13 Mar 2012 07:00
LUPUS CAPITAL PLC
("Lupus" or "the Group" or "the Company")
UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
Lupus Capital plc, a leading international supplier of components to the door and window industry, announces preliminary results for the year ended 31 December 2011.
Financial Highlights - Continuing Operations
£'million except where stated | YE 2011 | YE 2010 | Change | Constant currency |
Sales | 230.4 | 252.5 | (9)% | (8)% |
Gross profit margin | 31.5% | 32.9% | ||
Underlying Operating Profit | 22.4 | 26.1 | (14)% | (13)% |
Underlying Operating Margin | 9.7% | 10.3% | ||
Underlying Profit before taxation | 16.3 | 16.8 | (3)% | (2)% |
Underlying Earnings per share | 9.04p | 8.78p | +3% | |
Dividend per Share | 3.5p | 2.0p | +75% | |
"Underlying" is defined as before amortisation of intangible assets, deferred tax on amortisation of intangible assets, exceptional items, unwinding of discount on provisions, amortisation of borrowing costs and the associated tax effect.
·; Disposal of Gall Thomson for cash consideration of £75 million leads to the creation of a focused Building Products Group
·; Pro Forma Underlying Net Debt at 31 December 2011 following disposal of Gall Thomson of c. £23 million reduces leverage from 2.24x to 0.7x Net Debt: EBITDA
·; Underlying Earnings Per Share from continuing operations increased by 3 per cent. to9.04 pence (2010: 8.78 pence)
·; Dividend increased by 75 per cent. to 3.5 pence per share (2010: 2.0 pence)
Reconciliation of Continuing and Discontinued Operations
£'million except where stated | YE 2011 | YE 2010 | ||
Continuing | Discontinued | Total | Total | |
Group Sales | 230.4 | 19.1 | 249.5 | 266.2 |
Underlying Operating Profit | 22.4 | 10.0 | 32.4 | 33.7 |
Finance Expenses | (6.1) | 0.1 | (6.0) | (9.2) |
Underlying Profit before Taxation | 16.3 | 10.1 | 26.4 | 24.5 |
Jamie Pike, Non-Executive Chairman, commented:
"The disposal of Gall Thomson upon favourable terms marks the completion of the refocusing of Lupus as a supplier of components to the door and window industry worldwide. The Group now has significant financial flexibility to achieve its strategic goals and to accelerate the development of the Building Products Division.
"We believe that the Building Products Division will continue to outperform its key markets in 2012 and beyond due to the Group's relative financial strength following the disposal of Gall Thomson. Market conditions, however, remain challenging across all our markets.
"In North America we are pleased with the new facility in Atlanta, Georgia as it comes on stream and the integration of Overland Products into the Group.
"The increase in the dividend of 75 per cent. to 3.50p is a sign of our confidence in the Group's improved financial position and prospects. Going forward, the Board intends to continue a progressive dividend policy taking into account the Group's leverage, earnings growth potential and future expansion plans.
The Board believes the Group is now well positioned for the future."
13 March 2012
Enquiries:
Lupus Capital plc | Today: 020 7457 2020 (thereafter: 0207 976 8000) |
Jamie Pike | |
Louis Eperjesi | |
James Brotherton | |
Collins Stewart Europe Limited | 020 7523 8350 |
Mark Dickenson | |
Bruce Garrow | |
College Hill | 020 7457 2020 |
Mike Davies | |
Helen Tarbet |
A presentation for analysts and investors will be held at the offices of Collins Stewart Hawkpoint, 88 Wood Street, London EC2V 7QR at 11.00 am on Tuesday 13 March 2012.
CHAIRMAN'S STATEMENT
OVERVIEW
The trading environment in the US and UK building products markets during 2011 proved to be as challenging as expected. However the continued focus of the Group on self help measures enabled further progress to be made as the Group moves towards recovery in its end markets.
The disposal of Gall Thomson upon favourable terms marks the completion of the refocusing of Lupus as a supplier of components to the door and window industry worldwide. The Group has significant financial flexibility to achieve its strategic goals and to accelerate the development of the Building Products Division and the Board believes the Group is now well positioned for the future.
RESULTS FROM CONTINUING OPERATIONS
For the year ended 31 December 2011, compared with the prior year, the Group generated the following results from Continuing Operations:
SALES
Total sales of Building Products in the year of £230.4 million decreased by 8.8 per cent. from the prior year (2010: £252.5 million). In constant currency terms, total sales decreased in the year by 7.6 per cent.
MARGINS
Despite our success in passing on pound for pound input cost increases, the lower volumes sold by the Building Products Division in 2011 impacted both gross and operating margins. The Group's gross profit margin decreased to 31.5 per cent. from 32.9 per cent. in 2010. The Underlying operating margin for the Group decreased from 10.3 per cent. in 2010 to 9.7 per cent. in 2011.
PROFITS
Underlying earnings before interest, tax, depreciation and amortisation were £27.7 million (2010: £32.5 million).
Underlying operating profit decreased by 14.1 per cent. to £22.4 million (2010: £26.1 million). On a constant currency basis this represents a decrease of 12.8 per cent. over the prior year.
Underlying administrative expenses decreased by £6.8 million or 12.0 per cent. to £50.1 million (2010: £56.9 million). Administration costs included lower freight, commission and management incentive costs associated with the subdued levels of activity.
Net finance costs decreased by 20.2 per cent. to £9.7 million (2010: £12.1 million), reflecting a combination of lower levels of absolute debt and the beneficial impact of the 2011 refinancing on margins payable. Amortisation of borrowing costs increased from £2.3 million to £3.1 million reflecting the write off of £2.9 million of costs associated with the 2009 bank facility. Net cash interest paid of £6.7 million (2010: £9.3 million) was 27.9 per cent. lower than that paid in 2010.
Underlying profit before taxation from continuing operations was £0.5 million lower at £16.3 million (2010: £16.8 million) with the improved interest position partially offsetting the decline in Underlying Operating Profit.
EARNINGS PER SHARE
Underlying earnings per share from continuing operations increased by 3 per cent. to 9.04 pence (2010: 8.78 pence). Basic earnings per share from continuing operations increased from 1.15 pence in 2010 to 6.23 pence.
EXCEPTIONAL COSTS
Exceptional costs of £0.8 million (2010: £0.4 million) were incurred during the period, principally in connection with the further restructuring of the UK composite doors business and the reorganisation of the Building Products Division outside of North America.
TAXATION
There was a net tax credit in the year amounting to £6.8 million in respect of continuing operations (2010: charge of £0.3 million). Exceptional tax credit adjustments in respect of prior periods of £5.0 million arose in 2011 from the clarification with the tax authorities of the tax treatment of provisions, principally those made at the time of the acquisitions in 2006 and 2007.
Excluding the effect of the change in tax rates on deferred tax and the adjustments in respect of prior periods, the Underlying tax rate on the Underlying profit before taxation of continuing operations was 28 per cent. (2010: 32 per cent.). The Underlying tax rate decreased during 2011 due mainly to the corporation tax rate reductions in the United Kingdom.
The Underlying cash tax rate in the year was 11 per cent. (2010: 14 per cent.) and is lower than the Underlying tax rate due to historic losses utilised and tax deductible goodwill. The Underlying cash tax rate is expected to trend towards the Underlying tax rate over the coming years.
DIVIDEND
The Group's enhanced financial position following the disposal of Gall Thomson enables the Board to recommend a final dividend of 3.5 pence per share (2011: 2.0p per share) an increase of 75 per cent. and covered 2.6 times by Underlying Earnings per Share from continuing operations. The final dividend will absorb approximately £4.5 million of cash resources and is expected to be paid following the Annual General Meeting scheduled for 25 May 2012.
The Board has reviewed the Group's dividend policy in the light of the Group's altered profitability and cashflow characteristics. Going forward, the Board intends to continue a progressive dividend policy taking into account the Group's leverage, earnings growth potential and future expansion plans and intends to target dividend cover of between 2.0 - 2.5 x Underlying EPS through the cycle.
The Group intends to resume interim dividend payments during 2012.
Financial Position
During the year the Group continued to focus on the tight management of working capital, operational cash generation and the reduction of net debt.
CASHFLOW
For the Group as a whole, net cash inflow from operating activities of £30.7 million was approximately 15 per cent. lower than the prior year (2010: £36.3 million) principally due to lower levels of operating profit combined with some incremental investment in working capital in the year.
Capital expenditure increased by 32 per cent. to £4.4 million (2010: £3.3 million) which meant that Operational Cashflow fell to £28.2 million (2010: £35.3 million).
Operational Cashflow from continuing operations was approximately £19.0 million (2010: £28.7 million) and Operating Cash Conversion from continuing operations was approximately 84.8 per cent. (2010: 110.0 per cent.). This is lower than our through the cycle target which remains at 100 per cent.. Over the past three years the Group has averaged Operating Cash Conversion from continuing operations of 115 per cent..
NET DEBT POSITION
As at 31 December 2011, the Group's Underlying Net Debt was £91.2 million (2010: £94.7 million). This figure is stated after the payment of approximately US$15 million to acquire Overland, as announced on 23 December 2011. On a pro forma basis the Group's Underlying Net Debt following the disposal of Gall Thomson at 31 December 2011 would have been approximately £23 million.
Average Underlying Net Debt during the year was £91.8 million (2010: £113.9 million). Under the IFRS definition, which reduces debt by unamortised bank fees, net debt at the year end was £88.8 million (2010: £91.7 million).
BANKING AND COVENANTS
During the year the Group refinanced its banking facilities into a new £110 million multicurrency term loan and a £30 million multicurrency working capital facility. This successful early refinancing of facilities gives Lupus a sound financial platform until March 2016 and provides the Group with more favourable terms, reduced costs and significantly enhanced flexibility.
Covenant Measures | Leverage | Interest Cover | Debt Service |
Performance requirement: | Less Than | More Than | More Than |
Covenant | 3.25x | 4.00x | 1.00x |
Measure at 31 December 2011 1 | 2.24x | 6.47x | 4.45x |
Headroom at 31 December 2011 2 | 31.1% | 38.2% | 77.5% |
1 All covenant measures calculated as defined by the Group's 2011 facility agreement.
2 Headroom relates to EBITDA or cashflow available for relevant debt service
The Group's key banking performance metric is leverage, calculated as the proportion of Underlying Net Debt to Adjusted EBITDA. On a pro forma basis, following the disposal of Gall Thomson, the Group's leverage at the year end would have been approximately 0.7x, measured on the same basis as the banking covenants.
Following the disposal and related permanent debt repayments of approximately £30 million the Group's facilities reduce to a multicurrency term loan of approximately £80 million and a £30 million multicurrency working capital facility.
DEFINED BENEFIT PENSION AND POST RETIREMENT BENEFIT SCHEMES
The Group's principal defined benefit pension scheme and post retirement healthcare benefit scheme is operated in the US. The pension scheme is closed to new entrants and post retirement healthcare benefit contributions are capped.
At 31 December 2011, the defined benefit obligation for all Group pension and post retirement healthcare benefit schemes was £21.8 million (2010: £18.9 million) and the schemes had plan assets of £12.1 million (2010: £11.6 million), resulting in an increased net deficit on the schemes of £9.7 million (2010: £7.2 million).
Cash contributions made to the schemes in the year were £1.2 million (2010: £0.8 million).
DISCONTINUED OPERATIONS
The results of Gall Thomson are presented in aggregate as discontinued and are disclosed as a one line item on the face of the consolidated income statement. Transaction-related costs (including legal and accountancy costs and adviser fees) of approximately £2 million will be charged against the profit on sale of discontinued operations in the 2012 financial statements.
The disposal of Gall Thomson for £75 million was announced on 13 March 2012 and will lead to an accounting profit on disposal of approximately £53 million, which will be recognised in the 2012 financial statements.
BUILDING PRODUCTS
£'million except where stated | YE 2011 | YE 20101 | Change | Constant Currency |
Sales | 230.4 | 252.5 | (8.8)% | (7.6)% |
Underlying Operating Profit | 22.4 | 26.1 | (14.1)% | (12.8)% |
Underlying Operating Margin | 9.7% | 10.3% |
1Comparative figures for 2010 have been revised to reflect the elimination of intragroup trading more accurately and to re-apportion head office overheads previously included in the results of the discontinued Oil Services division.
The Building Products division comprises the Group's door and window hardware and seals operations. The division's businesses are market leaders and operate across the Americas, the UK, Europe and Australasia. In 2011, trading in our building products businesses declined as markets continued to be difficult.
During the year, we completed an organisational restructuring of our Building Products Division outside of North America with separate MD divisional roles created for the UK and Ireland business and the International business. External hires have been appointed to these key management roles and this reorganisation and strengthening of our divisional management team will enable us to provide increased focus to each region and facilitate expansion into new products and geographies.
US BUILDING PRODUCTS
£'million except where stated | YE 2011 | YE 20101 | Change | Constant Currency |
Sales | 105.4 | 117.0 | (9.9)% | (6.6)% |
Underlying Operating Profit | 11.3 | 14.0 | (19.3)% | (15.9)% |
Underlying Operating Margin | 10.7% | 12.0% |
1Comparative figures for 2010 have been revised to reflect the elimination of intragroup trading more accurately and to
re-apportion head office overheads previously included in the results of the discontinued Oil Services division.
Amesbury, our North American Building Products business, had an encouraging start to the financial year however saw demand soften across the remainder of 2011 as US window shipments fell year on year. Quoting levels across Amesbury increased in the fourth quarter as customers continue to look at consolidating their supply base and consider new product development opportunities.
We remain positive about the long term prospects for Amesbury and in 2011 continued to invest in the North American business. Towards the year end we started the fit out of our new extrusion plant in Atlanta which came on stream in February 2012 and, in December 2011, we announced the US$15 million acquisition of Overland which adds a number of complementary stamping products to the Amesbury offering.
We have started a significant programme of investment in IT systems in Amesbury that will move all our North American businesses onto a common platform, streamlining reporting and improving our customer and supplier interface. Over the next three years we expect to invest approximately US$5 million in this programme.
New products launched into the American market in 2011 included our initial casement winder offering, microbial pile, intumescent seals, as well as numerous bespoke products developed for individual customers.
UK BUILDING PRODUCTS
£'million except where stated | YE 2011 | YE 20101 | Change | Constant Currency |
Sales | 89.0 | 97.9 | (9.1)% | n/a |
Underlying Operating Profit | 7.7 | 8.2 | (5.5)% | n/a |
Underlying Operating Margin | 8.7% | 8.3% |
1 Comparative figures for 2010 have been revised to reflect the elimination of intragroup trading more accurately and to
re-apportion head office overheads previously included in the results of the discontinued Oil Services division.
In the UK and Ireland, grouphomesafe's smaller portfolio businesses - Balance, Ventrolla and Linear - each exhibited very strong growth and continued to take market share, with our differentiated product offering partially offsetting weaker demand from larger customers such as window fabricators and social housing contractors.
The distribution sector held up well during the year as consumers continued to undertake small scale repair projects, however, the OEM sector saw marked declines as homeowners appeared reluctant to commit to larger scale refurbishment projects. The social housing sector continued to contract as Housing Associations and Local Authorities reduced expenditure.
There were significant movements in input costs during the year with increases coming through in the first half which eased in the second half. We successfully continued our policy of passing on cost increases as they occurred in order to defend margins. Despite input cost volatility and continued losses incurred within our composite doors business, the Underlying operating margin for grouphomesafe improved slightly in the year as we successfully flexed our cost base.
Our composite door business had another difficult year with further declines in its key social housing markets, and remained loss making across the year as a whole. The business had some initial success in the year in selling direct to the trade and retail composite door markets and will look to develop this route to market further in 2012 following the introduction of our on line door configurator. In 2011, further actions were taken to reduce the cost base, streamline manufacturing processes and review the operational footprint.
During the period we continued the development of "grouphomesafe" as the umbrella brand for our UK Building Products business and maintained our focus on improving our customer service within the UK market, as we seek to differentiate ourselves from the competition by setting industry leading standards for delivery on time and in full.
New products launched into the UK and Ireland market in 2011 included a door offering from Ventrolla, a range of suited hardware and a biometric lock offering from ERA and an intumescent seal from Schlegel.
International Building Products
£'million except where stated | YE 2011 | YE 20101 | Change | Constant Currency |
Sales | 36.0 | 37.6 | (4.1)% | (7.0)% |
Underlying Operating Profit | 3.4 | 3.9 | (13.3)% | (17.2)% |
Underlying Operating Margin | 9.3% | 10.3% |
1Comparative figures for 2010 have been revised to reflect the elimination of intragroup trading more accurately and to
re-apportion head office overheads previously included in the results of the discontinued Oil Services division.
Our International Building Products division, which goes to market under the Schlegel brand, has seen sales decrease in 2011 compared with the corresponding period last year.
Northern and Eastern European markets remained strong and demonstrated growth year on year, however Southern European markets remained subdued. Our Brazilian business continued to gain market share and position. In Australasia, the year started slowly following the various natural disasters in the region but showed some signs of improvement towards the year end. Profitability in the division was affected by a combination of operational gearing and product mix.
The new management structure we have put in place for the International Division enables us to provide increased focus to the division and should facilitate expansion into new products, applications and geographies.
Group 2011 Operational Performance
During 2011 we remained focused on maintaining tight controls over costs in all our businesses. Headcount at 31 December 2011 in the Building Products Division of 1,880 was lower than the prior year (2010: 1,956) as we flexed labour where necessary and permitted limited selective hiring of permanent personnel only where merited by business activity levels.
Raw material prices of steel and oil derivative products increased during the first half of the financial year but ameliorated during the second half. We continued to adopt a structured and disciplined approach to increases to our cost base, ensuring that we multisource product wherever possible and remain diligent in passing permanent cost increases on to customers.
We have continued our focus on tight management of working capital. Some investment in inventory was required during the year, in part a consequence of the high levels of trading that we saw at the end of 2010 which depressed year end inventory levels.
During the year a number of our customers ceased trading, however vigilant management of customer credit risks throughout the year, starting at the point of sale, meant that bad debts written off amounted to only 0.3 per cent. of sales (2010: 0.1 per cent.). During the year we were successful in extending credit terms over the purchase of certain products which in turn benefited our payables position with no adverse affect on our supplier base.
We continue to promote the financial strength of the Group to the credit insurers of our major suppliers in order to optimise the credit terms that we receive from our supplier base and to work closely with our customer base to ensure we understand their balance sheet position and creditworthiness.
PROPERTY
During the year we have continued to examine our manufacturing footprint as we seek to develop centres of excellence that give us sufficient flexibility to manage current demand levels but allow us the potential to respond quickly to changes in the market environment if required.
In North America we completed the first stage of rationalisation of operations at Sioux Falls, South Dakota; combining our Door and Window hardware facilities onto a single site. We retain the freehold of the vacant site and are exploring options for divestiture. We signed a five year lease on our new Atlanta extrusion facility and took on an additional 20,000 sq ft at our leasehold facility in Juarez, Mexico as we continue to develop our near shoring strategy for the North American market.
In the UK we extended our lease at EWS Wolverhampton for a further five years to March 2020 and assigned the lease on Unit B, one of the two remaining surplus properties at Peterlee, County Durham.
During the year the Group utilised aggregate property provisions of £1.3 million and released further property provisions of £1.2 million principally in connection with the exit from Unit B at Peterlee.
Since the year end we have successfully assigned the lease on Unit A at Peterlee and have been released from all remaining obligations in connection with the Peterlee site. This will result in a release to the income statement in 2012 of around £1.9 million of provisions, which will increase 2012 profit after tax by approximately £1.4 million.
The exit of the two Peterlee properties will save the Group in excess of £3.0 million in cash costs of rent, rates, utilities and services over the six years to March 2018.
DISCONTINUED OPERATIONS - OIL AND GAS SERVICES
£'million except where stated | YE 2011 | YE 20101 | Change | Constant Currency |
Sales | 19.1 | 13.7 | 38.8% | n/a |
Underlying Operating Profit | 10.0 | 7.6 | 32.2% | n/a |
Underlying Operating Margin | 52.7% | 55.3% |
1 Comparative figures for 2010 have been revised to exclude the apportionment of head office overheads previously
included in the results of the discontinued Oil Services division.
In 2011 our Oil and Gas Services division comprised the Gall Thomson and Klaw businesses. Gall Thomson Environmental is the world's leading supplier of marine breakaway couplings ("MBC"s) and, through its KLAW subsidiary, is a supplier of industrial couplings including quick release and breakaway couplings.
2012 GUIDANCE
Following the disposal of Gall Thomson, the Group will have very different operating characteristics in 2012 and beyond.
The increased operational gearing of the Group will lead to greater volatility in the income statement depending on whether volumes increase or decrease. The Group will continue to explore routes to make the cost base more flexible in line with changes in sales volumes.
As a predominantly northern hemisphere building products company, the Group would expect to turn cash positive in September each year and to generate substantially all of its surplus cash in the last six weeks of the financial year.
Capital Expenditure in 2012 is expected to be between £5 million and £6 million, reflecting increased investment in new product development and the announced investment in Amesbury IT systems.
We continue to see opportunities for profitable investment that distinguish us from the competition across all of our businesses, as evidenced by the acquisition of Overland Products in December 2011, and will continue to deploy capital selectively where we believe it will enhance shareholder value.
OUTLOOK
2012 has started with sales and orders broadly in line with 2011, which is encouraging considering the relatively strong start we saw last year. However we expect our end markets to remain relatively subdued across this year as a whole as market conditions remain challenging across all our geographies.
In 2012 the UK and Irish markets are expected to show further decline compared with 2011, reflecting lower consumer spending on RMI and continued downward pressure on social housing budgets. In North America we expect markets to be broadly flat across the year and in Continental Europe we expect markets overall to be slightly down with Southern European markets remaining difficult. In Australasian markets we expect to see a return to growth this year and continued development in South American markets.
We believe that the Building Products Division will continue to outperform its key markets in 2012 and beyond due in part to the Group's relative financial strength following the disposal of Gall Thomson.
The disposal of Gall Thomson marks the completion of the refocusing of Lupus as a supplier of components to the door and window industry worldwide. The Group now has significant financial flexibility to achieve its strategic goals and to accelerate the development of the Building Products Division.
The increase in the dividend of 75 per cent. to 3.50p is a sign of our confidence in the Group's improved financial position and prospects. Going forward, the Board intends to continue a progressive dividend policy taking into account the Group's leverage, earnings growth potential and future expansion plans.
The Board believes the Group is now well positioned for the future.
Definitions
Where appropriate "Underlying" is defined as before amortisation of intangible assets, deferred tax on amortisation of intangible assets, exceptional items, unwinding of discount on provisions, amortisation of borrowing costs and the associated tax effect.
"Underlying Net Debt" is defined as interest bearing loans and borrowings, net of cash and cash equivalents, plus unamortised borrowing costs added back.
"Operational Cashflow" is defined as Net cash inflow from operating activities before Income tax paid and after Payments to acquire property, plant and equipment.
"Operating Cash Conversion" is defined as Operational Cashflow divided by Underlying operating profit.
"Continuing Operations" is defined as the operations of the Lupus Capital Group excluding Gall Thomson Environmental Limited and its subsidiaries.
Exchange Rates
The following foreign exchange rates have been used in the financial statements:
Closing Rates: | 2011 | 2010 |
US Dollars | 1.5453 | 1.5471 |
Euros | 1.1933 | 1.1675 |
Average Rates: | 2011 | 2010 |
US Dollars | 1.6040 | 1.5463 |
Euros | 1.1523 | 1.1661 |
Roundings
Percentages have been calculated using figures rounded to the nearest thousand extracted from the financial statements, which may lead to small differences in some figures and percentages quoted.
Unaudited consolidated income statement
for the year ended 31 December 2011
2011 | 2010 | |||||||
Note | £'000 (unaudited) | £'000 (audited) | ||||||
Continuing operations | ||||||||
Revenue | 2 | 230,372 | 252,464 | |||||
Cost of sales | (157,869) | (169,468) | ||||||
Gross profit | 72,503 | 82,996 | ||||||
Administrative expenses | (61,499) | (69,074) | ||||||
Operating profit | 11,004 | 13,922 | ||||||
Analysed as: | ||||||||
Operating profit before exceptional items and amortisation of intangible assets | 22,399 | 26,066 | ||||||
Exceptional items | 3 | (830) | (395) | |||||
Amortisation of intangible assets | (10,565) | (11,749) | ||||||
Operating profit | 11,004 | 13,922 | ||||||
Finance income | 4 | 287 | 417 | |||||
Finance costs | 4 | (9,982) | (12,562) | |||||
Net finance costs | (9,695) | (12,145) | ||||||
Profit before taxation | 1,309 | 1,777 | ||||||
Income tax credit/(expense) | 5 | 6,775 | (281) | |||||
Profit for the year from continuing operations | 8,084 | 1,496 | ||||||
Discontinued operations | ||||||||
Profit for the year from discontinued operations | 6 | 7,399 | 5,551 | |||||
Profit for the year | 15,483 | 7,047 | ||||||
Basic earnings per share | ||||||||
From continuing operations | 7 | 6.23p | 1.15p | |||||
From discontinued operations | 7 | 5.70p | 4.28p | |||||
11.94p | 5.43p | |||||||
Diluted earnings per share | ||||||||
From continuing operations | 7 | 6.18p | 1.13p | |||||
From discontinued operations | 7 | 5.66p | 4.21p | |||||
11.84p | 5.35p |
2011 | 2010 | |||||||
Note | £'000 | £'000 | ||||||
Non GAAP measure | ||||||||
Underlying1 profit before taxation from continuing operations | 7 | 16,344 | 16,775 | |||||
Underlying1 profit before taxation from discontinued operations | 7 | 10,109 | 7,758 | |||||
26,453 | 24,533 | |||||||
Basic earnings per share | ||||||||
Underlying1 basic EPS from continuing operations | 7 | 9.04p | 8.78p | |||||
Underlying1 basic EPS from discontinued operations | 7 | 5.71p | 4.28p | |||||
14.75p | 13.06p |
1 Before amortisation of intangible assets, deferred tax on amortisation of intangible assets, exceptional items, unwinding of discount on provisions, amortisation of borrowing costs and the associated tax effect.
Unaudited consolidated statement of comprehensive income
for the year ended 31 December 2011
2011 | 2010 | |||||||
Note | £'000 (unaudited) | £'000 (audited) | ||||||
Profit for the year | 15,483 | 7,047 | ||||||
Other comprehensive income: | ||||||||
Exchange differences on retranslation of foreign operations | (354) | 4,511 | ||||||
Actuarial losses on defined benefit plans | (4,699) | (117) | ||||||
Effective portion of changes in value of cash flow hedges | 1,228 | 564 | ||||||
Tax on items included in other comprehensive income | 5 | 1,659 | 40 | |||||
Other comprehensive (loss)/income for the year, net of tax | (2,166) | 4,998 | ||||||
Total comprehensive income for the year attributable to equity shareholders | 13,317 | 12,045 |
Unaudited consolidated statement of changes in equity
for the year ended 31 December 2011
Share | Share | Other | Treasury | Hedging | Translation | Retained | ||
capital | Premium | reserves1 | reserve | reserve | reserve | earnings | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 January 2010 | 6,864 | 101 | 10,389 | (6,764) | (2,489) | 28,927 | 189,439 | 226,467 |
Total comprehensive income | - | - | - | - | 564 | 4,511 | 6,970 | 12,045 |
Profit for the year | - | - | - | - | - | - | 7,047 | 7,047 |
Other comprehensive income | - | - | - | - | 564 | 4,511 | (77) | 4,998 |
Transactions with owners | - | - | - | - | - | - | 63 | 63 |
Share-based payments | - | - | - | - | - | - | 63 | 63 |
At 31 December 2010 | 6,864 | 101 | 10,389 | (6,764) | (1,925) | 33,438 | 196,472 | 238,575 |
Total comprehensive income | - | - | - | - | 1,228 | (354) | 12,443 | 13,317 |
Profit for the year | - | - | - | - | - | - | 15,483 | 15,483 |
Other comprehensive income | - | - | - | - | 1,228 | (354) | (3,040) | (2,166) |
Transactions with owners | - | - | - | (250) | - | - | (2,424) | (2,674) |
Share-based payments | - | - | - | - | - | - | 172 | 172 |
Dividends paid | - | - | - | - | - | - | (2,596) | (2,596) |
Purchase of treasury shares | - | - | - | (250) | - | - | - | (250) |
At 31 December 2011 | 6,864 | 101 | 10,389 | (7,014) | (697) | 33,084 | 206,491 | 249,218 |
1 Other reserves are non-distributable capital reserves which arose on previous acquisitions.
Unaudited consolidated balance sheet
As at 31 December 2011
2011 | 2010 | |||||||
Note | £'000 (unaudited) | £'000 (audited) | ||||||
ASSETS | ||||||||
Non-current assets | ||||||||
Goodwill | 214,186 | 223,531 | ||||||
Intangible assets | 98,620 | 104,709 | ||||||
Property, plant and equipment | 30,461 | 31,457 | ||||||
Deferred tax assets | 5 | 9,618 | 7,654 | |||||
352,885 | 367,351 | |||||||
Current assets | ||||||||
Inventories | 26,427 | 26,048 | ||||||
Trade and other receivables | 28,200 | 32,922 | ||||||
Cash and cash equivalents | 20,426 | 27,748 | ||||||
75,053 | 86,718 | |||||||
Assets of disposal group classified as held for sale | 6 | 21,114 | - | |||||
96,167 | 86,718 | |||||||
TOTAL ASSETS | 449,052 | 454,069 | ||||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Current tax payable | (1,976) | (2,679) | ||||||
Trade and other payables | (34,632) | (40,365) | ||||||
Provisions | 8 | (1,510) | (3,584) | |||||
Finance lease obligations | 9 | - | (9) | |||||
Derivative financial instruments | (777) | - | ||||||
Interest bearing loans and borrowings | 9 | (12,930) | (5,163) | |||||
(51,825) | (51,800) | |||||||
Liabilities of disposal group classified as held for sale | 6 | (3,271) | - | |||||
(55,096) | (51,800) | |||||||
Non-current liabilities | ||||||||
Finance lease obligations | 9 | - | (1) | |||||
Deferred tax liabilities | 5 | (18,834) | (23,369) | |||||
Interest bearing loans and borrowings | 9 | (100,235) | (114,304) | |||||
Employee benefit liability | (9,732) | (7,474) | ||||||
Provisions | 8 | (14,487) | (14,989) | |||||
Derivative financial instruments | - | (1,998) | ||||||
Other creditors | (1,450) | (1,559) | ||||||
(144,738) | (163,694) | |||||||
TOTAL LIABILITIES | (199,834) | (215,494) | ||||||
NET ASSETS | 249,218 | 238,575 | ||||||
EQUITY | ||||||||
Capital and reserves attributable to equity holders of the Company | ||||||||
Called up share capital | 6,864 | 6,864 | ||||||
Share premium | 101 | 101 | ||||||
Other reserves | 10,389 | 10,389 | ||||||
Treasury reserve | (7,014) | (6,764) | ||||||
Hedging reserve | (697) | (1,925) | ||||||
Translation reserve | 33,084 | 33,438 | ||||||
Retained earnings | 206,491 | 196,472 | ||||||
TOTAL EQUITY | 249,218 | 238,575 |
Unaudited consolidated cash flow statement
For the year ended 31 December 2011
2011 | 2010 | |||||||
Note | £'000 (unaudited) | £'000 (audited) | ||||||
Cash flows from operating activities | ||||||||
Profit before tax - continuing operations | 1,309 | 1,777 | ||||||
Profit before tax - discontinued operations | 6 | 10,108 | 7,758 | |||||
Adjustments | 12 | 26,335 | 30,666 | |||||
Movement in inventories | (263) | 451 | ||||||
Movement in trade and other receivables | 965 | (2,728) | ||||||
Movement in trade and other payables | (2,830) | 4,011 | ||||||
Provisions utilised | (1,854) | (2,515) | ||||||
Pension contributions | (1,191) | (841) | ||||||
Income tax paid | (1,870) | (2,304) | ||||||
Net cash inflow from operating activities | 30,709 | 36,275 | ||||||
Investing activities | ||||||||
Payments to acquire property, plant and equipment | (4,384) | (3,314) | ||||||
Payments to acquire intangible assets | (492) | (197) | ||||||
Acquisition of subsidiary undertakings | 11 | (10,280) | - | |||||
Interest received | 340 | 566 | ||||||
Net cash outflow from investing activities | (14,816) | (2,945) | ||||||
Financing activities | ||||||||
Interest paid | (7,011) | (9,822) | ||||||
Dividends paid | (2,596) | - | ||||||
Purchase of treasury shares | (250) | - | ||||||
New bank loans raised | 112,551 | - | ||||||
Refinancing costs paid | (2,643) | (23) | ||||||
Repayment of borrowings | (119,621) | (21,147) | ||||||
Repayment of capital element of finance leases | (10) | (8) | ||||||
Net cash outflow from financing activities | (19,580) | (31,000) | ||||||
(Decrease)/Increase in cash and cash equivalents | (3,687) | 2,330 | ||||||
Effect of exchange rates on cash and cash equivalents | 325 | 463 | ||||||
Cash and cash equivalents at the beginning of the year | 27,748 | 24,955 | ||||||
Cash and cash equivalents at the end of the year | 24,386 | 27,748 |
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated balance sheet, consolidated cash flow statement and related notes, is derived from the full Group financial statements for the year ended 31 December 2011, which have been prepared under International Financial Reporting Standards as adopted by the European Union (IFRS) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. It does not constitute full accounts within the meaning of section 434 of the Companies Act 2006. This financial information has been agreed with the auditors for release.
The Group Annual Report and Accounts for the year ended 31 December 2011 on which the auditors have yet to report, will be delivered to the Registrar of Companies in due course, and made available to shareholders 20 working days prior to the Annual General Meeting.
The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Group's financial statements for the year ended 31 December 2010 which can be found on the Group's website.
2. SEGMENTAL ANALYSIS
The following tables present group revenue and profit and certain assets and liability information regarding the Group's product segments, which have been generated using group accounting policies, with no differences of measurement applied.
Comparative figures for 2010 have been revised to reflect the elimination of intragroup trading more accurately and to re-apportion head office overheads previously included in the results of the discontinued Oil Services division.
SEGMENT REVENUE AND RESULTS
The group has two operating segments: Building products and Oil services, one of which has a geographical analysis included within the tables below.
Continuing operations -Building products | Discontinuedoperations -Oil services | ||||||||||||
Year ended 31 December 2011 | United Kingdom £'000 | United States £'000 | Rest of the World £'000 | Total£'000 | UnitedKingdom£'000 | Total£'000 | |||||||
Revenue | |||||||||||||
External sales | 88,984 | 105,370 | 36,018 | 230,372 | 19,088 | 249,460 | |||||||
Result | |||||||||||||
Operating profit before exceptional items and amortisation of intangible assets | 7,719 | 11,327 | 3,353 | 22,399 | 10,056 | 32,455 | |||||||
Amortisation of intangible assets | (10,565) | (1) | (10,566) | ||||||||||
Exceptional items (note 3) | (830) | - | (830) | ||||||||||
Operating profit | 11,004 | 10,055 | 21,059 | ||||||||||
Net finance costs | (9,695) | 53 | (9,642) | ||||||||||
Profit before tax | 1,309 | 10,108 | 11,417 | ||||||||||
Tax | 6,775 | (2,709) | 4,066 | ||||||||||
Profit after tax | 8,084 | 7,399 | 15,483 | ||||||||||
Other segment information | |||||||||||||
Cost of goods sold | 157,869 | 5,856 | 163,725 | ||||||||||
Depreciation | 5,252 | 51 | 5,303 |
SEGMENT ASSETS AND LIABILITIES
Continuing operations -Building products | Discontinuedoperations -Oil services | ||||||||||||
Year ended 31 December 2011 | United Kingdom £'000 | United States £'000 | Rest of the World £'000 | Total£'000 | UnitedKingdom£'000 | Total£'000 | |||||||
Segment assets | |||||||||||||
Total segment assets | 100,618 | 267,832 | 55,245 | 423,695 | 21,114 | 444,809 | |||||||
Unallocated segment assets | 2,616 | - | 2,616 | ||||||||||
Unallocated group assets | 1,627 | ||||||||||||
Consolidated total assets | 449,052 | ||||||||||||
Segment liabilities | |||||||||||||
Total segment liabilities | (27,676) | (41,067) | (7,270) | (76,013) | (3,271) | (79,284) | |||||||
Unallocated segment liabilities | (115,281) | - | (115,281) | ||||||||||
Unallocated group liabilities | (5,269) | ||||||||||||
Consolidated total liabilities | (199,834) | ||||||||||||
Continuing operations -Building products | Discontinuedoperations -Oil services | ||||||||||||
Year ended 31 December 2011 | United Kingdom £'000 | United States £'000 | Rest of the World £'000 | Total£'000 | UnitedKingdom£'000 | Total£'000 | |||||||
Non-current assets1 | 68,078 | 232,650 | 42,539 | 343,267 | 11,849 | 355,116 | |||||||
Other segment information | |||||||||||||
Employee benefit liability | (9,732) | - | (9,732) | ||||||||||
Goodwill allocation | 214,186 | 11,421 | 225,607 | ||||||||||
Intangible asset allocation | 98,620 | 35 | 98,655 | ||||||||||
Capital expenditure | |||||||||||||
- property, plant and equipment | 1,143 | 2,588 | 516 | 4,247 | 137 | 4,384 | |||||||
- intangible assets | 69 | 350 | 37 | 456 | 36 | 492 |
1 Non-current assets exclude amounts relating to deferred tax assets.
COMPARATIVE INFORMATION
SEGMENT REVENUE AND RESULTS
Continuing operations -Building products | Discontinuedoperations -Oil services | ||||||||||||
Year ended 31 December 2010 | United Kingdom £'000 | United States £'000 | Rest of the World £'000 | Total£'000 | UnitedKingdom£'000 | Total£'000 | |||||||
Revenue | |||||||||||||
External sales | 97,927 | 116,987 | 37,550 | 252,464 | 13,748 | 266,212 | |||||||
Result | |||||||||||||
Operating profit before exceptional items and amortisation of intangible assets | 8,167 | 14,031 | 3,868 | 26,066 | 7,609 | 33,675 | |||||||
Amortisation of intangible assets | (11,749) | - | (11,749) | ||||||||||
Exceptional items (note 3) | (395) | - | (395) | ||||||||||
Operating profit | 13,922 | 7,609 | 21,531 | ||||||||||
Net finance costs | (12,145) | 149 | (11,996) | ||||||||||
Profit before tax | 1,777 | 7,758 | 9,535 | ||||||||||
Tax | (281) | (2,207) | (2,488) | ||||||||||
Profit after tax | 1,496 | 5,551 | 7,047 | ||||||||||
Other segment information | |||||||||||||
Cost of goods sold | 169,468 | 3,935 | 173,403 | ||||||||||
Depreciation | 6,449 | 44 | 6,493 |
SEGMENT ASSETS AND LIABILITIES
Building products | Oilservices | ||||||||||||
Year ended 31 December 2010 | United Kingdom £'000 | United States £'000 | Rest of the World £'000 | Total£'000 | UnitedKingdom£'000 | Total£'000 | |||||||
Segment assets | |||||||||||||
Total segment assets | 106,843 | 266,565 | 57,610 | 431,018 | 17,384 | 448,402 | |||||||
Unallocated assets | 5,667 | ||||||||||||
Consolidated total assets | 454,069 | ||||||||||||
Segment liabilities | |||||||||||||
Total segment liabilities | (35,607) | (43,826) | (5,846) | (85,279) | (4,782) | (90,061) | |||||||
Unallocated segment liabilities | (118,729) | - | (118,729) | ||||||||||
Unallocated group liabilities | (6,704) | ||||||||||||
Consolidated total liabilities | (215,494) | ||||||||||||
Non-current assets1 | 70,762 | 231,638 | 45,572 | 347,972 | 11,725 | 359,697 | |||||||
Other segment information | |||||||||||||
Employee benefit liability | (7,474) | - | (7,474) | ||||||||||
Goodwill allocation | 212,110 | 11,421 | 223,531 | ||||||||||
Intangible asset allocation | 104,709 | - | 104,709 | ||||||||||
Capital expenditure | |||||||||||||
- property, plant and equipment | 1,268 | 1,542 | 446 | 3,256 | 58 | 3,314 | |||||||
- intangible assets | 51 | 137 | 9 | 197 | - | 197 |
1 Non-current assets exclude amounts relating to deferred tax assets.
3. EXCEPTIONAL ITEMS
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Redundancy and restructuring costs | 813 | 151 | ||||||
Acquisition expenses | 282 | - | ||||||
Adjustments to fair value accounting of acquisitions | (265) | - | ||||||
Other costs, net | - | 244 | ||||||
830 | 395 |
All exceptional items relate to continuing operations.
4. FINANCE REVENUE AND COSTS
Finance costs from continuing operations:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Finance income | ||||||||
Bank interest receivable | 287 | 417 | ||||||
Finance costs | ||||||||
Interest payable on bank loans and overdraft | (6,205) | (9,429) | ||||||
Amortisation of borrowing costs | (3,148) | (2,295) | ||||||
Ineffective portion of changes in value of cash flow hedges | (8) | (26) | ||||||
Interest on obligations under finance leases | - | (1) | ||||||
Unwinding of discount on provisions | (492) | (559) | ||||||
Pension scheme and other finance costs | (129) | (252) | ||||||
(9,982) | (12,562) | |||||||
Net finance costs | (9,695) | (12,145) |
5. TAXATION
(a) TAX ON PROFITS ON ORDINARY ACTIVITIES
Income tax in the income statement
Continuing operations | Discontinued operations | Total | ||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
Current income tax: | ||||||||||||
UK Corporation tax (credit)/expense | (986) | (1,408) | 2,778 | 2,163 | 1,792 | 755 | ||||||
Foreign tax expense | 3,168 | 5,090 | - | - | 3,168 | 5,090 | ||||||
Current income tax charge | 2,182 | 3,682 | 2,778 | 2,163 | 4,960 | 5,845 | ||||||
Adjustments in respect of prior periods | - | (545) | - | 48 | - | (497) | ||||||
Exceptional adjustments in respect of prior periods | (3,767) | - | - | - | (3,767) | - | ||||||
Total current income tax (credit)/expense | (1,585) | 3,137 | 2,778 | 2,211 | 1,193 | 5,348 | ||||||
Deferred tax: | ||||||||||||
Origination and reversal of temporary differences | (1,850) | (2,225) | (3) | 9 | (1,853) | (2,216) | ||||||
Adjustment due to deferred tax rate change | (2,137) | (892) | - | - | (2,137) | (892) | ||||||
Adjustments in respect of prior periods | - | 261 | (66) | (13) | (66) | 248 | ||||||
Exceptional adjustments in respect of prior periods | (1,203) | - | - | - | (1,203) | - | ||||||
Total deferred tax (credit)/expense | (5,190) | (2,856) | (69) | (4) | (5,259) | (2,860) | ||||||
Income tax (credit)/expense in the income statement | (6,775) | 281 | 2,709 | 2,207 | (4,066) | 2,488 |
The standard rate of Corporation tax in the UK changed from 28% to 26% with effect from 1 April 2011. Accordingly, the Group's UK profits for this accounting period are taxed at an effective rate of 26.5% (2010: 28%). The tax rate of 25% was substantively enacted in July 2011 and is applicable from 1 April 2012. Therefore UK profits will be taxed at a blended rate of 25.25% in 2012.
Taxation for other jurisdictions is calculated at rates prevailing in the respective jurisdictions.
Exceptional adjustments in respect of prior periods arose from the clarification with the tax authorities of the tax treatment of provisions, mainly those originally made at the time of the Schlegel acquisition in 2006 and the LSS acquisition in 2007.
Tax relating to items charged or (credited) directly to equity - continuing operations
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Deferred tax: | ||||||||
Actuarial losses on pension schemes | (1,659) | (40) | ||||||
Income tax (credit) in the statement of comprehensive income | (1,659) | (40) |
(b) RECONCILIATION OF THE TOTAL TAX CHARGE
The tax assessed for the year differs from the standard rate of tax in the UK of 26% (2010: 28%). The differences are explained below:
Continuing operations | Discontinued operations | Total | ||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
Profit before taxation | 1,309 | 1,777 | 10,108 | 7,758 | 11,417 | 9,535 | ||||||
Rate of corporation tax in the UK of 26.5% (2010: 28%) | 347 | 498 | 2,679 | 2,172 | 3,026 | 2,670 | ||||||
Effects of: | ||||||||||||
(Income not taxable)/expenses not deductible for tax purposes | (495) | 167 | 96 | - | (399) | 167 | ||||||
Overseas tax rate differences | 481 | 790 | - | - | 481 | 790 | ||||||
Adjustment due to deferred tax rate change | (2,137) | (892) | - | - | (2,137) | (892) | ||||||
Adjustment in respect of prior periods | (4,971) | (282) | (66) | 35 | (5,037) | (247) | ||||||
Income tax (credit)/expense in the income statement | (6,775) | 281 | 2,709 | 2,207 | (4,066) | 2,488 |
(c) DEFERRED TAX
Deferred income tax at 31 December relates to the following:
Group balance sheet | Group income statement | |||||||||
2011 | 2010 | 2011 | 2010 | |||||||
£'000 | £'000 | £'000 | £'000 | |||||||
Deferred tax liability | ||||||||||
Intangible assets on acquisition | (16,399) | (22,808) | (4,426) | (4,271) | ||||||
Other | (2,435) | (561) | 1,136 | 1,241 | ||||||
(18,834) | (23,369) | (3,290) | (3,030) | |||||||
Deferred tax assets | ||||||||||
Post-employment benefits | 3,304 | 1,705 | 3,185 | - | ||||||
Purchased goodwill | 5,349 | 4,612 | (1,942) | 290 | ||||||
Other | 965 | 1,337 | (3,212) | (120) | ||||||
9,618 | 7,654 | (1,969) | 170 | |||||||
Deferred income tax credit | (5,259) | (2,860) | ||||||||
Deferred tax liabilities net | (9,216) | (15,715) | ||||||||
Reflected in the balance sheet as follows: | ||||||||||
Deferred tax assets | 9,618 | 7,654 | ||||||||
Deferred tax liabilities | (18,834) | (23,369) | ||||||||
Deferred tax liabilities net | (9,216) | (15,715) |
The gross movement in deferred tax is as follows:
2011 | 2010 | |||||||||
£'000 | £'000 | |||||||||
At beginning of year | (15,715) | (18,209) | ||||||||
Acquisition (note 25) | 1,954 | - | ||||||||
Income statement credit - continuing operations | 5,265 | 2,856 | ||||||||
Income statement credit - discontinued operations | (6) | 4 | ||||||||
Tax charge directly to equity | (1,346) | (366) | ||||||||
Reclassification from current tax to deferred tax | 712 | - | ||||||||
Transfer of assets of disposal group classified as held for sale | (80) | - | ||||||||
(9,216) | (15,715) |
(d) FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
There are estimated tax losses of £13,745,000 (2010: £9,980,000) within the Group, comprising capital losses of £7,348,000 and trading losses of £6,397,000. As the future use of these losses is uncertain, in accordance with the Group's accounting policy only (a portion of these losses have been recognised as a deferred tax asset).
The amounts of deferred tax not recognised are as follows:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Tax losses | (846) | (785) | ||||||
Capital losses | (1,837) | (2,057) | ||||||
(2,683) | (2,842) |
As a result of UK legislation which largely exempts from UK tax the overseas dividends received, the temporary differences arising on unremitted profits are unlikely to lead to additional corporate taxes. However, remittance to the UK of those earnings may still result in a tax liability, principally as a result of withholding taxes levied by the overseas tax jurisdictions in which those subsidiaries operate.
6. DISCONTINUED OPERATIONS
During 2011, the Group determined to dispose of its Oil Services business, comprising Gall Thomson and its subsidiaries, and undertook a process to identify preferred bidders which was completed in December 2011.
On 13 March 2012, the Group completed this sale. These activities have been presented as discontinued as they satisfy the definition of discontinued operations as defined by IFRS5, as the disposal was highly probable at 31 December 2011.
Results attributable to discontinued operations are as follows:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Revenue | 19,088 | 13,748 | ||||||
Cost of sales | (5,856) | (3,935) | ||||||
Gross profit | 13,232 | 9,813 | ||||||
Administrative expenses | (3,177) | (2,204) | ||||||
Operating profit | 10,055 | 7,609 | ||||||
Analysed as: | ||||||||
Operating profit before exceptional items and amortisation of intangible assets | 10,056 | 7,609 | ||||||
Amortisation of intangible assets | (1) | - | ||||||
Operating profit | 10,055 | 7,609 | ||||||
Net finance income | 53 | 149 | ||||||
Result from discontinued operations before taxation | 10,108 | 7,758 | ||||||
Income tax expense | (2,709) | (2,207) | ||||||
Net profit attributable to discontinued operations | 7,399 | 5,551 |
The assets and liabilities comprising the operations classified as held for sale are as follows:
2011 | ||||||||
Assets of disposal group classified as held for sale | £'000 | |||||||
Goodwill | 11,421 | |||||||
Intangible assets | 35 | |||||||
Property, plant and equipment | 393 | |||||||
Deferred tax asset | 80 | |||||||
Inventories | 1,127 | |||||||
Trade and other receivables | 4,098 | |||||||
Cash and cash equivalents | 3,960 | |||||||
21,114 |
2011 | ||||||||
Liabilities of disposal group classified as held for sale | £'000 | |||||||
Current tax payable | 617 | |||||||
Trade and other payables | 2,654 | |||||||
3,271 |
The net cash flows attributable to the operations classified as held for sale are as follows:
2011 | ||||||||
£'000 | ||||||||
Net cash inflow from operating activities | 9,676 | |||||||
Net cash outflow from investing activities | (120) | |||||||
Net cash flow from financing activities | - | |||||||
Net cash inflow | 9,556 |
7. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
2011 | 2010 | |||||||
'000 | '000 | |||||||
Weighted average number of shares (including treasury shares) | 137,287 | 137,287 | ||||||
Treasury shares | (7,580) | (7,447) | ||||||
Weighted average number of shares - basic | 129,707 | 129,840 | ||||||
Effect of dilutive potential ordinary shares - LTIP awards and options | 1,011 | 1,967 | ||||||
Weighted average number of shares - diluted | 130,718 | 131,807 |
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Profit for the period - continuing operations | 8,084 | 1,496 | ||||||
Profit for the period - discontinued operations | 7,399 | 5,551 | ||||||
15,483 | 7,047 | |||||||
Basic earnings per share | ||||||||
From continuing operations | 6.23p | 1.15p | ||||||
From discontinued operations | 5.70p | 4.28p | ||||||
11.93p | 5.43p | |||||||
Diluted earnings per share | ||||||||
From continuing operations | 6.18p | 1.13p | ||||||
From discontinued operations | 5.66p | 4.21p | ||||||
11.84p | 5.34p |
EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE EXCEPTIONAL ITEMS
Basic and diluted Underlying Earnings per Share information is presented as an additional measure using the weighted average number of ordinary shares for both basic and diluted amounts as per the table above.
Underlying profit after taxation from continuing operations is derived as follows:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Profit before taxation from continuing operations | 1,309 | 1,777 | ||||||
Exceptional costs | 830 | 395 | ||||||
Amortisation of intangible assets | 10,565 | 11,749 | ||||||
Unwinding discount on provisions | 492 | 559 | ||||||
Amortisation of borrowing costs | 3,148 | 2,295 | ||||||
Underlying profit before taxation from continuing operations | 16,344 | 16,775 | ||||||
Income tax expense | 6,775 | (281) | ||||||
Adjustment due to tax rate change | (2,137) | (892) | ||||||
Exceptional prior year tax adjustments | (4,970) | - | ||||||
Tax effect on exceptional costs and amortisation of intangible assets | (4,286) | (4,199) | ||||||
Underlying profit after taxation from continuing operations | 11,726 | 11,403 |
Underlying profit after taxation from discontinued operations is derived as follows:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Profit before taxation from discontinued operations | 10,108 | 7,758 | ||||||
Amortisation of intangible assets | 1 | - | ||||||
Underlying profit before taxation from discontinued operations | 10,109 | 7,758 | ||||||
Income tax expense | (2,709) | (2,207) | ||||||
Underlying profit after taxation from discontinued operations | 7,400 | 5,551 |
Earnings per share is summarised as follows:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Basic earnings per share | ||||||||
From continuing operations | 9.04p | 8.78p | ||||||
From discontinued operations | 5.71p | 4.28p | ||||||
14.75p | 13.06p | |||||||
Diluted earnings per share | ||||||||
From continuing operations | 8.97p | 8.65p | ||||||
From discontinued operations | 5.66p | 4.21p | ||||||
14.63p | 12.86p |
8. PROVISIONS
Property related | Restructuring | Warranty | Other | Total | ||||||
£'000 | £'000 | £'000 | £'000 | £'000 | ||||||
At 1 January 2010 | 13,088 | 731 | 1,474 | 5,722 | 21,015 | |||||
Provided during the year | 142 | 412 | 607 | - | 1,161 | |||||
Utilised during the year | (1,604) | (472) | (439) | - | (2,515) | |||||
Released during the year | (565) | (307) | (100) | (700) | (1,672) | |||||
Unwinding of discount | 559 | - | - | - | 559 | |||||
Exchange differences | 13 | 12 | - | - | 25 | |||||
At 31 December 2010 | 11,633 | 376 | 1,542 | 5,022 | 18,573 | |||||
Provided during the year | 262 | 105 | 1,201 | 300 | 1,868 | |||||
Utilised during the year | (1,290) | (228) | (336) | - | (1,854) | |||||
Released during the year | (1,165) | (56) | (187) | (1,700) | (3,108) | |||||
Unwinding of discount | 492 | - | - | - | 492 | |||||
Exchange differences | (9) | 2 | 33 | - | 26 | |||||
At 31 December 2011 | 9,923 | 199 | 2,253 | 3,622 | 15,997 | |||||
Current liabilities | 1,153 | 175 | 100 | 82 | 1,510 | |||||
Non-current liabilities | 8,770 | 24 | 2,153 | 3,540 | 14,487 | |||||
Total | 9,923 | 199 | 2,253 | 3,622 | 15,997 |
Current liabilities are those aspects of provisions that are expected to be utilised within the next year.
PROPERTY RELATED
Property provisions relate to provisions for onerous leases of £7,936,000, and leasehold dilapidations of £1,987,000, and are expected to be utilised by 2018.
For onerous leases, the Group has provided for the rental payments due over the remaining term of existing operating lease contracts where a period of vacancy is ongoing. The provision has been calculated after taking into account both the periods over which properties are likely to remain vacant and any likely sub lease income on a property-by-property basis. The provision covers potential transfer of economic benefit over the full range of current lease commitments.
The provision for leasehold dilapidations relates to contractual obligations to reinstate leasehold properties to their original state of repair. The transfer of economic benefits will occur at the end of the leases.
RESTRUCTURING
Restructuring provisions include provisions for staff redundancy costs at restructured/closed business units and are expected to be utilised by the end of 2013.
WARRANTY
The warranty provision is calculated based on historical experience of the ultimate cost of settling product warranty claims and potential claims. Warranty provisions are expected to be utilised by the end of 2017.
OTHER
Other provisions comprise taxation and inventory-related provisions, expected to be utilised by 2013 and 2018 respectively.
9. INTEREST-BEARING LOANS AND BORROWINGS
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Unsecured borrowing at amortised cost | ||||||||
Bank loans | 113,080 | - | ||||||
Secured borrowing at amortised cost | ||||||||
Bank loans | 85 | 119,467 | ||||||
Finance lease liabilities | - | 10 | ||||||
85 | 119,477 | |||||||
Total borrowings | 113,165 | 119,477 | ||||||
Analysed as: | ||||||||
Amount due for settlement within 12 months | 12,930 | 5,172 | ||||||
Amount due for settlement after 12 months | 100,235 | 114,305 | ||||||
113,165 | 119,477 |
On 14 September 2011, the Group entered into a new debt facility agreement which extends the Group's committed facilities to 31 March 2016. The multicurrency term loan of £110 million, as well as the £30 million multicurrency working capital facility, are unsecured and guaranteed by Lupus Capital plc and its principal subsidiary companies.
At 31 December 2011, the Group had drawn down $4,000,000 of the £30 million multicurrency working capital facility.
Scheduled repayments are to commence annually on 31 December 2012 and will continue until 31 December 2015, with the balance outstanding payable on the termination date of the facility, being 31 March 2016.
There were no defaults in interest payments in the year under the terms of the loan agreements.
10. DIVIDENDS
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Amounts recognised as distributions to equity holders in the period: | ||||||||
Final dividend for the year ended 31 December 2010 of 2p per share | 2,596 | - | ||||||
Amounts not recognised in the financial statements: | ||||||||
Proposed final dividend for the year ended 31 December 2011 of 3.5p per share | 4,544 | - |
The proposed final divided is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
11. ACQUISITION OF SUBSIDIARY
On 31 December 2011, the Group acquired 100 per cent of the issued share capital of Overland Products Company, Inc, obtaining control of Overland Products Company, Inc. Overland Products Company, Inc is based in Fremont, Nebraska and supplies an extensive range of stampings for a wide range of applications, mainly for the fenestration market, which provides the group with access to new markets and customers.
Recognised amounts of identifiable assets and liabilities acquired:
Book value | Fair value | |||||||
£'000 | £'000 | |||||||
Property, plant and equipment | 57 | 704 | ||||||
Intangible assets | - | 4,094 | ||||||
Inventories | 1,382 | 1,220 | ||||||
Trade and other receivables | 479 | 447 | ||||||
Trade and other payables | (427) | (443) | ||||||
Loan borrowings | (85) | (85) | ||||||
Deferred taxation | - | 1,954 | ||||||
Total identifiable assets | 7,891 | |||||||
Goodwill arising on acquisition | 2,389 | |||||||
Total consideration | 10,280 |
Satisfied by:
£'000 | ||||||||
Cash | 10,280 |
The fair value of the financial assets includes trade and other receivables with a fair value of £447,000 and a gross contractual value of £479,000. The best estimate at the acquisition date of the contractual cash flows not recoverable is £32,000.
The Group incurred acquisition related costs of £282,000 for professional fees paid for due diligence, other general professional fees and legal advice. These costs have been included in exceptional costs in the Group's consolidated income statement.
Had the acquisition of Overland Products Company, Inc been completed on the first day of the financial year, an additional £6.6 million of revenue and £1.0 million of profit before taxation would have been contributed to the Group.
Fair values remain provisional in relation to this acquisition and the Group will complete this review in 2012. Any adjustment to the carrying value is unlikely to be significant to the individual acquisition.
The estimated value of intangibles, including goodwill, deductible for tax purposes is $13,037,000.
12. ADJUSTMENTS TO CASH FLOWS FROM OPERATING ACTIVITIES
The following non-cash and financing adjustments have been made to profit before tax for the year to arrive at operating cash flow:
2011 | 2010 | |||||||
£'000 | £'000 | |||||||
Net finance costs | 9,642 | 11,996 | ||||||
Depreciation | 5,303 | 6,493 | ||||||
Amortisation | 10,566 | 11,749 | ||||||
Intangible and non-current assets written off | 314 | 76 | ||||||
Non cash adjustments | 338 | 289 | ||||||
Share based payments | 172 | 63 | ||||||
26,335 | 30,666 |
13. POST BALANCE SHEET EVENTS
DISPOSAL
On 13 March 2012, Lupus Capital plc entered into an unconditional agreement to sell the Group's Oil Services Division, Gall Thomson, to Copper Bidco Limited, a company controlled by Phoenix Equity Partners for a total cash consideration of approximately £75 million, subject to certain post-completion adjustments relating to the amounts of cash and net working capital held in the Gall Thomson Group at the date of disposal.
Approximately £30 million of the disposal proceeds will be applied in permanent pay down of the Group's debt facilities, offsetting future scheduled repayments. Approximately £2 million of the disposal proceeds will be spent on fees and expenses relating to the disposal. The disposal will lead to an accounting profit on disposal of approximately £53 million which will be recognized in the 2012 Financial Statements.
The cash consideration payable for Gall Thomson represents an exit multiple of 3.9x Gall Thomson's 2011 sales and 7.4x 2011 EBITDA. The Board believes that the valuation placed on Gall Thomson recognizes the high quality of the Oil Service businesses and that, following the disposal, Lupus's focus of resources on the Building Products Division will be in the best interest of Lupus Shareholders as a whole.
ONEROUS LEASE
On 2 March 2012, the Group concluded an agreement with a third party to assign the lease and exit Unit A, the remaining property on the Peterlee site. This will result in savings of £2.1 million in cash costs of rent, rates, utilities and services over the next six years to March 2018 and the release to the income statement in 2012 of around £1.9m of provisions, which will increase profit after tax by approximately £1.4 million.