REG - Melrose Industries - Half-year Report <Origin Href="QuoteRef">MRON.L</Origin> - Part 2
31/08/2017 07:07
- Part 2: For the preceding part double click ID:nRSe3695Pa
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 £669.1 million (31 December 2016: £541.5 million). A reconciliation of the
movement in net debt is shown in note 11.
Melrose Industries PLC
Condensed Consolidated Balance Sheet
Notes 30 June 30 June Restated(1)31 December 2016£m
2017Unaudited£m 2016Unaudited£m
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
Issued share capital £m Share premium account£m Merger reserve£m Other Hedging reserve£m Translation reserve£m Retained earnings£m Total equity attributable to owners of the parent £m
reserves £m
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 £115.5 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 £3.7 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
Continuing operations 6 months ended 30 June 2017£m 6 months ended Year ended 31 December 2016£m
30 June 2016£m
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
Continuing operations Notes 6 months ended 30 June 2017£m 6 months ended Year ended 31 December 2016£m
30 June 2016£m
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 £3.8 million (year ended 31 December 2016: £nil) of costs relating to divisional long-term Incentive Plans.
Total assets Total liabilities
Continuing operations 30 June 30 June Restated(1)31 December 2016£m 30 June 30 June Restated(1)31 December 2016£m
2017£m 2016£m 2017£m 2016£m
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)
Continuing operations 6 months ended 6 months ended Year ended 31 December 2016£m 6 months ended 6 months ended Year ended 31 December 2016£m
30 June 30 June 30 June 30 June
2017£m 2016£m 2017£m 2016£m
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
6 months ended 6 months ended Year 30 June 30 June Restated(2)31 December 2016£m
30 June 30 June ended 31 December 2017£m 2016£m
2017£m 2016£m 2016£m
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:
Continuing operations Notes 6 months ended 30 June 2017£m 6 months ended 30 June 2016 Year ended 31 December 2016 £m
£m
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 £31.8 million relating to the closure of the Nortek head
office and £13.5 million relating to the restructuring of certain Nortek businesses. Within the Brush business, £6.1
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 £1.7 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.
Continuing operations 6 months ended 30 June 2017£m 6 months ended 30 June 2016£m Year ended
31 December
2016
£m
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
Continuing operations Notes 6 months ended 30 June 2017£m 6 months ended 30 June 2016£m Year ended
31 December
2016
£m
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
Continuing operations 6 months ended 30 June 2017£m 6 months ended 30 June 2016£m Year ended
31 December 2016 £m
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 £131.1 million (period to 30 June 2016: £6.2 million), giving an underlying tax charge of £35.8 million
(period to 30 June 2016: £1.3 million).
The underlying tax charge of £35.8 million (period to 30 June 2016: £1.3 million) has been decreased by a deferred tax
credit on intangible asset amortisation of £15.4 million (period to 30 June 2016: £0.8 million) and a tax credit on
non-underlying costs of £10.8 million (period to 30 June 2016: £0.9 million) to give a total tax charge of £9.6 million
(period to 30 June 2016: credit of £0.4 million).
In addition to the amount charged to the Income Statement, a charge of £1.2 million (period to 30 June 2016: £1.7 million)
has been recognised directly in the Statement of Comprehensive Income. This represents a tax charge of £0.7 million (period
to 30 June 2016: credit of £0.2 million) in respect of movements on cash flow hedges and a tax charge of £0.5 million
(period to 30 June 2016: £1.9 million) in respect of the remeasurement of retirement benefit obligations.
6. Earnings per share
Earnings attributable to owners of the parent 6 months ended 30 June 2017£m 6 months ended 30 June 2016£m Year ended
31 December 2016£m
Earnings for basis of earnings per share 38.2 (8.8) (39.0)
6 months ended 30 June 2017 Restated(1)6 months ended 30 June 2016 Year ended
31 December 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
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