LWB.L Regulatory News (LWB)

17 Feb 2005 07:00

Low & Bonar PLC17 February 2005 Low & Bonar PLC Press Release/Stock Exchange Announcement LOW & BONAR PLC 2004 PRELIMINARY RESULTS Low & Bonar PLC today reported its results for the year ended 30 November 2004. 2004 2003 ------- ------Turnover £201.7m £191.7m 5% Operating profit before exceptionals £12.1m £11.1m 9% PBT pre-exceptionals and amortisation £12.0m £10.5m 14% PBT £10.9m £9.2m 19% Earnings per share pre-exceptionals and amortisation 8.13p 6.97p 17% Earnings per share pre-exceptionals 7.72p 6.69p 15% Dividend per share 4.50p 4.20p 7% Highlights • Turnover up 5% to £201.7m • Group PBT* up by 14% from £10.5m to £12.0m • EPS* rose by 17% to 8.13p • Increased dividend for the year of 7% to 4.50p • Strong operating cashflow resulted in year end net cash balance of £15m after the investment in Yihua Bonar • Ongoing performance improvements across all Divisions: • Our original Floors business reported sales growth for the first time in five years and achieved good margins • Yarns & Fabrics grew operating profit by over 50% • Plastics made good progress with its recovery programme and in the second half enjoyed its best collective six month operating profit margin performance for at least 3 years • Acquisition of ADFIL in December 2004 will be earnings accretive in the current year. * pre-exceptionals and amortisation Commenting on the results, Duncan Clegg, Chairman of Low & Bonar, said: "I am pleased to report that 2004 continued the Group's progress started in2003, particularly against a demanding backdrop of escalating raw materialprices and subdued markets. Our pre-exceptional earnings per share growth of 15%represents another encouraging step towards more acceptable profitabilitylevels. Looking ahead, although we expect the first half to be impacted bygrowth-related investments and continued high raw material pricing, ourexpectations are for continued progress in 2005." Commenting on the results Paul Forman, Chief Executive of Low & Bonar, said: "It is encouraging to report on another year of significant growth at Low &Bonar. Many of our businesses are beginning to demonstrate the capability togrow organically and this is being supported by additional investment to achieveour clearly identified growth plans. Equally our control on operating costs hasenabled us to increase Group operating margin even at a time of high rawmaterial prices. Furthermore the year end net cash balance of £15m underlinesthe Group's strong cash generation capabilities. The two recent acquisitions inYarns & Fabrics underline our commitment to pursue value-adding andstrategically appropriate acquisitions in Floors and Yarns & Fabrics. I amconfident that our progress will continue in 2005, that we will expandorganically and via acquisition, and that we will build on the operationalrecovery of the last two years." Enquiries:Paul Forman, Chief ExecutiveJon Kempster, Finance Director, Low & Bonar PLC Tel: 020 7298 6820 Alexia Latham, Tulchan Communications Group Ltd Tel: 020 7353 4200 Overview from Duncan Clegg, Chairman I am pleased to report that 2004 continued the Group's progress started in 2003.Our pre-exceptional earnings per share growth of 15% represents anotherencouraging step towards more acceptable profitability levels, especially in thecontext of the twin challenges of high raw material prices and subdued marketdemand. Within this positive overall achievement specific highlights include thelevel of organic sales growth being achieved in much of the Group, our continuedcontrol of operating costs, and the strong performance on managing cash flow.This progress is being underpinned by the further strengthening of ourmanagement team. Our Yarns & Fabrics Division acquired Yihua Bonar during theyear and ADFIL shortly after the year end and both of these will be earningsenhancing in the current year. We will continue our focus on growing organicallyand through acquisitions, making necessary investments in marketing and productdevelopment to build our capabilities for sustaining growth in the longer term,whilst also driving short-term profitability Financial Performance Turnover increased to £201.7m (2003: £191.7m), reflecting the contribution ofYihua Bonar from July 2004, as well as stronger organic growth. Operatingprofits before exceptional costs increased to £12.1m compared with £11.1m theprevious year. This is after deducting a goodwill amortisation charge of £0.6m(2003: £0.4m). Exceptional costs of £0.4m were incurred relating to legal feesin connection with the Group's defence against an alleged infringement ofEuropean Union anti-competitive laws by a business disposed of in 1997. Profit before tax was £10.9m (2003: £9.2m). Earnings per share beforeexceptional items were 7.72p (2003: 6.69p). Profit after tax, but beforeminority interests, grew to £7.5m (2003: £6.0m). Basic earnings per share were7.43p (2003: 6.05p). Strong cash flow from operating activities of £21.4m aided the achievement of ayear end net cash balance of £15.0m, despite more than £2m being spent on ouracquisition of Yihua Bonar. The acquisition of ADFIL in December 2004consumed a further £10m of this cash. Dividends The Board is recommending a final ordinary dividend of 2.90p (2003: 2.70p)payable on 27 April 2005 to shareholders on the register on 1 April 2005, makinga total ordinary dividend for the year of 4.50p (2003: 4.20p). This isconsistent with our stated policy of increasing dividends prudently until anacceptable level of cover has been established. The dividend for 2004 is 1.72times covered by pre-exceptional earnings per share. European Commission update As previously announced, the Group is one of a number of groups which hasreceived a statement of objections from the European Commission investigatingallegations of a cartel relating to industrial bags, a market which the Groupexited in 1997 following the sale of its Belgian packaging business to BritishPolythene Industries PLC. The turnover of the Belgian packaging business in 1997was approximately £17m of which industrial bags was a minority. The Companyattended the oral hearing of the European Commission in July 2004; a decision isexpected during 2005. Group Chief Executive's review Floors Divisional turnover increased by 10% to £83.1m in 2004 (£75.3m: 2003), includinga sales benefit of £4.2m from the full year contribution of Tessera, our carpettile business. Of this growth £3.4m arose from the new MoD contract that wasawarded in March 2004 but which started operationally in the second half of theyear. Divisional operating profit declined to £9.7m (2003: £10.7m). Specificcontributory factors, primarily in Tessera, will be non-recurring. Operatingmargins remained strong at 12% (2003: 14%) and return on net operating assetswas also healthy at 26% (2003: 27%). Further progress was made with our initiatives to rebuild the asset and skillbase to drive organic sales growth. Significantly, our original (i.e.pre-Tessera) Floors business achieved sales growth on a like-for-like basis forthe first time in five years. Furthermore, the original Floors business grewpre-exceptional operating profit for the second year in a row after severalyears of continued decline. The MoD contract is performing to our expectations: as anticipated, set-up costsin 2004 have offset the operating profit contribution but we will benefitfinancially in 2005 and, as importantly, will be well positioned to pursuesimilar contracts. Elsewhere in the original business the UK and French contractbusinesses grew satisfactorily, as did our non-European export activities. Salesin Benelux and in our UK consumer products were adversely impacted by subduedmarket demand and price competition. As with our other Divisions, Floors has hadto contend with appreciable cost rises in raw materials but increased plantutilisation and purchasing programmes helped to mitigate this. Our Tessera business was adversely impacted by the disruption resulting from thephysical relocation of a major warehouse (envisaged at the time of acquisition).This completed the transition of residual service links from the former parentcompany, Gaskell PLC, but the changes to distribution arrangements and relatedsales support infrastructure affected customer service levels and negativelyimpacted sales. These disruptive issues have now been addressed and indeedhigher service levels and stock availability than at any time are beingachieved. The relocation of Tessera's warehousing and distribution arrangements incurredan additional cost and gave the chance to reappraise appropriate stock provisionlevels. The combined net effect of these was to increase year-on-year costs, andhence reduce operating profit, by approximately £0.9m. Looking ahead, in 2005 we will continue to grow organically by focusing onattaining class-leading operational and selling processes, a successfulrealisation of the first full year of the MoD contract, increased investment inproduct range launches and selectively upgrading our production capability toensure product differentiation. We will also continue to consider opportunitiesfor strategically complementary acquisitions. Yarns & Fabrics Including a four month contribution from Yihua Bonar turnover grew by 11% to£59.3m (2003: £53.3m). Divisional operating profit grew by 51% to £5.3m (2003:£3.5m). Excluding Yihua Bonar, sales and operating profit growth were 8% and 44%respectively. Return on sales is now a much-improved 9% (2003: 7%) for theDivision and the return on net operating assets increased from 13% to 18%. Most encouragingly our Belgian business, the largest element of the Division, iscontinuing its strong recovery. This was in part due to continuing progress insales which commenced in the latter part of 2003, driven especially by major newbusiness in industrial fabrics and by continued market growth and market sharegain in our geotextiles business. In addition, we continue to make good progressin improving our manufacturing efficiencies. These positive factors more thanoffset a significant escalation in raw material prices. All other elementsremained broadly neutral year-on-year. At the end of the year we commenced a£2.5m upgrade to our non-woven geotextile factory to provide additionalmanufacturing capacity and industry-leading quality. This will impact output atthe plant in the first half of 2005 but will ensure greater productivity in thelonger term. We continue to focus on our initiatives to provide more value-addedservices across all our product segments - which benefits margins and ensuresdifferentiation. Our Dundee yarns business also made very good progress in 2004. Volumesincreased by almost 15% year-on-year with carpet backing holding steady andgrass yarns continuing the very strong growth of recent years. This volumegrowth, allied to the fact that we were able to pass on much of our raw materialcost increases via higher selling prices, gave us significant manufacturingefficiencies and meant we could offset the negative impact of having a large USdollar revenue stream. The investment in capacity expansion to satisfy thisgrowing demand that took place in early 2004 was executed to plan and furtherinvestment will take place in early 2005. The first few months of trading of Yihua Bonar proved very satisfactory and inline with our expectations. All three main product areas carpet backing,artificial grass pitch backing and geotextiles performed well and we areimproving the financial controls and operational efficiencies of the business.The underlying demand from the domestic Chinese market, which is the source ofover 80% of sales, has held up well throughout our period of involvement. The acquisition of LCM Construction Products Ltd, trading as ADFIL, took placein December 2004 immediately after our year end. We are working to ensure thatADFIL gets the benefits of being part of a larger business, and that theanticipated synergies are delivered. Our strategy for developing a portfolio of global specialist technical textile,yarn and fibre producers within this Division continues, with both successfulorganic expansion of the Belgian and Dundee businesses and the two recentacquisitions. We will continue to invest to support growth, increasing productdifferentiation and further product innovation in 2005. Acquisitions in segmentsthat are consistent with this strategy or with geographic expansion of our coreactivities will continue to be pursued. Plastics Operating profit increased by 7% to £1.2m in 2004 versus the previous year(2003: £1.2m), despite a decline in turnover of 6% to £59.2m (2003: £63.0m)Operating profit margins of 2% (2003: 2%) compare with an operating loss of 1%two years ago. North American Plastics had a strong second half and consequentlyrecovered to hold local currency profit year-on-year despite a poor first half;North European Plastics grew slightly as its continued progress was hampered bysluggish demand and pricing pressures in Holland and Germany in particular. OurFrench business remained at breakeven despite a revenue decline driven by pricecompetition and low market demand for material handling products, especially inchemical distribution. Our Spanish operation was loss-making at a localoperating profit level, although it is responding well to a change of managementand is recovering satisfactorily. Other positive developments included thecontinued emergence of Poland as a low-cost manufacturing base and as an entrypoint to Eastern European markets, the continued recovery of our Danishbusiness, and the progress of our US West Coast operations. Good progress in improving operational productivity, cost control and financialdiscipline has been offset in almost equal measure by unprecedentedly highlevels of polyethylene pricing. Encouraging operational progress has been madeunder Steve Good, who was appointed Divisional Managing Director almost a yearago, with second half performance proving the best for three years. Operatingprofit grew significantly in comparison to the second half of 2003, and morethan doubled in comparison to the first half of 2004. Both our North Americanand North European regions delivered local operating margins for the second halfin line with the targets set at the start of the turnaround programme. Moreover,this year-on-year improving trend has been achieved despite raw material costsbeing over £1 million higher in 2004, and with the majority of the increasebeing in the second half of the year. The price-competitive nature of theindustry and the subdued market conditions meant that passing on raw materialcost increases proved challenging. Looking ahead, we will continue with our strategy of focusing on operationalrecovery, which is delivering tangible improvements in performance. Amongstothers, we are undertaking a number of purchasing initiatives which will have aclear financial benefit. We have also further strengthened the divisionalmanagement team. Accordingly, although there remains much to be done in acomparatively demanding business context, I am encouraged by the prospects forthe Division in 2005. Outlook We have demonstrated our capability to grow organically in markets that are, ingeneral, linked to the health of the European and North American industrialsectors and which have been broadly subdued. In aggregate we see little changeto this pattern. Mild recovery in Continental Europe might be offset by a slightslowing of demand in the UK. Of greater significance to our profitability in2005 are our ability to gain market share, control our operating costs andmitigate raw material price rises through increasing selling prices. I placemore reliance on our ability to achieve these factors than on a major stimulusto our markets from strong macro economic recovery. At the time of writing thereare some tentative signs that the significant escalation in our raw materialprices over the last 12 months may be easing and this would offer a benefitshould they indeed reduce slightly. Although there are some product orgeographic segments that we expect to show significant growth, our medium-termprognosis remains one of positive but GDP driven growth. Progress will be drivenin 2005 and beyond by continued organic sales growth and productivityenhancements, allied to further strategically attractive acquisitions in theFloors and Yarns & Fabrics Divisions. Consolidated Profit and Loss Accountfor the year ended 30 November 2004 2004 2003 £000 £000 TurnoverContinuing 200,031 191,704Acquisitions 1,620 - ------- ------- 201,651 191,704 ======= ======= Operating profit before amortisation of goodwill and exceptional costs Continuing 12,425 11,467Acquisitions 272 - ------- ------ 12,697 11,467 Amortisation of goodwillContinuing (579) (397)Acquisitions (4) - ------ ------Operating profit before exceptional costs 12,114 11,070 Exceptional operating costsContinuing (423) (925) ------- ------ Operating profitContinuing 11,423 10,145Acquisitions 268 - ------- ------ 11,691 10,145 Net interest payable (743) (953) ------- ------ Profit on ordinary activities before taxation 10,948 9,192 Taxation on profit on ordinary activities (3,422) (3,151) ------- ------ Profit on ordinary activities after taxation 7,526 6,041 Minority Interest - equity (109) - ------- ------ Profit for the financial year 7,417 6,041 Dividends (including non-equity) (4,509) (4,201)(note 1) ------- ------- Transferred to reserves 2,908 1,840 ------- ------- Earnings per ordinary share before amortisationof goodwill and exceptional costs (note 2) 8.13p 6.97p ======= =======Earnings per ordinary share beforeexceptional costs (note 2) 7.72p 6.69p ======= =======Basic earnings per ordinary share (note 2) 7.43p 6.05p ======= =======Fully diluted earnings per ordinary share (note 2) 7.27p 6.04p ======= ======= All results are derived from continuing operations. Balance Sheetat 30 November 2004 Group 2004 2003 £000 £000 ------ ------ Fixed assetsIntangible assets 10,824 9,850Tangible assets 58,423 58,744 ------- ------ 69,247 68,594 ======= ====== Current assetsStocks 33,681 32,098Debtors ------- -------- due within one year 44,605 43,317- due after one year 7,281 5,746 ------- ------- 51,886 49,063Cash and short term deposits 28,938 27,862 ------- ------- 114,505 109,023 ------- ------- Creditors - due within one yearBank and other borrowings 6,097 5,049Other creditors 55,508 50,073 ------- ------- 61,605 55,122 ------- ------- Net current assets 52,900 53,901 ------- ------- Total assets less current liabilities 122,147 122,495 ------- ------- Creditors - due after one yearBank and other borrowings 7,888 12,427Other creditors 2,969 3,061 ------- ------- 10,857 15,488 ------- ------- Provisions for liabilities and chargesDeferred taxation 5,169 4,634 106,121 102,373 ======= ======= Capital and reservesEquity and non-equity called up share capital 50,291 50,137Share premium account 60,453 60,424Exchange reserve (7,542) (5,985)Profit and loss account 770 (2,203) ------- -------- Shareholders' funds- Equity 103,572 101,973- Non-equity 400 400 ------- -------- 103,972 102,373 Minority Interest - equity 2,149 - ------- -------- 106,121 102,373 ======= ======== Consolidated Cash Flow Statementfor the year ended 30 November 2004 2004 2003 £000 £000 £000 £000 Net cash inflow from operating actitivies 21,407 19,426 (note 3) Interest received 573 496Interest paid (1,403) (1,019)Non-equity dividends paid (23) (23) ----- -----Returns on investments and servicing of finance (853) (546) Tax paid (3,699) (1,949) Purchase of tangible fixed assets (6,871) (3,892)Sale of tangible fixed assets 614 667Receipt of government grants - 140 ----- ----- Capital expenditure (6,257) (3,085) Acquisition of subsidiaries (note 5) (2,405) (19,326)Cash acquired with subsidiary 609 -Sale of subsidiaries 65 39 ----- ------ Acquisitions and disposals (1,731) (19,287) Equity dividends paid (4,278) (2,984) ----- ------Net cash inflow/(outflow) before management of liquid resources and financing 4,589 (8,425) Management of liquid resourcesDecrease in short term deposits 2,200 6,800Proceeds of share issues 183 -Additional/(repayment of) loans due under one year 1,034 (3,329)(Repayment of)/additional loans due (4,500) 8,478after one year --------- ------- Financing (3,283) 5,149 ------- ------- Increase in cash (note 4) 3,506 3,524 ======= ======= Reconciliation of net cashOpening net cash 10,386 18,231Exchange (205) 580Net cash flow 4,772 (8,425) ------- ------ Closing net cash (note 4) 14,953 10,386 ======= ======= Consolidated Statement of Total Recognised Gains and Lossesfor the year ended 30 November 2004 2004 2003 £000 £000 Profit for the financial year 7,417 6,041 Currency translation differences on overseas netinvestments and related borrowings (1,609) 3,144 ------- ------ Total recognised gains for the year 5,808 9,185 ======= ====== Reconciliation of Movements in Consolidated Shareholders' Fundsfor the year ended 30 November 2004 2004 2003 £000 £000 Profit for the financial year 7,417 6,041 Dividends (4,509) (4,201) ------ ------ 2,908 1,840 Other recognised gains and losses relating to the year (1,609) 3,144 New share capital subscribed 183 - Long Term Incentive Plan provision 117 450 ------ ------- Net increase in shareholders' funds 1,599 5,434 Shareholders' funds at start of year 102,373 96,939 ------- ------- Shareholders' funds at end of year 103,972 102,373 ======= ======= Segmental Information Turnover Profit Net assets 2004 2003 2004 2003 2004 2003 £000 £000 £000 £000 £000 £000Classes of business Floors 83,132 75,334 9,699 10,716 37,060 39,410Yarns & Fabrics - existing businesses 57,670 53,326 5,066 3,523 26,446 27,781- acquisitions 1,620 - 268 - 3,725 - ------- ------- ------ ------ ------- -------Total Yarns & Fabrics 59,290 53,326 5,334 3,523 30,171 27,781Total Specialist Materials 142,422 128,660 15,033 14,239 67,231 67,191 North European Plastics 23,617 23,257 1,066 926 11,599 12,409South EuropeanPlastics 15,252 18,126 (306) (295) 5,756 6,259North AmericanPlastics 20,360 21,661 486 537 11,540 12,848 -------- -------- ------- ------ ------ -------Total Plastics 59,229 63,044 1,246 1,168 28,895 31,516 -------- ------- ------ ------ ------ ------ 201,651 191,704 16,279 15,407 96,126 98,707 ======== ======= Central Costs (4,165) (4,337) ------ ------Pre-exceptional operating profit 12,114 11,070Exceptionaloperating costs (423) (925) ------- -------Operating profit 11,691 10,145Net interest (743) (953) ------- ------- Group profit before taxation 10,948 9,192 ======= ======= Non-operating liabilities (4,958) (6,720)Net cash 14,953 10,386 ------ ------Total net assets 106,121 102,373 ======= ======= Geographical segments By origin:United Kingdom 69,438 60,559 7,603 9,225 37,719 35,761Europe 110,233 109,484 7,925 5,654 42,901 49,893North America 20,360 21,661 483 528 11,781 13,053Asia 1,620 - 268 - 3,725 - ------- ------- ------ ------ ------- ------- 201,651 191,704 16,279 15,407 96,126 98,707 ======= =======Central costs (4,165) (4,337) ------ ------Pre-Exceptional operating profit 12,114 11,070Exceptionaloperating costs (423) (925) ------ ------Operating profit 11,691 10,145Net interest (743) (953) ------ ------ Group profit before taxation 10,948 9,192 ====== ====== Non-operating liabilities (4,958) (6,720)Net cash 14,953 10,386 ------- -------Total net assets 106,121 102,373 ======= ======= Turnover by destination:United Kingdom 49,735 41,899Continental Europe 108,039 107,111North America 29,041 31,053Rest of World 14,836 11,641 ------- -------- 201,651 191,704 ======= ======== Exceptional operating costs of £423,000 in 2004 relate to legal costs inresponding to a statement of objections received from the European Commission concerning an investigation into alleged anti-competitive practices in the European industrial bags market. The group exited this market in 1997. The costs do not relate to any of the Group's current business. Exceptional operating costs in 2003 relate to the floors businesses. £434,000 was spent re-organising the existing businesswith a further £491,000 spent integrating the acquired carpet tile business.Non-operating liabilities represent other debtors greater than one year, tax anddeferred tax, dividends, provisions and equity minority interests. 1. Dividends 2004 2003 £000 £000On non-equity shares:First, second and third cumulative preferencestockHalf year to 31 May 2004 (paid) 11 11Half year to 30 November 2004 (since paid) 12 12 ------ ----- 23 23On equity shares:Ordinary sharesInterim dividend of 1.60p (2003 - 1.50p) (paid) 1,592 1,492Final dividend of 2.90p (2003 - 2.70p) (proposed) 2,894 2,686 ----- ----- 4,509 4,201 ===== ===== 2. Earnings per ordinary share 2004 2003 £000 £000Profits are calculated as follows: Profit after tax 7,526 6,041Preference dividend (23) (23)Minority interest (109) - ----- -----Profits attributable to equity shareholders 7,394 6,018 Exceptional operating costs 423 925Tax relief thereon (134) (289) ----- -----Earnings before exceptional costs 7,683 6,654 ----- ----- Amortisation of goodwill 583 397Tax relief thereon (174) (119) ----- -----Earnings before amortisation of goodwill and exceptional costs 8,092 6,932 ===== ===== Basic earnings per share 7.43p 6.05p ===== ===== Earnings per share before exceptional costs 7.72p 6.69p ===== ===== Earnings per share before amortisation of goodwill and exceptional costs 8.13p 6.97p ===== ===== Fully diluted earnings per share 7.27p 6.04p ===== ===== The two additional calculations of earnings per share before amortisation ofgoodwill and exceptional costs and before exceptional costs are given in orderto provide a more meaningful comparison of underlying performance. The calculation of basic and pre-exceptional earnings per share is based on theweighted average number of ordinary shares in issue during the year of99,526,756 (2003: 99,474,690). The calculation of fully diluted earnings pershare is based on the ordinary shares in issue plus the dilutive effect of theLow & Bonar 1997 Share Save Scheme and the 2003 Low & Bonar Long Term IncentivePlan awards (to the extent to which the performance criteria had been achievedat 30 November 2004) being 2,133,080 shares (2003: 208,151). The number ofshares included in the calculation of fully diluted earnings per share was101,659,836 (2003: 99,682,841). Other awards under the 2003 Long Term IncentivePlan are non-dilutive as the shares concerned are treated on a contingent basisin accordance with the treatment prescribed by FRS14. 3. Net cash inflow from operating activities 2004 2003 £000 £000 Operating profit 11,691 10,145Depreciation 7,553 8,733Amortisation 583 397Write back of government grants (73) (83)Increase in stocks (2,230) (1,802)Increase in debtors (2,963) (1,471)Increase in creditors 6,729 3,057Credit in respect of Long Term Incentive Plan 117 450 ------ ------Net cash inflow from operating activities 21,407 19,426 ====== ====== 4. Reconciliation and analysis of net cash Short term Borrowings Borrowings bank Under over Net Cash deposits one year one year cash/(debt) £000 £000 £000 £000 £000 At 1 December 2002 16,331 13,800 (8,030) (3,870) 18,231Cash flow 3,524 (6,800) 3,329 (8,478) (8,425)Exchange ratefluctuations 1,007 - (348) (79) 580 ------ ------ ------- ------- -------- At 1 December 2003 20,862 7,000 (5,049) (12,427) 10,386Cash flow 3,506 (2,200) (1,034) 4,500 4,772Exchange ratefluctuations (230) - (14) 39 (205) -------- ------- ------- ------- ------- At 30 November 2004 24,138 4,800 (6,097) (7,888) 14,953 ======== ======= ======== ======= ======= 2004 2003 Cash Cash £000 £000 Per balance sheet 28,938 27,862Short term bank deposits included (4,800) (7,000) ------- ------ As above 24,138 20,862 ======= ====== 5. Acquisitions Current YearOn 31 July 2004, the group purchased a 50.1% investment in an investment vehiclewhich was then used to purchase the trade and assets of Yihua Polytiles CompanyLimited, from Yihua Corporation, a subsidiary of Sinopec. The business wassubsequently renamed Yihua Bonar Yarns & Fabrics Company Limited ('YihuaBonar'). The cash investment made by Low & Bonar into Yihua Bonar was£2,181,000. There is no deferred consideration. The group incurred costs of£224,000 associated with the acquisition, of which £53,000 were non-audit feespaid to KPMG. The group may, at its own option, and by licensing its proprietarytechnology to the business, increase its ownership to 60%. Book Fair Value Fair Value Adjustments Value £000 £000 £000 Fixed Assets 2,010 - 2,010Stock 932 (60) 872Debtors 789 - 789Creditors (12) - (12)Cash 609 - 609 ------ --- ----- Net Assets acquired 4,328 (60) 4,268 ====== === ===== 50.1% share of net assets acquired 2,138Purchase consideration, including costs 2,405 ======Goodwill arising on acquisition 267 ====== The fair value adjustment of £60,000 relates to the downwards revaluation ofinventory to its replacement cost. Goodwill is capitalised on the balance sheet and will be amortised through theprofit and loss account over its estimated useful life. The directors considerthat the estimated useful life of the goodwill arising on the consolidation ofYihua Bonar is 20 years. Prior YearProvisional fair values allocated to the acquisition of the carpet tilesbusiness from Gaskell PLC in February 2003 were reported in the financialstatements for the year ended 30 November 2003. The fair values of the assetsacquired have been revised, in accordance with FRS 7, from £9,079,000 to£7,789,000. The revision is due to the revaluation of inventory to itsreplacement cost, amounting to £1,024,000 and the provision of obsoleteinventory of £266,000, a total adjustment of £1,290,000. Hence goodwill arisingon acquisition is now £11,537,000. 6. This preliminary announcement has been prepared on the basis of theaccounting policies set out in the annual report for the year ended 30 November2003. 7. The financial information set out in this preliminary announcement does notconstitute the company's statutory accounts for the year ended 30 November 2004or 2003 but is derived from those accounts. Statutory accounts for 2003 havebeen delivered to the registrar of companies, whereas those for 2004 will bedelivered following the company's annual general meeting. The auditors havereported on those accounts; their reports were unqualified and did not contain astatement under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange