TIDMMRO
RNS Number : 3695P
Melrose Industries PLC
31 August 2017
31 August 2017
MELROSE INDUSTRIES PLC
UNAUDITED RESULTS
FOR THE SIX MONTHSED 30 JUNE 2017
Melrose Industries PLC today announces its interim results for
the six months ended 30 June 2017.
Highlights
Underlying(1) Statutory
results results
GBPm GBPm
------------------- ------------- ---------
Revenue 1,085.6 1,085.6
------------------- ------------- ---------
Profit before tax 131.1 47.8
------------------- ------------- ---------
Diluted earnings
per share 4.9p 2.0p
------------------- ------------- ---------
-- Record Nortek first half performance:
-- Fastest improvement in profit compared to any previous Melrose deal
-- Highest ever first half cash generation of GBP103.4 million pre-capex(2)
-- Underlying(1) operating profit of GBP145.5 million, 54%(3) higher than last year
-- Underlying(1) operating margin of 14.7%, up 5.5(3) percentage points
-- Significant investment of over GBP47 million in capital and
restructuring projects to further improve performance
-- Brush is experiencing its toughest market conditions since
Melrose acquired it in 2008 and, accordingly, appropriate action is
being taken for the long-term with all parts of the business being
reviewed
-- Net debt of GBP669.1 million, equal to 2.3x EBITDA(4) ,
better than expected
-- Interim dividend of 1.4p per share (2016: 0.3p(5) )
1. Considered by the Board to be the best measure of
performance. A reconciliation of the statutory operating
profit/(loss) to underlying operating profit/(loss) is given in the
Finance Director's review
2. Operating cash generated before capital expenditure
3. 2017 post acquisition performance compared to the same period
in 2016. Proforma 2016 results are based on previous Nortek
accounting policies, reported under US GAAP, using constant
exchange rates
4. Underlying(1) operating profit before depreciation and
amortisation. Includes 12 months of Nortek
5. Adjusted to include the effects of the 2016 Rights Issue
Christopher Miller, Chairman of Melrose Industries PLC, today
said:
"During the first ten months of our ownership, Nortek has
delivered the fastest initial improvement in performance Melrose
has ever achieved. More investment is being made in Nortek to drive
further improvements and appropriate actions are being taken in
Brush for the long term. We have also been busy exploring potential
acquisitions over the past few months, and remain confident in our
ability to find the right opportunity."
An analysts' meeting will be held today at 11.00 a.m. at J P
Morgan, Old School Building, 60 Victoria Embankment, London, EC4Y
0JP (entrance at 1 John Carpenter Street).
Enquiries:
Montfort Communications:
Nick Miles, Charlotte McMullen: +44 (0) 20 3514 0897
CHAIRMAN'S STATEMENT
I am pleased to report our interim results for the six months
ended 30 June 2017.
RESULTS FOR THE GROUP
These interim results include sales for the continuing Group of
GBP1,085.6 million (2016: GBP104.7 million), statutory profit
before tax of GBP47.8 million (2016: loss of GBP9.2 million) and an
underlying[1] profit before tax of GBP131.1 million (2016: GBP6.2
million). The comparative period for 2016 does not include results
from the respective Nortek businesses which were acquired on 31
August 2016.
Further details of these results are contained in the Finance
Director's review.
TRADING
Today marks the first twelve months for the Nortek businesses
under Melrose ownership. Each Nortek business has responded well to
the investments we have made, achieving a record underlying(1)
operating profit, 54% up on last year, and their highest ever first
half cash generation. We believe that there are substantial
operational improvements still available and are working hard with
the management teams to secure them. Brush is currently facing the
toughest generator market conditions experienced under Melrose
ownership and, accordingly, all aspects of the business are being
reviewed.
More detail is included in the Chief Executive's review.
RETURN TO PREMIUM LIST
When transferring its ordinary shares to the Standard List of
the Main Market of the London Stock Exchange on completion of the
acquisition of Nortek last year, as approved by shareholders, the
Company noted its intention to return to the Premium List as soon
as practicable.
Accordingly, on 24 March 2017, the Company announced its
intention to transfer its ordinary shares back to the Premium List.
After waiting the necessary notice period, this transfer took
effect on 26 April, which was also followed by a return to the FTSE
250 index on 19 June after the subsequent FTSE second quarter
review.
DIVID
Your Board has declared an interim dividend of 1.4p (2016:
0.3p[2]), which will be paid on 6 October 2017 to shareholders on
the register at the close of business on 8 September 2017. Your
Board continues to align its dividend policy with the earnings of
the Group and will use this basis to set future dividends,
including the final dividend for this year.
BOARD MATTERS
As previously announced, John Grant retired from the Board at
this year's AGM in May, having held a non-executive position on the
Melrose Board since 2006, most recently serving as Senior
non-executive Director and Chairman of the Audit Committee. John's
experience and judgment have been highly valued by the Board over
what has been a very successful period for the Company and we thank
him for his service.
John was replaced as Senior non-executive Director by Justin
Dowley, who has continued to hold the position of Chairman of the
Remuneration Committee. John's position as Chairman of the Audit
Committee has been taken up by Liz Hewitt, who stepped down as
Chairman of the Nomination Committee, to be replaced by David Lis.
I congratulate them all on their appointments.
Following John's retirement, Archie Kane was appointed as a
non-executive Director and member of the Audit, Remuneration and
Nomination Committees on 5 July. After a long executive career,
Archie has continued to serve as non-executive Governor of the
Board of Bank of Ireland. We welcome Archie to the Board and look
forward to benefiting from his wealth of experience as we seek to
continue to deliver value for shareholders.
In accordance with the Board's decision to increase the number
of its independent non-executive directors to five, the search for
the additional non-executive Director continues and the Board
expects to make this appointment in the coming months.
STRATEGY
Melrose's focus since its inception has always been to generate
superior returns for our shareholders through the acquisition of
high quality but under-performing manufacturing businesses,
investing heavily to improve their operational performance before
selling them at the appropriate time to a buyer who is looking to
guide them through the next stage of their development.
The acquisition of Nortek last year is the latest example of
this strategy in action and it is pleasing to see the businesses
responding to our significant investments already with the improved
performance you see in these interim results. This focus on
investment in operational improvements is also true of existing
businesses like Brush, as much as it is for businesses in the early
stages of their Melrose ownership cycle.
OUTLOOK
The significant investments made in Nortek on capital and
restructuring projects to improve production efficiencies,
consolidate previously siloed businesses and develop new products
and sales channels, mean we remain on track to significantly
improve the performance of Nortek. However, Brush faces increased
market challenges which are driving a review of all parts of its
business.
We have also begun the search for our next acquisition
opportunity and are optimistic in our abilities to deliver further
value for our shareholders.
Christopher Miller
Chairman
31 August 2017
CHIEF EXECUTIVE'S REVIEW
AIR MANAGEMENT DIVISION
2017
Revenue GBP616.6m
Underlying Operating GBP75.9m
Profit
Heating, Ventilation & Air Conditioning (HVAC)
Since its acquisition last year, the HVAC business has been
brought under one management team in St Louis and undergone
significant restructuring to exit unprofitable activities and
realign with its key strategic business lines of custom commercial,
light commercial and residential. This has helped clarify its
strategic objectives and allowed it to be more responsive to
critical market trends, backed by significant operational
investments, including over GBP8 million in production facilities,
to address legacy deficiencies. Described in more detail below,
these actions have contributed to a significant improvement in the
underlying operating profit of the division, almost 40% year on
year.
Created through a lengthy 'buy and build' strategy, the Nortek
Air Solutions custom commercial business (NAS) had never been
properly integrated, thereby failing to harness the advantages of
scale and impacting performance at all levels through a lack of
coordination. Throughout the first half of 2017, significant work
has been undertaken to overcome this throughout the business, which
is now much better aligned, particularly in the operations,
engineering and sales functions. With investments in the production
facilities in Oklahoma and Tualatin and a further GBP1 million in
the Saskatoon R&D centre, NAS is now better positioned to
leverage its manufacturing expertise and designs as well as start
to establish common engineering systems across all locations to
enable manufacturing flexibility and improved costing accuracy. NAS
has seen an immediate increase in its booking rate and will drive
accelerated profitable growth through operational rigour, new
innovations and new customer growth.
In seeking growth outside its core business, HVAC's residential
business had previously added cost and complexity to its operations
and correspondingly had suffered a decline in performance. Over the
past year, the business has been taking the necessary steps to
realign to its core strengths in the North American residential and
manufactured housing segments, with customers, quality and safety
the centrepieces of their improvement plan. This has led to a
material improvement in its margins already in the first half and
the business is looking to continue this momentum through expansion
opportunities within manufactured housing and adjacent channels,
consolidating the product portfolio, and proactive management of
its cost base.
Also this year, HVAC has consolidated the elements of the former
Reznor business, including its European operations, into a distinct
light commercial business to capture growth through market
expansion and nurture new capabilities specifically for the
commercial end user and high performance computing segments. This
business enables HVAC to expand the breadth of its offerings to
bridge the gap to the NAS custom applications and configurable
systems, a critical and growing segment of the market as customers
are increasingly requesting easily deployable solutions for less
complex buildings. The portfolio and capability set will provide a
platform for cross selling within the channel and further product
development opportunities.
Overall, the first half has seen the HVAC business continue to
implement its strategic and operational initiatives and, with
several programmes ongoing and the full impact of the investments
still to come, it is confident of capturing additional value
through an improved performance in 2017 and beyond.
Air Quality & Home Solutions (AQH)
Although already well placed across its market sectors, the AQH
business conducted a review of its products and operations
following its acquisition by Melrose. This review resulted in a
restructuring of the business in the first half of 2017, including
a change of the chief executive and certain other senior executive
positions.
The ongoing review has also led the business to accelerate the
refreshing of its product offering. The business will look to build
on its recent successful platform launches to deliver further
developments to maintain its leadership position and satisfy market
demands for continual introduction of innovative and new
products.
Alongside these product changes, the implementation of targeted
cost saving programmes has complemented the refocus on AQH's core
products. A number of operational improvements have been made,
including the continued deployment of LEAN principles, with a
strong focus on improving customer experience that has already led
to a significant improvement in external quality. These measures,
part of the substantial investment of GBP16 million to improve
manufacturing processes and introduce more automation across the
business that will be continued in the second half, are expected to
drive productivity, capability and efficiency gains throughout the
rest of the year, providing real momentum for the business into
2018.
The business has also made some material structural changes in
accordance with its streamlined geographic strategy. The sale of
the Best EMEA business to Electrolux A.G. was completed recently
and, while AQH will continue to design, manufacture and market Best
products in North America, this will improve profitability whilst
enabling increased focus on the core regions of North America and
China. The expansion of distribution capabilities at AQH's
Wisconsin headquarters will be completed by the end of the year,
which will enable the business to consolidate manufacturing and
distribution facilities into the existing Hartford and Quebec sites
early next year.
Overall, continued strength in the US appliance and wholesale
channels and the AQH businesses in China, Canada and the Pacific
are expected to balance some challenges in the retail segment.
This, coupled with the fact that the full effect of the refocus on
product development, operational efficiency and regional market
leadership is still to come, means the business remains optimistic
about its performance for the rest of the year and its momentum for
2018.
SECURITY & SMART TECHNOLOGY DIVISION
2017
Revenue GBP237.5m
Underlying Operating GBP37.0m
Profit
The convergence of platforms in certain rapidly evolving
residential and commercial markets was a key driver in the decision
to consolidate Nortek Security & Control, GTO and Core Brands
into the single Security and Smart Technology (SST) division. This
consolidation is ongoing, including a move to its new headquarters
in Carlsbad, California, and while it has already delivered some
modest efficiencies in the first half of 2017, there remains a
substantial amount to be realised over the next 18 months.
SST accelerated the introduction of several new products,
especially those that address growth in DIY and video solutions,
and has invested heavily in the development of others that utilise
its natural language processing capabilities to meet growing
interest in voice activation and control.
While these should have a positive effect on sales in 2017, most
of the benefit is expected to flow through next year, and reflect
SST's technology plan of broadening its product offering to address
growing market interest in smart ecosystems with a multitude of
sensors and control devices, such as the new Vario Hybrid Panel.
Alongside these new products, a refocus of the leading ELAN home
control platform has driven wider market penetration that is
expected to continue with its extension to video distribution and
further integration with SST's strong security platform. This fully
integrated control and automation platform was successfully
relaunched to the dealer network in May and will be followed in the
second half by the launch of new complementary DIY and garage door
solutions for the retail sector.
These product improvements have been matched by a strong focus
on efficiency programmes and cost savings that have significantly
improved profitability by over 40% year on year. Substantial
investments in the SST production facility have delivered further
margin improvements already in 2017, as has the closure of the Hong
Kong office and the consolidation of its distribution operations.
The business expects further improvement to come as investments are
fully implemented and is positive in its outlook.
ERGONOMICS DIVISION
2017
Revenue GBP133.3m
Underlying Operating GBP33.9m
Profit
Despite experiencing some market and operational challenges, our
Ergonomics business, Ergotron, remains a high quality,
design-focused business. In particular, headwinds in Asia Pacific
and in the device management business were offset by healthy growth
in EMEA, original design manufacturer (ODM) and healthcare
businesses.
In response to the market challenges, Ergotron has been
investing heavily in its multi-pronged market share improvement
strategy through the introduction of new products, such as the new
StyleView Patient e-Table that was successfully launched in May,
and an expanded channel focus, including a move into digital sales
and the large furniture market, both of which have been matched by
a strategic increase in marketing activity. At the same time,
Ergotron continues to conduct a rigorous review of all its lines
and remains decisive in discontinuing low margin products.
As a result, while uncertainty surrounding the Affordable Care
Act has affected the US healthcare market in the first half,
Ergotron has been successful in gaining market share and is well
positioned with a strong second half pipeline now that both
confidence and spending are returning. The business has also
pursued gains in the consumer and EMEA commercial businesses, while
the WorkFit sit/stand workstations segment remained strong and
entry level products have been introduced to continue a leadership
position in the maturing device management business, following a
slow start to 2017 by the segment.
Operationally, there has been a continued focus on cost
reduction initiatives in all areas of Ergotron's business to
maintain margins. Unfortunately, the transition to a new warehouse
partner in the U.S. caused a large backlog of shipments which
significantly impacted first half 2017 sales. This has been
resolved and the business is now operating in line with
expectations.
Therefore, despite a challenging start, the improvements made
through Ergotron's strategic focus on key product categories and
sales channels and supported by a fresh marketing approach, means
the business is well positioned for future developments.
ENERGY DIVISION
2017 2016
Revenue GBP98.2m GBP104.7m
Underlying Operating GBP7.2m GBP12.6m
Profit
Brush has experienced tough trading conditions for a number of
years with a consequent negative impact on utilisation and
productivity. Over the summer, it has become clear from market
feedback and discussions with customers that the market conditions
have worsened further and there is no recovery in generators
expected in the foreseeable future. Therefore, the business will
not be able to mitigate the lower factory loading experienced in
the first half of 2017.
The key gas turbine market which, over time, has correlation to
gas generator demand, is currently running over 60% below its
previous peak in 2011, with orders placed this year being further
down compared to last year. Specifically for Brush, this has meant
that from a peak of 208 generators sold in 2012, only 122
generators were sold last year and approximately 80 are expected to
be sold this year.
While the Switchgear, Aftermarket and Transformers businesses
performed satisfactorily in the first half of the year, the
Transformers business has more recently been adversely impacted by
the deferral of expenditure by a major UK Distribution Network
Operator. However, within this difficult environment, Brush has
been able to enter into longer term arrangements with leading
customers in the UK transformer and global generator markets.
Nevertheless, the trading conditions are the toughest
experienced under Melrose ownership and consequently, whilst a
number of cost reduction programmes have been completed and further
ones are being undertaken, all parts of the business remain under
review to ensure the correct actions are taken for the long-term
future of Brush.
Simon Peckham
Chief Executive
31 August 2017
FINANCE DIRECTOR'S REVIEW
The results for the six months ended 30 June 2017 have been
significantly affected by the acquisition of Nortek in August last
year.
MELROSE GROUP SEGMENTAL SPLIT
The Melrose Group at 30 June 2017 consisted of four divisions,
the Energy division, along with three divisions acquired with
Nortek, namely; the Air Management division, which contains both
the Air Quality & Home Solutions business and the Heating,
Ventilation & Air Conditioning (HVAC) business; the Security
& Smart Technology division; and the Ergonomics division. All
of these divisions are shown as continuing operations in these
Interim Financial Statements.
TRADING RESULTS
For simplicity and clarity, and in response to the Guidelines on
Alternative Performance Measures (APMs) issued by the European
Securities and Markets Authority (ESMA), the Income Statement in
these Interim Financial Statements shows the unadjusted statutory
results of the Group on the face of the Income Statement followed
by the underlying results.
In the six months ended 30 June 2017 revenue was GBP1,085.6
million (2016: GBP104.7 million), the statutory operating profit
was GBP57.9 million (2016: operating loss of GBP9.5 million) and
the statutory profit before tax was GBP47.8 million (2016: loss
before tax of GBP9.2 million). This includes all trading and
non-trading costs.
The Melrose Board considers the underlying results, as
reconciled in the table below, to be the most suitable measure to
monitor how the businesses are performing because these measures
are used to help determine the variable element of remuneration of
senior management throughout the Group and are also in alignment
with performance measures used by certain external stakeholders.
Underlying results are also used to value individual businesses as
part of the "Buy, Improve, Sell" Melrose strategy model.
Consequently underlying operating profit and underlying operating
margin (calculated as underlying operating profit as a percentage
of revenue) are key performance indicators reported to the
Board.
The underlying operating profit in the period to 30 June 2017
was GBP141.2 million (2016: GBP5.9 million) and the underlying
profit before tax was GBP131.1 million (2016: GBP6.2 million). The
following table reconciles the statutory operating result to
underlying operating profit:
2017 2016
GBPm GBPm
------------------------------------ ------ -----
Statutory operating profit/(loss) 57.9 (9.5)
------------------------------------ ------ -----
Restructuring costs 25.1 1.9
------------------------------------ ------ -----
Acquisition and disposal related
costs 1.7 7.3
------------------------------------ ------ -----
Amortisation of intangible assets 41.5 4.2
------------------------------------ ------ -----
Equity-settled compensation
scheme charges 17.3 2.0
------------------------------------ ------ -----
Release of fair value provision (2.3) -
------------------------------------ ------ -----
Adjustments to statutory operating
profit/(loss) 83.3 15.4
------------------------------------ ------ -----
Underlying operating profit 141.2 5.9
------------------------------------ ------ -----
Restructuring costs in the period ended 30 June 2017 primarily
related to the early actions taken in Nortek businesses, the most
significant being the closure of loss making operations within the
HVAC business and the removal of excess manufacturing capacity in
the Air Quality & Home Solutions business, both within the Air
Management division. Restructuring costs are excluded from
underlying results due to their size and non-trading nature.
Acquisition and disposal costs incurred in the six months ended
30 June 2017 totalled GBP1.7 million and also included the costs
involved in returning the ordinary shares of the Company to the
Premium List of the London Stock Exchange. These items are excluded
from underlying results due to their non-trading nature.
The amortisation of intangible assets acquired in business
combinations are excluded from underlying results due to their
non-trading nature.
The charge for the Melrose Incentive Plan, including its
associated employer's tax charge, is excluded from underlying
results due to its size and volatility.
During the period ended 30 June 2017 certain provisions, booked
as fair value items on the acquisition of Nortek, have been settled
for a more favourable amount than first anticipated. The release of
any excess fair value provision is shown within non-underlying
profit to avoid positively distorting underlying results.
UNDERLYING RESULTS BY DIVISION
The table below shows the underlying results as presented in
these Interim Financial Statements:
2017 2016
Operating Operating
2017 profit/ 2016 profit/
Revenue (loss) Revenue (loss)
---------- ----------
2017 2016
Operating Operating
profit profit
GBPm GBPm margin GBPm GBPm margin
--------------- --------- ----------- ---------- -------- ---------- ----------
Nortek 987.4 145.5 14.7% - - -
--------------- --------- ----------- ---------- -------- ---------- ----------
Energy 98.2 7.2 7.3% 104.7 12.6 12.0%
--------------- --------- ----------- ---------- -------- ---------- ----------
Central -
corporate - (11.5) - - (6.7) -
--------------- --------- ----------- ---------- -------- ---------- ----------
Melrose Group 1,085.6 141.2 13.0% 104.7 5.9 5.6%
--------------- --------- ----------- ---------- -------- ---------- ----------
Central costs comprise GBP7.7 million (2016: GBP6.7 million) for
corporate costs, and GBP3.8 million (2016: GBPnil) for the
cash-based incentive schemes for the senior operational management
within the operating businesses.
Nortek was acquired on 31 August 2016 and so distorts the
comparisons to last year when the Melrose Group consisted solely of
the Brush business along with Melrose central costs.
To help overcome this distortion, and to give a better
illustration of like-for-like performance, the proforma table below
compares the Nortek underlying results in 2017 to the results
announced under previous ownership for Nortek, albeit under US
GAAP, for the same period in 2016, translated from US Dollars to
Sterling using the same exchange rates in each year.
2017
Underlying
operating
2017 profit/
Revenue (loss)
----------- -------- ------------- ------------
Proforma Proforma
2017 underlying underlying
Underlying operating operating
operating Proforma profit/ profit
profit revenue (loss) margin
GBPm GBPm margin growth growth growth
------------------- --------- ------------ ----------- -------- ------------- ------------
Air Management 616.6 75.9 12.3% +2% +39% +3.8ppts
------------------- --------- ------------ ----------- -------- ------------- ------------
Security &
Smart Technology 237.5 37.0 15.6% -4% +45% +5.2ppts
------------------- --------- ------------ ----------- -------- ------------- ------------
Ergonomics 133.3 33.9 25.4% -5% -9% -1.0ppts
------------------- --------- ------------ ----------- -------- ------------- ------------
Nortek central - (1.3) - N/A N/A N/A
------------------- --------- ------------ ----------- -------- ------------- ------------
Nortek 987.4 145.5 14.7% -1% +54% +5.5ppts
------------------- --------- ------------ ----------- -------- ------------- ------------
The performance of each of the trading divisions is discussed in
detail in the Chief Executive's review.
GOODWILL AND IMPAIRMENT REVIEW
Following the Nortek acquisition in August 2016, an extensive
review of the Nortek assets, liabilities and accounting policies in
accordance with IFRS 3 "Business Combinations" has now been
completed.
Since the year end this review has resulted in goodwill
decreasing by GBP57.7 million, deferred tax liabilities by GBP63.8
million, inventory by GBP1.2 million and an increase to provisions
of GBP3.4 million, other payables of GBP1.8 million and deferred
tax assets of GBP0.3 million.
Brush has experienced tough trading conditions for a number of
years and over the summer it has become clear that market
conditions have worsened further. As a result, a full impairment
review was performed on the Brush goodwill and intangible assets at
the interim date. Despite the headroom decreasing in the period
from that shown at 31 December 2016, no impairment was identified
at the interim date.
ASSETS CLASSIFIED AS HELD FOR SALE
On 10 August 2017 the disposal of the Best EMEA operations to
Electrolux A.G. was completed. The Best operations were previously
shown within the Air Quality & Home Solutions business, within
the Air Management division. At 30 June 2017 the assets and
associated liabilities of the Best business were shown as held for
sale in the Balance Sheet.
TAX
The Group Income Statement underlying tax rate in the period was
27% (2016: 21%). This rate has increased due to the addition of
Nortek which has a tax rate above the Group average.
The Group paid GBP9.4 million (2016: GBP0.1 million) of tax in
the period which equates to a rate of 20% on statutory profit
before tax.
LONG-TERM INCENTIVE PLANS
The Melrose 2012 Incentive Plan crystallised, as expected, on 31
May 2017 and was replaced by a new 2017 Incentive Plan which
mirrors the previous plan in most respects, except that the five
year duration of the replacement plan is split between a three year
performance period and a further two year holding period. Directors
will be subject to malus provisions during the performance period
and to clawback provisions for the duration of the subsequent
holding period.
During the period the Remuneration Committee determined that
23,494 options held in respect of the 2012 Incentive Plan should be
withheld by the Company in exchange for an equivalently valued
GBP115 million cash payment being sufficient to allow holders to
meet their income tax and employee national insurance liabilities
in respect of the Incentive Plan.
The remaining 26,506 options were exercised on 30 May 2017 in
exchange for 26,506 Incentive Shares, which were issued on 31 May
2017 and converted into 54,453,914 Melrose Ordinary Shares,
increasing the total number of shares in issue at that date to
1,941,200,503.
At the start of the 2017 Incentive Plan the first tranche of
options were granted. For accounting purposes the IFRS 2 charge has
been calculated as if all options over the 2017 Incentive Plan have
been granted on day one because of a common expectation,
established at that date, between employees and the Company that
the remaining options will be allocated annually in two more equal
tranches over the three year performance period.
The charge to non-underlying profit in respect of the 2017
Incentive Plan will be GBP13.3 million per annum (previous
Incentive Plan GBP4.0 million), excluding the associated employer's
tax charge.
EARNINGS PER SHARE (EPS)
The EPS calculations in the comparative period ended 30 June
2016 have been restated to apply an adjustment factor of
approximately 18.8% following the completion of the 12 for 1,
Nortek related, Rights Issue completed on 24 August 2016.
In accordance with IAS 33, the statutory diluted EPS for the
period ended 30 June 2017 is shown on the face of the Income
Statement and was 2.0p (2016: loss of 0.6p).
The underlying diluted EPS for the period ended 30 June 2017 was
4.9p (2016: 0.3p). This compares the results of the current Melrose
Group, including Nortek, with the Brush only Melrose Group.
CASH GENERATION AND MANAGEMENT
During the first six months of 2017 the operating cash generated
before capital expenditure as a percentage of the underlying profit
before interest, tax, depreciation and amortisation (EBITDA) was
70%. An analysis of the cash generation performance for the six
months to 30 June 2017 is shown in the table below:
Six
Six months months
ended ended
Cash flow from operating and investing 30 June 30 June
activities (after all costs including 2017 2016
tax) GBPm GBPm
------------------------------------------- ----------- ---------
Underlying operating profit 141.2 5.9
------------------------------------------- ----------- ---------
Depreciation and amortisation of computer
software and development costs 17.7 4.4
------------------------------------------- ----------- ---------
Working capital movement (48.0) (3.2)
------------------------------------------- ----------- ---------
Underlying operating cash flow (pre
capex) 110.9 7.1
------------------------------------------- ----------- ---------
Underlying EBITDA conversion to cash
(pre capex) % 70% 69%
------------------------------------------- ----------- ---------
Net capital expenditure (20.7) (2.4)
------------------------------------------- ----------- ---------
Net interest and net tax paid (14.9) 0.5
------------------------------------------- ----------- ---------
Defined benefit pension contributions (2.3) (8.8)
------------------------------------------- ----------- ---------
Incentive scheme payments (including
associated employer's tax) (147.2) -
------------------------------------------- ----------- ---------
Net other (45.4) (5.2)
------------------------------------------- ----------- ---------
Cash outflow from operating and investing
activities (after all costs including
tax) (119.6) (8.8)
------------------------------------------- ----------- ---------
Movement in net debt(1) GBPm GBPm
------------------------------------------- ----------- ---------
Opening (net debt)/cash (541.5) 2,451.4
------------------------------------------- ----------- ---------
Cash flow from operating and investing
activities (after all costs including
tax) (119.6) (8.8)
------------------------------------------- ----------- ---------
Amount paid to shareholders (35.8) (2,392.3)
------------------------------------------- ----------- ---------
Foreign exchange and other non-cash
movements 27.8 1.1
------------------------------------------- ----------- ---------
Closing (net debt)/cash (669.1) 51.4
------------------------------------------- ----------- ---------
(1) Defined as the net of cash and cash equivalents, external
bank borrowings and finance leases
The total cash outflow from operating and investing activities
included restructuring payments of GBP30.5 million, capital
expenditure invested in the Nortek businesses of GBP19.4 million,
representing 1.5x depreciation, and GBP147.2 million of incentive
scheme payments which included associated employer's tax.
The cash flows shown for the six months ended 30 June 2016 were
in respect of the Brush only business, along with Melrose central
costs.
LEVERAGE AND INTEREST COVER
Leverage for banking purposes, being the net debt to underlying
EBITDA ratio calculated using average exchange rates, was 2.3x at
30 June 2017 (31 December 2016: 1.9x). The covenant test at 30 June
2017 was 3.5x and so sufficient headroom existed.
The interest cover at 30 June 2017 was 19.1x (31 December 2016:
20.7x) and is therefore comfortable against the interest cover
covenant test of 4.0x.
PROVISIONS
The total provisions at 30 June 2017 were GBP239.7 million (31
December 2016 restated: GBP283.0 million), the largest elements of
which relate to warranty and product liability provisions of
GBP122.8 million. The following table details the movement in
provisions in the period:
Total
GBPm
------------------------------------- -------
At 31 December 2016(1) 283.0
------------------------------------- -------
Net charge to underlying profit 34.7
------------------------------------- -------
Net charge to non-underlying profit 36.3
------------------------------------- -------
Spend against provisions (101.4)
------------------------------------- -------
Other (including foreign exchange) (12.9)
------------------------------------- -------
At 30 June 2017 239.7
------------------------------------- -------
(1) Restated to reflect the completion of the acquisition
accounting for Nortek
The net charge to underlying operating profit of GBP34.7 million
mainly relates to warranty, product liability and workers'
compensation type charges, which are matched by similar cash
payments in the period.
The net charge to non-underlying operating profit of GBP36.3
million included GBP23.2 million of restructuring costs and GBP13.1
million of Melrose equity-settled incentive plan related costs in
respect of employer related tax.
Cash spend on provisions included GBP31.7 million in respect of
the employer related tax on the 2012 Melrose equity-settled
incentive plan, which crystallised in the period.
Included within other movements in provisions are foreign
exchange movements, the unwind of discounting on sizeable
provisions and GBP4.9 million of provisions which were transferred
to liabilities held for sale in respect of the disposal of the Best
EMEA operations, previously held within the Air Quality &
Solutions business, which completed on 10 August 2017.
PENSIONS
At 30 June 2017 the accounting net deficit of the Melrose
Group's defined benefit pension plans was GBP22.2 million (31
December 2016: GBP33.4 million). Total plan assets at 30 June 2017
were GBP522.2 million (31 December 2016: GBP522.6 million) and
total plan liabilities were GBP544.4 million (31 December 2016:
GBP556.0 million).
The values of the significant Melrose Group plans were updated
at 30 June 2017 by independent actuaries to reflect the latest key
assumptions. A summary of the assumptions used is shown below:
30 June 30 June 31 Dec 31 Dec
2017 2017 2016 2016
UK US UK US
% % % %
----------------- ------- ------- ------- -------
Discount rate 2.6 3.6 2.7 3.9
----------------- ------- ------- ------- -------
Inflation (RPI) 3.2 n/a 3.3 n/a
----------------- ------- ------- ------- -------
Total assets and liabilities in the Group's defined benefit
plans have also been updated to reflect the GBP2.3 million of
contributions made by the employer companies during the period to
30 June 2017. Annual contributions to the Melrose Group defined
benefit pension plans are expected to be approximately GBP5 million
in 2017.
EXCHANGE RATES USED IN THE PERIOD
Following the acquisition of Nortek, 83% of the Melrose Group's
annual revenue is denominated in US Dollars and therefore the
largest foreign exchange rate exposure is the translation risk from
changes in the US Dollar exchange rate relative to Sterling. In
addition, the Melrose Group has a transactional exchange rate
exposure due to certain Nortek US businesses transacting in Chinese
Renminbi. The following exchange rates were used in respect of
these two currencies during the year:
Average Closing
Exchange rates used in the period rate rate
----------------------------------- -------- --------
US Dollar:
Six months to 30 June 2017 1.26 1.30
----------------------------------- -------- --------
Twelve months to 31 December 2016 1.36 1.23
----------------------------------- -------- --------
Four months to 31 December 2016
for Nortek businesses 1.26 1.23
----------------------------------- -------- --------
Six months to 30 June 2016 1.43 1.33
----------------------------------- -------- --------
Chinese Renminbi:
Six months to 30 June 2017 8.66 8.80
----------------------------------- -------- --------
Twelve months to 31 December 2016 8.99 8.57
----------------------------------- -------- --------
Four months to 31 December 2016
for Nortek businesses 8.56 8.57
----------------------------------- -------- --------
Six months to 30 June 2016 9.37 8.83
----------------------------------- -------- --------
The Group policy on foreign currency risk is explained on pages
35 and 36 of the 2016 Annual Report, a copy of which is available
on the Company's website, www.melroseplc.net.
Noting recent movements in exchange rates, an indication of the
exchange rate risk, which shows both translation exchange risk and
full transaction exchange rate risk, is as follows:
Increase/
(decrease)
in underlying
Sensitivity of profit to translation operating
and full transaction exchange rate profit
risk GBPm
------------------------------------------- ---------------
For every 10 per cent strengthening
of the US Dollar against Sterling 31.4
------------------------------------------- ---------------
For every 10 per cent strengthening
of the Chinese Renminbi against Sterling (15.7)
------------------------------------------- ---------------
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties faced by the Group have
not changed significantly from 2016. In summary, these risks
include the acquisition of new businesses and improvement
strategies, the timing of disposals of businesses, economic and
political risk, the risk of loss of key management, risks
associated with legal, regulatory and environmental law compliance,
information security and cyber threat, foreign exchange rate risk,
pension risk and liquidity risk. These risks have the potential to
affect the Group's results and financial position during the
remainder of 2017. A more detailed explanation of risks and
uncertainties is set out on pages 40 to 45 of the Annual Report for
the year ended 31 December 2016.
Geoffrey Martin
Group Finance Director
31 August 2017
CAUTIONARY STATEMENT
This announcement contains forward-looking statements. These
statements are made in good faith based on the information
available up to the time of the approval of this announcement, and
should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying any
such forward-looking information. Accordingly, readers are
cautioned not to place undue reliance on any such forward-looking
statements. Subject to compliance with applicable laws and
regulations, the Company does not undertake any obligation to
update any forward-looking statement to reflect events or
circumstances after the date of this announcement.
This announcement has been prepared solely to provide
information to shareholders to assess the Company's strategies and
the potential for those strategies to succeed, and neither the
Company nor its directors accept any liability to any other person
save as would arise under English law.
RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge:
a) The condensed financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting";
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
and their impact, and description of principal risks and
uncertainties for the remaining six months of the financial year);
and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Simon Peckham Geoffrey Martin
Chief Executive Group Finance Director
31 August 2017 31 August 2017
INDEPENT REVIEW REPORT TO MELROSE INDUSTRIES PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
cash flows, the condensed consolidated balance sheet, the condensed
consolidated statement of changes in equity, and related notes 1 to
12. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (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 review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 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, United Kingdom
31 August 2017
Melrose Industries PLC
Condensed Consolidated Income Statement
6 months 6 months
ended ended Year
30 June 30 June ended
2017 2016 31 December
Unaudited Unaudited 2016
Continuing operations Notes GBPm GBPm GBPm
----------------------------- ------- -------------- ------------ -----------------
Revenue 3 1,085.6 104.7 889.3
Cost of sales (743.1) (74.4) (626.0)
----------------------------- ------- -------------- ------------ -----------------
Gross profit 342.5 30.3 263.3
Net operating expenses (284.6) (39.8) (324.9)
----------------------------- ------- -------------- ------------ -----------------
Operating profit/(loss) 57.9 (9.5) (61.6)
Finance costs (10.4) (1.2) (9.5)
Finance income 0.3 1.5 1.8
Profit/(loss) before tax 47.8 (9.2) (69.3)
Tax 5 (9.6) 0.4 30.3
----------------------------- ------- -------------- ------------ -----------------
Profit/(loss) after tax for the
period attributable to owners
of the parent 38.2 (8.8) (39.0)
Earnings per share (1)
- Basic 6 2.0p (0.6)p (2.6)p
- Diluted 6 2.0p (0.6)p (2.6)p
Underlying Results
Underlying operating profit 3,4 141.2 5.9 104.1
Underlying profit before tax 4 131.1 6.2 96.4
Underlying profit after tax 4 95.3 4.9 70.4
Underlying diluted earnings
per share (1) 6 4.9p 0.3p 4.4p
----------------------------- ------- -------------- ------------ -----------------
(1) Earnings per share for the six months ended 30 June 2016
have been restated to apply an adjustment factor of 18.8491%
following the completion of the 12 for 1, Nortek related, Rights
Issue in August 2016.
Melrose Industries PLC
Condensed Consolidated Statement of Comprehensive Income
6 months 6 months
ended ended Year
30 June 30 June ended
2017 2016 31 December
Unaudited Unaudited 2016
Notes GBPm GBPm GBPm
------------------------------------- ------- ---------------------- ---------- -------------
Profit/(loss) for the period 38.2 (8.8) (39.0)
------------------------------------- -------------
Items that will not be
reclassified subsequently
to the
Income Statement:
Net remeasurement gain
on retirement benefit obligations 7.4 5.4 22.7
Income tax charge relating
to items that will not
be reclassified 5 (0.5) (1.9) (3.3)
-------------------------------------
6.9 3.5 19.4
Items that may be reclassified
subsequently to the
Income Statement:
Currency translation on
net investments (78.3) 25.5 104.3
Gains/(losses) on cash
flow hedges 5.5 (0.6) 5.3
Transfer to Income Statement
on cash flow hedges (1.8) (0.2) 0.3
Income tax (charge)/credit
relating to items that
may be reclassified 5 (0.7) 0.2 5.4
(75.3) 24.9 115.3
Other comprehensive (expense)/income
after tax (68.4) 28.4 134.7
Total comprehensive (expense)/income
for the period
attributable to owners
of the parent (30.2) 19.6 95.7
Melrose Industries PLC
Condensed Consolidated Statement of Cash Flows
6 months 6 months
ended ended Year
30 June 30 June ended
2017 2016 31 December
Unaudited Unaudited 2016
Continuing operations Notes GBPm GBPm GBPm
------------------------------ ------- ----------- ---------------- ------------
Net cash (used in)/from
operating activities 11 (99.1) (8.1) 50.6
Investing activities
Disposal costs (0.1) (0.1) (0.1)
Purchase of property,
plant and equipment (20.1) (2.4) (16.8)
Proceeds from disposal
of property, plant and
equipment 0.3 0.2 0.3
Purchase of computer
software and development
costs (0.9) (0.2) (0.6)
Acquisition of subsidiaries - - (1,130.0)
Cash acquired on acquisition
of subsidiaries - - 9.4
Dividends received from
joint ventures - 0.3 0.9
Interest received 0.3 1.5 1.8
Net cash used in investing
activities (20.5) (0.7) (1,135.1)
Financing activities
Return of Capital - (2,388.5) (2,388.5)
Net proceeds from Rights
Issue - - 1,612.0
Repayment of borrowings - - (1,092.4)
New bank loans raised 156.2 - 557.4
Cost of raising debt
finance - - (10.9)
Repayment of finance
leases (0.5) - -
Dividends paid 7 (35.8) (3.8) (5.8)
Net cash from/(used in) financing
activities 119.9 (2,392.3) (1,328.2)
Net increase/(decrease)
in cash and cash equivalents 0.3 (2,401.1) (2,412.7)
Cash and cash equivalents
at the beginning of the period 42.1 2,451.4 2,451.4
Effect of foreign exchange
rate changes (1.5) 1.1 3.4
------------------------------ -------
Cash and cash equivalents
at the end of the period 40.9 51.4 42.1
As at 30 June 2017, the Group had net debt of GBP669.1 million
(31 December 2016: GBP541.5 million). A reconciliation of the
movement in net debt is shown in note 11.
Melrose Industries PLC
Condensed Consolidated Balance Sheet
30 June 30 June
2017 2016 Restated(1)
31 December
Unaudited Unaudited 2016
Notes GBPm GBPm GBPm
--------------------------------- ------ ------------- ------------------------ ------------
Non-current assets
Goodwill and other intangible
assets 2,451.2 284.7 2,609.3
Property, plant and equipment 254.1 119.1 271.9
Deferred tax assets 28.9 25.7 49.6
Derivative financial assets 6.7 - 5.2
Trade and other receivables 3.0 2.4 5.2
--------------------------------- ------
2,743.9 431.9 2,941.2
Current assets
Inventories 303.1 63.4 296.1
Trade and other receivables 364.6 70.1 365.8
Derivative financial assets 4.9 1.2 3.8
Cash and cash equivalents 40.9 51.4 42.1
Assets held for sale 12 28.4 - -
741.9 186.1 707.8
--------------------------------- ------ ------------- ------------------------ ------------
Total assets 3 3,485.8 618.0 3,649.0
Current liabilities
Trade and other payables 394.3 80.7 428.2
Interest-bearing loans
and borrowings 0.6 - 0.5
Derivative financial liabilities 0.4 2.4 4.2
Current tax liabilities 5.1 1.9 10.2
Provisions 9 99.3 10.8 140.5
Liabilities directly associated
with assets classified
as held for sale 12 17.6 - -
517.3 95.8 583.6
--------------------------------- ------ ------------- ------------------------ ------------
Net current assets 224.6 90.3 124.2
Non-current liabilities
Trade and other payables 2.2 - 13.7
Interest-bearing loans
and borrowings 709.4 - 583.1
Deferred tax liabilities 109.5 24.0 129.9
Retirement benefit obligations 22.2 6.0 33.4
Provisions 9 140.4 17.5 142.5
--------------------------------- ------ ------------- ------------------------
983.7 47.5 902.6
--------------------------------- ------ ------------- ------------------------ ------------
Total liabilities 3 1,501.0 143.3 1,486.2
Net assets 1,984.8 474.7 2,162.8
Equity
Issued share capital 133.1 10.0 129.4
Share premium account 1,492.6 - 1,492.6
Merger reserve 112.4 112.4 112.4
Other reserves (2,329.9) (2,329.9) (2,329.9)
Hedging reserve 7.5 (0.6) 4.5
Translation reserve (10.5) (12.3) 67.8
Retained earnings 2,579.6 2,695.1 2,686.0
--------------------------------- ------ ------------- ------------------------ ------------
Total equity attributable
to owners of the parent 1,984.8 474.7 2,162.8
(1) Restated to reflect the completion of the acquisition
accounting according for Nortek (note 8).
Melrose Industries PLC
Condensed Consolidated Statement of Changes in Equity
Total
Share equity
premium Translation attributable
Issued account reserve to owners
share GBPm Merger Other Hedging GBPm Retained of the
capital reserve reserves reserve earnings parent
GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------------- -------------- ----------- -------- ------------- ---------
At 1 January
2016 (audited) 10.0 - 2,500.9 (2,329.9) - (37.8) 2,702.2 2,845.4
Loss for the
period - - - - - - (8.8) (8.8)
Other
comprehensive
(expense)/income - - - - (0.6) 25.5 3.5 28.4
----------------- -------- --------------- -------------- ----------- -------- ------------- --------- -------------
Total
comprehensive
(expense)/income - - - - (0.6) 25.5 (5.3) 19.6
Return of
Capital - - (2,388.5) - - - - (2,388.5)
Dividends
paid - - - - - - (3.8) (3.8)
Credit to
equity for
equity-settled
share-based
payments - - - - - - 2.0 2.0
At 30 June
2016 (unaudited) 10.0 - 112.4 (2,329.9) (0.6) (12.3) 2,695.1 474.7
Loss for the
period - - - - - - (30.2) (30.2)
Other
comprehensive
income - - - - 5.1 80.1 21.1 106.3
----------------- -------- --------------- -------------- ----------- -------- ------------- --------- -------------
Total
comprehensive
income/(expense) - - - - 5.1 80.1 (9.1) 76.1
Issue of new
shares 119.4 1,492.6 - - - - - 1,612.0
Dividends
paid - - - - - - (2.0) (2.0)
Credit to
equity for
equity-settled
share-based
payments - - - - - - 2.0 2.0
At 31 December
2016 (audited) 129.4 1,492.6 112.4 (2,329.9) 4.5 67.8 2,686.0 2,162.8
Profit for
the period - - - - - - 38.2 38.2
Other
comprehensive
income/(expense) - - - - 3.0 (78.3) 6.9 (68.4)
----------------- -------- -------------- ----------- ------------- --------- -------------
Total
comprehensive
income/(expense) - - - - 3.0 (78.3) 45.1 (30.2)
Dividends
paid - - - - - - (35.8) (35.8)
Credit to
equity for
equity-settled
share-based
payments - - - - - - 3.5 3.5
Incentive
scheme
related(1) 3.7 - - - - - (119.2) (115.5)
At 30 June
2017 (unaudited) 133.1 1,492.6 112.4 (2,329.9) 7.5 (10.5) 2,579.6 1,984.8
(1) On 31 May 2017, the Melrose 2012 Incentive Plan
crystallised. Of the 50,000 options in issue, 23,494 were withheld
by the Company in
exchange for a cash payment sufficient to allow holders to meet
their income tax and employee national insurance liabilities in
respect of the
Incentive Plan. This resulted in 23,494 options being exercised
for GBP115.5 million in cash and being paid to the tax authorities
on behalf of the
option holders. The remaining 26,506 options were converted into
54,453,914 ordinary shares of 48/7 pence each and resulted in a
GBP3.7 million
increase to Issued share capital.
Notes to the condensed financial statements
1. Corporate information
The interim financial information for the six months ended 30
June 2017 has been reviewed by the auditor, but not audited. The
information for the year ended 31 December 2016 shown in this
report does not constitute statutory accounts for that year as
defined in section 434 of the Companies Act 2006. A copy of the
statutory accounts for that year has been delivered to the
Registrar of Companies. The auditor has reported on those accounts.
Their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The Balance Sheet at 31 December 2016, shown in these interim
financial statements, has been restated to reflect the completion
of the acquisition accounting of Nortek (note 8).
2. Summary of significant accounting policies
The interim financial information for the six months ended 30
June 2017, which has been approved by a committee of the Board of
Directors on 31 August 2017 has been prepared on the basis of the
accounting policies set out in the Group's 2016 Annual Report and
financial statements on pages 99 to 108. The Group's 2016 Annual
Report and financial statements can be found on the Group's website
www.melroseplc.net. These interim financial statements should
therefore be read in conjunction with the 2016 information. The
accounting policies used in the preparation of the interim
financial information have been consistently applied to all periods
presented. The annual financial statements are prepared in
accordance with IFRS as adopted by the European Union. These
interim financial statements have been prepared in accordance with
IAS 34: "Interim Financial Reporting" as adopted by the European
Union.
Alternative performance measures
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), additional information on the APMs used by the
Group is provided below. The APMs used by the Group are:
- Underlying operating profit/(loss)
- Underlying profit/(loss) before tax
- Underlying profit/(loss) after tax
- Underlying diluted earnings per share
- Underlying profit/(loss) conversion to cash
A reconciliation between statutory reported measures and the
underlying measures listed above is shown in note 4 to these
interim financial statements.
Underlying profit/(loss) excludes items which are significant in
size or volatility or by nature are non-trading or non-recurring,
excludes the losses incurred within closed businesses from the date
the closure is announced and excludes any item released to the
Income Statement that was previously a fair value item booked on
acquisition. These items are not included in the performance
measures the Board uses to monitor the performance of the
Group.
The underlying measures are used to partly determine the
variable element of remuneration of senior Management throughout
the Group and are also in alignment with performance measures used
by certain external stakeholders. The underlying measures are also
used to value individual businesses as part of the "Buy, Improve
and Sell" Melrose strategy model.
Underlying profit is not a defined term under IFRS and may not
be comparable with similarly titled profit measures reported by
other companies. It is not intended to be a substitute for, or
superior to, GAAP measures. All APMs relate to the current year
results and comparative periods where provided.
Adoption of new accounting standards
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective. The Group
has adopted relevant standards and amendments with no material
impact on its results, assets and liabilities.
Going concern
The Group's business activities in the period, together with the
factors likely to affect its future development, performance and
position are set out in the Chief Executive's review.
The Group's principal risks and uncertainties are unchanged from
2016, as discussed in the Finance Director's review. These are set
out in more detail on pages 40 to 45 in the Group's Annual Report
for the year ended 31 December 2016.
After making appropriate enquiries, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future, a
period of not less than twelve months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing these interim financial statements.
3. Segment information
Segment information is presented in accordance with IFRS 8:
"Operating segments" which requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reported to the Group's Board in order to
allocate resources to the segments and assess their performance.
The Group's reportable operating segments under IFRS 8 are as
follows:
Energy - includes the Brush business, a specialist supplier of
energy industrial products to the global market.
Air Management - includes the Air Quality & Home Solutions
business (AQH), a leading manufacturer of ventilation products for
the professional remodelling and replacement markets, residential
new construction market, and do-it-yourself market. This division
also includes the Heating, Ventilation & Air Conditioning
business (HVAC) which manufactures and sells split-system and
packaged air conditioners, heat pumps, furnaces, air handlers and
parts for the residential replacement and new construction markets,
along with custom-designed and engineered HVAC products and systems
for non-residential applications.
Security & Smart Technology - includes the Security &
Control business (SCS) along with the Core Brands and GTO Access
Systems businesses. These businesses are manufacturers and
distributors of products designed to provide convenience and
security primarily for residential applications and audio visual
equipment for the residential audio video and professional video
market.
Ergonomics - includes the Ergotron business, a manufacturer and
distributor of innovative products designed with ergonomic features
including wall mounts, carts, arms, desk mounts, workstations and
stands that attach to or support a variety of display devices such
as notebook computers, computer monitors and flat panel
displays.
In addition, there are central cost centres which are also
separately reported to the Board. The central corporate cost
centre, which contains the Melrose Group head office costs along
with charges related to the divisional management long-term
incentive plans, and the remaining Nortek central cost centre.
The comparative information for the year ended 31 December 2016
includes the results of Nortek for the four month post acquisition
period from 31 August 2016 to 31 December 2016.
Transfer prices between business units are set on an arm's
length basis in a manner similar to transactions with third
parties.
The Group's geographical segments are determined by the location
of the Group's non-current assets and, for revenue, the location of
external customers. Inter-segment sales are not material and have
not been disclosed.
The following tables present the results and certain asset and
liability information regarding the Group's operating segments and
central cost centres for the six month period ended 30 June 2017
and comparative periods.
Segment revenues and results
Segment revenue from
external customers
-----------------------------------
6 months
6 months ended Year
ended 30 ended
30 June June 31 December
2017 2016 2016
Continuing operations GBPm GBPm GBPm
------------------------------- --------- --------- -------------
Energy 98.2 104.7 246.4
Air Management 616.6 - 416.5
Security and Smart Technology 237.5 - 130.4
Ergonomics 133.3 - 96.0
-------------------------------- --------- --------- -------------
Nortek total 987.4 - 642.9
Total revenue 1,085.6 104.7 889.3
Segment profit
------------------------------------
6 months
6 months ended Year
ended 30 ended
30 June June 31 December
2017 2016 2016
Continuing operations Notes GBPm GBPm GBPm
----------------------------- -------- --------- --------- --------------
Energy 7.2 12.6 32.0
----------------------------- -------- --------- --------- --------------
Air Management 75.9 - 46.8
Security & Smart Technology 37.0 - 17.1
Ergonomics 33.9 - 24.4
Nortek Central (1.3) - (2.0)
----------------------------- -------- --------- --------- --------------
Nortek total 145.5 - 86.3
Central - corporate(1) (11.5) (6.7) (14.2)
Underlying operating
profit 4 141.2 5.9 104.1
Items not affecting
underlying operating
profit 4 (83.3) (15.4) (165.7)
Operating profit/(loss) 57.9 (9.5) (61.6)
Finance costs (10.4) (1.2) (9.5)
Finance income 0.3 1.5 1.8
--------- --------- --------------
Profit/(loss) before
tax 47.8 (9.2) (69.3)
Tax 5 (9.6) 0.4 30.3
Profit/(loss) for
the period 38.2 (8.8) (39.0)
(1) Includes GBP3.8 million (year ended 31 December 2016:
GBPnil) of costs relating to divisional long-term Incentive
Plans.
Total assets Total liabilities
-------------------------------- --------------------------------------
30 30 30
30 June June Restated(1) June June Restated(1)
31 December 31 December
2017 2016 2016 2017 2016 2016
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ------- ------------- -------------- ------- -------------
Energy 521.0 547.4 549.2 74.9 114.5 97.8
------------------------ -------- ------- ------------- -------------- ------- -------------
Air Management 1,523.9 - 1,569.2 472.4 - 497.4
Security & Smart
Technology 662.7 - 692.2 155.5 - 160.7
Ergonomics 699.2 - 756.5 134.5 - 144.6
Nortek Central 4.4 - 5.3 (63.6) - (31.0)
------------------------ -------- ------- ------------- -------------- ------- -------------
Nortek total 2,890.2 - 3,023.2 698.8 - 771.7
Central - corporate 74.6 70.6 76.6 727.3 28.8 616.7
Total 3,485.8 618.0 3,649.0 1,501.0 143.3 1,486.2
(1) Restated to reflect the completion of the acquisition
accounting for Nortek (note 8).
Capital expenditure(1) Depreciation(1)
---------------------------------------- -----------------------------------
6 months 6 months 6 months 6 months
ended ended Year ended ended Year
30 30 ended 30 30 ended
June June 31 December June June 31 December
Continuing operations 2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------ ----------- ------------- --------- --------- -------------
Energy 0.9 2.3 3.6 4.6 4.3 9.0
------------------------ ------------ ----------- ------------- --------- --------- -------------
Air Management 18.2 - 10.3 9.5 - 6.4
Security & Smart
Technology 0.7 - 1.8 1.5 - 1.0
Ergonomics 1.1 - 1.1 1.4 - 1.0
Nortek Central - - 0.1 0.7 - 0.5
------------------------ ------------ ----------- ------------- --------- --------- -------------
Nortek total 20.0 - 13.3 13.1 - 8.9
Central - corporate - - - - 0.1 0.2
Total 20.9 2.3 16.9 17.7 4.4 18.1
(1) Including computer software and development costs.
Geographical information
The Group operates in various geographical areas around the
world. The Group's country of domicile is the UK and the Group's
revenues and non-current assets in Europe and North America are
also considered to be material.
The Group's revenue from external customers and information
about its segment assets (non-current assets excluding deferred tax
assets, non-current trade and other receivables and non-current
derivative financial assets) by geographical location are detailed
below:
Revenue(1) from
external customers Non-current assets
--------------------------------- ---------------------
Year
6 months 6 months
ended ended ended
30 30 31 30 30
June June December June June Restated(2)
31 December
2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ --------- --------- ----------- ----------- -------- -------------
UK 53.0 33.4 88.9 179.6 185.6 183.3
Europe 53.2 27.1 82.3 168.4 163.0 181.4
North America 930.2 23.7 638.8 2,322.9 27.1 2,480.1
Other 49.2 20.5 79.3 34.4 28.1 36.4
Total 1,085.6 104.7 889.3 2,705.3 403.8 2,881.2
(1) Revenue is presented by destination.
(2) Restated to reflect the completion of the acquisition
accounting for Nortek (note 8).
4. Reconciliation between profit and underlying profit
Underlying profit/(loss) is the alternative performance measure
used by the Board to monitor the underlying trading performance of
the Group. A reconciliation between the statutory profit/(loss) and
underlying profit is shown below:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Continuing operations Notes GBPm GBPm GBPm
-------------
Operating profit/(loss) 57.9 (9.5) (61.6)
-------------------------------------- -------- -------- -------------
Restructuring costs a 25.1 1.9 51.4
Acquisition and disposal
costs b 1.7 7.3 38.7
Amortisation of intangible
assets c 41.5 4.2 36.3
Removal of one-off
uplift in value of
inventory d - - 18.2
Melrose equity-settled
compensation scheme e 17.3 2.0 22.8
Release of fair value
provision f (2.3) - (1.7)
---------------------------- -------- -------- -------- -------------
Total adjustments
to operating profit/(loss) 83.3 15.4 165.7
Underlying operating
profit 141.2 5.9 104.1
a. Restructuring costs in the six months ended 30 June 2017
primarily relate to early actions taken in certain Nortek
businesses, the most significant costs relating to the closure of
loss making operations in the Residential HVAC business and the
removal of excess manufacturing capacity in the AQH business, both
within the Air Management division.
Restructuring costs in the year ended 31 December 2016 included
GBP31.8 million relating to the closure of the Nortek head office
and GBP13.5 million relating to the restructuring of certain Nortek
businesses. Within the Brush business, GBP6.1 million was incurred
to align the cost base with the reduced revenue.
These items are excluded from underlying results due to their
size and non-trading nature.
b. Acquisition and disposal related costs in the six months
ended 30 June 2017 were GBP1.7 million and included the costs
incurred related to the step up of the Company to the Premium List
of the London Stock Exchange. The costs in 2016 primarily related
to the acquisition of Nortek. These items are excluded from
underlying results due to their non-trading nature.
c. The amortisation of intangible assets acquired in business
combinations are excluded from underlying results due to their
non-trading nature.
d. The one-off loss of profit effect of being required to uplift
the value of inventory acquired in an acquisition to that close to
its selling price was excluded from the year ended 31 December 2016
underlying results due to its size and non-recurring nature.
e. The charge for the Melrose incentive scheme, including its
associated employer's tax charge, is excluded from underlying
results due to its size and volatility.
f. During the period ended 30 June 2017 certain provisions,
booked as fair value items on the acquisition of Nortek, have been
settled for a more favourable amount than first anticipated. The
release of any excess fair value provisions are excluded from
underlying results. The release in the year ended 31 December 2016
related to the release of a fair value item recognised on the
acquisition of FKI.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Continuing operations GBPm GBPm GBPm
------------------------- -------- -------------------- ---------------------
Profit/(loss) before
tax 47.8 (9.2) (69.3)
Adjustments to operating
profit/(loss) per above 83.3 15.4 165.7
Underlying profit before
tax 131.1 6.2 96.4
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Continuing operations Notes GBPm GBPm GBPm
----------------------------- ------- --------------------- ---------------------- ---------------------
Profit/(loss) after tax 38.2 (8.8) (39.0)
----------------------------- ------- --------------------- ---------------------- ---------------------
Adjustments to profit/(loss)
before tax per above 83.3 15.4 165.7
Incremental deferred tax
asset recognition on UK
losses - - (10.4)
Tax effect of adjustments
to underlying profit before
tax 5 (26.2) (1.7) (45.9)
----------------------------- ------- --------------------- ---------------------- ---------------------
Adjustments to profit/(loss)
after tax 57.1 13.7 109.4
Underlying profit after
tax 95.3 4.9 70.4
5. Tax
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Continuing operations GBPm GBPm GBPm
--------------------------------- ------------- -------- ------------
Analysis of the charge/(credit)
in the period:
Current tax 5.2 (1.4) 3.0
Deferred tax 4.4 1.0 (33.3)
---------------------------------- ------------- -------- ------------
Total income tax charge/(credit) 9.6 (0.4) (30.3)
The effective tax rate in respect of underlying profit before
tax for the half year is 27% (period to 30 June 2016: 21%). The
underlying tax charge has been calculated by applying the expected
rate for the full year to the underlying profit before tax of
GBP131.1 million (period to 30 June 2016: GBP6.2 million), giving
an underlying tax charge of GBP35.8 million (period to 30 June
2016: GBP1.3 million).
The underlying tax charge of GBP35.8 million (period to 30 June
2016: GBP1.3 million) has been decreased by a deferred tax credit
on intangible asset amortisation of GBP15.4 million (period to 30
June 2016: GBP0.8 million) and a tax credit on non-underlying costs
of GBP10.8 million (period to 30 June 2016: GBP0.9 million) to give
a total tax charge of GBP9.6 million (period to 30 June 2016:
credit of GBP0.4 million).
In addition to the amount charged to the Income Statement, a
charge of GBP1.2 million (period to 30 June 2016: GBP1.7 million)
has been recognised directly in the Statement of Comprehensive
Income. This represents a tax charge of GBP0.7 million (period to
30 June 2016: credit of GBP0.2 million) in respect of movements on
cash flow hedges and a tax charge of GBP0.5 million (period to 30
June 2016: GBP1.9 million) in respect of the remeasurement of
retirement benefit obligations.
6. Earnings per share
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
Earnings attributable to owners 2017 2016 2016
of the parent GBPm GBPm GBPm
-------------------------------- -------- -------- ------------
Earnings for basis of earnings
per share 38.2 (8.8) (39.0)
Restated(1)
6 months Year
6 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Number Number Number
------------------------------------ --------- ----------- -------------
Weighted average number of ordinary
shares for the purposes of basic
earnings per share (million)
including the effect of the
Rights Issue 1,895.8 1,439.0 1,499.3
Further shares for the purposes
of diluted earnings per share
(million) including the effect
of the Rights Issue (2), (3) 45.4 98.4 89.8
------------------------------------ --------- ----------- -------------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share (million)
including the effect of the
Rights Issue 1,941.2 1,537.4 1,589.1
(1) On 24 August 2016, a 12 for 1, fully underwritten, Rights
Issue was completed by Melrose Industries PLC and subsequently
1,741.6 million
new ordinary shares were issued raising GBP1,654.5 million to
part fund the acquisition of the Nortek Group. In accordance with
IAS 33, an adjustment factor associated with the issue of the new
share capital of 18.8491% has been applied to the number of
ordinary shares in issue prior to 24 August 2016 (including
comparative periods presented) for the purposes of earnings per
share calculations.
(2) The results for 30 June 2016 and 31 December 2016 are a loss
and therefore in accordance with IAS 33: "Earnings per share" there
is no
dilution. However, the dilutive number of shares for both
periods are shown for illustrative purposes only.
(3) Relating to the 2012 Melrose incentive plan up to 31 May
2017 when 54.5 million shares were issued. No dilution currently
exists in respect of the 2017 Melrose incentive plan.
On 1 June 2017 the number of ordinary shares in issue increased
by 54.5 million following the crystallisation of the 2012 Melrose
incentive plan which increased the number of ordinary shares in
issue from 1,886.7 million to 1,941.2 million.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Earnings per share pence pence pence
--------------------------- -------- -------------------- -----------------
Basic earnings per share 2.0 (0.6) (2.6)
Diluted earnings per share 2.0 (0.6) (2.6)
--------------------------- -------- -------------------- -----------------
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
Underlying earnings Note GBPm GBPm GBPm
---------------------------- ------ -------- -------- ------------
Underlying earnings for
the basis of underlying
earnings per share 4 95.3 4.9 70.4
---------------------------- ------ -------- -------- ------------
Underlying earnings per
share
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
pence pence pence
---------------------------- ------ -------- -------- ------------
Underlying basic earnings
per share 5.0 0.3 4.7
Underlying diluted earnings
per share 4.9 0.3 4.4
7. Dividends
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
-------------------------------- -------- ---------- ------------
Final dividend for the year
ended 31 December 2015 paid
of 2.6p (0.5p)(1) - 3.8 3.8
Interim dividend for the year
ended 31 December 2016 of 1.4p
(0.3p)(1) - - 2.0
Final dividend for the year
ended 31 December 2016 of 1.9p 35.8 - -
-------------------------------- -------- ---------- ------------
Total dividends paid 35.8 3.8 5.8
(1) Adjusted to include the effects of the August 2016 Rights
Issue.
A 2017 interim dividend of 1.4p per ordinary share totalling
GBP27.2 million was declared by the Board on 31 August 2017 and, in
accordance with IAS 10: "Events after the reporting period", has
not been included as a liability as at 30 June 2017.
8. Goodwill and other intangible assets
During the period, the Group has completed its review of the
assets and liabilities acquired following the Nortek acquisition on
31 August 2016. As a result, the Group has recorded its final
adjustments to the opening balance sheet of Nortek. In accordance
with IFRS 3 "Business combinations" the Balance Sheet at 31
December 2016 has been restated to reflect this. These adjustments
increase provisions by GBP3.4 million, deferred tax assets by
GBP0.3 million and other payables by GBP1.8 million whilst reducing
inventory by GBP1.2 million and deferred tax liabilities by GBP63.8
million. The corresponding adjustment is to decrease goodwill by
GBP57.7 million.
Brush has experienced tough trading conditions for a number of
years and over the summer it has become clear that market
conditions have worsened further. As a result, a full impairment
review was performed on the Brush goodwill and intangible assets at
the interim date. Despite the headroom decreasing in the period
from that shown at 31 December 2016, no impairment was identified
at the interim date.
9. Provisions
Surplus
leasehold Environmental Warranty
property and related Product Employee
costs legal costs costs liability related Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------------- ------------- ---------- ----------- ---------- ------ -------
At 1 January
2017(1) 20.8 66.8 86.9 42.5 8.9 57.1 283.0
Utilised (2.4) (9.9) (11.2) (4.0) (16.0) (57.9) (101.4)
Net charge to
operating profit(2) (1.7) 0.2 8.0 6.9 16.4 41.2 71.0
Transfer from
accruals - 1.3 0.3 - - - 1.6
Unwind of discount 0.1 - - - - 0.6 0.7
Transfer to held
for sale - (1.0) (1.0) - - (2.9) (4.9)
Exchange differences (0.7) (2.2) (3.6) (2.0) (0.6) (1.2) (10.3)
--------------------- -------------- ------------- ---------- ----------- ---------- ------ -------
At 30 June 2017 16.1 55.2 79.4 43.4 8.7 36.9 239.7
--------------------- -------------- ------------- ---------- ----------- ---------- ------ -------
Current 5.2 15.2 32.5 13.6 5.3 27.5 99.3
Non-current 10.9 40.0 46.9 29.8 3.4 9.4 140.4
--------------------- -------------- ------------- ---------- ----------- ---------- ------ -------
16.1 55.2 79.4 43.4 8.7 36.9 239.7
--------------------- -------------- ------------- ---------- ----------- ---------- ------ -------
(1) Restated to reflect the completion of the acquisition
accounting for Nortek (note 8).
(2() Includes GBP36.3 million of restructuring charges and other
non-underlying items and GBP34.7 million charged through underlying
operating profit.
The provision for surplus leasehold property costs represents
the estimated net payments payable over the term of these leases
together with any dilapidation costs. This is expected to result in
cash expenditure over the next one to eight years.
Environmental and legal costs provisions relate to the estimated
remediation costs of pollution, soil and groundwater contamination
at certain sites and estimated future costs and settlements in
relation to legal claims. Due to their nature, it is not possible
to predict precisely when these provisions will be utilised.
The provision for warranty related costs represents the best
estimate of the expenditure required to settle the Group's
obligations, based on past experiences. Warranty terms are, on
average, between one and five years.
The employee related provision relates to the estimated cost of
the Group's health insurance and workers compensation plans. The
product liability provision relates to the estimated cost of future
product and general liabilities claims. Due to their nature it is
not possible to predict precisely when these provisions will be
utilised.
Other provisions relate to costs that will be incurred in
respect of restructuring programmes, usually resulting in cash
spend within one year. In addition other provisions include
long-term incentive plans for divisional senior management and the
employer tax on equity-settled incentive schemes which are expected
to result in cash expenditure over the next three to five
years.
Where appropriate, provisions have been discounted using a
discount rate of 3% (31 December 2016: 3%).
10. Financial instruments
The table below sets out the Group's accounting classification
of each category of financial assets and liabilities and their fair
values as at 30 June 2017, 31 December 2016 and 30 June 2016:
Current Non-current Total
GBPm GBPm GBPm
----------------------------------- -------------------- ------------------- --------
30 June 2017
Financial assets
Cash and cash equivalents 40.9 - 40.9
Net trade receivables 328.6 - 328.6
Derivative financial assets:
Foreign currency forward
contracts 4.9 - 4.9
Interest rate swaps - 6.7 6.7
Net assets held for sale 10.8 - 10.8
Financial liabilities
Derivative financial liabilities:
Foreign currency forward
contracts (0.4) - (0.4)
Interest-bearing loans and
borrowings (0.6) (709.4) (710.0)
Other financial liabilities (388.3) (2.2) (390.5)
----------------------------------- --------------------
31 December 2016
Financial assets
Cash and cash equivalents 42.1 - 42.1
Net trade receivables 330.1 - 330.1
Derivative financial assets:
Foreign currency forward
contracts 3.8 5.2 9.0
Financial liabilities
Derivative financial liabilities:
Foreign currency forward
contracts (4.2) - (4.2)
Interest-bearing loans and
borrowings (0.5) (583.1) (583.6)
Other financial liabilities (420.8) (13.7) (434.5)
----------------------------------- -------------------- --------
30 June 2016
Financial assets
Cash and cash equivalents 51.4 - 51.4
Net trade receivables 49.1 - 49.1
Derivative financial assets:
Foreign currency forward
contracts 1.2 - 1.2
Financial liabilities
Derivative financial liabilities:
Foreign currency forward
contracts (2.4) - (2.4)
Other financial liabilities (79.5) - (79.5)
----------------------------------- -------------------- ------------------- --------
The fair value of the derivative financial instruments is
derived from inputs other than quoted prices that are observable
for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices) and they are therefore
categorised within level 2 of the fair value hierarchy set out in
IFRS 13: "Fair value measurement". The Group's policy is to
recognise transfers into and out of the different fair value
hierarchy levels at the date of the event or change in
circumstances that caused the transfer to occur. There have been no
transfers between levels in the period.
The Directors consider that the book value of net assets held
for sale approximates to their fair value.
11. Notes to the Cash Flow Statement
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Continuing operations GBPm GBPm GBPm
----------------------------------- -------- -------- ------------
Reconciliation of underlying operating
profit to cash generated
from operations
Underlying operating profit 141.2 5.9 104.1
Adjustments for:
Depreciation of property,
plant and equipment 15.8 4.1 15.9
Amortisation of computer
software and development
costs 1.9 0.3 2.2
Restructuring costs paid
and movements in other provisions (42.4) (5.1) (37.6)
Defined benefit pension
contributions paid (2.3) (8.8) (10.5)
(Increase)/decrease in inventories (23.3) (3.9) 15.0
(Increase)/decrease in receivables (14.8) 6.7 22.5
Decrease in payables (9.9) (6.0) (9.3)
Acquisition costs (2.9) (0.3) (41.3)
Tax paid (9.4) (0.1) (5.9)
Interest paid (5.8) (0.9) (4.5)
Incentive scheme tax related
payments (147.2) - -
Net cash (used in)/from
operating activities (99.1) (8.1) 50.6
Net debt reconciliation
At 31 Other Effect At 30
December non-cash of foreign June
2016 Cash flow movements exchange 2017
GBPm GBPm GBPm GBPm GBPm
---------- ----------- ---------- ------------ --------------- --------
Cash 42.1 0.3 - (1.5) 40.9
External
debt (582.0) (156.2) (1.1) 30.3 (709.0)
Finance
leases (1.6) 0.5 - 0.1 (1.0)
Net debt (541.5) (155.4) (1.1) 28.9 (669.1)
12. Assets held for sale
On 10 August 2017 the disposal of the Best EMEA operations to
Electrolux A.G. was completed. The Best EMEA operations were
previously shown within the AQH business, within the Air Management
division. At 30 June 2017 the assets and associated liabilities of
the Best EMEA business were shown as held for sale in the Balance
Sheet.
[1] Considered by the Board to be the best measure of
performance. A reconciliation of statutory
operating profit/(loss) to underlying operating profit/(loss) is
given in the Finance Director's review
[2] Adjusted to include the effects of the 2016 Rights Issue
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFELTRIIVID
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