Interim Results
Molins PLC
31 August 2007
2007 INTERIM ANNOUNCEMENT
Molins PLC, the international specialist engineering company, announces its
results for the period ended 30 June 2007.
6 months
6 months to 30 June 12 months
to 30 June 2006 to 31 Dec
2007 (restated)# 2006
Sales £41.1m £40.6m £88.6m
Underlying operating profit* £1.0m £2.3m £7.6m
Reorganisation costs - £(0.1)m £(2.6)m
Profit before tax - continuing operations £1.9m £2.2m £5.4m
Profit/(loss) from discontinued operations £0.2m £(10.6)m £(12.2)m
Profit/(loss) for the period £1.9m £(9.0)m £(8.5)m
Underlying earnings per share* 2.7p 7.2p 24.2p
Basic earnings/(loss) per share 10.1p (48.6)p (45.6)p
Dividend per share 2.0p - 4.0p
Cash generated from operations before reorganisation -
continuing operations £2.7m £4.8m £13.5m
Net debt £13.2m £16.3m £12.3m
* Continuing operations before net pension credit of £1.4m (30 June 2006: £0.5m;
31 December 2006: £1.5m) and reorganisation costs of
£nil (30 June 2006: £0.1m; 31 December 2006: £2.6m)
# Restated to exclude discontinued operations where appropriate
• Loss at Langen Packaging impacted division's overall result
• Operational improvements lifted profits in Tobacco Machinery
• Reduced profitability in Scientific Services as expected
• Property transactions announced
• Interim dividend of 2p following payment of 4p in March
• Profits expected to be heavily weighted towards the second half
Peter Byrom, Chairman, commented:
'The performance of the Packaging Machinery division was disappointing in the
first half, despite strong sales growth, principally as a result of the
significant underperformance at Langen Packaging. Benefits from the subsequent
action will take time to be realised and we expect that Langen's performance
will continue to impact the full year's results more than previously
anticipated. We expect that the Tobacco Machinery division will continue its
progress. We also expect that Scientific Services will have a much improved
second half of the year, but that profits for the full year will fall short of
those in 2006.
'Overall, the Group is expected to produce a much stronger second half
performance than in the first half. However, the performance on an underlying
basis for the full year is expected to be lower than in 2006, reflecting the
anticipated underperformance in the first half in Scientific Services and the
difficulties being experienced in Langen.'
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
Group sales in the six months to 30 June 2007 were £41.1m (2006: £40.6m).
Profit after tax in the period was £1.9m, compared with a loss in the 2006 half
year of £9.0m. The basic earnings per share for continuing operations was 8.9p
(2006: 8.8p). Underlying operating profit (continuing operations before net
pension credit and reorganisation costs) was £1.0m (2006: £2.3m) and underlying
earnings per share was 2.7p (2006: 7.2p).
Packaging Machinery
Sales in the period were £19.7m (2006: £14.6m), with the division returning a
break-even performance (2006: £1.0m operating profit).
Despite significantly increased sales arising from the much improved order book
at the start of the year, the profitability of the division was particularly
affected by the performance of Langen Packaging, based in Canada. Langen's
sales remained at similar levels to 2006 but profit margins on a number of its
integration and robotic projects were considerably lower than planned as the
business experienced cost overruns. The change in focus in this business over
the last two years, motivated by market trends, is taking longer to assimilate
than expected and has led to the business incurring a significant loss in the
first half of the year. The business' competitive position has also been
compromised over the last two years with a 14% strengthening of the Canadian
dollar against the US dollar. The high order book has been maintained which
should lead to much higher second half sales offsetting some of the first half
losses.
Langenpac's sales were substantially higher in the first half of the year
compared with 2006 after entering the year with a strong order book. The
business, which is based in the Netherlands, delivered improved profitability in
the period, although its overall gross margin was reduced as competitive
pressures impacted pricing. Order intake slowed in the first half compared with
the very strong period the previous year and second half sales and profitability
are expected to be noticeably lower than the first half. The planned move into
new leased premises in the second half of 2007 has been delayed as the site will
not be ready, although this will not have any material impact on the performance
of the business this year.
ITCM's sales and profit were slightly reduced compared with the same period in
2006. Its order intake this year has been strong and the business is well
placed to deliver increased levels of sales and profit in the second half. The
extension to its production facility, increasing the available space by 50%, was
completed in July.
Tobacco Machinery
Sales in the period were £14.9m (2006: £16.8m) and operating profit was £1.2m
(2006: £0.1m operating loss before reorganisation costs).
The division has completed the previously announced organisational changes,
including the transfer of all the remaining manufacturing and substantially all
of the assembly operations out of the UK to the Czech Republic and Brazilian
factories and other parts of the supply chain. The improvement in operational
efficiency and cost reductions which have arisen from this reorganisation helped
to contribute to an improved profit performance on lower sales. Order intake in
the period was marginally lower than in 2006, which is expected to lead to
reduced sales in the year as a whole, although the operational changes to the
division should continue to deliver an improved profit performance.
Later this year the division will launch its new cigarette making machine with
an output of 8,000 cigarettes per minute. It has been developed using industry
leading technology and is targeted to meet cigarette manufacturers' needs for
greater manufacturing flexibility and lower production costs.
Scientific Services
Sales in the period were £6.5m (2006: £9.2m) and the division returned an
operating loss of £0.2m (2006: £1.4m operating profit).
The cyclical nature of Cerulean's market has led, over the last number of years,
to periods of strong performance followed by periods of weaker performance. The
reduction in order intake in the second half of 2006 and into the first half of
2007, reported previously, has resulted in a sharp fall in sales in the first
half of the year. Order intake in the last three months has been stronger and
this is expected to contribute to a much improved performance in the second half
of the year. Cerulean continues to address its markets through the development
of new products to complement its existing range.
Arista Laboratories performed at similar levels to the comparable period in
2006, although the number of contract research projects placed with the US
business, which was a source of sales growth in 2006, was lower in the first
half. Also, Arista's main customer in the UK has been reassessing the timing of
its requirements and this is likely to affect adversely the second half more
than previously expected. Overall, Arista is expected to have a stronger second
half than first half, but it is unlikely to match the performance of last year.
Cash and equity
Group net debt at 30 June 2007 was £13.2m, compared with £12.3m at 31 December
2006. Net cash flow from the continuing operating activities was £1.7m in the
period, after payments of £0.5m in respect of the reorganisation instigated in
2006, and £0.5m for taxation. Non-operating cash outflows included net capital
expenditure of £1.3m (including £0.5m for the expansion of ITCM's premises),
development expenditure of £0.6m, net interest paid of £0.5m and dividends paid
of £0.8m. In addition £1.0m was received consequent to the sale of Sasib S.p.A.
in 2006 (although it is expected that this will be utilised in the payment of
outstanding obligations in respect of Sasib), and £0.3m was paid in respect of
the costs of sale of Sandiacre Rose Forgrove.
Group equity increased in the period to £43.1m at 30 June 2007, compared with
£24.1m at 31 December 2006. The increase arises mainly from a net increase in
the valuation of the Group's pension schemes of £17.8m and the net profit in the
period of £1.9m, partially offset by the dividend payment of £0.8m.
Dividend
The Board reintroduced the payment of a dividend to ordinary shareholders in the
first half of 2007, after an absence of three years, and has declared an interim
dividend of 2p per ordinary share, which will be paid on 11 October 2007 to
shareholders on the register on 14 September 2007.
Pension valuations
An actuarial valuation of the Group's main defined benefit scheme is being
carried out as at 30 June 2006 and is expected to be finalised before the end of
September 2007. It is expected to show a funding surplus of approximately 3% of
liabilities as at 30 June 2006, which would be a similar position to the
previous triennial valuation, despite an increase in the scheme's liabilities of
approximately 6% due to changed mortality assumptions. It is anticipated that
the Company will pay £1.3m into the scheme to reflect the actuarial cost of the
reorganisation in the Tobacco Machinery division in 2006. Half of this will be
paid in the second half of 2007 and the balance in 2008. This will not impact
the Group's Income Statement. Total payments of £0.6m were made to the UK
pension scheme in the period to 30 June 2007 in respect of current benefits.
The IAS 19 (revised) Employee Benefits valuation of the UK defined benefit
scheme at 30 June 2007 shows an improved position, moving from a deficit at 31
December 2006 of £6.6m to a surplus of £20.5m, before deferred tax. This
improvement has largely arisen from an increase in corporate bond yields, which
are used as the discount rate for valuing the scheme's liabilities and to which
the valuation is particularly sensitive. The scheme's assets were valued at
£352.7m at 30 June 2007 (31 December 2006: £348.4m). The net liability of the
Group's US defined benefit schemes has increased marginally in the period to
£0.6m (31 December 2006: £0.4m), before deferred tax, with assets valued at
£12.5m.
Property
In July 2007, Molins signed a conditional contract to sell the Tobacco Machinery
division's site at Saunderton, Buckinghamshire, comprising 26 acres of developed
land and buildings, together with 25 acres of agricultural land. The
consideration on completion is £18.85m, or £18.35m if completion is effected
before 30 November 2007. On completion, Molins will lease approximately 5,000
square metres of building space on a rent-free basis for up to three years to
continue its current activities. The prospective buyer is e-shelter facility
services GmbH, a German based company providing data centre services. The
contract provides that the buyer has a period of exclusivity during which it
will seek to satisfy various practical conditions relating to the site. If
these conditions are satisfied the consent of shareholders in a general meeting
will be sought, which is required in view of the size of the transaction
relative to the Group. The receipt by the buyer of satisfactory planning
permission for its development scheme is also a condition to the contract. The
buyer has paid Molins £100,000 as a non-returnable deposit.
The book value of the assets subject to the transaction was £13.3m before
deferred tax (£10.1m after deferred tax) at 30 June 2007. Rental income from
the site of £0.1m was received by Molins in the period to 30 June 2007 (12
months to 31 December 2006: £0.2m). The net proceeds from the sale of the site
are estimated to be approximately £16m after tax and expenses.
Molins made a second planning application for the development of commercial
property on the site in August 2006. The Wycombe District Council has made no
determination on this application, despite its statutory duties.
Notwithstanding the conditional sale contract for the site, Molins has appealed
against the non-determination of the application, but this is in its early
stages.
In December 2006 Molins completed the sale of the Sandiacre Rose Forgrove (SRF)
business but retained the property in Nottingham from which SRF operates, with a
short-term lease to the new owners of the business. The property was classified
in the balance sheet at 30 June 2007 as an asset held for sale at a value of
£1.8m (£1.7m after deferred tax). In August 2007 it was sold for £3.7m in cash
and, after tax and expenses, is expected to realise net proceeds of
approximately £3.1m.
Outlook
The performance of the Packaging Machinery division was disappointing in the
first half, despite strong sales growth, principally as a result of the
significant underperformance at Langen Packaging. Benefits from the subsequent
action will take time to be realised and we expect that Langen's performance
will continue to impact the full year's results more than previously
anticipated. We expect that the Tobacco Machinery division will continue its
progress. We also expect that Scientific Services will have a much improved
second half of the year, but profits for the full year will fall short of those
in 2006.
Overall, the Group is expected to produce a much stronger second half
performance than in the first half. However, the performance on an underlying
basis for the full year is expected to be lower than in 2006, reflecting the
anticipated underperformance in the first half in Scientific Services and the
difficulties being experienced in Langen.
Peter Byrom, Chairman - 31 August 2007
Consolidated income statement
6 months to 30 June 2006 12 months to 31 December 2006
Before
6 months reorg. Before
to 30 June costs Reorg. Total reorg. Reorg.
2007 (restated) costs (restated) costs costs Total
Notes £m £m £m £m £m £m £m
(note 4) (note 4)
Continuing operations 3 41.1 40.6 - 40.6 88.6 - 88.6
Revenue
Operating profit 3,4,5 2.4 2.8 (0.1) 2.7 9.1 (2.6) 6.5
Financial income 0.1 0.1 - 0.1 0.2 - 0.2
Financial expenses (0.6) (0.6) - (0.6) (1.3) - (1.3)
Net financing costs (0.5) (0.5) - (0.5) (1.1) - (1.1)
Profit before tax 1.9 2.3 (0.1) 2.2 8.0 (2.6) 5.4
Taxation 6 (0.2) (0.6) - (0.6) (2.4) 0.7 (1.7)
Profit from continuing
operations 1.7 1.7 (0.1) 1.6 5.6 (1.9) 3.7
Discontinued operations
Profit/(loss) from
discontinued operations 7 0.2 (10.6) - (10.6) (12.2) - (12.2)
Profit/(loss) for the period 1.9 (8.9) (0.1) (9.0) (6.6) (1.9) (8.5)
Basic earnings/(loss) per
ordinary share 8 10.1p (48.6)p (45.6)p
Diluted earnings/(loss) per
ordinary share 9.1p (48.6)p (45.6)p
Continuing operations
Basic earnings per ordinary 8 8.9p 8.8p 20.2p
share
Diluted earnings per 8.1p 8.0p 18.4p
ordinary share
Consolidated balance sheet
30 June 30 June 31 Dec
2007 2006 2006
Notes £m £m £m
Non-current assets
Intangible assets 13.3 13.8 13.3
Property, plant and equipment 22.8 26.4 22.3
Other receivables 0.5 0.5 0.5
Employee benefits 5 20.5 - -
Deferred tax assets 0.8 3.8 2.7
57.9 44.5 38.8
Current assets
Inventories 14.7 20.9 12.9
Trade and other receivables 18.7 19.8 23.4
Taxation receivable 0.5 0.1 0.5
Cash and cash equivalents 3.6 1.8 4.7
Assets held for sale 11 1.8 10.2 1.8
39.3 52.8 43.3
Current liabilities
Bank overdrafts (0.3) (0.3) (0.1)
Interest-bearing loans and borrowings (2.0) (3.0) (4.3)
Trade and other payables (25.4) (25.1) (26.8)
Taxation payable (0.5) (0.8) (0.8)
Provisions (2.2) (1.5) (2.8)
Liabilities held for sale - (14.5) -
(30.4) (45.2) (34.8)
Net current assets 8.9 7.6 8.5
Total assets less current liabilities 66.8 52.1 47.3
Non-current liabilities
Interest-bearing loans and borrowings (14.5) (14.8) (12.6)
Trade and other payables - (0.2) (0.2)
Employee benefits 5 (0.6) (9.5) (7.0)
Deferred tax liabilities (8.6) (4.1) (3.4)
(23.7) (28.6) (23.2)
Net assets 43.1 23.5 24.1
Equity
Issued capital 5.0 5.0 5.0
Share premium 26.0 26.0 26.0
Reserves 3.7 4.2 3.7
Retained earnings 8.4 (11.7) (10.6)
Total equity 10 43.1 23.5 24.1
Consolidated statement of cash flows
6 months
6 months to 30 June 12 months
Note to 30 June 2006 to 31 Dec
2007 (restated) 2006
£m £m £m
Continuing operations
Operating activities
Operating profit 2.4 2.7 6.5
Reorganisation costs included in operating profit - 0.1 2.6
Amortisation 0.5 0.5 1.1
Depreciation 1.0 1.1 2.2
Profit on sale of property, plant and equipment - - (0.3)
Other non-cash items (1.2) (0.6) (1.5)
Pension payments (0.6) - (0.7)
Working capital movements:
- (Increase)/decrease in inventories (1.8) (0.7) 2.9
- Decrease/(increase) in trade and other receivables 4.3 (0.8) (6.5)
- (Decrease)/increase in trade and other payables (1.8) 2.8 7.7
- Decrease in provisions (0.1) (0.3) (0.5)
Cash generated from operations before reorganisation 2.7 4.8 13.5
Reorganisation costs paid (0.5) (0.2) (1.4)
Cash generated from operations 2.2 4.6 12.1
Taxation paid (0.5) (0.3) (1.0)
Net cash from operating activities 1.7 4.3 11.1
Investing activities
Proceeds from sale of property, plant and equipment 0.1 0.3 1.3
Acquisition of property, plant and equipment (1.4) (1.0) (1.4)
Development expenditure (0.6) (0.9) (1.9)
Net cash from investing activities (1.9) (1.6) (2.0)
Financing activities
Interest received 0.1 0.1 0.2
Interest paid (0.6) (0.6) (1.3)
Decrease in borrowings (0.5) (0.7) (1.5)
Dividends paid (0.8) - -
Net cash from financing activities (1.8) (1.2) (2.6)
Discontinued operations - - (0.2)
Net cash from operating activities 0.7 (0.4) (2.2)
Net cash from investing activities - (0.5) (0.3)
Net cash from financing activities
Net cash from discontinued operations 0.7 (0.9) (2.7)
Net (decrease)/increase in cash and cash equivalents 9 (1.3) 0.6 3.8
4.6 0.9 0.9
Cash and cash equivalents at 1 January - - (0.1)
Effect of exchange rate fluctuations on cash held
3.3 1.5 4.6
Cash and cash equivalents at period end
Consolidated statement of recognised income and expense
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2007 2006 2006
£m £m £m
Currency translation movements arising on foreign
currency net investments - (0.6) (1.3)
Actuarial gains 17.8 3.3 3.8
Tax on items taken directly to equity (0.1) - -
Net income recognised directly in equity 17.7 2.7 2.5
Currency translation movements transferred to loss on disposals
Profit/(loss) for the period - - 0.2
1.9 (9.0) (8.5)
Total recognised income and expense for the period
19.6 (6.3) (5.8)
Notes to interim announcement
1. The interim financial statements have been prepared on the basis of the
accounting policies set out in the Group's 2006 financial statements. The
results for the full year 2006 have been extracted from the Group's full
accounts for that year which included an unqualified audit report and have
been filed with the Registrar of Companies.
2. The financial statements for the period ended 30 June 2007 have not
been audited, although the auditor has carried out an independent review.
3. Segmental analysis
Business segments
Revenue Operating profit/(loss)
6 months 6 months
6 months to 30 June 12 months 6 months to 30 June 12 months
to 30 June 2006 to 31 Dec to 30 June 2006 to 31 Dec
Continuing operations 2007 (restated) 2006 2007 (restated) 2006
£m £m £m £m £m £m
Packaging Machinery 19.7 14.6 33.9 - 1.0 2.5
Tobacco Machinery 14.9 16.8 36.2 1.2 (0.1) 1.9
Scientific Services 6.5 9.2 18.5 (0.2) 1.4 3.2
41.1 40.6 88.6
Underlying operating profit
before net pension credit and
reorganisation costs 1.0 2.3 7.6
Reorganisation costs - (0.1) (2.6)
Net pension credit (excluding
curtailment costs) 1.4 0.5 1.5
Operating profit 2.4 2.7 6.5
4. The reorganisation costs in 2006 relate to the restructuring of the Tobacco
Machinery division and comprise redundancy (including related pension
costs) and other restructuring costs.
5. The Group accounts for pensions under IAS 19 (revised) Employee benefits.
A formal valuation of the UK pension fund is being carried out as at 30
June 2006 and its assumptions, modified as appropriate, have been applied
in the financial statements, updated to reflect conditions at 30 June 2007.
Operating profit includes a net pension credit for the 6 months to 30 June
2007 of £1.4m (6 months to 30 June 2006: £0.5m; 12 months to 31 December
2006: £1.5m excluding curtailment costs). In addition, in the 12 months to
31 December 2006, curtailment costs of £0.9m arising from redundancies were
incurred, which are reported in reorganisation costs, and a net pension
credit of £0.5m (6 months to 30 June 2006: £0.1m cost) was reported in
respect of the discontinued operation Sandiacre Rose Forgrove.
Employee benefits comprise the current net pension surplus of the UK
defined benefit pension scheme of £20.5m (31 December 2006: £6.6m
liability) and the current net pension liability of the US defined benefit
pension schemes of £0.6m (31 December 2006: £0.4m), all figures before
deferred tax. Deferred tax has been applied at 28% to the surplus in the
UK scheme, being the corporation tax rate that will be in force from 1
April 2008. The appropriateness of applying this rate in future periods
will be kept under review.
6. The tax charge for the period to 30 June 2007 of £0.2m includes a credit of
£0.4m relating to the effect on deferred tax balances of the reduction in
the UK corporation tax rate from 30% to 28% as of 1 April 2008, which was
substantively enacted in June 2007.
7. Profit from discontinued operations in the period to 30 June 2007 comprises
rental income received from the Nottingham property occupied by
HayssenSandiacre Europe, formerly Sandiacre Rose Forgrove, a business which
was disposed of by the Group in 2006, and a prior year tax adjustment
relating to this business.
The loss from discontinued operations in 2006 comprises the losses on
trading and on disposal of Sasib S.p.A. and the Sandiacre Rose Forgrove
business, both of which were sold in that year.
8. Basic earnings/(loss) per ordinary share is based upon the profit/ (loss)
for the period and on a weighted average of 18,836,600 shares in issue
during the period (30 June 2006: 18,542,562). Underlying earnings per
ordinary share, which is calculated on continuing operations before net
pension credit and reorganisation costs, was 2.7p for the 6 months to 30
June 2007 (6 months to 30 June 2006: 7.2p; 12 months to 31 December 2006:
24.2p).
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
2007 2006 2006
£m £m £m
Net (decrease)/increase in cash and cash equivalents (1.3) 0.6 3.8
Cash inflow from movement in borrowings and finance
leases 0.5 1.2 1.8
Change in net debt resulting from cash flows (0.8) 1.8 5.6
Net debt classified as held for sale at period end - 0.9 -
Decrease in borrowings and finance leases on sale of
discontinued operations - - 0.9
Translation movements (0.1) - 0.2
Movement in net debt in the period (0.9) 2.7 6.7
Opening net debt (12.3) (19.0) (19.0)
Closing net debt (13.2) (16.3) (12.3)
Analysis of net debt
Cash and cash equivalents - current assets 3.6 1.8 4.7
Bank overdrafts - current liabilities (0.3) (0.3) (0.1)
Interest-bearing loans and borrowings - current liabilities (2.0) (3.0) (4.3)
Interest-bearing loans and borrowings - non-current liabilities (14.5) (14.8) (12.6)
Closing net debt (13.2) (16.3) (12.3)
10. Reconciliation of movements in equity
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2007 2006 2006
£m £m £m
Opening equity 24.1 29.9 29.9
Profit/(loss) for the period 1.9 (9.0) (8.5)
Currency translation movements arising on foreign
currency net investments - (0.6) (1.3)
Actuarial gains 17.8 3.3 3.8
Tax on items taken directly to equity (0.1) - -
Currency translation movements transferred to loss on
disposals - - 0.2
Equity-settled share-based transactions (LTIP) 0.2 (0.1) -
Dividends to shareholders (0.8) - -
Net increase/(decrease) in equity 19.0 (6.4) (5.8)
Closing equity 43.1 23.5 24.1
11. Subsequent events
Subsequent to the balance sheet date, the Group signed a conditional
contract to sell the freehold interest in its land and buildings at
Saunderton for a consideration of £18.85m (or £18.35m if completion is
before 30 November 2007), subject to the buyer's due diligence, Molins
shareholder approval and the receipt by the buyer of satisfactory planning
permission. At 30 June 2007 the book value of the assets subject to the
transaction was £13.3m before deferred tax.
The Group sold its Nottingham property for £3.7m before costs in August
2007. The property was classified in the balance sheet at 30 June 2007 as
an asset held for sale at a value of £1.8m before deferred tax.
12. The Interim Report will be sent to all shareholders in September 2007 and
additional copies will be available from the Company's registered office at
11 Tanners Drive, Blakelands, Milton Keynes, MK14 5LU.
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