4th Nov 2009 07:00
4 November 2009
Umeco plc ("Umeco") Interim results for the six months to 30 September 2009
Umeco, the advanced composite materials and supply chain services company, announces its interim results for the six months to 30 September 2009.
Financial summary Underlying 2009 2008 Change change GBP millionGBP million per cent per cent Revenue 199.6 197.2 + 1.2 - 7.7 Adjusted operating profit 13.2 15.7 - 15.9 - 22.5 Adjusted profit before tax 9.4 13.0 - 27.7 n/a 2009 2008 Change Pence Pence per cent Adjusted earnings per share 13.2 18.1 -27.1 Interim dividend 6.5 6.5 - 30 Sept 31 March 2009 2009 GBP millionGBP million Net debt 90.6 120.2 Highlights * Difficult market conditions continued * Materially reduced contribution from Composites * Robust performance from Supply Chain with operating profit up over 50 per cent * Successful cost reduction programme implemented; 3.0 million estimated annual savings * Working capital to sales ratio reduced to 23.0 per cent compared to 27.6 per cent for the year to 31 March 2009
Chairman
* Neil Johnson appointed Chairman on 19 October following the retirement of
Brian McGowan in August.
Clive Snowdon, Chief Executive of Umeco plc, said:
"As indicated in our July 2009 Interim Management Statement, the key markets we serve have been significantly affected by the economic downturn resulting in lower demand for our products and services compared to the first half of last year, which saw very buoyant demand.
We have continued to take action to lower costs, succeeded in significantly reducing net debt and improved our working capital position. Our long term financing was secured in June 2009.
The civil aircraft backlog for Supply Chain remains high and Composites is likely to benefit from delayed motor sport orders and a recovery in the wind market in the second half of the year.
Although there continue to be challenges for the Group and the timing of recovery in our long term growth markets remains uncertain, our expectations for the current financial year have not changed since the time of making our Interim Management Statement and we remain confident that our long term prospects are robust. Our focus in the short to medium term is to be vigilant to changing conditions and to navigate the Group successfully through these difficult times."
- Ends -
For further information, please contact:-
Umeco plc Tel: +44 (0) 1926 331 800 Clive Snowdon, Chief Executive Doug Robertson, Finance Director www.umeco.com Tulchan Communications Tel: +44 (0) 207 353 4200 Lucy LeghMatthieu Roussellier
Further Information on Umeco plc
Umeco is a leading innovator in distribution and supply chain management to the aerospace & defence industries, harnessing new methods for enhancing its customers' performance and profitability. Umeco also has significant manufacturing interests in advanced composite materials for a growing range of applications in its core aerospace & defence markets and in other high performance technology industries such as motor sport, automotive and wind energy.
Listed on the London Stock Exchange, Umeco had revenue from continuing operations of 415.3 million in the year to 31 March 2009.
Umeco is managed through two business streams:-
Umeco Composites - comprises a Structural Materials business and a Process Materials business. With seven operating units located throughout the UK, Europe and the US, it provides a range of services, products, design expertise and tooling solutions principally to the aerospace market and other users of advanced composite materials.
Customers include Boeing, Airbus, BAE Systems, manufacturers of wind turbine blades, a number of manufacturers of high performance super cars and Formula 1 teams.
Umeco Supply Chain - a leading international provider of value-added distribution and supply chain outsourcing services to customers in the aerospace & defence market. With its specialisation in the supply of small and medium value components and sophisticated IT systems, its growing global customer base can enjoy significant operational, cost and working capital benefits.
Customers include Rolls-Royce plc, BAE Systems, Safran Group, Parker Aerospace, Goodrich, Thales Aerospace, Turbomeca, ATK, Lockheed Martin and the US Department of Defense.
Note on underlying and adjusted measures
Underlying measures of the change in revenue and operating profit are calculated at constant exchange rates and adjusting for the effects of acquisitions.
Adjusted figures are used by Umeco as key performance indicators. Adjusted figures are stated before profits arising on the divestment of discontinued operations, amortisation and impairment charges relating to intangible assets, significant items, the revaluation of financial instruments based on their market values and associated tax effects. The differences between the adjusted and unadjusted measures of operating profit, profit before tax and profit attributable to equity holders of the parent are reconciled in note 5 to this announcement. The narrative in this announcement is based on the adjusted measures of operating profit, profit before tax and earnings per share. These provide a more consistent measure of operating performance.
Chief Executive's Review
Results and dividend
In our Annual Report for the year to 31 March 2009 we highlighted that the global economic downturn would lead to lower demand for our products and services. This has been the trend we encountered in the first half of the current year; while in the same period in the prior year we achieved significant growth in both revenue and operating profits.
Revenue in the six months to 30 September 2009 increased by 1.2 per cent to 199.6 million (2008: 197.2 million). At constant exchange rates and adjusting for the effect of the acquisition of IPM in December 2008, the decrease in revenue (the `underlying' decrease) was 7.7 per cent.
Operating profit from continuing operations fell by 15.9 per cent to 13.2 million (2008: 15.7 million) with margins falling to 6.6 per cent (2008: 8.0 per cent). The underlying fall in operating profit was 22.5 per cent.
Operating profit fell by a greater degree than revenue as our higher margin Composites activities suffered the most from falling demand, notably in the regional and business jet, wind energy and motor sport sectors. In contrast, Supply Chain performed well in difficult market conditions, reflecting a full contribution from contracts won in prior periods and improved performance at our French and North American operations. Cost reduction programmes, which are expected to generate annual savings of approximately 3.0 million, have been successfully implemented across all of our operations.
Net interest charges, excluding revaluations of financial instruments, were 3.8 million (2008: 2.7 million). Profit before tax from continuing activities was 9.4 million (2008: 13.0 million), a decrease of 27.7 per cent.
Earnings per share were 13.2 pence (2008: 18.1 pence), a decrease of 27.1 per cent.
The Directors have declared an interim dividend of 6.5 pence (2008: 6.5 pence). The dividend is payable on 12 February 2010 to shareholders registered on 15 January 2010.
During the first half year, the Group was highly cash generative leading to a significant reduction in net debt to 90.6 million at 30 September 2009 compared to 120.2 million at 31 March 2009.
Operations
Results for each of the Group's business segments are summarised below.
Umeco Composites
Umeco Composites provides a broad range of advanced composite materialsprincipally to the aerospace, motor sport & automotive, marine and wind energymarkets. 2009 2008 GBP million GBP million Revenue 83.2 92.8 Operating profit 6.8 11.5 per cent per cent Operating margin 8.2 12.4
Revenue decreased in the period by 10.3 per cent with an underlying decrease of 23.5 per cent. Operating profit fell by 40.9 per cent with an underlying decrease of 48.3 per cent.
Order intake across the division fell significantly in a number of key markets during the first quarter and although steps were taken to reduce the cost base, the resulting decline in revenue had a disproportionate impact on operating profit. Our weakest market segments were regional and business jets, wind energy and motor sport. While we do not expect the business jet market to recover for some time we are seeing a recovery in orders from the fast growing Chinese wind energy market and also in motor sport, where the well documented issues in the F1 world delayed the placement of orders until much later in the year than usual. A sustained improvement in these two key markets would bode well for our second half performance, which will also be enhanced by our cost reduction programmes.
The other disappointment in the first half year was the further delay announced by Boeing in June on the B787 programme. Our original forecast for the year included an initial revenue contribution from this very important new aircraft. Because of the delay we have now eliminated the contribution in the current financial year, albeit not material, but do now expect, based on Boeing's recent announcements, that we will enjoy a growing revenue stream from next year onwards. New materials qualified with Boeing have however gained share on existing aircraft programmes.
It is pleasing to report that the new management team we recruited at IPM, which was acquired in December 2008, is achieving significant improvements in operating performance. Selective investments in process control equipment have yielded, and will continue to yield, sustained improvement in product quality and lower levels of wastage. The business is planning to adopt a seven day week working pattern, reflecting the improved conditions in the wind energy market and customers switching to IPM materials.
Despite the difficult market conditions, we have been successful in securing a number of long term contracts with existing and new customers across all of our key market segments. In addition, ACG has increased its market penetration through the growing usage of its out-of-autoclave composite material. This highly innovative material results in our customers enjoying much lower final product costs while still benefiting from the lightness and strength of our material.
During the first half year, as markets weakened, we deferred a number of capital investment programmes which would support the long term growth of our Composites operations. These will be re-introduced as soon as we see tangible signs of recovery. We have also agreed revised terms for the lease of JD Lincoln's new facility, close to its existing operations in Costa Mesa, California. We continue to review the timing of the relocation in the context of market conditions, but will incur approximately 0.6 million of capital expenditure during the second half year in respect of initial fit-out costs.
Cost reduction programmes have been implemented across all business units. In the first half year, these programmes resulted in headcount reducing by 8 per cent and overheads reducing by 9 per cent. The full benefit of these programmes will accrue in the second half year. We have, however, maintained expenditure on marketing and research & development programmes in order that our ability to benefit from the future recovery in our markets is not compromised.
Umeco Supply Chain
Umeco Supply Chain is a leading international provider of distribution and supply chain outsourcing services primarily to OEM customers in the aerospace & defence markets. The business trades as Pattonair.
2009 2008 GBP million GBP million Revenue 116.4 104.4 Operating profit 6.4 4.2 per cent per cent Operating margin 5.5 4.0
Revenue increased in the period by 11.5 per cent with an underlying increase of 7.3 per cent. Operating profits increased by 52.4 per cent with an underlying increase of 50.8 per cent.
This significant improvement in operating performance reflects a full contribution from contracts won in prior periods and a return to sustained profitability in our French and North American operations. Supply Chain has nevertheless experienced falling revenue in certain of its markets as a result of some considerable destocking by both our customers and their ultimate airline customers. We expect this trend to continue until the world's airlines achieve a sustained improvement in their operating performance. As in our Composites operations, we have reduced our cost base while ensuring we continue to deliver the highest level of customer service.
Supply Chain also suffered from the delay in the B787 programme where a number of its top customers, including Rolls-Royce, had to suspend production. As in Composites, we do not expect any contribution from this programme in the current financial year. Assuming production starts in 2010 we anticipate a boost to revenues and profit going forward.
Our Derby operation continues to benefit from its long term contract with Rolls-Royce and further opportunities for growth have been identified. In North America, the new contract with ATK continues to develop and has the potential to become a very major programme for Pattonair.
Considerable attention is being paid to improving further our operating performance both in terms of cost base and working capital management. Supply Chain generated a good cash flow in the first half year whereas in earlier years it tended to experience significant cash outflows in this period.
Finance
Net interest charges, excluding revaluations of financial instruments, were 3.8 million (2008: 2.7 million). The increase principally reflects the acquisition of IPM in December 2008. Interest cover was 4.62 times compared to 5.63 times in the year to 31 March 2009.
Profit before tax was 9.4 million, a decrease of 27.7 per cent. The tax charge on profit before tax was 32.5 per cent compared with 32.9 per cent in the year to 31 March 2009.
Net debt at 30 September 2009 was 90.6 million compared with 120.2 million at 31 March 2009, a reduction of 29.6 million. Exchange rate movements, principally the weakening of the US dollar, caused net debt to fall by 9.3 million. Working capital, provisions and retirement benefit obligations reduced in the period by 13.6 million. This reflects lower revenue growth in the period and the steps taken to improve our working capital to sales ratio. Gross capital expenditure was 1.5 million (2008: 2.9 million) with no new major projects arising in the period; this compares to the depreciation charge in the period of 3.0 million. Future capital projects are being carefully scrutinised in view of the current economic situation but are expected to be higher in the second half year primarily due to the fit-out of the new facility for JD Lincoln.
The Group's committed banking facilities comprise credit facilities of US$239.0 million and a 10.0 million overdraft, giving aggregate facilities of 159.4 million. This compares favourably with net debt at 30 September 2009 of 90.6 million. Gearing was 51.9 per cent, compared with 67.3 per cent at 31 March 2009.
Covenants in place with the Group's principal lending bank are tested semi-annually on 31 March and 30 September. The covenants require interest cover to be not less than four times profit before interest and tax (as defined in the facility agreement) and require the ratio of net debt to EBITDA to be not more than 3.50 times at 30 September 2009, 3.25 times at 31 March 2010 and 3.00 times thereafter. Covenant calculations use trailing 12 month values of interest and earnings. The calculation of the net debt to EBITDA covenant involves the translation of both net debt and EBITDA at the average exchange rates for the period.
The results of the covenant calculations at 30 September 2009 were:
Actual Covenant Interest cover 4.62 times 4.00 times Net debt to EBITDA 2.47 times 3.50 times
The reduction in the net debt to EBITDA ratio will result in a lower interest margin being paid in the second half year.
Equity attributable to shareholders at 30 September 2009 was 174.6 million.
Chairman
Neil Johnson was appointed Chairman on 19 October 2009 following the retirement of Brian McGowan in August 2009. Neil Johnson currently holds a number of senior Board and advisory positions with public and private companies. He is Chairman of Motability Operations Group Plc (a financial business owned by the UK clearing banks), Hornby Group Plc and Cybit Holdings Plc. He is also a member of a Ministry of Defence Advisory Board and an Independent Member of the Metropolitan Police Authority.
Prospects
The global economic downturn has resulted in falling air travel in 2009, though the decline now appears to have slowed considerably. This has led to carriers reducing their capacity, lowering their maintenance spend, destocking and deferring deliveries of new aircraft. However, at 30 September 2009, Airbus and Boeing had a backlog of 6,915 orders which compares well with 7,293 aircraft at 31 March 2009. They are expected to deliver 960 aircraft in 2009, although a lower level is forecast for both 2010 and 2011. Boeing is now forecasting that deliveries of the B787 will commence in quarter four 2010 and Airbus continues to commit considerable funds to the development of the A350, which is expected to enter service in 2013.
These factors, coupled with the delay in the B787, have resulted in lower demand for our products and services from existing customers. We expect this situation to continue for the medium term and have therefore reduced our cost base to mitigate the effects of the lower revenue and continued to focus on debt reduction. We have though been successful in winning market share and securing new customers and believe we will continue to do so as a result of our highly innovative products and excellent customer service record.
The strategically important acquisition of IPM has strengthened our already strong position in the global wind energy market, which we expect to return to high growth as finance becomes available to fund wind farm projects. Additional capacity is being actively considered though the resulting capital expenditure will fall in the next financial year.
Although there continue to be challenges for the Group and the timing of recovery in our long term growth markets remains uncertain, our expectations for the current financial year have not changed since the time of making our Interim Management Statement in July 2009 and we remain confident that our long term prospects are robust. We secured our long term financing in June 2009 and have successfully reduced our net debt. Our focus in the short to medium term is to be vigilant to changing conditions and to navigate the Group successfully through these difficult times.
Clive SnowdonChief Executive4 November 2009Unaudited Condensed Consolidated Income Statement__________________________________________________________________________________
For the six months to 30 September 2009
Six months to Year to 30 September 31 March 2009 2008 2009 Note GBPm GBPm GBPm Revenue 3 199.6 197.2 415.3 Cost of sales (154.0) (149.5) (306.4)
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Gross profit 45.6 47.7 108.9 Administrative expenses (36.2) (33.8) (80.1)
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Operating profit 3 9.4 13.9 28.8 Financial income 4 0.9 1.0 1.4 Financial expense 4 (4.2) (3.3) (7.4)
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Profit before tax 6.1 11.6 22.8 Income tax - UK (1.0) (1.8) (4.2) Income tax - overseas (1.0) (2.0) (4.0)
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Profit for the period 4.1 7.8 14.6
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Earnings per share Pence Pence Pence Total Basic earnings per share 8 8.5 16.2 30.4 Diluted earnings per share 8 8.5 16.2 30.4
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Unaudited Condensed Consolidated Statement of Comprehensive Income _______________________________________________________________________________
For the six months to 30 September 2009
Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Profit for the period 4.1 7.8 14.6
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Foreign exchange translation differences on foreign operations (3.0) (3.8) 12.1 Actuarial loss in pension schemes - - (3.4) Income tax in respect of the above - - 1.1
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Other comprehensive income for the (3.0) (3.8) 9.8period
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Total comprehensive income for the 1.1 4.0 24.4period
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Unaudited Condensed Consolidated Balance Sheet__________________________________________________________________________________As at 30 September 2009 As at 30 September As at 31 2009 2008 March 2009 Note GBPm GBPm GBPm Assets Non-current assets Property, plant & equipment 46.1 39.2 48.9 Intangible assets 10 144.4 116.6 154.2 Deferred tax assets 3.4 3.7 3.4
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193.9 159.5 206.5
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Current assets Inventories 172.5 141.4 170.2 Trade & other receivables 73.3 98.4 101.4 Income tax receivable 4.2 3.1 4.3 Cash 45.8 7.5 51.8
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295.8 250.4 327.7
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Total assets 489.7 409.9 534.2
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Liabilities Current liabilities Trade & other payables (155.0) (123.5) (156.8) Financial liabilities (0.7) (1.0) (1.2) Income tax payable (4.9) (6.4) (5.4) Loans & borrowings (1.3) (1.8) (4.6)
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(161.9) (132.7) (168.0)
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Non-current liabilities Other payables - - (0.3) Deferred tax liabilities (10.6) (8.8) (11.7) Retirement benefit obligation (4.0) (2.2) (4.4) Loans & borrowings (135.1) (101.2) (167.4) Provisions (3.5) (3.9) (3.7)
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(153.2) (116.1) (187.5)
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Total liabilities (315.1) (248.8) (355.5)
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Net assets 174.6 161.1 178.7
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Equity Share capital 12.0 12.0 12.0 Share premium 115.5 115.5 115.5 Translation reserve 8.4 (4.5) 11.4 Retained earnings 38.7 38.1 39.8
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Equity attributable to equity holders of 174.6 161.1 178.7the parent
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Unaudited Condensed Consolidated Statement of Changes in Equity _______________________________________________________________________________
For the six months to 30 September 2009 Share Share Translation Retained Total capital premium reserve earnings equity GBPm GBPm GBPm GBPm GBPm At 1 April 2009 12.0 115.5 11.4 39.8 178.7 Total comprehensive income - - (3.0) 4.1 1.1 Cost of share based payments - - - 0.1 0.1Dividends payable - - - (5.3) (5.3)
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At 30 September 2009 12.0 115.5 8.4 38.7 174.6
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At 1 April 2008 12.0 115.3 (0.7) 35.8 162.4 Total comprehensive income - - (3.8) 7.8 4.0 Share capital issued - 0.2 - - 0.2 Cost of share based payments - - - 0.1 0.1 Shares awarded under share schemes - - - (0.3) (0.3) Dividends paid - - - (5.3) (5.3)
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At 30 September 2008 12.0 115.5 (4.5) 38.1 161.1
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At 1 April 2008 12.0 115.3 (0.7) 35.8 162.4 Total comprehensive income - - 12.1 12.3 24.4 Share capital issued - 0.2 - - 0.2 Cost of share based payments - - - 0.1 0.1 Dividends paid - - - (8.4) (8.4)
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At 31 March 2009 12.0 115.5 11.4 39.8 178.7
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Unaudited Condensed Consolidated Statement of Cash Flows __________________________________________________________________________________
For the six months to 30 September 2009
Six months to Year to 30 September 31 March 2009 2008 2009 Note GBPm GBPm GBPm Cash flows from operating activities Profit for the period 4.1 7.8 14.6 Depreciation of property, plant & 3.0 2.3 5.1equipment Amortisation of intangible assets & impairment of goodwill 3.1 1.8 4.2 Loss on disposal of property, plant & - - 0.1equipment Financial income (0.9) (1.0) (1.4) Financial expense 4.2 3.3 7.4 Share based payments expense 0.1 0.1 0.1 Income tax expense 2.0 3.8 8.2
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15.6 18.1 38.3 Increase in inventories (5.8) (20.7) (35.9) Decrease/(increase) in trade & other 25.6 (5.1) 8.5receivables (Decrease)/increase in trade & other (5.6) (4.6) 19.8payables Decrease in provisions (0.2) (0.1) (0.3) Decrease in retirement benefit (0.4) (0.5) (1.8)obligation
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Cash generated from/(consumed by) 29.2 (12.9) 28.6operations Net financial expense paid (3.9) (2.1) (5.3) Tax paid (3.5) (4.8) (9.3)
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Net cash flow from operating 21.8 (19.8) 14.0activities
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Cash flows from investing activities
Acquisition of property, plant & 9 (1.5) (2.8) (6.2) equipment
Proceeds from sale of property, plant - - 0.2& equipment Acquisition of subsidiaries, net of cash balances acquired 11 - (3.7) (27.6)
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Net cash flow from investing (1.5) (6.5) (33.6)activities
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Cash flows from financing activities Proceeds from issue of share capital - 0.2 0.2 Drawdown of bank loans 9.8 15.0 82.6 Repayment of bank loans (32.7) (10.2) (32.7) Repayment of lease finance liabilities (0.1) (0.1) (0.3) Dividends paid to equity holders of - (5.3) (8.4)the parent
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Net cash flow from financing (23.0) (0.4) 41.4activities
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Net (decrease)/increase in cash 12 (2.7) (26.7) 21.8
Cash at start of period 49.0 32.4 32.4 Effect of exchange rate fluctuations (0.5) 0.3 (5.2)
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Net cash at end of period 45.8 6.0 49.0
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Notes to the Condensed Consolidated Interim Financial Statements __________________________________________________________________________________
For the six months to 30 September 2009
1 Basis of preparation & accounting policies
Umeco plc (the `Company') is domiciled in the UK. The condensed consolidated interim financial statements of the Company as at and for the six months to 30 September 2009 comprise the Company and its subsidiaries (together referred to as the `Group').
This interim financial information has been prepared applying the accounting policies, presentation and basis of consolidation which were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 March 2009, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (`Adopted IFRS'), except for the following accounting standards and interpretations which are effective for the Group from 1 April 2009:
* IAS1 (revised) `Presentation of Financial Statements'; * IAS23 (revised) `Borrowing Costs'; * IFRS2 (revised) `Share Based Payments'; * IFRS8 `Operating Segments; * IFRIC14 `The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'; and * IFRIC 16 `Hedges of a Net Investment in a Foreign Operation'.
IAS1 (revised) `Presentation of financial statements' requires the presentation of a consolidated statement of changes in equity as a primary statement rather than as a note. Since this change is presentational only, there is no impact on profit or net assets.
IAS 23 `Borrowing costs' requires the Group to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of the asset. This standard has no impact upon profit or net assets.
IFRS2 (revised) `Share Based Payments' makes changes to the definitions and accounting treatment of vesting conditions and cancellations. These have no impact upon the share based payment arrangements operated by the Group and the revised standard has no impact upon profit or net assets.
IFRS 8 `Operating segments' requires operating segments to be identified on the basis of information that internally is provided to the Chief Executive, who is the Group's chief operating decision maker. Following the adoption of IFRS8, the Group is continuing to report the same two operating segments since these form the basis of internal reporting.
IFRIC14 `The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' limits the amount of defined benefit pension assets which can be recognised on certain schemes where the Group does not have an unconditional right to the refund of any surplus which may exist. This standard has no impact upon profit or net assets.
IFRIC 16 `Hedges of a Net Investment in a Foreign Operation' clarifies certain issues relating to hedge accounting. These have no impact upon the hedge accounting operated by the Group and there is no impact upon profit or net assets.
The profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the period, balance sheets are translated at period end rates. The main currencies are the US dollar and the Euro.
Details of the exchange rates used are as follows:
Six months to 30 September Year to 31 March 2009 2009 2008 2008 2009 2009 Closing Average Closing Average Closing Average rate rate rate rate rate rate US dollar 1.599 1.596 1.783 1.932 1.433 1.718 Euro 1.094 1.142 1.269 1.260 1.080 1.203
The Group's bank facilities amount to 159.4 million, which comprises a US$150.0 million five year committed revolving credit facility extending to June 2014, a US$89.0 million credit facility expiring in August 2011 and a 10.0 million overdraft facility. After considering the nature and duration of these facilities and making appropriate enquiries, based on the strength of the Group's balance sheet, current expectations of future trading and on the facilities available to the Group, the Directors believe they have reasonable grounds for stating that the parent Company and the Group have adequate resources to continue in operational existence for the foreseeable future which is considered to be a period of 12 months following the date of this Interim Report. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
The condensed consolidated interim financial statements for the six months to 30 September 2009 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS34 `Interim Financial Reporting' as adopted by the European Union. They do not include all of the information required for annual financial statements and should be read in conjunction with the 2009 Annual Report, which contains annual financial statements for the year to 31 March 2009 prepared in accordance with Adopted IFRS. The condensed consolidated interim financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board's Guidance on Financial Information.
The condensed consolidated interim financial statements are unaudited and were approved by the Board of Directors on 4 November 2009.
The comparative financial information for the year to 31 March 2009 does not constitute the Company's statutory accounts for that financial year. The statutory accounts for the year to 31 March 2009 have been filed with the Registrar of Companies and contain a report of the auditors under Section 240 of the Companies Act 1985, which does not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and which does not contain a statement under Sections 237 (2) or (3) of the Companies Act 1985 and is unqualified. The consolidated financial statements of the Group as at and for the year to 31 March 2009 are available upon request from the Company's registered office or on its website.
2 Risks, estimates, judgements and forward looking statements
Details of the principal risks faced by the Group are set out on pages 22 and 23 of the Group's 2009 Annual Report. It is the Directors' opinion that these are the risks that could impact on the performance of the Group and that they are also applicable to the current financial year. During the six months to 30 September 2009, the principal risks summarised in the 2009 Annual Report have not changed materially.
The Group has a continuous process for identifying, evaluating and managing the significant risks it faces, which has been in place throughout the six months to 30 September 2009 and up to the date of approval of these condensed consolidated interim financial statements. This process ensures the proper management and mitigation of such risks.
In the process of applying the Group's accounting policies, management has made a number of judgements. The process of preparing these interim consolidated financial statements inevitably requires the Group to make estimates and assumptions concerning the future and the resulting accounting estimates may not equal the related actual results. The estimates and judgements that have the most significant effect on the amounts included within these interim consolidated financial statements were the same as those that applied to the annual financial statements for the year to 31 March 2009.
This interim report contains certain statements about the future outlook for the Group that are, or may be deemed to be, `forward looking statements'. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Group's ability to control or predict. Although the Group believes its expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
3 Segmental reporting
The primary basis of segmental reporting is in respect of the Group's business segments. This format reflects the Group's management and internal reporting structures. Business segment data includes an allocation of corporate costs to each segment on an appropriate basis. Geographic information is also provided, comprising analyses of revenue based upon the location of the Group's business unit and the location of the Group's customers. The geographic segments of the United Kingdom, Rest of Europe, North America and Rest of World reflect the Group's most significant regional markets.
Business segments Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Revenue Composites 83.2 92.8 188.9 Supply Chain 116.4 104.4 226.4
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199.6 197.2 415.3
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Adjusted operating profit (see note 5) Composites 6.8 11.5 24.0 Supply Chain 6.4 4.2 11.2
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13.2 15.7 35.2
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Operating profit Composites 3.3 9.7 19.6 Supply Chain 6.1 4.2 9.2
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9.4 13.9 28.8
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Geographic information Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Revenue by location of business unit UK 110.1 124.6 234.8 Rest of Europe 45.2 26.4 84.6 North America 42.7 43.5 91.3 Rest of World 1.6 2.7 4.6
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199.6 197.2 415.3
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Revenue by location of customer UK 90.4 89.7 188.7 Rest of Europe 55.4 55.3 115.8 North America 39.5 38.7 80.1 Rest of World 14.3 13.5 30.7
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199.6 197.2 415.3
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4 Financial income and expense
Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Financial income Revaluation of financial instruments 0.5 0.4 0.2 Interest income - 0.1 0.1 Expected return on pension scheme assets 0.4 0.5 1.1
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0.9 1.0 1.4
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Financial expense Interest on bank loans and overdrafts 3.6 2.7 6.1 Interest payable in respect of lease - - 0.1finance Interest cost on retirement benefit 0.6 0.6 1.2obligation
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4.2 3.3 7.4
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5 Reconciliation of adjusted profit measures
The narrative in this interim report is based on the adjusted measures of operating profit, profit before tax and earnings per share. Umeco uses adjusted figures as key performance indicators, as these are considered to provide a more consistent measure of operating performance. Adjusted figures are stated before profits arising on the divestment of discontinued operations, amortisation and impairment charges relating to intangible assets, significant items, the revaluation of financial instruments based on their market values and associated tax effects. The differences between the total and adjusted profit measures are reconciled below.
Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Operating profit Total operating profit 9.4 13.9 28.8 Exclude: - significant items 0.7 - 2.2 - amortisation of intangible assets 3.1 1.8 4.2
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Adjusted operating profit 13.2 15.7 35.2
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Profit before tax Total profit before tax 6.1 11.6 22.8 Exclude: - significant items 0.7 - 2.2 - amortisation of intangible assets 3.1 1.8 4.2
- revaluation of financial instruments (0.5) (0.4) (0.2) _______________________________________________________________________________
Adjusted profit before tax 9.4 13.0 29.0
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Profit attributable to equity holders of the parent Total profit attributable to equity holders 4.1 7.8 14.6of the parent Exclude: - significant items 0.7 - 2.2 - amortisation of intangible assets 3.1 1.8 4.2
- revaluation of financial instruments (0.5) (0.4) (0.2)
- associated tax effects (1.1) (0.5) (1.3)
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Adjusted profit attributable to equity holders of the parent 6.3 8.7 19.5
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Pence Pence Pence Adjusted earnings per share 13.2 18.1 40.5
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Significant items of 0.7 million were incurred during the six months to 30 September 2009, comprising 0.4 million and 0.3 million in relation to the restructuring of Composites and Supply Chain operations respectively.
Significant items of 2.2 million were incurred during the year to 31 March 2009. This included costs of 0.7 million in relation to the restructuring of operations at Pattonair France and Pattonair USA, and 1.2 million of expenses associated with aborted acquisition projects.
6 Income tax expense
The effective tax rate on profit before tax for the period is 32.8 per cent (2008: 32.7 per cent, year to 31 March 2009: 36.0 per cent). The effective rate of tax on adjusted profit before tax for the period is 32.5 per cent (2008: 33.1 per cent, year to 31 March 2009: 32.9 per cent).
Income tax expense for the six months to 30 September 2009 is recognised based on management's best estimate of the average annual income tax rate expected for the year to 31 March 2010 applied to the profit before tax for the six months to 30 September 2009.
7 Dividends
The Directors have declared an interim dividend of 6.5 pence per share, payable on 12 February 2010 to shareholders on the register at 15 January 2010. In accordance with IAS10, this dividend has not been reflected in the interim results. The amount of this interim dividend is 3.1 million.
The following dividends were paid and declared by the Company:
Six months to 30 September Year to 31 March 2009 2009 2008 2008 2009 2009 Pence per GBPm Pence per GBPm Pence per GBPm share share share Dividends payable or paid Previous year 11.0 5.3 11.0 5.3 11.0 5.3final Current year - - - - 6.5 3.1interim
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11.0 5.3 11.0 5.3 17.5 8.4
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Dividends declared and proposed Interim 6.5 3.1 6.5 3.1 6.5 3.1 Final - - - - 11.0 5.3
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6.5 3.1 6.5 3.1 17.5 8.4
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The final dividend for the year to 31 March 2009 of 11.0 pence per share was approved by shareholders on 29 July 2009. This dividend was held as a liability at 30 September 2009 and was paid on 2 October 2009.
8 Earnings per share
Earnings per share is calculated on profit attributable to equity holders of the parent of 4.1 million (2008: 7.8 million, year to 31 March 2009: 14.6 million). Adjusted profit attributable to equity holders of the parent, which provides a consistent measure of operating performance, was 6.3 million (2008: 8.7 million, year to 31 March 2009: 19.5 million) as shown in note 5. The Directors consider that adjusted earnings per share provide a more consistent measure of operating performance.
Six months to Year to 30 September 31 March 2009 2008 2009 m m m Weighted average number of shares in issue Basic 48.1 48.1 48.1 Dilutive effect of share options - - -
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48.1 48.1 48.1
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9 Acquisition of property, plant & equipment
Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Funded by cash 1.5 2.8 6.2 Funded by lease finance - 0.1 0.1
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1.5 2.9 6.3
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10 Intangible assets Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Intangible assets, including goodwill Cost At start of period 163.1 121.9 121.9 Acquisitions 0.4 - 18.2 Foreign exchange translation (7.7) 1.2 23.0
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At end of period 155.8 123.1 163.1
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Amortisation & impairment losses At start of period 8.9 4.7 4.7 Amortisation charge 3.1 1.8 4.2 Foreign exchange translation (0.6) - -
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At end of period 11.4 6.5 8.9
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Net book value At end of period 144.4 116.6 154.2
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At start of period 154.2 117.2 117.2
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An impairment review has not identified the need for any impairment at 30 September 2009.
11 Acquisitions
During the six months to 30 September 2009, additional goodwill of 0.4 million has been recognised relating to the acquisition of Industria Plastica Monregalese SpA (`IPM').
No acquisitions occurred during the six months to 30 September 2009.
During the six months to 30 September 2008, 3.7 million was paid in respect of deferred consideration due under the terms of the acquisition of Pattonair S.r.l., formerly Provest S.r.l.
Details of acquisitions made in the year to 31 March 2009 and the fair value of net assets acquired are set out below.
On 4 December 2008, the Group acquired the entire issued share capital of IPM for a cash consideration of EUR16.8 million. IPM is a manufacturer and supplier of vacuum bagging films for the composites industry and other markets. Consideration of EUR12.8 million was payable to the vendors on completion, with the remaining EUR4.0 million being paid by the Group into an escrow account pending any warranty claims.
In the period from acquisition to 31 March 2009, IPM achieved a profit before tax of nil, after a charge of 0.5 million in respect of amortisation of acquired intangible assets. Had the acquisition completed on 1 April 2008, it is estimated that IPM would have contributed a further 10.0 million to revenue and nil to profit before tax, after making certain non-recurring payments to the vendors and charges in respect of amortisation of acquired intangible assets. Other than the recognition of intangible assets of 6.4 million and a related deferred tax liability, the only fair value adjustments made were the revaluation of property, plant & equipment, an additional inventory provision and the recognition of additional trade & other payables.
Details of the acquisition of IPM, including the fair value of net assetsacquired, were as follows: Accounting Acquired Carrying policy intangible Fair amount adjustments assets value GBPm GBPm GBPm GBPm Property, plant & equipment 5.6 0.8 - 6.4 Intangible assets 0.1 - 6.4 6.5 Inventories 4.1 (0.4) - 3.7 Trade & other receivables 8.8 - - 8.8 Income tax receivable 0.3 - - 0.3 Bank overdraft (6.5) - - (6.5) Loans & borrowings (6.0) - - (6.0) Trade & other payables (7.2) (1.1) - (8.3) Deferred tax liabilities - - (2.2) (2.2)
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Net identifiable assets and (0.8) (0.7) 4.2 2.7liabilities Goodwill 12.4
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Consideration 15.1
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Satisfied by: - cash consideration paid 14.4 - expenses paid 0.6 - consideration and expenses accrued 0.1
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15.1
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The goodwill recognised on the acquisition of IPM is attributable to the skills and technical capabilities of IPM's employees and synergies expected to be generated from establishing links between IPM and the Group's existing composites activities. Amounts recognised for intangible assets and goodwill are provisional and subject to change for the period of one year from the date of acquisition. Intangible assets have been recognised in respect of customer relationships and order books on hand at acquisition.
In addition to the acquisition of IPM, 6.1 million was paid during the year to31 March 2009 in respect of acquisitions made in prior years. The valuecomprised 3.7 million in respect of the final payment of deferredconsideration due under the terms of the acquisition of Pattonair S.r.l.(formerly Provest S.r.l.) and a final earnout payment of 2.4 million under theterms of the acquisition of JD Lincoln, Inc. The total increase in net debtrelating to the acquisition of subsidiaries in the year to 31 March 2009therefore comprised: IPM Other Total GBPm GBPm GBPm Cash consideration paid 14.4 - 14.4 Expenses paid 0.6 - 0.6 Bank overdraft at acquisition 6.5 - 6.5 Bank loans at acquisition 6.0 - 6.0 Pattonair S.r.l. - deferred - 3.7 3.7consideration JD Lincoln, Inc. - earnout payment - 2.4 2.4
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27.5 6.1 33.6
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12 Reconciliation of net cash to movement in net debt
Six months to Year to 30 September 31 March 2009 2008 2009 GBPm GBPm GBPm Net (decrease)/increase in cash (2.7) (26.7) 21.8 Bank loans taken on with acquisition - - (6.0) Drawdown of bank loans (9.8) (15.0) (82.6) Drawdown of lease finance - (0.1) (0.1) Repayment of bank loans 32.7 10.2 32.7 Repayment of lease finance liabilities 0.1 0.1 0.3
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20.3 (31.5) (33.9) Effect of exchange rate fluctuations 9.3 (6.4) (28.7)
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Movement in net debt 29.6 (37.9) (62.6) Net debt at start of period (120.2) (57.6) (57.6)
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Net debt at end of period (90.6) (95.5) (120.2)
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Net debt comprises cash balances, bank overdrafts, bank loans and lease finance obligations.
Interim Results__________________________________________________________________________________
For the six months to 30 September 2009
STATEMENT OF DIRECTORS' RESPONSIBILITIES
This Interim Report complies with the Disclosure and Transparency Rules (DTR) of the United Kingdom`s Financial Services Authority in respect of the requirements to produce a half yearly financial report. This Interim Report is the responsibility of, and has been approved by, the Directors of Umeco plc.
The Directors confirm that to the best of their knowledge:
* the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union; * the Interim Report includes a fair review of the information required by DTR 4.2.7R (an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year); and * the Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period and any changes therein). By order of the BoardDG RobertsonDirector4 November 2009
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