Mpac Group Plc Regulatory News (MPAC)

2 Sep 2005 07:00

Molins PLC02 September 2005 2 September 2005 FOR IMMEDIATE RELEASE 2005 INTERIM ANNOUNCEMENT Molins PLC, the international specialist engineering company, announces itsresults for the period ended 30 June 2005. 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 Sales £60.0m £57.7m £122.9mUnderlying operating profit/(loss)* £2.3m £(0.1)m £2.3mReorganisation costs £(1.5)m £(5.9)m £(12.9)mProfit/(loss) before taxation £0.2m £(6.5)m £(11.8)mUnderlying earnings/(loss) per share* 4.9p (4.7)p 2.3pNet cash flow before reorganisation £5.7m £(4.9)m £(0.3)mNet debt £21.6m £27.7m £26.0m * Before reorganisation costs Note: All results are reported under International Financial Reporting Standards(IFRS). An analysis of the impact of adopting IFRS was published on 30 June 2005 and canbe found on the Group's website at www.molins.com/corporate, or a copy can beobtained from the Company's registered office. Peter Byrom, Chairman, commented: "Performance in the first half of the year has met our expectations. Cashgeneration was good, resulting in an improvement in debt of £4.4m over the sixmonths, after net payments of £1.9m in respect of reorganisation costs. Afurther reduction in inventory levels was a major contributor to thisimprovement. "The progress seen in the Tobacco Machinery division in the first half should bemaintained in the second half. The Packaging Machinery division has experienceda delay in the expected placement of some quite large orders, which willadversely impact its ability to match last year's performance. The ScientificServices division is well placed to maintain its strong performance." 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 Performance in the first half of the year has met our expectations. Group salesin the six months to 30 June 2005 were £60.0m (2004: £57.7m). Underlyingoperating profit (before reorganisation costs) was £2.3m (2004: loss £0.1m), andnet reorganisation costs were £1.5m. The underlying earnings per share was 4.9p(2004: loss 4.7p) and the basic loss per share was 0.3p (2004: loss 35.4p). Cash generation was good, resulting in an improvement in net debt of £4.4m overthe six months, after net payments of £1.9m in respect of reorganisation costs.A further reduction in inventory levels was a major contributor to thisimprovement. IFRS The Company has adopted International Financial Reporting Standards (IFRS) forits 2005 reporting as required by European Union regulations and all informationin this report has been prepared on this basis. On 30 June 2005, the Companyissued a comprehensive analysis of the impact of IFRS on the reported results ofthe Group for 2004, including the half year ended 30 June 2004. One of the consequences of adopting IFRS for the Group has been to reduce thereported shareholders' funds position at 31 December 2004 from £51.5m to £29.2m.This arises substantially from the new requirements for accounting forpensions, which changed a previously reported net pension asset of £16.8m to anet pension liability of £13.0m, both amounts being after deferred tax. Otherchanges to shareholders' funds at 31 December 2004 include the capitalisation ofcertain product development costs of £2.2m and an increase of £4.6m in the bookvalue of land and buildings, both amounts being after deferred tax. Tobacco Machinery The division, which includes the businesses of Molins Tobacco Machinery andSasib S.p.A., reported sales of £31.0m (2004: £30.5m) and operating profitbefore reorganisation costs of £0.8m, which compares with an operating loss of£1.0m in the equivalent period of 2004. Demand for spare parts and services, which account for the majority of thedivision's sales, has been ahead of last year and margins have improved as costsin the division have been reduced. Orders for new machinery continue to be low, and the business has beenstructured to reflect this reduced demand. Orders for rebuild machinery havebeen lower than expected, although a number of strong prospects are currentlybeing negotiated. In Molins Tobacco Machinery, the restructuring that commenced last year inresponse to the reduction in demand for new machinery has continued as furtheroperational improvements are made, incurring an additional net cost of £1.5m inthe first half of this year. Sasib has also continued to implement its restructuring in the first half ofthis year. In so doing it has substantially reduced its costs, following adisappointing 2004, in which it incurred a significant loss. Sasib entered 2005with a reasonably strong order book having secured a number of machine orders inthe second half of last year. Sales in the six months have increased comparedto last year and losses are considerably lower. In line with the rest of thedivision, orders for new machinery in the period have been low, although itssecond half programme is well supported by its current order book. Overall, whilst demand for machinery remains low, the division's emphasis onimproving its spares and service activity has contributed to a recovery inperformance. Further progress has been made in the transfer of activities fromthe UK to our facility in the Czech Republic. The restructuring that has beenimplemented throughout the division is contributing to improvements inefficiency. Packaging Machinery Sales in the period were £20.8m (2004: £21.1m) and operating profit was £0.3m(2004: £0.7m). Overall order intake has been lower than last year. Whilst some of thisreduction was expected, given the high intake in the first six months of lastyear, demand from the food packaging sector has been especially weak, as has theUK market in most product groups. This has particularly impacted Sandiacre RoseForgrove and Langen. Sandiacre Rose Forgrove, however, has continued to growsales in the US, although at lower margins. Sales in the division have been at similar levels to last year, but pricingpressures are being felt across the industry, especially in the food sector.Our customers are facing intense competitive conditions and in the US therelatively weak US dollar has not been beneficial to our businesses. A numberof projects have been delivered which are helping to take the division into newareas but these are lower margin and at the expense of profit contribution inthe short-term. Langen has continued to take orders for new robotic systems andthe division has made further progress in sectors such as medical andpharmaceutical. The competitive conditions are being addressed by the continuation of a numberof improvement projects, centred on the logistics processes (including lowercost sourcing of components) and product development. Product developments areparticularly concentrated on value engineering at Sandiacre Rose Forgrove andexpanding the mid-range product lines for Langen, Langenpac and CeruleanPacking. Scientific Services The division, which comprises Cerulean and Arista Laboratories, has delivered amuch improved first half performance, with sales of £8.2m compared with £6.1mlast year and an operating profit of £1.2m (2004: £0.2m). Cerulean experienced a strong recovery in its business levels in the second halfof 2004 and this has been sustained into 2005. Demand for both of Cerulean'smain product ranges, quality control instruments and smoking machines, has beenrunning at good levels. The long established and market-leading QTM rangecontinues to account for the majority of sales. We expect sales of the newer C(2) range of instruments to increase progressively over the medium-term. Arista Laboratories, centred in the US, continues to expand its customer base asa result of the additional services that it offers to the market and through thesuccessful growth of its UK based European facility. However, it continues toface considerable pressure as a result of the in-sourcing of work by some of thecigarette manufacturers and also the increasingly price competitive environment. Cash and shareholders' funds Group net debt at 30 June 2005 was £21.6m, compared with £26.0m at 31 December2004. Net cash flow from operating activities was £4.5m in the period, which is statednet of £2.4m of payments arising from restructuring carried out in 2004 and2005. In addition, net payments of £0.8m were made in respect of investingactivities, which included capital expenditure of £0.6m, development expenditureof £0.4m, net interest payments of £0.4m and the receipt of £0.5m from theKunming Molins joint venture, following its closure in 2004 and on-goingliquidation process. Payments of approximately £2m in respect of therestructuring announced to date will be made in the second half of the year. Shareholders' funds at 30 June 2005 were £31.9m, compared with £29.2m at 31December 2004. The increase comprises £1.2m (net of deferred tax) in respect ofa reduction in the pension scheme deficit, £1.4m of favourable exchange ratemovements, £0.2m in respect of movements in share capital and reserve for ownshares (long-term incentive plan), less £0.1m accumulated loss for the period. Dividend and distributable profits The Board has decided not to pay an interim dividend in light of the ongoingrestructuring of the Tobacco Machinery division. The Board will consider itsrecommendation for a final dividend in light of the results for the full yearand trading prospects in the early months of 2006. The Company may only make distributions to its shareholders out of profits thatare available for that purpose (section 263 Companies Act 1985) at the time suchdistribution is to be made. In summary, these profits are the Company'saccumulated realised profits less its accumulated realised losses. The adoptionof IFRS, particularly in the Company's case the change in accounting forpensions, has had a major impact on the amounts of such profits. At 30 June 2005 the Company had distributable profits under IFRS of £2.9m,significantly reduced from the £27.4m it had under UK GAAP as at 31 December2004. As the value of the Company's pension scheme assets changes on a daily basis, asdoes the valuation of its liabilities (as a consequence of changes to marketyields for high quality fixed rate corporate bonds), and with a low level ofdistributable profits at 31 December 2004, there is a possibility that profitsmay not be available for distribution at a particular point in time. Property Following representations to the Wycombe District Council during preparation ofits local development framework planning document, we have now submitted aformal planning application for development of commercial property on theCompany's 26 acre site at Saunderton and await the authority's response. Outlook The Tobacco Machinery division is progressively benefiting from the considerablerestructuring that has already taken place. Demand for spare parts and serviceremains at good levels and we expect an improvement in demand for rebuildmachinery from the low levels recently experienced. Overall, the progress seenin the first half should be maintained in the second half of the year. In the Packaging Machinery division, we expect the second half profitability tobe ahead of the first half, supported by current order books and in line withtrading patterns over the last few years. The division has experienced a delayin the expected placement of some quite large orders, which will adverselyimpact its ability to match last year's performance. The Scientific Services division is well placed to maintain its strongperformance, with order books at Cerulean ahead of six months ago. Prospects atArista Laboratories are less certain, with activity no greater than the sametime last year and margins under pressure. Peter ByromChairman2 September 2005 Consolidated income statement 6 months to 30 June 2005 6 months to 30 June 2004 Before Before reorganisation Reorganisation Total reorganisation Reorganisation Total Notes costs costs £m costs costs £m £m £m £m £mRevenue 3 60.0 - 60.0 57.7 - 57.7 Operating profit/ (loss) 3, 4,6 2.3 (2.0) 0.3 (0.1) (4.1) (4.2) Profit/(loss) onclosure of associate 5 - 0.5 0.5 - (1.8) (1.8) Profit/(loss)before financing costs 2.3 (1.5) 0.8 (0.1) (5.9) (6.0) Financial income 0.2 - 0.2 0.1 - 0.1Financial expenses (0.8) - (0.8) (0.6) - (0.6) Net financing costs (0.6) - (0.6) (0.5) - (0.5) Profit/(loss) before tax 1.7 (1.5) 0.2 (0.6) (5.9) (6.5) Taxation (0.8) 0.5 (0.3) (0.2) 0.3 0.1 Profit/(loss) for the 0.9 (1.0) (0.1) (0.8) (5.6) (6.4)period Basic earnings/(loss) per ordinary share 7 (0.3)p (35.4)p Diluted earnings/ (loss) perordinary share (0.3)p (35.4)p Consolidated income statement (continued) 12 months to 31 Dec 2004 Before reorganisation Reorganisation costs costs Total Notes £m £m £m Revenue 3 122.9 - 122.9 Operating profit/(loss) 3, 4, 6 2.3 (11.3) (9.0) Profit/(loss) on closureof associate 5 - (1.6) (1.6) Profit/(loss) beforefinancing costs 2.3 (12.9) (10.6) Financial income 0.3 - 0.3Financial expenses (1.5) - (1.5) Net financing costs (1.2) - (1.2) Profit/(loss) before tax 1.1 (12.9) (11.8) Taxation (0.7) 1.5 0.8 Profit/(loss) for the period 0.4 (11.4) (11.0) Basic earnings/(loss)per ordinary share 7 (61.1)p Diluted earnings/(loss)per ordinary share (61.1)p Consolidated balance sheet 30 June 30 June 31 Dec 2005 2004 2004 Note £m £m £mNon-current assetsIntangible assets 19.4 19.1 19.6Property, plant and equipment 29.0 30.0 29.7Trade and other receivables 0.9 1.7 1.0Employee benefits 8 1.5 2.8 1.4Deferred tax assets 6.0 7.5 6.8 56.8 61.1 58.5 Current assetsInventories 30.9 40.0 35.2Trade and other receivables 23.9 28.1 25.5Taxation receivable 1.2 0.4 1.9Cash and cash equivalents 4.8 5.4 5.1 60.8 73.9 67.7Current liabilitiesBank overdraft (1.5) (1.0) (0.9)Interest-bearing loans and borrowings (6.0) (2.0) (0.8)Trade and other payables (29.4) (37.5) (32.4)Taxation payable (1.1) (0.6) (0.9)Provisions (4.0) (2.0) (5.4) (42.0) (43.1) (40.4) Net current assets 18.8 30.8 27.3 Total assets less current liabilities 75.6 91.9 85.8 Non-current liabilitiesInterest-bearing loans and borrowings (18.9) (30.1) (29.4)Trade and other payables (0.1) - -Employee benefits 8 (20.4) (24.6) (22.6)Deferred tax liabilities (4.3) (4.7) (4.6) (43.7) (59.4) (56.6) Net assets 31.9 32.5 29.2 Capital and reservesIssued capital 5.0 5.0 5.0Share premium 26.0 25.9 25.9Reserves 1.8 0.1 (0.1)Retained earnings (0.9) 1.5 (1.6) Shareholders' funds 31.9 32.5 29.2 Consolidated statement of cash flows 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 Note £m £m £mCash flows from operating activities Loss for the period (0.1) (6.4) (11.0) Amortisation 0.5 0.4 0.8Depreciation 1.4 1.4 2.9 Interest income (0.2) (0.1) (0.3)Interest expense 0.8 0.6 1.5 (Profit)/loss on closure of associate (0.5) 1.8 1.6Equity-settled share-based transactions (LTIP) 0.1 0.1 0.1 Taxation expense/(credit) 0.3 (0.1) (0.8)Other movements - - (0.1) Working capital movements:- Decrease/(increase) in inventories 4.4 (2.2) 3.4- Decrease in trade and other receivables 2.0 10.2 13.8- Decrease in trade and other payables (3.0) (6.7) (12.3)- (Decrease)/increase in provisions and employee benefits (1.6) 0.5 4.6 Cash generated from operations 4.1 (0.5) 4.2 Taxation received/(paid) 0.4 (0.6) (0.8) Net cash from operating activities 4.5 (1.1) 3.4 Cash flows from investing activities Proceeds from sale of plant and equipment 0.1 0.2 0.4Net proceeds from closure of associate 0.5 - 0.2 Interest received 0.3 0.2 0.4Interest paid (0.7) (0.7) (1.6) Acquisition of property, plant and equipment (0.6) (2.5) (3.8)Development expenditure (0.4) (0.5) (1.2) Net cash from investing activities (0.8) (3.3) (5.6) Cash flows from financing activities Issue of new shares 0.1 - -(Decrease)/increase in borrowings (4.6) 5.5 2.9Dividends paid - (1.4) (1.4) Net cash from financing activities (4.5) 4.1 1.5 Net decrease in cash and cash equivalents 9 (0.8) (0.3) (0.7)Cash and cash equivalents at 1 January 4.2 4.9 4.9Effect of exchange rate fluctuations on cash held (0.1) (0.2) - Cash and cash equivalents at period end 3.3 4.4 4.2 Consolidated statement of recognised income and expense 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 £m £m £mCurrency translation movements arising on foreigncurrency net investments 1.4 (0.8) (1.0)Actuarial gains 1.2 1.0 2.5 Net income recognised directly in equity 2.6 0.2 1.5 Loss for the period (0.1) (6.4) (11.0) Total recognised income and expense for the period 2.5 (6.2) (9.5) Reconciliation of movements in shareholders' funds 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 Note £m £m £mAt 1 January (as previously reported under UK GAAP) 51.5 64.0 64.0Adjustments on adoption of IFRS from 1 January 2004 11 (22.3) (24.1) (24.1) At 1 January (as restated) 29.2 39.9 39.9 Loss for the period (0.1) (6.4) (11.0)Currency translation movements arising on foreigncurrency net investments 1.4 (0.8) (1.0)Issue of new shares 0.1 - -Actuarial gains 1.2 1.0 2.5Own shares (LTIP) 0.5 0.1 0.1Equity-settled share-based transactions (LTIP) (0.4) 0.1 0.1Dividends to shareholders - (1.4) (1.4) Net increase/(decrease) in shareholders' funds 2.7 (7.4) (10.7) Closing shareholders' funds 31.9 32.5 29.2 Notes to interim announcement 1. The Company has adopted International Financial Reporting Standards(IFRS) for its 2005 reporting as required by European Union regulations and allinformation in this report has been prepared on this basis. The interimfinancial statements have been prepared in accordance with accounting policiesthat the Group expects to follow at the year end. The financial information contained in this report has been prepared inaccordance with IFRS standards as adopted by the EU at 30 June 2005 or asexpected to be adopted by the EU at 31 December 2005. It has been assumed thatthe IASB's amendment to IAS 19 Employee benefits: Actuarial gains and losses,Group plans and disclosures will be adopted by the EU in sufficient time for usein the financial statements for the year ending 31 December 2005. The adoptedIFRSs that will be effective (or available for early adoption) in the annualfinancial statements for the year ending 31 December 2005 are still subject tochange and to additional interpretation and therefore cannot be determined withcertainty. On 30 June 2005 the Company published a report which included a set of restatedIFRS compliant 2004 financial statements (excluding notes), together with arestatement of the Group's accounting policies under IFRS. The report alsoincluded an analysis of the impact of adopting IFRS from 1 January 2004 on theincome statements for the periods ending and balance sheets at 30 June 2004 and31 December 2004. 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. 2. The financial statements for the half year ended June 2005 have notbeen audited, although the auditor has carried out an independent review. Thecomparative figures for 2004 have been amended for IFRS, but were originallyprepared under UK GAAP and the results for the full year 2004 have been takenfrom the Group's full accounts for that year, which included an unqualifiedaudit report, and have been filed with the Registrar of Companies. Therestatements of the Group's results to IFRS are unaudited, but the auditor hasagreed the principles that have been adopted by the Group. 3. Segmental analysis Revenue Operating profit/(loss) 6 months 6 months 12 months 6 months 6 months 12 months to 30 June to 30 June to 31 Dec to 30 June to 30 June to 31 Dec 2005 2004 2004 2005 2004 2004 £m £m £m £m £m £mBy activity: Tobacco Machinery - trading 31.0 30.5 61.8 0.7 (1.0) (2.0) - property rental income - - - 0.1 - 0.1 31.0 30.5 61.8 0.8 (1.0) (1.9)Tobacco Machinery 20.8 21.1 45.8 0.3 0.7 2.4Packaging Machinery 8.2 6.1 15.3 1.2 0.2 1.8Scientific Services 60.0 57.7 122.9 Operating profit/(loss) before reorganisationcosts 2.3 (0.1) 2.3Reorganisation costs (before profit/(loss) on closure of associate) (2.0) (4.1) (11.3) Operating profit/(loss) 0.3 (4.2) (9.0) 4. The reorganisation costs (before profit/(loss) on closure of associate)relate to the restructuring of the Tobacco Machinery division and compriseredundancy and other restructuring costs. 5. The profit/(loss) on closure of associate relates to the net write offof the investment in 2004 and receipt of loan/capital repayments in 2005,following the closure of the Kunming Molins joint venture company in China. 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 30 June 2005. The net pension cost for the 6 months to30 June 2005 was £0.4m (curtailment costs of £0.5m less £0.1m net credit) and£0.1m for the 6 months to 30 June 2004 (curtailment costs). 7. Earnings/(loss) per ordinary share is based upon profit/(loss) aftertaxation and on a weighted average of 18,319,586 shares in issue during theperiod (30 June 2004: 18,011,767). Underlying earnings/(loss) per ordinaryshare, which is calculated before the charge for reorganisation costs (net ofthe taxation impact), was 4.9p for the 6 months to 30 June 2005 (6 months to 30June 2004: loss (4.7)p; 12 months to 31 December 2004: 2.3p). 8. Employee benefits include the net pension surplus of the US definedbenefit pension scheme of £1.5m (31 December 2004: £1.4m) and the net pensionliability of the UK defined benefit pension scheme of £18.3m (31 December 2004:£19.7m), all figures before deferred tax. 9. Reconciliation of net cash flow to movement in net debt 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 £m £m £mDecrease in cash and cash equivalents (0.8) (0.3) (0.7)Cash inflow/(outflow) from movement in borrowings 4.6 (5.5) (2.9) Change in net debt resulting from cash flows 3.8 (5.8) (3.6)Translation movements 0.6 0.5 - Movement in net debt in the period 4.4 (5.3) (3.6)Opening net debt (26.0) (22.4) (22.4) Closing net debt (21.6) (27.7) (26.0) Cash and cash equivalents - current assets 4.8 5.4 5.1Bank overdraft - current liabilities (1.5) (1.0) (0.9)Interest-bearing loans and borrowings - current liabilities (6.0) (2.0) (0.8)Interest-bearing loans and borrowings - non-current (18.9) (30.1) (29.4)liabilities (21.6) (27.7) (26.0)Closing net debt 10. Reorganisation cash flows 6 months 6 months 12 months to 30 June to 30 June to 31 Dec 2005 2004 2004 £m £m £mNet cash flows from reorganisation costsTobacco Machinery division restructuring (2.4) (0.9) (3.5)Closure of associate 0.5 - 0.2 (1.9) (0.9) (3.3)Other net cash flows 5.7 (4.9) (0.3) Change in net debt resulting from cash flows 3.8 (5.8) (3.6) 11. On adoption of IFRS, the book value of the Group's shareholders' fundsdeclined. The following table explains the movement of £22.3m as at 31 December2004. £mPension liability - IAS 19 revised, Employee benefits, requires any surplus or deficit in the fair 29.8value of the Group's pension schemes assets over their liabilities to be recognised in the balancesheet. 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 over (0.3)the period in which employee services are rendered and that any long-term liabilities are measuredat 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. ___ Decrease/(increase) in shareholders' funds 22.3 12. The average US dollar exchange rate for the period to 30 June 2005 wasUS$1.88 (30 June 2004: US$1.82) and the rate at 30 June 2005 was US$1.79 (30June 2004: US$1.81). The rate at 31 December 2004 was US$1.92. The averageeuro exchange rate for the period to 30 June 2005 was €1.46 (30 June 2004:€1.48) and the rate at 30 June 2005 was €1.48 (30 June 2004: €1.49). The rateat 31 December 2004 was €1.41. This information is provided by RNS The company news service from the London Stock Exchange