Interim Results
Lupus Capital PLC
27 September 2007
LUPUS CAPITAL plc
INTERIM REPORT
FOR THE SIX MONTHS ENDED
30 JUNE 2007
Chairman's Statement
Dear Shareholder,
The six months up to 30 June 2007, upon which we are now reporting, has been an
exciting and successful period for your company. Not only have our businesses
traded well but we have also substantially increased the size of the group with
our £242.5m acquisition of the Laird Security Systems division from The Laird
Group plc. This was announced on 19 March and completed on 27 April 2007. We
have thus continued to achieve our strategy and objectives and of course our aim
of rewarding shareholders.
Pre-tax profits before amortisation for the first half of the year, which
includes a two and six months contribution from Laird Security Systems (LSS) and
Schlegel respectively, were £10.064 million which compares to £3.880 million for
the same period last year. Sales were £79.028 million up from £23.684 million.
Adjusted earnings per share of 0.724p were up 27.1% a significant increase
from 0.570p in the six months to June 2006.
The directors have declared a second interim dividend of 0.056p per share.
Together with the first interim of 0.150p paid in April 2007 this brings the
total interim dividends up to 0.206p per share (2006: 0.163p per share) which is
an advance of over 26%. The second interim will be paid on 8 November 2007 to
shareholders on the register at the close of business on 5 October 2007.
In the event that you prefer to receive shares instead of a cash dividend, a
notice from our Registrars, Capita, will be available which will allow you to do
this. Please either complete the form or, for further details, call Capita
direct on 0870 162 3181 or email shares@capitaregistrars.com.
Below is given a short overview of the performance of each of Lupus Capital's
businesses.
• Gall Thomson, our manufacturer of breakaway couplings, enjoyed buoyant
markets in the first six months of 2007 and delivered record performance
both in sales, profits and cash generation.
• Schlegel, a leader in the global manufacture and marketing of door and
window seals, produced good results leading on from the operational
initiatives that were taken following its acquisition in April 2006.
Schlegel U.S. has now been combined with the US door and window seals division
of Laird Group under a single management team in order to increase their
prospects and profitability. Many synergies are following which include, a
fully comprehensive product range for their customers, greater purchasing power
for raw material sourcing, operational cost savings, the closure of one
manufacturing facility and improved product development.
Schlegel (non U.S.) continues to thrive with good growth coming from the
European markets of Germany, Spain, U.K. and Eastern areas. The management of
Linear, the Laird U.K. seals company, has now been taken on by our Schlegel
team. This is producing many cost saving opportunities resulting from optimising
production allocation between countries and also improving customer service.
• Laird Security Systems is a manufacturer of products such as locks,
balances, handles and hinges for the U.S. and U.K. door and window industry.
Sales are approximately 60% to the refurbishment/remodelling (RMI) market
and the remainder to new build. RMI has been steady throughout the world in
contrast to the U.S. new build market, which is subject to lower housing
starts and completions. Cost reductions, improved marketing and careful
control of working capital have been necessary in order to retain an
acceptable level of profitability in the US. In the U.K, where the market
is stronger, there are also many opportunities for similar actions.
The US new housing market to which our US Laird companies and our US seals
businesses are exposed account for only 40% to 50% of our total US sales. It
is clearly an area which is of concern to us; however, with the synergies
between our combined US seals activities and the reductions to our cost bases,
we still anticipate a satisfactory result from this limited proportion of our
overall business spectrum.
On 27 July we sold, as planned, the Laird Lifestyle Products (LLP) assets which
was a minor business within the Laird acquisition. LLP was a loss making
manufacturer of primarily PVCu conservatories and their component parts to the
retail mass market. For the short period within Lupus it continued to lose
money and we were very pleased to exit this industry albeit only for a notional
sale price.
Input prices for raw materials are still high, although more stable than a year
ago. The dollar/pound exchange rate at around 2 is not favourable when
converting US profits. At the corporate level, however, the currency exposure
has been mitigated by designating a substantial portion of the debt taken on for
the LSS acquisition in U.S dollars. We continue to examine ways to optimise our
worldwide tax position and expect some success in achieving this.
Overall, we feel optimistic about the progress and prospects for the group both
in the second half and the year as a whole and we look forward to another period
of strong performance and the further development of Lupus Capital plc.
Greg Hutchings
Chairman
27 September 2007
Consolidated profit and loss account
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
(restated) (restated)
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Continuing operations
Revenue 4 79,028 23,684 62,940
Operating profit before amortisation
of intangible assets 4 12,357 4,389 11,567
Amortisation of acquired intangible
assets (2,502) (710) (2,129)
Operating profit 9,855 3,679 9,438
Net interest expense (2,293) (509) (1,533)
Profit before taxation from
continuing operations 7,562 3,170 7,905
Taxation (2,671) (1,263) (2,973)
Profit attributable to shareholders 4,891 1,907 4,932
Earnings per share
- Basic and diluted 6 0.533 0.452 0.949
- Adjusted* 6 0.724 0.570 1.235
Underlying results *
Profit before tax 4 10,064 3,880 10,034
* before amortisation of acquired intangible assets, exceptional items and
deferred tax on acquired intangible assets.
Statement of recognised income and expense
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
(restated) (restated)
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Profit attributable to shareholders 4,891 1,907 4,932
Actuarial gains on retirement benefit
obligations - - 622
Exchange differences on translation
of foreign assets and liabilities 679 (334) (1,653)
Tax - - (217)
Net income recognised directly in
equity 679 (334) (1,248)
Total recognised income and expense
in the period 5,570 1,573 3,684
Consolidated Balance Sheet
At 30 June 2007 At 30 June 2006 At 31 December
2006
(restated) (restated)
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Non-current assets
Intangible assets 316,549 83,586 80,774
Tangible assets 35,590 14,261 13,030
Deferred tax 8,060 - 6,078
Derivative financial instruments 1,118 - -
Other assets 1,178 - -
362,495 97,847 99,882
Current assets
Inventories 33,410 8,521 7,396
Trade and other receivables 49,717 18,477 15,210
Cash and cash equivalents 30,815 4,288 9,738
113,942 31,286 32,344
Total assets 476,437 129,133 132,226
Current liabilities
Borrowings 8 (11,024) (5,000) (4,938)
Trade and other payables (59,559) (13,453) (14,967)
Income tax payable (6,444) (1,731) (1,453)
Finance lease obligations 8 (106) (159) (156)
(77,133) (20,343) (21,514)
Non-current liabilities
Borrowings 8 (138,687) (30,000) (27,296)
Deferred tax (30,967) (19) (7,828)
Finance lease obligations 8 (204) (420) (334)
Retirement benefit obligations (3,320) (6,443) (3,290)
Provisions (21,615) (3,680) (1,868)
Other non-current liabilities (110) (116) (115)
(194,903) (40,678) (40,731)
Total liabilities (272,036) (61,021) (62,245)
Net assets 204,401 68,112 69,981
Capital and reserves
Equity share capital 10 6,861 3,081 3,083
Share premium 10 45 - 45
Merger reserve 10 10,389 10,389 10,389
Hedging reserve 10 1,118 - -
Retained earnings 9 185,988 54,642 56,464
Total shareholders' equity 204,401 68,112 69,981
Consolidated cash flow statement
Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
(restated) (restated)
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Cash flows from operating activities
Operating profit 9,855 3,679 9,438
Depreciation 1,831 566 1,646
Amortisation 2,502 710 2,129
Movement in inventories 2,363 1,339 1,698
Movement in trade and other receivables (2,778) (1,462) 1,394
Movement in trade and other payables 5,655 303 619
Tax payments (1,993) (709) (2,050)
Net cash flows from operating activities 17,435 4,426 14,874
Cash flow from investing activities
Interest received 479 179 501
Acquisition of businesses (net of
cash acquired) (238,231) (47,223) (47,408)
Property plant and equipment (1,159) (400) (964)
Inflow from sale of business - - -
Proceeds from sales of property,
plant and equipment 7 - -
Net cash flows from investing
activities (238,904) (47,444) (47,871)
Cash flows from financing activities
Interest paid (2,773) (688) (2,034)
Net proceeds from issue of ordinary shares 131,270 51,593 51,653
Proceeds from borrowings 119,667 35,000 34,734
Repayment of borrowings (2,500) (40,281) (42,781)
Dividends paid to shareholders (2,983) (932) (1,234)
Repayment of capital element of finance leases (78) (40) (112)
Net cash flows from financing
activities 242,603 44,652 40,226
Increase in cash and cash equivalents
for the period 21,134 1,634 7,229
Cash and cash equivalents brought forward 9,738 2,654 2,654
Effect of exchange rate on cash and
cash equivalents (57) - (145)
Cash and cash equivalents carried
forward 30,815 4,288 9,738
Notes to the Interim Report
1. Status of the interim financial statements
The Group's interim financial statements for the six months ended 30 June 2007
were authorised for issue by the directors on 26 September 2007. The
consolidated interim financial information, which is unaudited, does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985. The statutory accounts for the year ended 31 December 2006 have been
reported on by the Group's auditors, received an unqualified audit report and
have been filed with the registrar of companies at Companies House.
2. Accounting policies
The interim financial information has been prepared on the basis of the
recognition and measurement requirements of International Financial Reporting
Standards (IFRS), which are the accounting policies to be used in the Report and
Accounts for the Group for the year ended 31 December 2007, as required for the
consolidated accounts listed on the Alternative Investment Market ('AIM').
Previously, the consolidated financial statements were prepared in accordance
with United Kingdom Generally Accepted Accounting Principles ('UK GAAP') up to
and including 31 December 2006. IFRS differs in some respects from UK GAAP. In
accordance with the rules of IFRS the comparative information is also prepared
under IFRS and has been restated where necessary. The accounting policies are
unchanged from those used in the last annual accounts except where otherwise
stated.
3. Transition to IFRS
The table below summarises the differences between UK GAAP, as presented in the
audited annual accounts for the year ended 31 December 2006, and IFRS.
£000
Year ended 31 December 2006
Profit for the year from continuing operations
As reported under UK GAAP 6,408
Amortisation of intangible assets arising from the acquisition of Schlegel (2,108)
Deferred tax impact of intangible assets 632
As reported under IFRS 4,932
Net assets
As reported under UK GAAP 69,976
Amortisation of goodwill under UK GAAP added back 1,481
Amortisation of intangible assets arising from the acquisition of Schlegel (2,108)
Recognition of accrual for holiday pay (27)
Deferred tax impact of amortisation of intangible assets 632
Deferred tax impact of accrual for holiday pay 11
Other differences 16
As reported under IFRS 69,981
£000
Six months ended 30 June 2006
Profit for the period from continuing operations
As reported under UK GAAP 2,404
Amortisation of intangible assets arising from the acquisition of Schlegel (710)
Deferred tax impact of intangible assets 213
As reported under IFRS 1,907
In addition to the above there are a number of reclassifications between UK GAAP
and IFRS which do not impact the net assets as reported, the most significant of
which are:
Intangible assets
Under IFRS certain intangible assets that exist as a result of a business
combination are recognised separately from goodwill if they are separable and
measurable. As such with respect to the Schlegel acquisition £8.4m in respect of
brands and £19.8m in respect of customer relationships have been recognised
separately from goodwill and £2.108m has been charged in respect of the
amortisation of these assets for the period from date of acquisition to 31
December 2006 and £710,000 in the six months to 30 June 2006. Under UK GAAP
there is no requirement to separate intangible assets and hence all such amounts
therefore form part of goodwill and are not then amortised.
Deferred tax
Under IFRS deferred tax is provided for the difference between the book value of
the intangible arising as a result of the acquisition of Schlegel and the tax
base of those assets with the corresponding entry being made to goodwill. The
deferred tax provided on acquisition was £8.46m and £632,000 has been released
to the income statement as result of the amortisation charged in the period from
date of acquisition to 31 December 2006. A further £213,000 was released in the
six months to 30 June 2007.
Computer software
A reallocation of £93,000 of computer software costs from tangible assets under
UK GAAP to intangible assets under IFRS has been made.
4. Segmental analysis
Primary reporting format - business segments
Continuing Oil services Building products Total
operations
6 months 6 months 12 months 6 months 6 months 12 months 6 months 6 months 12 months
to 30 to 30 June to 31 Dec to 30 to 30 June to 31 Dec to 30 to 30 June to 31 Dec
June 2007 2006 2006 June 2007 2006 2006 June 2007 2006 2006
(restated) (restated) (restated) (restated) (restated) (restated)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Sales 6,182 3,938 9,314 72,846 19,746 53,626 79,028 23,684 62,940
Operating profit
(before
amortisation of
intangible assets) 2,065 1,321 3,445 10,292 3,068 8,122 12,357 4,389 11,567
Net finance costs (2,293) (509) (1,533)
Profit before tax
(before
amortisation of
intangible assets) 10,064 3,880 10,034
5. Revenue and operating profit
The Group's income and profit for the period included approximately two months'
results of the LSSD business acquired on 26 April 2007. The analysis of the
operating result is as follows:
LSSD Pre-existing Total
Lupus Group
(2 months) (6 months)
£'000 £'000 £'000
Revenue 37,973 41,055 79,028
Cost of sales (26,537) (21,828) (48,365)
Gross profit 11,436 19,227 30,663
Administrative expenditure (6,721) (11,585) (18,306)
Operating profit 4,715 7,642 12,357
6. Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for
the year attributable to ordinary equity shareholders by the weighted average of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares. There were no potentially
dilutive shares.
At 30 June 2007 At 30 June At 31 December
2006 2006
(restated) (restated)
Basic and diluted earnings per share 0.533p 0.452p 0.949p
'000 '000 '000
Basic and diluted number of shares 917,112 421,753 519,845
Earnings per share from continuing operations before exceptional items and
intangible asset amortisation
The Group presents as exceptional items on the face of the income statement
those material items of income and expense, which because of the nature and
expected infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the elements of
financial performance in the period, so as to facilitate comparison with prior
periods and to assess better trends in financial performance.
Adjusted basic EPS is used by management as the measure of the Group's earnings
and is calculated excluding the effect of exceptional costs and acquired
intangible assets net of tax.
At 30 June 2007 At 30 June At 31 December
2006 2006
(restated) (restated)
£'000 £'000 £'000
Profit for the period from continuing operations 4,891 1,907 4,932
Exceptional items
Amortisation of acquired intangible assets 2,502 710 2,129
Tax effect of exceptional costs and amortisation
of acquired intangible assets (751) (213) (639)
Adjusted profit for the period from continuing
operations attributable to equity holders 6,642 2,404 6,422
Adjusted basic earnings per share 0.724p 0.570p 1.235p
7. Dividends
At 30 June 2007 At 30 June At 31 December
2006 2006
(restated) (restated)
£'000 £'000 £'000
Dividends reflected in the financial statements:
Final dividend for 2006 at 0.334p per share 2,059 - -
Special interim dividend for 2007 at 0.150p per
share 925 - -
Interim dividend for 2006 at 0.049p per share - - 302
Final dividend for 2005 at 0.278p per share - 661 661
Special interim dividend for 2006 at 0.114p per
share - 271 271
2,984 932 1,234
Dividends not reflected in the financial
statements:
Proposed second interim dividend for 2007 at
0.056p per share 768 - -
Proposed second interim dividend for 2006 at
0.163p per share - 302 -
Proposed final dividend for 2006 at 0.334p per
share - - 2,059
768 302 2,059
8. Borrowings
At 30 June 2007 At 30 June At 31 December
2006 2006
(restated) (restated)
£'000 £'000 £'000
Non-current
Bank borrowings 138,687 30,000 27,296
Obligations under finance leases and hire
purchase contracts 204 420 334
138,891 30,420 27,630
Current
Bank borrowings 11,024 5,000 4,938
Obligations under finance leases and hire
purchase contracts 106 159 156
11,130 5,159 5,094
The Group took out a 5 year loan of $240,000,000 from Bank of Scotland, Royal
Bank of Scotland and HSBC during the period in connection with the acquisition
of Laird Security Systems Division.
Bank loans and other borrowings are secured on the assets of Amesbury
Acquisition Holdings No 2, Inc., Jasper Acquisition Holdings Limited and
Schlegel Acquisition Holdings Limited. The principal companies within the Group
have also provided cross guarantees to the Group's bankers in support of all
bank loans and borrowings.
9. Acquisition of Laird Security Systems Division
The acquisition of the business of Laird Security Systems Division (LSSD) was
completed on 26 April 2007. The acquisition was funded by the raising of £136
million by way of a placing and open offer of 755,555,556 new ordinary shares in
Lupus Capital plc at an issue price of 18p per share and by way of a new debt
facility comprising a term loan of $240,000,000.
In order to account for the acquisition two new subsidiary companies, Amesbury
Acquisition Holdings No 2, Inc (AAH) and Jasper Acquisition Holdings Limited
(JAH) were formed. 75% of the acquisition cost was attributed to the United
States operation and was acquired by AAH and 25% attributed to the UK and
European operation and was acquired by JAH.
The acquisition of LSSD had the following effect on the Group's assets and
liabilities:
Fair value Provisional
adjustments fair values
Book value
£'000 £'000 £'000
Intangible assets 69,360 - 69,360
Property, plant and equipment 25,311 (1,671) 23,640
Other assets 1,130 - 1,130
Inventories 35,217 (6,841) 28,376
Trade receivables and other debtors 31,946 (447) 31,499
Deferred tax asset 23 - 23
Cash at bank 132 - 132
Current liabilities (28,661) (2,020) (30,681)
Non current liabilities (159) - (159)
Provisions (10,765) (7,981) (18,746)
Deferred tax liabilities (23,571) - (23,571)
99,963 (18,960) 81,003
Net cash paid 231,040
Deferred consideration 12,500
Accrued consideration 729
Acquisition costs 7,191
Cash consideration 251,460
Goodwill on acquisition 170,457
Fair values have been assessed on a provisional basis pending finalisation of
the rationalisation of group accounting procedures, which cover a number of
different reporting regimes throughout the world. Deferred tax has been provided
on all fair value adjustments as applicable and on purchased goodwill where a
tax benefit will be obtained against future taxable benefits.
The valuation of intangible assets has been estimated at this stage. A firm of
external professional valuers will be undertaking a comprehensive valuation
shortly.
10. Reconciliation of movements in equity
Share Share Merger Hedging Currency Retained Total
capital premium reserve reserve translation earnings
(restated) (restated)
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2006
As previously stated 1,188 - 10,389 - - 2,820 14,397
IFRS adjustment - - - - 1,481 1,481
Opening balance - as 1,188 - 10,389 - - 4,301 15,878
restated
Total recognised income and
expense for the period - - - - (334) 1,907 1,573
Issue of shares net of 1,893 - - - - 49,700 51,593
costs
Dividends paid - - - - - (932) (932)
At 30 June 2006 3,081 - 10,389 - (334) 54,976 68,112
Issue of shares net of 2 45 - - - 13 60
costs
Total recognised income and
expense for the period - - - - (1,319) 3,025 1,706
Actuarial gains on defined
benefit plans (net of tax) - - - - - 405 405
Dividends paid - - - - - (302) (302)
At 31 December 2006 3,083 45 10,389 - (1,653) 58,117 69,981
Issue of shares net of 3,778 - - - 126,938 130,716
costs
Derivative financial - - - 1,118 - - 1,118
instruments
Total recognised income and
expense for the period - - - - 679 4,891 5,570
Dividends paid - - - - - (2,984) (2,984)
At 30 June 2007 6,861 45 10,389 1,118 (974) 186,962 204,401
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