RNS Number:5591M
McLeod Russel Holdings PLC
20 June 2003
McLeod Russel Holdings PLC
Interim Results for the six months ended 31 March 2003
McLeod Russel Holdings PLC, announced today its interim results for the six
months ended 31 March 2003.
Main points:
* Group operating loss* of #0.9m (2002: profit* #1.5m) against
difficult trading conditions reflecting decline in UK and export markets and
major contract deferrals from German healthcare and Cudd Bentley customers
* Implementation of an extensive cost reduction and rationalisation
programme at a cost of #2.5m this financial year
* Sales levels from core clean air and liquid filtration operations
maintained at #33m with solid performances from Vokes, Sweden and Switzerland
* A number of parties have expressed interest in principle in making
an offer for the Group and have been sent an Information Memoranda
*before goodwill amortisation and exceptional items
James Leek, Chairman, commented:
"This has been a very difficult period for McLeod Russel. Clearly the Group's
financial performance for the year will be poor, especially after taking into
account exceptional and restructuring costs. Traditionally our second half
trading is seasonally stronger and we should begin to see some initial benefit
from the cost reductions. We are convinced that the resolute action we have
taken has positioned the Group to reflect current sales levels and to take
advantage of any upturn in the markets in which we operate"
-ends-
Date: 20 June 2003
For further information contact:
McLeod Russel Holdings PLC Tel: 01235 536677
Ian Hazlehurst, Chief Executive
Richard Cotton, Finance Director
FINANCIAL SUMMARY
6 months to 6 months to
31 March 31 March
'03 '02
#000 #000
Turnover - continuing activities 36,982 37,453
Operating profit/(loss) - before goodwill amortisation and
exceptional items
Clean air and liquid filtration 12 1,540
Other ongoing activities 250 530
Central costs (1,165) (659)
Discontinued activities - 101
Total activities (903) 1,512
Basic earnings per share (11.27p) 1.04p
Adjusted earnings per share (3.82p) 1.08p
Interim dividend per share - 1.25p
Net asset value per share 52.4p 60.5p
Interim Statement
Overview
In January 2003, we indicated that our business was facing increasingly
difficult and volatile markets and the rest of the first half of the year has
seen a continuation of this position. In addition, we have also had to deal
with a number of important corporate events. As a result, we are reporting an
operating loss (before goodwill, amortisation and exceptional costs) of #0.9m
for the six months to 31st March 2003 (2002: #1.5m profit). The principal
trading and restructuring factors underlying this are detailed below. In view
of this result, the Directors are not declaring an interim dividend.
Corporate Events
* On 1st February 2003, we welcomed Chris Brown to the Board as a
non-executive Director.
* On 27th March 2003, we announced the receipt of an unsolicited approach with
an indicative offer for the entire share capital of the Company. We also
informed shareholders of a requisition from shareholders owning 14 per cent of
the Company to convene an Extraordinary General Meeting ("EGM") with proposals
to replace four of our five Directors with their own nominees.
* On 11th April 2003, we announced the withdrawal of the shareholders'
requisition for an EGM, the appointment of Mike Balfour as a non-executive
Director, and gave a trading update. We also stated that our two prime
objectives for the remainder of this year were:
* to complete the restructuring of the Clean Air businesses in order
to position the business more appropriately for the future; and
* to review whether shareholder value could be enhanced by seeking an
offer for the Group.
* On 30th April 2003, the Board further updated its 11th April 2003
trading statement indicating that the cost of organisational restructuring,
further integration of operations and rationalisation costs associated with
the development of European product lines would be approximately #2.5m. This
was expected to result in a loss before tax for the current financial year.
On 20th May 2003, we circulated the formal reports on this forecast from our
auditors and financial advisers as required by the City Code on Takeovers and
Mergers.
Trading Results
The company specific factors resulting in the first half operating loss (pre
goodwill, amortisation and exceptional items) of #0.9m, compared to #1.5m
operating profit in the comparable period last year were;
* a reduction of more than #1.3m in the operating profit of our
principal UK clean air business due to an unexpected decline in both
UK and export demand and, in particular, nuclear export contracts
which benefited last year;
* a #0.4m profit reduction due to corporate changes in the UK retail
sector which led to a severe cutback in the workload of our Cudd
Bentley engineering consultancy;
* a payment of #0.3m within central costs as an extra contribution to
reduce the pension deficit on the Wheway fund referred to in our last
annual report.
Overall, sales held up encouragingly, helped by a first time contribution from
McLeod Russel Denmark and there have been a number of successes elsewhere: our
Vokes UK liquid filtration company continues to show impressive profits growth;
the Swiss subsidiary is now trading profitably and McLeod Russel Sweden has
maintained performance. The clean air markets in continental Europe have, with
the exception of France, performed better than in the UK. Our German medical
business, with its strong market share and good order book, is hampered by
contract deferrals due to cash constraints in the German healthcare industry.
Eurogard has continued to make progress strategically including securing a new
long-term contract with its major customer.
Restructuring and Rationalisation
Faced with difficult market conditions and an uncertain outlook in Europe we
have been implementing an extensive programme of costs reduction and
rationalisation during the first half. The major measures which impacted the
first half (as included in Note 4 - Exceptional Items) have been:
* planned restructuring costs of #0.2m in France as we continue the
rationalisation of the European product range;
* a charge of #0.9m in respect of our UK activities. This charge
follows a review undertaken because of the fall off in business and
includes charges in respect of obsolete stocks and irrecoverable
debtors.
These two items plus other one-off operating charges in the first half total
#1.4m. This amount combined with forecast second half restructuring costs of
approximately #1.1m constitute the #2.5m referred to in the Corporate Events
paragraph above and will be fully reflected in the year end results. We expect
the benefits from these measures to come through during the latter part of the
second half and beyond.
In addition, the results for the half year show:
* a one time charge of #2.4m reflecting the full net present value of
the deficit of assets against MFR liabilities for the Joseph Mason Pension
Scheme (necessitated under current accounting rules because the active
membership has reduced) following an actuarial review as at 17th June 2003. The
contributions to correct this deficit will be made over a period of 10 years;
* a credit within operating profit of #0.4m arising from the
successful renegotiation of contractual arrangements and a supply contract with
Zellweger Luwa.
Our announcement of 20th May 2003 referred to increased pension provisions and
also a review of the carrying value of goodwill. This has now been completed
and no adjustment has been necessary.
Banking
In our announcement of 20th May 2003, we explained that, as a result of the
performance of the Group, the Company is in breach of its trading based bank
covenants although not in default of any payment obligations. Following
discussions with the Group's bankers an independent review of the Group has been
commissioned and is due to be completed during July 2003. The directors expect
that the Group will agree revised bank facilities within which it will be able
to operate. The banks are fully informed as to the position and are continuing
to extend banking facilities.
Update on potential offers
On 30th April 2003, the Board appointed new financial advisers to instigate a
process whereby potential offers for the Company could be evaluated and
explored. Amethyst Corporate Finance has issued Information Memoranda to a
number of parties who have expressed an interest in principle in making an offer
for the Group. Further announcements will be made when appropriate.
Outlook for the year
In light of the current market conditions, predicting the short-term trading
outlook is not easy. Traditionally our second half trading is seasonally
stronger and we should begin to see some initial benefit from the cost
reductions. We are convinced that the resolute action we have taken has
positioned the Group to reflect current sales levels and to take advantage of
any upturn in the markets in which we operate. Clearly, and as already
indicated, the Group's financial performance for the year will be poor,
especially after taking into account the exceptional and restructuring costs
referred to above. We recognise how painful this necessary process is both for
our shareholders and all who work within McLeod Russel.
We believe, however, that our underlying businesses have strong intrinsic value
and will ultimately be able to report financial results which justify the costly
actions which are having to be taken.
James Leek Ian Hazlehurst
Chairman Chief Executive
20 June 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 Months 6 Months Year ended
to 31 March to 31 March 30 Sept
2003 2002 2002
Total Total Total
(unaudited) (unaudited)
Notes #000 #000 #000
Turnover
Continuing operations 36,982 37,453 77,180
Discontinued operations - 2,801 2,801
Total turnover 36,982 40,254 79,981
Operating (loss)/profit pre goodwill amortisation and operating
exceptional items
Continuing (903) 1,411 3,784
Discontinued - 101 101
Total (903) 1,512 3,885
Goodwill amortisation (443) (427) (871)
Operating exceptional items 4a (478) - (404)
Operating (loss)/profit
Continuing operations (1,824) 984 2,509
Discontinued operations - 101 101
Total operating (loss)/profit (1,824) 1,085 2,610
Income from other fixed asset - 5 48
investments
Exceptional items:
Restructuring costs 4b (197) - -
(Loss)/profit on disposal of 4c
operations
(2,373) 382 249
(Loss)/profit on disposal of fixed 4d
assets (180) - 463
(Loss)/profit on ordinary (4,574) 1,472 3,370
activities before interest
Net interest payable (735) (693) (1,392)
Amounts written off investments
- exceptional - - (661)
(Loss)/profit on ordinary (5,309) 779 1,317
activities before taxation
Taxation on (loss)/profit on 2 (532) (245) (822)
ordinary activities
(Loss)/profit for the period (5,841) 534 495
Dividends 5 - (642) (847)
Retained loss for the period (5,841) (108) (352)
Earnings per share
- basic 3 (11.27p) 1.04p 0.96p
- adjusted 3 (3.82p) 1.08p 3.30p
- diluted 3 (11.27p) 1.04p 0.96p
Interim dividend proposed 5 - 1.25p 1.25p
Final dividend paid - - 3.25p
CONSOLIDATED BALANCE SHEET
31 March 2003 31 March 2002 30 Sept 2002
(unaudited) (unaudited)
Notes #000 #000 #000
Capital employed
Fixed assets
Intangible assets 16,894 16,559 16,341
Tangible assets 15,509 22,463 15,321
Investments 427 1,299 639
32,830 40,321 32,301
Current assets
Stocks 9,168 9,894 9,502
Debtors 21,297 22,133 21,316
Cash at bank and in hand 2,489 3,338 4,999
32,954 35,365 35,817
Creditors: amounts falling due within one year (18,553) (24,518) (19,569)
Net current assets 14,401 10,847 16,248
Total assets less current liabilities 47,231 51,168 48,549
Creditors: amounts falling due after more than (15,116) (17,748) (15,144)
one year
Provisions for liabilities and charges (4,967) (2,330) (2,406)
27,148 31,090 30,999
Financed by
Capital and reserves
Called up share capital 5,211 5,211 5,211
Share premium account 6 5,270 5,270 5,270
Other reserves 6 943 (1,415) (1,047)
Profit and loss account 6 15,724 22,024 21,565
Shareholders' funds 27,148 31,090 30,999
CONSOLIDATED CASH FLOW
6 months to 6 months to Year ended
31 March 2003 31 March 2002 30 Sept 2002
Notes (unaudited) (unaudited)
#000 #000 #000
Net cash inflow from operating activities 7 380 1,403 5,677
Returns on investments and servicing of finance (586) (669) (1,341)
Tax paid (788) (545) (907)
Capital expenditure and financial investment (425) (475) 4,686
Acquisitions and disposals (506) 885 980
Equity dividends paid (642) - (1,669)
Cash inflow/(outflow) before use of liquid resources/financing (2,567) 599 7,426
Management of liquid resources 37 200 191
Financing (638) (2,305) (8,669)
Decrease in cash (3,168) (1,506) (1,052)
RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET DEBT
6 months to 6 months to Year ended
31 March 2003 31 March 2002 30 Sept 2002
(unaudited) (unaudited)
#000 #000 #000
Decrease in cash (3,168) (1,506) (1,052)
Cash inflow from decrease in liquid resources (37) (200) (191)
Cash outflow from decrease in debt 530 2,209 8,479
Cash outflow from lease financing 108 96 190
Change in net debt resulting from cash flows (2,567) 599 7,426
Exchange movements (667) 219 (195)
Movement in net debt in the period (3,234) 818 7,231
Net debt at the start of the period (12,961) (20,192) (20,192)
Net debt at the end of the period (16,195) (19,374) (12,961)
ADDITIONAL INFORMATION
Statement of total recognised gains and losses 6 months to 6 months to Year ended
31 March 2003 31 March 2002 30 Sept 2002
(unaudited) (unaudited)
#000 #000 #000
(Loss)/profit for the period (5,841) 534 495
Currency translation difference on foreign currency net
investment 1,990 416 780
Taxation effect of currency translation difference on
foreign currency net investments - 78 97
(3,851) 1,028 1,372
Movements in shareholders' funds 6 months to 6 months to Year ended
31 March 2003 31 March 2002 30 Sept 2002
(unaudited) (unaudited)
#000 #000 #000
(Loss)/profit for the period (5,841) 534 495
Dividends - (642) (847)
(5,841) (108) (352)
Other recognised gains and losses relating to the period (net) 1,990 494 877
Net (reduction in)/addition to shareholders' funds (3,851) 386 525
Opening shareholders' funds 30,999 30,704 30,474
Closing shareholders' funds 27,148 31,090 30,999
ADDITIONAL INFORMATION
Segmental analysis Turnover Operating (loss)/ profit
6 months to 6 months to Year ended 6 months to 6 months to Year ended
31 March 31 March 30 Sept 31 March 31 March 30 Sept
2003 2002 2002 2003 2002 2002
(unaudited) (unaudited) (unaudited) (unaudited)
#000 #000 #000 #000 #000 #000
Class of business:
Clean air and liquid filtration 33,709 32,809 67,975 12 1,540 4,033
Other ongoing activities 3,273 4,644 9,205 250 530 1,301
Ongoing activities before 36,982 37,453 77,180 262 2,070 5,334
central costs, goodwill
amortisation and exceptional
items
Central costs - - - (1,165) (659) (1,550)
Discontinued activities - 2,801 2,801 - 101 101
Total before goodwill 36,982 40,254 79,981 (903) 1,512 3,885
amortisation and exceptional
items
Goodwill amortisation:
- Clean air and liquid - - - (443) (427) (871)
filtration
Exceptional items:
- Clean air and liquid - - - (478) - (353)
filtration
- Central costs - - - - - (51)
As reported 36,982 40,254 79,981 (1,824) 1,085 2,610
Geographical analysis by
destination:
United Kingdom 10,026 13,996 25,897
Rest of Europe 24,827 24,228 49,637
Rest of World 2,129 2,030 4,447
36,982 40,254 79,981
As the Group's operations are now all located in Europe, which is considered to
be substantially one homogeneous market, a geographic segmental breakdown of
turnover and operating profit by origin is not provided.
Central costs reported above of #1,165,000 includes for the first time #316,000
of the ongoing additional contributions paid to reduce the pension deficit on
the Wheway pension fund.
NOTES
1 Basis of presentation
The interim financial statements have been prepared in accordance with the
accounting policies set out on pages 18 to 19 of the Group's statutory accounts
for the year ended 30 September 2002 to which no changes have been made. The
results are presented as continuing activities and discontinued activities of
the Group in accordance with Financial Reporting Standard 3.
The Group meets its day to day working capital requirements through banking
facilities which expire in December 2005. Under the facility agreement the
Group has to comply with certain stipulated financial covenants. The facility
agreements stipulate covenant conditions up to September 2003 but not beyond.
It is anticipated that covenants beyond that date will be negotiated with the
bank.
As a result of the performance of the Group, the Group is in breach of its
trading based financial covenants and therefore the banking facilities are
currently repayable on demand. Following discussions with the Group's bankers
an independent review of the Group has been commissioned and is due to be
completed during July 2003. The Group is continuing its discussions with its
bankers who are fully informed of the position and are continuing to extend
banking facilities.
On the basis of cash flow forecasts which cover the period to September 2004,
their discussions to date with the Group's bankers and their expectations of the
outcome of the independent review the directors consider that the Group will
agree banking facilities within which it will be able to operate.
On this basis, the directors consider it appropriate to prepare the interim
statement on the going concern basis.
2 Taxation
The tax charge for the period is based on the estimated tax rate for the full
year, reflects the international mix of the Group's businesses and the inability
to relieve tax losses across international borders.
The tax charge includes a charge of #189,000 (March 2002: credit #23,000,
September 2002: credit #24,000) in respect of exceptional items.
3 Earnings per share
Basic earnings per share are calculated on earnings attributable to ordinary
shareholders of loss #5,841,000 (2002 profit : #534,000) and on the weighted
average of 51,814,394 (2002 : 51,365,540) ordinary shares in issue during the
period, after excluding ordinary shares held by the McLeod Russel Employee
Benefit Trust.
The adjusted earnings per share figure is calculated on attributable earnings
before exceptional items and goodwill amortisation of a loss of #1,981,000 (2002
profit : #556,000).
NOTES
4 Exceptional items
a) Operating exceptional items comprise:
Charges in respect of obsolete stocks and irrecoverable debtors of #925,000
following European product rationalisation and a significant reduction in the MR
UK business. A one off gain has been generated of #447,000 following the
successful renegotiation of contractual arrangements and a supply contract with
Zellweger Luwa. This results in a net total charge of #478,000.
FRS 3 exceptional items comprise:
b) Planned restructuring of the French operation following rationalisation of
the European product range of #197,000.
c) Provision for additional contributions required under the Mason Pension
Scheme rules following the updated MFR (Minimum Funding Requirement) valuation
of #2,373,000. Following disposal of the Masons operations the Group retained
certain funding obligations to the Scheme in respect of former employees.
d) Residual assets at the Masons Derby site have been fully written off by
#180,000 following review of potential net realisations.
5 Dividends
The directors do not recommend the payment of an interim dividend (2002: 1.25p).
6 Reserves
Share Capital
premium redemption Other Profit and
account reserve reserves loss account
#000 #000 #000 #000
At 30 September 2002 5,270 2,635 (3,682) 21,565
Exchange movements - - 1,990 -
Retained loss for the period - - - (5,841)
At 31 March 2003 5,270 2,635 (1,692) 15,724
7 Reconciliation of operating profit to net cash inflow from
operating activities
6 months to 6 months to Year ended
31 March 31 March 30 Sept
2003 2002 2002
#000 #000 #000
Operating (loss)/profit (1,824) 1,085 2,610
Depreciation and amortisation charges 1,584 1,783 3,471
Exchange losses 14 62 151
(Profit)/loss on disposal of tangible fixed (5) 12 (18)
assets
Decrease/(increase) in stocks 869 (32) 604
Decrease in debtors 1,261 285 3,356
Decrease in creditors (1,502) (1,570) (4,039)
Decrease in provisions (17) (222) (458)
Net cash inflow from operating activities 380 1,403 5,677
NOTES
8 The comparative figures for the financial year ended 30
September 2002 are not the company's statutory accounts for that financial year,
but an extract therefrom. Those accounts have been reported on by the company's
auditors and delivered to the Registrar of Companies. The report of the auditors
was unqualified and did not contain a statement under section 237 (2) or (3) of
the Companies Act 1985.
9 The Interim Report is being dispatched to shareholders before 30 June
2003 and copies will be available from the Group's registered office at 2
Hitching Court, Blacklands Way, Abingdon Business Park, Abingdon, Oxon, OX14
1RG.
This information is provided by RNS
The company news service from the London Stock Exchange
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