Home   Log Out   Upgrade   Our Services   My Account   Contact   Help



8 September 2008

Metalrax Group PLC

Announcement of Half Year Results for the six months to June 2008

Metalrax Group PLC ('Metalrax' or 'the Group'), the niche supplier of specialist engineering and consumer durable products, today announces its half year results for the six months to 30 June 2008.

Financial Highlights

*See note 5

** See note 8 

Operational Highlights

Commenting on the results, Andrew Richardson, Chief Executive, said:  

'The Group's turnaround has and will continue to involve radical change. We have experienced management in place that is executing a turnaround of a Group that was in long term profit decline. We will continue to dispose of under-performing businesses in poor market positions; we will seek out businesses for acquisition in niche markets where our management can add value; and we will deliver organic profit growth by continuing to strengthen the management of some of the existing attractive businesses in the Metalrax portfolio. In all these respects, we have made progress this year.' 

Enquiries:    

Metalrax Group PLC                                           Tel:  +44 (0) 121 433 3444    

Andrew Richardson, Group Chief Executive 

Michael Stock, Group Finance Director

Hogarth Partnership Limited                            Tel:  +44 (0) 20 7357 9477    

Rachel Hirst

Andrew Jaques

Anthony Arthur

Arden Partners                                                     Tel: +44(0) 20 7398 1637

Chris Fielding

Steve Douglas  

Chairman's Statement

The Group continues its programme of transformational change under a new executive management team. In the first half of 2008 we made an acquisition and exited two businesses, as well as rationalising and improving underlying operating performance in a number of businesses despite a challenging market. In addition we made a number of important senior management changes.

During the first half of 2008, the Group delivered operating profits before exceptional items  and goodwill impairment in line with market expectations. This is a satisfactory outcome in the face of the increasingly difficult market conditions in which we operate. The Group has taken appropriate action in response to those challenges.

Operating profit before exceptional items and goodwill impairment was £2.0 million (2007: £2.0 million). Following our exit from various underperforming businesses sales showed a decline on the previous year, particularly in retail and construction markets. The gross margin at 30.5% (2007: 27.8%) reflected the higher margin profile of our newly acquired PGL business and various non-recurring revenues, which are referred to in the Financial Review below.

Exceptional items during the period amounted to £1.8 million of cash costs. There was a  non-cash goodwill impairment charge of £4.6 million associated with our underperforming operations. After exceptional items and goodwill impairment the Group has made a loss for the period of £5.3 million (2007: £0.4 million).

We have made good progress on working capital management. Net debt was reduced to £12.1 million at 30 June 2008 (December 2007: £12.5 million), despite the £3.2 million PGL acquisition which was financed from our own cash resources.

While we believe it is not prudent to make a dividend payment at the half year, the Board remains confident that the Group is achieving an underlying turnaround. As indicated in our trading update of 16 January 2008, the Group has resolved to implement a new, progressive and sustainable policy, at an appropriate juncture, whereby future dividends will be covered between 2.0 and 2.5 times by its underlying earnings.  

We anticipate that the current year result will be broadly in line with market expectations. 

J R A Crabtree

Chairman

8 September 2008

  Chief Executive's Review

Strategic Progress

In my first full period since taking over as Group Chief Executive I am able to give an informed impression of the position the Group occupies today.

With the UK economy in a period of significant flux, it is an unfortunate fact that our prime markets, construction and retail, are among the sectors worst affected by the global credit crunch.

In spite of the tougher economic climate, my strategy for the Group remains unchanged. This long-term strategy will enable us to develop a group of specialist engineering businesses that achieves superior long-term return on investment and consistent organic profit growth. These results will come from the supply of differentiated products and services into niche market sectors that can support profitable growth. The goals I have outlined will be achieved by high calibre, dedicated people securing technology and intellectual property to deliver superior customer solutions.

There is much to do in order to achieve the results that our strategy demands. The Group's turnaround has and will continue to involve radical change. We have experienced management in place that is executing a turnaround of a Group that was in long term profit decline. We will continue to dispose of under-performing businesses in poor market positions; we will seek out businesses for acquisition in niche markets where our management can add value; and we will deliver organic profit growth by continuing to strengthen the management of some of the existing attractive businesses in the Metalrax portfolio. In all these respects, we have made progress this year. 

Summary of Principal Actions

To date my team has delivered: -

• Profit turnarounds at Welland Engineering Supplies and MRX Automotive.

• Increased organic profit growth at Cooper Coated Coil, RTA, Advanced Handling, Toolspec and Weston Body Hardware.

• A £1.6 million capital expenditure programme at Cooper Coated Coil, delivered in August 2008, that positions it as Europe's leading non-stick pre-coat coil facility.

• Successful control of strong pressure to increase input prices, improvements in productivity and strong action on overheads in many of our businesses. 

• The acquisition, in January 2008, and successful integration of Post Glover Lifelink (PGL), which manufactures isolated electric power systems and raceways. PGL is already contributing strong profits and is giving us a foothold in the healthcare sector.

• The successful disposal of Bacol Fine Blanking in February 2008. This automotive business incurred an operating loss after exceptional items of £4.5 million in 2007.

• The closure of loss-making Down and Francis in June 2008. This structural steel business selling to the UK commercial construction market incurred an operating loss after exceptional items of £2.4 million in 2007. 

• The transfer of the Group's listing from the Main Market to AIM on 25 June 2008, which will lower compliance costs and enable the more efficient and cost-effective execution of future acquisitions and disposals.

• The appointment of new Group Finance Director, Michael Stock and a new Non-Executive Director, Ian Paling. Michael Stock took on the additional role of Company Secretary in August 2008.

• Timely financial management information is now produced routinely to high standards, using newly implemented and upgraded IT systems.

Review of Business Operations

Consumer Durables

Revenues down 5.2% to £11.5 million (2007: £12.1 million).

Operating profit was down 40.9% to £0.4 million (2007: £0.6 million) due largely to the fact that our bakeware business did not perform as strongly as usual at the beginning of 2008.

Our Consumer Durables business supplies a wide range of bakeware and kitchenware to the retail and commercial catering markets and accounts and contributes 21% of Group revenues (2007:20%).

Our bakeware business has had a slower than expected start to the year, reflecting the more difficult retail market climate. However, several management initiatives result in order intake rising towards the end of the year. 

Overall, our technical product knowledge, brands, routes to market and international footprint give us a strong platform from which to grow in this market.

Specialist Engineering

Revenues down 8.3% to £43.2 million (2007: £47.1 million).

Operating profit before exceptional items and goodwill impairment was up 16.5% to £1.6 million (2007 £1.4 million). Operating loss has increased to £4.8 million (2007: £1.0m) as a result of the goodwill impairment in the period.

Specialist Engineering accounts for 79% of Group revenues (2007:80%). Our core operations supply niche products and services to the healthcare and specialist automotive markets.  

In the healthcare sector, PGL has met our expectations in its first five months in the Group. PGL, which is based in Kentucky, USA, is a world leading manufacturer of isolated electrical power systems and electrical raceways for the medical, laboratory and educational sectors. It is the number two supplier in each of its primary product markets. The acquisition reinforces our commitment to expand into international markets and we are pleased with the successful integration of PGL which has already significantly enhanced our Specialist Engineering division. We will continue to invest in the healthcare sector where the demographic drivers remain strong in spite of the macro-economic conditions. 

Conversely, Stackright Building Systems has been particularly badly hit by the downturn in UK construction activity. In 2007 Stackright contributed a £1.1m operating profit by manufacturing vandal-proof cabins for the construction rental sector, which has declined sharply in the period. This business has suffered a fall in profits of £0.6m in the first half of 2008 to a loss of £0.1m, compared to the same period in 2007. 

Following our strategic review, we announced our intention to exit high volume, low margin automotive businesses.

However, our specialist automotive business, which caters primarily for off-highway vehicles, sport cars and the passenger car after-market,  enjoys strong long term growth drivers and significant barriers to entry. Our manufacturing processes include high quality specialised die casting, complex tube manipulation, fabrication and assembly. Some of our products are physically large and often bespoke. Our customers benefit from locally sourced manufacturing, high quality production and highly competent, experienced engineering resources.

The performance of some businesses in this division has been impacted by wider market conditions. However, we will continue to focus on delivering organic growth through core businesses. 

A motivated and committed team

I would like to acknowledge the passion, motivation and professionalism shown by our people in the face of considerable upheaval across the Group and highly challenging market conditions. I am confident that the commitment and competencies of our team provide strong foundations on which to build the future of the Metalrax Group.

Financial Review 

Results

The operating profit before exceptional items and goodwill impairment in the first half of 2008 was maintained at £2.0 million (2007: £2.0 million). After exceptional items and goodwill impairment the Group has made a loss for the period of £5.3 million (2007: £0.4 million). However, we took advantage of commercial opportunities in businesses now exited which will not recur in the second half. Without this contribution from non-recurring trading items, our operating profit in the period would have been £0.8m lower in the Specialist Engineering division.

Gross margin at 30.5% (2007: 27.8%) predominantly reflected the higher margin profile of our newly acquired PGL business and non-recurring revenues relating to businesses now exited. We will continue to focus on higher margin activities and opportunities.

Exceptional items of £1.8 million included restructuring costs relating to the closure of Down and Francis, further provision for losses on onerous contracts in MRX Romania, asset impairment at Welland and other reorganisation and restructuring costs consistent with 2007. A £4.6 million non-cash impairment charge has been applied to the carrying value of goodwill related to Welland Engineering Supplies and Stackright Building Systems.

Balance Sheet

Given the downward movement in the UK commercial property market in recent months the Board has revisited the property valuations at December 2007 and has reduced their value by £2.5m.  This amount (which is non-cash) has been offset against the revaluation reserve which was created in December and does not therefore impact earnings.  The balance sheet remains strong and unsecured.

Financing

Net debt was reduced to £12.1 million at 30 June 2008 (December 2007: £12.5 million), despite funding the £3.2 million PGL acquisition from our cash resources. No property disposals were recorded in the first half. We have a robust working capital management programme which has delivered good progress in this respect in the first half.

Dividend

For the reasons stated in the Chairman's statement we will not be making a dividend payment at the half year.

Financial Risks

The principal risks and uncertainties are unchanged from the Annual Report at 31 December 2007, being macro-economic climate and competition, raw material input prices, treasury risk, and pension risk.  Further detail is set out on page 15 of the Annual Report for the year ended 31 December 2007. 

Current Trading and Prospects

Sales volumes and order intake have shown signs of improvement since the end of the first half with the exception of those Specialist Engineering businesses with the greatest exposure to the construction sector. Market conditions in both construction and retail are widely expected to continue to deteriorate further through the remainder of 2008 and input prices of energy and steel are expected to rise further as annual purchase contracts work through. However, we will continue to take strong management action to counter these challenges.  

Taking into account the above the Board anticipates that the results for the year ending 31 December 2008 will be broadly in line with market expectations. 

Despite the challenging economic conditions, the Board believes that various initiatives and actions have been implemented that will enable further recovery and growth of the Metalrax businesses beyond 2008.

A J Richardson

Group Chief Executive

8 September 2008

  Financial Statements

Condensed consolidated income statement 

six months ended 30 June 2008

*Exceptional items (note 5) are items of income and expenditure that, in the judgement of management, should be disclosed separately on the basis that they are material, either by their nature or their size, to the understanding of the financial statements and where not to do so would distort the comparability of the financial performance between periods.

  Condensed consolidated balance sheet 

as at 30 June 2008

Condensed consolidated statement of recognised income and expense 

Six months ended 30 June 2008

Condensed consolidated cash flow statement 

six months ended 30 June 2008

Notes to the condensed set of financial statements 

six months ended 30 June 2008

1 General information

The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Ardath Road, Kings Norton, Birmingham, B38 9PN.

The company has its primary listing on the Alternative Investment Markets ('AIM') following its delisting from the London Stock Exchange on 25 June 2008.

This condensed consolidated interim financial information was approved for issue on 8 September 2008.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. The full accounts of Metalrax Group plc for the year ended 31 December 2007, which received an unqualified report from the auditors, and did not contain a statement under S.237(2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies.

The condensed consolidated interim financial information has been reviewed, not audited.

2    Basis of preparation

The condensed consolidated interim financial information for the six months ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34) as adopted by the European Union.

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which have been prepared in accordance with IFRS as adopted by the European Union.

3      Accounting policies

The condensed consolidated interim financial information has been prepared on the basis of the accounting policies expected to apply for the financial year to 31 December 2008 applicable to the Group under IFRS. The IFRS and IFRIC interpretations as adopted by the European Union that will be applicable at 31 December 2008, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing these interim financial statements. Thus the accounting policies adopted in these interim financial statements may be subject to revision to reflect further IFRS, IFRIC interpretations and pronouncements issued between 8 September 2008 and publication of the annual IFRS financial statements for the year ending 31 December 2008.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of properties.

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the condensed consolidated interim financial statements are disclosed within the Group's accounting policies as disclosed in the IFRS financial statements for the year ended 31 December 2007.

The same accounting policies are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, except for the following accounting policy on intangible assets which is new for the Group in 2008.

Intangible assets that are acquired on the acquisition of a business are stated at their fair value and are amortised over their useful lives as follows:

Brands:                                            indefinite

Beneficial customer contracts :    10 years

Computer software is stated at cost and is amortised over its useful life of 3 years.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2008, but are not currently relevant for the group.

IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.

IFRIC 12, 'Service concession arrangements'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2008 and have not been early adopted.

IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting', and requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes.

IFRS 2 (amendment), 'Share-based payment', effective for annual periods beginning on or after 1 January 2009. Management is assessing the impact of changes to vesting conditions and cancellations on the Group's SAYE schemes.

IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. Management is assessing the impact of the new requirements regarding acquisition accounting, consolidation and associates on the group. The Group does not have any joint ventures.

IAS 1 (amendment), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. Management is in the process of developing proforma accounts under the revised disclosure requirements of this standard.

IAS 32 (amendment), 'Financial instruments: presentation', and consequential amendments to IAS 1, 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. This is not currently relevant to the Group, as the Group does not have any puttable instruments.

IFRIC 13, 'Customer loyalty programmes', effective for annual periods beginning on or after 1 July 2008. This is not relevant to the Group.

IFRIC 14, 'IAS19 - The limit on a Defined Benefit Asset, minimum funding requirements and their interaction', effective for annual periods beginning on or after 1 January 2008. This is not currently relevant to the Group as the Group does not have an IAS19 surplus.

  4  Segmental information

The Group has been reorganised into two divisions - Specialist Engineering and Consumer Durables - from 1 January 2008. The principal activities of the two divisions are as follows:

Specialist Engineering - a variety of precision manufacturing activities that incorporate value adding technology for unique applications in the healthcare, niche automotive, high quality metal finishing and construction markets. This division is further analysed to show Construction & Infrastructure and Specialist Applications & Technology for internal reporting purposes.

Consumer Durables - manufactures and markets bakeware and associated ranges of kitchen accessories to both the retail and commercial markets in the UK and abroad.

Revenue represents amounts derived from the sale of specialist products which fall within the Group's ordinary activities after deduction of trade discounts and value added tax.  The primary segment is based on the activities and markets to which the individual operating business units serve and an analysis of external revenue and operating (loss)/profit are shown below:

a)   Segmental analysis by operating activity:

6 months to 30 June 2008

a)    Segmental analysis by operating activity (continued):

6 months to 30 June 2007

b)    Segmental analysis by geographic destination

5     Exceptional items

Reorganisation/restructuring costs incurred in the period relate to the closure of Down and Francis in May 2008 (£0.4m), losses on onerous contracts in MRX Romania (£0.5m), assets impairment at Welland Engineering Supplies (£0.1 million) and other reorganisation and restructuring costs at parent company, Metalrax Bordesley Green, MRX Automotive, and Stackright Building Systems, totaling £0.8 million. This disclosure is consistent with the year end accounts for 2007.

6     Finance expense

  7   Income tax charge/(credit)

The current income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year.  Current tax for the interim period is charged at 31%.

8     Loss per ordinary share

The basic and diluted loss per share are calculated based on the loss for the period and the adjusted earnings per share is calculated based on an adjusted profit after tax as calculated below. The weighted average number of shares used in the basic and diluted loss per share calculation is 119,897,298 (June and December 2007: 119,897,298).

There is no dilution in the loss per share calculation at the 30 June 2008.

9     Dividends

An interim dividend has not been declared for this period (six months ended 30 June 2007: 1.65pps). There was no final dividend paid during the period ended 30 June 2008 in respect of the financial period to 31 December 2007 (six months ended 30 June 2007: 3.75pps in respect of the financial period to 31 December 2006).

10     Acquisitions

On 25 January 2008, Metalrax Holdings Inc.  a wholly owned subsidiary of the Group, acquired the entire share capital of Post Glover Lifelink Inc. ('PGL') for a total cash consideration of £3,229,000.   PGL is based in Erlanger, KY, USA and is involved in the manufacture of isolated electrical power systems and electrical raceways for the medical, laboratory and education sectors. The transaction was accounted for by the purchase method of accounting.

PGL contributed an operating profit of £333,000 on revenues of £1,671,000 in the period from acquisition to 30 June 2008. If PGL had been part of the Group since 31 December 2007, it would have generated an operating profit of £417,000 on revenues of £2,021,000 for the period to 30 June 2008. PGL has operated as within the Specialist Applications and Technology sub-division.

A provisional assessment of the goodwill and other intangibles arising on the acquisition is shown below. Fair value of assets acquired is disclosed as 'provisional' on the basis that the fair values have been determined using information available to management as at interim reporting. Additional information may become available resulting in a change to the fair values within 12 months from the acquisition date, with any adjustments arising recorded against the initial acquisition entry.  

Intangibles assets acquired comprise brands of £286,000, beneficial customer contracts of £302,000 and capitalised software costs of £15,000. The PGL property was revalued on acquisition at $2,122,000 (£1,076,000).

In addition to the above, deferred consideration was paid in the period in respected of the acquisitions of Advanced Quality Solutions Limited and Stackright Building Systems Limited of £225,000 and £250,000, respectively.

11     Goodwill and other intangibles

The goodwill arising on the acquisition of Stackright Building Systems Limited has been adjusted following a reduction of £250,000 to the loan notes payable on this acquisition.

The directors have reviewed the carrying value of goodwill on the balance sheet at 30 June 2008. The goodwill previously acquired in respect of Welland Engineering Supplies Limited and Stackright Building Systems Limited has been impaired following an assessment of the future profitability and cash flows generated by these operating businesses.  

12     Share capital

13    Reserves

  14    Movement in equity

15    Reconciliation of net cash flow to movement in net debt

16    Pensions

17    Related party transactions 

All intra-group transactions have been eliminated on consolidation at 30 June 2008. There have been no other related party transactions in the period from 1 January 2008 to 8 September 2008.

  Independent review report to Metalrax Group PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of recognised income and expense, the condensed consolidated cash flow statement and related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting,' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Deloitte & Touche LLP

Chartered Accountants and Registered Auditor

8 September 2008

Birmingham, UK

  Statement of directors' responsibilities
six months ended 30 June 2008

The directors' confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Metalrax Group plc are listed in the Metalrax Group plc Annual Report for 31 December 2007.

By order of the Board

| Register |  Our Services |  About MoneyAM |  Terms and Conditions |  Privacy Policy |  Investment Warning |  Content Standards |  Corporate Solutions |  Advertise With Us |

2006 MoneyAM©