13th Sep 2006 07:03
Melrose PLC13 September 2006 For Immediate Release 13 September 2006 MELROSE PLC UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Melrose PLC today announces its interim results for the six month period to 30June 2006. The highlights of the results, which are reported under IFRS, are: • Revenue for the period was £255.5m • Operating Profit (before exceptional costs, exceptional income and intangible asset amortisation other than computer software amortisation) for the period was £25.8m. After these costs operating profit was £20.0m • EPS (before exceptional costs, exceptional income, intangible asset amortisation other than computer software amortisation and before profit on disposal of businesses) for the period was 5.4p. After these costs basic EPS was 4.7p per share • Interim dividend of 2.25p per share Christopher Miller, Chairman of Melrose PLC, today said: "We have had a busy 16 months getting to grips with the businesses we bought inMay last year. Raw material prices haven't helped, but we've managed to producesome very encouraging results, particularly from Aerospace OEM, and we'reexcited that there's more to go for." Enquiries: Nick FoxM: Communications 020 7153 1540 CHAIRMAN'S STATEMENT I am pleased to report our interim results for the six months to 30 June 2006. The comparative figures for 2005 include the results of the Dynacast andMcKechnie businesses only from the date of acquisition on 26 May 2005. RESULTS Revenue for the period was £255.5m (2005: £43.1m). Profit before tax (beforeexceptional costs, exceptional income, intangible asset amortisation other thancomputer software amortisation and before profit on disposal of businesses) was£20.0m (2005: £4.6m) and basic earnings per share (before exceptional costs,exceptional income, intangible asset amortisation other than computer softwareamortisation and before profit on disposal of businesses) were 5.4p (2005:4.8p). After these items the profit before tax was £17.4m (2005: £4.6m) and thebasic earnings per share were 4.7p (2005: 4.8p). We are very pleased with these results which show an encouraging improvementduring our period of ownership. Underlying trading for our major businesses Aerospace OEM and Dynacast has beenencouraging. In particular, order books at Aerospace OEM are strong. Workcontinues to improve efficiencies at all levels in these companies supported byan increased investment programme. In common with most manufacturing businesses, rapid raw material price increaseshave proved difficult to accommodate over the last 12 months. However, thestrong positions our companies enjoy have allowed them to be successful inpassing on the large majority of these costs to their customers. The effortexpended by management in achieving this success should not be underestimated.In several cases, our companies have altered their terms of trade to lock-in newarrangements so that future price changes are easier to deal with. DIVIDENDS The Board has declared an interim dividend of 2.25p per share. This will bepaid on 17 November 2006 to shareholders on the register at close of business on20 October 2006. BOARD APPOINTMENTS As previously announced, we appointed John Grant as our third non-executivedirector on 1 August 2006. We are extremely pleased to have available to us hislong and valuable experience, particularly in the manufacturing sector. STRATEGY After 16 months in our ownership, our businesses have clear goals and are wellon their way to improving sustainable profitability. It remains our strategy to realise the value in these businesses at theappropriate time and to make significant returns to shareholders. The size ofthese may depend to an extent on constraints such as recent pensions'legislation and in this context we will pursue whichever course of action is inshareholders' best interests. Christopher Miller13 September 2006 CHIEF EXECUTIVE'S REVIEW I am pleased to set out below reports on the operating divisions. DYNACAST Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 107.3 16.2Headline Operating Profit * 11.1 2.2 Dynacast is a global manufacturer of precision engineered, die-cast metalcomponents. The products are manufactured using proprietary die-castingtechnology and are supplied to a wide range of end markets, includingautomotive, healthcare, telecommunications and consumer electronics. Dynacast performed well in the first half of 2006. Its profit was verycreditable despite having had to contend with zinc, the company's primary rawmaterial, more than doubling in price compared with the first half of last year.Dynacast has succeeded in recovering this increase from its customers for thevast majority of its sales. However, there is a short time lag for thisrecovery which can obscure the underlying trading performance. In order tomitigate this effect, where possible, Dynacast's customers have been persuadedto move to monthly pricing from quarterly pricing. Asia Pacific continues to be the major engine of growth, with sales volumeincreasing at the rate of 40% over 2005, whilst demand in North America andEurope was more subdued, resulting in an overall underlying growth rate of thebusiness of approximately 6%. This reflects the ongoing pattern of Dynacast'scustomers moving their production to 'low cost countries'. In order tocapitalise on this we continue to invest in the region, in particular China,where the existing facility in Shanghai has been expanded and key managementhave relocated from North America. From its purpose-built factory in Austria, Dynacast successfully startedsupplying Gillette with handles for its new razor product range. We continue tomanufacture other significant product ranges for Gillette from Dynacast'sfacility in Montreal. As part of the continuing review of the operating cost base to achieve optimumefficiency, we announced the closure of the Dynacast manufacturing facility inSpartanburg, South Carolina, during the period. This is in addition to theclosure of operating plants in the UK, Turkey and Taiwan since the business wasacquired last year, each of which was implemented on time and on budget. Dynacast is successfully meeting the challenges set for it when we acquired thebusiness last year. It is a high quality business with good prospects. We lookto the future with confidence. * Before exceptional costs, exceptional income and intangible asset amortisationother than computer software amortisation. AEROSPACE ORIGINAL EQUIPMENT MANUFACTURE("AEROSPACE OEM") Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 69.1 10.6Headline Operating Profit * 15.5 2.6 Aerospace OEM supplies safety-critical components to the global aerospaceindustry and is based in the US and Europe. The business has excellentengineering skills, producing value added products selling into niche markets inwhich it has strong market shares. Aerospace OEM has had an excellent first half with sales and operating profitstrongly ahead of last year. This has been achieved on the back of increases inmarket share and new business awards on key platforms. In addition, all thecompanies in the Aerospace OEM group continue to benefit from the buoyantconditions in the commercial aviation industry. Management have made good progress in implementing the operational improvementswhich have enabled the business to handle the higher volumes of sales, whilst atthe same time improving efficiencies. This has been of particular benefit toHartwell and its aftermarket arm, Hasco, enabling them to work together betterto derive maximum benefit from the strong market whilst improving customerservice. The £4.5m investment in machine tool technology at Hartwell, which wasapproved early in the year, is progressing well and should be largelyoperational by the end of the year. We are also investing in all of thesebusinesses in order to improve their performance during the current aerospacecycle. Tyee was very pleased to be selected by Boeing as a key supplier for all the tierod requirements for the new 787 Dreamliner. This significant business awardwas the result of working closely with Boeing to introduce ground-breakingcomposite tube technology to achieve critical advantages in strength-to-weightperformance. The required capital investment programme amounting toapproximately £2m is currently being prepared in anticipation of deliveriescommencing in late 2007 to early 2008. Electromech was delighted to receive FAA certification of its actuators for thenew Eclipse 500 aircraft, which has recently received provisional-typecertification. This 'very light jet' is an exciting and innovative developmentin the commercial aviation industry and Electromech looks forward to workingwith Eclipse to assist in the success of this project. In addition, Aerospace OEM management are also pursuing a number of otherimprovements, for example potentially significant savings in the supply chainoperations, contract profitability and working capital management. The civil aerospace market is continuing to perform strongly and with healthyorder books we are confident that the business will continue to produce goodresults going forward. AEROSPACE AFTERMARKET Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 11.7 2.5Headline Operating Profit * 0.4 nil In May 2006 Arger was sold. Although Arger represented the bulk of thisdivision, it made a loss in 2005. Following its sale, this division consists ofAQS which is a successful aircraft battery distribution business based primarilyin the US and Europe. This sale has involved a minimum of disruption to AQS's operations but has meanttaking on certain additional functions as a stand-alone business, such as a newIT system. AQS's customers and suppliers have welcomed the changes and in return AQS islooking forward to delivering significant benefits by being able to operate as adedicated team focusing on one product line. McKECHNIE VEHICLE COMPONENTS ("MVC") Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 26.5m 5.4mHeadline Operating Profit * (0.7m) 0.4m MVC manufactures decorated exterior trim products for the US automotiveindustry, principally coated metal and plastic wheel trims. MVC's results for the period were unacceptably poor and plans for improvementare underway. The introduction of new products in the final quarter isimportant for this business but the effect of this will only be seen from 2007. In addition to the well known, difficult conditions prevailing in the industry,there were two specific factors that impacted MVC's performance in the period. Higher petrol prices have led to a reduction in market demand and a number oftemporary plant closures as the US motor manufacturers seek to reduce highinventories. There has also been a shift in sales in the US market from largepick-up trucks and sports utility vehicles to smaller cars and crossovervehicles with a resultant negative impact on MVC's margins on some products. The second issue was the high level of contracted sales of loss making "legacy"products. MVC management has been charged with the task of renegotiating thesecontracts and seeking price increases. A degree of success has been achieved onboth fronts but in current market conditions this is a difficult and timeconsuming process. MVC has recently won a number of long term contracts for its new plastic wheeltrim products which begin selling in the second half of this year and willprovide an opportunity for better performance in 2007 and beyond. Substantialinvestment in new plating capacity has been approved to support the projectedincrease in sales. Although MVC's results are poor and the conditions in the US automotive industryremain difficult, we are hopeful that the measures being taken will start totake effect in 2007. McKECHNIE PLASTIC COMPONENTS ("MPC") Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 23.9 5.1Headline Operating Profit * 1.0 0.3 MPC is a UK producer of engineered plastic and plastic injection mouldedcomponents for products used in a variety of industries, including power tools,IT hardware, food packaging, personal care and automotive. Following the strategic review undertaken last year, it was decided to closeMPC's Northampton operation and to transfer some of its production to theStamford Bridge facility. This is scheduled to be completed before the yearend. This will result in a slimmed down business focusing on more profitable,highly engineered, value added products. The financial and operational performance of the business improved in the periodas management actively sought to increase selling prices to compensate forhigher raw material and energy prices, reduce scrap and optimise labourefficiency. The process of change and the improvement at MPC is ongoing. As these measurescontinue to take effect we look forward to a steady improvement in its results. McKECHNIE PSM ("PSM") Period Ended Period Ended 30 June 2006 30 June 2005£m 26 weeks 5 weeks Revenue 17.0 3.3Headline Operating Profit * 2.3 0.1 PSM manufactures and distributes specialised fasteners and joining systems,primarily for the IT and automotive market. The closure of the manufacturing facility in the Czech Republic and the transferof some of its production to Wuxi in China was successfully completed in thefirst half of the year. In addition to absorbing this relocated business from Europe, PSM experiencedstrong growth in the Asia Pacific region. Although brass is a core raw materialand its price has risen significantly during the period, the impact wasmitigated by higher volume, effective supply management and selling priceincreases. The specialised Threadlocking and Sealing and Metal Pressing businesses based inthe UK continue to enjoy steady performance. Having successfully closed its manufacturing plant in the Czech Republic, PSM iswell placed to benefit from its focus on the opportunities in the Asia Pacificregion. This is now a well balanced business and we look to the future withconfidence. OUTLOOK Our businesses operate in different markets and regions and face a number ofchallenges and opportunities. Dynacast's success in recovering raw material price increases demonstrates thestrength of the company's position in its market. Together with the investmentin Asia Pacific to capitalise on the strong demand in the region, the continuingfocus on the structural cost base and the new product introductions leave usconfident about its future prospects. The order books across the Aerospace OEM division are very healthy, reflectingthe continuing buoyant conditions in the civil aerospace industry. Through acombination of investment and operational improvements, we are seeking toexploit these conditions to the full; and with the aerospace cycle forecast toremain robust we look forward to this division continuing to perform well. With the exception of MVC where measures are in train to address the poorperformance resulting from the tough conditions in the US automotive industry,the other three smaller companies continue to make good progress. We remain confident about the performance of the Group for the balance of 2006and into 2007. David Roper13 September 2006 Consolidated Income Statement Continuing operations 6 months 6 months ended ended Year ended 30 June 30 June 31 December Notes 2006 2005(1) 2005(2) Unaudited Audited Audited £m £m £m Revenue 3 255.5 43.1 269.9Cost of sales (200.4) (32.2) (207.2) Gross profit 55.1 10.9 62.7 Net operating expenses before exceptional itemsand intangible asset amortisation (3) (29.8) (5.4) (35.8)Share of joint ventures operating profits 0.5 0.1 0.6Intangible asset amortisation (3) (2.7) - (3.1)Exceptional costs 5 (5.4) - (16.3)Exceptional income 6 2.3 - - Total net operating expenses 4 (35.1) (5.3) (54.6) Operating profit 20.0 5.6 8.1 Headline operating profit (4) 3 25.8 5.6 27.5 Profit on disposal of businesses 7 3.2 - - Finance costs (5.9) (1.0) (7.3)Finance income 0.1 - 0.7 Profit before tax 17.4 4.6 1.5Tax 8 (5.2) (1.6) (5.4) Profit/(loss) for the period from continuing operations 12.2 3.0 (3.9) Attributable to:Equity holders of the parent 12.2 3.0 (3.9)Minority interests - - - 12.2 3.0 (3.9) Earnings/(loss) per share - Basic 9 4.7p 4.8p (2.4)p - Diluted 9 4.6p 4.7p (2.4)p (1) includes one months trading in respect of the McKechnie and Dynacast businesses acquired on 26 May 2005.(2) includes seven months trading in respect of the McKechnie and Dynacast businesses acquired on 26 May 2005.(3) other than computer software amortisation(4) headline operating profit is operating profit before exceptional costs, exceptional income and intangible asset amortisation other than computer software amortisation. Consolidated Statement of Recognised Income and Expense 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Audited Audited Notes £m £m £mCurrency translation on net investments insubsidiary undertakings (23.3) 1.4 17.5Gains on cash flow hedges 10 1.2 - 1.5Actuarial adjustments on pension liabilities 1.7 (2.7) 2.2 Net (expense)/income recognised directly in equity (20.4) (1.3) 21.2Transferred to income statement on cash flowhedges 10 0.1 - (0.1) Profit/(loss) for the period 12.2 3.0 (3.9) Total recognised income and expense for the period (8.1) 1.7 17.2 Attributable to:Equity holders of the parent (8.1) 1.7 17.2Minority interests - - - (8.1) 1.7 17.2 Consolidated Balance Sheet 30 June 30 June 31 December 2006 2005 2005 Unaudited Audited Audited Notes £m £m £m Non-current assetsGoodwill and other intangible assets 378.3 400.6 408.2Property, plant and equipment 85.7 93.8 89.9Interests in joint ventures 2.8 2.6 2.7Derivative financial instruments 2.6 - 1.4Deferred tax assets 27.2 - 29.1 496.6 497.0 531.3Current assetsProperty held for re-sale - - 1.6Inventories 57.2 50.4 56.0Trade and other receivables 96.5 84.7 86.3Cash and short term deposits 14 15.4 17.5 15.2 169.1 152.6 159.1 Total assets 665.7 649.6 690.4 Current liabilitiesTrade and other payables 99.3 94.8 94.1Interest-bearing loans and borrowings 0.7 5.3 3.9Current tax liabilities 13.0 10.9 8.7Provisions 8.5 2.6 10.7 121.5 113.6 117.4 Net current assets 47.6 39.0 41.7 Non-current liabilitiesInterest-bearing loans and borrowings 202.3 204.2 210.0Deferred tax liabilities 18.9 2.6 19.9Retirement benefit obligations 57.8 60.6 60.5Provisions 10.4 13.6 12.0 289.4 281.0 302.4 Total liabilities 410.9 394.6 419.8 Net assets 254.8 255.0 270.6 EquityIssued share capital 10 0.3 0.3 0.3Share premium account 10 12.8 12.8 12.8Merger reserve 10 243.8 243.8 243.8Hedging and translation reserves 10 (3.1) 1.4 18.9Accumulated profits/(losses) 10 0.1 (4.1) (6.1) Equity attributable to holders of the parent 253.9 254.2 269.7 Minority interest 10 0.9 0.8 0.9 Total equity 254.8 255.0 270.6 Consolidated Cash Flow Statement 6 months 6 months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 Unaudited Audited Audited Notes £m £m £m Net cash from/(used in) operating activities 14 10.4 (9.5) 7.1 Investing activitiesInterest received 0.1 - 0.7Dividends received from joint ventures 0.3 - 0.5Proceeds on disposal of property, plant and 3.2 - 0.3equipmentPurchases of property, plant and equipment (9.4) (1.5) (7.0)Purchases of computer software (0.2) - (0.1)Acquisition of subsidiaries - (189.0) (199.6)Disposal of businesses 7 7.2 - - Net cash from/(used in) investing activities 1.2 (190.5) (205.2) Financing activitiesRepayments of obligations under finance leases (0.3) (0.2) (0.2)Loan notes repaid (0.5) (0.3) (0.3)New bank loans - 200.0 201.7(Decrease)/increase in overdrafts (3.0) 4.8 -New finance leases 1.4 - -Dividend paid 11 (7.7) - - Net cash (used in)/from financing activities (10.1) 204.3 201.2 Net increase in cash and cash equivalents 1.5 4.3 3.1Cash and cash equivalents at beginning of year 15.2 11.7 11.7Effect of foreign exchange rate changes (1.3) 1.5 0.4 Cash and cash equivalents at end of year 15.4 17.5 15.2 NOTES TO THE FINANCIAL INFORMATION 1. General Information The consolidated financial statements of Melrose PLC for the 6 month periodended 30 June 2006 were authorised in accordance with a resolution of thedirectors of Melrose PLC on 13 September 2006. The principal activities of the Melrose Group are described in note 3. The financial information for the six months ended 30 June 2005 has beenextracted from audited information prepared as part of the Group's entry to theOfficial List in December 2005 and does not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. The financial information forthe year ended 31 December 2005 does not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 December 2005 have been reported on by the Company's auditors anddelivered to the Registrar of Companies. The report of the auditors wasunqualified and did not contain statements under Section 237 (4) or (5) of theCompanies Act 1985. The results for the six months ended 30 June 2006 areneither audited nor reviewed by the Company's auditors. The interim financial information has been prepared on the basis of theaccounting policies set out in the Group's statutory accounts for the year ended31 December 2005. 2. Summary of Significant Accounting Policies The financial information included within the interim financial report has beenprepared using accounting policies consistent with International FinancialReporting Standards (IFRS's) as endorsed by the European Union, which are thesame as those set out in the Group's published accounts for the period ended 31December 2005. Details of the Group's significant accounting policies are available from theRegistered Office and in the Group's Annual Report which is available at http://www.melroseplc.net/. 3. Segment Information The Group's primary reporting format is business segments and its secondaryformat is geographical segments. The operating businesses are organised andmanaged separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offersdifferent products and serves different markets. All reported revenue is derivedfrom one activity, the sale of goods. The Dynacast segment is a supplier of die-cast parts and components to a rangeof industries. The Aerospace OEM ("OEM") segment is a supplier of specialisedquality components to the Aerospace industry. The Aerospace Aftermarket ("Aftermarket") segment is a supplier of replacement parts to the world's leadingairlines. McKechnie Vehicle Components ("MVC") supplies exterior trim productsto major vehicle manufacturers in the USA. McKechnie Plastic Components ("MPC")is a UK supplier of plastic injection moulded and extruded components to theautomotive, consumer durable, IT and other industries. The McKechnie PSM ("PSM")segment manufactures and distributes specialised fasteners globally toautomotive and other industries. Transfer prices between business segments are set on an arm's length basis in amanner similar to transactions with third parties. The Group's geographical segments are determined by the location of the Group'sassets and operations. Inter segment sales are not material and have not been included in the analysisbelow. 3. Segment Information (continued) Business segments The following table presents revenue and headline operating profit information(which the Directors believe is the best indicator of performance) and certainasset and liability information regarding the Group's business segments for theperiod ended 30 June 2006. Notes 5 and 6 give details of exceptional costs andincome. Revenue Headline operating profit 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m Dynacast 107.3 16.2 105.0 11.1 2.2 13.6OEM 69.1 10.6 69.4 15.5 2.6 14.6Aftermarket 11.7 2.5 15.2 0.4 - 0.3MVC 26.5 5.4 31.6 (0.7) 0.4 0.3MPC 23.9 5.1 27.1 1.0 0.3 1.2PSM 17.0 3.3 21.6 2.3 0.1 0.4Central - - - (3.8) - (2.9) 255.5 43.1 269.9 25.8 5.6 27.5 Total assets Total liabilities 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m Dynacast 298.9 292.3 301.1 56.1 44.0 52.7OEM 212.4 215.8 218.6 26.3 15.0 38.4Aftermarket 5.9 14.5 11.9 1.7 3.5 3.4MVC 40.6 41.5 42.7 11.1 8.8 10.9MPC 35.3 39.8 38.0 8.8 9.0 10.8PSM 42.6 40.8 46.7 15.1 31.3 17.3Central 30.0 4.9 31.4 291.8 283.0 286.3 665.7 649.6 690.4 410.9 394.6 419.8 3. Segment Information (continued) Capital Expenditure Depreciation & amortisation of computer software 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m Dynacast 4.0 1.0 3.7 3.5 0.6 4.5OEM 2.4 0.2 1.0 1.5 0.3 1.7Aftermarket 0.1 - 0.1 0.1 - 0.1MVC 1.8 - 0.6 1.0 0.2 1.1MPC 0.5 0.1 0.5 0.9 0.2 1.1PSM 0.8 0.2 1.0 0.5 0.2 1.1Central - - 0.2 - - 0.1 9.6 1.5 7.1 7.5 1.5 9.7 Geographical Area Revenue Headline operating profit 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m North America 121.6 20.9 133.9 13.8 2.9 15.6Europe 104.1 18.4 108.2 7.5 1.9 6.5Asia 29.8 3.8 27.8 4.5 0.8 5.4 255.5 43.1 269.9 25.8 5.6 27.5 Certain comparative figures have been restated to reflect more appropriatecorporate cost allocations. 3. Segment Information (continued) Total Assets Total liabilities 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m North America 443.2 387.5 395.2 68.7 43.9 61.1Europe 162.4 211.5 238.5 327.2 340.8 343.2Asia 60.1 50.6 56.7 15.0 9.9 15.5 665.7 649.6 690.4 410.9 394.6 419.8 Capital expenditure Depreciation & amortisation of computer software 6 6 6 6 months ended months ended Year ended months ended months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m North America 4.1 0.4 1.4 3.2 0.6 3.8Europe 3.9 0.8 4.2 3.4 0.7 5.0Asia 1.6 0.3 1.5 0.9 0.2 0.9 9.6 1.5 7.1 7.5 1.5 9.7 4. Net Operating Expenses Net operating expenses comprise: 6 months 6 months Year ended ended ended 31 December 30 June 30 June 2005 2006 2005 £m £m £m Selling and distribution costs (10.7) (2.2) (14.5)Administration expenses (21.8) (3.2) (24.4)Share of joint ventures operating profits 0.5 0.1 0.6Other operating costs (5.4) - (16.3)Other operating income 2.3 - - Total net operating expenses (35.1) (5.3) (54.6) 5. Exceptional Costs 6 months 6 months Year ended ended ended 31 December 30 June 30 June 2005 2006 2005 £m £m £mOther operating costsDynacast restructure (3.7) - (3.7)MPC restructure (1.7) - -PSM restructure - - (10.5)Listing expenses - - (2.1) (5.4) - (16.3) Dynacast Restructure The restructuring of the Dynacast business continued during the period with thecompletion of the closure of the businesses in Turkey, Taiwan and the UK and theannouncement of the closure of the Spartanburg, South Carolina plant. A chargeto the income statement of £3.7m was made in the period in respect of theclosure costs and asset impairment relating to the closure of Spartanburg. Theclosure of Turkey, Taiwan and the UK was achieved within the amounts provided at31 December 2005. MPC Restructure During the period, the closure of the Burnett (Northampton) plant of MPC wasannounced. A charge of £1.7m was made to the income statement during the periodwhich related to asset impairments of £1.0m (including the anticipated loss onsale of land and buildings of £0.6m), redundancy costs of £0.4m and costsrelating to the transfer of manufacturing to the Stamford Bridge, NorthYorkshire plant. PSM Restructure The restructuring of the European business of PSM was largely complete by 30June 2006 and had been accomplished within the provision made at 31 December2005. 6. Exceptional Income 6 months 6 months Year ended ended ended 31 December 30 June 30 June 2005 2006 2005 £m £m £m Other operating incomeOnerous contract provision release 2.3 - - At acquisition, an onerous contract was identified and appropriate provision wasmade based on the circumstances prevailing at acquisition. Subsequent to theacquisition and 31 December 2005, the terms of the contract have beenrenegotiated and the improved terms of the contract have been reflected in theaccounts resulting in a release to the income statement of £2.3m. Therenegotiation took place in July 2006. 7. Disposal of Subsidiaries On 26 May 2006, the Group disposed of its interest in Arger Enterprises Inc ("Arger"), Jesse Industries Inc ("Jesse") and McKechnie Aerospace USA Inc ("PTMI"), which comprised part of the Aftermarket division. On 31 March 2006, the Group sold the net assets of the Complex Cold Forming ("CCF") business of the PSM Division of McKechnie Specialist Products Limited. Net assets at the date of disposal were as follows: Arger Jesse CCF Total PTMI £m £m £m Property, plant and equipment 0.3 0.3 0.6Inventories 1.5 0.5 2.0Trade receivables 1.1 0.7 1.8Trade payables (1.7) (0.4) (2.1)Attributable goodwill 1.7 - 1.7 2.9 1.1 4.0Gain/(loss) on disposal 3.6 (0.4) 3.2 Total consideration 6.5 0.7 7.2 Satisfied by:Cash 6.5 0.7 7.2 Net cash flow arising on disposal:Cash consideration 6.5 0.7 7.2 The impact of Arger and CCF on the Group's results in the current and priorperiods is as follows: 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m RevenueArger/Jesse/PTMI 4.3 1.0 6.0CCF 0.7 0.3 1.8 5.0 1.3 7.8 Operating profitArger/Jesse/PTMI (0.1) - (0.4)CCF (0.1) - (0.4) (0.2) - (0.8) 8. Income Tax Analysis of the charge in the period: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Current tax 6.0 1.6 3.0Deferred tax (0.8) - 2.4 Total income tax expense 5.2 1.6 5.4 Of the tax charge, £0.4 million relates to the UK, £4.6 million to overseas and£0.2 million to joint ventures. The tax for the period is equivalent to the standard rate of corporation tax inthe UK (30%). This is due to the factors detailed below:- 6 months 6 months ended Year ended 30 June ended 30 June 2005 31 December 2006 2005 £m £m £m Profit on ordinary activities before tax 17.4 4.6 1.5 Tax on profit on ordinary activities at UK corporate tax 5.2 1.4 0.5rate (30%)Expenses not deductible for tax purposes 0.3 0.3 0.7Adjustment in respect of foreign tax rates 1.0 0.2 0.7Excess losses not utilised 0.4 0.1 4.3Utilisation of losses brought forward (1.6) - -Taxable income /(deductible items) not in incomestatement (0.4) (0.5) (0.8) Withholding taxes on remittances from overseas 0.3 0.1 - Total tax charge for the period 5.2 1.6 5.4 9. Earnings Per Share Earnings 6 months ended 6 months ended Year 30 June 30 June ended 2006 2005 31 December 2005 £m £m £m Earnings for the purposes of basic earnings per share being net profit/(loss) attributable to equity holdersof the parent 12.2 3.0 (3.9)Exceptional costs 5.4 - 16.3Exceptional income (2.3) - -Profit on disposal of business (3.2) - -Other intangible asset amortisation 2.7 - 3.1Tax (0.8) - (0.9) Earnings for headline earnings per share 14.0 3.0 14.6 Number Number Number Weighted average number of ordinary shares for the purposes of basic earning per share (million) 257.1 61.7 160.2 Further shares for the purposes of fully diluted earnings per share (million) 4.8 1.3 0.2 Earnings per share 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2006 2005 2005 Basic earnings per share 4.7p 4.8p (2.4)pFully diluted earnings per share 4.6p 4.7p (2.4)pHeadline earnings per share 5.4p 4.8p 9.1pFully diluted headline earnings per share 5.3p 4.7p 9.1p Where basic earnings per share are a loss, the anti-dilutive effect of anyfurther shares is ignored. All earnings are derived from continuing operations. 10. Issued Capital and Reserves Share Capital 30 June 30 June 31 December 2006 2005 2005 £m £m £m Authorised342,830,000 Ordinary Shares of 0.1p each 0.3 0.3 0.359,170 Convertible B shares of £1 each 0.1 0.1 0.1 0.4 0.4 0.4 Allotted, called up and fully paid257,119,989 Ordinary Shares of 0.1p each 0.2 0.2 0.259,170 Convertible B shares of £1 each 0.1 0.1 0.1 0.3 0.3 0.3 The Convertible B shares are non-voting and not entitled to any dividends.Under these arrangements the directors and employees hold Convertible B shares("incentive shares") which convert shortly after 31 May 2009 or, if earlier, ona takeover of the Company, into Ordinary Shares with an aggregate value onconversion equal to 10% of the increase in shareholder value. The number ofOrdinary Shares arising on conversion will be determined by reference to theaverage market price of an Ordinary Share for forty business days prior toconversion or the takeover offer price (as the case may be). The increase in shareholder value is calculated as the difference between themarket capitalisation of the Company at conversion (determined by reference tothe average market price of an Ordinary Share for forty business days prior toconversion, or the offer price (as the case may be)), and the net investedcapital in the company, being the aggregate of the amounts paid on the OrdinaryShares up to conversion less all amounts paid by the Company by way of dividendsor other distributions in respect of those shares, where each such amounts shallbe adjusted in line with the movement in the RPI (plus 2% per annum). Share premium account and merger reserve Share Merger premium Reserve account £m £m At 31 December 2005 and at 30 June 2006 12.8 243.8 10. Issued Capital and Reserves (continued) Reserves Hedging and translation Accumulated Minority reserve profits/(losses) Interests £m £m £m At 31 December 2005 18.9 (6.1) 0.9 Currency translation and hedging adjustments (22.0) - -Profit for the period - 12.2 -Actuarial adjustments on pension liabilities - 1.7 -Dividend paid - (7.7) - Total recognised income and expense for the period (22.0) 6.2 - At 30 June 2006 (3.1) 0.1 0.9 Hedging and translation reserve Hedging Translation reserve reserve Total £m £m £m At 31 December 2005 1.4 17.5 18.9 Exchange differences on translation of overseas - (23.3) (23.3)operationsIncrease in fair value of hedging derivatives 1.2 - 1.2Transfer to income 0.1 - 0.1 At 30 June 2006 2.7 (5.8) (3.1) 11. Dividends 6 months 6 months ended ended 30 June 30 June 2006 2005 £m £mAmounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2005 of 3.0p (2004: nil p) per 7.7 -share 12. Retirement Benefit Obligations The assets and liabilities relating to the McKechnie Pension Plan were reviewedby a qualified independent actuary at 30 June 2006. The retirement benefitobligations for the McKechnie Pension Plan included in the balance sheet arebased on a discount rate of 5.2%pa, earnings increases of 3.5%pa and pensionincreases of 2.9%pa. There are no changes to the mortality assumptions disclosedin the Annual Report. 13. Share Based Payments As disclosed in Note 10, the Company issues Convertible B shares to directorsand employees. The fair value charge is calculated using the Black-Scholesvaluation model in accordance with IFRS 2. A charge of £0.8m (which includes therequired National Insurance cost) has been included in the income statement forthe six months ended 30 June 2006. 14. Cash Flow 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Headline operating profit 25.8 5.6 27.5Adjustments for:Depreciation of property, plant and equipment 7.3 1.3 8.4Amortisation of intangible assets for computer software 0.2 0.2 1.3Abortive acquisition expenses paid - (3.4) (3.4)Restructuring costs paid and decrease in other provisions (5.4) - (6.1)Profit of joint ventures (0.5) - (0.6) Operating cash flows before movements in working capital 27.4 3.7 27.1Increase in inventories (5.4) (1.6) (7.0)(Increase) /decrease in receivables (14.3) (2.3) 0.3Increase / (decrease) in payables 8.1 (3.8) 1.2 Cash generated by operations 15.8 (4.0) 21.6Income taxes paid (1.2) (0.4) (4.8)Interest paid (2.6) (0.5) (4.5)Pension contribution paid (1.6) (5.1) (5.2)Non-cash items - 0.5 - Net cash flow from operating activities 10.4 (9.5) 7.1 14. Cash Flow (continued) Net debt reconciliation Foreign At 31 December exchange At 30 June 2005 Cash flow difference New leases 2006 £m £m £m £m £m Cash 15.2 1.5 (1.3) - 15.4Debt due within one year (3.5) 3.5 - - -Debt due after one year (209.0) - 8.5 - (200.5)Leases (1.4) 0.3 - (1.4) (2.5) (198.7) 5.3 7.2 (1.4) (187.6) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Melrose