LONDON, August 5, 2003 (PRIMEZONE) -- Enodis PLC (NYSE:ENO):
Results for the 39 weeks ended 28 June 2003
Group Financial Highlights
GBPm (except EPS)
Q303 Q302 YTD03 YTD02
Food Equipment
adjusted operating
profit* 18.6 19.1 42.2 49.5
Effect of disposals
and foreign exchange (1.2) (7.1)
Food Equipment
like-for-like
** operating profit 18.6 17.9 42.2 42.4
Group adjusted
profit before tax*** 11.3 9.1 19.6 20.4
Group profit/(loss)
before tax 6.7 (89.9) 4.7 (98.1)
Adjusted diluted/
earnings per
share(p)*** 2.4 2.1 4.1 5.3
Basic earnings/
(loss) per share(p) 1.2 (23.4) 0.4 (30.1)
Period end net debt 174.0 225.7
Key Points
-- Group adjusted Q3 profit before tax up 24% to GBP11.3m
(Q302 : GBP9.1m)
-- 4% improvement in overall Q3 Food Equipment like-for-like
operating profit
-- Global Food Service Equipment like-for-like operating
profit down GBP2.4m (13%) in the quarter, primarily in the
US, due to continuing difficultmarket conditions offset
in part by cost reductions
-- Food Retail Equipment delivered operating profits of GBP2.0m,
up GBP3.1m on prior year like-for-like Q3. Kysor Warren
turnaround on track -- breakeven in Q3
-- Net debt further reduced to GBP174m -- 23% lower than prior
year
Dave McCulloch, Chief Executive Officer, said:
"Overall operating performance in Q3 was in line with the Board's expectations and we are pleased to see continuing improvement in adjusted profit before tax and net debt. Despite difficult markets, we continue to see the results of our ongoing aggressive cost reductions and of management actions at Kysor Warren. We remain tightly focused on improving operating performance, reducing net debt and on introducing innovative products to gain profitable share. We are not assuming any significant change in market conditions in the near term."
A conference call for equity investors and analysts will be held today at 9:30am and for bondholders at 11:00am today. For details, please contact Sorrel Beynon at Financial Dynamics on 020 7269 7291 or Tina Mularski at Enodis on 020 7304 6006.
Management's Discussion and Analysis (MD&A)
Under the terms of our 10 3/8% senior subordinated notes we are required to prepare and furnish an MD&A to the Securities and Exchange Commission (SEC) in the US on Form 6-K. The MD&A is a US style explanation of our H103 results and contains more detail of certain matters, for example liquidity and capital resources, historical cashflows and legal proceedings including more detail on the status of the Consolidated Industries case. You will be able to obtain a copy of the Form 6-K filing on the SEC website at www.sec.gov.
This press release contains "forward-looking statements," within the meaning of the U.S. federal securities laws, that represent the Company's expectations or beliefs regarding future events, based on currently available information, including statements concerning its anticipated performance. These statements by their nature involve substantial risks and uncertainties, many of which are beyond the Company's control. The Company's actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, including the Company's substantial debt obligations and restrictive covenants; susceptibility to regional economic downturns, the results of cost reduction and restructuring measures, currency fluctuations, large customer order slowdowns and other risks related to its U.S., U.K. and foreign operations; keen competition in its fragmented and consolidating industry; and the other risk factors and more complete descriptions of these factors found under "Risk Factors" in the Company's Form 20-F, filed with the SEC in December 2002 and in our more recent Form 6-K reports furnished with the SEC.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview of Q3
Adjusted profit before tax in the quarter was up 24% on prior year at GBP11.3m.
We have, as expected, experienced continuing difficult market conditions throughout our Food Equipment businesses. Despite this, the quarter has seen like-for-like Food Equipment operating profit* up 4% versus Q3 last year. This has been achieved as a result of the early benefits of the cost saving measures we announced with our H1 2003 results and substantially improved results in our Food Retail businesses, particularly Kysor Warren.
Our cost reduction programme has limited the effect on operating profit of generally depressed market conditions, lower sales to certain Quick Serve Restaurant chains and pricing and margin pressures particularly at our North American refrigeration business. Global Food Service Equipment like-for-like operating profits were down 13% in Q303 and 8% in the year to date.
As we envisaged, Kysor Warren broke even in Q303 as the turnaround continued. Food Retail Equipment in total made operating profits of GBP2.0m in the quarter, up from GBP0.7m in Q203 and a loss of GBP0.8m in Q103.
Net debt was GBP174.0m, 23% below prior year. Significantly reduced debt levels, principally resulting from the prior year disposal programme and our strong operating cashflow, have led to a reduction in interest costs of GBP2.8m in the quarter compared to prior year.
Year to date Results
YTD profit before tax, goodwill amortisation and exceptional items was GBP19.6m (YTD 02 : GBP20.4m). The change from prior year was principally caused by:
GBPm
-- Loss of YTD operating profit from
businesses sold during FY02 (4.4)
-- Impact of foreign exchange rates
on operating profits (2.7)
-- Lower interest charge 6.5
Like-for-like YTD Food Equipment operating profits were flat, with an improvement in Food Retail Equipment to YTD operating profits of GBP1.9m (YTD 02 like-for-like operating loss of GBP1.6m) offsetting an 8% decline in Food Service Equipment.
-- Throughout this discussion, operating profit is before
operating exceptional items and goodwill amortisation (see
note 3 in the attached results for details).
Exceptional Items
As discussed in our interim announcement on 8 May 2003, we implemented a cost reduction and restructuring programme to mitigate the anticipated impact of slower markets in the second half. The total exceptional charge in respect of such measures expected in the year is around GBP6m, of which GBP1.8m was recognised in H103. A further GBP1.2m was recognised in Q303 and we will implement previously planned programmes costing approximately GBP1.6m in Q403. We have recently identified other programmes costing approximately GBP1.3m which will be charged in Q4 and will yield benefits in 2004. Cost savings from all programmes in the second half of the current year are targeted to be approximately GBP9m, of which approximately GBP4m has been achieved in this quarter.
There have been no changes in other exceptional items recognised in the first half.
Cashflow and Financing
At the time of our interim announcement, we anticipated a small rise in net debt in Q303. However, favourable exchange rates and a slightly better than anticipated underlying cashflow performance brought about a reduction in net debt.
Net debt at 28 June 2003 was GBP174.0m, down from GBP181.0m at 29 March 2003 and GBP186.1m at 28 September 2002. The reduction from 28 September 2002 is the result of continued strong operating cash inflow, after capital expenditure but before exceptional items, of GBP31.4m offset by interest payments of GBP16.8m, tax of GBP6.0m and exceptional items of GBP5.7m. Changes in foreign exchange rates have reduced debt by GBP9.2m.
Earnings per Share
In the quarter, adjusted diluted earnings per share were 2.4p (Q302 : 2.1p). Year to date adjusted diluted earnings per share were 4.1p (Q302 YTD : 5.3p). Basic earnings per share for the year to date were 0.4p (Q302 YTD : loss per share of 30.1p).
REVIEW OF OPERATIONS
Global Food Service Equipment
Global Food Service Equipment comprises our operations in North America, which contribute approximately three quarters of our Food Service Equipment turnover, and those in Europe/ Asia.
In March we indicated we were seeing sluggish markets, capex reductions at certain Quick Serve Restaurant chains, and margin pressures in the refrigeration sector. Despite aggressive and prompt cost reduction actions, these market factors have led to Q3 like-for-like operating profits in Global Food Service Equipment being down 13% in the quarter.
In the short term, we are not assuming any significant change in market conditions and are focused on cost reduction, improved operating performance, and continued product innovation to increase our penetration of those restaurant chains which are growing or changing menus to increase same store turnover.
Results
Turnover (GBPm) Q303 Q302 FX & Disposals Like-for-like
Q302
Food Service
Equipment
- North America 103.1 125.9 (14.5) 111.4
Food Service
Equipment
- Europe/Asia 38.8 36.7 1.9 38.6
Global Food
Service Equipment 141.9 162.6 (12.6) 150.0
Like-for-like turnover of our North American operations, including exports, was down 7% in the quarter due to weak sales to certain Quick Serve Restaurant chains and the expected general market softness throughout North America. Like-for-like turnover in Food Service - Europe/Asia was flat.
Operating Profit (GBPm) Q303 Q302 FX & Disposals Like-for-like
Q302
Food Service
Equipment
- North America 13.3 17.6 (1.6) 16.0
Food Service
Equipment
- Europe/Asia 3.3 2.7 0.3 3.0
Global Food
Service Equipment 16.6 20.3 (1.3) 19.0
Like-for-like operating profits in our North American operations declined 17% in the quarter. In addition to the volume related factors mentioned above, our North American refrigeration business has continued to experience pricing pressures and down-trading by customers to lower margin products. Cost savings from the programmes instituted when we identified market softness earlier in the year were approximately GBP4m.
Like-for-like operating profits in Food Service Equipment -- Europe/ Asia were up 10% with continuing improvements in the UK.
Food Retail Equipment
Our Food Retail Equipment business operates in North America only with five plants in the US and sales/service offices in Canada and Mexico.
(GBPm) Q303 Q302 FX & Disposals Like-for-like
Q302
Turnover 29.8 37.0 (6.0) 31.0
Operating profit 2.0 (1.2) 0.1 (1.1)
Like-for-like turnover was down 4% in the quarter, reflecting our decision to shed certain unprofitable business at Kysor Warren.
The performance of Kysor Warren, which had previously been losing market share for some 4 years and incurred heavy losses in 2002, has continued to improve and we achieved our target of breakeven in Q3. By focusing on quality, on-time delivery, and responsive customer service, Kysor Warren is beginning to regain lost customers and attract new ones. An intense focus on the implementation of "lean manufacturing" has dramatically improved operating margins. In addition Kysor Panel Systems performed strongly with a clear focus on cost control.
Property
Development of our Felsted property is continuing and we expect profits of GBP4m in Q403. There were no property profits in the quarter or year to date.
Current Trading and Outlook
Our expectations for both the food equipment market and our performance for the full year are unchanged from those expressed at the time of our half year announcement in May 2003.
We expect to achieve our cost reduction target of approximately GBP9m for the second half.
Food Retail Equipment is expected to continue its improvement in Q4 (compared to prior year Q4 losses of GBP3.6m) as Kysor Warren returns to profitability.
Total exceptional items for the year will be in the order of GBP7.5m.
We remain targeted on further reduction in debt by the year end.
The Food Service sector is large and consumer spending on consumption of food and beverages outside the home remains robust and is forecast to continue to grow. Although the short term outlook for our business continues to be uncertain we expect that when the market for food equipment recovers, demand will be led by replacement spending across the large installed base. We remain confident of Enodis' ability to capitalise on the opportunities which will arise.
We continue to focus on targeting key markets and accounts, together with innovative new product development as well as cost reduction measures.
Dave McCulloch Chief Executive Officer 5 August 2003
* Before operating exceptional items and goodwill amortisation (see
note 3 to the attached results for details).
** Like-for-like adjusted for disposals and foreign exchange (see
Other Financial Information in the attached results for details).
*** Before all exceptional items and goodwill amortisation (see Other
Financial Information in the attached results for details).
The above adjusted information is presented to indicate the underlying operational performance of the Group.
Unaudited group profit and loss account
39 weeks to 28 June 2003 (Three Quarters)
39 weeks to 28 June 2003 39 weeks to 29 June 2002
Before Except- Total Before Excepti-
except- ional excepti- onal
ional items onal items Total
items (note items (note
4) 4)
Notes (Unaud-(Unaud- (Unaud- (Unaudi- (Unaudi- (Unaudi-
ited) ited) ited) ted) ted) ted)
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover
Food 482.6 - 482.6 595.2 - 595.2
Equipment
Property - - - - - -
Total 1, 482.6 - 482.6 595.2 - 595.2
turnover 2
- contin-
uing
operations
Operating
profit/(loss)
from continuing
operations before
goodwill
amortisation
Food 42.2 (1.9) 40.3 49.5 (8.4) 41.1
Equipment
Property - (2.5) (2.5) - - -
Corporate (6.2) (2.8) (9.0) (6.2) (0.3) (6.5)
costs
Continuing 36.0 (7.2) 28.8 43.3 (8.7) 34.6
operations
Goodwill (10.2) - (10.2) (15.2) (48.9) (64.1)
amortisation
Operating 3 25.8 (7.2) 18.6 28.1 (57.6) (29.5)
profit/(loss)
Profit - 2.5 2.5 - (37.3) (37.3)
/(loss) on 4
disposal of
business
Profit/(loss) 25.8 (4.7) 21.1 28.1 (94.9) (66.8)
on ordinary
activities
before
interest and
taxation
Net interest (16.4) - (16.4) (22.9) (8.4) (31.3)
payable and
similar
charges
Profit/(loss) 9.4 (4.7) 4.7 5.2 (103.3) (98.1)
on ordinary
activities
before
taxation
Tax on (3.3) - (3.3) (2.5) - (2.5)
profit/(loss) 5
on ordinary
activities
Profit/(loss) 6.1 (4.7) 1.4 2.7 (103.3) (100.6)
on ordinary
activities
after
taxation
Equity - - - (0.2) - (0.2)
minority
interests
Retained 6.1 (4.7) 1.4 2.5 (103.3) (100.8)
profit/(loss)
Earnings/(loss)6 pence pence
per share
(pence)
Basic 0.4 (30.1)
earnings/(loss)
per share
Adjusted basic 4.1 5.3
earnings/(loss)
per share
Diluted 0.4 (30.1)
earnings/(loss)
per share
Adjusted diluted 4.1 5.3
earnings/(loss) per
share
39 weeks to 39 weeks to
28 June 29 June
2003 2002
(Unaudited) (Unaudited)
Unaudited GBPm GBPm
group
statement
of total
recognised
gains and
(losses)
Gain/(loss) 1.4 (100.8)
for the
period
Goodwill - 65.1
written
back on
disposals,
previously
written
off
Currency
translation (3.9) (2.6)
differences on
foreign currency
net investments
Total (2.5) (38.3)
recognised
gains and
(losses)
for the
period
Unaudited group profit and loss account
13 weeks to 28 June 2003 (Third Quarter)
13 weeks to 28 June 2003 13 weeks to 29 June
2002
Before Excepti- Total Before Excepti Total
excepti- onal excepti onal
onal items onal items
items (note items (note
4) 4)
Notes (Unaudi- (Unaudi- (Unaudi (Unaudi (Unaudi (Unaudit
ted) ted) ted) ted) ted) ed)
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover
Food 171.1 - 171.7 199.6 - 199.6
Equipment
Property - - - - - -
Total 1, 171.7 - 171.7 199.6 - 199.6
turn 2
over
Operating
profit/(loss)
from continuing
operations
before
goodwill
amortisation
Food 18.6 (0.3) 18.3 19.1 (4.7) 14.4
Equipment
Property - - - - - -
Corporate (2.1) (0.9) (3.0) (2.0) (0.3) (2.3)
costs
Continuing 16.5 (1.2) 15.3 17.1 (5.0) 12.1
operations
Goodwill (3.4) - (3.4) (5.1) (48.9) (54.0)
amortisation
Operating 3 13.1 (1.2) 11.9 12.0 (53.9) (41.9)
profit/(loss)
Profit - - - - (40.0) (40.0)
/(loss) on
disposal of
business
Profit/(loss)13.1 (1.2) 11.9 12.0 (93.9) (81.9)
on ordinary
activities
before
interest and
taxation
Net interest (5.2) - (5.2) (8.0) - (8.0)
payable and
similar
charges
Profit/(loss) 7.9 (1.2) 6.7 4.0 (93.9) (89.9)
on ordinary
activities
before
taxation
Tax on (1.9) - (1.9) (1.1) - (1.1)
profit/(loss)
on ordinary
activities
Profit/(loss) 6.0 (1.2) 4.8 2.9 (93.9) (91.0)
on ordinary
activities
after
taxation
Equity - - - - - -
minority
interests
Retained 6.0 (1.2) 4.8 2.9 (93.9) (91.0)
profit/(loss)
Earnings/
(loss) 6 pence pence
per share
(pence)
Basic
earnings/
(loss) per
share 1.2 (23.4)
Adjusted
basic
earnings/
(loss) 2.4 2.1
per share
Diluted
earnings/
(loss) per 1.2 (23.4)
share
Adjusted
diluted 2.4 2.1
earnings/
(loss) per
share
Unaudited group 13 weeks to 13 weeks to
statement of total 28 June 29 June
recognised 2003 2002
gains and (losses) (Unaudited) (Unaudited)
GBPm GBPm
Gain/(loss) for the 4.8 (91.0)
period
Goodwill/(negative
goodwill) written back - 54.7
on disposals,
previously written off
Currency translation
differences on foreign (2.8) (4.2)
currency net
investments
Total recognised gains 2.0 (40.5)
and (losses) for the
period
Audited group profit and loss account
52 weeks to 28 September 2002 (Full year)
52 weeks to 28 September 2002
Before Exceptional
exceptional items
items (note 4) Total
Notes GBPm GBPm GBPm
Turnover
Food Equipment 777.1 - 777.1
Property 16.1 - 16.1
Total turnover 2 793.2 - 793.2
Operating
profit/(loss) from
continuing operations
before goodwill
amortisation
Food Equipment 67.2 (8.9) 58.3
Property 8.0 - 8.0
Corporate costs (7.9) (0.5) (8.4)
67.3 (9.4) 57.9
Goodwill (19.0) (48.9) (67.9)
amortisation/impairment
Operating 3 48.3 (58.3) (10.0)
profit/(loss)
Profit/(loss) on 4 - (38.1) (38.1)
disposal of businesses
48.3 (96.4) (48.1)
Net interest payable (29.3) (8.4) (37.7)
and similar charges
Profit/(loss) on 19.0 (104.8) (85.8)
ordinary activities
before taxation
Tax on profit/(loss) 5 (1.2) 0.2 (1.0)
on ordinary activities
Profit/(loss) on 17.8 (104.6) (86.8)
ordinary activities
after taxation
Equity minority (0.2) - (0.2)
interests
Retained profit/(loss) 17.6 (104.6) (87.0)
Earnings/(loss) per 6 pence
share (pence)
Basic earnings/(loss) (24.8)
per share
Adjusted basic 10.4
earnings/(loss) per
share
Diluted (24.8)
earnings/(loss) per
share
Adjusted diluted 10.4
earnings/(loss) per
share
Group statement of total 52 weeks to
recognised gains and (losses) 28 September 2002
GBPm
Gain/(loss) for the period (87.0)
Goodwill written back on 65.1
disposals, previously written off
Currency translation differences (5.7)
on foreign currency net
investments
Total recognised gains and (27.6)
(losses) for the period
Prior period adjustment 26.9
Total recognised gains and (0.7)
(losses) since last annual
report
Unaudited group balance sheet
28 June 29 June 28 September
2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
Fixed assets
Intangible 213.3 241.9 235.4
assets: Goodwill
Tangible assets 80.3 89.8 88.0
Investments 5.9 5.9 5.9
299.5 337.6 329.3
Current assets
Stocks 82.7 89.1 77.7
Debtors 117.4 139.5 127.4
Deferred tax 23.8 26.7 25.3
asset
Cash at bank and 56.3 48.7 72.7
in hand
280.2 304.0 303.1
Creditors falling
due within one
year
Borrowings (40.7) (12.1) (33.4)
Other creditors (160.7) (183.7) (183.8)
(201.4) (195.8) (217.2)
Net current assets 78.8 108.2 85.9
Total assets less 378.3 445.8 415.2
current
liabilities
Financed by:
Creditors falling
due after more
than one year
Borrowings 180.9 250.1 214.1
Provisions for 43.1 49.6 44.3
liabilities and
charges
224.0 299.7 258.4
Capital and
reserves
Called up equity 200.2 200.2 200.2
share capital
Share premium 234.2 234.2 234.2
account
Profit and loss (280.1) (288.3) (277.6)
account
Equity 154.3 146.1 156.8
shareholders'
funds
378.3 445.8 415.2
Unaudited group cash flow statement
39 weeks to 39 weeks to 52 weeks to
28 June 29 June 28
2003 2002 September
Notes (Unaudited) (Unaudited) 2002
GBPm GBPm GBPm
Net cash flow from 35.8 48.6 100.0
operations before
exceptional items
Net cash flow (4.4) (23.3) (27.4)
effect of
exceptional items
Net cash (a) 31.4 25.3 72.6
inflow/(outflow)
from operating
activities
Return on
investments and
servicing of
finance
Interest paid (16.8) (20.1) (23.3)
Financing fees - (16.6) (18.9)
paid
(16.8) (36.7) (42.2)
Taxation
Overseas and UK (6.0) (1.7) (3.3)
tax paid
Capital
expenditure and
financial
investment
Payments to (4.9) (8.2) (9.9)
acquire tangible
fixed assets
Receipts from sale 0.5 0.8 0.9
of tangible fixed
assets
(4.4) (7.4) (9.0)
Acquisitions and
disposals
Disposal of (1.3) 90.2 88.6
subsidiary
undertakings
(1.3) 90.2 88.6
Cash 2.9 69.7 106.7
inflow/(outflow)
before financing
Financing
Issue of shares - 70.3 70.3
Net (20.2) (231.1) (242.5)
drawings/(repayment)
of borrowings
Issue of 10 3/8% - 100.0 100.0
senior
subordinated notes
Capital element of (0.3) - (0.5)
finance lease
payments
(20.5) (60.8) (72.7)
Increase/(decrease) (17.6) 8.9 34.0
in cash in the
period
Unaudited notes to the group cash flow statement
(a) Reconciliation of operating profit/(loss) to net cash
inflow/(outflow) from operating activities
39 weeks to 28 June 2003 39 weeks to 29 June 2002
Before Effect Total Before Effect
except- of excepti of
ional except- onal excepti- Total
items ional items onal
items items
(Unaud- (Unaud- (Unaud- (Unaudi- (Unaudi- (Unaudi-
ited) ited) ited) ted) ted) ted)
GBPm GBPm GBPm GBPm GBPm GBPm
Operating 25.8 (7.2) 18.6 28.1 (57.6) (29.5)
profit/(loss)
Depreciation 9.2 - 9.2 12.6 - 12.6
Amortisation 10.2 - 10.2 15.2 48.9 64.1
/impairment
of goodwill
(Gain)/Loss - - - 0.1 - 0.1
on sale of
fixed assets
Provisions (2.2) 2.3 0.1 (0.4) (1.0) (1.4)
(net)
(Increase)/ (5.0) - (5.0) (3.6) 5.5 1.9
decrease in
stock
(Increase)/ 9.3 - 9.3 16.9 - 16.9
decrease in
debtors
Increase/ (11.5) 0.5 (11.0) (20.3) (19.1) (39.4)
(decrease) in
creditors
Net cash
inflow/
(outflow) 35.8 (4.4) 31.4 48.6 (23.3) 25.3
from
operating
activities
52 weeks to 28 September 2002
Before Effect of
exceptional exceptional
items items Total
GBPm GBPm GBPm
Operating profit/(loss) 48.3 (58.3) (10.0)
Depreciation 15.7 - 15.7
Amortisation/impairment 19.0 48.9 67.9
of goodwill
Provisions (net) (2.2) (5.6) (7.8)
(Increase)/decrease in 5.5 5.9 11.4
stock
(Increase)/decrease in 19.7 - 19.7
debtors
Increase/(decrease) in (6.0) (18.3) (24.3)
creditors
Net cash 100.0 (27.4) 72.6
inflow/(outflow) from
operating activities
(b) Reconciliation of net cash flow to movement in net debt
28 June 29 June 28
2003 2002 September
(Unaudited) (Unaudited) 2002
GBPm GBPm GBPm
Net debt at the (186.1) (365.9) (365.9)
start of period
Increase/(decrease) (17.6) 8.9 34.0
in net cash in the
period
Borrowings repaid - 400.4 400.4
Issue of 10 3/8% senior - (100.0) (100.0)
subordinated notes
Net 20.2 (169.3) (157.9)
(increase)/decrease
in other loans
Net 0.3 - (1.0)
(increase)/decrease
in finance leases
Translation 9.2 0.2 4.3
differences
Net debt at the end (174.0) (225.7) (186.1)
of the period
(c) Reconciliation of net debt to balance sheet
28 June 29 June
2003 2002 28 September
(Unaudited) (Unaudited) 2002
GBPm GBPm GBPm
Cash at bank and 56.3 48.7 72.7
in hand
Short term (40.7) (12.1) (33.4)
borrowing
Long term (180.9) (250.1) (214.1)
borrowing
(165.3) (213.5) (174.8)
Exclude deferred (8.7) (12.2) (11.3)
financing costs
(174.0) (225.7) (186.1)
Notes to the unaudited financial statements
1. Basis of Preparation
The accompanying condensed financial statements ("quarterly financial statements") have been prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). The quarterly financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) which the Group's management considers necessary for a fair presentation of the financial position of the Group as of such dates and the operating results and cash flows for those periods. Certain information and footnote disclosures normally included in statutory financial statements prepared in accordance with U.K. GAAP have been condensed or omitted. The results of operations for the 39 weeks ended 28 June 2003 may not necessarily be indicative of the operating results that may be achieved for the entire financial year.
The quarterly financial statements have been prepared on the basis of the accounting policies set out in the Group's financial statements for the year ended 28 September 2002.
U.K. GAAP differs in certain significant respects from accounting principles generally accepted in the United States of America ("U.S. GAAP"). The application of U.S. GAAP on the retained profit/(loss) is summarised in Note 9 to the quarterly financial statements.
These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the Group's latest annual report.
The accounts in this statement do not comprise full accounts within the meaning of section 240 of the Companies Act 1985. The figures for the 52 weeks to 28 September 2002 are based upon the 2002 Annual Report but do not comprise statutory accounts for that period. The audited financial statements for the 52 weeks to 28 September 2002 have been delivered to the Registrar of Companies. The Auditors made an unqualified report on those accounts and their report did not contain any statement under section 237 (2) or (3) of the Companies Act 1985. The figures for the 39 week period to 28 June 2003 and 29 June 2002 have been extracted from underlying accounting records and have not been audited.
Freight and shipping revenues have previously either been booked against the original freight costs or reflected as part of turnover. As of 29 September 2002, we have chosen to adopt a consistent treatment of these revenues as part of turnover. All comparative disclosures have been reclassified in this respect. The impact on turnover is:
Period As previously reported Reclassified
GBPm GBPm
13 weeks ended 29 June 2002 197.3 199.6
39 weeks ended 29 June 2002 587.3 595.2
52 weeks ended 28 September 2002 783.2 793.2
The reclassification did not have any impact on gross profit or operating profit for any period.
2. Turnover
39 weeks 39 weeks 13 weeks 13 weeks 52 weeks
to to to to to
28 June 29 June 28 June 29 June 28
September
2003 2002 2003 2002 2002
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
GBPm GBPm GBPm GBPm GBPm
Food 299.4 356.3 103.1 125.9 474.1
Service
Equipment
- North
America
Food 104.7 109.9 38.8 36.7 145.0
Service
Equipment -
Europe/Asia
Global 404.1 466.2 141.9 162.6 619.1
Food
Service
Equipment
Food 78.5 129.0 29.8 37.0 158.0
Retail
Equipment
Food 482.6 595.2 171.7 199.6 777.1
Equipment
Property - - - - 16.1
482.6 595.2 171.7 199.6 793.2
3. Operating profit/(loss)
39 weeks to 28 June 2003 39 weeks to 29 June 2002
Before Before
except- Except- except- Except-
ional ional Total ional ional Total
items items items items
(Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Unaud-
ited) ited) ited) ited) ited) ited)
GBPm GBPm GBPm GBPm GBPm GBPm
Food Service 33.4 (1.7) 31.7 42.2 - 42.2
Equipment - North
America
Food Service 6.9 (0.2) 6.7 7.0 (2.5) 4.5
Equipment -
Europe/Asia
Global Food 40.3 (1.9) 38.4 49.2 (2.5) 46.7
Service Equipment
Food 1.9 - 1.9 0.3 (5.9) (5.6)
Retail
Equipment
42.2 (1.9) 40.3 49.5 (8.4) 41.1
Food (10.2) - (10.2) (15.2) (48.9) (64.1)
Equipment
goodwill
amortisation
Food 32.0 (1.9) 30.1 34.3 (57.3) (23.0)
Equipment
Property - (2.5) (2.5) - - -
Corporate (6.2) (2.8) (9.0) (6.2) (0.3) (6.5)
costs
25.8 (7.2) 18.6 28.1 (57.6) (29.5)
13 weeks to 28 June 2003 13 weeks to 29 June 2002
Before Before
except- Except- except- Except-
ional ional Total ional ional Total
items items items items
(Unaud- (Unaud- (Unaud- (Unaud- (Unaud- (Unaud-
ited) ited) ited) ited) ited) ited)
GBPm GBPm GBPm GBPm GBPm GBPm
Food Service 13.3 (0.3) 13.0 17.6 - 17.6
Equipment
- North
America
Food Service 3.3 - 3.3 2.7 (0.8) 1.9
Equipment
- Europe/Asia
Global Food 16.6 (0.3) 16.3 20.3 (0.8) 19.5
Service
Equipment
Food 2.0 - 2.0 (1.2) (3.9) (5.1)
Retail
Equipment
18.6 (0.3) 18.3 19.1 (4.7) 14.4
Food (3.4) - (3.4) (5.1) (48.9) (54.0)
Equipment
goodwill
amortisation
Food 15.2 (0.3) 14.9 14.0 (53.6) (39.6)
Equipment
Property - - - - - -
Corporate (2.1) (0.9) (3.0) (2.0) (0.3) (2.3)
costs
13.1 (1.2) 11.9 12.0 (53.9) (41.9)
52 weeks to 28 September 2002
Before
exceptional Exceptional
items items Total
GBPm GBPm GBPm
Food Service Equipment - 60.8 0.2 61.0
North America
Food Service Equipment - 9.7 (2.5) 7.2
Europe/Asia
Global Food Service 70.5 (2.3) 68.2
Equipment
Food Retail Equipment (3.3) (6.6) (9.9)
67.2 (8.9) 58.3
Food Equipment goodwill (19.0) (48.9) (67.9)
amortisation/impairment
Food Equipment 48.2 (57.8) (9.6)
Property 8.0 - 8.0
Corporate costs (7.9) (0.5) (8.4)
48.3 (58.3) (10.0)
4. Exceptional items
(a) Operating 39 weeks to 39 weeks to 52 weeks to
exceptional items 28 June 29 June 28 September
2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
Restructuring 3.0 8.7 9.4
costs, cost
reduction
measures and
inventory write
downs
Vacant leasehold 2.5 - -
provisions
Legal fee 1.7 - -
accruals
7.2 8.7 9.4
Goodwill - 48.9 48.9
impairment
Operating 7.2 57.6 58.3
exceptional items
On 8 April 2003, the Group announced a restructuring and cost reduction programme including salaried headcount reduction and the relocation of the CEO's office to Tampa, Florida. The total cost of these actions is expected to be approximately GBP4.6m and GBP3.0m has been recognised in the accounts year to date.
In addition, as a result of a slowdown in the property market, GBP2.5m has been recognised in respect of vacant leasehold properties.
The Group has reassessed its accruals for legal costs for defending the claims in the Consolidated Industries litigation following an adverse summary judgement on some of the claims totalling $8.6m. The Group believes that the adverse decision is incorrect, and intends to appeal the decision. The Group's view of the outcome of the Consolidated litigation remains unchanged.
Restructuring costs in the 39 weeks to 29 June 2002 and the 52 weeks to 28 September 2002 principally represent costs associated with the closure of excess operating capacity in our Food Retail Equipment Group. This includes the write down of inventory at Kysor Warren reflecting the decline in the business and employee termination costs that resulted from a headcount reduction of 30. There was also further rationalisation of administration functions and simplification of management structures in the European businesses within the Global Food Service Equipment Group.
Following downturns in the US economy, in particular in the retail markets, it was necessary to reassess the carrying value of goodwill in respect of the Scotsman acquisition during 2001 and 2002. In accordance with the methodology presented in FRS11 "Impairment of Fixed Assets and Goodwill", which requires consideration of the net present value of estimated future cash flows, the fair value was reassessed and compared to the carrying value of net assets, including the carrying value of the goodwill. In 2001, an impairment of GBP100m was booked. In 2002, due to the poor performance of Kysor Warren, the carrying value of goodwill was written down by a further GBP48.9m.
(b) Disposal of 39 weeks to 39 weeks to 52 weeks to
businesses 28 June 29 June 28 September
2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
Profit/(loss) on 2.5 (37.3) (38.1)
disposals
In February 2003, the Group paid GBP1.3m to release it from the majority of the warranties and indemnities that were given at the time of the disposal of one of its subsidiaries. As a result, associated accruals of GBP2.5m have been credited to the profit and loss account in the 39 weeks ended 28 June 2003.
During the 52 weeks to 28 September 2002, the Group disposed of Sammic SA, Belshaw Bros Inc, Austral Refrigeration Pty Ltd, Aladdin Temp-Rite and Prolon LLC. The Group realised a loss on these disposals of GBP41.4m after writing off goodwill of GBP65.1m previously charged against reserves.
In December 2001, GBP2.1m was paid to Nobia AB in respect of the value of net assets transferred following the sale of the Building and Consumer Products business in June 2001. As part of the disposal proceeds the Group had received a GBP20.0m vendor loan note and share warrants. In June 2002, Nobia AB's shares were listed on the Stockholm Stock Exchange and the Group received GBP24.4m being GBP20.0m for the vendor loan note, GBP0.4m compensation for early repayment of the note and GBP4.0m for the sale of the shares arising from the exercise of the warrants. After writing off deferred finance fees arising from the early repayment of debt and other associated costs, the net profit on disposal was GBP3.3m.
The net cash consideration, after expenses, of all the above disposals has been used to repay debt.
(c) Net interest 39 weeks to 39 weeks to 52 weeks to
payable and 28 June 29 June 28 September
similar charges 2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
Deferred - 4.2 4.2
financing fees
written off
Refinancing fees - 4.2 4.2
- 8.4 8.4
Deferred finance fees written off of GBP4.2m in the 39 weeks to 29 June 2002 and the 52 weeks to 28 September 2002 related to amounts previously capitalised in respect of the multi-currency revolving credit facility that was replaced by the refinancing announced on 20 February 2002.
Refinancing fees represent amounts paid to banks in relation to the termination of our previous multi-currency revolving credit facility and costs associated with the bridging facility under the Group's new arrangements.
5. Taxation
(a) Analysis of 39 weeks to 39 weeks to 52 weeks to
charge in period 28 June 29 June 28 September
2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
The tax charge
for the current
period comprised:
UK taxation at - - -
30% (2002:30%)
Foreign 3.3 3.1 5.8
taxation
- current year
- prior year - - (3.8)
3.3 3.1 2.0
Tax relief on - - (0.2)
exceptional items
- deferred
taxation
3.3 3.1 1.8
Deferred taxation - (0.6) (0.8)
3.3 2.5 1.0
(b) The Group tax rate benefits from the effect of tax losses brought forward. A current tax charge arises principally because of profits arising in overseas countries where there are no available losses.
6. Earnings/(loss) per share
39 weeks 39 weeks 13 weeks 13 weeks 52 weeks
to to to to to
28 June 29 June 28 June 29 June 28
September
2003 2002 2003 2002 2002
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
GBPm GBPm GBPm GBPm GBPm
Basic and 1.4 (100.8) 4.8 (91.0) (87.0)
diluted
loss
attributable
to
shareholders
m m m m m
Basic and 399.2 334.9 399.2 389.2 351.0
diluted
weighted
average
number of
shares
39 weeks 39 weeks 13 weeks 13 weeks 52 weeks
to to to to to
28 June 29 June 28 June 29 June 28
September
2003 2002 2003 2002 2002
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
pence pence pence pence pence
Basic 0.4 (30.1) 1.2 (23.4) (24.8)
Profit/(loss)
per
share
Effect 1.2 16.2 0.3 11.6 15.9
per share
of
exceptional
items
Effect 2.5 19.2 0.9 13.9 19.3
per share
of
goodwill
amortisation
and
impairment
Adjusted 4.1 5.3 2.4 2.1 10.4
basic
earnings
per share
Diluted 0.4 (30.1) 1.2 (23.4) (24.8)
Profit/(loss)
per
share
Effect 1.2 16.2 0.3 11.6 15.9
per share
of
exceptional
tems
Effect 2.5 19.2 0.9 13.9 19.3
per share
of
goodwill
amortisation
and
impairment
Adjusted 4.1 5.3 2.4 2.1 10.4
diluted
earnings
per share
Adjusted earnings per share before exceptional items (note 4) and goodwill amortisation are disclosed to reflect the underlying performance of the Group.
7. Contingencies
In February 2003, a Group company received a letter from a third party alleging a breach of contract claim in the amount of GBP6.9m which was revised to GBP4.0m on 31 July 2003. The company is still in the early stages of investigating whether the claim has any validity.
8. Foreign currency translation
The results of subsidiary companies reporting in currencies other than Pounds Sterling, principally US dollars, have been translated at the following rates:
39 weeks 39 weeks 13 weeks 13 weeks 52 weeks
to to to to to
28 June 29 June 28 June 29 June 28
September
2003 2002 2003 2002 2002
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Average 1.60 1.45 1.62 1.47 1.47
exchange
Rate
GBP1=
US$
Closing 1.65 1.52 1.65 1.52 1.55
exchange
Rate
GBP1=
US$
9. Supplementary information for US Investors
Reconciliation to generally accepted accounting principles in the United States of America
The quarterly financial statements have been prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. The following is a summary of the adjustments to operating profit/(loss) and net profit/(loss) for the period required when reconciling such amounts recorded in the consolidated financial statements to the corresponding amounts in accordance with US GAAP, considering the differences between UK GAAP and US GAAP.
39 weeks to 39 weeks to 52 weeks
to
28 June 29 June 28
2003 2002 September
(Unaudited) (Unaudited) 2002
GBPm GBPm GBPm
Retained profit/(loss) 1.4 (100.8) (87.0)
in accordance with UK
GAAP
Items
increasing/(decreasing)
UK GAAP operating
profit/(loss)(*):
- Goodwill 10.2 (11.1) (13.5)
amortisation
- Pension costs (1.5) 0.9 (2.5)
- Sale/leaseback - - 0.1
transactions
- Share option plans - - 1.1
- Restructuring - (0.4) (0.4)
charges
- Derivative 0.1 (3.7) (4.0)
instruments
- Other - (0.5) (0.7)
- Loss contingency - - 2.4
Items increasing/(decreasing) UK
GAAP other non-operating
profit/(loss):
- Deferred taxation (2.6) (6.3) (16.5)
- Capitalised interest 0.3 - -
- Gain on sale of businesses - 18.0 18.0
Net profit/(loss) in accordance 7.9 (103.9) (103.0)
with US GAAP
Net profit/(loss) in accordance
with US
GAAP is represented by:
Net profit/(loss) from 5.4 (103.9) (103.0)
continuing operations
Gain on sale of discontinued 2.5 - -
operations
Net profit/(loss) in accordance 7.9 (103.9) (103.0)
with US GAAP
(*) All adjustments exclude the effect of taxes, with all tax related adjustments included within the deferred taxation line item.
Description of differences
A discussion of the material variations in the accounting principles, practices and methods used in preparing the audited consolidated financial statements in accordance with UK GAAP from the principles, practices and methods generally accepted in the US is provided in the annual report as of 28 September 2002. There are no new material variations between UK GAAP and US GAAP accounting principles, practices and methods used in preparing the unaudited consolidated interim financial statements other than those discussed below.
9. Supplementary information for US investors
Adoption of new accounting standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and other Intangible Assets". SFAS 142 is effective for fiscal years beginning after 15 December 2001 for all goodwill and other intangible assets recognised in an entity's statement of financial position at that date, regardless of when those assets were initially recognised. SFAS 142 requires, among other things, the discontinuance of goodwill amortisation and an annual test for impairment. In addition, the standard includes provisions for the reclassification of certain existing recognised intangibles as goodwill, reassessment of the useful lives of existing recognised intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill.
With respect to goodwill amortisation, the Group adopted SFAS No. 142, effective 29 September 2002.
A reconciliation of previously reported net profit/(loss) and earning/(loss) per share to the amounts adjusted for the exclusion of the amortisation of goodwill under US GAAP is as follows:
39 weeks to 39 weeks to 52 weeks to
28 June 28 June 28 September
2003 2002 2002
(Unaudited) (Unaudited)
GBPm GBPm GBPm
Reported net 7.9 (103.9) (103.0)
profit/(loss) in
accordance with
US GAAP
Add: Goodwill - 26.3 32.5
amortisation
Adjusted net 7.9 (77.6) (70.5)
profit/(loss) in
accordance with
US GAAP
Basic and diluted
profit/(loss) 2.0p (31.0)p (29.3)p
per share in accordance
with US GAAP
Add: Goodwill amortisation - 7.8p 9.2p
Adjusted basic and diluted 2.0p (23.2)p (20.1)p
profit/(loss) per share in
accordance with US GAAP
At 28 June 2003 the Group had goodwill of GBP391.0m under US GAAP. The Group is undertaking the second step of its goodwill impairment test in its Food Equipment Segments, which will be completed by 27 September 2003. If impairment arises, the Group will record such impairment as a cumulative effect of accounting change effective 29 September 2002. The cumulative effect of accounting change recorded could be material to the consolidated results of operations and financial position under US GAAP.
Other unaudited financial information
(i) Reconciliation of like-for-like information in the 39 weeks to 28 June 2003 (Three Quarters)
39 39 Effect Effect Like-for- Like-for-
wee- wee- of of like like
ks ks Dis- Foreign Q3 YTD
to to posals Ex- 2002
28 29 change
June June
2003 2002
GBPm GBPm GBPm GBPm GBPm %
a)Turnover
Food 299.4 356.3 (25.0) (29.8) 301.5 (1%)
Service
Equipment
- North
America
Food 104.7 109.9 (8.0) 4.7 106.6 (2%)
Service
Equipment
- Europe/
Asia
Global 404.1 466.2 (33.0) (25.1) 408.1 (1%)
Food
Service
Equipment
Food 78.5 129.0 (27.0) (10.0) 92.0 (15%)
Retail
Equipment
Food 482.6 595.2 (60.0) (35.1) 500.1 (3%)
Equipment
b) Operating profit before exceptional items, goodwill
amortisation and corporate costs
Food Service 33.4 42.2 (1.7) (3.6) 36.9 (9%)
Equipment
- North
America
Food Service 6.9 7.0 (0.5) 0.6 7.1 (3%)
Equipment
- Europe/
Asia
Global Food 40.3 49.2 (2.2) (3.0) 44.0 (8%)
Service
Equipment
Food Retail 1.9 0.3 (2.2) 0.3 (1.6) n/m
Equipment
Food 42.2 49.5 (4.4) (2.7) 42.4 (0%)
Equipment
(ii) Reconciliation of like-for-like information for the 13 weeks to 28 June 2003 (Third quarter)
13 13 Effect Effect Like-for- Like-for-
wee- wee- of of like like
ks ks Dis- Foreign Q3
to to posals Ex- 2002
28 29 change
June June
2003 2002
GBPm GBPm GBPm GBPm GBPm %
a) Turn
over
Food 103.1 125.9 (3.9) (10.6) 111.4 (7%)
Service
Equipment
- North
America
Food 38.8 36.7 (0.6) 2.5 38.6 1%
Service
Equipment
- Europe/
Asia
Global 141.9 162.6 (4.5) (8.1) 150.0 (5%)
Food
Service
Equipment
Food 29.8 37.0 (2.7) (3.3) 31.0 (4%)
Retail
Equipment
Food 171.7 199.6 (7.2) (11.4) 181.0 (5%)
Equipment
b) Operating profit before exceptional items, goodwill
amortisation and corporate costs
Food 13.3 17.6 (0.1) (1.5) 16.0 (17%)
Service
Equipment
- North
America
Food 3.3 2.7 - 0.3 3.0 10%
Service
Equipment
- Europe
/Asia
Global Food 16.6 20.3 (0.1) (1.2) 19.0 (13%)
Service
Equipment
Food Retail 2.0 (1.2) (0.1) 0.2 (1.1) n/m
Equipment
Food 18.6 19.1 (0.2) (1.0) 17.9 4%
Equipment
(iii) Reconciliation of non-UK GAAP measures Adjusted Group profit/(loss) before tax
39 weeks 39 weeks 13 weeks 13 weeks
to to to to
28 June 29 June 28 June 28 June
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Profit/(loss) 4.7 (98.1) 6.7 (89.9)
before tax
Add back:
Goodwill 10.2 15.2 3.4 5.1
amortisation
Exceptional 4.7 103.3 1.2 93.9
items
Adjusted Group 19.6 20.4 11.3 9.1
profit/(loss)
before tax
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