Interim Results
Melrose PLC
12 September 2007
For Immediate Release
12 September 2007
MELROSE PLC
UNAUDITED RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Melrose PLC today announces its interim results for the six month period to 30
June 2007. The highlights of these results, which are reported under IFRS, are:
• Revenue for the continuing group for the period was £172.9 million
(2006: £161.4 million)
• Headline Operating Profit for the continuing group (before exceptional
costs, exceptional income and intangible asset amortisation other than
computer software amortisation) for the period increased by 39% to £11.4
million (2006: £8.2 million). After these items operating profit was £11.3
million (2006: £1.8 million)
• Interim dividend of 2.5p (2006: 2.25p) per share
• Sale of McKechnie Aerospace division and most of PSM division for a
total of £458 million - which was more than was paid for the whole Dynacast
and McKechnie group
• Cash in hand of over £250 million at 30 June 2007 prior to the return of
capital of £220 million approved by shareholders on 14 August 2007
• Acquisition search underway
Christopher Miller, Chairman of Melrose PLC, today said:
"Just over two years from acquisition we have sold Aerospace and PSM fasteners
for more than we paid for the whole of Dynacast and McKechnie and returned to
shareholders nearly all the original equity raised. Trading at Dynacast and the
rest of the remaining group is on track. We are now looking for our next
acquisition and believe that recent events in the markets are, if anything,
likely to be helpful."
Enquiries:
Nick Fox 020 7153 1540
James Hill 020 7153 1559
M:Communications
CHAIRMAN'S STATEMENT
I am pleased to report our interim results for the six months to 30 June 2007.
The figures for the continuing group exclude the profits of the divisions we
have sold, namely Aerospace OEM and Aerospace Aftermarket divisions (together
"McKechnie Aerospace") and the majority of our PSM division ("PSM"). These
results pre-date the return of capital and share consolidation and thus exclude
the effect of these events.
RESULTS
For the continuing group revenue in the period was £172.9 million (2006: £161.4
million). Headline operating profit and earnings per share (before exceptional
costs, exceptional income and intangible asset amortisation other than computer
software amortisation) were £11.4 million (2006: £8.2 million) and 3.5p (2006:
1.6p) respectively. After these items, operating profit was £11.3 million (2006:
£1.8 million) and earnings per share were 3.8p (2006: (0.7)p).
SALE OF MCKECHNIE AEROSPACE
On 11 May 2007, we completed the sale of McKechnie Aerospace for £428 million
realising a profit of nearly £200 million in two years since acquisition. These
proceeds approximated to the price paid for the whole of the McKechnie and
Dynacast group. This outstanding result is testimony to the quality of the
businesses within this division and to the swift increase in their profitability
during our ownership. The upturn in the Aerospace cycle is now well known, but
much of the improvement came from our substantial capital investment, addressing
outstanding commercial issues with customers and suppliers, and operational
improvements made by a good management team under our direction.
In addition to a good return for our shareholders, as a result of this sale we
have also been able to much improve the funding of the McKechnie Pension Scheme
for the benefit of its members.
SALE OF PSM
Having successfully completed its restructuring, on 18 May 2007 the core of the
PSM division was sold for £30 million. During our ownership this division
increased its profitability substantially as a result of the closure of its loss
making European operations and further investment in the profitable operations
in the Far East.
RETURN OF CAPITAL
Following these disposals and in line with our stated objectives, on 31 August
2007 Melrose returned £220 million of capital to shareholders representing a
payment equivalent to approximately 95% of the total equity raised since
Melrose's inception (including previous dividends). We are delighted both to
have been able to return this capital and to have had the opportunity for such
an early validation of our business model. We have of course retained sufficient
cash resources for the future development of the existing group. As is common
with large returns of capital, at the same time shares in issue were reduced by
means of a share consolidation. The effect of this is that the number of
ordinary shares in issue has dropped to 133.7 million.
DIVIDENDS
The Board intends to continue with a progressive dividend policy and I am
pleased to report that the Board has declared an interim dividend of 2.5p per
share (2006: 2.25p per share). This will be paid on 16 November 2007 to ordinary
shareholders on the register at the close of business on 19 October 2007.
TRADING
We are pleased that overall underlying trading remains encouraging. While the
bulk of our restructuring effort is now completed, the search for further
operational improvements is never ending. The trading outlook is discussed in
more detail in the Chief Executive's Review.
STRATEGY
We are well placed to pursue a major acquisition and the search for a suitable
opportunity continues. As we have said before, we will be as strict as ever in
applying our acquisition criteria.
In the meantime the current uncertainty, in credit markets in particular, may
increase our competitive advantage given Melrose's ability to raise public
capital and our lack of need for high levels of debt to finance acquisitions. We
are encouraged by the outlook.
CHIEF EXECUTIVE'S REVIEW
I am pleased to set out below reports on the continuing operating divisions.
DYNACAST
Period Ended Period Ended
£m 30 June 2007 (£m) 30 June 2006 (£m)
Turnover 117.6 107.3
Headline
Operating
Profit 13.8 11.1
Dynacast is a global manufacturer of precision engineered, diecast metal
components and assemblies. The products are manufactured using proprietary
die-casting technology and are supplied to a wide range of end markets,
including automotive, healthcare, telecommunications, consumer electronics and
computer hardware and peripherals.
Dynacast performed well in the first half of 2007. Sales and operating profit
were up by nearly 10% and 24% respectively over the corresponding period in
2006. These results were achieved after suffering an exchange loss on
translation (resulting from the strength of Sterling) of £0.4 million and an
exchange loss on transactions (largely resulting from the increased strength of
the Canadian $ versus the US $) of £0.6 million.
Profitability on slightly lower sales in North America improved over the same
period last year, partly as a result of increased efficiency arising from the
closure of the Spartanburg factory in South Carolina and investment in Mexico.
Sales and operating profit in Europe showed steady growth while in Asia
continuing strong growth in China was partially offset by lower sales in
Singapore, where a number of products reached their "end-of-life".
As a result of management actions last year, Dynacast's profit is now much less
exposed to changes in the price of zinc. Although Dynacast benefits from being
able to fully recover raw material price increases for nearly all of its sales,
previously there was a time lag for this recovery of, in some cases, up to three
months, which meant that at times of major change in the price of zinc
Dynacast's profits were significantly impacted. It is estimated that in the
first half of 2006 Dynacast suffered an adverse impact on profit of about £2.5
million. The quality of Dynacast's earnings has been much improved as a result
of these actions.
Dynacast has continued to invest heavily in China with further expansion of its
operations and now occupies more than 200,000 square feet of manufacturing space
in Shanghai. It is encouraging that a lot of the new opportunities for this
operation are coming from the indigenous market.
Having closed four factories since Dynacast was acquired in May 2005, the
restructuring of its manufacturing operations is now complete. In addition to a
continuation of Dynacast's active investment programme, particularly in Asia,
management are focusing on add-on acquisitions. Given the fragmented nature of
the market Dynacast operates in, it is likely that these will be quite small. I
am pleased to report the acquisition last week of Q Zip Diecasting in Quebec,
Canada for £5.9 million. Whilst nothing is certain, we are optimistic of further
progress on acquisitions by the year end.
MOTOR VEHICLE COMPONENTS (MVC)
Period Ended Period Ended
£m 30 June 2007 (£m) 30 June 2006 (£m)
Turnover 29.5 26.5
Headline
Operating Loss (0.2) (0.7)
MVC manufactures decorated exterior trim products for the US automotive
industry, principally coated metal and plastic wheel trims.
MVC's trading performance in the first six months of 2007 shows a reasonable
improvement over the first six months of 2006 and a notable improvement over the
second half of 2006.
Although conditions in the North American automotive industry remain extremely
challenging, it is encouraging that the radical actions taken by the new
management team at MVC are beginning to bear fruit. In particular, management
have been successful in contract negotiations with customers to recover a
proportion of recent substantial raw material cost increases, primarily nickel
and stainless steel. In addition, significant improvements have been made at the
Nicholasville plant in terms of scrap reduction, labour efficiency and overhead
control.
A significant milestone in the strategic development at MVC is the new chrome
plating line at Nicholasville, which is currently being commissioned. This is a
critical function in the manufacturing process of highly engineered wheel clads
and positions MVC well to meet the high level of contracted orders from
customers for these products. In addition to enhancing MVC's competitive
advantage, it means MVC will not be dependent on outside platers, thereby saving
freight costs and third party profit margins.
Newberry continues to perform well. The transfer of a production line from
Nicholasville has improved Newberry's capacity utilisation; and as the only
producer of metal wheel covers in North America, it is well placed in its
market.
Although a lot of progress has been made in this business by the new management
team, there still remains a lot to be done. We remain committed to seeing
through the improvements to date and to further progress being made.
MCKECHNIE PLASTIC COMPONENTS (MPC)
Period Ended Period Ended
£m 30 June 2007 (£m) 30 June 2006 (£m)
Turnover 21.2 23.9
Headline
Operating
Profit 1.3 1.0
MPC is a UK producer of engineered plastic injection moulded components for
products used in a variety of industries, including power tools, food and
beverage packaging, personal care and automotive.
MPC's results for the first half of 2007 were good. As a result of the closure
of the plant in Northampton and the planned exiting of lower margin business,
sales were down over the corresponding period in 2006. This has resulted in a
slimmed down but more profitable business.
MPC will continue to focus on maximising its engineering expertise on more
automated, highly engineered, value added products and processes.
Its Stamford Bridge facility is seeing the benefit of this by developing
excellent customer partnerships with both Diageo and Scotco, securing additional
contracts on new technology 'widgets' for beverage cans.
At Pickering, its automotive plant, MPC has benefited from a robust approach to
recovering increased raw material and energy costs. At the same time significant
capital investment has helped to secure contracts on technically complex
platforms for both the Ford Fiesta and the Land Rover Freelander.
Management have taken the steps to create a more focused and competitive
business and we look forward to a solid performance for the full year.
PRELOK AND CANNING BRETT (PSM Continuing)
Period Ended Period Ended
£m 30 June 2007 (£m) 30 June 2006 (£m)
Turnover 4.6 3.7
Headline Operating Profit 0.3 0.3
Following the disposal of the fastener manufacturing division of McKechnie PSM
in May this year, the Thread Locking and Sealing division has been renamed
Prelok. Prelok, which has operations throughout Europe, supplies a comprehensive
range of high specification pre-applied sealing and locking products for
fastening solutions to the automotive and other industries. Canning Brett, which
was also part of McKechnie PSM, manufactures engineered fasteners and components
primarily for the automotive industry.
In view of all the corporate changes that took place in the first half of 2007,
this division has produced a creditable result.
OUTLOOK
We are very pleased with the outcome of the Aerospace division sale. We acquired
this business because we could see the nascent upturn in the aerospace cycle and
the opportunity to improve this division by capital investment and better
management focus on some key issues. The success of the sale process clearly
shows the improvement in both the performance and quality of the division during
our ownership.
Dynacast continues to benefit from strong demand in China. Having completed the
restructuring of its manufacturing base, Dynacast is focusing on identifying
small bolt-on acquisitions and it is pleasing that the first acquisition was
completed last week. This is very encouraging as it opens up a new avenue of
growth for the business.
Despite the challenging conditions in the North American automotive industry,
MVC's performance is beginning to improve and now that it has its own plating
plant it is a stronger business. It has a largely new and much improved
management team. There remain challenges ahead and further improvement is
necessary to meet our expectations.
As we turn our attention to the next acquisition, we are confident about the
performance of the existing businesses and the outcome for this year.
FINANCE DIRECTOR'S REVIEW
CONTINUING OPERATIONS
The continuing operations comprise Dynacast, McKechnie Vehicle Components (MVC),
McKechnie Plastic Components (MPC) and the remaining smaller part of PSM, now
trading as Prelok and Canning Brett. In the first six months of 2007, these
divisions collectively achieved sales growth of 7.1% and headline operating
profit growth of 39.0% over the corresponding period last year. This was an
encouraging performance and was achieved despite an exchange loss mainly caused
by the weakening US dollar of £1.1 million. Further detail on the trading result
of the Group and by division can be found in the Chief Executive's Review.
Central costs are divided between the ongoing corporate costs, which are largely
cash costs, and the required charge in respect of the group LTIP schemes for
management which are non cash during the period. Both the Dynacast LTIP, which
runs until May 2009, and the Melrose share incentive scheme require a charge to
be amortised in the period up to crystallisation.
EXCHANGE
The group has three main exchange risks: the translation risk of foreign trading
results into Sterling at the average exchange rate for the period; the
transaction risk of individual business units trading in a currency that is
different from their natural currency; and the exchange risk arising when the
proceeds from disposal are received in a foreign currency. The exposure of the
group to different currencies has altered as a consequence of the disposals. A
split of sales by currency, and the relevant exchange rates used for the
continuing group were as follows for the six months to June.
US$ Euro Sterling Other Total
--------------------------------------------------------------------------------
Sales by currency 32% 30% 15% 23% 100%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Exchange rates used in the period Average Closing
rate rate
--------------------------------------------------------------------------------
US Dollar 1.97 2.00
2007 June 1.84 1.96
2006 December 1.80 1.85
2006 June
--------------------------------------------------------------------------------
Euro 1.48 1.49
2007 June 1.47 1.49
2006 December 1.46 1.45
2006 June
--------------------------------------------------------------------------------
This shows the exposure to the dollar and Euro within the continuing group. As
the dollar weakened during the period the translation loss suffered in the
period was £0.5 million compared to the same period in 2006. In addition, and
largely due to Dynacast Canada trading mainly with US based customers, a
transaction exchange loss of £0.6 million was incurred in the period. It is the
policy of the board to take out exchange instruments to try to minimise the
transaction risk, which is a cash cost, but not the translation risk which is
non cash. The board continued this policy in the six months to June 2007 to
reduce the exposure.
The exchange risk on the receipt of disposal proceeds in a foreign currency is
protected if considered appropriate by the board on a case by case basis. The
board entered into a forward cover option for the majority of US $ proceeds on
the exchange of contracts in March 2007 for the McKechnie Aerospace sale which
were not naturally hedged by US $ debt, at US dollar = 1.985. For the PSM
disposal no instrument was taken out and the proceeds were converted at spot of
US $ = 1.980 on receipt in May 2007.
FINANCE COSTS AND INCOME
Part of the proceeds from the disposals in the period were used to repay debt.
Melrose had £251.3 million of net cash in hand at 30 June 2007 compared to the
start of the year when it had net debt of £162.6 million. Virtually all the debt
repayment took place in May and hence the finance costs and income in the first
half of the year are not reflective of the continuing group. On 14 August the
shareholders approved £220 million of the cash in hand to be repaid to
shareholders.
TAX
The continuing group tax charge was 19% in the period, which includes a £0.8
million exceptional credit. The underlying headline tax rate excluding this
advantage was 26%. This is a reduction from the underlying headline 28% charge
for the group in 2006. The ongoing management of tax remains a focus and the
cash tax rate at 5% in the period remains significantly below the headline
profit and loss rate. In addition Melrose is not due to pay any tax on the
disposals of the divisions.
EARNINGS PER SHARE AND NUMBER OF SHARES IN ISSUE
The basic earnings per share (EPS) for the six months to June were 3.8p (2006:
loss per share of 0.7p) and the headline EPS 3.5p (2006: 1.6p). These are
calculated using the continuing group results only and ignore both the trading
in the period and the profit on sale of the divisions which were sold. Including
these the basic EPS was 81.3p (2006: 4.7p). These are all calculated using the
average number of shares in issue for the period of 257.1 million (2006: 257.1
million). This is prior to the crystallisation of the Melrose share incentive
scheme, the 1 for 2 share consolidation and the repayment of £220 million to
shareholders all of which change the number of shares in issue to 133.7 million.
This new number of shares will be the base for future EPS calculations.
PROFIT/LOSS ON DISPOSAL OF BUSINESSES
On the 11 May 2007 the Group disposed of its interest in the OEM and Aftermarket
divisions. Gross proceeds from the sale of these divisions were £428.0 million
and costs incurred were £9.6m. Net assets disposed of were £203.7 million,
(including goodwill and intangible assets other than computer software of £135.4
million), and the cumulative exchange loss occurred since acquisition of £18.2
million, previously written off straight to reserves, was recycled on disposal.
As a result the profit on sale was £196.5 million.
In addition on 18 May the group disposed of the large part of the PSM division
for gross proceeds of £30.0m and incurred costs of £1.2 million. Net assets
disposed of were £29.9 million and cumulative exchange losses of £3.8 million
were recycled on disposal, resulting in a loss on sale of £4.9 million.
PENSIONS
Melrose obtained clearance from the UK Pensions Regulator for its agreement with
the trustees of the McKechnie UK defined benefit pension plan on the disposal of
the OEM division. This agreement required Melrose to contribute £20 million as
an initial payment into the pension scheme and to pay a total of £18.3 million
in equal quarterly instalments over the next three years. Melrose PLC has
guaranteed the funding of the scheme on an ongoing basis. In addition to these
contributions being made and agreed the scheme assumptions have been updated to
reflect current conditions at June 2007. The deficit for this scheme in addition
to the other smaller schemes in the Melrose group has consequently reduced to
£28.0 million from £55.4 million at December 2006.
Melrose PLC
Consolidated Income Statement
-----------------------------------------------------------------------------------
Continuing operations Notes Restated(3) Restated(3)
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
£m £m £m
-----------------------------------------------------------------------------------
Revenue 3 172.9 161.4 323.6
Cost of sales (141.3) (134.1) (265.1)
-----------------------------------------------------------------------------------
Gross profit 31.6 27.3 58.5
-----------------------------------------------------------------------------------
Net operating expenses before
exceptional items and
intangible asset amortisation
(1) (20.2) (19.1) (39.3)
Intangible asset amortisation
(1) (1.0) (1.0) (2.1)
Exceptional costs 5 - (5.4) (5.9)
Exceptional income 6 0.9 - 0.7
-------------------------------------------------------------------------------
Total net operating expenses 4 (20.3) (25.5) (46.6)
-----------------------------------------------------------------------------------
Operating profit 11.3 1.8 11.9
-------------------------------------------------------------------------------
Headline operating profit (2) 3 11.4 8.2 19.2
-------------------------------------------------------------------------------
Finance costs (3.4) (3.3) (7.3)
Finance income 4.1 0.1 0.2
-----------------------------------------------------------------------------------
Profit/(loss) before tax 12.0 (1.4) 4.8
Tax 7 (2.3) (0.5) (1.6)
-----------------------------------------------------------------------------------
Profit/(loss) for the period
from continuing operations 9.7 (1.9) 3.2
-----------------------------------------------------------------------------------
Discontinued operations
Profit for the period from
discontinued operations 8 199.4 14.1 34.6
-----------------------------------------------------------------------------------
Profit for the period 209.1 12.2 37.8
-----------------------------------------------------------------------------------
Attributable to:
Equity holders of the parent 209.0 12.2 37.7
Minority interests 0.1 - 0.1
-----------------------------------------------------------------------------------
209.1 12.2 37.8
-----------------------------------------------------------------------------------
Earnings/(loss) per share
From continuing operations
- Basic 9 3.8p (0.7)p 1.2p
- Diluted 9 3.6p (0.7)p 1.2p
From continuing and discontinued
operations
- Basic 9 81.3p 4.7p 14.7p
- Diluted 9 78.3p 4.6p 14.4p
-----------------------------------------------------------------------------------
(1) other than computer software amortisation
(2) the terms 'headline operating profit', 'headline profit before tax' and
'headline earnings per share' have the same definition as operating profit, profit
before tax and earnings per share respectively except that they are calculated
before exceptional costs, exceptional income and intangible asset amortisation
other than computer software.
(3) prior periods have been restated to separate the results of continuing and
discontinued operations
Melrose PLC
Consolidated Statement of Recognised Income and Expense
Notes 6 months ended 6 months ended Year
30 June 30 June ended 31
2007 2006 December 2006
Unaudited Unaudited Audited
£m £m £m
Currency translation on net
investments in subsidiary
undertakings (5.0) (23.3) (41.4)
Gains on cash flow hedges 0.5 1.2 1.4
Actuarial adjustments on
pension liabilities 4.1 1.7 1.2
----------------------------------------------------------------------------------------
Net loss recognised directly
in equity (0.4) (20.4) (38.8)
Transferred to income
statement on cash flow hedges (1.2) 0.1 (1.4)
Transfer to income statement
from equity of cumulative
translation differences on
discontinued operations 22.0 - -
Profit for the period 209.1 12.2 37.8
----------------------------------------------------------------------------------------
Total recognised income and
expense for the period 229.5 (8.1) (2.4)
----------------------------------------------------------------------------------------
Attributable to:
Equity holders of the parent 229.4 (8.1) (2.5)
Minority interests 0.1 - 0.1
----------------------------------------------------------------------------------------
229.5 (8.1) (2.4)
----------------------------------------------------------------------------------------
Melrose PLC
Consolidated Balance Sheet
Notes 30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
£m £m £m
Non-current assets
Goodwill and other intangible
assets 196.5 378.3 356.2
Property, plant and equipment 53.7 85.7 79.4
Interests in joint ventures - 2.8 2.6
Derivative financial
instruments 0.7 2.6 1.4
Deferred tax assets 4.0 27.2 29.8
--------------------------------------------------------------------------------
254.9 496.6 469.4
Current assets
Inventories 26.5 57.2 59.3
Trade and other receivables 67.5 96.5 90.7
Cash and short term deposits 13 265.3 15.4 33.3
--------------------------------------------------------------------------------
359.3 169.1 183.3
--------------------------------------------------------------------------------
Total assets 3 614.2 665.7 652.7
--------------------------------------------------------------------------------
Current liabilities
Trade and other payables 73.4 99.3 104.8
Interest-bearing loans and
borrowings 2.0 0.7 1.0
Current tax liabilities 8.6 13.0 8.8
Provisions 2.2 8.5 2.9
--------------------------------------------------------------------------------
86.2 121.5 117.5
--------------------------------------------------------------------------------
Net current assets 273.1 47.6 65.8
--------------------------------------------------------------------------------
Non-current liabilities
Interest-bearing loans and
borrowings 12.0 202.3 194.9
Deferred tax liabilities 8.7 18.9 18.6
Retirement benefit obligations 12 28.0 57.8 55.4
Provisions 4.0 10.4 11.2
--------------------------------------------------------------------------------
52.7 289.4 280.1
--------------------------------------------------------------------------------
Total liabilities 3 138.9 410.9 397.6
--------------------------------------------------------------------------------
Net assets 475.3 254.8 255.1
--------------------------------------------------------------------------------
Equity
Issued share capital 10 0.3 0.3 0.3
Share premium account 10 214.6 214.6 214.6
Merger reserve 10 42.0 42.0 42.0
Hedging and translation
reserves 10 (6.2) (3.1) (22.5)
Accumulated profits 10 223.5 0.1 19.7
--------------------------------------------------------------------------------
Equity attributable to holders
of the parent 474.2 253.9 254.1
Minority interest 10 1.1 0.9 1.0
--------------------------------------------------------------------------------
Total equity 475.3 254.8 255.1
--------------------------------------------------------------------------------
Melrose PLC
Consolidated Cash Flow Statement
Notes Restated Restated
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
£m £m £m
------------------------------------------------------------------------------------
Net cash from operating activities
for continuing operations 13 0.1 2.3 9.7
Net cash from operating activities
for discontinued operations 13 1.8 8.1 23.6
-----------------------------------------------------------------------------------
Net cash from operating activities 1.9 10.4 33.3
-----------------------------------------------------------------------------------
Investing activities:
Disposal of businesses 447.8 7.2 7.4
Contribution of disposal proceeds to
pension plans (20.0) - -
Net cash disposed (5.8) - -
Purchases of property, plant and
equipment (4.7) (6.5) (11.7)
Proceeds on disposal of property,
plant and equipment - 3.2 9.9
Purchase of intangible assets (0.1) - -
Interest received 4.1 0.1 -
-----------------------------------------------------------------------------------
Net cash from investing activities
from continuing operations 421.3 4.0 5.6
Net cash used in investing
activities 13 (2.6) (2.8) (5.6)
by discontinued operations
-----------------------------------------------------------------------------------
Net cash from investing activities 418.7 1.2 -
-----------------------------------------------------------------------------------
Financing activities:
Repayment of borrowings (179.0) - -
Decrease in bank loans - (3.0) (3.0)
Repayment of obligations under
finance leases (0.2) (0.1) (0.3)
Dividends paid (9.6) (7.7) (13.5)
Loan notes repaid - (0.5) (0.5)
-----------------------------------------------------------------------------------
Net cash used in financing
activities (188.8) (11.3) (17.3)
by continuing operations
Net cash from financing activities
from discontinued operations 13 0.3 1.2 2.7
-----------------------------------------------------------------------------------
Net cash used in financing (188.5) (10.1) (14.6)
activities
-----------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 232.1 1.5 18.7
Cash and cash equivalents at
beginning of the year 33.3 15.2 15.2
Effect of foreign exchange rate
changes (0.1) (1.3) (0.6)
-----------------------------------------------------------------------------------
Cash and cash equivalents at end of
the period 265.3 15.4 33.3
-----------------------------------------------------------------------------------
NOTES TO THE FINANCIAL INFORMATION
1. General Information
Melrose PLC is a company incorporated in Great Britain under the Companies Act
1985. The address of the registered office is Precision House, Arden Road,
Alcester B49 6HN.
The interim financial information for the six months ended 30 June 2007 is
unaudited and does not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985. The results for the year ended 31
December 2006 shown in this report do not constitute the Company's statutory
accounts for that period but have been extracted from those accounts which have
been filed with the Registrar of Companies. The auditors have reported on these
accounts. Their report was unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
The comparative information has been restated to show the Aerospace OEM ("OEM"),
the Aerospace Aftermarket ("Aftermarket"), part of the PSM division and the US
corporate centre as discontinued operations.
2. Summary of Significant Accounting Policies
The interim financial information for the six months ended 30 June 2007, which
has been approved by a committee of the board of directors on 11 September 2007,
has been prepared on the basis of the accounting policies set out in the Group's
2006 Annual Report and accounts on pages 42 to 47, which are consistent with
International Financial Reporting Standards (IFRSs) as endorsed by the European
Union, and can be found on the Group's website www.melroseplc.net. This interim
report should therefore be read in conjunction with the 2006 information. The
accounting policies used in the preparation of the interim financial information
have been consistently applied to all periods presented. The Group has not
adopted early all of the provisions of IAS 34 'Interim Financial Reporting' in
this interim financial information.
3. Segment Information
The Group's primary reporting format is business segments and its secondary
reporting 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.
During the period, the Group discontinued its operations in the OEM,
Aftermarket, part of the PSM division and the US corporate centre segments.
The Dynacast segment is a supplier of die-cast parts and components to a range
of industries. 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") continuing segment consists of the specialised Prelok and Canning Brett
businesses.
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 2007. Notes 5 and 6 give details of exceptional costs and
income.
Revenue Headline operating profit/(loss) (2)
----------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing operations
Dynacast 117.6 107.3 221.7 13.8 11.1 25.1
MVC 29.5 26.5 48.0 (0.2) (0.7) (2.3)
MPC 21.2 23.9 46.1 1.3 1.0 2.4
PSM continuing 4.6 3.7 7.8 0.3 0.3 0.6
Central -
corporate - - - (2.8) (2.7) (5.5)
Central -
LTIPS(1) - - - (1.0) (0.8) (1.1)
--------------------------------------------------------------------------------------------------------------
Continuing
operations
total 172.9 161.4 323.6 11.4 8.2 19.2
Discontinued operations
OEM 53.7 69.1 140.1 11.9 15.5 33.1
Aftermarket 5.2 11.7 19.3 0.1 0.4 0.6
PSM
discontinued 8.4 13.3 24.0 1.4 2.0 4.2
Central
discontinued - - - (0.4) (0.3) (1.0)
------------------------------------------------------------------------------------------------------------
Discontinued
operations
total 67.3 94.1 183.4 13.0 17.6 36.9
------------------------------------------------------------------------------------------------------------
Total 240.2 255.5 507.0 24.4 25.8 56.1
------------------------------------------------------------------------------------------------------------
(1) Long term incentive plans
(2) As defined on the income statement
3. Segment Information (continued)
Total assets Total liabilities
-----------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing
operations
Dynacast 307.4 298.9 308.9 76.5 56.1 74.9
MVC 37.3 40.6 35.7 13.8 11.1 12.1
MPC 21.8 35.3 24.7 9.7 8.8 11.5
PSM continuing 6.7 12.5 7.5 2.0 6.0 1.5
Central -
corporate 241.0 4.9 (4.6) 34.7 199.9 165.5
Central -
LTIPS(1) - - - 2.2 0.8 1.5
---------------------------------------------------------------------------------------------------------------
Continuing
operations
total 614.2 392.2 372.2 138.9 282.7 267.0
Discontinued operations
OEM - 212.4 217.9 - 26.3 32.5
Aftermarket - 5.9 7.2 - 1.7 1.8
PSM
discontinued - 30.1 34.4 - 9.1 5.7
Central
discontinued - 25.1 21.0 - 91.1 90.6
---------------------------------------------------------------------------------------------------------------
Discontinued
operations
total - 273.5 280.5 - 128.2 130.6
---------------------------------------------------------------------------------------------------------------
Total 614.2 665.7 652.7 138.9 410.9 397.6
---------------------------------------------------------------------------------------------------------------
(1) Long term incentive plans
Following the disposal of OEM, Aftermarket and US corporate centre, certain
central assets relating to those businesses were disposed of, leaving a central
overdraft in excess of central assets. This is shown as a negative asset in the
table above in accordance with IAS 14.
3. Segment Information (continued)
Capital expenditure Depreciation and computer software amortisation
-----------------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing operations
Dynacast 2.0 4.0 6.9 3.4 3.5 7.0
MVC 1.8 1.8 3.3 1.0 1.0 1.8
MPC 0.5 0.5 1.2 0.7 0.9 1.7
PSM continuing 0.5 0.2 0.3 0.2 0.2 0.4
Central - - - - - 0.1
---------------------------------------------------------------------------------------------------------------------
Continuing
operations
total 4.8 6.5 11.7 5.3 5.6 11.0
Discontinued operations
OEM 2.6 2.4 6.9 1.2 1.5 2.8
Aftermarket - 0.1 0.1 - 0.1 0.1
PSM
discontinued 0.1 0.6 1.0 0.2 0.3 0.7
---------------------------------------------------------------------------------------------------------------------
Discontinued
operations
total 2.7 3.1 8.0 1.4 1.9 3.6
---------------------------------------------------------------------------------------------------------------------
Total 7.5 9.6 19.7 6.7 7.5 14.6
---------------------------------------------------------------------------------------------------------------------
Geographical Area
Revenue Headline operating profit/(loss) (2)
----------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing operations
North America 68.2 65.9 127.0 3.4 0.9 3.6
Europe 79.4 73.0 146.3 8.8 8.5 16.6
Asia 25.3 22.5 50.3 3.0 2.3 5.6
Central -
corporate - - - (2.8) (2.7) (5.5)
Central -
LTIPS(1) - - - (1.0) (0.8) (1.1)
---------------------------------------------------------------------------------------------------------------------
Continuing
operations
total 172.9 161.4 323.6 11.4 8.2 19.2
Discontinued
operations
North America 41.0 55.7 109.1 10.7 13.2 27.7
Europe 21.1 31.1 59.8 1.8 2.5 6.7
Asia 5.2 7.3 14.5 0.9 2.2 3.5
Central - - - (0.4) (0.3) (1.0)
---------------------------------------------------------------------------------------------------------------------
Discontinued
operations
total 67.3 94.1 183.4 13.0 17.6 36.9
---------------------------------------------------------------------------------------------------------------------
Total 240.2 255.5 507.0 24.4 25.8 56.1
---------------------------------------------------------------------------------------------------------------------
(1) Long term incentive plans
(2) As defined on the income statement
3. Segment Information (continued)
Certain comparative figures have been restated to reflect more appropriate
corporate cost allocations.
Total assets Total liabilities
---------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing operations
North America 187.3 255.7 183.5 37.3 52.5 36.2
Europe 148.6 104.2 156.9 51.4 17.8 50.1
Asia 37.3 27.4 36.4 13.3 11.7 13.7
Central -
corporate 241.0 4.9 (4.6) 34.7 199.9 165.5
Central -
LTIPS(1) - - - 2.2 0.8 1.5
---------------------------------------------------------------------------------------------------------------------
Continuing
operations
total 614.2 392.2 372.2 138.9 282.7 267.0
Discontinued operations
North America - 162.4 172.8 - 16.2 23.3
Europe - 53.3 57.6 - 17.6 12.6
Asia - 32.7 29.1 - 3.3 4.1
Central - 25.1 21.0 - 91.1 90.6
---------------------------------------------------------------------------------------------------------------------
Discontinued
operations
total - 273.5 280.5 - 128.2 130.6
---------------------------------------------------------------------------------------------------------------------
Total 614.2 665.7 652.7 138.9 410.9 397.6
---------------------------------------------------------------------------------------------------------------------
(1) Long term incentive plans
Capital expenditure Depreciation and computer software amortisation
--------------------------------------------------------------------------------------------
6 months ended 6 months ended Year 6 months ended 6 months ended Year
30 June 30 June ended 30 June 30 June ended
2007 2006 31 December 2007 2006 31 December
2006 2006
£m £m £m £m £m £m
Continuing operations
North America 2.2 2.5 5.2 2.1 2.3 4.4
Europe 1.4 2.6 4.2 2.5 2.6 5.1
Asia 1.2 1.4 2.3 0.7 0.7 1.4
Central - - - - - 0.1
--------------------------------------------------------------------------------------------------------------------
Continuing
operations
total 4.8 6.5 11.7 5.3 5.6 11.0
Discontinued operations
North America 1.7 1.6 5.5 0.7 0.9 1.7
Europe 0.9 1.3 1.6 0.5 0.8 1.5
Asia 0.1 0.2 0.9 0.2 0.2 0.4
--------------------------------------------------------------------------------------------------------------------
Discontinued
operations
total 2.7 3.1 8.0 1.4 1.9 3.6
--------------------------------------------------------------------------------------------------------------------
Total 7.5 9.6 19.7 6.7 7.5 14.6
--------------------------------------------------------------------------------------------------------------------
4. Net Operating Expenses
Net operating expenses comprise:
--------------------------------------------------------------------------------
6 months ended 6 months Year
30 June ended ended
2007 30 June 31 December
2006 2006
£m £m £m
--------------------------------------------------------------------------------
Continuing operations
Selling and distribution costs (7.2) (6.0) (13.1)
Administration expenses (14.0) (14.1) (28.3)
Other operating costs -
exceptional - (5.4) (5.9)
(note 5)
Other operating income -
exceptional 0.9 - 0.7
(note 6)
--------------------------------------------------------------------------------
Total net operating expenses from
continuing operations (20.3) (25.5) (46.6)
--------------------------------------------------------------------------------
Discontinued operations
Selling and distribution costs (4.1) (4.7) (11.9)
Administration expenses (5.2) (7.7) (14.4)
Share of joint ventures operating
profits 0.2 0.5 0.8
Other operating costs - exceptional
(note 5) - - (2.0)
Other operating income - exceptional
(note 6) - 2.3 2.3
Profit on disposal of fixed assets - 3.2 3.2
--------------------------------------------------------------------------------
Total net operating expenses from
discontinued operations (9.1) (6.4) (22.0)
--------------------------------------------------------------------------------
Total net operating expenses (29.4) (31.9) (68.6)
--------------------------------------------------------------------------------
5. Exceptional Costs
--------------------------------------------------------------------------------
Other operating costs 6 months ended 6 months ended Year
30 June 30 June 2006 ended
2007 £m 31 December
£m 2006
£m
--------------------------------------------------------------------------------
Continuing operations
Dynacast restructure - (3.7) (3.7)
MPC restructure - (1.7) (2.2)
--------------------------------------------------------------------------------
Total other operating costs -
continuing - (5.4) (5.9)
Discontinued operations
Pre-disposal expenses - - (2.0)
--------------------------------------------------------------------------------
Total other operating costs -
discontinued - - (2.0)
--------------------------------------------------------------------------------
Total other operating costs - (5.4) (7.9)
--------------------------------------------------------------------------------
The Dynacast restructuring costs in 2006 related to the closure of the
Spartanburg, South Carolina, USA manufacturing facility. The MPC restructuring
costs related to the closure of the Northampton manufacturing facility ("Burnett
Polymer Engineering"). The pre-disposal costs in 2006 related to the sale of
divisions which were completed in 2007.
6. Exceptional Income
--------------------------------------------------------------------------------
Other operating income 6 months ended 6 months ended Year
30 June 30 June 2006 ended
2007 £m 31 December
2006
£m £m
--------------------------------------------------------------------------------
Continuing operations
Profit on disposal of land and
buildings - - 0.7
Pension curtailment gain 0.9 - -
--------------------------------------------------------------------------------
Total other operating income -
continuing 0.9 - 0.7
Discontinued operations
Onerous contract provision release - 2.3 2.3
--------------------------------------------------------------------------------
Total other operating income -
discontinued - 2.3 2.3
--------------------------------------------------------------------------------
Total other operating income 0.9 2.3 3.0
--------------------------------------------------------------------------------
Following the disposal of the OEM division, all employees in this segment
belonging to the McKechnie UK defined benefit pension plan became deferred
members. The curtailment gain associated with this was £0.9million.
At acquisition, in May 2005, an onerous contract was identified and appropriate
provision was made based on the circumstances prevailing at acquisition. During
2006, the terms of the contract were renegotiated and the improved terms of the
contract were reflected in the accounts resulting in a release to the income
statement of £2.3million.
During the year ended 31 December 2006, land and buildings held in the MPC
business segment were sold in a sale and leaseback transaction resulting in a
net profit of £0.7 million.
7. Tax
Analysis of the charge in the period:
--------------------------------------------------------------------------------
6 months ended 6 months ended Year
30 June 30 June 2006 ended
2007 £m 31 December
£m 2006
£m
--------------------------------------------------------------------------------
Continuing operations
Current tax 3.2 1.6 4.5
Deferred tax (0.9) (1.1) (2.9)
--------------------------------------------------------------------------------
Tax charge from continuing 2.3 0.5 1.6
operations
Discontinued operations
Current tax (1.7) 4.4 0.6
Deferred tax 4.2 0.3 (3.0)
--------------------------------------------------------------------------------
Tax charge/(credit) from
discontinuing operations 2.5 4.7 (2.4)
--------------------------------------------------------------------------------
Total tax charge/(credit) 4.8 5.2 (0.8)
--------------------------------------------------------------------------------
7. Tax (continued)
The expected effective rate in respect of headline operating profit before tax
on continuing activities for the year ended 31 December 2007 is 26%. The tax
charge on ordinary activities has been calculated by applying this rate to the
headline operating profit before tax of £12.1million, giving £3.1million. This
is lower than the statutory rate of 30% due to the mix of and tax rates in
foreign jurisdictions.
In addition, the tax charge on certain activities has been reduced by a credit
of £0.8million. This consists of a £0.2million credit relating to tax on
amortisation of intangible assets and a £0.6million credit which reflects the
reduction in net deferred tax liabilities associated with the recently
substantially enacted fall in the corporation tax rate from 30% to 28%. These
have been applied in full, giving a total tax charge for the period on
continuing activities of £2.3million.
8. Discontinued operations
On 11 May 2007 the Group disposed of its interest in OEM and Aftermarket
divisions. Gross proceeds from the sale of these divisions were £428.0million
and costs incurred during the period were £9.6million, of which £1.3million
remains in accruals. In addition costs of £1.8million were incurred in 2006.
On 18 May 2007 the Group disposed of its PSM fastener manufacturing business,
which comprised part of the PSM division. Gross proceeds from this sale were
£30.0million and costs incurred during the period were £1.2million, of which
£0.9million remains in accruals. In addition, costs of £0.2million were incurred
in 2006.
Details of net assets disposed of and disposal proceeds are as follows:
--------------------------------------------------------------------------------
OEM and PSM Fasteners 30 June
Aftermarket 2007
£m £m £m
--------------------------------------------------------------------------------
Goodwill 112.4 17.1 129.5
Intangible assets 23.0 - 23.0
Computer software 0.9 0.1 1.0
Property, plant and equipment 23.4 2.5 25.9
Joint ventures 0.3 2.6 2.9
Deferred tax assets 20.8 - 20.8
Inventories 32.0 3.3 35.3
Trade and other receivables 25.2 7.1 32.3
Cash at bank 4.3 1.5 5.8
--------------------------------------------------------------------------------
Gross assets disposed of 242.3 34.2 276.5
Trade and other payables (20.6) (3.8) (24.4)
Finance lease obligations (2.5) - (2.5)
Post employment benefit
obligations - (0.2) (0.2)
Tax - (0.3) (0.3)
Deferred tax liability (8.6) - (8.6)
Provisions (6.9) - (6.9)
--------------------------------------------------------------------------------
Gross liability disposed of (38.6) (4.3) (42.9)
Net assets disposed of 203.7 29.9 233.6
Cumulative exchange
translation loss recycled on
disposals 18.2 3.8 22.0
Profit/(loss) on disposal 196.5 (4.9) 191.6
--------------------------------------------------------------------------------
Consideration net of costs 418.4 28.8 447.2
Cash disposed of (4.3) (1.5) (5.8)
--------------------------------------------------------------------------------
Cash inflow from current year
disposals 414.1 27.3 441.4
--------------------------------------------------------------------------------
8. Discontinued operations (continued)
Financial performance of discontinued operations:
OEM and PSM Fasteners 30 June 30 June 31 December
Aftermarket 2007 2006 2006
£m £m £m £m £m
-------------------------------------------------------------------------------------
External
revenue 58.9 8.4 67.3 94.1 183.4
Operating costs (47.3) (7.0) (54.3) (76.5) (146.5)
-------------------------------------------------------------------------------------
Headline
operating
profit 11.6 1.4 13.0 17.6 36.9
Intangible
amortisation (1.0) - (1.0) (1.7) (3.1)
Reported as
exceptional
items - - - 2.3 0.3
Profit on
disposal of
businesses - - - 3.2 3.2
-------------------------------------------------------------------------------------
Net finance
costs (1.5) (0.2) (1.7) (2.6) (5.1)
-------------------------------------------------------------------------------------
Profit before
tax 9.1 1.2 10.3 18.8 32.2
Tax (charge)/credit (2.2) (0.3) (2.5) (4.7) 2.4
-------------------------------------------------------------------------------------
Profit after
income tax
from
discontinued
operations 6.9 0.9 7.8 14.1 34.6
Profit on
disposal of
net assets of
discontinued
operations 214.7 (1.1) 213.6 - -
Cumulative
exchange loss (18.2) (3.8) (22.0) - -
-------------------------------------------------------------------------------------
Profit/(loss)
on disposal 196.5 (4.9) 191.6 - -
-------------------------------------------------------------------------------------
Profit/(loss)
for the year
on
discontinued
operations 203.4 (4.0) 199.4 14.1 34.6
-------------------------------------------------------------------------------------
9. Earnings Per Share
6 months ended 6 months ended Year ended
30 June 2007 30 June 2006 31 December 2006
£m £m £m
Earnings for
the purposes
of basic
earnings per
share 209.1 12.2 37.8
Less profit
for the period
from
discontinued
operations (199.4) (14.1) (34.6)
-------------------------------------------------------------------------------------
Earnings for
basis of
earnings per
share from
continuing
operations 9.7 (1.9) 3.2
Exceptional
costs - 5.4 5.9
Exceptional
income (0.9) - (0.7)
Other
intangible
asset
amortisation
(1) 1.0 1.0 2.1
Tax (0.8) (0.3) (1.9)
-------------------------------------------------------------------------------------
Earnings for
basis of
headline
earnings per
share from
continuing
operations 9.0 4.2 8.6
-------------------------------------------------------------------------------------
(1) Other than computer software amortisation
9. Earnings Per Share (continued)
6 months ended 6 months ended Year ended
30 June 2007 30 June 2006 31 December
2006
Number Number Number
-------------------------------------------------------------------------------------
Weighted average number
of ordinary shares for the
purposes of basic earnings
per share (million) 257.1 257.1 257.1
Further shares for the
purposes of fully diluted 9.9 4.8 5.1
earnings per share (million)
-------------------------------------------------------------------------------------
6 months ended 6 months ended Year ended
30 June 2007 30 June 2006 31 December
2006
-------------------------------------------------------------------------------------
Basic earnings per share
From continued
and
discontinued
operations 81.3p 4.7p 14.7p
From
discontinued
operations 77.5p 5.4p 13.5p
From
continuing
operations 3.8p (0.7)p 1.2p
-------------------------------------------------------------------------------------
Fully diluted earnings per share
From continued
and
discontinued
operations 78.3p 4.6p 14.4p
From
discontinued
operations 74.7p 5.3p 13.2p
From
continuing
operations 3.6p (0.7)p 1.2p
-------------------------------------------------------------------------------------
Headline earnings per share
From
continuing
operations 3.5p 1.6p 3.3p
-------------------------------------------------------------------------------------
Fully diluted headline earnings per
share
From
continuing
operations 3.4p 1.6p 3.3p
-------------------------------------------------------------------------------------
Where basic earnings per share are a loss, the dilutive effect of any further
shares is ignored.
10. Issued Capital and Reserves
Share Capital
-------------------------------------------------------------------------------------
30 June 30 June 31 December
2007 2006 2006
£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
-------------------------------------------------------------------------------------
Authorised share capital 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
-------------------------------------------------------------------------------------
Allotted, called up and fully paid share
capital 0.3 0.3 0.3
-------------------------------------------------------------------------------------
Share premium account and merger reserve Share Merger
premium Reserve
account £m
£m
-------------------------------------------------------------------------------------
At 31 December 2006 and at 30 June 2007 214.6 42.0
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Reserves Hedging and Accumulated Minority
translation profits/(losses) Interests
reserve
£m £m £m
-------------------------------------------------------------------------------------
At 31 December 2006 (22.5) 19.7 1.0
Currency translation and
hedging adjustments (5.7) - -
Profit for the period 22.0 209.0 0.1
Actuarial adjustments on
pension liabilities - 4.1 -
Dividend paid - (9.6) -
Credit to equity for equity
settled share based payments - 0.3 -
-------------------------------------------------------------------------------------
At 30 June 2007 (6.2) 223.5 1.1
-------------------------------------------------------------------------------------
Hedging and translation reserve Hedging reserve Translation Total
reserve
£m £m £m
-------------------------------------------------------------------------------------
At 31 December 2006 1.4 (23.9) (22.5)
Exchange differences on
translation of overseas
operations - (5.0) (5.0)
Increase in fair value of
hedging derivatives 0.5 - 0.5
Transfer to income (1.2) 22.0 20.8
-------------------------------------------------------------------------------------
At 30 June 2007 0.7 (6.9) (6.2)
-------------------------------------------------------------------------------------
11. Dividends
6 months ended 6 months ended Year
30 June 30 June ended
31 December
2007 2006 2006
£m £m £m
-------------------------------------------------------------------------------------
Final dividend for the year ended
31 December 2005 paid of 3.0p - 7.7 7.7
Interim dividend for the year
ended 31 December 2006 paid of
2.25p - - 5.8
Final dividend for the year ended
31 December 2006 paid of 3.75p 9.6 - -
-------------------------------------------------------------------------------------
Dividends paid 9.6 7.7 13.5
-------------------------------------------------------------------------------------
12. Retirement Benefit Obligations
The defined benefit obligation at 30 June 2007 is estimated based on the latest
actuarial valuation at 31 December 2005. In addition, the McKechnie UK defined
benefit plan's assumptions have been updated to reflect market conditions at 30
June 2007 where appropriate. The defined benefit plan assets have been updated
to reflect their market value as at 30 June 2007 and to reflect the £22.5million
contributions made to the McKechnie UK defined benefit plan during the period.
13. Cash Flow
-------------------------------------------------------------------------------------
6 months 6 months Year
ended ended ended 31
30 June 30 June December
2007 2006 2006
£m £m £m
-------------------------------------------------------------------------------------
Reconciliation of operating profit to cash generated by
operations
Headline operating profit from continuing
operations (1) 11.4 8.2 19.2
Adjustments for:
Depreciation of property, plant and equipment 5.2 5.6 10.9
Amortisation of computer software 0.1 - 0.1
Restructuring costs paid and decrease in other
provisions (1.2) (1.5) (5.5)
-------------------------------------------------------------------------------------
Operating cash flows before movements in
working capital 15.5 12.3 24.7
Increase in inventories (0.1) (2.1) (6.3)
Increase in receivables (6.9) (11.5) (8.4)
(Decrease)/increase in payables (0.9) 6.9 10.2
-------------------------------------------------------------------------------------
Cash generated by operations 7.6 5.6 20.2
Tax paid (0.6) (0.6) (2.0)
Interest paid (4.9) (1.4) (4.0)
Pension contributions paid (2.0) (1.3) (4.5)
-------------------------------------------------------------------------------------
Net cash from operating activities for
continuing operations 0.1 2.3 9.7
-------------------------------------------------------------------------------------
(1) As defined on the income statement
-------------------------------------------------------------------------------------
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
£m £m £m
-------------------------------------------------------------------------------------
Cash flow from discontinued operations
Cash generated from discontinued operations 7.4 10.7 30.8
Tax paid (0.6) (0.6) (2.0)
Interest paid (4.2) (1.2) (3.5)
Pension contributions paid (0.6) (0.3) (0.9)
Profit of joint ventures (0.2) (0.5) (0.8)
-------------------------------------------------------------------------------------
Net cash from operating activities for
discontinued operations 1.8 8.1 23.6
-------------------------------------------------------------------------------------
Dividends from joint ventures - 0.3 0.5
Interest received 0.1 - -
Purchase of property, plant and equipment (2.6) (2.9) (7.7)
Proceeds on disposal of property, plant and
equipment - - 1.9
Purchase of intangible assets (0.1) (0.2) (0.3)
-------------------------------------------------------------------------------------
Net cash used in investing activities by
discontinued operations (2.6) (2.8) (5.6)
-------------------------------------------------------------------------------------
Repayments of obligations under finance
leases - (0.2) (0.3)
New finance leases 0.3 1.4 3.0
-------------------------------------------------------------------------------------
Net cash from financing activities for
discontinued operations 0.3 1.2 2.7
-------------------------------------------------------------------------------------
Net debt reconciliation
At 31 December Cash flow Foreign Acquisitions New leases Other non-cash At
2006 exchange and disposals changes 30 June 2007
difference (excluding cash
and overdrafts)
£m £m £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------------
Cash 33.3 232.1 (0.1) - - - 265.3
Debt due
within one
year - - - - - (1.7) (1.7)
Debt due after
one year (192.1) 179.0 0.4 - - 1.7 (11.0)
Leases (3.8) - 0.1 2.5 (0.1) - (1.3)
-----------------------------------------------------------------------------------------------------------------
Net
(debt)/funds (162.6) 411.1 0.4 2.5 (0.1) - 251.3
-----------------------------------------------------------------------------------------------------------------
14. Subsequent Events
On 14 August 2007, at an Extraordinary General Meeting, shareholders approved
resolutions to return capital of £220million to shareholders, crystallise the
value accrued up to 18 July 2007 in the Existing Incentive Share scheme and
increase the Company's authorised share capital by £50,000 in respect of the New
2007 Incentive Share scheme. As a consequence of crystallising the Existing
Incentive Share arrangements, in the second half of the year there will be an
exceptional charge of £1.2million relating to the remaining IFRS 2 charge on the
Existing Incentive Shares and an exceptional charge of £0.9million relating to
the accelerated National Insurance charge. In addition following the EGM on 14
August 2007 the 59,170 Existing Incentive Shares converted into 10,210,069
Ordinary Shares and 59,170 Deferred Incentive Shares and the latter were
repurchased by the Company for an aggregate sum of one penny.
The conversion formula for the New 2007 Incentive Shares is based upon
principles identical to the conversion formula for the Existing Incentive Shares
and, broadly provides for the New 2007 Incentive Shares to convert into Ordinary
Shares equal to 10 per cent of the increase in shareholder value from 18 July
2007 (excluding the Return of Capital). As with the Existing Incentive Shares,
the New 2007 Incentive Shares will have early "trigger dates" upon which the
Remuneration Committee can permit up to one third of the New 2007 Incentive
Shares held by a 2007 Incentive Shareholder to be converted into Ordinary
Shares. The early trigger dates for the New 2007 Incentive Shares will be on 31
May in each of the years 2010 and 2011. On 31 May 2012, the final trigger date,
all unconverted New 2007 Incentive Shares will convert into Ordinary Shares in
accordance with the formula set out in the Company's articles. The Articles will
not permit holders of New 2007 Incentive Shares to convert more than two thirds
of their holding of such shares before 31 May 2012. The rights and restrictions
of the New 2007 Incentive Shares will be similar to the rights and restrictions
of the Existing Incentive Share scheme.
The Return of Capital took place by increasing the authorised share capital by
£220million by the creation of 267,330,058 redeemable C shares of 82.3 pence
nominal value each and capitalising £214.6million of the Share Premium Account
and £5.4million of the Merger reserve to pay up in full the C shares. The C
shares were allotted on the basis of one C share for each Existing Ordinary
Share held on 15 August 2007. Shareholders had the option to receive the cash
value inherent in the C share by way of income or two capital options. As a
result of the choices made by shareholders in respect of the return of capital:
• 187,786,984 C shares were redeemed and subsequently cancelled with
effect from 23 August 2007.
• 9,053,594 C shares will be redeemed on 30 June 2008.
• 70,489,480 shares were paid a dividend which was payable on 23 August
2007 and these C shares converted into C deferred shares.
14. Subsequent Events (continued)
Both the remaining 9.1million C shares and 70.5million deferred C shares carry
no voting rights.
With the conversion of the Existing Incentive Shares on 14 August 2007, the
allotted Ordinary Share capital increased to 267,330,058. On 15 August 2007 a 1
for 2 share consolidation process reduced the allotted ordinary share capital to
133,665,029 with the first day of trading being the 16 August 2007.
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