Final Results
Molins PLC
22 February 2005
22 FEBRUARY 2005 FOR IMMEDIATE RELEASE
2004 PRELIMINARY ANNOUNCEMENT
Molins PLC, the international specialist engineering company, announces its
results for the year ended 31 December 2004.
2004 2003
(restated)#
Sales £122.9m £121.8m
Underlying operating profit* £2.0m £12.1m
Underlying earnings per share* 1.1p 43.6p
Dividend - 12.6p
• Results in line with December market update
• Weak performance of the Tobacco Machinery division resulting in a major
restructuring and exceptional charges of £11.5m
• Improved sales and profits from Packaging Machinery division
• Strong recovery in the Scientific Services division in the second half
of the year
# Restated for the impact of UITF Abstracts 17 & 38 on accounting for employee
share schemes
* Before goodwill amortisation and exceptional items
Peter Byrom, Chairman, commented:
'2004 has proved to be a particularly disappointing year for the Group, due to a
sharp reversal in the performance of the Tobacco Machinery division. This has
led to a significant restructuring of that part of the business.
In the Tobacco Machinery division the order book at the beginning of 2005 is
below that at the beginning of 2004. The division has a number of projects
under negotiation but they have yet to be secured and timing is uncertain. We
plan for further operational improvements in 2005 to build on the major changes
effected in the second half of 2004. The Packaging Machinery division entered
2005 with satisfactory order books and we expect its performance to be
maintained in 2005. The order books for the Scientific Services businesses at
the beginning of the year are also satisfactory and ahead of the previous year
and we expect an improved performance in 2005.'
Enquiries: Molins PLC Tel: 020 7638 9571
Peter Byrom, Chairman
David Cowen, Group Finance Director
Issued by: Citigate Dewe Rogerson Tel: 020 7638 9571
Margaret George
CHAIRMAN'S STATEMENT
2004 has proved to be a particularly disappointing year for the Group, due to a
sharp reversal in the performance of the Tobacco Machinery division. This has
led to a significant restructuring of that part of the business.
Excluding Sasib, which was acquired in August 2003, sales increased by 3% to
£111.4m from £108.1m in 2003. In local currency terms this represents an
increase of 6%. Sasib contributed £11.5m to sales compared with £13.7m for four
months of 2003.
Underlying operating profit (before goodwill amortisation and exceptional items)
reduced substantially to £2.0m (2003: £12.1m). After interest and taxation
costs, underlying earnings per share was 1.1p (2003: 43.6p).
The Tobacco Machinery division entered 2004 with a reasonable order book. Sales
of spare parts and services, which represent more than half of the sales of
Molins Tobacco Machinery, were maintained at similar levels to 2003. Gross
margins were also maintained. Orders for new equipment were less than half of
that planned at the beginning of the year and orders for rebuild machinery were
down one third against plan. This was principally as a result of an unforeseen
downturn in capital investment plans by newer manufacturers based in North
America.
The manufacturing resources of the division and its inventory levels had been
geared to meet the growth planned for 2004. Consequently, the facilities became
under-utilised, resulting in operational inefficiencies. Lower margins on
original equipment and rebuild machinery, reflecting pricing pressures, adverse
currency movements and cost overruns on some projects, led to an underlying
operating profit for the division, excluding Sasib, of £0.4m, down from £6.5m in
2003. In addition the division received significantly reduced property rental
income of £0.1m (2003: £1.1m).
Sasib has performed disappointingly. It entered the year with a low order book
but despite good levels of orders in the early months of 2004, and also towards
the end of the year, activity levels overall were well below plan. Sasib
returned an underlying operating loss of £2.4m in 2004 compared with an
underlying operating profit of £0.3m for the four months of Molins' ownership in
2003.
In response to the lower levels of demand and the consequent impact on
efficiency and performance, we have re-organised the Tobacco Machinery division.
Molmac's rebuild activities have been merged into the Saunderton and Czech
Republic facilities, Sasib Corporation of America has been merged into Molins
Richmond's facility and Sasib has ceased the development of a hinge-lid packing
machine. The re-organisation has resulted in a total of 310 redundancies.
Additionally, we have taken some further inventory provisions, in response to
the downturn in demand. This has resulted in a charge to the year's operating
profit of £9.9m before tax credits. The annualised cost saving is estimated at
£7m.
The Kunming Molins joint venture in China has been closed. This resulted in a
net write off of the investment in that company of £1.6m.
Molins Packaging Machinery division has built on the progress it made in 2003
and improved further its sales and profitability, notwithstanding an adverse
impact from the weakened US dollar. The division benefited from a strong order
book at the beginning of the year and an increased level of order intake in the
first half. Continued focus on operational improvements and selective product
development has positioned the division's businesses to maintain progress,
although order intake in the second half of the year was a little lower than in
the comparable period in 2003.
Although the Scientific Services businesses, reported as a separate division for
the first time, returned a lower profit overall than in 2003, they demonstrated
a strong recovery in the second half of the year. Cerulean, which had a slow
start to the year, benefited from a strong sales performance in the second half,
resulting in sales and profits at similar levels to 2003. Its new product
range, MC(2), contributed to sales in the period and interest in the product is
encouraging. Arista Laboratories underperformed against 2003, with an expected
order for a series of tests not materialising in the first half of the year,
adversely affecting profitability. However, the business has continued to
expand its customer base and services, and enters 2005 with an encouraging level
of order potential.
Property
We continue to examine the prospects for the redevelopment of the 26 acre site
at Saunderton and are progressively taking steps to transfer manufacturing
operations from the site, principally to Plzen in the Czech Republic. With our
advisors, we are making representations for the future of the site to the local
planning authority as it prepares its development framework planning document,
with a view to making formal planning applications in 2005. We expect to
maintain certain Tobacco Machinery operations on the site.
Board
In June 2004, Dick Hunter and Adam Robson were appointed to the Board as
executive directors. They both joined the Company in the early part of 2003.
Dick Hunter is Managing Director, Molins Tobacco Machinery, including Sasib
S.p.A., and Adam Robson is Managing Director, Molins Packaging Machinery and
Scientific Services. Sam Saw, a non-executive director, retired from the Board
in April 2004 and Amar Sabberwal, chairman of the Tobacco Machinery division,
left the Board in June 2004.
Dividend
The Board decided not to pay an interim dividend, following the results in the
first half of the year. In view of the results for the whole year, in which the
Group has incurred considerable further re-organisation costs, the Board has
also decided not to recommend the payment of a final dividend.
Outlook
In the Tobacco Machinery division the order book at the beginning of 2005 is
below that at the beginning of 2004. The division has a number of projects
under negotiation but they have yet to be secured and timing is uncertain. We
plan for further operational improvements in 2005 to build on the major changes
effected in the second half of 2004.
The Packaging Machinery division entered 2005 with satisfactory order books and
we expect its performance to be maintained in 2005.
The order books for the Scientific Services businesses at the beginning of the
year are also satisfactory and ahead of the previous year and we expect an
improved performance in 2005.
Peter Byrom
Chairman
22 February 2005
OPERATING REVIEW
TOBACCO MACHINERY
The division experienced a sharp reversal in performance during the year and a
significant restructuring of the businesses has taken place.
The division comprises the Molins Tobacco Machinery (MTM) and Sasib S.p.A.
businesses. Sasib was acquired in August 2003. Excluding Sasib, turnover in
local currencies remained at similar levels to 2003. Sasib's turnover of £11.5m
for the year was lower than that in the four months of Molins' ownership in 2003
(£13.7m), when a number of non-repeating projects were delivered. Combined
turnover of the division was £61.8m in 2004 compared with £66.2m in 2003.
MTM
Underlying operating profit of MTM, excluding re-organisation costs, was
significantly lower, at £0.4m compared with £6.5m in 2003. In addition, and as
expected, MTM received a much reduced level of rental income in 2004, £0.1m
compared with £1.1m in 2003.
Sales of spare parts and services were maintained at similar levels to those in
2003 and at similar margins. This part of the business represents over half of
total MTM sales.
MTM entered 2004 with strong order books for original equipment and for rebuild
machinery, and with the expectation of additional orders in the early part of
2004. However, during the first half of the year orders for new and rebuild
equipment were disappointingly low. In particular MTM experienced the impact of
a slow down in the investment plans of some of the US independent cigarette
manufacturers. Order intake for rebuild machinery from other regions was also
lower than expected.
Sales of original equipment were therefore lower than in 2003 and the order book
at the end of 2004 was significantly lower than twelve months earlier. Whilst
sales of rebuild machinery were a little ahead of 2003, order book levels at the
end of 2004 were also lower than they were at the beginning of the year.
In expectation of original equipment and rebuild machinery sales growth in 2004,
the manufacturing resources of the division were structured to meet increased
activity through the year. As the expected level of order intake did not
materialise, the manufacturing operations across the division became
under-utilised in the first half of the year. This in turn resulted in
operational inefficiencies and a reduction in profitability.
In addition, a number of rebuild contracts suffered from cost overruns that
significantly impacted the profitability of this part of the business. Pricing
pressures were also felt throughout MTM, as were adverse currency movements,
particularly the weakening of the US dollar and a number of linked Far East
currencies. These factors have all played a part in lowering the profitability
of the division.
In response to the conditions being experienced by the businesses, a major
re-organisation of the division has been carried out, in order to lower the cost
base of MTM and to deliver greater efficiencies.
All of the activities of Molmac, the division's UK rebuild machinery business,
have been transferred to other locations within MTM. Molmac completed its 2004
programme in its Milton Keynes factory but all subsequent machine rebuilds are
being carried out at MTM's facility in Saunderton, UK or at Molins sro in Plzen,
Czech Republic. Activities in Plzen are focused on the rebuilding of MK9
cigarette making machinery and ancillary equipment.
The activities at Saunderton have also been restructured, with a further
transfer of parts manufacture to Molins sro and other manufacturers in lower
cost economies, and this process continues. Saunderton remains the centre for
parts distribution and assembles the Passim cigarette maker, the PM5 filter
maker and the Concord and Pegasus handling systems.
Molins sro continues to develop its capabilities in both machining and assembly.
It employed 168 people at the end of 2004.
Molins Richmond and Molins do Brasil were both restructured during the year.
Molins Richmond, MTM's sales and service business in North America, ceased
manufacturing operations, with all work transferred to the UK. This business is
focused on delivering services and spare parts to its North American customers.
Molins do Brasil has a full range of manufacturing and assembly capabilities,
which have been maintained at a lower level, as sales to other parts of the
division reduced during the year. Its prime focus is to serve its South
American customers with spare parts and rebuild machinery.
The Kunming Molins joint venture in China, in which Molins held a 48% stake, has
been closed. Consolidation and modernisation within the Chinese tobacco
industry resulted in a decline in demand for its rebuild equipment and the
shareholders took a collective decision to close the operation. This company
reported a loss attributable to Molins of £0.3m in 2003. Molins received a
partial repayment of loans outstanding from the joint venture which, net of
Molins' direct costs in contributing to effecting the closure, amounted to
£0.2m. The net write off of the investment was £1.6m.
The spares and service facility in Shanghai has not been affected by the
re-organisation. Molins Far East in Singapore increased sales of spare parts
and services by nearly 10% and is being developed further to meet increasing
business opportunities in its region.
Sasib
Sasib, acquired in August 2003, performed disappointingly, returning an
underlying operating loss of £2.4m (2003: £0.3m profit for four months). Having
entered 2004 with a low order book it received a good level of orders for
original equipment in the early part of the year. But this was not sustained
and order intake during the second and third quarters was low. The position
improved in the last quarter of the year and Sasib entered 2005 with an improved
order position for delivery in the current year.
In conjunction with MTM, Sasib is developing its rebuild business, an area of
the market that it has not focused on in the past. A number of rebuild machines
were sold during the year, although margins were relatively low. The business
is developing its effectiveness in this area.
Sales of spare parts were lower than expected. In order to support the Sasib
sales function, and to maximise the use of the sales and distribution channels
throughout the division, Molins Far East, Molins Richmond and Molins do Brasil
have taken on responsibility for the sale of Sasib parts in their regions. They
also work with the Sasib sales team on original equipment and rebuild sales.
Additionally, Molins do Brasil is developing its capabilities in rebuilding the
Sasib 3000 packer.
During the year Sasib relocated to new leased premises close to the previous
facilities and this will help improve its operational efficiencies. 49 people
left the business during the year and a further 45 employees will have left by
the end of the first quarter of 2005. An appraisal of the Sasib product range
resulted in the announcement in July 2004 of the suspension of the development
of the Fenix packing machine, owing to insufficient market opportunities.
Summary
Overall the division had a challenging year. Market opportunities were not
favourable. The division entered 2004 expecting growth and was not structured
to withstand the decline in demand that occurred. The experiences of 2004 have
given added impetus to the relocation of production activities to lower cost
economies and to the continuing simplification of operations in the UK and US.
Sasib has suffered from the same reduction in market activity and had a
particularly high cost base, which is being reduced.
Significant restructuring has taken place in the year in all parts of the
business and the division is better placed to withstand lower volumes of
original equipment and rebuilds. Overall 310 employees will have left the
business by the end of the first quarter of 2005, most having departed prior to
the end of 2004. The total cost of the re-organisation, including the costs of
closing Molmac and Sasib Corporation of America, amounted to £5.4m before tax
credits. Additionally, in view of the restructuring of the business and the
changes to the market, inventories have also been written down and £1.7m was
taken as an exceptional charge in the year. The costs incurred in the
development of the Fenix packing line of £2.8m were also taken as an exceptional
charge. It is estimated that the annualised cost savings following this
re-organisation will be £7m.
Notwithstanding the difficult market conditions the businesses have a number of
potential opportunities for new orders, although lead times are hard to
determine. The division continues to assess the market opportunities for each
of its key product groups.
PACKAGING MACHINERY
The Molins Packaging Machinery (MPM) division has made good progress in the year
with sales up 17% from £39.1m to £45.8m and operating profit up from £1.6m to
£2.3m.
Overall, the markets in which the MPM businesses operate showed some improvement
in 2004 over the previous year, although the market conditions have been
variable. The division makes over half of its sales to the food sector which
has continued to experience mixed trading conditions, with further consolidation
of the sector leading to rationalisation of product lines and plant closures.
This has been particularly felt in the UK, with Sandiacre Rose Forgrove most
affected.
The other key markets for MPM are non-durable consumer goods and personal care
products, both markets having strengthened during the year, and the
pharmaceuticals sector which remains strong. In all sectors the market
continues to be driven by the need for an innovative approach to new products
and pack styles and MPM is well placed to respond to customers' requirements.
The other major driver for customers is the need for continuous cost reductions
and improvements in capital efficiency in the face of a high rate of product
change. To this end, MPM has focused product developments on increased output
and additional machine flexibility. Machine speeds have been increased and
fast-change features enhanced. In addition, the use of robotics has increased;
ITCM has undertaken major projects in this area and Langen has launched the LRC
400i, the first of a new family of modularised robotic cells. These cells will
also be sold by Langenpac in the European market. Robots are predominantly used
for top-load carton filling which requires specialist carton erecting and
sealing machines. MPM has entered into a distribution partnership with Imball
of Italy to meet this requirement.
The weakness of the US dollar has remained a significant challenge to the
business and impacted markedly on profitability. This has been especially felt
by Sandiacre Rose Forgrove and Langen, for whom the US is a very important
market. Its impact is being addressed through efficiency improvements and a
move towards lower cost sourcing of parts and assembly of some machines in
Eastern Europe. The assembly facility within Molins sro in Plzen is now
established and is running well and there is an on-going programme of machine
transfers. This is supported by the development of a supply base in the region.
ITCM, based in Coventry, UK, had a very good year. Sales increased
significantly as the business benefited from a growing number of long-term
relationships with multinational customers in the pharmaceutical, personal care
and FMCG sectors. ITCM offers its customers a unique service to support new
product and packaging introductions, from the initial concept stage through to
prototype production machine development and then to the supply of the
production lines. ITCM helps its customers achieve innovation and productivity
increases, which is risk-reduced by the on-going commitment of the engineering
team throughout the process. During the year, ITCM delivered record sales and
profit and invested in developing its processes and people to support increased
business levels in the coming years.
Langen and Langenpac, based respectively in Mississauga, Ontario and Wijchen,
the Netherlands, address the markets for product handling and cartoning
machinery in North America and Europe. The businesses offer their customers a
range of standard products, able to operate at high output levels, which are
also used as the base for creating highly customised solutions. Their strong
engineering teams are able to develop full project solutions, with complex high
speed product collation and handling capabilities and they have increased their
new product development activity. Their emphasis is on superior flexibility and
higher throughput speeds, coupled with the use of robotics. Together, these
features enable our customers to increase output and so increase their capital
efficiency and they protect their investments against changing production
requirements.
These businesses also have strong project management capability, and are able to
deliver full turnkey solutions integrating other suppliers' equipment. During
the year the two companies have delivered a number of major projects of this
type. There is a growing demand for these services as customers are reducing
their in-house capabilities and replacing them by third party solutions
providers.
Both businesses increased their machine order intake during the year, compared
with the previous year, and both achieved higher levels of profitability. The
aftermarket service part of the businesses also developed in the year. This
includes servicing, retrofits and rebuilds and is aimed at helping customers to
achieve the best performance from their production lines.
Sandiacre Rose Forgrove, based in Nottingham, UK and Lancaster, Pennsylvania,
had a difficult year. Sales were below the 2003 level, with particular weakness
in the UK in the second half of the year as customers experienced difficult
trading conditions. The business was also significantly affected by the weak US
dollar. The net result has been a near break-even position for the year. A
number of actions have been taken to improve profitability; fixed overheads have
been reduced substantially, transfer of manufacturing to Eastern Europe
continues and manufacturing efficiency is being improved.
Despite these adverse conditions the business has made progress in a number of
ways in the year. Sales in the USA have grown strongly, albeit at relatively
low margins and the aftermarket business has maintained strong sales levels.
This was on the back of product innovations such as a new light weight forming
set design and continuous improvement in meeting customer needs. Sandiacre
Packaging launched its 250RC high speed reciprocating vertical bagger in the
spring and this has received a good level of market acceptance in Europe and the
USA. Rose Forgrove has upgraded its range of horizontal flow-wrapping machines
with new electronics, which has increased both their speed and flexibility,
providing customers with a more versatile and economic product offering.
Cerulean Packing, based in Milton Keynes, UK, has continued to serve its niche
market for tube handling and maintained sales and profit at similar levels to
previous years.
The division ended the year with strong order books across all of its
businesses. Although markets remain challenging, the division expects to obtain
further benefits from its investments in new products, improved engineering,
project management and lower cost production in Eastern Europe. The division
continues to evaluate new alliance and acquisition opportunities consistent with
its focused sales and profit growth strategy.
SCIENTIFIC SERVICES
Sales in the division, which comprises Cerulean and Arista Laboratories, were
£15.3m, down on the £16.5m achieved in 2003. This had a disproportionate impact
on profit, £1.6m in 2004 against £2.6m the previous year, owing to a reduction
in higher margin sales. However, the performance in the second half of the year
was much stronger, as anticipated, with both businesses experiencing an
improvement in trading.
Cerulean, based in Milton Keynes, UK, suffered from weak trading in the first
half of the year, mainly driven by consolidation of its customer base. During
the second half of the year, order intake improved considerably and Cerulean
ended the year with sales slightly ahead of the previous year's level. This
improvement was driven by a recovery in market demand and by a strong
performance from new products, notably the SM 450 smoking machine and the MC(2)
quality test instrument.
The MC(2) launch has proceeded well; a first batch of nine instruments has been
shipped and the product is being evaluated at four other leading manufacturers
of cigarettes and filters. This first version of the product performs at-line
sampling of the production flow and hence can be used to monitor process
capability. This has great performance benefits, unavailable from the
traditional off-line methods of cigarette and filter testing. From this first
machine, further variants of the C(2) family are being developed, to support
hopper sampling from multiple machines and for laboratory testing.
Cerulean has also maintained a high level of research and development
expenditure across its product range. The family of smoking machines continues
to be improved and both the SM 450 and the ASM 500 have achieved a good level of
sales during the year. In addition improvements have been made to the QTM
family of laboratory testing instruments.
The business has also developed further its manufacturing processes. It has
continued to develop its just-in-time material supply through improved supply
chain management and its Kaizen programme has delivered significant benefits
during the year. The business was a finalist in several categories of the
Institution of Mechanical Engineers' 2004 Manufacturing Excellence awards.
Customer support on spares and service continues to be improved and overall the
business has reinforced its position as the leader in its field.
After six years of growth from its inception in 1998, Arista Laboratories, based
in Richmond, Virginia and Kingston upon Thames, UK had a more difficult year.
It has been subject to opposing trends in the marketplace. New legislation and
the search for greater efficiencies are driving its customers to greater use of
external laboratory testing services. In this respect, Arista is well
positioned, as one of only two major independent, accredited cigarette testing
laboratories in the world today. However, Arista's larger customers are also
seeing the economic benefits of in-sourcing certain test procedures as their
volumes increase and the work becomes more mainstream. In 2004 Arista
experienced a trend to in-sourcing by customers, which outweighed the growth in
other new services, and consequently sales declined from the record levels
achieved in 2003. In 2005, Arista is positioned to benefit from demand created
by new Canadian toxicology testing legislation and from its new agrochemical
residue services.
Toxicology and agrochemical residues are two areas of business which Arista has
developed in the year. The business has invested in state-of-the art laboratory
equipment and has developed its testing protocols which are now fully
accredited, where appropriate, in accordance with ISO and relevant national
testing requirements.
Arista has also successfully extended its services internationally and has a
growing customer base worldwide. It is the only supplier in its sector to have
bases in both North America and Europe. Arista Laboratories Europe is serving a
growing European market, in part driven by pending European Union legislation.
The ratification of the Framework Convention on Tobacco Control, which requires
emission testing of cigarette products, bodes well for the future of the
business.
Overall, the division is well placed to support its customers' new product
development and efficiency programmes and to meet the ever growing regulatory
requirements impacting their businesses.
The Scientific Services division ended the year with a strong order book and,
although business can be volatile, we expect the division to benefit from the
good prospects we see for the many new products and services available from
Cerulean and Arista Laboratories.
FINANCIAL REVIEW
Group underlying operating profit (which excludes goodwill amortisation and
exceptional charges) for the year was £2.0m, sharply down from 2003 levels.
Additionally, the Group incurred exceptional charges of £11.5m, before tax
credits, relating to the restructuring of the Tobacco Machinery division,
including the liquidation of a joint venture company in China. Underlying
earnings per share fell to 1.1p from 43.6p in 2003. The basic loss per share
was 62.1p (2003: earnings per share 39.9p).
Operating results
The trading performance of the Group is discussed in the Operating review. The
results of Cerulean and Arista Laboratories, which have previously been reported
within those of the Tobacco Machinery division, are reported separately under
Scientific Services.
Group turnover was £122.9m (2003: £121.8m). Tobacco Machinery division sales,
including those of Sasib S.p.A. acquired in August 2003, were £61.8m (2003:
£66.2m). Underlying operating profit of the MTM businesses, excluding Sasib,
was £0.4m (2003: £6.5m). As expected, the business received much reduced rental
income of £0.1m (2003: £1.1m). Sasib incurred an underlying operating loss of
£2.4m (four months 2003: £0.3m profit).
The Packaging Machinery division increased its sales by 17% to £45.8m (2003:
£39.1m) and the division's operating profit increased to £2.3m, from £1.6m in
2003. Scientific Services turnover fell by 7% to £15.3m (2003: £16.5m) and
profit reduced to £1.6m from £2.6m.
Exceptional charges
Exceptional charges amounted to £11.5m (£10.4m after tax credits), of which
£1.6m is non-operating, being the net write down of the Company's 48% investment
in Kunming Molins Tobacco Machinery Company.
Included within the balance of exceptional charges of £9.9m, charged to
operating profit, are redundancy and other re-organisation costs of £5.4m.
These charges resulted from the closure of Molmac's facility at Milton Keynes
and its relocation to the Saunderton site, and cost reduction programmes in
other parts of the Tobacco Machinery division, principally in the UK operations
and in Sasib in Italy. This re-organisation programme will result in a total of
310 people leaving the business, of which 235 had left by the end of the year.
This represents more than a quarter of the division's work force at December
2003 and it is expected that the re-organisation will reduce operating costs by
approximately £7m per annum.
With the restructuring of the business and the changes to the product range,
inventories have been written down and £1.7m has been taken as an exceptional
charge. Additionally, a specific write down of £2.8m has been incurred at
Sasib, representing costs and inventories associated with the development of the
Fenix hinge-lid packing machine, which was suspended owing to insufficient
market opportunities. Purchased goodwill has been increased by £1.7m in respect
of the further write down of inventory at the date of acquisition, mainly
related to this project.
Interest and taxation
Net interest expense in 2004 was £1.1m (2003: £0.5m), reflecting the higher
average level of debt in the year following the acquisition of Sasib in August
2003, which was financed from bank borrowings.
The 2004 Group tax credit of £0.4m comprises a charge of £0.7m in respect of
profit before exceptional charges and a net credit of £1.1m in relation to the
exceptional charges.
Earnings per share
Underlying earnings per share (before exceptional charges and goodwill
amortisation) was 1.1p (2003: 43.6p). Basic loss per share was 62.1p (2003:
earnings per share 39.9p) and diluted loss per share was 62.1p (2003: diluted
earnings per share 36.0p).
Dividend
The Board did not pay an interim dividend and has recommended that no final
dividend should be paid. In 2003 a final dividend of 8.0p was paid, making a
total of 12.6p for the year.
Cash, treasury and funding activities
Group net debt at the end of 2004 amounted to £25.1m (2003: £21.5m). Net cash
inflow from operating activities before exceptional costs was £6.5m (2003:
£5.7m). Working capital reduced by £1.9m in 2004, mainly as inventories were
reduced in the Tobacco Machinery division to match more closely current market
demands. Additionally, exceptional re-organisation and redundancy payments were
made in the year of £3.5m (2003: £0.1m), with a further £3m of payments to be
made in 2005 in relation to costs incurred in 2004.
Operating cash inflow was offset by net capital expenditure of £3.4m. Net
interest and tax of £1.1m and £0.8m respectively was paid. Net proceeds from
the disposal of the Chinese joint venture amounted to £0.2m. Equity dividends
of £1.4m were paid in the year.
There were no significant changes during the year in the financial risks,
principally currency risks and interest rate movements, to which the business is
exposed and the Group treasury policy has remained unchanged. The Group does
not trade in financial instruments and enters into derivatives (principally
forward exchange contracts) solely for the purpose of minimising currency
exposures on sales or purchases not in the functional currencies of its various
operations.
Since the end of the year, the Company has entered into new secured, committed
facilities with its two principal UK bankers. The total amount of such
borrowing facilities has remained unchanged at the same level as in 2004, £31m.
This commitment will reduce by £5m at 31 December 2005, with a further £5m
reduction in commitment over 2006 and 2007. The balance of the commitment of
£21m expires on 31 July 2008, in line with the previous facility. These new
facilities are appropriate to meet the Group's expected requirements over this
period. The committed facilities are subject to covenants covering earnings and
cash flow levels. These facilities are denominated in both sterling and
multi-currency. In addition, the Group maintains committed facilities from
overseas banks of £5.7m. Short-term overdrafts and borrowings are utilised
around the Group to meet local cash requirements. These are typically
denominated in local currencies. Foreign currency borrowings are used to hedge
investments in overseas subsidiaries where appropriate.
Reporting standards
Preparation for the implementation of International Financial Reporting
Standards (IFRS) in 2005 has progressed significantly during 2004. The main
impact of IFRS to the Group's reported financial position is expected to be the
capitalisation of product development expenditure and a change in accounting for
the Group's pension schemes. It is intended that the financial results for
2004, modified as if the IFRS regime had been in place, will be presented in
2005.
The only material change in accounting policy in the financial statements to 31
December 2004 is as a result of adopting revised UITF Abstract 17 (Employee
share schemes) and UITF Abstract 38 (Accounting for ESOP trusts). As a result
of implementing these new standards, the results for 31 December 2003 have been
restated and the Company's investment in own shares, which are held under trust
in respect of the Company's long-term incentive plan (LTIP), has been
reclassified from Investments to Reserves.
Pension valuations
The Company continues to account for pension costs under SSAP 24 Accounting for
pension costs. A formal valuation of the UK pension fund was carried out as at
30 June 2003 and its assumptions have been applied in the financial statements,
updated to reflect conditions at 1 January 2004. The result of the 2003
valuation was that a surplus in excess of three years' worth of employer's
contributions existed at that date and the fund's trustees and the Company
agreed that the employer's contribution holiday would continue to 30 June 2006
at which time the next triennial valuation will take place. The net pension
credit for the year was £nil (2003: £nil).
In line with many similar pension schemes, the valuation of the UK fund under
FRS 17 Retirement benefits continues to show a deficit at the end of 2004. On
the basis of the assumptions used the deficit had reduced to £13.6m (net of
deferred tax) at 31 December 2004 (2003: £16.0m).
Shareholders' funds
Group shareholders' funds at 31 December 2004 were £51.5m (2003: £64.0m). The
reduction arises from the £11.1m loss for the year, preference dividends of
£0.1m, adverse exchange movements on the net assets of overseas operations of
£1.1m and a £0.2m reduction in reserves arising from the new accounting
requirements in relation to the LTIP.
David Cowen
Group Finance Director
22 February 2005
Group profit and loss account for the year ended 31 December
2004
Before
exceptional Exceptional 2003
items items Total (restated)
Notes £m £m £m £m
(notes 6, 7) (note 3)
Turnover - continuing operations 4,5 122.9 - 122.9 121.8
Operating (loss)/profit - continuing 4 1.1 (9.9) (8.8) 11.4
operations
Loss on closure of associate - (1.6) (1.6) -
Net interest payable (1.1) - (1.1) (0.5)
(Loss)/profit on ordinary activities before
taxation - (11.5) (11.5) 10.9
Taxation (0.7) 1.1 0.4 (3.6)
(Loss)/profit for the financial year (0.7) (10.4) (11.1) 7.3
Dividends (including non-equity) (0.1) - (0.1) (2.3)
(Accumulated loss)/retained profit for the
year (0.8) (10.4) (11.2) 5.0
Underlying earnings per ordinary share 10 1.1p 1.1p 43.6p
Basic (loss)/earnings per ordinary share 10 (4.1)p (58.0)p (62.1)p 39.9p
Diluted (loss)/earnings per ordinary share (4.1)p (58.0)p (62.1)p 36.0p
Dividend per ordinary share - 12.6p
The calculations of earnings per share are based on the following weighted
average number of shares:
Underlying and basic - 18,023,181 (2003: 18,072,665). Diluted - 19,212,153
(2003: 20,043,765).
Group balance sheet as at 31 December
2003
2004 (restated)
Notes £m £m
(note 3)
Fixed assets
Intangible assets - goodwill 11 15.4 14.8
Tangible assets 22.9 22.6
Investments 3,7 - 1.8
38.3 39.2
Current assets
Stocks 35.2 40.3
Debtors - due within one year 27.4 37.0
Debtors - due after more than one year 9 24.8 28.1
Cash and short-term bank deposits 5.1 7.0
92.5 112.4
Creditors - amounts falling due within one year
Borrowings (1.7) (4.0)
Other creditors (33.3) (46.0)
Proposed dividend - (1.4)
(35.0) (51.4)
Net current assets 57.5 61.0
Total assets less current liabilities 95.8 100.2
Creditors - amounts falling due after more than one year
Borrowings (28.5) (24.5)
Provisions for liabilities and charges (15.8) (11.7)
Net assets 51.5 64.0
Capital and reserves
Called up share capital 5.9 5.9
Share premium account 25.9 25.9
Revaluation reserve 5.6 5.6
Capital redemption reserve 3.9 3.9
Profit and loss account 3 10.2 22.7
Shareholders' funds
(including £0.9m of non-equity interests) 51.5 64.0
Group cash flow statement for the year ended 31 December
2004 2003
Notes £m £m
Net cash inflow from operating activities 12 3.0 5.6
Returns on investments and servicing of finance (1.2) (0.6)
Taxation (net) (0.8) (3.3)
Capital expenditure (net) (3.4) (4.2)
Acquisitions and disposals 0.2 (9.3)
Equity dividends paid (1.4) (2.1)
Net cash outflow before financing (3.6) (13.9)
Financing 13 2.9 17.4
(Decrease)/increase in cash in the year (0.7) 3.5
Reconciliation of net cash flow to movement in net debt for the year ended 31
December
2004 2003
£m £m
(Decrease)/increase in cash in the year (0.7) 3.5
Cash inflow from increase in debt and lease financing (2.9) (17.8)
Change in net debt resulting from cash flows (3.6) (14.3)
Net debt acquired with business - (2.9)
Translation movements - 0.4
Movement in net debt in the year (3.6) (16.8)
Net debt at 1 January (21.5) (4.7)
Net debt at 31 December (25.1) (21.5)
Statement of total recognised gains and losses for the year ended 31 December
2003
2004 (restated)
Note £m £m
(Loss)/profit for the year (11.1) 7.3
Currency translation movements arising on foreign
currency net investments (1.1) (0.8)
Total recognised gains and losses for the year (12.2) 6.5
Prior year adjustment 3 (0.3)
Total recognised gains and losses since the last Annual Report
and Accounts (12.5)
Reconciliation of movements in shareholders' funds for the year ended 31
December
2004 2003
Note £m (restated)
£m
Opening shareholders' funds - as previously reported 66.0 61.6
Prior year adjustment 3 (2.0) (1.9)
Opening shareholders' funds - as restated 64.0 59.7
(Loss)/profit for the year (11.1) 7.3
Dividends (0.1) (2.3)
Currency translation movements arising on foreign currency net
investments (1.1) (0.8)
Issue of new shares - 0.1
Sale/(purchase) of own shares 0.1 (0.5)
Net amortisation of own shares (0.3) 0.5
Net (decrease)/increase in shareholders' funds (12.5) 4.3
Closing shareholders' funds 51.5 64.0
Notes to preliminary announcement
1. The Group's accounts have been prepared in accordance with
applicable accounting and financial reporting standards.
1. The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2003 or 2004.
Statutory accounts for 2003 have been delivered to the registrar of companies,
which have been subsequently restated as described in note 3. The statutory
accounts for 2004 will be delivered following the Group's Annual General
Meeting. The auditors have reported on those accounts, their reports were
unqualified and did not contain statements under 237(2) and (3) of the Companies
Act 1985.
2. The financial statements have been prepared on the basis of the
accounting policies set out in the Group's 2003 financial statements except that
the Group has implemented revised UITF Abstract 17 (Employee share schemes) and
UITF Abstract 38 (Accounting for ESOP trusts), which changes the way the Company
accounts for its investment in own shares (LTIP). As a result of implementing
these new standards, the results for 31 December 2003 have been restated and the
Company's investment in own shares has been reclassified from Investments to
Reserves. The effect of these changes has been to reduce Investments and
Shareholders' funds by £2.0m at 31 December 2003 and to reduce operating profit
by £0.1m at 31 December 2003.
4. Segmental analysis for the year ended 31 December
Turnover Operating (loss)/profit Net assets
2003 2003
2004 2003 2004 (restated) 2004 (restated)
£m £m £m £m £m £m
By activity:
Continuing operations
Tobacco Machinery
- trading 61.8 66.2 (2.0) 6.8
- property rental income - - 0.1 1.1
Tobacco Machinery 61.8 66.2 (1.9) 7.9 30.1 39.0
Packaging Machinery 45.8 39.1 2.3 1.6 10.0 10.7
Scientific Services 15.3 16.5 1.6 2.6 4.3 4.1
122.9 121.8
Net pension credit/
prepayment - - 16.8 16.9
Goodwill (0.9) (0.7) 15.4 14.8
1.1 11.4 76.6 85.5
Exceptional items (9.9) -
(Tobacco Machinery)
Operating (loss)/profit (8.8) 11.4
Net debt (25.1) (21.5)
Net assets 51.5 64.0
5. Turnover by geographical destination of goods for the year
ended 31 December
2004 2004 2003 2003
£m % £m %
United Kingdom 18.5 15 15.1 13
Continental Europe 21.8 18 18.5 15
North America 34.1 28 45.5 37
Asia 27.9 23 29.4 24
Rest of the world 20.6 16 13.3 11
122.9 100 121.8 100
6. The exceptional items of £9.9m included within the
operating loss arise from the re-organisation of the Tobacco Machinery
businesses, and comprise costs and provisions of £2.8m relating to the
suspension of the development of the Sasib Fenix packing machine, £1.7m relating
to the write down of inventory and £5.4m of redundancy and other re-organisation
costs incurred. The £9.9m has been charged as follows; cost of sales £7.2m,
distribution costs £0.3m and administrative expenses £2.4m.
7. The non-operating exceptional item of £1.6m, loss on
closure of associate, relates to the net write off of the investment held in the
Kunming Molins joint venture company in China, which closed in June 2004.
8. If the average exchange rates prevailing in 2004 had been
the same as in 2003 in respect of the existing businesses, reported turnover for
the Group in 2004 would have increased by £3.4m (£1.9m increase in Tobacco
Machinery, £1.0m increase in Packaging Machinery and £0.5m increase in
Scientific Services).
9. Operating (loss)/profit includes a net pension credit of
£nil (2003: £nil). Debtors due after more than one year includes a pension fund
prepayment of £24.3m (2003: £24.4m), which after taking account of deferred
taxation nets to £16.8m (2003: £16.9m).
10. Basic (loss)/earnings per ordinary share of (62.1)p (2003:
39.9p) is based upon (loss)/profit after taxation less preference dividends.
Underlying earnings per share of 1.1p (2003: 43.6p) has been calculated before
net pension credit, goodwill amortisation and exceptional items.
11. A revision to the fair values of the assets of Sasib
S.p.A., acquired on 29 August 2003, has been made, which results in an increase
to purchased goodwill of £1.7m. This reflects the write down of the value of
stock relating to the Fenix prototype on acquisition of £1.4m and additional
stock provisions of £0.3m.
12. Reconciliation of operating (loss)/profit to net cash flow
from operating activities for the year ended 31 December
2003
2004 (restated)
£m £m
Operating (loss)/profit (8.8) 11.4
Exceptional items included in operating loss 9.9 -
Amortisation of goodwill 0.9 0.7
Depreciation 2.9 2.5
Other movements (0.3) 1.4
Cash movements on exceptional restructuring and rationalisation provisions (3.5) (0.1)
Working capital movements:
- stocks 1.2 (6.0)
- debtors 12.7 (3.3)
- creditors and other provisions (12.0) (1.0)
Net cash inflow from operating activities 3.0 5.6
Cash flows from exceptional items excluding tax effect (3.5) (0.1)
Other cash flows 6.5 5.7
Net cash inflow from operating activities 3.0 5.6
13. Financing for the year ended 31 December
2004 2003
£m £m
Issue of new shares - 0.1
Purchase of own shares for long-term incentive plan - (0.5)
Debt due within one year: decrease in borrowings (1.2) -
Debt due after more than one year: increase in borrowings 4.1 17.8
Net cash inflow from financing 2.9 17.4
14. Group statutory accounts will be sent to all shareholders
shortly and additional copies will be available from the Group's registered
office at 11 Tanners Drive, Blakelands, Milton Keynes MK14 5LU.
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