Interim Results
Melrose PLC
13 September 2006
For Immediate Release
13 September 2006
MELROSE PLC
UNAUDITED RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
Melrose PLC today announces its interim results for the six month period to 30
June 2006. The highlights of the results, which are reported under IFRS, are:
• Revenue for the period was £255.5m
• Operating Profit (before exceptional costs, exceptional income and
intangible asset amortisation other than computer software amortisation) for
the period was £25.8m. After these costs operating profit was £20.0m
• EPS (before exceptional costs, exceptional income, intangible asset
amortisation other than computer software amortisation and before profit on
disposal of businesses) for the period was 5.4p. After these costs basic
EPS was 4.7p per share
• Interim dividend of 2.25p per share
Christopher Miller, Chairman of Melrose PLC, today said:
"We have had a busy 16 months getting to grips with the businesses we bought in
May last year. Raw material prices haven't helped, but we've managed to produce
some very encouraging results, particularly from Aerospace OEM, and we're
excited that there's more to go for."
Enquiries:
Nick Fox
M: Communications 020 7153 1540
CHAIRMAN'S STATEMENT
I am pleased to report our interim results for the six months to 30 June 2006.
The comparative figures for 2005 include the results of the Dynacast and
McKechnie businesses only from the date of acquisition on 26 May 2005.
RESULTS
Revenue for the period was £255.5m (2005: £43.1m). Profit before tax (before
exceptional costs, exceptional income, intangible asset amortisation other than
computer software amortisation and before profit on disposal of businesses) was
£20.0m (2005: £4.6m) and basic earnings per share (before exceptional costs,
exceptional income, intangible asset amortisation other than computer software
amortisation and before profit on disposal of businesses) were 5.4p (2005:
4.8p). After these items the profit before tax was £17.4m (2005: £4.6m) and the
basic earnings per share were 4.7p (2005: 4.8p).
We are very pleased with these results which show an encouraging improvement
during our period of ownership.
Underlying trading for our major businesses Aerospace OEM and Dynacast has been
encouraging. In particular, order books at Aerospace OEM are strong. Work
continues to improve efficiencies at all levels in these companies supported by
an increased investment programme.
In common with most manufacturing businesses, rapid raw material price increases
have proved difficult to accommodate over the last 12 months. However, the
strong positions our companies enjoy have allowed them to be successful in
passing on the large majority of these costs to their customers. The effort
expended by management in achieving this success should not be underestimated.
In several cases, our companies have altered their terms of trade to lock-in new
arrangements so that future price changes are easier to deal with.
DIVIDENDS
The Board has declared an interim dividend of 2.25p per share. This will be
paid on 17 November 2006 to shareholders on the register at close of business on
20 October 2006.
BOARD APPOINTMENTS
As previously announced, we appointed John Grant as our third non-executive
director on 1 August 2006. We are extremely pleased to have available to us his
long and valuable experience, particularly in the manufacturing sector.
STRATEGY
After 16 months in our ownership, our businesses have clear goals and are well
on their way to improving sustainable profitability.
It remains our strategy to realise the value in these businesses at the
appropriate time and to make significant returns to shareholders. The size of
these may depend to an extent on constraints such as recent pensions'
legislation and in this context we will pursue whichever course of action is in
shareholders' best interests.
Christopher Miller
13 September 2006
CHIEF EXECUTIVE'S REVIEW
I am pleased to set out below reports on the operating divisions.
DYNACAST
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 107.3 16.2
Headline Operating Profit * 11.1 2.2
Dynacast is a global manufacturer of precision engineered, die-cast metal
components. The products are manufactured using proprietary die-casting
technology and are supplied to a wide range of end markets, including
automotive, healthcare, telecommunications and consumer electronics.
Dynacast performed well in the first half of 2006. Its profit was very
creditable despite having had to contend with zinc, the company's primary raw
material, more than doubling in price compared with the first half of last year.
Dynacast has succeeded in recovering this increase from its customers for the
vast majority of its sales. However, there is a short time lag for this
recovery which can obscure the underlying trading performance. In order to
mitigate this effect, where possible, Dynacast's customers have been persuaded
to move to monthly pricing from quarterly pricing.
Asia Pacific continues to be the major engine of growth, with sales volume
increasing at the rate of 40% over 2005, whilst demand in North America and
Europe was more subdued, resulting in an overall underlying growth rate of the
business of approximately 6%. This reflects the ongoing pattern of Dynacast's
customers moving their production to 'low cost countries'. In order to
capitalise on this we continue to invest in the region, in particular China,
where the existing facility in Shanghai has been expanded and key management
have relocated from North America.
From its purpose-built factory in Austria, Dynacast successfully started
supplying Gillette with handles for its new razor product range. We continue to
manufacture other significant product ranges for Gillette from Dynacast's
facility in Montreal.
As part of the continuing review of the operating cost base to achieve optimum
efficiency, we announced the closure of the Dynacast manufacturing facility in
Spartanburg, South Carolina, during the period. This is in addition to the
closure of operating plants in the UK, Turkey and Taiwan since the business was
acquired last year, each of which was implemented on time and on budget.
Dynacast is successfully meeting the challenges set for it when we acquired the
business last year. It is a high quality business with good prospects. We look
to the future with confidence.
* Before exceptional costs, exceptional income and intangible asset amortisation
other than computer software amortisation.
AEROSPACE ORIGINAL EQUIPMENT MANUFACTURE
("AEROSPACE OEM")
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 69.1 10.6
Headline Operating Profit * 15.5 2.6
Aerospace OEM supplies safety-critical components to the global aerospace
industry and is based in the US and Europe. The business has excellent
engineering skills, producing value added products selling into niche markets in
which it has strong market shares.
Aerospace OEM has had an excellent first half with sales and operating profit
strongly ahead of last year. This has been achieved on the back of increases in
market share and new business awards on key platforms. In addition, all the
companies in the Aerospace OEM group continue to benefit from the buoyant
conditions in the commercial aviation industry.
Management have made good progress in implementing the operational improvements
which have enabled the business to handle the higher volumes of sales, whilst at
the same time improving efficiencies. This has been of particular benefit to
Hartwell and its aftermarket arm, Hasco, enabling them to work together better
to derive maximum benefit from the strong market whilst improving customer
service. The £4.5m investment in machine tool technology at Hartwell, which was
approved early in the year, is progressing well and should be largely
operational by the end of the year. We are also investing in all of these
businesses in order to improve their performance during the current aerospace
cycle.
Tyee was very pleased to be selected by Boeing as a key supplier for all the tie
rod requirements for the new 787 Dreamliner. This significant business award
was the result of working closely with Boeing to introduce ground-breaking
composite tube technology to achieve critical advantages in strength-to-weight
performance. The required capital investment programme amounting to
approximately £2m is currently being prepared in anticipation of deliveries
commencing in late 2007 to early 2008.
Electromech was delighted to receive FAA certification of its actuators for the
new Eclipse 500 aircraft, which has recently received provisional-type
certification. This 'very light jet' is an exciting and innovative development
in the commercial aviation industry and Electromech looks forward to working
with Eclipse to assist in the success of this project.
In addition, Aerospace OEM management are also pursuing a number of other
improvements, for example potentially significant savings in the supply chain
operations, contract profitability and working capital management.
The civil aerospace market is continuing to perform strongly and with healthy
order books we are confident that the business will continue to produce good
results going forward.
AEROSPACE AFTERMARKET
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 11.7 2.5
Headline Operating Profit * 0.4 nil
In May 2006 Arger was sold. Although Arger represented the bulk of this
division, it made a loss in 2005. Following its sale, this division consists of
AQS which is a successful aircraft battery distribution business based primarily
in the US and Europe.
This sale has involved a minimum of disruption to AQS's operations but has meant
taking on certain additional functions as a stand-alone business, such as a new
IT system.
AQS's customers and suppliers have welcomed the changes and in return AQS is
looking forward to delivering significant benefits by being able to operate as a
dedicated team focusing on one product line.
McKECHNIE VEHICLE COMPONENTS ("MVC")
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 26.5m 5.4m
Headline Operating Profit * (0.7m) 0.4m
MVC manufactures decorated exterior trim products for the US automotive
industry, principally coated metal and plastic wheel trims.
MVC's results for the period were unacceptably poor and plans for improvement
are underway. The introduction of new products in the final quarter is
important for this business but the effect of this will only be seen from 2007.
In addition to the well known, difficult conditions prevailing in the industry,
there were two specific factors that impacted MVC's performance in the period.
Higher petrol prices have led to a reduction in market demand and a number of
temporary plant closures as the US motor manufacturers seek to reduce high
inventories. There has also been a shift in sales in the US market from large
pick-up trucks and sports utility vehicles to smaller cars and crossover
vehicles with a resultant negative impact on MVC's margins on some products.
The second issue was the high level of contracted sales of loss making "legacy"
products. MVC management has been charged with the task of renegotiating these
contracts and seeking price increases. A degree of success has been achieved on
both fronts but in current market conditions this is a difficult and time
consuming process.
MVC has recently won a number of long term contracts for its new plastic wheel
trim products which begin selling in the second half of this year and will
provide an opportunity for better performance in 2007 and beyond. Substantial
investment in new plating capacity has been approved to support the projected
increase in sales.
Although MVC's results are poor and the conditions in the US automotive industry
remain difficult, we are hopeful that the measures being taken will start to
take effect in 2007.
McKECHNIE PLASTIC COMPONENTS ("MPC")
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 23.9 5.1
Headline Operating Profit * 1.0 0.3
MPC is a UK producer of engineered plastic and plastic injection moulded
components for products used in a variety of industries, including power tools,
IT hardware, food packaging, personal care and automotive.
Following the strategic review undertaken last year, it was decided to close
MPC's Northampton operation and to transfer some of its production to the
Stamford Bridge facility. This is scheduled to be completed before the year
end. This will result in a slimmed down business focusing on more profitable,
highly engineered, value added products.
The financial and operational performance of the business improved in the period
as management actively sought to increase selling prices to compensate for
higher raw material and energy prices, reduce scrap and optimise labour
efficiency.
The process of change and the improvement at MPC is ongoing. As these measures
continue to take effect we look forward to a steady improvement in its results.
McKECHNIE PSM ("PSM")
Period Ended Period Ended
30 June 2006 30 June 2005
£m 26 weeks 5 weeks
Revenue 17.0 3.3
Headline Operating Profit * 2.3 0.1
PSM manufactures and distributes specialised fasteners and joining systems,
primarily for the IT and automotive market.
The closure of the manufacturing facility in the Czech Republic and the transfer
of some of its production to Wuxi in China was successfully completed in the
first half of the year.
In addition to absorbing this relocated business from Europe, PSM experienced
strong growth in the Asia Pacific region. Although brass is a core raw material
and its price has risen significantly during the period, the impact was
mitigated by higher volume, effective supply management and selling price
increases.
The specialised Threadlocking and Sealing and Metal Pressing businesses based in
the UK continue to enjoy steady performance.
Having successfully closed its manufacturing plant in the Czech Republic, PSM is
well placed to benefit from its focus on the opportunities in the Asia Pacific
region. This is now a well balanced business and we look to the future with
confidence.
OUTLOOK
Our businesses operate in different markets and regions and face a number of
challenges and opportunities.
Dynacast's success in recovering raw material price increases demonstrates the
strength of the company's position in its market. Together with the investment
in Asia Pacific to capitalise on the strong demand in the region, the continuing
focus on the structural cost base and the new product introductions leave us
confident about its future prospects.
The order books across the Aerospace OEM division are very healthy, reflecting
the continuing buoyant conditions in the civil aerospace industry. Through a
combination of investment and operational improvements, we are seeking to
exploit these conditions to the full; and with the aerospace cycle forecast to
remain robust we look forward to this division continuing to perform well.
With the exception of MVC where measures are in train to address the poor
performance resulting from the tough conditions in the US automotive industry,
the other three smaller companies continue to make good progress.
We remain confident about the performance of the Group for the balance of 2006
and into 2007.
David Roper
13 September 2006
Consolidated Income Statement
Continuing operations 6 months 6 months
ended ended Year ended
30 June 30 June 31 December
Notes 2006 2005(1) 2005(2)
Unaudited Audited Audited
£m £m £m
Revenue 3 255.5 43.1 269.9
Cost of sales (200.4) (32.2) (207.2)
Gross profit 55.1 10.9 62.7
Net operating expenses before exceptional items
and intangible asset amortisation (3)
(29.8) (5.4) (35.8)
Share of joint ventures operating profits 0.5 0.1 0.6
Intangible asset amortisation (3) (2.7) - (3.1)
Exceptional costs 5 (5.4) - (16.3)
Exceptional income 6 2.3 - -
Total net operating expenses 4 (35.1) (5.3) (54.6)
Operating profit 20.0 5.6 8.1
Headline operating profit (4) 3 25.8 5.6 27.5
Profit on disposal of businesses 7 3.2 - -
Finance costs (5.9) (1.0) (7.3)
Finance income 0.1 - 0.7
Profit before tax 17.4 4.6 1.5
Tax 8 (5.2) (1.6) (5.4)
Profit/(loss) for the period from continuing operations 12.2 3.0 (3.9)
Attributable to:
Equity holders of the parent 12.2 3.0 (3.9)
Minority interests - - -
12.2 3.0 (3.9)
Earnings/(loss) per share
- Basic 9 4.7p 4.8p (2.4)p
- Diluted 9 4.6p 4.7p (2.4)p
(1) includes one months trading in respect of the McKechnie and Dynacast businesses acquired on 26
May 2005.
(2) includes seven months trading in respect of the McKechnie and Dynacast businesses acquired on 26
May 2005.
(3) other than computer software amortisation
(4) headline operating profit is operating profit before exceptional costs, exceptional income and
intangible asset amortisation other than computer software amortisation.
Consolidated Statement of Recognised Income and Expense
6 months ended 6 months ended Year ended
30 June 30 June 31 December
2006 2005 2005
Unaudited Audited Audited
Notes £m £m £m
Currency translation on net investments in
subsidiary undertakings (23.3) 1.4 17.5
Gains on cash flow hedges 10 1.2 - 1.5
Actuarial adjustments on pension liabilities 1.7 (2.7) 2.2
Net (expense)/income recognised directly in equity (20.4) (1.3) 21.2
Transferred to income statement on cash flow
hedges 10 0.1 - (0.1)
Profit/(loss) for the period 12.2 3.0 (3.9)
Total recognised income and expense for the period (8.1) 1.7 17.2
Attributable to:
Equity holders of the parent (8.1) 1.7 17.2
Minority interests - - -
(8.1) 1.7 17.2
Consolidated Balance Sheet
30 June 30 June 31 December
2006 2005 2005
Unaudited Audited Audited
Notes £m £m £m
Non-current assets
Goodwill and other intangible assets 378.3 400.6 408.2
Property, plant and equipment 85.7 93.8 89.9
Interests in joint ventures 2.8 2.6 2.7
Derivative financial instruments 2.6 - 1.4
Deferred tax assets 27.2 - 29.1
496.6 497.0 531.3
Current assets
Property held for re-sale - - 1.6
Inventories 57.2 50.4 56.0
Trade and other receivables 96.5 84.7 86.3
Cash and short term deposits 14 15.4 17.5 15.2
169.1 152.6 159.1
Total assets 665.7 649.6 690.4
Current liabilities
Trade and other payables 99.3 94.8 94.1
Interest-bearing loans and borrowings 0.7 5.3 3.9
Current tax liabilities 13.0 10.9 8.7
Provisions 8.5 2.6 10.7
121.5 113.6 117.4
Net current assets 47.6 39.0 41.7
Non-current liabilities
Interest-bearing loans and borrowings 202.3 204.2 210.0
Deferred tax liabilities 18.9 2.6 19.9
Retirement benefit obligations 57.8 60.6 60.5
Provisions 10.4 13.6 12.0
289.4 281.0 302.4
Total liabilities 410.9 394.6 419.8
Net assets 254.8 255.0 270.6
Equity
Issued share capital 10 0.3 0.3 0.3
Share premium account 10 12.8 12.8 12.8
Merger reserve 10 243.8 243.8 243.8
Hedging and translation reserves 10 (3.1) 1.4 18.9
Accumulated profits/(losses) 10 0.1 (4.1) (6.1)
Equity attributable to holders of the parent 253.9 254.2 269.7
Minority interest 10 0.9 0.8 0.9
Total equity 254.8 255.0 270.6
Consolidated Cash Flow Statement
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2006 2005 2005
Unaudited Audited Audited
Notes £m £m £m
Net cash from/(used in) operating activities 14 10.4 (9.5) 7.1
Investing activities
Interest received 0.1 - 0.7
Dividends received from joint ventures 0.3 - 0.5
Proceeds on disposal of property, plant and 3.2 - 0.3
equipment
Purchases of property, plant and equipment (9.4) (1.5) (7.0)
Purchases of computer software (0.2) - (0.1)
Acquisition of subsidiaries - (189.0) (199.6)
Disposal of businesses 7 7.2 - -
Net cash from/(used in) investing activities 1.2 (190.5) (205.2)
Financing activities
Repayments of obligations under finance leases (0.3) (0.2) (0.2)
Loan notes repaid (0.5) (0.3) (0.3)
New bank loans - 200.0 201.7
(Decrease)/increase in overdrafts (3.0) 4.8 -
New finance leases 1.4 - -
Dividend paid 11 (7.7) - -
Net cash (used in)/from financing activities (10.1) 204.3 201.2
Net increase in cash and cash equivalents 1.5 4.3 3.1
Cash and cash equivalents at beginning of year 15.2 11.7 11.7
Effect of foreign exchange rate changes (1.3) 1.5 0.4
Cash and cash equivalents at end of year 15.4 17.5 15.2
NOTES TO THE FINANCIAL INFORMATION
1. General Information
The consolidated financial statements of Melrose PLC for the 6 month period
ended 30 June 2006 were authorised in accordance with a resolution of the
directors of Melrose PLC on 13 September 2006.
The principal activities of the Melrose Group are described in note 3.
The financial information for the six months ended 30 June 2005 has been
extracted from audited information prepared as part of the Group's entry to the
Official List in December 2005 and does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The financial information for
the year ended 31 December 2005 does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. Statutory accounts for the
year ended 31 December 2005 have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The report of the auditors was
unqualified and did not contain statements under Section 237 (4) or (5) of the
Companies Act 1985. The results for the six months ended 30 June 2006 are
neither audited nor reviewed by the Company's auditors.
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's statutory accounts for the year ended
31 December 2005.
2. Summary of Significant Accounting Policies
The financial information included within the interim financial report has been
prepared using accounting policies consistent with International Financial
Reporting Standards (IFRS's) as endorsed by the European Union, which are the
same as those set out in the Group's published accounts for the period ended 31
December 2005.
Details of the Group's significant accounting policies are available from the
Registered Office and in the Group's Annual Report which is available at http://
www.melroseplc.net/.
3. Segment Information
The Group's primary reporting format is business segments and its secondary
format is geographical segments. The operating businesses are organised and
managed separately according to the nature of the products and services
provided, with each segment representing a strategic business unit that offers
different products and serves different markets. All reported revenue is derived
from one activity, the sale of goods.
The Dynacast segment is a supplier of die-cast parts and components to a range
of industries. The Aerospace OEM ("OEM") segment is a supplier of specialised
quality components to the Aerospace industry. The Aerospace Aftermarket ("
Aftermarket") segment is a supplier of replacement parts to the world's leading
airlines. McKechnie Vehicle Components ("MVC") supplies exterior trim products
to major vehicle manufacturers in the USA. McKechnie Plastic Components ("MPC")
is a UK supplier of plastic injection moulded and extruded components to the
automotive, consumer durable, IT and other industries. The McKechnie PSM ("PSM")
segment manufactures and distributes specialised fasteners globally to
automotive and other industries.
Transfer prices between business segments are set on an arm's length basis in a
manner similar to transactions with third parties.
The Group's geographical segments are determined by the location of the Group's
assets and operations.
Inter segment sales are not material and have not been included in the analysis
below.
3. Segment Information (continued)
Business segments
The following table presents revenue and headline operating profit information
(which the Directors believe is the best indicator of performance) and certain
asset and liability information regarding the Group's business segments for the
period ended 30 June 2006. Notes 5 and 6 give details of exceptional costs and
income.
Revenue Headline operating profit
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
Dynacast 107.3 16.2 105.0 11.1 2.2 13.6
OEM 69.1 10.6 69.4 15.5 2.6 14.6
Aftermarket 11.7 2.5 15.2 0.4 - 0.3
MVC 26.5 5.4 31.6 (0.7) 0.4 0.3
MPC 23.9 5.1 27.1 1.0 0.3 1.2
PSM 17.0 3.3 21.6 2.3 0.1 0.4
Central - - - (3.8) - (2.9)
255.5 43.1 269.9 25.8 5.6 27.5
Total assets Total liabilities
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
Dynacast 298.9 292.3 301.1 56.1 44.0 52.7
OEM 212.4 215.8 218.6 26.3 15.0 38.4
Aftermarket 5.9 14.5 11.9 1.7 3.5 3.4
MVC 40.6 41.5 42.7 11.1 8.8 10.9
MPC 35.3 39.8 38.0 8.8 9.0 10.8
PSM 42.6 40.8 46.7 15.1 31.3 17.3
Central 30.0 4.9 31.4 291.8 283.0 286.3
665.7 649.6 690.4 410.9 394.6 419.8
3. Segment Information (continued)
Capital Expenditure Depreciation & amortisation of computer
software
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
Dynacast 4.0 1.0 3.7 3.5 0.6 4.5
OEM 2.4 0.2 1.0 1.5 0.3 1.7
Aftermarket 0.1 - 0.1 0.1 - 0.1
MVC 1.8 - 0.6 1.0 0.2 1.1
MPC 0.5 0.1 0.5 0.9 0.2 1.1
PSM 0.8 0.2 1.0 0.5 0.2 1.1
Central - - 0.2 - - 0.1
9.6 1.5 7.1 7.5 1.5 9.7
Geographical Area
Revenue Headline operating profit
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
North America 121.6 20.9 133.9 13.8 2.9 15.6
Europe 104.1 18.4 108.2 7.5 1.9 6.5
Asia 29.8 3.8 27.8 4.5 0.8 5.4
255.5 43.1 269.9 25.8 5.6 27.5
Certain comparative figures have been restated to reflect more appropriate
corporate cost allocations.
3. Segment Information (continued)
Total Assets Total liabilities
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
North America 443.2 387.5 395.2 68.7 43.9 61.1
Europe 162.4 211.5 238.5 327.2 340.8 343.2
Asia 60.1 50.6 56.7 15.0 9.9 15.5
665.7 649.6 690.4 410.9 394.6 419.8
Capital expenditure Depreciation & amortisation of computer
software
6 6 6 6
months ended months ended Year ended months ended months ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
North America 4.1 0.4 1.4 3.2 0.6 3.8
Europe 3.9 0.8 4.2 3.4 0.7 5.0
Asia 1.6 0.3 1.5 0.9 0.2 0.9
9.6 1.5 7.1 7.5 1.5 9.7
4. Net Operating Expenses
Net operating expenses comprise:
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2005
2006 2005
£m £m £m
Selling and distribution costs (10.7) (2.2) (14.5)
Administration expenses (21.8) (3.2) (24.4)
Share of joint ventures operating profits 0.5 0.1 0.6
Other operating costs (5.4) - (16.3)
Other operating income 2.3 - -
Total net operating expenses (35.1) (5.3) (54.6)
5. Exceptional Costs
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2005
2006 2005
£m £m £m
Other operating costs
Dynacast restructure (3.7) - (3.7)
MPC restructure (1.7) - -
PSM restructure - - (10.5)
Listing expenses - - (2.1)
(5.4) - (16.3)
Dynacast Restructure
The restructuring of the Dynacast business continued during the period with the
completion of the closure of the businesses in Turkey, Taiwan and the UK and the
announcement of the closure of the Spartanburg, South Carolina plant. A charge
to the income statement of £3.7m was made in the period in respect of the
closure costs and asset impairment relating to the closure of Spartanburg. The
closure of Turkey, Taiwan and the UK was achieved within the amounts provided at
31 December 2005.
MPC Restructure
During the period, the closure of the Burnett (Northampton) plant of MPC was
announced. A charge of £1.7m was made to the income statement during the period
which related to asset impairments of £1.0m (including the anticipated loss on
sale of land and buildings of £0.6m), redundancy costs of £0.4m and costs
relating to the transfer of manufacturing to the Stamford Bridge, North
Yorkshire plant.
PSM Restructure
The restructuring of the European business of PSM was largely complete by 30
June 2006 and had been accomplished within the provision made at 31 December
2005.
6. Exceptional Income
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2005
2006 2005
£m £m £m
Other operating income
Onerous contract provision release 2.3 - -
At acquisition, an onerous contract was identified and appropriate provision was
made based on the circumstances prevailing at acquisition. Subsequent to the
acquisition and 31 December 2005, the terms of the contract have been
renegotiated and the improved terms of the contract have been reflected in the
accounts resulting in a release to the income statement of £2.3m. The
renegotiation took place in July 2006.
7. Disposal of Subsidiaries
On 26 May 2006, the Group disposed of its interest in Arger Enterprises Inc ("
Arger"), Jesse Industries Inc ("Jesse") and McKechnie Aerospace USA Inc
("PTMI"), which comprised part of the Aftermarket division.
On 31 March 2006, the Group sold the net assets of the Complex Cold Forming ("
CCF") business of the PSM Division of McKechnie Specialist Products Limited.
Net assets at the date of disposal were as follows:
Arger Jesse CCF Total
PTMI
£m £m £m
Property, plant and equipment 0.3 0.3 0.6
Inventories 1.5 0.5 2.0
Trade receivables 1.1 0.7 1.8
Trade payables (1.7) (0.4) (2.1)
Attributable goodwill 1.7 - 1.7
2.9 1.1 4.0
Gain/(loss) on disposal 3.6 (0.4) 3.2
Total consideration 6.5 0.7 7.2
Satisfied by:
Cash 6.5 0.7 7.2
Net cash flow arising on disposal:
Cash consideration 6.5 0.7 7.2
The impact of Arger and CCF on the Group's results in the current and prior
periods is as follows:
6 months ended 6 months ended Year ended
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Revenue
Arger/Jesse/PTMI 4.3 1.0 6.0
CCF 0.7 0.3 1.8
5.0 1.3 7.8
Operating profit
Arger/Jesse/PTMI (0.1) - (0.4)
CCF (0.1) - (0.4)
(0.2) - (0.8)
8. Income Tax
Analysis of the charge in the period:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Current tax 6.0 1.6 3.0
Deferred tax (0.8) - 2.4
Total income tax expense 5.2 1.6 5.4
Of the tax charge, £0.4 million relates to the UK, £4.6 million to overseas and
£0.2 million to joint ventures.
The tax for the period is equivalent to the standard rate of corporation tax in
the UK (30%). This is due to the factors detailed below:-
6 months 6 months ended Year
ended 30 June ended
30 June 2005 31 December
2006 2005
£m £m £m
Profit on ordinary activities before tax 17.4 4.6 1.5
Tax on profit on ordinary activities at UK corporate tax 5.2 1.4 0.5
rate (30%)
Expenses not deductible for tax purposes 0.3 0.3 0.7
Adjustment in respect of foreign tax rates 1.0 0.2 0.7
Excess losses not utilised 0.4 0.1 4.3
Utilisation of losses brought forward (1.6) - -
Taxable income /(deductible items) not in income
statement (0.4) (0.5) (0.8)
Withholding taxes on remittances from overseas 0.3 0.1 -
Total tax charge for the period 5.2 1.6 5.4
9. Earnings Per Share
Earnings 6 months ended 6 months ended Year
30 June 30 June ended
2006 2005 31 December
2005
£m £m £m
Earnings for the purposes of basic earnings per share
being net profit/(loss) attributable to equity holders
of the parent 12.2 3.0 (3.9)
Exceptional costs 5.4 - 16.3
Exceptional income (2.3) - -
Profit on disposal of business (3.2) - -
Other intangible asset amortisation 2.7 - 3.1
Tax (0.8) - (0.9)
Earnings for headline earnings per share 14.0 3.0 14.6
Number Number Number
Weighted average number of ordinary shares for the
purposes of basic earning per share (million) 257.1 61.7 160.2
Further shares for the purposes of fully diluted
earnings per share (million) 4.8 1.3 0.2
Earnings per share 6 months ended 6 months ended Year ended
30 June 30 June 31 December
2006 2005 2005
Basic earnings per share 4.7p 4.8p (2.4)p
Fully diluted earnings per share 4.6p 4.7p (2.4)p
Headline earnings per share 5.4p 4.8p 9.1p
Fully diluted headline earnings per share 5.3p 4.7p 9.1p
Where basic earnings per share are a loss, the anti-dilutive effect of any
further shares is ignored.
All earnings are derived from continuing operations.
10. Issued Capital and Reserves
Share Capital
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Authorised
342,830,000 Ordinary Shares of 0.1p each 0.3 0.3 0.3
59,170 Convertible B shares of £1 each 0.1 0.1 0.1
0.4 0.4 0.4
Allotted, called up and fully paid
257,119,989 Ordinary Shares of 0.1p each 0.2 0.2 0.2
59,170 Convertible B shares of £1 each 0.1 0.1 0.1
0.3 0.3 0.3
The Convertible B shares are non-voting and not entitled to any dividends.
Under these arrangements the directors and employees hold Convertible B shares
("incentive shares") which convert shortly after 31 May 2009 or, if earlier, on
a takeover of the Company, into Ordinary Shares with an aggregate value on
conversion equal to 10% of the increase in shareholder value. The number of
Ordinary Shares arising on conversion will be determined by reference to the
average market price of an Ordinary Share for forty business days prior to
conversion or the takeover offer price (as the case may be).
The increase in shareholder value is calculated as the difference between the
market capitalisation of the Company at conversion (determined by reference to
the average market price of an Ordinary Share for forty business days prior to
conversion, or the offer price (as the case may be)), and the net invested
capital in the company, being the aggregate of the amounts paid on the Ordinary
Shares up to conversion less all amounts paid by the Company by way of dividends
or other distributions in respect of those shares, where each such amounts shall
be adjusted in line with the movement in the RPI (plus 2% per annum).
Share premium account and merger reserve Share Merger
premium Reserve
account
£m £m
At 31 December 2005 and at 30 June 2006 12.8 243.8
10. Issued Capital and Reserves (continued)
Reserves Hedging and
translation Accumulated Minority
reserve profits/(losses) Interests
£m £m £m
At 31 December 2005 18.9 (6.1) 0.9
Currency translation and hedging adjustments (22.0) - -
Profit for the period - 12.2 -
Actuarial adjustments on pension liabilities - 1.7 -
Dividend paid - (7.7) -
Total recognised income and expense for the period (22.0) 6.2 -
At 30 June 2006 (3.1) 0.1 0.9
Hedging and translation reserve Hedging Translation
reserve reserve Total
£m £m £m
At 31 December 2005 1.4 17.5 18.9
Exchange differences on translation of overseas - (23.3) (23.3)
operations
Increase in fair value of hedging derivatives 1.2 - 1.2
Transfer to income 0.1 - 0.1
At 30 June 2006 2.7 (5.8) (3.1)
11. Dividends
6 months 6 months
ended ended
30 June 30 June
2006 2005
£m £m
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2005 of 3.0p (2004: nil p) per 7.7 -
share
12. Retirement Benefit Obligations
The assets and liabilities relating to the McKechnie Pension Plan were reviewed
by a qualified independent actuary at 30 June 2006. The retirement benefit
obligations for the McKechnie Pension Plan included in the balance sheet are
based on a discount rate of 5.2%pa, earnings increases of 3.5%pa and pension
increases of 2.9%pa. There are no changes to the mortality assumptions disclosed
in the Annual Report.
13. Share Based Payments
As disclosed in Note 10, the Company issues Convertible B shares to directors
and employees. The fair value charge is calculated using the Black-Scholes
valuation model in accordance with IFRS 2. A charge of £0.8m (which includes the
required National Insurance cost) has been included in the income statement for
the six months ended 30 June 2006.
14. Cash Flow
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Headline operating profit 25.8 5.6 27.5
Adjustments for:
Depreciation of property, plant and equipment 7.3 1.3 8.4
Amortisation of intangible assets for computer software 0.2 0.2 1.3
Abortive acquisition expenses paid - (3.4) (3.4)
Restructuring costs paid and decrease in other provisions (5.4) - (6.1)
Profit of joint ventures (0.5) - (0.6)
Operating cash flows before movements in working capital 27.4 3.7 27.1
Increase in inventories (5.4) (1.6) (7.0)
(Increase) /decrease in receivables (14.3) (2.3) 0.3
Increase / (decrease) in payables 8.1 (3.8) 1.2
Cash generated by operations 15.8 (4.0) 21.6
Income taxes paid (1.2) (0.4) (4.8)
Interest paid (2.6) (0.5) (4.5)
Pension contribution paid (1.6) (5.1) (5.2)
Non-cash items - 0.5 -
Net cash flow from operating activities 10.4 (9.5) 7.1
14. Cash Flow (continued)
Net debt reconciliation
Foreign
At 31 December exchange At 30 June
2005 Cash flow difference New leases 2006
£m £m £m £m £m
Cash 15.2 1.5 (1.3) - 15.4
Debt due within one year (3.5) 3.5 - - -
Debt due after one year (209.0) - 8.5 - (200.5)
Leases (1.4) 0.3 - (1.4) (2.5)
(198.7) 5.3 7.2 (1.4) (187.6)
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