LWB.L Regulatory News (LWB)

19 Jul 2005 11:05

Low & Bonar PLC19 July 2005 19 July 2005 Press Release/Stock Exchange Announcement LOW & BONAR PLC 2005 INTERIM RESULTS Low & Bonar PLC today reports interim results for the half year ended 31 May2005. 2005 2004 % Turnover £110.5m £94.7m 16.7Operating profit pre exceptionals £ 4.2m £ 6.2m -32.5Profit before tax pre exceptionals and amortisation £ 4.8m £ 6.5m -25.8Profit before tax £ 3.9m £ 5.7m -31.9Earnings per share pre exceptionals and amortisation 3.26p 4.09p -20.3Earnings per share 2.61p 3.80p -31.3Dividends per share 1.70p 1.60p 6.2 Highlights •Strong revenue growth with turnover up 16.7% to £110.5m •Revenue growth offset, as predicted, by increased raw material costs, additional operating costs relating to major new product introductions and upgrades of manufacturing capability •Operating profit after exceptionals of £4.2m (2004: £6.0m) •Strong sales performance from Floors driven by full impact of MoD contract but with profit affected by almost £2m of raw material costs and increased sales and marketing •Robust performance in Yarns & Fabrics, having grown sales significantly and absorbing over £2m of additional raw material costs •Successful integration of two recent acquisitions in Yarns & Fabrics and significantly upgraded Belgian manufacturing capacity •Acquisition of Xirion, announced last week, further strengthens Yarns & Fabrics position as a global leader in the attractive artificial grass yarn market •Sale of Plastics gives enhanced strategic focus on the higher margin Floors and Yarns & Fabrics Divisions. Proceeds to finance further value-adding and strategically appropriate acquisitions •Dividend will be increased to 1.7p following capital restructuring (2004: 1.6p) Commenting on the results, Paul Forman, Group Chief Executive, said: "This is a satisfactory performance against a backdrop of high raw materialprices, combined with a difficult trading environment and anticipated additionalcosts. Our recent actions on cost reduction and product introductions,particularly in Floors, linked to the recent reductions in raw material costsgive us confidence for an improved second half. The disposal of our Plastics Division will allow us to focus more fully on ourtwo core Divisions and creates additional funds to support yet further growth.Our two acquisitions since the start of the current financial year are a clearindication of our commitment to this strategy." Contacts: Low & Bonar PLCPaul Forman, Group Chief Executive + 44 (0)20 7298 6820Jon Kempster, Group Finance Director Tulchan CommunicationsDavid Trenchard + 44 (0)20 7353 4200 Chairman's statement-------------------- The first half of 2005 has seen us deliver good revenue growth, both organicallyand by acquisition, and has seen the successful integration of our twoacquisitions made in 2004. The positive impact of this revenue growth was morethan offset by three foreseen factors which we highlighted at the preliminaryresults in February and at the AGM in April. These factors are over £4m ofincreased raw material costs, £0.7m of additional operating costs relating tonew product introductions in our Floors Division and also upgrades of ourmanufacturing capability in the Yarns & Fabrics Division. Accordingly Group pre-exceptional operating profit moved from £6.2m to £4.2m forthe 6 months ended 31 May 2005 with Bonar Floors particularly impacted by thecosts of the required reinvigoration of our product ranges. Yarns & Fabrics andPlastics produced commendable performances in holding and marginally increasingoperating profit despite the very significant adverse raw material movements.The Board today announced the proposed disposal of Bonar Plastics to Promens hf,a subsidiary of Atorka Group hf, for a consideration of £25.75m incash, subject to adjustments on completion. The disposal of Plastics gives usenhanced strategic focus and additional funds for building our two coreDivisions. The recent acquisition of Xirion is a clear illustration of ourcommitment to this strategy. Turnover was £110.5m (2004: £94.7m). Profit before tax was £3.9m (2004: £5.7m)after an interest expense of £0.5m (2004: £0.3m). Earnings per share were 2.61p(2004: 3.80p) with a tax rate of 29.8% (2004: 33.5%). As at 31 May 2005, theGroup had net debt of £7.9m (2004: net cash £5.8m). The acquisition of ADFIL inDecember 2004 represents the major movement in overall net debt against the netcash position at the same time last year. Dividend policy--------------- Following the disposal of Plastics, the Board has announced a proposal torestructure our share capital. Provided that this becomes effective and in theabsence of unforeseen circumstances, the Directors intend to declare and pay aninterim dividend of 1.7p per ordinary share which is expected to be paid toshareholders before the year end date of 30 November 2005. The Directors'recommendation regarding the final dividend will be made in the ordinary courseof business and will be considered at the Company's Annual General Meeting in2006. Chief Executive's review of operations Floors------Divisional sales grew 16% to £44.6m, from £38.4m. The majority of the increasewas a result of the full impact of the MoD contract although other areas didexperience some growth. As outlined above, a number of foreseen additional expenditures linked tobusiness growth were incurred. These factors, combined with selected marketpricing pressures and a £1m increase in raw material costs, meant operatingprofit was reduced to £3.5m from £5.6m in 2004. As a result of these additionalcosts we announced in June a cost restructuring programme that will deliver over£1m in savings per annum. This will help the Division to return to its fullmargin potential. To ensure we continue to drive organic growth, we have undertaken range launchesin four of our major ranges in 2005, namely Flotex, Chocflex, Tessera and Coral.The range changes are major events for the Division, with this level of activitybeing unprecedented, and have negatively impacted manufacturing efficiencies inthe first half as they increased our short term operational complexitysignificantly. The stock-build needed to cope with the range changes has alsoseen an anticipated working capital outflow which is expected to improve in thesecond half. We have seen continuing subdued demand in our markets, particularly inContinental Europe, and in some cases this is allied to price pressure driven bycompetition. We are confident that the cost actions being taken, the return tomore stable operational processes and the reception of our new ranges,especially Flotex, in the second half, will rebuild the margins to the historiclevels we have enjoyed in recent years. Yarns & Fabrics---------------Divisional sales grew 27% to £33.5m, from £26.3m. Operating profits were £2.2m(2004: £2.3m) despite a negative year-on-year impact of over £2m arising fromthe increase in raw material prices. Our Belgian business, as indicated previously, undertook a major investment inits non-woven capacity which reduced available capacity in the first half andhence temporarily reduced profit. This upgrade programme went well and isimproving both product cost and quality. Our Dundee operation continues to enjoysignificant growth. The outlook for this product remains very positive globallyand we are actively exploring the development of related market segments. Wehave introduced part of the grass manufacturing process into our Chineseoperation, Yihua Bonar, and expect to scale up to full manufacturing capabilityin 2006. Overall trading in our Chinese operation remains in line with ourexpectations. The relationship with Sinopec through this venture is proving apositive asset for us as we seek to expand further in China. The acquisition ofADFIL in December 2004 has contributed positively to the Division's operatingresults in the first half. The recently announced acquisition of Xirion willfurther strengthen our position as a global leader in the very attractiveartificial grass yarn market. Plastics-------- The continued focus on operational improvement and selective investment tosupport growth saw the Division increase sales to £32.3m from £30.0m in 2004.Operating profits grew to £0.6m from £0.4m. As with Yarns & Fabrics, the outcomewas all the more pleasing as about £1m of raw material increases had to beabsorbed in the period. This period's results continued the encouraging trend ofsustained improvement since 2003 and we believe that this improvement infinancial performance has been important in achieving a successful sale. We alsobelieve that the change of ownership will prove beneficial for the Divisionitself as it will be more central to its new Group. Outlook------- Our recent actions on cost reduction and product introductions, particularly inFloors, linked to the recent reductions in raw material costs give us confidencefor an improved second half. Our Floors business has started the second halfwell and we are confident that both it and the Yarns & Fabrics businesses willmove ahead in the second half. We are not anticipating market conditions tochange materially, nor a further easing of raw material prices, but we believeour underlying business strength and market share positions will continue toimprove. Furthermore the successful disposal of our Plastics Division will ensure greatermanagement focus and hence continued progress in our remaining two Divisions. Wewill continue to pursue our acquisition programme vigorously to take advantageof the strategic benefits from increased scale in these markets. Our acquisitionof Xirion reflects this strategy and is an extremely positive development forthe Group. LOW & BONAR PLC Unaudited Consolidated Profit and Loss Account for the half year ended 31 May2005 Six months Six months Year ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 TurnoverContinuing 106,698 94,679 201,651Acquisitions 3,786 - - ------- ------ ------- 110,484 94,679 201,651 ======== ======= ======= Operating profit before amortisation andexceptional costs Continuing 4,220 6,474 12,697Acquisitions 586 - - ----- ----- --- 4,806 6,474 12,697Amortisation of goodwillContinuing (297) (251) (583) Acquisitions (311) - - ------- ----- ------ Operating profit before exceptional costs 4,198 6,223 12,114 Exceptional operating costs (note 5)Continuing - (175) (423) -------- ------ ----- Operating profitContinuing 3,923 6,048 11,691Acquisitions 275 - - ----- --- --- 4,198 6,048 11,691 Net interest payable (495) (348) (743) Exceptional non operating gain (note 5)Gain on sale of fixed assets 179 - - ----- ----- ------ Profit on ordinary activities before taxation 3,882 5,700 10,948 Taxation (1,155) (1,912) (3,422) ------- ------ ------- Profit on ordinary activities after taxation 2,727 3,788 7,526Minority interest (109) - (109) ------- ----- ------- 2,618 3,788 7,417 DividendsPreference (11) (11) (23)Ordinary - (1,592) (4,486) -------- --------- --------- Transfer to reserves 2,607 2,185 2,908 ======= ======= ======= Dividend per ordinary share - 1.60p 4.50p ======= ======= ======= Earnings per ordinary share beforeexceptional items and amortisation of goodwill 3.26p 4.09p 8.13p Earnings per ordinary share beforeexceptional items 2.73p 3.91p 7.72pBasic earnings per ordinary share 2.61p 3.80p 7.43pFully diluted earnings per ordinary share 2.56p 3.77p 7.27p LOW & BONAR PLC Summary Unaudited Group Balance Sheet at 31 May 2005 31/5/05 31/5/04 30/11/04 £000 £000 £000 Fixed assetsTangible assets 58,937 55,471 58,423Intangible assets 22,778 9,595 10,824 ----------- ---------- ----------- 81,715 65,066 69,247 Working capital Stocks 37,806 34,277 33,681Debtors 57,144 49,880 51,518Creditors (47,594) (44,553) (51,714) ---------- --------- ---------- 47,356 39,604 33,485 ---------- ---------- ---------- Net (debt) / cash (7,915) 5,796 14,953 Tax, dividends and other liabilities (12,208) (9,818) (11,564) ---------- --------- --------- 108,948 100,648 106,121 ========== ========= ========= Capital and reserves Share capital 50,352 50,139 50,291Reserves 56,230 50,509 53,681 ---------- ----------- ----------- 106,582 100,648 103,972 Minority interest - equity 2,366 - 2,149 ---------- ----------- ---------- 108,948 100,648 106,121 ========== ========== ========== LOW & BONAR PLC Summary Unaudited Consolidated Cash Flow Statement for the half year ended 31May 2005 Six months Six months Year ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 Net cash (outflow)/inflow fromoperating activities (note 6) (4,364) 4,020 21,407 Net interest paid (622) (529) (830) Non-equity dividends paid (11) (11) (23) ------- ------ -------- Returns on investment and servicing (633) (540) (853)of finance Tax paid (512) (2,106) (3,699) Purchase of tangible fixed assets (4,446) (3,019) (6,871)Sale of tangible fixed assets 413 518 614Receipt of government grants 60 - - -------- ------- ------ Capital expenditure (3,973) (2,501) (6,257) Acquisitions and disposals (note 7) (10,373) 24 (1,731) Equity dividends paid (2,895) (2,687) (4,278) ------------ -------- -------- Net cash (outflow)/inflow beforemanagement of liquid resources and financing (22,750) (3,790) 4,589 Management of liquid resourcesDecrease in short term deposits 4,571 2,272 2,200 Financing Proceeds of share issues 63 3 183Purchase of own shares (83) - -Additional/(repayment of) loans 8,450 (2,226) (3,466) ------- -------- -------(Decrease)/increase in cash (9,749) (3,741) 3,506 ======= ======== ======= Reconciliation of net cash Opening net cash 14,953 10,386 10,386Exchange (98) (803) (205)Net cash (outflow)/inflow (22,770) (3,787) 4,772 -------- ------- -------Closing net (debt)/cash (7,915) 5,796 14,953 ======== ======= ======= LOW & BONAR PLC Consolidated Statement of Total Recognised Gains and Lossesfor the half year ended 31 May 2005 Six months Six months Year ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 Profit for the period 2,618 3,788 7,417 Currency translation differences onoverseas net investments and related borrowings (107) (4,055) (1,609) ------- -------- ------- Total recognised gains and losses for 2,511 (267) 5,808the financial period ======== ======= ======= LOW & BONAR PLC Reconciliation of Movements in Consolidated Shareholders' Fundsfor the half year ended 31 May 2005 Six months Six months Year Ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 Profit for the period 2,618 3,788 7,417 ------- ----- ------Dividends (11) (1,603) (4,509) ------ ------ ------- Result for period 2,607 2,185 2,908 Ordinary shares issued 63 3 183 Purchase of own shares (57) - -Other recognised gains and lossesrelating to the period (107) (4,055) (1,609) Long Term Incentive Plan 104 142 117 ----- ----- ----- Net increase /(decrease) in shareholders' 2,610 (1,725) 1,599funds Opening shareholders' funds 103,972 102,373 102,373 --------- --------- --------- Closing shareholders' funds 106,582 100,648 103,972 ========= ========= ========= LOW & BONAR PLC Segmental information for the half year ended 31 May 2005 Turnover Profit Six mths Six mths Year Six mths Six mths Year ended ended ended ended ended ended 31/5/05 31/5/04 30/11/04 31/5/05 31/5/04 30/11/04 £000 £000 £000 £000 £000 £000 CLASSES OFBUSINESSFloors 44,644 38,409 83,132 3,481 5,630 9,699Yarns &Fabrics- continuingbusinesses 29,730 26,310 59,290 1,881 2,295 5,334-acquisitions 3,786 - - 275 - - --------- --------- ------- ------- ------- ------Total Yarns& Fabrics 33,516 26,310 59,290 2,156 2,295 5,334Plastics 32,324 29,960 59,229 599 403 1,246 ------- ------- ------- ------- ------- ----- 110,484 94,679 201,651 6,236 8,328 16,279 ======= ======= ======= Central costs (2,038) (2,105) (4,165) ------ ------- ------Pre exceptionaloperating profit 4,198 6,223 12,114 Exceptional operating costs - (175) (423) ------ ------ ------Operating profit 4,198 6,048 11,691 Net interest payable (495) (348) (743) Exceptional non operating gain 179 - - ----- ------ ------- Profit on ordinaryactivities before taxation 3,882 5,700 10,948 ====== ====== ====== GEOGRAPHICALSEGMENTS United Kingdom 40,410 31,654 69,438 3,500 4,239 7,603ContinentalEurope 57,373 52,655 110,233 2,368 4,034 7,925North America 10,492 10,370 20,360 141 55 483 Asia 2,209 - 1,620 227 - 268 -------- ------ ------- ------- ------- ------- 110,484 94,679 201,651 6,236 8,328 16,279 ======== ====== ======= Central costs (2,038) (2,105) (4,165) ------- ------- -------Pre exceptional operating profit 4,198 6,223 12,114 Exceptional operating costs - (175) (423) ------- ------ -------Operating profit 4,198 6,048 11,691 Net interest payable (495) (348) (743) Exceptional non operating gain 179 - - ------- ------- ------ Profit on ordinary activitiesbefore taxation 3,882 5,700 10,948 ======== ======== =======Amortisation of goodwill LOW & BONAR PLC Notes on Interim Report 2005 1. This interim report has been prepared on the basis of the accounting policiesset out in the annual report for the year ended 30 November 2004. 2. This interim report was approved by the board of directors on 19 July 2005. 3. Taxation on the operating profit after interest before exceptional items hasbeen provided at a rate of 29.8% for the six months ended 31 May 2005 (2004:33.5%) which is the estimated rate of tax for the full year. The reduction isdriven by the resolution of an ongoing enquiry in France in favour of the Group 4. Basic and pre exceptional earnings per share are based on the weightedaverage of ordinary shares in issue during the half year of 99,783,636 (2004:99,476,439). The calculation of fully diluted earnings per share is based on theweighted average number of ordinary shares in issue plus the dilutive effect ofoutstanding share options and the 2003 Low & Bonar Long-Term Incentive Plan (the'2003 LTIP') awards (to the extent to which performance criteria had beenachieved at 31 May 2005) being 2,227,123 (2004: 705,820) shares. The number ofshares included in the calculation of fully diluted earnings per share was102,010,759 (2004: 100,182,259). Other awards under the 2003 LTIP arenon-dilutive as the shares concerned are accounted for on a contingent basis inaccordance with the treatment prescribed by FRS 14. 5. Exceptional items Operating costs Six months Six months Year ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 EC investigation - legal costs - (175) (423) ======== ======== ===== During May 2004 the Group received notification from the European Commission ofan investigation into alleged anti competitive practices in the Europeanindustrial bag market, a market that the Group exited in 1997. The exceptionalcosts relate to the legal costs of the Group addressing this matter. Theinvestigation is ongoing. A decision is anticipated during 2005. Non operating exceptional gain During the six months ended 31 May 2005 the Yarns & Fabrics business hasinvested in new production capacity to replace and update existing assets. Thesale of the redundant equipment resulted in a gain of £179,000 and is classifiedas an exceptional non operating gain. 6. Net cash (outflow)/inflow from operating activities Six months Six months Year ended ended ended 31/5/05 31/5/04 30/11/04 £000 £000 £000 Operating profit 4,198 6,048 11,691Depreciation and amortisation 4,347 4,046 8,136Write back of government grants (33) (30) (73)(Increase)/decrease in working capital (12,876) (6,044) 1,653 ------- -------- ------- (4,364) 4,020 21,407 ======= ======== ======= 7. Acquisitions The Group acquired LCM Construction Products Ltd. (trading as ADFIL), on 7December 2004, for a maximum cash consideration including costs of up to£13,394,000, including the repayment of external debt of £4,885,000. The Groupacquired cash balances of £204,000. Acquisition costs were £630,000. Of thetotal consideration, £231,000 was deferred until June 2005, a further £1,860,000is payable in equal tranches over the period 2005 to 2007, and a further£930,000 is payable contingent upon future operating performance over the period2005 to 2007. The previous shareholders of LCM Construction Products Ltd. wereLloyds TSB Development Capital and the existing management team who haveremained with the business. Provisional Book Fair Value Fair Value Adjustments Value £000 £000 £000 === Fixed assets 471 (190) 281Stock 411 30 441Debtors 1,750 - 1,750Creditors (1,967) (100) (2,067) ------ ------- -------Net assets acquired 665 (260) 405 Cash consideration paidin period including costs 5,692 Less cash acquired with business (204) Add external debt repaid on acquistion 4,885 ------- Net cash outflow during period 10,373 Included within tax dividends and otherliabilities at 31 May 2005 3,021 -------Total consideration payable 13,394 ======== Goodwill arising on acquisition 12,989 ======== Purchased Goodwill is capitalised on the balance sheet and amortised through theprofit and loss account over its estimated useful life. The Directors considerthat the estimated useful life of the Goodwill arising on the acquisition of thebusiness is 20 years. 8. FRS 17 Disclosure The pension cost figures used in these accounts comply with the current pensioncost accounting standard SSAP 24. Under the accounting standard FRS 17 a deficitwould be recorded on the group balance sheet at both 31 May 2005 and 30 November2004. Included within Debtors at 31 May 2005 is a pension prepayment of £8,432,000 (30November 2004: £7,266,000). Under FRS 17 at 31 May 2005 a net pension liability,after recognition of the related deferred tax asset, of £22,258,000 would havebeen recorded (30 November 2004: £22,052,000). This would have reduced netassets by £30,690,000 (30 November 2004: £29,318,000). Had FRS 17 been used in the preparation of these accounts the reported profitfor the period of £2,618,000 would have been unchanged, (30 November 2004:profit for the year of £7,417,000 would have been increased by £242,000). An actuarial valuation of the UK defined benefit scheme at 31 March 2005 isbeing carried out. The results are not yet available. The Directors are awarethat recent mortality studies indicate significant improvements in lifeexpectancy and that when the 31 March 2005 actuarial valuation is completed itis probable that this will increase the value of pension fund liabilities andthe overall deficit on the pension scheme. Further disclosure about the adoption of FRS17 by the Group can be found in theannual report and accounts for the year ended 30 November 2004. 9. International Financial Reporting Standards The Group has to apply IFRS in the year ending 30 November 2006. As stated inour 2004 Annual Report the biggest impact will arise from inclusion of thepension fund deficit on the balance sheet and its impact on distributablereserves. We intend to report information under IFRS for the first time afterour preliminary announcement for the year ending 30 November 2005. 10. The comparative figures for the financial year ended 30 November 2004 arenot the Company's statutory accounts for that financial year. Those accountshave been reported on by the Company's auditors and delivered to the Registrarof Companies. The report of the auditors was 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