LONDON, Nov. 18, 2003 (PRIMEZONE) -- Enodis PLC (NYSE:ENO) (LSE:ENO): Part 1
Group Financial Highlights - GBPm (except EPS)
Q403 Q402 FY03 FY02
(unaudited) (unaudited)
Food Equipment 22.7 17.7 64.9 67.2
adjusted
operating
profit*
Effect of (0.3) (7.4)
disposals and
foreign exchange
Food Equipment 22.7 17.4 64.9 59.8
like-for-like
operating
profit**
Group adjusted 19.3 17.6 38.9 38.0
profit before
tax***
Group 11.2 12.3 15.9 (85.8)
profit/(loss)
before tax
Adjusted diluted 3.6 4.7 7.7 10.4
earnings per
share(p)***
Basic 2.0 3.5 2.4 (24.8)
earnings/(loss)
per share(p)
Period end net 139.7 186.1
debt
Key Points
-- Group returns to profit before tax -- GBP15.9m (FY02: loss of GBP85.8m)
-- Net debt reduced by 25% in FY03 to GBP139.7m - down from GBP365.9m at September 2001
-- Q4 Food Equipment like-for-like operating profit** up 30% on prior year, reflecting an improved performance in Food Service Equipment -- Europe/Asia and the return to profit in Food Retail Equipment
-- Full Year Food Equipment like-for-like operating profit** up 9%, reflecting primarily Food Retail Equipment's return to profitability (FY03: GBP4.0m, FY02: loss of GBP5.1m)
-- Strong pre-exceptional operating cashflow generation of GBP70.6m (after capital expenditure)
Peter Brooks, Chairman, Enodis plc, said: "I am delighted to report that Enodis has returned to profitability. Overall, 2003 has been a year of considerable achievement despite continuing challenging markets. We look forward to seeing further progress this year as we maintain our drive to rebuild shareholder value."
Dave McCulloch, Chief Executive Officer, Enodis plc, added:
"Many key operating metrics show an advance over last year, including the impressive turnaround in Food Retail Equipment. The 25% reduction in net debt exceeded our expectations and reflects the strong cash generative nature of the Group. We will continue to focus on cost, further reducing net debt and gaining profitable market share through innovative products and concentration on key markets and customers.
"We have based our planning on modest market growth over the next year. While economic indicators are pointing to a US recovery, we have yet to see this reflected in increased order rates, as capital spending on food equipment typically lags any improvement in macro economic conditions. We remain confident of the long term outlook for Enodis."
* Before operating exceptional items and goodwill amortisation (see note 3 to the attached results for details).
** Prior year like-for-like further adjusted for disposals and foreign exchange (see Other Unaudited Financial Information in the attached results for details).
*** Before all exceptional items and goodwill amortisation (see Other Unaudited Financial Information in the attached results for details).
The above adjusted information is used throughout this document and is presented to indicate the underlying operating performance of the Group.
Annual Report on Form 20-F
Enodis has a secondary listing on the New York Stock Exchange. Under the terms of this listing we are required to prepare and file with the Securities and Exchange Commission (SEC) in the US an annual report on Form 20-F. This report includes a US style explanation of our full year results (MD&A) and contains more detail of certain matters, for example liquidity and capital resources, historical cash flows and legal proceedings including more detail on the status of the Consolidated Industries case. We intend to file our Form 20-F during December 2003 and once this has occurred you will be able to obtain a copy 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 our expectations or beliefs regarding future events, based on currently available information, including statements concerning our anticipated performance. These statements by their nature involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, including our substantial debt obligations and restrictive covenants; susceptibility to economic downturns including delays on market improvements; competitive pricing pressures; consolidation or loss of large customers; changes in customer purchasing patterns; the results of technological developments; currency fluctuations; the outcome of current lawsuits; and other risks related to our U.S., U.K. and foreign operations. A more complete description of our risk factors is included under "Risk Factors" in our Form 20-F which was filed with the SEC during December 2002, as well as in more recent Form 6-K reports furnished with the SEC.
CHIEF EXECUTIVE OFFICER'S REVIEW
Results
Turnover was GBP679.4m (FY02 : GBP793.2m) with like-for-like Food Equipment turnover down 2% in difficult markets.
Like-for-like Food Equipment operating profit improved 9%. Food Retail Equipment like-for-like operating profit improved by GBP9.1m due to a significant improvement at Kysor Warren, which offset a 6% decline in Global Food Service Equipment where tight cost control mitigated the impact of difficult market conditions.
Full year profit before tax, goodwill amortisation and exceptional items was GBP38.9m (FY02 : GBP38.0m). In addition to the improvement in like-for-like operating profits, key components of the change from prior year are:
GBPm
-- Loss of operating profit from businesses sold in FY02 (4.4)
-- Impact of foreign exchange rates on operating profit (3.0)
-- Lower property profit (2.6)
-- Lower interest charge 7.4
Profit before tax was GBP15.9m (FY02 : loss of GBP85.8m), with exceptional items reducing to GBP9.2m from GBP104.8m.
Profit after tax was GBP9.5m compared to losses of GBP86.8m in the prior year.
Q4 profit after tax was GBP8.1m (FY02 GBP13.8m) with the reduction predominantly due to the timing of recognition of exceptional items and tax adjustments.
Full year net debt reduced by 25% to GBP139.7m through a combination of excellent cash performance and the benefit of GBP9.6m of favourable foreign exchange movements.
Cashflow
The Group continues to demonstrate strong cash generative characteristics. Operating cash flow before payments in respect of exceptional items and after capital expenditure, in the year was GBP70.6m (FY02 : GBP91.0m). Operating working capital was again improved through our focus on cash conversion days, which ended this year better than our target of 40 days. Capital expenditure was slightly up, although some projects were delayed into FY04. In the longer term we expect capital expenditure to broadly equal depreciation.
REVIEW OF OPERATIONS
Global Food Service Equipment
Global Food Service Equipment comprises our operations in North America, and those in Europe/ Asia. North America contributes approximately three quarters of our Global Food Service Equipment turnover.
In March we indicated that we were seeing sluggish markets, capital expenditure reductions at certain Quick Service Restaurant chains and margin pressures in the refrigeration sector. Accordingly, we took aggressive and prompt cost reduction actions throughout the Group at the half year, supplemented by further actions in Europe in Q403.
These actions and a strong performance from our Ice businesses in North America and Europe over the summer months have limited the impact of market factors to a decline in FY03 like-for-like operating profit of 6% and Q403 of 1%. Our North American refrigeration businesses delivered operating profit in Q4, compared to break even in the first nine months due to continued improvement and seasonal volume factors.
Turnover FY03 FY02 FX & Like-for-like (GBPm) Disposals FY02 Food Service Equipment -- North America 408.4 474.1 (58.4) 415.7 Food Service Equipment -- Europe/Asia 144.5 145.0 (1.3) 143.7 Global Food Service Equipment 552.9 619.1 (59.7) 559.4
Food Service Equipment North America like-for-like sales were down 2% due to lower sales to certain Quick Service Restaurant chains, which started to have an impact in late Q203. This was offset by strong sales in Canada up 25% as we rolled out Merrychef ovens at a major chain, establishing the Merrychef brand in North America.
Europe/Asia like-for-like sales were up 1% overall following good performances at our European Ice businesses.
Worldwide Q4 like-for-like sales were down 2% with weaker North American sales due to reductions at certain Quick Service Restaurant chains being largely offset by a 7% increase in Europe/Asia as our continental European businesses improved on last year in a tough market.
Operating FY03 FY02 FX & Like-for-like Profit (GBPm) Disposals FY02 Food Service Equipment -- North America 50.7 60.8 (5.8) 55.0 Food Service Equipment -- Europe/Asia 10.2 9.7 0.2 9.9 Global Food Service Equipment 60.9 70.5 (5.6) 64.9
Food Service Equipment -- North America like-for-like operating profit declined 8% due to lower overall turnover and pricing and margin pressure at our North American refrigeration businesses. The stronger European performance was due to improvement in our UK businesses. Overall, like-for-like operating profit was down 6%.
Q4 like-for-like operating profit was down 1%, with Food Service Equipment -- North America being down 4% compared to a fall of 17% in Q303. The impact of lower sales was offset by our cost reductions, improved margins at our North American Ice businesses and our North American refrigeration business delivering operating profits. Our European like-for-like operating profits improved 18% because of improved performances in the UK, Germany and our Ice businesses.
Food Retail Equipment
Our Food Retail Equipment business operates in North America with five plants in the US and sales/service offices in Canada and Mexico.
(GBPm) FY03 FY02 FX & Like-for-like
Disposals FY02
Turnover 110.8 158.0 (37.9) 120.1
Operating 4.0 (3.3) (1.8) (5.1)
profit
The like-for-like sales decline in Food Retail arose as Kysor Warren shed unprofitable business and Kysor Panel Systems recorded lower sales in a difficult market.
The substantial improvement in operating results arose from Kysor Warren, which has performed ahead of plan and achieved a break-even result for the year as a whole. Amongst other actions, the introduction of lean manufacturing, which has been successful elsewhere in the Group, along with right-sizing the business and improving quality and on-time delivery, has eliminated the substantial prior year losses. Kysor Panel Systems has improved operating profit by maintaining its clear focus on cost control, and delivered strong operating profits.
The strong Q4 performance at Kysor Warren, which made profits in the quarter and beat our internal targets, along with a solid performance at Kysor Panel Systems led to Q403 operating profit of GBP2.1m compared to a like-for-like loss of GBP3.5m in Q402.
Corporate Costs
Corporate costs before exceptional items at GBP9.5m have increased GBP1.6m from prior year represented by pension related charges of GBP0.9m and an increased cost burden arising from UK and US corporate governance requirements. Q4 costs include a number of one-time charges and increased personnel costs.
OTHER
Exceptional Items
Exceptional items recognised in Q403 and the full year are:
Q403 FY03
GBPm GBPm
Restructuring costs 3.1 6.1
Increase in provisions for vacant 0.8 3.3
properties
Profit on disposal of businesses (0.8) (3.3)
Increase in legal fee accruals 1.4 3.1
4.5 9.2
Restructuring costs relate to the rationalisation of our businesses following our recognition of weakening markets in the US, the costs of relocating the CEO's office to Tampa in Florida and restructuring of certain European businesses in Q4. We delivered the expected GBP9m of cost savings in the second half and expect a further GBP4m in the first half of FY04.
Slower activity in the property market has caused us to reassess our provisions in respect of vacant leasehold properties. This has been offset by the release of disposal warranty provisions that are no longer required.
Our view of the merits of the Consolidated Industries litigation claims is unchanged. We have increased our estimate of the costs of legal fees for defending the claims as the legal process is proving to be slower than previously anticipated.
Property
We successfully sold a further tranche of the Felsted, Essex, property which gave rise to turnover of GBP15.7m (FY02 : GBP16.1m) and operating profit of GBP5.4m (FY02 : GBP8.0m). Annual profit from property development is expected to continue to reduce over time.
Interest
The net interest cost of GBP21.9m is GBP7.4m down from the prior year pre-exceptional charge. Lower principal balances along with lower base interest rates helped reduce the charge. However, the increased proportion of our net debt represented by our GBP100m senior subordinated notes at 10 3/8 % increased the average cost of debt.
Tax
Our tax charge for the year on pre-exceptional profit is GBP8.2m (FY02: GBP1.2m). The current tax charge on current year profits of GBP7.4m (FY02: GBP5.8m) is approximately 19% of profit before tax, goodwill amortisation and exceptional items. Our UK and US operations benefit from brought forward tax losses. The charge in the year relates principally to tax on profits of our European and Canadian businesses which increased in FY03. The FY02 charge benefited from the release of an accrual following settlement of a US tax audit.
Earnings per Share
Adjusted diluted earnings per share is 7.7p compared to 10.4p in FY02 due in part to the higher tax charge and also the increased average number of shares in issue for the full year. Basic earnings per share was 2.4p (FY02 : loss of 24.8p).
Dividends
No dividend will be paid this year.
CURRENT TRADING & OUTLOOK
The food service sector is large and growing, driven by increasing disposable income and lifestyle changes, which in the long term drives growth in the food equipment market.
We have based our planning over the next year on stable foreign exchange rates and modest market growth, recognising continued constraints on capital spending among our customers and the lag which exists between macro-economic growth and capital spending on food equipment.
FY04 will see the full year effect of capital expenditure cutbacks made at certain Quick Service Restaurant chains and we do not expect an easing of the margin pressures experienced during FY03.
Cost control remains a priority throughout our businesses, including further implementation of lean manufacturing. We will seek increased market share by capitalising on new product development, with increased development spending in FY04 on a small number of high value projects and continued focus on our key markets. We also expect to build on the substantial progress made last year at Kysor Warren, as this business continues to regain its position in the food retail equipment market.
We expect to see further net debt reduction, weighted towards the latter part of the year, in line with seasonal cashflows.
Food service equipment users demand innovative solutions to expanding menus, attention to safety concerns and improved efficiency. The breadth of our food equipment product range, combined with the resources of our Technology Center, put us in a strong position to meet these demands and take advantage of the growing food service market. We remain confident in the long term outlook for Enodis.
Dave McCulloch
Chief Executive Officer
18 November 2003
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