Six Months Ended. 31 December Interim Report

Transcription

1 Six Months Ended 31 December 2015 Interim Report

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3 Contents Chief Executive Officers Report 4 Group Statement of Comprehensive Income 7 Group Statement of Financial Position 8 Group Statement of Movements of Equity 9 Group Statement of Cash Flow 10 Note to the Group Financial Statements 11 Note 1: General Information 11 Note 2: Summary of Significant accounting policies 11 Note 3: Segment Information 12 Note 4: Related Party Transactions 13 Note 5: Dividends 13 Note 6: Commitments 13 Note 7: Subsequent events 13 Note 8: Restructuring Costs 13 Note 9: Earnings per share 14 Note 10: Going Concern 14

4 Half Year Result to 31 December 2015 Chief Executive Officer s Report Mercer Group continues on a path of change Overview: At the year ending June 30th 2015, Mercer Group Limited (NZX:MGL) announced that it would continue to implement the necessary changes to its activities, organisation and structure that would see the group focusing on the opportunities in its Stainless and SClave divisions. The necessary restructuring of the business has seen the performance impacted as the cost base is not yet aligned with the ongoing structure. This coupled with significant provisioning and write downs resulted in a loss for the six months to 31st December 2015 of $4.7m. Despite this, much has been achieved towards the stated goals, including: 1. The sale of the Medical division. 2. The sale of the Interiors division. 3. The acquisition of 100% of Titan Slicer Limited and the movement of the Titan business to Mercer s premises in Christchurch. 4. The closure of the loss making Brisbane fabrication facility. 5. Beginning of the relocation of the head office from Auckland to Christchurch. 6. Further developments in the SClave technology that have moved us to a position where the time is right to look for additional resource in moving this disruptive technology forward. Mercer now has two clearly defined business units: The Stainless Division: this consists of plants in Christchurch and New Plymouth with fabrication and a machines capability which designs, manufactures and supplies food processing and packaging equipment. Titan, now 100% owned, is included in this business. The Technologies Division: consists of the SClave sterilisation technology. Given the different profiles of these two business units and their differing capital and resource requirements, the Board has determined that they should be separated. As such, we are currently exploring options for both business units with a view to maximising shareholder value and allowing the businesses to execute on their potential. Options being considered include the sale of the SClave into a new entity with new capital being raised to fund it, potentially in Australia, and the possible sale of the Stainless division. We will update shareholders once we have considered the options. An overview on the businesses is outlined below: Stainless Division: The Stainless division saw reduced revenues and profitability in the first half. This was the result of the slowdown in the dairy industry which led to reduced workflows from the historical highs seen last year and Titan effectively stopped selling equipment while the operational issues were resolved. Mercer Group Limited Interim Report

5 The Christchurch plant now has good fabrication and machines workflows and is expected to generate a strong result in the second half. The New Plymouth plant has seen fabrication workflows reduced somewhat but the food processing and packaging ranges of Aico equipment, the Beta range and our cooking vessel offering are all seeing good demand and to an extent are countering the lower fabrication workloads. The recall of Titan machines and the resulting loss of momentum was reported on at the 2015 year end. With the operational issues now resolved we are building sales with a focus on the North American market working closely with our distributor Nu Meats. With 100% ownership of Titan and moving its operations to Christchurch, we have more control and a lower cost base from which to build the business. We now have positive momentum and have sold four machines since January 2016, including two of the Titan 200 range which are simpler machines that are attractive to a larger market. We remain positive about the Titan product and the size of the global market it operates in as well as the export led growth opportunity it represents for Mercer. We expect the Stainless division to generate a full year profit. SClave: We have continued to make material progress with our disruptive SClave technology and are now looking to drive a pathway to commercialisation as soon as practically possible. As outlined above, the Directors are of the view that the SClave technology should be spun off into its own entity to provide it with the capital and focus to execute on its future. Property: Mercer owns its premises in Christchurch and New Plymouth. They are valued at $5.7m. We are considering our options for these properties. The Christchurch property at 53 Lunns Road is subject to a material earthquake claim. We are in advanced discussions with our insurers and we expect this process to conclude in the next three months. Funding: Both the Stainless business and the SClave represent growth opportunities, both of which require more capital, particularly given their export focus. The separation of the businesses is expected to release capital which will also reduce current debt levels. In the short term, we continue to have the support of the BNZ and Gresham Finance, a company related to director and shareholder Humphry Rolleston. 5 Mercer Group Limited Interim Report 2015 Mercer Group Limited Interim Report

6 Appointment of CFO: We are pleased to announce the recruitment of Ian McGregor as Chief Financial Officer. He will join the Company in April and will be based in Christchurch. Ian is a highly experienced finance professional, having previously been in Treasury at Fonterra and CFO of Fisher and Paykel Finance. Outlook: We are in the middle of a period of significant change at Mercer. The two remaining businesses have positive long term outlooks, but require differing capital structures as well as different skills and resources. The Directors are currently assessing options and will be communicating with shareholders as decisions are reached. We thank shareholders for their ongoing support. John Dennehy Richard Rookes Chairman Chief Executive Officer Mercer Group Limited Interim Report

7 Group Statement of Comprehensive Income For the half year ended 31 December 2015 Unaudited Unaudited December 2015 December 2014 $000 $000 Continuing Operations Restated Revenue Sale of goods and contract revenue 9,700 16,898 Other income Total income 9,805 16,990 Expenses Changes in inventories of finished goods and work in progress (2,842) (7,893) Salaries and wages (6,331) (5,986) Rental and operating leases (261) (248) Other expenses (2,142) (2,067) Depreciation (286) (269) Amortisation (46) (33) Restructuring costs (1,439) (Deficit) Surplus before finance costs (3,542) 494 Finance costs (420) (293) Share of profits of associate 24 (Deficit) Surplus before taxation (3,962) 225 Income tax credit (charge) 760 (30) (Deficit) Surplus after taxation from continuing operations (3,202) 195 Discontinued operations Deficit from discontinued operations (1,526) Deficit after taxation (4,728) (218) (23) Attributable to: Owners of the parent Noncontrolling interest Other comprehensive (loss) income Items that may be subsequently charged or credited to profit and loss Deferred tax on revaluation increment of buildings Other comprehensive (loss) income for the year, net of tax Total comprehensive (Loss) income for the period Attributable to: Owners of the parent Noncontrolling interest Total (4,467) (36) (261) 13 (4,728) (23) 46 (78) (4,682) (101) (4,421) (114) (261) 13 (4,682) (101) Basic earnings per share: Deficit per share attributable to shareholders of the company (cents) Fully diluted earnings per share: Deficit per share attributable to shareholders of the company (cents) (1.43) (1.43) (0.01) (0.01) The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 7

8 Group Statement of Financial Position As at 31 December 2015 Unaudited Audited 31 December June 2015 $000 $000 ASSETS Current assets Cash and bank balances Accounts receivable 4,540 8,679 Other debtors and prepayments 277 1,127 Inventories 4,395 7,335 9,280 17,298 Assets classified as held for sale 3,507 Total current assets 12,787 17,298 Non current assets Other debtors and prepayments Property, plant and equipment 7,036 8,615 Intangible assets 4,326 4,001 Deferred tax asset 6,089 5,328 Investment in associate Total non current assets 18,313 18,699 Total assets 31,100 35,997 LIABILITIES Current liabilities Bank overdraft 2,717 2,785 Trade and other payables 7,710 9,135 Employee entitlements 772 1,170 Borrowings 8,542 8,207 19,741 21,297 Liabilities directly associated with assets classified as held for sale 1,311 Total current liabilities 21,052 21,297 Non current liabilities Borrowings Total liabilities 21,142 21,387 Net assets 9,958 14,610 EQUITY Share capital 33,475 33,475 Other reserves 2,602 2,526 Retained earnings (25,530) (21,063) 10,547 14,938 Noncontrolling interest (589) (328) Total equity 9,958 14,610 Net tangible assets per share (cents) The above Statement of Financial Position should be read in conjunction with the accompanying notes. 8

9 Group Statement of Movements in Equity For the half year ended 31 December 2015 Attributable to the owners of the Group Share based Foreign currency Asset Noncontrolling Share Retained payments translation revaluation Total Total capital earnings reserve reserve reserve equity interest equity $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 July ,146 (14,345) 88 (206) 2,814 20,497 (21) 20,476 Foreign currency (78) (78) (78) translation reserve movement Asset revaluation reserve movement Deficit for the year (36) (36) 13 (23) Total comprehensive income for the half year (36) (78) (114) 13 (101) Value of employee services Issue of new shares 1,238 (106) 1,132 1,132 Balance at 31 December ,384 (14,381) 60 (284) 2,814 21,593 (8) 21,585 Balance at 1 July ,475 (21,063) 10 (298) 2,814 14,938 (328) 14,610 Foreign currency translation reserve movement Deficit for the year (4,467) (4,467) (261) (4,728) Total comprehensive income for the half year (4,467) 46 (4,421) (261) (4,682) Value of employee services Balance at 31 December ,475 (25,530) 40 (252) 2,814 10,547 (589) 9,958 The above Statement of Movements in Equity should be read in conjunction with the accompanying notes. 9

10 Group Statement of Cash Flow For the half year ended 31 December 2015 Unaudited Unaudited 31 December December 2014 $000 $000 Operating activities Deficit after tax (4,728) (23) Income tax recognised in Statement of Comprehensive Income (760) 30 Finance costs Depreciation and amortisation Provision for Restructuring continuing operations 1,129 Provision for closing discontinuing operations 1,056 Other noncash items Changes in working capital 1,002 (758) Cash inflow (outflow) from operations (1,313) 58 Interest paid (420) (293) Net cash inflow (outflow) by operating activities (1,733) (235) Investing Cash was activities provided (to) from : Purchase of property, plant and equipment (331) (422) Purchase of patents and development activities (371) (351) Proceeds from sale of Medical division 2,033 Net cash inflow (outflow) from investing activities 1,331 (773) Financing activities Cash was provided from (to): New borrowings 1,000 Issue of new shares 1,238 Repayment of borrowings (665) (900) Net cash inflow from financing activities Net (decrease) increase in cash held (67) (670) Cash (overdraft) at beginning of the period (2,628) 46 Effect of exchange rate changes 46 4 Cash (overdraft) and bank balances at the end of the year (2,649) (620) The above Statement of Cash Flow should be read in conjunction with the accompanying notes. The Statement of Cash Flow is exclusive of GST. 10

11 Notes to the Group Financial Statements For the half year ended 31 December General information Statutory base Mercer Group Limited is a limited liability company which is incorporated and domiciled in New Zealand. The address of its registered office is 142 Neilson Street, Onehunga, Auckland. It is registered under the Companies Act 1993 and is a listed issuer under the Financial Markets Conduct Act Mercer Group Limited is a public company registered under the Companies Act 1993 and is listed with the New Zealand Stock Exchange (NZX). The Group comprises Mercer Group Limited and its wholly and majority owned subsidiaries. The core activities of Mercer Group are: Stainless Fabrication: The division includes the fabrication workshops in Christchurch and New Plymouth operated by Mercer Stainless Limited. The office in Brisbane, Australia operated by Mercer Technologies Pty Limited was closed in February The division is a fabricator of equipment, predominantly in stainless steel and also designs and manufactures proprietary equipment. Titan Slicer: This division designs and sells specialised food cutting equipment and other similar products manufactured by the Stainless Fabrication division. Mercer Interiors: The division manufactures and supplies sinks, basins, tubs, toilets, laminate, solid surface material and other similar products to merchants, fabricators and to other manufacturers. The division was sold in February Mercer Medical: The division supplies equipment and related products and services for sterilization, washing and disinfection. The division has been sold. Mercer Technologies: The division manages the research and development of the Mercer Group. The Group is designated as a profit oriented entity for financial reporting purposes. The financial statements have been approved for issue by the Board of Directors on 29 February Summary of significant accounting policies (a) Basis of preparation The principal accounting policies adopted in the preparation of the financial report are set out in the30 June 2015 Annual Report. These policies have been consistently applied to all the periods presented, unless otherwise stated. The condensed consolidated interim financial information for the six months ended 31 December 2015 has been prepared in accordance with New Zealand equivalent to International Accounting standards NZ IAS34 and IAS 34, "Interim Financial Reporting". The condensed consolidated interim financial information should be read in conjunction with the Annual Financial Statements for the year ended 30 June 2015, which were prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP) and New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). They also comply with International Financial Reporting standards (IFRS), and other applicable New Zealand Financial Reporting Standards, as appropriate for profitoriented entities. (b) Changes in accounting polices There have been no significant changes in accounting policies from those applied by the Group in the financial statements as at 30 June Those accounting policies are set out in the Mercer Group Limited 2015 Annual Report. (c) New standards and amendments New standards and amendments to standards which are effective for the first time for the financial year beginning 1 July 2015 and which are relevant to the Group are set out in the Annual Report. These amendments have not resulted in material accounting or disclosure changes for the Group. Standards and interpretations of relevance to the Group which were in issue but not yet effective and had not been early adopted are also set out in the Annual Report. The directors anticipate that the adoption of those Standards and Interpretations in future periods will have no material impact on the financial statements of the Group other than disclosures. 11

12 Notes to the Group Financial Statements For the half year ended 31 December 2015 (d) Discontinued operations During the period Mercer Medical was sold and a sale process was undertaken for Mercer Interiors (sold February 2016). Accordingly these divisions are reflected as discontinued operations in the Statement of comprehensive income, with comparatives figures restated as required by Financial Reporting Standards. 3. Segment information The Group is organised into the following reportable segments by product and services type: Stainless Fabrication: The division includes the fabrication workshops in Christchurch and New Plymouth operated by Mercer Stainless Limited. The office in Brisbane, Australia operated by Mercer Technologies Pty Limited was closed in February The division is a fabricator of equipment, predominantly in stainless steel and also designs and manufactures proprietary equipment. Each location is an operating segment which is aggregated for reporting purposes due to similar economic characteristics. Titan Slicer: The division designs and sells specialised food cutting equipment and other similar products manufactured by the Stainless Fabrication division. Mercer Technologies: The division manages the research & development of the Mercer Group. Mercer Interiors: This division was sold in February 2016 and has been removed from the segment analysis, as it is a discontinued operation. Mercer Medical: This division was sold in October 2015 and has been removed from the segment analysis, as it is a discontinued operation Corporate: This division includes Mercer Group Limited, the Parent Company and the head office activities within Mercer Stainless Limited. The segment result includes rental received from other segments in respect of properties owned and occupied by Mercer Stainless Limited. Goodwill previously included in Corporate has been allocated to the relevant reportable segment. The table below shows the sales revenue, earnings before interest, tax, depreciation, amortisation and impairments (EBITDA) and assets by segment. 31 December 2015 (Unaudited) Total sales 31 December 2014 (Unaudited) Restated Total sales of goods and of goods and Segment contract Segment result Segment contract result Segment revenue (EBITDA) assets revenue (EBITDA) assets $000 $000 $000 $000 $000 $000 Stainless Fabrication 10,625 (29) 6,639 14,654 1,034 3,952 Titan Slicer Mercer Technologies Corporate (901) (13) (828) 6,600 1,743 12,611 2, (19) (499) 6,094 1,803 15,907 Intersegment eliminations (1,026) (621) Total sales, EBITDA, assets 9,700 (1,771) 27,593 16, ,755 Depreciation and amortisation (332) (302) Provision for Restructure (1,439) Finance costs (420) (293) Income tax credit (charge) 760 (30) Share of profits (losses) of 24 associate Total Group sales, profit 9,700 (3,202) 27,593 16, ,755 (loss) after tax, assets Transactions Properties, deferred between tax segments balances and are certain accounted development for usingassets the same in progress accounting have policies been included as setin out the incorporate these financial statements. The Intersegment eliminations are predominately sales between Stainless Fabrication and Titan Slicer. 12

13 Notes to the Group Financial Statements (Continued) For the half year ended 31 December Related party transactions (a) Directors The names of persons who were directors of the company at any time during the period are as follows: J F Dennehy, G Diack, HJD Rolleston, R Rookes and P Smart. (b) Options In September 2014 Mr A Dowman, General Manager Technologies, was issued 1,785,714 options which are exercisable at $0.14 per share on 31 December In November 2015 Mr J Dennehy, Director and Board Chair, was issued options as follows: a) to subscribe for 4,000,000 ordinary shares in the capital of the Company at an exercise price of $0.05 per share exercisable in August 2016; and b) to subscribe for 3,571,429 ordinary shares in the capital of the Company at an exercise price of $0.07 per share exercisable in August In November 2015 Mr R Rookes, CEO, was issued options as follows: a) to subscribe for 5,500,000 ordinary shares in the capital of the Company exercisable at $0.05 per share exercisable in August 2017; and b) to subscribe for 5,357,143 ordinary shares in the capital of the Company at an exercise price of $0.07 per share exercisable on in August Share options are granted to selected employees. The option price increases the further forward dated the vesting date is. Options are exercisable only on the vesting date. Options are conditional on the employee being in service on the vesting date. The vesting date can be brought forward if agreed to by the Shareholders at a Special General Meeting. (c) Loan A loan agreement is in place for $1,000,000, repayable in July 2016 at an interest rate of 15%, with Gresham Finance Ltd a company owned by Director HJD Rolleston. 5. Dividends During the six months ended 31 December 2015, Mercer Group paid no dividends (six months ended 31 December 2014: $Nil). 6. Commitments The Group had no commitments for future capital expenditure as at 31 December 2015 (June 2015: $Nil). 7. Subsequent events In February 2016 the company sold the Interiors division and has classified the division assets and liabilities as held for sale. The sale of the Interiors and Medical divisions is reflected in the Statement of Comprehensive Income as Deficit from discontinued operations and includes a $1,000,000 write down of the Interior assets resulting from the discounted sale price. In January 2016 the 25% shareholding in Titan Slicer with was transferred back to Mercer Group Ltd who now own 100% of the shares. In February 2016 the Brisbane operations of Mercer Technologies Pty Ltd was closed. 8. Restructuring costs Following the sale of the Interiors and Medical divisions the company is undergoing further restructuring of the remaining divisions which will result in the centralisation of services to Christchurch, the closure of the Nelson office, the moving of the Auckland office and the reduction in headcount. A restructure provision of $1,439,000 has been created to cover these costs. 13

14 Notes to the Group Financial Statements (Continued) For the half year ended 31 December Earnings per share Basic and diluted Basic earnings per share are calculated by dividing the profit/(loss) attribute to equity holders of the Company by the weighted average number of ordinary shares in issue during period. Diluted earnings per share are calculated by dividing the profit/(loss) attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the period adjusted to assume conversion of the dilutive potential of ordinary shares as a result of warrants on issue, and the exercise of share options where the weighted average market price of ordinary shares during the period exceeds the exercise price of the option / warrant. Unaudited 31 December 2015 # of shares Weighted average number of ordinary shares in issue: Basic 311,970,446 Warrants Options 20,214,286 Equity based remuneration Total 332,184,732 Unaudited 31 December 2014 # of shares 297,182,533 13,321,968 2,412, ,916,971 Deficit attributable to the shareholders of the Company ($000) Basic earnings (loss) per share Diluted earnings (loss) per share (4,467) (1.43) cents (1.43) cents (36) (0.01) cents (0.01) cents Given the deficit in 2014 and 2015 the instruments above are antidilutive. Accordingly the number of shares used in the diluted earnings per share calculation in 2014 is 297,182,533, and in 2015 is 311,970, Going Concern Whilst the Directors believe in the Group's ability to continue as a going concern, there is material uncertainty as to whether the bank will continue to provide the facilities required. In the event the bank is not willing to provide the Group with the necessary debt facilities, and the Group is unable to secure ongoing funding with another lender it is likely the Group will not be able to continue as a going concern. If the Group were unable to continue in operational existence, and pay debts as and when they become due and payable, adjustments would have to be made to reflect the situation that assets may need to be realised and liabilities extinguished, other than in the normal course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the statement of financial position. 14

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