6th Jun 2006 07:02
UMECO PLC06 June 2006 6 June 2006 Preliminary results for the year to 31 March 2006 STRONG UNDERLYING GROWTH AND FURTHER EXPANSION THROUGH ACQUISITIONS AND INVESTMENT Umeco plc, an international provider of supply chain and repair & overhaulservices and advanced composite materials primarily to the aerospace & defenceand automotive industries, announces its preliminary results for the year to 31March 2006. Financial highlights - adjusted IFRS basis • Revenue increased by 21 per cent to £293.2 million (2005: £242.4 million); • Profit before tax increased by 34 per cent to £18.1 million (2005: £13.5 million); • Earnings per share up 23 per cent to 30.9 pence (2005: 25.2 pence); • Strongly supported rights issue in December 2005 raised £48.4 million; • Recommended increased final dividend of 9.50 pence per share (2005: 8.75 pence), resulting in a total dividend of 14.50 pence per share (2005: 13.25 pence), up 9 per cent; Operational highlights • Strategic acquisitions in Components and Repair & Overhaul, including; o Provest, a Milan based distributor of aerospace components; o Aviation Windings, involved in the manufacture and refurbishment of wire wound electrical assemblies; o Aeromedic Innovations, a supplier of aviation medical kits. • Expansion into Asia and important China market through a memorandum of understanding with Xi'an Yanlaing Aircraft Manufacturing Base to establish a wholly owned commercial enterprise; • Continued strong recovery in civil aerospace market; • Global demand for advanced composite materials increasing at a high rate; • Ulogistics signed major, long term contract with Goodrich Actuation Systems in Europe; • Current year has started with record order books and healthy level of new business activity; • Major investment in the expansion of Advanced Composites Group ('ACG') facilities in Derby, due for completion in summer 2006; • Further strengthening of relationship with McLaren Automotive through acquisition of Aerodyne Advanced Composites ('AAC'), which has a contract in relation to the sole supply of specified component parts to the Mercedes-Benz SLR McLaren super sports car; • Rebranding of Umeco and its subsidiaries under one common brand announced today. Clive Snowdon, Chief Executive of Umeco plc, commented: "Umeco has had another excellent year with strong results from our existingactivities and with recent acquisitions performing ahead of expectations. "In the last two financial years Umeco has delivered high rates of growth fromour market leading positions and we continue to strive to develop the Group in adisciplined manner. We are extending our international presence into China andthe Far East and are investing heavily in capacity to meet the growing demandfor our products and services. With our enlarged financial capacity we continueto seek bolt-on acquisitions, but will only acquire businesses if we believethey will improve the overall performance of the Group. "The civil aerospace market, our principal sector, has continued its recoveryduring 2005, with build rates for new aircraft expected to continue to rise overthe medium term. In addition, global demand for our advanced composite materialshas continued to increase at a rapid rate during the year, especially in theaerospace, wind energy and upper-end automotive markets. "We have today announced the rebranding of the Group to reflect the trueinternational reach of our brands and to present our markets with a unifiedvision and set of values that reflect our ambitious future growth plans. "We have started the current financial year with record order books and we arein a position to look forward to a period of sustained progress." For further information, please contact:- Umeco plc Tel: +44 (0) 1926 331 800Clive Snowdon, Chief ExecutiveJohn Beaumont, Group Finance Directorwww.umeco.com Hogarth Partnership Tel: +44 (0) 20 7357 9477John OlsenBarnaby Fry Note on adjusted profit and earnings per share measures:- Umeco uses adjusted figures as key performance indicators. Adjusted figures arestated before amortisation of intangible assets, significant items, therevaluation of financial instruments based on their market values, associatedtaxation effects and the taxation effects of goodwill amortisation in overseasjurisdictions. The differences between the adjusted and unadjusted measures ofoperating profit, profit before tax and profit attributable to equity holders ofthe parent are reconciled in note 4 to this announcement. The narrative in thisannouncement is based on the adjusted measures of operating profit, profitbefore tax and earnings per share. These provide a more consistent measure ofoperating performance. The table below sets out a comparison of adjusted andunadjusted values:- 2006 2005 £ million £ million Operating profit 19.2 15.1_____________________________________________________________________________ Adjusted operating profit 21.5 16.0_____________________________________________________________________________ Profit before tax 16.1 12.6_____________________________________________________________________________ Adjusted profit before tax 18.1 13.5_____________________________________________________________________________ Pence Pence Earnings per share 27.3 22.9_____________________________________________________________________________ Adjusted earnings per share 30.9 25.2_____________________________________________________________________________ Note to editors:- Umeco is a leading innovator in distribution, supply chain management and repair& overhaul services to the aerospace and defence industries, harnessing newmethods for enhancing its customers' performance and profitability. Umeco also has significant manufacturing interests in advanced compositematerials for a growing range of applications in its core aerospace and defencemarkets and in other high performance technology industries such as motor sport,automotive and wind energy. Preliminary results for the year to 31 March 2006 Results and dividend 2006 has been a busy, exciting and successful year for Umeco. Our tradingperformance continues to be robust; the Group has made a number of strategicallyimportant acquisitions and has secured a major contract extension with GoodrichActuation Systems. In December 2005, £48.4 million was raised by way of a rightsissue with the strong support of the Group's shareholders. This, together withan extended banking facility, provides Umeco with a very strong platform forfurther organic growth and significant bolt-on acquisitions in the currentfinancial year. Revenue in the year to 31 March 2006 was £293.2 million (2005: £242.4 million)an increase of £50.8 million, of which £12.1 million relates to acquisitions andthe balance of £38.7 million relates to existing activities. The underlyingincrease in revenue was 14 per cent. Operating profits in the period rose by 34 per cent to £21.5 million (2005:£16.0 million) with margins improving to 7.3 per cent (2005: 6.6 per cent). Net financial expense, excluding revaluations of financial instruments, was £3.4million (2005: £2.5 million) which primarily reflects the higher debt the Groupcarried during the year prior to the rights issue. Profit before tax was £18.1 million (2005: £13.5 million) an increase of 34 percent. Earnings per share were 30.9 pence compared to 25.2 pence, an increase of 23 percent after adjusting for the rights issue. The Directors are proposing an increased final dividend of 9.50 pence (2005:8.75 pence), making a total for the year of 14.50 pence per ordinary share(2005: 13.25 pence) an increase of 9 per cent. The final dividend is payable on11 August 2006 to shareholders on the register on 14 July 2006. Strategic developments During the course of the year the Group made a number of strategic developmentsacross all three of its business activities. Components • On 31 October 2005, the Group acquired Provest, a Milan based distributor of aerospace fasteners and related products, for a maximum cash consideration of €20.0 million. This included an initial consideration of €13.5 million (£9.6 million including expenses). Additional consideration of €6.5 million (£4.5 million) is payable if certain profit targets are met and full provision for the additional consideration has been made in the Group's balance sheet at 31 March 2006. The integration plan is proceeding well and trading is in line with the Board's expectations. • In January 2006, the Group signed a memorandum of understanding with Xi'an Yanlaing Aircraft Manufacturing Base in China, whereby a wholly owned Foreign Invested Commercial Enterprise will be established at the base during 2006. The new company will support the growing product demands of Umeco's European and North American customers in China and will also seek to provide similar products and services to the buoyant Chinese domestic market. The new company will become fully operational in July 2006 and initial recruitment is underway. • On 20 February 2006, Ulogistics Europe signed a major, long term contract with Goodrich Actuation Systems to provide a complete outsourcing solution for all its European 'C-class' requirements. The new contract has an initial term of ten years and commenced in April 2006. Composites • In June 2005, a major capital expenditure project was approved to expand the existing facility of ACG in Derbyshire, UK at a cost of £7.0 million. The project, which comes on stream this summer, is on time and on budget. • On 8 July 2005, GRP acquired property and other assets related to the Scandinavian distribution activities of Ashland Composite Polymers for €0.6 million (£0.5 million including expenses). The integration into GRP has gone well, trading is in line with the Board's expectations and new products are being introduced into the region. • In July 2005, Aerovac UK acquired the remaining 8 per cent minority holding in Aerovac France for £0.2 million. Repair & Overhaul • On 25 August 2005, the Group acquired Aviation Windings for £1.6 million in cash and also assumed its indebtedness of £2.0 million. Additional consideration of up to £0.5 million is payable based on the performance of Aviation Windings in the 12 months following completion. The integration into AEM has been successfully concluded and, with post acquisition trading in line with initial expectations, full provision has been made for the additional consideration. • On 11 November 2005, the Group acquired Aeromedic Innovations for £2.1 million in cash with additional consideration of up to £0.7 million payable based on performance in the year to 31 March 2006. Post acquisition trading is ahead of expectations and therefore full provision has been made for the additional consideration. Operations Revenue for the year was £293.2 million (2005: £242.4 million) an increase of 21per cent; excluding the impact of recent acquisitions the underlying rate ofgrowth was 14 per cent. Acquisitions completed during the year accounted foradditional revenue of £12.1 million. Against this, foreign exchange ratemovements, principally the US dollar and the Euro against sterling, had theeffect of increasing reported revenue; at constant exchange rates revenue wouldhave been £2.6 million lower. Growth has been achieved across all business segments, reflecting the recoveryin the civil aerospace market, significant growth in the demand for compositematerials, particularly from the wind energy market, and additional volumes onexisting and new contracts. Operating profit at £21.5 million (2005: £16.0 million) increased by 34 percent, and by 23 per cent on an underlying basis. The Group's operating marginrose to 7.3 per cent (2005: 6.6 per cent) reflecting the good margins of thebusinesses recently acquired and operational gearing. Whilst there have beensignificant increases in certain raw material prices, the Group has largely beensuccessful in passing these on to customers. Umeco Components +----------------------+-----------------------+-----------------+| | 2006| 2005||----------------------+-----------------------+-----------------+| | £ million| £ million||----------------------+-----------------------+-----------------+|Revenue | 141.4| 122.7|+----------------------+-----------------------+-----------------+|Operating profit | 7.2| 5.2|+----------------------+-----------------------+-----------------+ Umeco Components is a leading international provider of value-added distributionand supply chain outsourcing services primarily to OEM customers in theaerospace and defence markets. With its specialisation in the supply of smallcomponents and its sophisticated IT systems, significant operational, cost andworking capital benefits can be enjoyed by its growing global customer base. Revenue increased in the year by 15 per cent, or by 10 per cent on an underlyingbasis. The rise in revenue was partially held back by the re-organisation of theelectronic components activity in January 2006 after a period of falling demand.As a result, the industrial products business unit was sold to management whilstthe aerospace products unit was integrated into Pattonair and is now expected togrow in the current year following the securing of new franchises. Operating profit increased in the period by 38 per cent, and by 27 per cent onan underlying basis. This significant increase in profitability arises from therecovery in the civil aerospace market, an initial five months' contributionfrom Provest and also reflects action taken to improve margins through focusedprocurement and cost control. The underlying result was adversely affected bythe very poor results from Compstock prior to the re-organisation outlinedabove. Pattonair in both the UK and France has performed strongly since the managementchanges made in September 2004 and Nick Robins, who heads these operations, hasalso become responsible for integrating Provest into a broader Europeandistribution business unit. The integration programme is on schedule andconsiderable efforts have been made to enhance Provest's operations, businessdevelopment and financial reporting systems. On 1 April 2006, Provest changedits trading name to Pattonair. Ulogistics Europe continues to expand its relationship with Rolls-Royce plc,which had a very successful 2005 finishing the year with a record order book. Anumber of new projects are planned for the current financial year which willfurther broaden the scope and scale of this very important contract. As a consequence of Umeco Components securing the contract with GoodrichActuation Systems in February 2006, Pattonair's trading activities with Goodrichhave been transferred to Ulogistics as from April. The renewed and expandedagreement means that Ulogistics Europe has become responsible for the managementof the enlarged contract with Goodrich Actuation Systems and a dedicated teamhas been established to ensure the successful implementation and development ofthis project. The contract is currently operating from an additional leasedproperty adjacent to the main Ulogistics operation in Derby, and plans are inplace to acquire a new, larger freehold property in the area during 2006, tohouse both of these growing businesses. It is encouraging to report that Pattonair has already secured a number of newcontracts to replace the Goodrich revenues transferred to Ulogistics. Ulogistics North America, which manages an important contract with BombardierAerospace in Montreal, had a successful year aided by the provision of a numberof additional services, and is now actively engaged with the customer on theplanning for a further roll-out of this contract. Abscoa and TLC have now been integrated and a number of senior managementchanges were made during the second half year to further develop the key NorthAmerican market. Umeco Components has recruited a Singapore based managing director for Asia whowill be responsible for the establishment of the new Chinese distributionfacility. A sales office in Madrid is planned in the current financial year tosupport customer relationships in the Spanish aerospace market. Umeco Composites +--------------------------------------+----------------------+----------------+| | 2006 | 2005 ||--------------------------------------|----------------------|----------------|| | £ million | £ million ||--------------------------------------+----------------------+----------------+|Revenue | 131.4 | 101.9 ||--------------------------------------|----------------------|----------------||Operating profit | 11.9 | 9.0 |+--------------------------------------+----------------------+----------------+ Umeco Composites provides a broad range of advanced composite materials andspecialist chemical products principally to the aerospace, motor sport &automotive and wind energy markets. A full range of value-added outsourcingservices is provided to major customers. Revenue increased in the period by 29 per cent, or 21 per cent on an underlyingbasis, with all businesses delivering good growth. Operating profits rose by 32 per cent, or 26 per cent on an underlying basis. This significant growth in revenue and profits reflects the increasing use ofadvanced composite materials in a number of markets including aerospace,automotive and wind energy, and the recovery in the civil aerospace market. ACG had a very successful year in both the UK and US, with an increase inrevenues of over 22 per cent on an annualised basis. Its closing order book atthe end of March was £15.1 million, a year-on-year increase of £7.3 million.Profits were strongly ahead as a result of operational gearing. The business wasable to pass on most of the higher raw material prices that arose during theyear as a result of the growing shortage of certain grades of carbon fibre. ACGwas able to maintain deliveries to existing customers whilst new businessopportunities were selectively secured in order to ensure the highest level ofcustomer service. The major capital expenditure programme to expand the capacity of ACG's UKfacility is drawing to a successful close and comes on stream this summer. Thenew facility will comprise an enlarged composites manufacturing and technologycentre, incorporating an extensive technical support resource together with newresin mixing and prepreg manufacturing capabilities. This will enable furtherrevenue growth as the business was becoming capacity constrained. In the US, ACG has been successful in securing a number of long term aerospacematerial supply contracts with customers including Columbia Aircraft and ScaledComposites. Additional production capacity is planned for the current year. Umeco Composites' vacuum bagging businesses, Aerovac and Richmond, continued todeliver high levels of revenue and profit growth during the year. Demand wasparticularly strong in the wind energy market and a number of new contracts weresecured for materials that were developed in house for this rapidly growingmarket. Richmond enjoyed a higher level of business with Boeing and its mainpartners and is working closely with them on a number of elements of the veryimportant 787 programme. Aerovac France delivered an excellent result followingthe management changes made in 2004. Umeco Composites' aerospace chemical distribution businesses had a solid yearreflecting the recovery in the civil aerospace market and a number of newcontract wins. GRP Material Supplies gained UK market share in the year and has successfullyintegrated the Scandinavian business acquired from Ashland Composite Polymers inJuly. A number of new products were introduced during the year in bothterritories. Umeco Repair & Overhaul +----------------------------+-------------------------------+----------------+| | 2006 | 2005 |+----------------------------+-------------------------------+----------------+| | £ million | £ million |+----------------------------+-------------------------------+----------------+ |Revenue | 20.4 | 17.8 |+----------------------------+-------------------------------+----------------+|Operating profit | 2.4 | 1.8 |+----------------------------+-------------------------------+----------------+ Umeco Repair & Overhaul now comprises three businesses; AEM, one of the largestindependent component repair & overhaul facilities in Europe, Avionics MobileServices ('AMS'), which installs and overhauls avionic equipment, and AeromedicInnovations which supplies and maintains on-board medical kits and therapeuticoxygen equipment principally to airlines. Aviation Windings, acquired in lateAugust 2005, has been integrated with AEM, as will Aeromedic Innovations during2006. Revenue increased in the period by 15 per cent, or 1 per cent on an underlyingbasis. Operating profits rose by 33 per cent but fell 10 per cent on anunderlying basis. AEM had a slow start to the year and took steps to reduce its cost base and winnew business; these actions both proved positive. Aviation Windings traded inline with post acquisition expectations and was successfully integrated intoAEM. The business will benefit from the new A380 contract secured with Thales inlate 2005 and plans are in place to relocate Aviation Windings to new premiseswhich will provide the capacity to meet expected growth from both existing andnew customers. Aeromedic Innovations has traded ahead of initial expectationsand was successful in winning a major contract extension with British Airways inJune 2006. AMS had a strong close to the year due to the timing of major orders and theavailability of customers' aircraft. During the year AMS acquired the freeholdproperty from which it operates in St. Albans. Directors At the annual general meeting held on 28 July 2005, Osman Abdullah retired as anon-executive Director, having been on the Board since 1993. On 27 September2005, Graham Zacharias was appointed as a non-executive Director. John Harper, who has served Umeco as a non-executive Director since 1995,intends to retire from the Board at this year's annual general meeting. He hasmade a significant contribution to the development of the Group over this periodand the Board wish him a long and happy retirement. He has however agreed tocontinue in his role as Chairman of the Umeco Pension and Life Assurance Plan. The Board has instigated a search process to identify suitably qualifiedcandidates to replace John Harper. Branding and values Recognising that Umeco has become a leading player in the markets in which itoperates, a comprehensive rebranding exercise is being implemented over the nextsix months. The exercise will allow the Group to enhance its visibility andreputation across its growing, global customer base whilst retaining theessential goodwill in the Umeco brand that has developed over the past years. Inparallel with this rebranding exercise the senior management team has taken theopportunity to define Umeco's core values, which are now published on theGroup's website. Summary and prospects 2006 was a very encouraging year for Umeco. In the last two financial years, theGroup has delivered high growth in underlying revenues and profits, and the goalis to do so again in the current financial year. This underlying growth will be enhanced by the full year effect of thebusinesses that have recently been acquired, the new contracts secured and theadditional capacity investments made. The Group has been successful in winning anumber of new outsourcing contracts from both existing and new customers anddemand for its services remains at a high level. Umeco's principal market, civil aerospace, is recovering strongly. Orders fornew civil aircraft won by Airbus and Boeing reached a record net level in 2005at 2,057 (2004: 642), resulting in a substantial increase in their build rates.It is expected that this favourable situation will continue for the medium term. US defence spending remains at a high level and the development stage of theJoint Strike Fighter continues to add to revenue streams. Demand for the Group's broad range of composite materials is expected to be highas the advantages of these materials become more widely accepted across a numberof market segments, and as additional aerospace qualifications are secured. Themajor and on-going investment in the advanced composites market is deliveringexcellent returns, and will enable us to continue to develop new business andmaintain high levels of customer service, despite a shortage of some key rawmaterials. The recently announced acquisition of South African based AAC, which has acontract in relation to the sole supply of specified component parts to theMercedes-Benz SLR McLaren super sports car, further strengthens the Group'srelationship with McLaren Automotive. Overall, order intake during the year continued to rise and exceeded revenue by11 per cent. At the end of March 2006 Umeco's order book stood at £143.8 million(2005: £120.7 million); this is based on customer requirements over the ensuingyear. The Group continues to develop its capability to service current and prospectivecustomers in China and the Far East and is looking forward to the new facilityin Xi'an coming on stream during the summer. The Board's focus for the current year is to continue to develop the Group in adisciplined manner, driving further growth from existing activities and seekingsuitable bolt-on acquisitions. The Group's financial position is strong, and anumber of interesting opportunities are under consideration. However, businesseswill only be acquired if the Board is convinced that they will improve theoverall performance of the Group. The combination of these factors gives the Board considerable confidence inUmeco's prospects for the current financial year and for the longer term. Financial review International Financial Reporting Standards ('IFRS') The financial statements this year are presented for the first time under IFRS.Comparative figures for the year to 31 March 2005 have been restated in linewith the announcement released on 29 September 2005. Operating results 2006 2005Revenue £ million £ million______________________________________________________________________________ - total 293.2 242.4- acquisitions 12.1 -______________________________________________________________________________ Operating profit £ million £ million______________________________________________________________________________ - total 21.5 16.0- acquisitions 1.4 -______________________________________________________________________________ Operating margins per cent per cent______________________________________________________________________________ - total 7.3 6.6- acquisitions 11.6 -______________________________________________________________________________ Revenue for the year was 21 per cent higher than last year, with acquisitionsaccounting for one quarter of the increase. Operating profits were £21.5million, £5.5 million higher than the previous year, of which acquisitionscontributed £1.4 million; the increase in the existing businesses is due to thestrong recovery in the civil aerospace industry coupled with an increase indemand for advanced composite materials from the aerospace and other industries,most notably from the growing wind energy market. Operating margins rose to 7.3per cent from 6.6 per cent helped by the impact of recent acquisitions and bythe operational gearing effect of higher revenues. Exchange rates Average rates 2006 2005______________________________________________________________________________ US dollar 1.785 1.846Euro 1.466 1.467______________________________________________________________________________ Approximately 30 per cent of Group revenues are generated by overseassubsidiaries, and an increasing amount of UK business is transacted in foreigncurrencies, principally the US dollar and, to a lesser extent, the Euro. Atconstant exchange rates, the increase in revenues for the year would have been20 per cent, £2.6 million lower than the reported figure. Net financial expense Net financial expense, excluding revaluations of financial instruments, rosefrom £2.5 million in 2005 to £3.4 million. Average interest rates payable in theyear were 5.8 per cent and average net debt was £58.6 million compared with 4.6per cent and £50.7 million last year. Interest was covered 6.3 times by adjustedoperating profit (2005: 6.4 times). Goodwill amortisation Following the adoption of IFRS, goodwill is no longer amortised but is subjectto impairment testing. The charge in the income statement of £0.8 million (2005:£0.3 million) relates to the amortisation of intangible assets arising onacquisitions, principally the benefit of order books and contracts on hand atthe dates of acquisition. Significant items Significant costs of £1.5 million were incurred during the year including a £0.9million loss on the disposal of the general industrial business of Compstock aspart of its re-organisation during the year. In addition, following theextension of the Goodrich contract, restructuring within Umeco Components led toexpenditure on redundancies and other expenses as the business was consolidatedonto a new site in Derby. Profit before tax The strong performance in the year lifted adjusted profit before tax to £18.1million (2005: £13.5 million), an increase of 34 per cent over the previousyear. Tax The effective tax charge on adjusted profit was 32.8 per cent (2005: 33.3 percent). The lower rate is attributed to the elimination of losses at PattonairSAS and to the increased proportion of UK profits which are taxed at lower ratesthan those from overseas subsidiaries. Earnings per share Adjusted basic earnings per share were 30.9 pence, 23 per cent higher than lastyear (after adjusting for the effects of the rights issue). Basic earnings pershare were 27.3 pence (2005: 22.9 pence) Dividends An interim dividend of 5.00 pence was paid in December 2005 and a final dividendof 9.50 pence is proposed, making a total of 14.50 pence, a 9 per cent increaseover the previous year's 13.25 pence. The value of the interim dividend was £1.6million, and the value of the proposed final dividend is £4.5 million. Operating cash flow 2006 2005 £ million £ million_____________________________________________________________________________ Operating profit 21.5 16.0Significant items (1.5) (0.6)Depreciation 3.1 2.7Share based payment 0.3 0.2Working capital & retirementbenefit obligation movement (9.9) (4.5)_____________________________________________________________________________ Operating cash flow 13.5 13.8_____________________________________________________________________________ per cent per cent______________________________________________________________________________ Operating cash flow conversion 62.8 86.3Working capital ratio 19.8 20.7______________________________________________________________________________ Operating profit conversion to cash of 62.8 per cent fell from 86.3 per centlast year following a £9.9 million increase in working capital and retirementbenefit obligations. This comprised increases of £12.3 million in inventories,£10.3 million in debtors and £13.7 million in creditors, together with areduction in retirement benefit obligations of £1.0 million. The additionalinvestment in inventories included higher buffer stocks to support Rolls-Royce'saftermarket business and investment by ACG in carbon fibre which is in shortsupply. The average ratio of working capital to revenue reduced from 20.7 percent to 19.8 per cent, largely as a result of higher levels of customer andsupplier funding of inventories. Capital expenditure Gross capital expenditure of £9.0 million (2005: £7.5 million) was £5.9 millionhigher than depreciation. Major investments in the year included £5.0 million atACG for the new facilities in Heanor and additional capacity in Tulsa, £0.7million for the acquisition of AMS's premises in St. Albans and £0.8 million forthe refurbishment of the Group's headquarters in Leamington Spa. Free cash flow Following the major increase in working capital and the capital expenditureprogramme in the year, operating cash flow less interest, tax and capitalexpenditure consumed £2.0 million (2005: generated £1.2 million). Tax paid was£1.3 million lower than the charge in the financial statements. This differenceis due to tax relief on overseas goodwill amortisation, deferred tax movementsand the significant proportion of profits earned in the final quarter of theyear for which tax is paid after the year end. Acquisitions Expenditure on acquisitions made in the year, as set out in the Strategicdevelopments section, was £14.0 million (2005: £47.1 million) net of cashbalances acquired. Net indebtedness and gearing 2006 2005 £ million £ million______________________________________________________________________________ Net debt 26.7 51.3______________________________________________________________________________ per cent per cent______________________________________________________________________________ Gearing 18.8 59.6______________________________________________________________________________ Net debt decreased by £24.6 million during the year due mainly to the proceedsof the rights issue. Group banking facilities were increased to £96.5 million during the year andcomprise a US$150.0 million revolving credit facility and a £10.0 millionoverdraft. Gearing fell from 59.6 per cent last year to 18.8 per cent, and debtand interest cover levels remain well within banking covenant limits. Equity and shares issued Equity attributable to equity holders of Umeco increased from £85.7 million to£141.9 million. The increase includes the profit for the year of £10.7 million,less dividends paid of £4.5 million, and the proceeds of the 4 for 9 rightsissue in December 2005 which raised £48.4 million net of expenses and which was96.8 per cent taken up by shareholders. In addition, 369,000 shares were issuedto employees under the SAYE share option scheme, raising £0.6 million. Pensions The Group operates a number of defined contribution pension schemes togetherwith two defined benefit schemes, both of which are closed to new members. Thelatest actuarial valuations of the schemes show a deficit of £5.5 millioncompared with a deficit of £1.5 million in the previous valuations, which wereconducted in 2002. The increase was due to changes in inflation and mortalityassumptions and to a lower rate of return used in the calculation of schemeliabilities. The Board has agreed with the pension schemes' trustees that thedeficit will be funded over five years and accordingly, special paymentstotalling £1.0 million were made to the schemes during the year. Under IFRS, the deficits under the schemes are now recognised in the balancesheet. The IAS 19 valuation of the schemes at 31 March 2006 showed a reductionin the shortfall in assets to liabilities to £2.7 million, after associated taxrelief, from £3.4 million in the previous year. The reduction is principally theresult of the special contributions made during the year. Currency exchange risk The Group seeks to hedge currency exchange risks by matching purchases andrevenues that are denominated in foreign currencies. Where this is not possible,forward currency contracts may be taken out to protect exposures. Group policyprohibits speculation in currency management. The net investment in overseas businesses is largely US dollar denominated andthe Group's net debt is also largely US dollar based. The strengthening of theUS dollar in the year resulted in an increase in the sterling value of net debtof £3.4 million and this was set against the increase in the translated value ofoverseas net assets with the net surplus of £0.3 million being credited to thetranslation reserve. Interest rate risk With most of the Group's interest charge being US dollar based, thestrengthening of that currency had the effect of increasing interest costs by£0.2 million compared with the previous year. Whilst the Group does not hedgethe currency value of interest charges it has protected the interest rate riskby the use of interest rate swaps. These instruments have fixed the base rate onthe Group's year end debt at below 4.0 per cent and will provide cover on themajority of the Group's anticipated debt during the current financial year at anaverage base rate of 4.5 per cent. Consolidated income statement______________________________________________________________________________For the year to 31 March 2006 2006 2005 Note £ million £ million Revenue 2 293.2 242.4 Cost of sales (215.6) (179.5)______________________________________________________________________________ Gross profit 77.6 62.9 Distribution costs (5.3) (4.3)Administrative expenses (53.1) (43.5)______________________________________________________________________________ Operating profit 2 19.2 15.1 Financial income 3 1.0 0.5Financial expense 3 (4.1) (3.0)______________________________________________________________________________ Profit before tax 16.1 12.6 Income tax - UK (3.5) (2.9) Income tax - overseas (1.9) (1.5)______________________________________________________________________________ Profit for the year 10.7 8.2______________________________________________________________________________ Attributable to:Equity holders of the parent 10.7 8.1Minority interest - 0.1______________________________________________________________________________ 10.7 8.2______________________________________________________________________________ Pence Pence Basic earnings per share 7 27.3 22.9______________________________________________________________________________ Diluted earnings per share 7 27.0 22.6______________________________________________________________________________ Consolidated balance sheet_______________________________________________________________________________As at 31 March 2006 2006 2005 £ million £ millionAssetsNon-current assetsProperty, plant & equipment 25.1 18.8Intangible assets 96.4 77.8Deferred tax assets 3.4 3.2______________________________________________________________________________ 124.9 99.8______________________________________________________________________________ Current assetsInventories 73.0 56.6Trade & other receivables 71.0 54.7Financial assets 0.2 -Income tax receivable 1.2 0.5Cash 9.5 6.9______________________________________________________________________________ 154.9 118.7______________________________________________________________________________ Total assets 279.8 218.5______________________________________________________________________________ LiabilitiesCurrent liabilitiesTrade & other payables (85.8) (61.2)Income tax payable (5.2) (2.7)Loans & borrowings (35.2) (30.8)______________________________________________________________________________ (126.2) (94.7)______________________________________________________________________________ Non-current liabilitiesOther payables (3.7) (3.4)Deferred tax liabilities (2.9) (2.1)Retirement benefit obligation (3.8) (4.8)Loans & borrowings (1.0) (27.4)______________________________________________________________________________ (11.4) (37.7)______________________________________________________________________________ Total liabilities (137.6) (132.4)______________________________________________________________________________ ______________________________________________________________________________ Net assets 142.2 86.1______________________________________________________________________________ EquityShare capital 11.8 8.1Share premium 113.6 68.3Translation reserve 0.5 0.2Retained earnings 16.0 9.1______________________________________________________________________________ Equity attributable to equity holders of the parent 141.9 85.7Minority interest 0.3 0.4______________________________________________________________________________ Total equity 142.2 86.1______________________________________________________________________________ Consolidated cash flow statement_______________________________________________________________________________For the year to 31 March 2006 2006 2005 Note £ million £ million Profit for the year 10.7 8.2Depreciation 3.1 2.7Amortisation of intangible assets 0.8 0.3Financial expense 4.1 3.0Financial income (1.0) (0.5)Share based payments expense 0.3 0.2Income tax expense 5.4 4.4______________________________________________________________________________Operating profit before changes inworking capital & retirement benefit obligation 23.4 18.3Increase in inventories (12.3) (5.7)Increase in trade & other receivables (10.3) (6.9)Increase in trade & other payables 13.7 7.6(Decrease)/increase in retirement benefitobligation (1.0) 0.5______________________________________________________________________________ Cash generated from operations 13.5 13.8Financial expense (3.3) (2.1)Tax paid (4.1) (3.7)______________________________________________________________________________ Net cash flow from operating activities 6.1 8.0______________________________________________________________________________ Cash flows from investing activitiesAcquisition of property, plant & equipment (8.5) (7.0)Proceeds from sale of property, plant &equipment 0.4 0.2Acquisition of subsidiaries, net of cashbalances acquired (14.0) (47.1)______________________________________________________________________________ Net cash flow from investing activities (22.1) (53.9)______________________________________________________________________________ Cash flows from financing activitiesProceeds from issue of share capital 49.0 20.7Drawdown of bank loans 24.1 59.8Repayment of bank loans (50.9) (25.8)Repayment of lease finance liabilities (0.5) (0.5)Dividends paid to equity holders of the parent (4.5) (4.3)______________________________________________________________________________ Net cash flow from financing activities 17.2 49.9______________________________________________________________________________ Net increase in cash 8 1.2 4.0Cash at start of year 6.9 3.4Effect of exchange rate fluctuations 1.4 (0.5)______________________________________________________________________________ Net cash at end of year 9.5 6.9______________________________________________________________________________ Consolidated statement of recognised income and expense______________________________________________________________________________For the year to 31 March 2006 2006 2005 £ million £ million Foreign exchange translation differences 0.3 0.2Actuarial gain/(loss) in pension schemes 0.3 (0.3)Actuarial loss in ACG pension scheme at acquisition - (0.8)______________________________________________________________________________ Income and expense recognised directly in equity 0.6 (0.9)Profit for the year 10.7 8.2______________________________________________________________________________ Total recognised income and expense for the year 11.3 7.3 Value of financial instruments at 1 April 2005 on (0.1) -implementation of IAS39______________________________________________________________________________ 11.2 7.3______________________________________________________________________________ Total recognised income and expense for the yearAttributable to:Equity holders of the parent 11.3 7.2Minority interest - 0.1______________________________________________________________________________ Total recognised income and expense for the year 11.3 7.3______________________________________________________________________________ Notes to the preliminary announcement of results_______________________________________________________________________________For the year to 31 March 2006 1 Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the annual consolidatedfinancial statements of the Group, for the year to 31 March 2006, be prepared inaccordance with IFRS adopted for use in the EU ('Adopted IFRS'). These resultsrepresent the first annual financial statements prepared in accordance withIFRS. The transition date for the application of IFRS was 1 April 2004. Thecomparative figures for 31 March 2005 have been restated to reflect thetransition to IFRS, as set out in the announcement made on 29 September 2005. 2 Segmental reporting Adjusted operating Total Revenue profit (see note 4) operating profit_____________________________________________________________________________________________________________ 2006 2005 2006 2005 2006 2005 £ million £ million £ million £ million £ million £ millionContinuingbeforeacquisitions* Components 135.5 122.7 6.6 5.2 5.2 4.7Composites 127.1 101.9 11.9 9.0 11.9 8.9Repair &Overhaul 18.5 17.8 1.6 1.8 1.5 1.5_____________________________________________________________________________________________________________ 281.1 242.4 20.1 16.0 18.6 15.1_____________________________________________________________________________________________________________ Acquisitions* Components 5.9 - 0.6 - - -Composites 4.3 - - - - -Repair &Overhaul 1.9 - 0.8 - 0.6 -_____________________________________________________________________________________________________________ 12.1 - 1.4 - 0.6 -_____________________________________________________________________________________________________________ TotalComponents 141.4 122.7 7.2 5.2 5.2 4.7Composites 131.4 101.9 11.9 9.0 11.9 8.9Repair &Overhaul 20.4 17.8 2.4 1.8 2.1 1.5_____________________________________________________________________________________________________________ 293.2 242.4 21.5 16.0 19.2 15.1_____________________________________________________________________________________________________________ * Acquisitions are defined as those that occurred during the year to 31 March 2006. 2006 2005 £ million £ million Total operating profit (as above) 19.2 15.1 Financial income 1.0 0.5Financial expense (4.1) (3.0)_____________________________________________________________________________________________________________ Profit before tax 16.1 12.6 Income tax - UK (3.5) (2.9) Income tax - overseas (1.9) (1.5)_____________________________________________________________________________________________________________ Profit forthe year 10.7 8.2_____________________________________________________________________________________________________________ Notes to the preliminary announcement of results________________________________________________________________________________For the year to 31 March 2006 2 Segmental reporting (continued) 2006 2005 £ million £ millionRevenue by geographical marketUK 152.1 134.6Rest of Europe 65.0 45.0North America 58.1 47.9Rest of world 18.0 14.9________________________________________________________________________________ 293.2 242.4________________________________________________________________________________ 2006 2005 £ million £ millionSegment assetsComponents 136.7 89.2Composites 141.1 103.9Repair & Overhaul 24.5 9.0________________________________________________________________________________ 302.3 202.1Unallocated assets 97.3 122.1Intersegment eliminations (119.8) (105.7)________________________________________________________________________________ Total assets 279.8 218.5________________________________________________________________________________ Segment liabilitiesComponents (105.7) (82.0)Composites (56.8) (49.1)Repair & Overhaul (17.0) (7.2)________________________________________________________________________________ (179.5) (138.3)Unallocated liabilities (77.9) (99.8)Intersegment eliminations 119.8 105.7________________________________________________________________________________ Total liabilities (137.6) (132.4)________________________________________________________________________________ Net assets 142.2 86.1________________________________________________________________________________ Notes to the preliminary announcement of results________________________________________________________________________________For the year to 31 March 2006 2 Segmental reporting (continued) 2006 2005 £ million £ millionCapital expenditureComponents 1.2 3.7Composites 5.8 2.0Repair & Overhaul 1.0 0.2Unallocated 1.0 1.6________________________________________________________________________________ 9.0 7.5________________________________________________________________________________ DepreciationComponents 1.1 0.9Composites 1.6 1.4Repair & Overhaul 0.3 0.3Unallocated 0.1 0.1________________________________________________________________________________ 3.1 2.7________________________________________________________________________________ Amortisation of intangible assetsComponents 0.6 -Composites - -Repair & Overhaul 0.2 0.3________________________________________________________________________________ 0.8 0.3________________________________________________________________________________ 3 Financial income and expense 2006 2005 £ million £ millionFinancial incomeRevaluation of financial instruments 0.3 -Interest income 0.1 -Expected return on pension scheme assets 0.6 0.5________________________________________________________________________________ 1.0 0.5________________________________________________________________________________ Financial expenseInterest expense 3.3 2.3Interest on lease finance 0.1 0.1Interest cost on pension scheme liabilities 0.7 0.6________________________________________________________________________________ 4.1 3.0________________________________________________________________________________ Notes to the preliminary announcement of results_______________________________________________________________________________For the year to 31 March 2006 4 Reconciliation of adjusted profit measures Umeco uses adjusted figures as key performance indicators. Adjusted figures arestated before amortisation of intangible assets, significant items, therevaluation of financial instruments based on their market values, associatedtaxation effects and the taxation effects of goodwill amortisation in overseasjurisdictions. The differences between the total and adjusted profit measuresare reconciled below. The narrative in this preliminary announcement is based onthe adjusted measures of operating profit, profit before tax and earnings pershare. These provide a more consistent measure of operating performance. 2006 2005 £ million £ millionOperating profitTotal operating profit 19.2 15.1Exclude:- significant items 1.5 0.6- amortisation of intangible assets 0.8 0.3________________________________________________________________________________ Adjusted operating profit 21.5 16.0________________________________________________________________________________ Profit before taxTotal profit before tax 16.1 12.6Exclude:- significant items 1.5 0.6- amortisation of intangible assets 0.8 0.3- revaluation of financial instruments (0.3) -________________________________________________________________________________ Adjusted profit before tax 18.1 13.5________________________________________________________________________________ Profit attributable to equity holders of the parentTotal profit attributable to equity holdersof the parent 10.7 8.1Exclude:- significant items 1.5 0.6- amortisation of intangible assets 0.8 0.3- revaluation of financial instruments (0.3) -- associated tax effects (0.5) (0.1)________________________________________________________________________________ Adjusted profit attributable to equity holders of the parent 12.2 8.9________________________________________________________________________________ Pence Pence Adjusted earnings per share 30.9 25.2________________________________________________________________________________ Significant items in the year to 31 March 2006 comprised re-organisation costsof £0.6 million and a loss on disposal of the industrial element of theCompstock business of £0.9 million. Significant items in the year to 31 March2005 comprised re-organisation costs of £0.5 million and aborted acquisitioncosts of £0.1 million. Notes to the preliminary announcement of results_______________________________________________________________________________For the year to 31 March 2006 5 Tax expense The effective tax rate on profit before tax is 33.5 per cent (2005: 34.9 percent). The effective rate of tax on adjusted profit before tax is 32.8 per cent(2005: 33.3 per cent). 6 Dividends The Directors have proposed a final dividend of 9.50 pence per share, payable on11 August 2006 to shareholders on the register at 14 July 2006. In accordancewith IAS10, this dividend has not been reflected in the balance sheet as at 31March 2006. The amount of this final dividend is £4.5 million. An interimdividend of 5.00 pence per share was paid in December 2005, and the cost of thisdividend was £1.6 million. 7 Earnings per share The weighted average number of shares in issue during the year was 39.2 million(2005: 35.3 million). The weighted average number of shares on a fully dilutedbasis, was 39.6 million (2005: 35.8 million), after an adjustment for dilutiveshare options of 0.4 million (2005: 0.5 million). The weighted average number of shares in issue has been adjusted to reflect thebonus element of the rights issue held in December 2005. This has resulted inthe weighted average number of shares in issue for periods prior to the rightsissue being increased by 10.4 per cent. Basic earnings per share have been calculated on profit attributable to equityholders of the parent of £10.7 million (2005: £8.1 million). The Directorsconsider that adjusted earnings per share provide a more consistent measure ofoperating performance. Adjusted earnings per share are calculated based onadjusted profit attributable to equity holders of the parent, calculated as setout in note 4. 8 Reconciliation of net cash to movement in net debt 2006 2005 £ million £ million Net increase in cash 1.2 4.0Borrowings taken on with acquisition - (1.3)Drawdown of bank loans (24.1) (59.8)Drawdown of lease finance (0.5) (0.5)Repayment of bank loans 50.9 25.8Repayment of lease finance liabilities 0.5 0.5________________________________________________________________________________ 28.0 (31.3) Effect of exchange rate fluctuations (3.4) 1.7________________________________________________________________________________ Movement in net debt 24.6 (29.6)Net debt at start of year (51.3) (21.7)________________________________________________________________________________ Net debt at end of year (26.7) (51.3)________________________________________________________________________________ Net debt comprises cash balances, bank loans and lease finance obligations. Notes to the preliminary announcement of results________________________________________________________________________________For the year to 31 March 2006 9 Acquisitions Net assets Intangible acquired assets Goodwill Consideration £ million £ million £ million £ million GRP Scandinavia 0.4 - 0.1 0.5Aviation Windings (1.6) - 3.7 2.1Provest 3.9 1.7 8.5 14.1Aeromedic Innovations 0.6 0.6 2.1 3.3Aerovac France (8 per centinterest) - - 0.2 0.2________________________________________________________________________________ 3.3 2.3 14.6 20.2________________________________________________________________________________ 10 Status of information and details of Annual General Meeting The financial information in this preliminary announcement does not constitutethe Company's statutory accounts for the years to 31 March 2005 or 31 March 2006but is derived from those accounts. Statutory accounts for the year to 31 March2005, which were prepared under UK GAAP, have been delivered to the Registrar ofCompanies, and those for the year to 31 March 2006, prepared under Adopted IFRS,will be delivered following the Company's annual general meeting. The Auditorshave reported on those accounts; their reports were unqualified and did notinclude references to matters which the auditors drew attention by way ofemphasis without qualifying their reports, nor did they include any statementsunder sub-sections 237 (2) or (3) of the Companies Act 1985. This preliminaryannouncement of results for the year to 31 March 2006 was approved by theDirectors on 6 June 2006. The annual general meeting of the Company will be held at The Falstaff Hotel,16-20 Warwick New Road, Leamington Spa, Warwickshire, CV32 5JQ on Tuesday 25July 2006 at 1.00 pm. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ubsetfusmca