2nd Mar 2007 07:30
Lupus Capital PLC02 March 2007 Lupus Capital plc Preliminary Statement of Results for the year ended 31 December 2006 Chairman's Statement Dear Shareholder, I am pleased to report a record set of financial results for the year ended 31December 2006 together with the successful integration of Schlegel BuildingProducts, which was acquired on 4 April 2006. Group profits, earnings and cashgeneration all surpassed previous highs. Gall Thomson Environmental, which operates primarily in the oil and gas sector,has had its best year yet beating 2005 in sales, profits, cash generation andalso return on capital employed. The nine month contribution from the acquisition of Schlegel has been verypositive. The management has responded well both to the change of ownershipand new direction and has improved on key performance indicators over 2005. Results for the year It is very satisfying to be able to detail to you an outstanding year for yourcompany. Sales, including Schlegel, were £62.940 million (2005: £7.479million) and pre-tax profits increased to £10.013 million (2005: £2.435million). Reported earnings per share jumped to 1.233p (2005: 0.593p). Thefigures for the period are not directly comparable as they include a majoracquisition and have been prepared on the basis of the requirements of UK GAAP,as explained in the notes to the accounts. Dividend A growing dividend is also one of our objectives and we have yet again been ableto achieve this with a series of dividends. We are recommending a final dividend for 2006 of 0.334p (2004: 0.278p) which isan increase of over 20%. This final dividend will be paid to Shareholders onthe register at 9 March 2007 following the AGM, which we will be holding on 16May 2007. This, together with the special interim dividend of 0.114p per Ordinary Share inrespect of the quarter ending 31 March 2006 and the further interim dividend of0.049 for the first half of 2006, will make a total dividend for the 2006 yearof 0.497p up 21% from the 0.410p paid in the 2005 year. It is the intention of the Board to maintain a progressive dividend policy inthe future. Business of Gall Thomson Environmental Limited Gall Thomson is the world's leading supplier of marine breakaway couplings. Itssubsidiary, KLAW is a supplier of industrial couplings including quick releasecouplings and breakaway couplings. A Gall Thomson marine breakaway coupling is used in the oil and gas industry toenable a loading line to part safely and then to shut off the product supply inthe event of a vessel moving off station during the loading or discharging ofoil and gas products, whether at offshore moorings or jetty terminals. Thepurpose of the breakaway coupling is firstly to stop environmental pollution andsecondly to prevent damage to pumping and transfer equipment. Gall Thomsonalso supplies the quick release Welin Lambie camlock coupling which is used inthe hose and loading arm system for the transfer of oil and gas products. The greater number of our couplings are designed and made to order for the majoroil producers. Stock and working capital levels are thus easily visible.There is also an increasing demand for refurbishment of our products which havebeen in use for many years and exposed to the elements. The excellence of the couplings and their technology together with thesignificant environmental and financial consequences of risking less establishedproducts gives Gall Thomson a considerable advantage and strong market share. The principal activity of KLAW is that of the manufacture, assembly anddistribution of industrial quick release couplings for activities such asrefining, exploration and construction. They are also used in thetransportation of product by road and rail. Both Gall Thomson Environmental Ltd (GTE) and its subsidiary KLAW Products Ltd(KLAW) have performed well during the year. GTE, who operate mainly in the offshore industry, has benefited from a strongoil price that had encouraged the major oil producers to commence new projectsworldwide. In addition, the drive towards environmental improvementscontinues to have a positive effect. Approximately 90% of turnover was derivedfrom exported sales spanning the world from Europe to Asia, America to theMiddle East and Africa. Nearly all sales are made in pounds sterling so wehave limited exposure to a fluctuating dollar. In respect of KLAW, who operate in the oil, gas, refining and petrochemicalmarkets, the underlying business has continued to develop. New products havebeen introduced, namely the cryogenic ERC (Emergency Release Coupling) for shipto ship transfer of LNG and the hazardous chemical units, both being receivedwith much interest. In the case of the cryogenics ERC, KLAW has alreadyreceived significant orders from major oil companies. Business of Schlegel Building Products The £84 million acquisition of Schlegel, a leader in the manufacture andmarketing of door and window seals, primarily for the worldwide housing market,was completed on 4 April 2006. Schlegel, which currently has over 625employees and more than 5,000 customers, sells over 650 million metres of sealsin a year. Core manufacturing competencies are continuously moulded urethanefoam, narrow fabric textiles, and extruded plastics. As a leading producer ofurethane foam (compression seals) and woven pile (sliding seals) for the windowand door markets, seals are sold in more than 75 countries from sevenmanufacturing plants located around the world. In addition, Schlegel supplyboth manufactured and assembled door and window locking mechanisms to a numberof their key seal customers. Also manufactured are related products for the non-housing markets such ascleaning brushes, static control devices for copiers and printers, specialityautomotive products as in sunroof seals and truck spray suppressants, tractorseat trim and sway bar brushes. In 2006 Schlegel saw many exciting changes, which produced increasedprofitability over the previous year and which we hope to continue to build on.New customers have been won, productivity has improved, prices have beenraised to compensate for raw material inputs, sales have been refocused intohigher margin customers, financial controls have been tightened and resultingaction from extensive analysis has yielded higher gross margins. The globalmarket for housing, both new build and refurbishment, has been generallysatisfactory with the long term worldwide trend being upwards. As aninternational business with activities across three continents we have a limitedexposure to both dollar currency, and the current U.S. new build housing marketdifficulties where we have taken action to mitigate any effects. On the corporate front A comprehensive tax review is being undertaken with an expected outcome that ourworldwide group tax rate will decline from an anticipated 38% band previouslypredicted to 36% in 2006 and a lower cash tax rate in future. The acquisition of Schlegel has broadened the sphere of operations of LupusCapital plc and management has reviewed the risk profile of the enlarged group. We continue to seek the development of Lupus through both organic growth andselective acquisitions. The excellent cash generation from both our businesses has enabled Lupus toreduce the net debt taken on to buy Schlegel (£35m) at a speed quicker thanoriginally envisaged. At 31 December 2006 net debt stood at £23.3m. It hasalso provided funds to increase our dividend to shareholders for the 2006 yearat a higher rate than forecast at the time of the Schlegel acquisition. Strategy Our strategy is to build shareholder value through the acquisition of industrialassets with the potential for development using a spectrum of fundinginstruments, where with the application of our management skills and systems wecan achieve greater profitability. Once they have been improved, potentiallong-term growth configurations installed, and a critical mass built, we wouldexpect to realise a gain through a variety of exit mechanisms. Our strategy is very similar to that developed at Tomkins plc, with one keyexception. Institutional investors are not sympathetic to public conglomerateorganisations; they have, however, even though with very diverse interests,favoured private equity structures. We intend to follow the private equityprinciple of timed investment exits when critical mass and creation ofshareholder value have been achieved by demergers, IPOs or sales followed bycash returns to shareholders when appropriate. The speed of our decision making and the management experience we possesstogether with the flexibility of being able to offer an on-going interest shouldgive us a competitive edge over private equity competitors when negotiatingtransactions. In addition, we have proven management skills and systems, aswell as the application of standard financial modelling. Our approach to sectors will be very disciplined and with a clear focus.Target companies will be involved in industrial manufacturing, processing orservices or distribution for industries, businesses or consumers. Retailing,financial services, property and media are outside our range of interest. Ourkey requirements are asset based, positive cash flow, industrial activities withpotential for development. In addition, we will target fragmented industries,seek consolidations, as well as develop organic growth opportunities. We will choose to operate in stable markets where the technology is low-riskrather than markets exposed to quick innovation and sudden obsolescence. Weprefer to sell high quantities of inexpensive items or fulfil a high volume ofcontracts as opposed to a small number of very significant cost constituents. We expect to inject our management skills, operating systems, financial controlmechanisms and strategy experience to improve profitability and financialefficiency. Our industrial focus and business experience of acquiring, stabilising,controlling, investing in and developing businesses, together with a strongexisting operation gives Lupus Capital plc exciting prospects. Outlook Gall Thomson is a reliable business and looks forward to maintaining itssuccess. There are opportunities in most areas of the world due to an increasein global floating production systems, as well as the traditional Single PointMooring business. The drive to exploration in deeper waters (greater than1,000 metres), which require off loading techniques as opposed to pipelineinfrastructure, provides a sound basis for the Gall Thomson business in theshort and long term. KLAW continues to grow as a result of entering newmarkets with successfully developed innovative products. Schlegel operates within the worldwide housing market, which is likely tocontinue to grow due to increased populations and more single housingrequirements. In addition, environmental regulations for energy conservation,of which seals are an integral part, are becoming more and more critical to bothdeveloped and developing countries. These factors should ensure a growingfuture. We are very excited about the progress that we are making with Lupus. Ourresults are good, backed up by strong cash generation enabling us to continueour progressive dividend policy. The purchase of Schlegel, a leading buildingproducts manufacturer, was yet another step in creating a successful growinginternational business. We have a defined strategy, a sound balance sheet, good operating activitiesgenerating cash and an enthusiastic entrepreneurial management team ambitious todrive Lupus Capital plc forward. I am confident that your Board has the rightplatform to deliver further value for shareholders. Record order books, comprising both marine and industrial breakaway couplings,at Gall Thomson and further opportunities for new products for KLAW togetherwith a full contribution from the global activities of Schlegel, enable us toenter 2007 with optimism. We look forward to another year of growth and development of Lupus Capital plc. Greg HutchingsChairman 2 March 2007 Consolidated profit and loss accountFor the year ended 31 December 2006 Note 2006 2005 £'000 £'000 Restated Turnover 62,940 7,479Cost of sales (22,434) (2,213)Gross profit 40,506 5,266 Administrative expenses - excluding goodwill amortisation (28,960) (2,180) - goodwill amortisation - (741)Total administrative expenses (28,960) (2,921) Operating profit 3 11,546 2,345 Interest receivable and similar income 501 316Interest payable and similar charges (2,034) (226) Profit on ordinary activities before taxation 10,013 2,435 Taxation (3,605) (1,025) Profit on ordinary activities for the year 6,408 1,410 Earnings per share 5 1.233p 0.593p All results relate to continuing operations. Consolidated balance sheetAs at 31 December 2006 Note 2006 2005 £'000 £'000 RestatedFixed assetsIntangible assets 72,832 9,940Tangible assets 13.123 443 85,955 10,383Current assetsStocks and work-in-progress 6 7,396 331Debtors 7 15,210 2,965Deferred tax 7 6,067 -Cash at bank and in hand 9,738 2,654 38,411 5,950 Creditors: amounts falling due within one 8 (20,237) (1,915)year Net current assets 18,174 4,035 Total assets less current liabilities 104,129 14,418 Creditors: amounts falling due after morethan One year 9 (34,153) (21) Net assets 69,976 14,397 Capital and reservesCalled up share capital 11 3,083 1,188Share premium account 12 45 -Merger reserve 12 10,389 10,389Profit and loss account 12 56,459 2,820Equity shareholders' funds 69,976 14,397 Consolidated cash flow statementFor the year ended 31 December 2006 2006 2005 £'000 £'000 Cash flows from operating activitiesOperating profit 11,546 2,345 Depreciation 1,669 58Amortisation of goodwill - 741Movement in inventories 1,698 (80)Movement in receivables 1,394 (642)Movement in payables 619 342 Interest received 501 316Interest paid (2,034) (226)Corporation tax paid (2,050) (806)Net cash from operating activities 13,343 2,048 Investing activitiesAcquisition, net of cash acquired (47,408) -Schlegel debt repaid upon acquisition (40,281) -Property, plant and equipment (964) (105)Net cash from investing activities (88,653) (105) FinancingIssue of shares, net of costs 51,653 -Capital element of finance leases (112) 3Bank loan, net of costs 34,734 -Repayment of long term loans (2,500) -Equity dividends paid (1,234) (941)Net cash from financing activities 82,541 (938) Increase in cash 7,231 1,005 Consolidated statement of recognised gains and lossesFor the year ended 31 December 2006 2006 2005 £'000 £'000 Note Opening balance - as previously stated 15,878 14,668Restatement 2 (1,481) (740)Opening balance - as restated 14,397 13,928 Profit for the financial year 6,408 1,410Shares issued net of costs 51,653 -Translation difference (1,248) -Dividends paid on ordinary shares (1,234) (941) 55,579 469 Closing shareholders' funds 69,976 14,397 Notes to the accounts 1. Accounting policies 1.1 Going concern basis The financial statements have been prepared on the going concern basis. 1.2 Accounting convention The financial statements have been prepared in accordance withapplicable UK accounting standards (UK GAAP). The consolidated financial statements for the year ended 31 December 2005 wereprepared in accordance with International Financial Reporting Standards (IFRS).UK GAAP differs in some respects from IFRS. The relevant change of accountingpolicy is as follows: Under IFRS, the requirement to amortise goodwill was replaced by an impairmentreview of the value of the Company's investments. The directors conducted animpairment review and concluded that the value at which Gall ThomsonEnvironmental Limited (Gall Thomson) was stated in the Company's balance sheetat 1 January 2004 and the value at which KLAW Products Limited was stated in thebalance sheet of Gall Thomson at 1 January 2004 were not greater than therealisable values of those investments. Therefore the carrying value ofgoodwill under IFRS was the value as at 1 January 2004 and no further provisionwas made against that value. Under UK GAAP a decision to cease amortisationrepresents a change in accounting policy; no such change was made in respect of2004 or 2005. The Board has resolved that amortisation should be discontinuedunder UK GAAP with effect from 1 January 2006. Therefore the valuation ofgoodwill is lower under UK GAAP by two years' amortisation. The accounting policies are unchanged from those used in the last annualaccounts except where otherwise stated. 1.3 Basis of consolidation The Group financial statements consolidate those of the Company and itssubsidiary undertakings drawn up to 31 December each year. 1.4 Turnover Turnover represents the value of work completed for customers duringthe year net of VAT. 1.5 Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation. Depreciation isprovided on all assets except freehold land at rates calculated to write off thecost less estimated residual value of each asset on a straight-line basis overits expected useful life, at the following annual rates: Freehold buildings 2%Leasehold improvements 25%Fixtures, fittings and equipment 15% to 25%Plant and machinery 7.5% to 35%Motor vehicles 20% to 25% The carrying values of tangible fixed assets are reviewed for impairmentperiodically if events or changes in circumstances indicate that the carryingvalue may not be recoverable. 1.6 Leasing Rentals payable under operating leases are charged to the profit and lossaccount on a straight-line basis over the lease term. 1.7 Stocks and work-in-progress Stocks and work-in-progress were valued at the lower of cost and net realisablevalue. Cost is determined on a purchase cost basis. Work-in-progress includesmaterials and labour costs and an appropriate proportion of overheads incurredon uncompleted contracts at the year end. 1.8 Pensions The Group operates defined contribution schemes within Gall ThomsonEnvironmental Limited and Schlegel Building Products and contributions arecharged to the profit and loss account as incurred. Additionally withinSchlegel Building Products defined benefit arrangements exist. In this case inaccordance with FRS 17 the operating and financing costs are charged to theprofit and loss account in the period in which they arise and are recognisedseparately. Any difference between actual and expected returns on assets duringthe year, including changes in actuarial assumptions, is recognised in thestatement of gains and losses. 1.9 Deferred taxation Deferred taxation is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents have occurred at that date that will result in an obligation to pay more,or right to pay less or to receive more tax, with the following exceptions: Provision is made for tax on gains arising from the revaluation (and similarfair value adjustments) of fixed assets, or gains on disposal of fixed assetsthat have been rolled over into replacement assets, only to the extent that, atthe balance sheet date, there is a binding agreement to dispose of the assetsconcerned. However, no provision is made where, on the basis of all availableevidence at the balance sheet date, it is more likely than not that the taxablegain will be rolled over into replacement assets and charged to tax only wherethe replacement assets are sold. Deferred tax assets are recognised only to the extent that the directorsconsider that it is more likely than not that there will be suitable taxableprofits from which the future reversal of the underlying timing differences canbe deducted. Deferred tax is measured on an undiscounted basis at the tax rates that areexpected to apply in the periods in which timing differences reverse, based ontax rates and laws enacted or substantively enacted at the balance sheet date. 1.10 Foreign currencies Transactions in foreign currencies are recorded at the rate ruling atthe date of the transaction. Monetary assets and liabilities denominated inforeign currencies are retranslated at the rate of exchange ruling at thebalance sheet date. All differences are taken to the profit and loss account. The results of overseas companies are translated into sterling at the averagerates during the period and the balance sheets at the rate ruling at the balancesheet date. Exchange differences on the net assets on the results of overseasoperations are reported in the statement of gains and losses. 1.11 Financial instruments Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade receivables are stated at their nominal value as reduced by appropriateallowances for estimated irrecoverable amounts. Trade payables are stated attheir nominal amount. 1.12 Share-based employee remuneration All share-based payment arrangements are recognised in the historical financialinformation. The group operates an equity-settled share-based remuneration planfor remuneration of its employees. All employee services received in exchangefor the grant of any share-based remuneration are measured at their fair values.All share-based remuneration is ultimately recognised as an expense in profitor loss with a corresponding credit to additional paid-in capital, net ofdeferred tax where applicable. Upon exercise of share options, the proceeds received net of any directlyattributable costs up to the nominal value of the shares issued are allocated toshare capital with any excess being recorded as share premium. 2. Restatements The restatements required by the changes in accounting policy, as set out innote 1 above, are as follows: (a) Profit after taxation Year ended 31 December 2005 £'000 Profit for the financial period/year, as 2,151previously stated under IFRS Amortisation of goodwill (741) As reported under UK GAAP 1,410 (b) Net assets At 1 January At 1 January 2006 2005 £'000 £'000 Opening net assets, as previously stated under 15,878 14,668IFRS Amortisation of goodwill (1,481) (740) As reported under UK GAAP 14,397 13,928 3. Operating profit by sector Pre-existing Schlegel Lupus Group (9 months) (12 months) Total £'000 £'000 £'000 Revenue 53,626 9,314 62,940Cost of sales -19,602 -2,832 -22,434Gross profit 34,024 6,482 40,506Administrative expenses -25,923 -3,037 -28,960Operating profit 8,101 3,445 11,546 4. Dividends 2006 2005 £'000 £'000Dividends reflected in the financial statements:Final dividend for the year 2005 at 0.278p per share 661 627(2004: 0.264p)Interim dividends at 0.114p per share and 0.049p per 573 314share (2005: 0.132p) 1,234 941Dividend not reflected in the :financial statementsProposed final dividend for the year 2,059 6612006 at 0.334p per share (2005:0.278p) 5. Earnings per share The calculation of basic earnings per share is based on the profit aftertaxation for the financial year and on the weighted average number of shares inissue during the year of 519,845,797 ordinary shares of 0.5p (2005: weightedaverage 237,696,286). 6. Stocks and work-in-progress 2006 2005 £'000 £'000 Raw materials and consumables 3,019 194Work-in-progress 1,023 125Finished goods 3,354 12 7,396 331 7. Debtors 2006 2005 £'000 £'000 Trade debtors 12,277 2,812Other debtors 1,051 91Prepayments and accrued income 1,882 62 15,210 2,965 The deferred tax asset arises on the acquisition of Schlegel and is anticipatedto be recovered after more than one year. 8. Creditors: amounts falling due within one year 2006 2005 £'000 £'000 Trade creditors 7,016 307Bank loan 4,938 -Finance lease obligations 156 1Corporation tax 1,453 718Other taxes and social security costs 272 102Accruals and deferred income 6,402 787 20,237 1,915 9. Creditors: amounts falling due after more than one year 2006 2005 £'000 £'000 Bank loan 27,296 -Finance lease obligations 334 2Retirement benefits 3,290 -Maintenance warranties 3,118 -Deferred taxation - 19Other creditors 115 - 34,153 21 10. Borrowings The Group took out loans totalling £35,000,000 in connection with theacquisition of Schlegel, of which £30,000,000 was a long term loan and£5,000,000 short term. A repayment of £2,500,000 has been made. A furtherrevolving credit facility of £10,000,000 was made available by the bank, but nodrawings have been made under this facility at the end balance sheet date. 11. Share capital 2006 2005 £'000 £'000 Authorised: 825,000,000 (2005: 500,000,000) Ordinary shares of 0.5 4,125 2,500pence each Allotted, called up and fully paid:616,559,778 (2005: 237,696,286) Ordina Ordinary shares of 0.5 pence each 3,083 1,188 12. Movements on share capital and reserves Group Share Profit Share Merger Premium and loss capital reserve Account Account £'000 £'000 £'000 £'000 At 1 January 2006 - as previously 1,188 10,389 - 4,301statedRestatement - see note 2 - - - (1,481) 1,188 10,389 - 2,820Shares issued net of costs 1,895 - 45 49,713Profit for the year - - - 6,408Translation adjustment - - - (1,248)Dividends paid - - - (1,234)At 31 December 2006 3,083 10,389 45 56,459 13. Status of this Report The above results for the year ended 31 December 2006 are unaudited. Thisfinancial information does not constitute the Company and Group's statutoryaccounts for the year ended 31 December 2006, which will be finalised on thebasis of the financial information in this Preliminary Announcement. Statutory accounts for the year ended 31 December 2006 are to be delivered tothe Registrar of Companies following the Annual General Meeting. The information for the year ended 31 December 2005 has been extracted from thelatest published audited financial statements, as restated to comply with UKGAAP (see note 2). The audited financial statements for the year ended 31December 2005 have been filed with the Registrar of Companies. The report ofthe auditors on those accounts contained no qualification or statement undersection 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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