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Mincon Group Plc (MCON)

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Friday 19 August, 2016

Mincon Group Plc

Half Yearly Report

RNS Number : 6016H
Mincon Group Plc
19 August 2016
 

 

Mincon Group plc

2016 Half Year Financial Results

 

 

Mincon Group plc (ESM:MIO AIM:MCON), the Irish engineering group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its half year results for the six months ended 30 June 2016.




Percentage


30 June

30 June

change in


2016

2015

period

Product revenue:




Sale of Mincon product (€'000)

27,877

25,460

9%

Sale of third party product (€'000)

8,436

7,280

16%

Total revenue (€'000)

36,313

32,740

       11%

Sale of Mincon product as a % of total revenue

77%

78%






Operating profit (€'000)

4,903

4,507

9%

Profit before tax (€'000)

5,008

4,499

11%

Profit attributable to shareholders of the parent company (€'000)

4,068

3,514

16%

Earnings per share (€)

0.019

0.017

12%

 

 

Joe Purcell, Chief Executive Officer, commenting on the results, said:

 

"Revenue for H1 was 11% ahead of last year at €36.3 million, which tracked through to an improvement of 11% in profit before tax to €5.0 million (H1 2015 €4.5 million), and a 12% improvement in earnings per share.

 

The gross profit margin in the first half of 2016 of 41% was consistent with the same period last year (H1 2015: 41%), the operating profit margin was 13.5% (H1 2015 13.8%), and the profit attributable to shareholders improved to 11.2% of sales (H1 2015 10.7%).

 

These are relatively satisfactory numbers against the backdrop of the cyclically depressed volumes and margins in some of the sectors we service.

 

These results were achieved after increasing provisions to continue building a robust balance sheet, increased R&D investment which we expense, and incurring a €0.4 million charge to reduce head count in operations. While some of these charges are not expected to repeat, we believe it is appropriate to approach our reserves on a considered basis while delivering organic growth in profits and sales.

 

We are seeing growth in the Americas and Australia, with only Africa retrenching in the first half. The instability of the South African rand, while relatively neutral in it's effect on our accounts during the first half of the year, has caused significant caution and margin pressure in the South African market in the short term and has had a knock on effect to neighbouring African countries.

 

We are investing in our factories to provide for the expansion of our product ranges, and new equipment is in the process of being commissioned in several of our manufacturing plants. We expect to begin to see sales growth from these products in the 2017 year, with the rest of 2016 being used to test and complete designs, and to develop marketing and sales plans.

 

In conjunction with the release of these half year results, the Board of Mincon Group plc has recommended the payment of an interim dividend in the amount of €0.01 (1 cent) per ordinary share, payable in September 2016".



Products & markets

Over 50% of Group revenue is derived from sales of Down The Hole (DTH) products and 77% of turnover is manufactured in the Mincon factories. Within the product line-up we have seen some cyclical lows in, for example, Reverse Circulation (RC) products for the exploration market, but on the other hand, some products have begun to grow quickly as drilling techniques change and new uses are found for existing and newly developed products.

 

We have been considering how to best develop the Group, and have followed up on our analysis by beginning to establish regional hubs in Chile for South America and in Perth for Australasia. Ireland acts as the base for Europe. In setting up these regional hubs we can locate inventory for onward distribution and facilitate better informed and timely decision making. Combining this with standardised, more operationally oriented reporting metrics and systems, we should see benefits in the years to come. The Americas and Australia are the fastest growing markets for the Group.

 

Since the majority of what we sell is Mincon-manufactured product, most of the inventory is either the raw materials that we use, our own products going through the factories as work in progress (WIP) or finished products located at our distribution points. Inventory reductions should be obtainable from redeploying our own inventory, and turning production over to back orders or tuning it down while we trade inventory down to target levels.

 

Acquisitions

We have been active in approaching potential acquisition targets, but we did not see value for the Group in the terms that were being sought by vendors, compared with the cost of investing in our own engineering competencies to build a competitive offering. We consider these opportunities on a case-by-case basis.

 

Through the cycle we have seen Private Equity owned companies being withdrawn from sale and refinanced, and other companies seeking unrealistic prices even while their sales and profits fall. However, we are still committed to growing both organically and by acquisition. We prefer to control our own products and our own channels to market.

 

We have elected to invest primarily in organic growth rather than exhaust our resources by buying that which we could competitively make ourselves. We also continue to invest in new products as they move into beta testing from the research stage, and in keeping with our R&D policy, we expense those costs as they are incurred.

 

Currency movements

We have put work into understanding and planning to mitigate the P&L impacts of currency movements, should these steps be required, but we have seen a broadly neutral position in the first half of the year. We make our decisions based on what the operations require for long term funding, and the standard operating terms between subsidiaries that allow predictability to our internal cash flows. We monitor this carefully with the aim of achieving neutrality in the P&L impact of movements.

 

Profit margins

The gross margin has been steady at 41% for the last few reporting periods as the growth of the Group normalises. Added volume delivers additional profit at these levels, and we continue to invest through the down cycle to improve our factories and the availability of our products to our customers. Our operating profit margin has been steady at 13.5% (H1 2015, 13.8%), and the profit attributable to shareholders at 11.2% (H1 2015, 10.7%) has improved over the same period last year. 



Balance sheet and cash flows

The Mincon Group balance sheet remains strong with net assets of €99.9 million. Receivables have increased by €3.1 million in H1 this year, following the normal seasonal pattern, and 74% of these balances are current, which is not significantly different from usual.

 

Inventory has seen some growth since the year end, due to a number of factors including replacing inventory that was previously consignment inventory from third parties, and taking back inventory from distributors being replaced by our own subsidiaries. Raw materials also increased as orders reached a seasonal peak for volumes to be delivered in the second half. Working capital again absorbed approximately €5 million of cash in H1 as it did during the same period last year, and if the cycle follows through we should aim to recover this from working capital by the year end, subject to the requirements of the new product cycles.

 

The Group had net cash of €33.8 million at 30 June 2016, (31 December €38.6 million), with capital expenditure of c.€3 million (H1 2015, €0.84 million) replacing acquisition investment in the first half compared to last year. The investment is directed at expanding production of the current ranges, improved processes and equipment for the underinvested Marshall's factory and on the equipment for new products. We see this investment trend continuing for the next two years, subject to the strategy being successful, and itemised approval from the Board.

 

This engineering investment path is designed to result in external work being brought in-house and manufacturing being expanded and standardised to protect quality, deliver improved consistency and support production efficiency.

 

Dividend

The Board of Mincon Group plc has recommended the payment of an interim dividend in the amount of €0.01 (1 cent) per ordinary share, which will be paid on 26 September, 2016 to shareholders on the register at the close of business on 2 September, 2016.

 

Outlook

We are seeing growth in our sales, which we believe is due to increased market share rather than a general improvement in our target markets. Having said that, there are improvements in some commodity prices and certain end-markets appear to be beginning to return to growth. This should lead on to a recovery in the exploration businesses in due course and then across the mining sector. We believe that the underlying tone is improving, even if this is anecdotal rather than observable.

 

We continue to engage in dialogue with potential acquisitions and investments, but in some cases, the asking price is not supported by the earnings, and others have withdrawn to work through the down-turn in private. Nevertheless there are fine companies in the sector, worth acquiring, and we are actively continuing to identify and engage with those that we believe would add more than they would cost, and which would continue to fill out our geographic footprint, and our product and service offering.

 

 

19 AUGUST 2016

 

For further information, please contact:

 

Mincon Group plc


Joe Purcell          Chief Executive Officer

Peter E. Lynch     Chief Operating Officer

                                       Tel: + 353 (61) 361 099



Davy Corporate Finance (Nominated Adviser and ESM Adviser)

Tel: +353 (1) 679 6363

Anthony Farrell


Daragh O'Reilly


 

 


 

Unaudited condensed consolidated income statement

For the 6 months ended 30 June 2016

 


 






Notes

 

 

2016

H1

€'000

2015

H1

€'000

Continuing operations




Revenue

2

36,313

32,740

Cost of sales

4

(21,381)

(19,262)

Gross profit


14,932

13,478

General, selling and distribution expenses

4

(10,029)

(8,971)

Operating profit


4,903

4,507

Finance cost


(85)

(98)

Finance income


90

179

Foreign exchange gain/(loss)


135

2

Fair value movement on contingent consideration


(35)

(91)

Profit before tax


5,008

4,499

Income tax expense


(930)

(951)

Profit for the period


4,078

3,548

 

Profit attributable to:




- owners of the Parent


4,068

3,514

- non-controlling interests


10

34

Earnings per Ordinary Share




Basic earnings per share, €

7

0.019

0.017

Diluted earnings per share, €

7

0.019

0.017

 

The accompanying notes are an integral part of these financial statements. 



 

 

Unaudited condensed consolidated statement of comprehensive income

 

 For the 6 months ended 30 June 2016

 


 





2016

H1

2015

H1

 


€'000

€'000

 

Profit for the period

4,078

3,548

 

Other comprehensive income/(loss):



 

Items that are or may be reclassified subsequently to profit or loss:



 

Foreign currency translation - foreign operations

31

1,829

 

Other comprehensive income/(loss) for the period

31

1,829

 

Total comprehensive income for the period

4,109

5,377

 

Total comprehensive income attributable to:



 

- owners of the Parent

4,099

5,343

 

- non-controlling interests

10

34

 



 

 

The accompanying notes are an integral part of these financial statements.

 

                                                                                                                                          



 

 

Unaudited consolidated statement of financial position

As at 30 June 2016


 



















30 June

2016

31 December

2015



Notes

€'000

€'000






Non-Current Assets





Goodwill


9

11,901

11,459

Property, plant and equipment


10

18,690

17,277

Deferred tax asset


6

556

480

Other non-current assets



282

342

Total Non-Current Assets



31,429

29,558

Current Assets





Inventory


11

33,776

32,045

Trade and other receivables


12

16,180

13,021

Other current assets



1,094

649

Current tax asset


6

484

733

Short term deposits


14(a)

30,860

30,781

Cash and cash equivalents



5,223

10,644

Total Current Assets



87,617

87,873

Total Assets



119,046

117,431

Equity





Ordinary share capital



2,105

2,105

Share premium



67,647

67,647

Merger reserve



39

39

Capital redemption reserve



(17,393)

(17,393)

Share based payment reserve


8

26

16

Foreign currency translation reserve



(1,429)

(1,460)

Retained earnings



48,448

46,485

Equity attributable to owners of Mincon Group plc



99,443

97,439

Non-controlling interests



475

465

Total Equity



99,918

97,904

Non-Current Liabilities





Loans and borrowings


13

1,586

2,141

Deferred tax liability


6

193

556

Deferred contingent consideration


14(c)

6,335

6,347

Other liabilities



670

722

Total Non-Current Liabilities



8,784

9,766

Current Liabilities





Loans and borrowings


13

683

674

Trade and other payables



6,123

6,780

Accrued and other liabilities



3,023

2,009

Current tax liability


6

515

298

Total Current Liabilities



10,344

9,761

Total Liabilities



19,128

19,527

Total Equity and Liabilities



119,046

117,431






 

The accompanying notes are an integral part of these financial statements. 

 

 

 

 



 

 

Unaudited condensed consolidated statement of cash flows

For the 6 months ended 30 June 2016

 

 





H1

2016

H1

2015


€'000

€'000

Operating activities:



Profit for the period

4,078

3,548

Adjustments to reconcile profit to net cash provided by operating activities:



Depreciation

1,115

1,146

Finance cost

85

98

Finance income

(90)

(179)

Income tax expense

930

951

Other non-cash movements

(149)

128


5,969

5,783

Changes in trade and other receivables

(3,090)

(2,925)

Changes in prepayments and other assets

(449)

(747)

Changes in inventory

(1,314)

(1,357)

Changes in capital equipment inventory

(122)

(498)

Changes in trade and other payables

365

246

Cash provided by operations

1,359

502

Interest received

90

179

Interest paid

(85)

(98)

Income taxes paid

(960)

(1,183)

Net cash provided by/(used in) operating activities

404

(600)

Investing activities



Purchase of property, plant and equipment

(2,977)

(840)

Proceeds from sale of property, plant and equipment

86

-

Payment of deferred contingent consideration

(340)

-

Investment in short term deposits

(79)

(151)

(Investment in)/proceeds from joint venture investments

54

46

Acquisitions, net of cash acquired

-

(3,832)

Net cash provided by/(used in) investing activities

(3,256)

(4,777)

Financing activities



Dividends paid

(2,105)

(2,105)

Repayment of loans and finance leases

(591)

(510)

Drawdown of loans

40

1,100

Net cash provided by/(used in) financing activities

(2,656)

(1,515)

Effect of foreign exchange rate changes on cash

87

91

Net increase/(decrease) in cash and cash equivalents

(5,421)

(6,801)

Cash and cash equivalents at the beginning of the year

10,644

14,082

Cash and cash equivalents at the end of the period

5,223

7,281




 

The accompanying notes are an integral part of these financial statements.


Unaudited condensed consolidated statement of changes in equity for the 6 months ended 30 June 2016


 Share

capital

Share premium

Merger reserve

Other reserve

Capital redemption

reserve

Capital

contribution

Share based payment reserve

Foreign

currency translation reserve

Retained earnings

Total

Non-controlling interests

Total

equity


€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000














Balances at 30 June 2015

2,105

67,647

(17,393)

-

39

-

16

1,713

44,124

98,251

451

98,702

Comprehensive income:













Profit for the period

-

-

-

-

-

-

-

-

4,466

4,466

14

4,480

Other comprehensive income/(loss):













Foreign currency translation

-

-

-

-

-

-

-

(3,173)

-

(3,173)

-

(3,173)

Total comprehensive income








(3,173)

4,466

1,293

14

1,307

Transactions with Shareholders:













Acquisition of non-controlling interest

-

-

-

-

-

-

-

-

-

-

-

-

Recognition of non-controlling interest on acquisition

-

-

-

-

-

-

-

-

-

-

-

-

Dividend payment

-

-

-

-

-

-

-

-

(2,105)

(2,105)

-

(2,105)

Share-based payments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2,105

67,647

(17,393)

-

39

-

16

(1,460)

46,485

97,439

465

97,904

Comprehensive income:













Profit for the period

-

-

-

-

-

-

-

-

4,068

4,068

10

4,078

Other comprehensive income/(loss):













Foreign currency translation

-

-

-

-

-

-

-

31

-

31


31

Total comprehensive income








31

4,068

4,099

10

4,109

Transactions with Shareholders:













Share-based payments

-

-

-

-

-

-

10

-

-

10

-

10

Dividend payment

-

-

-

-

-

-

-

-

(2,105)

(2,105)

-

(2,105)

Balances at 30 June 2016

2,105

67,647

(17,393)

-

39

-

26

(1,429)

48,448

99,443

475

99,918

                                                                                                                                                                                   

The accompanying notes are an integral part of these financial statements.


Notes to the consolidated interim financial statements

1    General information and basis of preparation

Mincon Group plc ("the Company") is a company incorporated in the Republic of Ireland. The unaudited consolidated interim financial statements of the Company for the six months ended 30 June 2016 (the "Interim Financial Statements") include the Company and its subsidiaries (together referred to as the "Group").  The Interim Financial Statements were authorised for issue by the Directors on 18 August 2016.

 

The Interim Financial Statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the EU.  The Interim Financial Statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2015 as set out in the 2015 Annual Report (the "2015 Accounts").

 

The Interim Financial Statements do not constitute statutory financial statements.  The statutory financial statements for the year ended 31 December 2015, extracts from which are included in these Interim Financial Statements, were prepared under IFRSs as adopted by the EU and will be filed with the Registrar of Companies with the Company's 2015 annual return. They are available from the Company website www.mincon.com and, when filed, from the registrar of companies. The auditor's report on those statutory financial statements was unqualified.

 

The Interim Financial Statements are presented in Euro, rounded to the nearest thousand, which is the functional currency of the parent company and also the presentation currency for the Group's financial reporting.

 

The financial information contained in the Interim Financial Statements has been prepared in accordance with the accounting policies applied in the 2015 Accounts. 

 

Critical accounting estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ materially from these estimates.  In preparing the Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 2015 Accounts.

 

 

2.  Revenue

 

 

H1

2016

H1

2015


€'000

€'000

Product revenue:



Sale of Mincon product

 27,877

25,460

Sale of third party product

 8,436

7,280

Total revenue

 36,313

32,740

 

 



3. Operating Segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as the Board of Directors.

 

Having assessed the aggregation criteria contained in IFRS 8 operating segments and considering how the Group manages its business and allocates resources, the Group has determined that it has one reportable segment. In particular the Group is managed as a single business unit that sells drilling equipment, primarily manufactured by Mincon manufacturing sites.

 

Entity-wide disclosures

The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, Australia, the United States and Canada and sales offices in nine other locations including South Africa, Senegal, Ghana, Namibia, Tanzania, Sweden, Poland, Chile and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.

 

Revenue by region (by location of customers):


H1

2016

H1

2015


€'000

€'000

Region:


Ireland

 390

371

Americas

 12,539

9,508

Australasia

 8,521

7,083

Europe, Middle East, Africa

 14,863

15,778

Total revenue from continuing operations

 36,313

32,740

 

Non-current assets by region (location of assets):

 


30 June

2016

31 December

2015


€'000

€'000

Region:


  

Ireland

 6,176

5,681

Americas

 13,659

12,303

Australasia

 6,913

6,846

Europe, Middle East, Africa

 4,125

4,248

Total non-current assets(1)

 30,873

29,078

(1) Non-current assets exclude deferred tax assets.

 

 



4.  Cost of Sales and operating expenses

 

Included within cost of sales, selling and distribution expenses and general and administrative expenses were the following major components: 

 

Cost of sales


 


H1

2016

H1

2015


€'000

€'000

Raw materials

7,939

7,310

Third party product purchases

6,369

5,706

Employee costs

3,645

3,287

Depreciation

847

854

Other

2,581

2,105

Total cost of sales

21,381

19,262

 

 

Other operating expenses



H1

2016

H1

2015



€'000

€'000

Employee costs (including director emoluments)

 5,914

5,030

Depreciation

268

292

Gain on Sale of Fixed Asset

              (86)

                 -

Other

3,933

3,649

Total other operating costs

10,029

8,971

 

 

5.  Employee information




H1

2016

H1

2015


€'000

€'000

Wages and salaries - including directors

 8,175

7,276

Severance payments

 400

-

Social security costs

 601

622

Pension costs of defined contribution plans

 373

418

Share based payments

 10

-

Total employee costs

 9,559

8,316

 

The average number of employees was as follows:




H1

2016

H1

2015


Number

Number

Sales and distribution

75

79

General and administration

59

52

Manufacturing, service and development

164

144

Average number of persons employed

298

275

 



6.  Income Tax

 

The Group's consolidated effective tax rate in respect of operations for the six months ended 30 June 2016 was 18.6% (30 June 2015: 21.3%). The decrease in the effective rate of tax to 18.6% in 2016 was due to the change in the geographic spread of profits of the Group entities, reflective of the impact on margins of the strengthening of currencies in non-euro jurisdictions. The tax charge for the six months ended 30 June 2016 of €0.9 million (30 June 2015: €1 million) comprises a deferred tax charge relating to movements in provisions, net operating losses forward and the temporary differences for property, plant and equipment recognised in the income statement.

 

The net current tax liability at period-end was as follows:


30 June

2016

31 December

2015


€'000

€'000

Current tax prepayments

484

733

Current tax payable

(515)

(298)

Net current tax

(31)

435

The net deferred tax liability at period-end was as follows:


30 June

2016

31 December

2015


€'000

€'000

Deferred tax asset

556

480

Deferred tax liability

(193)

(556)

Net deferred tax

363

(76)

 

 

7. Earnings per share

 

Basic earnings per share (EPS) is computed by dividing the profit for the period available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares. The following table sets forth the computation for basic and diluted net profit per share for the six months ended 30 June:

 


H1

2016

H1

2015

Numerator (amounts in €'000):



Profit attributable to owners of the Parent

4,068

3,514

Earnings per Ordinary Share



Basic earnings per share, €

0.019

0.017

Diluted earnings per share, €

0.019

0.017

Denominator (Number):



Basic weighted-average shares outstanding

210,541,102

210,541,102

Diluted weighted-average shares outstanding

210,554,991

210,541,102

 

 

8. Share based payment

 

During the half year ended 30 June 2016, the Remuneration Committee of the Board of Directors made a grant of approximately 500,000 Share Awards (SAs) to members of the senior management team, excluding executive directors. Vesting of awards is conditional on the Company attaining specified performance targets over a period of at least three financial years. Those targets will be aligned with the Company's long term business strategy. These awards will vest three years after the date of the award, subject to the group achieving compound growth in EPS of CPI plus 5% over 2016, 2017 and 2018.

The fair value of services received in return for SAs granted is measured by market value of the shares, at €0.70 per share, on the day the awards were granted.

 

 



9. Goodwill

 


€'000

Balance at 1 January 2016

                      11,459

Acquisitions

-

Foreign currency translation differences

442

Balance at 30 June 2016

11,901

 

 

10. Property, Plant and Equipment

 

 

Capital expenditure in the first half-year amounted to €3 million (30 June 2015: €0.8 million) of which €0.2 million (30 June 2015: €0.1 million) was invested in buildings and €2.8 million (30 June 2015: €0.7 million) was invested in plant and machinery.

 

The depreciation charge for property, plant and equipment is recognised in the following line items in the income statement:


H1

2016

H1

2015


€'000

€'000

Cost of sales

 847

854

Selling, general and administrative expenses

 268

292

Total depreciation charge for property, plant and equipment

 1,115

1,146

 

 

11. Inventory

 


30 June

2016

31 December

2015


€'000

€'000

Finished goods and work-in-progress

23,969

23,408

Capital equipment

3,928

3,805

Raw materials

5,879

4,832

Total inventory

33,776

32,045

 

There was no material write-down of inventories to net realisable value during the period ended 30 June 2016 (30 June 2015: €Nil).

 

 



12. Trade and other receivables

 


30 June

2016

31 December

2015


€'000

€'000

Gross receivable

17,025

13,669

Provision for impairment

(845)

(648)

Net trade and other receivables

16,180

13,021

 

 


30 June

2016

31 December

2015


€'000

€'000

Less than 60 days

 11,900

9,607

61 to 90 days

 2,177

1,931

Greater than 90 days

 2,103

1,483

Net trade and other receivables

16,180

13,021

 

At 30 June 2016, €2.1 million (13%) of trade receivables of our total trade and other receivables balance was past due but not impaired (31 December 2015, €1.5 million (11%)).

No customer accounted for more than 10% of trade and other receivables balance at any period end.

Credit Risk

The majority of the Group's customers are third party distributors of drilling tools and equipment. The maximum exposure to credit risk for trade and other receivables by geographic region was as follows at the balance sheet dates presented:

 


30 June

2016

31 December

2015


€'000

€'000

Ireland

69

51

Americas

5,791

3,693

Australasia

2,946

2,746

Europe, Middle East, Africa

7,374

6,531

Total amounts owed, net of provision for impairment

16,180

13,021

 

 

13. Loans and borrowings

 



30 June

2016

31 December

2015


Maturity

€'000

€'000

Bank loans

2016-2021

1,452

1,684

Finance leases

2016-2020

817

1,131

Total Loans and borrowings


2,269

2,815

Current


683

674

Non-current


1,586

2,141

 

The Group has a number of bank loans and finance leases in Australia, the United States, Canada, Chile and Namibia with a mixture of variable and fixed interest rates. The Group has been in compliance with all debt agreements during the periods presented. None of the debt agreements carry restrictive financial covenants. Bank loans are secured on land & buildings with a net book value of approximately AUS$3,500,000 (circa €2.3 million) and on plant and equipment with a net book value of US$682,000 (circa €0.6 million).

 

During the year there was a drawdown of €40,000 in new finance debt and repayment of €0.6 million of existing finace debt.

 



14. Financial Risk Management

 

We are exposed to various financial risks arising in the normal course of business. Our financial risk exposures are predominantly related to changes in foreign currency exchange rates as well as the creditworthiness of our financial asset counterparties.

 

The half-year financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the 2015 Annual Report. There have been no changes in our risk management policies since year-end and no material changes in our interest rate risk.

 

a) Liquidity and Capital

 

The Group defines liquid resources as the total of its cash, cash equivalents and short term deposits. Capital is defined as the Group's shareholders' equity and borrowings.

 

The Group's objectives when managing its liquid resources are:

•           To maintain adequate liquid resources to fund its ongoing operations and safeguard its ability to continue as a going concern, so that it can continue to create value for investors;

•           To have available the necessary financial resources to allow it to invest in areas that may create value for shareholders; and

•           To maintain sufficient financial resources to mitigate against risks and unforeseen events.

 

Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group's anticipated requirements for the foreseeable future. The Group's liquid resources and shareholders' equity at 30 June 2016 and 31 December 2015 were as follows:


30 June 2016 

31 December 2015


€'000

€'000

Cash and cash equivalents

5,223

10,644

Short term deposits

30,860

30,781

Loans and borrowings

(2,269)

(2,815)

Shareholders' equity

99,443

97,439

 

 



14. Financial Risk Management (continued)

 

b) Foreign currency risk

 

The Group is a multinational business operating in a number of countries and the euro is the presentation currency. The Group, however, does have revenues, costs, assets and liabilities denominated in currencies other than euros. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the reporting date and the resulting gains and losses are recognised in the income statement.

 

The Group's global operations create a translation exposure on the Group's net assets since the financial statements of entities with non-euro functional currencies are translated to euro when preparing the consolidated financial statements.  The Group does not use derivative instruments to hedge these net investments. The principal foreign currency risks to which the Group is exposed relate to movements in the exchange rate of the euro against US dollar, South African rand, Australian dollar, Sterling and Swedish Krona.

 

Almost 63% of Mincon's revenue is generated in these currencies, compared to less than 15% of the Group's cost of sales. This had a significant translational impact on revenue when sales in local currency are converted into euro with a knock-on impact on the Group's gross margin and net margin. The majority of the group's manufacturing base has a euro or US dollar cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors.

 

Currency also has a significant transactional impact on the group as outstanding balances in foreign currencies are retranslated at closing rates at each period end. The strengthening of the US Dollar and other currencies has impacted upon equity with an increase in recognised net assets of non-Euro reporting subsidiaries of €2 million due to foreign exchange movements in the year on the retranslation of the net investment in foreign operations.

 

 

Average and closing exchange rates for the Group's primary currency exposures were as disclosed in the table below for the period presented.

 


30 June

2016

H1 2016

31 December

2015

H1 2015

Euro exchange rates

Closing

Average

Closing

Average

US Dollar

 1.11

 1.12

 1.09

1.12

Australian Dollar

 1.49

 1.52

 1.49

1.93

South African Rand

 16.40

 17.19

 16.93

13.31

Swedish Krona

 9.41

 9.30

 9.18

9.34

Sterling

 0.84

0.79

 0.74

0.72

 

There has been no material change in the Group's currency exposure since 31 December 2015. Such exposure comprises the monetary assets and monetary liabilities that are not denominated in the functional currency of the operating unit involved.

 



14. Financial Risk Management (continued)

 

c) Fair values

 

Fair value is the amount at which a financial instrument could be exchanged in an arms-length transaction between informed and willing parties, other than in a forced or liquidation sale. The contractual amounts payable less impairment provision of trade receivables, trade payables and other accrued liabilities approximate to their fair values. Under IFRS 7, the disclosure of fair values is not required when the carrying amount is the reasonable approximation of fair value.

 

There are no material differences between the carrying amounts and fair value of our financial liabilities as at 31 December 2015 or 30 June 2016.

 

Financial instruments carried at fair value

The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios.  The fair value of deferred contingent consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management's current expectations thereof.  An increase and decrease of 10% in management's expectation as to the amounts that will be paid out would increase or decrease the value of contingent deferred contingent consideration at 30 June 2016 by €0.6 million. The significant unobservable inputs are the performance of the acquired businesses and the timing of the pay-out.

 

Movements in the year in respect of Level 3 financial instruments carried at fair value

The movements in respect of the financial assets and liabilities carried at fair value in the year to 30 June are as follows:


Deferred

contingent

consideration


€'000

Balance at 1 January 2016

6,347

Cash payment

(340)

Fair value movement

35

Foreign currency translation differences

293

Balance at 30 June 2015

6,335

 

 



15. Litigation

 

The Group is not involved in legal proceedings that could have a material adverse effect on its results or financial position.

 

 

16. Related Parties

 

We have related party relationships with our subsidiaries, directors and senior key management personnel. All transactions with subsidiaries eliminate on consolidation and are not disclosed.

 

As at 30 June 2016 and 31 December 2015, the share capital of Mincon Group plc was 56.84% owned by Kingbell Company which is ultimately controlled by Patrick Purcell and members of the Purcell family. Patrick Purcell is also a director of the Company. On 9 and 10 June 2016, Ballybell Ltd, a compay controlled by non-Executive Director Kevin Barry, reduced it's shareholding in Mincon Group to 7.09% (31 December 2015 14.21%). In June 2016, the Group paid a final dividend of €0.01 to all shareholders on the register at 27 May 2016. The total dividend paid to Kingbell and Ballybell Limited was €1,196,712 and €299,178 respectively.

 

There were no other related party transactions in the half year ended 30 June 2016 that affected the financial position or the performance of the Company during that period and there were no changes in the related party transactions described in the 2015 Annual Report that could have a material effect on the financial position or performance of the Company in the same period.

 

 

17. Events after the reporting date

 

Dividend

On 18 August 2016, the Board of Mincon Group plc approved the payment of an interim dividend in the amount of €0.01 (1 cent) per ordinary share. This amounts to a total dividend payment of €2.1m which will be paid on 26 September 2016 to shareholders on the register at the close of business on 2 September 2016.

 

 

18. Approval of financial statements

 

The Board of Directors approved the interim condensed consolidated financial statements for the six months ended 30 June 2016 on 18 August 2016. 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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