27th Sep 2005 07:03
Melrose PLC27 September 2005 MELROSE PLC AUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Melrose PLC today announces its audited interim results for the six months ended30 June 2005. The highlights of the results, which are reported under IFRS, are: •Successful acquisition of Dynacast, a leading global manufacturer of precision engineering diecast zinc, aluminium and magnesium alloy components •Successful acquisition of McKechnie, a leading supplier of specialist engineering products with five divisions: Aerospace OEM, Aerospace Aftermarket, Vehicle Components, Plastic Components and Industrial Fasteners. •Group Turnover for the period was £43.1m •Group Profit before tax was £4.6m •Results include Dynacast and McKechnie from the date of acquisition only •Dividend payment of 3p per share intended next year following our AGM. Christopher Miller, Chairman of Melrose PLC, today said: "I am excited about thebusinesses we bought at the end of May. There is a lot to be done but I amconfident we will make our shareholders happy with the value we can create overthe next few years." Enquiries: Tom HampsonM: Communications 020 7153 1522 CHAIRMAN'S STATEMENT I am pleased to report Melrose's first set of interim results after ouracquisitions of the Dynacast Group and the McKechnie Group on 26 May 2005. The consideration of £429m was satisfied by an issue of ordinary shares toinvestors, including the vendors, and bank debt. In line with our objectives these businesses have good cash generatingcharacteristics, strong market shares and a global presence. They also presentopportunities for improvements in performance which play to our traditionalmanagement strengths. Post acquisition reviews are largely complete and,although it is still early days, a number of actions have already been taken.Our view remains that we will be able to create substantial shareholder valuefrom these businesses over the next few years. More detail is provided in theChief Executive's Review RESULTS The accounts for the six months to 30 June include the results of the Dynacastand McKechnie businesses from the date of acquisition of 26 May 2005. Thecomparative numbers for the first six months of 2004 are for Melrose PLC priorto the acquisitions. Turnover for the period was £43.1m. (2004 - nil) Profit before tax was £4.6m (2004 - loss £(0.2)m) and earnings per share were4.8p (2004 - loss per share (1.6)p). DIVIDENDS In view of the short period of ownership of these businesses the board is notproposing to pay an interim dividend. However in the absence of unforeseencircumstances, we intend as indicated to pay a dividend of 3p per share nextyear following our AGM. BOARD APPOINTMENTS We were delighted to appoint Geoff Martin to the board as Finance Director inJuly. He will be a key member of our team as we develop our businesses. We wereequally pleased to welcome Perry Crosthwaite as a non-executive director also inJuly. He brings with him a wealth of City experience. We are expecting toappoint a third non-executive director in the near future. MOVE TO FULL LISTING As indicated at the time of flotation, we are now in the process of applying forfull listing on the London Stock Exchange. The new regulatory environment andthe timing of completion as compared to the differing year ends of ouracquisitions are making the preparation of historic financial information forirregular periods a time consuming process. However, we hope to achieve a fulllisting as soon as possible. STRATEGY Our stated aim at flotation was to acquire appropriate businesses, improve theirperformance, create value and return this to shareholders over time. Thisstrategy remains very much in place and our management, both centrally and inour companies, is extremely focused in putting it into practice. Melrose doesnot intend to make further acquisitions which are unrelated to its existingbusinesses. Christopher Miller27th September 2005 CHIEF EXECUTIVE'S REVIEW I would like to remind readers that the results below include the Dynacast andMcKechnie businesses from the date of acquisition of 26th May 2005. DYNACAST 30 June 2005Turnover £16.2mOperating profit £2.2m Dynacast is a global manufacturer of precision engineered, diecast metalcomponents. The products are manufactured using proprietary die-castingtechnology and are supplied to a wide range of end markets, includingautomotive, telecommunications and consumer electronics. Dynacast has benefited in the past from its flexible manufacturing approach byresponding to the threats, and therefore opportunities, resulting from the wellknown movement of industrial production to 'low cost' countries. We are workingclosely with Dynacast management to optimise the location of its productionfacilities to best suit the requirements of its customers. In this context, Dynacast has, since acquisition, announced the closure of itsproduction facility in the UK. We are encouraging management to maximiseopportunities arising from this trend, not only to contain costs but to exploitthe growth opportunities, particularly in the East. Against this backdrop of encouraging demand in the 'newer economy' countries(supported by strong sales of tools to customers), trading conditions inContinental Europe and the US are slow. Although Dynacast is generally able torecover raw material cost increases in its selling prices, when these inputcosts rise quickly and significantly, as they have recently, Dynacast suffersfrom a timing lag. However, we are encouraged by new product initiatives whichwill bear fruit in 2006. Overall, this is a very strong engineering business with a major market presenceand good long term growth prospects. Management are heavily focused on realisingthe potential this business has to offer. AEROSPACE ORIGINAL EQUIPMENT MANUFACTURE ("AEROSPACE OEM") 30 June 2005Turnover £10.6mOperating profit £2.6m Aerospace OEM supplies safety critical components to the global aerospaceindustry and is based in the US and Europe. The business has excellentengineering skills producing value added products selling into niche markets inwhich it has strong market shares. It is generally recognised that the aerospace industry is benefiting from astrong cyclical upturn and this division has experienced a significant increasein its sales and its order book. This in turn provides challenges in terms ofmeeting the delivery requirements of customers, particularly in the light ofshortages of raw materials such as titanium. We are working closely with themanagement of this division to improve the operational performance of thebusiness and to this end a new divisional finance director and a new vicepresident of operations for the largest subsidiary have been recruited in the USsince acquisition. The division is well represented on the major commercial airline platforms andthis provides good future earnings visibility. Depending on the product beingsupplied the company will usually either have patent protection or be the solesupplier, which affords a degree of pricing protection. At present managementare concentrating on managing the increases in the costs of raw materials andthe shortages in the supplies of these items. These businesses are operating in fast growing markets and a motivatedmanagement team is working hard to maximise profit and cash. AEROSPACE AFTERMARKET 30 June 2005Turnover £2.5mOperating profit nil Aerospace Aftermarket provides a 24 hours-a-day, seven days-a-week specialiseddistribution service offering a range of components, related systems andengineering services to the aerospace aftermarket. The aerospace aftermarket cycle, while flatter, typically lags the aerospaceoriginal equipment market by a year to eighteen months. In line with this we areseeing a few early signs of an upturn in activity, having been through a verydifficult period since 2001. Since acquisition a restructured management team has embarked on a cost cuttingprogramme and is focusing on introducing a more disciplined approach to runningthe business with a view to achieving operational efficiencies and maximisingsales opportunities. With continuing hard work, this new management team should be able to benefitfrom a recovery in this market. MCKECHNIE VEHICLE COMPONENTS ("MVC") 30 June 2005Turnover £5.4mOperating profit £0.4m MVC manufactures decorated exterior trim products for the US automotiveindustry, principally coated metal and plastic wheel trims. Although the competitive conditions in the US automotive industry arechallenging at present, the overall demand for cars and trucks is reasonablygood. As such demand for this division's products is favourable and with astrong order book this is likely to continue. However, in common with mostmanufacturing businesses, recovery of the significant raw material priceincreases is a major issue. Whilst 2005 is difficult we expect some recovery inthis business in 2006. Management are working closely with customers to improve and develop the productrange, whilst at the same time focusing on minimising costs wherever possible. MCKECHNIE PLASTIC COMPONENTS ("MPC") 30 June 2005Turnover £5.1mOperating profit £0.3m MPC is a UK producer of engineered plastic and plastic injection mouldedcomponents for products used in a variety of industries, including power tools,IT hardware, food packaging, personal care and automotive. This division operates in a highly competitive environment and is currentlyexperiencing raw material cost increases. However, the specialised nature ofthis division's technology and its skill base has enabled it to recover a largepart of these cost increases, albeit with a time lag. The highly experienced management team at MPC is continuously seeking tomaintain its competitive advantage, in terms of new products and imaginativeengineering solutions for customers, as an increasing share of commoditybusiness moves to lower cost countries. MCKECHNIE PSM ("PSM") 30 June 2005Turnover £3.3mOperating profit £0.1m PSM manufacturers and distributes specialised fasteners and joining systems. Sales of product manufactured in China continue to be profitable, whereasproduct manufactured in Europe is struggling to cope with a relatively high costbase. The move of production from the UK to the Czech Republic, prior to ouracquisition, has proved fraught and, while recent performance has been better,this is likely to result in a poor 2005. However, we believe there will be animprovement in 2006. We are working with the management of PSM to address thisby means of a series of initiatives which are being explored. OUTLOOK The global reach of these businesses exposes us to varying economic conditionsaround the world. With the outstanding exception of our Aerospace companies, weare finding trading somewhat slow in Europe, particularly for Dynacast, and to alesser extent in the USA. The Far East, however, continues to perform well. Weare in the process of getting to grips with our businesses and fullyunderstanding their investment needs. We will take into account the likelydemand scenario for their products, as well as changes in trends, in assessingwhere production capacity should be most efficiently located. Some restructuringhas been put into place and it is likely that more will follow It is early days yet to confidently predict the outlook for 2006. We have ownedthese businesses for four months and budgets for next year are only now beingfinalised. However we can confirm that we are very pleased with theopportunities these acquisitions offer to us and our shareholders and fullyexpect a good performance in 2006 and beyond. David Roper27th September 2005 Consolidated income statement Continuing operations Notes 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £m Revenue 3 43.1 - -Cost of sales (32.2) - - ______ ______ ______Gross profit 10.9 - -Selling and distribution costs (2.2) - -Administration expenses (3.2) (0.4) (0.9)Share of joint ventures operating 0.1 - -profitsExceptional items - abortive - - (3.8)acquisition costs ______ ______ ______Operating profit/(loss) 3 5.6 (0.4) (4.7) Finance costs (1.0) - -Finance income - 0.2 0.5 ______ ______ ______Profit/(loss) on ordinary 4.6 (0.2) (4.2)activities before taxTaxation 4 (1.6) - - ______ ______ ______Profit/(loss) for the period from 3.0 (0.2) (4.2)continuing operations ====== ====== =======Attributable to:Equity holders of the parent 3.0 (0.2) (4.2)Minority interests - - - ______ ______ ______ 3.0 (0.2) (4.2) ====== ====== =======Earnings/(loss) per share 5- Basic 4.8p (1.6)p (32.3)p- Diluted 4.7p (1.6)p (32.3)p ====== ====== ======= Consolidated balance sheet Notes 30 June 30 June 31 December 2005 2004 2004 £m £m £mNon-current assetsIntangible assets 400.6 - -Property, plant & equipment 93.8 - -Interests in joint ventures 2.6 - - ______ ______ ______ 497.0 - -Current assetsInventories 50.4 - -Trade and other receivables 84.7 - 0.2Cash and short term deposits 17.5 12.6 11.7 ______ ______ ______ 152.6 12.6 11.9 ______ ______ ______Total assets 649.6 12.6 11.9 ====== ====== ======Current liabilitiesTrade and other payables 94.8 - 3.4Interest bearing loans and 5.3 - -borrowingsIncome tax payable 10.9 - -Provisions 2.6 - - ______ ______ ______ 113.6 - 3.4Non-current liabilitiesInterest-bearing loans and 204.2 - -borrowingsDeferred tax liabilities 2.6 - -Retirement benefit obligations 60.6 - -Provisions 13.6 - - ______ ______ ______ 281.0 - - ______ ______ ______Total liabilities 394.6 - 3.4 ______ ______ ______Net assets 255.0 12.6 8.5 ====== ====== ======EquityIssued share capital 7 0.3 0.1 0.1Share premium account 7 256.6 12.8 12.8Foreign currency translation 7 1.4 - -reserveAccumulated losses 7 (4.1) (0.3) (4.4) ______ ______ ______Equity attributable to holders of 254.2 12.6 8.5the parent Minority interest 0.8 - - ______ ______ ______Total equity 255.0 12.6 8.5 ====== ====== ====== Consolidated cash flow statement Notes 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £mCash flows from operatingactivitiesProfit/(loss) from continuing 5.6 (0.4) (4.7)operations before interest andtaxationDepreciation 1.3 - -Amortisation of intangible fixed 0.2 - -assetsIncrease in stock (1.6) - -Increase in debtors (2.3) - (0.2)(Decrease)/Increase in creditors (7.2) - 3.3Pension contributions paid (5.1) - -Borrowing costs (0.5) - -Income tax paid (0.4) - -Non-cash items 0.5 - - ______ ______ ______Net cash flows from operating (9.5) (0.4) (1.6)activities ______ ______ ______Cash flows from investingactivitiesPurchase of property, plant and (1.5) - -equipmentAcquisition of subsidiaries 6 (433.2) - -Interest received - 0.2 0.5 ______ ______ ______Net cash flows from investing (434.7) 0.2 0.5activities ______ ______ ______Cash flows from financingactivitiesFinance leases repaid (0.3) - -Repayment of loan notes (0.3) - -New bank loans 200.0 - -Proceeds on issue of shares 244.0 - -Increase in overdrafts 4.8 - -Overdrafts acquired 6 (9.4) - - ______ ______ ______Net cash flows used in financing 438.8 - -activities ______ ______ ______Decrease in cash and cash (5.4) (0.2) (1.1)equivalents ______ ______ ______Exchange 1.6 - -Cash and cash equivalents at 11.7 12.8 12.8beginning of period/yearCash acquired 9.6 - - ______ ______ ______Cash and cash equivalents at end of 17.5 12.6 11.7period/year ====== ====== ====== Consolidated statement of recognised income and expense 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £mCurrency translation on net 1.4 - -investments in subsidiaryundertakingsActuarial adjustments on pension (2.7) - -liabilities ______ ______ ______Net expense recognised directly in (1.3) - -equityProfit/(loss) for the period/year 3.0 (0.2) (4.2) ______ ______ ______Total recognised income and expense 1.7 (0.2) (4.2)for the period/year ====== ====== ======Attributable to:Equity holders of the parent 1.7 (0.2) (4.2)Minority interests - - - ______ ______ ______ 1.7 (0.2) (4.2) ====== ====== ====== NOTES TO THE FINANCIAL INFORMATION 1. Corporate information The consolidated financial statements of Melrose for the period ended 30 June2005 were authorised in accordance with a resolution of the directors of MelrosePLC on 27 September 2005. The figures for the year ended 31 December 2004 do not constitute the Company'saccounts for that period but have been extracted from the statutory accountswhich have been filed with the Registrar of Companies. The auditors' report onthose accounts was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The interim results for the six monthsended 30 June 2005 are consistent with audited non-statutory accounts for thatperiod. The principal activities of the Melrose Group are described in note 3. 2. Summary of significant accounting policies Details of the Group's significant accounting policies are available from theRegistered Office or at www.melroseplc.net. 3. Segment information The Group's primary reporting format is business segments and its secondaryformat is geographical segments. The operating businesses are organised andmanaged separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offersdifferent products and serves different markets. All reported turnover isderived from one activity, the sale of goods. The Dynacast segment is a supplier of diecast parts and components to a range ofindustries. The Aerospace OEM segment is a supplier of specialised quality components to theAerospace industry, the Aerospace Aftermarket segment is a supplier ofreplacements parts to the world's leading airlines and McKechnie VehicleComponents ("MVC") supplies exterior trim products to major vehiclemanufacturers in the USA. McKechnie Plastic Components ("MPC") is a UK supplierof plastic injection moulded and extruded components to the automotive, consumerdurable, IT and other industries. The Fastener segment manufacturers anddistributes specialised fasteners globally to automotive and other industries. Transfer prices between business segments are set on an arm's length basis in amanner similar to transactions with third parties. The Group's geographical segments are determined by the location of the Group'sassets and operations. 3. Segment information (continued) Business segments The following table presents revenue and profit information and certain assetand liability information regarding the Group's business segments for the periodended 30 June 2005: Business segment Dynacast OEM Aftermarket MPC MVC Fasteners Total £m £m £m £m £m £m £m TurnoverSegment revenue 16.2 10.6 2.5 5.1 5.4 3.3 43.1 ResultSegment result 2.2 2.6 - 0.3 0.4 0.1 5.6 Assets andliabilitiesSegment assets 89.7 55.6 8.3 31.3 22.2 26.0 233.1Liabilities (38.0) (18.4) (3.4) (8.7) (8.5) (22.8) (99.8) Unallocated 121.7corporate assets/liabilities* _____ 255.0 _____Other segmentinformationCapital 1.0 0.2 - 0.1 - 0.2 1.5expenditureDepreciation and 0.6 0.3 - 0.2 0.2 0.2 1.5amortisation ofintangibles Geographical Area North America Europe Asia Total £m £m £m £m TurnoverSegment revenue 20.9 18.4 3.8 43.1 ResultSegment result 2.9 1.9 0.8 5.6 Assets and liabilitiesSegment assets 96.5 110.0 26.6 233.1Liabilities (37.3) (53.1) (9.4) (99.8)Unallocated corporate assets/ 121.7liabilities* _____ 255.0 _____Other segment informationCapital expenditure 0.4 0.8 0.3 1.5Depreciation and amortisation of 0.6 0.7 0.2 1.5intangibles * Unallocated corporate assets largely represent goodwill net of the group'sborrowings. Due to the proximity of the acquisition to the reporting date,goodwill has not yet been allocated to the relevant business segments. This willbe completed prior to 31 December 2005. 4. Income Tax Analysis of charge in period: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £mCurrent tax 1.6 - -Deferred tax - - - ____ _____ _____Total income tax expense 1.6 - - ==== ===== ===== The income tax charge for the period ended 30 June 2005 is based on the estimateeffective tax rate for the full year to 31 December 2005. The tax for the period is higher than the standard rate of corporation tax inthe UK (30%). The differences are explained below: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £m Profit/(loss) on ordinary activities 4.6 (0.2) (4.2)before tax ____ _____ _____Tax on profit/(loss) on ordinary 1.4 - (1.3)activities at UK corporate tax rate(30%)Expenses not deductible for tax 0.3 - -purposesAdjustment in respect of foreign tax 0.2 - -ratesExcess losses not utilised 0.1 - 1.1Withholding taxes on remittances from 0.1 - -overseasDeductible items not in profit and loss (0.5) - 0.2account ____ _____ _____Total tax charge for the period 1.6 - - ==== ===== =====Deferred tax There is no deferred tax charge in the period. 5. Earnings per share Six months YearEarnings ended ended ended 30 June 30 June 31 December 2005 2004 2004 £m £m £m Earnings for the purposes of basic 3.0 (0.2) (4.2)earnings per share being net profitattributable to equity holders of theparent ____ ____ ____ Number Number NumberNumber of sharesWeighted average number of ordinary 61,650,385 13,120,000 10,120,000shares for the purposes of basic earningper shareEarnings/(loss) per share 4.8p (1.6)p (32.3)pFurther shares for the purposes of fully 1,271,504 - -diluted earnings per shareFully diluted earnings/(loss) per 4.7p (1.6)p (32.3)pshare =========== =========== ==========6. Acquisition of subsidiaries On 26 May 2005, the Group acquired 100% of the issued share capital of theMcKechnie Group and the Dynacast Group. McKechnie Acquiree's Fair value Fair carrying adjustments value amount £m £m £mProperty, plant and 43.8 8.8 52.6equipmentIntangible assets 2.4 - 2.4Joint ventures 2.7 - 2.7Inventories 36.4 - 36.4Trade receivables 49.7 (1.4) 48.3Trade payables (46.2) - (46.2)Other creditors - (3.0) (3.0)Provisions (16.1) - (16.1)Retirement benefit (54.2) - (54.2)obligationCurrent tax (2.7) - (2.7)Bank and cash balances 1.9 - 1.9Loan notes (0.8) - (0.8)Overdraft (5.4) - (5.4)Finance leases (1.5) - (1.5) ______ ______ ______ ______ 10.0 4.4 14.4 ______ ______ ======DynacastProperty, plant and 39.7 0.5 40.2equipmentIntangible assets 0.2 - 0.2Inventories 12.4 - 12.4Trade receivables 39.7 (2.8) 36.9Trade payables (37.7) - (37.7)Other creditors - (1.6) (1.6)Provisions - (0.6) (0.6)Retirement benefit (7.9) - (7.9)obligationMinority interest (0.9) - (0.9)Current tax (7.0) - (7.0)Deferred tax (2.6) - (2.6)Bank and cash balances 7.7 - 7.7Overdraft (4.0) - (4.0)Finance leases (0.1) - (0.1) ______ ______ ______ ______ 39.5 (4.5) 35.0 ______ ______ 49.4Goodwill 394.2 ______Total consideration (including acquisition costs of 443.6£14.6m) ======Satisfied by:Shares issued 244.0Cash consideration 199.6 ______ 443.6 ======Net cash outflow in theperiod:Cash/overdrafts acquired 0.2Acquisition expenses (4.9)paidProceeds of share issue (244.0)appliedCash consideration paid (184.5) ______ (433.2) ======Approximately £10 million of acquisition costs remain to be paid. The fair value adjustments to property, plant and equipment relate to propertyvaluations at the date of acquisition. The fair value adjustment to tradereceivables to the write off of bank fees not amortised on repayment of debt onacquisition. The fair value adjustment to provisions relates to an onerouslease. The fair value adjustments are provisional as at the balance sheet date.Due to the proximity of the acquisition to the reporting date it has not beenpossible to complete the allocation of goodwill between separable intangibleassets such as customer relationships, proprietary technology and brands. Theprovisional allocation to such intangibles is £nil, however, this will bereviewed and the results of the review reported in the accounts to 31 December2005. In the opinion of the directors, the amortization of any value to beascribed to such intangibles would be immaterial in relation to the profit forthe period. 7. Issued capital and reserves Share Capital 30 June 30 June 31 December 2005 2004 2004 £m £m £mAuthorised342,830,000 0.1p ordinary shares (2004 0.3 - -: 17,000,000)59,170 £1 convertible B shares 0.1 0.1 0.1(incentive shares) _____ ____ _____ 0.4 0.1 0.1 ===== ==== =====Allotted, called up and fully paid257,119,989 ordinary shares of 0.1p 0.2 - -59,170 convertible B shares of £1 0.1 0.1 0.1each _____ ____ _____ 0.3 0.1 0.1 ===== ==== =====243,999,989 shares were issued on 26 May 2005 in connection with the acquisitionof McKechnie and Dynacast (see note 6). The shares were issued at a premium of99.9p. The convertible B shares are non-voting and not entitled to any dividends. Underthese arrangements the directors and employees hold Convertible B shares("incentive shares") which convert shortly after 31 May 2009 or, if earlier, ona takeover of the company, into ordinary shares with an aggregate value onconversion equal to 10 per cent of the increase in shareholder value. The numberof ordinary shares arising on conversion will be determined by reference to theaverage market price of an ordinary share for forty business days prior toconversion or the takeover offer price (as the case may be). The increase in shareholder value is calculated as the difference between themarket capitalisation of the company at conversion (determined by reference tothe average market price of an ordinary share for forty business days prior toconversion, or the offer price (as the case may be)), and the net investedcapital in the company, being the aggregate of the amounts paid on the ordinaryshares up to conversion less all amounts paid by the company by way of dividendsor other distributions in respect of those shares, where each such amounts shallbe adjusted in line with the movement in the RPI (plus 2 per cent, per annum). Share Premium Share premium account £m At 31 December 2004 12.8Premium arising on issue of 243.8equity shares _______At 30 June 2005 256.6 ======= Reserves Foreign Accumulated Total currency losses translation reserve £m £m £m At 31 December 2004 - (4.4) (4.4)Currency translation adjustments 1.4 - 1.4Profit for the period - 3.0 3.0Actuarial adjustments on pension - (2.7) (2.7)liabilities _____ _____ _____Total recognised income and expense 1.4 0.3 1.7for the period ===== ===== =====At 30 June 2005 1.4 (4.1) (2.7) ===== ===== ===== The foreign currency translation reserve is used to record exchange differencesarising from the translation of the financial statements of foreignsubsidiaries. It is also used to record the net investments hedged in thesesubsidiaries. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Melrose