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MIO - Mincon News Story

€1.05 0.0  0.0%

Last Trade - 10/09/19

Sector
Industrials
Size
Small Cap
Market Cap £196.2m
Enterprise Value £195.5m
Revenue £108.0m
Position in Universe 798th / 1830

Mincon Group Plc - Half Yearly Report

Mon 12th August, 2019 7:00am
RNS Number : 6388I
Mincon Group Plc
12 August 2019
 

 

 

Mincon Group plc

2019 Half Year Financial Results

 

Mincon Group plc (ESM:MIO AIM:MCON), the Irish engineering group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its half year results for the six months ended 30 June 2019.


30 June 2019

30 June 2018

Percentage change in


€'000

€'000

Period

Product revenue:




Sale of Mincon product (€'000)............................................................................................................................

50,464

47,406

6%

Sale of third-party product (€'000)........................................................................................................................

9,458

8,315

14%

Total revenue (€'000)............................................................................................................................................

59,922

55,721

       8%

Sale of Mincon product as a % of total revenue......................................................................................................

84%

85%






Profit for the period (€'000)..................................................................................................................................

7,185

6,308

14%

Profit attributable to shareholders of the parent company (€'000) …..

7,144

6,122

17%

Earnings per share .............................................................................................................................................

3.39c

2.91c

16%

 

 

Joe Purcell, Chief Executive Officer, commenting on the results, said: 

 

"The first half of 2019 marked a period where the production capacity of the Group caught up with the order book of last year, but where the market has softened during the period. This has led to a build-up in inventory, a capacity coming on-stream in excess of current sales levels and an overhead level that requires growth to support it against the backdrop of a softening market.

 

This has impacted on our gross margin, our operating margin and our momentum. In addition to this, we changed our market access model in the second quarter, moving from one used by the market leaders with customer centres as distribution points and factories as production entities, to the "Challenger" model of building regional management teams responsible for all the business in their region.

As a result of the acquisition of Driconeq, we can deliver the entire suite of consumables for drill strings for the sectors we service, and we can now tender directly to mines for multi-year contracts of scale, and to the primary contractors in large construction projects. We have moved from being excluded from competing for these contracts, to being included, and with the advent of the next generation of mining tools we are developing, we expect in some cases, to be preferred.

In H1 2019 the following has been delivered compared to the H1, 2018;

 

·      Revenue                                                     up 8%               to €60 million

·      Mincon manufactured product                   up 6%               to €50 million

·      Gross profit (excluding impairments)         down 5%          to €21 million

·      Operating profit (excluding impairments)   down 14%        to €6.9 million

·      Profit for the period                                    up 14%             to €7.2 million

·      Earnings per share                         up 16%             to  3.39 cent

 

Our revenue growth moderated after several years of strong organic and acquisition growth, but we still registered growth in the first half of 8%. We see much of the increase arising from the impact of previous acquisitions being held for the full trading period this year.

 

Excluding the impairments, the gross margin was reduced by the revenue mix changes as lower margin businesses were owned for the full period, some excess production costs were carried as we maintained employment and the capacity for higher volume through the earlier part of the year and some softness in market pricing due to competitor behaviour.

 

 

 

As we recognised the change in market tone we initiated a full-scale review of our business model. This led to setting a €3 million targeted reduction in costs above and below the gross margin line, at all levels of employees and cost categories in the company, and a reduction in the complexity of the Group. This work is being funded from our own resources and is now substantially complete but will continue throughout the rest of the year. Further commentary on the programme and the impairments and realisations from it, is provided below.

 

Development of the operating model

Under the "Challenger" model, we engage directly with mines in a similar way as the market leaders, and with primary contractors in construction activities, and this approach is winning us business. The distribution centre model of the market leaders will be discontinued where this is not adding sufficient value. We have recently won, and have started billing, two multi-million-dollar contracts, where we have replaced the market leaders.

 

One of the benefits of the acquisition of Driconeq is that we are now in a position to give mines a full consumables offering. As a result of this range improvement and the offering of a full customer service, we are being considered for inclusion among those suppliers who have the resources to handle larger contracts, dealing directly with mines.

 

With a full consumables offering, we can address the end-customer needs, working with prime contractors or the end customers themselves. We are evolving from being excluded on the grounds of our size, product range or service capability, to being included, and, in some cases, being chosen as the preferred supplier. As a result of our service and engineering offerings, we may be able to bring the best solution for the customers.

 

This decision on our model has driven a substantial overhaul of our businesses, and a far-reaching reorganisation that has taken considerable time and funding to execute.

 

The Reorganisation Projects

We looked at our business holistically to see not just where we should reduce costs, but also what businesses and structures would not fit the evolving "Challenger" model.

 

Disposal of a non-core business, and distribution point closures

As part of streamlining our business, we have disposed of Härdtekno, which, while a fine company, was not a business that we were going to develop. We viewed it as a non-core activity, since most of the customer base lay outside our sector, as did its processes and technology. Härdtekno was acquired as part of the €7.8 million acquisition of the Driconeq Group in 2018, and provided heat treatment services in Sweden. Driconeq will continue to be a customer of that business in the coming years.

 

We made a profit on disposal of €7.3 million as we sold Härdtekno for €8.6 million, receiving an initial €8.1 million cash on completion in June. This has been booked as an exceptional gain on disposal.

 

We have applied these profits largely to finance the various cost reduction programmes, the absorption of inventory write-downs and the write-offs of uncollectible receivables. We have re-organised our business in Europe and Southern Africa as we returned to a simple regional format, and we continue to review the portfolio of activities, products and businesses to identify which of them is not part of the "Challenger" focus of the Group.

 

Review of assets and employment 

A team of experienced senior executives has been charged with working through the inventories in order to simplify the product range to concentrate on fewer variations of our products. This team will also consider write-offs, the disposal of excess product and work-in-progress and review our ranges and markets to make sure we allocate the production to where we have the best manufacturing advantage. Part of this ongoing process will be  to identify the markets where we can make the best, sustainable, margins.

 

We have reviewed the teams that we had built up and reduced headcount where we were dismantling a structure such as product management, or where throughput did not support headcount. The average staff number for the Group was 492 in this reporting period, but we finished H1 with 441 staff. We have substantially carried out the planned rightsizing for the Group and reduced headcount by some 10% across the Group at all levels and employment categories. This should lead to an improvement in gross margin and a reduction in the "General and selling expense" categories in the coming year.

 



 

Impairments

As we worked through the business model we identified some stranded assets where recovery is problematic, for example; debtors as we discontinue some distribution points, inventory where the range is being simplified, or third-party product we don't intend to continue to distribute. We have decided to recognise these assets as impaired.

 

The treatment of the impairments in the accounts varies depending on their nature, some qualify as exceptional, for example the reorganisation costs, and debtors where businesses are being discontinued and these are viewed as irrecoverable. The total here was €2.98 million and this is presented in the income statement in the exceptional column. Most of these charges were actual cash costs.

 

Other impairments, such as the approximately €2 million write down in inventory, and some debtors that have gone into liquidation after struggling to pay, have crystallised losses, and the total here was €582,000. Again, these are separately identified in the income statement, but generally incur no further cash cost.

 

Streamlining the business

With the reduction of headcount, the closure of non-performing businesses and the delayering of our management we have made substantial progress on our €3 million annualised cost reduction target. The various programme costs have impacted in the first half, and the benefits will come through in the second half and beyond.

 

We will continue to overhaul the businesses through 2019 and our three regions; Americas, Australia Pacific (APAC), and EMEA with the subset of Africa are well developed in their planning and consolidation. We are simplifying our distribution structures and delayering the management teams.  

 

We can then continue to focus on margins, cash flows and the return on investment accurately in each of these regions, and, assign local objectives for inventory management and cash generation.

 

Cash management and cash

We have executed a significant capital investment programme in the last three years in renewal of our productive capacity and in ensuring the same quality of output from our key factories in Perth, Australia, Benton Illinois and in Shannon, Ireland. The internal heat-treatment process has come online in America this US$5 million investment in plant and facilities was commissioned after the half year, and the quality is in line with our expectations and delivering a better outcome for our customers in the improved economic life of our products.

 

We have absorbed €3.75 million in capital expenditure in the first half, for commitments made in previous periods, and depreciation in the period was €2.6 million, an increase over the prior year of €0.7m. Capital expenditure is held in prepayments as it is incurred, and prior to the plant and facilities being commissioned, so while the capital expenditure for the year will be significantly above depreciation, little of this will be actual cash outflow in the period.

 

The detailed workings in the attached cash flow show that last year, while making acquisitions, investing in capital equipment and running up the inventory in keeping with the revenue growth, we absorbed nearly €17 million in cash in the six-month period. In the first half of 2019, largely through the disposal of a non-core business , we have generated €8 million, with a timing difference in tax payment reducing this by €2 million. The programme and outlook through the rest of the year is to continue to build this cash reservoir. The nadir in cash has been passed, cash generation is well in hand for the rest of the year, with a particular objective of releasing cash from inventory.

 

Natural hedging through local debt

We have also drawn bank debt for plant additions as part of a local hedging strategy for the assets in various countries, and while debt has gone up with the capital expenditure programme, the actual cash at centre has begun to accumulate. This supports the very substantial commitments needed to fund large contracts, the working capital, the tranche payments for previous acquisitions and the ability of the Group to continue to make targeted acquisitions from its own cash resources as part of the ongoing growth strategy.

 



 

The consequence of these decisions is the higher finance charges in our profit and loss account, but the benefits are the generation of free cash, and the local hedging advantage. These hedging decisions arose as part of a localisation ambition, and the ongoing awareness of the impact of foreign exchange volatility on our results. The impact of foreign exchange movements in H1 was immaterial.

 

Ongoing review

The growth over the last two years has been significant, and we spent much of that time, and allocated a large amount of cash to building out the capital equipment to support that growth and provide adequate inventory to fill orders. We continued at higher levels of production while sales orders softened until it became clear this was an ongoing issue, and not a temporary phenomenon.

 

Against this, we have won large contracts recently which should see a return to organic growth as they come on stream.  The lead time is substantial for these contracts due to the tendering processes that accompany them, the transition period required by a change in suppliers, and the need for delivery assurance by the end customer. In some cases we need to physically deliver product to the sites, and demonstrate that the support teams are in place.

 

We are also finding that large contracts can create a substantial cash requirement to support them. This can arise through the provision of cash collateralised performance guarantees, the requirements of inventory reservoirs proximate to the customer, the capital equipment to support service delivery, and the recruitment of local experienced teams to be available to maintain the service. The service requirements of large contracts are very high, the buy side teams tend to be very experienced and professional, and the customers are not fault tolerant since their entire business schedules may rely on our delivery.

 

The ability of the Group to support these multi-million-dollar trading relationships, provide these performance guarantees, and deliver the required working capital investment enables us to overcome what, for other companies, is a very substantial barrier to entry to this business segment.

 

The hydraulic hammer systems

We capitalised some €0.6m of development expenditure on this project in the first half and carry the investment in the balance sheet at just short of €4 million. We are scheduled for a substantial sustained drilling programme in Australia starting in the middle of August and we should be able to report on this in due course. We believe we are in the final stage of commercial development and we continue to refine the hammers, the systems and the service delivery.

 

The hydraulic hammer systems are designed to deliver a substantial commercial advantage to customers facing hard rock and high-altitude conditions. Some of the contracts that we have and the contracts that we are winning, are suitable for these systems. By establishing the primary relationships through our "Challenger" model and servicing these large customers and contracts directly we have the opportunity to deliver the hydraulic systems where there is value for the end customer.

 

We are aiming to have the resources in cash terms, the engineering and service levels to deliver the competitive advantage, and the direct customer relationships in order to maximise the opportunity for the Group to the commercial advantage of our customers.

 

Dividend

The Board of Mincon Group plc has recommended the payment of an interim dividend in the amount of 1.05 cent per ordinary share, which will be paid on the 27 September 2019 to shareholders on the register at the close of business on the 30 August 2019.

 

Outlook

We are not immune to the increased volatility of world markets as large economies engage in tariff battles, exchange rates fluctuate, and low wage producers aggressively target markets in which we sell as they redirect production away from where they face higher barriers to trade. We have seen softening in the margins, which we have taken steps to mitigate through the wide-ranging, deep review of our businesses, business model, and cost base.

 

We have established this "Challenger" thinking, and we are tendering for more substantial multi-million-dollar contracts. However, we have to win these from the market leaders, not our former peer group, so it will take time and investment to build that portfolio.

 

We have substantially finished looking inside our businesses at this point, save for the ongoing inventory and manufacturing advantage review referred to above, and we aim to return to growth as the new contracts come on stream through the second half. Our factories are very well specified and equipped with modern plant, and we have the capacity required for further growth.

 

Concluding comments

We are well engaged in the process of dismantling the customer centre approach, returning to regional leadership and responsibility, and then driving the cash and asset management in those regions through their owners, our local management. We are confident in our business model and the competence of our teams.

 

We have managed our way through this fitful market. We have disposed of a non-core business for cash, and we have cut our overheads. We will continue to review our businesses for best fit as our business model evolves, and to engage with potential acquisition opportunities where we see commercial advantage.

 

I would like to thank the shareholders for their support through the last few years, and the Mincon staff for their commitment to the success of the business.

 

12 AUGUST 2019

 

For further information, please contact:

 

Mincon Group plc

                                       Tel: + 353 (61) 361 099

Joe Purcell            CEO

Mark McNamara    CFO

Peter E. Lynch      COO




Davy Corporate Finance (Nominated Adviser and Euronext Growth Adviser)

Tel: +353 (1) 679 6363

Anthony Farrell


Daragh O'Reilly


 



 

Mincon Group plc

2019 Half Year Financial Results

 

 

Unaudited condensed consolidated income statement

For the 6 months ended 30 June 2019




 






 



2019


2018


Notes

 

 

Excluding exceptional items

€'000

Exceptional items

(note 8)

€'000

Including exceptional items

€'000


Excluding exceptional items

€'000

Exceptional items

(Note 8)

€'000

Including exceptional items

€'000

Continuing operations









Revenue

     5

59,922

-

59,922


55,721

-

55,721

Cost of sales

     7

(39,106)

-

(39,106)


(33,760)

-

(33,760)

Impairment of inventory

     7

(1,992)

-

(1,992)


-

-

-

Gross profit


18,824

-

18,824


21,961

-

21,961

General and selling expenses

    7

(13,877)

(2,521)

(16,398)


(13,874)

(268)

(14,142)

Impairment of trade receivables

     7

(582)

(457)

(1,039)


-

-

-

Operating profit


4,365

(2,978)

1,387


8,087

(268)

7,819

Finance income


72

-

72


59

-

59

Finance cost


(303)

-

(303)


(60)

-

(60)

Foreign exchange gain/(loss)


41

-

41


35

-

35

Contingent consideration


(50)

-

(50)


(33)

-

(33)

Profit before tax


4,125

(2,978)

1,147


8,088

(268)

7,820

Profit from discontinued operation, net of tax


 

-

 

7,261

 

7,261


 

-

 

-

 

-

Income tax expense


(1,223)

-

(1,223)


(1,512)

-

(1,512)

Profit for the period


2,902

4,283

7,185


6,576

(268)

6,308










Profit attributable to:









- owners of the Parent




7,144




6,122

- non-controlling interests




41




186

Earnings per Ordinary Share









Basic earnings per share,

12



3.39




2.91c

Diluted earnings per share,

12



3.35




2.87c

 

 

 

 



 

Unaudited condensed consolidated statement of comprehensive income

 

 For the 6 months ended 30 June 2019

 


 





2019

H1

2018

H1

 


€'000

€'000

 

Profit for the period

7,185

6,308

 

Other comprehensive income/(loss):



 

Items that are or may be reclassified subsequently to profit or loss:



 

Foreign currency translation - foreign operations

878

(2,389)

 

Other comprehensive profit / (loss) for the period

878

(2,389)

 

Total comprehensive income for the period

8,063

3,919

 

Total comprehensive income attributable to:



 

- owners of the Parent

8,022

3,733

 

- non-controlling interests

41

186

 



 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                                                         



 

 

Unaudited consolidated statement of financial position

As at 30 June 2019


 














30 June

2019

31 December

2018



Notes

€'000

€'000






Non-Current Assets





Intangible assets and goodwill


14

31,181

30,753

Property, plant and equipment


15

39,840

34,930

Deferred tax asset


10

527

278

Total Non-Current Assets



71,548

65,961

Current Assets





Inventory and capital equipment


16

49,850

49,357

Trade and other receivables


17

23,609

20,711

Prepayments and other current assets



7,558

6,578

Contingent consideration



450

-

Current tax asset


10

373

252

Cash and cash equivalents



13,762

8,042

Total Current Assets



95,602

84,940

Total Assets



167,150

150,901

Equity





Ordinary share capital

  

11

2,110

2,105

Share premium



67,647

67,647

Undenominated capital



39

39

Merger reserve



(17,393)

(17,393)

Restricted equity reserve



459

1,511

Share based payment reserve


13

1,706

1,274

Foreign currency translation reserve



(5,143)

(6,021)

Retained earnings



71,477

66,543

Equity attributable to owners of Mincon Group plc



120,902

115,705

Non-controlling interests



1,102

1,061

Total Equity



122,004

116,766

Non-Current Liabilities





Loans and borrowings


18

9,759

4,461

Deferred tax liability


10

374

1,222

Deferred contingent consideration


9

6,103

5,470

Other liabilities



4,360

151

Total Non-Current Liabilities



20,596

11,304

Current Liabilities





Loans and borrowings


18

2,019

2,735

Trade and other payables



12,378

12,027

Accrued and other liabilities



8,282

6,996

Current tax liability


10

1,871

1,073

Total Current Liabilities



24,550

22,831

Total Liabilities



45,146

34,135

Total Equity and Liabilities



167,150

150,901






 

The accompanying notes are an integral part of these financial statements. 

 

 

 

 



 

Unaudited condensed consolidated statement of cash flows

For the 6 months ended 30 June 2019

 

 





H1

2019

H1

2018


€'000

€'000

Operating activities:



Profit for the period

7,185

6,308

Adjustments to reconcile profit to net cash provided by operating activities:



Depreciation

2,551

1,879

Fair value movement on deferred contingent consideration

50

33

Foreign exchange gain / loss

(41)

(35)

Finance cost

303

60

Finance income

(72)

(59)

Gain on the sale of discontinued operations, net of tax

(7,261)

-

Income tax expense

1,223

1,512

Reduction in goodwill

(532)

-

Other non-cash movements

(292)

(477)


3,114

9,221

Changes in trade and other receivables

(2,079)

(347)

Changes in prepayments and other assets

(948)

(2,289)

Changes in inventory

1,071

(9,011)

Changes in trade and other payables

1,587

3,448

Cash provided by operations

2,745

1,022




Interest received

72

59

Interest paid

(303)

(60)

Income taxes paid

(2,027)

(317)

Net cash provided by/(used in) operating activities

487

704




Investing activities



Purchase of property, plant and equipment

(3,746)

(5,280)

Investment in intangibles

(589)

(711)

Share-based payments

432

333

Payment of deferred contingent consideration

(500)

(1,439)

Acquisitions, net of cash required

(800)

(7,603)

Proceeds from sale of discontinued operations

8,075

-

Net cash provided by/(used in) investing activities

2,872

(14,700)




Financing activities



Dividends paid

(2,210)

(2,210)

Repayment of loans and finance leases

(891)

(337)

Drawdown of loans

5,472

-

Net cash provided by/(used in) financing activities

2,371

(2,547)




Effect of foreign exchange rate changes on cash

(10)

(360)

Net increase/(decrease) in cash and cash equivalents

5,720

(16,903)




Cash and cash equivalents at the beginning of the year

8,042

28,215

Cash and cash equivalents at the end of the period

13,762

11,312




 

The accompanying notes are an integral part of these financial statements.


Unaudited condensed consolidated statement of changes in equity for the 6 months ended 30 June 2019

 


Share

capital

Share premium

Merger reserve

Restricted equity reserve

Un-denominated

capital

Share based payment reserve

Foreign

currency translation reserve

Retained earnings

Total

Non-controlling interests

Total

equity


€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000













Balances at 1 July 2018

2,105

67,647

(17,393)

-

39

845

(5,329)

61,303

109,217

972

110,189

Comprehensive income:












Profit for the period

-

-

-

-

-

-

-

7,451

7,451

89

7,540

Other comprehensive income/(loss):












Foreign currency translation

-

-

-

-

-

-

(692)

-

(692)

-

(692)

Total comprehensive income







(692)

7,451

6,759

89

6,848

Non-taxable income

-

-

-

1,511

-

-

-

-

1,511

-

1,511

Transactions with Shareholders:












Share-based payments

-

-

-

-

-

429

-

-

429

-

429

Dividend payment

-

-

-

-

-

-

-

(2,211)

(2,211)

-

(2,211)

Balances at 31 December 2018

2,105

67,647

(17,393)

1,511

39

1,274

(6,021)

66,543

115,705

1,061

116,766

Comprehensive income:












Profit for the period

-

-

-

-

-

-

-

7,144

7,144

41

7,185

Other comprehensive income/(loss):












Foreign currency translation

-

-

-

-

-

-

878

-

878

-

878

Total comprehensive income







878

7,144

8,022

41

8,063

Non-taxable income

-

-

-

(1,052)

-

-

-

-

(1,052)

-

(1,052)

Transactions with Shareholders:












Equity-settled share-based payment

5

-

-

-

-

-

-

-

5

-

5

Share-based payments

-

-

-

-

-

432

-

-

432

-

432

Dividend payment

-

-

-

-

-

-

-

(2,210)

(2,210)

-

(2,210)

Balances at 30 June 2019

2,110

67,647

(17,393)

459

39

1,706

(5,143)

71,477

120,902

1,102

122,004

                                                                                                                                                                                   

The accompanying notes are an integral part of these financial statements.


Notes to the consolidated interim financial statements

1    Reporting entity

Mincon Group plc ("the Company") is a company incorporated in the Republic of Ireland. The unaudited consolidated interim financial statements of the Company for the six months ended 30 June 2019 (the "Interim Financial Statements") include the Company and its subsidiaries (together referred to as the "Group").  The Interim Financial Statements were authorised for issue by the Directors on 08 August 2019.

 

2. Basis of accounting

The Interim Financial Statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the EU.  The Interim Financial Statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2018 as set out in the 2018 Annual Report (the "2018 Accounts"). The Interim Financial Statements do, however, include selected explanatory notes to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

 

The Interim Financial Statements do not constitute statutory financial statements.  The statutory financial statements for the year ended 31 December 2018, extracts from which are included in these Interim Financial Statements, were prepared under IFRSs as adopted by the EU and will be filed with the Registrar of Companies with the Company's 2018 annual return. They are available from the Company website www.mincon.com and, when filed, from the registrar of companies. The auditor's report on those statutory financial statements was unqualified.

 

The Interim Financial Statements are presented in Euro, rounded to the nearest thousand, which is the functional currency of the parent company and also the presentation currency for the Group's financial reporting.

 

The financial information contained in the Interim Financial Statements has been prepared in accordance with the accounting policies applied in the 2018 Accounts. 

 

3. Use of estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ materially from these estimates.  In preparing the Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 2018 Financial Statements.

 

4. Changes in significant accounting policies

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the last annual financial statements.

 

The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year-ending 31 December 2019.

 

The Group has initially adopted IFRS 16, Leases, from 1 January 2019. A number of other new standards are effective from 1 January 2019 but they do not have a material effect on the Group's financial statements.

 

IFRS 16 introduces a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.

 

The Group has applied IFRS 16 using the modified retrospective approach. Accordingly, the comparative information presented for 2018 has not been restated - i.e. it is presented as previously reported under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below.

 

A.   Definition of a lease

 

Previously, Mincon determined at contract inception whether an arrangement was or contained a lease under IFRIC 4, Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

 

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

 

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for leases of properties in which it is a lessee, the Group has elected not to separate non-lease components and will instead account for the lease and non-lease component as a single lease component.

 

B.   The Group's leasing activities and how these were accounted for

 

The Group leases many assets, including properties, production equipment, vehicles and IT equipment.

 

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases - i.e. these leases are on balance sheet.

 

However, on transition to IFRS 16, the Group has applied practical expedients under IFRS 16 not to recognise right-of-use assets and leases liabilities for some leases of low-value assets (e.g. IT equipment) and for operating leases with a remaining lease term of less than 12 months as at 1 January 2019. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

The Group presents the right-of-use assets that do not meet the definition of investment property in 'property, plant and equipment', the same line item as it presents underlying assets of the same nature that it owns. The carrying amounts of right-of-use assets are as below:

 



 €'000

Property, plant and equipment

Balance at 1 January 2019

4,401

Balance at 30 June 2019

4,472

 



 

The Group presents lease liabilities in 'loans and borrowings' in the statement of financial position

 

i.          Summary of new accounting policies

 

The Group recognises a right-of-use asset and a lease liability at the commencement date. The right-of-use asset is initially measured as:

·      The initial measurement of the lease liability; plus

·      Initial indirect costs; plus

·      Prepaid lease payments; plus

·      Estimated costs to dismantle, remove or restore; less

·      Lease incentives received.

 

 

The lease liability is initially measured at:

·      The present value of lease payments payable over the lease term plus the present value of expected payments at the end of the lease, discounted at the interest rate implicit in the lease, or the incremental borrowing rate, where the interest rate implicit in the lease cannot be readily determined.

 

Generally the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost and decreased by the lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

 

The Group has applied judgement to determine the lease term for some lease contracts which include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.

 

C.   Adjustments recognised on adoption of IFRS 16

 

i.          Impact on transition

 

On transition to IFRS 16, the Group recognised right-of-use assets and lease liabilities. The impact on transition is summarised below.  

 

 


1 January 2019



€'000

Right of use assets presented in property, plant and equipment


4,401

Lease liabilities


4,401

 

ii.          Impacts for the period

 

As a result of applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised €4.5m of right of use assets and €4.5m of lease liabilities as at 30 June 2019.

 

Also, in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense. During the six months ended 30 June 2019, the Group recognised €0.9m of depreciation charges and interest costs, cumulatively, from these leases.

 

 

 

 

 

 

5.  Revenue     

 

 

H1

2019

H1

2018


€'000

€'000

Product revenue:



Sale of Mincon product

50,464

 47,406

Sale of third party product

9,458

 8,315

Total revenue

59,922

 55,721

 

 

6. Operating Segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). Our CODM has been identified as the Board of Directors.

 

Having assessed the aggregation criteria contained in IFRS 8 operating segments and considering how the Group manages its business and allocates resources, the Group has determined that it has one reportable segment. In particular the Group is managed as a single business unit that sells drilling equipment, primarily manufactured by Mincon manufacturing sites.

 

Entity-wide disclosures

The business is managed on a worldwide basis but operates manufacturing facilities and sales offices in Ireland, Sweden, South Africa, UK, Western Australia, the United States and Canada and sales offices in eleven other locations including Eastern and Western Australia, South Africa, UK, Finland, Spain, Namibia, Tanzania, Sweden, Chile and Peru. In presenting information on geography, revenue is based on the geographical location of customers and non-current assets based on the location of these assets.

 

Revenue by region (by location of customers):


H1

2019

H1

2018


€'000

€'000

Region:



Americas

 12,773

 10,229

Australasia

17,202

 18,482

Europe, Middle East, Africa

29,947

 27,010

Total revenue from continuing operations

59,922

 55,721

 

Non-current assets by region (location of assets):

 


30 June

2019

31 December

2018


€'000

€'000

Region:


  

Americas

 16,986

 17,271

Australasia

7,962

 8,795

Europe, Middle East, Africa

46,073

 39,617

Total non-current assets(1)

71,021

 65,683

(1) Non-current assets exclude deferred tax assets.

 

 



7.  Cost of Sales and operating expenses

 

Included within cost of sales, selling and distribution expenses and general and administrative expenses were the following major components: 

 

Cost of sales


 


H1

2019

H1

2018


€'000

€'000

Raw materials

16,888

16,246

Third party product purchases

7,743

6,569

Employee costs

8,370

6,939

Depreciation

1,567

1,461

Impairment of finished goods inventory  

1,992

-

Other

4,538

2,545

Total cost of sales

41,098

33,760

 

The level of finished goods inventory impairment within cost of sales amounted to €2 million (30 June 2018: €Nil). This write down in inventory in the period end 30 June 2019 arose on various nonMincon and Mincon manufactured product that became obsolete due to the availability of more advanced products that have now become available on the market.

 

General and selling expenses



H1

2019

H1

2018


€'000

€'000

Employee costs

 8,564

 8,771

Depreciation

984

418

Exceptional items (note 8)

      2,978

          -

Impairment of trade receivables

582

-

Other

4,329

4,953

Total other operating costs

17,437

14,142

 

The Group provides for all receivables where there is objective evidence, including historical loss experience, that amounts are irrecoverable. The Group now considers that receivables of €582,000 million from various customers are no longer recoverable.

 

Employee information




H1

2019

H1

2018


€'000

€'000

Wages and salaries

 13,670

 13,255

Social security costs

 1,592

 1,318

Pension costs of defined contribution plans

 985

 669

Redundancy payments (note 8)

1,241

-

Share based payments (note 13)

 432

 333

Total employee costs

 17,920

 15,575

 

The Group capitalised payroll costs of €30k in H1 2019 in relation to research and development.

The average number of employees was as follows:




H1

2019

 H1

2018


Number

Number

Sales and distribution

129

124

General and administration

51

61

Manufacturing, service and development

312

309

Average number of persons employed

492

494

 

8.  Exceptional Items



 


H1 2019

H1 2018


€'000

€'000

Operating costs



Reorganisational costs...................................................................................................................................

(2,842)

-

Acquisition and related costs..........................................................................................................................

(136)

(268)

Total operating costs ...................................................................................................................................

(2,978)

(268)




Profit from discontinued operations..............................................................................................................

7,261

-




Total exceptional items ................................................................................................................................

4,283

(268)

 

The Group has undertaken a reorganisation of its activities across all regions and, in H1 2019, incurred costs of €2.8 million (30 June 2018: €Nil). The reorganisation includes relocation of activities; closing of regional offices; and redundancies where necessary. Redundancy costs amounted to €1.2m for H1 2019.

 

The Group considers acquisition and related costs as exceptional items. During the course of acquiring Pacific Bit of Canada, the Group incurred costs of €55,000, and during the sale of Härdtekno the Group incurred costs of €81,000.

 

In June 2019, Mincon sold Härdtekno i Kristinehamn AB, a heat treatment plant located in Kristinehamn, Sweden for a total consideration of €8.6 million and a profit of €7.3 million. This company was purchased by Mincon as part of the Driconeq Group acquisition in March 2018.

 

 

9. Acquisitions and disposals

 

Acquisitions

 

In January 2019, Mincon acquired 100% shareholding in Pacific Bit, a Canadian-based mining and construction product distributor, for a consideration of €1.9m. This was made up of a cash consideration of €0.8m and deferred consideration of €1.0m.

 

A. Consideration transferred for acquisitions

 


Pacific Bit

Total


€'000

€'000

Cash

800

800

Deferred contingent consideration

1,001

1,001

Total consideration transferred

1,801

1,801

 

B. Goodwill

 

Goodwill arising from the acquisition of Pacific Bit has been recognised as follows:

 


Total


€'000

Consideration transferred

1,801

Fair value of identifiable net assets

(915)

Goodwill

886

 

C. Acquisition related costs

 

Acquisition related costs for the acquisition of Pacific Bit amounted to €55,000 and were included in "operating expenses" in the income statement for the 6 months to the 30 June 2019.

Disposals

 

In June 2019 Mincon disposed of its 100% shareholding in Härdtekno i Kristinehamn AB, a subsidiary that specialises in providing heat treatment services, based in Kristinehamn, Sweden, for a consideration of €8.6m. There was a cash payment of €8.1m at the date of disposal, with the remaining €0.5m being deferred for 18 months from the date of closing, subject to any unresolved claims as laid out in the Share Purchase Agreement.

 

A. Profit on Disposal

 

The profit from the disposal of Härdtekno amounted to €7.3m, and is set out as follows



H1

2019



€'000

Cash


8,075

Deferred contingent consideration


450

Goodwill


(715)

Carrying value of assets and liabilities at date of disposal


(549)

Profit on disposal


7,261

 

Under the terms of the Share Purchase Agreement €0.5m is being held in escrow for 15 months to be offset against any unforeseen warranties or liabilities post acquisition. Mincon's Management team estimated the probability of receiving this deferred contingent consideration and calculated the fair value to be €450,000.

 

B. Disposal related costs

 

Disposal related costs for the disposal of Härdtekno amounted to approximately €81,000 and were included in "exceptional items" as laid out in note 8.

 

 

10.  Income Tax

 

The Group's consolidated effective tax rate in respect of operations for the six months ended 30 June 2019 was 14.6% (30 June 2018: 19.3%). The effective rate of tax is forecast at 19% for 2019. The tax charge for the six months ended 30 June 2019 of €1.1 million (30 June 2018: €1.5 million) includes deferred tax relating to movements in provisions, net operating losses forward and the temporary differences for property, plant and equipment recognised in the income statement.

 

The net current tax liability at period-end was as follows:


30 June

2019

31 December

2018


€'000

€'000

Current tax prepayments

373

252

Current tax payable

(1,871)

(1,077)

Net current tax

1,498

825

 

The net deferred tax liability at period-end was as follows:


30 June

2019

31 December

2018


€'000

€'000

Deferred tax asset

527

672

Deferred tax liability

(374)

(1,613)

Net deferred tax

153

941

 



 

11.  Share capital




Allotted, called- up and fully paid up shares

Number

€000

01 January 2019...........................................................................................................................................................

210,541,102

2,105

Allotted in June 2019....................................................................................................................................................

432,000

5

30 June 2019................................................................................................................................................................

210,973,102

2,110




Share issuances

On 26 November 2013, Mincon Group plc was admitted to trading on the Enterprise Securities Market (ESM) of the Euronext Dublin and the Alternative Investment Market (AIM) of the London Stock Exchange.

 

In June 2019, 432,000 Restricted Share Awards (RSAs) met the vesting conditions set down by the board of directors and were allotted to the recipients of the awards.

 

 

12. Earnings per share

 

Basic earnings per share (EPS) is computed by dividing the profit for the period available to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is computed by dividing the profit for the period by the weighted average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares. The following table sets forth the computation for basic and diluted net profit per share for the years ended 30 June:

 


H1 2019

H1 2018

Numerator (amounts in €'000):



Profit attributable to owners of the Parent .............................................................................................................

7,144

6,122

Denominator (Number):

Basic shares outstanding......................................................................................................................................

Restricted shares awards......................................................................................................................................

Diluted weighted average shares outstanding…………………………………………….



210,973,102

210,541,102

2,037,176

2,469,176

213,010,278

213,010,278

Earnings per Ordinary Share



Basic earnings per share, €...................................................................................................................................

Diluted earnings per share, € ………………………………………………………………

3.39c

3.35c

2.91c

2.87c

 

 

13. Share based payment

 

In June 2016, 500,000 Restricted Share Awards (RSAs) were granted to members of the senior management team, these RSAs were subject to certain vesting conditions being met. These vesting conditions state that the minimum growth in EPS shall be CPI plus 5% per annum, compounded annually, over the relevant three accounting years up to the share award of 100% of the participants basic salary. Where awards have been granted to a participant in excess of 100% of their basic salary, the performance condition for the element that is in excess of 100% of basic salary is that the minimum growth in EPS shall be CPI plus 10% per annum, compounded annually, over the three accounting years.

 

Of the 500,000 RSAs that were granted in June 2016, 432,000 met the vesting conditions and were allotted to the recipients of the senior management team during the period. The remaining 68,000 RSAs that did not vest from the June 2016 grant were cancelled in 2018 due to members of the senior management team departing the Group.

 


Reconciliation of outstanding share options

Number of Options in thousands

Outstanding on 1 January 2019...................................................................................................................

2,469

Forfeited during the period.........................................................................................................................

-

Exercised during the period........................................................................................................................

(432)

Granted during the period...........................................................................................................................

-

Outstanding at 30 June 2019.....................................................................................................................

2,037

14. Intangible Assets


Product development

 

Goodwill

Total


€'000

€'000

€'000

Balance at 1 January 2019

3,377

27,376

30,753

Investments / Internally developed

589

-

589

Acquisitions

-

915

915

Disposals

-

(715)

(715)

Impairment of goodwill

-

(532)

(532)

Foreign currency translation differences

-

171

171

Balance at 30 June 2019

3,966

27,215

31,181

 

 

15. Property, Plant and Equipment

 

Capital expenditure in the first half-year amounted to €3.7 million (30 June 2018 €5.3 million). excluding the increase of ROU assets (note 4).

 

The depreciation charge for property, plant and equipment is recognised in the following line items in the income statement:


H1

2019

H1

2018


€'000

€'000

Cost of sales

 1,567

 1,461

Selling, general and administrative expenses

984

 418

Total depreciation charge for property, plant and equipment

 2,551

 1,879

 

 

16. Inventory

 


30 June

2019

31 December

2018


€'000

€'000

Finished goods and work-in-progress

37,312

36,158

Capital equipment

1,008

2,365

Raw materials

11,530

10,834

Total inventory

49,850

49,357

 

Write-down of inventories during the period ended 30 June 2019 amount to €2.0m (30 June 2018: €Nil and is explained in note 7).

 

 



 

17. Trade and other receivables

 


30 June

2019

31 December

2018


€'000

€'000

Gross receivable

25,520

21,519

Provision for impairment

(1,911)

(808)

Net trade and other receivables

23,609

20,711

 


30 June

2019

31 December

2018


€'000

€'000

Less than 60 days

 18,277

14,451

61 to 90 days

2,846

3,437

Greater than 90 days

2,486

2,823

Net trade and other receivables

23,609

20,711

 

At 30 June 2019, €6.9m million (27%) of trade receivables balance were past due but not impaired (31 December 2018, €5.6m million (27%).

 

 

18. Loans, borrowings and lease liabilities

 



30 June

2019

31 December

2018


Maturity

€'000

€'000

Loans and borrowings

2019-2026

11,778

4,576

Lease liabilities

2019-2026

4,586

2,620

Total Loans, borrowings and lease liabilities


16,364

7,196

Current


2,019

2,735

Non-current


14,345

4,461

 

 

The Group has a number of bank loans and lease liabilities in Ireland, the United Kingdom, USA, Sweden, Chile, Peru, Australia and Namibia with a mixture of variable and fixed interest rates. The Group has been in compliance with all debt agreements during the periods presented. None of the debt agreements carry restrictive financial covenants.

 

 



 

19. Financial Risk Management

 

The Group is exposed to various financial risks arising in the normal course of business. Our financial risk exposures are predominantly related to changes in foreign currency exchange rates as well as the creditworthiness of our financial asset counterparties.

 

The half-year financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the 2018 Annual Report. There have been no changes in our risk management policies since year-end and no material changes in our interest rate risk.

 

a) Liquidity and Capital

 

The Group defines liquid resources as the total of its cash, cash equivalents and short term deposits. Capital is defined as the Group's shareholders' equity and borrowings.

 

The Group's objectives when managing its liquid resources are:

•           To maintain adequate liquid resources to fund its ongoing operations and safeguard its ability to continue as a going concern, so that it can continue to create value for investors;

•           To have available the necessary financial resources to allow it to invest in areas that may create value for shareholders; and

•           To maintain sufficient financial resources to mitigate against risks and unforeseen events.

 

Liquid and capital resources are monitored on the basis of the total amount of such resources available and the Group's anticipated requirements for the foreseeable future. The Group's liquid resources and shareholders' equity at 30 June 2019 and 31 December 2018 were as follows:


30 June 2019 

31 December 2018


€'000

€'000

Cash and cash equivalents

13,762

8,042

Loans and borrowings

11,778

7,196

Shareholders' equity

120,902

115,705

 

b) Foreign currency risk

 

The Group is a multinational business operating in a number of countries and the euro is the presentation currency. The Group, however, does have revenues, costs, assets and liabilities denominated in currencies other than euro. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the reporting date and the resulting gains and losses are recognised in the income statement.

 

The Group's global operations create a translation exposure on the Group's net assets since the financial statements of entities with non-euro functional currencies are translated to euro when preparing the consolidated financial statements.  The Group does not use derivative instruments to hedge these net investments. The principal foreign currency risks to which the Group is exposed relate to movements in the exchange rate of the euro against US dollar, South African rand, Australian dollar, Sterling and Swedish krona.

 

Almost 63% of Mincon's revenue is generated in these currencies, compared to less than 27% of the Group's cost of sales. This had a significant translational impact on revenue when sales in local currency are converted into euro with a knock-on impact on the Group's gross margin and net margin. The majority of the group's manufacturing base has a euro, US dollar or Swedish krona cost base. While Group management makes every effort to reduce the impact of this currency volatility, it is impossible to eliminate or significantly reduce given the fact that the highest grades of our key raw materials are either not available or not denominated in these markets and currencies. Additionally, the ability to increase prices for our products in these jurisdictions is limited by the current market factors.

 



 

Currency also has a significant transactional impact on the group as outstanding balances in foreign currencies are retranslated at closing rates at each period end. The changes in the USD, South African Rand, Australian Dollar, Swedish Krona and British Pound have either weakened or strengthened, resulting in a foreign exchange gain being recognised in other comprehensive income and a significant movement in foreign currency translation reserve.

 

Average and closing exchange rates for the Group's primary currency exposures were as disclosed in the table below for the period presented.

 


30 June

2019

H1 2019

31 December

2018

H1 2018

Euro exchange rates

Closing

Average

Closing

Average

US Dollar

 1.14

 1.13

 1.14

 1.21

Australian Dollar

 1.62

 1.62

 1.62

 1.57

Sterling

 0.89

0.89

 0.90

0.88

South African Rand

 15.97

 16.16

 16.46

 14.86

Swedish Krona

 10.56

 10.59

 10.21

 10.15

 

There has been no material change in the Group's currency exposure since 31 December 2018. Such exposure comprises the monetary assets and monetary liabilities that are not denominated in the functional currency of the operating unit involved.

 

c) Fair values

 

Financial instruments carried at fair value

The deferred contingent consideration payable represents management's best estimate of the fair value of the amounts that will be payable, discounted as appropriate using a market interest rate. The fair value was estimated by assigning probabilities, based on management's current expectations, to the potential pay-out scenarios.  The fair value of deferred contingent consideration is primarily dependent on the future performance of the acquired businesses against predetermined targets and on management's current expectations thereof. 

 

Movements in the year in respect of Level 3 financial instruments carried at fair value

The movements in respect of the financial assets and liabilities carried at fair value in the period ended to 30 June 2018 are as follows:


Deferred

contingent

consideration


€'000

Balance at 1 January 2019

5,470

Arising on acquisition

1,073

Cash payment

(500)

Fair value movement

-

Foreign currency translation differences

(50)

Balance at 30 June 2019

5,993

 

 

20. Commitments

 

The following capital commitments for the purchase of property, plant and equipment had been authorised by the directors at 30 June 2019:


Total


€'000

Contracted for

709

Not contracted for

168

Total

877

 

 

 

21. Litigation

 

The Group is not involved in legal proceedings that could have a material adverse effect on its results or financial position.

 

 

22. Related Parties

 

We have related party relationships with our subsidiaries, directors and senior key management personnel. All transactions with subsidiaries eliminate on consolidation and are not disclosed.

 

As at 30 June 2019 and 31 December 2018, the share capital of Mincon Group plc was 56.84% owned by Kingbell Company which is ultimately controlled by Patrick Purcell and members of the Purcell family. Patrick Purcell is also a director and Chairman of the Company. In June 2019, the Group paid a final dividend of €2.1m (1.05 cent) to all shareholders on the register at 24 May 2019, of this dividend payment Kingbell Limited was paid €1.3m.

 

There were no other related party transactions in the half year ended 30 June 2019 that affected the financial position or the performance of the Company during that period and there were no changes in the related party transactions described in the 2018 Annual Report that could have a material effect on the financial position or performance of the Company in the same period.

 

 

23. Events after the reporting date

 

Dividend

On 9 August 2019, the Board of Mincon Group plc approved the payment of an interim dividend in the amount of €0.0105 (1.05 cent) per ordinary share. This amounts to a dividend payment of €2.2m which will be paid on 27 September 2019 to shareholders on the register at the close of business on 30 August 2019.

 

 

24. Approval of financial statements

 

The Board of Directors approved the interim condensed consolidated financial statements for the six months ended 30 June 2019 on 9 August 2019. 

 


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