machinery division in 2005.Cash flow was strong in the year, with £13.2m generated from operatingactivities before reorganisation payments and net debt reducing by £7.0m to£19.0m. Group sales were at similar levels to the previous year at £121.4m (2004:£122.9m). Underlying operating profit (before net pension credit,reorganisation costs and goodwill impairment) was £5.7m (2004: £2.3m). Afterinterest and taxation costs, underlying earnings per share was 19.1p (2004:1.9p). MTM Sales in MTM, which comprises the businesses of the Tobacco Machinery divisionexcluding Sasib, were £41.6m, down from £50.3m in 2004. The division hadembarked on a significant restructuring of its business in 2004 following asharp fall in orders for new and rebuild machinery. Having entered 2005 with alow order book the reduction in sales was anticipated. Restructuring continuedin 2005 and further costs of £2.2m were incurred as the division looked toimprove operational performance. Demand for spare parts and services, which account for the majority of thedivision's sales, was at similar levels to the previous year. Margins improved,reflecting the reduction in costs. Sales of new and rebuild machinery were sharply down in the year. The divisionentered 2005 with a reduced order book compared with the previous year, but eventhough demand for such machinery remained subdued through the year, the level ofthe order book at the end of the year had increased slightly. Consequent to the reorganisation, despite the reduction in sales, underlyingoperating profit of the division, excluding Sasib, improved to £2.4m (2004:£0.4m). Sasib The financial performance of Sasib continues to be disappointing. Sales in theyear of £18.2m, supported by a reasonably strong order book at the beginning ofthe year, were significantly higher than the £11.5m in 2004. However, orderintake for new machinery, which constitutes a larger proportion of Sasib's totalsales compared with MTM, has been low. Performance was also affected by thefrustration of a sale that Sasib was expecting to make at the end of the year,before the US customer filed for creditor protection under Chapter 11. Despite increased sales, the business still returned an operating loss of £0.6m,an improvement over the £2.3m loss in 2004. We continue to take actions to reduce costs, but the business and legislativeenvironment within which Sasib operates is not conducive to quick and economicsolutions. In view of its financial performance in the year and with poorcurrent order prospects, the Board has decided that it can no longer support thecarrying value of goodwill in the Group balance sheet and has provided againstthe whole amount of £6.7m. Packaging Machinery Performance in the Packaging Machinery division has been mixed. Sales declinedin the year by 5% to £43.7m, reflecting continued weakness in the UK andEuropean food packaging sectors in particular, and delays in the placement ofsome larger potential orders. Operating profit was also down at £1.3m (2004:£2.4m). Performance at Molins ITCM, Langenpac and Cerulean Packing was strong and thesebusinesses are well placed to progress further as their growth strategiescontinue to develop. Langen Packaging in Canada suffered from a disappointingdelay in orders but its development of robotic packaging solutions and itscurrent prospects list support future progress. Sandiacre Rose Forgrove had adifficult year, with operational inefficiencies combined with strong pricingpressures leading to a significant loss. Action has been taken to improve thisposition, as we work to ensure the business makes the most of its strong marketposition. Scientific Services The Scientific Services businesses performed well in the year, with sales up 17%to £17.9m and operating profit increasing to £2.6m from £1.8m in the previousyear. Growth was driven by Cerulean, with strong demand for its range ofquality control instruments and smoking machines. The business also made goodprogress in the market introduction and acceptance of its new C(2) range ofinstruments, where demand is expected to increase progressively. Arista'sperformance was maintained at similar levels to the previous year, with abroadening customer base and range of testing capabilities compensating for thein-sourcing of work from some of its larger customers. Property A formal planning application for the development of commercial property on theCompany's 26 acre site at Saunderton was made during the year. This firstapplication was rejected towards the end of the year. We are working with ouradvisers to address the issues raised by Wycombe District Council beforesubmitting either an appeal against the first decision or a second application. Dividend An interim dividend was not paid for the first half of the year, as the Groupcontinued its reorganisation, and the Board is not recommending the payment of afinal dividend. Outlook MTM's order book at the beginning of 2006 is a little higher than at the sametime last year. The business continues to improve its operational performance,although this is against a background of a competitive market. Sasib's orderbook for original equipment is weak and actions are being taken to reduce costs,and it is expected that further reorganisation costs will be incurred in 2006. The Packaging Machinery division also faces competitive markets but is wellplaced to progress in the year, through a combination of sales opportunities andoperational efficiency improvements. The Scientific Services division entered 2006 with an increased order bookcompared with 2005 and prospects for maintaining its improved performance aregood. Peter Byrom Chairman 1 March 2006 OPERATING REVIEW TOBACCO MACHINERY Overall a significantly improved financial performance was delivered in 2005following the successful implementation of a division-wide restructuringprogramme during 2004 and 2005. The division comprises the Molins Tobacco Machinery (MTM) and Sasib businesses.MTM has operations in the UK, Czech Republic, Singapore, Brazil, Paraguay andthe USA, whilst Sasib operates from Bologna, Italy. It is structured to meetthe needs of its customers wherever they are located. 2005 sales were £59.8m (MTM £41.6m and Sasib £18.2m), comprising sales oforiginal equipment, rebuild machinery, spare parts and related services.Underlying operating profit was £1.8m, with MTM contributing £2.4m (2004: £0.4m)and Sasib recording a loss of £0.6m (2004: £2.3m loss). MTM A wide-ranging reorganisation of the MTM businesses, which commenced in 2004,was successfully continued in 2005. Significant cost savings have been achievedthrough simplification of the business structure and maintained focus onimproving efficiencies and margins. Order intake overall was a little higher than in 2004. Market conditions remainuncertain, especially for original equipment and rebuild machinery, but continueto favour service-focused global suppliers such as MTM. MTM's sales were £41.6m in the year, down from £50.3m, which had been supportedby a strong opening order book, in 2004. Order flow was not maintained in 2004and this led to the extensive reorganisation of the division. The operationalstructure of MTM is now more closely matched with the ongoing expected level ofsales; further opportunities for cost savings and efficiency improvementscontinue to be assessed. The EMEA regional sales team is based in the UK and services this widegeographical area through a combination of sales managers and engineers and alsothrough industry-specific agents. Demand for original equipment remained lowthrough the year, but increased for after-sales services, including spare parts,upgrade kits and other services. Following a slow first half, demand forrebuild equipment increased in the second half of the year. Molins Richmond in the USA performed strongly during the year, despite lowersales, with order intake and profitability ahead of the previous year. TheNorth American market for the division's original and rebuild equipment remainedsoft, following a period of strong industry investment during 2002 and 2003.However, the business continues to offer a greatly valued 'onshore' servicepresence to all market sectors in North America, based around the supply ofspare parts, upgrade kits, service and repair activities for Molins equipment. Molins Far East, based in Singapore, sells into the Asian markets, includingChina. Order intake increased by 16% over 2004, with the focus on satisfyingthe service needs of customers continuing to generate growth. The developmentof new upgrade kits for the large installed base of Molins machines in theregion has also helped to drive sales growth. The dedicated spares and serviceoperation based in Shanghai, China performed well during the year in a verycompetitive area of the market. The MTM operations in South America performed satisfactorily in 2005, despitethe negative impact of the strengthening of the Brazilian real against the USdollar. This exchange rate movement has reduced the competitiveness of exportsfrom Molins do Brasil to the US in particular, with a consequent impact onmargins. It has also impacted the competitiveness of customers' exports ofregionally produced cigarettes, which has led to pricing pressure and in someareas a reduction in demand for spare parts. Good demand for rebuild equipmenthas been maintained as the business continues to deliver high quality and pricecompetitive machinery to the market. MTM's operation based in Saunderton, UK, continued to develop as the centralengineering and logistics hub of the MTM division. On-site manufacturingactivity has been focused on some of the division's critical machining andassembly operations, where such key skills remain essential in meeting theservice needs of customers. All other manufacturing activities have been eithertransferred to the division's operation in Plzen, Czech Republic or sourced fromthird party suppliers. The smooth transfer of all rebuild machinery assemblyfrom the division's former specialist rebuild operation, closed at the beginningof 2005, was a major achievement in the year. The operation in Plzen, Czech Republic, which supplies the division withmanufactured parts and assembled machines, has grown strongly during 2005.Further development of the business will result in other types of Molinsmachinery being assembled there in 2006. Additional capital investment isplanned in order to increase the range of machining activities that can beundertaken on site. The main focus of the division's engineering activities remains on thedevelopment of upgrade and enhancement kits for the existing Molins machinebase. These kits enable our customers to minimise their level of capital spendand enable MTM to prolong the life of its large installed machine base withinthe cigarette making industry. Sasib Sasib delivered an improved performance over 2004 following reorganisation ofthe business during early 2005, but despite this still returned an operatingloss. The business continues to experience weak and irregular demand for itsrange of original and rebuild equipment, which is typically a larger proportionof its total sales compared with MTM. The ability of Sasib to flex coststructures within the Italian business environment has proved difficult, both interms of speed of implementation and cost. Further opportunities for improvingthe cost base of the business continue to be explored. Sales in 2005 were considerably higher than in 2004, at £18.2m compared with£11.5m, but were supported by a strong opening order book. Order intake during2005 for original and rebuild equipment was considerably lower than in theprevious year, although demand for spare parts increased. Sasib offers alimited range of new equipment to the market and operates in a very competitivearea. The business is active in marketing its capability to provide customised packingsolutions to customers. These typically involve specially designed, small batchrun packs, for which Sasib's engineering concepts are well suited. Summary The reorganisation initiatives undertaken in 2004 and through into 2005 have hada positive impact on financial performance across the division. The MTM business will continue to make incremental improvements in the way itoperates. Market conditions remain uncertain but the business is wellpositioned to continue to react to the changing needs of customers through itsinternational structure, service focus and strong reputation within theindustry. Further reorganisation of Sasib is likely to be required during 2006 in view ofthe ongoing weak demand for its products. PACKAGING MACHINERY The Molins Packaging Machinery (MPM) division delivered sales of £43.7m in theyear, compared with £45.8m in the previous year. Underlying operating profitfell to £1.3m (2004: £2.4m), reflecting mixed performances from the differentbusinesses in the division. Market conditions varied by sector and geography. The food sector, to which thedivision has a high exposure, remained weak in the UK and Europe but improved inNorth America. The other sectors that the division serves, which includepharmaceuticals, personal care and consumer durables, were generally morebuoyant, but customer decision-making cycles remained long. Investment by customers continues to be driven by two imperatives; costreduction and packaging innovation to differentiate products from thecompetition. To meet these two typically conflicting market requirements, thedivision is pursuing a dual strategy: maximising the use of standardisedmachinery to deliver high quality and proven machines at excellent value for thecustomer; and providing strong engineering and custom machinery buildcapability, to deliver both innovative and high performance machinery andpackaging lines to each customer's distinct requirements. To deliver packaging innovation and cost reductions, the division has acontinuing programme of investment to update and broaden its product range, witha focus on high performance, effective cost engineering and flexible, modularstructures. This includes a growing use of robotics and other standardisedspecialist machines sourced from our supply partners. The division increasinglyuses low cost sources for parts and assembly. It also continues to invest inengineering and machinery build capabilities, with improvements in computeraided design tools, project management and supplier management. The drive for cost reduction leads customers to consider both the capital costand overall in-service operational effectiveness of each project. All of thedivision's businesses have a strong focus on delivering high-value productlifetime solutions, based on robustness of product design and manufacture. Thedivision also supports its customer base by continuously enhancing after-salesservices and improving spare parts availability. These areas are beingstrengthened with more staff and dedicated engineering resources to reducelead-times. The success of this strategy is demonstrated by the large number of repeat salesto the division's major relationship customers. Molins ITCM, based in Coventry, UK, develops innovative solutions and associatedproduction and packaging machinery for its customers. The business had anotherstrong year of sales and profits and delivered a large number of major machineprogrammes to customers in the pharmaceutical and FMCG sectors. As a result,the business established further its reputation as a key technology partner withthese multinational customers. ITCM delivers innovation in product concepts anddesign of packaging lines. It has helped customers to achieve record levels ofthroughput and cost efficiencies by supplying unique, high performanceproduction machinery. The number of blue-chip customers has increased duringthe year and the business continues to invest in its employees andinfrastructure in anticipation of another year of strong performance. To support the division's strategy of extending its service capabilities, wehave opened a new business unit of ITCM in Atlanta, Georgia. We believe thereis a substantial market for engineering services in the packaging industry. Thedrivers are the trend by larger customers to downsize and outsource theirinternal project engineering and by smaller businesses to require assistance forone-off projects. The business provides a range of services to help customersplan and implement capital projects and to manage capital assets. Langen and Langenpac, based respectively in Mississauga, Ontario and Wijchen,the Netherlands, serve the markets for highly automated product handling andcartoning machinery in North America and Europe respectively. The businessessupply standard machines and infeeds, custom engineered solutions and completeturnkey installations, as required by their customers. This year has seen a continuation of the growth in the use of robotics forautomated infeeds and material handling and in providing end-of-line carton,case and pallet packing solutions. The Chinook cartoner, the division'splatform high speed and high specification horizontal cartoning range, continuedto gain market share. This product line is being extended to provide a widerange of value propositions. Good progress has been made in the year inestablishing a strong position in the supply of top-load cartoning applications. The performance of Langenpac in 2005 was particularly noteworthy, with recordsales and improved profit margins. Activity levels at Langen were less strongthan in the previous year, with capital approvals in North America continuing tobe slow and a further decline in the Canadian to US dollar exchange rateimpacting its profit performance. Both businesses, however, ended the year withhigher order books than they carried into 2005. Sandiacre Rose Forgrove, based in Nottingham, UK, and Lancaster, Pennsylvania,had a difficult year. The business primarily serves the food sector and saleswere down in all markets, except North America. Price competition continues tobe strong in all geographic areas, which is compounded further in North Americaby a relatively weak US dollar. There has been a continuing programme of costand overhead reductions and productivity improvements across the business since2004. Progress has taken longer than expected although, importantly, serviceperformance has improved through the year as the business focuses on ensuringcustomers are well supported. The consequence of the pricing pressures andoperational inefficiencies has been a particularly disappointing financialperformance. The management team has now been strengthened, including a newManaging Director being appointed. New investments have been made in theproducts, production and information systems. An improved performance isexpected in 2006. Cerulean Packing, supplying tube packing machinery from its base in MiltonKeynes, UK, had a particularly good year. The business delivered strong salesand profits and enters 2006 with an increased order book. The business isextending its product range, assisted by its sister companies within MPM. Summary The division closed the year with order books at similar levels to those at theend of 2004. There are a significant number of active projects where investmentdecisions have been delayed as customers seek capital approvals, but we remainoptimistic that a number of these orders will be placed. With these potentialprojects and with our continued investment in improving product lines, servicecapability and cost effectiveness, we expect the division's performance toimprove in 2006. We continue to evaluate new alliance and acquisitionopportunities consistent with our focused sales and profit growth strategy. SCIENTIFIC SERVICES The Scientific Services division, which comprises Cerulean and AristaLaboratories, performed strongly in the year. Sales increased by 17% to £17.9m(2004: £15.3m) and operating profit improved to £2.6m (2004: £1.8m). The strongpressure on profit margins continued in the year but was more than off-set bythe increase in sales. Cerulean, based in Milton Keynes, UK, is the market-leading supplier of qualitycontrol instruments and analytical smoke constituent capture machinery to thetobacco industry, independent laboratories and government bodies. The businesssells throughout the world, supported by a network of fifteen sales and serviceoffices located in the major economic and industrial centres. Sales growth wasachieved in most major geographic areas, with a particularly marked increase inAsia, as customers increased their investment in quality control and processimprovement equipment for the production area. Product innovation continues to be a major driver of sales growth for thebusiness and helps to set it apart from its competitors in the industry.Cerulean has continued to invest heavily in its product lines and productdevelopment capabilities. This was recognised during the year when Cerulean waspresented with the Institute of Mechanical Engineers Manufacturing Excellenceaward for Product Innovation. Sales of the industry leading SM 450 smoking machine have been strong as thismachine has become the recognised standard linear machine for the testing ofcigarettes. The business has also extended the machine's range of smoking testswith the inclusion of variants for side-stream smoke, cigar and research anddevelopment smoking. In addition, a rotary smoking machine has been developedand will be available for delivery in 2006. Sales of quality control instrumentation have also been strong. The establishedQTM range of instruments has retained its market leading position for laboratoryand production testing. Good progress has been made on establishing the new C(2) range of instruments in the market. Extensive customer trials have beenundertaken as a result of which the product has been enhanced further.Shipments of this revised version of the product started in 2005 and sales areexpected to grow in 2006 as the complete range of variants become available forat-line testing, hopper feeding and laboratory analysis. The business has continued to focus on its operational excellence programme toimprove customer satisfaction and efficiency. The use of lean manufacturingtechniques is being extended and the business has an embedded continuousimprovement culture. Arista Laboratories, based in Richmond, Virginia and Kingston upon Thames, UK,is dedicated to meeting the need for testing, through independent, specialist,high quality analysis of tobacco and cigarette smoke constituents forregulatory, research and product development purposes. After a difficult start to the year, Arista saw a steady improvement in itsperformance. It successfully increased its sales in new business areas butcontinued to see a decline in traditional areas where customers have beenin-sourcing and margins have been under competitive pressure. A new toxicological testing service has been successfully launched, resulting ina good level of sales. Growth has also come from the newly regulated tests forignition propensity. Arista has developed an agrochemical residueidentification testing service and this is expected to contribute to sales in2006. Arista markets its services worldwide through its laboratory teams in the US andthe UK and also with the support of the Tobacco Machinery division'sinternational sales network. It is the only specialist laboratory of its kindwith this global reach which is expected to yield further benefits in the futureas tobacco regulations are tightened across the world. The division is well placed to maintain performance in 2006. FINANCIAL REVIEW Group underlying operating profit (which excludes net pension credit,reorganisation costs and goodwill impairment) for the year was £5.7m, up from£2.3m in 2004 on similar sales. In addition, the Group benefited from a netpension credit in respect of ongoing benefits of £0.5m, and incurredreorganisation costs within the Tobacco Machinery division of £2.2m before taxcredits (2004: £11.3m) and a £6.7m impairment of purchased goodwill relating toSasib. Underlying earnings per share was 19.1p (2004: 1.9p). The basic lossper share was 21.9p (2004: 61.1p). International Financial Reporting Standards In line with other UK listed companies, the Group has adopted InternationalFinancial Reporting Standards (IFRS) for its 2005 reporting as required byEuropean Union regulations. All information, including prior year figures, hasbeen restated accordingly. The Company issued a comprehensive analysis of theimpact of IFRS on the reported results of the Group for 2004 on 30 June 2005. One of the main impacts of adopting IFRS on the Group arises from the change inpension accounting. Under SSAP 24 Accounting for pension costs, changes toactuarial gains and losses were amortised over the expected average remainingservice lives of current employees. Under IFRS (IAS 19 (revised) Employeebenefits), the fair value of the schemes' net liabilities at the end of the yearare shown on the balance sheet, with any actuarial gains or losses being chargedto reserves through the statement of recognised income and expense (SORIE).This resulted in a decrease to equity of £29.8m after deferred tax at 31December 2004. Other changes to equity at 31 December 2004 as a consequence ofadopting IFRS, include the capitalisation of certain product development costsof £2.2m and an increase of £4.6m in the book value of land and buildings, bothamounts being net of deferred tax. Operating results The trading performance of the Group is discussed in the Operating review. Group revenue at £121.4m was at similar levels to the previous year (2004:£122.9m). Tobacco Machinery division sales, including those of Sasib, were£59.8m (2004: £61.8m). Underlying operating profit of the MTM businesses,excluding Sasib, recovered to £2.4m (2004: £0.4m). Sasib incurred an underlyingoperating loss of £0.6m (2004: £2.3m loss). The Packaging Machinery division sales were £43.7m (2004: £45.8m) and thedivision's operating profit was £1.3m (2004: £2.4m). Scientific Services salesincreased by 17% to £17.9m (2004: £15.3m) and operating profit increased to£2.6m from £1.8m. Goodwill impairment Following a review of the future order prospects for Sasib, and the continueddifficulties in returning this business to profitability, the carrying value ofgoodwill capitalised on the purchase of the business of £6.7m has been providedagainst in full. Reorganisation costs The Tobacco Machinery division continued its reorganisation which commenced in2004, incurring costs of £2.2m in 2005. These comprised redundancy costs,including related pension costs, in the UK and Brazil of £1.5m, other UK relatedreorganisation costs of £0.3m and an additional inventory provision of £0.4m,reflecting the impact of rationalising the product range of the Group's SouthAmerican operations in line with the rest of the division. Payments of £4.1mwere made in the year in respect of this reorganisation and the completion ofthe programme announced in 2004. During the year proceeds of £0.5m were received following the closure in 2004and subsequent liquidation of the Company's 48% investment in Kunming MolinsTobacco Machinery Company. Interest and taxation Net interest expense in 2005 was £1.1m (2004: £1.2m). The taxation charge inthe year was £0.7m (2004: credit £0.8m), comprising a charge of £1.2m in respectof profit before reorganisation costs (2004: £0.7m) and a net credit of £0.5m inrelation to the reorganisation costs (2004: £1.5m). The effective tax rate inthe year, excluding the impact of reorganisation costs, was 24% which benefitedfrom a number of credits that will not recur. Earnings per share Underlying earnings per share (before net pension credit, reorganisation costsand goodwill impairment) was 19.1p (2004: 1.9p). Basic and diluted loss pershare was 21.9p (2004: 61.1p). Dividend An interim dividend was not paid and the Board is not recommending a finaldividend. Cash, treasury and funding activities The Group's net debt position improved in 2005 and amounted to £19.0m (2004:£26.0m) at the year end. Net cash inflow from operations before reorganisationcosts was £13.2m (2004: £7.7m), reflecting the improved profitability of theGroup and a reduction in working capital of £3.2m. Payments made in respect ofthe Tobacco Machinery reorganisation in the year were £4.1m (2004: £3.5m) and£0.5m was received from the closure of the Kunming Molins company (2004: £0.2m). There were net tax receipts of £0.7m (2004: net payments £0.8m). Netexpenditure on property, plant and equipment was £1.0m (2004: £3.4m) and productdevelopment expenditure was £1.5m (2004: £1.2m). Net interest payments were£1.1m (2004: £1.2m). 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. The Group maintains bank facilities appropriate to its expected needs. Theseinclude secured, committed facilities with its two principal UK bankers,amounting to £26m at 31 December 2005, which will reduce by £5m over a two yearperiod in line with the terms of the facility agreed early in 2005. The balanceof the commitment of £21m expires on 31 July 2008. The committed facilities aresubject to covenants covering earnings and cash flow levels and are denominatedin both sterling and other currencies. In addition, the Group maintainscommitted facilities with overseas banks of £5.7m. Short-term overdrafts andborrowings are utilised around the Group to meet local cash requirements andthese are typically denominated in local currencies. Foreign currencyborrowings are used to hedge investments in overseas subsidiaries whereappropriate. Pension valuations The Group's main defined benefit scheme is in the UK. The last formal actuarialvaluation of the fund was carried out as at 30 June 2003, updated to reflectconditions at 1 January 2004. This showed that a surplus in excess of threeyears' worth of employer's contributions existed at that date and the fund'strustee and the Company agreed that the employer's contribution holiday wouldcontinue to 30 June 2006 at which time the next triennial valuation will takeplace. The Group also maintains a defined benefit scheme in the US. The Group adopted IAS 19 (revised) Employee benefits in 2005 as its basis ofaccounting for pension costs, as part of its IFRS implementation. Foraccounting purposes, valuations of the UK fund assets and liabilities have beenundertaken at 31 December 2005 and at prior years for the purpose of restatementunder IFRS, based on the 2003 valuation with its assumptions updated to reflectassumptions existing at each balance sheet date. Under IAS 19 (revised) theCompany has elected to recognise all actuarial gains and losses outside of theincome statement. The net pension credit arising from the UK and US funds in 2005 was £0.1m (2004:£1.4m cost), which comprises a £0.5m net credit (2004: £nil) in respect ofongoing benefits, less curtailment costs of £0.4m (2004: £1.4m) arising fromredundancies in the year. The IAS 19 (revised) valuation of the UK pension fundat 31 December 2005 showed a net deficit of £14.3m, a reduction of £5.4m in theyear, before deferred tax. The deficit in the US fund at the end of the yearwas £0.3m (2004: £1.4m surplus), before deferred tax. Equity Group equity at 31 December 2005 was £29.9m (2004: £29.2m). The increase arisesfrom the £4.0m loss for the year, offset by a £2.4m net actuarial gain arisingon the Group's net pension liabilities, issue of new shares of £0.1m, favourableexchange movements on the net assets of overseas operations of £1.9m and a net£0.3m increase in reserves arising from accounting for the Group's long-termincentive plan. David Cowen Group Finance Director 1 March 2006 Consolidated income statement 2005 2004 Before goodwill impairment Before Goodwill Reorg. reorg. Reorg. and reorg. impairment costs Total costs costs Total £m £m £m £m £m Notes costs £m (note 4) (note 4) £m (note 3)Revenue 2 121.4 - - 121.4 122.9 - 122.9 Cost of sales (85.8) - (1.2) (87.0) (92.5) (7.2) (99.7) Gross profit/(loss) 35.6 - (1.2) 34.4 30.4 (7.2) 23.2 Other operating 0.3 - - 0.3 0.1 - 0.1income (9.8) - (0.2) (10.0) (8.4) (0.3) (8.7)Distribution expenses (18.7) - (0.3) (19.0) (18.2) (2.4) (20.6)Administrative (1.2) (6.7) (0.5) (8.4) (1.6) (1.4) (3.0)expensesOther operatingexpenses Operating profit/ 2, 6 6.2 (6.7) (2.2) (2.7) 2.3 (11.3) (9.0)(loss) Profit/(loss) onclosure of associate 5 - - 0.5 0.5 - (1.6) (1.6) Profit/(loss) beforefinancing costs 6.2 (6.7) (1.7) (2.2) 2.3 (12.9) (10.6)Financial income 0.4 - - 0.4 0.3 - 0.3Financial expenses (1.5) - - (1.5) (1.5) - (1.5) Net financing costs (1.1) - - (1.1) (1.2) - (1.2) Profit/(loss) before tax 5.1 (6.7) (1.7) (3.3) 1.1 (12.9) (11.8) Taxation (1.2) - 0.5 (0.7) (0.7) 1.5 0.8 Profit/(loss) for the 3.9 (6.7) (1.2) (4.0) 0.4 (11.4) (11.0)period Basic earnings/(loss)per ordinary share 7 (21.9)p (61.1)p Diluted earnings/(loss) per ordinary (21.9)p (61.1)pshare Consolidated balance sheet 2005 2004 Notes £m £mNon-current assetsIntangible assets 13.5 19.6Property, plant and equipment 28.7 29.7Trade and other receivables 1.2 1.0Employee benefits 8 - 1.4Deferred tax assets 5.4 6.8 48.8 58.5 Current assetsInventories 27.2 35.2Trade and other receivables 22.6 25.5Taxation receivable 0.2 1.9Cash and cash equivalents 2.8 5.1 52.8 67.7Current liabilitiesBank overdrafts (1.9) (0.9)Interest-bearing loans and borrowings (2.4) (0.8)Trade and other payables (25.6) (32.4)Taxation payable (0.9) (0.9)Provisions (2.2) (5.4) (33.0) (40.4) Net current assets 19.8 27.3 Total assets less current liabilities 68.6 85.8 Non-current liabilitiesInterest-bearing loans and borrowings (17.5) (29.4)Trade and other payables (0.2) -Employee benefits 8 (16.9) (22.6)Deferred tax liabilities (4.1) (4.6) (38.7) (56.6) Net assets 2 29.9 29.2 EquityIssued capital 5.0 5.0Share premium 26.0 25.9Reserves 4.8 2.9Retained earnings (5.9) (4.6) Total equity 29.9 29.2 Consolidated statement of cash flows 2005 2004 Note £m £mCash flows from operating activities Loss for the period (4.0) (11.0)Reorganisation costs included in operating loss for the period 2.2 11.3 Amortisation 0.9 0.8Goodwill impairment 6.7 -Depreciation 2.7 2.9 Interest income (0.4) (0.3)Interest expense 1.5 1.5 Profit on sale of plant and equipment (0.1) -(Profit)/loss on closure of associate (0.5) 1.6Equity-settled share-based transactions (LTIP) 0.3 0.2 Taxation expense/(credit) 0.7 (0.8)Other movements - (0.1) Working capital movements: - Decrease in inventories 8.1 1.2 - Decrease in trade and other receivables 3.7 12.7 - Decrease in trade and other payables (7.1) (12.4) - (Decrease)/increase in provisions and employee benefits (1.5) 0.1 Cash generated from operations before reorganisation 13.2 7.7 Reorganisation costs paid (4.1) (3.5) Cash generated from operations 9.1 4.2 Taxation received/(paid) 0.7 (0.8) Net cash from operating activities 9.8 3.4 Cash flows from investing activities Proceeds from sale of plant and equipment 0.4 0.4Net proceeds from closure of associate 0.5 0.2 Acquisition of property, plant and equipment (1.4) (3.8)Development expenditure (1.5) (1.2) Net cash from investing activities (2.0) (4.4) Cash flows from financing activities Issue of new shares 0.1 -Interest received 0.4 0.4Interest paid (1.5) (1.6)(Decrease)/increase in borrowings (10.1) 2.9Payment of finance leases (0.1) -Dividends paid - (1.4) Net cash from financing activities (11.2) 0.3 Net decrease in cash and cash equivalents 9 (3.4) (0.7)Cash and cash equivalents at 1 January 4.2 4.9Effect of exchange rate fluctuations on cash held 0.1 - Cash and cash equivalents at period end 0.9 4.2 Consolidated statement of recognised income and expense 2005 2004 £m £mCurrency translation movements arising on foreigncurrency net investments 1.9 (1.0)Actuarial gains 2.4 2.5 Net income recognised directly in equity 4.3 1.5 (4.0) (11.0)Loss for the period 0.3 (9.5)Total recognised income and expense for the period Notes to preliminary announcement 1. The attached financial statements are the Group's first financialstatements following the adoption of International Financial Reporting Standards(IFRS). They have been prepared in accordance with IFRS adopted for use in theEU ("adopted IFRS") in accordance with EU law (IAS Regulation EC 1606/2002). On 30 June 2005 the Company published a report which included a set ofrestated IFRS compliant 2004 financial statements (excluding notes), togetherwith a restatement of the Group's accounting policies under IFRS. The reportalso included an analysis of the impact of adopting IFRS from 1 January 2004 onthe income statement for the period ending 31 December 2004 and on the balancesheet at that date. This report can be found on the Group's website atwww.molins.com/corporate or a copy can be obtained from the Company's registeredoffice. The financial information set out above does not constitute theCompany's statutory accounts for the years ended 31 December 2005 or 2004.Statutory accounts for 2004, which were prepared under UK GAAP, have beendelivered to the registrar of companies, and those for 2005, prepared underaccounting standards adopted by the EU, will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were (i) unqualified, (ii) did not include references to anymatters to which the auditors drew attention by way of emphasis withoutqualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. Segmental analysis Business segments Tobacco Packaging Scientific Machinery Machinery Services Total 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m Revenue 59.8 61.8 43.7 45.8 17.9 15.3 121.4 122.9 Underlying segment operating profit/(loss) before net pension credit,reorganisation costs and goodwillimpairment 1.8 (1.9) 1.3 2.4 2.6 1.8 5.7 2.3 Goodwill impairment (6.7) - - - - - (6.7) - Reorganisation costs (before profit/(loss) on closure of associate) (2.2) (11.3) - - - - (2.2) (11.3) Segment operating profit/(loss)before net pension credit (7.1) (13.2) 1.3 2.4 2.6 1.8 (3.2) (9.0) Net pension credit (ex. curtailment 0.5 -costs) Operating loss (2.7) (9.0) Profit/(loss) on closure of associate 0.5 (1.6) Net financing costs (1.1) (1.2) Taxation (0.7) 0.8 Loss for the period (4.0) (11.0) Segment net assets 36.2 44.9 11.2 10.2 15.5 15.2 62.9 70.3 Unallocated net liabilities (33.0) (41.1)(including net debt and pensionliabilities) Total net assets 29.9 29.2 Geographical segments Revenue Segment net assets (by destination of goods) (by location of assets) 2005 2005 2004 2004 2005 2004 £m % £m % £m £m United Kingdom 13.9 11 18.5 15 43.9 45.4Continental Europe 22.4 18 21.8 18 6.3 12.0North America 31.0 26 34.1 28 10.9 11.6Asia 26.6 22 27.9 23 0.5 0.8Africa 18.4 15 13.4 11 - -Rest of the world 9.1 8 7.2 5 1.3 0.5 121.4 100 122.9 100 62.9 70.3 3. The impairment charge of £6.7m for the period relates to the impairmentin full of the carrying value of the purchased goodwill of Sasib S.p.A.following a review of its order prospects at December 2005. 4. The reorganisation costs of £2.2m (2004: £11.3m) (before profit/(loss)on closure of associate) relate to the restructuring of the Tobacco Machinerydivision and comprise costs of £1.5m (2004: £6.8m) relating to redundancy costs,including related pension costs, in the UK and Brazil, other reorganisationcosts of £0.3m, an additional £0.4m (2004: £1.7m) relating to inventoryprovisions, and in 2004, £2.8m relating to the suspension of the development ofthe Sasib Fenix packing machine. 5. The profit/(loss) on closure of associate relates to the net write offof the investment in the Kunming Molins company in China in 2004 and receipt ofloan/capital repayments in 2004 and 2005, following its closure and subsequentliquidation. 6. The Group accounts for pensions under IAS 19 (revised) Employeebenefits. A formal valuation of the UK pension fund was carried out at 30 June2003 and its assumptions have been applied in the financial statements, updatedto reflect conditions at 31 December 2005. Operating profit includes a netpension credit of £0.1m (2004: £1.4m cost), comprising a £0.5m net credit (2004:£nil) in respect of ongoing benefits, less curtailment costs of £0.4m (2004:£1.4m) arising from redundancies in the year. The £0.5m net credit in respectof ongoing benefits comprises current service costs of £3.1m, interest on thepension obligations of £17.2m, offset by the expected return on the schemes'assets of £20.8m. 7. Earnings/(loss) per ordinary share is based upon the loss for theperiod of £4.0m (2004: £11.0m) and on a weighted average of 18,429,551 shares inissue during the year (2004: 18,023,181). Underlying earnings per ordinaryshare, which is calculated before net pension credit, reorganisation costs andgoodwill impairment, was 19.1p for the year (2004: 1.9p). 8. Employee benefits include the net pension liabilities of the UK definedbenefit pension scheme of £14.3m (31 December 2004: £19.7m) and the US definedpension scheme of £0.3m (31 December 2004: £1.4m surplus), all figures beforedeferred tax. 9. Reconciliation of net cash flow to movement in net debt 2005 2004 £m £mDecrease in cash and cash equivalents (3.4) (0.7)Cash inflow/(outflow) from movement in borrowings andfinance leases 10.2 (2.9) Change in net debt resulting from cash flows 6.8 (3.6)Translation movements 0.2 - Movement in net debt in the period 7.0 (3.6)Opening net debt (26.0) (22.4) Closing net debt (19.0) (26.0) 10. Analysis of net debt 2005 2004 £m £mCash and cash equivalents - current assets 2.8 5.1Bank overdrafts - current liabilities (1.9) (0.9)Interest-bearing loans and borrowings - current liabilities (2.4) (0.8)Interest-bearing loans and borrowings - non-current (17.5) (29.4)liabilities (19.0) (26.0)Closing net debt 11. On adoption of IFRS, the opening book value of the Group's equitydeclined by £22.3m: £mEquity at 1 January 2005 (as previously reported under UK GAAP) 51.5Adjustments on adoption of IFRS (22.3) _____Equity at 1 January 2005 (as restated) 29.2 The following table explains the reduction of £22.3m in the book valueof the Group's equity as at 1 January 2005. £mPension liability - IAS 19 (revised) Employee benefits, requires any surplus or deficit in the 29.8fair value of the Group's pension schemes assets over their liabilities to be recognised in thebalance sheet. Research and development costs - IAS 38 Intangible assets, requires development costs which meet (2.2)certain criteria to be capitalised. Property valuation - IFRS 1 First-time adoption of IFRS, permits certain properties to be brought (4.6)onto the balance sheet at their open market value where this is deemed to be their fair value. Preference shares - IAS 32 Financial instruments: disclosure and presentation, requires that 0.9preference shares with an obligation to transfer economic benefits are treated as financialliabilities (debt) and not as capital (equity). Other employee liabilities - IAS 19 (revised), requires all employee benefits to be accrued for (0.3)over the period in which employee services are rendered and that any long-term liabilities aremeasured at their net present value. Goodwill amortisation - IFRS 3 Business combinations, requires that purchased goodwill be subject (0.9)to an annual impairment review only and not amortised. Goodwill translation - IAS 21 The effects of changes in foreign exchange rates, requires foreign (0.2)denominated goodwill to be retranslated at the balance sheet date. Deferred tax - IAS 12 Income taxes, requires deferred tax to be provided on all temporary (0.2)differences between accounting and tax book values, including the requirement to account for thetax effect of any future property disposals. The financial impact of IAS 12 is included in theadjustments above where appropriate. _____ 22.3 12. The Annual Report and Accounts will be sent to all shareholders in March2006 and additional copies will be available from the Company'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