Final Results
Lupus Capital PLC
26 March 2002
Wednesday 27th March 2002
PRESS RELEASE
Lupus Capital plc
Financial results for the year ended 31 December 2001
Lupus Capital plc ('Lupus') today announced its financial results for the year
ended 31 December 2001.
Highlights are as follows:
• Lupus's portfolio consists of one wholly-owned subsidiary, Gall Thomson,
and four strategic investments - Armitage Brothers, European Colour, Shiloh
and Castings
• Operating profits before goodwill amortisation of £1.57 million (2000:
£1.31 million). Operating profits of £827,000 (2000: £556,000) after
goodwill amortisation of £741,000 (2000: £750,000)
• First investment exit completed in August - Time Products - with an
investment gain of £718,000
• Profit before taxation of £113,000 (2000: £527,000), after the investment
gain of £718,000 and an investment provision of £1.43 million (2000: nil).
• Dividend increased by 10.8% to a total dividend for year of 0.36p (2000:
0.325p) with a final cash dividend of 0.25p (2000: 0.225p)
• Outstanding performance by Gall Thomson. Operating profits up 16.3% to
£2.71 million (2000: £2.33 million)
Commenting on the results Charles Ryder, Chief Executive, said:
'In 2001 we successfully built up the portfolio to our optimum number of
investments - five - and completed the first realisation with the sale of Time
Products in August. Gall Thomson had an outstanding year, achieving record
profits, and the outlook for this year is very encouraging.
We continue to view the future with confidence and expect Lupus to make
significant progress this year'.
For further information, please contact:
Lupus Capital plc Tel: 020 7976 8000
Charles Ryder, Chief Executive www.lupuscapital.com
James Orr, Finance Director
Merlin Financial Tel: 020 7606 1244
Paul Downes Mobile: 07900 244 888
Statement of the Chairman and the Chief Executive
Strategy
The strategy of Lupus Capital plc ('Lupus' or 'the Group') is to invest in, or
acquire, small and medium sized public companies which are facing strategic
barriers to development whether of a corporate or commercial nature. Lupus
intends to generate significant returns by providing and, where necessary,
implementing strategic plans for these companies, including appropriate exit
routes. Lupus creates value by providing a service to shareholders and company
boards, as well as to acquisitive well-run international companies looking to
expand and to diversify their businesses.
A brief review of the activities of each of Lupus's investments is made in its
interim and full year statements, particularly in relation to companies that are
wholly-owned. Additionally, each Annual Report and Accounts includes a more
detailed description of wholly-owned businesses.
Implementation of strategy
Lupus's strategy is to hold, at any one time, major investments in approximately
five companies. Such investments may be wholly-owned or represented by a
strategic interest in up to some 25% of the issued share capital of the
particular company.
Following the acquisition of Gall Thomson Environmental plc, now Gall Thomson
Environmental Limited ('Gall Thomson'), in December 1999, Lupus continued to
build up its portfolio of assets during the course of 2000 and 2001 and reached
its optimum level of investments, in terms of numbers of companies in which it
has a major interest, during the second half of 2001. Lupus is therefore now in
a position to pursue the key element of its strategy, the generation of
significant returns by providing and, where necessary, implementing strategic
plans for these companies, including appropriate exit routes. In line with this
strategy, the first realisation of Lupus's portfolio took place in 2001, namely
the sale of the stake in Time Products plc as a result of an offer for the
company by its management.
In addition to acquiring and divesting the holding in Time Products, during 2001
Lupus bought stakes in Shiloh plc, a company with a fast growing portfolio of
service and supply businesses in the healthcare sector, and Castings plc, one of
Europe's leading ductile and malleable ironfounders. These have supplemented
the existing holdings in Armitage Brothers plc and European Colour plc.
2001 was a difficult year in both the commercial and financial markets.
Uncertainty created by the evident downturn in the US economy early in the year
was greatly exacerbated by the events of 11 September. The result was a very
marked slowdown in corporate activity as potential buyers waited for signs of
renewed economic activity and stability within the financial markets.
Undoubtedly this has had a significant, short-term impact on the speed at which
Lupus has been able to realise some of the investments within its portfolio.
Against this adverse climate, Lupus's investments - both Gall Thomson, which is
wholly-owned, and those in which the Company has a strategic stake - have
performed well or satisfactorily in 2001, with the exception of European Colour.
We believe that European Colour was slow to accept the impact of macro changes
in the commercial and financial markets over the last few years and that the
necessary strategic plans were therefore not put into effect. However, Lupus
now believes that the company will address its key strategic issues. In the
meantime, the significant fall in its share price means that Lupus has decided
to record a provision against its investment in European Colour.
After the uncertainties of the past 12 months, Lupus now believes that the signs
are more positive for an upturn in corporate activity and it expects to be
involved in a number of realisations in 2002, whilst there are many good
opportunities available for subsequent re-investment.
Financial review
In the year to 31 December 2001, Lupus made an operating profit, before goodwill
amortisation, of £1.57 million (2000: £1.31 million) on turnover of £5.34
million (2000: continuing operations £4.77 million). After a charge of £741,000
(2000: £750,000) for goodwill amortisation, Lupus made an operating profit in
the period of £827,000 (2000: continuing operations £556,000). After an
investment gain of £718,000 and an investment provision of £1.43 million (2000:
nil), profit before taxation was £113,000 (2000: £527,000).
The net assets of Lupus at 31 December 2001 were £14.51 million (£15.36 million
at 31 December 2000) representing 8.53p per share (9.05p per share in 2000).
Net debt amounted to £6.64 million (2000: £2.84 million). As at 31 December
2001, listed fixed asset investments totalled £7.19 million (2000: £3.93
million).
Dividends
The Board is recommending a final cash dividend of 0.25p per share (2000:
0.225p). Combined with an interim dividend of 0.11p, this makes a total
dividend of 0.36p (2000: 0.325p) per share for the year, representing an
increase of 10.8%. Subject to approval at the AGM, the final dividend will be
paid on 31 May 2002 to shareholders on the register at the close of business on
10 May 2002.
Gall Thomson
Gall Thomson, our only wholly-owned investment, had an outstanding year in 2001,
significantly outperforming both budget and the previous year's comparative
figures. Although this outstanding result relates very largely to Gall
Thomson's main product, marine breakaway couplings, the smaller element of the
business, industrial couplings, also did well, particularly in the second half.
In 2001, Gall Thomson recorded sales of £5.34 million (2000: £4.77 million), an
increase of 11.9%. Operating profits before corporate costs were £3.01 million
(2000: £2.62 million), an increase of 14.9%. Operating profits after corporate
costs were £2.71 million (2000: £2.33 million), an increase of 16.3%. Gall
Thomson also continues to be highly cash generative.
Gall Thomson continues to provide an excellent service to existing customers,
whilst vigorously pursuing new opportunities in markets throughout the world.
During 2001, over 85% of Gall Thomson's sales were outside the UK. Marine
breakaway couplings were delivered to locations in existing markets such as
Egypt, Indonesia, the United Arab Emirates and Venezuela as well as new ones
including Bangladesh, Brunei, Iran and Tunisia.
Gall Thomson had a particularly strong year in relation to supplying marine
breakaway couplings to facilities operating off Nigeria and Angola. Further
significant opportunities remain in this area. Equally, the delivery of marine
breakaway couplings to an oil terminal in the Black Sea is seen as confirmation
of the development of sales in that region.
Gall Thomson's management team has ensured that this sales growth has been
complemented by strict cost control and productivity gains, resulting in further
improvements in gross margins.
Lupus believes that there are a number of factors behind Gall Thomson's success.
First, in response to the sustained higher level of oil prices, major oil
companies are undertaking significantly enhanced programmes of exploration and
production in key development areas across all five continents. Secondly, the
Gall Thomson marine breakaway coupling is the market leader in its field, to the
point of being almost a generic name for marine breakaway couplings. Gall
Thomson therefore benefits from the increasing use of techniques of production
and shipment which specify the use of marine breakaway couplings. Indeed, a
recent independent report has forecast major growth in the use of relevant
floating production systems, over the next four years. Thirdly, Lupus believes
that there is increasing general demand - and in some cases specific legislative
requirement - for environmental safeguards such as marine breakaway couplings.
Environmental protection has become a major concern even in parts of the world
which had previously not considered it to be a priority issue. Finally, Lupus
believes that the attacks of 11 September in the US followed by the 'war on
terror' will significantly accelerate the geographic dispersal of oil
exploration and production. This should also stimulate demand for Gall
Thomson's products.
Gall Thomson's industrial couplings business, KLAW, had a slow start to the year
but saw a particularly strong second half. KLAW has the potential to develop a
significantly greater market share in industrial couplings.
Lupus believes that Gall Thomson represents a blueprint for its relationship
with wholly-owned businesses, resulting in a pattern of strong growth. In the
case of Gall Thomson, Lupus's strategic skills and support have combined well
with the outstanding operational capabilities of Gall Thomson's management team.
Lupus has provided investment behind a focused strategy. It has also given
input on certain strategic financial and commercial matters while adhering to a
strict policy of non-interference in operational matters. In the two years to
31 December 2001, since Lupus acquired the company, Gall Thomson's sales have
increased by 38.2% to £5.34 million and operating profits by 47.7% to £2.71
million.
Review of investments
• Time Products plc ('Time Products')
In March 2001, Lupus announced that it had acquired a stake in Time Products, a
distributor of watches and associated products. Time Products's portfolio
included ownership of one of the largest middle market watch brands in the UK,
Sekonda, as well as the distribution rights to a number of luxury watch names
such as Audemars Piguet and Piaget. By 6 April 2001, Lupus had built up a stake
of 1,700,000 shares in Time Products, representing 4.1% of the company. Lupus's
intention had been to accumulate a significantly larger position in Time
Products potentially resulting in an offer for the company but, before this was
possible, an announcement was made that an offer in excess of 180p per share was
being contemplated by the management. On 19 June 2001, a management buy-out
team, operating as Almar PLC, confirmed an offer of 190p per share with
shareholders retaining the right to the final dividend. The offer valued the
issued share capital of Time Products at approximately £79.7 million.
The offer became effective in August and Lupus realised an investment gain of
£718,000. In addition, Lupus retains a pro rata entitlement to any proceeds of
a disposal within the next five years of Time Products's 8.5% holding in the
leading Swiss watch company, Audemars Piguet, in excess of a threshold of £4.25
million. There can be no certainty that any such sale will take place and
accordingly no value is attributed to this entitlement.
Time Products, with its interesting watch brand portfolio and strong cash
position, is representative of the type of investment which Lupus seeks.
• Armitage Brothers plc ('Armitage')
Armitage develops, manufactures and supplies pet accessories and pet foods.
Lupus was attracted to Armitage by the continuing growth in consumer demand in
both of these sectors and by the company's powerful portfolio of brands. These
brands include: -
Wafcol - specialist dog food
Good Boy - dog treats
Rotastak - small animal housing
Algarde - aquatic accessories
Kagesan - sand sheets for birds
Although Armitage has a very attractive range of brands in pet accessories and
pet foods, it is operating within sectors that Lupus believes would greatly
benefit from industry consolidation. Armitage's trading performance has been
satisfactory given the particular pressures of the last year, and the company
has generated cash, but Lupus believes that its market positions might well be
better exploited within larger groups.
Lupus continues to maintain a close relationship with the board and senior
management of Armitage discussing a range of strategic issues. Lupus believes
it to be a very positive relationship.
Lupus owns 549,500 shares in Armitage, representing 13.6% of the issued share
capital of the company.
• European Colour plc ('European Colour')
European Colour is a speciality chemicals company comprising a holding company
with two divisions providing specialist pigments and performance coatings.
European Colour operates in a sector which, in recent years, has been, and Lupus
believes will continue to be, subject to worldwide consolidation.
Lupus believes that European Colour was slow to accept the impact of macro
changes in the commercial and financial markets over the last few years and that
the necessary strategic plans were therefore not put into effect. Combined with
the short-term pressures relating to the slowdown in economic activity, these
long-term structural pressures have resulted in a particularly poor performance
by European Colour's pigments division. This poor performance has been
articulated in statements by European Colour. However, it should be noted from
these statements that European Colour remains profitable and that the coatings
division has been performing robustly.
Lupus has been involved in prolonged and detailed discussions about strategic
matters with the board and senior management of European Colour. Last week,
European Colour announced certain board changes. Lupus supports these changes
and believes that the company will now address its key strategic issues.
Lupus owns 4,691,616 shares in European Colour representing 10.1% of the issued
share capital of the company. However, for the reasons outlined above, Lupus
has decided to record a provision to reflect permanent diminution in value in
its holding in European Colour.
• Shiloh plc ('Shiloh')
In November Lupus announced that it had acquired a disclosable holding in
Shiloh, a company providing a number of healthcare services and supplies, with
ambitions to become a leader in its field in the UK.
Shiloh was originally a cotton spinning company but, faced with the inexorable
decline of its industry, it slowly built up a division relating to the supply of
healthcare products. Following the disposal of its spinning business some two
years ago the company became dedicated to the healthcare sector. Currently its
business areas include: -
- mobility services
- sterilisation services
- incontinence pads
- theatre supplies e.g. gowns and wipes
- cotton wool
- hospital and home delivery services
- woundcare products
Shiloh has the opportunity to develop many of these product areas and services
primarily with the NHS but also with Social Services and the private sector.
For example, the provision of mobility aids (most notably wheelchairs) is an
area of significant potential. It is currently a highly fragmented market and,
following its initial acquisitions, Shiloh is already the largest provider in
the UK but with only a tiny fraction of the market. Equally, there is scope for
extending throughout the UK high quality sterilisation services based on the
company's model operation in Scotland, Trust Sterile Services ('TSS'). This
type of sterilisation service covers hospital operating theatre equipment and is
an essential element in meeting increasing concern about HAIs (Hospital Acquired
Infections). TSS has also been very successful in winning contracts to provide
surgical instruments to hospitals.
Lupus is working closely with the board and senior management of Shiloh,
discussing a range of strategic issues.
Lupus owns 598,711 shares in Shiloh representing 9.1% of the issued share
capital of the company.
• Castings plc ('Castings')
In November, Lupus announced that it had acquired a disclosable holding in
Castings, one of the leading ductile and malleable ironfounders in Europe.
Castings supplies customers in a range of industries including automotive,
commercial vehicles, railways and construction and adds value through its
increasing machining capacity. It has had an outstanding record of success in
terms of profitability and cash generation - at 30 September 2001 it had built
up almost £30 million of cash - but Lupus feels there is a mismatch between its
stock market value and its commercial value.
Lupus is in the early stages of its discussions with the board and senior
management of Castings whose success over the years does not appear to be
reflected in the company's share price.
Lupus owns 2,000,000 shares in Castings representing 4.6% of the issued share
capital of the company.
Current trading
Gall Thomson has made an excellent start to the year. Its order book at the
beginning of January was over double that of the same time last year and it
remains at a very high level. Lupus, therefore, expects Gall Thomson to have a
strong first half, significantly up both on budget and last year. The outlook
for the rest of the year also looks very encouraging.
Although events in 2001 significantly slowed down corporate activity, Lupus is
confident that such activity will pick up in the coming months, leading to the
realisation of some of Lupus's investments.
Lupus believes that there are many interesting prospects in terms of new
investments and the Board continues to view the future with confidence.
Lupus Capital plc
Group profit and loss account
For the year ended 31 December 2001
2001 2000
£000 £000
Turnover
- Continuing operations 5,341 4,772
- Discontinued operations - 291
5,341 5,063
Cost of sales (1,577) (1,768)
Gross profit 3,764 3,295
Administrative expenses - excluding goodwill (2,209) (2,159)
amortisation
Administrative expenses - goodwill amortisation (741) (750)
Administrative expenses (2,950) (2,909)
Other operating income 13 152
Operating profit
- Continuing operations 827 556
- Discounted operations - (18)
827 538
Discounted operations:
- Loss on sale of operations - (47)
827 491
Profit on disposal of fixed asset investments 718 -
Income from investments 299 112
Amounts written off fixed asset investments (1,425) -
Interest receivable and similar income 149 327
Interest payable and similar charges (455) (403)
Profit on ordinary activities before taxation 113 527
Taxation (368) (324)
(Loss)/profit on ordinary activities for the year (255) 203
Ordinary dividends (612) (551)
Retained loss for the financial year (867) (348)
(Loss)/earnings per share (0.15)p 0.12p
Diluted (loss)/earnings per share (0.15)p 0.12p
Earnings before goodwill amortisation per share 0.29p 0.57p
There were no recognised gains and losses in each year other than the (loss) /
profit for the financial year.
Lupus Capital plc
Group balance sheet
At 31 December 2001
2001 2000
£000 £000 £000 £000
Fixed assets
- Intangible assets 12,902 13,643
- Tangible assets 565 606
- Investments 7,185 3,933
20,652 18,182
Current assets
- Stocks and work-in-progress 172 177
- Debtors 2,021 1,349
- Investments - 204
2,193 1,730
Creditors: amounts falling due within
one year (8,254) (4,556)
Net current liabilities (6,061) (2,826)
Total assets less current liabilities 14,591 15,356
Creditors: amounts falling due after
more than one year (77) -
Net assets 14,514 15,356
Capital and reserves
- Called up share capital 851 848
- Share premium account 4,418 4,396
- Merger reserve 10,389 10,389
- Profit and loss account (1,144) (277)
Equity shareholders' funds 14,514 15,356
Lupus Capital plc
Company balance sheet
At 31 December 2001
2001 2000
£000 £000 £000 £000
Fixed assets
- Investments 8,711 8,711
8,711 8,711
Current assets
- Debtors 16,083 16,943
- Cash at back and in hand 1,514 936
17,597 17,882
Creditors: amounts falling due within
one year (510) (560)
Net current assets 17,087 17,322
Total assets less current liabilities 25,798 26,033
Creditors: amounts falling due after
more than one year (7,876) (7,876)
Net assets 17,922 18,157
Capital and reserves
- Called up share capital 851 848
- Share premium account 4,418 4,396
- Merger reserve 10,389 10,389
- Profit and loss account 2,264 2,524
Equity shareholders' funds 17,922 18,157
Lupus Capital plc
Group statement of cash flows
For the year ended 31 December 2001
2001 2000
£000 £000 £000 £000
Net cash inflow/(outflow) from
operating activities 875 (2,450)
Returns on investments and servicing
of finance
- Interest received 149 327
- Interest paid (418) (403)
- Dividends received 299 112
30 36
Taxation
- UK Corporate tax paid (367) (458)
Capital expenditure and
financial investment
- Sale of tangible fixed assets 3 202
- Purchase of tangible fixed assets (48) (151)
- Sale of fixed asset investments 3,230 898
- Sale of current asset investments 298 -
- Purchase of fixed asset investments (6,845) -
- Purchase of current asset
investments (425) (3,766)
(3,787) (2,817)
Acquisitions and disposals
- Purchase of subsidiary undertakings - (738)
- Disposal of subsidiary undertakings - 551
- Net cash in disposed operations - (171)
- (358)
Equity dividend paid (569) (509)
Net cash outflow before financing (3,818) (6,556)
Financing
- Issue of shares net of costs 25 -
- New long-term loans - 3,250
- Repayment of long-term loans - (4,750)
25 (1,500)
Decrease in cash (3,793) (8,056)
Lupus Capital plc
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 2001
2001 2000
£000 £000
Decrease in cash (3,793) (8,056)
Cash inflow from increase in loans - (3,250)
Cash outflow from repayment of loans - 4,750
Change in net debt from cash flows (3,793) (6,556)
Net (debt)/funds at 1 January (2,844) 3,712
Net debt at 31 December (6,637) (2,844)
Reconciliation of shareholders' funds
For the year ended 31 December 2001
2001 2000
£000 £000
(Loss)/profit for the financial year (255) 203
Net movement on shares issues 25 -
Dividends paid and proposed on equity shares (612) (551)
Costs set against share premium account - (148)
(842) (496)
Opening shareholders' funds 15,356 15,852
Closing shareholders' funds 14,514 15,356
Lupus Capital plc
Notes to the financial statements
For the year ended 31 December 2001
1. The financial information set out in this document does not constitute
statutory group accounts. Statutory accounts for the year ended 31 December
2000 containing an unqualified auditors' report and no statements under Section
237 (2) or (3) of the Companies Act 1985 have been delivered to the Registrar of
Companies. The Report and Accounts for the year ended 31 December 2001 will be
posted to shareholders shortly and, after adoption at the Annual General
Meeting, delivered to the Registrar of Companies.
2. Earnings per share
The calculation of basic (loss)/earnings per share is based on the (loss)/profit
after taxation for the financial year and on a weighted average number of shares
in issue during the year of 169,827,998 ordinary shares of 0.5p (2000:
167,953,570).
The diluted (loss)/earnings per share is based on the (loss)/profit after
taxation for the financial year and on 169,827,998 ordinary shares of 0.5p
(2000: 167,953,570).
The calculation of earnings before goodwill amortisation per share is based on
the (loss)/profit after taxation for the financial year adjusted for the
goodwill amortisation charge of £741,000 (2000: £750,000) and on the weighted
average number of shares in issue during the year of 169,827,998 ordinary shares
of 0.5p (2000: 167,953,570).
3. Dividends
The Board is recommending a final cash dividend of 0.25p per share (2000:
0.225p). Subject to approval at the AGM, the final dividend will be paid on 31
May 2002 to shareholders on the register at the close of business on 10 May
2002. The ex-dividend date will be on 8 May 2002.
4. The Annual General Meeting
The Annual General Meeting will be held at the offices of Ashurst Morris Crisp,
Broadwalk House, 5 Appold Street, London, EC2A 2HA at 11:30am on 22 May 2002.
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