MOUNT ENGINEERING Plc

("Mount" or "Group")

 

 

PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS

FOR

THE YEAR ENDED 31 DECEMBER 2009

 

	Year Ended 31 December 2009	Year Ended 31 December 2008
	£000	£000
Revenue	9,333	11,778
Operating Profit	2,872	3,257
Profit before tax	2,694	3,071
Profit after tax	1,933	2,178
Earnings per share	8.2p	8.9p

 

Ÿ   Reduction in Turnover of 20%

 

Ÿ   Operating Margin 30.8%, up from 27.6%

 

Ÿ   Cash balances at year end of £4,033k

 

Ÿ   Net Cash at end of year of £1,709k

 

Ÿ   Increased final dividend 1.4p per share

 

Ÿ   Satisfactory start to new financial year

 

For further information:

 

Mount Engineering Group Plc
Colin Ainger (Chairman)	07778 160365
Dave Stanham (Chief Executive)	07834 046121
Charles Stanley Securities
Nominated Advisor
Mark Taylor / Ben Johnston	0207 149 6000

 

About: Mount Engineering Plc

Mount Engineering has three operating subsidiaries, Redapt, Raxton and Hi-Flow Valves Ltd ("Hi-Flow").

 

Redapt and Raxton, established in the 1970s, specialise in the manufacture and supply of thread converting Adaptors and Reducers that are "Ex Certified", which means that they have been certified for use in potentially explosive or hazardous areas. The products of both companies provide a method of insulating and protecting electrical wiring and installations in hazardous areas such as oil refineries where a stray spark from an electrical installation could have severe consequences. The requirement for thread converting components arises due to the diverse range of thread specifications incorporated into equipment used in hazardous areas. Hazardous area certification is intrinsic to the market that Redapt and Raxton sell to.

Hi-Flow was established in 1994 and is engaged in the stocking, distribution and merchanting of industrial valves and actuators to the oil, gas, petrochemical, process and related industries throughout the world. The key attributes of Redapt, Hi-Flow and Raxton are that they are well-established companies within their industries, each having a strong brand name and recognition for quality products.

The major end user markets for all three subsidiaries are the oil and gas and petrochemical industries; however, they also serve a range of other industrial markets including mining, waste water and pharmaceuticals

 

MOUNT ENGINEERING Plc

("Mount" or "Group")

 

PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS

FOR

THE YEAR ENDED 31 DECEMBER 2009

 

Chairman's Statement

 

The Annual Report and Accounts of Mount Engineering Plc ("Mount" or "Group") are for the year ending 31 December 2009. In common with many companies in the specialist manufacturing and distribution arena, the calendar year 2009 has been a difficult one, however, action taken by management demonstrate that Mount has produced a resilient performance in current market conditions.

 

The Group is involved in the manufacture and supply of threaded adaptors and reducers, certified for use in potentially explosive or hazardous areas.  It is also a stockist and provider of industrial valves and actuators. The major end user markets are the oil and gas and petrochemical industries, however, they also serve a range of other industrial markets including mining, waste water, dust extraction and pharmaceuticals.

 

Results

 

The results for the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS").

 

Turnover for the year of £9.3m (2008 £11.8m) has generated an operating profit of £2.9m (2008 £3.25m), equating to 30.8% of turnover (2008 27.6%) and basic earnings per share of 8.2 pence per share (2008 8.9 pence per share). As at the year end, the Group had a strong balance sheet position with cash balances of £4m and net cash of £1.76m, (2008 £3.8m and £0.5m respectively).

 

The Board intend to propose to shareholders the payment of a final dividend of 1.4p per Ordinary share, which, if approved at the AGM, will be paid on 2 June 2010 to shareholders on the register at 14 May 2010. Total dividend for the year is 2.4 pence per share (2008 2.3 pence per share).

 

Outlook

 

Although the Group experienced a relatively buoyant start to 2009, order intake gradually declined and stabilised at a lower level. However, prompt action taken by management in respect of the supply chain positioned the Group to improve margins despite the lower turnover, such that Mount is well placed to benefit from any upturn in demand later in 2010 and beyond.

 

With short term visibility of its own order book, Mount relies on a number of external indicators to assist in forecasting its own activity. Indicative levels of capital spend from major oil companies, approval of major infrastructure projects, tender enquiry levels, and published forward order books of equipment manufacturers are all reviewed. As a supplier of late cycle products in respect of the installation of electrical equipment in new capital projects, the timing of any benefit to Mount from increased sales is also an unknown variable. Routine maintenance and refurbishment of older facilities provides a more and reoccurring immediate benefit to the Group. In summary, our key indicators show our sales have stabilised.

  

 

Colin Ainger

 

Chairman

 

 

Business Review

 

Operations

 

An encouraging start to the 2009 year could not be sustained as the general effects of the worldwide economic crisis began to bite. As a supplier of late cycle products, delays to new capital expenditure projects impact the Group, though a level of exposure to ongoing routine maintenance of existing facilities helps to mitigate that.

 

An overall 20% decline in revenues from the Redapt and Raxton Exd businesses in comparison to the prior year 2008 has been recorded. Much of the decline is the result of distributors and electrical wholesalers reducing the inventory levels they are prepared to carry to match the downturn in the industry. In this respect, the reduction in turnover has probably been greater than the overall reduction in the market. In turn, this has placed a greater reliance on the business to act as a stockist, and to carefully manage its own supply chain.

 

Not all markets have reacted to the global economic crisis to the same degree; whilst key UK and European sales have declined in line with the overall 20% reduction in sales, North America has witnessed a 30% decline whereas the Middle East, about half the market size of the USA, has seen 14% growth in the period.

 

The take up of the new Exd breather drain, a plug which effectively drains any moisture build up in the atmosphere, and launched towards the end of the prior year, has seen slower adoption that had been hoped for. The requirement for prime contractors to make changes in electrical enclosure design, necessary for acceptance of this product, has taken additional sales engineering effort.

 

Considerable effort has been spent during the year in ensuring the Group's products meet the needs of the Brazilian INMETRO certification standards. Approvals have been received and a distributor appointed for what could be an exciting new market for the Redapt and Raxton products. In addition, all existing certification has been reviewed and updated to the latest standards due to be implemented in 2010.

 

A promising start to the year for Hi-Flow, our valve and actuator stockist and distributor, was not matched in the second half. Overall, year on year sales declined 21%, and once again highlighted the dependence on winning a number of significant merchanted orders. Merchanted sales, i.e. where packages of various valve specifications are required on a project basis, are by their very nature irregular. The number of tender enquiries processed reduced by 8% in the second half, in line with a reduction in industry activity, although the average value of packaged bids increased 1% during the same period. The opening order book for 2010 is considerably less than prior year, however the comparative opening 2009 orders were themselves three times higher than the prior year, primarily due to one significant order being outstanding at last year end. This is typical of the market in which Hi Flow operates.

 

Stock sales for the year are 20% below prior year and account for approximately two thirds of total Hi-Flow sales, in line with prior year proportionate sales. Stock management has again been difficult as suppliers have been managing their businesses on a more reactive basis, and in some cases switching manufacture between different factories, so delivery times have tended to increase as the year has progressed.

 

The introduction of the Saxon branded wafer check valves in the final quarter of 2008 has seen a gradual acceptance in the market place and an encouraging number of enquiries are now being handled. The Saxon range is aimed at penetrating a different market, previously closed to Hi-Flow, from the market satisfied by the high specification wafer check valves provided by our existing suppliers. 

 

In difficult market conditions, it is pleasing to announce an overall 4% improvement in gross margin over the prior year to 53.6%. Actions taken at the end of the previous year to switch suppliers for Redapt and Raxton and lock in to longer term fixed price supply contracts have also helped to improve the gross margin. Raw material costs are a significant part of the overall cost of manufacture and a number of fixed price supply contracts reduced the impact of fluctuating raw material costs. Another feature of the change in supply contracts was the ability to freight finished product by sea rather than by air, thereby reducing overall carriage costs.

 

Throughout the year, the Group has had a high level of support from management and staff at each of our locations and the Board would like to place on record our appreciation for that support in what have been challenging times for specialist manufacturing and distribution businesses.

 

Management continued to monitor risks to the business and take action accordingly. An example of action taken is the entering into of longer term material supply contracts already referred to. 

 

Overall within the Group, there is limited exposure to currency fluctuation as a result of being able to match sales and purchases in both the US dollar and the Euro. Sterling continues to be the dominant trading currency within the Group. The Group recorded a foreign exchange gain of £128k in the year.

 

Although there is some overlap in the products sold by both Redapt and Raxton, there is very little client and limited geographical overlay. No customer accounts for more than 10% of the combined sales. At Hi-Flow, where much larger individual sales values have historically occurred, no customer accounted for more than 10% of total sales.  The Group has export sales outside the UK of 55% of turnover, which is up from 45% recorded in the prior year.

 

The Group employs 82 people (2008: 86), 56% of whom are categorised as direct labour, working in the machine shops or warehouses. Health and safety systems are in place in all three locations and in the twelve month period to 31 December 2009, a total of 81,838 man-hours were worked with no lost time recorded, (prior year 88,589 man-hours, with 69 hours lost time recorded). For the year to 31 December 2009, staff turnover was 6%, (prior year 10%), and the reduction is probably reflective of the uncertain economic climate.

 

During the year, excluding orientation and job training of new employees, a total of 322 man-hours (2008: 854 man-hours) were spent on training. The reduction is partly down to the absence of new products being introduced in the period and the completion of National Vocation Qualification ("NVQ") training of new production staff in 2008.

 

Anticipating the correct stock levels to meet customer demand is crucial to the success of the Group. At the year end, the Group held stock valued at £1.65m (31 December 2008 £1.8m).

 

Cash conversion was excellent, as evidenced by cash generated from operations at £3,497k (2008 £3,328k), debt repayment was £960k (2008 £908k), purchase of own shares £648k. Despite a reduction of £130k from interest received, our cash balances increased by £215k during the year. The Group has performed comfortably within the covenants set by the terms of its banking loans.

 

Strategy

 

The strategy of the Group continues to be the development of strong brand names and the manufacture and distribution of quality engineered products via excellent customer service. The Group will continue to focus on products that generate high gross margins which in turn are expected to deliver superior operating profit and strong cash flow. This strategy is equally applicable for organic growth or expansion through acquisition.  A number of prospects have been reviewed for potential acquisition and abortive costs of £60k were incurred in the first half in respect of one such acquisition, which, after concluding due diligence, the Board decided not to proceed with. The Board is actively seeking suitable additions to the Group.

 

Risk

 

The Group is exposed to a number of risks in executing its strategy, including maintenance of the Group's certifications, and fluctuations in raw material costs.  Further risks include the management of the Group's supply chain and the ability of Hi-Flow to secure further merchanted orders. The market in which the Group sells the majority of its products, the oil and gas market, has been sustained by a historically high oil price, which has fuelled an increased demand for products from the oil and gas industry. Any long term prospect of a sub US$40 bbl may damage this market. The Group is looking to sell its products into new markets, such as the dust extractive industry. The Group employs a number of key individuals whose drive and commitment are fundamental to the ongoing success of the Group.

 

 

MOUNT ENGINEERING Plc

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

 

	Notes	Year Ended 31 December 2009	Year Ended 31 December 2008
		£000	£000
Revenue		9,333	11,778
Cost of sales		(4,469)	(6,249)
		--------------	--------------
Gross profit		4,864	5,529
Operating expenses		(1,992)	(2,272)
		--------------	--------------
Operating profit		2,872	3,257
Investment Income		35	165
Finance Costs		(213)	(351)
		--------------	--------------
Profit before taxation		2,694	3,071
Taxation	3	(761)	(893)
		--------------	-----------
Profit for the period		1,933	2,178
		=====	=====
Basic and fully diluted earnings per share	2	8.2p	8.9p
		======	======

 

MOUNT ENGINEERING Plc

CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2009

 

	Notes	2009	2008
		£'000	£'000
Non current assets
Intangible	4	14,088	13,997
Tangible		1,381	1,442
		--------------	--------------
		15,469	15,439
		--------------	--------------
Current assets
Inventories		1,658	1,835
Trade and other receivables		1,551	2,418
Cash and cash equivalents		4,033	3,818
		--------------	--------------
		7,242	8,071
Total Assets		22,711	23,510
		--------------	--------------
Equity
Share Capital		244	244
Share Premium		15,532	15,532
Retained Earnings		3,380	2,622
		_______	_______
		19,156	18,398
Non Current Liabilities
Borrowings		1,443	2,318
Deferred Tax Liabilities		37	38
		________	________
		1,480	2,356
Current Liabilities
Trade and other payables		827	1,325
Tax liabilities		367	465
Borrowings		881	966
		________	________
		2,075	2,756
		_________	_________
Total Liabilities		3,555	5,112
		_______	_______
Total Equity and Liabilities		22,711 --------------	23,510 --------------

                                                                                               

                       

 

 

Attributable to equity holders of the Group
	Share		Share		Retained
	Capital		Premium		Earnings		Total
	£000		£000		£000		£000
As at 31 December 2008	244		15,532		2,622		18,398
Profit for the period	-		-		1,933		1,933
Dividends Paid Purchase of own shares Share based payments					(539)  (648) 12		(539) (648) 12
At 31 December 2009	244		15,532		3,380		19,156

 

MOUNT  ENGINEERING Plc

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEAR ENDED  31 DECEMBER 2009

 

	Year Ended 31 December 2009	Year Ended 31 December 2008
	£'000	£'000
Net cash inflow from operating activities	2,424	1,962
	------------	------------
Development Costs	(91)	-
Interest Received	35	165
Proceeds from sale of property, plant and equipment	-	25
Purchases of property, plant and equipment	(6)	(6)
	------------	------------
Net cash inflow (outflow) from investing activities	(62)	184
	------------	------------
Cash flows from financing activities
Dividends Paid	(539)	(512)
Purchase of ordinary shares	(648)	-
Repayment of bank loans	(835)	(835)
Repayment of loan notes	(125)	(73)
	------------	------------
Net cash from financing activities	(2,147)	(1,420)
	------------	------------
Net increase in cash and cash equivalents	215	726
	------------	------------
Cash and cash equivalents at beginning of period	3,818	3,092
Cash and cash equivalents at end of period	4,033	3,818

 

 

 

 

 

 

 

 

					Year Ended 31 December 2009		Year Ended 31 December 2008
Reconciliation of operating profit to operating cash flow					£000		£000
Profit from operations					2,872		3,257
Depreciation on property, plant and equipment Share options					67   12		65   10
(Gain) on disposal of property, plant and equipment					-		(5)
Operating cash flows before movements in working capital       2,951							3,327							Operating cash flows before movements in working capital       3,317
Decrease /(increase) in inventories					177		(183)
Decrease/(increase)  in receivables					867		(239)
(Decrease)/increase in payables					(498)		423
Cash generated from operations					3,497		3,328
Taxation paid					(860)		(1,015)
Interest paid					(213)		(351)
Net cash from operating activities					2,424		1,962

 

NOTES TO THE FINANCIAL INFORMATION

 

    1.     Basis of preparation and financial information

 

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies set out in the financial statements of Mount Engineering Plc for the year ended 31 December 2009. An auditor's report has not yet been made on those statutory accounts.

 

The financial information in this document does not constitute the Group's statutory accounts for the period ended 31 December 2009 but is derived from those accounts.  Statutory accounts for 2009 will be delivered following the Company's Annual General Meeting. 

 

   2.      Earnings per share

 

Earnings per share is calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue for 2009 of 23,702,124 (2008 24,401,429).

Pro-forma earnings per share have also been calculated to allow shareholders to gain a clearer understanding of the trading performance of the Group.

 

	2009			2008
	Earnings £000's	Weighted Average No of Shares	Per Share Amount pence	Earnings £000's	Weighted Average No of Shares	Per Share Amount pence
Earnings attributable to ordinary shareholders	1,933	23,702,124	8.2p	2,178	24,401,429	8.9p

 

 

3.         Taxation

 

	Year Ended 31 December 2009	Year Ended 31 December 2008
	£'000	£'000
Corporation tax	755	916
Deferred tax Under/(over) provision previous year	(1)     7	- (23)
	-----------	-----------
	761	893
	=====	=====
Factors affecting the tax charge for the period
	£'000	£'000
Profit on ordinary activities before tax	2,694	3,071
	=====	=====
Profit before tax multiplied by standard rate	754	860
Effect of:
Expenses not deductible for tax purposes	21	11
Other timing differences	(14)	22
	-----------	-----------
Current tax charge for the period	761	893
	=====	=====

 

4.            Intangible fixed assets

 

	£'000
Goodwill Development Costs	14,002 86
Total	14,088

 

Copies of the preliminary announcement are available from The Chocolate Works, Bishopthorpe Road, York YO23 1DE and also available on the company's website The Annual Report and Accounts for the year ended 31 December 2009 will be posted to shareholders on or about 14 April 2009