Preliminary Results
Molins PLC
02 March 2007
2 March 2007
FOR IMMEDIATE RELEASE
2006 PRELIMINARY ANNOUNCEMENT
Molins PLC, the international specialist engineering company, announces its
results for the year ended 31 December 2006.
2005
2006 (restated)#
Sales £88.6m £89.3m
Underlying operating profit* £7.6m £7.0m
Reorganisation costs £(2.6)m £(2.3)m
Profit before tax - continuing operations £5.4m £5.1m
Loss from discontinued operations £(12.2)m £(8.3)m
Loss for the period £(8.5)m £(4.0)m
Underlying earnings per share* 24.2p 27.0p
Basic loss per share (45.6)p (21.9)p
Dividend per share 4.0p -
Cash generated from operations before reorganisation - continuing
operations £13.5m £15.4m
Net debt £12.3m £19.0m
* Continuing operations before net pension credit (£1.5m; 2005: £0.9m) and
reorganisation costs (£2.6m; 2005: £2.3m)
# Restated to exclude discontinued operations where appropriate
• Another year of strong cash flow
• Increase in underlying operating profit
• Disposal of two loss-making businesses in year
• Group order book for current year delivery up 25%
• Return to dividend payments after 3 years
Peter Byrom, Chairman, commented:
'The year was characterised by a number of significant actions, which have
helped to position the Group more favourably for its future development. These
include the sales of two loss-making businesses, as well as further
restructuring of the Tobacco Machinery division.
'The Scientific Services division entered 2007 with a lower order book than in
2006. Cerulean's order intake continues to be subdued and we expect the
Scientific Services division to see a decline in first half sales and profit
compared to 2006, with the prospect of some recovery in the second half.
Tobacco Machinery has restructured to improve its efficiency and to reflect the
current activity levels in the division, the benefits from which we expect to
see through the year. The Packaging Machinery division started 2007 with a much
improved order book compared with the same time last year and is well placed to
progress as a result.'
Enquiries: Molins PLC Tel: 020 7638 9571
Peter Byrom, Chairman;
David Cowen, Group Finance Director
Issued by: Citigate Dewe Rogerson Tel: 020 7638 9571
Margaret George
CHAIRMAN'S STATEMENT
The year was characterised by a number of significant actions, which have helped
to position the Group more favourably for its future development. These include
the sales of two loss-making businesses, as well as further restructuring of the
Tobacco Machinery division.
Group sales for continuing operations were at similar levels to the previous
year at £88.6m (2005: £89.3m) and underlying operating profit (continuing
operations before net pension credit and reorganisation costs) was £7.6m,
compared with £7.0m. After interest costs, which were similar to those in 2005,
and taxation, which returned to a more normal level following a particularly low
effective rate in 2005, underlying earnings per share amounted to 24.2p (2005:
27.0p).
The Group experienced another particularly strong year in cash flow, with £13.5m
generated from operating activities of the continuing businesses (before
reorganisation payments). After other cash movements, including those relating
to capital expenditure, product development, interest, tax, sale of businesses
and reorganisation, net debt reduced by £6.7m in the year to £12.3m.
Operations
Order intake for the continuing businesses rose by 7%, with a significant
increase in the Packaging Machinery division more than offsetting a decline in
the Tobacco Machinery division and slightly lower orders in Scientific Services.
The Group's opening order book for current year delivery was 25% higher than
the comparable position in 2006.
Following the sale of Sandiacre Rose Forgrove, the Packaging Machinery division
is focused on an engineering-led solutions-based strategy, through the
development of its own core products and project integration skills, together
with alliances with other machinery suppliers. The continuing businesses
delivered sales of £33.9m, up from £29.8m in 2005, with an improvement in
operating profit to £2.5m (2005: £2.0m). All of the packaging machinery
businesses are well placed to progress in 2007, with the efficient delivery of
the substantial order book being the key challenge.
Tobacco Machinery, excluding Sasib, reported sales of £36.2m, compared with
£41.6m in the previous year. However, order intake for spare parts, which
account for the largest part of the division's business, were at similar levels
to the previous year. The division continued with its reorganisation,
transferring all of the remaining production of parts and manufacture, and
substantially all of the assembly of original equipment and rebuilds, to the
division's Czech factory, as well as to the Brazilian factory and other parts of
the supply chain. This process will be completed in the first few months of
2007. Additionally the infrastructure costs at Saunderton are being reduced,
the benefits of which will be delivered progressively through 2007.
Operating profit of the Tobacco Machinery division, before reorganisation costs
and excluding Sasib, was lower at £1.9m (2005: £2.4m). As expected, second half
profitability was higher than in the previous year, reflecting further cost
reductions and efficiency improvements. The division is undertaking a number of
business and product development initiatives which are expected to provide
future growth opportunities.
Scientific Services delivered a strong performance, with sales of £18.5m (2005:
£17.9m) and operating profit of £3.2m (2005: £2.6m). However, Cerulean
experienced a significant softening in demand in the second half of the year and
this has continued into 2007. Arista Laboratories continues to develop through
the delivery of new service offerings and expansion of its customer base.
Sales of Businesses and Reorganisation
Sasib S.p.A. had been substantially loss-making since Molins acquired the
tobacco machinery business in 2003. The decision to sell or close the business
was announced in May 2006 and subsequently Sasib was sold to an Italian
engineering business, Paritel S.p.A., on 28 July 2006. The impact of the sale
on the Group financial statements was to report a special charge of £8.6m, which
comprised cash costs of £3.4m, with the balance being the write-off of the net
assets of Sasib. Aggregated with Sasib's trading loss of £1.5m, this resulted
in a total charge of £10.1m.
Sandiacre Rose Forgrove ('SRF') operates in a very competitive sector of the
packaging machinery market, with differing characteristics to those in which the
other packaging machinery businesses operate. Margins were insufficient to
support its future development. On 28 November 2006 we announced that a
contract had been signed for the sale of the business to Hayssen, owned by
Barry-Wehmiller Companies Inc., and it was completed on 18 December 2006 for
£2.9m in cash. This resulted in a charge after tax of £2.1m in the Group's
financial statements in respect of discontinued operations, after taking into
account SRF's operating loss.
The cost of the reorganisation of the Tobacco Machinery division, mainly at
Saunderton, was £1.9m after tax.
Property
Following the rejection of a first planning application for the development of
commercial property on the 26 acre site at Saunderton in 2005, a second
application was made in August 2006, addressing the issues raised by Wycombe
District Council from the first application. At the date of this report the
Council had yet to determine this application, despite the passing of the
deadline for a response set in the statutory timetable. We are assessing our
options in respect of the development of the site.
When the SRF business was sold the Group retained the property in Nottingham
from which it operates. A short-term lease is in place with the new owners of
the business. The property is being marketed and has an estimated value in
excess of £4m and a book value of £1.8m.
Dividend
The Board recognises the importance of dividends to shareholders and believes
that following the disposals and reorganisation effected in 2006, improving the
stability of the Group's trading position and the reduction in the Group's
indebtedness over the last two years, it is appropriate to make payment of a
dividend after a gap of some three years. The Board has therefore today
announced the payment of an interim dividend of 4p per ordinary share, in lieu
of a final dividend, in respect of 2006. This dividend will be paid on 30 March
2007 to those shareholders on the register on 16 March 2007.
Outlook
The Scientific Services division entered 2007 with a lower order book than in
2006. Cerulean's order intake continues to be subdued and we expect the
Scientific Services division to see a decline in first half sales and profit
compared to 2006, with the prospect of some recovery in the second half.
Tobacco Machinery has restructured to improve its efficiency and to reflect the
current activity levels in the division, the benefit from which we expect to see
through the year.
The Packaging Machinery division started 2007 with a much improved order book
compared with the same time last year and is well placed to progress as a
result.
Peter Byrom
Chairman
2 March 2007
OPERATING REVIEW
PACKAGING MACHINERY
The Molins Packaging Machinery division, excluding Sandiacre Rose Forgrove which
was sold during the year, delivered sales of £33.9m in 2006, compared with
£29.8m in the previous year. Operating profit increased to £2.5m (2005: £2.0m).
The division entered 2007 with an order book at twice the value of twelve
months previously.
Market conditions were generally more favourable than in the prior year,
especially in Europe. However, competitive pressures on all customers remain
intense, particularly in the food sector, leading them to maintain tight control
over their investments and to extend decision cycles.
Customers typically invest in enhanced packaging capabilities for two reasons;
cost reduction and packaging innovation to differentiate products from the
competition. To meet these two typically conflicting requirements, the division
continues to pursue its strategy of supplying engineered solutions to meet the
customers' need for high performance and product differentiation. This is
achieved by delivering those solutions off a platform of standardised machines
and modules to reduce the costs and risks typically associated with custom
engineering. This strategy builds on the division's skills and capabilities in
delivering complex projects, where there is greater potential for growth as
customers continue to out-source their engineering requirements and the scope
for differentiation is also greater. A further part of the division's strategy,
as repeated across the Group, is the focus on service. This extends from the
responsiveness of technical and commercial support to all other aspects of
aftermarket service.
The benefits of this approach were seen in the strong order intake for the
division last year, which increased by 50% compared with the prior year.
Towards the end of the year, Sandiacre Rose Forgrove, the form fill and seal
bagging and wrapping machine manufacturer, was sold. This business had
underperformed over the previous three years and had a different market position
and strategic direction to the rest of the businesses in the division.
ITCM, based in Coventry, UK, develops innovative solutions and associated
production and packaging machinery for its customers. It had another successful
year, continuing to serve its established customers as well as developing new
relationships. As in the prior year, pharmaceutical customers represented the
largest proportion of business, although there were also a number of significant
commercially confidential developments for various FMCG customers.
ITCM's capabilities are based on the combination of the skills of the
engineering and assembly teams which together deliver the solutions in prototype
form and subsequently as fully production-approved machinery. This gives the
business a highly differentiated service offering. The excellence of this
distinct offering was recognised during the year when it was presented with the
PPMA (Process & Packaging Machinery Association) Customer Service award.
There has been continued investment in the skills and infrastructure of this
business. One significant development in the year was the formation of the
System Simulation and Integration group (ITCM SSI) in Atlanta, Georgia. This
small group provides a first physical presence for ITCM in North America and
also marks an expansion of its services. ITCM SSI is responding to the growing
demand from customers for out-sourced engineering services to improve the output
and efficiency of their capital assets. It specialises in system analysis and
solution development and implementation, which it does most notably through the
use of custom modelling tools and simulation software. Following ITCM's growth
over the last few years the UK based business has become space constrained and
is building an extension to its production facility which will increase
available space by 50%.
Langen and Langenpac, based respectively in Mississauga, Canada and Wijchen, the
Netherlands, serve the markets for highly automated product handling, cartoning
and end-of-line machinery in North America and Europe respectively. They supply
standard machines and infeeds, custom engineered solutions and complete turnkey
installations.
Both businesses experienced strong order growth in 2006, most notably from the
placement of a number of large integration projects. These typically combine
all the strengths of the businesses, including the ability to design the lines
and then project manage their execution, using a significant proportion of the
businesses' own standard equipment together with equipment from established
machinery partners. An important element of successful project delivery is the
ability to customise the machinery, most typically the infeeds and the links
between machines, to give high-speed and robust performance. Langen and
Langenpac's strengths continue to be the ability to deliver flexible and
innovative packaging configurations for their customers.
A key element in the development of these businesses has been the continued
investment in product lines and the market's positive response to the new
products. The Chinook cartoner range has been extended by the addition of two
new machines, the Vento and the Breeze. These are derived from the Chinook's
proven technology but have been value-engineered to combine high performance and
functionality capable of satisfying the majority of applications and at a
competitive price point. Over 20 of these new variants were sold in the year.
The Chinook has continued to attract customers looking for applications
requiring greater speed, product size and/or packaging complexity, as well as
for full wash-down applications.
The robotic based product line for automated infeeds and material handling,
launched by Langen in 2005, was developed further in 2006 and now includes cells
for top-load carton packing, case packing and palletising. Langen is now one of
the leading suppliers of Fanuc robotic solutions for packaging.
Langenpac has grown considerably over the last few years, and, like ITCM, has
become space constrained. The planned move into newly built leased premises,
close to its current location, will increase available space by 50%. The site
is scheduled to be ready for occupation in the second half of 2007 and will help
the business to increase its operational effectiveness.
The operational and financial performance of Langen and Langenpac was mixed in
the year. Profitability in 2006 was compromised on a number of the larger
projects by operational issues. However, order intake was high and both
businesses started 2007 with strong order books. The businesses will be
focusing this year on growing their capacity and further enhancing the
robustness of project delivery within anticipated targets. This is a critical
requirement for the successful execution of the division's engineering-led
solutions-based strategy.
Cerulean Packing, supplying tube packing machinery from its base in Milton
Keynes, UK, had a modest year in terms of order intake, but had the benefit of a
good opening order book. The business is extending its product range with the
new FPS150 machine aimed at the growing volume of tube production in lower cost
economies.
Summary
The division closed the year with an order book considerably up on the prior
year. With this position and further order prospects, and with continued
investment in the improvement of product lines, service capability and cost
effectiveness, we expect an improved performance in 2007. We continue to
evaluate new alliance and acquisition opportunities.
TOBACCO MACHINERY
Molins Tobacco Machinery division (MTM) continued its restructuring during the
year, which included the disposal of its Italian subsidiary, Sasib. Despite a
background of reduced order intake for original equipment and rebuild machinery,
the division returned much improved profits in the second half of the year,
reflecting the reduction in the cost base of the division.
2006 sales, excluding Sasib, were £36.2m (2005: £41.6m) and operating profit
before reorganisation costs was £1.9m (2005: £2.4m).
The business comprises operations in the UK, Czech Republic, Singapore, South
America and the USA, which, together with service engineers based in other
countries, provides the ability to service efficiently the markets in all parts
of the world.
Restructuring
MTM commenced a comprehensive restructuring of its business in 2004, which
continued in 2006, culminating in the transfer of substantially all
manufacturing activities from the division's UK Saunderton site. The majority
of the activities have been transferred to the division's factory in the Czech
Republic, with some work allocated to the Brazil facility and further use made
of the wider supply chain. The Saunderton facility is now focused on sales,
engineering support and service, logistics, warehousing and distribution. A
small assembly capability for particular specialist work has been retained. The
cost of this restructuring in 2006 was £1.9m after tax and this phase is
expected to be completed in the first few months of 2007.
Sasib, which was substantially loss making in 2004 and 2005 and had experienced
a prolonged period of weak and irregular order intake, was sold during the year.
It has maintained its trading relationships with MTM by way of the facilities
in Singapore, the USA and Brazil acting as distributors for Sasib spare parts.
The net cash cost of the disposal was £3.4m, with a further loss incurred of
£5.2m in respect of the write down of related net assets.
Trading
The aftermarket remains the principal focus for the division and the business is
committed to supplying customers with quality spare parts, upgrade and
performance enhancing kits and other services.
Order intake for spare parts and service, the largest part of the division's
business, remained at similar levels to the previous year, with significant
attention being paid to the improvement in lead times to the customer. However,
sales of spare parts were lower, reflecting the timing of certain orders, as
were sales of upgrade and enhancement kits. Order intake for original equipment
and rebuild machinery was also down on the previous year, leading to an overall
reduction in order intake across the division of 20%. The impact of ongoing
consolidation within the cigarette making industry continues to have an impact
on business levels.
The EMEA regional sales team is based in the UK and services this wide
geographical area through a combination of sales managers, engineers and
industry-specific agents. Demand for rebuild equipment was weak as cigarette
manufacturers continue to reduce manufacturing capacity within Europe, although
elsewhere in the region strong spares and service order intake was achieved.
Market conditions continue to be challenging in North America. Levels of
capital investment within the tobacco industry remain low in the segment in
which we operate. Against this market background, Molins Richmond performed
well during the year and secured a large order for the Pegasus 3000 filter
distribution product.
Molins Far East, based in Singapore, services the Asian markets. Order intake
and sales were slightly lower than in 2005 due to a reduced level of demand from
Chinese customers. The continued reorganisation of the cigarette manufacturing
industry in China impacts the level of demand for spare parts and other
services. Molins Far East has successfully developed a number of new products
with suppliers based in the region and these products are being marketed through
all of the division's sales and service organisations.
Molins do Brasil supplies original equipment, rebuild machinery, spare parts and
services to the cigarette manufacturers based in South and Central America. The
business has a strong market position and reputation within the region and
enjoys 'partnership' status with a number of customers. Demand for rebuild
making equipment was strong during the year, as customers continued to increase
and upgrade their production capacity.
The manufacturing operation in Plzen, Czech Republic, which supplies the
division with manufactured parts and assembled machines, has continued to grow
strongly. The business has expanded with the responsibility for the manufacture
of additional machine types moving from the UK to Plzen during the year.
As part of its development plans, MTM has formed an alliance with a European
supplier of spare parts for non-Molins tobacco machinery. Molins Richmond is
utilising its distribution network in North America to sell to that sector of
the market. The prime focus of product development in 2006 was the launch of a
programme to upgrade the division's MK9 cigarette making machine from 6,000 to
8,000 cigarettes per minute. This will enable the division to enter a segment
of the market which has good demand prospects. The development programme is
expected to be concluded in 2007.
In addition, the UK and Brazilian based engineering teams continue to focus on
the development of upgrade and enhancement kits for the large Molins machine
base installed in cigarette factories world-wide. The UK engineering team
completed the design of a filter assembly machine that links with the MK9
cigarette making machine. The first machine was despatched in August 2006 and
there are good prospects for further sales in 2007.
Summary
The division made considerable progress in 2006, with further reorganisation
leading to a more efficient and cost effective organisation.
Market conditions though remain uncertain, with significant changes to the
industry taking place throughout the world. However, Molins remains a key
supplier to many customers world-wide and the division is undertaking several
business development initiatives which should provide opportunities for growth.
SCIENTIFIC SERVICES
The Scientific Services division, which comprises Cerulean and Arista
Laboratories, performed to expectations in 2006. Sales increased to £18.5m from
£17.9m in the previous year and operating profit improved to £3.2m (2005:
£2.6m).
Cerulean, based in Milton Keynes, UK, is the market-leading supplier of quality
control instruments and analytical smoke constituent capture machinery to the
tobacco industry, independent laboratories and government bodies. The business
sells throughout the world, supported by a network of thirteen sales and service
offices located in the major economic and industrial centres.
The market for Cerulean's products is both relatively mature and cyclical and is
also constrained by site rationalisation amongst its customer base. The
business experienced a downturn in orders, particularly in the second half of
the year. Cerulean's strategy is to drive sales through continuous product
innovation, which also helps to set it apart from its competitors in the
industry. In 2006 the business continued to invest in its product lines and
product development capabilities and it maintains a strong pipeline of on-going
developments.
The innovative nature of Cerulean's new products and the highly regulated nature
of the industry has meant that some of these products require a longer time to
be accepted than previously anticipated, before scale roll-out in the industry.
This has been particularly true of the new C(2) range of instruments, which have
been progressively modified and enhanced. Cerulean has been working with its
customers to ensure that the range of instruments meets the extensive array of
requirements and preferences. Customer trials have continued, with a limited
number of shipments being made in 2006. Further sales growth is expected as
these trials reach conclusion and as the complete range of variants become
available for at-line testing and laboratory analysis. Whilst sales of C(2)
were lower than anticipated, sales of Cerulean's market-leading QTM range of
quality control instruments more than offset this reduction.
Cerulean's second strategic response to the cyclical nature of the business has
been a move to provide more engineered solutions. The business has successfully
won, with its partner, ATS of Canada, the first large order for closed-loop
control systems. This system will take filters from the making line, analyse
their physical characteristics across a range of measurements and immediately
feedback performance optimising changes to the making machine's control system,
all without operator intervention.
One of Cerulean's considerable strengths is its network of global sales and
service offices, with skilled employees based around the world, providing round
the clock support to its customers.
The outlook for Cerulean in 2007, though, is mixed. Order intake has been
disappointing over the last few months and the opening order book is
significantly lower than it was at the start of 2006. The sales growth
anticipated from its new products has yet to offset this reduction.
Arista Laboratories, based in Richmond, Virginia and Kingston upon Thames, UK,
is dedicated to meeting the need for testing, through independent, specialist,
high quality analysis of tobacco and cigarette smoke constituents for
regulatory, research and product development purposes.
Arista performed well during the year. It secured a number of long-term quality
assurance and product validation contracts, which provide a base-load of
activity. The toxicological testing service has continued to grow and further
expansion has come from the newly regulated tests for ignition propensity.
Arista was also awarded several research contracts in the year. The business
continues to extend its capabilities and to invest in additional instrumentation
to enable it to pursue growth opportunities in all of these areas.
The core market for Arista's services of quality assurance and product
validation is relatively stable. It has secured a good position in this market
and is working to increase its market share, in particular with the addition of
new services. However, the overall growth of the business is significantly
influenced by success in the contract research market, which was a source of
good profitability in 2006. Arista is expected to continue to perform well in
2007.
Summary
In 2006, the division benefited from a strong order book carried forward from
the very high level of market demand experienced by Cerulean in 2005. This
year, the order book is much reduced. Overall, in 2007 we expect the division
to see a decline in first half sales and profit compared to 2006, with the
possibility of some recovery in the second half.
FINANCIAL REVIEW
The Group underlying operating profit (continuing operations before net pension
credit and reorganisation costs) in 2006 was £7.6m, an increase of 9% over the
previous year on similar sales. Additionally, the Group benefited from a net
pension credit of £1.5m (2005: £0.9m) and incurred £2.6m (2005: £2.3m) of
reorganisation costs within the Tobacco Machinery division, before tax credits.
Two businesses, Sasib S.p.A. and Sandiacre Rose Forgrove were sold during the
year and have been reported as discontinued operations. A total charge in
respect of these businesses of £12.2m (2005: £8.3m) was incurred, comprising
trading losses and losses on disposal, and in 2005 impairment of purchased
goodwill and reorganisation costs. Underlying earnings per share amounted to
24.2p (2005: 27.0p), the reduction reflecting a return to more normal levels of
tax. The basic loss per share was 45.6p (2005: 21.9p).
Operating results
The trading performance of the Group is discussed in the Operating review.
Group revenue was £88.6m for continuing businesses, compared with £89.3m in
2005. Packaging Machinery division sales increased to £33.9m (2005: £29.8m),
with the division's operating profit increasing to £2.5m (2005: £2.0m). Tobacco
Machinery division sales reduced to £36.2m (2005: £41.6m) and operating profit
was £1.9m (2005: £2.4m). Scientific Services sales increased to £18.5m (2005:
£17.9m) and operating profit increased to £3.2m (2005: £2.6m).
Reorganisation costs
The Tobacco Machinery division undertook further reorganisation during the year,
principally the transfer of all manufacturing and substantially all assembly
operations from the Saunderton site primarily to the Molins factory in Plzen,
Czech Republic, with some activities going to the factory in Brazil and other
parts of the supply chain. The reorganisation charge of £2.6m, before a tax
credit of £0.7m, comprises UK redundancy costs (including related pension costs)
of £1.8m, transfer and site reorganisation costs of £0.7m and other divisional
restructuring costs of £0.1m. Payments of £1.4m were made in the year in
respect of reorganisation.
Interest and taxation
Net interest expense in 2006 was £1.1m (2005: £1.0m). The taxation charge in
respect of continuing operations was £1.7m (2005: £0.8m), comprising a charge of
£2.4m in respect of profit before reorganisation costs (2005: £1.3m) and a net
credit of £0.7m in respect of reorganisation costs (2005: £0.5m). The effective
tax rate for continuing operations returned to a more normal level in the year
of 31%, compared with 16% in 2005 which benefited from a number of non-recurring
credits.
Disposals
The Group sold Sasib S.p.A., the loss-making tobacco machinery manufacturer, on
28 July 2006 to an Italian engineering business for a nominal consideration.
The total cash cost to the Group of the transaction was £3.4m. Together with
the write-down of net assets and inventory provisions for Sasib related stock
retained within the Group, the loss on disposal was £8.6m. Sasib incurred a
trading loss of £1.5m in the period to the end of May 2006, the time at which
the decision to sell or close the business was made, resulting in a reported
loss of £10.1m for this discontinued operation.
On 18 December 2006 the Group sold the trading assets and business of Sandiacre
Rose Forgrove to Hayssen Europe Ltd and Hayssen Inc., subsidiaries of
Barry-Wehmiller Companies Inc., for £2.9m. The loss on disposal amounted to
£1.0m after tax which, together with its trading loss for the year and an
actuarial benefit to the UK pension fund that arises as a consequence of the
transaction, resulted in a reported loss of £2.1m in respect of this
discontinued operation.
The Nottingham site, from which Sandiacre Rose Forgrove operates, has been
retained by the Group and leased to the new owners under a three year agreement.
The building is being marketed for sale with an expectation that it will be
sold in 2007 and so has been disclosed within the Group balance sheet as 'assets
classified as held for sale'. The site has an estimated market value in excess
of £4m before tax and is held in the balance sheet at a book value of £1.8m.
Earnings per share
Underlying earnings per share (continuing operations before net pension credit
and reorganisation costs) amounted to 24.2p (2005: 27.0p), the decrease
reflecting the expected return to a more normal rate of taxation in 2006, from a
low level in 2005. Basic earnings per share for continuing operations amounted
to 20.2p (2005: 23.4p). Basic loss per share and diluted loss per share were
45.6p (2005: 21.9p).
Dividends
The Board has decided to pay an interim dividend (in lieu of final) of 4p per
ordinary share. The dividend will be paid on 30 March 2007 to shareholders on
the register on 16 March 2007.
Cash, treasury and funding activities
Group net debt reduced to £12.3m at the year end (2005: £19.0m). Net cash
inflow from operating activities from continuing businesses, before
reorganisation costs, was £13.5m (2005: £15.4m), which benefited from a
reduction in working capital of £3.6m including deposits received on account
being higher by £2.8m. Net tax payments of £1.0m (2005: £0.7m receipts) and net
interest payments of £1.1m (2005: £1.0m) were made in the year. Investments in
property, plant and equipment were £1.4m (2005: £1.3m) and product development
expenditure was £1.9m (2005: £1.4m). The Group sold property, plant and
equipment in the year which yielded cash receipts of £1.3m (2005: £0.3m). The
net cash outflow in respect of the discontinued businesses was £2.7m (2005:
£4.0m).
There were no significant changes during the year in the financial risks,
principally currency risks and interest rate movements, to which the business is
exposed and the Group treasury policy remained unchanged. The Group does not
trade in financial instruments and enters into derivatives (principally forward
foreign exchange contracts) solely for the purpose of minimising currency
exposures on sales or purchases in other than the functional currencies of its
various operations.
The Group maintains bank facilities appropriate to its expected needs. These
comprise secured, committed borrowing facilities with its two principal UK
bankers, which reduced to £23.1m at 31 December 2006 (2005: £26.0m), following
the sale of Sandiacre Rose Forgrove and the planned partial repayment of some of
the bank loans. The facilities will reduce by a further £4.3m in 2007 in line
with the loan repayment schedule. The balance of the commitment expires on 31
July 2008.
The committed facilities, which are subject to covenants covering earnings and
cash flow levels, are both sterling and multi-currency denominated.
Additionally, the Group maintains committed facilities from overseas banks of
£5.6m, denominated in US dollars and Euros. Short-term overdrafts and
borrowings are utilised around the Group to meet local cash requirements. These
are typically denominated in local currencies. Foreign currency borrowings are
used to hedge investments in overseas subsidiaries where appropriate.
Pension valuations
The Group's main defined benefit scheme is in the UK. Changes were made to the
benefit structure of this scheme in 2006, principally moving the pension accrual
link from final salary to career average for future entitlements, thereby
reducing the uncertainty of the cost to the fund in respect of the benefit.
Also, employee contribution rates were increased from 5% of earnings to 6.5%
until 30 June 2007 and 8% thereafter. An actuarial valuation of the fund is
being carried out as at 30 June 2006, which has yet to be completed. It is
expected that the valuation will show a surplus on an ongoing basis, as it did
at the time of the last triennial valuation, despite a change in mortality
assumptions which has increased the liabilities of the fund by approximately
£20m, as other scheme experience has been largely positive. On a discontinued
basis the fund would show a large deficit. The required funding levels for the
three year period to 30 June 2009 have yet to be agreed between the fund's
trustee and the Company, although the Company commenced contributions into the
fund from 1 July 2006, for the first time in many years, at a rate a little in
excess of that anticipated as the on-going rate for benefit accruals.
The Group adopted IAS 19 (revised) Employee benefits in 2005 as its basis of
accounting for pension costs. The 2006 valuation of the UK fund's assets and
liabilities has been undertaken as at 31 December 2006 based on detailed
valuation work carried out as at 30 June 2006, updated to reflect changes
existing at the year end. The significantly smaller US defined benefit schemes
were valued at 31 December 2006, using actuarial data as of 1 January 2006,
updated for conditions existing at the year end. Under IAS 19 (revised) the
Company has elected to recognise all actuarial gains and losses outside of the
income statement.
The net pension credit arising from the Group's defined benefit schemes in 2006
for continuing operations was £1.5m (2005: £0.9m). Additionally the Group
incurred pension related costs in respect of the reorganisation at Saunderton of
£0.9m, less a net pension credit arising from the discontinued Sandiacre Rose
Forgrove operation of £0.5m. The IAS 19 (revised) valuation of the UK pension
fund net liability at 31 December 2006 reduced by £7.7m to £6.6m (2005: £14.3m)
and that of the US funds increased by £0.1m to £0.4m, all amounts being before
deferred tax.
Equity
Group equity at 31 December 2006 was £24.1m (2005: £29.9m). The reduction
arises from the losses incurred by the discontinued businesses of £12.2m,
reorganisation costs of £1.9m net of tax, and adverse exchange movements on the
net assets of overseas businesses of £1.1m, offset by net profit generated by
the continuing operations of £5.6m and the actuarial gains arising on the
Group's net pension liabilities of £3.8m.
Consolidated income statement
2006 2005
Before
goodwill
impairment
Before and reorg. Goodwill Reorg.
reorg. Reorg. costs impairment costs Total
costs costs Total (restated) (restated) (restated) (restated)
Notes £m £m £m £m £m £m £m
(note 3) (note 3)
Continuing operations
Revenue 2 88.6 - 88.6 89.3 - - 89.3
Cost of sales (58.1) (1.5) (59.6) (57.8) - (1.4) (59.2)
Gross profit 30.5 (1.5) 29.0 31.5 - (1.4) 30.1
Other operating income 0.5 - 0.5 0.2 - - 0.2
Distribution expenses (7.7) (0.1) (7.8) (6.6) - (0.2) (6.8)
Administrative expenses (13.9) (0.1) (14.0) (16.0) - (0.3) (16.3)
Other operating expenses (0.3) (0.9) (1.2) (1.2) - (0.4) (1.6)
Operating profit 2, 5 9.1 (2.6) 6.5 7.9 - (2.3) 5.6
Profit on closure of 4 - - - - - 0.5 0.5
associate
Profit before financing
costs 9.1 (2.6) 6.5 7.9 - (1.8) 6.1
Financial income 0.2 - 0.2 0.3 - - 0.3
Financial expenses (1.3) - (1.3) (1.3) - - (1.3)
Net financing costs (1.1) - (1.1) (1.0) - - (1.0)
Profit before tax 8.0 (2.6) 5.4 6.9 - (1.8) 5.1
Taxation (2.4) 0.7 (1.7) (1.3) - 0.5 (0.8)
Profit from continuing
operations 5.6 (1.9) 3.7 5.6 - (1.3) 4.3
Discontinued operations
Loss from discontinued 10 (12.2) - (12.2) (1.7) (6.7) 0.1 (8.3)
operations
(Loss)/profit for the period (6.6) (1.9) (8.5) 3.9 (6.7) (1.2) (4.0)
Basic earnings/
(loss) per ordinary 6 (45.6)p (21.9)p
share
Diluted earnings/ (45.6)p (21.9)p
(loss) per ordinary
share
Continuing
operations 6
Basic earnings per 20.2p 23.4p
ordinary share
Diluted earnings per 18.4p 21.7p
ordinary share
Consolidated balance sheet
2006 2005
Notes £m £m
Non-current assets
Intangible assets 13.3 13.5
Property, plant and equipment 22.3 28.7
Other receivables 0.5 0.5
Deferred tax assets 2.7 5.4
38.8 48.1
Current assets
Inventories 12.9 27.2
Trade and other receivables 23.4 23.3
Taxation receivable 0.5 0.2
Cash and cash equivalents 4.7 2.8
Assets classified as held for sale 10 1.8 -
43.3 53.5
Current liabilities
Bank overdrafts (0.1) (1.9)
Interest-bearing loans and borrowings (4.3) (2.4)
Trade and other payables (26.8) (25.6)
Taxation payable (0.8) (0.9)
Provisions (2.8) (2.2)
(34.8) (33.0)
Net current assets 8.5 20.5
Total assets less current liabilities 47.3 68.6
Non-current liabilities
Interest-bearing loans and borrowings (12.6) (17.5)
Trade and other payables (0.2) (0.2)
Employee benefits 7 (7.0) (16.9)
Deferred tax liabilities (3.4) (4.1)
(23.2) (38.7)
Net assets 2 24.1 29.9
Equity
Issued capital 5.0 5.0
Share premium 26.0 26.0
Reserves 3.7 4.8
Retained earnings (10.6) (5.9)
Total equity 24.1 29.9
Consolidated statement of cash flows
2005
2006 (restated)
Note £m £m
Continuing operations
Operating activities
Operating profit 6.5 5.6
Reorganisation costs included in operating profit 2.6 2.3
Amortisation 1.1 0.7
Depreciation 2.2 2.2
Profit on sale of property, plant and equipment (0.3) -
Other non-cash items (1.5) (0.6)
Pension payments (0.7) -
Working capital movements:
- Decrease in inventories 2.9 7.0
- (Increase)/decrease in trade and other receivables (6.5) 1.4
- Increase/(decrease) in trade and other payables 7.7 (2.8)
- Decrease in provisions (0.5) (0.4)
Cash generated from operations before reorganisation 13.5 15.4
Reorganisation costs paid (1.4) (3.2)
Cash generated from operations 12.1 12.2
Taxation (paid)/received (1.0) 0.7
Net cash from operating activities 11.1 12.9
Investing activities
Proceeds from sale of property, plant and equipment 1.3 0.3
Net proceeds from closure of associate - 0.5
Acquisition of property, plant and equipment (1.4) (1.3)
Development expenditure (1.9) (1.4)
Net cash from investing activities (2.0) (1.9)
Financing activities
Issue of new shares - 0.1
Interest received 0.2 0.3
Interest paid (1.3) (1.3)
Decrease in borrowings (1.5) (9.5)
Net cash from financing activities (2.6) (10.4)
Discontinued operations
Net cash from operating activities (0.2) (3.1)
Net cash from investing activities (2.2) (0.1)
Net cash from financing activities (0.3) (0.8)
Net cash from discontinued operations (2.7) (4.0)
Net increase/(decrease) in cash and cash equivalents 8 3.8 (3.4)
Cash and cash equivalents at 1 January 0.9 4.2
Effect of exchange rate fluctuations on cash held (0.1) 0.1
Cash and cash equivalents at period end 4.6 0.9
Consolidated statement of recognised income and expense
2006 2005
£m £m
Currency translation movements arising on foreign
currency net investments (1.3) 1.9
Actuarial gains 3.8 2.4
Net income recognised directly in equity 2.5 4.3
Currency translation movements transferred to loss on disposals 0.2 -
Loss for the period (8.5) (4.0)
Total recognised income and expense for the period (5.8) 0.3
Notes to preliminary announcement
1. The Group's accounts have been prepared in accordance with
International Accounting Standards and International Financial
Reporting Standards that were effective at 31 December 2006 and adopted by the
EU.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2006 or 2005.
Statutory accounts for 2005 have been delivered to the registrar of companies,
and those for 2006 will be delivered following the Company's Annual General
Meeting. The auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include references to any matters to which the
auditors drew attention by way of emphasis without qualifying their reports and
(iii) did not contain statements under section 237 (2) or (3) of the Companies
Act 1985.
2. Segmental analysis
Business segments
Packaging Tobacco Scientific
Machinery Machinery Services Total
2005 2005 2005
2006 (restated) 2006 (restated) 2006 2005 2006 (restated)
£m £m £m £m £m £m £m £m
Revenue - continuing operations 33.9 29.8 36.2 41.6 18.5 17.9 88.6 89.3
- discontinued operations 12.8 32.1
101.4 121.4
Underlying segment operating
profit before net pension credit
and reorganisation costs 2.5 2.0 1.9 2.4 3.2 2.6 7.6 7.0
Reorganisation costs (before
profit on closure of associate) - - (2.6) (2.3) - - (2.6) (2.3)
Segment operating profit/(loss)
before net pension credit 2.5 2.0 (0.7) 0.1 3.2 2.6 5.0 4.7
Net pension credit (ex.
curtailment costs) 1.5 0.9
Operating profit 6.5 5.6
Profit on closure of associate - 0.5
Net financing costs (1.1) (1.0)
Taxation (1.7) (0.8)
Profit from continuing operations 3.7 4.3
Discontinued operations
Loss from discontinued operations (12.2) (8.3)
Loss for the period (8.5) (4.0)
Segment net assets 2.7 3.8 24.5 30.7 15.9 15.5 43.1 50.0
Net assets - discontinued
operations 1.3 12.9
Unallocated net liabilities (20.3) (33.0)
(including net debt and pension
liabilities)
Total net assets 24.1 29.9
Geographical segments
Revenue Segment net assets
(by destination of goods) (by location of assets)
2005 2005 2005
2006 2006 (restated) (restated) 2006 (restated)
£m % £m % £m £m
Continuing operations
United Kingdom 9.2 11 8.6 10 27.9 36.5
Continental Europe 18.1 20 18.5 21 6.4 1.9
North America 23.9 27 25.6 29 7.2 9.8
Asia 22.0 25 21.0 23 0.6 0.5
Rest of the world 15.4 17 15.6 17 1.0 1.3
88.6 100 89.3 100 43.1 50.0
3. The reorganisation costs before profit on closure of associate of £2.6m
(2005: £2.3m) relate to the restructuring of the Tobacco Machinery division and
comprise costs of £1.9m (2005: £1.6m) relating to redundancy, including related
pension costs (mainly in the UK), costs of transferring manufacturing activities
from the division's Saunderton site to the division's factory in the Czech
Republic of £0.7m, and in 2005 £0.4m relating to inventory provisions and £0.3m
of other reorganisation costs.
4. The profit on closure of associate relates to the receipt of loan/
capital repayments in 2005, following the closure and subsequent liquidation of
the Kunming Molins company in China.
5. The Group accounts for pensions under IAS 19 (revised) Employee
benefits. An actuarial valuation of the UK pension fund is being carried out as
at 30 June 2006. This has yet to be completed. The assumptions of this
valuation have been applied in the financial statements, updated to reflect
conditions at 31 December 2006. Underlying operating profit includes a net
pension credit of £1.5m (2005: £0.9m) in respect of ongoing benefits comprising
current service costs of £2.8m, interest on the pension obligations of £16.9m,
offset by the expected return on the schemes' assets of £21.2m.
In addition there were curtailment costs of £0.9m (2005: £0.4m) arising from
redundancies in the year, which are reported in reorganisation costs, and in
respect of the discontinued operation Sandiacre Rose Forgrove £0.3m (2005:
£0.4m) of pension costs less £0.8m (2005: £nil) of curtailment benefits.
6. Basic earnings/(loss) per ordinary share is based upon the loss for the
period of £8.5m (2005: £4.0m) and on a weighted average of 18,576,888 shares in
issue during the year (2005: 18,429,551). Basic earnings per ordinary share on
continuing operations is based upon the profit for the period of £3.7m (2005:
£4.3m) and the weighted average number of ordinary shares as shown above.
Underlying earnings per ordinary share, which is calculated on continuing
operations before net pension credit and reorganisation costs, was 24.2p for the
year (2005: 27.0p).
7. Employee benefits include the net pension liabilities of the UK defined
benefit pension scheme of £6.6m (31 December 2005: £14.3m) and the US defined
pension schemes of £0.4m (31 December 2005: £0.3m), all figures before deferred
tax. In 2005 liabilities included £2.3m relating to Sasib service and post
retirement benefits.
8. Reconciliation of net cash flow to movement in net debt
2006 2005
£m £m
Net increase/(decrease) in cash and cash equivalents 3.8 (3.4)
Cash inflow from movement in borrowings and finance leases 1.8 10.2
Change in net debt resulting from cash flows 5.6 6.8
Decrease in borrowings and finance leases on sale of
discontinued operations 0.9 -
Translation movements 0.2 0.2
Movement in net debt in the period 6.7 7.0
Opening net debt (19.0) (26.0)
Closing net debt (12.3) (19.0)
9. Analysis of net debt
2006 2005
£m £m
Cash and cash equivalents - current assets 4.7 2.8
Bank overdrafts - current liabilities (0.1) (1.9)
Interest-bearing loans and borrowings - current liabilities (4.3) (2.4)
Interest-bearing loans and borrowings - non-current (12.6) (17.5)
liabilities
Closing net debt (12.3) (19.0)
10. Discontinued operations and assets classified as held for sale
On 28 July 2006 the Group sold Sasib S.p.A., its Italian tobacco machinery
business, for a nominal consideration. The loss on disposal was £8.6m, which
together with Sasib's trading loss of £1.5m gives a total loss for the period of
£10.1m.
On 18 December 2006 the Group sold the trading assets and business of Sandiacre
Rose Forgrove (SRF), a packaging machinery business, for a total cash
consideration of £2.9m. The loss on disposal was £1.0m, which together with
SRF's trading loss of £1.1m gives a total loss for the period of £2.1m.
The loss of £12.2m in the year relating to Sasib and SRF is disclosed as a loss
from discontinued operations in the income statement.
Following the sale of SRF the Group retained the property in Nottingham, from
which SRF operates, which has been leased to the new owners under a three year
agreement. The Group has the intention of selling the property by the end of
2007 and therefore its carrying value of £1.8m has been disclosed as 'assets
classified as held for sale' in the Group balance sheet. Its market value is
expected to be in excess of its carrying value.
11. The Annual Report and Accounts will be sent to all shareholders in March
2007 and additional copies will be available from the Company's registered
office at 11 Tanners Drive, Blakelands, Milton Keynes, MK14 5LU.
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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