9th Nov 2010 07:00
9 November 2010
Umeco plc (`Umeco') Interim results for the six months to 30 September 2010
Umeco, an international provider of supply chain services and advanced composite materials primarily to the aerospace & defence industries, announces its interim results for the six months to 30 September 2010.
Financial summary - continuing operations
2010 2009 Change Underlying change * £ million £ million Per cent Per cent Revenue 217.2 198.5 +9.4 +8.9 Adjusted operating 14.0 13.7 +2.2 +0.7profit* Adjusted profit before 11.1 9.9 +12.1 n/atax* 2010 2009 Change Pence Pence Per cent Adjusted earnings per 16.5 14.0 +17.9 share* Interim dividend per 6.75 6.50 + 3.8 share 30 September 31 March 2010 2010 £ million £ million Net debt 64.8 79.6
* definitions of adjusted and underlying measures are set out in note 1 to this press release.
Results for continuing operations exclude ACG South Africa, the trade and assets of which were divested in July 2010.
Highlights
* Good growth in revenue, profit before tax and earnings per share * Interim dividend increased by 3.8 per cent * Strong cash generation leading to significant reduction in net debt and leverage * Order book £242.1 million, 6.5 per cent increase since 31 March 2010 * Appointed as Rolls-Royce's North American service provider * Joint venture to be established in China manufacturing products for wind energy market
Clive Snowdon, Chief Executive of Umeco plc, said:
"We have weathered the effects of the economic downturn well. We have a growing order book, underpinned by expanding relationships with our key customers and have secured a number of new contracts that will drive our future growth. The first half reduction in net debt and leverage, coupled with our improving trading prospects, has given the Board the confidence to raise the interim dividend. For the full year to 31 March 2011 we remain on track to meet our expectations."
- Ends -
There will be a meeting for analysts at 9.30am this morning at UBS, 1 Finsbury Avenue, London, EC2M 2PP. Should you wish to attend please contact Davina Marriott on 0207 567 4875.
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 John Sunnucks Christian Cowley Lucy Legh Notes to the press release
1. Adjusted and underlying measures
Umeco uses adjusted measures as key performance indicators. Adjusted figures are stated before the results 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 measures of operating profit, profit before tax and profit attributable to owners of the Company are reconciled in note 5 to the unaudited condensed consolidated interim financial statements. 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.
Underlying measures are calculated using constant exchange rates and adjusting for the effects of acquisitions and disposals. These provide a consistent measure of operating performance.
2. Discontinued operation
In July 2010, the Group divested the trade and assets of ACG South Africa. The results of ACG South Africa have accordingly been presented separately from continuing operations and are disclosed as a discontinued operation. Comparative data in the unaudited condensed consolidated income statement, the unaudited condensed consolidated statement of cash flows and certain notes to the unaudited condensed consolidated interim financial statements has been re-presented accordingly.
3. Further information on Umeco
Umeco is managed through three business streams:
Umeco Composites - Structural Materials
Development, manufacture and supply of advanced composite materials. Specialising in the manufacture of high performance composite materials for a diverse range of industries such as aerospace, marine, motor sport & automotive, construction, wind energy and leisure sports. Structural Materials has manufacturing operations in the UK and the US, and distributes its products worldwide. Customers include Boeing, Airbus, manufacturers of high performance supercars and Formula 1 teams.
Umeco Composites - Process Materials
Development, manufacture and supply of vacuum bagging materials to the composites industry and other markets, providing a wide range of materials and technical support to a growing number of international customers. Process Materials has manufacturing operations in Italy and France, and value-added distribution facilities in the UK and the US. It has a global distribution network. Customers include Airbus, Boeing and manufacturers of wind turbine blades.
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. The Supply Chain businesses trade globally as Pattonair. Customers include Rolls-Royce plc, BAE Systems, Safran Group, Parker Aerospace, Goodrich, Thales Aerospace, Turbomeca, ATK, Lockheed Martin and the US Department of Defense.
Important disclaimer
This interim report has been prepared in accordance with the requirements of English company law and the liabilities of the directors in connection with this interim report shall be subject to the limitations and restrictions provided by such law. This interim report may contain `forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as `may', `could', `will', `expect', `intend', `estimate', `anticipate', `aim', `outlook', `believe', `plan', `seek', `continue' or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the impact of competition, inflation, deflation, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which the Group operates. As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward-looking statements. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this interim report should be construed as a profit forecast.
Interim Statement
Results and dividend
Umeco had an encouraging six months to 30 September 2010 with revenue from continuing operations increasing by 9.4 per cent to £217.2 million (2009: £198.5 million). At constant exchange rates, the increase in revenue (the `underlying' increase) was 8.9 per cent.
Operating profit from continuing operations increased by 2.2 per cent to £14.0 million (2009: £13.7 million) with margins reducing to 6.4 per cent (2009: 6.9 per cent). The underlying increase in operating profit was 0.7 per cent.
Operating margins were lower than in the first half of last year primarily because of a significant increase in raw material costs in Process Materials and reduced aftermarket performance fees in Supply Chain; Structural Materials achieved much improved margins as a result of higher revenue in the period and lower overhead costs reflecting the measures taken last year.
Net interest charges, excluding revaluations of financial instruments, were £2.9 million (2009: £3.8 million). Profit before tax from continuing activities was £11.1 million (2009: £9.9 million), an increase of 12.1 per cent.
Earnings per share from continuing operations were 16.5 pence (2009: 14.0 pence), an increase of 17.9 per cent.
The Directors have declared an interim dividend of 6.75 pence (2009: 6.50 pence). The dividend is payable on 11 February 2011 to shareholders on the register on 14 January 2011.
During the six months to 30 September 2010, the Group was strongly cash generative leading to a further reduction in net debt to £64.8 million at 30 September 2010 compared to £79.6 million at 31 March 2010 and £90.6 million at 30 September 2009.
Strategic developments
In August 2010, Umeco signed a new contract with Rolls-Royce plc under which the Group will provide supply chain services to Rolls-Royce's operations in North America. This new contract, which is effective from 1 January 2011, is expected to generate annual revenues in excess of US$20.0 million and has an initial term extending to 31 December 2017. In addition, it has been agreed with Rolls-Royce that the existing major supply chain contract in the UK will be extended by two years and will also run to 31 December 2017.
In September 2010, it was announced that Umeco's Process Materials business had entered into a joint venture with its Chinese distributor; the agreement being subject to approval from the Chinese authorities which is expected to be received shortly. The joint venture will establish a facility in Shanghai to manufacture vacuum bagging films for the rapidly growing Chinese wind energy market. This new facility is expected to be fully operational by the end of 2011.
On 29 September 2010, it was announced that the maturity of the Group's US$88.6 million term loan, provided by Lloyds Banking Group, had been extended by 12 months to 24 August 2012. This extension will provide Umeco with funding headroom to support its near term requirements as the business recovers its growth momentum.
Operations
Results for each of the Group's business segments are summarised below.
Umeco Composites - Structural Materials
Continuing operations 2010 2009 Change Underlying change £ million £ million Per cent Per cent Revenue 56.6 48.7 +16.2 +13.6 Operating profit 5.6 3.1 +80.6 +77.4 Per cent Per cent Operating margin 9.9 6.4
Structural Materials develops, manufactures and supplies a broad range of advanced composite materials principally for the aerospace, motor sport & automotive and marine markets. Revenue by end market was:
2010 2009 Per cent Per cent Aerospace & defence 36.2 36.1 Motor sport & automotive 19.8 16.9 Wind 1.1 0.3 Marine 9.7 11.2 Other 33.2 35.5 100.0 100.0
Structural Materials enjoyed improving demand from a number of end markets including civil aerospace and motor sport & automotive. The increase in revenue to the civil aerospace market reflects higher deliveries to Boeing, primarily related to the restart of production of the B787, and also a number of contract wins. Margins also benefited from the cost reduction programme implemented in the prior year.
Advanced Composites Group (`ACG') completed the divestment of its South African operations in July and has made good progress in liquidating the residual assets. ACG saw improving market conditions across a number of end markets in both Europe and the US.
JD Lincoln enjoyed significantly higher revenues from its civil aerospace customer base. The project to relocate the business to its new facility in Huntington Beach, California, is underway with much of the interior fit-out having been completed and new equipment ordered. This project, which has a total budget in excess of US$10.0 million, is due for completion in late 2011 and will result in a significant increase in capacity in line with the expected ramp-up in the B787 programme.
Hisham Alameddine, who was appointed President of Structural Materials' US operations in January 2010, has made good progress in focusing sales and marketing efforts with the goal of integrating ACG and JD Lincoln's US sales teams in the near term.
GRPMS enjoyed better trading conditions, particularly from the marine market, and successfully launched the Jushi range of glass fibre products into the European market.
Umeco Composites - Process Materials
Continuing operations 2010 2009 Change Underlying change £ million £ million Per cent Per cent Revenue 41.9 33.4 +25.4 +25.7 Operating profit 4.0 4.2 -4.8 -7.1 Per cent Per cent Operating margin 9.5 12.6
Process Materials develops, manufactures and supplies vacuum bagging materials to the composites industry and other markets. Revenue by end market was:
2010 2009 Per cent Per cent Aerospace & defence 29.9 31.2 Motor sport & automotive 5.3 4.8 Wind 32.3 28.3 Marine 2.3 1.9 Other 30.2 33.8 100.0 100.0
The significant increase in revenue arose from the on-going growth in the wind energy market, particularly in China, and the improvement in civil aerospace market conditions as enjoyed by Structural Materials.
Operating margins were adversely affected by a rapid rise in raw material prices which could not be passed onto customers in full during the first half of the year.
Demand levels were much improved, although the global recovery in the wind energy market has been less marked than originally anticipated. A tight credit control policy has been maintained, which at times has reduced sales to the sector.
Richmond successfully relocated its main Californian operations in late September, to a larger lower cost facility; this will improve its operational effectiveness going forward.
In September 2010, the Group entered into a joint venture agreement with its Chinese distributor, Shanghai Leadgo Technology (`Leadgo'). This agreement is subject to approval from the Chinese authorities and it is anticipated that approval will be granted shortly. The agreement will lead to the establishment of a Chinese company to be named Shanghai Umeco Composites, which will be 51 per cent owned by Umeco with Leadgo having a 49 per cent stake. Shanghai Umeco Composites will establish a facility in Shanghai to manufacture vacuum bagging films for the rapidly growing Chinese wind energy market. The new facility should be fully operational by the end of 2011.
Umeco currently manufactures the films supplied to Leadgo for the Chinese market at IPM in Italy. It is expected that the global growth in the wind energy market will allow IPM to back-fill its manufacturing capacity once production for the Chinese market moves to Shanghai. Umeco estimates its total cash investment in Shanghai Umeco Composites will be US$4.1 million, comprising an equity stake of US$2.4 million and a loan facility of US$1.7 million. Leadgo will also make a similar total investment.
IPM will receive a technology royalty from Shanghai Umeco Composites followingthe commencement of production. Shanghai Umeco Composites is anticipated to beprofitable shortly after production commences; in the start-up period costs areexpected to be modest.Umeco Supply ChainContinuing operations 2010 2009 Change Underlying change £ million £ million Per cent Per cent Revenue 118.7 116.4 +2.0 +2.1 Operating profit 4.4 6.4 -31.3 -31.3 Per cent Per cent Operating margin 3.7 5.5
Umeco Supply Chain, which trades globally as Pattonair, is a leading international provider of distribution and supply chain outsourcing services primarily to OEM customers in the aerospace & defence markets. With its specialisation in the supply of small and medium value components and its sophisticated IT systems, Pattonair creates and delivers significant operational cost and working capital benefits and above all improves customer service levels for its growing customer base. Revenue by end market was:
2010 2009 Per cent Per cent Civil aerospace - OEM 56.2 58.9 - aftermarket 25.0 22.7 Defence 17.4 18.4 Marine 1.2 - Other 0.2 - 100.0 100.0
Revenue growth in the period was modest as OEM build levels were flat year-on-year and aftermarket demand has increased. However, margins have been adversely affected as the performance fees earned on the Rolls-Royce contract in the UK are significantly lower as the hurdle rate is now set at the highest service level. All other business units matched or exceeded the prior period's operating profit with the exception of Italy, where Pattonair's major customer has effected a major de-stocking programme.
Pattonair has been successful in the period in winning a number of important contracts in Europe, North America and Asia from both existing and new customers. These new contracts had minimal impact in the period and will be progressively implemented during the second half of the current financial year. Pattonair remains active in bidding on new opportunities and continues to enjoy an excellent pipeline.
The agreement signed in August 2010 with Rolls-Royce to support their North American operations was under a new contract framework which sets the commercial terms for any subsequent business Pattonair undertakes for Rolls-Royce outside of the existing UK agreement. Both the new framework agreement and the existing UK contract will now run to 31 December 2017. Detailed planning for the implementation of the North American contract is underway to ensure a seamless hand over from the current service provider, with the contract commencing on 1 January 2011. Pattonair will make a working capital investment of approximately US$6.0 million during the second half of the current financial year in support of the new contract.
Finance
Net interest charges, excluding revaluations of financial instruments, were £2.9 million (2009: £3.8 million). The decrease principally reflects both lower interest rates and levels of debt.
Profit before tax from continuing operations was £11.1 million, an increase of 12.1 per cent. The effective tax rate on adjusted profit before tax from continuing operations was 28.0 per cent compared with 29.1 per cent in the year to 31 March 2010. This reflects the benefit of the international corporate restructuring implemented in December 2009.
Net debt at 30 September 2010 was £64.8 million compared with £79.6 million at 31 March 2010, a reduction of £14.8 million. Exchange rate movements, principally the weakening of the US dollar and Euro, caused net debt to fall by £3.7 million. Working capital, provisions and retirement benefit obligations reduced by £1.7 million despite the higher revenue in the period. This reflects the steps taken to further improve the Group's working capital to sales ratio. Gross capital expenditure was £3.0 million (2009: £1.5 million); this compares to the depreciation charge of £2.8 million (2009: £2.9 million).
The Group's principal committed banking facilities are provided by Lloyds Banking Group plc. These comprise a US$150.0 million revolving credit facility expiring in June 2014 and a US$88.6 million term loan the maturity of which has been extended to August 2012. In addition, the Group has a £10.0 million overdraft facility giving total facilities of £161.4 million.
Covenants in place with Lloyds Banking Group plc are tested semi-annually on 31 March and 30 September. The covenants require interest cover to be not less than 4.00 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 3.00 times. 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 2010 were:
Actual Covenant Interest cover 5.98 times > 4.00 times Net debt to EBITDA 1.77 times < 3.00 times
Appropriate monitoring procedures are in place to ensure continuing compliance with banking covenants and, based on current estimates, the Group expects to comply with the covenants for the foreseeable future.
Equity attributable to shareholders at 30 September 2010 was £177.5 million.
Directors
On 30 April 2010, the Group announced the appointment of Adrian Auer as Senior Independent Director. Adrian's breadth of international corporate experience, both in Executive and Non-executive roles, is proving invaluable to the Board.
Prospects
The leading indicators for long term demand in the civil aerospace market continue to be positive. Passenger and cargo traffic levels have shown high levels of growth so far this year and IATA is predicting that the world's airlines will return to profitability in 2010 at a much greater level than originally expected. Airbus and Boeing have secured significantly more orders in the first nine months of 2010 than in the whole of 2009. At 30 September 2010, they had a combined order book of 6,837 aircraft and are forecast to deliver 965 aircraft in 2010, a greater number than previously expected. More importantly, Boeing now expects that delivery of the first B787 will occur in the first quarter of 2011 and Airbus continues to commit considerable resources to the development of the A350XWB. Both of these new programmes will provide growing long term revenue across each of the Group's business streams.
Revenue to the Group's other principal markets of wind energy, motor sport & automotive and marine have all increased in the period and continuing growth is expected going forward, subject to no material change in global economic conditions.
The Group goes into the second half of the financial year with a good order book: at 30 September 2010, the order book was £242.1 million (31 March 2010: £227.4 million). Of this, £213.4 million (31 March 2010: £198.9 million) relates to Supply Chain, with order books in the Composites businesses reflecting the shorter term nature of orders placed by customers. Order book values reflect scheduled customer requirements for the next twelve months.
Umeco has weathered the effects of the economic downturn well. The Group has a growing order book, underpinned by expanding relationships with its key customers and has secured a number of new contracts that will drive its future growth. The first half reduction in net debt and leverage, coupled with the Group's improving trading prospects, has given the Board the confidence to raise the interim dividend. For the full year to 31 March 2011 Umeco remains on track to meet our expectations.
Principal risks and uncertainties
Risk Impact Effect of the economic The current weakness in the economic climate has climate upon demand caused certain of the Group's business units to levels experience lower demand levels. This economic environment may continue to cause reduced levels of revenue and result in a greater risk of debtors defaulting on payment terms and a higher risk of inventory obsolescence Restrictions resulting If the Group is unable to obtain sufficient capital from availability of resources, it may be required to take decisions that debt facilities adversely affect current or future trading, disadvantaging the Group relative to its competitors. The Group's operating and financial flexibility is restricted by its level of indebtedness and financial covenants Reduced demand from the The Group's largest marketplace, civil aerospace, is civil aerospace sector dependent on passenger demand for air travel. Demand is influenced by factors such as high crude oil prices, Governmental levies which increase airline ticket prices or security fears. A prolonged reduction in demand could cause airlines to cancel or defer orders for new aircraft. This would lead to reductions in demand among Umeco's customers Interruption or failure Any interruptions to the operation of the Group's IT of IT systems systems could have an adverse effect on its performance Product failure Many of the Group's products are fitted to aircraft or used to manufacture aircraft parts. To the extent that any of the Group's products fail, this could expose the Group to significant product liability claims and adversely affect the Group's reputation and financial position Competition and The loss of key contracts whether through competition,retention of customers consolidation or insolvency could have a material impact on the Group's trading and financial position Failure of suppliers Interruptions in the supply of materials could affect the Group's ability to fulfil customer orders Acquisitions Acquisitions can involve risks that unless adequately considered and addressed, may have a material impact on the Group's financial position Financial risks The Group is exposed to a number of financial market risks including credit risk, interest rate risk and foreign exchange rate risk Unaudited Condensed Consolidated Income Statement__________________________________________________________________________________
For the six months to 30 September 2010
Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented Note £ million £ million £ million Continuing operations Revenue 3 217.2 198.5 409.4 Cost of sales (165.1) (152.8) (307.8) Gross profit 52.1 45.7 101.6 Administrative expenses (40.8) (35.8) (77.6) Operating profit 11.3 9.9 24.0 Financial income 4 1.4 0.9 1.4 Financial expense 4 (3.7) (4.2) (7.8) Profit before tax 9.0 6.6 17.6 Income tax - UK (2.0) (1.0) (4.2) Income tax - overseas (0.4) (1.2) (0.7) Income tax - total 6 (2.4) (2.2) (4.9) Profit from continuing operations 6.6 4.4 12.7 Discontinued operation
Loss from discontinued operation 12 (0.2) (0.3) (1.3) (net of income tax)
Profit attributable to owners of 6.4 4.1 11.4the Company Other comprehensive (expense)/ income Foreign exchange translation (2.1) (3.0) (2.8)differences on foreign operations Actuarial loss in pension schemes - - (1.0) (2.1) (3.0) (3.8) Income tax on other comprehensive - - 0.3(expense)/income Other comprehensive (expense)/ (2.1) (3.0) (3.5)income Total comprehensive income 4.3 1.1 7.9attributable to owners of the Company
Unaudited Condensed Consolidated Income Statement (continued) __________________________________________________________________________________
For the six months to 30 September 2010
Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented Note Pence Pence Pence Earnings per share Total Basic earnings per share 8 13.2 8.5 23.6 Diluted earnings per share 8 13.1 8.5 23.5 Continuing operations Basic earnings per share 8 13.6 9.4 26.3 Diluted earnings per share 8 13.5 9.4 26.1 Discontinued operation Basic earnings per share 8 (0.4) (0.9) (2.7) Diluted earnings per share 8 (0.4) (0.9) (2.6)Unaudited Condensed Consolidated Balance Sheet__________________________________________________________________________________As at 30 September 2010 As at 30 September As at 31 2010 2009 March 2010 Re-presented Note £ million £ million £ million Assets Non-current assets Property, plant & equipment 45.9 47.2 46.5 Intangible assets 10 138.2 143.7 144.1 Deferred tax assets 1.8 3.4 2.4 185.9 194.3 193.0 Current assets Inventories 164.4 172.5 167.8 Trade & other receivables 72.7 73.3 79.9 Income tax receivable 5.5 4.2 4.9 Cash 43.6 45.8 56.5 Assets classified as held for sale 12 - - 0.8 286.2 295.8 309.9 Total assets 472.1 490.1 502.9 Liabilities Current liabilities Trade & other payables (160.2) (155.4) (160.7) Financial liabilities (0.2) (0.7) (0.9) Income tax payable (8.7) (4.9) (7.8) Loans & borrowings (1.8) (1.3) (1.4) (170.9) (162.3) (170.8) Non-current liabilities Other payables (0.5) - (0.7) Deferred tax liabilities (9.4) (10.6) (10.4) Retirement benefit obligation (3.8) (4.0) (4.4) Loans & borrowings (106.6) (135.1) (134.7) Provisions (3.4) (3.5) (3.5) (123.7) (153.2) (153.7) Total liabilities (294.6) (315.5) (324.5) Net assets 177.5 174.6 178.4 Equity Share capital 12.0 12.0 12.0 Share premium 115.5 115.5 115.5 Translation reserve 6.5 8.4 8.6 Retained earnings 43.5 38.7 42.3 Equity attributable to owners of the 177.5 174.6 178.4Company
Unaudited Condensed Consolidated Statement of Cash Flows __________________________________________________________________________________
For the six months to 30 September 2010
Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented Note £ million £ million £ million Cash flows from operating activities - continuing operations Profit for the period - continuing 6.6 4.4 12.7operations Depreciation 2.8 2.9 5.8 Amortisation & impairment charges 2.7 3.1 6.3 Financial income (1.4) (0.9) (1.4) Financial expense 3.7 4.2 7.8 Share based payments expense 0.1 0.1 0.2 Own shares held 0.1 - 0.1 Income tax expense 2.4 2.2 4.9 17.0 16.0 36.4 Decrease/(increase) in inventories 1.3 (5.9) (0.8) Decrease in trade & other receivables 5.5 25.5 19.5 (Decrease)/increase in trade & other (4.4) (5.7) 5.8payables Decrease in other provisions (0.1) (0.2) (0.2)
Decrease in retirement benefit obligation (0.6) (0.4) (1.0)
Cash generated from operations 18.7 29.3 59.7 Net financial expense paid (2.8) (3.9) (7.0) Tax paid (2.3) (3.4) (4.3) Net cash flow from operating 13.6 22.0 48.4activities - continuing operations Cash flows from investing activities - continuing operations
Acquisition of property, plant & 9 (3.0) (1.5) (3.8) equipment
Proceeds from sale of property, plant & - - 0.1equipment Acquisition of subsidiaries, net of 11 - - (0.2)cash acquired Disposal of subsidiaries, net of cash 12 0.5 - -disposed Net cash flow from investing (2.5) (1.5) (3.9)activities - continuing operations Cash flows from financing activities - continuing operations Drawdown of bank loans 5.3 9.8 8.6 Repayment of bank loans (31.5) (32.7) (37.0) Repayment of lease finance liabilities (0.1) (0.1) (0.3) Dividends paid to owners of the - - (8.4)Company Net cash flow from financing (26.3) (23.0) (37.1)activities - continuing operations Discontinued operation Net cash flow from operating - (0.2) (1.2)activities Net cash flow from discontinued - (0.2) (1.2)operation
Net (decrease)/increase in cash 13 (15.2) (2.7) 6.2
Cash at start of period 56.5 49.0 49.0 Effect of exchange rate fluctuations 0.9 (0.5) 1.3 Net cash at end of period 42.2 45.8 56.5
Unaudited Condensed Consolidated Statement of Changes in Equity __________________________________________________________________________________
For the six months to 30 September 2010
Share Share Translation Retained capital premium reserve earnings Total £ million £ million £ million £ million £ million At 1 April 2010 12.0 115.5 8.6 42.3 178.4 Total comprehensive income/ (expense) Profit attributable to - - - 6.4 6.4owners of the Company Other comprehensive (expense)/income Foreign exchange - - (2.1) - (2.1)translation differences on foreign operations Total other comprehensive (expense)/income - - (2.1) - (2.1) Total comprehensive - - (2.1) 6.4 4.3(expense)/income Transactions with owners, recorded directly in equity Cost of share based - - - 0.1 0.1payments Dividends payable - - - (5.3) (5.3) Total transactions with - - - (5.2) (5.2)owners At 30 September 2010 12.0 115.5 6.5 43.5 177.5 Share Share Translation Retained capital premium reserve earnings Total £ million £ million £ million £ million £ million At 1 April 2009 12.0 115.5 11.4 39.8 178.7 Total comprehensive income/ (expense) Profit attributable to - - - 4.1 4.1owners of the Company Other comprehensive (expense)/income Foreign exchange - - (3.0) - (3.0)translation differences on foreign operations Total other comprehensive (expense)/income - - (3.0) - (3.0) Total comprehensive - - (3.0) 4.1 1.1(expense)/income Transactions with owners, recorded directly in equity Cost of share based - - - 0.1 0.1payments Dividends payable - - - (5.3) (5.3) Total transactions with - - - (5.2) (5.2)owners At 30 September 2009 12.0 115.5 8.4 38.7 174.6 Share Share Translation Retained capital premium reserve earnings Total £ million £ million £ million £ million £ million At 1 April 2009 12.0 115.5 11.4 39.8 178.7 Total comprehensive income/ (expense) Profit attributable to - - - 11.4 11.4owners of the Company Other comprehensive (expense)/income Foreign exchange - - (2.8) - (2.8)translation differences on foreign operations Actuarial loss in pension - - - (1.0) (1.0)schemes Income tax on other - - - 0.3 0.3comprehensive income Total other comprehensive (expense)/income - - (2.8) (0.7) (3.5) Total comprehensive - - (2.8) 10.7 7.9(expense)/income Transactions with owners, recorded directly in equity Cost of share based - - - 0.2 0.2payments Dividends paid - - - (8.4) (8.4) Total transactions with - - - (8.2) (8.2)owners At 31 March 2010 12.0 115.5 8.6 42.3 178.4
Notes to the Unaudited Condensed Consolidated Interim Financial Statements __________________________________________________________________________________
For the six months to 30 September 2010
1 Basis of preparation & accounting policies
Umeco plc (the `Company') is domiciled in the UK. The unaudited condensed consolidated interim financial statements of the Company as at and for the six months to 30 September 2010 comprise interim financial information for 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 to 31 March 2010, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (`Adopted IFRS'), except for the following accounting standards which are effective for the Group from 1 April 2010:
* IAS27 (revised) `Consolidated and Separate Financial Statements'; * amendment to IFRS2 `Share based Payment'; * IFRS3 (revised) `Business Combinations'; and * the Annual Improvements Project to IFRSs.
IFRS3 (revised) `Business Combinations' applies to business combinations arising from 1 April 2010. Amongst other changes, the revisions effected by the new standard require subsequent changes in the fair value of contingent consideration payable in respect of an acquisition to be recognised in the Consolidated Statement of Comprehensive Income rather than against goodwill, and require transaction costs attributable to an acquisition to be recognised immediately in the Consolidated Statement of Comprehensive Income. IFRS3 (revised) will be applied to transactions occurring from 1 April 2010. It is therefore not possible to assess in advance the impact on the Group's financial statements.
The Annual Improvements Project to IFRSs provides a vehicle for making non-urgent but necessary amendments to IFRSs. Amendments to a number of standards, which are mandatory for the year to 31 March 2011, have been adopted.
The adoption of the accounting standards listed above has not had a material impact on the Group's condensed consolidated interim financial statements for the period to 30 September 2010.
Statements of comprehensive income and statements of cash flows of overseas subsidiaries are translated into sterling at average rates of exchange for the period, balance sheets are translated at period end rates. The currencies which most influence the Group's financial statements are the US dollar and Euro. The relevant exchange rates for these currencies were:
Six months to 30 September Year to 31 March 2010 2010 2009 2009 2010 2010 Closing Average Closing Average Closing Average rate rate rate rate rate rate US dollar 1.576 1.521 1.599 1.596 1.517 1.596 Euro 1.154 1.186 1.094 1.142 1.121 1.130
The Group's bank facilities amount to £161.4 million, which comprises a US$150.0 million five year committed revolving credit facility extending to June 2014, a US$88.6 million term loan facility maturing in August 2012 and a £ 10.0 million overdraft facility. In September 2010, the maturity date of the term loan facility was extended by 12 months from August 2011 to August 2012. 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 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 2010 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 2010 Annual Report, which contains annual financial statements for the year to 31 March 2010 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 were approved by the Board of Directors on 9 November 2010.
The comparative financial information for the year to 31 March 2010 does not constitute the Company's statutory accounts for that financial year. The statutory accounts for the year to 31 March 2010 have been filed with the Registrar of Companies and contain a report of the auditors. This report, which is unqualified, does not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report and does not contain a statement under Sections 498 (2) or (3) of the Companies Act 2006. The consolidated financial statements of the Group as at and for the year to 31 March 2010 are available upon request from the Company's registered office or on its website.
Segmental information for the six months to 30 September 2009 has been restated in line with the segmental analysis adopted in the consolidated financial statements of the Group for the year to 31 March 2010.
Following the disposal of the trade and assets of Advanced Composites Group SA (Pty) Limited (`ACG South Africa'), the results of this undertaking have been classified as a discontinued operation. Comparative information for the period to 30 September 2009 has been re-presented accordingly.
2 Risks, estimates, judgements and forward looking statements
Details of the principal risks faced by the Group are set out on page 10 of this press release and replicate the principal risks set out on pages 20 and 21 of the Group's 2010 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 2010, the principal risks summarised in the 2010 Annual Report and as set out on page 10 of this press release 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 2010 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 unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements were the same as those that applied to the annual financial statements for the year to 31 March 2010.
3 Segmental reporting
The Group has three reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different products and services, and are managed separately as they require different technology and marketing strategies. For each of the strategic business units, the Chief Executive and Chief Operating Officer (who act jointly as the chief operating decision maker) review internal management reports on a monthly basis. The following summary describes the operations of each of the Group's reportable segments:
Umeco Composites
* Structural Materials - development, manufacture and supply of advanced composite materials; and * Process Materials - development, manufacture and supply of vacuum bagging materials.
Umeco Supply Chain
* provision of value-added distribution and supply chain outsourcing
services.
Details of the calculation of adjusted operating profit are shown in note 5.
Information regarding reportable segments
Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Structural Materials External revenue 56.6 48.7 101.7 Inter-segment revenue 0.1 0.1 0.2 Adjusted operating profit 5.6 3.1 7.9 Depreciation 1.1 1.1 2.3 Amortisation 1.9 2.1 4.2 Trading assets 30.5 29.8 29.7 Capital expenditure 2.3 0.5 1.5 Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Process Materials External revenue 41.9 33.4 73.1 Inter-segment revenue - - 0.1 Adjusted operating profit 4.0 4.2 8.7 Depreciation 0.7 0.7 1.4 Amortisation 0.8 1.0 2.1 Trading assets 21.6 22.4 23.8 Capital expenditure 0.4 0.3 1.8 Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Supply Chain External revenue 118.7 116.4 234.6 Inter-segment revenue - - - Adjusted operating profit 4.4 6.4 15.0 Depreciation 0.9 1.0 2.0 Amortisation - - - Trading assets 78.0 93.3 82.6 Capital expenditure 0.3 0.7 0.8 Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Revenue Total revenue for reportable 217.3 198.6 409.7segments Elimination of inter-segment (0.1) (0.1) (0.3)revenue Group revenue 217.2 198.5 409.4 Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Depreciation Total depreciation for reportable 2.7 2.8 5.7segments Corporate depreciation 0.1 0.1 0.1 Group depreciation 2.8 2.9 5.8 As at As at 30 September 31 March 2010 2009 2010 £ million £ million £ million Net assets Total trading assets for reportable 130.1 145.5 136.1segments Corporate net assets and (2.0) (2.6) (1.8)unallocated items Goodwill and intangible assets 138.2 143.7 144.1 Income tax and deferred tax (10.8) (7.9) (10.9) Dividends payable (5.3) (5.3) - Financial liabilities (0.2) (0.7) (0.9) Provisions and retirement benefit (7.7) (7.5) (8.6)obligations Net debt (64.8) (90.6) (79.6) Group net assets 177.5 174.6 178.4
Information regarding geographical segments
In presenting information on the basis of geographical segments, segment revenue is provided based on the geographical location of the customer and the geographical location of the business unit. Segment assets are based on the geographical location of the assets.
Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented £ million £ million £ million Revenue by location of customer UK 90.7 90.4 181.1 France 15.1 15.4 32.7 Italy 16.1 17.7 35.8 Rest of Europe 27.1 22.3 47.0 USA 46.5 36.9 77.4 Rest of World 22.1 16.9 37.5 Total 217.6 199.6 411.5 Less discontinued operation (0.4) (1.1) (2.1) Continuing operations 217.2 198.5 409.4 Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented £ million £ million £ million Revenue by location of business unit UK 115.4 110.1 225.9 France 21.0 19.4 41.3 Italy 16.4 17.5 35.1 Rest of Europe 10.1 8.3 16.5 USA 53.1 42.7 89.5 Rest of World 1.6 1.6 3.2 Total 217.6 199.6 411.5 Less discontinued operation (0.4) (1.1) (2.1) Continuing operations 217.2 198.5 409.4 Six months to Year to 30 September 31 March 2010 2009 2010 Non-current assets by location of £ million £ million £ million business unit UK 72.8 72.2 75.0 France 4.6 4.5 4.9 Italy 34.4 38.3 36.5 Rest of Europe 0.4 0.2 0.4 USA 73.4 78.2 75.7 Rest of World 0.3 0.9 1.0 Total 185.9 194.3 193.5 Less discontinued operation - - (0.5) Continuing operations 185.9 194.3 193.0
4 Financial income and expense
Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Financial income Revaluation of financial instruments 0.6 0.5 0.3 Interest income 0.1 - 0.2 Expected return on pension scheme assets 0.7 0.4 0.9 1.4 0.9 1.4 Financial expense Interest on bank loans and overdrafts 3.0 3.6 6.5 Interest payable in respect of lease - - 0.1finance Interest cost on retirement benefit 0.7 0.6 1.2obligation 3.7 4.2 7.8
5 Reconciliation of adjusted profit measures
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 the results 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. The narrative in this interim results announcement is based on the adjusted measures of operating profit, profit before tax and earnings per share.
Six months to Year to 30 September 31 March 2010 2009 2010 Re-presented £ million £ million £ million Operating profit - continuing operations Total operating profit 11.3 9.9 24.0 Exclude - significant items - 0.7 1.3 - amortisation of intangible assets 2.7 3.1 6.3
Adjusted operating profit - continuing 14.0 13.7 31.6 operations
Profit before tax - continuing operations Total profit before tax 9.0 6.6 17.6 Exclude - significant items - 0.7 1.3 - amortisation of intangible assets 2.7 3.1 6.3
- revaluation of financial instruments (0.6) (0.5) (0.3)
Adjusted profit before tax - continuing 11.1 9.9 24.9 operations
Profit attributable to owners of the Company Total profit attributable to owners of 6.4 4.1 11.4the Company Exclude - significant items - 0.7 1.3 - amortisation of intangible assets 2.7 3.1 6.3
- revaluation of financial instruments (0.6) (0.5) (0.3)
- loss after tax of discontinued 0.2 0.3 0.8operation - loss on disposal of discontinued - - 0.5operation - associated tax effects (0.6) (1.1) (2.3) Adjusted profit attributable to owners of the Company - continuing 8.1 6.6 17.7operations Pence Pence Pence Adjusted earnings per share - continuing operations 16.5 14.0 36.6
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 Structural Materials and Supply Chain operations respectively. Significant items of £1.3 million were incurred during the year to 31 March 2010, comprising costs relating to the restructuring of the Group's operations, principally redundancy.
6 Income tax
The effective tax rate on profit before tax from continuing operations for the period is 27.3 per cent (2009: 32.4 per cent, year to 31 March 2010: 27.8 per cent). The effective rate of tax on adjusted profit before tax from continuing operations for the period is 28.0 per cent (2009: 32.3 per cent, year to 31 March 2010: 29.1 per cent).
Income tax expense for the six months to 30 September 2010 is recognised based on management's best estimate of the average income tax rate expected for the year to 31 March 2011 applied to the profit before tax for the six months to 30 September 2010.
7 Dividends
The Directors have declared an interim dividend of 6.75 pence per share, payable on 11 February 2011 to shareholders on the register at 14 January 2011. In accordance with IAS10 `Events after the Reporting Period', this dividend has not been reflected in the interim results. The amount of this interim dividend is £3.2 million.
The following dividends were paid and declared by the Company:
Six months to 30 September Year to 31 March 2010 2010 2009 2009 2010 2010 Pence £ million Pence per £ million Pence per £million per share share share Dividends payable or paid Previous year 11.00 5.3 11.00 5.3 11.00 5.3final Current year - - - - 6.50 3.1interim 11.00 5.3 11.00 5.3 17.50 8.4 Dividends declared or proposed Interim 6.75 3.2 6.50 3.1 6.50 3.1 Final - - - - 11.00 5.3 6.75 3.2 6.50 3.1 17.50 8.4
The final dividend for the year to 31 March 2010 of 11.00 pence per share was approved by shareholders on 28 July 2010. This dividend was held as a liability at 30 September 2010 and was paid on 8 October 2010.
8 Earnings per share
Earnings per share is calculated on profit attributable to owners of the Company of £6.4 million (2009: £4.1 million, year to 31 March 2010: £11.4 million). Adjusted profit attributable to owners of the Company, which provides a consistent measure of operating performance, was £8.1 million (2009: £6.6 million, year to 31 March 2010: £17.7 million) as shown in note 5.
Six months to Year to 30 September 31 March 2010 2009 2010 Million Million Million Weighted average number of shares in issue Basic 48.1 48.1 48.1 Dilutive effect of share options 0.4 - 0.4 Diluted 48.5 48.1 48.5
9 Acquisition of property, plant & equipment
Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Funded by cash 3.0 1.5 3.8 Funded by lease finance - - 0.3 3.0 1.5 4.110 Intangible assets Goodwill Customer Total relationships, contracts & orders £ million £ million £ million Cost At 1 April 2010 125.2 36.2 161.4 Foreign exchange translation (2.5) (1.2) (3.7) At 30 September 2010 122.7 35.0 157.7 Amortisation & impairment losses At 1 April 2010 0.8 16.5 17.3 Amortisation charge - 2.7 2.7 Foreign exchange translation - (0.5) (0.5) At 30 September 2010 0.8 18.7 19.5 Net book value At 30 September 2010 121.9 16.3 138.2 At 1 April 2010 124.4 19.7 144.1
An annual impairment test was performed on goodwill as at 31 March 2010, as required by IAS36 `Impairment of Assets'. This did not identify the need for any impairment. Management have not identified any indicators of impairment to goodwill as at 30 September 2010.
Goodwill Customer Total relationships, contracts & orders £ million £ million £ million Cost At 1 April 2009 (re-presented) 127.1 35.7 162.8 Foreign exchange translation (4.8) (2.9) (7.7) At 30 September 2009 122.3 32.8 155.1 Amortisation & impairment losses At 1 April 2009 0.8 8.1 8.9 Amortisation charge - 3.1 3.1 Foreign exchange translation - (0.6) (0.6) At 30 September 2009 0.8 10.6 11.4 Net book value At 30 September 2009 121.5 22.2 143.7 At 1 April 2009 (re-presented) 126.3 27.6 153.9No acquisitions occurred during the six months to 30 September 2009. Goodwillarising in the six months to 30 September 2009, and therefore opening balancesat 1 April 2009, have been re-presented to reflect adjustments to the fairvalue of net assets acquired on the acquisition of Industria PlasticaMonregalese SpA (`IPM') and an accrual for additional expenses relating to thisacquisition. Goodwill Customer Total relationships, contracts & orders £ million £ million £ million Cost At 1 April 2009 (re-presented) 127.1 35.7 162.8 Foreign exchange translation (1.9) 0.5 (1.4) At 31 March 2010 125.2 36.2 161.4 Amortisation & impairment losses At 1 April 2009 0.8 8.1 8.9 Amortisation charge - 6.3 6.3 Foreign exchange translation - 2.1 2.1 At 31 March 2010 0.8 16.5 17.3 Net book value At 31 March 2010 124.4 19.7 144.1 At 1 April 2009 (re-presented) 126.3 27.6 153.9
11 Acquisition
No acquisitions occurred during the six months to 30 September 2009.
The Group made no acquisitions in the year to 31 March 2010. During that year, fair value adjustments of £0.3 million were made to the net identifiable assets and liabilities relating to the acquisition of IPM. Payments of £0.2 million were made during the year to 31 March 2010 in respect of expenses relating to the acquisition of IPM.
12 Discontinued operationOn 7 July 2010, the Group divested the business and assets of ACG South Africa.As at 31 March 2010, the Group held for resale the business and assets of ACGSouth Africa. ACG South Africa's results have accordingly been presentedseparately from continuing operations and are disclosed as a discontinuedoperation. ACG South Africa was previously reported as part of the StructuralMaterials reportable segment. The results of the discontinued operationincluded in the unaudited condensed consolidated income statement are asfollows: Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Revenue 0.4 1.1 2.1 Cost of sales (0.4) (1.2) (2.2) Gross loss - (0.1) (0.1) Administrative expenses (0.1) (0.4) (0.8) Loss before tax (0.1) (0.5) (0.9) Income tax - overseas (0.1) 0.2 0.1 Loss after tax (0.2) (0.3) (0.8) Loss on disposal - - (0.5) Loss from discontinued operation (0.2) (0.3) (1.3)At 31 March 2010, the following assets attributable to ACG South Africa wereclassified on the condensed consolidated balance sheet as being held forresale: £ million Property, plant & equipment 0.5 Inventories 0.3 Total assets held for resale 0.8
The consideration paid for the business and assets of ACG South Africa was ZAR5.4 million (£0.5 million).
13 Reconciliation of net cash to movement in net debt
Six months to Year to 30 September 31 March 2010 2009 2010 £ million £ million £ million Net (decrease)/increase in cash (15.2) (2.7) 6.2 Drawdown of bank loans (5.3) (9.8) (8.6) Drawdown of lease finance - - (0.3) Repayment of bank loans 31.5 32.7 37.0 Repayment of lease finance liabilities 0.1 0.1 0.3 11.1 20.3 34.6 Effect of exchange rate fluctuations 3.7 9.3 6.0 Movement in net debt 14.8 29.6 40.6 Net debt at start of period (79.6) (120.2) (120.2) Net debt at end of period (64.8) (90.6) (79.6)
Net debt comprises cash balances, bank overdrafts, bank loans and lease finance obligations.
Interim Results
__________________________________________________________________________________
For the six months to 30 September 2010
STATEMENT OF DIRECTORS' RESPONSIBILITIES
This interim results announcement 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 results announcement 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 IAS34 `Interim Financial Reporting' as adopted by the European Union; * the interim management 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, together with a description of the principal risks and uncertainties for the remaining six months of the financial year); and * the interim management 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, together with disclosure of any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year). By order of the BoardDG RobertsonFinance Director9 November 2010
vendorRelated Shares:
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