2010 Half-year Announcement

RNS Number : 7161R

Molins PLC

27 August 2010

 



 

27 August 2010                                                                                  FOR IMMEDIATE RELEASE

2010 HALF-YEAR ANNOUNCEMENT

 

Molins PLC, the international specialist engineering company, announces its results for the six months ended

30 June 2010.

	6 months to 30 June 2010		6 months to 30 June 2009 (restated)#		12 months to 31 Dec 2009
Sales Underlying operating profit* Profit before tax – continuing operations Profit for the period   Underlying earnings per share§ Basic earnings per share Dividends per share   Net cash from operating activities – continuing operations Net funds	£40.3m £0.8m £1.7m £1.1m   2.5p 5.7p 2.5p   £2.0m £3.9m		£42.2m £1.4m £0.6m £0.1m   4.1p 0.6p 2.5p   £2.8m £2.6m		£83.8m £3.5m £2.1m £1.1m   11.3p 5.8p 5.0p   £8.0m £5.0m

# Restated to reflect changes in the definitions of underlying operating profit and underlying earnings per share to include the service cost of providing pension benefits to employees (note 2)

* Continuing operations before exceptional charge of £0.1m (30 June 2009: £0.2m; 31 December 2009: £0.4m)

^§ Continuing operations before exceptional charge of £0.1m (30 June 2009: £0.2m; 31 December 2009: £0.4m) and net financing income on pension scheme balances of £0.7m (30 June 2009: £0.3m expense; 31 December 2009: £0.6m expense), all figures after tax

Dick Hunter, Chief Executive, commented:

"As announced in June, order intake in the first period of the year was lower than had been expected.  This resulted in the Board lowering its expectations of full year sales to levels similar to the previous year, and with the different mix in activity levels across the three divisions, the Board's expectation remains that underlying performance in the full year will be lower than that of the previous year.  Following the pattern of previous years, it is expected that performance will be second half weighted."

Enquiries:	Molins PLC Dick Hunter, Chief Executive; David Cowen, Group Finance Director	Tel: [phone]
Issued by:	Citigate Dewe Rogerson Angharad Couch	Tel: [phone]

INTERIM MANAGEMENT REPORT

Group structure and strategy

The Group operates through a number of businesses focused on providing high performance equipment and services for the production, packaging and analysis of consumer products.  Molins Tobacco Machinery designs, manufactures, markets and services specialist machinery for the tobacco industry from its bases in the UK, US, Brazil, Singapore and Czech Republic.  The Packaging Machinery division, which supplies engineering services and capital equipment, operates through three businesses based in the UK, the Netherlands and Canada.  The Scientific Services division, with main facilities in the UK and US, comprises two businesses, one of which supplies process and quality control instruments for the tobacco industry and the other being an independent tobacco and smoke constituent analytical laboratory.

The Group remains focused on the organic development of these businesses, through targeted product development, excellence in customer service and ongoing operational efficiency improvements.

Operating results

Group sales in the six months to 30 June 2010 were £40.3m (2009: £42.2m).  Underlying operating profit (continuing operations before exceptional items) was £0.8m (2009: £1.4m).  The Group incurred costs of £0.1m in respect of exceptional items and recorded net financing income of £1.0m (2009: £0.6m expense), mainly arising from the accounting for the Group's pension schemes.  The tax charge was £0.6m (2009: £0.3m), resulting in profit for the period of £1.1m (2009: £0.1m).  Basic earnings per share amounted to 5.7p (2009: 0.6p) and underlying earnings per share (continuing operations before exceptional items and net financing income/expense on pension scheme balances) amounted to 2.5p (2009: 4.1p).  The Group's net funds position remained positive at £3.9m (31 December 2009: £5.0m). 

Tobacco Machinery

Sales in the period were £15.3m (2009: £18.7m).  Order intake in the division for new and rebuild machinery was particularly disappointing in the period.  A number of orders that had been expected to be received have either been delayed or will not be placed.  The consolidation of manufacturers and rationalisation of production capacity has resulted in uncertain market conditions, which has led to customers exercising greater caution when placing equipment orders, although prospects for the Octave cigarette making machine remain positive.  The lower order intake impacted sales in the first half of the year, and as a consequence, together with the effect of reduced activity and an adverse mix, the division returned an operating loss in the period, before exceptional items, of £0.4m (2009: £1.5m profit).  Plans to reduce the employment levels in a number of the division's sites were announced in July, and these are expected to lead to a reduction in the number of employees in the division of approximately 50 people, which together with some reorganisation made in the first half of the year, would represent a reduction of approximately 20% since the start of the year.

Packaging Machinery

Sales in the period were £15.0m (2009: £13.3m).  Economic conditions continue to be challenging and although order intake was behind that of last year, prospects in each of the businesses have improved.  With the division typically engaged on relatively long lead-time projects the improvement in prospects is more likely to benefit next year, but may yet contribute to performance this year, depending on the nature and timing of such prospective orders.  The division returned a significantly improved performance with an operating profit of £0.4m in the period (2009: £1.3m loss), reflecting continued focus on improving project management processes and project delivery.  The profit is stated after absorbing further unrecoverable costs in respect of a technically challenging project that commenced in 2009, which has yet to be completed, and which also adversely impacted the 2009 full year results.     

Scientific Services

Sales in the period were £10.0m (2009: £10.2m) and operating profit was £0.8m (2009: £1.2m).  Sales at Cerulean were maintained at similar levels to the previous year, although order intake, as expected, reduced by approximately 10%, reflecting the particularly high incidence of orders for one-off projects experienced last year.  Profits at Cerulean were maintained at similar levels.  Performance at Arista Laboratories was weaker than last year, with sales patterns tending to be less consistent resulting in reduced cost efficiency.  US legislation enacted in June 2009 placed the regulation of tobacco products with the US Food and Drug Administration, with test results required from June 2012.  The testing regime has yet to be defined.  Arista's management continues to monitor, and where appropriate contribute to, the development of the regulatory system.  It is expected that the change in regulation will lead to increased business opportunities for Arista in the medium term.

Exceptional items

The Group incurred an exceptional charge of £0.1m in the period (2009: £0.2m net charge), which comprised reorganisation costs in the Tobacco Machinery division.  It is expected that considerably larger reorganisation costs will be incurred by the same division in the second half of the year.

Cash

The net cash outflow in the period was £1.1m, which resulted in net funds at 30 June 2010 of £3.9m (30 June 2009: £2.6m; 31 December 2009: £5.0m).  Net cash from operating activities was £2.0m, which benefited from a decrease in working capital of £0.3m, and is net of reorganisation costs paid of £0.2m and tax paid of £0.5m.  Capital and product development expenditure was £2.2m, which includes £1.2m in respect of leasehold improvements and other asset purchases arising from the move of premises of the UK tobacco machinery business.  Additionally, £0.4m of non-capitalised costs arising from this move was paid in the period.

Pension valuations

The Group operates defined benefit schemes in the UK and US, and has adopted IAS 19 (revised) Employee benefits as its basis of accounting for these schemes.  The IAS 19 valuation of the UK scheme at 30 June 2010 shows an increased deficit of £34.7m (£25.0m net of deferred tax), compared with £11.4m (£8.2m net of deferred tax) at the beginning of the period.  This deterioration has arisen primarily from the actuarial loss arising from the lower than expected investment returns on the scheme's assets, due in the main to general investment market forces, and the actuarial loss in respect of the value of the scheme's liabilities, arising from the decrease in corporate bond yields, and hence discount rate, from that at 31 December 2009, which was only partly mitigated by a decrease in the market inflationary assumptions.  The value of the scheme's assets at 30 June 2010 was £301.9m (31 December 2009: £313.0m), and the value of the scheme's liabilities was £336.6m (31 December 2009: £324.4m). The net valuation of the US pension funds at 30 June 2010, with total assets of £14.1m, showed a deficit of £5.0m (£3.0m net of deferred tax; 31 December 2009: £3.1m before tax; £1.9m net of deferred tax).  The aggregate cost of providing pension benefits to active members of the Group's schemes in the period was £0.6m, which was charged to operating profit.  Additionally, net financing income on pension scheme balances was £1.0m (2009: £0.5m expense), comprising £10.5m income on the schemes' assets and £9.5m expense on the schemes' liabilities.  Net financing income on pension scheme balances is calculated by applying an interest rate, reflecting the expected rate of return at the beginning of the year, to the value of the pension schemes' assets at the beginning of the year, less an interest expense calculated by applying the discount rate used in valuing the pension schemes' liabilities at the beginning of the year to the value of those liabilities.

The formal actuarial valuation of the Group's defined benefit scheme in the UK as at 30 June 2009, which was completed in the period, showed a deficit of £12.1m.  Following the agreement between the trustee and the Company of a deficit recovery plan, the Company, with effect from 1 July 2010, has commenced paying to the scheme £1.2m per annum in monthly instalments.  The deficit recovery period is estimated to be nine years.  In addition, the Company makes payments to the scheme to cover the regular cost of benefits and any extra funding strains that may arise as a consequence of redundancies.

Related party transactions

There has been no material change in the nature of related party transactions from those described in note 31 of the 2009 Annual Report and Accounts and these are also referred to in note 14 of this Half-Yearly Financial Report.

Risks

Molins is subject to a number of risks which could have a serious impact on the performance of the business.  The Board regularly considers the principal risks that the Group faces and how to mitigate their potential impact.  The key risks to which the business is exposed have not changed significantly over the past six months and are not expected to do so over the remaining six months of the financial year.  Further information on the principal risks and uncertainties faced by the Group is included on pages 9 and 10 of the Group's 2009 Annual Report and Accounts.

Cautionary statement

This Interim management report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  The IMR should not be relied on by any other party or for any other reason.  The IMR contains certain forward-looking statements.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such information should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.  This IMR has been prepared for the Group as a whole and therefore emphasises those matters which are significant to Molins PLC and its subsidiary undertakings when viewed as a whole.

Dividend

The Board has declared an interim dividend in respect of 2010 of 2.5p per ordinary share (2009: 2.5p), which will be paid on 14 October 2010 to shareholders on the register on 17 September 2010.  Dividends paid to shareholders in the six months to 30 June 2010 were 2.5p per ordinary share (2009: 2.5p).

Outlook

As announced in June, order intake in the first period of the year was lower than had been expected.  This resulted in the Board lowering its expectations of full year sales to levels similar to the previous year, and with the different mix in activity levels across the three divisions, the Board's expectation remains that underlying performance in the full year will be lower than that of the previous year.  Following the pattern of previous years, it is expected that performance will be second half weighted.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim financial reporting as adopted by the EU; and
· the Interim management report includes a fair review of the information required by:
	(a)	DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
	(b)	DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Dick Hunter Chief Executive

David Cowen Group Finance Director

27 August 2010

CONDENSED CONSOLIDATED INCOME STATEMENT

		6 months to 30 June 2010				6 months to 30 June 2009
	Notes	Before exceptional items £m	Exceptional Items (note 6) £m	Total £m		Before exceptional items (restated) (note 2) £m	Exceptional Items (note 6) £m	Total (restated) (note 2) £m
Continuing operations Revenue Cost of sales	5	40.3 (29.5)	- (0.1)	40.3 (29.6)		42.2 (30.4)	- (0.2)	42.2 (30.6)
Gross profit   Other operating income Distribution expenses Administrative expenses Other operating expenses		10.8   - (3.6) (6.2) (0.2)	(0.1)   - - - -	10.7   - (3.6) (6.2) (0.2)		11.8   - (3.5) (6.6) (0.3)	(0.2)   0.4 - (0.2) (0.2)	11.6   0.4 (3.5) (6.8) (0.5)
Operating profit	5, 8	0.8	(0.1)	0.7		1.4	(0.2)	1.2
Financial income Financial expenses	7 7	10.6 (9.6)	- -	10.6 (9.6)		8.9 (9.5)	- -	8.9 (9.5)
Net financing income/(expense)	5, 7	1.0	-	1.0		(0.6)	-	(0.6)
Profit before tax   Taxation	5   9	1.8   (0.6)	(0.1)   -	1.7   (0.6)		0.8   (0.3)	(0.2)   -	0.6   (0.3)
Profit from continuing operations		1.2	(0.1)	1.1		0.5	(0.2)	0.3
Discontinued operations
Loss from discontinued operations	10	-	-	-		(0.2)	-	(0.2)
Profit for the period		1.2	(0.1)	1.1		0.3	(0.2)	0.1
Basic earnings per ordinary share	11			5.7p				0.6p
Diluted earnings per ordinary share	11			5.7p				0.6p
Continuing operations
Basic earnings per ordinary share	11			5.7p				1.7p
Diluted earnings per ordinary share	11			5.7p				1.7p

CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)

				12 months to 31 December 2009
		Notes		Before exceptional items £m	Exceptional Items (note 6) £m	Total £m
Continuing operations Revenue Cost of sales		5		83.8 (59.7)	- (0.2)	83.8 (59.9)
Gross profit   Other operating income Distribution expenses Administrative expenses Other operating expenses				24.1   - (7.2) (13.0) (0.4)	(0.2)   0.4 (0.1) (0.3) (0.2)	23.9   0.4 (7.3) (13.3) (0.6)
Operating profit		5, 8		3.5	(0.4)	3.1
	Financial income Financial expenses	7 7		17.8 (18.8)	- -	17.8 (18.8)
	Net financing income/(expense)	5, 7		(1.0)	-	(1.0)
	Profit before tax   Taxation	5   9		2.5   (0.9)	(0.4)   -	2.1   (0.9)
	Profit from continuing operations			1.6	(0.4)	1.2
	Discontinued operations
	Loss from discontinued operations	10		(0.1)	-	(0.1)
	Profit for the period			1.5	(0.4)	1.1
	Basic earnings per ordinary share   Diluted earnings per ordinary share	11   11				5.8p   5.8p
	Continuing operations Basic earnings per ordinary share   Diluted earnings per ordinary share	11   11				6.3p   6.3p

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		6 months to 30 June 2010 £m				6 months to 30 June 2009 £m				12 months to 31 Dec 2009 £m
Profit for the period		1.1			0.1				1.1
Other comprehensive income/(expense) Currency translation movements arising on foreign currency net investments Effective portion of changes in fair value of cash flow hedges Net changes in fair value of cash flow hedges transferred to profit or loss Actuarial losses Tax on items in other comprehensive income/(expense)		0.3 (0.4) (0.2) (25.7) 7.5			(1.1) 0.3 (0.1) (26.1) 7.5				- 0.7 (0.1) (13.2) 3.8
Other comprehensive income/(expense) for the period		(18.5)			(19.5)				(8.8)
Total comprehensive income/(expense) for the period		(17.4)			(19.4)				(7.7)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital £m	Share premium £m	Translation reserve £m	Capital redemption reserve £m	Hedging reserve £m	Retained earnings £m	Total equity £m
6 months to 30 June 2010 Balance at 1 January 2010	5.0	26.0	4.4	3.9	0.5	(8.5)	31.3
Profit for the period Other comprehensive income/(expense) for the period	- -	- -	- 0.3	- -	- (0.5)	1.1 (18.3)	1.1 (18.5)
Total comprehensive income/(expense) for the period	-	-	0.3	-	(0.5)	(17.2)	(17.4)
Dividends to shareholders Equity-settled share-based transactions	- -	- -	- -	- -	- -	(0.5) (0.2)	(0.5) (0.2)
Total transactions with owners, recorded directly in equity	-	-	-	-	-	(0.7)	(0.7)
Balance at 30 June 2010	5.0	26.0	4.7	3.9	-	(26.4)	13.2
6 months to 30 June 2009 Balance at 1 January 2009	5.0	26.0	4.4	3.9	-	0.9	40.2
Profit for the period Other comprehensive income/(expense) for the period	- -	- -	- (1.1)	- -	- 0.2	0.1 (18.6)	0.1 (19.5)
Total comprehensive income/(expense) for the period	-	-	(1.1)	-	0.2	(18.5)	(19.4)
Dividends to shareholders Equity-settled share-based transactions	- -	- -	- -	- -	- -	(0.5) (0.2)	(0.5) (0.2)
Total transactions with owners, recorded directly in equity	-	-	-	-	-	(0.7)	(0.7)
Balance at 30 June 2009	5.0	26.0	3.3	3.9	0.2	(18.3)	20.1
12 months to 31 December 2009 Balance at 1 January 2009	5.0	26.0	4.4	3.9	-	0.9	40.2
Profit for the period Other comprehensive income/(expense) for the period	- -	- -	- -	- -	- 0.5	1.1 (9.3)	1.1 (8.8)
Total comprehensive income/(expense) for the period	-	-	-	-	0.5	(8.2)	(7.7)
Dividends to shareholders Equity-settled share-based transactions	- -	- -	- -	- -	- -	(1.0) (0.2)	(1.0) (0.2)
Total transactions with owners, recorded directly in equity	-	-	-	-	-	(1.2)	(1.2)
Balance at 31 December 2009	5.0	26.0	4.4	3.9	0.5	(8.5)	31.3

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Notes	30 June 2010 £m		30 June 2009 £m		31 Dec 2009 £m
Non-current assets Intangible assets Property, plant and equipment Other receivables Deferred tax assets		14.2 10.6 0.5 11.4		14.2 9.2 0.7 8.3		14.1 9.7 0.5 4.0
		36.7		32.4		28.3
Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents		18.6 15.9 0.3 8.8		16.6 17.6 0.2 10.2		18.1 17.6 0.1 10.2
		43.6		44.6		46.0
Current liabilities Bank overdrafts Trade and other payables Current tax liabilities Provisions		(0.1) (19.9) (0.9) (1.6)		- (18.5) (0.8) (2.5)		- (20.5) (0.8) (1.9)
		(22.5)		(21.8)		(23.2)
Net current assets		21.1		22.8		22.8
Total assets less current liabilities		57.8		55.2		51.1
Non-current liabilities Interest-bearing loans and borrowings Trade and other payables Employee benefits Deferred tax liabilities	8	(4.8) - (39.7) (0.1)		(7.6) (0.1) (27.4) -		(5.2) - (14.5) (0.1)
		(44.6)		(35.1)		(19.8)
Net assets	5	13.2		20.1		31.3
Equity Issued capital Share premium Reserves Retained earnings		5.0 26.0 8.6 (26.4)		5.0 26.0 7.4 (18.3)		5.0 26.0 8.8 (8.5)
Total equity		13.2		20.1		31.3

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	Notes	6 months to 30 June 2010 £m		6 months to 30 June 2009 (restated) (note 2) £m		12 months to 31 Dec 2009 £m
Continuing operations Operating activities Operating profit Exceptional items included in operating profit Amortisation Impairment charge Depreciation Pension service costs Other non-cash items Pension payments Working capital movements:   - increase in inventories   - decrease in trade and other receivables   - decrease in trade and other payables   - increase in provisions		0.7 0.1 0.7 - 0.9 0.6 (0.2) (0.4) (0.5) 1.6 (1.0) 0.2		1.2 0.2 0.6 - 0.9 0.5 (0.2) (0.4) - 3.8 (3.3) 0.3		3.1 0.4 1.3 0.1 1.8 1.0 (0.2) (0.8) (0.7) 5.0 (1.6) -
Cash generated from operations before reorganisation   Reorganisation costs paid		2.7 (0.2)		3.6 (0.5)		9.4 (1.2)
Cash generated from operations   Taxation paid		2.5 (0.5)		3.1 (0.3)		8.2 (0.2)
Net cash from operating activities		2.0		2.8		8.0
Investing activities Interest received Net (payments)/proceeds from sale of Saunderton site Proceeds from sale of other property, plant and equipment Acquisition of property, plant and equipment Development expenditure		0.1 (0.4) - (1.7) (0.5)		- 0.5 1.0 (0.5) (0.5)		0.1 0.5 1.1 (1.6) (1.1)
Net cash from investing activities		(2.5)		0.5		(1.0)
Financing activities Interest paid Repayment of term loans Net (decrease)/increase against revolving facilities Dividends paid	12	(0.1) - (0.4) (0.5)		(0.1) (0.2) 1.1 (0.5)		(0.2) (0.2) (2.0) (1.0)
Net cash from financing activities		(1.0)		0.3		(3.4)
Discontinued operations Net cash from investing activities		-		(0.2)		(0.4)
Net cash from discontinued operations		-		(0.2)		(0.4)
Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash held	13	(1.5) 10.2 -		3.4 6.9 (0.1)		3.2 6.9 0.1
Cash and cash equivalents at period end		8.7		10.2		10.2

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

1.  General information

The half-year results for the current and comparative period are unaudited but have been reviewed by the auditors, KPMG Audit Plc, and their report is set out on page 17.  The comparative figures for the financial year ended 31 December 2009 are not the Group's statutory accounts as defined in section 434 of the Companies Act 2006.  The comparative figures for the financial year ended 31 December 2009 have been extracted from the Group's statutory accounts for that year.  The Group's statutory accounts have been reported on by the Group's auditors and delivered to the Registrar of Companies.  The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.  The Group's statutory accounts for the year ended 31 December 2009 are available from the Company's registered office at Rockingham Drive, Linford Wood East, Milton Keynes MK14 6LY or from the Group's website at www.molins.com.

Having made due enquiries the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the condensed set of financial statements.

The condensed set of financial statements was approved by the Board of directors on 27 August 2010.

2.  Accounting policies

The condensed set of financial statements for the six months ended 30 June 2010 has been prepared in accordance with IAS 34 Interim financial reporting as adopted by the EU and the Disclosure and Transparency Rules of the UK's Financial Services Authority.  It does not include all of the information required for full annual financial statements, and should be read in conjunction with the financial statements of the Group for the year ended 31 December 2009.

The accounting policies, presentation and methods of computation applied by the Group in this condensed set of financial statements are the same as those applied in the Group's latest audited financial statements.

Change in accounting policy

In reporting periods prior to the year ended 31 December 2009 the net pension cost/credit in respect of the Group's pension schemes had been charged/credited within operating profit in the consolidated income statement.  For the year ended 31 December 2009 the Group changed its policy to include the expected return on scheme assets and the interest cost on scheme obligations within financial income and financial expenses respectively.  The comparative figures for the period ended 30 June 2009 have been restated accordingly, resulting in an increase in operating profit of £0.5m and a corresponding increase of £0.5m in net financing expense.

To aid the understanding of performance, the Group's definition of underlying operating profit was changed for the year ended 31 December 2009 and subsequent periods, to include the service cost of providing pension benefits to employees.  Similarly, the underlying earnings per share definition was changed to only exclude exceptional items and net financing income/expense on pension scheme balances, as well as discontinued operations.  The comparative figures for the period ended 30 June 2009 have been restated to include the pension service cost of £0.5m, resulting in a decrease of £0.5m in underlying operating profit and a decrease of 1.9p in underlying earnings per share.

3.  Estimates

The preparation of the condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

In preparing the condensed set of financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those that applied to the financial statements for the year ended 31 December 2009.

4.  Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the financial statements for the year ended 31 December 2009.

5.  Operating segments

The Group has three operating segments which are the Group's three divisions.  These divisions form the basis of the Group's management and internal reporting structure.  Further details in respect of the Group structure and performance of the three divisions are set out in the Interim management report. 

	Revenue						Operating profit/(loss)
	6 months to 30 June 2010 £m		6 months to 30 June 2009 £m		12 months to 31 Dec 2009 £m		6 months to 30 June 2010 £m		6 months to 30 June 2009 (restated) (note 2) £m		12 months to 31 Dec 2009 £m
Continuing operations
Tobacco Machinery	15.3		18.7		36.0		(0.4)		1.5		2.9
Packaging Machinery	15.0		13.3		25.8		0.4		(1.3)		(1.9)
Scientific Services	10.0		10.2		22.0		0.8		1.2		2.5
	40.3		42.2		83.8
Underlying operating profit							0.8		1.4		3.5
Exceptional items							(0.1)		(0.2)		(0.4)
Operating profit							0.7		1.2		3.1
Net financing income/(expense)							1.0		(0.6)		(1.0)
Profit before tax							1.7		0.6		2.1

Net financing income/expense includes dividends paid on preference shares.  The Company has in issue 900,000 6% fixed cumulative preference shares.  The preference dividend is payable on 30 June and 31 December and amounted to £0.1m in the 12 months ended 31 December 2009.

Segment assets	30 June 2010 £m		30 June 2009 (restated) £m		31 Dec 2009 £m
Tobacco Machinery Packaging Machinery Scientific Services	27.5 15.2 9.3		22.9 16.5 10.3		26.5 16.7 8.7
Total segment assets Total segment liabilities	52.0 (23.5)		49.7 (20.8)		51.9 (23.4)
Segment net assets - continuing operations	28.5		28.9		28.5
Net liabilities - discontinued operations	(0.2)		(0.5)		(0.2)
Unallocated net (liabilities)/assets	(15.1)		(8.3)		3.0
Total net assets	13.2		20.1		31.3

There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2009.  The Group's policy for the measurement of segment assets and liabilities changed for the year ended 31 December 2009 and subsequent periods.  Segment net assets at 30 June 2009 have been restated accordingly to exclude central items that are not allocated to the three divisions in the Group's internal management accounts.

6.  Exceptional items

The exceptional charge of £0.1m in the 6 months to 30 June 2010 comprises reorganisation costs in the Tobacco Machinery division.  Cash payments of £0.2m were made in the period in respect of this reorganisation and reorganisation costs charged in 2009 relating to the Packaging Machinery division.

The exceptional net charge of £0.2m in the 6 months to 30 June 2009 (12 months to 31 December 2009: £0.4m) included costs of £0.5m (12 months to 31 December 2009: £0.7m) related to reorganisations carried out within the Tobacco Machinery and Packaging Machinery divisions, and costs of £0.1m (12 months to 31 December 2009: £0.1m) in relation to the preparation for the relocation of the Tobacco Machinery business based at Saunderton.  In addition, profit of £0.4m (12 months to 31 December 2009: £0.4m) on the sale of a property in the Netherlands was realised in the period. In the 6 months to 30 June 2009 cash payments of £0.5m (12 months to 31 December 2009: £1.2m) were made in respect of reorganisation costs.

7.  Net financing income/expense

	6 months to 30 June 2010 £m		6 months to 30 June 2009 (restated) (note 2) £m		12 months to 31 Dec 2009 £m
Financial income: Expected return on pension scheme assets Amounts receivable on cash and cash equivalents	10.5 0.1		8.9 -		17.7 0.1
	10.6		8.9		17.8
Financial expenses: Interest cost on pension scheme obligations Amounts payable on bank loans and overdrafts Preference dividends paid	(9.5) (0.1) -		(9.4) (0.1) -		(18.6) (0.1) (0.1)
	(9.6)		(9.5)		(18.8)
Net financing income/(expense)	1.0		(0.6)		(1.0)

8.  Employee benefits

The Group accounts for pensions under IAS 19 (revised) Employee benefits.  A formal valuation of the UK defined benefit pension scheme was carried out as at 30 June 2009 and its assumptions, modified as appropriate, have been applied in the condensed set of financial statements, updated to reflect actual experience and conditions at 30 June 2010.  Operating profit includes the aggregate cost of providing pension benefits to active members for the 6 months to 30 June 2010 of £0.6m (6 months to 30 June 2009: £0.5m; 12 months to 31 December 2009: £1.0m).  In addition, profit before tax for the 6 months to 30 June 2010 includes net financing income on pension scheme balances of £1.0m (6 months to 30 June 2009: £0.5m expense; 12 months to 31 December 2009: £0.9m expense).

Employee benefits include the net pension liability of the UK defined benefit pension scheme of £34.7m (30 June 2009: £24.3m; 31 December 2009: £11.4m) and the net pension liability of the US defined benefit pension schemes of £5.0m (30 June 2009: £3.1m; 31 December 2009: £3.1m), all figures before tax. The value of the assets held by the UK scheme at 30 June 2010 was £301.9m (31 December 2009: £313.0m) and the value of the liabilities increased to £336.6m (31 December 2009: £324.4m).  The value of the assets held by the US schemes at 30 June 2010 was £14.1m (31 December 2009: £13.5m) and the value of the liabilities was £19.1m (31 December 2009: £16.6m).

9.  Taxation

The Group tax charge on continuing operations for the 6 months to 30 June 2010 amounted to £0.6m (6 months to 30 June 2009: £0.3m; 12 months to 31 December 2009: £0.9m) and is calculated as follows:

	6 months to 30 June 2010 £m		6 months to 30 June 2009 (restated) (note 2) £m		12 months to 31 Dec 2009 £m
Tax charge on underlying profit Tax charge/(credit) on pension scheme balances	0.3 0.3		0.5 (0.2)		1.2 (0.3)
Taxation	0.6		0.3		0.9

The Group's consolidated effective tax rate in respect of underlying profit for the 6 months to 30 June 2010 is 42% (6 months to 30 June 2009: 38%; 12 months to 31 December 2009: 37%).

The Finance Bill 2010, which contains draft legislation for some of the proposals announced by the Chancellor in the 22 June 2010 Budget, was published on 1 July 2010. The Finance Bill 2010 introduces a reduction in the rate of UK corporation tax from 28% to 27% from 1 April 2011.  Deferred tax assets and liabilities are measured at tax rates that are enacted or substantively enacted at the end of the reporting period and therefore the reduction in the corporate tax rate from 28% to 27% has not been taken into account in the calculation of the effective tax rate applied in this condensed set of financial statements.

10.  Discontinued operations

The loss from discontinued operations for the 6 months to 30 June 2009 of £0.2m (12 months to 31 December 2009: £0.1m) comprised aggregate charges in respect of a dilapidations claim on a former Group site in Nottingham and a third-party claim that relates to a former Group business but for which Molins retains responsibility.

11.  Earnings per share

Basic earnings per ordinary share is based upon the profit for the period and on a weighted average of 18,968,324 shares in issue during the period (6 months to 30 June 2009: 18,968,324; 12 months to 31 December 2009: 18,968,324).  The weighted average number of shares excludes shares held by the employee trust in respect of long-term incentive and other benefits.

Diluted earnings per ordinary share is based upon the profit for the period and on a diluted weighted average of 18,968,324 shares in issue during the period (6 months to 30 June 2009: 18,968,324; 12 months to 31 December 2009: 18,968,324).  The diluted weighted average number of shares includes the diluting effect, if any, of own shares held by the employee trust and of share options.

Underlying earnings per ordinary share, which is calculated on profit from continuing operations before exceptional items and net financing income/expense on pension scheme balances, amounted to 2.5p for the 6 months to 30 June 2010 (6 months to 30 June 2009: 4.1p; 12 months to 31 December 2009: 11.3p).  The calculation of underlying earnings per ordinary share is based on underlying profit for the 6 months to 30 June 2010 of £0.5m (6 months to 30 June 2009: £0.8m; 12 months to 31 December 2009: £2.2m) and is calculated as follows:

	6 months to 30 June 2010 £m		6 months to 30 June 2009 (restated) (note 2) £m		12 months to 31 Dec 2009 £m
Basic profit for the period Net financing (income)/expense on pension scheme balances (net of tax) Exceptional items (net of tax) Loss from discontinued operations	1.1 (0.7) 0.1 -		0.1 0.3 0.2 0.2		1.1 0.6 0.4 0.1
Underlying profit for the period	0.5		0.8		2.2

12.  Dividends

	6 months  to 30 June  2010  £m		6 months  to 30 June  2009  £m		12 months  to 31 Dec  2009  £m
Dividends to shareholders paid in the period: Final dividend for the year ended 31 December 2008 of 2.5p per share Interim dividend for the year ended 31 December 2009 of 2.5p per share Final dividend for the year ended 31 December 2009 of 2.5p per share	-   -   0.5		0.5   -   -		0.5   0.5   -
	0.5		0.5		1.0

An interim dividend for the year ending 31 December 2010 of 2.5p per ordinary share will be paid on 14 October 2010 to shareholders on the register on 17 September 2010.

13.  Reconciliation of net cash flow to movement in net funds/(debt)

	6 months to 30 June 2010 £m		6 months to 30 June 2009 £m		12 months to 31 Dec 2009 £m
Net (decrease)/increase in cash and cash equivalents Cash inflow/(outflow) from movement in borrowings	(1.5) 0.4		3.4 (0.9)		3.2 2.2
Change in net funds/(debt) resulting from cash flows	(1.1)		2.5		5.4
Translation movements	-		0.5		-
Movement in net funds/(debt) in the period	(1.1)		3.0		5.4
Opening net funds/(debt)	5.0		(0.4)		(0.4)
Closing net funds	3.9		2.6		5.0
Analysis of net funds
Cash and cash equivalents - current assets	8.8		10.2		10.2
Bank overdrafts - current liabilities	(0.1)		-		-
Interest-bearing loans and borrowings - non-current liabilities	(4.8)		(7.6)		(5.2)
Closing net funds	3.9		2.6		5.0

14.  Related parties

The Group has related party relationships with its directors and with the UK and US pension schemes. There has been no material change in the nature of the related party transactions described in note 31 of the 2009 Annual Report and Accounts.

15.  Half-Yearly Financial Report

The Half-Yearly Financial Report will be sent to all shareholders in September 2010 and additional copies will be available from the Company's registered office at Rockingham Drive, Linford Wood East, Milton Keynes MK14 6LY or from the Group's website at www.molins.com.

INTERIM REVIEW REPORT TO MOLINS PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2010 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The Half-Yearly Financial Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly Financial Report in accordance with the DTR of the UK FSA.

The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

M Matthewman
for and on behalf of KPMG Audit Plc

Chartered Accountants
Altius House

One North Fourth Street

Milton Keynes

MK9 1NE

27 August 2010

 

END

 

 

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