Mpac Group Plc Regulatory News (MPAC)

2 Mar 2007 07:30

Molins PLC02 March 2007 2 March 2007 FOR IMMEDIATE RELEASE 2006 PRELIMINARY ANNOUNCEMENT Molins PLC, the international specialist engineering company, announces itsresults for the year ended 31 December 2006. 2005 2006 (restated)#Sales £88.6m £89.3mUnderlying operating profit* £7.6m £7.0mReorganisation costs £(2.6)m £(2.3)mProfit before tax - continuing operations £5.4m £5.1mLoss from discontinued operations £(12.2)m £(8.3)mLoss for the period £(8.5)m £(4.0)m Underlying earnings per share* 24.2p 27.0pBasic loss per share (45.6)p (21.9)pDividend per share 4.0p - Cash generated from operations before reorganisation - continuingoperations £13.5m £15.4mNet debt £12.3m £19.0m * Continuing operations before net pension credit (£1.5m; 2005: £0.9m) andreorganisation costs (£2.6m; 2005: £2.3m) # Restated to exclude discontinued operations where appropriate • Another year of strong cash flow • Increase in underlying operating profit • Disposal of two loss-making businesses in year • Group order book for current year delivery up 25% • Return to dividend payments after 3 years Peter Byrom, Chairman, commented: "The year was characterised by a number of significant actions, which havehelped to position the Group more favourably for its future development. Theseinclude the sales of two loss-making businesses, as well as furtherrestructuring of the Tobacco Machinery division. "The Scientific Services division entered 2007 with a lower order book than in2006. Cerulean's order intake continues to be subdued and we expect theScientific Services division to see a decline in first half sales and profitcompared to 2006, with the prospect of some recovery in the second half.Tobacco Machinery has restructured to improve its efficiency and to reflect thecurrent activity levels in the division, the benefits from which we expect tosee through the year. The Packaging Machinery division started 2007 with a muchimproved order book compared with the same time last year and is well placed toprogress as a result." 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 year was characterised by a number of significant actions, which have helpedto position the Group more favourably for its future development. These includethe sales of two loss-making businesses, as well as further restructuring of theTobacco Machinery division. Group sales for continuing operations were at similar levels to the previousyear at £88.6m (2005: £89.3m) and underlying operating profit (continuingoperations before net pension credit and reorganisation costs) was £7.6m,compared with £7.0m. After interest costs, which were similar to those in 2005,and taxation, which returned to a more normal level following a particularly loweffective rate in 2005, underlying earnings per share amounted to 24.2p (2005:27.0p). The Group experienced another particularly strong year in cash flow, with £13.5mgenerated from operating activities of the continuing businesses (beforereorganisation payments). After other cash movements, including those relatingto capital expenditure, product development, interest, tax, sale of businessesand reorganisation, net debt reduced by £6.7m in the year to £12.3m. Operations Order intake for the continuing businesses rose by 7%, with a significantincrease in the Packaging Machinery division more than offsetting a decline inthe Tobacco Machinery division and slightly lower orders in Scientific Services.The Group's opening order book for current year delivery was 25% higher thanthe comparable position in 2006. Following the sale of Sandiacre Rose Forgrove, the Packaging Machinery divisionis focused on an engineering-led solutions-based strategy, through thedevelopment of its own core products and project integration skills, togetherwith alliances with other machinery suppliers. The continuing businessesdelivered sales of £33.9m, up from £29.8m in 2005, with an improvement inoperating profit to £2.5m (2005: £2.0m). All of the packaging machinerybusinesses are well placed to progress in 2007, with the efficient delivery ofthe substantial order book being the key challenge. Tobacco Machinery, excluding Sasib, reported sales of £36.2m, compared with£41.6m in the previous year. However, order intake for spare parts, whichaccount for the largest part of the division's business, were at similar levelsto the previous year. The division continued with its reorganisation,transferring all of the remaining production of parts and manufacture, andsubstantially all of the assembly of original equipment and rebuilds, to thedivision's Czech factory, as well as to the Brazilian factory and other parts ofthe supply chain. This process will be completed in the first few months of2007. Additionally the infrastructure costs at Saunderton are being reduced,the benefits of which will be delivered progressively through 2007. Operating profit of the Tobacco Machinery division, before reorganisation costsand excluding Sasib, was lower at £1.9m (2005: £2.4m). As expected, second halfprofitability was higher than in the previous year, reflecting further costreductions and efficiency improvements. The division is undertaking a number ofbusiness and product development initiatives which are expected to providefuture growth opportunities. Scientific Services delivered a strong performance, with sales of £18.5m (2005:£17.9m) and operating profit of £3.2m (2005: £2.6m). However, Ceruleanexperienced a significant softening in demand in the second half of the year andthis has continued into 2007. Arista Laboratories continues to develop throughthe delivery of new service offerings and expansion of its customer base. Sales of Businesses and Reorganisation Sasib S.p.A. had been substantially loss-making since Molins acquired thetobacco machinery business in 2003. The decision to sell or close the businesswas announced in May 2006 and subsequently Sasib was sold to an Italianengineering business, Paritel S.p.A., on 28 July 2006. The impact of the saleon the Group financial statements was to report a special charge of £8.6m, whichcomprised cash costs of £3.4m, with the balance being the write-off of the netassets of Sasib. Aggregated with Sasib's trading loss of £1.5m, this resultedin a total charge of £10.1m. Sandiacre Rose Forgrove ("SRF") operates in a very competitive sector of thepackaging machinery market, with differing characteristics to those in which theother packaging machinery businesses operate. Margins were insufficient tosupport its future development. On 28 November 2006 we announced that acontract had been signed for the sale of the business to Hayssen, owned byBarry-Wehmiller Companies Inc., and it was completed on 18 December 2006 for£2.9m in cash. This resulted in a charge after tax of £2.1m in the Group'sfinancial statements in respect of discontinued operations, after taking intoaccount SRF's operating loss. The cost of the reorganisation of the Tobacco Machinery division, mainly atSaunderton, was £1.9m after tax. Property Following the rejection of a first planning application for the development ofcommercial property on the 26 acre site at Saunderton in 2005, a secondapplication was made in August 2006, addressing the issues raised by WycombeDistrict Council from the first application. At the date of this report theCouncil had yet to determine this application, despite the passing of thedeadline for a response set in the statutory timetable. We are assessing ouroptions in respect of the development of the site. When the SRF business was sold the Group retained the property in Nottinghamfrom which it operates. A short-term lease is in place with the new owners ofthe business. The property is being marketed and has an estimated value inexcess of £4m and a book value of £1.8m. Dividend The Board recognises the importance of dividends to shareholders and believesthat following the disposals and reorganisation effected in 2006, improving thestability of the Group's trading position and the reduction in the Group'sindebtedness over the last two years, it is appropriate to make payment of adividend after a gap of some three years. The Board has therefore todayannounced the payment of an interim dividend of 4p per ordinary share, in lieuof a final dividend, in respect of 2006. This dividend will be paid on 30 March2007 to those shareholders on the register on 16 March 2007. Outlook The Scientific Services division entered 2007 with a lower order book than in2006. Cerulean's order intake continues to be subdued and we expect theScientific Services division to see a decline in first half sales and profitcompared to 2006, with the prospect of some recovery in the second half. Tobacco Machinery has restructured to improve its efficiency and to reflect thecurrent activity levels in the division, the benefit from which we expect to seethrough the year. The Packaging Machinery division started 2007 with a much improved order bookcompared with the same time last year and is well placed to progress as aresult. Peter ByromChairman2 March 2007 OPERATING REVIEW PACKAGING MACHINERY The Molins Packaging Machinery division, excluding Sandiacre Rose Forgrove whichwas sold during the year, delivered sales of £33.9m in 2006, compared with£29.8m in the previous year. Operating profit increased to £2.5m (2005: £2.0m).The division entered 2007 with an order book at twice the value of twelvemonths previously. Market conditions were generally more favourable than in the prior year,especially in Europe. However, competitive pressures on all customers remainintense, particularly in the food sector, leading them to maintain tight controlover their investments and to extend decision cycles. Customers typically invest in enhanced packaging capabilities for two reasons;cost reduction and packaging innovation to differentiate products from thecompetition. To meet these two typically conflicting requirements, the divisioncontinues to pursue its strategy of supplying engineered solutions to meet thecustomers' need for high performance and product differentiation. This isachieved by delivering those solutions off a platform of standardised machinesand modules to reduce the costs and risks typically associated with customengineering. This strategy builds on the division's skills and capabilities indelivering complex projects, where there is greater potential for growth ascustomers continue to out-source their engineering requirements and the scopefor differentiation is also greater. A further part of the division's strategy,as repeated across the Group, is the focus on service. This extends from theresponsiveness of technical and commercial support to all other aspects ofaftermarket service. The benefits of this approach were seen in the strong order intake for thedivision last year, which increased by 50% compared with the prior year. Towards the end of the year, Sandiacre Rose Forgrove, the form fill and sealbagging and wrapping machine manufacturer, was sold. This business hadunderperformed over the previous three years and had a different market positionand strategic direction to the rest of the businesses in the division. ITCM, based in Coventry, UK, develops innovative solutions and associatedproduction and packaging machinery for its customers. It had another successfulyear, continuing to serve its established customers as well as developing newrelationships. As in the prior year, pharmaceutical customers represented thelargest proportion of business, although there were also a number of significantcommercially confidential developments for various FMCG customers. ITCM's capabilities are based on the combination of the skills of theengineering and assembly teams which together deliver the solutions in prototypeform and subsequently as fully production-approved machinery. This gives thebusiness a highly differentiated service offering. The excellence of thisdistinct offering was recognised during the year when it was presented with thePPMA (Process & Packaging Machinery Association) Customer Service award. There has been continued investment in the skills and infrastructure of thisbusiness. One significant development in the year was the formation of theSystem Simulation and Integration group (ITCM SSI) in Atlanta, Georgia. Thissmall group provides a first physical presence for ITCM in North America andalso marks an expansion of its services. ITCM SSI is responding to the growingdemand from customers for out-sourced engineering services to improve the outputand efficiency of their capital assets. It specialises in system analysis andsolution development and implementation, which it does most notably through theuse of custom modelling tools and simulation software. Following ITCM's growthover the last few years the UK based business has become space constrained andis building an extension to its production facility which will increaseavailable space by 50%. Langen and Langenpac, based respectively in Mississauga, Canada and Wijchen, theNetherlands, serve the markets for highly automated product handling, cartoningand end-of-line machinery in North America and Europe respectively. They supplystandard machines and infeeds, custom engineered solutions and complete turnkeyinstallations. Both businesses experienced strong order growth in 2006, most notably from theplacement of a number of large integration projects. These typically combineall the strengths of the businesses, including the ability to design the linesand then project manage their execution, using a significant proportion of thebusinesses' own standard equipment together with equipment from establishedmachinery partners. An important element of successful project delivery is theability to customise the machinery, most typically the infeeds and the linksbetween machines, to give high-speed and robust performance. Langen andLangenpac's strengths continue to be the ability to deliver flexible andinnovative packaging configurations for their customers. A key element in the development of these businesses has been the continuedinvestment in product lines and the market's positive response to the newproducts. The Chinook cartoner range has been extended by the addition of twonew machines, the Vento and the Breeze. These are derived from the Chinook'sproven technology but have been value-engineered to combine high performance andfunctionality capable of satisfying the majority of applications and at acompetitive price point. Over 20 of these new variants were sold in the year.The Chinook has continued to attract customers looking for applicationsrequiring greater speed, product size and/or packaging complexity, as well asfor full wash-down applications. The robotic based product line for automated infeeds and material handling,launched by Langen in 2005, was developed further in 2006 and now includes cellsfor top-load carton packing, case packing and palletising. Langen is now one ofthe leading suppliers of Fanuc robotic solutions for packaging. Langenpac has grown considerably over the last few years, and, like ITCM, hasbecome space constrained. The planned move into newly built leased premises,close to its current location, will increase available space by 50%. The siteis scheduled to be ready for occupation in the second half of 2007 and will helpthe business to increase its operational effectiveness. The operational and financial performance of Langen and Langenpac was mixed inthe year. Profitability in 2006 was compromised on a number of the largerprojects by operational issues. However, order intake was high and bothbusinesses started 2007 with strong order books. The businesses will befocusing this year on growing their capacity and further enhancing therobustness of project delivery within anticipated targets. This is a criticalrequirement for the successful execution of the division's engineering-ledsolutions-based strategy. Cerulean Packing, supplying tube packing machinery from its base in MiltonKeynes, UK, had a modest year in terms of order intake, but had the benefit of agood opening order book. The business is extending its product range with thenew FPS150 machine aimed at the growing volume of tube production in lower costeconomies. Summary The division closed the year with an order book considerably up on the prioryear. With this position and further order prospects, and with continuedinvestment in the improvement of product lines, service capability and costeffectiveness, we expect an improved performance in 2007. We continue toevaluate new alliance and acquisition opportunities. TOBACCO MACHINERY Molins Tobacco Machinery division (MTM) continued its restructuring during theyear, which included the disposal of its Italian subsidiary, Sasib. Despite abackground of reduced order intake for original equipment and rebuild machinery,the division returned much improved profits in the second half of the year,reflecting the reduction in the cost base of the division. 2006 sales, excluding Sasib, were £36.2m (2005: £41.6m) and operating profitbefore reorganisation costs was £1.9m (2005: £2.4m). The business comprises operations in the UK, Czech Republic, Singapore, SouthAmerica and the USA, which, together with service engineers based in othercountries, provides the ability to service efficiently the markets in all partsof the world. Restructuring MTM commenced a comprehensive restructuring of its business in 2004, whichcontinued in 2006, culminating in the transfer of substantially allmanufacturing activities from the division's UK Saunderton site. The majorityof the activities have been transferred to the division's factory in the CzechRepublic, with some work allocated to the Brazil facility and further use madeof the wider supply chain. The Saunderton facility is now focused on sales,engineering support and service, logistics, warehousing and distribution. Asmall assembly capability for particular specialist work has been retained. Thecost of this restructuring in 2006 was £1.9m after tax and this phase isexpected to be completed in the first few months of 2007. Sasib, which was substantially loss making in 2004 and 2005 and had experienceda prolonged period of weak and irregular order intake, was sold during the year.It has maintained its trading relationships with MTM by way of the facilitiesin Singapore, the USA and Brazil acting as distributors for Sasib spare parts.The net cash cost of the disposal was £3.4m, with a further loss incurred of£5.2m in respect of the write down of related net assets. Trading The aftermarket remains the principal focus for the division and the business iscommitted to supplying customers with quality spare parts, upgrade andperformance enhancing kits and other services. Order intake for spare parts and service, the largest part of the division'sbusiness, remained at similar levels to the previous year, with significantattention being paid to the improvement in lead times to the customer. However,sales of spare parts were lower, reflecting the timing of certain orders, aswere sales of upgrade and enhancement kits. Order intake for original equipmentand rebuild machinery was also down on the previous year, leading to an overallreduction in order intake across the division of 20%. The impact of ongoingconsolidation within the cigarette making industry continues to have an impacton business levels. The EMEA regional sales team is based in the UK and services this widegeographical area through a combination of sales managers, engineers andindustry-specific agents. Demand for rebuild equipment was weak as cigarettemanufacturers continue to reduce manufacturing capacity within Europe, althoughelsewhere in the region strong spares and service order intake was achieved. Market conditions continue to be challenging in North America. Levels ofcapital investment within the tobacco industry remain low in the segment inwhich we operate. Against this market background, Molins Richmond performedwell during the year and secured a large order for the Pegasus 3000 filterdistribution product. Molins Far East, based in Singapore, services the Asian markets. Order intakeand sales were slightly lower than in 2005 due to a reduced level of demand fromChinese customers. The continued reorganisation of the cigarette manufacturingindustry in China impacts the level of demand for spare parts and otherservices. Molins Far East has successfully developed a number of new productswith suppliers based in the region and these products are being marketed throughall of the division's sales and service organisations. Molins do Brasil supplies original equipment, rebuild machinery, spare parts andservices to the cigarette manufacturers based in South and Central America. Thebusiness has a strong market position and reputation within the region andenjoys 'partnership' status with a number of customers. Demand for rebuildmaking equipment was strong during the year, as customers continued to increaseand upgrade their production capacity. The manufacturing operation in Plzen, Czech Republic, which supplies thedivision with manufactured parts and assembled machines, has continued to growstrongly. The business has expanded with the responsibility for the manufactureof additional machine types moving from the UK to Plzen during the year. As part of its development plans, MTM has formed an alliance with a Europeansupplier of spare parts for non-Molins tobacco machinery. Molins Richmond isutilising its distribution network in North America to sell to that sector ofthe market. The prime focus of product development in 2006 was the launch of aprogramme to upgrade the division's MK9 cigarette making machine from 6,000 to8,000 cigarettes per minute. This will enable the division to enter a segmentof the market which has good demand prospects. The development programme isexpected to be concluded in 2007. In addition, the UK and Brazilian based engineering teams continue to focus onthe development of upgrade and enhancement kits for the large Molins machinebase installed in cigarette factories world-wide. The UK engineering teamcompleted the design of a filter assembly machine that links with the MK9cigarette making machine. The first machine was despatched in August 2006 andthere are good prospects for further sales in 2007. Summary The division made considerable progress in 2006, with further reorganisationleading to a more efficient and cost effective organisation. Market conditions though remain uncertain, with significant changes to theindustry taking place throughout the world. However, Molins remains a keysupplier to many customers world-wide and the division is undertaking severalbusiness development initiatives which should provide opportunities for growth. SCIENTIFIC SERVICES The Scientific Services division, which comprises Cerulean and AristaLaboratories, performed to expectations in 2006. Sales increased to £18.5m from£17.9m in the previous year and operating profit improved to £3.2m (2005:£2.6m). 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 thirteen sales and serviceoffices located in the major economic and industrial centres. The market for Cerulean's products is both relatively mature and cyclical and isalso constrained by site rationalisation amongst its customer base. Thebusiness experienced a downturn in orders, particularly in the second half ofthe year. Cerulean's strategy is to drive sales through continuous productinnovation, which also helps to set it apart from its competitors in theindustry. In 2006 the business continued to invest in its product lines andproduct development capabilities and it maintains a strong pipeline of on-goingdevelopments. The innovative nature of Cerulean's new products and the highly regulated natureof the industry has meant that some of these products require a longer time tobe accepted than previously anticipated, before scale roll-out in the industry.This has been particularly true of the new C(2) range of instruments, which havebeen progressively modified and enhanced. Cerulean has been working with itscustomers to ensure that the range of instruments meets the extensive array ofrequirements and preferences. Customer trials have continued, with a limitednumber of shipments being made in 2006. Further sales growth is expected asthese trials reach conclusion and as the complete range of variants becomeavailable for at-line testing and laboratory analysis. Whilst sales of C(2)were lower than anticipated, sales of Cerulean's market-leading QTM range ofquality control instruments more than offset this reduction. Cerulean's second strategic response to the cyclical nature of the business hasbeen a move to provide more engineered solutions. The business has successfullywon, with its partner, ATS of Canada, the first large order for closed-loopcontrol systems. This system will take filters from the making line, analysetheir physical characteristics across a range of measurements and immediatelyfeedback performance optimising changes to the making machine's control system,all without operator intervention. One of Cerulean's considerable strengths is its network of global sales andservice offices, with skilled employees based around the world, providing roundthe clock support to its customers. The outlook for Cerulean in 2007, though, is mixed. Order intake has beendisappointing over the last few months and the opening order book issignificantly lower than it was at the start of 2006. The sales growthanticipated from its new products has yet to offset this reduction. 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. Arista performed well during the year. It secured a number of long-term qualityassurance and product validation contracts, which provide a base-load ofactivity. The toxicological testing service has continued to grow and furtherexpansion has come from the newly regulated tests for ignition propensity.Arista was also awarded several research contracts in the year. The businesscontinues to extend its capabilities and to invest in additional instrumentationto enable it to pursue growth opportunities in all of these areas. The core market for Arista's services of quality assurance and productvalidation is relatively stable. It has secured a good position in this marketand is working to increase its market share, in particular with the addition ofnew services. However, the overall growth of the business is significantlyinfluenced by success in the contract research market, which was a source ofgood profitability in 2006. Arista is expected to continue to perform well in2007. Summary In 2006, the division benefited from a strong order book carried forward fromthe very high level of market demand experienced by Cerulean in 2005. Thisyear, the order book is much reduced. Overall, in 2007 we expect the divisionto see a decline in first half sales and profit compared to 2006, with thepossibility of some recovery in the second half. FINANCIAL REVIEW The Group underlying operating profit (continuing operations before net pensioncredit and reorganisation costs) in 2006 was £7.6m, an increase of 9% over theprevious year on similar sales. Additionally, the Group benefited from a netpension credit of £1.5m (2005: £0.9m) and incurred £2.6m (2005: £2.3m) ofreorganisation costs within the Tobacco Machinery division, before tax credits.Two businesses, Sasib S.p.A. and Sandiacre Rose Forgrove were sold during theyear and have been reported as discontinued operations. A total charge inrespect of these businesses of £12.2m (2005: £8.3m) was incurred, comprisingtrading losses and losses on disposal, and in 2005 impairment of purchasedgoodwill and reorganisation costs. Underlying earnings per share amounted to24.2p (2005: 27.0p), the reduction reflecting a return to more normal levels oftax. The basic loss per share was 45.6p (2005: 21.9p). Operating results The trading performance of the Group is discussed in the Operating review. Group revenue was £88.6m for continuing businesses, compared with £89.3m in2005. Packaging Machinery division sales increased to £33.9m (2005: £29.8m),with the division's operating profit increasing to £2.5m (2005: £2.0m). TobaccoMachinery division sales reduced to £36.2m (2005: £41.6m) and operating profitwas £1.9m (2005: £2.4m). Scientific Services sales increased to £18.5m (2005:£17.9m) and operating profit increased to £3.2m (2005: £2.6m). Reorganisation costs The Tobacco Machinery division undertook further reorganisation during the year,principally the transfer of all manufacturing and substantially all assemblyoperations from the Saunderton site primarily to the Molins factory in Plzen,Czech Republic, with some activities going to the factory in Brazil and otherparts of the supply chain. The reorganisation charge of £2.6m, before a taxcredit of £0.7m, comprises UK redundancy costs (including related pension costs)of £1.8m, transfer and site reorganisation costs of £0.7m and other divisionalrestructuring costs of £0.1m. Payments of £1.4m were made in the year inrespect of reorganisation. Interest and taxation Net interest expense in 2006 was £1.1m (2005: £1.0m). The taxation charge inrespect of continuing operations was £1.7m (2005: £0.8m), comprising a charge of£2.4m in respect of profit before reorganisation costs (2005: £1.3m) and a netcredit of £0.7m in respect of reorganisation costs (2005: £0.5m). The effectivetax rate for continuing operations returned to a more normal level in the yearof 31%, compared with 16% in 2005 which benefited from a number of non-recurringcredits. Disposals The Group sold Sasib S.p.A., the loss-making tobacco machinery manufacturer, on28 July 2006 to an Italian engineering business for a nominal consideration.The total cash cost to the Group of the transaction was £3.4m. Together withthe write-down of net assets and inventory provisions for Sasib related stockretained within the Group, the loss on disposal was £8.6m. Sasib incurred atrading loss of £1.5m in the period to the end of May 2006, the time at whichthe decision to sell or close the business was made, resulting in a reportedloss of £10.1m for this discontinued operation. On 18 December 2006 the Group sold the trading assets and business of SandiacreRose Forgrove to Hayssen Europe Ltd and Hayssen Inc., subsidiaries ofBarry-Wehmiller Companies Inc., for £2.9m. The loss on disposal amounted to£1.0m after tax which, together with its trading loss for the year and anactuarial benefit to the UK pension fund that arises as a consequence of thetransaction, resulted in a reported loss of £2.1m in respect of thisdiscontinued operation. The Nottingham site, from which Sandiacre Rose Forgrove operates, has beenretained by the Group and leased to the new owners under a three year agreement.The building is being marketed for sale with an expectation that it will besold in 2007 and so has been disclosed within the Group balance sheet as 'assetsclassified as held for sale'. The site has an estimated market value in excessof £4m before tax and is held in the balance sheet at a book value of £1.8m. Earnings per share Underlying earnings per share (continuing operations before net pension creditand reorganisation costs) amounted to 24.2p (2005: 27.0p), the decreasereflecting the expected return to a more normal rate of taxation in 2006, from alow level in 2005. Basic earnings per share for continuing operations amountedto 20.2p (2005: 23.4p). Basic loss per share and diluted loss per share were45.6p (2005: 21.9p). Dividends The Board has decided to pay an interim dividend (in lieu of final) of 4p perordinary share. The dividend will be paid on 30 March 2007 to shareholders onthe register on 16 March 2007. Cash, treasury and funding activities Group net debt reduced to £12.3m at the year end (2005: £19.0m). Net cashinflow from operating activities from continuing businesses, beforereorganisation costs, was £13.5m (2005: £15.4m), which benefited from areduction in working capital of £3.6m including deposits received on accountbeing higher by £2.8m. Net tax payments of £1.0m (2005: £0.7m receipts) and netinterest payments of £1.1m (2005: £1.0m) were made in the year. Investments inproperty, plant and equipment were £1.4m (2005: £1.3m) and product developmentexpenditure was £1.9m (2005: £1.4m). The Group sold property, plant andequipment in the year which yielded cash receipts of £1.3m (2005: £0.3m). Thenet cash outflow in respect of the discontinued businesses was £2.7m (2005:£4.0m). 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 remained unchanged. The Group does nottrade in financial instruments and enters into derivatives (principally forwardforeign exchange contracts) solely for the purpose of minimising currencyexposures on sales or purchases in other than the functional currencies of itsvarious operations. The Group maintains bank facilities appropriate to its expected needs. Thesecomprise secured, committed borrowing facilities with its two principal UKbankers, which reduced to £23.1m at 31 December 2006 (2005: £26.0m), followingthe sale of Sandiacre Rose Forgrove and the planned partial repayment of some ofthe bank loans. The facilities will reduce by a further £4.3m in 2007 in linewith the loan repayment schedule. The balance of the commitment expires on 31July 2008. The committed facilities, which are subject to covenants covering earnings andcash flow levels, are both sterling and multi-currency denominated.Additionally, the Group maintains committed facilities from overseas banks of£5.6m, denominated in US dollars and Euros. Short-term overdrafts andborrowings are utilised around the Group to meet local cash requirements. Theseare typically denominated in local currencies. Foreign currency borrowings areused to hedge investments in overseas subsidiaries where appropriate. Pension valuations The Group's main defined benefit scheme is in the UK. Changes were made to thebenefit structure of this scheme in 2006, principally moving the pension accruallink from final salary to career average for future entitlements, therebyreducing the uncertainty of the cost to the fund in respect of the benefit.Also, employee contribution rates were increased from 5% of earnings to 6.5%until 30 June 2007 and 8% thereafter. An actuarial valuation of the fund isbeing carried out as at 30 June 2006, which has yet to be completed. It isexpected that the valuation will show a surplus on an ongoing basis, as it didat the time of the last triennial valuation, despite a change in mortalityassumptions which has increased the liabilities of the fund by approximately£20m, as other scheme experience has been largely positive. On a discontinuedbasis the fund would show a large deficit. The required funding levels for thethree year period to 30 June 2009 have yet to be agreed between the fund'strustee and the Company, although the Company commenced contributions into thefund from 1 July 2006, for the first time in many years, at a rate a little inexcess of that anticipated as the on-going rate for benefit accruals. The Group adopted IAS 19 (revised) Employee benefits in 2005 as its basis ofaccounting for pension costs. The 2006 valuation of the UK fund's assets andliabilities has been undertaken as at 31 December 2006 based on detailedvaluation work carried out as at 30 June 2006, updated to reflect changesexisting at the year end. The significantly smaller US defined benefit schemeswere valued at 31 December 2006, using actuarial data as of 1 January 2006,updated for conditions existing at the year end. 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 Group's defined benefit schemes in 2006for continuing operations was £1.5m (2005: £0.9m). Additionally the Groupincurred pension related costs in respect of the reorganisation at Saunderton of£0.9m, less a net pension credit arising from the discontinued Sandiacre RoseForgrove operation of £0.5m. The IAS 19 (revised) valuation of the UK pensionfund net liability at 31 December 2006 reduced by £7.7m to £6.6m (2005: £14.3m)and that of the US funds increased by £0.1m to £0.4m, all amounts being beforedeferred tax. Equity Group equity at 31 December 2006 was £24.1m (2005: £29.9m). The reductionarises from the losses incurred by the discontinued businesses of £12.2m,reorganisation costs of £1.9m net of tax, and adverse exchange movements on thenet assets of overseas businesses of £1.1m, offset by net profit generated bythe continuing operations of £5.6m and the actuarial gains arising on theGroup's net pension liabilities of £3.8m. Consolidated income statement 2006 2005 Before goodwill impairment Before and reorg. Goodwill Reorg. reorg. Reorg. costs impairment costs Total costs costs Total (restated) (restated) (restated) (restated) Notes £m £m £m £m £m £m £m (note 3) (note 3) Continuing operationsRevenue 2 88.6 - 88.6 89.3 - - 89.3 Cost of sales (58.1) (1.5) (59.6) (57.8) - (1.4) (59.2) Gross profit 30.5 (1.5) 29.0 31.5 - (1.4) 30.1 Other operating income 0.5 - 0.5 0.2 - - 0.2Distribution expenses (7.7) (0.1) (7.8) (6.6) - (0.2) (6.8)Administrative expenses (13.9) (0.1) (14.0) (16.0) - (0.3) (16.3)Other operating expenses (0.3) (0.9) (1.2) (1.2) - (0.4) (1.6) Operating profit 2, 5 9.1 (2.6) 6.5 7.9 - (2.3) 5.6 Profit on closure of 4 - - - - - 0.5 0.5associateProfit before financingcosts 9.1 (2.6) 6.5 7.9 - (1.8) 6.1Financial income 0.2 - 0.2 0.3 - - 0.3Financial expenses (1.3) - (1.3) (1.3) - - (1.3) Net financing costs (1.1) - (1.1) (1.0) - - (1.0) Profit before tax 8.0 (2.6) 5.4 6.9 - (1.8) 5.1 Taxation (2.4) 0.7 (1.7) (1.3) - 0.5 (0.8) Profit from continuingoperations 5.6 (1.9) 3.7 5.6 - (1.3) 4.3 Discontinued operationsLoss from discontinued 10 (12.2) - (12.2) (1.7) (6.7) 0.1 (8.3)operations (Loss)/profit for the period (6.6) (1.9) (8.5) 3.9 (6.7) (1.2) (4.0) Basic earnings/(loss) per ordinary 6 (45.6)p (21.9)pshare Diluted earnings/ (45.6)p (21.9)p(loss) per ordinaryshare Continuingoperations 6Basic earnings per 20.2p 23.4pordinary share Diluted earnings per 18.4p 21.7pordinary share Consolidated balance sheet 2006 2005 Notes £m £mNon-current assetsIntangible assets 13.3 13.5Property, plant and equipment 22.3 28.7Other receivables 0.5 0.5Deferred tax assets 2.7 5.4 38.8 48.1 Current assetsInventories 12.9 27.2Trade and other receivables 23.4 23.3Taxation receivable 0.5 0.2Cash and cash equivalents 4.7 2.8Assets classified as held for sale 10 1.8 - 43.3 53.5Current liabilitiesBank overdrafts (0.1) (1.9)Interest-bearing loans and borrowings (4.3) (2.4)Trade and other payables (26.8) (25.6)Taxation payable (0.8) (0.9)Provisions (2.8) (2.2) (34.8) (33.0) Net current assets 8.5 20.5 Total assets less current liabilities 47.3 68.6 Non-current liabilitiesInterest-bearing loans and borrowings (12.6) (17.5)Trade and other payables (0.2) (0.2)Employee benefits 7 (7.0) (16.9)Deferred tax liabilities (3.4) (4.1) (23.2) (38.7) Net assets 2 24.1 29.9 EquityIssued capital 5.0 5.0Share premium 26.0 26.0Reserves 3.7 4.8Retained earnings (10.6) (5.9) Total equity 24.1 29.9 Consolidated statement of cash flows 2005 2006 (restated) Note £m £mContinuing operationsOperating activitiesOperating profit 6.5 5.6Reorganisation costs included in operating profit 2.6 2.3 Amortisation 1.1 0.7Depreciation 2.2 2.2Profit on sale of property, plant and equipment (0.3) - Other non-cash items (1.5) (0.6)Pension payments (0.7) - Working capital movements: - Decrease in inventories 2.9 7.0 - (Increase)/decrease in trade and other receivables (6.5) 1.4 - Increase/(decrease) in trade and other payables 7.7 (2.8) - Decrease in provisions (0.5) (0.4) Cash generated from operations before reorganisation 13.5 15.4 Reorganisation costs paid (1.4) (3.2) Cash generated from operations 12.1 12.2 Taxation (paid)/received (1.0) 0.7 Net cash from operating activities 11.1 12.9 Investing activities Proceeds from sale of property, plant and equipment 1.3 0.3Net proceeds from closure of associate - 0.5 Acquisition of property, plant and equipment (1.4) (1.3)Development expenditure (1.9) (1.4) Net cash from investing activities (2.0) (1.9) Financing activitiesIssue of new shares - 0.1Interest received 0.2 0.3Interest paid (1.3) (1.3)Decrease in borrowings (1.5) (9.5) Net cash from financing activities (2.6) (10.4) Discontinued operationsNet cash from operating activities (0.2) (3.1)Net cash from investing activities (2.2) (0.1)Net cash from financing activities (0.3) (0.8) Net cash from discontinued operations (2.7) (4.0) Net increase/(decrease) in cash and cash equivalents 8 3.8 (3.4)Cash and cash equivalents at 1 January 0.9 4.2Effect of exchange rate fluctuations on cash held (0.1) 0.1 Cash and cash equivalents at period end 4.6 0.9 Consolidated statement of recognised income and expense 2006 2005 £m £mCurrency translation movements arising on foreigncurrency net investments (1.3) 1.9Actuarial gains 3.8 2.4 Net income recognised directly in equity 2.5 4.3 Currency translation movements transferred to loss on disposals 0.2 -Loss for the period (8.5) (4.0) Total recognised income and expense for the period (5.8) 0.3 Notes to preliminary announcement 1. The Group's accounts have been prepared in accordance withInternational Accounting Standards and International FinancialReporting Standards that were effective at 31 December 2006 and adopted by theEU. The financial information set out above does not constitute theCompany's statutory accounts for the years ended 31 December 2006 or 2005.Statutory accounts for 2005 have been delivered to the registrar of companies,and those for 2006 will be delivered following the Company's Annual GeneralMeeting. The auditors have reported on those accounts; their reports were (i)unqualified, (ii) did not include references to any matters to which theauditors drew attention by way of emphasis without qualifying their reports and(iii) did not contain statements under section 237 (2) or (3) of the CompaniesAct 1985. 2. Segmental analysis Business segments Packaging Tobacco Scientific Machinery Machinery Services Total 2005 2005 2005 2006 (restated) 2006 (restated) 2006 2005 2006 (restated) £m £m £m £m £m £m £m £m Revenue - continuing operations 33.9 29.8 36.2 41.6 18.5 17.9 88.6 89.3 - discontinued operations 12.8 32.1 101.4 121.4 Underlying segment operatingprofit before net pension creditand reorganisation costs 2.5 2.0 1.9 2.4 3.2 2.6 7.6 7.0 Reorganisation costs (beforeprofit on closure of associate) - - (2.6) (2.3) - - (2.6) (2.3) Segment operating profit/(loss)before net pension credit 2.5 2.0 (0.7) 0.1 3.2 2.6 5.0 4.7 Net pension credit (ex.curtailment costs) 1.5 0.9 Operating profit 6.5 5.6 Profit on closure of associate - 0.5 Net financing costs (1.1) (1.0) Taxation (1.7) (0.8) Profit from continuing operations 3.7 4.3 Discontinued operationsLoss from discontinued operations (12.2) (8.3) Loss for the period (8.5) (4.0) Segment net assets 2.7 3.8 24.5 30.7 15.9 15.5 43.1 50.0 Net assets - discontinuedoperations 1.3 12.9 Unallocated net liabilities (20.3) (33.0)(including net debt and pensionliabilities) Total net assets 24.1 29.9 Geographical segments Revenue Segment net assets (by destination of goods) (by location of assets) 2005 2005 2005 2006 2006 (restated) (restated) 2006 (restated) £m % £m % £m £mContinuing operationsUnited Kingdom 9.2 11 8.6 10 27.9 36.5Continental Europe 18.1 20 18.5 21 6.4 1.9North America 23.9 27 25.6 29 7.2 9.8Asia 22.0 25 21.0 23 0.6 0.5Rest of the world 15.4 17 15.6 17 1.0 1.3 88.6 100 89.3 100 43.1 50.0 3. The reorganisation costs before profit on closure of associate of £2.6m(2005: £2.3m) relate to the restructuring of the Tobacco Machinery division andcomprise costs of £1.9m (2005: £1.6m) relating to redundancy, including relatedpension costs (mainly in the UK), costs of transferring manufacturing activitiesfrom the division's Saunderton site to the division's factory in the CzechRepublic of £0.7m, and in 2005 £0.4m relating to inventory provisions and £0.3mof other reorganisation costs. 4. The profit on closure of associate relates to the receipt of loan/capital repayments in 2005, following the closure and subsequent liquidation ofthe Kunming Molins company in China. 5. The Group accounts for pensions under IAS 19 (revised) Employeebenefits. An actuarial valuation of the UK pension fund is being carried out asat 30 June 2006. This has yet to be completed. The assumptions of thisvaluation have been applied in the financial statements, updated to reflectconditions at 31 December 2006. Underlying operating profit includes a netpension credit of £1.5m (2005: £0.9m) in respect of ongoing benefits comprisingcurrent service costs of £2.8m, interest on the pension obligations of £16.9m,offset by the expected return on the schemes' assets of £21.2m. In addition there were curtailment costs of £0.9m (2005: £0.4m) arising fromredundancies in the year, which are reported in reorganisation costs, and inrespect of the discontinued operation Sandiacre Rose Forgrove £0.3m (2005:£0.4m) of pension costs less £0.8m (2005: £nil) of curtailment benefits. 6. Basic earnings/(loss) per ordinary share is based upon the loss for theperiod of £8.5m (2005: £4.0m) and on a weighted average of 18,576,888 shares inissue during the year (2005: 18,429,551). Basic earnings per ordinary share oncontinuing operations is based upon the profit for the period of £3.7m (2005:£4.3m) and the weighted average number of ordinary shares as shown above.Underlying earnings per ordinary share, which is calculated on continuingoperations before net pension credit and reorganisation costs, was 24.2p for theyear (2005: 27.0p). 7. Employee benefits include the net pension liabilities of the UK definedbenefit pension scheme of £6.6m (31 December 2005: £14.3m) and the US definedpension schemes of £0.4m (31 December 2005: £0.3m), all figures before deferredtax. In 2005 liabilities included £2.3m relating to Sasib service and postretirement benefits. 8. Reconciliation of net cash flow to movement in net debt 2006 2005 £m £mNet increase/(decrease) in cash and cash equivalents 3.8 (3.4)Cash inflow from movement in borrowings and finance leases 1.8 10.2 Change in net debt resulting from cash flows 5.6 6.8Decrease in borrowings and finance leases on sale ofdiscontinued operations 0.9 -Translation movements 0.2 0.2 Movement in net debt in the period 6.7 7.0Opening net debt (19.0) (26.0) Closing net debt (12.3) (19.0) 9. Analysis of net debt 2006 2005 £m £mCash and cash equivalents - current assets 4.7 2.8Bank overdrafts - current liabilities (0.1) (1.9)Interest-bearing loans and borrowings - current liabilities (4.3) (2.4)Interest-bearing loans and borrowings - non-current (12.6) (17.5)liabilities Closing net debt (12.3) (19.0) 10. Discontinued operations and assets classified as held for sale On 28 July 2006 the Group sold Sasib S.p.A., its Italian tobacco machinerybusiness, for a nominal consideration. The loss on disposal was £8.6m, whichtogether with Sasib's trading loss of £1.5m gives a total loss for the period of£10.1m. On 18 December 2006 the Group sold the trading assets and business of SandiacreRose Forgrove (SRF), a packaging machinery business, for a total cashconsideration of £2.9m. The loss on disposal was £1.0m, which together withSRF's trading loss of £1.1m gives a total loss for the period of £2.1m. The loss of £12.2m in the year relating to Sasib and SRF is disclosed as a lossfrom discontinued operations in the income statement. Following the sale of SRF the Group retained the property in Nottingham, fromwhich SRF operates, which has been leased to the new owners under a three yearagreement. The Group has the intention of selling the property by the end of2007 and therefore its carrying value of £1.8m has been disclosed as "assetsclassified as held for sale" in the Group balance sheet. Its market value isexpected to be in excess of its carrying value. 11. The Annual Report and Accounts will be sent to all shareholders in March2007 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