Final Results - Year Ended 30 September 1999

Brooke Industrial Holdings PLC 21 December 1999 BROOKE INDUSTRIAL HOLDINGS PLC PRELIMINARY ANNOUNCEMENT The period covered by this report has been one of continuous activity and change for Brooke Industrial, with acquisitions in South Africa, the U.S.A. and the U.K., a successful defence to a hostile bid and the completion of a major programme of capital investment and continuing divisional re-structuring. The high cost of defending the hostile bid extended beyond the professional fees incurred to an unmeasurable impact, particularly in our carbide division, associated with employment uncertainties and customer confidence. Throughout this disruption your Board did not lose sight of the importance of completing the group re-structuring programme which was expanded to encompass further cost saving opportunities resulting from the acquisition of Somta Tools in South Africa and its subsidiaries in the U.S.A. and the U.K. The second half of the year saw an increase in turnover as a result of improvements in export sales and the acquisition of Somta. Sales at £27.7m (1998: 29.1m) were 5% below last year. Second half margins improved but at 23.6% for the year as a whole were 2.7% down on the previous year; principally as a result of pricing pressures occasioned by the strong pound sterling. A combination of second half margin improvement, cost reduction and the acquisition of Somta resulted in the Group making an operating profit before exceptional items in the second half of £331,000. The operating loss for the year, before exceptional items, was £22,000 (1998: £1,805,000 profit). Exceptional and non recurring costs of £660,000 comprised the hostile bid defence costs of £343,000 and other rationalisation costs of £317,000 as operating divisions were being restructured. The tax credit arising from UK losses is £172,000, having been reduced by the impact of tax losses brought and carried forward and exacerbated by non allowable items. Full tax at £110,000 is payable on profits generated in South Africa. The net tax credit of £62,000 represents an effective rate of 4.7% (1998: 27.2%). The directors appreciate the support that shareholders have given the company during the year and look forward to improved trading. The Board feels able to recommend an unchanged final dividend of 3.5p (1998:3.5p) to be paid on 10 April 2000 to shareholders on the register at 10 March 2000. This makes a total dividend for the year of 5.25p per share (1998:5.25p). The acquisition of Somta and APW's building in Warrington, along with the costs of defending the unwelcome and opportunistic bid for your Group were all financed by borrowings. The Group's plans to realise values in certain assets, via disposals, would allow an accelerated reduction in total borrowings. Acquisitions On 9th June 1999, the Group completed the acquisition of the business of Somta Tools and its subsidiaries for £5,222,000 (including costs) of which £2,000,000 was on deferred terms. The worldwide opportunities presented by this acquisition have met the expectations of your Board and in a full year will add around £10,000,000 to Group sales at a margin unattainable in our European operations. The Somta subsidiaries in Chicago, U.S.A and Rotherham, U.K. have already been amalgamated with existing Brooke operations in these locations and are beginning to show the expected activity improvement and cost savings. Somta's extensive product range will be distributed, in the Northern Hemisphere, from Brooke Cutting Tools' newly extended distribution and call centre in Rotherham. This is an exciting development for the Group and becomes fully operational in January 2000. On 14th May 1999 the Group purchased the 3.46 acre industrial site in Warrington occupied by APW Limited for £1,877,000 (including costs). The full price paid for this site partly reflects its potential for retail development. This potential is presently being investigated and in due course may prove to be beneficial to the Group. Disposals The Board recognises the need to investigate all strategic proposals which would maximise shareholder value. As a result of rationalisation and re-structuring, following the recent acquisitions, a number of assets are now, or will soon become, available for disposal. Accordingly, the Group is in touch with interested parties and the Board expects to be able to make further announcements regarding this in the near future. Trading The cutting tool division, following the acquisitions, now has over 26,000 product lines. It is consolidating its position in Europe and is positioned to become a leading player in world markets. In the coming year sales from this division will represent around 50% of group turnover. The newly acquired companies, during the four months of ownership, operated profitably and to expectations. The carbide division operates within a sector which, globally, has experienced trading volumes substantially lower than the previous year. The cause of this was primarily the reduced activity levels in the oil industry and the resultant spin off into the gas and petrochemical industries. The Group's focus on precision wear parts for high cost oil field installations, where investment was particularly low, exacerbated the problem. The two companies that form this division, now operating as Brooke Hard Materials, have recently seen a significant up turn in order input levels and this, coupled with strategic co-operation agreements with other companies trading in similar fields, allows an improved level of cautious optimism for the coming year. The spring division continued to trade profitably during the financial year, with further growth in our after market distribution business in Europe, through the group's Suplex brand. The UK distribution business has been separated from the manufacturing business and moved into alternative Group premises in December 1999. This will enable its parallel development with Suplex in Germany under the same management team as the German company. Turton Tonks Springs Limited, the group's industrial spring manufacturer, has strengthened its commercial team and has consolidated its manufacturing on one site. With marketing initiatives, particularly in the railway industry, we look forward to a year of growth. The metal parts division, which encompasses our APW manufacturing site in Warrington and the seven Perfast distribution depots throughout the country, has also been trading in a difficult sector and was unable to make the progress anticipated. During the year a systems failure, which was unable to be supported by the system's supplier due to its being in receivership, served to compound Perfast's under performance and significantly delay the development programme. However, the management and the Board have confidence in the concept and are now pushing forward with their plans for fully interactive CD Rom catalogues and on-line sales. Outlook The distractions of last year required a level of effort and dedication from Group management and employees beyond the normal call of duty, for which I thank them. The weak Euro still depresses price sensitive volume business from mainland Europe and inevitably impacts U.K. activity levels. However, the Group can report improved trading conditions particularly in other export markets and has put a lot of time, effort and investment into reducing its cost base and positioning itself to take advantage of these opportunities. The Board's clear strategic plan for the future of the Group enables it to look forward to the year 2000 with confidence. J K Dashper Executive Chairman 21 December 1999 For further information please contact: J K Dashper, Executive Chairman Tel: 0114 249 4222 Fax: 0114 249 4223 M P Childs, Group Managing Director Tel: 0114 249 4222 Fax: 0114 249 4223 P M Gill, Group Finance Director Tel: 0114 249 4222 Fax: 0114 249 4223 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 September 1999 Note Opera- Excep- 1999 Operations Excep- 1998 tions tional before tional before Costs excep- Costs excep- tional tional costs costs £'000's £'000's £'000's £'000's £'000's £'000's Turnover 2,3 Existing operations 24,450 - 24,450 29,108 - 29,108 Acquisitions 3,325 - 3,325 - - - ------ ------- ------- ------- ------- ------- Continuing operations 27,775 - 27,775 29,108 - 29,108 ------- ------- ------- ------- ------- ------- Cost of sales (21,218) - (21,218) (21,461) - (21,461) ------- ------- ------- ------- ------- ------- Gross profit 6,557 - 6,557 7,647 - 7,647 Distribution costs (4,805) - (4,805) (4,370) - (4,370) Administration (1,774) (660) (2,434) (1,472) (353) (1,825) expenses ------- ------- ------- ------- ------- ------- Operating (Loss)/ 3 Profit Existing operations (528) (517) (1,045) 1,805 (353) 1,452 Acquisitions 506 (143) 363 - - - Profit on disposal of fixed asset investments - - - - 128 128 ------- ------- ------- ------- ------- ------- Continuing operations (22) (660) (682) 1,805 (225) 1,580 Interest payable (641) - (641) (440) - (440) ------- ------- ------- ------- ------- ------- (Loss)/Profit on ordinary activities before taxation (663) (660) (1,323) 1,365 (225) 1,140 Taxation 31 31 62 (418) 108 (310) ------- ------- ------- ------- ------- ------- (Loss)/Profit on ordinary activities after taxation (632) (629) (1,261) 947 (117) 830 Minority interest 17 - 17 17 - 17 ------- ------- ------- ------- ------- ------- (Loss)/Profit attributable to members of Brooke Industrial Holdings (615) (629) (1,244) 964 (117) 847 plc Dividend (400) - (400) (400) - (400) ------- ------- ------- ------- ------- ------- Retained (loss)/profit for the period (1,015) (629) (1,644) 564 (117) 447 -------- -------- -------- ------- -------- ------- Basic earnings per share 4 (8.1p) (8.2p) (16.3p) 12.6p (1.5p) 11.1p Diluted earnings per share 4 (8.0p) (8.2p) (16.2p) 12.5p (1.5p) 11.0p BALANCE SHEET Group 1999 1998 £'000's £'000's Tangible fixed assets 10,028 7,012 ------- ------- Current Assets Stocks 9,777 6,682 Debtors 8,974 6,954 Cash at bank and in hand 541 100 ------- ------- 19,292 13,736 Creditors: amounts falling due within one year (14,855) (8,165) ------- ------- Net current assets 4,437 5,571 ------- ------- Total assets less current liabilities 14,465 12,583 ------- ------- Creditors: amounts falling due after more than one year (5,903) (2,419) Provisions for liabilities and charges (244) (213) ------- ------- Net Assets 8,318 9,951 ------- ------- Capital and reserves Share capital 3,812 3,812 Share premium 3,867 3,867 Revaluation reserve 405 439 Acquisition reserve Profit and loss account 234 1,816 ------- ------- Equity shareholders' funds 8,318 9,934 Minority interest - equity - 17 ------- ------- 8,318 9,951 ------- ------- Net borrowings 13,041 4,492 Gearing 156.8% 45.1% CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 September 1999 Year to Year to 30 30 September September 1999 1998 £'000's £'000's Cash (outflow)/inflow from operating activities (172) 1,759 Returns on investments and servicing of finance (430) (418) Taxation (46) (199) Acquisitions and disposals (2,748) 77 Capital expenditure and financial investment (2,640) (1,416) Equity dividend paid (400) (400) ------- ------- Net cash outflow before financing (6,436) (597) Net cash inflows from financing 4,716 30 ------- ------- Increase/(decrease) in cash (1,720) (567) ------- ------- Reconciliation of operating profit to cash inflow/(outflow) from operating activities 1999 1998 £'000's £'000's Operating (loss)/profit (682) 1,452 Loss on disposal of tangible fixed assets 20 - Depreciation charge 1,112 981 (Increase) in stocks (112) (339) (Increase)/decrease in debtors (92) 205 Increase/(decrease) in creditors (418) (540) ------- ------- Net cash inflow/ from operating activities (172) 1,759 ------- ------- Reconciliation of net cash flow to movement in net debt 1999 1998 £'000's £'000's (Decrease)/increase in (1,720) (567) cash in the year Cash(inflow)/outflow from (increase)/decrease in debt and lease finance (4,127) 677 ------- ------- Change in net debt resulting from cash flows (5,847) 110 Net debt acquired with subsidiary (123) - New finance leases (589) (707) Loan notes issued (2,000) - Exchange differences 10 3 ------- ------- Movement in net debt in the year (8,549) (594) Net debt at beginning of year (4,492) (3,898) ------- ------- Net debt at end of year (13,041) (4,492) ------- ------- NOTES TO THE PRELIMINARY ANNOUNCEMENT for the year ended 30 September 1999 1 The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 September 1999 or 1998 but is derived from those accounts. Statutory accounts for 1998 have been delivered to the registrar of companies, whereas those for 1999 will be delivered following the Company's annual general meeting to be held on 28 February 2000. The auditors have reported on those accounts, their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Copies of this statement will be available for members of the public at the Company's Head Office, Shepcote Lane, Sheffield, S9 1QT. 2 Turnover is analysed as: Turnover UK 17,814 20,324 Export 9,961 8,784 ------- ------- 27,775 29,108 ------- ------- 3 Operating profit is analysed between existing operations and acquisitions as follows: 1999 1998 Existing Acquisi- Total Existing opera- tions opera- tions tions Turnover 24,450 3,325 27,775 29,108 Cost of sales (19,299) (1,919) (21,218) (21,461) ------- ------- ------- ------- Gross profit 5,151 1,406 6,557 7,647 Distribution costs (4,178) (627) (4,805) (4,370) ------- ------- ------- ------- Administration expenses before exceptional items (1,501) (273) (1,774) (1,472) Exceptional administration expenses (517) (143) (660) (225) -------- -------- ------- ------- Total administration expenses (2,018) (416) (2,434) (1,697) -------- -------- ------- ------- Operating profit (1,045) 363 (682) 1,580 -------- -------- ------- ------- 4 Earnings per share 1999 1998 £000 £000 (Loss)/profit for the (1,244) 847 year Exceptional items 660 353 Profit on disposal of - (128) fixed asset investments Tax impact of above (31) (108) adjustments (Loss)/profit before exceptional items (615) 964 No No Basic weighted average number of shares 7,624,506 7,624,506 Adjusted for share options 53,703 53,703 Diluted weighted average number of shares 7,678,209 7,678,209 (Loss)/earnings per share (16.3p) 11.1p Diluted (loss)/earnings per share (16.2p) 11.0p Earnings per share before exceptional items (8.1p) 12.6p

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