Interim Results
Lupus Capital PLC
12 September 2002
12 September 2002
PRESS RELEASE
Lupus Capital plc
Interim results for the six months ended 30 June 2002
Lupus Capital plc ('Lupus') today announced its financial results for the six
months ended 30 June 2002.
Highlights are as follows:
• Operating profit before goodwill amortisation of £1,013,000 (2001:
£666,000), an increase of 52%, on turnover up 23% to £3.03m
(2001: £2.46m).
• Profit before tax increased by 45% to £512,000 (2001: £352,000).
• Interim dividend up 9% at 0.12p per share (2001: 0.11 p).
• Oil services subsidiary, Gall Thomson, continued to perform at record
levels.
- ENDS -
Lupus Capital plc Tel: 020 7976 8000
Charles Ryder www.lupuscapital.com
Chief Executive
James Orr
Finance Director
Merlin Financial Tel: 020 7606 1244
Paul Downes / Tom Randell
Interim results for the six months ended 30 June 2002
Strategy
The strategy of Lupus Capital plc ('Lupus' or 'the Group') is to invest in, or
acquire, small and medium sized public companies which are facing strategic
barriers to development whether of a corporate or commercial nature. Lupus
seeks to generate significant returns by providing and, where necessary,
implementing strategic plans for these companies, including appropriate exit
routes. Lupus creates value by providing a service to shareholders and company
boards, as well as to acquisitive well-run international companies looking to
expand and diversify their businesses.
A brief review of the activities of each of Lupus's investments is made in its
interim and full year statements, particularly in relation to companies that are
wholly-owned. Additionally, each Annual Report and Accounts includes a more
detailed description of wholly-owned businesses.
Implementation of strategy
In March in our Annual Report it was noted that 2001 had been a difficult year
for both the commercial and financial markets. Uncertainty has continued to
grip the world's financial markets which has led to a lack of corporate
confidence in most of the developed economies. In turn, this has meant that
corporate activity - in particular the acquisition and disposal of businesses -
has continued to be very sluggish. It has been, and continues to be, in general
terms, a buyers' market. Given this background, Lupus has not progressed
towards realisation of some of its investments with the speed which it had
envisaged.
Lupus is confident that there will be a gradual upturn in corporate activity in
the coming months, with the most evident acquirors being large companies taking
the opportunity to add market share. Given that organic growth is very
difficult to achieve in these times of low inflation, such opportunistic
acquisitions often provide the only means of achieving above average growth.
Lupus therefore believes, in line with its comments in the Annual Report, that
it will be involved in progressing a number of realisations during the remainder
of 2002. Furthermore, Lupus is investigating in detail a number of promising
opportunities for subsequent re-investment.
Notwithstanding the difficult financial markets, and the general background of
lacklustre economic performance, the trading performances of Lupus's various
investments have been encouraging. Gall Thomson Environmental Limited ('Gall
Thomson') continues to perform at record levels. Furthermore, in recent weeks
and months, all of the companies in which Lupus has a disclosed strategic stake
- European Colour plc, Armitage Brothers plc, Castings plc and Shiloh plc - have
also reported sustained or improved trading performance and, in certain cases,
appropriate corporate action.
Financial review
In the six months to 30 June 2002 Lupus made an operating profit before goodwill
amortisation and interest of £1,013,000 (2001: £666,000) on turnover of £3.03
million (2001: £2.46 million).
After a charge of £370,000 for goodwill amortisation (2001: £370,000) Lupus made
an operating profit before interest and taxation in the period of £643,000
(2001: £296,000). Profit before taxation was £512,000 (2001: £352,000).
Interest costs in the period, net of dividends received, were £131,000 (2001:
net benefit of £56,000). Dividend income was substantially lower than in the
same period last year, because the great majority of such payments from Lupus's
current list of investments are now received in the second half of the year.
The net assets of Lupus at 30 June 2002 were £14.60 million (2001: £15.42
million), representing 8.57p per share (9.08p per share at 30 June 2001), a
small increase on the figure at 31 December 2001. Net debt amounted to £7.02
million (2001: £6.37 million).
Dividends
The Board is declaring an interim cash dividend of 0.12p per share (2001:
0.11p), a 9.1 per cent increase over last year's figure. The dividend will be
paid on 25 October 2002 to shareholders on the register at the close of business
on 4 October 2002.
Gall Thomson
Gall Thomson has continued to achieve outstanding results, further building on
the strong growth in 2000 and 2001.
In the six months to 30 June 2002 Gall Thomson again performed at record levels,
exceeding both budget and last year's comparative figures. Sales in the period
were £3.03 million (2001: £2.46 million), an increase of 22.9%. Operating
profits before corporate costs were £1.80 million (2001: £1.37 million), an
increase of 31.4%. Operating profits after corporate costs were £1.66 million
(2001: £1.26 million), an increase of 31.7%. Gall Thomson continues to be
highly cash generative.
By far the most important factor in Gall Thomson's performance continues to be
the ongoing success and growth of its main business, the supply of marine
breakaway couplings to the oil industry. The Gall Thomson product is the market
leader in its field to the point of being almost a generic name for marine
breakaway couplings. Gall Thomson benefits from the increasing use of
techniques of production and shipment which specify the use of marine breakaway
couplings.
Sales of industrial couplings, the smaller element of Gall Thomson's business,
also performed well and Lupus believes that this business has significant
potential in international markets.
Lupus believes that the outlook for Gall Thomson's marine business remains
exciting. In the Annual Report Lupus set out several factors which it believed
were particularly important in relation to Gall Thomson's success and future
growth. Briefly these were: -
• The sustained higher level of oil prices, leading major oil companies to
undertake significantly enhanced programmes of exploration and production.
• Gall Thomson's very strong global market leadership in marine breakaway
couplings.
• The increasing general demand for environmental safeguards throughout the
world.
• The need to accelerate the geographic dispersal of oil exploration and
production, away from a perceived overdependence on the Middle East. Such a
trend is likely to have been accelerated by events since 11 September 2001.
Recent independent surveys not only confirm this overall assessment of growth
potential but indeed point to an even more rapid development of oil production
in increasingly deep waters over the next few years. Such deepwater production
usually requires the use of floating production and off-loading systems which,
in turn, specify the use of marine breakaway couplings.
Review of investments
Armitage Brothers plc ('Armitage')
On 6 September 2002, Armitage, which develops, manufactures and supplies pet
accessories and pet foods, reported on its results for the year to 2 June 2002.
Lupus believes that these results were very satisfactory as they included a
significant improvement in operating profits and an increase in cash balances
from £0.26 million to £1.35 million.
Lupus continues to maintain a close relationship with the board and senior
management of Armitage, discussing a wide range of strategic matters. Such
matters are being addressed by Armitage's board, as is made clear in their
Chairman's statement of 6 September 2002.
Lupus believes that Armitage possesses a strong portfolio of brands in both its
dog food and accessories divisions which are of significant value.
Lupus owns 549,500 shares in Armitage, representing 13.6% of the issued share
capital of the company.
European Colour plc ('European Colour')
In March, Lupus reported that it had been involved in prolonged and detailed
discussions about strategic matters with the board and senior management of
European Colour. It was also reported that European Colour had just announced
certain board changes; Lupus strongly supported these board changes, believing
that the company would then fully address its key strategic issues.
On 11 September 2002, European Colour announced that it had agreed to sell Tor
Coatings Limited ('Tor'), its coatings division, for a cash consideration of
£13.0 million plus a one-off special dividend of approximately £0.49 million.
Lupus agrees with the company's statement that the sale is a significant step
forward in achieving European Colour's goal of maximising shareholder value.
Lupus notes that the financial position of European Colour will be substantially
strengthened by the sale and it also allows for the reinstatement of dividends
on ordinary shares. Furthermore, the directors of European Colour have stated
that they expect a much improved result for the half year ending 30 September
2002. Lupus therefore strongly supports the sale of Tor and has given an
irrevocable commitment to vote in favour of the sale at European Colour's EGM,
expected to take place on 4 October 2002.
Lupus owns 4,691,616 shares in European Colour representing 10.1% of the issued
share capital of the company.
Shiloh plc ('Shiloh')
Lupus believes that Shiloh, which provides a range of healthcare services and
supplies, has significant growth opportunities in a number of its business areas
including mobility services, sterilisation services, incontinence products and
wound care products. Having transformed itself from a cotton spinning company
into a broad-based healthcare business over recent years, Shiloh has been making
a series of changes to its management and structure to manage these growth
opportunities effectively. Lupus has been working closely with the board and
senior management of Shiloh, discussing a range of strategic issues.
During the year, Shiloh has made a number of announcements which Lupus believes
signal both its intention to grasp growth opportunities and to put in place the
requisite management structure. These announcements include the appointment of
Graham Collyer as Chief Executive designate. Lupus believes that Graham's
experience at Seton Healthcare, which was a major growth company in the
healthcare sector in the 1990's, is very applicable to Shiloh.
Over the last few months, Lupus has acquired further shares in Shiloh and now
owns 866,482 shares representing 12.97% of the issued share capital of the
company.
Castings plc ('Castings')
Castings, one of the leading ductile and malleable ironfounders in Europe, has
an outstanding record of profitability and cash generation over many years. Its
most recent results - for the year to 31 March 2002 - continued its pattern of
achieving excellent returns even in difficult times. Lupus notes that, in
achieving such excellent returns, Castings has continued to invest heavily in
its business - capital expenditure was £12.5 million in the last financial year
- both to increase efficiency and service new orders, but still retained cash of
approximately £27 million at their year end, 31 March 2002. Equally, it has
succeeded in exporting an increasing amount of its product with 48% of total
sales going overseas, most of it to Europe, in the last financial year.
Set against this excellent record, Lupus believes that there continues to be a
mismatch between Castings's stock market value and its commercial value. Lupus
has held discussions about such strategic matters with the board and senior
management of Castings.
Lupus owns 2,000,000 shares in Castings representing 4.6% of the issued share
capital of the company.
Current trading
Gall Thomson's excellent performance in the first half has continued into the
second half. The outlook for Gall Thomson both for the rest of the year, and
for next year, is very encouraging.
Although the overall level of corporate activity has been low, Lupus is
confident that this will slowly pick up in the coming months. Lupus is
encouraged, for example, by European Colour's announcement of the agreement to
sell Tor, its coatings division.
Lupus believes that there are many interesting prospects in terms of new
investments and the Board continues to view the future with confidence.
Group profit and loss account
Six month Six month Year
period ended period ended ended
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£000 £000 £000
Turnover 3,027 2,463 5,341
Operating profit
Continuing operations - excluding goodwill amortisation 1,013 666 1,568
Goodwill amortisation (370) (370) (741)
643 296 827
Profit on sale of fixed asset investments - - 718
Income from investments 53 216 299
Amounts written off fixed asset investments - - (1,425)
Interest and similar items (184) (160) (306)
Profit on ordinary activities before taxation 512 352 113
Taxation (236) (116) (368)
Profit / (loss) on ordinary activities after taxation 276 236 (255)
Ordinary dividends (205) (187) (612)
Retained profit / (loss) 71 49 (867)
Earnings / (loss) per share 0.16p 0.14p (0.15)p
Diluted earnings / (loss) per share 0.16p 0.14p (0.15)p
Earnings before goodwill amortisation per share 0.38p 0.36p 0.29p
Dividend per share 0.12p 0.11p 0.36p
There were no recognised gains or losses in each period other than the profit on
ordinary activities after taxation.
Group balance sheet
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£000 £000 £000
Fixed assets
Intangible fixed assets 12,533 13,273 12,902
Tangible fixed assets 534 601 565
Investments 8,070 7,051 7,185
21,137 20,925 20,652
Current assets
Stocks and work-in-progress 215 165 172
Debtors 1,493 1,848 2,021
Investments - 299 -
1,708 2,312 2,193
Creditors: amounts falling due within one year (8,170) (7,820) (8,254)
Net current liabilities (6,462) (5,508) (6,061)
Total assets less current liabilities 14,675 15,417 14,591
Creditors: amounts falling due after more than one year (78) - (77)
Net assets 14,597 15,417 14,514
Capital and reserves
Called up share capital 852 849 851
Share premium account 4,429 4,407 4,418
Merger reserve 10,389 10,389 10,389
Profit and loss account (1,073) (228) (1,144)
Equity shareholders' funds 14,597 15,417 14,514
Group statement of cash flows
Six month Six month Year
period ended period ended ended
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£000 £000 £000
Net cash inflow / (outflow) from operating activities 1,176 288 875
Returns on investments and servicing of finance
Interest received 80 87 149
Interest paid (258) (247) (418)
Dividends received 53 35 299
(125) (125) 30
Taxation
UK Corporation tax paid (128) (89) (367)
Capital expenditure and financial investment
Sale of tangible fixed assets - 2 3
Purchase of tangible fixed assets (6) (38) (48)
Sale of fixed asset investments - 90 3,230
Purchase of fixed asset investments (886) (3,284) (6,845)
Sale of current asset investments - - 298
Purchase of current asset investments - - (425)
(892) (3,230) (3,787)
Equity dividends paid (426) (382) (569)
Net cash outflow before financing (395) (3,538) (3,818)
Financing
Issue of shares net of costs 12 12 25
Decrease in cash (383) (3,526) (3,793)
Reconciliations
Six month Six month Year
period ended period ended ended
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£000 £000 £000
Reconciliation of net cash flow to movement in net debt
Decrease in cash (383) (3,526) (3,793)
Change in net debt from cash flows (383) (3,526) (3,793)
Opening net debt (6,637) (2,844) (2,844)
Closing net debt (7,020) (6,370) (6,637)
Six month Six month Year
period ended period ended ended
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£000 £000 £000
Reconciliation of operating profit to net cash flows
from operating activities
Operating profit 643 296 827
Depreciation 37 41 86
Amortisation of goodwill 370 370 741
Movement in stock (43) 12 5
Movement in debtors 527 (319) (686)
Movement in creditors (358) (95) (85)
Profit on disposal of current asset investments - (17) (13)
Net cash flow from operating activities 1,176 288 875
Notes to the interim statement
1. The interim financial information has been prepared on the
basis of the accounting policies set out in the Report and Accounts for the
Group for the year ended 31 December 2001. The interim financial information
does not constitute statutory accounts and is not audited. A copy of the
Group's 2001 statutory accounts has been filed with the Registrar of Companies;
the auditors' opinion on those accounts was unqualified.
2. The calculation of earnings per share is based on the profit
after taxation and 170,182,258 ordinary shares (2001: 169,726,551) being the
weighted average number of shares in issue during the half year. The weighted
average number of shares in issue during the year ended 31 December 2001 was
169,827,998. The calculation of fully diluted earnings per share is based on
the profit after taxation and 170,182,258 ordinary shares being the weighted
average number of shares in issue during the period, after allowing for share
options (June 2001: 169,726,551 and December 2001: 169,827,998).
An additional earnings per share figure is provided to show the earnings before
goodwill amortisation per share, the calculation of which is based on the profit
after taxation adjusted for the goodwill amortisation charge of £370,000 (2001:
£370,000) and 170,182,258 ordinary shares being the weighted average number of
shares in issue during the period (June 2001: 169,726,551 and December 2001:
169,827,998).
3. The Directors have declared an interim dividend of 0.12
pence per share (2001: 0.11 pence) to shareholders on the register on the close
of business on 4 October 2002, which will be paid on 25 October 2002.
4. The board of Directors approved the interim financial
statement on 11 September 2002.
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