Final Results

Dickinson Legg Group PLC 29 September 2004 For Immediate Release 29 September 2004 DICKINSON LEGG GROUP PLC Preliminary Results for the Year Ended 30 June 2004 Dickinson Legg Group, a leading specialist engineering group, incorporating Dickinson Legg and Spooner Industries announces preliminary results for the year ended 30 June 2004. Highlights • Improved financial performance in the second half year; • Rationalisation of operations undertaken on Winchester site; • Group turnover £42.5 million (2003: £48.8 million); • Operating profit (pre-exceptionals) £1.35 million (2003: £2.92 million), (post-exceptionals £1.11 million; 2003: £2.29 million); • Profit before tax (pre-exceptionals) £1.60 million (2003: £3.00 million), (post-exceptionals £1.36 million; 2003: £2.22 million) • Diluted adjusted earnings per share 2.2p (2003: 6.8p); • Final dividend proposed 0.5p, making total for the year of 1.0p (2003: 1.5p); • Net cash at year end £1.98 million (2003: net debt £0.40 million). Commenting on prospects, Barry Stevenson, Chairman said: 'Whilst we saw an improvement in profits during the second half, there is no evidence of an upturn in our markets. Trading will continue to be difficult in the near term and therefore our focus will continue to be on improving the Group's competitive position by reducing costs and exploiting market opportunities.' For further information please contact: Dickinson Legg Group plc 01962 841 788 Tom Mackie, Chief Executive David Heath, Group Finance Director Buchanan Communications 020 7466 5000 Richard Darby Eleanor Williamson 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 The year has proved to be exceptionally difficult with our markets depressed and competition fierce. I said in my statement last year that in our new structure following the demerger, we were much better placed than previously to deal with such conditions. Profits improved in the second half but were still substantially down on the comparative period last year. The balance sheet remains sound and further details of operations are given in the Chief Executive's review. Results Group turnover of £42.5 million (2003: £48.8 million) was 12.9% down and Group operating profit before exceptional items was 53.8% lower at £1.35 million (2003: £2.92 million). After exceptional items Group operating profit was £1.11 million (2003: £2.29 million). These disappointing figures are significantly below our expectations at the beginning of the financial year but as it became apparent that order intake was going to be depressed we issued a trading statement in January. The outcome for the year is in line with revised market expectations. Exceptional charges of £239,000 were due to the establishment of an onerous lease provision and accelerated depreciation following the decision to rationalise our operations on the Winchester site. Diluted earnings per share before exceptional items were 2.2p (2003: 6.8p). Net cash at the year end was £2.0 million. The improvement in the year from a net debt position of £0.4 million was primarily due to the lower levels of working capital required due to lower activity and the fact that the dividend payment of £0.7 million was deferred to 1 July 2004. The irregular nature of cash flow in the business means that the cash/debt position fluctuates significantly. The exceptionally high tax charge of 53.7% arises from unutilised advance corporation tax where we have taken the view that the balance should be written off. The charge only applies to this year. Dividend Although it remains our policy for the final dividend in normal circumstances to be two thirds of the total for the year, in view of the disappointing results and the uncertain prospects, the Board considers it to be prudent to recommend a final dividend of 0.5p (2003: 1.0p) making the dividend for the year of 1.0p (2003: 1.5p), which will be payable on 22 December 2004. Prospects There is no evidence of an upturn in our markets and trading will continue to be difficult in the near term. The focus will continue to be on improving the Group's competitive position by reducing costs and exploiting market opportunities. We continue to seek acquisition opportunities in related fields to our present activities that will enhance shareholder value but we have nothing to report at this time. People My thanks are due to all employees for their considerable efforts during a difficult year. B B Stevenson Chairman 29 September 2004 Chief Executive's Review Primary Tobacco Processing Equipment Dickinson Legg Businesses Dickinson Legg had a very slow start to the year, opening with an order backlog significantly below the previous year. However, as advised in the interim statement, a number of orders were secured in the first half year and this resulted in a much improved financial performance in the second half. Nonetheless, with lower demand for primary tobacco equipment, turnover, including the Group's share of the joint venture, was 22.4% lower at £30.2 million (2003: £38.9 million) and operating profit before exceptional items was 33.9% lower at £2.22 million (2003: £3.36 million) when compared to the previous year. Despite the depressed market conditions, Dickinson Legg's key products were successful in attracting new business during the year. Three new projects with a value of £9 million for the Expanded Stem System (ESS), marketed exclusively under license from R J Reynolds in the United States were awarded by existing customers of the process. The Company exhibited at the four yearly TabExpo tobacco exhibition held in Barcelona and a great deal of interest was expressed in the Expanded Stem System. Orders valued in excess of £4 million were received for the High Expansion Drying (HXD) process from customers in Asia. Good progress was made during the year in the sales of our RC5 and RC6 high speed cutters, which should generate future spares income. The successful development work concluded last year on our range of silos has lead to an improvement in our competitive position, which contributed to winning an order in excess of £3 million from a major UK tobacco customer. A successful development programme to enhance our vertical slicer was completed during the year and a unit was delivered to a major customer. It is anticipated that this reference will generate further opportunities for this product. Demand for spares and wear parts was lower due to a combination of lower requirements from customers and fewer spares packages associated with lower volumes of new machines. Our margins, however, were maintained. The volume of spare parts sold from our USA facility was comparable with the previous financial year. Following a slow start to the year our Indian Joint Venture, Dickinson Fowler made good progress during the second half of the year, with two contracts being awarded from Dickinson Legg. They also won an order for a major Indian tobacco customer with a value in excess of £1 million which will lead to the expansion of the current manufactured product range. There is no evidence of any improvement over the last twelve months in demand for primary tobacco processing equipment. Dickinson Legg's key tobacco processing equipment and supply of spares and wear parts continues to provide a base level for the company in a marketplace with fewer major projects. Air Drying Equipment Spooner Industries Following a much improved profit performance last year on the back of a record order intake, Spooner Industries experienced a dramatic reversal of fortunes with order intake reduced to approximately one third of the level in this financial year. Intense competition for available orders kept downward pressure on margins and the consequent impact on performance in the second half year resulted in a loss for the year of £0.06 million on turnover of £13.3 million. Spooner has continued to pursue its strategy of targeting other market sectors to expand the opportunities for custom designed process equipment. Notable achievements in the year include the installation of two large lines for drying metal coated strip, two lines for drying non-woven fabrics and a large spiral freezer for pre-prepared meals. These are all relatively new markets for Spooner and are areas that are expected to grow over the next few years. A number of actions have been taken to reduce the cost base and the number and quality of enquiries is encouraging, but until some of these are converted to firm orders it is too early to predict an uplift in this year's performance. T M Mackie Chief Executive 29 September 2004 Financial Review Introduction The financial statements have been prepared in accordance with applicable accounting standards, using policies consistent with the previous period with the exception of the policy on revenue recognition following the issue of FRS5 Application Note G, Revenue Recognition and a refinement in the presentation of our share of the results of the joint venture. Operating Results Profit on ordinary activities before interest, taxation and exceptional items for the period was £1.62 million (after exceptional items £1.39 million) against £3.21 million (after exceptional items £2.58 million) in the previous year. Earnings before interest, tax, depreciation and amortisation were £2.03 million (2003: £3.21 million). The tobacco processing equipment businesses contribution to group turnover was 69% (2003: 78%) and contributed all of operating profit before exceptional items. The air-drying business, Spooner, increased turnover by 20% but this increase was not replicated in the operating result, which produced a small loss of £0.06 million (2003: profit of £0.37 million). The Group continues to address its cost base and as a consequence has reduced its administrative overheads by £0.58 million before exceptional items. The majority of this is a result of headcount reductions in Dickinson Legg Limited. The effect of a prior year adjustment in respect of revenue recognition is described in note 6. Exceptional Items As a result of the decision to rationalise operations we are currently vacating a building at our Winchester site. In accordance with FRS 12 'Provisions, contingent liabilities and contingent assets' we have established an onerous lease provision for the costs we will incur until the lease ends in October 2005. We have also accelerated depreciation on the leasehold assets within this building. The total exceptional charge amounted to £0.24 million. Interest Interest payable was 61% lower than that incurred in 2003. This is a direct result of the £2.39 million cash generated by the businesses. Interest cover is improved at 15.8 times. Taxation The effective rate of tax for the year is 53.7% (2003: 14.4%), which amounts to £0.73 million (2003: £0.32 million). The increase in the effective rate is due to a number of factors, the largest being the need to write off £0.43 million of ACT held as an asset last year. This is due to a reassessment of our ability to utilise this in future periods. In addition the finalisation of the 2001/2 tax computations has resulted in a tax charge of £0.09 million. This has been partially offset by writing £0.2 million onto the balance sheet for tax losses available for offset against future taxable profits in the United States. Further details can be found in note 3. Dividends The Board is recommending the payment of a 0.5p final dividend. This dividend will be paid on 22 December 2004 to shareholders on the register on 26 November 2004. Earnings Per Share The earnings per share calculated in accordance with FRS 14 were 1.7p (2003: 5.2p). The adjusted earnings per share before exceptional items and allowing for the dilutive effect of the share options were 2.2p (2003: 6.8p). See note 5 for further detail. Capital Expenditure Capital expenditure totalled £0.16 million in the year (2003: £0.16 million), the majority of which was spent on the continuing improvements to the Group's information systems. Research and Development £0.27 million (2003: £0.28 million) was spent on the on-going development of existing product lines. Of this £50,000 was spent on the successful redesign of the vertical slicer in the Dickinson Legg business to improve the consistency of the product flow rate. These development costs were written off through the profit and loss account. Financing The net current asset position is in line with the restated 2003 year-end position. The net cash inflow for the year of £2.39 million (2003: £2.35 million) was boosted by the deferral of the dividend payments (£727,000) to 1 July 2004. As a consequence the net debt of the Group has been transformed from £0.40 million net debt to £1.98 million net funds at 30 June 2004. The Group continues to have its main banking relationship with Lloyds TSB with whom it has on demand facilities amounting to £12.70 million in aggregate and are not subject to financial covenants. Share Capital and Reserves The merger reserves arose in 2002 from the demerger from Brunel Holdings plc and an internal reorganisation prior to demerger. Other reserves of £39.50 million and the £86.80 million deficit on the profit & loss account are derived from the inclusion of a 'non trading' subsidiary company Thomas Robinson Group Limited. The negative profit and loss reserves do not prevent Dickinson Legg Group plc from paying dividends to shareholders as the Company has positive distributable reserves. Treasury Activities The Group continues to use financial instruments to manage risk. The Group does not engage in speculative activity. Treasury activities are reported on a monthly basis to the Board. 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. D G Heath Group Finance Director 29 September 2004 Group Profit & Loss Account For the year ended 30th June 2004 2003 2004 (restated) Before Exceptional Total Before Exceptional Total Exceptional Items Exceptional Items Items Items Note £000 £000 £000 £000 £000 £000 Turnover Turnover (including share of joint venture) - continuing 43,543 - 43,543 49,941 - 49,941 Less share of turnover of joint venture - continuing (1,073) - (1,073) (1,107) - (1,107) Group turnover 1 42,470 - 42,470 48,834 - 48,834 Cost of Sales (31,971) - (31,971) (35,134) - (35,134) Gross Profit 10,499 - 10,499 13,700 - 13,700 Distribution costs (6,180) - (6,180) (7,172) - (7,172) Administrative expenses 2 (3,148) (239) (3,387) (3,725) (634) (4,359) Other operating income 174 - 174 117 - 117 Group operating profit - 1,345 (239) 1,106 2,920 (634) 2,286 continuing Share of operating profit in joint venture - continuing 279 - 279 293 - 293 Total operating profit: Group & 1&2 share of joint venture 1,624 (239) 1,385 3,213 (634) 2,579 Exceptional items Group demerger and formation costs 2 - - - - (144) (144) Profit on ordinary activities before interest 1,624 (239) 1,385 3,213 (778) 2,435 Interest receivable and similar 67 - 67 24 - 24 income (including £21,000 from share of joint venture) Interest payable and similar (92) - (92) (236) - (236) charges Profit on ordinary activities before taxation 1,599 (239) 1,360 3,001 (778) 2,223 Taxation on profit on ordinary 3 (795) 65 (730) (510) 190 (320) activities Profit for the financial year 804 (174) 630 2,491 (588) 1,903 Dividends 4 (364) - (364) (14,963) - (14,963) Retained profit / (loss) for the 6 440 (174) 266 (12,472) (588) (13,060) financial year transferred to / (from) reserves Earnings per 20p Basic 5 1.7p 5.2p share : Diluted 5 1.7p 5.2p Diluted 5 2.2p 6.8p adjusted basis Group Balance Sheet as at 30 June 2004 2004 2004 2003 2003 (restated) (restated) Note £000 £000 £000 £000 Fixed assets Intangible assets 3,283 3,529 Tangible assets 853 1,132 Interest in joint venture - share of gross assets 1,329 825 - share of gross liabilities (734) (340) 595 485 4,731 5,146 Current assets Stocks 1,522 1,340 Debtors - due less than one year 11,896 16,497 Cash at bank and in hand 1,975 283 15,393 18,120 Creditors - amounts falling due within one year (13,438) (16,252) Net current assets 1,955 1,868 Total assets less current liabilities 6,686 7,014 Creditors - amounts falling due after more than one year - (545) Provisions for liabilities and charges (1,487) (1,420) Net assets 1 5,199 5,049 Capital and reserves Called up share capital 6 7,271 7,271 Merger reserve 6 45,234 45,234 Other reserves 6 39,496 39,496 Profit and loss account 6 (86,802) (86,952) Shareholders' funds - equity 6 5,199 5,049 Group Statement of Total Recognised Gains and Losses For the year ended 30 June 2004 2004 2003 Note £000 £000 Profit for the financial year 630 1,903 Currency translation differences on foreign currency net investments (116) (36) Total recognised gains and losses in the year 514 1,867 Prior year adjustment 6 219 Total recognised gains since last annual report 733 There is no difference between the reported profits of the Group and the profits on an historical cost basis. Group Cash Flow Statement for the year ended 30 June 2004 2004 2003 £000 £000 £000 £000 Net cash inflow from operating activities 2,836 3,636 Dividends received from joint venture - 85 Returns on investments and servicing of finance Interest received 13 3 Interest paid (89) (210) Interest element of finance lease rental payments (3) (8) Net cash outflow from returns on investments and servicing of finance (79) (215) Taxation (198) (400) Capital expenditure Purchase of tangible fixed assets (157) (158) Net cash outflow from capital expenditure (157) (158) Equity dividends paid pre-merger (see note 4) - (1,679) Net cash inflow before use of liquid resources and 2,402 1,269 financing Management of liquid resources Disposal of current asset investments - 1,500 Financing Group demerger and formation costs - (144) Increase in Brunel Holdings plc invested capital - 708 Capital element of finance lease rental payments (13) (99) Reduction in bank loans and loan notes - (883) (13) (418) Increase in cash 2,389 2,351 Notes to the financial statement 1 Segmental reporting Operating profit/ Operating profit/ (loss) (loss) By business Turnover before exceptional after exceptional Net assets/ segment: items items (liabilities) 2004 2003 2004 2003 2004 2003 2004 2003 (restated) (restated) (restated) (restated) £000 £000 £000 £000 £000 £000 £000 £000 Tobacco processing machinery Group 29,166 37,746 1,937 3,071 1,698 2,731 6,231 5,744 Joint venture 1,073 1,107 279 293 279 293 595 485 Air drying equipment 13,304 11,088 (56) 370 (56) 370 1,279 (295) Other - - (536) (521) (536) (815) (2,906) (485) activities Continuing 43,543 49,941 1,624 3,213 1,385 2,579 5,199 5,449 operations Group 42,470 48,834 1,345 2,920 1,106 2,286 4,604 4,964 Joint venture 1,073 1,107 279 293 279 293 595 485 43,543 49,941 1,624 3,213 1,385 2,579 5,199 5,449 Net debt - - (400) external 5,199 5,049 Operating profit/ Operating profit/ (loss) (loss) Geogrpahical Turnover before exceptional after exceptional Net assets/ (by origin) items items (liabilities) 2004 2003 2004 2003 2004 2003 2004 2003 (restated) (restated) (restated) (restated) £000 £000 £000 £000 £000 £000 £000 £000 United Kingdom (trading activities) 40,451 47,044 1,495 3,084 1,256 2,744 6,781 4,812 United Kingdom (other activities) - - (536) (521) (536) (815) (2,906) (485) United States of America 2,019 1,790 386 357 386 357 729 637 Rest of the World 1,073 1,107 279 293 279 293 595 485 43,543 49,941 1,624 3,213 1,385 2,579 5,199 5,449 Group 42,470 48,834 1,345 2,920 1,106 2,286 4,604 4,964 Joint venture 1,073 1,107 279 293 279 293 595 485 43,543 49,941 1,624 3,213 1,385 2,579 5,199 5,449 Net debt - - (400) external 5,199 5,049 Turnover Geographical (by destination): 2004 2003 (restated) £000 £000 United Kingdom 6,894 3,490 United States of America 5,990 4,463 Europe 13,234 15,535 Rest of the World 17,425 26,453 Continuing operations 43,543 49,941 Group 42,470 48,834 Joint venture 1,073 1,107 43,543 49,941 2 Exceptional items Notes 2004 2003 £000 £000 Group demerger and formation costs i - (232) Reorganisation / Restructuring costs ii (239) (340) Pensions advice iii - (62) Exceptional items within operating profit (239) (634) Group demerger and formation costs i - (144) Total exceptional items (239) (778) i Included in these sums in 2003 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 As a result of a reorganisation of the company's activities, notice has been given to exit one building currently used by Dickinson Legg Ltd. The company has a commitment to make payments on this lease until October 2005. Depreciation on leasehold improvements to this property has also been accelerated. The costs in 2003 relate to redundancy programmes within the tobacco processing equipment business (not related to the demerger). iii These costs, in 2003, relate to the selection and start up costs of the Group's defined contribution pension scheme. 3 Taxation 2004 2003 £000 £000 UK Corporation tax at 30% (2003: 30%) 314 579 Foreign tax 83 95 ACT written back / (off) 427 (356) Deferred taxation (179) 2 Prior year charge 85 - 730 320 The tax charge relates to the following Dickinson Legg Group 656 248 Joint venture 74 72 730 320 Analysis of charge in period Current tax: United Kingdom Corporation tax @ 30% 314 579 Prior year adjustment 85 - 399 579 Foreign tax: Overseas subsidiaries 9 23 Share of joint venture 74 72 Total current tax 482 674 ACT written off / (written back) 427 (356) Deferred tax: Origination and reversal of timing differences: United Kingdom (179) 2 Total deferred tax (179) 2 Tax on profit on ordinary activities 730 320 4 Dividends 2004 2003 £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 intercompany loans - 12,739 - cash payment - 1,679 - 14,418 Dividends following demerger: Ordinary shares: Interim at 0.5 pence per 20p share (2003: £nil) 182 - Final proposed at 0.5 pence per 20p share (2003: 182 545 1.5pence) 364 14,963 5 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 diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Reconciliations of earnings and weighted average number of shares used in the calculations are set out below: Earnings Weighted Total 2004 Earnings Weighted Total average Earnings per average 2003 shares share shares Earnings per share £'000 Number (pence) £'000 Number (pence) ('000s) ('000s) Basic earnings per share 630 36,355 1.7 1,903 36,355 5.2 Add : Dilutive effect of share options - 187 - - 162 - Diluted earnings per share 630 36,542 1.7 1,903 36,517 5.2 Add: Exceptional costs 239 - 0.7 778 - 2.1 Less: Tax effect of the exceptional costs (65) - (0.2) (190) - (0.5) Adjusted diluted earnings per share 804 36,542 2.2 2,491 36,517 6.8 6 Reconciliation of movement in shareholders' funds Called up Merger Other Profit & loss Total share capital reserves reserves account £000 £000 £000 £000 £000 Group At1 July 2003 as previously 7,271 45,234 39,496 (86,733) 5,268 reported Prior year adjustment - - - (219) (219) At 1 July 2003 as restated 7,271 45,234 39,496 (86,952) 5,049 Retained profit for the year - - - 266 266 Currency translation differences - - - (116) (116) As at 30 June 2004 7,271 45,234 39,496 (86,802) 5,199 The merger reserve arises in part on the acquisition of Dickinson Legg Limited, Spooner Industries Limited, Thomas Robinson Group Limited and DLG America Inc, by Legg Limited during April 2002 and also on the acquisition of Legg Limited by Dickinson Legg Group plc in December 2002. Prior year adjustment In November 2003 the Accounting Standards Board published Application Note G, ' Revenue Recognition', in respect of FRS5 'Reporting the Substance of Transactions'. As a result of this the directors have reviewed the Group's policy in respect of revenue recognition in respect of significant long-term contracts. Previously the elements of contracts in relation to the design & manufacture of machinery and the installation & commissioning of the equipment had been accounted for separately. Revenue relating to the design & manufacture of the machinery would have been fully recognised on shipment and then the installation & commissioning would have been recognised up to customer acceptance. The policy has been revised such that, where there is no separate contract, all phases of the project are combined and revenue recognised with reference to total cost from design through to customer acceptance. The effect of this change in policy is to spread the revenue recognition over a longer time period. This change in accounting policy has been recognised in these accounts as a prior year adjustment and comparative figures for 2003 have been restated. The effect of the prior year adjustment was to defer £219,000 of profit recognised in years prior to 2003. The net effect on profit in 2003 and 2004 was not material. The impact on opening shareholders funds was an equivalent reduction of £219,000 with no material subsequent effect. 7 Contingent liabilities The Group have the following contingent liabilities which have not been provided in the balance sheet since no actual liability is expected to arise: Bonds and Guarantees At 30 June 2004, the Group had outstanding bank and insurance guarantees in respect of advance payments, performance and other bonds totalling £ 2,561,000 (2003: £4,784,000). 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. 9 Preliminary Announcement This preliminary announcement has been prepared on the basis of the accounting policies set out in the annual financial statements for the year ending 30 June 2004. The financial information set out in this preliminary announcement does not constitute the company's statutory accounts for the years ended 30 June 2004 or 30 June 2003. The financial information for the year ended 30 June 2003 is derived from the statutory accounts for that year, which have been delivered to the Registrar of companies. The auditors report on those accounts was unqualified and did not contain a statement under either section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange
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