Interim Results

ANDREWS SYKES GROUP PLC 14 October 1999 INTERIM RESULTS FOR THE SIX MONTHS ENDED 26 JUNE 1999 Chairman's Statement The salient points of the accounts for the six months ended 26 June 1999 are as follows: £000 Turnover increased by 30.8 % to 44,238 EBITDA increased by 39.8% to 11,946 Operating profit before exceptional items and goodwill amortisation increased by 2.6% to 5,811 Adjusted fully diluted earnings per share declined by 3.5 % to 3.83 p Net assets increased by 10.4 % to 24, 596 Interim dividend increased by 20% per share to 1.44 p Financial Turnover of the Group for the six months ended 26 June 1999 increased 30.8 per cent from £33,817,000 to £44,238,000. Despite a small increase in operating profit before exceptional items and goodwill amortisation the profit before tax declined from £5,938,000 to £2,189,000 mainly due to exceptional items which have a year on year difference of £2,401,000 and disappointing weather related trading conditions in our air conditioning activity during the months of May and June. The exceptional items and one off costs relate to the out of court settlement of a nine year old dispute and a potential liability in excess of £5 million with Sterling Fluid Products Ltd (Sterling), provision against overseas stock levels and abortive acquisition activities. The settlement removes a significant contingent liability from our accounts but much more importantly, we have re-established our exclusive rights, previously granted to Sterling, to use the Sykes Pumps name world-wide and the sole rights to market Sykes Pumps. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) remain very strong, the 39.8 per cent increase being mainly attributable to the inclusion of Cox for a full six months. In the last twelve months we have reduced net group debt by £11.3 million which has reduced the gearing from 195 per cent to 131 per cent. We intend to continue our policy of rapid debt repayment in order to position the company for further acquisitions. The strong cash flow further allows us to continually invest in our modern fleet and to develop key specialist high margin hire products. Management After a disappointing below expectations first half, there have been a number of significant changes. After the end of the period under review Mr Eric Hook resigned as chief executive. Also, the company has terminated the employment of Mr Simon Harbridge, the company secretary. We have taken the necessary actions to appoint several energetic key individuals to grow the turnover and profitability of our business. The Chief Executive Officer selection process is nearly finalised and an announcement will be made in due course. In the meantime, John Hall, our Group UK Operations Director will continue to assume the role of Interim Group Managing Director. Following a review of our management controls we intend also to appoint a Financial Director, a position currently being undertaken on an interim basis by Director, Jean-Christophe Pillois. Among other new appointments, we have created and filled a new management position of International Business Manager in view of the increasing importance of our overseas business which now represents in annualised turnover in excess of £9 million and approximately 13 per cent of group operating profit before exceptional items and goodwill amortisation. Prospects Our projections for the second half are promising. Following the first half, appropriate corrective measures have been taken. We are confident in the future profitability of our company, and the board of directors has recommended an increase of 20 per cent in the interim dividend to 1.44p per share. JG Murray Chairman For further information please contact Jean-Jacques Murray, Director Andrews Sykes Group plc Tel 0171 409 0258 Issued by John Goold Shandwick International Tel 0171 329 0096 Andrews Sykes Group plc Group Profit and Loss Account For the six months ended 26 June 1999 6 months ended 6 months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Turnover 44,238 33,817 83,814 Cost of Sales (26,393) (18,874) (48,178) --------- --------- --------- Gross profit 17,845 14,943 35,636 Net operating expenses (14,067) (8,731) (22,029) (including exceptional items set out in note 3) --------- --------- --------- Group operating profit 3,778 6,212 13,607 ----------------------------------------------------------------------------- EBITDA* 11,946 8,545 23,247 Depreciation, asset disposals and property revaluation (6,135) (2,879) (9,465) -------- -------- -------- Operating profit before 5,811 5,666 13,782 exceptionals and amortisation of goodwill Exceptional items (1,816) 585 81 Amortisation of goodwill (217) (39) (256) --------- -------- -------- Group operating profit 3,778 6,212 13,607 ========= ========= ========= ----------------------------------------------------------------------------- Share of operating (loss) / profit of associates (7) 76 122 Income from other participating interests - - 459 Net interest payable (1,582) (350) (2,138) --------- -------- --------- Profit on ordinary activities before tax 2,189 5,938 12,050 Tax on profit on ordinary activities (737) (1,871) (3,810) --------- --------- --------- Profit on ordinary activities after taxation 1,452 4,067 8,240 being profit for the financial period Dividends: Ordinary shares (1,328) (987) (2,980) Convertible preference shares (186) (239) (460) -------- -------- -------- Retained (loss) / profit for the period (62) 2,841 4,800 ======== ======== ======== Earnings per ordinary share 1.53 4.88 9.67 Fully diluted earnings per ordinary share 1.47 4.59 9.14 Exceptional items 2.11 (0.66) (0.09) Amortisation of goodwill 0.25 0.04 0.28 -------- ------- -------- Adjusted fully diluted earnings per ordinary share 3.83 3.97 9.33 ======== ======= ======== Dividends per share: Preference 3.50 3.50 7.00 Ordinary 1.44 1.20 3.60 There were no significant acquisitions or discontinued operations during the period. Earnings Before Interest, Taxation, Depreciation, and Amortisation excluding exceptional items and goodwill amortisation. Andrews Sykes Group plc Consolidated Balance Sheet As at 26 June 1999 26 June 27 June 26 December 1999 1998 1998 £'000 £'000 £'000 Fixed assets Intangible assets 7,635 7,988 7,852 Tangible assets 39,057 51,086 44,125 Investments 578 371 515 -------- -------- ------- 47,270 59,445 52,492 -------- -------- ------- Current assets Stocks 8,165 9,074 9,392 Debtors 24,374 25,973 24,075 Cash at bank and in hand 5,543 3,941 10,171 ------- ------- ------- 38,082 38,988 43,638 Creditors falling due within one year Loans and overdrafts (7,500) ( 7,382) (8,723) Other creditors and provisions (19,192) (22,123) (22,780) Deferred consideration (600) (7,200) (7,100) Corporation and overseas tax (2,728) (3,903) (3,633) ------- ------- ------- Net current assets / (liabilities) 8,062 (1,620) 1,402 ------- ------- ------- Total assets less current liabilities 55,332 57,825 53,894 Creditors falling due after more than one year Loans (29,453) (32,128) (28,003) Other creditors and provisions (1,203) (1,160) (1,230) Deferred consideration - (600) - Corporation tax (80) (1,655) - -------- -------- ------- Net assets 24,596 22,282 24,661 -------- -------- ------- Capital and reserves Called up share capital 19,737 19,847 19,739 Share premium account 8,168 8,028 8,168 Revaluation reserve 776 353 787 Other reserves 284 270 278 Profit and loss account (4,379) (6,226) (4,321) -------- -------- -------- 24,586 22,272 24,651 Shareholders' funds -------- -------- -------- Equity 21,402 18,863 21,467 Non equity 3,184 3,409 3,184 -------- -------- -------- 24,586 22,272 24,651 Minority interests (equity) 10 10 10 -------- -------- -------- 24,596 22,282 24,661 -------- -------- -------- Analysis of net debt Cash at bank and in hand 5,543 3,941 10,171 Deferred consideration (600) (7,800) (7,100) Total loans, overdrafts and (37,179) (39,661) (37,055) finance lease obligations -------- -------- -------- Net debt (32,236) (43,520) (33,984) -------- -------- -------- Net debt as a percentage of shareholders' funds 131% 195% 138% -------- -------- -------- Andrews Sykes Group plc Consolidated cash flow statement For the six months ended 26 June 1999 6 months 6 months 12 months ended ended ended 26 June 1999 27 June 1998 26 December 1998 Total Total Total £'000 £'000 £'000 Net cash inflow from operating activities 8,112 5,642 21,554 ------- ------- ------- Returns on investments and servicing of finance Debt issue costs - (680) (953) Net interest paid (1,975) (188) (1,228) Dividends received - - 459 Preference dividends paid (223) (239) (462) Interest element of finance lease payments (15) (21) (38) -------- -------- -------- Net cash outflow for returns on investments and servicing of finance (2,213) (1,128) (2,222) -------- -------- -------- Cash outflow for taxation (1,095) (681) (3,714) -------- -------- -------- Capital expenditure Purchase of tangible fixed assets (1,853) (2,625) (6,266) Purchase of shares held in ESOP (70) - - Sale of tangible fixed assets 871 399 4,023 -------- -------- -------- Net cash outflow for capital expenditure (1,052) (2,226) (2,243) -------- -------- -------- Acquisitions Purchase of subsidiary undertakings - (44,236) (45,379) Net cash acquired with subsidiary undertakings - 359 359 Payment of deferred consideration on previous acquisitions (6,500) (46) (46) Purchase of interests in associates - (58) (156) -------- -------- -------- Net cash outflow for acquisitions (6,500) (43,981) (45,222) --------- -------- --------- Equity dividends paid (1,987) (1,547) (2,541) --------- -------- --------- Cash outflow before the use of liquid resources and financing (4,735) (43,921) (34,388) --------- -------- --------- Management of liquid resources Movement in bank deposits (313) (88) 2,080 --------- -------- --------- Financing Issue of ordinary share capital net of issue costs - 8,236 8,276 New loan draw downs and factoring advances 3,900 37,857 37,823 Loan repayments (3,673) (2,472) (5,922) Net Capital element of finance lease payments (91) (87) 91 Purchase of own shares (17) - (85) -------- -------- -------- Net cash inflow from financing 119 43,534 40,183 -------- -------- -------- (Decrease) / increase in cash in the period (4,929) (475) 7,875 -------- -------- -------- Andrews Sykes Group plc Notes to the accounts For the six months ended 26 June 1999 1.The interim report for the six months ended 26 June 1999 was approved by the board on 13 October 1999. The financial information contained in this interim report does not constitute statutory accounts for the Group for the relevant periods. The interim report is unaudited but has been reviewed by the auditors. The results for the 12 months ended 26 December 1998 have been extracted from the audited financial statements that have been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. Segmental analysis The Group's turnover may be analysed between the following principal products and activities: Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Product group: Pumps 12,085 11,681 23,389 Heating and 4,700 4,472 9,553 ventilation Air-conditioning 7,952 10,105 22,487 General plant 14,640 2,805 19,023 Other 4,861 4,754 9,362 --------- -------- -------- Total 44,238 33,817 83,814 --------- -------- -------- Activity: Hire 28,076 17,280 47,988 Sales 10,792 10,208 23,057 Installation 5,370 6,329 12,769 -------- -------- -------- Total 44,238 33,817 83,814 -------- -------- -------- The geographical analysis of the Group's turnover by origin was as follows: Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 United Kingdom 39,826 30,623 75,413 Rest of Europe 1,206 951 3,078 Middle East and Africa 1,938 1,949 4,064 The Americas 436 294 1,073 Far East 832 - 186 -------- ------- ------- 44,238 33,817 83,814 -------- ------- ------- The results can be further analysed by class of business : Profit before exceptionals Execptionals Group Turnover & goodwill & goodwill operating profit £'000 £'000 June 1999 Pumps, heating, ventilation, air- conditioning and other 29,598 4,368 (1,823) 2,545 General Plant 14,640 1,443 (210) 1,233 ------- -------- -------- --------- 44,238 5,811 (2,033) 3,778 ------- -------- -------- --------- June 1998 Pumps, heating, ventilation, air- conditioning and other 31,012 5,495 1,055 6,550 General Plant 2,805 171 (509) (338) ------- -------- ------- ------- 33,817 5,666 546 6,212 ------- -------- ------- ------- December 1998 Pumps, heating, ventilation, air- conditioning and other 64,791 12,095 1,059 13,154 General Plant 19,023 1,687 (1,234) 453 ------- ------- ------- ------- 83,814 13,782 (175) 13,607 ------- ------- ------- ------- 3. Exceptional items Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Sterling contractual settlement costs (1,432) - - Redundancy and reorganisation (217) (485) (989) Release of bonus provisions - 1,370 1,370 Abortive costs (167) (300) (300) -------- -------- -------- (1,816) 585 81 -------- -------- -------- Under agreements entered into in 1989, Sterling Fluid Power Products Limited ('Sterling') manufactured Sykes Pumps for the group. The agreements, which contained a minimum annual purchase obligation, were terminated in 1995 and Sterling claimed £4.9 million in settlement plus additional interest and costs. The dispute has been settled out of court with a total payment due to Sterling of £3 million and has re-established the exclusive rights which had been granted to Sterling by Andrews Sykes' previous management to use the Sykes Pumps name in the U S A, Iran, Iraq, and the sole right to market Sykes Pumps in those territories. The settlement has given rise to the above exceptional charge after provisions made in previous years and is inclusive of costs 4. Reconciliation of operating profit to net cash inflow from operating activities Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Operating profit 3,778 6,212 13,607 Amortisation of goodwill 217 39 256 Depreciation and deficit on property revaluations 6,156 2,958 9,544 (Profit) on sale of fixed assets (21) (79) (79) Decrease / (increase) in stocks 1,227 (1,489) (1,807) (Increase)/decrease in debtors (952) (1,509) (911) (Decrease)/increase in creditors and provisions (2,293) (490) 944 --------- -------- -------- Net cash inflow from operating activities 8,112 5,642 21,554 --------- -------- -------- Andrews Sykes Group plc Notes to the accounts For the six months ended 26 June 1999 5. Earnings per share The basic figures have been calculated by reference to the weighted average number of 20p ordinary shares in issue during the period of 82,766,023 (6 months ended 27 June 1998: 78,481,271) after adjusting for the bonus element of the open offer. The earnings are the Group's profit after taxation and preference dividends. The calculation of the diluted earnings per ordinary share is based on diluted earnings of £1,266,000 (6 months ended 27 June 1998: £4,067,000) and on 86,118,661 (6 months ended 27 June 1998: 88,551,554) ordinary shares calculated as follows: Six months ended Six months ended 26 June 1999 27 June 1998 -------------------------------------------------- Earnings No. of shares Earnings No. of shares £'000 £'000 £'000 £'000 Basic earnings/weighted average number of shares 1,266 82,766,023 3,828 78,481,271 Weighted average number of shares under option 5,311,518 3,759,607 Number of shares that would have been issued at fair value (1,958,880) (1,265,294) Dividend saving/weighted average number of ordinary shares arising on the conversation of the preference shares 239 7,575,970 ------- --------- ------- --------- Diluted earnings/weighted average number of shares 1,266 86,118,661 4,067 88,551,554 -------- ---------- -------- ------------ Diluted earnings per ordinary share (pence) 1.47p 4.59p -------- ---------- -------- ------------ No account has been taken of the conversion of the preference shares in the six months ended 26 June 1999 as the conversion is not dilutive. The adjusted earnings per share excluding goodwill amortisation and exceptional items is based upon the weighted average number of ordinary shares as set out in the table above. The earnings can be reconciled to the diluted earnings as follows: Six months ended Six months ended 26 June 27 June 1999 1998 Total Total £'000 £'000 Diluted earnings 1,266 4,067 Goodwill amortisation 217 39 Net exceptional charge/(credit) 1,816 (585) --------- --------- Adjusted diluted earnings 3,299 3,521 --------- --------- Adjusted diluted earnings per ordinary share (pence) 3.83p 3.97p --------- --------- Andrews Sykes Group plc Notes to the accounts For the six months ended 26 June 1999 6. Consolidated statement of total recognised gains and losses Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Profit for the financial period 1,452 4,067 8,240 Currency translation differences on foreign currency net investments 14 (9) 49 Surplus on the revaluation of freehold and long leasehold properties - - 407 --------- --------- --------- Total gains and losses in the period 1,466 4,058 8,696 --------- -------- --------- 7. Reconciliation of movements in group shareholders' funds Six months ended Six months ended 12 months ended 26 June 27 June 26 December 1999 1998 1998 Total Total Total £'000 £'000 £'000 Profit for the 1,452 4,067 8,240 financial period Dividends (1,514) (1,226) (3,440) Other recognised gains 14 (9) 49 and losses Proceeds from ordinary - 8,236 8,276 shares issued Consideration on the purchase of own shares (17) - (85) Surplus on the revaluation of freehold and long leasehold properties - - 407 ----------- ---------- ---------- Net (decrease) / increase in shareholders' funds (65) 11,068 13,447 Shareholders' funds at the beginning of the period 24,651 11,204 11,204 ----------- ---------- ---------- Shareholders' funds at the end of the period 24,586 22,272 24,651 ----------- ---------- ---------- 8. A copy of this statement will be posted to all shareholders and is available from the Company's registered office at Premier House, Darlington Street, Wolverhampton, WV1 4JJ. KPMG Audit Plc 2 Cornwall Street Birmingham B3 2DL Independent review by KPMG Audit Plc to Andrews Sykes Group plc Introduction We have been instructed by the company to review the financial information set out on pages 3 to 8 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Audit Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 26 June 1999. KPMG Audit Plc Chartered Accountants Registered Auditor

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