Interim Results
Molins PLC
02 September 2005
2 September 2005 FOR IMMEDIATE RELEASE
2005 INTERIM ANNOUNCEMENT
Molins PLC, the international specialist engineering company, announces its
results for the period ended 30 June 2005.
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
Sales £60.0m £57.7m £122.9m
Underlying operating profit/(loss)* £2.3m £(0.1)m £2.3m
Reorganisation costs £(1.5)m £(5.9)m £(12.9)m
Profit/(loss) before taxation £0.2m £(6.5)m £(11.8)m
Underlying earnings/(loss) per share* 4.9p (4.7)p 2.3p
Net cash flow before reorganisation £5.7m £(4.9)m £(0.3)m
Net debt £21.6m £27.7m £26.0m
* Before reorganisation costs
Note: All results are reported under International Financial Reporting Standards
(IFRS).
An analysis of the impact of adopting IFRS was published on 30 June 2005 and can
be found on the Group's website at www.molins.com/corporate, or a copy can be
obtained from the Company's registered office.
Peter Byrom, Chairman, commented:
'Performance in the first half of the year has met our expectations. Cash
generation was good, resulting in an improvement in debt of £4.4m over the six
months, after net payments of £1.9m in respect of reorganisation costs. A
further reduction in inventory levels was a major contributor to this
improvement.
'The progress seen in the Tobacco Machinery division in the first half should be
maintained in the second half. The Packaging Machinery division has experienced
a delay in the expected placement of some quite large orders, which will
adversely impact its ability to match last year's performance. The Scientific
Services division is well placed to maintain its strong performance.'
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
Performance in the first half of the year has met our expectations. Group sales
in the six months to 30 June 2005 were £60.0m (2004: £57.7m). Underlying
operating profit (before reorganisation costs) was £2.3m (2004: loss £0.1m), and
net reorganisation costs were £1.5m. The underlying earnings per share was 4.9p
(2004: loss 4.7p) and the basic loss per share was 0.3p (2004: loss 35.4p).
Cash generation was good, resulting in an improvement in net debt of £4.4m over
the six months, after net payments of £1.9m in respect of reorganisation costs.
A further reduction in inventory levels was a major contributor to this
improvement.
IFRS
The Company has adopted International Financial Reporting Standards (IFRS) for
its 2005 reporting as required by European Union regulations and all information
in this report has been prepared on this basis. On 30 June 2005, the Company
issued a comprehensive analysis of the impact of IFRS on the reported results of
the Group for 2004, including the half year ended 30 June 2004.
One of the consequences of adopting IFRS for the Group has been to reduce the
reported shareholders' funds position at 31 December 2004 from £51.5m to £29.2m.
This arises substantially from the new requirements for accounting for
pensions, which changed a previously reported net pension asset of £16.8m to a
net pension liability of £13.0m, both amounts being after deferred tax. Other
changes to shareholders' funds at 31 December 2004 include the capitalisation of
certain product development costs of £2.2m and an increase of £4.6m in the book
value of land and buildings, both amounts being after deferred tax.
Tobacco Machinery
The division, which includes the businesses of Molins Tobacco Machinery and
Sasib S.p.A., reported sales of £31.0m (2004: £30.5m) and operating profit
before reorganisation costs of £0.8m, which compares with an operating loss of
£1.0m in the equivalent period of 2004.
Demand for spare parts and services, which account for the majority of the
division's sales, has been ahead of last year and margins have improved as costs
in the division have been reduced.
Orders for new machinery continue to be low, and the business has been
structured to reflect this reduced demand. Orders for rebuild machinery have
been lower than expected, although a number of strong prospects are currently
being negotiated.
In Molins Tobacco Machinery, the restructuring that commenced last year in
response to the reduction in demand for new machinery has continued as further
operational improvements are made, incurring an additional net cost of £1.5m in
the first half of this year.
Sasib has also continued to implement its restructuring in the first half of
this year. In so doing it has substantially reduced its costs, following a
disappointing 2004, in which it incurred a significant loss. Sasib entered 2005
with a reasonably strong order book having secured a number of machine orders in
the second half of last year. Sales in the six months have increased compared
to last year and losses are considerably lower. In line with the rest of the
division, orders for new machinery in the period have been low, although its
second half programme is well supported by its current order book.
Overall, whilst demand for machinery remains low, the division's emphasis on
improving its spares and service activity has contributed to a recovery in
performance. Further progress has been made in the transfer of activities from
the UK to our facility in the Czech Republic. The restructuring that has been
implemented throughout the division is contributing to improvements in
efficiency.
Packaging Machinery
Sales in the period were £20.8m (2004: £21.1m) and operating profit was £0.3m
(2004: £0.7m).
Overall order intake has been lower than last year. Whilst some of this
reduction was expected, given the high intake in the first six months of last
year, demand from the food packaging sector has been especially weak, as has the
UK market in most product groups. This has particularly impacted Sandiacre Rose
Forgrove and Langen. Sandiacre Rose Forgrove, however, has continued to grow
sales in the US, although at lower margins.
Sales in the division have been at similar levels to last year, but pricing
pressures are being felt across the industry, especially in the food sector.
Our customers are facing intense competitive conditions and in the US the
relatively weak US dollar has not been beneficial to our businesses. A number
of projects have been delivered which are helping to take the division into new
areas but these are lower margin and at the expense of profit contribution in
the short-term. Langen has continued to take orders for new robotic systems and
the division has made further progress in sectors such as medical and
pharmaceutical.
The competitive conditions are being addressed by the continuation of a number
of improvement projects, centred on the logistics processes (including lower
cost sourcing of components) and product development. Product developments are
particularly concentrated on value engineering at Sandiacre Rose Forgrove and
expanding the mid-range product lines for Langen, Langenpac and Cerulean
Packing.
Scientific Services
The division, which comprises Cerulean and Arista Laboratories, has delivered a
much improved first half performance, with sales of £8.2m compared with £6.1m
last year and an operating profit of £1.2m (2004: £0.2m).
Cerulean experienced a strong recovery in its business levels in the second half
of 2004 and this has been sustained into 2005. Demand for both of Cerulean's
main product ranges, quality control instruments and smoking machines, has been
running at good levels. The long established and market-leading QTM range
continues to account for the majority of sales. We expect sales of the newer C
(2) range of instruments to increase progressively over the medium-term.
Arista Laboratories, centred in the US, continues to expand its customer base as
a result of the additional services that it offers to the market and through the
successful growth of its UK based European facility. However, it continues to
face considerable pressure as a result of the in-sourcing of work by some of the
cigarette manufacturers and also the increasingly price competitive environment.
Cash and shareholders' funds
Group net debt at 30 June 2005 was £21.6m, compared with £26.0m at 31 December
2004.
Net cash flow from operating activities was £4.5m in the period, which is stated
net of £2.4m of payments arising from restructuring carried out in 2004 and
2005. In addition, net payments of £0.8m were made in respect of investing
activities, which included capital expenditure of £0.6m, development expenditure
of £0.4m, net interest payments of £0.4m and the receipt of £0.5m from the
Kunming Molins joint venture, following its closure in 2004 and on-going
liquidation process. Payments of approximately £2m in respect of the
restructuring announced to date will be made in the second half of the year.
Shareholders' funds at 30 June 2005 were £31.9m, compared with £29.2m at 31
December 2004. The increase comprises £1.2m (net of deferred tax) in respect of
a reduction in the pension scheme deficit, £1.4m of favourable exchange rate
movements, £0.2m in respect of movements in share capital and reserve for own
shares (long-term incentive plan), less £0.1m accumulated loss for the period.
Dividend and distributable profits
The Board has decided not to pay an interim dividend in light of the ongoing
restructuring of the Tobacco Machinery division. The Board will consider its
recommendation for a final dividend in light of the results for the full year
and trading prospects in the early months of 2006.
The Company may only make distributions to its shareholders out of profits that
are available for that purpose (section 263 Companies Act 1985) at the time such
distribution is to be made. In summary, these profits are the Company's
accumulated realised profits less its accumulated realised losses. The adoption
of IFRS, particularly in the Company's case the change in accounting for
pensions, has had a major impact on the amounts of such profits.
At 30 June 2005 the Company had distributable profits under IFRS of £2.9m,
significantly reduced from the £27.4m it had under UK GAAP as at 31 December
2004.
As the value of the Company's pension scheme assets changes on a daily basis, as
does the valuation of its liabilities (as a consequence of changes to market
yields for high quality fixed rate corporate bonds), and with a low level of
distributable profits at 31 December 2004, there is a possibility that profits
may not be available for distribution at a particular point in time.
Property
Following representations to the Wycombe District Council during preparation of
its local development framework planning document, we have now submitted a
formal planning application for development of commercial property on the
Company's 26 acre site at Saunderton and await the authority's response.
Outlook
The Tobacco Machinery division is progressively benefiting from the considerable
restructuring that has already taken place. Demand for spare parts and service
remains at good levels and we expect an improvement in demand for rebuild
machinery from the low levels recently experienced. Overall, the progress seen
in the first half should be maintained in the second half of the year.
In the Packaging Machinery division, we expect the second half profitability to
be ahead of the first half, supported by current order books and in line with
trading patterns over the last few years. The division has experienced a delay
in the expected placement of some quite large orders, which will adversely
impact its ability to match last year's performance.
The Scientific Services division is well placed to maintain its strong
performance, with order books at Cerulean ahead of six months ago. Prospects at
Arista Laboratories are less certain, with activity no greater than the same
time last year and margins under pressure.
Peter Byrom
Chairman
2 September 2005
Consolidated income statement
6 months to 30 June 2005 6 months to 30 June 2004
Before Before
reorganisation Reorganisation Total reorganisation Reorganisation Total
Notes costs costs £m costs costs £m
£m £m £m £m
Revenue 3 60.0 - 60.0 57.7 - 57.7
Operating profit/
(loss) 3, 4,6 2.3 (2.0) 0.3 (0.1) (4.1) (4.2)
Profit/(loss) on
closure of
associate 5 - 0.5 0.5 - (1.8) (1.8)
Profit/(loss)
before financing
costs 2.3 (1.5) 0.8 (0.1) (5.9) (6.0)
Financial income 0.2 - 0.2 0.1 - 0.1
Financial expenses (0.8) - (0.8) (0.6) - (0.6)
Net financing
costs (0.6) - (0.6) (0.5) - (0.5)
Profit/(loss) before tax 1.7 (1.5) 0.2 (0.6) (5.9) (6.5)
Taxation (0.8) 0.5 (0.3) (0.2) 0.3 0.1
Profit/(loss) for the 0.9 (1.0) (0.1) (0.8) (5.6) (6.4)
period
Basic earnings/
(loss) per
ordinary share 7 (0.3)p (35.4)p
Diluted earnings/
(loss) per
ordinary share (0.3)p (35.4)p
Consolidated income statement (continued)
12 months to 31 Dec 2004
Before
reorganisation Reorganisation
costs costs Total
Notes £m £m £m
Revenue 3 122.9 - 122.9
Operating profit/(loss) 3, 4, 6 2.3 (11.3) (9.0)
Profit/(loss) on closure
of associate 5 - (1.6) (1.6)
Profit/(loss) before
financing costs 2.3 (12.9) (10.6)
Financial income 0.3 - 0.3
Financial expenses (1.5) - (1.5)
Net financing costs (1.2) - (1.2)
Profit/(loss) before tax 1.1 (12.9) (11.8)
Taxation (0.7) 1.5 0.8
Profit/(loss) for the period 0.4 (11.4) (11.0)
Basic earnings/(loss)
per ordinary share 7 (61.1)p
Diluted earnings/(loss)
per ordinary share (61.1)p
Consolidated balance sheet
30 June 30 June 31 Dec
2005 2004 2004
Note £m £m £m
Non-current assets
Intangible assets 19.4 19.1 19.6
Property, plant and equipment 29.0 30.0 29.7
Trade and other receivables 0.9 1.7 1.0
Employee benefits 8 1.5 2.8 1.4
Deferred tax assets 6.0 7.5 6.8
56.8 61.1 58.5
Current assets
Inventories 30.9 40.0 35.2
Trade and other receivables 23.9 28.1 25.5
Taxation receivable 1.2 0.4 1.9
Cash and cash equivalents 4.8 5.4 5.1
60.8 73.9 67.7
Current liabilities
Bank overdraft (1.5) (1.0) (0.9)
Interest-bearing loans and borrowings (6.0) (2.0) (0.8)
Trade and other payables (29.4) (37.5) (32.4)
Taxation payable (1.1) (0.6) (0.9)
Provisions (4.0) (2.0) (5.4)
(42.0) (43.1) (40.4)
Net current assets 18.8 30.8 27.3
Total assets less current liabilities 75.6 91.9 85.8
Non-current liabilities
Interest-bearing loans and borrowings (18.9) (30.1) (29.4)
Trade and other payables (0.1) - -
Employee benefits 8 (20.4) (24.6) (22.6)
Deferred tax liabilities (4.3) (4.7) (4.6)
(43.7) (59.4) (56.6)
Net assets 31.9 32.5 29.2
Capital and reserves
Issued capital 5.0 5.0 5.0
Share premium 26.0 25.9 25.9
Reserves 1.8 0.1 (0.1)
Retained earnings (0.9) 1.5 (1.6)
Shareholders' funds 31.9 32.5 29.2
Consolidated statement of cash flows
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
Note £m £m £m
Cash flows from operating activities
Loss for the period (0.1) (6.4) (11.0)
Amortisation 0.5 0.4 0.8
Depreciation 1.4 1.4 2.9
Interest income (0.2) (0.1) (0.3)
Interest expense 0.8 0.6 1.5
(Profit)/loss on closure of associate (0.5) 1.8 1.6
Equity-settled share-based transactions (LTIP) 0.1 0.1 0.1
Taxation expense/(credit) 0.3 (0.1) (0.8)
Other movements - - (0.1)
Working capital movements:
- Decrease/(increase) in inventories 4.4 (2.2) 3.4
- Decrease in trade and other receivables 2.0 10.2 13.8
- Decrease in trade and other payables (3.0) (6.7) (12.3)
- (Decrease)/increase in provisions and employee benefits (1.6) 0.5 4.6
Cash generated from operations 4.1 (0.5) 4.2
Taxation received/(paid) 0.4 (0.6) (0.8)
Net cash from operating activities 4.5 (1.1) 3.4
Cash flows from investing activities
Proceeds from sale of plant and equipment 0.1 0.2 0.4
Net proceeds from closure of associate 0.5 - 0.2
Interest received 0.3 0.2 0.4
Interest paid (0.7) (0.7) (1.6)
Acquisition of property, plant and equipment (0.6) (2.5) (3.8)
Development expenditure (0.4) (0.5) (1.2)
Net cash from investing activities (0.8) (3.3) (5.6)
Cash flows from financing activities
Issue of new shares 0.1 - -
(Decrease)/increase in borrowings (4.6) 5.5 2.9
Dividends paid - (1.4) (1.4)
Net cash from financing activities (4.5) 4.1 1.5
Net decrease in cash and cash equivalents 9 (0.8) (0.3) (0.7)
Cash and cash equivalents at 1 January 4.2 4.9 4.9
Effect of exchange rate fluctuations on cash held (0.1) (0.2) -
Cash and cash equivalents at period end 3.3 4.4 4.2
Consolidated statement of recognised income and expense
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
£m £m £m
Currency translation movements arising on foreign
currency net investments 1.4 (0.8) (1.0)
Actuarial gains 1.2 1.0 2.5
Net income recognised directly in equity 2.6 0.2 1.5
Loss for the period (0.1) (6.4) (11.0)
Total recognised income and expense for the period 2.5 (6.2) (9.5)
Reconciliation of movements in shareholders' funds
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
Note £m £m £m
At 1 January (as previously reported under UK GAAP) 51.5 64.0 64.0
Adjustments on adoption of IFRS from 1 January 2004 11 (22.3) (24.1) (24.1)
At 1 January (as restated) 29.2 39.9 39.9
Loss for the period (0.1) (6.4) (11.0)
Currency translation movements arising on foreign
currency net investments 1.4 (0.8) (1.0)
Issue of new shares 0.1 - -
Actuarial gains 1.2 1.0 2.5
Own shares (LTIP) 0.5 0.1 0.1
Equity-settled share-based transactions (LTIP) (0.4) 0.1 0.1
Dividends to shareholders - (1.4) (1.4)
Net increase/(decrease) in shareholders' funds 2.7 (7.4) (10.7)
Closing shareholders' funds 31.9 32.5 29.2
Notes to interim announcement
1. The Company has adopted International Financial Reporting Standards
(IFRS) for its 2005 reporting as required by European Union regulations and all
information in this report has been prepared on this basis. The interim
financial statements have been prepared in accordance with accounting policies
that the Group expects to follow at the year end.
The financial information contained in this report has been prepared in
accordance with IFRS standards as adopted by the EU at 30 June 2005 or as
expected to be adopted by the EU at 31 December 2005. It has been assumed that
the IASB's amendment to IAS 19 Employee benefits: Actuarial gains and losses,
Group plans and disclosures will be adopted by the EU in sufficient time for use
in the financial statements for the year ending 31 December 2005. The adopted
IFRSs that will be effective (or available for early adoption) in the annual
financial statements for the year ending 31 December 2005 are still subject to
change and to additional interpretation and therefore cannot be determined with
certainty.
On 30 June 2005 the Company published a report which included a set of restated
IFRS compliant 2004 financial statements (excluding notes), together with a
restatement of the Group's accounting policies under IFRS. The report also
included an analysis of the impact of adopting IFRS from 1 January 2004 on the
income statements for the periods ending and balance sheets at 30 June 2004 and
31 December 2004. This report can be found on the Group's website at
www.molins.com/corporate or a copy can be obtained from the Company's registered
office.
2. The financial statements for the half year ended June 2005 have not
been audited, although the auditor has carried out an independent review. The
comparative figures for 2004 have been amended for IFRS, but were originally
prepared under UK GAAP and the results for the full year 2004 have been taken
from the Group's full accounts for that year, which included an unqualified
audit report, and have been filed with the Registrar of Companies. The
restatements of the Group's results to IFRS are unaudited, but the auditor has
agreed the principles that have been adopted by the Group.
3. Segmental analysis
Revenue Operating profit/(loss)
6 months 6 months 12 months 6 months 6 months 12 months
to 30 June to 30 June to 31 Dec to 30 June to 30 June to 31 Dec
2005 2004 2004 2005 2004 2004
£m £m £m £m £m £m
By activity:
Tobacco Machinery
- trading 31.0 30.5 61.8 0.7 (1.0) (2.0)
- property rental income - - - 0.1 - 0.1
31.0 30.5 61.8 0.8 (1.0) (1.9)
Tobacco Machinery
20.8 21.1 45.8 0.3 0.7 2.4
Packaging Machinery
8.2 6.1 15.3 1.2 0.2 1.8
Scientific Services
60.0 57.7 122.9
Operating profit/(loss)
before reorganisation
costs 2.3 (0.1) 2.3
Reorganisation costs (before profit/
(loss) on closure of associate) (2.0) (4.1) (11.3)
Operating profit/(loss) 0.3 (4.2) (9.0)
4. The reorganisation costs (before profit/(loss) on closure of associate)
relate to the restructuring of the Tobacco Machinery division and comprise
redundancy and other restructuring costs.
5. The profit/(loss) on closure of associate relates to the net write off
of the investment in 2004 and receipt of loan/capital repayments in 2005,
following the closure of the Kunming Molins joint venture company in China.
6. The Group accounts for pensions under IAS 19 (revised), Employee
benefits. A formal valuation of the UK pension fund was carried out at 30 June
2003 and its assumptions have been applied in the financial statements, updated
to reflect conditions at 30 June 2005. The net pension cost for the 6 months to
30 June 2005 was £0.4m (curtailment costs of £0.5m less £0.1m net credit) and
£0.1m for the 6 months to 30 June 2004 (curtailment costs).
7. Earnings/(loss) per ordinary share is based upon profit/(loss) after
taxation and on a weighted average of 18,319,586 shares in issue during the
period (30 June 2004: 18,011,767). Underlying earnings/(loss) per ordinary
share, which is calculated before the charge for reorganisation costs (net of
the taxation impact), was 4.9p for the 6 months to 30 June 2005 (6 months to 30
June 2004: loss (4.7)p; 12 months to 31 December 2004: 2.3p).
8. Employee benefits include the net pension surplus of the US defined
benefit pension scheme of £1.5m (31 December 2004: £1.4m) and the net pension
liability of the UK defined benefit pension scheme of £18.3m (31 December 2004:
£19.7m), all figures before deferred tax.
9. Reconciliation of net cash flow to movement in net debt
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
£m £m £m
Decrease in cash and cash equivalents (0.8) (0.3) (0.7)
Cash inflow/(outflow) from movement in borrowings 4.6 (5.5) (2.9)
Change in net debt resulting from cash flows 3.8 (5.8) (3.6)
Translation movements 0.6 0.5 -
Movement in net debt in the period 4.4 (5.3) (3.6)
Opening net debt (26.0) (22.4) (22.4)
Closing net debt (21.6) (27.7) (26.0)
Cash and cash equivalents - current assets 4.8 5.4 5.1
Bank overdraft - current liabilities (1.5) (1.0) (0.9)
Interest-bearing loans and borrowings - current liabilities (6.0) (2.0) (0.8)
Interest-bearing loans and borrowings - non-current (18.9) (30.1) (29.4)
liabilities
(21.6) (27.7) (26.0)
Closing net debt
10. Reorganisation cash flows
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
£m £m £m
Net cash flows from reorganisation costs
Tobacco Machinery division restructuring (2.4) (0.9) (3.5)
Closure of associate 0.5 - 0.2
(1.9) (0.9) (3.3)
Other net cash flows 5.7 (4.9) (0.3)
Change in net debt resulting from cash flows 3.8 (5.8) (3.6)
11. On adoption of IFRS, the book value of the Group's shareholders' funds
declined. The following table explains the movement of £22.3m as at 31 December
2004.
£m
Pension liability - IAS 19 revised, Employee benefits, requires any surplus or deficit in the fair 29.8
value of the Group's pension schemes assets over their liabilities to be recognised in the balance
sheet.
Research and development costs - IAS 38, Intangible assets, requires development costs which meet (2.2)
certain criteria to be capitalised.
Property valuation - IFRS 1, First time adoption of IFRS, permits certain properties to be brought (4.6)
onto the balance sheet at their open market value where this is deemed to be their fair value.
Preference shares - IAS 32, Financial instruments: disclosure and presentation, requires that 0.9
preference shares with an obligation to transfer economic benefits are treated as financial
liabilities (debt) and not as capital (equity).
Other employee liabilities - IAS 19 revised, requires all employee benefits to be accrued for over (0.3)
the period in which employee services are rendered and that any long-term liabilities are measured
at their net present value.
Goodwill amortisation - IFRS 3, Business combinations, requires that purchased goodwill be subject (0.9)
to an annual impairment review only and not amortised.
Goodwill translation - IAS 21, The effects of changes in foreign exchange rates, requires foreign (0.2)
denominated goodwill to be retranslated at the balance sheet date.
Deferred tax - IAS 12, Income taxes, requires deferred tax to be provided on all temporary (0.2)
differences between accounting and tax book values, including the requirement to account for the
tax effect of any future property disposals. The financial impact of IAS 12 is included in the
adjustments above where appropriate. ___
Decrease/(increase) in shareholders' funds 22.3
12. The average US dollar exchange rate for the period to 30 June 2005 was
US$1.88 (30 June 2004: US$1.82) and the rate at 30 June 2005 was US$1.79 (30
June 2004: US$1.81). The rate at 31 December 2004 was US$1.92. The average
euro exchange rate for the period to 30 June 2005 was €1.46 (30 June 2004:
€1.48) and the rate at 30 June 2005 was €1.48 (30 June 2004: €1.49). The rate
at 31 December 2004 was €1.41.
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