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Hamworthy plc (HMY)

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Wednesday 02 June, 2010

Hamworthy plc

Preliminary Results

RNS Number : 9025M
Hamworthy plc
02 June 2010
 



 

 

Press Release

2 June 2010

 

 

Hamworthy plc

 

("Hamworthy" or the "Group")

 

Preliminary Results

 

Hamworthy plc (AIM:HMY), a world leader in the design and manufacture of innovative marine and offshore fluid handling systems, announces its preliminary results for the year ended 31 March 2010.

 

Financial Highlights

 

·  

Revenue decreased by 15.2% to £214.3 million (2009: £252.8 million) or a decrease of 19.5% on a constant currency basis

·  

Operating profit down 15.2% to £19.5 million (2009: £23.0 million) or 20.5% on a constant currency basis

·  

Operating margin maintained at 9.1%

·  

Underlying basic earnings per share* down 19.5% from 40.0p to 32.2p

·  

Order intake reduced by 44.3% to £99.0 million (2009: £177.6 million) and closing order book down 45.4% to £142.1 million (2009: £260.4 million)

·  

Operating cash flow** of £27.0 million (2009: £12.3 million) resulting in closing net funds of £72.3 million (2009: £55.5 million)

·  

Proposed final dividend of 5.97p per share resulting in a 5.0% increase in the total dividend to 9.17p per share (2009: 8.73p)

 

*Calculated using earnings excluding gains and losses on fair value movements in derivatives. 

**Calculated as cash generated from operations less net expenditure on property plant & equipment, purchased intangibles and capitalised development costs

 

Commenting on the results, Gordon Page CBE, Chairman of Hamworthy plc, said:  "This is another strong set of trading results for Hamworthy, despite on-going challenges in our markets.  We have, however, maintained our operating margins on reduced revenue and once again remained highly cash generative.  The Group has a strong balance sheet and a range of long-term growth opportunities and, despite short term market uncertainties, the Board looks forward with confidence"

For further information:

Hamworthy plc


Joe Oatley, Chief Executive

Tel: +44 (0) 1202 662 600

Paul Crompton, Finance Director

www.hamworthy.com

Graham Lockyer, Head of IR


 

Hawkpoint Partners Limited


Christopher Kemball

Tel: +44 (0) 20 7665 4500

Vinay Ghai

www.hawkpoint.com

 

Media enquiries:

Abchurch


Henry Harrison-Topham / Simone Elviss

Tel: +44 (0) 20 7398 7702

henry.ht@abchurch-group.com

www.abchurch-group.com

 

 

Glossary of terms:

LPG

Liquid petroleum gas

LNG

Liquid natural gas

ISO

International Organisation for Standardisation

FPSO

Floating production, storage and offloading

IAS

International Accounting Standards



Chairman's statement

 

I am pleased to report on another strong set of trading results for Hamworthy, despite on-going challenges in our markets.  We have, however, maintained our operating margins on reduced revenue and once again remained highly cash generative.  In the year to 31 March 2010 operating profit was 15.2% lower at £19.5 million (2009: £23.0 million) with basic underlying earnings per share 19.5% lower at 32.2p (2009: 40.0p).  Statutory earnings per share decreased 8.7% to 33.4p (2009: 36.6p).

 

The Group has maintained its track record of a high rate of profit to cash conversion with positive operating cash flow of £27.0 million (2009: £12.3 million) leading to a closing net funds balance of £72.3 million (2009: £55.5 million).

 

Order intake was significantly affected by weakness in a number of our end markets, falling by 44% to £99.0 million (2009: £177.6 million), resulting in a closing order book of £142.1 million at year end (2009: £260.4 million).

 

We are continuing to see the benefits of our margin improvement strategy.  The commitment to margin performance through operational efficiency has enabled us to maintain operating margins at 9.1% despite lower revenues.  We continue to pursue operational improvements and manage our cost base effectively and have reduced headcount by 17% since the start of 2009.

 

We have increased the pace of investment in expanding our technology portfolio through increased research and development expenditure and two strategic acquisitions during the year.  As we move forward, the Group has a strong platform to drive growth through both organic development and value added acquisitions.

 

The installed base of Hamworthy equipment continues to grow and with a greater management focus on this part of the business this provides the basis for a resilient and growing aftersales business across all divisions.

 

We expect the shipbuilding market to remain challenging for some time and it is difficult to predict when markets will improve.  We therefore continue to focus on delivering earnings through both growth in adjacent markets and control of our cost base.  We are developing our technology pipeline of new products through both organic and acquisitive investment.  The Group has a strong balance sheet and a range of long-term growth opportunities and, despite short term market uncertainties, the Board looks forward with confidence.

 

We therefore remain committed to our progressive dividend policy and your directors are recommending a final dividend of 5.97p which, if approved, would represent a 5.0% increase in the total dividend declared in respect of the year to 9.17p per share (2009: 8.73p).  Subject to shareholders' approval the final dividend will be paid on 22 July 2010 to all shareholders on the register on 18 June 2010.

 

On behalf of the Board I thank all of our employees for their contributions to another year of significant achievement.  Our employees play a critical role in the Group's success and we recognise that this will be particularly so in meeting the challenges ahead.  We remain committed to recruiting, retaining and developing the best people.

 

Gordon PageCBE DL

Chairman



Chief Executive's Review

 

The Group has faced extremely challenging market conditions throughout the year and the robust financial performance is both a reflection of the strength of our business model and a credit to our employees who have been able to continue to develop the business despite these difficult markets.

 

Revenues were underpinned by both a robust order book as we entered the year and continued solid performance from our Aftersales business through the period.  Nevertheless revenues were impacted by the weakness in our end markets and decreased by 15.2% to £214.3 million (2009: £252.8million).  The beneficial effect of exchange rate movement on translation was £10.9 million of revenues.  On a constant currency basis and excluding acquisitions made during the year revenues decreased by 20.1%.

 

Operating profit decreased in line with revenue by 15.2% to £19.5 million (2009: £23.0 million).  On a constant currency basis and excluding acquisitions made during the year operating profit decreased by 13.4%.

 

As a result of our strategic drive for margin improvement through operational excellence and swift actions to reduce costs where necessary, we maintained a healthy operating margin of 9.1% (2009: 9.1%) whilst increasing our investment in research and development by 33.7%.  The Pump Systems business again performed strongly with increased margins compared to the previous year, offsetting lower margins in the Gas Systems business.

 

Order intake was significantly impacted by the weakness in our end markets, in particular for newbuild projects in both the marine and offshore segments.  As a result total order intake fell by 44.3% to £99.0 million (2009: £177.6 million).

 

The performance of individual businesses is reviewed in the divisional review below.  Aftersales activities across the Group continued to perform well with order intake increasing by 2.6% to £36.8 million (2009: £35.9 million) and revenue increasing by 2.8% to £37.3 million (2009: £36.3 million).  The constituent parts of the Aftersales revenue are included in the divisional revenues which are detailed in note 2 below.

 

 

 

Strategy

 

We have continued to make good progress on the implementation of each of the key elements of our strategy:

 

Balanced business in long-term growth markets

We are expanding the business into related markets outside the marine newbuild segment that has been the historical core of the Group.  In so doing we are seeking to achieve a greater sectoral balance to the Group and the sustained weakness in the new shipbuilding market has served to confirm the importance of this strategy.  We target markets that exhibit strong long-term growth prospects with our main focus for expansion being upstream oil & gas, aftersales and opportunities driven by the need to meet new environmental legislation in the marine and offshore markets.  We have expanded our technology offering in both the upstream oil & gas and environmental markets during the year both by acquisition and organic development.  We have continued to develop our Aftersales business and strengthened the Group executive committee with the recruitment of a Group Aftersales Director to lead this business across all divisions.  Whilst sales to the marine newbuild market fell by 27% compared to the prior year, sales to markets outside new shipbuilding remained at the same level and now represent 50% of total Group sales (2009: 42%).

 

Leadership through market-led innovation

We seek to achieve leading market positions in our chosen sectors and to support this we continue to increase our investment in research and development across the Group.  This investment focuses on not only the development of new products but also the improvement of our existing products as both are key to the long-term success of the business.  In the period, investment in internally-funded research and development grew by 33.7% to £3.9 million.  Every division increased research and development expenditure as a proportion of sales and we have continued to invest in the technologies brought into the Group through acquisition over the last year.

 

Margin improvement through operational excellence

Operating margins, cost efficiency and operational excellence remain a key focus.  Despite lower turnover and an increase in research and development expenditure, Group operating margin remained at 9.1%.  Good progress was made during the year in improving our operational effectiveness, in particular in procurement where we have strengthened our low-cost sourcing team located in China and introduced a group-wide category management system for our key components and materials.  This will enable us to realise the benefits of our scale in procurement whilst maintaining the flexibility of our decentralised operating structure.

 

We have continued our process of moving operations from European countries to our manufacturing locations in Asia where they are both closer to our main customer base and enjoy lower costs.  During the year we transferred the manufacture of the Dolphin range of pumps from the UK to our plant in Singapore where it has been integrated with the existing centrifugal pumps manufacturing facility.  We established the capability for order processing and contract management in our facility in China to enable the transfer of these activities from our Inert Gas business in Norway which is planned for completion during 2010.

 

We achieved the milestone of securing the land for a new 15,000m2 manufacturing facility in Suzhou, China, to replace our existing plant in this region.  Construction work is now well underway with production scheduled to commence at the new site during the summer of 2010.  This investment cost less the compensation for the release of the existing site is expected to result in a net addition to tangible fixed assets of £3.8 million when complete.  In the year to 31 March 2010 the Group has paid out a net amount of £1.1 million.

 

In response to the weakness in our end markets, we developed a Group-wide plan in January 2009 that set out detailed cost reduction actions specific to each of our businesses.  Since each of our businesses has differing market exposure and order book coverage the timing and scale of these cost reduction actions varies across the Group.  In addition to the headcount reductions carried out in March last year in our Gas Systems business in Norway and Water Systems business in Germany, we have taken further steps to reduce costs in all four of our divisions during the last year.  Since January 2009, we have reduced employee numbers across the Group by 17%, with the majority of this being carried out in the last financial year.  In all cases we have been careful to ensure that we achieve our targeted cost reduction whilst maintaining our core capabilities.  We have maintained our programme of both capital and research and development investment which are key drivers for our future growth.

 

These collective cost reduction actions and operational efficiency measures will help to support our margins against any pricing pressures emerging as a consequence of the current economic climate.

 

Strategic acquisitions

We seek to complement our organic development with strategic acquisitions, both to expand our technology base and to strengthen our market positions.  During the year we completed two acquisitions.  On 29 September 2009 we acquired the business and assets of Krystallon Limited.  Krystallon Limited has developed a leading technology for systems to address the emerging market for marine sulphur emissions reduction.  On 30 September 2009 we also completed the acquisition of the Technology & Products division of Aibel AS.  This business provides leading technologies for the upstream oil & gas industry and expands the Group's presence in this target market.

 

We continue to be active in the search for strategic bolt-on acquisitions and, supported by our strong balance sheet, expect that these will continue to form an important part of the development of the Group in the years ahead.

 

Health, safety and environment

We have invested in a group-wide commitment to improving our safety culture and I am delighted to be able to report good progress on our goal to eliminate injuries by continually seeking safer workplaces, processes and behaviour.  As one of the Group's KPIs we record both lost time accidents and near-misses where a potentially unsafe event occurred but no injury was sustained.  We have implemented a process of reporting and sharing lessons learned from both accidents and near-misses around the Group and thus prevent recurrences.  As a result of these efforts, we have reduced the rate of lost time accidents by 51% and the number of days lost due to accidents from 264 to 85.

 

We are very conscious of the environmental impact that our activities may have on the communities in which we operate and we constantly strive to minimise the effect of this.  The Group's policy of gaining accreditation under the ISO 14001 environmental standard at all our principal sites was achieved during the year.  Furthermore, many of our products have a direct environmental benefit and they are often designed to ensure that our customers can meet relevant environmental legislation.

 

Employees

We recognise that this has been a difficult year for many of our employees given the reduced headcount across all our operations.  This has been handled in as professional and sensitive a way as possible and it is credit to all of our people that our operations have not suffered from any disruption whilst these reductions have been implemented.  Where possible we have sought to control costs through temporary layoffs and unpaid leave in order to minimise the effects on individuals.

 

We remain committed to the development of our people and have introduced this year the Hamworthy Leadership Development Programme which will provide a foundation for the development of our leaders and managers of the future.

 

It is with great sadness that I inform you that on the 1st of June 2009 a Hamworthy employee tragically lost her life when Air France flight 447 from Rio de Janeiro was lost at sea.  Laura Rahal worked for our Gas Systems business in Norway and is very much missed by her colleagues and family.

 

Markets

The Group strategy is to target markets that have long-term growth characteristics driven, in particular, by increasing environmental legislation and the need for production and transportation of oil & gas.  However, a number of our market segments do show shorter-term variability and have been adversely affected by the global economic crisis.  The new shipbuilding market has been particularly weak with very low levels of new vessel ordering since October 2008.  Whilst we have seen some increase in enquiry levels from parts of the new shipbuilding market in recent months, particularly from the cruise ship and LPG carrier segments, these have not yet translated into an increase in the rate of order intake.

 

Contracting of new FPSO projects for the offshore market has also been very low in historical terms, partly due to expectations of deflation in construction costs for these projects.  Construction costs for offshore projects have now fallen and with oil prices stable at a level supportive of deepwater offshore investment, we are starting to see offshore projects passing final investment decisions and moving ahead.  Enquiry levels from this sector remain high.

 

From a geographical perspective, the Brazilian market represents a significant growth opportunity for the Group driven by the local investment plans both for offshore vessels and supporting oil tankers and gas carriers.  The Group is currently bidding on a number of contracts to supply equipment onto all of these vessel types.

 

Demand for our Aftersales products and services has been steady throughout the year despite falling freight rates and lower than normal vessel utilisation.  The field population of Hamworthy equipment continues to grow, providing a solid underpin for the demand for our aftermarket products and services.

 

Outlook

As expected, order intake for original equipment has been subdued throughout the year and as a result we enter the new financial year with a reduced order book compared to recent years.  Nevertheless the current order book of £142.1 million provides good visibility for the year ahead.  In addition our Aftersales business continues to perform well.  The Board is therefore confident of meeting expectations for the financial year ending 31 March 2011.

 

We expect that we will continue to manage costs to reflect lower activity levels and this, combined with our commitment to operational excellence, will help to support margins in this difficult economic environment.

 

Our markets for original equipment, and in particular the new shipbuilding market, continue to be challenging.  Whilst we have seen some improvement in ship ordering activity in the last few months, it is too early to say when market conditions will return to more normal levels and when this will translate into an increase in the rate of ordering of original equipment of the types supplied by Hamworthy.  The underlying macroeconomics driving an increase in demand from the upstream oil & gas sector are strong and we expect that this will drive a recovery in this market, although the timing of any upturn remains difficult to predict.

 

The development of some of the new environmental market opportunities such as ballast water treatment and exhaust gas cleaning is driven by a defined legislative timetable and these developing markets are expected to provide substantial opportunity for growth in the medium to long term.  The Group continues to broaden its range of growth opportunities and has substantial balance sheet strength to support both its organic and acquisitive growth strategies.

 



Divisional reviews

 

Pump Systems

 

The Pump Systems business designs and manufactures a broad range of centrifugal and long-shaft deepwell pumps, selling to the marine and offshore markets.  Hamworthy has market leading positions in a number of segments within these markets including cargo pumps for liquefied gas carriers and engine room pumps for the offshore market.  The business has thee facilities based in Denmark, Singapore and the UK.

 

Order intake was 43.8% below 2009 at £30.6 million (2009: £54.4 million) as new project initiation has been delayed across all the key markets, both new shipbuilding and the offshore sector.  Both the tanker and gas carrier newbuild markets remain subdued despite a slight improvement in freight rates in the latter part of the year.  Despite this the Pumps Systems business continued to win significant orders.  Hamworthy signed a contract for the engine room pumps and pump room systems for five 30,000 dwt products carriers being built at Zhejiang Chenye Shipbuilding Co Ltd near Shanghai for Pertamina, the Indonesian state-owned oil and gas company, and an order was also signed with the same owner for deepwell cargo pumps for an LPG carrier.  Orders for two 40,000 dwt product oil carriers with all electric pump room systems were received from China Ship Building Corporation.

 

The offshore market, particularly the FPSO segment has witnessed significant project initiation delays over the past year.  Despite these delays, the centrifugal pump business has continued to secure contracts on a number of offshore projects including engine room pumps for three semi-submersibles at Jurong shipyard, drill ships at STX and Keppel Fels and an FPSO for Sevan Marine at Cosco Nantong shipyard.  There is now some evidence that this market is improving with a number of offshore projects being contracted in the last quarter of the period.

 

Revenue fell by 8.9% to £76.9 million (2009: £84.4 million) as a reduction in volumes of deepwell pumps into the gas carrier market was partly offset by growth in volumes of both pump room systems for tankers and engine room pumps for offshore vessels.

 

Hamworthy successfully delivered its first deepwell process pumps for the offshore industry for installation onboard Total's Pazflor FPSO.  This delivery marks a strategically important milestone for the business in expanding its pump portfolio in the technically stringent offshore process market.

 

The business also delivered a total of 19 pump room systems during the period including three ship sets for the Petrobras Suezmax crude oil tankers being constructed in Brazil.  There were over 14 engine room pump sets delivered for drillships and semi-submersible rigs and a similar number of external fire-fighting systems for offshore support vessels including the first deliveries of our new high volume and high pressure CBF-300 end suction pump developed for this application.  The division delivered deepwell pumps for 12 chemical tankers at Mawei shipyard in China, three LPG tankers at HHI and five multigas tankers for LNG/LEG/LPG.  Aftersales activity continues to be buoyant and remains an important element of the business.

 

Operating margins were exceptionally strong, increasing to 16.1% (2009: 14.8%) as the business benefitted from the combined effect of its strategy to focus its engine room pumps on the higher value offshore segment, operational efficiency improvements and lower material prices.

 

Hamworthy's main facility in Singapore is currently being expanded with completion scheduled for September 2010.  This expansion will provide significantly improved finished goods handling facilities and allow the existing activities in Singapore that are spread across two locations to be consolidated onto a single site to increase efficiency and reduce overhead costs.  The transfer of the Dolphin pump range from the UK facility to Singapore was completed where it has been integrated with the centrifugal pump manufacturing facility, both reducing the manufacturing cost of this product and improving lead times.

 

Investment in research and development continued and the division has made good progress on key projects with the main focus being on expanding our range of pumps offered to the offshore market.  A range of API-610 compliant deepwell process pumps for FPSO applications is close to completion and will be released for sale in the coming year alongside deepwell sea water lift pumps and cargo pumps already offered to the offshore market.

 



Gas Systems

 

The Gas Systems business provides a range of liquefaction and regasification systems to the LNG and LPG markets.  The business has a leading position in the larger LPG and LNG carrier segment for reliquefaction systems that are used to capture boil off gas and return it to the cargo tanks during a vessel's journey.  The business has also established a leading position in the relatively new market for floating regasification systems that allow operators to regasify LNG cargoes in a more cost-effective manner than traditional land-based receiving terminals.  The recent acquisition of the Technology & Products business of Aibel AS has extended the business' range of products for the upstream oil & gas market.

 

As expected both the gas carrier and LNG regasification markets remained restrained throughout the year with very little new order activity in either segment.  As a result, order intake was very low at £14.5 million (2009: £45.7 million).

 

The smaller LPG segment is showing some early signs of recovery with a number of new vessel contracts being placed towards the end of the year.  Despite the market weakness, Hamworthy was successful in securing its first cargo handling system contract for a small 5,000m3 fully pressurised LPG carrier vessel to be built in China for the Indonesian state-owned company, Pertamina.

 

Revenues fell by 31.2% to £57.6 million (2009: £83.7 million) as the low level of order intake impacted activity levels for all products.

 

Hamworthy successfully completed the remaining deliveries of LNG reliquefaction systems to all 31 Q-Flex LNG carriers.  These large 215,000m3 vessels are used to transport LNG from Qatar to destinations around the world.  Over the past 12 months LNG production capacity in Qatar has increased by 65 % leading to an increase in demand for these vessels.  The business also delivered several LPG cargo handling and reliquefaction systems to HHI in Korea and LNG fuel gas systems to two Ro-Ro vessels under construction for Sea Cargo in India.

 

Hamworthy's pioneering floating LNG regasification technology entered into service onboard Golar LNG's 138,000m3 FSRU Golar Winter and successfully completed its regasification testing.  This is a major achievement in bringing new technology to the market.  Chartered by Petrobas, Golar Winter is part of an LNG import project in Guanabara Bay, Brazil. LNG carriers will tranship their cargoes to the FSRU moored to a pier at the terminal and then send gas to the onshore gas grid. Hamworthy also successfully delivered its second LNG regasification skid for the Neptune project located offshore Boston, US.

 

Operating margins decreased to 4.2% (2009: 4.4%) as a result of lower volumes and both integration and research and development costs associated with the business acquired from Aibel AS.  In addition to those reductions made in March 2009, the business reduced headcount by a further 22% in order to match lower activity levels.  In carrying out this restructuring the business has been careful to preserve key capability in order to be prepared for the market upturn when this arises.

 

The acquisition of the Technology & Products division of Aibel AS was successfully completed on 30 September 2009.  This business provides leading, patented technologies used to increase the efficiency of oil production and to ensure the safe and environmentally-friendly handling of oil and gas during production.  The business is now integrated into the Gas Systems division and represents continued progress in expanding the Group's technology and market position in the offshore sector.

 

With this acquisition, Hamworthy has now established a unique position in the market to offer a range of technical solutions that enable our oil & gas customers to eliminate continuous flaring.  A flare is the most visible sign of wasted resources and pollution from oil, gas and petrochemical plants.  During the year we delivered such systems to customers in Qatar, US and the North Sea.

 

The division has continued to invest in new product development both for the LNG and LPG product range and in the newly-acquired Technology & Products business.

 

A new patented LPG reliquefaction solution has been developed that will simplify the reliquefaction system onboard LPG carriers whilst giving increased operational flexibility and reduced cargo loading time.

 

Development activities for the Technology & Products business focused on extending the range of products for the upstream oil and water separation market.  The development of two new products were completed at the end of the year: the VIEC-LW that allows operators to achieve more efficient and more compact separation solutions and the i-Phase sensor that provides customers with accurate information regarding the oil/water interface in the separator.

 

Water Systems and Compressors

 

The Water Systems business is the market leader in waste water treatment systems for the cruise ship and commercial marine markets and freshwater generation systems for the cruise ship market.  The business also supplies steam condensers to the small-scale power station market and high pressure air compressors to the niche offshore drill rig and CNG markets.  The business has operations in the UK, Germany and China.

 

Order intake fell by 31.7% to £36.8 million (2009: £53.9 million) largely due to weakness in the newbuild cruise ship market.  Following a significant period of inactivity in the ordering of new cruise ships, activity resumed in December 2009 when Carnival Cruise Lines placed an order with Fincantieri shipyard in Italy.  Hamworthy was successful in winning the contract to supply fresh water generating equipment for this new project.  Both European and Far Eastern shipyards have been active in promoting a resurgence in cruise shipbuilding with prospects at advanced stages.

 

The retrofit market for upgrading cruise ship waste treatment systems has remained robust and the business received two significant such orders in the period, one for a leading US cruise operator following successful delivery and installation of a system for a sister ship in July 2009 and a similar contract for the P&O vessel, Ocean Village.

 

Hamworthy continued to grow market share in the broader marine market with its range of standard sewage treatment systems where demand has been driven by the introduction of stricter International Maritime Organisation wastewater discharge standards from 1 January 2010.  In December 2009 the business received China Classification Society Type Approval for this new sewage treatment plant, the only non-Chinese supplier to be awarded this approval thus strengthening its position in the world's largest shipbuilding nation.

 

The high pressure air compressor business has seen positive order intake for rig tensioning compressors during the year, reflecting the ongoing strength in this part of the offshore market.

 

Revenue fell by 9.0% to £53.1 million (2009: £58.4 million) as a sharp fall in volumes of fresh water generator plant for the cruise ship market was partially offset by growth in volumes for advanced waste water treatment plant, in particular for the retrofit market.

 

Operating margins decreased slightly to 11.9% (2009: 13.2%) due to an increase in investment in research and development partially offset by improvements in operating efficiency in particular in the delivery of larger advanced waste water treatment projects.

 

In response to lower levels of order intake the business continued to reduce headcount across all of its operations.  In addition to the reductions made in its German operation at the end of the previous financial year, headcount was reduced by 12% in the UK operation and further cost reductions were implemented in Germany through the short time working arrangement provided by the German government.

 

The business increased its investment in research and development with a particular emphasis on commercialising the ballast water technology acquired with the Greenship BV business last year.  Hamworthy Greenship's SEDINOX ballast water system received IMO Final approval in July 2009 and a full programme of testing is currently underway to achieve full IMO Type Approval.  Interest for this new product has been high and we have received good levels of ship owner and shipyard enquiries ahead of implementation of the legislation by IMO member countries, expected during 2011.

 

In response to demand from the cruise ship market, Hamworthy developed a new Reverse Osmosis ("RO") freshwater generator to complement its Multi Stage Flash Evaporator range.  The RO unit allows freshwater to be generated when waste heat is not available from the ship's engines.  Prototype testing of the RO unit was successfully completed with assistance from German ship owner Hamburg Sud and is now available to the market.  The system is also being offered to the offshore and land-based markets.

 



Inert Gas Systems

 

Hamworthy is a market leader in inert gas systems for the marine and offshore markets.  The systems are used to allow safe offloading of oil and gas cargoes from oil tankers, gas carriers and FPSOs in line with international safety legislation.  With the recent acquisition of Krystallon, Hamworthy has established a leading position in the developing environmental market of marine exhaust gas sulphur removal.  The business is located in Norway, China and the UK.

 

Order intake was affected by the slowdown in both the marine and offshore newbuild markets and fell by 27.5% to £17.1 million (2009: £23.6 million).

 

Despite conditions in the oil tanker market remaining subdued, Hamworthy secured a number of significant orders during the period.  Of particular note was an order for ten large nitrogen generation systems worth over £6 million from SLS shipyard building for United Arab Chemical Carriers.  Hamworthy was also successful in securing a range of orders for inert gas systems from Chinese shipyards for both domestic and European owners, continuing its previous success in China.

 

The offshore market remains a key focus for the Inert Gas Systems business and it has witnessed an increase in activity in this market in recent months.  A number of new prospects have emerged and the business is now targeting new segments of the market including systems for FPSO conversions.  However, whilst a number of owners have placed contracts for new FPSOs, no major prospects have yet reached a stage of issuing contracts for inert gas original equipment.

 

Order intake was particularly strong for the division's aftersales products and services, continuing the growth pattern of recent years.  Several new initiatives have been put in place to target future growth, amongst which long-term service agreements and training products are the most significant.  Hamworthy's new inert gas test plant which was installed in 2008 has facilitated training for ships' crew, providing an additional source of revenue growth for aftersales.

 

Revenue was substantially unchanged from the prior year at £26.7 million (2009: £26.4 million) with the impact of the low order intake being mitigated by a substantial order book as the business entered the year.  The business achieved a number of successful deliveries into the offshore sector during the period.  These include systems for the USAN FPSO under construction at Hyundai Heavy Industries and the Pazflor FPSO project at Daewoo Shipbuilding & Engineering.  Both deliveries continue a series of successful offshore deliveries for Total projects.  Hamworthy also delivered an inert gas system to Modec for BP's PSVM FPSO and both received and delivered a retrofit order for an inert gas system for installation onboard the P33 FPSO under operation by Petrobras of Brazil.

 

Operating margins were 2.7% lower at 4.0% as increased research and development investment was partly offset by operational efficiency savings.  Research and Development investment was focused on value engineering projects for the existing product range and commercialising the exhaust gas cleaning technology acquired from Krystallon.  The business continued to gain further benefit from moving the manufacture of its more sophisticated components from Norway to China.  The transfer of contract management and order processing functions for marine products commenced during the year and will be completed in 2010.

 

In September 2009 Hamworthy acquired Krystallon, a leading supplier of ships' exhaust gas cleaning systems.  Krystallon's technology provides a cost-effective means of complying with the International Maritime Organisation's regulations for the reduction of SOx emissions from engines and boilers.  Using seawater to remove both SOx and particulates from the emissions, the scrubber technology is well suited for marine installations and also presents opportunities for onshore applications near to a source of seawater such as in smaller scale power stations.  The business has been successfully integrated with the traditional inert gas activity in Norway, further strengthening the market leadership position already established by Krystallon.  As regulatory deadlines for emissions control draw closer and new geographical territories seek emissions control status, interest from ship owners is growing significantly. Hamworthy Krystallon's scrubber product qualified as a US Environmental Protection Agency 'Emerging Technology', the first non-North American-based company to be awarded the accreditation.



Financial Review

 

Basis of reporting

 

The Group financial statements in this report have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the EU, together with the associated International Financial Reporting Interpretation Council (IFRIC) interpretations and those parts of the Companies Act 2006 applicable to entities reporting under IFRS.

 

The financial statements of the parent company have been presented in accordance with UK GAAP.

 

Accounting policies

 

The Group has reviewed its accounting policies in accordance with IAS 8 and determined that they are appropriate for the Group and have been consistently applied.

 

Acquisitions

 

On 29 September 2009 the Group acquired the business and assets of Krystallon Limited for an initial cash consideration, excluding acquisition transaction costs, of £0.95 million payable immediately plus £0.85 million payable upon satisfactory completion of an internal testing programme.  Further amounts may become payable dependent on financial performance in the periods up to 31 March 2015.  The directors' best estimate of the amount likely to be paid is £3.0 million at present day value and this is recognised as performance related contingent deferred consideration.  Krystallon is a leading supplier of cost effective systems to address the emerging market for marine exhaust sulphur emissions reduction.

 

On 30 September 2009 the Group completed the acquisition of the Technology and Products division of Aibel AS.  This was acquired for an initial cash consideration, excluding acquisition transaction costs, of £3.7 million paid on completion with a further sum, estimated by the directors to be £0.4 million, payable upon the final agreement of net assets acquired.  Further amounts of a maximum of £2.1 million could become payable dependent on order intake in the period to 31 December 2010.  However, the directors' best estimate of the likely further amount payable is £nil.  This business supplies leading technologies to the offshore oil & gas market that are used to increase the efficiency of oil production and ensure the safe handling of oil & gas cargoes on offshore production vessels.

 

In both these transactions the total consideration has been allocated as between the fair value of tangible and intangible net assets acquired and goodwill as set out in note 8 below.

 

Results overview

 

The Group has delivered a solid financial performance within very challenging market conditions.  Revenue fell 15.2% to £214.3 million (2009: £252.8 million).  Operating profit fell by 15.2% to £19.5 million (2009: £23.0 million), maintaining Group operating margins at the same level as the prior year of 9.1%.  This performance has been achieved despite a considerable rise in expenditure on research and development from £2.9 million in the prior year to £3.9 million.  This increased development activity is most evident within the acquired businesses of Greenship BV and Krystallon in developing systems aimed at meeting environmental driven legislation for the treatment of ballast water and ships exhaust sulphur emissions.  The Group capitalises research and development expenditure where required to do so under IAS 38.  One of the criteria for capitalisation set out in that accounting standard is the demonstration of the technical feasibility of completing the intangible asset.  The directors consider that meeting the criteria can only be demonstrated when the developed product is fully tested and, where required, regulatory body approvals are received.  It is likely therefore that research and development projects will have the majority of their budgeted costs expended by the time that criteria is met.

 

The Group generated 73% (2009: 76%) of its operating profits before central costs in reporting currencies other than sterling, the most significant being euro, Danish kroner, Norwegian kroner, Singapore dollars and Chinese renminbi.  The weighted average rate for these currencies has strengthened by 5.7% compared to the prior year which had the effect of increasing sterling consolidated revenue by £10.9 million and operating profits by £1.2 million.  On a constant currency basis revenue decreased by 19.5% and operating profits decreased by 20.5%.

 

Underlying profit before taxation, excluding gains and losses on fair value movements in derivatives, fell 18.9% to £19.9 million (2009: £24.5 million) or 23.8% on a constant currency basis.  The fall in global interest rates affected all of the Group's principal currencies with the effect that net interest income fell to £0.4 million (2009: £1.6 million).  This was despite average net cash balances held through the year being 15.4% above the prior year.

 

The Group's undelivered order book decreased from £260.4 million to £142.1 million.

 

Taxation

 

The tax charge of £5.6 million (2009: £5.8 million) represents an effective rate of 27.0% (2009 26.0%).  The Group generates taxable profits in a number of jurisdictions where the rate of corporation tax is lower than the UK.  The most notable differences are in China and Singapore.  The net effect of these lower foreign tax rates is equivalent to 3.4% of the profit before taxation.  Note 3 below provides details of the tax charge.

 

Earnings per share

 

Basic underlying earnings per share, calculated to exclude the gain or loss on fair value movements in derivatives, fell by 19.5% from 40.0p per share to 32.2p per share.  On a constant currency basis the decrease would have been 24.4%.  On a statutory basis, basic earnings per share fell 8.7% to 33.4p (2009: 36.6p).  Note 4 below provides details of these calculations and those of the measures of diluted earnings per share for the period.

 

Dividend

 

The Board are recommending a final ordinary dividend of 5.97p per share.  If approved by shareholders this would result in a total dividend declared in respect of the year of 9.17p per share when added to the interim dividend of 3.20p per share paid in December 2009.

 

Financing, cash flow and treasury

 

Through this period of challenging market conditions and decreased revenues the Group's businesses have maintained their focus on cash flows and the control of working capital.  This combines with the Group's strategy of maintaining a low fixed cost base thus helping to minimise the requirement for investment in capital assets.  The conversion of Group profits to cash flow is a key financial performance indicator. This is monitored over a revolving three year period given the Group's combination of regular cash flows in businesses with smaller unit cost equipment supply and greater volatility within larger contract businesses.

 

A summary of cash flows and the change in net funds is set out below.  Operating cash flow amounted to £27.0 million (2009: £12.3 million) which is a conversion rate of 139% of operating profit.  The conversion rate over a three year average is 100%.  The net funds position at the year end was £72.3 million (2009: £55.5 million).  Further detail relating to the cash flows and movements in net funds of the Group is given in the consolidated cash flow statement and in notes 5 and 6 below.

 







2010


2009







£'000


£'000










Operating profit





19,464


22,962










Depreciation and other non cash movements


3,117


2,502

Change in working capital and provisions


7,724


(11,590)

Net capital expenditure




(3,283)


(1,604)










Operating Cash flow



27,022


12,270







Net interest received





446


1,580

Taxation paid





(3,856)


(3,124)










Free cash flow





23,612


10,726










Dividends paid





(4,018)


(3,783)

Outflow for acquisitions and net debt acquired


(5,032)


(2,655)

Movements in funding and exchange movements


2,255


3,117










Increase in net funds





16,817


7,405

 

All businesses are responsible for the management of local cash and working capital requirements.  The principal operating companies participate in a cash pooling arrangement under which surplus cash is transferred to a central treasury function which manages the most efficient use of funds across the Group.  The Group has historically hedged part of the interest rate exposure on its term debt.  At 31 March 2010 that exposure relates to a term loan held in the Group's German subsidiary with an outstanding balance of £0.7 million and on which the interest rate exposure is fully hedged to a fixed rate of 3.35%.

 

The Group's businesses are global and each can contract in several currencies.  The Group's policy is to hedge all currency transaction exposures at the time of entering into the contractual commitment back to the relevant contracting business' local currency.  The significant majority of this hedging is operated through the central treasury function.

 

The Group's principal operating businesses reconcile their currency exposures and related hedges and report them to the treasury function as part of their financial reporting routines.  The Group intends that its hedging procedures qualify for hedge reserve accounting as far as is practical to do so.  This will result in any gain or loss volatility of hedge derivatives initially being recorded in a separate component of equity and not through the statement of comprehensive income.  Where hedging products do not so qualify the gains or losses relating to movements in fair values of the derivative product are recorded in the statement of comprehensive income.  This occurred during the financial year ended 31 March 2009 and the financial year ended 31 March 2010 and the effect was adjusted in arriving at underlying profit before tax and underlying earnings per share.

 

The Group's primary banking and finance facility is provided by Barclays Bank plc.  This comprises a £60 million facility for bonds, guarantees and indemnities committed to 30 June 2012.  This is capable of being increased to £80 million dependent upon the prevailing levels of mark-to-market of the Group's extant foreign exchange hedges.  Barclays Bank also provide the majority of the Group's foreign exchange hedging through an uncommitted facility dated 25 March 2009.  In addition the Group has further foreign exchange and treasury facilities held centrally with Royal Bank of Scotland plc and directly by its subsidiaries with local banks.  The Group has not breached any covenant within its banking facilities during the year.



Going Concern

 

The Group has available to it considerable financial resources including its own net funds which were £72.3 million at 31 March 2010 and its committed banking facilities.  The Group's banking covenants have all been met comfortably during the past year and the expectation is that this will continue.

 

Whilst the current volatility in financial markets has created general uncertainty in respect of the current economic outlook, the longer term nature of the Group's business, taken together with its forward order book, provide a satisfactory level of confidence to the Board in trading during the year ahead.

 

The directors have acknowledged the latest guidance on going concern and considered the matter in accordance with that guidance.  The directors have a reasonable expectation that the Group has adequate resources and business demand drivers to continue in operational existence for the foreseeable future.  No material uncertainties related to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern have been identified by the directors.  Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

 



Consolidated Income Statement

for the year ended 31 March 2010

 







            2010



            2009






Note


£'000

£'000


£'000

£'000












Revenue




2



214,330



252,834

Cost of sales






(146,610)



(184,229)












Gross profit







67,720



68,605

Distribution expenses





(3,126)



(2,850)


Administrative expenses




(45,130)



(42,793)









(48,256)



(45,643)












Operating profit



2



19,464



22,962

Finance income






1,392



2,171

Finance expense






(184)



(2,784)












Profit before taxation






20,672



22,349













Underlying profit before taxation




19,910



24,542


Gain / (loss) on fair value movements on derivatives


762



(2,193)


Profit before taxation





20,672



22,349












Taxation




3



(5,574)



(5,802)












Profit for the year






15,098



16,547












Attributable to:










Equity holders of the parent





15,113



16,559

Minority interest






(15)



(12)








15,098



16,547












Basic earnings per share


4



33.4p



36.6p

Underlying basic earnings per share

4



32.2p



40.0p

Diluted earnings per share


4



33.3p



36.5p

Underlying diluted basic earnings per share

4



32.1p



40.0p

 



Consolidated Statement of Comprehensive Income

for the year ended 31 March 2010

 











2010

2009





£'000

£'000







Profit after taxation



15,098

16,547




Exchange differences on translating



foreign operations



1,186

5,613






Cash flow hedges:





 - Transfers to profit or loss on cash flow hedges

(11,132)

5,543

 - Gains/(losses) on cash flow hedges

22,599

(25,062)





Actuarial gain/(loss) on pension scheme


2,700

(2,362)




Tax relating to components of other



comprehensive income:




 - Deferred tax on cash flow hedge


(3,816)

6,193

 - Deferred tax on employee share option schemes

71

(86)

 - Deferred tax on unrelieved losses carried forward

-

(2,164)

 - Deferred tax on pension deficit


(556)

796







Total comprehensive income for the year

26,150

5,018






Attributable to:





Equity holders of the parent


26,165

5,030

Minority interest



(15)

(12)





26,150

5,018

 



Consolidated Balance Sheet

as at 31 March 2010

 






2010

2009






£'000

£'000








Non-current assets






Intangible assets




29,034

19,410

Property, plant and equipment



12,427

11,706

Derivative financial instruments



532

728

Deferred tax assets




3,117

7,108






45,110

38,952








Current assets










52,293

67,474

Trade and other receivables



33,426

59,144

Derivative financial instruments



3,307

4,523

Corporation tax




1,851

2,630

Cash and cash equivalents



73,447

57,175






164,324

190,946








Total assets




209,434

229,898








Current liabilities






Borrowings





(539)

(788)

Trade and other payables



(72,416)

(106,815)

Derivative financial instruments



(4,328)

(16,029)

Provisions





(7,052)

(3,816)

Corporation tax




(7,650)

(6,171)






(91,985)

(133,619)








Non-current liabilities






Borrowings





(639)

(934)

Trade and other payables



(9,120)

(8,863)

Derivative financial instruments



(545)

(4,341)

Deferred tax liabilities




(5,319)

(6,833)

Provisions





(13,130)

(8,082)

Retirement benefit obligations



(3,696)

(4,642)






(32,449)

(33,695)








Total liabilities




(124,434)

(167,314)








Net assets





85,000

62,584








Equity







Share capital




2,270

2,270

Share premium account



19,107

19,107

Hedging reserve




(1,150)

(8,801)

Own shares




(800)

(800)

Retained earnings




65,600

50,820








Equity attributable to equity holders of the parent


85,027

62,596

Minority interest




(27)

(12)

Total Equity




85,000

62,584

 



 

Consolidated Cash Flow Statement

for the year ended 31 March 2010

 








2010

2009






Note


£'000

£'000










Cash flows from operating activities






Cash generated from operations



5


30,305

13,874

Interest paid






(184)

(591)

Interest received






630

2,171

Corporate taxes paid






(3,856)

(3,124)










Net cash inflow from operating activities




26,895

12,330










Cash flows from investing activities






Purchase of property, plant and equipment




(2,584)

(1,248)

Purchase of intangible fixed assets




(536)

(357)

Proceeds from disposal of property, plant and equipment



10

1

Capitalised development costs





(173)

-

Acquisition of subsidiary net of cash acquired


8


(5,032)

(2,655)










Net cash used in investing activities




(8,315)

(4,259)










Cash flows from financing activities






Issue of share capital






-

153

Purchase of shares for employee share scheme




-

(400)

Dividends paid






(4,018)

(3,783)

Repayment of borrowings





(339)

(3,116)










Net cash used in financing activities




(4,357)

(7,146)



















Net increase in cash








and cash equivalents






14,223

925










Cash and cash equivalents including overdrafts at beginning of year

56,538

51,738










Effect of foreign exchange rate changes




2,236

3,875










Cash and cash equivalents including overdrafts at end of year


72,997

56,538

 

 



Notes to the accounts

 

1          Nature of financial information

 

The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 March 2010 or 31 March 2009 but is derived from those accounts.  Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting.  The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain any statements required under either Section 237(3) or Section 237(4) of the Companies Act 1985 or Section 498(2) or Section 498(3) of the Companies Act 2006.

 

While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU, this announcement does not itself contain sufficient information to comply with IFRS.  The Group intends to publish full financial statements that comply with IFRS.

 

2          Segmental analysis

 

For management purposes, the Group is organised into four operating divisions - Pump Systems, Gas Systems, Water Systems and Compressors and Inert Gas Systems.  These divisions are the basis on which the Group reports its primary segment information.

 

2010

Pump

Gas

Water

Inert Gas




Systems

Systems

Systems

Systems

Eliminations

Total


2010

2010

2010

2010

2010

2010


£'000

£'000

£'000

£'000

£'000

£'000

Revenue







External sales

76,937

57,608

53,121

26,664

-

214,330

Inter-segment sales

11,054

2,835

16,156

8,256

(38,301)

-

Total revenue

87,991

60,443

69,277

34,920

(38,301)

214,330








Result







Segment result

12,425

2,415

6,325

1,134

-

22,299

Unallocated corporate expenses






(2,835)

Group operating profit






19,464

Finance income






1,392

Finance expense






(184)

Profit before taxation






20,672

Taxation






(5,574)

Profit for the year






15,098

 



 

2009

Pump

Gas

Water

Inert Gas




Systems

Systems

Systems

Systems

Eliminations

Total


2009

2009

2009

2009

2009

2009


£'000

£'000

£'000

£'000

£'000

£'000

Revenue







External sales

84,415

83,689

58,369

26,361

-

252,834

Inter-segment sales

12,308

2,350

17,676

9,768

(42,102)

-

Total revenue

96,723

86,039

76,045

36,129

(42,102)

252,834








Result







Segment result

12,520

3,703

7,687

1,768

-

25,678

Unallocated corporate expenses






(2,716)

Group operating profit






22,962

Finance income






2,171

Finance expense






(2,784)

Profit before taxation






22,349

Taxation






(5,802)

Profit for the year






16,547

 

Inter-segment sales are charged at prevailing market prices.

 

3          Taxation

 





2010

2009





£'000

£'000

The taxation charge comprises:



Overseas tax



6,812

4,459

UK tax




667

501

Adjustments in respect of prior years

6

(41)

Total current tax



7,485

4,919

Deferred tax in respect of UK companies

500

(50)

Deferred tax in respect of overseas companies

(2,411)

933

Taxation




5,574

5,802

 

Income tax for the UK is calculated at the standard rate of UK Corporation tax of 28% (2009: 8%) on the estimated assessable profit for the year.  Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

 

The total charge for the year can be reconciled to the accounting profit as follows:









2010

2009









£'000

£'000











Profit on ordinary activities before tax





20,672

22,349

Tax at 28% thereon







5,788

6,258











Effect of:










Expenses not deductible for tax purposes





204

223

Unrecognised accelerated capital allowances and other temporary differences

285

19

Changes in respect of prior year's charge





6

(41)

Lower tax rate on overseas earnings





(709)

(657)

Total tax charge for the year






5,574

5,802

 

4          Earnings per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.

 

For diluted earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares where, on options granted, exercise price is less than the average market price of the Company's ordinary shares during the year.

 

The measures of underlying earnings per share are calculated using earnings attributable to ordinary shareholders adjusted to eliminate the gain or loss on fair value movements of derivatives.

 

The calculation of the basic and diluted earnings per share is based on the following data:

 



Year Ended 31 March 2010


Year Ended 31 March 2009





Weighted






Weighted







average no

Per share



average no

Per share



Earnings


of shares


amount


Earnings


of shares


amount



£'000


000's


pence


£'000


000's


pence














Basic EPS

15,098


45,246


33.4


16,547


45,272


36.6

Effect of dilutive securities

-


47


-


-


33


-

Diluted EPS

15,098


45,293


33.3


16,547


45,305


36.5














Earnings


15,098






16,547





Mark-to-market (gain) / loss on currency hedging

 

(549)






 

1,579


















Basic underlying EPS

14,549


45,246


32.2


18,126


45,272


40.0

Diluted underlying EPS

14,549


45,293


32.1


18,126


45,305


40.0

 

 



5          Cash generated from operations

 

The consolidated cash flow has been prepared using the temporal method by translating the cash flows of overseas subsidiaries at the rates applicable for the monthly reporting period in which they fall.

 








2010


2009








£'000


£'000











Profit after taxation






15,098


16,547

Adjustments for:









Taxation







5,574


5,802

Depreciation of property, plant and equipment




1,782


1,382

Amortisation of intangible fixed assets




1,050


724

Loss on sale of fixed assets





1


2

Finance income






(1,392)


(2,171)

Finance expense






184


2,784

Share-based payment expense




284


394

Operating cash flows before movements







in working capital and provisions




22,581


25,464

Decrease / (increase) in inventories




14,191


(2,801)

Decrease / (increase) in trade and other receivables



26,807


(8,904)

(Decrease) in trade and other payables




(33,705)


(3,968)

Increase in provisions





431


4,083

Cash generated from operations




30,305


13,874

 

6          Reconciliation in cash flow to movement in net funds

 







2010


2009







£'000


£'000

Net increase in cash and







cash equivalents in the year




14,223


925

Non-cash movements in cash and cash equivalents


2,236


3,875

Movement in cash and cash equivalents in the year


16,459


4,800

Movement in borrowings




339


3,117

Non-cash movements in borrowings



19


(197)

On acquisition of subsidiary




-


(315)

Net funds at the beginning of the year



55,452


48,047

Net funds at the end of the year



72,269


55,452

 

Net funds is the net amount of cash and cash equivalents less borrowings.

 



7          Dividends

 









2010


2009









£'000


£'000

Final paid in respect of year ended 31 March 2009 (5.68p per share)

2,579


-

Interim paid in respect of year ended 31 March 2010 (3.20p per share)

1,439


-

Final paid in respect of year ended 31 March 2008 (5.29p per share)

-


2,402

Interim paid in respect of year ended 31 March 2009 (3.05p per share)

-


1,381









4,018


3,783

 

The directors propose the payment of a final dividend of 5.97p per share, amounting to £2,701,176 in respect of the year to 31 March 2010 (2009: 5.68p per share amounting to £2,579,308).  The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. If authorised the final dividend will be paid on 22 July 2010 to shareholders who are on the register of members as at 18 June 2010.

 

8          Acquisitions

 

On 29 September 2009 the Group acquired the business and assets of Krystallon Limited for an initial cash consideration of £0.95 million payable immediately plus £0.85 million payable upon satisfactory completion of an internal testing programme.  Further payments may become due dependent on future profit performance up to the period ending 31 March 2015.  The directors' best estimate of the amount likely to be paid is £3.0 million and this is recognised as performance related contingent deferred consideration.

 

Based in the UK, Krystallon is a leading supplier of marine exhaust sulphur emissions reduction technology.  Krystallon's technology provides a cost-effective means of complying with the International Maritime Organisation's regulations for the reduction of marine exhaust gas emissions.

 

On 30 September 2009 the Group acquired the business and assets of the Technology & Products division of Aibel AS.  This was acquired for an initial cash consideration of £3.7 million paid on completion with a further sum payable upon the final agreement of net assets acquired (currently expected to be £0.4 million) and an additional amount of up to £2.1 million payable upon achievement of certain performance criteria over the next two years.  The directors' best estimate of the additional amount likely to be paid is £nil.

 

The Technology & Products business provides leading technologies to the offshore oil & gas market that are used to increase the efficiency of oil production and ensure the safe handling of cargoes.

 

Both transactions have been accounted for by the purchase method of accounting, with the assets being acquired by Hamworthy plc and two new subsidiaries within the Group, Hamworthy Krystallon Limited and Hamworthy Technology & Products AS.

 






Book


Provisional






value


fair value






£'000


£'000

Net assets acquired:







Inventories





842


842

Trade and other receivables



910


910

Cash at bank and bank overdraft



-


-

Trade and other payables



(468)


(468)

Provisions





(1,456)


(1,456)






(172)


(172)

Customer contracts






156

Technology based assets





5,981

Goodwill







3,403

Total consideration






9,368









Satisfied by:







Cash







4,655

Deferred consideration





4,336

Directly attributable costs





377








9,368









Net cash outflow arising on the acquisition:





Cash consideration






4,655

Cash and cash equivalents acquired




-

Directly attributable costs





377








5,032

 

The goodwill arising on the acquisition of Aibel Technology and Products is attributable to the anticipated future operating synergies derived from integration in to the Group and the anticipated future profits resulting from access to new markets.  The goodwill arising on the acquisition of Krystallon Limited is attributable to the anticipated future profits resulting from access to new markets.

 

Hamworthy Technology & Products AS contributed £4,100,000 to revenue and a loss of £1,200,000 to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.  Hamworthy Krystallon Limited contributed £nil to revenue and a loss of £421,000 to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.

 

If the acquisition of the Technology & Products business had been completed on the first day of the financial year, Group revenues for the period would have been £217,448,000.  Due to the lack of reliable data it has not been possible to determine with reasonable accuracy the impact on the business' cost base had it been absorbed in to the Hamworthy Group from 1 April 2009 and therefore the impact on the Group profit attributable to equity holders of the parent cannot be quantified.

 

If the acquisition of Krystallon Ltd had been completed on the first day of the financial year, Group revenues for the period would have been £214,330,000 and Group profit attributable to equity holders of the parent would have been £14,791,000.

 

- Ends -


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