Interim Results
Lupus Capital PLC
28 September 2006
LUPUS CAPITAL plc
Interim Report
For the six months ended 30 June 2006
Chairman's Statement
Dear Shareholder,
The period that we are reporting on has been a very exciting and successful time
for your company. Gall Thomson has produced record results, we have acquired
and absorbed Schlegel and Lupus Capital has achieved excellent growth in sales,
profits, dividends and cash generation, which, together with a strong balance
sheet, enables future development.
Pre-tax profits for the six months to 30 June 2006 were £3,880,000 (compared to
the pre-tax profit of £871,000 last year). Sales were £23,684,000 up from
£3,137,000. These results led to earnings per share of 0.570p, up by almost 3
times, from 0.210p last half year. The figures for the period are not directly
comparable as they include a major acquisition and have been prepared on the
basis of the requirements of UK GAAP. The comparative figures for the same
period in 2005 and for the year ended 31 December 2005 have been restated to
conform to UK GAAP, as explained in the notes to the accounts.
The directors have declared a second interim dividend of 0.049p per share.
Together with the first interim of 0.114p paid in April 2006, this brings the
total interim payments up to 0.163p per share (2005: 0.132p per share) which is
an increase of over 23%. The second interim will be paid on 27 October 2006 to
shareholders on the register at the close of business on 6 October 2006.
The £84 million acquisition of Schlegel, a leader in the manufacture and
marketing of door and window seals, was completed on 4 April 2006. This has
broadened the sphere of operations of Lupus Capital plc and management has
reviewed the risk profile of the enlarged group. In the three months of our
half year the integration has proceeded smoothly.
A number of fresh operational initiatives have been introduced, such as the
reassignment of production between plants, efficiency and scrap initiatives and
additional workforce recruitment at lower cost levels. In sales and marketing
new customers have been won, exports to Eastern Europe have increased, prices
have been raised to reflect higher raw material costs and there has been a
refocusing on higher margin customers and products. Under finance, working
capital controls have been emphasised and financial analysis has initiated
targets to recoup transportation and production costs. The incumbent management
team is enthusiastic and more motivated to continue to develop the business.
Sales were up over 10 per cent year on year with the US and Germany particularly
strong thanks to new products, market share gains and a good overall global
market both in new build and refurbishment.
Profit growth resulted from these increased sales, productivity and cost
controls, which led to excellent cash generation after capital expenditure and
working capital requirements.
Raw Material input costs continue to rise - these are mostly being passed on to
our customers. The weakness of the dollar has had only a limited impact on the
translation of profits.
Gall Thomson, our manufacturer of marine and industrial breakaway couplings for
the oil and other heavy industries, for the first half year to 30 June 2006 had
record order books, produced growing profits over last year and continued to
deliver commendable cash generation. Its market remains buoyant.
We anticipate that Lupus will produce double digit earnings per share growth due
firstly, to the performance of our strong existing business, secondly, to the
well-priced acquisition and thirdly, to the reinvigorated Schlegel providing a
profit increase over the previous year.
We have a well constructed strategy, a sturdy balance sheet, healthy operating
activities, robust cash generation and an eager entrepreneurial management team
who enjoy the challenge of continuing to develop Lupus Capital plc.
Greg Hutchings
Chairman
28 September 2006
Consolidated profit and loss account
Six months Six months
ended ended Year ended
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited) (unaudited)
Notes (restated) (restated)
£'000 £'000 £'000
Revenue 4 23,684 3,137 7,479
Operating profit 4 4,389 832 2,345
Interest and similar items (509) 39 90
Profit before taxation 3,880 871 2,435
Taxation (1,476) (373) (1,025)
Profit attributable to shareholders 2,404 498 1,410
of the company
Earnings per share - basic and 5 0.57p 0.21p 0.59p
diluted
Consolidated Balance Sheet
At 30 June At 30 June At 31 December
2006 2005 2005
(unaudited) (unaudited) (unaudited)
Notes (restated) (restated)
£'000 £'000 £'000
Non-current assets
Goodwill 7 82,602 10,311 9,940
Tangible non-current assets 14,261 434 443
96,863 10,745 10,383
Current assets
Inventories 8,521 371 331
Receivables 18,477 2,016 2,965
Cash 4,288 2,410 2,654
31,286 4,797 5,950
Current liabilities 8 (20,343) (1,101) (1,915)
Net current assets 10,943 3,696 4,035
Total assets less current 107,806 14,441 14,418
liabilities
Non-current liabilities 8 (40,678) (15) (21)
Net assets 67,128 14,426 14,397
Capital and reserves
Share capital 9 3,081 1,188 1,188
Merger reserve 10,389 10,389 10,389
Lesot reserve - (8,201) -
Retained earnings 9 53,658 11,050 2,820
67,128 14,426 14,397
Consolidated Statement of Recognised Gains and Losses
Six months ended Six months Year ended
Ended
30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited) (unaudited)
Notes £'000 £'000 £'000
Opening balance - as previously 15,878 14,668 14,668
stated
Restatement 3 (1,481) (740) (740)
Opening balance - as restated 3 14,397 13,928 13,928
Profit for the financial period/ 2,404 498 1,410
year
Shares issued net of costs 9 51,593 - -
Translation adjustment (334) - -
Dividends paid 6 (932) - (941)
Closing balance 67,128 14,426 14,397
Consolidated Cash Flow Statement
Six months Six months Year
ended ended ended
30 June 2005 30 June 2005 31 December
2005
(unaudited) (unaudited) (unaudited)
(restated) (restated)
£'000 £'000 £'000
Cash flows from operating activities
Operating profit 4,389 832 2,345
Depreciation 544 7 58
Amortisation of goodwill 22 370 741
Movement in inventories 1,339 (120) (80)
Movement in receivables (1,462) 306 (642)
Movement in payables 303 (120) 342
Interest received 179 155 316
Interest paid (688) (117) (226)
Corporation tax paid (709) (507) (806)
Net cash from operating activities 3,917 806 2,048
Investing activities
Acquisition, net of cash acquired (47,223) - -
Schlegel debt repaid upon acquisition (40,281) - -
Property, plant and equipment (400) (45) (105)
Net cash from investing activities (87,904) (45) (105)
Financing
Issue of shares net of costs 51,593 - -
Capital element of finance leases (40) - 3
Bank loan 35,000 - -
Equity dividends paid (932) - (941)
Net cash from financing activities 85,621 - (938)
Increase in cash and cash equivalents 1,634 761 1,005
Notes
1. Status of the financial statements
These financial statements are not the Company's statutory accounts for the
purposes of Section 240 of the Companies Act 1985. They are unaudited. The
Company's statutory accounts for the year ended 31 December 2005, prepared in
accordance with IFRS, received an unqualified audit report and have been filed
with the registrar of companies at Companies House.
The Directors approved the interim report on 28 September 2006.
2. Accounting policies
The interim financial information has been prepared in accordance with United
Kingdom Generally Accepted Accounting Principles (UK GAAP), which are the
accounting policies to be used in the Report and Accounts of the Group for the
year ended 31 December 2006.
The consolidated financial statements for the year ended 31 December 2005 were
prepared in accordance with International Financial Reporting Standards (IFRS).
UK GAAP differs in some respects from IFRS. The relevant change of accounting
policy is as follows:
Under IFRS, the requirement to amortise goodwill was replaced by an impairment
review of the value of the Company's investments. The directors conducted an
impairment review and concluded that the value at which Gall Thomson
Environmental Limited (Gall Thomson) was stated in the Company's balance sheet
at 1 January 2004 and the value at which KLAW Products Limited was stated in the
balance sheet of Gall Thomson at 1 January 2004 were not greater than the
realisable values of those investments. Therefore the carrying value of
goodwill under IFRS was the value as at 1 January 2004 and no further provision
was made against that value. Under UK GAAP a decision to cease amortisation
represents a change in accounting policy; no such change was made in respect of
2004 or 2005. The Board has resolved that amortisation should be discontinued
under UK GAAP with effect from 1 January 2006. Therefore the valuation of
goodwill is lower under UK GAAP by two years' amortisation.
The accounting policies are unchanged from those used in the last annual
accounts except where otherwise stated.
3. Restatements
The restatements required by the changes in accounting policy, as set out in
note 2 above, are as follows:
(a) Profit after taxation
Six months ended Year ended
30 June 2005 31 December 2005
(unaudited) (unaudited)
£'000 £'000
Profit for the financial period/year, as 868 2,151
previously stated under IFRS
Amortisation of goodwill (370) (741)
As reported under UK GAAP 498 1,410
(b) Net assets
At 1 January 2006 At 1 January 2005
(unaudited) (unaudited)
£'000 £'000
Opening net assets, as previously stated 15,878 14,668
under IFRS
Amortisation of goodwill (1,481) (740)
As reported under UK GAAP 14,397 13,928
4. Revenue and operating profit
The group's income and profit for the period included three months' results for
the Schlegel business acquired on 4 April 2006. The analysis of the operating
results is as follows:
Schlegel Pre-existing Lupus Total
group
(3 months) (6 months)
£'000 £'000 £'000
Revenue 19,746 3,938 23,684
Cost of sales (7,381) (1,307) (8,688)
Gross profit 12,365 2,631 14,996
Administrative expenses (9,297) (1,310) (10,607)
Operating profit 3,068 1,321 4,389
5. Earnings per share
Earnings per share figures are based on the weighted average of 421,753,113
ordinary shares in issue during the half-year ended 30 June 2006 (half-year to
30 June 2005 and year to 31 December 2005: 237,696,286 shares). The number of
shares in issue at 30 June 2006 was 616,267,715 (30 June 2005: 237,696,286
shares).
6. Dividends
The final dividend for the year ended 31 December 2005 of 0.278p per share
(2004: 0.264p per share) was paid to shareholders on 22 June 2006 and absorbed
£661,000.
A special interim dividend of 0.114p per share was paid on 21 April 2006. The
directors have today, 28 September 2006, declared a further interim dividend of
0.049p per share, making total interim payments of 0.163p per share (2005:
0.132p). This second interim dividend will be payable on 27 October 2006 to
shareholders on the register at the close of business on 6 October 2006. The
two interims together will absorb £573,000 (2005: £314,000).
The dividends paid or payable and those proposed are summarised below:
Six months Six months Year ended
Ended Ended 31 December
30 June 30 June 2005
2006 2005
(a) dividends reflected in the
financial statements
Dividends paid per share 0.392p - 0.396p
(b) dividends not reflected in the
financial statements
Final dividend proposed per share - 0.264p 0.278p
Interim dividend proposed per share 0.049p 0.132p -
7. Goodwill
The building products business of Schlegel was acquired on 4 April 2006 for £84
million. These interim results include a provisional assessment of fair value
of the assets and liabilities and consequently of the goodwill.
8. Liabilities
Current liabilities include the £5,000,000 loan and non-current liabilities
include the non-current loan of £30,000,000 described under note 9 below. No
drawings have been made under the revolving loan facility. Net debt stood at
£31,800,000.
9. Funding of the acquisition of Schlegel
The acquisition of Schlegel was financed by:
(i) Raising £53 million by way of a placing and open offer of
378,571,429 ordinary shares in Lupus at an issue price of 14p per share. The
shares were issued through a subsidiary in such manner that the entire premium
on the issue became available as a credit to distributable reserves.
(ii) A new debt facility provided by Bank of Scotland comprising a term
loan of £35,000,000 (of which £30,000,000 is current and £5,000,000 long-term)
and a multicurrency revolving loan facility of £10,000,000.
Secretary Cavendish Administration Limited
Registered office Crusader House
145-157 St John Street
London EC1V 4RU
The interim report will be sent to shareholders and copies will be made
available to the public at the registered office of the Company and at the
Company's website www.lupuscapital.co.uk.
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