Interim Results

Melrose PLC 27 September 2005 MELROSE PLC AUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Melrose PLC today announces its audited interim results for the six months ended 30 June 2005. The highlights of the results, which are reported under IFRS, are: â€¢Successful acquisition of Dynacast, a leading global manufacturer of precision engineering diecast zinc, aluminium and magnesium alloy components â€¢Successful acquisition of McKechnie, a leading supplier of specialist engineering products with five divisions: Aerospace OEM, Aerospace Aftermarket, Vehicle Components, Plastic Components and Industrial Fasteners. â€¢Group Turnover for the period was Â£43.1m â€¢Group Profit before tax was Â£4.6m â€¢Results include Dynacast and McKechnie from the date of acquisition only â€¢Dividend payment of 3p per share intended next year following our AGM. Christopher Miller, Chairman of Melrose PLC, today said: "I am excited about the businesses we bought at the end of May. There is a lot to be done but I am confident we will make our shareholders happy with the value we can create over the next few years." Enquiries: Tom Hampson M: Communications 020 7153 1522 CHAIRMAN'S STATEMENT I am pleased to report Melrose's first set of interim results after our acquisitions of the Dynacast Group and the McKechnie Group on 26 May 2005. The consideration of Â£429m was satisfied by an issue of ordinary shares to investors, including the vendors, and bank debt. In line with our objectives these businesses have good cash generating characteristics, strong market shares and a global presence. They also present opportunities for improvements in performance which play to our traditional management strengths. Post acquisition reviews are largely complete and, although it is still early days, a number of actions have already been taken. Our view remains that we will be able to create substantial shareholder value from these businesses over the next few years. More detail is provided in the Chief Executive's Review RESULTS The accounts for the six months to 30 June include the results of the Dynacast and McKechnie businesses from the date of acquisition of 26 May 2005. The comparative numbers for the first six months of 2004 are for Melrose PLC prior to the acquisitions. Turnover for the period was Â£43.1m. (2004 - nil) Profit before tax was Â£4.6m (2004 - loss Â£(0.2)m) and earnings per share were 4.8p (2004 - loss per share (1.6)p). DIVIDENDS In view of the short period of ownership of these businesses the board is not proposing to pay an interim dividend. However in the absence of unforeseen circumstances, we intend as indicated to pay a dividend of 3p per share next year following our AGM. BOARD APPOINTMENTS We were delighted to appoint Geoff Martin to the board as Finance Director in July. He will be a key member of our team as we develop our businesses. We were equally pleased to welcome Perry Crosthwaite as a non-executive director also in July. He brings with him a wealth of City experience. We are expecting to appoint a third non-executive director in the near future. MOVE TO FULL LISTING As indicated at the time of flotation, we are now in the process of applying for full listing on the London Stock Exchange. The new regulatory environment and the timing of completion as compared to the differing year ends of our acquisitions are making the preparation of historic financial information for irregular periods a time consuming process. However, we hope to achieve a full listing as soon as possible. STRATEGY Our stated aim at flotation was to acquire appropriate businesses, improve their performance, create value and return this to shareholders over time. This strategy remains very much in place and our management, both centrally and in our companies, is extremely focused in putting it into practice. Melrose does not intend to make further acquisitions which are unrelated to its existing businesses. Christopher Miller 27th September 2005 CHIEF EXECUTIVE'S REVIEW I would like to remind readers that the results below include the Dynacast and McKechnie businesses from the date of acquisition of 26th May 2005. DYNACAST 30 June 2005 Turnover Â£16.2m Operating profit Â£2.2m Dynacast is a global manufacturer of precision engineered, diecast metal components. The products are manufactured using proprietary die-casting technology and are supplied to a wide range of end markets, including automotive, telecommunications and consumer electronics. Dynacast has benefited in the past from its flexible manufacturing approach by responding to the threats, and therefore opportunities, resulting from the well known movement of industrial production to 'low cost' countries. We are working closely with Dynacast management to optimise the location of its production facilities to best suit the requirements of its customers. In this context, Dynacast has, since acquisition, announced the closure of its production facility in the UK. We are encouraging management to maximise opportunities arising from this trend, not only to contain costs but to exploit the growth opportunities, particularly in the East. Against this backdrop of encouraging demand in the 'newer economy' countries (supported by strong sales of tools to customers), trading conditions in Continental Europe and the US are slow. Although Dynacast is generally able to recover raw material cost increases in its selling prices, when these input costs rise quickly and significantly, as they have recently, Dynacast suffers from a timing lag. However, we are encouraged by new product initiatives which will bear fruit in 2006. Overall, this is a very strong engineering business with a major market presence and good long term growth prospects. Management are heavily focused on realising the potential this business has to offer. AEROSPACE ORIGINAL EQUIPMENT MANUFACTURE ("AEROSPACE OEM") 30 June 2005 Turnover Â£10.6m Operating profit Â£2.6m Aerospace OEM supplies safety critical components to the global aerospace industry and is based in the US and Europe. The business has excellent engineering skills producing value added products selling into niche markets in which it has strong market shares. It is generally recognised that the aerospace industry is benefiting from a strong cyclical upturn and this division has experienced a significant increase in its sales and its order book. This in turn provides challenges in terms of meeting the delivery requirements of customers, particularly in the light of shortages of raw materials such as titanium. We are working closely with the management of this division to improve the operational performance of the business and to this end a new divisional finance director and a new vice president of operations for the largest subsidiary have been recruited in the US since acquisition. The division is well represented on the major commercial airline platforms and this provides good future earnings visibility. Depending on the product being supplied the company will usually either have patent protection or be the sole supplier, which affords a degree of pricing protection. At present management are concentrating on managing the increases in the costs of raw materials and the shortages in the supplies of these items. These businesses are operating in fast growing markets and a motivated management team is working hard to maximise profit and cash. AEROSPACE AFTERMARKET 30 June 2005 Turnover Â£2.5m Operating profit nil Aerospace Aftermarket provides a 24 hours-a-day, seven days-a-week specialised distribution service offering a range of components, related systems and engineering services to the aerospace aftermarket. The aerospace aftermarket cycle, while flatter, typically lags the aerospace original equipment market by a year to eighteen months. In line with this we are seeing a few early signs of an upturn in activity, having been through a very difficult period since 2001. Since acquisition a restructured management team has embarked on a cost cutting programme and is focusing on introducing a more disciplined approach to running the business with a view to achieving operational efficiencies and maximising sales opportunities. With continuing hard work, this new management team should be able to benefit from a recovery in this market. MCKECHNIE VEHICLE COMPONENTS ("MVC") 30 June 2005 Turnover Â£5.4m Operating profit Â£0.4m MVC manufactures decorated exterior trim products for the US automotive industry, principally coated metal and plastic wheel trims. Although the competitive conditions in the US automotive industry are challenging at present, the overall demand for cars and trucks is reasonably good. As such demand for this division's products is favourable and with a strong order book this is likely to continue. However, in common with most manufacturing businesses, recovery of the significant raw material price increases is a major issue. Whilst 2005 is difficult we expect some recovery in this business in 2006. Management are working closely with customers to improve and develop the product range, whilst at the same time focusing on minimising costs wherever possible. MCKECHNIE PLASTIC COMPONENTS ("MPC") 30 June 2005 Turnover Â£5.1m Operating profit Â£0.3m MPC is a UK producer of engineered plastic and plastic injection moulded components for products used in a variety of industries, including power tools, IT hardware, food packaging, personal care and automotive. This division operates in a highly competitive environment and is currently experiencing raw material cost increases. However, the specialised nature of this division's technology and its skill base has enabled it to recover a large part of these cost increases, albeit with a time lag. The highly experienced management team at MPC is continuously seeking to maintain its competitive advantage, in terms of new products and imaginative engineering solutions for customers, as an increasing share of commodity business moves to lower cost countries. MCKECHNIE PSM ("PSM") 30 June 2005 Turnover Â£3.3m Operating profit Â£0.1m PSM manufacturers and distributes specialised fasteners and joining systems. Sales of product manufactured in China continue to be profitable, whereas product manufactured in Europe is struggling to cope with a relatively high cost base. The move of production from the UK to the Czech Republic, prior to our acquisition, has proved fraught and, while recent performance has been better, this is likely to result in a poor 2005. However, we believe there will be an improvement in 2006. We are working with the management of PSM to address this by means of a series of initiatives which are being explored. OUTLOOK The global reach of these businesses exposes us to varying economic conditions around the world. With the outstanding exception of our Aerospace companies, we are finding trading somewhat slow in Europe, particularly for Dynacast, and to a lesser extent in the USA. The Far East, however, continues to perform well. We are in the process of getting to grips with our businesses and fully understanding their investment needs. We will take into account the likely demand scenario for their products, as well as changes in trends, in assessing where production capacity should be most efficiently located. Some restructuring has been put into place and it is likely that more will follow It is early days yet to confidently predict the outlook for 2006. We have owned these businesses for four months and budgets for next year are only now being finalised. However we can confirm that we are very pleased with the opportunities these acquisitions offer to us and our shareholders and fully expect a good performance in 2006 and beyond. David Roper 27th September 2005 Consolidated income statement Continuing operations Notes 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Revenue 3 43.1 - - Cost of sales (32.2) - - ______ ______ ______ Gross profit 10.9 - - Selling and distribution costs (2.2) - - Administration expenses (3.2) (0.4) (0.9) Share of joint ventures operating 0.1 - - profits Exceptional items - abortive - - (3.8) acquisition costs ______ ______ ______ Operating profit/(loss) 3 5.6 (0.4) (4.7) Finance costs (1.0) - - Finance income - 0.2 0.5 ______ ______ ______ Profit/(loss) on ordinary 4.6 (0.2) (4.2) activities before tax Taxation 4 (1.6) - - ______ ______ ______ Profit/(loss) for the period from 3.0 (0.2) (4.2) continuing operations ====== ====== ======= Attributable to: Equity holders of the parent 3.0 (0.2) (4.2) Minority interests - - - ______ ______ ______ 3.0 (0.2) (4.2) ====== ====== ======= Earnings/(loss) per share 5 - Basic 4.8p (1.6)p (32.3)p - Diluted 4.7p (1.6)p (32.3)p ====== ====== ======= Consolidated balance sheet Notes 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Non-current assets Intangible assets 400.6 - - Property, plant & equipment 93.8 - - Interests in joint ventures 2.6 - - ______ ______ ______ 497.0 - - Current assets Inventories 50.4 - - Trade and other receivables 84.7 - 0.2 Cash and short term deposits 17.5 12.6 11.7 ______ ______ ______ 152.6 12.6 11.9 ______ ______ ______ Total assets 649.6 12.6 11.9 ====== ====== ====== Current liabilities Trade and other payables 94.8 - 3.4 Interest bearing loans and 5.3 - - borrowings Income tax payable 10.9 - - Provisions 2.6 - - ______ ______ ______ 113.6 - 3.4 Non-current liabilities Interest-bearing loans and 204.2 - - borrowings Deferred tax liabilities 2.6 - - Retirement benefit obligations 60.6 - - Provisions 13.6 - - ______ ______ ______ 281.0 - - ______ ______ ______ Total liabilities 394.6 - 3.4 ______ ______ ______ Net assets 255.0 12.6 8.5 ====== ====== ====== Equity Issued share capital 7 0.3 0.1 0.1 Share premium account 7 256.6 12.8 12.8 Foreign currency translation 7 1.4 - - reserve Accumulated losses 7 (4.1) (0.3) (4.4) ______ ______ ______ Equity attributable to holders of 254.2 12.6 8.5 the parent Minority interest 0.8 - - ______ ______ ______ Total equity 255.0 12.6 8.5 ====== ====== ====== Consolidated cash flow statement Notes 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Cash flows from operating activities Profit/(loss) from continuing 5.6 (0.4) (4.7) operations before interest and taxation Depreciation 1.3 - - Amortisation of intangible fixed 0.2 - - assets Increase in stock (1.6) - - Increase in debtors (2.3) - (0.2) (Decrease)/Increase in creditors (7.2) - 3.3 Pension contributions paid (5.1) - - Borrowing costs (0.5) - - Income tax paid (0.4) - - Non-cash items 0.5 - - ______ ______ ______ Net cash flows from operating (9.5) (0.4) (1.6) activities ______ ______ ______ Cash flows from investing activities Purchase of property, plant and (1.5) - - equipment Acquisition of subsidiaries 6 (433.2) - - Interest received - 0.2 0.5 ______ ______ ______ Net cash flows from investing (434.7) 0.2 0.5 activities ______ ______ ______ Cash flows from financing activities Finance leases repaid (0.3) - - Repayment of loan notes (0.3) - - New bank loans 200.0 - - Proceeds on issue of shares 244.0 - - Increase in overdrafts 4.8 - - Overdrafts acquired 6 (9.4) - - ______ ______ ______ Net cash flows used in financing 438.8 - - activities ______ ______ ______ Decrease in cash and cash (5.4) (0.2) (1.1) equivalents ______ ______ ______ Exchange 1.6 - - Cash and cash equivalents at 11.7 12.8 12.8 beginning of period/year Cash acquired 9.6 - - ______ ______ ______ Cash and cash equivalents at end of 17.5 12.6 11.7 period/year ====== ====== ====== Consolidated statement of recognised income and expense 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Currency translation on net 1.4 - - investments in subsidiary undertakings Actuarial adjustments on pension (2.7) - - liabilities ______ ______ ______ Net expense recognised directly in (1.3) - - equity Profit/(loss) for the period/year 3.0 (0.2) (4.2) ______ ______ ______ Total recognised income and expense 1.7 (0.2) (4.2) for the period/year ====== ====== ====== Attributable to: Equity holders of the parent 1.7 (0.2) (4.2) Minority interests - - - ______ ______ ______ 1.7 (0.2) (4.2) ====== ====== ====== NOTES TO THE FINANCIAL INFORMATION 1. Corporate information The consolidated financial statements of Melrose for the period ended 30 June 2005 were authorised in accordance with a resolution of the directors of Melrose PLC on 27 September 2005. The figures for the year ended 31 December 2004 do not constitute the Company's accounts for that period but have been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The interim results for the six months ended 30 June 2005 are consistent with audited non-statutory accounts for that period. The principal activities of the Melrose Group are described in note 3. 2. Summary of significant accounting policies Details of the Group's significant accounting policies are available from the Registered Office or at www.melroseplc.net. 3. Segment information The Group's primary reporting format is business segments and its secondary format is geographical segments. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. All reported turnover is derived from one activity, the sale of goods. The Dynacast segment is a supplier of diecast parts and components to a range of industries. The Aerospace OEM segment is a supplier of specialised quality components to the Aerospace industry, the Aerospace Aftermarket segment is a supplier of replacements parts to the world's leading airlines and McKechnie Vehicle Components ("MVC") supplies exterior trim products to major vehicle manufacturers in the USA. McKechnie Plastic Components ("MPC") is a UK supplier of plastic injection moulded and extruded components to the automotive, consumer durable, IT and other industries. The Fastener segment manufacturers and distributes specialised fasteners globally to automotive and other industries. Transfer prices between business segments are set on an arm's length basis in a manner similar to transactions with third parties. The Group's geographical segments are determined by the location of the Group's assets and operations. 3. Segment information (continued) Business segments The following table presents revenue and profit information and certain asset and liability information regarding the Group's business segments for the period ended 30 June 2005: Business segment Dynacast OEM Aftermarket MPC MVC Fasteners Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Turnover Segment revenue 16.2 10.6 2.5 5.1 5.4 3.3 43.1 Result Segment result 2.2 2.6 - 0.3 0.4 0.1 5.6 Assets and liabilities Segment assets 89.7 55.6 8.3 31.3 22.2 26.0 233.1 Liabilities (38.0) (18.4) (3.4) (8.7) (8.5) (22.8) (99.8) Unallocated 121.7 corporate assets/ liabilities* _____ 255.0 _____ Other segment information Capital 1.0 0.2 - 0.1 - 0.2 1.5 expenditure Depreciation and 0.6 0.3 - 0.2 0.2 0.2 1.5 amortisation of intangibles Geographical Area North America Europe Asia Total Â£m Â£m Â£m Â£m Turnover Segment revenue 20.9 18.4 3.8 43.1 Result Segment result 2.9 1.9 0.8 5.6 Assets and liabilities Segment assets 96.5 110.0 26.6 233.1 Liabilities (37.3) (53.1) (9.4) (99.8) Unallocated corporate assets/ 121.7 liabilities* _____ 255.0 _____ Other segment information Capital expenditure 0.4 0.8 0.3 1.5 Depreciation and amortisation of 0.6 0.7 0.2 1.5 intangibles * Unallocated corporate assets largely represent goodwill net of the group's borrowings. Due to the proximity of the acquisition to the reporting date, goodwill has not yet been allocated to the relevant business segments. This will be completed prior to 31 December 2005. 4. Income Tax Analysis of charge in period: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Current tax 1.6 - - Deferred tax - - - ____ _____ _____ Total income tax expense 1.6 - - ==== ===== ===== The income tax charge for the period ended 30 June 2005 is based on the estimate effective tax rate for the full year to 31 December 2005. The tax for the period is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Profit/(loss) on ordinary activities 4.6 (0.2) (4.2) before tax ____ _____ _____ Tax on profit/(loss) on ordinary 1.4 - (1.3) activities at UK corporate tax rate (30%) Expenses not deductible for tax 0.3 - - purposes Adjustment in respect of foreign tax 0.2 - - rates Excess losses not utilised 0.1 - 1.1 Withholding taxes on remittances from 0.1 - - overseas Deductible items not in profit and loss (0.5) - 0.2 account ____ _____ _____ Total tax charge for the period 1.6 - - ==== ===== ===== Deferred tax There is no deferred tax charge in the period. 5. Earnings per share Six months Year Earnings ended ended ended 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Earnings for the purposes of basic 3.0 (0.2) (4.2) earnings per share being net profit attributable to equity holders of the parent ____ ____ ____ Number Number Number Number of shares Weighted average number of ordinary 61,650,385 13,120,000 10,120,000 shares for the purposes of basic earning per share Earnings/(loss) per share 4.8p (1.6)p (32.3)p Further shares for the purposes of fully 1,271,504 - - diluted earnings per share Fully diluted earnings/(loss) per 4.7p (1.6)p (32.3)p share =========== =========== ========== 6. Acquisition of subsidiaries On 26 May 2005, the Group acquired 100% of the issued share capital of the McKechnie Group and the Dynacast Group. McKechnie Acquiree's Fair value Fair carrying adjustments value amount Â£m Â£m Â£m Property, plant and 43.8 8.8 52.6 equipment Intangible assets 2.4 - 2.4 Joint ventures 2.7 - 2.7 Inventories 36.4 - 36.4 Trade receivables 49.7 (1.4) 48.3 Trade payables (46.2) - (46.2) Other creditors - (3.0) (3.0) Provisions (16.1) - (16.1) Retirement benefit (54.2) - (54.2) obligation Current tax (2.7) - (2.7) Bank and cash balances 1.9 - 1.9 Loan notes (0.8) - (0.8) Overdraft (5.4) - (5.4) Finance leases (1.5) - (1.5) ______ ______ ______ ______ 10.0 4.4 14.4 ______ ______ ====== Dynacast Property, plant and 39.7 0.5 40.2 equipment Intangible assets 0.2 - 0.2 Inventories 12.4 - 12.4 Trade receivables 39.7 (2.8) 36.9 Trade payables (37.7) - (37.7) Other creditors - (1.6) (1.6) Provisions - (0.6) (0.6) Retirement benefit (7.9) - (7.9) obligation Minority interest (0.9) - (0.9) Current tax (7.0) - (7.0) Deferred tax (2.6) - (2.6) Bank and cash balances 7.7 - 7.7 Overdraft (4.0) - (4.0) Finance leases (0.1) - (0.1) ______ ______ ______ ______ 39.5 (4.5) 35.0 ______ ______ 49.4 Goodwill 394.2 ______ Total consideration (including acquisition costs of 443.6 Â£14.6m) ====== Satisfied by: Shares issued 244.0 Cash consideration 199.6 ______ 443.6 ====== Net cash outflow in the period: Cash/overdrafts acquired 0.2 Acquisition expenses (4.9) paid Proceeds of share issue (244.0) applied Cash consideration paid (184.5) ______ (433.2) ====== Approximately Â£10 million of acquisition costs remain to be paid. The fair value adjustments to property, plant and equipment relate to property valuations at the date of acquisition. The fair value adjustment to trade receivables to the write off of bank fees not amortised on repayment of debt on acquisition. The fair value adjustment to provisions relates to an onerous lease. The fair value adjustments are provisional as at the balance sheet date. Due to the proximity of the acquisition to the reporting date it has not been possible to complete the allocation of goodwill between separable intangible assets such as customer relationships, proprietary technology and brands. The provisional allocation to such intangibles is Â£nil, however, this will be reviewed and the results of the review reported in the accounts to 31 December 2005. In the opinion of the directors, the amortization of any value to be ascribed to such intangibles would be immaterial in relation to the profit for the period. 7. Issued capital and reserves Share Capital 30 June 30 June 31 December 2005 2004 2004 Â£m Â£m Â£m Authorised 342,830,000 0.1p ordinary shares (2004 0.3 - - : 17,000,000) 59,170 Â£1 convertible B shares 0.1 0.1 0.1 (incentive shares) _____ ____ _____ 0.4 0.1 0.1 ===== ==== ===== Allotted, called up and fully paid 257,119,989 ordinary shares of 0.1p 0.2 - - 59,170 convertible B shares of Â£1 0.1 0.1 0.1 each _____ ____ _____ 0.3 0.1 0.1 ===== ==== ===== 243,999,989 shares were issued on 26 May 2005 in connection with the acquisition of McKechnie and Dynacast (see note 6). The shares were issued at a premium of 99.9p. The convertible B shares are non-voting and not entitled to any dividends. Under these arrangements the directors and employees hold Convertible B shares ("incentive shares") which convert shortly after 31 May 2009 or, if earlier, on a takeover of the company, into ordinary shares with an aggregate value on conversion equal to 10 per cent of the increase in shareholder value. The number of ordinary shares arising on conversion will be determined by reference to the average market price of an ordinary share for forty business days prior to conversion or the takeover offer price (as the case may be). The increase in shareholder value is calculated as the difference between the market capitalisation of the company at conversion (determined by reference to the average market price of an ordinary share for forty business days prior to conversion, or the offer price (as the case may be)), and the net invested capital in the company, being the aggregate of the amounts paid on the ordinary shares up to conversion less all amounts paid by the company by way of dividends or other distributions in respect of those shares, where each such amounts shall be adjusted in line with the movement in the RPI (plus 2 per cent, per annum). Share Premium Share premium account Â£m At 31 December 2004 12.8 Premium arising on issue of 243.8 equity shares _______ At 30 June 2005 256.6 ======= Reserves Foreign Accumulated Total currency losses translation reserve Â£m Â£m Â£m At 31 December 2004 - (4.4) (4.4) Currency translation adjustments 1.4 - 1.4 Profit for the period - 3.0 3.0 Actuarial adjustments on pension - (2.7) (2.7) liabilities _____ _____ _____ Total recognised income and expense 1.4 0.3 1.7 for the period ===== ===== ===== At 30 June 2005 1.4 (4.1) (2.7) ===== ===== ===== The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the net investments hedged in these subsidiaries. This information is provided by RNS The company news service from the London Stock Exchange

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