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Laird PLC  -  LRD   

Half-year Report

Released 07:00 28-Jul-2017

RNS Number : 4004M
Laird PLC
28 July 2017
 

28 July 2017

 

 

Laird PLC

 

Results for the 6 months ended 30 June 2017 (unaudited)

 

Much improved first half performance, with encouraging progress across all three divisions.

 

 

 

6 months to 30/06/2017

6 months to 30/06/2016  

Change

 

 

 

 

Revenue

£440.5m

£352.5m

+25%

Underlying operating profit

£29.6m

£21.1m

+40%

Underlying profit before tax

£24.1m

£16.4m

+47%

Underlying basic earnings per share*

4.1p

3.5p

+17%

Operating cash flow

£20.8m

£25.4m

-18%

Net debt

£175.1m

£263.1m

 

Profit before tax

£19.4m

£6.2m

 

Profit after tax

£14.0m

£2.3m

 

Basic earnings per share

3.3p

0.6p

 

Interim dividend per share

1.13p

 

4.53p

 

†Non-IFRS measures. For the definition and explanation of the use of this non-IFRS information, which is used throughout, and reconciliations to the most directly reconcilable IFRS line item, see the Appendix to this announcement.

*2016 restated for the bonus element of the 2017 rights issue

 

Financial Summary

·   Much improved first half performance in line with our expectations, with encouraging progress across all three divisions

·     Group revenue up 25% on a reported basis and up 10% on an organic constant currency basis

·     Underlying profit before tax improved by 47% to £24.1m

·     Operating cash flow reduced to £20.8m, prior year included working capital inflow

·    Net debt to EBITDA was 1.5x compared to 3.2x at the year-end following successful completion of £185m rights issue in April

·     Profit before tax was £19.4m, up from £6.2m and profit after tax improved to £14.0m

·     Interim dividend of 1.13p declared

 

Operational Highlights

·    The Group remains on track to deliver the planned cost savings identified as part of our operating model re-design with $15m of benefits in 2017

·     Ongoing high levels of investment to support future growth, particularly in engineering capability

·     New simplified divisional structure and leadership changes delivering benefits

·     Good early progress in improving commercial and operational performance

 

Tony Quinlan, Chief Executive, commented:

 

"This is a much improved first half performance. I am encouraged by the progress in all three divisions, which reinforces our expectations for the full year, which remain unchanged.

"The recovery has been underpinned by our relentless focus on driving operational improvements and this remains an ongoing priority for Laird. We are establishing stronger foundations which will leave us better placed to take advantage of the significant future growth opportunities that exist in our end markets."

 

Divisional Performance

Performance Materials (PM)

·     Good revenue growth of 7% on an organic constant currency basis and 21% on a reported basis

·    Actions taken to stabilise and improve commercial and operational performance delivering 40bps improvement in operating margins

·     Strong operational controls established for smartphone cycle in second half of 2017

 

Connected Vehicle Solutions (CVS)

·     Strong revenue growth of 21% on an organic constant currency basis and 39% on a reported basis

·     Operating margin continues to be impacted by investments to drive long term growth

·     Encouraging new contract wins year to date with a lifetime value of over $400m, with revenues expected from 2019 to 2024

 

Wireless and Thermal Systems (WTS)

·    Revenue flat on an organic constant currency basis, against a strong comparative in H1 last year, and +13% on a reported basis

·     Benefits from operating model redesign are contributing to strong operating margin improvement

·     Synergies from establishing and optimising the new divisional structures are being delivered

 

 

 

This announcement contains inside information 

 

 

About Laird:

Laird is a global technology company providing systems, components and solutions that protect electronics from electromagnetic interference and heat, and that enable connectivity in mission critical wireless applications and antennae systems.  We are a global leader in the field of innovative radio frequency ("RF") engineering.

 

Enquiries:

 

 

Laird PLC

Tony Quinlan, Chief Executive Officer

Kevin Dangerfield, Chief Financial Officer

MHP

Reg Hoare

Tim Rowntree

 

Ollie Hoare

 

 

Tel:        +44 (0)20 7468 4040

 

Tel:        +44 (0)20 3128 8100

 

 

Results presentation & webcast

An analyst presentation will be held today at 8.30am at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.  A live audio webcast of the presentation will be hosted on www.laird-plc.com.  A replay of the webcast will also be available on our website for two weeks after the event. 

 

GROUP PERFORMANCE REVIEW

Good early progress has been made across the Group in the first half. The new three-divisional structure has been implemented successfully along with senior management changes in both Performance Materials and Wireless & Thermal Systems.  The new structure is already delivering results and there are clear plans in place to continue driving improved operating and commercial performance across the Group.

 

We successfully completed the rights issue in April, enabling the Group to reduce its borrowings under the existing revolving credit facilities. This significantly strengthened the Group's financial position as a result, leaving Laird better placed to take advantage of the significant growth opportunities that exist in our end markets.

 

Revenue

Reported revenue increased by 25% to £440.5m (2016: £352.5m), driven by growth in CVS and Performance Materials and positive currency effects. On an organic constant currency basis, revenue increased by 10%.

 

Underlying operating profit/operating margin

Underlying operating profit increased 40% to £29.6m (2016: £21.1m) with operating margin increasing to 6.7% (2016: 6.0%). The revenue and underlying operating profit of the divisions and the Group as a whole is shown in the table below:

 

6 months to 30 June

PM

CVS

WTS

Unallocated 

Total

2017

 

 

 

 

 

Revenue (£m)

Underlying operating profit (£m)

204.7

18.0

155.6

7.4

80.2

6.4

-

(2.2)

440.5

29.6

Operating margin (%)

8.8%

4.8%

8.0%

(0.5)%

6.7%

2016

 

 

 

 

 

Revenue (£m)

Underlying operating profit (£m)

169.5

14.2

112.3

5.6

70.7

5.1

-

(3.8)

352.5

21.1

Operating margin (%)

8.4%

5.0%

7.2%

(1.1)%

6.0%

 

Underlying profit before tax/profit before tax 

Underlying profit before tax increased 47% to £24.1m (2016: £16.4m). Reported profit before tax was £19.4m (2016: £6.2m).

 

Dividend

The Board believes in balancing returns to shareholders with investment in the business to support future growth. As stated at the final results in February 2017, the Board's intention was to resume dividends in 2017 based on a dividend per share that is covered approximately three times by full year underlying earnings per share.  

 

Thereafter, consistent with an improvement in earnings and cash generation in 2018 and beyond, and subject to prevailing market conditions, the Board expects to reduce dividend cover towards two times over the medium term.

 

In line with this revised dividend policy, an interim dividend of 1.13p is declared at the half year.

 

Divisional review

Performance Materials

6 months to 30 June

2017

£m

2016

£m

Change

Revenue

204.7

169.5

+21%

Underlying operating profit

18.0

14.2

+27%

Operating margin

8.8%

8.4%

 

 

Performance Materials revenue increased 21% to £204.7m (2016: £169.5m). Organic constant currency revenue increased by 7% versus the same period last year with Precision Metals, Magnetic and Ceramic products and Thermal materials all contributing to the increase. Underlying operating profit was up 27% at £18.0m (2016: £14.2m) and the operating margin increased to 8.8% (2016: 8.4%) driven principally by Precision Metals. The remaining businesses within the division also performed in line with expectations.

 

The actions taken to stabilise and improve the division's commercial and operational performance are already delivering positive results. This provides confidence in the improving delivery of operational performance in the second half of the year and for the ramp-up in volumes for the smartphone cycle.

 

Connected Vehicle Solutions

6 months to 30 June

2017

£m

2016

£m

Change

Revenue

155.6

112.3

+39%

Underlying operating profit

7.4

5.6

+32%

Operating margin

4.8%

5.0%

 

 

Connected Vehicle Solutions revenue increased significantly by 39% to £155.6m (2016: £112.3m).  Organic revenue at constant currency increased by 21% compared to the same period last year.  This reflects the continued high demand for our products and solutions in the connected automotive market where content requirements continue to grow and our technology is well regarded. Antenna revenues grew in the first half and Smart Device Integration products (compensers, USB hubs and wireless charging units) showed strong growth in the period across our major customers.

 

The division exited our loss-making business in Brazil in the first half of 2017. This resulted in a £3.0m exceptional charge which was made up of £2.8m of asset write downs and £0.2m of cash cost in the period. Underlying operating profit was up 32% at £7.4m (2016: £5.6m) with underlying operating margin falling slightly given the continued investment in the business, particularly in engineering capability. Year to date, the division has won contracts valued at over $400m which are expected to generate revenue from 2019 to 2024.

 

Wireless and Thermal Systems

6 months to 30 June

2017

£m

2016

£m

Change

Revenue

80.2

70.7

+13%

Underlying operating profit

6.4

5.1

+25%

Operating margin

8.0%

7.2%

 

 

Wireless and Thermal Systems revenue increased 13% to £80.2m (2016: £70.7m).  Organic revenue at constant currency was flat year-on-year.  Within this, Connectivity achieved modest growth, but this was offset by a continuing weak market for the Controls business which had a strong H1 comparator last year. Underlying operating profit was up 25% at £6.4m (2016: £5.1m) and the operating margin increased to 8.0% (2016: 7.2%), reflecting benefits from the divisional restructuring and operating model redesign. The division continues to refocus its efforts on high growth opportunities where we have strong technology positions.

 

FINANCE REVIEW

 

Profit before tax

Statutory profit before tax was £19.4m (2016: £6.2m) for the first half of the year. The following sections break down the movement into its component parts.

 

Underlying operating profit

The table below provides further analysis of the underlying operating profit. The gross profit percentage of 33.0% is lower year on year, reflecting a full period of ownership of Novero this year along with the recategorisation of certain overheads from SG&A to cost of sales. SG&A increased year on year primarily due to translation of costs into sterling offset by the movement of certain overheads into cost of sales. The increase in R&D in the first half to £37.7m (8.6% of revenue), up from £31.8m in 2016 (9.0% of revenue) is also primarily driven by the translation of those costs into sterling and partly due to continued investment in future growth opportunities. Net capitalised development was lower than last year.

 

Underlying operating margin increased to 6.7% (2016: 6.0%).

 

6 months to 30 June

2017

£m

2016

£m

Revenue

440.5

352.5

Cost of sales

(295.1)

 (227.0)

Gross profit

145.4

125.5

Gross margin %

33.0%

35.6%

SG&A

(82.8)

(78.5)

Gross R&D

(37.7)

(31.8)

Net capitalised development

4.7

5.9

Underlying operating profit

29.6

21.1

Underlying operating margin

6.7%

6.0%

 

Underlying profit before tax

Underlying profit before tax increased 47% to £24.1m (2016: £16.4m). This measure excludes exceptional items, amortisation of acquired intangible assets and fair value movements on financial instruments.

 

Exceptional items

There was a net exceptional charge of £0.4m (2016: £3.4m charge) in the period as shown in the table below:

 

6 months to 30 June

2017

£m

2016

£m

Restructuring costs

(2.6)

-

Acquisition related credit

1.4

-

Change in valuation of options in respect of Model Solution

0.9

(3.4)

Covenant waiver fees

(0.1)

-

Total exceptional items

(0.4)

(3.4)

 

Restructuring costs related to the closure of the CVS site in Brazil and charges associated with the reorganisation of the business into three divisions, partially offset by a credit relating to the re-design of our operating model. The acquisition related credit relates to a settlement with the previous owner of Novero.

 

Amortisation of acquired intangible assets

Total amortisation of acquired intangible assets was £7.0m, up from £6.6m in the first half of 2016.

 

Finance costs 

Finance costs, before fair value movements, were £5.5m (2016: £4.7m). Interest cover was 7.4 times (2016: 8.6 times). Fair value movements on financial instruments resulted in a gain of £2.7m (2016: loss of £0.2m).

 

Taxation 

The underlying tax charge on underlying profit before tax is equivalent to an average tax rate of 27.4% (2016: 19.9%), which is our best estimate of the outcome for the 2017 full year. The increase versus last year is due to a different mix of profits, with less profit in lower tax jurisdictions.

 

Profit after tax

The profit after tax for the period was £14.0m (2016: £2.3m) reflecting the movements above.

 

Underlying earnings per share

Continuing underlying basic earnings per share increased 17% to 4.1p (2016: 3.5p).  Underlying earnings are based on underlying profit less underlying tax and exclude deferred tax on acquired intangible assets, goodwill and US capitalised development costs.  The average number of shares in issue in the first half of 2017 was 417.1m, compared with 350.6m in the first half of 2016 (restated for the bonus element of the rights issue).

 

Basic earnings per share

Basic earnings per share increased to 3.3p, up from 0.6p last year.

 

Cash flow

In the first half of 2017, Laird produced an operating cash flow of £20.8m (2016: £25.4m), representing cash conversion of 70% (2016: 120%).  Cash conversion is defined as operating cash flow as a proportion of underlying operating profit. Reported cash generated from operations was £31.8m (2016: £44.8m).

 

 

H1 2017

£m

H1 2016

£m

Underlying EBITDA

49.8

38.3

(Increase)/decrease in working capital

(1.5)

13.1

Capitalised development costs

(10.6)

(10.0)

Capital expenditure less disposals

(16.9)

(16.0)

Operating cash flow

20.8

25.4

Exceptional costs

(16.5)

(6.6)

Net finance costs

(6.0)

(4.5)

Taxation

(7.4)

(7.9)

Free cash flow pre dividend

(9.1)

6.4

Dividends

-

-

Free cash flow post dividend

(9.1)

6.4

Acquisitions

-

(40.2)

Net proceeds from issue of equity

175.8

0.2

Other

(1.0)

 (3.1)

Decrease/(increase) in net borrowings before exchange movement

165.7

(36.7)

Exchange translation movement

3.8

(26.4)

Decrease/(increase) in net borrowings since 31 December 2016/2015

169.5

(63.1)

 

Underlying EBITDA improved to £49.8m in the period, up from £38.3m. However, this was more than offset by a small working capital outflow in the period against the benefit of an inflow in the first half last year. The small outflow was driven by an increase in inventory as the divisions build stock ahead of the higher revenue in the second half of the year. In addition, there were small increases in investment in both capital expenditure and capitalised development in the period, in order to drive future growth. As a result, operating cash flow reduced by 18% to £20.8m.

 

Cash outflows from exceptional costs at £16.5m relate to the costs of exiting sites as part of the redesign of the operating model, costs associated with the reorganisation into three divisions and the closure of the business in Brazil. In addition, the fees associated with the covenant waiver were paid in the first half. The vast majority of these exceptional cash flows had been provided for in prior years.

 

Net borrowings and debt facilities

Overall, net borrowings decreased during the half year by £169m to £175m, largely due to the proceeds from the successful completion of the rights issue. This, combined with the improvement in operating profit, led to a reduction in the net debt to EBITDA ratio of 1.5 times compared to 3.2 times at the year-end 31 December 2016.

 

A cornerstone of our financial planning is to ensure that we maintain committed loan finance which provides sufficient headroom above expected borrowing requirements and has a significant proportion with terms that exceed one year. Our committed bilateral revolving credit facilities total £195m, and will not expire until 2019. In addition, we have total US Private Placement notes and Schuldschein loans of US Dollar $140m and Euro €77m outstanding.

 

Covenants

A key consideration for financial planning is to maintain sufficient headroom between borrowings and the ceiling set by the associated covenants.  Our bank facilities, Schuldschein and US Private Placement loan notes contain two principal financial covenants: net debt / EBITDA (earnings before exceptional items, interest, tax, depreciation and amortisation) and interest cover.

 

We are operating comfortably within our covenants. For the period ended 30 June 2017, net debt was 1.5 times EBITDA, against the maximum permitted of 3.5 times.  Interest cover was 7.4 times, against the minimum requirement of 3.0 times.

 

The expected headroom is routinely estimated against the covenants and the sensitivity to a number of scenarios is tested to ensure ongoing compliance.  We do not anticipate approaching our covenant limits in the foreseeable future.

 

Currencies in 2017

The average and period-end exchange rates are set out in note 4.

 

As a global business the Group is exposed to a number of foreign currencies.

 

Whilst a significant proportion of our revenue is denominated in US Dollars, our costs are often in the local currency of the countries in which we operate. This leads to a mismatch and therefore an exposure to currency movements on a transactional basis.  The table below shows the breakdown of our principal currency exposures for the 6 months ended 30 June 2017.

 

Currency

Sales

Costs

RMB

10%

30%

EUR

20%

22%

GBP

0%

3%

KRW

2%

2%

USD

66%

37%

Other

2%

6%

Total

100%

100%

 

There is also the translation impact in converting profits into the Group's reporting currency (sterling); each 1 cent appreciation of the US Dollar against sterling approximates to an annual increase in operating profit of £0.4m.

 

Principal Risks

We operate globally in varied markets.  The principal risks and uncertainties that are or may be faced are disclosed in the 2016 Annual Report, and we expect them to continue to be relevant for the remaining six months of the year.

 

The risks set out in the 2016 Annual Report include the competitive markets in which we operate, macroeconomic and political factors, exposure to increases in labour costs in China, world commodity prices, and currency fluctuations, the requirement to meet increasingly stringent environmental laws and regulations, and risks related to brand management, our products, the supply chain and operational continuity.

 

Total Equity

Total equity at 30 June 2017 was £533.9m (30 June 2016: £450.9m).  The reconciliation of total equity is set out in the Group statement of changes in equity.

 

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report set out on pages 1-9 herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules.  The Board of Directors of Laird PLC that served during the six months to 30 June 2017 and their respective responsibilities are set out in the Laird PLC 2016 Annual Report.

 

By Order of the Board:

 

 

Tony Quinlan                     Chief Executive Officer

Kevin Dangerfield           Chief Financial Officer

28 July 2017

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO LAIRD PLC

 

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30 June 2017 which comprises the Group income statement, Group statement of comprehensive income, Group statement of changes in equity, Group statement of financial position, Group cash flow statement and the related notes 1 to 11 and appendix. We have read the other information contained in the interim 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 guidance contained in 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. Our work has been undertaken so that we might state to the company those matters we are required to state to it 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 work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, 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 interim 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 interim report based on our review.

 

Scope of review

We conducted our review in accordance with ISRE (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 enquiries, 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 interim report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Statutory Auditor

London

28 July 2017

 

 

 

 

 

 

 

Condensed consolidated income statement

 

 

 

 

6 months

6 months

12 months

 

 

to

to

to

 

 

30 June

30 June

31 Dec

 

 

2017

2016

2016

 

 

 £m

 £m

£m

Note

 

 

 

 

 

Continuing operations

 

 

 

2

Revenue

 

 

 

 

Performance Materials

204.7

169.5

395.0

 

Connected Vehicle Solutions

155.6

112.3

252.1

 

Wireless and Thermal Systems

80.2

70.7

154.5

 

 

440.5

352.5

801.6

 

 

 

 

 

 

Operating profit before amortisation of acquired intangible assets and exceptional items

 

29.6

 

21.1

 

61.9

 

Impairment of goodwill

-

-

(155.5)

 

Amortisation of acquired intangible assets

(7.0)

(6.6)

(17.2)

3

Exceptional items

(0.4)

(3.4)

1.2

 

 

 

 

 

 

Operating profit / (loss)

22.2

11.1

(109.6)

 

Finance revenue

0.1

0.1

0.1

 

Finance costs

(5.7)

(4.9)

(11.1)

 

Financial instruments - fair value movements

2.7

(0.2)

(1.9)

 

Other net finance revenue - pension

0.1

0.1

0.2

 

 

 

 

 

 

Profit / (loss) before tax

19.4

6.2

(122.3)

6

Taxation

(5.4)

(3.9)

11.5

 

 

 

 

 

 

Profit / (loss) for the period

14.0

2.3

(110.8)

 

 

Attributable to:

 

 

 

 

Equity shareholders of the parent company

14.0

2.0

(111.7)

 

Non-controlling interests

-

0.3

0.9

 

 

14.0

2.3

(110.8)

 

 

 

 

 

 

 

 

(restated***)

(restated***)

5

Earnings / (loss) per share

 

 

 

 

Basic on profit / (loss) for the period*

3.3p

0.6p

(31.8)p

 

Diluted on profit / (loss) for the period*

3.3p

0.6p

(31.8)p

 

 

 

 

 

6

Underlying profit before tax**  

 

 

 

 

Continuing

24.1

16.4

51.1

 

Underlying earnings per share**

 

 

 

 

Basic from continuing operations*

4.1p

3.5p

10.5p

 

Diluted from continuing operations*

4.1p

3.5p

10.5p

 

 

 

 

 

             

*    attributable to equity shareholders of the parent company

**  before impairment of goodwill, amortisation of acquired intangible assets, exceptional items, the gain or loss on disposal of businesses, the impact arising from the fair valuing of financial instruments and deferred tax on the amortisation and impairment of acquired intangible assets, goodwill and US capitalised development costs.

***  Earnings / (loss) per share has been restated for the 2017 rights issue.

 

 

 

Condensed consolidated statement of comprehensive income

 

 

 

6 months

6 months

12 months

 

 

to

to

to

 

 

30 June

30 June

31 Dec

 

 

2017

2016

2016

 

 

£m

£m

£m

 

 

 

 

 

Profit  / (loss) for the period

14.0

2.3

(110.8)

 

 

 

 

Items that will not be reclassified subsequently to

profit or loss:

 

 

 

Net re-measurement gains / (losses) on retirement benefit obligations

1.4

(0.7)

0.1

 

 

 

 

Items that may be reclassified subsequently to

profit or loss:

 

 

 

Exchange differences on retranslation of overseas net investments

(15.7)

73.9

131.7

Exchange differences on net investment hedges

5.1

(30.0)

(57.6)

 

(10.6)

43.9

74.1

 

 

 

 

Other comprehensive (expense) / income for the period

(9.2)

43.2

74.2

 

 

 

Total comprehensive income / (expense) for the period

 

 

4.8

 

 

45.5

 

 

(36.6)

 

 

 

 

Attributable to:

 

 

 

Equity shareholders of the parent company

4.7

43.5

(39.8)

Non-controlling interests

0.1

2.0

3.2

 

4.8

45.5

(36.6)

 

 

 

 

Condensed consolidated statement of changes in equity

 

           Attributable to equity shareholders of the parent company

 

 

 

Equity

 

 

 

 

 

 

Non-

 

 

share

Share

Retained

Translation

Treasury

Other

 

controlling

Total

 

capital

premium

earnings

reserve

shares

reserves

Total

Interests

equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

for the 6 months to 30 June 2017

    At 1 January 2017

76.3

281.9

(161.8)

183.4

(2.7)

(33.3)

343.8

8.7

352.5

      Profit for the period

-

-

14.0

-

-

-

14.0

-

14.0

      Other comprehensive

          income / (expense)

-

-

1.4

(10.7)

-

-

(9.3)

0.1

(9.2)

      Total comprehensive income /

         (expense)

-

-

15.4

(10.7)

-

-

4.7

0.1

4.8

      Exercise of share options

0.1

0.2

-

-

-

-

0.3

-

0.3

      Net proceeds from rights issue

61.1

-

-

-

-

115.1

176.2

-

176.2

      Share based payments

-

-

1.1

-

-

-

1.1

-

1.1

      Purchase of own shares of Employee

        Benefit Trust

-

-

-

-

(0.5)

-

(0.5)

-

(0.5)

    Non-controlling interests - dividend

-

-

-

-

-

-

-

(0.5)

(0.5)

    At 30 June 2017

137.5

282.1

(145.3)

172.7

(3.2)

81.8

525.6

8.3

533.9

 

for the 6 months to 30 June 2016

    At 1 January 2016

75.4

272.1

(13.7)

111.7

(2.7)

(33.3)

409.5

8.5

418.0

      Profit for the period

-

-

2.0

-

-

-

2.0

0.3

2.3

      Other comprehensive

          (expense) / income

 

-

 

-

 

(0.7)

 

42.2

 

-

 

-

 

41.5

 

1.7

 

43.2

      Total comprehensive income

-

-

1.3

42.2

-

-

43.5

2.0

45.5

      Issue of shares

0.9

10.6

-

-

-

-

11.5

-

11.5

      Share based payments

-

-

2.3

-

-

-

2.3

-

2.3

      Treasury shares

-

-

-

-

(2.3)

-

(2.3)

-

(2.3)

      Vesting of LTIPs/Restricted shares

-

-

(2.3)

-

2.3

-

-

-

-

    Non-controlling interests - dividend

-

-

-

-

-

-

-

(0.8)

(0.8)

    Dividends payable

-

-

(23.3)

-

-

-

(23.3)

-

(23.3)

    At 30 June 2016

76.3

282.7

(35.7)

153.9

(2.7)

(33.3)

441.2

9.7

450.9

for the 12 months to 31 December 2016

    At 1 January 2016

75.4

272.1

(13.7)

111.7

(2.7)

(33.3)

409.5

8.5

418.0

      (Loss) / profit for the year

-

-

(111.7)

-

-

-

(111.7)

0.9

(110.8)

      Other comprehensive income

-

-

0.2

71.7

-

-

71.9

2.3

74.2

      Total comprehensive

         (expense) / income

 

-

 

-

 

(111.5)

 

71.7

 

-

 

-

 

(39.8)

 

3.2

 

36.6

      Exercise of share options

-

0.3

-

-

-

-

0.3

-

0.3

      Issue of shares for acquisition

0.9

9.5

-

-

-

-

10.4

-

10.4

      Share based payments

-

-

1.1

-

-

-

1.1

-

1.1

      Treasury shares

-

-

-

-

(2.2)

-

(2.2)

-

(2.2)

      Vesting of LTIPs/Restricted shares

-

-

(2.2)

-

2.2

-

-

-

-

    Non-controlling interests - dividend

-

-

-

-

-

-

-

(3.0)

(3.0)

    Dividends paid

-

-

(35.5)

-

-

-

(35.5)

-

(35.5)

    At 31 December 2016

76.3

281.9

(161.8)

183.4

(2.7)

(33.3)

343.8

8.7

352.5

 

 

 

 

 

In the period to 30 June 2017, the Group raised net proceeds of £174.9m via a rights issue. A cash box structure was used in such a way that merger relief was available under the Companies Act 2006, section 612. In this circumstance no share premium can be recorded and the excess of the net proceeds over the nominal value of the share capital issued is shown in Other reserves.
 

Condensed consolidated statement of financial position

 

 

 

As at

As at

As at

 

 

30 June

30 June

31 Dec

 

 

2017

2016

2016

 

 

 

(restated)

 

Note

 

£m

£m

£m

 

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

127.1

101.7

123.2

 

Intangible assets

617.1

751.7

635.1

 

Deferred tax assets

4.2

4.4

4.6

8

Derivative financial instruments

2.7

0.3

1.5

 

Retirement benefit assets

13.4

11.7

12.5

 

Other non-current assets

2.0

1.5

1.9

 

 

766.5

871.3

778.8

 

 

 

 

 

 

Current assets

 

 

 

 

Inventories

103.2

88.0

99.4

 

Trade and other receivables

178.1

155.6

209.8

 

Income tax receivable

0.4

0.3

0.3

8

Derivative financial instruments

0.8

0.4

-

10(a)

Cash and cash equivalents

51.2

84.8

64.5

 

 

333.7

329.1

374.0

 

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

10

Borrowings

(3.7)

(32.1)

(0.3)

8

Derivative financial instruments

(0.3)

(0.6)

(2.1)

 

Trade and other payables

(164.7)

(173.4)

(192.0)

 

Current tax liabilities

(31.6)

(33.6)

(33.9)

 

Provisions

(14.8)

(29.4)

(26.8)

 

 

(215.1)

(269.1)

(255.1)

 

Net current assets

118.6

60.0

118.9

 

 

 

 

 

 

Non-current liabilities

 

 

 

10

Borrowings

(222.6)

(315.8)

(408.8)

8

Derivative financial instruments

(31.3)

(37.4)

(31.0)

 

Deferred tax liabilities

(73.4)

(84.1)

(76.8)

 

Retirement benefit obligations

(13.0)

(13.3)

(13.7)

 

Other non-current liabilities

(0.6)

(0.7)

(0.8)

 

Provisions

(10.3)

(29.1)

(14.1)

 

 

(351.2)

(480.4)

(545.2)

 

Net assets

533.9

450.9

352.5

 

 

 

 

 

 

Capital and reserves

 

 

 

11

Equity share capital

137.5

76.3

76.3

 

Share premium

282.1

282.7

281.9

 

Retained loss

(145.3)

(35.7)

(161.8)

 

Translation reserve

172.7

153.9

183.4

 

Treasury shares

(3.2)

(2.7)

(2.7)

 

Other reserves

81.8

(33.3)

(33.3)

 

Equity attributable to owners of the parent company

525.6

441.2

343.8

 

Non-controlling interests

8.3

9.7

8.7

 

Total equity

533.9

450.9

352.5

 

 

 

30 June 2016 has been restated to reclassify £31.2m of income tax creditors from non-current liabilities to current liabilities and for changes to the fair value of identifiable assets and liabilities of LSR acquired (£4.2 million increase in deferred tax liabilities and £4.2 million decrease in intangible assets).

Condensed consolidated cash flow statement

 

 

 

6 months

6 months

12 months

 

 

to

to

to

 

 

30 June

30 June

31 Dec

 

 

2017

2016

2016

Note

 

£m

£m

£m

 

 

 

 

 

9

Cash flows from operating activities

 

 

 

 

Cash generated from operations

31.8

44.8

75.9

 

Tax paid

(7.4)

(7.9)

(14.4)

 

Net cash flows from operating activities

24.4

36.9

61.5

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Interest received

0.1

0.1

0.1

9

Acquisition of businesses (net of cash acquired)

-

(38.8)

(39.7)

 

Purchase of property, plant and equipment

(16.6)

(15.3)

(41.4)

 

Purchase of software

(0.3)

(0.7)

(3.3)

 

Purchase of intangible assets (internally developed)

(10.6)

(10.0)

(19.9)

 

Net outflow from sale of businesses

-

(0.1)

-

 

Net cash flows from investing activities

(27.4)

(64.8)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Interest and other finance costs paid

(6.1)

(4.6)

(10.5)

 

Net proceeds from issue of ordinary share capital

175.8

0.2

0.3

 

Purchase of treasury shares

(0.5)

(2.3)

(2.2)

 

Proceeds from borrowings

-

44.9

114.4

 

Repayments of borrowings

(177.9)

-

(35.0)

 

Dividends paid to equity shareholders of the parent

-

-

(35.5)

 

Dividends paid to non-controlling interests

(0.5)

(0.8)

(3.0)

 

Net cash flows from financing activities

(9.2)

37.4

28.5

 

 

 

 

 

 

Effects of movements in foreign exchange rates

(1.1)

6.5

9.9

 

 

 

 

 

10(a)

(Decrease)/increase in cash and cash equivalents for the period

(13.3)

16.0

(4.3)

 

 

 

 

 

 

Cash and cash equivalents brought forward

64.5

68.8

68.8

 

Cash and cash equivalents carried forward

51.2

84.8

64.5

 

 

Notes to the condensed consolidated interim financial statements 

1  Basis of preparation

 

Explanatory note:

These notes provide additional detail and explanations on the disclosures within our Interim Report.

 

Laird PLC is a public limited company incorporated and domiciled in England and Wales and its ordinary shares are traded on the London Stock Exchange. The condensed consolidated interim financial statements for the period ended 30 June 2017 were authorised for issue by the Board of Directors on 27 July 2017.

 

The condensed consolidated financial statements included in this Interim Report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the EU.

 

Laird PLC prepares its Annual Report and Accounts on the basis of IFRS as adopted for use by the EU. The financial information presented in this Interim Report has been prepared in accordance with the accounting policies expected to be used in preparing the 2017 Annual Report and Accounts which do not differ significantly from those used in the preparation of the 2016 Annual Report and Accounts. 

 

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group.

 

These interim results are unaudited but have been reviewed by the Group's auditor, Deloitte LLP. The information for the year ended 31 December 2016 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2016 have been reported on and delivered to the registrar of companies. The report of the auditor was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Further copies of the Interim Announcement may be obtained from Laird PLC's registered office at 100 Pall Mall, London, SW1Y 5NQ.

 

2  Segmental analysis

 

Explanatory note:

The Group's reportable segments are the operating businesses overseen by distinct divisional management and reported to the Group Executive Committee (which performs the function of the chief operating decision maker).

 

The Group moved to a three division structure effective from 1 January 2017. The segmental results for comparative periods have been restated for the purposes of comparability.

 

Performance Materials designs and supplies precision metals, EMI shielding materials, thermal materials and magnetic and ceramic products.

 

Connected Vehicle Solutions designs, manufactures and sells a range of products into the vehicle connectivity market.

 

Wireless and Thermal Systems designs and manufactures products that enable connectivity across a range of end markets including antennae, industrial control systems and active engineered thermal management systems.

 

 

For the 6 months to 30 June 2017

 

 

 

 

 

 

Performance Materials

Connected Vehicle Solutions

Wireless and Thermal Systems

Central and other costs

Total

 

£m

£m

£m

£m

£m

Revenue from customers

204.7

155.6

80.2

-

440.5

 

 

 

 

 

 

Segment operating profit stated before:

18.0

7.4

6.4

(2.2)

29.6

Amortisation of acquired intangible assets

(1.5)

(1.9)

(3.6)

-

(7.0)

Exceptional items

0.6

0.4

(1.5)

0.1

(0.4)

Operating profit

17.1

5.9

1.3

(2.1)

22.2

Finance income

 

 

 

 

0.1

Finance costs

 

 

 

 

(5.7)

Financial instruments - fair value movements

 

 

 

 

2.7

Other net finance income - pension

 

 

 

 

0.1

Profit before tax

 

 

 

 

19.4

 

For the 6 months to 30 June 2016 (restated)

 

 

 

 

 

 

Performance Materials

Connected Vehicle Solutions

Wireless and Thermal Systems

Central and other costs

Total

 

£m

£m

£m

£m

£m

Revenue from customers

169.5

112.3

70.7

-

352.5

 

 

 

 

 

 

Segment operating profit stated before:

14.2

5.6

5.1

(3.8)

21.1

Amortisation of acquired intangible assets

(1.9)

(0.5)

(4.2)

-

(6.6)

Exceptional items

(3.4)

-

-

-

(3.4)

Operating profit

8.9

5.1

0.9

(3.8)

11.1

Finance income

 

 

 

 

0.1

Finance costs

 

 

 

 

(4.9)

Financial instruments - fair value movements

 

 

 

 

(0.2)

Other net finance income - pension

 

 

 

 

0.1

Profit before tax

 

 

 

 

6.2

For the 12 months to 31 December 2016 (restated)

 

Performance Materials

Connected Vehicle Solutions

Wireless and Thermal Systems

Central and other costs

Total

 

£m

£m

£m

£m

£m

Revenue from customers

395.0

252.1

154.5

-

801.6

 

 

 

 

 

 

Segment operating profit stated before:

42.2

13.0

14.3

(7.6)

61.9

Impairment of goodwill

-

(52.0)

(103.5)

-

(155.5)

Amortisation of acquired intangible assets

(4.1)

(3.6)

(9.5)

-

(17.2)

Exceptional items

4.7

(4.1)

2.6

(2.0)

1.2

Operating profit

42.8

(46.7)

(96.1)

(9.6)

(109.6)

Finance income

 

 

 

 

0.1

Finance costs

 

 

 

 

(11.1)

Financial instruments - fair value movements

 

 

 

 

(1.9)

Other net finance income - pension

 

 

 

 

0.2

Loss before tax

 

 

 

 

(122.3)

 

3  Exceptional items

 

Explanatory note:

Exceptional items are items of income or expense incurred outside the normal course of business, and are considered to be material and infrequent in nature. This note provides a detailed breakdown of the "Exceptional items" line included on the Group income statement.

 

 

 

6 months to

6 months to

12 months to

 

 

30 June

30 June

31 Dec

 

 

2017

2016

2016

Note

 

£m 

£m

£m

 

Continuing operations:

 

 

 

 

Performance Materials

 

 

 

a

Change in valuation of put and call options in respect of Model Solution

0.9

(3.4)

3.8

b

Restructuring (costs) / credits

(0.3)

-

0.9

 

 

0.6

(3.4)

4.7

 

Connected Vehicle Solutions

 

 

 

 

Acquisition related credit

1.4

-

-

b

Restructuring (costs)

(1.0)

-

(4.1)

 

 

0.4

-

(4.1)

 

Wireless and Thermal Systems

 

 

 

b

Restructuring (costs) / credits

(1.5)

-

2.6

 

 

(1.5)

-

2.6

 

Unallocated credits / (costs)

 

 

 

 

(Costs) related to rights issue and covenant waiver fees

(0.1)

-

(3.0)

b

Restructuring credits

0.2

-

1.0

 

 

0.1

-

(2.0)

 

 

 

 

 

 

 

(0.4)

(3.4)

1.2

 

Notes

(a)  The changes in valuation of put and call options in respect of Model Solutions are further discussed in note 8.

 

(b)  Restructuring costs relate to the re-design of the Group's operating model announced in 2015, the reorganisation into a three division structure announced in February 2017 and the exit of the CVS business in Brazil.

 

The total cash outlay for exceptional costs in 2017 half year was £16.5m (June 2016: £6.6m).

 

The tax effect on exceptional items in 2017 half year is £(0.5)m (June 2016: £nil).

 

4  Exchange rates  

 

Explanatory note:

The results and cash flows of overseas subsidiaries are translated into sterling using the average rates of exchange for the period as disclosed below. 

 

The principal rates used were as follows:

 

Average

Closing

 

6 months to

6 months to

12 months to

At

At

At

 

30 June

30 June

31 Dec

30 June

30 June

31 Dec

 

2017

2016

2016

2017

2016

2016

 

 

 

 

 

 

 

Czech Koruna

31.17

34.68

33.05

29.84

32.68

31.61

Euros

1.16

1.28

1.22

1.14

1.21

1.17

Japanese Yen

141.53

160.13

147.57

145.13

138.04

144.02

Korean Won

1436.54

1692.21

1572.80

1470.66

1548.22

1488.03

Renminbi ("RMB")

8.65

9.37

8.99

8.79

8.89

8.59

Swedish Krona

11.17

11.94

11.57

11.04

11.35

11.22

US Dollars

1.26

1.43

1.36

1.29

1.34

1.23

 

 

5  Earnings per share

 

Explanatory note:

Earnings per share (EPS) represents the amount of our earnings (post-tax profits) that are attributable to each ordinary share we have in issue. The calculation of basic and diluted earnings per share is based on the profit for the period divided by the daily average of the number of shares in issue during the period.  Diluted earnings per share is based on the same profit but with the number of shares increased to reflect the daily average effect of relevant share options granted but not yet exercised where performance conditions have been met and shares are contingently issuable.

 

 

6 months to

6 months to

12 months to

 

30 June

30 June

31 Dec

 

2017

2016

2016

 

£m

£m

£m

Profit* 

 

 

 

Profit / (loss) for the period attributable to equity shareholders of the parent company

14.0

2.0

(111.7)

 

 

 

 

 

Number

Number

Number

 

of shares

of shares

of shares

 

 

(restated)

(restated)

 

 (m)

 (m)

(m)

Weighted average shares

 

 

 

Basic weighted average shares

417.1

350.6

350.9

Options

1.3

3.7

1.6

Diluted weighted average shares

418.4

354.3

352.5

 

 

 

 

 

Pence

Pence

Pence

Earnings per share*

 

(restated)

(restated)

Basic on profit / (loss) for the period

3.3

0.6

(31.8)

Diluted on profit / (loss) for the period

3.3

0.6

(31.8)

 

*    attributable to equity shareholders of the parent company

     Weighted average number of shares and earnings / (loss) per share have been restated for the 2017 rights issue to          

     allow meaningful comparison with 2017 earnings per share.
 

6  Underlying results and taxation

 

Explanatory note:

Underlying profit and earnings per share are shown as the Board considers them to be relevant guides to the performance of the Group. See appendix for further details.

 

Underlying tax is stated before exceptional items, deferred tax on the amortisation of acquired intangible assets, goodwill and US capitalised development costs, the gain or loss on disposal of businesses and the impact arising from the fair valuation of financial instruments. The deferred tax impact of short-term losses and current tax on the amortisation of acquired intangible assets and impairment of goodwill are included in the calculation of underlying tax.

 

The tax charge for the period was based on the estimated tax rate for the full year. The underlying tax charge for the period is equivalent to 27.4% (June 2016: 19.9%, December 2016: 24.9%) of underlying profit before tax.

 

 

 

6 months

6 months

12 months

 

to

to

to

 

30 June

30 June

31 Dec

 

2017

2016

2016

 

£m

£m

£m

Profit

 

 

 

Profit before amortisation of acquired intangible assets and exceptional items

 

29.6

 

21.1

 

61.9

Finance income

0.1

0.1

0.1

Finance costs

(5.7)

(4.9)

(11.1)

Other finance revenue - pension

0.1

0.1

0.2

Underlying profit before tax

24.1

16.4

51.1

 

 

 

 

Tax

 

 

 

The underlying tax charge is calculated as follows:

 

 

 

Underlying tax

6.6

3.3

12.7

 

 

 

 

Underlying tax rate

27.4%

19.9%

24.9%

 

 

 

 

Tax credit on exceptional items

(0.5)

-

(3.6)

Deferred tax on goodwill, acquired intangible assets

and US capitalised development costs

(1.1)

 

1.8

 

(19.4)

Exceptional US tax loss movement /(recognition)

0.4

(1.2)

(1.2)

Total tax charge

5.4

3.9

(11.5)

 

 

 

 

 

Pence

Pence

Pence

 

 

(restated)

(restated)

Earnings per share*

 

 

 

Underlying earnings per share - basic

4.1

3.5

10.5

Underlying earnings per share - diluted

4.1

3.5

10.5

 

*  attributable to equity shareholders of the parent company

    Prior period underlying earnings per share has been restated for the 2017 rights issue.

 

7  Dividends paid and proposed

 

Explanatory note:

Dividends are the amounts we return to our shareholders and are paid as an amount per ordinary share held.

 

On 27 July 2017 the Board declared an interim dividend of 1.13p per share (2016: 4.53p). The interim dividend will be paid on 1 December 2017 to shareholders registered on 3 November 2017. Dividends paid are charged to retained earnings on the earlier of the date of payment or the date on which they become a liability of the Company.

 

Total Dividends

Dividends paid

Dividends declared / proposed*

 

6 months

6 months

12 months

6 months

6 months

12 months

 

to

to

to

to

to

to

 

30 June

30 June

31 Dec

30 June

30 June

31 Dec

 

2017

2016

2016

2017

2016

2016

 

£m

£m

£m

£m

£m

£m

Final 2015

-

23.3

23.3

-

-

-

Interim 2016

-

-

12.2

-

12.2

12.2

Final 2016

-

-

-

-

-

-

Interim 2017

-

-

-

5.5

-

-

 

-

23.3

35.5

5.5

12.2

12.2

 

 

Dividends per share

Dividends paid

Dividends declared / proposed*

 

6 months

6 months

12 months

6 months

6 months

12 months

 

to

to

to

to

to

to

 

30 June

30 June

31 Dec

30 June

30 June

31 Dec

 

2017

2016

2016

2017

2016

2016

 

Pence

Pence

Pence

Pence

Pence

Pence

Final 2015

-

8.60

8.60

-

-

-

Interim 2016

-

-

4.53

-

4.53

4.53

Final 2016

-

-

-

-

-

-

Interim 2017

-

-

-

1.13

-

-

 

-

8.60

13.13

1.13

4.53

4.53

 

*   attributable to the period

 

8  Financial instruments

 

Explanatory note:

We hold a variety of derivative and non-derivative financial instruments. 

 

The Group's derivative financial instruments are forward foreign exchange contracts to manage foreign exchange exposures and both put and call options relating to the non-controlling interest (NCI) in Model Solution (acquired April 2014). The put option is a liability that may become payable in relation to the NCI in Model Solution. The call option is a financial asset that the Group has over the NCI in Model Solution.

 

Non-derivative financial instruments include cash and cash equivalents, and non-current and current trade and other receivables, borrowings and trade and other payables.

 

The tables below set out a comparison between book values and fair values of financial instruments as at 30 June 2017 and 31 December 2016:

 

Financial assets

 

The financial assets of the Group comprised:

 

 

 

As at 30 June 2017

As at 31 December 2016

 

Book values

Book values

 

£m

£m

Current

 

 

Trade and other receivables

174.1

186.7

Derivative financial instruments

0.8

-

Cash and cash equivalents

51.2

64.5

 

226.1

251.2

Non-current

 

 

Derivative financial instruments - call option

2.7

1.5

Other non-current receivables

2.0

1.9

 

4.7

3.4

 

Financial liabilities

 

The financial liabilities of the Group comprised:

 

 

 

As at 30 June 2017

As at 31 December 2016

 

Book values

Book values

 

£m

£m

Current

 

 

Borrowings and overdrafts

3.7

0.3

Derivative financial instruments

0.3

2.1

Trade and other payables

162.4

187.4

 

166.4

189.8

Non-current

 

 

Borrowings

222.6

408.8

Other non-current liabilities

0.6

0.8

Derivative financial instruments - put option

31.3

31.0

 

254.5

440.6

 

US Private Placement loans with a book value of £94.4m (December 2016: £97.8m) have an estimated fair value of £95.7m (December 2016: £98.5m) which has been calculated by discounting cash flows at prevailing coupon rates as at 30 June 2017. The change in balance since December 2016 consists of the gain on retranslation to 30 June 2017 exchange rates, which has been recognised in the Group statement of comprehensive income.

 

There are no material differences between fair value and book value on any of the other financial instruments.

 

Derivative financial instruments

The Group holds forward foreign exchange contracts to manage foreign exchange exposures. The forward contracts have a principal value of £41.1m (June 2016: £53.9m, December 2016: £92.8m) and are mainly denominated in US dollars and Chinese Renminbi. They are revalued at the balance sheet date using closing exchange rates. These contracts have not been designated as cash flow hedges and the increase in fair value during 2017 of £2.7m (June 2016: £0.2m decrease, December 2016: £1.9m decrease) has been taken to the income statement. These are Level 2 derivative financial instruments and there has been no movement between levels during the period. Fair values are calculated using mark-to-market methodology.

 

Financial liability - put option

The financial liability that may become payable under a put option in respect of the non-controlling interest in Model Solution is recognised at a fair value of £31.3m (June 2016: £37.4m, December 2016: £31.0m) within non-current liabilities. The increase in fair value during 2017 of £0.3m (June 2016: £3.4m increase, December 2016: £3.0m decrease) has been taken to the income statement.

 

The exercise price for the put option will be calculated by dividing the EBITDA of Model Solution for the year to 31 March 2019 by EBITDA for the year ended 31 December 2015 and applying this factor against a base price of KRW 42.2bn (£28.7m). The key assumptions in estimating the fair value are an EBITDA projection for Model Solution for the year to 31 December 2019 and a discount rate of 3.22% applied at 30 June 2017 (June 2016: 2.67%, December 2016: 2.6%).

 

The financial liability is sensitive to changes in these assumptions. For example a 10% increase in EBITDA for the year to 31 December 2019 would result in an increase in the financial liability of £3.1m, while a 10% decrease would result in a decrease in the financial liability of £3.2m. An increase in the discount rate by 1% would result in a decrease in the financial liability of £0.9m, while a decrease in the discount rate by 1% would result in an increase in the financial liability of £0.9m. In accordance with the fair value hierarchy under IFRS 13, the put option is classified as a Level 3 derivative financial instrument. The fair value of the put option is determined by reference to the terms in the underlying agreement. It is calculated at each period end by estimating a range of potential exercise prices for the option and applying our estimate of the weighted average probabilities to each.

 

Financial asset - call option

There is a financial asset recognised of £2.7m (June 2016: £0.7m, December 2016: £1.5m) within non-current assets in respect of the call option that the Group has over the non-controlling interest in Model Solution. The increase in the fair value of £1.2m (June 2016, £nil, December 2016: £0.8m increase) has been taken to the income statement.

 

The call option can be exercised by the Group on 31 May 2018, 2019 or 2020. The exercise price for the call option will be calculated by dividing the EBITDA of Model Solution for the year to 31 December prior to the date of exercise of the call option by EBITDA for the year ended 31 December 2015 and applying this factor against a base price of KRW 42.2bn (£28.7m). The key assumptions in estimating the fair value are a range of EBITDA projections for Model Solution for the years to the end of the financial month prior to the date of exercise of the call option and a discount rate being a Korean risk free rate over the period to exercise, determined at 30 June 2017. 

 

Financial asset - call option (continued)

The financial asset is sensitive to changes in this assumption. For example a 10% increase in the base EBITDA scenario would result in a decrease in the financial asset of £0.5m, while a 10% decrease would result in an increase in the financial asset of £0.5m. In accordance with the fair value hierarchy under IFRS 13, the call option is classified as a Level 3 derivative financial instrument. The fair value of the call option is determined by reference to the terms in the underlying agreement. It is calculated at each period end using a Black-Scholes option-pricing model based on the share price and expected exercise price, and our estimate of the likelihood of exercising the option at each date.

 

9  Additional cash flow information

 

Explanatory note:

Cash generated from operations is the starting point of our cash flow statement. This table makes adjustments for any non-cash accounting items to reconcile our result for the year to the amount of physical cash we have generated from our continuing operations.

 

Cash generation from operations

 

Continuing operations

6 months

6 months

12 months

 

to

to

to

 

30 June

30 June

31 Dec

 

2017

2016

2016

 

£m

£m

£m

 

 

 

 

Profit/(loss) after taxation

14.0

2.3

(110.8)

Depreciation and other non-cash items

 

 

 

  Depreciation

11.6

9.0

22.9

  Amortisation of software

1.6

1.8

3.9

  Amortisation of capitalised development costs

5.9

4.1

8.2

  Impairment of capitalised development costs

-

-

4.9

  Amortisation of acquired intangible assets

7.0

6.6

17.2

  Impairment of goodwill

-

-

155.5

  Exceptional property, plant and equipment write downs

(0.1)

-

-

  Exceptional pension curtailment gain

-

-

(1.1)

  Exceptional change in valuation of put and call options

(0.9)

3.4

(3.8)

  Share based payments

1.1

2.3

1.1

  Financial instruments - fair value movements

(2.7)

0.2

1.9

Other net finance costs     

5.5

4.7

10.8

Taxation

5.4

3.9

(11.5)

Changes in working capital

 

 

 

  Inventories

(4.2)

(7.0)

(13.5)

  Trade and other receivables

31.2

12.9

(28.8)

  Trade, other payables and provisions

(43.6)

0.6

19.0

Total change in working capital

(16.6)

6.5

(23.3)

 

 

 

 

Cash generated from continuing operations

31.8

44.8

75.9

 

 

 

 

Changes in working capital from continuing operations are after creditor decreases of £15.1m (June 2016: £6.6m) in respect of exceptional costs. 

 

Net cash outflow on acquisitions and disposals

                  

 

6 months

6 months

12 months

 

to

to

to

 

30 June

30 June

31 Dec

 

2017

2016

2016

 

£m

£m

£m

Acquisition of businesses

 

 

 

Consideration:

 

 

 

Cash consideration

-

(38.5)

(39.4)

Net overdraft acquired

-

(0.3)

(0.3)

Net cash outflow on acquisition of businesses

-

(38.8)

(39.7)

 

 

 

 

Borrowings acquired

-

(1.3)

-

 

 

10  Borrowings

 

(a) Reconciliation of net borrowings

 

 

At

At

At

 

30 June

30 June

31 Dec

 

2017

2016

2016

 

£m

£m

£m

 

 

 

 

(Decrease)/increase in cash and cash equivalents

(13.3)

16.0

(4.3)

Movement in borrowings

177.9

(44.9)

(79.4)

Borrowings of businesses acquired

-

(1.3)

-

Differences on exchange on borrowings

4.9

(32.9)

(60.9)

Movement in net borrowings during the period

169.5

(63.1)

(144.6)

Net borrowings brought forward

(344.6)

(200.0)

(200.0)

Net borrowings carried forward

(175.1)

(263.1)

(344.6)

 

 

 

 

 

Cash and cash equivalents

51.2

84.8

64.5

 

Current borrowings

(3.7)

(32.1)

(0.3)

 

Non-current borrowings

(222.6)

(315.8)

(408.8)

 

Net borrowings carried forward

(175.1)

(263.1)

(344.6)

 

 

During the period to 30 June 2017, the Group used proceeds of its rights issue to reduce the amount drawn under its bilateral revolving bank loan facilities.

 

(b) Committed borrowing facilities

 

The Group had committed bilateral revolving bank loan facilities of £195.0m (30 June 2016: £255.0m). Drawings by group companies under these bilateral facilities were £38.4m (30 June 2016: £134.6m).

 

11  Issued share capital

 

 

 

6 months to 30 June 2017

12 months to 31 Dec 2016

 

Shares

£m

Shares

£m

At 1 January

271,445,376

76.3

268,088,884

75.4

Rights issue

217,156,300

61.1

-

-

Issued on the exercise of share options

213,768

0.1

128,413

-

Issued as consideration for acquisition

-

-

3,228,079

0.9

 

488,815,444

137.5

271,445,376

76.3

 

In April 2017, the Group successfully completed an equity rights issue raising £184.6m of gross proceeds (£174.9m net after expenses of £9.7m.).

 

Appendix

Non-IFRS information

This document contains certain financial measures that are not defined or recognised under IFRS, including Covenant EBITA and Covenant EBITDA, net debt, cash interest expense, underlying profit before tax, underlying basic earnings per share, operating cash flow, free cash flow and organic constant currency metrics. These measures are unaudited and are not measures of financial performance under IFRS and should not be considered as alternatives to other indicators of the Group's operating performance, cash flows or any other measure of performance derived in accordance with IFRS. Accordingly, these non-IFRS measures should be viewed as supplemental to, but not as a substitute for, measures presented which are prepared in accordance with IFRS as adopted by the EU.

 

Information regarding these measures is sometimes used by investors to evaluate the efficiency of a company's operations and its ability to employ its earnings toward repayment of debt, capital expenditures and working capital requirements. However, there are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. These measures, by themselves, do not provide a sufficient basis to compare the Company's performance with that of other companies and should not be considered in isolation or as a substitute for operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity.

 

Covenant EBITA and Covenant EBITDA

The Group is subject to two key financial covenants, which are tested semi-annually on 30 June and 31 December of each year. These covenants relate to the leverage ratio, being the ratio between Covenant EBITDA and net debt, and the interest cover ratio between Covenant EBITA and cash interest expense. The calculation of these ratios involves the translation of non-sterling denominated debt using average, rather than closing, rates of exchange and adjustments for removal of the 49% of Model Solution that the Group does not own from the calculation.

 

Covenant EBITA is defined as operating profit before amortisation and impairment of acquired intangible assets and exceptional items, adding back amortisation of software, amortisation and impairment of capitalised development costs, share based payments and pre-acquisition losses, less the amounts attributable to the 49% of Model Solution that the Group does not own. Covenant EBITDA is defined as Covenant EBITA adding back depreciation of property, plant and equipment. The Group uses Covenant EBITA and Covenant EBITDA in the calculation of its interest cover and leverage ratios under its financing arrangements, respectively.

 

Covenant EBITA and Covenant EBITDA eliminate potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense), the extent to which intangible assets are identifiable (affecting relative amortisation expense) and other specific items that are considered to hinder comparison of the trading performance of the Group's businesses either year-on-year or with other businesses. For the periods under review, other specific items represent items defined by management and are exceptional items and share based charges.

 

Covenant EBITA and Covenant EBITDA have limitations as an analytical tool. Some of these limitations are:

 

·     they do not reflect the Group's cash expenditures or future requirements for capital expenditures or contractual commitments;

·     they do not reflect changes in, or cash requirements for, the Group's working capital needs;

·     they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Group's indebtedness;

·     although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often have to be replaced in the future, and Covenant EBITA and Covenant EBITDA do not reflect any cash requirements for such replacements;

·     it is not adjusted for all non-cash income or expense items that are reflected in the Group's statements of cash flows; and

·     the further adjustments made in calculating Covenant EBITA and Covenant EBITDA are those that management consider are not representative of the underlying operations of the Group and therefore are subjective in nature.

 

The table below sets out the reconciliation of the Group's total Covenant EBITA and Covenant EBITDA from operating profit before amortisation and impairment of acquired intangible assets and exceptional items for the periods indicated:

 

12 Months to 30 June 2017

12 Months to 31 December 2016

 

(£ millions)

Operating profit before amortisation and impairment of acquired intangible assets and exceptional items  

70.4

61.9

Amortisation of software......................................................................

3.7

3.9

Amortisation of capitalised development costs..............................

10.0

8.2

Impairment of capitalised development costs.................................

4.9

4.9

Share based payment............................................................................

(0.1)

1.1

Pre-acquisition losses...........................................................................

-

(1.2)

Adjustment for non-controlling interest.............................................

(2.9)

(3.2)

Covenant EBITA..........................................................................................

86.0

75.6

Depreciation of property, plant & equipment...................................

25.5

22.9

Covenant EBITDA.......................................................................................

111.5

98.5

       

 

Net debt

The Group uses net debt, defined as total borrowings less cash and cash equivalents, as a supplemental measure in evaluating its liquidity, as it indicates the level of the Group's borrowings after taking account of cash and cash equivalents within the Group's business that could be utilised to pay down the outstanding borrowings, as well as in the calculation of the leverage ratio under its financing arrangements.

 

The table below sets out the reconciliation of the Group's net debt from borrowings for the periods indicated:

 

H1 2017

H1 2016

FY 2016

 

(£ millions)

Borrowings - current liabilities................................................................

3.7

32.1

0.3

Borrowings - non-current liabilities........................................................

222.6

315.8

408.8

Borrowings.....................................................................................................

226.3

347.9

409.1

Less cash and cash equivalents..............................................................

(51.2)

(84.8)

(64.5)

Net Debt.........................................................................................................

175.1

263.1

344.6

 

In calculating its leverage ratio under its financing arrangements, the Group adjusts net debt to exclude the impact of foreign exchange movements (£0.1 million at 30 June 2017) and the 49% of the external debt of Model Solution that the Group does not own (£3.1 million at 30 June 2017). At 30 June 2017, the Group's net debt for purposes of covenant calculation was £171.9 million.

 

 

Cash interest expense

The Group uses cash interest expense, defined as finance costs, adding back finance income and other net finance income - pension, in the calculation of its interest cover ratio under its financing arrangements.

 

H1 2017

H1 2016

 FY 2016

 

(£ millions)

Finance costs...............................................................................................

(5.7)

(4.9)

(11.1)

Finance income...........................................................................................

0.1

0.1

0.1

Other net finance income - pension.......................................................

0.1

0.1

0.2

Cash interest expense....................................................................................

(5.5)

(4.7)

(10.8)

 

 

Underlying profit before tax and underlying operating profit

The Group uses underlying profit before tax (defined as profit before tax, adding back financial instruments - fair value of movements, impairment of goodwill, amortisation of acquired intangible assets and exceptional items) and underlying operating profit (underlying profit before tax, adding back finance income, finance costs and other finance revenue - profit) as supplemental measures of the Group's profitability which the Group considers useful due to the exclusion of specific items that are considered to hinder comparison of the underlying profitability of the Group's businesses either year-on-year or with other businesses.

 

The table below sets out the reconciliation of the Group's underlying profit before tax from profit before tax for the periods indicated:

 

H1 2017

H1 2016

FY 2016

 

(£ millions)

Profit/(loss) before tax.................................................................................

19.4

6.2

(122.3)

Financial instruments - fair value of movements...............................

(2.7)

0.2

1.9

Impairment of goodwill............................................................................

-

-

155.5

Amortisation of acquired intangible assets........................................

7.0

6.6

17.2

Exceptional items......................................................................................

0.4

3.4

(1.2)

Underlying profit before tax.........................................................................

24.1

16.4

51.1

 

Finance income..........................................................................................

(0.1)

(0.1)

(0.1)

 

Finance costs..............................................................................................

5.7

4.9

11.1

 

Other finance revenue - pension............................................................

(0.1)

(0.1)

(0.2)

 

Underlying operating profit..........................................................................

29.6

21.1

61.9

 

 

 

Underlying basic earnings per share

Underlying basic earnings per share is calculated as underlying earnings attributable to shareholders of the parent divided by the weighted average number of shares. Underlying earnings attributable to the parent is defined as profit/(loss) for the period attributable to equity shareholders of the parent company, adding back financial instruments - fair value of movements, impairment of goodwill, amortisation of acquired intangible assets less amortisation of acquired intangible assets attributable to non-controlling interests, exceptional items, tax on exceptional items, deferred tax on goodwill, acquired intangible assets and US capitalised development costs, exceptional US tax loss movement/(recognition), less tax on amortisation of acquired intangible assets attributable to non-controlling interests. The Group uses underlying basic earnings per share as a supplemental measure of the Group's profitability.

 

The table below sets out the reconciliation of the Group's underlying basic earnings per share from profit/(loss) attributable to equity shareholders of the parent company for the periods indicated:

 

 

H1 2017

H1 2016

FY 2016

 

 

restated

restated

 

(£ millions)

Profit/(loss) for the period attributable to equity shareholders of the parent company    

14.0

2.0

(111.7)

Financial instruments - fair value of movements...............................

(2.7)

0.2

1.9

Impairment of goodwill............................................................................

-

-

155.5

Amortisation of acquired intangible assets.........................................

7.0

6.6

17.2

Amortisation of acquired intangible assets attributable to non-controlling interests       

(0.5)

(0.5)

(0.9)

Exceptional items.......................................................................................

0.4

3.4

(1.2)

Tax credit on exceptional items...............................................................

(0.5)

-

(3.6)

Deferred tax on goodwill, acquired intangible assets and US capitalised development costs        

(1.1)

1.8

(19.4)

Exceptional US tax loss movement/(recognition)

0.4

(1.2)

(1.2)

Tax on amortisation of acquired intangible assets attributable to non-controlling interests          

0.1

0.1

0.2

Underlying earnings attributable to shareholders of parent

17.1

12.4

36.8

Weighted average number of shares (in millions) ......................................

417.1

350.6

350.9

Underlying basic earnings per share (in pence) ..........................................

4.1

3.5

10.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow and free cash flow pre and post dividend

The Group defines operating cash flow as cash generated from operations, adding back exceptional items, exceptional pension curtailment gain, exceptional change in valuation of put and call options, exceptional property, plant and equipment write downs, exceptional software write downs, exceptional capitalised development costs write downs, exceptional inventory write downs, movements in exceptionals within working capital, purchase of intangible assets (internally developed), purchase of property, plant and equipment, purchase of software and other exceptional cash items. The Group defines free cash flow pre dividend as operating cash flow less exceptional costs, interest received, interest and other finance costs paid and tax paid. The Group defines free cash flow post dividend as free cash flow pre dividend less dividends.

 

The Group uses operating cash flow, free cash flow pre dividend and free cash flow post dividend as supplemental measures of the Group's trading cash flow.

 

H1 2017

H1 2016

FY 2016

 

(£ millions)

Cash generated from operations...............................................................

31.8

44.8

75.9

Exceptional items..........................................................................................

0.4

3.4

(1.2)

Exceptional pension curtailment gain......................................................

-

-

1.1

Exceptional change in valuation of put and call options......................

0.9

(3.4)

3.8

Exceptional property, plant and equipment write downs.....................

0.1

-

-

Movement in exceptionals within working capital................................

15.1

6.6

13.1

Purchase of intangible assets (internally developed)..........................

(10.6)

(10.0)

(19.9)

Purchase of property, plant and equipment............................................

(16.6)

(15.3)

(41.4)

Purchase of software....................................................................................

(0.3)

(0.7)

(3.3)

Operating cash flow ........................................................................................

20.8

25.4

28.1

Exceptional costs...........................................................................................

(16.5)

(6.6)

(16.8)

Interest received...........................................................................................

0.1

0.1

0.1

Interest and other finance costs paid.......................................................

(6.1)

(4.6)

(10.5)

Tax paid...........................................................................................................

(7.4)

(7.9)

(14.4)

Free cash flow pre dividend.............................................................................

(9.1)

6.4

(13.5)

Dividends........................................................................................................

-

-

(35.5)

Free cash flow post dividend...........................................................................

(9.1)

6.4

(49.0)

 

 

 

H1 2017

H1 2016

FY 2016

 

(£ millions)

Operating profit before amortisation and impairment of acquired intangible assets and exceptional items              

29.6

21.1

61.9

Depreciation of property, plant and equipment.....................................

11.6

9.0

22.9

Amortisation of software.............................................................................

1.6

1.8

3.9

Amortisation of capitalised development costs.....................................

5.9

4.1

8.2

Impairment of capitalised development costs.......................................

-

-

4.9

Share based payments.................................................................................

1.1

2.3

1.1

Underlying EBITDA ..........................................................................................

49.8

38.3

102.9

(Increase)/decrease in working capital....................................................

(1.5)

13.1

(10.2)

Capitalised research and development expenditure............................

(10.6)

(10.0)

(19.9)

Capital expenditure less disposals..........................................................

(16.9)

(16.0)

(44.7)

Operating cash flow ........................................................................................

20.8

25.4

28.1

Exceptional costs...........................................................................................

(16.5)

(6.6)

(16.8)

Interest received...........................................................................................

0.1

0.1

0.1

Interest and other finance costs paid.......................................................

(6.1)

(4.6)

(10.5)

Tax paid...........................................................................................................

(7.4)

(7.9)

(14.4)

Free cash flow pre dividend.............................................................................

(9.1)

6.4

(13.5)

Dividends........................................................................................................

-

-

(35.5)

Free cash flow post dividend...........................................................................

(9.1)

6.4

(49.0)

 

The table above sets out a reconciliation of the Group's operating cash flow and free cash flow pre and post dividend to operating profit before amortisation and impairment of acquired intangible assets and exceptional items for the periods indicated, which the Group considers useful as a supplemental measure in evaluating the Group's ability to convert profits to cash.

 

Organic constant currency metrics

The Group uses organic constant currency metrics because the Directors believe that these measures provide investors with useful supplemental information regarding the underlying performance of the Group as they eliminate the effect of acquisitions and the translation effect of currency exchange movements from period to period.

 

The following tables provide reconciliations of Group and segmental revenue on an actual basis to revenue on an organic constant currency basis for the periods indicated.

 

H1 2017 as reported

Acquisition Adjustment (1)

Currency Adjustment (2)

H1 2017 at organic constant currency

 

(£ millions)

Revenue....................................................................

440.5

(7.4)

(48.8)

384.3

Performance Materials.........................................

204.7

-

(23.3)

181.4

Connected Vehicle Systems.................................

155.6

(7.4)

(16.0)

132.2

Wireless Thermal Systems...................................

 80.2

-

(9.5)

70.7

 

 

H1 2016 as reported

Acquisition Adjustment (1)

Currency Adjustment (2)

H1 2016 at organic constant currency

 

(£ millions)

Revenue....................................................................

352.5

(3.1)

-

349.4

Performance Materials.........................................

169.5

-

-

169.5

Connected Vehicle Systems.................................

112.3

(3.1)

-

109.2

Wireless Thermal Systems...................................

70.7

-

-

70.7

(1)             Acquisitions are eliminated for a period of twelve months from the acquisition date to allow a comparison of organic performance

(2)             Revenue is converted to constant currency by applying prior period exchange rates to convert current period revenues to GBP

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half-year Report - RNS