Half-yearly report

LUPUS CAPITAL plc
 
INTERIM REPORT
 
FOR THE SIX MONTHS ENDED
 
30 JUNE 2008
 
Chairman's Statement
 
Dear Shareholder,
 
I am pleased to report that your company continued to grow during the
six months to  30th June 2008  despite the economic  travails of  the
banking  crisis,  U.S  housing   market  slump,  raw  material   cost
escalations and the apparent start of a European business decline.
 
Controlling our costs, growing market shares at the expense of weaker
competitors, close customer relationships, new product development as
well as the benefits from the integration, improvements and synergies
of our Laird acquisition have enabled us to increase our earnings per
share by over 4%. I would like  to thank all our employees for  their
dedication and commitment during this severely debilitating  economic
climate, enabling Lupus to continue to achieve its objectives.
 
Pre tax profits on  an adjusted basis were  £14.5m which compares  to
£10.1m for  the same  period  in 2007.  Sales  were £137.0m  up  from
£79.0m. 2008  figures include  a full  six months  contribution  from
Laird rather than two months in 2007.
 
Adjusted earnings  per  share1 of  7.56p  were  up 4.4%  which  is  a
creditable increase from 7.24p in the six months to June 2007.
 
1 before amortisation of acquired intangible assets, deferred tax on
amortisation of acquired intangible assets, exceptional items,
unwinding of discount on provisions and the associated tax effect.
 
The directors have declared  an interim dividend  of 2.06p per  share
which is at a maintained level as the interim dividends paid for 2007
half year. Shareholders will be paid on 10th November 2008 for  those
shares registered at the close of business on 10th October 2008.
 
In the event  that you  prefer to receive  shares instead  of a  cash
dividend, a notice from our Registrars, Capita, is enclosed that will
allow you to do this. Please either complete the form or, for further
details, call Capita  direct on  0871 664  0381 (calls  cost 10p  per
minute plus network extras) or email shares@capitaregistrars.com.
 
Below is given a short overview  of the performance of each of  Lupus
Capital's businesses.
 
* Gall Thomson, our manufacturer of breakaway couplings, continued
    to enjoy buoyant markets in the first six months of 2008 and yet
    again delivered a record performance both in sales, profits and
    cash generation.
 
* Building Products division is a manufacturer of items such as
    seals, locks, balances, handles, doors and hinges for the U.S.
    and European door and window industry. Our sales are
    approximately 60% to the refurbishment/remodelling (RMI) market
    which is a steadier and less volatile source of custom than the
    40% which we trade to the new build market.
 
Costs have  been aggressively  attacked. Employee  numbers have  been
reduced by  over  10%  affecting  office  staff  and  the  production
workforce; in addition temporary labour has been flexed. Raw material
input prices,  particularly  steel  and  polypropylene,  as  well  as
freight, have increased dramatically and  we have been successful  in
passing some of these  on. A number of  facilities have been  closed,
with further  manufacturing relocated  to China  and a  new low  cost
factory in Mexico has been established to deal with work  transferred
from higher cost U.S. plants.
 
In the U.S. the new build  housing market was substantially down  and
the RMI sector marginally lower  on the previous period. However,  we
have been able to achieve market share increases and limit our  sales
decline to only 15% lower than 2007 first half like for like. In  our
non  U.S.  markets  we  have   started  to  see  slowing   conditions
particularly in Spain, and the UK although Eastern Europe is  holding
up well. Overall though sales were marginally up by 2%.
 
Continuing inventory and working capital controls have enabled us  to
generate cash  despite the  seasonal increase  in business  activity.
Rigorous examination  of  capital  expenditure has  limited  all  but
essential cash  outflows. After  some  major first  half  expenditure
including a £5.7m share buyback, as well as the £12.5m interest  free
deferred acquisition cost due to Laird,  our net debt position as  at
30 June 2008 stood  at £112.4m.   In addition,  during the period  we
repaid £8.5m of debt to our banks.
 
The last few months of the year are undoubtedly going to be difficult
and uncertain.  Sales and  order  books appear  to be  changing  from
historically  relatively  predictable   patterns  to  more   volatile
fluctuations. Raw material prices  need constant attention and  costs
have to be reduced. Our share price regrettably has been hit hard  by
both the general stock market conditions and sentiment regarding  the
housing industry. However, we are confident that once markets improve
we will emerge stronger and more profitable.
 
Greg Hutchings
Chairman
 
30 September 2008
 
Group income statement
 
Year ended
                                Six months    Six months           31
                             ended 30 June      ended 30     December
                                      2008     June 2007         2007
                               (unaudited)   (unaudited)    (audited)
                    Note             £'000         £'000        £'000
 
Revenue                3           137,020        79,028      216,859
Cost of sales                     (89,503)      (48,365)    (142,675)
Gross profit                        47,517        30,663       74,184
 
Administrative
expenses                          (33,619)      (20,808)     (51,461)
Operating
profit                 3            13,898         9,855       22,723
 
Analysed as:
Operating profit
before exceptional
items and
amortisation of
intangible assets                   18,791        12,357       31,857
Exceptional items                        -             -      (1,385)
Amortisation of
intangible assets                  (4,893)       (2,502)      (7,749)
Operating profit                    13,898         9,855       22,723
 
Finance income         4               968           479        1,888
Finance costs          4           (5,703)       (2,772)      (9,241)
Net finance costs                  (4,735)       (2,293)      (7,353)
 
Profit before
taxation                             9,163         7,562       15,370
 
Income tax expense     5           (2,932)       (2,671)      (3,128)
 
Profit for the year
from continuing
operations                           6,231         4,891       12,242
 
Earnings per share
- Basic and diluted
EPS from continuing
operations1            6             4.79p         5.33p       10.68p
 
Non GAAP measure
Adjusted1 profit before                   14,459
taxation                                              10,064   25,021
 
Earnings per share
- Adjusted1 basic and diluted 6
EPS from continuing                        7.56p       7.24p   14.82p
operations
 
1 before amortisation of acquired intangible assets, deferred tax on
amortisation of acquired intangible assets, exceptional items,
unwinding of discount on provisions and the associated tax effect.
 
Group statement of recognised income and expense
 
Six months    Six months      Year
                                                             ended 30 June ended 30 June  ended 31
                                                                      2008          2007  December
                                                                                              2007
                                                             (unaudited)   (unaudited)   (audited)
                                                        Note       £'000         £'000       £'000
 
Actuarial losses on defined benefit plans                              -             -       (159)
Exchange differences on retranslation of foreign operations        1,515           679       (148)
Effective portion of changes in value of cash flow                 (113)             -     (1,546)
hedges
Tax on items recognised directly in equity                             -             -          54
Income and expense recognised directly in equity                   1,402           679     (1,799)
Profit for the period                                              6,231         4,891      12,242
Total recognised income and expense for the              8         7,633         5,570      10,443
period
- attributable to equity shareholders of the Company
 
Group balance sheet
 
At 31
                                 At 30 June    At 30 June    December
                                       2008          2007        2007
                                (unaudited)   (unaudited)   (audited)
                         Note         £'000         £'000       £'000
ASSETS
Non-current assets
Intangible assets                   302,066       317,727     306,345
Property, plant and
equipment                            35,886        35,590      36,325
Deferred tax                         10,828         8,060       6,611
Derivative financial
instruments                               -         1,118           -
                                    348,780       362,495     349,281
Current assets
Inventories                          35,007        33,410      35,261
Trade and other
receivables                          42,620        49,717      36,755
Cash and cash
equivalents                          31,034        30,815      46,969
                                    108,661       113,942     118,985
TOTAL ASSETS                        457,441       476,437     468,266
 
LIABILITIES
Current liabilities
Current tax payable                 (6,545)       (6,444)     (3,743)
Trade and other payables           (45,411)      (59,559)    (57,974)
Finance lease
obligations                           (188)         (106)       (188)
Interest bearing loans
and borrowings                     (21,676)      (11,024)    (16,694)
                                   (73,820)      (77,133)    (78,599)
 
Non-current liabilities
Finance lease
obligations                           (135)         (204)       (214)
Deferred tax                       (30,163)      (30,967)    (25,315)
Interest bearing loans
and borrowings                    (121,272)     (138,687)   (129,865)
Employee benefit
liability                           (3,245)       (3,320)     (3,497)
Provisions                         (17,873)      (21,615)    (20,892)
Derivative financial
instruments                         (1,659)             -     (1,546)
Other creditors                       (142)         (110)     (1,206)
                                  (174,489)     (194,903)   (182,535)
TOTAL LIABILITIES                 (248,309)     (272,036)   (261,134)
NET ASSETS                          209,132       204,401     207,132
 
EQUITY
Capital and reserves
attributable to equity
holders of the Company
Called up share capital     8         6,864         6,861       6,861
Share premium               8           101            45          45
Merger reserve              8        10,389        10,389      10,389
Hedging reserve             8       (1,659)         1,118     (1,546)
Translation reserve         8         (286)         (974)     (1,801)
Retained earnings           8       193,723       186,962     193,184
TOTAL EQUITY                        209,132       204,401     207,132
 
Group cash flow statement
 
At 31
                                 At 30 June    At 30 June    December
                                       2008          2007        2007
                                (unaudited)   (unaudited)   (audited)
                                      £'000         £'000       £'000
 
Cash flows from operating
activities
Operating profit                     13,898         9,855      22,723
 
Depreciation                          2,911         1,831       4,702
Amortisation                          4,893         2,502       7,749
Loss on sale of property,
plant and equipment                       -             -        (12)
Movement in inventories               (722)         2,363       1,173
Movement in trade and other
receivables                         (5,886)       (2,778)      11,665
Movement in trade and other
payables                              (292)         5,655       3,267
Movement in provisions              (1,048)             -       1,110
Income tax paid                     (1,527)       (1,993)     (6,492)
 
Net cash inflow from
operating activities                 12,227        17,435      45,885
 
Investing activities
Payments to acquire
property, plant and
equipment                           (2,630)       (1,159)     (3,918)
Proceeds from sales of
property, plant and
equipment                               329             7           -
Acquisition of subsidiary,
net of cash acquired               (12,500)     (238,231)   (239,397)
Interest received                       989           479       1,867
 
Net cash outflow from
investing activities               (13,812)     (238,904)   (241,448)
 
Financing activities
Proceeds from shares issue,
net of costs                             59       131,270     131,536
Purchase of treasury shares         (5,692)             -     (1,075)
Equity dividends paid                     -       (2,983)     (3,753)
New borrowings                        5,012       119,667     119,064
Interest paid                       (5,607)       (2,773)     (7,172)
Repayment of short term
borrowings                          (8,514)       (2,500)     (5,000)
Repayment of capital
element of finance leases              (79)          (78)        (88)
 
Net cash (outflow)/inflow
from financing activities          (14,821)       242,603     233,512
 
(Decrease)/increase in cash
and cash equivalents               (16,406)        21,134      37,949
Effect of exchange rates on
cash and cash equivalents               471          (57)       (718)
Cash and cash equivalents
at the beginning of the
period                               46,969         9,738       9,738
Cash and cash equivalents
at the period end                    31,034        30,815      46,969
 
Notes to the Interim Report
 
1.      Status of the interim financial statements
 
The Group's interim financial statements for the six months ended  30
June 2008 were authorised
for issue by  the directors  on 30 September  2008. The  consolidated
interim financial information,
      which  is unaudited,  does  not constitute  statutory  accounts
within the meaning of Section 240
      of the Companies Act 1985. The statutory accounts for the  year
ended 31 December 2007
      have  been reported  on by  the Group's  auditors, received  an
unqualified audit report and have
      been filed with the registrar of companies at Companies House.
 
2.      Accounting policies
 
The interim financial information has  been prepared on the basis  of
the recognition
and measurement  requirements  of International  Financial  Reporting
Standards (IFRS), which
were the accounting policies used in the Report and Accounts for  the
Group for the year
ended 31 December  2007. The accounting  policies are unchanged  from
those used
in the last annual accounts.
 
3.       Segmental analysis
 
Oil services              Building products                  Total
                          Six                 Six     Six                             Six
                       months Year ended   months  months     Year                 months     Year
           Six months   ended         31 ended 30   ended ended 31     Six months   ended ended 31
             ended 30 30 June   December     June 30 June December  ended 30 June 30 June December
            June 2008    2007       2007     2008    2007     2007           2008    2007     2007
                £'000   £'000      £'000    £'000   £'000    £'000          £'000   £'000    £'000
Continuing
operations
 
Revenue         6,294   6,182     11,342  130,726  72,846  205,517        137,020  79,028  216,859
 
Operating
profit          2,606   2,065      5,557   11,292   7,790   17,166         13,898   9,855   22,723
Net
finance
costs                                                                     (4,735) (2,293)  (7,353)
Profit before income
tax                                                                         9,163   7,562   15,370
Income tax
expense                                                                   (2,932) (2,671)  (3,128)
Profit for the period
                                                                            6,231   4,891   12,242
 
4.      Finance income and costs
 
Six months ended  Six months ended    Year ended 31
                      30 June 2008      30 June 2007    December 2007
                             £'000             £'000            £'000
 
Finance income
Bank interest
receivable                     968               479            1,845
Fair value
gains on
financial
instruments                      -                 -               43
                               968               479            1,888
 
Finance costs
Interest
payable on bank
loans and
overdraft                  (5,045)           (2,679)          (8,303)
Finance charges
payable under
finance lease
and hire
purchase
contracts                     (13)              (11)             (23)
Amortisation of
borrowing costs              (182)              (82)            (264)
Unwinding of
discount on
provisions                   (403)                 -            (517)
Other finance
costs                         (60)                 -            (134)
                           (5,703)           (2,772)          (9,241)
 
Net finance
costs                      (4,735)           (2,293)          (7,353)
 
5.                              Taxation
 
Six months ended 30 Six months ended  Year ended 31
                            June 2008     30 June 2007  December 2007
                                £'000            £'000          £'000
 
Current income
tax:
Current income
tax charge                      3,618            2,645          6,786
Adjustments in
respect of prior
periods                          (52)                -            278
Total current
income tax                      3,566            2,645          7,064
 
Deferred tax:
Effect of change
in rates                            -                -        (2,013)
Origination and
reversal of
timing
differences                     (560)               26        (1,964)
 
Other items                      (74)                -             41
Total deferred
tax                             (634)               26        (3,936)
 
Income tax
expense in the
income statement                2,932            2,671          3,128
 
6.      Earnings per share
 
Basic earnings per share amounts  are calculated by dividing the  net
profit for the year attributable
to ordinary equity shareholders by  the weighted average of  ordinary
shares outstanding during
the period plus the weighted  average number of ordinary shares  that
would be issued on the
conversion  of  all  the  dilutive  potential  ordinary  shares  into
ordinary shares. There were no
potentially dilutive shares.
 
Six months
                         ended 30 Six months ended 30   Year ended 31
                        June 2008           June 2007   December 2007
                            000's               000's           000's
 
Weighted average
number of shares
(excluding treasury
shares)                   137,281              91,711         114,648
Weighted average
number of treasury
shares                    (7,174)                   -            (39)
Weighted average
number of shares          130,107              91,711         114,609
 
Earnings per share from continuing operations before exceptional
items and intangible asset amortisation
 
The Group presents  as exceptional items  on the face  of the  income
statement those
material items of income and expense, which because of the nature and
expected
infrequency of  the  events  giving  rise  to  them,  merit  separate
presentation to allow
shareholders  to  understand   better  the   elements  of   financial
performance in the period,
so as  to facilitate  comparison  with prior  periods and  to  assess
better trends in
financial performance.
 
To this end, adjusted underlying basic and diluted earnings per share
is also presented
as an additional  measure and  using the weighted  average number  of
ordinary shares for
both basic and  diluted amounts as  per the table  above. Net  profit
from continuing
operations before exceptional items is derived as follows:
 
Year ended
                   Six months ended 30   Six months ended 31 December
                             June 2008       30 June 2007        2007
                                 £'000              £'000       £'000
 
Profit for the
year from
continuing
operations                       6,231              4,891      12,242
Exceptional
costs                                -                  -       1,385
Amortisation of
intangible
assets and
unwinding
discount on
provisions                       5,296              2,502       8,266
Tax effect on
exceptional
costs and
amortisation of
intangible
assets                         (1,695)              (751)     (2,895)
Deferred tax
adjustment
relating to the
rate of
corporation
changing from
30% to 28%                           -                  -     (2,013)
Adjusted
underlying
profit after tax                 9,832              6,642      16,985
 
Adjusted
underlying basic
and diluted
earnings per
share                            7.56p              7.24p      14.82p
 
7.                    Dividends
 
Six months ended 30 Six months ended     Year ended 31
                         June 2008     30 June 2007     December 2007
                             £'000            £'000             £'000
Dividends paid
in the year
were as
follows:
Final dividend
for 2006 at
3.34p per
share                            -            2,059             2,059
Special
interim
dividend for
2007 at 1.50p
per share                        -              925               925
Interim
dividend for
2007 at 0.56p
per share                        -                -               769
 
                                 -            2,984             3,753
Dividends not
reflected in
the financial
statements:
Proposed
interim
dividend for
the year 2008
at 2.06p per
share (2007:
0.56p )                      2,675              769                 -
Proposed final
dividend for
the year 2007
at 3.51p per
share                        4,557                -             4,557
 
8.           Reconciliation of movements in equity
 
Share   Share    Other Hedging Translation Retained   Total
            capital premium reserves reserve     reserve earnings
                    account
              £'000   £'000    £'000   £'000       £'000    £'000   £'000
 
At 1
January
2007          3,083      45   10,389       -     (1,653)   58,117  69,981
Shares
issued net
of costs      3,778       -        -       -           -  126,938 130,716
Derivative
financial
instruments       -       -        -   1,118           -        -   1,118
Total
recognised
income and
expense for
the period        -       -        -       -         679    4,891   5,570
Dividends
paid              -       -        -       -           -  (2,984) (2,984)
At 30 June
2007          6,861      45   10,389   1,118       (974)  186,962 204,401
Shares
issued net
of costs          -       -        -       -           -      820     820
Total
recognised
income and
expense for
the period        -       -        - (2,664)       (827)    7,246   3,755
Dividends
paid              -       -        -       -           -    (769)   (769)
Share
buyback           -       -        -       -           -  (1,075) (1,075)
At 31
December
2007          6,861      45   10,389 (1,546)     (1,801)  193,184 207,132
Shares
issued net
of costs          3      56        -       -           -        -      59
Total
recognised
income and
expense for
the period        -       -        -   (113)       1,515    6,231   7,633
Share
buyback           -       -        -       -           -  (5,692) (5,692)
At 30 June
2008          6,864     101   10,389 (1,659)       (286)  193,723 209,132
 
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