Final Results

Dickinson Legg Group PLC 01 October 2003 For Immediate Release 1 October, 2003 DICKINSON LEGG GROUP PLC PRELIMINARY RESULTS Dickinson Legg Group plc, ('the Company'), a leading designer and global supplier of primary tobacco processing and forced convection drying equipment solutions, today announces its maiden preliminary results for the year ended 30 June 2003. Highlights: • Successful conclusion of demerger and AIM listing • Group turnover at £49.2m (2002: £54.2m) • Group operating profit (pre-exceptionals) at £3.1m (2002: £6.7m) • Diluted EPS (pre-exceptionals) at 6.8p (2002: 16.2p) • Substantial reduction in net debt to £0.4m • Dividend proposed of 1.5p, deferred to 1 July 2004 • New Defined Contribution Pension Scheme implemented Commenting on prospects, Chairman Barry Stevenson, said: 'The markets in which the Group operate are very competitive and in most, demand is weak. The strengthening of the Euro against Sterling in recent months should help, but until there are definite signs of an upturn in global capital goods markets, difficult trading conditions will continue. However, in our new form we are much better placed to deal with these conditions. It is the Board's view that the Group is now in a position to consider acquisitions. Opportunities are being sought in related fields to our present activities to determine where shareholder value can be enhanced by this means.' For further information, please contact: Dickinson Legg Group plc Today 020 7466 5000; Barry Stevenson, Chairman thereafter 01962 841788 Tom Mackie, Chief Executive Buchanan Communications 020 7466 5000 Richard Darby / Bobbie Swanson Notes to Editors: The Company's businesses comprise Dickinson Legg Limited, a world leader in the manufacture and installation of primary tobacco processing equipment, and Spooner Industries Limited, a specialist air drying equipment manufacturer for the paper, converting (plastic film, foil and textile), metals and food industries. Chairman's Statement This is the first annual report of Dickinson Legg Group plc, which was demerged from Brunel Holdings plc on 13 December 2002. The demerger's principal objectives were the realisation of value for capital tax losses, which were unlikely to be utilised by the on-going business, a reduction in debt and to release the Group from pension fund liabilities, which at 30 June 2002 had an FRS 17 deficit of £15 million. In addition, head office costs were reduced, under-performing assets disposed of and the negative balance on distributable reserves eliminated, making possible the payment of dividends. The transition to the new group has taken a great deal of senior management time, but has gone smoothly and all the objectives have been achieved. The final step was the acceptance by employees of a new defined contribution pension scheme, which eliminates the possibility of a pension fund deficit arising in the future. The Group is now comprised of two profitable businesses operating globally in the design and manufacture of process equipment for the tobacco, paper, metal and food industries. The emphasis in both businesses is on design, based on process knowledge developed in close co-operation with customers. Results The accounts have been prepared on the basis that Dickinson Legg Group was in its current form throughout the year in accordance with the rules of merger accounting. Due to Dickinson Legg not benefiting from an exceptionally large contract as it did the previous year, Group turnover for the year was 9% down and Group operating profit before exceptionals 54% down. Total operating profit of £3.21 million before exceptional charges showed a marked improvement in the second half and the year's results were in line with market expectations at the time of the demerger. Spooner Industries continued to make progress in the second half achieving £0.43 million operating profit for the year (2002: £nil). Exceptional charges of £0.78 million were below the £1 million stated in the AIM admission document and comprised redundancy costs of £340,000 with the balance being demerger related costs (Refer to note 2 for further detail). Diluted earnings per share before exceptionals were 6.8p (2002: 16.2p). The nature of our business with large, irregular cash receipts does result in fluctuations in the net debt position, which showed a small increase in the second half to £0.4 million. This represents 7.6% of net assets. Net financing costs were 44% lower than in the previous year. Dividend Thought has been given to the best way of using the Group's pool of Advance Corporation Tax, thereby reducing tax payments and alternatives to the payment of a cash dividend were considered as indicated in the AIM listing document. However, it was decided that shareholders' interests were best served by paying a cash dividend, but to defer payment until the new financial year in order to optimise the tax position. This will save the Company £0.14 million. The directors are therefore recommending the payment of 1.5p dividend on 1 July 2004 to include 0.2p enhancement in compensation for the deferred payment. Going forward it is the intention that, subject to satisfactory performance, a progressive dividend policy will be implemented and an interim dividend representing approximately one third of the total year's dividend will be payable in the future. Prospects As indicated in the Chief Executive's report, the markets in which the Group operates are very competitive. In most, demand is weak which is reflected in Dickinson Legg's opening order position, which was lower than at the beginning of the previous year. It is therefore particularly noteworthy that Spooner has entered the current year with a record order book. The strengthening of the Euro against Sterling in recent months should help but until there are definite signs of an upturn in global capital goods markets, difficult trading conditions will continue. However, in our new form we are much better placed to deal with these conditions. We expect this year's performance to be strongly biased towards the second half. It is the Board's view that the Group is now in a position to consider acquisitions. Opportunities are being sought in related fields to our present activities to determine where shareholder value can be enhanced by this means. People Inevitably the demerger created uncertainty for employees, particularly with regard to their pension rights. My thanks are due to all concerned for their efforts and co-operation in resolving difficult issues amicably and without disruption. During the year Tom Mackie and David Heath became respectively Group Managing Director and Group Financial Director. On 1 July 2003, Tom Mackie was appointed Chief Executive and I gave up my executive role, reverting to being Chairman. I am pleased that Robert Davis joined the Board as non-executive director on 1 September 2003. His extensive management experience in international engineering companies will be of great value to us. Moger Woolley, who was for eight years Chairman of Brunel and subsequently non-executive director first of Brunel then of Dickinson Legg Group plc, has decided to retire after the Annual General Meeting. His advice and support has been of great value and I wish him a long and happy retirement. Barry Stevenson Chairman 1 October 2003 Chief Executive's Review Primary Tobacco Processing Equipment Dickinson Legg Businesses Following an exceptional performance in 2002, Dickinson Legg suffered from a low order intake in the early months of the new financial year. Turnover was 18% lower at £37.6 million and operating profit was 54% lower at £3.2 million before exceptional charges as the comparative period benefited from the £14 million Samsung contract. The sales mix changed from the previous year, the lower margin installation sales representing a larger proportion of turnover. Low manufacturing activity in the first half of the financial period resulted in significant under recovery of overheads. Management restructured the business to lower the cost base by reducing the headcount by some 15%, resulting in annualised savings of £0.4 million. The benefits of this action and an improvement in the order book resulted in a much stronger financial performance in the second half of the year, as indicated in the interim statement. The new Expanded Stem System (ESS) marketed exclusively under license from R J Reynolds in the United States is generating a number of serious enquiries. Two new orders valued in excess of £4 million were received during the year, one of which was for an existing customer of the system. Four projects for the High Expansion Drying (HXD) system, jointly developed with BAT, generated sales in excess of £6 million to customers in Asia. The new high-speed cutters RC5 and RC6 are being well received by the market with a number of units sold to the multinational and independent tobacco processors. In addition to the new products launched in the last few years, we continue to focus our product development on enhancements to our existing product range, often in response to feedback from our customers. A major exercise on our range of silos was completed in the year improving serviceability and reducing cost. Our spares and wear parts business - based in Andover, Hampshire and Richmond, Virginia - performed well albeit volumes in the United States were marginally lower than anticipated due to customers reducing their inventories. Several cutters were refurbished for customers, which generated additional spares volumes. As the population of the new RC5 and RC6 cutters grows, the demand for spare parts will increase. Our Indian Joint Venture, Dickinson Fowler, made excellent progress in the year, meeting customers' quality and delivery requirements whilst increasing volumes and profits. The low cost structure is improving the company's overall competitive position and providing a vehicle for better access to the Asian market. Following several years of high investment by the major tobacco customers, there has been a general slow down in the number and scale of projects, resulting in an extremely competitive marketplace. Dickinson Legg's range of key processing equipment continues to generate opportunities at a time when our customers' capital expenditure is constrained. Air Drying Equipment Spooner Industries Spooner Industries delivered a significant improvement in performance, increasing turnover by 32% to £11.56 million and returning an operating profit of £0.43 million, generating an operating margin of 3.7%. This achievement is more remarkable given the flat markets in which the company has been competing against predominantly Euro based competition when Sterling was particularly strong. Spooner has applied its expertise in forced air convection technology to expand into other market sectors, supplying custom-designed process equipment. In addition to its traditional markets in the paper and converting industries, Spooner has established a position in the metals industry, in galvanising and coil coating, and is developing a growing presence in the food industry, in baking and cooling. Orders valued at £4.8 million were secured during the year in the metals industry. New environmental standards are expected to lead to higher investment in North America over the next two or three years where we have recently secured a large order for coil coat ovens. Spooner Industries has entered the current financial year with a record order book. New opportunities are being explored in the non-wovens market sector, which has been identified as a growth market. General activity in the paper equipment market has been low, with the exception of China, and we do not expect this situation to change in the near future. However, the technically advanced Spooner ModuleDryer, developed in partnership with Voith Paper, is now regarded as a proven product and is expected to provide an increased number of opportunities. The traditional market for the supply of film and foil converting lines in Europe is in a period of consolidation and it is still uncertain as to what effect this will have. Tom Mackie Chief Executive 1 October 2003 Financial Review Introduction The accounting policies of our former holding company, Brunel Holdings, have been adopted and applied throughout the periods covered by these financial statements. Operating Results Profit on ordinary activities before taxation and exceptionals for the period was £3.0 million against £6.39 million in the previous year, a year which included the benefits of Dickinson Legg Limited's exceptional £14 million order from Samsung. Earnings before interest, tax, depreciation and amortisation were £3.71 million (2002: £7.31 million). The tobacco processing equipment businesses contribution to group turnover was 77% (2002: 82%) and it contributed the majority of operating profit before exceptional items. The air-drying business, Spooner, saw significant growth, with turnover increasing by 32% and an improved £0.43 million (2002: £nil) operating profit. Exceptional Items As a result of the demerger and listing of the Group on the Alternative Investment Market, the Group incurred advisors and printing costs amounting to £0.14 million and management charges from Brunel Holdings amounting to £0.23 million. The Group also incurred costs of £0.06 million on the selection and establishment of the new pension arrangements and a redundancy program in Dickinson Legg Limited resulted in exceptional costs of £0.34 million. Interest Interest payable was 53% lower than that incurred in 2002, due primarily to the £2.35 million cash generated by the businesses combined with the fall in bank base rates. Interest cover is unchanged at 13.7 times. Taxation The effective rate of tax for the year is 14.4% (2002: 8.5%), which amounts to £0.32 million (2002: £0.49 million). The increase in the effective rate of tax is due to writing back less Advance Corporation Tax, being £0.36 million (2002: £0.60 million). At 30 June 2003, the Group has £0.12 million of unrecognised ACT, which may reduce tax in future years. Dividends The Board is recommending the payment of a 1.5p final dividend. In order to maximise the utilisation of the Group's pool of Advance Corporation Tax, the dividend will be paid on 1 July 2004 to shareholders on the register on 28 May 2004. Earnings Per Share The basic earnings per share calculated in accordance with FRS 14 were 5.2p (2002: 14.6p). The earnings per share before exceptional items and allowing for the dilutive effect of the share options were 6.8p (2002: 16.2p). See note 4 for further detail. Capital Expenditure Capital expenditure totalled £0.16 million in the year (2002: £0.25 million), the majority of which was spent on improvements to the Group's information systems. Research and Development £0.28 million (2002: £0.31 million) was predominantly spent on the on-going development of existing product lines. These developments were written off through the profit and loss account. Pensions Following the demerger from Brunel Holdings plc, the employees of Dickinson Legg Limited and Spooner Industries Limited who were participants of the Brunel Holdings plc defined benefit pension scheme continued to participate in that scheme until 13 June 2003. From 14 June 2003, those employees became participants of a defined contribution scheme, established by the Group for its eligible UK employees. Financing There has been a marked improvement from the net current liability position of £0.72 million last year to £2.09 million net current asset position as at 30 June 2003, principally due to a positive cash in-flow for the year of £2.35 million. Some £1.96 million of this has been achieved from normal trading activities and the remaining net inflow of £0.39m gained as a result of the demerger. Consequently the net debt of the Group has been reduced from £3.68 million to £0.40 million at 30 June 2003 representing 8% of net assets (2002: 108%). Following the demerger the group retained its banking facilities with Lloyds TSB. These are on demand facilities amounting to £12.70 million in aggregate and are not subject to financial covenants. Share Capital and Reserves The merger reserves have arisen from the demerger from Brunel Holdings plc and an internal reorganisation prior to demerger (as described in the basis of preparation note below). Other reserves of £40.20 million and the £87.44 million deficit on the profit and loss account are derived from the inclusion of a ' non-trading' subsidiary company, Thomas Robinson Group Limited. The negative profit and loss reserves of the Group do not prevent Dickinson Legg Group plc from paying dividends to shareholders as the Company has positive distributable reserves. Treasury Activities The Group has adopted the policies applied by the former holding company, Brunel Holdings plc, and the Group uses financial instruments to manage risk. The Group does not engage in speculative activity. Treasury activities are reported on a monthly basis to the Board and are subject to review by internal audit. The principal financial risks faced by the Group are foreign exchange and to a much lesser extent interest rate risk. The Group operates a risk averse policy to foreign exchange exposures. Contract and trading transactions in non-local currencies are hedged (using foreign currency forward contracts) as soon as there is reasonable certainty in the amounts and timings. Preliminary Announcement The financial information contained in this preliminary announcement does not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985. David Heath Group Financial Director 1 October 2003 Dickinson Legg Group plc GROUP PROFIT AND LOSS ACCOUNT For the year ended 30 June 2003 2003 2002 Note Before Before Exceptional Exceptional Exceptional Exceptional Items Items Total Items Items Total £000 £000 £000 £000 £000 £000 Turnover Turnover (including share of joint venture) 49,714 - 49,714 55,257 - 55,257 - continuing Less share of turnover of joint venture - (529) - (529) (1,101) - (1,101) continuing Group turnover 1 49,185 - 49,185 54,156 - 54,156 Cost of Sales (35,108) - (35,108) (35,689) (587) (36,276) Gross Profit 14,077 - 14,077 18,467 (587) 17,880 Distribution costs (7,319) - (7,319) (7,844) - (7,844) Administration expenses 2 (3,790) (634) (4,424) (4,092) - (4,092) Other operating income 117 - 117 163 - 163 Group operating profit - continuing 3,085 (634) 2,451 6,694 (587) 6,107 Share of operating profit in joint venture - 129 - 129 73 - 73 continuing Total operating profit: Group & share of 1&2 3,214 (634) 2,580 6,767 (587) 6,180 joint venture Exceptional items Group demerger and formation costs 2 - (144) (144) - - - Profit on ordinary activities before 3,214 (778) 2,436 6,767 (587) 6,180 interest Interest receivable and similar income 24 - 24 123 - 123 Interest payable and similar charges (236) - (236) (502) - (502) Profit on ordinary activities before 3,002 (778) 2,224 6,388 (587) 5,801 taxation Taxation on profit on ordinary activities (510) 190 (320) (494) - (494) Profit for the financial year 2,492 (588) 1,904 5,894 (587) 5,307 Dividends 3 (14,963) - (14,963) (289) - (289) Retained (loss)/profit for the financial 5 (12,471) (588) (13,059) 5,605 (587) 5,018 year transferred (from)/to reserves Earnings per 20p share: Basic 4 5.2 p 14.6 p Diluted 4 5.2 p 14.6 p Diluted adjusted basis 4 6.8 p 16.2 p Dickinson Legg Group plc GROUP BALANCE SHEET as at 30 June 2003 2003 2003 2002 2002 Note £000 £000 £000 £000 Fixed assets Intangible assets 3,529 3,775 Tangible assets 1,132 1,377 Interest in joint venture - share of gross assets 825 728 - share of gross liabilities (340) (405) 485 323 5,146 5,475 Current assets Stocks 1,340 1,976 Debtors - due less than one year 17,807 14,809 - due after one year - 1,402 Cash at bank and in hand 283 103 19,430 18,290 Current liabilities Creditors - amounts falling due (17,343) (19,013) within one year Net current assets / (liabilities) 2,087 (723) Total assets less current liabilities 7,233 4,752 Creditors - amounts falling due after more than (545) (13) one year Provisions for liabilities and charges (1,420) (1,323) Net assets 1 5,268 3,416 Capital and reserves Called up share capital 5 7,271 - Merger reserve 5 45,234 - Other reserves 5 40,204 - Profit and loss account 5 (87,441) - Owner's net investment 5 - 3,416 Shareholders' funds - equity 5 5,268 3,416 Dickinson Legg Group plc GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 June 2003 2003 2002 £000 £000 Profit for the financial year 1,904 5,307 Currency translation differences on foreign currency net investments (36) 34 Total recognised gains and losses in the year 1,868 5,341 There is no difference between the reported profits of the Company and the profits on an historical cost basis Dickinson Legg Group plc GROUP CASH FLOW STATEMENT for the year ended 30 June 2003 2003 2002 £000 £000 £000 £000 Net cash inflow from operating activities 3,636 6,545 Dividends received from joint venture 85 - Returns on investments and servicing of finance Interest received 3 110 Interest paid (210) (477) Interest element of finance lease rental (8) (25) payments Net cash outflow from returns on investments and servicing of finance (215) (392) Taxation (400) (279) Capital expenditure Development costs incurred - (193) Purchase of tangible fixed assets (158) (245) (158) (438) Equity dividends paid pre-demerger (see note 3) (1,679) (289) Net cash inflow before use of liquid resources and financing 1,269 5,147 Management of liquid resources Disposal of current asset investments 1,500 - Financing Group demerger and formation costs (144) - Increase in Brunel Holdings plc invested 708 288 capital Capital element of finance lease rental (99) (141) payments Reduction in bank loans and loan notes (883) (7) (418) 140 Increase in cash 2,351 5,287 NOTES 1. Segmental reporting By business segment: Operating Operating Net profit/(loss) profit/(loss) assets/(liabilities) Turnover before exceptional after exceptional items items 2003 2002 2003 2002 2003 2002 2003 2002 £000 £000 £000 £000 £000 £000 £000 £000 Tobacco processing machinery Group 37,623 45,417 3,176 6,874 2,836 6,287 5,876 6,564 Joint venture 529 1,101 129 73 129 73 485 323 Air drying equipment 11,562 8,739 430 1 430 1 (208) 180 Other activities - - (521) (181) (815) (181) (485) 33 Continuing operations 49,714 55,257 3,214 6,767 2,580 6,180 5,668 7,100 Group 49,185 54,156 3,085 6,694 2,451 6,107 5,183 6,777 Joint venture 529 1,101 129 73 129 73 485 323 49,714 55,257 3,214 6,767 2,580 6,180 5,668 7,100 Net debt - external (400) (3,684) 5,268 3,416 Other activities are predominantly head office costs. In 2002 the head office costs of the former holding company were recharged to its subsidiary companies and so are reflected in the results of the trading business segments. Geographical (by origin): Operating Operating Net profit/(loss)before profit/(loss) assets/ Turnover exceptional items after exceptional (liabilities) items 2003 2002 2003 2002 2003 2002 2003 2002 £000 £000 £000 £000 £000 £000 £000 £000 United Kingdom (trading 47,395 50,721 3,249 6,321 2,909 5,734 5,304 6,148 activities) United Kingdom (other activities) - - (521) (181) (815) (181) (485) 33 United States of America 1,790 3,435 357 554 357 554 364 596 Rest of the World 529 1,101 129 73 129 73 485 323 49,714 55,257 3,214 6,767 2,580 6,180 5,668 7,100 Group 49,185 54,156 3,085 6,694 2,451 6,107 5,183 6,777 Joint venture 529 1,101 129 73 129 73 485 323 49,714 55,257 3,214 6,767 2,580 6,180 5,668 7,100 Net debt - external (400) (3,684) 5,268 3,416 Geographical (by destination): Turnover 2003 2002 £000 £000 United Kingdom 2,912 4,654 United States of America 4,547 5,661 Europe 16,090 7,314 Rest of the World 26,215 37,628 Continuing operations 49,764 55,257 Group 49,185 54,156 Joint venture 529 1,101 49,714 55,257 2. Exceptional items Notes 2003 2002 £000 £000 Group demerger and formation costs i (232) - Restructuring costs ii (340) - Pensions advice iii (62) - Write off development costs - (587) Exceptional items within operating (634) (587) profit Group demerger and formation costs i (144) - Total exceptional items (778) (587) i Included in these sums are the costs borne by the Group for listing on AIM. The costs included in arriving at operating profit represent a recharge from the former parent company, Brunel Holdings plc, for the management time expended in negotiating the demerger. The costs included after operating profit include only the direct costs related to the admission of the group on AIM, which include advisors and print costs. ii These costs relate to redundancy programmes within the tobacco processing equipment business (not related to the demerger). iii These costs relate to the selection and start up costs of the Group's defined contribution pension scheme. 3. Dividends 2003 2002 £000 £000 Dividends prior to demerger: Amounts paid to former holding company, Brunel Holdings plc in the period prior to the demerger, and therefore do not represent dividends paid by Dickinson Legg Group plc The dividend was settled as follows: - waived inter-company loans 12,739 - - cash payment 1,679 289 14,418 289 Dividends following demerger: Ordinary shares: Final proposed (to be paid on 1 July 2004) at 1.5 pence 545 - per share 14,963 289 4. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue. For the period prior to the admission of Dickinson Legg Group plc on AIM, the weighted average number of shares used in the calculation is the number of shares in issue at Admission. Weighted Total 2003 Weighted Total 2002 average Earnings average Earnings Earnings shares per share Earnings shares per share £000 Number (pence) £000 Number (pence) ('000s) ('000s) Basic earnings per share 1,904 36,355 5.2 5,307 36,355 14.6 Add : Dilutive effect of share options - 162 - - - - Diluted earnings per share 1,904 36,517 5.2 5,307 36,355 14.6 Add : Exceptional costs 778 - 2.1 587 - 1.6 Less : Tax effect of the exceptional (190) - (0.5) - - - costs Adjusted diluted earnings per share 2,492 36,517 6.8 5,894 36,355 16.2 5. Reconciliation of movement in shareholders' funds Called up Merger Other Profit & Owners net Total share reserves reserves loss investment capital account £000 £000 £000 £000 £000 £000 Group As at 1 July 2002 - - - - 3,416 3,416 Retained loss before demerger - - - - (14,480) (14,480) Funding flows with Brunel Holdings - - - - 12,739 12,739 Currency translation differences pre-demerger - - - - (41) (41) Transfer on demerger 7,271 45,234 40,204 (88,867) (1,634) 2,208 Retained profit after demerger - - - 1,421 - 1,421 Currency translation differences since - - - 5 - 5 demerger As at 30 June 2003 7,271 45,234 40,204 (87,441) - 5,268 The merger reserve arises in part on the acquisition of Dickinson Legg Limited, Spooner Industries Limited, Thomas Robinson Group Limited and Brunel America Inc. in April 2002 and also on the acquisition of Legg Limited by Dickinson Legg Group plc in December 2002. 6. Contingent liabilities The Group has the following contingent liabilities, which have not been provided in the balance sheet since no actual liability is expected to arise: Bonds and Guarantees The Group had at 30 June 2003 outstanding bank and insurance guarantees in respect of advance payments, performance and other bonds totaling £4,784,000 (2002: £4,309,000). 7. Basis of preparation Dickinson Legg Group plc was incorporated on 26 September 2002 as Temple plc and changed its name to Dickinson Legg Group plc on 4 October 2002. On 16 December 2002, its ordinary shares were listed on the Alternative Investment Market ('AIM ') following a group reorganisation undertaken by Brunel Holdings plc ('Brunel') to demerge its trading businesses. With effect from 1 April 2002 Legg Limited ('Legg'), a wholly owned subsidiary of Brunel, acquired the entire issued share capital of Dickinson Legg Limited (' 'DLL'') and Spooner Industries Limited (''SIL'') from Tod Limited (''Tod''), a wholly owned subsidiary of Brunel, for £21,500,000, and the entire issued share capital of Thomas Robinson Group Limited (''TRG'') from Brunel for £1. On 23 April 2002 Legg Limited acquired the entire issued shares of Brunel America Inc. (''BAI'') from Brunel for $1,500,000. As at 30 June 2002, the consideration payable to Tod and Brunel for these transactions was still outstanding on intercompany accounts. Pursuant to an agreement concerning the reorganisation: • Legg paid Tod £21,500,000 of cash in settlement of the purchase consideration for DLL and SIL. This payment was funded by an intercompany loan from Brunel; and • Brunel waived all amounts owed to it by Legg, including the £21,500,000 lent to Legg To fund the payment to Tod, the $1,500,000 consideration payable for the purchase of BAI and the £1 consideration payable for TRG. On 13 December 2002 Dickinson Legg Group plc acquired from Brunel 100% of the ordinary share capital of Legg. The consideration for this transaction of £24,500,000 was in the form of ordinary share capital of Dickinson Legg Group plc ('Group') issued to the shareholders of Brunel. Accordingly, this transaction has been accounted for using merger accounting principles. As part of this transaction, Brunel contributed listed shares to Dickinson Legg Group plc to the value of £1,500,000 as settlement of the amount owed by Brunel to Spooner Industries Limited. Viewed in isolation, the legal form of the transactions by which Legg acquired DLL, SIL, TRG and BAI is that of acquisitions for cash rather than shares. On this basis, the transactions do not meet all the conditions for merger accounting set out in Schedule 4A to the Companies Act 1985, and Financial Reporting Standard 6 (''FRS6''), which would require Legg to use acquisition accounting, rather than merger accounting, for these transactions. If acquisition accounting were used to account for these transactions the separable net assets of DLL, SIL, TRG and BAI would be recorded at their fair values at the date of their acquisitions by Legg, substantial goodwill and goodwill amortisation charges would arise and only the post acquisition results would be reflected in the financial statements of the Dickinson Legg Group. The directors consider that to apply acquisition accounting would fail to give a true and fair view of the state of affairs and results of the Dickinson Legg Group. This is due to the fact that the series of transactions is a group reconstruction rather than an acquisition since the ultimate shareholders of Legg are the same as those of Brunel and, in substance, no consideration is given by Legg. Accordingly, the directors have accounted for Legg's acquisitions of DLL, SIL, TRG and BAI using merger accounting. The directors consider that it is not practicable to quantify the effects of this departure from the Companies Act 1985 and FRS6. These accounts have been prepared as if the Dickinson Legg Group had been demerged from Brunel Holdings PLC prior to 1 July 2001. This presents information, which better reflects the ongoing operations of the Group. 8. Annual Report and Accounts & AGM The Annual Report and Accounts will be posted to shareholders shortly and will be available from the Company's Registered office at Moorside Road, Winchester, Hampshire SO23 7SS. The Company's AGM will be held on 25 November 2003. This information is provided by RNS The company news service from the London Stock Exchange EN FR SDAFWSSDSEDU

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