27th Sep 2007 07:01
Lupus Capital PLC27 September 2007 LUPUS CAPITAL plc INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2007 Chairman's Statement Dear Shareholder, The six months up to 30 June 2007, upon which we are now reporting, has been anexciting and successful period for your company. Not only have our businessestraded well but we have also substantially increased the size of the group withour £242.5m acquisition of the Laird Security Systems division from The LairdGroup plc. This was announced on 19 March and completed on 27 April 2007. Wehave thus continued to achieve our strategy and objectives and of course our aimof rewarding shareholders. Pre-tax profits before amortisation for the first half of the year, whichincludes a two and six months contribution from Laird Security Systems (LSS) andSchlegel respectively, were £10.064 million which compares to £3.880 million forthe same period last year. Sales were £79.028 million up from £23.684 million. Adjusted earnings per share of 0.724p were up 27.1% a significant increasefrom 0.570p in the six months to June 2006. The directors have declared a second interim dividend of 0.056p per share.Together with the first interim of 0.150p paid in April 2007 this brings thetotal interim dividends up to 0.206p per share (2006: 0.163p per share) which isan advance of over 26%. The second interim will be paid on 8 November 2007 toshareholders on the register at the close of business on 5 October 2007. In the event that you prefer to receive shares instead of a cash dividend, anotice from our Registrars, Capita, will be available which will allow you to dothis. Please either complete the form or, for further details, call Capitadirect on 0870 162 3181 or email [email protected]. Below is given a short overview of the performance of each of Lupus Capital'sbusinesses. • Gall Thomson, our manufacturer of breakaway couplings, enjoyed buoyant markets in the first six months of 2007 and delivered record performance both in sales, profits and cash generation. • Schlegel, a leader in the global manufacture and marketing of door and window seals, produced good results leading on from the operational initiatives that were taken following its acquisition in April 2006. Schlegel U.S. has now been combined with the US door and window seals divisionof Laird Group under a single management team in order to increase theirprospects and profitability. Many synergies are following which include, afully comprehensive product range for their customers, greater purchasing powerfor raw material sourcing, operational cost savings, the closure of onemanufacturing facility and improved product development. Schlegel (non U.S.) continues to thrive with good growth coming from theEuropean markets of Germany, Spain, U.K. and Eastern areas. The management ofLinear, the Laird U.K. seals company, has now been taken on by our Schlegelteam. This is producing many cost saving opportunities resulting from optimisingproduction allocation between countries and also improving customer service. • Laird Security Systems is a manufacturer of products such as locks, balances, handles and hinges for the U.S. and U.K. door and window industry. Sales are approximately 60% to the refurbishment/remodelling (RMI) market and the remainder to new build. RMI has been steady throughout the world in contrast to the U.S. new build market, which is subject to lower housing starts and completions. Cost reductions, improved marketing and careful control of working capital have been necessary in order to retain an acceptable level of profitability in the US. In the U.K, where the market is stronger, there are also many opportunities for similar actions. The US new housing market to which our US Laird companies and our US sealsbusinesses are exposed account for only 40% to 50% of our total US sales. Itis clearly an area which is of concern to us; however, with the synergiesbetween our combined US seals activities and the reductions to our cost bases,we still anticipate a satisfactory result from this limited proportion of ouroverall business spectrum. On 27 July we sold, as planned, the Laird Lifestyle Products (LLP) assets whichwas a minor business within the Laird acquisition. LLP was a loss makingmanufacturer of primarily PVCu conservatories and their component parts to theretail mass market. For the short period within Lupus it continued to losemoney and we were very pleased to exit this industry albeit only for a notionalsale price. Input prices for raw materials are still high, although more stable than a yearago. The dollar/pound exchange rate at around 2 is not favourable whenconverting US profits. At the corporate level, however, the currency exposurehas been mitigated by designating a substantial portion of the debt taken on forthe LSS acquisition in U.S dollars. We continue to examine ways to optimise ourworldwide tax position and expect some success in achieving this. Overall, we feel optimistic about the progress and prospects for the group bothin the second half and the year as a whole and we look forward to another periodof strong performance and the further development of Lupus Capital plc. Greg HutchingsChairman27 September 2007 Consolidated profit and loss account Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 (restated) (restated) (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000Continuing operations Revenue 4 79,028 23,684 62,940 Operating profit before amortisationof intangible assets 4 12,357 4,389 11,567 Amortisation of acquired intangibleassets (2,502) (710) (2,129) Operating profit 9,855 3,679 9,438 Net interest expense (2,293) (509) (1,533) Profit before taxation fromcontinuing operations 7,562 3,170 7,905 Taxation (2,671) (1,263) (2,973) Profit attributable to shareholders 4,891 1,907 4,932 Earnings per share - Basic and diluted 6 0.533 0.452 0.949 - Adjusted* 6 0.724 0.570 1.235 Underlying results *Profit before tax 4 10,064 3,880 10,034 * before amortisation of acquired intangible assets, exceptional items anddeferred tax on acquired intangible assets. Statement of recognised income and expense Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 (restated) (restated) (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000 Profit attributable to shareholders 4,891 1,907 4,932 Actuarial gains on retirement benefitobligations - - 622Exchange differences on translationof foreign assets and liabilities 679 (334) (1,653)Tax - - (217) Net income recognised directly inequity 679 (334) (1,248) Total recognised income and expensein the period 5,570 1,573 3,684 Consolidated Balance Sheet At 30 June 2007 At 30 June 2006 At 31 December 2006 (restated) (restated) (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000Non-current assetsIntangible assets 316,549 83,586 80,774Tangible assets 35,590 14,261 13,030Deferred tax 8,060 - 6,078Derivative financial instruments 1,118 - -Other assets 1,178 - - 362,495 97,847 99,882 Current assetsInventories 33,410 8,521 7,396Trade and other receivables 49,717 18,477 15,210Cash and cash equivalents 30,815 4,288 9,738 113,942 31,286 32,344 Total assets 476,437 129,133 132,226 Current liabilitiesBorrowings 8 (11,024) (5,000) (4,938)Trade and other payables (59,559) (13,453) (14,967)Income tax payable (6,444) (1,731) (1,453)Finance lease obligations 8 (106) (159) (156) (77,133) (20,343) (21,514)Non-current liabilitiesBorrowings 8 (138,687) (30,000) (27,296)Deferred tax (30,967) (19) (7,828)Finance lease obligations 8 (204) (420) (334)Retirement benefit obligations (3,320) (6,443) (3,290)Provisions (21,615) (3,680) (1,868)Other non-current liabilities (110) (116) (115) (194,903) (40,678) (40,731) Total liabilities (272,036) (61,021) (62,245) Net assets 204,401 68,112 69,981 Capital and reservesEquity share capital 10 6,861 3,081 3,083Share premium 10 45 - 45Merger reserve 10 10,389 10,389 10,389Hedging reserve 10 1,118 - -Retained earnings 9 185,988 54,642 56,464 Total shareholders' equity 204,401 68,112 69,981 Consolidated cash flow statement Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 (restated) (restated) (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000 Cash flows from operating activitiesOperating profit 9,855 3,679 9,438Depreciation 1,831 566 1,646Amortisation 2,502 710 2,129Movement in inventories 2,363 1,339 1,698Movement in trade and other receivables (2,778) (1,462) 1,394Movement in trade and other payables 5,655 303 619Tax payments (1,993) (709) (2,050) Net cash flows from operating activities 17,435 4,426 14,874 Cash flow from investing activitiesInterest received 479 179 501Acquisition of businesses (net ofcash acquired) (238,231) (47,223) (47,408)Property plant and equipment (1,159) (400) (964)Inflow from sale of business - - -Proceeds from sales of property,plant and equipment 7 - - Net cash flows from investingactivities (238,904) (47,444) (47,871) Cash flows from financing activitiesInterest paid (2,773) (688) (2,034)Net proceeds from issue of ordinary shares 131,270 51,593 51,653Proceeds from borrowings 119,667 35,000 34,734Repayment of borrowings (2,500) (40,281) (42,781)Dividends paid to shareholders (2,983) (932) (1,234)Repayment of capital element of finance leases (78) (40) (112) Net cash flows from financingactivities 242,603 44,652 40,226 Increase in cash and cash equivalentsfor the period 21,134 1,634 7,229 Cash and cash equivalents brought forward 9,738 2,654 2,654Effect of exchange rate on cash andcash equivalents (57) - (145)Cash and cash equivalents carriedforward 30,815 4,288 9,738 Notes to the Interim Report 1. Status of the interim financial statements The Group's interim financial statements for the six months ended 30 June 2007were authorised for issue by the directors on 26 September 2007. Theconsolidated interim financial information, which is unaudited, does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The statutory accounts for the year ended 31 December 2006 have beenreported on by the Group's auditors, received an unqualified audit report andhave been filed with the registrar of companies at Companies House. 2. Accounting policies The interim financial information has been prepared on the basis of therecognition and measurement requirements of International Financial ReportingStandards (IFRS), which are the accounting policies to be used in the Report andAccounts for the Group for the year ended 31 December 2007, as required for theconsolidated accounts listed on the Alternative Investment Market ("AIM").Previously, the consolidated financial statements were prepared in accordancewith United Kingdom Generally Accepted Accounting Principles ("UK GAAP") up toand including 31 December 2006. IFRS differs in some respects from UK GAAP. Inaccordance with the rules of IFRS the comparative information is also preparedunder IFRS and has been restated where necessary. The accounting policies areunchanged from those used in the last annual accounts except where otherwisestated. 3. Transition to IFRS The table below summarises the differences between UK GAAP, as presented in theaudited annual accounts for the year ended 31 December 2006, and IFRS. £000Year ended 31 December 2006 Profit for the year from continuing operations As reported under UK GAAP 6,408Amortisation of intangible assets arising from the acquisition of Schlegel (2,108)Deferred tax impact of intangible assets 632 As reported under IFRS 4,932 Net assets As reported under UK GAAP 69,976Amortisation of goodwill under UK GAAP added back 1,481Amortisation of intangible assets arising from the acquisition of Schlegel (2,108)Recognition of accrual for holiday pay (27)Deferred tax impact of amortisation of intangible assets 632Deferred tax impact of accrual for holiday pay 11Other differences 16 As reported under IFRS 69,981 £000Six months ended 30 June 2006 Profit for the period from continuing operations As reported under UK GAAP 2,404Amortisation of intangible assets arising from the acquisition of Schlegel (710)Deferred tax impact of intangible assets 213 As reported under IFRS 1,907 In addition to the above there are a number of reclassifications between UK GAAPand IFRS which do not impact the net assets as reported, the most significant ofwhich are: Intangible assets Under IFRS certain intangible assets that exist as a result of a businesscombination are recognised separately from goodwill if they are separable andmeasurable. As such with respect to the Schlegel acquisition £8.4m in respect ofbrands and £19.8m in respect of customer relationships have been recognisedseparately from goodwill and £2.108m has been charged in respect of theamortisation of these assets for the period from date of acquisition to 31December 2006 and £710,000 in the six months to 30 June 2006. Under UK GAAPthere is no requirement to separate intangible assets and hence all such amountstherefore form part of goodwill and are not then amortised. Deferred tax Under IFRS deferred tax is provided for the difference between the book value ofthe intangible arising as a result of the acquisition of Schlegel and the taxbase of those assets with the corresponding entry being made to goodwill. Thedeferred tax provided on acquisition was £8.46m and £632,000 has been releasedto the income statement as result of the amortisation charged in the period fromdate of acquisition to 31 December 2006. A further £213,000 was released in thesix months to 30 June 2007. Computer software A reallocation of £93,000 of computer software costs from tangible assets underUK GAAP to intangible assets under IFRS has been made. 4. Segmental analysis Primary reporting format - business segments Continuing Oil services Building products Totaloperations 6 months 6 months 12 months 6 months 6 months 12 months 6 months 6 months 12 months to 30 to 30 June to 31 Dec to 30 to 30 June to 31 Dec to 30 to 30 June to 31 Dec June 2007 2006 2006 June 2007 2006 2006 June 2007 2006 2006 (restated) (restated) (restated) (restated) (restated) (restated) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 RevenueSales 6,182 3,938 9,314 72,846 19,746 53,626 79,028 23,684 62,940 Operating profit(beforeamortisation ofintangible assets) 2,065 1,321 3,445 10,292 3,068 8,122 12,357 4,389 11,567 Net finance costs (2,293) (509) (1,533) Profit before tax(beforeamortisation ofintangible assets) 10,064 3,880 10,034 5. Revenue and operating profit The Group's income and profit for the period included approximately two months'results of the LSSD business acquired on 26 April 2007. The analysis of theoperating result is as follows: LSSD Pre-existing Total Lupus Group (2 months) (6 months) £'000 £'000 £'000 Revenue 37,973 41,055 79,028 Cost of sales (26,537) (21,828) (48,365) Gross profit 11,436 19,227 30,663 Administrative expenditure (6,721) (11,585) (18,306) Operating profit 4,715 7,642 12,357 6. Earnings per share Basic earnings per share amounts are calculated by dividing the net profit forthe year attributable to ordinary equity shareholders by the weighted average ofordinary shares outstanding during the period plus the weighted average numberof ordinary shares that would be issued on the conversion of all the dilutivepotential ordinary shares into ordinary shares. There were no potentiallydilutive shares. At 30 June 2007 At 30 June At 31 December 2006 2006 (restated) (restated)Basic and diluted earnings per share 0.533p 0.452p 0.949p '000 '000 '000Basic and diluted number of shares 917,112 421,753 519,845 Earnings per share from continuing operations before exceptional items andintangible asset amortisation The Group presents as exceptional items on the face of the income statementthose material items of income and expense, which because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the period, so as to facilitate comparison with priorperiods and to assess better trends in financial performance. Adjusted basic EPS is used by management as the measure of the Group's earningsand is calculated excluding the effect of exceptional costs and acquiredintangible assets net of tax. At 30 June 2007 At 30 June At 31 December 2006 2006 (restated) (restated) £'000 £'000 £'000 Profit for the period from continuing operations 4,891 1,907 4,932Exceptional itemsAmortisation of acquired intangible assets 2,502 710 2,129Tax effect of exceptional costs and amortisationof acquired intangible assets (751) (213) (639) Adjusted profit for the period from continuingoperations attributable to equity holders 6,642 2,404 6,422 Adjusted basic earnings per share 0.724p 0.570p 1.235p 7. Dividends At 30 June 2007 At 30 June At 31 December 2006 2006 (restated) (restated) £'000 £'000 £'000 Dividends reflected in the financial statements:Final dividend for 2006 at 0.334p per share 2,059 - -Special interim dividend for 2007 at 0.150p pershare 925 - -Interim dividend for 2006 at 0.049p per share - - 302Final dividend for 2005 at 0.278p per share - 661 661Special interim dividend for 2006 at 0.114p pershare - 271 271 2,984 932 1,234Dividends not reflected in the financialstatements:Proposed second interim dividend for 2007 at0.056p per share 768 - -Proposed second interim dividend for 2006 at0.163p per share - 302 -Proposed final dividend for 2006 at 0.334p pershare - - 2,059 768 302 2,059 8. Borrowings At 30 June 2007 At 30 June At 31 December 2006 2006 (restated) (restated) £'000 £'000 £'000Non-currentBank borrowings 138,687 30,000 27,296Obligations under finance leases and hirepurchase contracts 204 420 334 138,891 30,420 27,630CurrentBank borrowings 11,024 5,000 4,938Obligations under finance leases and hirepurchase contracts 106 159 156 11,130 5,159 5,094 The Group took out a 5 year loan of $240,000,000 from Bank of Scotland, RoyalBank of Scotland and HSBC during the period in connection with the acquisitionof Laird Security Systems Division. Bank loans and other borrowings are secured on the assets of AmesburyAcquisition Holdings No 2, Inc., Jasper Acquisition Holdings Limited andSchlegel Acquisition Holdings Limited. The principal companies within the Grouphave also provided cross guarantees to the Group's bankers in support of allbank loans and borrowings. 9. Acquisition of Laird Security Systems Division The acquisition of the business of Laird Security Systems Division (LSSD) wascompleted on 26 April 2007. The acquisition was funded by the raising of £136million by way of a placing and open offer of 755,555,556 new ordinary shares inLupus Capital plc at an issue price of 18p per share and by way of a new debtfacility comprising a term loan of $240,000,000. In order to account for the acquisition two new subsidiary companies, AmesburyAcquisition Holdings No 2, Inc (AAH) and Jasper Acquisition Holdings Limited(JAH) were formed. 75% of the acquisition cost was attributed to the UnitedStates operation and was acquired by AAH and 25% attributed to the UK andEuropean operation and was acquired by JAH. The acquisition of LSSD had the following effect on the Group's assets andliabilities: Fair value Provisional adjustments fair values Book value £'000 £'000 £'000Intangible assets 69,360 - 69,360Property, plant and equipment 25,311 (1,671) 23,640Other assets 1,130 - 1,130Inventories 35,217 (6,841) 28,376Trade receivables and other debtors 31,946 (447) 31,499Deferred tax asset 23 - 23Cash at bank 132 - 132Current liabilities (28,661) (2,020) (30,681)Non current liabilities (159) - (159)Provisions (10,765) (7,981) (18,746)Deferred tax liabilities (23,571) - (23,571) 99,963 (18,960) 81,003 Net cash paid 231,040Deferred consideration 12,500Accrued consideration 729Acquisition costs 7,191Cash consideration 251,460 Goodwill on acquisition 170,457 Fair values have been assessed on a provisional basis pending finalisation ofthe rationalisation of group accounting procedures, which cover a number ofdifferent reporting regimes throughout the world. Deferred tax has been providedon all fair value adjustments as applicable and on purchased goodwill where atax benefit will be obtained against future taxable benefits. The valuation of intangible assets has been estimated at this stage. A firm ofexternal professional valuers will be undertaking a comprehensive valuationshortly. 10. Reconciliation of movements in equity Share Share Merger Hedging Currency Retained Total capital premium reserve reserve translation earnings (restated) (restated) £'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 January 2006As previously stated 1,188 - 10,389 - - 2,820 14,397IFRS adjustment - - - - 1,481 1,481Opening balance - as 1,188 - 10,389 - - 4,301 15,878restated Total recognised income andexpense for the period - - - - (334) 1,907 1,573Issue of shares net of 1,893 - - - - 49,700 51,593costsDividends paid - - - - - (932) (932) At 30 June 2006 3,081 - 10,389 - (334) 54,976 68,112 Issue of shares net of 2 45 - - - 13 60costsTotal recognised income andexpense for the period - - - - (1,319) 3,025 1,706Actuarial gains on definedbenefit plans (net of tax) - - - - - 405 405Dividends paid - - - - - (302) (302) At 31 December 2006 3,083 45 10,389 - (1,653) 58,117 69,981Issue of shares net of 3,778 - - - 126,938 130,716costsDerivative financial - - - 1,118 - - 1,118instrumentsTotal recognised income andexpense for the period - - - - 679 4,891 5,570Dividends paid - - - - - (2,984) (2,984) At 30 June 2007 6,861 45 10,389 1,118 (974) 186,962 204,401 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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