REG - Mpac Group PLC - Half Year Result
08/09/2022 07:00
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RNS Number : 6837Y Mpac Group PLC 08 September 2022
8 September 2022
AIM: MPAC
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018
Mpac Group plc
("Mpac", "the Company" or "the Group")
Mpac, the global packaging and automation solutions Group, today announces its unaudited financial results for the 6 months to 30 June 2022 (the "Period")
Financial Highlights
· Order intake of £32.8m (2021: £51.7m) contributing to a closing
order book of £62.6m (30 June 2021: £62.0m; 31 Dec 2021: £78.4m)
· Group revenue of £50.6m up 14% (2021: £44.2m), with Original
Equipment up 17% and Service revenue up 6%
· Underlying* profit before tax of £1.1m (2021: £4.7m)
· Underlying* earnings per share of 3.6p (2021: 18.3p)
· Statutory loss before tax of £0.4m (2021: £2.8m profit)
· Basic loss per share of (3.6)p (2021: earnings 10.6p)
· Cash of £9.5m (30 June 2021: £11.2m; 31 Dec 2021: £14.5m)
*Underlying results are stated before pension related charges of £0.4m (2021:
£0.5m); amortisation of acquired intangible assets of £0.8m (2021: £0.9m);
and other non-underlying items of £0.3m (2021: £0.5m).
Operational and Strategic Highlights
· Positive discussions with FREYR Battery (''FREYR'') towards agreeing
a framework agreement for the exclusive supply of battery cell automation
lines
· Good acquisition of new customers in healthcare and plant-based
food
· Appointment of Group Procurement Director, providing senior
management focus to our supply chain
· Implemented cost saving measures to offset impact of supply chain
constraints
· Maximising benefits from common business systems to mitigate impact
of supply chain disruption
· Launch of Mpac service product line, Mpac Cube - offering a
comprehensive range of traditional and digital service products to enhance our
customers connectivity, productivity, and sustainability
· Completion of continuous motion cardboard tray erector to support
transition from single use plastic to cardboard in packaging
· Launch of Mpac Academy to develop future leaders and to retain
talent
Tony Steels, Chief Executive, commented:
"We have made good progress in delivering on our existing customer commitments
and managing short-term operational challenges. Consequently, revenue has
grown but at lower margins due to cost inflationary pressures and ongoing
disruption to global supply chains, in particular, relating to the sourcing of
critical, customer-specified electronic components. As noted in our trading
statement on 11 July, short-term operational challenges led to extended
project build times which have impacted the Group's operational efficiencies
and margins. Several actions and mitigations have been implemented to
address these challenges.
All our colleagues have demonstrated ingenuity to find solutions to this
industry-wide issue, including re-engineering solutions supported by our
recently implemented group wide ERP system. I am confident that the momentum
built in the previous years will enable the Group to recover its growth
trajectory as supply chain issues unwind. Our order book and prospect
pipeline remain robust in our resilient end markets, demonstrated by securing
contracts from new customers and making progress towards concluding a
commercial agreement for the supply of battery cell automation solutions to
FREYR, which gives us further confidence that the strategic objectives will
deliver long term revenue growth. The fundamentals of our business remain
strong, we are well capitalised, and we are fully focused on executing our
long-term strategic plan."
For further information, please contact:
Mpac Group plc Tel: +44 (0) 2476 421100
Tony Steels, Chief Executive
Will Wilkins, Group Finance Director
Shore Capital (Nominated Adviser & Broker) Tel: +44 (0) 20 7408 4050
Advisory
Patrick Castle
Iain Sexton
Broking
Henry Willcocks
Hudson Sandler Tel: +44 (0) 20 7796 4133
Nick Lyon / Nick Moore
HALF-YEAR MANAGEMENT REPORT
Introduction
Mpac serves customers' needs for ingenious, innovative automation and
packaging machinery. We design, precision engineer, manufacture and support
high-speed automation and packaging solutions, with embedded process
monitoring systems.
The Group is focused on the high growth, resilient, Healthcare and Food and
Beverage markets and is working towards finalising an exclusive commercial
framework agreement to supply a customer in the clean energy storage market.
The opportunities for the Group are based on the following fundamental
strengths:
• Robust long-term growth drivers in our target
Healthcare and Food and Beverage markets
• Exciting opportunity to become a key supplier of
automation solutions for the clean energy storage market
• Leadership in innovative, high-speed packaging
machinery and automation solutions
• Global reach with embedded local presence providing
exceptional service to our customers
• A talented and engaged workforce
• Extensive machine installed base to drive Service
revenues
The Board believes that these fundamental strengths place Mpac in a strong
position for growth and that the Group continues to make good progress towards
achieving its long-term strategic objectives.
Overview
We started 2022 with a good quality, diverse order book. As previously
advised, the opening order book included a significant value of orders brought
forward by customers from 2022 into 2021 for the purpose of securing lead
times. Consequently, while order intake in H1 was below the prior year, we
are pleased with the value of the order book overall.
Macro-economic factors, such as the war in Ukraine, the recent lockdown in
China, the continued impact of lengthening global supply chain lead times,
widespread cost inflation including materials price increases and availability
of skilled labour, remain a challenge and impacted both customer confidence
and more acutely, our operative productivity in machine build during H1,
leading to the Board reducing market forecasts for 2022. The Board believes
that the Group is on track to meet the revised market expectations and the
increase in the value of the order book since the half-year closing gives
confidence that the Group's prospects remain positive.
FREYR progress
Mpac is in advanced discussions regarding an exclusive commercial framework
agreement with FREYR, a developer of clean, next-generation battery cell
production capacity, for the supply of casting and unit cell assembly
equipment to the battery cell production line at FREYR's Gigaplant in Norway.
The company will make further announcements, as appropriate, in relation to
the framework agreement, and there can be no certainty that any agreement will
be concluded.
To secure project lead times, FREYR has issued to Mpac with orders for long
lead time parts and engineering capacity. The equipment to be supplied, will
provide FREYR with battery cell production capacity to deliver on its
ambitious growth plans for a more sustainable future, providing equipment,
services and know how to industrialise battery cell production. Mpac has
made good progress in the development of the customer qualification line which
we are to deliver in December 2022.
Strategic progress
Innovation continues to be key to the Group's long term sustainable growth.
We are on target to launch our newly developed continuous motion carton tray
former at trade shows in the Americas in Q3 2022. Our tray former will
enable customers in the biscuit market to replace existing plastic tray
packaging for cardboard alternatives to meet their increasing drive towards
sustainable packaging solutions. Previously announced progress made in the
deployment of the Mpac Cube, which incorporates innovations, focused on
improved machine performance, digital enhancements plus further Industry 4.0
enabled technology, has continued with the launch of the Cube factory
dashboard, remote performance monitoring and customer access portal.
Supply chain disruption
As communicated on 11 July 2022, the increasing macro-economic uncertainty and
unprecedented volatility in the global supply chain has impacted both the
timing of customers' order placement and the Group's operations. The sourcing
of critical, customer-specified electronic components has been particularly
disrupted. Supply chain and operational challenges are expected to continue
for the remainder of 2022, before easing in 2023. In the meantime, the Group
has been proactive in implementing mitigation measures which include securing
alternative sources of electronic component supply, increased focus on
reliable planning data from our recently implemented ERP system, close
management of our supply chain and implementing price increase and cost
savings initiatives. The Group continues to respond dynamically to meet its
customers' expectations by investing in inventory and work in progress to
ensure we remain a reliable partner.
Financial results
The Group entered the year with a diverse and good quality order book and
accordingly sales in the Period were £50.6m (2021: £44.2m), a 14% increase
on prior year. Gross profit margins decreased to 21.1% (2021: 33.4%), due to
several factors, which includes product and sector mix, investment in clean
energy storage sector development line, supply chain disruption, impacting
operational efficiency. Order intake in the Period decreased to £32.8m, 36%
below the prior year, mainly due to customers placing orders earlier than
anticipated in Q4 2021 to secure lead times. We have a £62.6m order book
going into the second half of 2022.
Underlying profit before tax was £1.1m (2021: £4.7m). After a net tax
charge of £0.4m (2021: £1.0m), underlying profit after tax for the Period
was £0.7m (2021: £3.7m). Underlying earnings per share was 3.6p (2021:
18.3p).
The underlying results are stated before pension-related charges of £0.4m
(2021: £0.5m), comprising charges in respect of administering the Group's
defined benefit pension schemes of £0.7m (2021: £0.6m) and finance income on
pension scheme balances of £0.3m (2021: £0.1m), amortisation of acquired
intangible assets of £0.8m (2021: £0.9m) and acquisition costs of £0.2m
(2021: £0.1m). In addition, the Group commenced a limited level of
reorganisation to support the further integration of acquired businesses of
which costs of £0.1m were recognised (2021: £0.2m).
On a statutory basis, the loss after tax for the Period was £0.7m (2021:
£2.1m profit). The basic loss per share amounted to 3.6p (2021: earnings
per share of 10.6p).
Finances
Net cash at 30 June 2022 was £9.5m (30 June 2021: £11.2m; 31 December 2021:
£14.5m). Cash balances are impacted by the timing of project order intake
and associated working capital cycles.
Net cash outflow from operating activities in the first half of the year was
£3.5m, after an increase in working capital levels of £5.1m, due mainly to
the timing of project execution, and deficit recovery payments to the Group's
defined benefit pension schemes of £1.1m. Capital and product development
expenditure in the first half of the year was £0.6m (2021: £0.4m).
The Group maintains bank facilities appropriate to its expected needs
including committed borrowing facilities with HSBC UK Bank Plc of £20.0m.
These facilities, which are committed until July 2025, are subject to
covenants covering interest cover and adjusted leverage and are both sterling
and multi-currency denominated.
Dividend policy
Having considered the trading results to 30 June 2022, together with the
opportunities for investment in the growth of the Group, the Board has decided
that it is appropriate not to pay an interim dividend in respect of the
Period. No dividends were paid in 2021. Future dividend payments and the
development of a new dividend policy will be considered by the Board in the
context of the trading performance for 2022 and when the Board believes it is
prudent to do so.
Operating performance
Overall revenue increased by 14% to £50.6m (2021: £44.2m) supported by a
strong opening orderbook and execution of projects, despite of the operational
challenges faced across the business.
The Group manages the business in two parts, Original Equipment (OE) and
Service, and across three regions (Americas, EMEA and Asia Pacific).
Individual contracts received by the OE business can be sizeable.
Accordingly, one significant order can have a disproportionate impact on the
growth rates seen in individual markets year on year.
Original Equipment ("OE")
Revenue increased by 17% to £39.8m (2021: £34.0m) with progress made towards
delivering revenue growth in the period differing markedly by region.
OE revenue in the Americas increased by 1% to £25.0m (2021: £24.7m) while in
EMEA OE revenue increased by 55% to £12.9m (2021: £8.3m). Growth in EMEA
was primarily due to the continuation of the development of the customer
qualification battery cell assembly line for FREYR. Revenue development in
all regions is dependent upon the timing of customers' investment cycles, with
differing industries and regions recovering from the effects of the COVID-19
pandemic at different rates.
Service
Service order intake of £12.9m was level with the prior year and driven
mainly by order intake for upgrades. Restrictions to customer interaction
and site-based service work continue to impact business development, however
as restrictions ease in our key markets, we expect Service order intake growth
to accelerate.
Service revenue grew strongly, up 6% to £10.8m (2020: £10.2m) despite the
challenges of the pandemic which continued to restrict on-site service
provision. Service revenue represented approximately 21% of Group revenue in
the Period, which demonstrates the success of the 'Make Service a Business'
strategy and our continued investment in remote service provision.
Pension schemes
The Group is responsible for defined benefit pension schemes in the UK and the
USA in which there are no active members. The Company is responsible for the
payment of a statutory levy to the Pension Protection Fund.
The IAS 19 valuation of the UK scheme as at 30 June 2022 shows a surplus of
£59.7m (£38.8m net of deferred tax), compared with a surplus of £35.7m
(£23.2m net of deferred tax) at 31 December 2021. The main driver of the
increase in the surplus was the increase in the discount rate required by
IAS19, partially offset by the effect of the liability matching programme on
asset values when discount rates rise.
The net valuation of the USA pension schemes at 30 June 2022, with total
assets of £8.8m, showed a deficit of £2.8m, an increase of £0.3m from 31
December 2021, caused entirely by exchange rate movements.
The aggregate expense of administering the pension schemes was £0.7m (2021:
£0.6m). The net financing income on pension scheme balances was £0.3m
(2021: £0.2m).
Acquisition strategy
The Board continues to evaluate potential acquisition opportunities that
strategically fit the Group, and which will enhance our global presence in
packaging solutions serving the Healthcare, Food and Beverage and Clean Energy
Storage markets.
Outlook
The Group has a strong order book and robust prospect pipeline and continues
to focus on meeting existing customer commitments. We are implementing
proactive measures to mitigate the impact of the short-term operational
challenges of increasing inflation and supply chain disruption. Financial
and managerial resources are available to develop the business, with the prime
focus being on organic growth, delivered by leveraging the Group's global
position, development of new products and through an improved service offering
to customers. In addition, key innovation and development in battery cell
automation and, if concluded, a commercial framework agreement with FREYR,
will present the Group with an opportunity to be at the forefront of a growing
new market.
As set out in the overview section above, the Board believes that the Group is
on track to meet the revised market expectations.
While the macro-economic and geopolitical uncertainty looks set to continue,
the Board are confident that, supported by long term growth factors in our
resilient target end markets and the prior investment in innovation, which has
established Mpac as a market leader in high-speed automation and packaging
solutions, the development of the Group's business will continue.
Accordingly, the Board remains confident in relation to the Group's
longer-term prospects.
Tony Steels
Chief Executive
7 September 2022
CONDENSED CONSOLIDATED INCOME STATEMENT
6 months to 30 June 2022 (unaudited) 6 months to 30 June 2021 (unaudited)
Non-underlying Non-underlying
(note 5) (note 5)
Underlying £m Total Underlying £m Total
Note £m £m £m £m
Revenue 4 50.6 - 50.6 44.2 - 44.2
Cost of sales (39.9) - (39.9) (29.4) - (29.4)
Gross profit 10.7 - 10.7 14.8 - 14.8
Distribution expenses (3.4) - (3.4) (3.1) - (3.1)
Administrative expenses (5.8) (1.8) (7.6) (6.4) (1.9) (8.3)
Other operating expenses (0.3) - (0.3) (0.5) - (0.5)
Operating profit/(loss) 4, 5 1.2 (1.8) (0.6) 4.8 (1.9) 2.9
Financial income - 0.3 0.3 - 0.1 0.1
Financial expenses (0.1) - (0.1) (0.1) (0.1) (0.2)
Net financing income/(expense) (0.1) 0.3 0.2
(0.1) - (0.1)
Profit/(loss) before tax 4 1.1 (1.5) (0.4) 4.7 (1.9) 2.8
Taxation (0.4) 0.1 (0.3) (1.0) 0.3 (0.7)
Profit/(loss) for the period 0.7 (1.4) (0.7) 3.7 (1.6) 2.1
Earnings/(loss) per ordinary share
Basic 7 (3.6p) 10.6p
Diluted 7 (3.6p) 10.6p
CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)
12 months to 31 December 2021 (audited)
Non-underlying
Underlying (note 5) Total
Notes £m £m £m
Revenue 4 94.3 - 94.3
Cost of sales (65.4) - (65.4)
Gross profit 28.9 - 28.9
Distribution expenses (6.8) - (6.8)
Administrative expenses (12.4) (0.5) (12.9)
Other operating expenses (0.9) - (0.9)
Operating profit 4, 5 8.8 (0.5) 8.3
Financial income - 0.2 0.2
Financial expenses (0.2) (0.1) (0.3)
Net financing expense (0.2) 0.1 (0.1)
Profit before tax 4 8.6 (0.4) 8.2
Taxation (0.7) 0.3 (0.4)
Profit for the period 7.9 (0.1) 7.8
Earnings per ordinary share
Basic 7 39.1p
Diluted 7 38.1p
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6 months to 30 June 2022 (unaudited) 6 months to 30 June 2021 (unaudited) 12 months to 31 Dec 2021 (audited)
£m £m £m
Profit for the period (0.7) 2.1 7.8
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) 23.5 12.4 20.7
(8.4) (4.6) (7.9)
Tax on items that will not be reclassified to profit or loss
15.1 7.8 12.8
Items that may be reclassified subsequently to profit or loss
Currency translation movements arising on foreign currency net investments
1.2 - (0.2)
Effective portion of changes in fair value of cash flow hedges
(1.0) (0.3) (1.0)
Reclassified to income statement from hedge reserve
(0.1) (0.1) (0.3)
0.1 (0.4) (1.5)
Other comprehensive income for the period 15.2 7.4 11.3
Total comprehensive income for the period 14.5 9.5 19.1
All income for the period was derived from continuing operations
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Capital
Share Share Translation redemption Hedging Retained Total
capital premium reserve reserve reserve earnings equity
£m £m £m £m £m £m £m
6 months to 30 June 2022
Balance at 1 January 2022 5.0 26.0 0.3 3.9 (0.5) 30.7 65.4
Profit for the period - - - - - (0.7) (0.7)
Other comprehensive (expense) / income for the period
- - 1.2 - (1.1) 15.1 15.2
Total comprehensive (expense) / income for the period
- - 1.2 - (1.1) 14.4 14.5
Equity-settled share-based transactions - - - - - 0.3 0.3
Purchase of own shares - - - - - (0.1) (0.1)
Total transactions with owners, recorded directly in equity
- - - - - 0.2 0.2
Balance at 30 June 2022 5.0 26.0 1.5 3.9 (1.6) 45.3 80.1
6 months to 30 June 2021
Balance at 1 January 2021 on previous basis 5.0 26.0 0.5 3.9 0.8 8.2 44.4
Impact of restatement (note 14)
- - - - - 1.8 1.8
Balance at 1 January 2021 restated
5.0 26.0 0.5 3.9 0.8 10.0 46.2
Profit for the period - - - - - 2.1 2.1
Other comprehensive (expense) / income for the period
- - - - (0.4) 7.8 7.4
Total comprehensive (expense) / income for the period
- - - - (0.4) 9.9 9.5
Total transactions with owners, recorded directly in equity
- - - - - 0.1 0.1
Balance at 30 June 2021 5.0 26.0 0.5 3.9 (0.4) 20.0 55.8
12 months to 31 December 2021
Balance at 1 January 2021 on previous basis 5.0 26.0 0.5 3.9 0.8 8.2 44.4
Impact of restatement (note 14)
- - - - - 1.8 1.8
Balance at 1 January 2021 restated
5.0 26.0 0.5 3.9 0.8 10.0 46.2
Profit for the period - - - - - 7.8 7.8
Other comprehensive (expense) / income for the period
- - (0.2) - (1.3) 12.8 11.3
Total comprehensive (expense) / income for the period
- - (0.2) - (1.3) 20.6 19.1
Equity-settled share-based transactions - - - - - 0.3 0.3
Purchase of own shares - - - - - (0.2) (0.2)
Total transactions with owners, recorded directly in equity
- - - - - 0.1 0.1
Balance at 31 December 2021 5.0 26.0 0.3 3.9 (0.5) 30.7 65.4
CONDSENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 2022 (unaudited) 31 Dec 2021 (audited)
Note £m £m
Non-current assets
Intangible assets 25.4 25.3
Property, plant and equipment 4.2 4.0
Investment property 0.8 0.8
Right of use assets 5.8 5.8
Employee benefits 6 59.7 35.7
Deferred tax assets 1.5 1.4
97.4 73.0
Current assets
Inventories 6.3 5.5
Trade and other receivables 33.8 34.5
Current tax assets 0.2 0.6
Cash and cash equivalents 9.5 14.5
49.8 55.1
Current liabilities
Lease liabilities (1.8) (1.8)
Trade and other payables (35.1) (39.5)
Current tax liabilities (1.2) (0.7)
Provisions (0.7) (0.6)
(38.8) (42.6)
Net current assets 11.0 12.5
Total assets less current liabilities 108.4 85.5
Non-current liabilities
Interest-bearing loans and borrowings (0.9) (0.9)
Employee benefits 6 (2.8) (2.5)
Deferred tax liabilities (20.6) (12.5)
Lease liabilities (4.0) (4.2)
Deferred contingent consideration - -
(28.3) (20.1)
Net assets 80.1 65.4
Equity
Issued capital 5.0 5.0
Share premium 26.0 26.0
Reserves 3.8 3.7
Retained earnings 45.3 30.7
Total equity 80.1 65.4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
Notes 2022 2021 2021
(unaudited) (unaudited) (audited)
£m £m £m
Operating activities
Operating profit
Non-underlying items included in operating profit
Amortisation (0.6) 2.9 8.3
Depreciation
Other non-cash items 1.8 1.9 0.5
Pension payments
Working capital movements: 0.3 0.4 0.6
- increase in inventories
- decrease in trade and other receivables 1.0 0.5 1.8
- increase in contract assets
- increase/(decrease) in trade and other payables 0.4 0.3 0.4
- decrease in contract liabilities
- increase/(decrease) in provisions (1.1) (1.6) (2.6)
(0.5) (1.4) (2.2)
6.1 5.0 1.0
(4.7) - (4.4)
1.5 (4.8) (1.1)
(7.6) (5.9) (0.7)
0.1 (0.1) (0.8)
Cash flows from continuing operations before reorganisation (3.3) (2.8) 0.8
Acquisition and reorganisation costs paid
- (0.3) (0.3)
Cash flows from operations (3.3) (3.1) 0.5
Taxation paid
(0.2) (0.2) (0.1)
Cash flows (used in) / from operating activities (3.5) (3.3) 0.4
Investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment 0.1 0.1 2.0
Capitalised development expenditure
Payment of deferred consideration (0.6) (0.3) (1.5)
(0.1) (0.2) (0.2)
- - (0.6)
Cash flows from investing activities (0.6) (0.4) (0.3)
Financing activities
Interest paid
Purchase of own shares (0.1) (0.1) (0.3)
Principal elements of lease payments - (0.2) (0.2)
(0.6) (0.3) (0.9)
Cash flows from financing activities (0.7) (0.6) (1.4)
Net decrease in cash and cash equivalents (4.8) (4.3) (1.3)
Cash and cash equivalents at 1 January 14.5 15.5 15.5
Effect of exchange rate fluctuations on cash held (0.2) - 0.3
Cash and cash equivalents at period end 9.5 11.2 14.5
NOTES TO ANNOUNCEMENT
1. General information
The half-year results for the current and comparative period are unaudited but
have been reviewed by the auditors, PKF Littlejohn LLP, and their report is
set out after the notes. The comparative information for the year ended 31
December 2021 does not constitute statutory accounts as defined in section 434
of the Companies Act 2006. The Group's statutory accounts have been reported
on by the Group's auditor and delivered to the Registrar of Companies. The
report of the auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis without
qualifying its report, and (iii) did not contain a statement under section
498(2) or (3) of the Companies Act 2006. The Group's statutory accounts for
the year ended 31 December 2021 are available from the Company's registered
office at Station Estate, Station Road, Tadcaster, North Yorkshire, LS24 9SG
or from the Group's website at www.mpac-group.com (http://www.mpac-group.com)
.
The Directors have considered the trading outlook of the Group for an 18-month
period ending 31 December 2023, its financial position, including its cash
resources and access to borrowings, and its continuing obligations, including
to its defined benefit pension schemes. Having made appropriate enquiries,
the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
For this reason, they continue to adopt the going concern basis in preparing
the condensed set of financial statements.
The condensed set of interim financial statements was approved by the Board of
directors on 5 September 2022.
2. Basis of preparation
(a) Statement of compliance
The condensed set of interim financial statements for the 6 months ended 30
June 2022 has been prepared in accordance with UK-adopted international
accounting standards, and in particular IAS 34 Interim financial reporting.
It does not include all the information required for full annual financial
statements and should be read in conjunction with the financial statements of
the Group for the year ended 31 December 2021.
(b) Judgements and estimates
The preparation of the condensed set of interim financial statements requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and reported amounts of assets and
liabilities, income and expense. Actual results may differ from these
estimates.
In preparing the condensed set of financial statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were of the same type as those that
applied to the financial statements for the year ended 31 December 2021.
Mpac is subject to a number of risks which could have a serious impact on the
performance of the business. The Board regularly considers the principal
risks that the Group faces and how to mitigate their potential impact. The
key risks to which the business is exposed are set out on pages 19 to 23 of
the Group's 2021 Annual Report and Accounts.
3. Significant accounting policies
The accounting policies, presentation and methods of computation applied by
the Group in this condensed set of interim financial statements are the same
as those applied in the Group's latest audited financial statements. No new
accounting standards have been applied for the first time in these condensed
interim financial statements.
4. Operating segments
It is the Group's strategic intention to develop "One Mpac", accordingly
segmental reporting reflects the split of sales by both Original Equipment
(OE) and Service together with the regional split, Americas, EMEA and Asia.
The Group's operating segments reflect the basis of the Group's management
and internal reporting structure.
Unallocated costs include distribution and administrative expenditure.
Further details in respect of the Group structure and performance of the
segments are set out in the half-year management report.
6 months to 30 Jun 2022 6 months to 30 Jun 2021 12 months to 31 Dec 2021
OE Service Total OE Service Total OE Service Total
£m £m £m £m £m £m £m £m £m
Revenue
Americas 25.0 5.1 30.1 24.7 5.4 30.1 53.4 9.9 63.3
EMEA 12.9 5.1 18.0 8.3 4.1 12.4 17.4 9.3 26.7
Asia Pacific 1.9 0.6 2.5 1.0 0.7 1.7 3.3 1.0 4.3
Total 39.8 10.8 50.6 34.0 10.2 44.2 74.1 20.2 94.3
Gross profit 10.7 14.8 28.9
Selling, distribution & administration
(9.5) (10.0) (20.1)
Underlying operating profit 1.2 4.8 8.8
Unallocated non-underlying items included in operating profit
(1.8) (1.9) (0.5)
Operating profit (0.6) 2.9 8.3
Net financing income / (expense) 0.2 (0.1) (0.1)
Profit before tax (0.4) 2.8 8.2
30 June 31 Dec
2022 2021
£m £m
Segment assets
Americas 32.8 36.9
EMEA 33.3 28.7
Asia Pacific 0.7 0.5
Total segment assets 66.8 64.3
Segment liabilities
Americas
(20.9) (22.2)
EMEA
(22.5) (25.2)
Asia Pacific
(0.5) (0.3)
Total segment liabilities (43.9) (45.9)
Segment net assets 22.9 18.4
Unallocated net assets 57.2 47.0
Total net assets 80.1 65.4
5. Non-underlying items and alternative performance measures
Non-underlying items merit separate presentation in the consolidated income
statement to allow a better understanding of the Group's financial
performance, by facilitating comparisons with prior periods and assessments of
trends in financial performance. Pension administration charges and
interest, significant reorganisation costs, acquisition or disposal costs,
amortisation of acquired intangible assets, profits or losses arising on
discontinued operations, significant impairments of tangible and intangible
assets and related taxation are considered non-underlying items as they are
not representative of the core trading activities of the Group and are not
included in the underlying profit measure reviewed by key stakeholders.
The Group elects to include costs relating to the defined benefit pension
scheme in non-underlying as the costs would be immaterial to the Group should
the scheme not exist.
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2022 2021 2021
£m £m £m
Defined benefit pension scheme administration costs (note 6) (0.7) (0.6) (1.2)
Reorganisation costs (0.1) (0.2) -
Amortisation of intangibles from business combinations (0.8) (0.9) (1.6)
Acquisition costs (0.2) (0.1) (0.4)
Deferred and contingent acquisition consideration - (0.1)
2.4
Profit on disposal of Coventry facility
-
- 0.3
Total non-underlying operating expenditure
(1.8)
(1.9)
(0.5)
Interest on deferred and contingent acquisition consideration - (0.1) (0.1)
Net financing income on pension scheme balances 0.3 0.1 0.2
Total non-underlying expense before tax (1.5) (1.9) (0.4)
The Group uses alternative performance measures (APM's), in addition to those
reported under IFRS, as management believe these measures enable the users of
financial statements to better assess the underlying trading performance of
the business. The APM's used include underlying operating profit, underlying
profit before tax and underlying earnings per share. These measures are
calculated using the relevant IFRS measure as adjusted for non-underlying
income/(expenditure) listed above.
6. Employee benefits
The Group accounts for pensions under IAS 19 Employee benefits. The most
recent formal valuation of the UK defined benefit pension scheme (Fund) was
completed as at 30 June 2018. The formal valuation of the scheme as at 30 June
2021 is underway and will be completed prior to the year-end. The principal
terms of the deficit funding agreement between the Company and the Fund's
Trustees, which is effective until 31 July 2024, and is subject to
reassessment every 3 years in line with the deficit funding agreement are as
follows:
• the Company will continue to pay a sum of £1.9m per annum to the Fund
(increasing at 2.1% per annum) in deficit recovery payments;
• if underlying operating profit (operating profit before
non-underlying items) in any year is in excess of £5.5m, the Company will pay
to the Fund an amount of 33% of the difference between the annual underlying
operating profit and £5.5m, subject to a cap on underlying operating profit
of £10.0m for the purpose of calculating this payment; this part of the
agreement will fall away in 2021 if the funding deficit is above certain
levels; and
• payments of dividends by Mpac Group plc will not exceed the value of
payments being made to the Fund in any one year.
Formal valuations of the USA defined benefit schemes were carried out as at 1
January 2021, and their assumptions, updated to reflect actual experience and
conditions at 31 December 2021 and modified as appropriate for the purposes of
IAS 19, have been applied in this set of financial statements.
Profit before tax includes charges in respect of the defined benefit pension
schemes' administration costs of £0.7m (2021: £0.6m) and a net financing
income on pension scheme balances of £0.3m (2021: £0.1m). In respect of
the UK scheme, the Group paid deficit recovery contributions of £1.0m (2021:
£1.0m). No contribution (2021: £0.4m), in accordance with the profit-sharing
arrangement in the schedule of contributions, was paid. Contributions to the
US scheme totalled £0.1m (2021: £0.3m)
Employee benefits include the net pension asset of the UK defined benefit
pension scheme of £59.7m (2021: £26.8m) and the net pension liability of the
USA defined benefit pension schemes of £2.8m (2021: £2.3m), all figures
before tax.
Employee benefits as shown in the condensed consolidated statement of
financial position were:
30 June 31 Dec
2022 2021
£m £m
UK scheme
Fair value of assets 376.2 453.1
Present value of defined benefit obligations (316.5) (417.4)
Defined benefit asset 59.7 35.7
USA schemes
Fair value of assets 8.8 9.9
Present value of defined benefit obligations (11.6) (12.4)
Defined benefit liability (2.8) (2.5)
Total net defined benefit asset 56.9 33.2
7. Earnings per share
Basic earnings per ordinary share is calculated by dividing the profit or loss
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period excluding shares held by the
employee trust in respect of the Company's long-term incentive arrangements.
For diluted earnings per ordinary share, the weighted average number of
shares includes the diluting effect, if any, of own shares held by the
employee trust and the effect of the Company's long-term incentive
arrangements.
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2022 2021 2021
Basic - weighted average number of ordinary shares 20,035,439 19,898,866 19,920,895
Diluting effect of shares held by the employee trust 261,568 63,734 531,118
Diluted - weighted average number of ordinary shares 20,297,007 19,962,600 20,452,013
Underlying earnings per share, which is calculated on the earnings before
non-underlying items, for the 6 months to 30 June 2022 amounted to 3.6p (6
months to 30 June 2021: 18.3p; 12 months to 31 December 2021: 39.7p).
In the 6 months to 30 June 2022 and 30 June 2021 the effect of dilution was
nil pence per share. The effect of the dilution at 31 December 2021 was
(1.0)p.
8. Financial risk management
The Group's financial risk management objectives and policies are consistent
with those disclosed in the financial statements for the year ended 31
December 2021.
The Group enters forward foreign exchange contracts solely for the purpose of
minimising currency exposures on sale and purchase transactions. The Group
has classified its forward foreign exchange contracts used for hedging as cash
flow hedges and states them at fair value.
9. Related parties
The Group has related party relationships with its directors and with the UK
and USA defined benefit pension schemes. There has been no material change
in the nature of the related party transactions described in note 31 of the
2021 Annual Report and Accounts.
10. Contingent consideration
Switchback
The contingent consideration arrangement required the Group to pay the former
owners of Switchback up to US$1.0m (£0.7m) in 2021 and 2022 with a minimum
payment of US$0.5m in each if Switchback's annual adjusted EBITDA is at least
$1.1m and 50% of the excess over US$1.1m, up to US$2.1m. The business achieved
the target of US2.1m in the first year and consequently a payment of $1.0m
(£0.6m) was paid and the maximum amount payable under the arrangement is
currently forecast to be paid in 2022.
11. Dividends
Having considered the trading results to 30 June 2022, together with the
opportunities for investment in the growth of the Company, the Board has
decided that it is appropriate not to pay an interim dividend. No dividends
were paid in 2021. Future dividend payments and the development of a new
dividend policy will be considered by the Board in the context of 2022 trading
performance and when the Board believes it is prudent to do so.
12. Half-year report
A copy of this announcement will be made available to shareholders from 8
September 2022 on the Group's website at www.mpac-group.com
(http://www.mpac-group.com) . This announcement will not be made available in
printed form.
13. Future accounting policies
There are no changes anticipated to the Group's accounting policies in the
foreseeable future.
14. 2021 restated condensed consolidated statement of changes in equity
Restatements were made at 31 December 2021 following a review of the Group's
compliance with certain technical aspects of IAS 12 where additional deferred
tax assets were recognised in relation to acquired intangible assets.
As a result of this the condensed consolidated statement of changes in equity
was changed to reflect the increase in the opening retained earnings balance
as at 1 January 2021 by £1.8m to £10.0m with the corresponding increase
flowing through to the closing balance.
These changes had no impact on any of the other statements reported within
these condensed consolidated financial statements. These adjustments do not
affect the future anticipated performance of the Group.
INDEPENDENT REVIEW REPORT TO MPAC GROUP PLC
Conclusion
We have been engaged by the group to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Financial Position, the Consolidated
Statement of Cash Flows and related notes. We have read the other information
contained in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the AIM Rules for Companies.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity", issued for use in the United Kingdom.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2a, the annual financial statements of the group are
prepared in accordance with UK adopted IASs. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34, "Interim
Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the AIM Rules for Companies.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of financial information
In reviewing the half-yearly report, we are responsible for expressing to the
group a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the company's directors, as a body, in
accordance with the terms of our engagement letter dated 15 July 2022. Our
review has been undertaken so that we might state to the company's directors
those matters we have agreed to state to them in a reviewer's report and for
no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone, other than the company and the company's
directors as a body, for our work, for this report, or for the conclusions we
have formed.
PKF Littlejohn LLP
15 Westferry Circus
Statutory Auditor
Canary Wharf
London E14 4HD
7(th) September 2022
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