15th Mar 2005 07:03
Laird Group PLC15 March 2005 15 March 2005 The Laird Group PLC Audited Results for the Year Ended 31 December 2004 2004 2003 £m £m Turnover 468.0 428.8 + 9%Profit before tax* 47.1 37.4 +26%Net borrowings 118.6 60.1Shareholders' funds 242.8 193.8+ p/share p/share Earnings* 25.9 21.6 +20%Dividends 9.2 8.6 + 7% * before exceptionals and goodwill amortisation+ restated Highlights: • Strong turnover and profits growth• Group repositioned to higher growth markets• Laird Plastics divested• Strategic development of our two core divisions• Acquisitions performing according to plan• Dividend increased by 7% to 9.2 pence Laird's Chief Executive, Peter Hill commenting on the results, said:- "Laird has made further excellent progress during 2004, delivering strongturnover and profits growth. Profits before tax, exceptional items and goodwillamortisation increased by 26% to £47.1 million, up 37% at constant exchangerates. The strategic repositioning of the Group towards higher growth marketscontinued. Laird Plastics was successfully divested and strategic acquisitionswere made in both Laird Technologies and Laird Security Systems. With thestrategy we have in place, the strength of our businesses and the actions wecontinue to take, we look forward to making further progress in 2005." For enquiries: The Laird Group PLC The Maitland Consultancy Peter Hill, Chief Executive Brian Hudspith Jonathan Silver, Finance Director Charlotte Barker Tel: 020 7468 4040 Tel: 020 7379 5151 The Company's 2004 Annual Report and Accounts, including the notice of theAnnual General Meeting to be held on 13 May 2005, will be posted to shareholderson Tuesday 22 March 2005. Copies of the Report and Accounts will also be available from The Laird GroupPLC, 3 St. James's Square, London SW1Y 4JU, or at www.laird-plc.com from 22March 2005. STRATEGIC DEVELOPMENT Laird is a leader in the global electronics and security systems markets. Withthe successful disposal of Laird Plastics in October 2004 the Group is nowfocused on its two market leading divisions, Laird Technologies and LairdSecurity Systems. Our aim is to deliver profitable growth by the development andstrengthening of these two businesses, building a competitive edge throughinnovation and technical expertise, customer service and low cost manufacturing.We focus on specialist markets providing opportunities for growth and where ourglobal reach and financial strength give us considerable advantages over ourcompetitors. 2004 marked further progress in the successful implementation ofthis strategy, with the refocusing of the Group to higher growth markets and thedelivery of another year of strong growth. RESULTS Results overview Group turnover in 2004 was £468 million, 9% up on the £429 million in 2003 and17% up at constant exchange rates. This increase reflects both our organicgrowth resulting from stronger markets, new product introductions and marketshare gains, together with the benefits arising from acquisitions net of thedisposal of Laird Plastics. Organic turnover growth for the Group, at constantexchange rates, was a healthy 11%. Group profits for 2004 increased strongly compared with 2003, despite theadverse translation effects of exchange rate movements. Both Laird Technologiesand Laird Security Systems again delivered strong underlying profits growth as aresult of the higher sales, improved operating margins and an increasingproportion of manufacturing being sourced from lower cost countries. LairdPlastics' profits up to the point of its disposal were higher than in thecorresponding period in 2003, and there was a further net benefit fromacquisitions made during the year. Profits for the Group before exceptional items, goodwill amortisation and taxfor 2004 were £47.1 million, 26% up on the £37.4 million in 2003 and up 37% atconstant exchange rates. There were no operating exceptional costs charged inthe year (2003: £5.9 million). Profitability improved once again, with theGroup's operating margin increasing to 11.3% compared with 9.7% in 2003. Earnings per share in 2004 before exceptional items and goodwill amortisationwere 25.9 pence, 20% up on 2003 earnings of 21.6 pence. At constant exchangerates earnings growth would have been 30%. Focusing on Core Businesses We were active during the year in repositioning our portfolio towards highergrowth segments, expanding our core businesses and extending our capabilitiesinto new, related markets. In October 2004 we successfully completed thedivestment of Laird Plastics, our lower growth North American plasticsdistribution business, to a subsidiary of the Blackfriars Corporation for aheadline consideration of $65 million in cash, allowing us to focus on our twocore higher growth, global design-led businesses, Laird Technologies and LairdSecurity Systems. Both Laird Technologies and Laird Security Systems had another excellent year,with each Division delivering top-line organic growth as well as strong growthin operating profits. Laird Technologies' operating profits before exceptionalitems grew by 67% to £21.0 million, compared with £12.6 million in 2003, whileoperating margins increased to 14.7%. At constant exchange rates the growth inoperating profits would have been 84%. At Laird Security Systems, operatingprofits before exceptional items grew by 15% to £28.5 million, while operatingmargins increased to 12.2%. At constant exchange rates the growth in operatingprofits would have been 24%. Portfolio Development 2004 was a year of transformation for Laird Technologies, which significantlybroadened its product range and capabilities beyond its historical focus onelectromagnetic interference shielding where it remains the global marketleader. In April we acquired Thermagon, for a cash consideration of $27.5million plus future conditional payments of up to $16.5 million. This gave uscritical mass in the high-growth market for thermal interface materials andallowed us to integrate Thermagon's business with those of Orcus and Warth,which were both acquired in late 2003. In October we completed the acquisition of Centurion Wireless Technologies, fora headline cash consideration of $115 million together with the issue ofapproximately 14 million new Laird shares. Centurion is the global market leaderin the design and supply of cellular handset antennae and has an increasingpresence in the emerging markets of telematics and Wi-Fi. Its acquisitiontransforms Laird Technologies in terms of its product range, capabilities andscale, and makes it uniquely placed to exploit the growing convergence betweenEMI shielding, antennae and thermal management products. Integration isproceeding well and we are on track to achieve or exceed our planned costsynergies. In January 2005 we also acquired the Taiwanese company Cateron Corporation, theleading supplier of EMI shielding products to the global PC notebook market, fora cash consideration of approximately £13 million. This reinforced further LairdTechnologies' position in the EMI shielding market, and provides opportunitiesto increase our antennae and thermal interface materials sales to the PCnotebook market. There were also acquisitions, costing some £11 million, to strengthen the corebusinesses of Laird Security Systems, whilst simultaneously expanding into newand higher growth market sectors. In July we acquired Lindman Limited, asupplier of high specification composite doors to the social and private housingmarkets, extending our position in this fast growing UK market segment andbuilding on the acquisition of Intron in 2003. Laird Security Systems brings adifferentiated and fully integrated solution to this market. In August weacquired Advanced Metals Technologies Inc., a key supplier to Laird SecuritySystems' US window balances business, marking a further step in the verticalintegration of our supply chain there. In September, we announced the acquisition of Home Doors (GB) and Houseproudwhich, when combined with Laird Security Systems' existing businesses, createdthe UK market leader in the supply of doors, windows and affordableconservatories to the growing DIY retail market. The acquisition was in linewith our strategy of developing this retail channel for integrated security andbuilding products. Maintaining Profitable Growth We have made significant advances in recent years in positioning our businessportfolio towards these specialist, higher growth markets and this processcontinues. Our acquisitions and divestments, and our entry into new growthmarket segments, reflect this and we are leaders in many of these new areas, andaim to take a leading position in the remainder. We will continue to developboth of our two divisions through investment and acquisitions, benefiting fromthe strength and balance that both bring to the Group. Our global reach is a critical success factor, so we continued to expand ourAsian presence and capabilities in 2004. Excluding those employees acquired withCenturion, the number of our employees in Asia more than doubled in 2004, on topof a 60% increase in 2003. Including Centurion, by the end of the year we had almost 4,000 employees in Asia. The region represents an exciting and growingmarket and our presence there keeps us close to our local customers, while alsoproviding us with a lower cost supply base. The bringing on stream of our newplant in the Czech Republic took us into Central Europe, further extending ourlow cost manufacturing base. At the end of 2004, nearly 50% of the Group'semployees were in Asia or Central Europe, compared with 17% at the end of 2003. Operationally, we focus on achieving continuous improvement in ourmanufacturing, supply chain and new product introduction and developmentprocesses. We remain close to our customers in terms of both product design andsupport, delivering high levels of customer service and satisfaction. Wecontinue to develop the breadth and capabilities of our products, enhancing ourtechnical expertise and design skills and pursuing patent protection whereverjustified. Maintaining a Sound Financial Profile Laird has maintained a sound financial structure and strong cash generation. Netborrowings at the year end were £118.6 million, representing 49% ofshareholders' funds, up from £60.1 million at the end of 2003. Interest coverfor the year was 9.4 times before exceptional costs and goodwill amortisation,compared with 10.4 times in 2003. Both interest costs and our reported level ofborrowings benefited from the translation of US$ into Sterling. Cash generation remained healthy, with a trading cash inflow for the year of£24.3 million before the net effect of exceptionals, acquisitions, disposals anddividend payments, compared with an inflow of £38.2 million in 2003. Thereduction was due largely to higher capital expenditure on adding new productioncapacity in both Laird Technologies and Laird Security Systems and on completingLaird Technologies' new plant in the Czech Republic, as well as increasedworking capital requirements as a result of both the higher turnover and highercommodity prices. There was a net cash outflow on acquisitions and disposals of£77.3 million compared with £25.3 million in 2003. The maintenance of a strong financial structure remains a key factor in ourstrategy. $140 million of new US Private Placement facilities have been put inplace during the second half of the year, of which $97 million expire in 2014and $43 million in 2016. These new facilities add to the Group's £155 million ofbilateral facilities, which expire in July 2008, and its existing US PrivatePlacement loan notes totalling $61 million, which expire at various dates up to2014. These facilities give Laird the financial resources and flexibility tomake further value enhancing investments and acquisitions. Dividend In light of the strong results for 2004 the Board is recommending a finaldividend of 6.05 pence per share, payable to shareholders on 3 June 2005. Thiswill provide a total dividend for the year of 9.2 pence per share, compared with8.6 pence per share for 2003 and represents an increase of 7%. Outlook We have refocused the Group onto our two high-quality, core businesses, both ofwhich have attractive growth profiles, operating across a range of specialistmarket sectors where they generally hold leading positions. However, we againexpect to experience in 2005 further adverse translation effects from exchangerate movements, as well as the effects of higher commodity prices and higherinterest rates. Despite this, we remain well positioned for the future, giventhe strategy we have in place, the strength of our businesses and the actions wecontinue to take. We look forward to making further progress in 2005. Nigel Keen Peter HillChairman Chief Executive OPERATIONAL HIGHLIGHTS Laird Technologies Year to 2004 2003 Growth CER+31 December £m £m Growth Turnover 142.8 95.8 49% 63%Operating Profit* 21.0 12.6 67% 84% * Before exceptional items and goodwill amortisation+ At constant exchange rates Laird Technologies' markets had strengthened by the beginning of the year, and2004 saw improved demand across all market sectors, particularly in cellularhandsets, telecommunications and information technology. Laird Technologies alsobenefited from its entry through acquisition into the antenna and thermalinterface materials markets, while sales into the industrial, defence andconsumer markets all increased compared with 2003. Turnover for 2004 was£142.8 million, up from £95.8 million in 2003. Organic turnover growth atconstant exchange rates was 15%. Operating profits before exceptional items were £21.0 million for the year, 67%up on the £12.6 million in 2003 and up 84% at constant exchange rates. Operatingmargins continued to improve, to 14.7%, as a result of a further expansion ofour low cost manufacturing and additional operational efficiencies, despite someprice declines in certain product sectors. In 2004 Laird Technologies took two major strategic steps to expand its productrange and capabilities beyond EMI shielding where it is already the globalmarket leader. In April Laird Technologies achieved critical mass in the growingarea of thermal interface materials with the acquisition of Thermagon, and inOctober Laird Technologies completed the acquisition of Centurion WirelessTechnologies, the global market leader in the design and supply of antennae forwireless handsets and land mobile radios. Centurion's own turnover increased organically by 24% in 2004 compared with2003, as it supplied almost 140 million cellular antennae to the world's majorhandset manufacturers, a growth of 18% compared with 2003. The integration ofCenturion is proceeding as planned, and the projected cost synergies, announcedat the time of the acquisition, of $5 million in 2006, are on track to beachieved or exceeded. The closure of antennae manufacturing in Sweden has beenannounced, and its transfer to other Laird Technologies facilities will becompleted by early 2006. Construction of a new and much expanded design andmanufacturing plant will begin during 2005, in the Nokia "campus" on theoutskirts of Beijing. Laird Technologies' EMI shielding business continued to grow in 2004, as aresult of stronger markets, new product introductions and with an increasingproportion of production being manufactured in China and the Czech Republic. Ournew plant in the Czech Republic was officially opened in April, and by the yearend was producing a wide range of EMI shielding products. Laird Technologies is increasingly focused on Asia, both as a low cost supplybase and as a market in its own right. By the end of 2004 Laird Technologiesemployed some 3,600 people in Asia, nearly 70% of its total workforce. In China,we expanded the manufacturing capacity at our plants in Shanghai and Tianjinduring the year, leased a third building at our Shenzhen facility and moved intoa larger facility in Suzhou. In 2005 we will begin construction of a new plantat a greenfield site in Shenzhen, which will allow all of our existingoperations in the three buildings there to be consolidated in 2006, as well asproviding additional design and tooling capabilities and production capacity. In2004 we increased rapidly our moulding and stamping capacity to support designwins for Nokia and Motorola, to be manufactured in China. Our sales force inChina continues to grow, as does our design, development and marketingcapabilities and we were successful in winning new programmes with local Chineseelectronics manufacturers. Laird Technologies expanded its operations in Korea and Japan during the year,following the acquisition of Magnes in Korea, and the acquisition of amanufacturing presence in Japan following the purchase of Warth, both in late2003. We have been particularly successful in providing shielding products intothe new plasma and liquid crystal display markets, with new customer wins in2004 including Panasonic, Sony, Fujitsu, LG Electronics and Samsung. During 2004 we also made significant progress in strengthening and expanding ourtechnology capabilities and position. We believe that Laird Technologies nowpossesses the industry's largest radio frequency and thermal design anddevelopment team, employing some 270 engineers and technologists worldwide withan extensive range of product and process development skills. We have a strongintellectual property portfolio supporting the whole of Laird Technologies'product range, with 215 patents issued and some 200 pending. Laird Technologies had a very successful year in 2004, benefiting from improvedmarkets as well as its strategic development into new but related product areas.Its strong global customer relationships, the breadth of its product offeringand its highly developed technical expertise, all underpinned by its extensiveand still expanding low cost manufacturing capabilities, provide a soundplatform for the future. Laird Security Systems Year to 2004 2003 Growth CER+31 December £m £m Growth Turnover 233.3 205.3 14% 18%Operating Profit* 28.5 24.8 15% 24% * Before exceptional items and goodwill amortisation+ At constant exchange rates Laird Security Systems had another successful year with strong growth inturnover and profits. This was achieved despite the adverse translation effectsof exchange rate movements on our US operations and against a backdrop ofsignificant price increases in key raw materials, as well as a rising interestrate environment in both the UK and the USA. Laird Security Systems benefited from the breadth of its product range, itspositioning towards higher growth segments of its overall markets, and itsmaintenance of strong customer relationships. Turnover in 2004 was £233.3million, up 14% compared with £205.3 million in 2003 and up 18% at constantexchange rates. Organic turnover growth at constant exchange rates was a healthy8%. Operating profits before exceptional items for the year were £28.5 million, up15% compared with the £24.8 million in 2003, and up 24% at constant exchangerates, a continuation of the sound financial performance of recent years. In North America the market for all of our products remained strong in both thenew build and replacement markets with the latter now representing the largestsegment of the North American window market. Underlying demographic trends, aswell as a movement towards those product areas where we are strongest, are allexpected to remain favourable. In the UK the window market suffered in the year due to a slow-down in theretail replacement market, compounded by a backdrop of rising interest rates anda reduction in consumer confidence, and this trend is expected to continuethrough 2005. However, this was mitigated by a strong social housing marketwhere we now enjoy a position as a leading supplier of composite doors. Inaddition, the market for our door hardware products remained buoyant. 2004 was a challenging year in terms of both commodity prices and availability.However, with the global reach of our business we were able to ensure continuityof supply to our customers, while our ability to ensure competitive pricing ofour products as well as the benefits in 2004 of favourable supply contractsmeant that, overall, we saw no adverse effect on profitability in the year. The benefits of integrating our global capabilities with a strong local marketinterface were demonstrated by the growth in our door hardware range of locks,hinges and door furniture. This growth was achieved in both the UK and NorthAmerica as a result of close liaison between our US and European design centresand Chinese manufacturing units. These multi-national, multi-functional teamsare considered to be a key component to developing new higher growth markets. The level of manufacturing from low cost economies grew significantly in 2004.We commissioned a third manufacturing facility in China in late 2004, andoverall our sourcing from Asia grew by over 40% compared with 2003. In 2005 weexpect to see further growth in the volumes of product manufactured in Asia,both as a result of continuing growth in our hardware products in the US andwith the further transfer of production from one of our UK facilities, where asignificant down-sizing has recently been announced. The geographic expansion of our North American operations, with the opening of anew branch in the Western US, has been particularly successful and this regionhas seen significant sales growth in 2004. During the year we also completed anexpansion of our US seals facility, to allow us to add new capacity to servethis growth market and where we benefit from strong intellectual propertyprotection. In the second half of the year we acquired Advanced MetalTechnologies, a supplier critical to our US window balances business, allowingthe business to benefit from vertical integration of its supply chain. In the UK we continued to increase our presence in the social housing market,which, due to a number of Government initiatives together with favourabledemographic trends, continues to exhibit high growth. The acquisitions of Intronin late 2003, and Lindman in July 2004, have made us the leading supplier tothis market, while the increasing provision of integrated solutions of doors,door hardware and robust but easy-to-use access controls is seen as an importantstrategy for our future success. In September we acquired the business and assets of Home Doors (GB) andHouseproud, now renamed Laird Lifestyle Products. This acquisition brought arange of door, window and conservatory products aimed predominantly at the DIYretail and builders merchant markets, two channels that are increasinglyimportant routes to market. The conservatory market has two very distinct sectors; the high end, expensivemarket and the more affordable, predominantly uPVC sector, where the product isviewed as a low cost home extension. Whilst both sectors, but particularly thehigh end, have suffered in recent months due to rising interest rates and areduction in consumer confidence, the market fundamentals of the affordablesector, where Laird Lifestyle is positioned, remain good as these conservatorieshave low market penetration and are a highly aspirational product forhomeowners. The rationalisation of the business is now complete with the closureof two manufacturing facilities and a reduction in overheads. The business isnow well placed for the normal seasonal upturn in the market in the Spring of2005. As a result of the actions we have taken in recent years, Laird Security Systemsnow has a far broader presence in a range of markets, products and saleschannels compared with its traditional focus on the UK window hardware market.The majority of our businesses are now in higher growth sectors within ouroverall markets and ones in which we hold leading market positions. We expect tocontinue this repositioning, reducing further our exposure to the static ordeclining UK window market while continuing to expand in the higher growthsectors. This broadening of our business together with our successful businessmodel is expected to support the continuing profitable growth of Laird SecuritySystems. FINANCIAL HIGHLIGHTS Results overview Turnover increased from £428.8 million in 2003 to £468.0 million in 2004.Movements in exchange rates on the translation of currencies reduced turnover by£32.4 million. Profit before exceptional items, goodwill amortisation and tax increased by 26%to £47.1 million from £37.4 million in 2003. Movements in exchange rates on thetranslation of foreign currencies into Sterling reduced profits on the samebasis by £4.0 million. Amortisation of goodwill during the year amounted to£11.3 million. There were no operating exceptional costs in the year against £5.9 million in2003. However, the cash spend in 2004 on exceptional items provided for in 2003was £2.6 million. In 2005 there are likely to be exceptional costs at a similarlevel to those in 2003, predominantly related to the integration of acquisitionsmade in 2004. There was a gain on disposal of businesses of £3.6 million before adding backgoodwill of £17.4 million previously written off against reserves, to disclose anet loss on disposal of £13.8 million. Interest Paid and Received The Group's net interest charge increased from £4.0 million in 2003 to£5.6 million due largely to the net funding costs of acquisitions made towardsthe end of 2003 and in 2004. As much of the debt is in US$, interest costs werereduced on translation by £0.5 million as a result of exchange rate movementsduring the year. Taxation The underlying tax rate on profit before exceptional items, goodwillamortisation and tax has increased marginally from 18% in 2003 to 20% in 2004.There was an overall taxation charge in the year of £9.4 million (credit of £2.9million in 2003 after an exceptional tax credit of £8.5 million). Profits in the USA remain subject to a relatively low tax charge and should remain so for many years due to allowances for goodwill amortisation being tax deductible under US tax legislation. A growing proportion of the Group's profits are also rom jurisdictions with low tax rates or with tax incentives. Cash Flow There was a healthy trading cash flow surplus of £24.3 million in the year. Analysis of Cash Flow £m £m Operating profit before interest and tax* 52.7Depreciation / asset disposal gain 11.0Increase in working capital (15.8) Less movement in accruals for exceptional items 2.6 (13.2) -----------Capital expenditure less disposals (15.6)Pension liabilities (1.2)Interest and taxation (9.4) -----------Trading cash flow surplus 24.3Dividends (13.0) -----------Trading cash flow surplus after dividends 11.3Net cost of acquisitions and disposals (58.4)Borrowings acquired (18.9) (77.3) -----------Exceptional costs (2.6)Exchange translation movements 8.6Other 1.5 -----------Increase in net borrowings (58.5) ----------- * and before goodwill amortisation The sale of Laird Plastics occurred at the end of the third quarter in 2004 whenworking capital in the business is higher than it would be at the year end,thereby increasing the Group's working capital outflow. Acquisitions, includingLaird Lifestyle Products, Laird's new conservatory business, which was acquiredfrom the Receiver, also led to an increase in working capital. Low inventorylevels were replenished to allow service levels to be increased. In addition, the rise in commodity prices during the year, together with theshortage of some raw materials which necessitated higher safety stocks in orderto maintain premium service levels, added to the working capital increase. Capital expenditure of £17.9 million was £6.5 million in excess of depreciation.Expenditure on Laird Technologies' new plant in the Czech Republic and higherperformance and capacity moulding equipment and presses for the new combinationshielding products for Nokia by Laird Technologies, as well as the expansion ofthe seals plant in Amesbury by Laird Security Systems in the USA, were among themore significant spends. In 2005, with the full year effect of businesses acquired in 2004, together withthe need for additional capacity required to meet increasing demand, capitalexpenditure is likely to be at similar levels to those seen in 2004. Cash tax payments were again lower than the tax charge as the Group utilised itsremaining tax losses in the USA. This did not impact upon the tax charge itself,being offset by the release of a deferred tax asset. In addition, there werefurther cash recoveries of tax paid in previous years. Overall there was a £58.5 million increase in borrowings as the trading cashflow surplus was more than offset by dividend payments, and net spend onacquisitions and divestments. Pensions The Group has adopted FRS 17 for the first time in the 2004 Report and Accounts.Including unfunded pension schemes the deficit on the defined benefit pensionschemes increased from £9.9 million in 2003 to £14.8 million in 2004(£12.9 million net of tax). The increase in asset values in the year was morethan offset by the estimated increase in liabilities due to lower bond anddiscount rate assumptions and higher longevity assumptions for the members ofthe schemes. Shareholders' Funds Shareholders' funds increased from £193.8 million (restated on the adoption ofFRS 17) at the beginning of the year to £242.8 million at the end of 2004,reflecting the issue of shares as part payment for the acquisition of Centurionand the results for the year including an increase in reserves following thesale of Laird Plastics. Borrowings and Debt Facilities Net borrowings at 31 December 2004 were £118.6 million, 49% of shareholders'funds, comprising gross borrowings of £140.8 million and cash of £22.2 million. The Group has $201 million (£104.7 million) of US Private Placement notes ofwhich $140 million (£72.9 million) were issued during the year. Of the total inissue, $11.0 million (£5.8 million) is being paid down in two equal instalmentsover 2005 and 2006, $50 million (£26.0 million) is subject to bullet repaymentsin 2008, 2012 and 2014, $97.0 million (£50.5 million) of the new Placement isrepayable in 2014 and the balance of $43.0 million (£22.4 million) in 2016.$70.0 million (£36.5 million) of the Placement notes were swapped from fixedrates to variable, for a five year term, during the year. The Group also has £155.0 million of committed bilateral revolving creditfacilities which expire in 2008, of which 21% was drawn at the end of 2004. Currency The Group's turnover and profits are affected by currency movements ontranslating overseas turnover and profits into Sterling for reporting purposes.The actual transactional effects, on cross border transactions which involve thesale of goods or services in currencies foreign to a Group entity, are notsignificant. Average exchange rates during the year were 1.83 for the US Dollar (2003, 1.64)and 1.48 for the Euro (2003, 1.44). 2004 year end rates were 1.92 for the USDollar and 1.41 for the Euro, compared with 1.79 and 1.42 respectively at theend of 2003. Had exchange rates remained constant with those prevailing in 2003, the Group'sturnover would have been £32.4 million higher in 2004, while profit beforeexceptional items, goodwill amortisation and tax would have been £4.0 millionhigher. Movements in exchange rates also had an impact on the balance sheet. Themajority of the Group's assets are held overseas and these are hedged in part byforeign currency loans. Due regard is given to the adequacy of thecapitalisation levels of foreign subsidiaries and tax considerations in order toobtain relief for interest charges. The translation impact of exchange ratemovements at the end of 2004 compared with the end of 2003 reduced shareholders'funds by £10.7 million. International Financial Reporting Standards (IFRS) Laird is required to adopt IFRS from 1 January 2005 and is progressing well withpreparations for the transition from UK GAAP. Laird will be reporting theresults for the half year to 30 June 2005 using IFRS for the first time. It willbe necessary to restate the comparative data for the first six months of 2005,the half year and full year of 2004, on an IFRS basis. The restated results for 2004 will be published before the 2005 Interim resultsare issued together with a description of the principal areas of impact upon the2004 profits and balance sheet. Group profit and loss accountfor the year to 31 December 2004 2003 £m £mNote 1 Turnover - continuing operations existing operations 328.7 301.1 Acquisitions 47.4 - - discontinued operations 91.9 127.7 --------- --------- 468.0 428.8 --------- --------- 2 Operating profit - continuing operations before exceptional items and goodwill amortisation existing operations 44.7 37.4 Acquisitions 4.8 - exceptional items - (6.2) goodwill amortisation (11.2) (10.5) --------- --------- 38.3 20.7 - discontinued operations before exceptional items 3.2 4.0 and goodwill amortisation exceptional items - 0.3 goodwill amortisation (0.1) (0.1) --------- --------- 3.1 4.2 --------- --------- 41.4 24.9 Loss on disposal of businesses profit before goodwill reinstatement 3.6 - goodwill previously set off against reserves (17.4) - --------- --------- (13.8) - --------- --------- Profit on ordinary activities before interest 27.6 24.9 3 Interest and finance charges (5.6) (4.0) --------- --------- Profit on ordinary activities before taxation 22.0 20.9 4 Taxation (9.4) 2.9 --------- --------- Profit for the financial year 12.6 23.8 5 Dividends (14.5) (12.3) --------- --------- Retained (loss)/profit (1.9) 11.5 --------- --------- 6 Earnings per share - basic 8.7p 16.8p 6 Earnings per share - diluted 8.4p 16.8p --------- --------- 5 Dividends per share 9.2p 8.6p --------- --------- 6 Results before exceptional items and goodwill amortisation Profit before taxation 47.1 37.4 Earnings per share 25.9p 21.6p --------- --------- Group cash flow statementfor the year to 31 December 2004 2003Note £m £m 8 Net cash inflow from operating activities 46.7 55.8 10 Returns on investments and servicing of finance (5.0) (3.9) Taxation (4.4) (2.7) 10 Capital expenditure less disposals (15.6) (12.6) 9 Acquisitions and disposals (58.4) (20.8) Dividends paid (13.0) (12.0) --------- --------- Cash (outflow)/inflow before management of liquid (49.7) 3.8 resources and financing 10 Management of liquid resources 14.9 27.2 10 Financing 35.5 (39.0) --------- --------- Increase / (decrease) in cash 0.7 (8.0) --------- --------- Reconciliation of net cash flow to movement in net borrowings Increase / (decrease) in cash during the year 0.7 (8.0) Cash (inflow)/ outflow from change in borrowings (34.0) 39.6 Cash inflow from change in liquid resources (14.9) (27.2) --------- --------- Change in net borrowings resulting from cash flows (48.2) 4.4 Borrowings of businesses acquired (18.9) (4.5) Differences on exchange 8.6 6.6 --------- --------- Movement in net borrowings during the year (58.5) 6.5 Net borrowings at 1 January (60.1) (66.6) --------- --------- Net borrowings at 31 December (118.6) (60.1) --------- --------- Group balance sheetas at 31 December 2004 2003 (restated)Note £m £m Fixed assets Intangible assets 295.4 183.3 Tangible assets 75.6 61.7 --------- --------- 371.0 245.0 --------- --------- Current assets Stocks 57.4 48.6 Debtors 85.0 78.6 Cash at bank 22.2 37.3 Creditors: amounts falling due within one year Borrowings (6.5) (24.0) Other (101.5) (90.2) --------- --------- Net current assets 56.6 50.3 --------- --------- Total assets less current liabilities 427.6 295.3 Creditors: amounts falling due after more than one year Borrowings (134.3) (73.4) Other (20.7) (8.0) Provisions for liabilities and charges (16.9) (11.6) 7 Pension liability (12.9) (8.5) --------- --------- 242.8 193.8 --------- --------- Capital and reserves Ordinary share capital 39.5 35.8 Share premium account 152.2 106.6 Revaluation reserve 1.7 2.4 Profit and loss account 52.3 51.9 Investment in own shares (2.9) (2.9) --------- --------- Equity shareholders' funds 242.8 193.8 --------- --------- The accounts were approved by the Board of Directors on 14 March 2005and were signed on its behalf by: P J HILLJ C SILVERDirectors Statement of total recognised gains and lossesfor the year to 31 December 2004 2003 (restated) £m £m Profit for the financial year 12.6 23.8Recognition of pensions deficit (6.1) (1.3)Deferred tax on pensions deficit 0.9 0.4Exchange differences on retranslation of overseas netinvestments (18.4) (14.0)Exchange differences on loans 6.3 0.3Tax on exchange differences 1.4 2.1 --------- ---------Total gains and losses recognised during the year (3.3) 11.3Prior year adjustment - on implementation of FRS 17 (7.0) -(Pensions) --------- ---------Total gains and losses recognised since last Annual (10.3) 11.3Report --------- --------- Movements in shareholders' fundsfor the year to 31 December 2004 2003 (restated) £m £m Shareholders' funds brought forward as previously stated 200.8 199.9Prior year adjustment - on implementation of FRS 17 (7.0) (6.1)(Pensions)Shareholders' funds at 1 January 193.8 193.8 Total gains and losses recognised during the year (3.3) 11.3Dividends (14.5) (12.3)Issue of shares 49.3 0.6Long Term Incentive Plan allocation 0.1 0.4Goodwill written back 17.4 - --------- ---------Movements in shareholders' funds for the year 49.0 - --------- --------- Shareholders' funds at 31 December 242.8 193.8 --------- --------- 1 Segmental analysis Turnover Operating Capital profit employed 2004 2003 2004 2003 2004 2003 (restated)By activity: £m £m £m £m £m £mContinuing operationsBefore exceptional itemsand goodwill amortisation: Laird Technologies 142.8 95.8 21.0 12.6 280.8 172.5Laird Security Systems 233.3 205.3 28.5 24.8 80.6 60.6 ------ ------ ------ ------ ------ ------ 376.1 301.1 49.5 37.4 361.4 233.1 Exceptional items - - - (6.2) - -Goodwill amortisation - - (11.2) (10.5) - - ------ ------ ------ ------ ------ ------ 376.1 301.1 38.3 20.7 361.4 233.1Discontinued operationsBefore exceptional itemsand goodwill amortisation: Laird Plastics 91.9 127.7 3.2 4.0 - 20.8 Exceptional items - - - 0.3 - -Goodwill amortisation - - (0.1) (0.1) - - ------ ------ ------ ------ ------ ------ 91.9 127.7 3.1 4.2 - 20.8 ------ ------ ------ ------ ------ ------ 468.0 428.8 41.4 24.9 361.4 253.9 ------ ------ ------ ------ ------ ------By geographical location ofoperations:Continuing operationsBefore exceptional itemsand goodwill amortisation: United Kingdom 155.8 127.8 12.4 8.0 73.3 53.2North America 149.8 132.7 25.5 23.7 224.4 140.5Rest of world 70.5 40.6 11.6 5.7 63.7 39.4 ------ ------ ------ ------ ------ ------ 376.1 301.1 49.5 37.4 361.4 233.1 Exceptional items - - - (6.2) - -Goodwill amortisation - - (11.2) (10.5) - - ------ ------ ------ ------ ------ ------ 376.1 301.1 38.3 20.7 361.4 233.1Discontinued operationsBefore exceptional itemsand goodwill amortisation: North America 91.9 127.7 3.2 4.0 - 20.8 Exceptional items - - - 0.3 - -Goodwill amortisation - - (0.1) (0.1) - - ------ ------ ------ ------ ------ ------ 91.9 127.7 3.1 4.2 - 20.8 ------ ------ ------ ------ ------ ------ 468.0 428.8 41.4 24.9 361.4 253.9 ------ ------ ------ ------ ------ ------ 1 Segmental analysis (continued) Notes (a) The results and cash flows of overseas subsidiaries are translated intoSterling using weighted average rates of exchange for the year. The principalrates used were as follows: Average Closing 2004 2003 2004 2003Euros 1.48 1.44 1.41 1.42US Dollars 1.83 1.64 1.92 1.79 2 Operating profit 2004 2003 £m £mOperating profit is after charging the following itemsExceptional itemsRedundancy costs and reorganisation - 4.1Write down of fixed assets - 1.8 Research and development expenditure 7.7 6.0 Depreciation 11.4 11.0 Goodwill amortisation 11.3 10.6 Operating lease rentalsHire of plant and machinery 1.6 1.4Other 4.0 5.7 Auditors' remuneration *Audit fees 0.8 0.6Tax fees** 1.2 0.7Other fees 0.1 - * In addition, fees of £1.1m (2003 £0.2m) for services largely in respect ofacquisitions and disposals were paid to the auditors but not charged againstoperating profit. ** Tax fees for the year were in respect of compliance £0.6m (2003 £0.5m) andplanning £0.6m (2003 £0.2m). 3 Interest and finance charges 2004 2003 £m £mInterest expense on loans Bank loans and overdrafts 2.5 2.2Other loans 3.3 3.4Finance charges 0.5 - --------- --------- 6.3 5.6Interest income (0.7) (1.6) --------- --------- 5.6 4.0 --------- --------- 4 Taxation 2004 2003 £m £m(a) Analysis of the tax charge / (credit) for the yearCurrent taxUK corporation taxTax on results of the year 2.9 1.5Adjustments in respect of prior years (0.6) (1.4) --------- ---------Total UK tax charge 2.3 0.1 --------- ---------Overseas taxTax on results of the year 5.4 3.9Adjustments in respect of prior years (1.6) (4.4) --------- ---------Total overseas tax charge/(credit) 3.8 (0.5) --------- ---------Total current tax charge/(credit) 6.1 (0.4)Deferred tax 3.3 (2.5) --------- --------- Tax charge/(credit) on results from ordinary activities 9.4 (2.9) --------- --------- 5 Dividends Per share 2004 2003 2004 2003 p p £m £mInterim paid 3.15 3.0 5.0 4.3Final recommended 6.05 5.6 9.5 8.0 ------- ------- ------- ------- 9.2 8.6 14.5 12.3 ------- ------- ------- ------- The recommended final dividend, if approved, will be paid on 3 June 2005 toshareholders registered on 6 May 2005. 6 Earnings per share and results before exceptional items and goodwill amortisation The calculation of basic and diluted earnings per share is based on aprofit for the year of £12.6m (2003 £23.8m) and 145.6m (2003 141.9m) shares,being a daily average of the shares in issue during the year. Diluted earningsper share (8.4p) is based on the same profits but with the number of shares increased to 149.7m (2003 141.9m) to reflect relevant share options granted but not yet exercised, where performance conditions have been met and shares contingently issuable in respect of the acquisition of Centurion Wireless Technologies, Inc. Earnings per share before exceptional items and goodwill amortisation is shownas the Board considers it to be a relevant guide to the performance of theGroup. The tax charge for the year before exceptional items and goodwillamortisation, calculated after adding back certain exceptional tax credits of£nil (2003 £8.5m), is equivalent to 20% (2003 18%) of the profit beforeoperating exceptional items, goodwill amortisation and loss on disposal ofbusinesses. Profit before tax Earnings 2004 2003 2004 2003 £m £m p/share P/share Profit/earnings 22.0 20.9 8.7 16.8Operating exceptional items - 5.9 - 3.4Goodwill amortisation 11.3 10.6 7.7 7.5Loss on disposal of businesses 13.8 - 9.5 -Exceptional tax credits - - - (6.1) ------- ------- ------- -------Profit/earnings before 47.1 37.4 25.9 21.6exceptional items and goodwill ------- ------- ------- -------amortisation 7 Employees Pension schemes The Group operates a number of pension schemes of both the defined benefit anddefined contribution types. Approximately 650 (2003 700) employees are members of seven different definedbenefit schemes and these schemes have approximately 1,800 (2003 1,900) deferredand current pensioners. The employer contributions made to these schemes duringthe year was £2.1m (2003 £2.1m). The assets are held in separate trusteeadministered funds. Pension costs are assessed by independent actuaries, fullactuarial valuations being made every three years using either the projectedunit or attained age methods. The most recent actuarial valuations were madebetween December 2001 and April 2004. For 2004 the Group has fully adopted the accounting standard FRS 17. The 2003comparative data has also been adjusted to reflect this. The total assessed value of the schemes' assets at 31 December 2004 at theirmarket value is estimated at £65m (2003 £61m) and the liabilities estimated at£79m (2003 £71m). The resultant aggregate net pension liability under FRS 17 is£15m (2003 £10m), which resulted in a decrease in the Group's reserves of £13m(2003 £9m), being the £15m (2003 £10m) net pension liability offset by £2m (2003£1m) of related deferred tax. Since last year equity markets have risen, howeverthis increase has not been sufficient to offset reductions in corporate bondyields and higher longevity assumptions for the schemes' members which impactupon the value of discounted liabilities, resulting in a higher aggregate netpension liability. The market value of the schemes' assets, the present value of the schemes'liabilities and the net pension liability under FRS 17 at 31 December were asfollows: Group 2004 2003 (restated) £m £m Annuities 10.4 11.1Equities 34.8 31.3Gilts and bonds 17.2 16.0Other including cash 2.2 2.8 -------- --------Total market value of assets 64.6 61.2 Present value of scheme liabilities (79.4) (71.1) -------- --------Deficit in the schemes (14.8) (9.9)Related deferred tax asset 1.9 1.4 -------- --------Net pension liability (12.9) (8.5) -------- -------- Analysis of the defined benefit cost for the year ended 31 December : 2004 2003 (restated)Related Shares:
Laird