25th Feb 2015 11:01
LONDON (Alliance News) - Molins PLC Wednesday reported a drop in profit and revenue for 2014 as its tobacco machinery unit was hit by a widespread slowdown in the tobacco market, particularly in the Middle East due to the political and social tensions there.
The company reported a pretax profit of GBP0.3 million for the year, down from GBP3.8 million in 2013, as revenue dropped to GBP89.9 million, from GBP105.2 million. That was mainly due to a slump in sales in the tobacco machinery unit to GBP24.6 million, from GBP34.4 million in 2013, and the unit swung to an operating loss of GBP0.2 million from a GBP2.9 million profit.
"After a promising start to 2014, with good order prospects, trading conditions toughened considerably as evidenced by the closures of a number of large cigarette factories by the multinational manufacturers," Molins said.
"As well as a widespread slowdown in activity, which affected all geographic regions, sales were impacted more specifically by geopolitical concerns in the Middle East and eastern Europe. This led to anticipated orders not materialising and, in particular, the division's performance was adversely affected by the termination of an order from the Middle East received in 2012 and by competitive pricing pressures, as the machinery suppliers tried to secure those relatively few orders that were placed," it added.
The division did win orders from a major customer in Africa at the end of 2014, but the deal was done at "particularly competitive prices". Its aftermarket sales have also decreased as a result of the slowdown.
Molins said it has responded to the downturn by cutting staff numbers in the unit by 8%.
The company's other divisions also struggled. Sales in its scientific services unit fell to GBP24.8 million, from GBP26.5 million, although cost-cutting meant operating profit improved to GBP1.8 million, from GBP1.1 million. Sales in the packaging machinery unit were broadly flat in local currencies, but the strength of sterling meant they were down 9% at GBP40.5 million. The company also managed to boot the operating profit of the division, to GBP1.8 million from GBP1.5 million, as it improved margins and bolstered sales of aftermarket products.
"The division is well positioned for further progress, supported by established customer relationships, including many large, multinational customers, an attractive product offering and strong engineering skills. While the ongoing challenge is to be able to deploy resources efficiently through the year, the division has entered 2015 with an order book significantly higher than twelve months previously and we expect it to continue to improve its performance," the company said of the packaging machinery division.
Its scientific services business was hit by a lack of new regulatory testing requirements for tobacco products in the US. The company has started a strategic review of the business where the laboratory infrastructure remains under-utilised and has partially written down the goodwill of the unit in its balance sheet to a carrying value of GBP1.3 million. This meant it had to book a charge of GBP1.6 million.
"We expect to complete a strategic review of our analytical services operation in the USA in the first half of 2015 and with challenging market conditions for tobacco machinery related activities, the Board continues to focus on cost control and margins, as well as product development. Packaging Machinery is well placed to continue to progress. Overall, our order book at the start of the year is encouraging, albeit, as in previous years, we expect to see a significant weighting of performance in the second half of the year," Chief Executive Dick Hunter said.
The company said it will pay a final dividend for 2014 of 3.0 pence, meaning the total dividend for the year was unchanged from 2013 at 5.5p.
Molins shares were down 6.8% at 83.90 pence Wednesday morning, a one-month low for the stock.
By Steve McGrath; [email protected]; @stevemcgrath1
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