RNS Number:9543Q
Heating Finance PLC
28 March 2008
HEATING FINANCE PLC
Heating Finance plc presents below the unaudited consolidated financial
statements of its parent company, Baxi Holdings Limited, for the Fourth Quarter
of 2007.
These results are being released today to the holders of Heating Finance plc's
7.875% Mezzanine Notes due 2014, which are guaranteed by Baxi Holdings Limited
BAXI HOLDINGS LIMITED
DERBY, ENGLAND
FOURTH QUARTER 2007
Page 1
INDEX
Page
3 Summary Results
PART I - FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements - Baxi Holdings Limited
4 Unaudited consolidated profit and loss accounts for the Three Months to
31 December 2007, the Three Months to 31 December 2006, the Year ended
31 December 2007 and the Year ended 31 December 2006.
5 Unaudited consolidated balance sheets as at 31 December 2007 and as at
31 December 2006.
6 Unaudited consolidated cash flow statements for the Three Months to
31 December 2007, the Three Months to 31 December 2006, the Year ended
31 December 2007 and the Year ended 31 December 2006.
6 Unaudited reconciliation of consolidated net cash flow to movement in net
debt for the Three Months to 31 December 2007, the Three Months to
31 December 2006, the Year ended 31 December 2007 and the Year ended
31 December 2006.
7 Notes to the unaudited consolidated financial statements
Operational and Financial Review
9 Management's Discussion and Analysis of Financial Condition and Results of
Operations
17 Quantitative and Qualitative Disclosure about Market Risk
18 Forward-Looking Statements
PART II - OTHER INFORMATION
19 Legal Proceedings
19 Changes in Securities and Use of Proceeds
19 Defaults Upon Senior Securities
19 Submission of Matters to a Vote of Securities Holders
Page 2
SUMMARY RESULTS
Heating Finance PLC announces the Quarter 4 and full year 2007 results of Baxi
Holdings Limited, its parent group:
£m Quarter ended Year ended
31 December 31 December
2007 2006 2007 2006
Sales 269.5 278.6 846.7 919.1
Group operating profit before
exceptional items, impairment charges
and goodwill amortisation 38.9 42.3 69.3 102.2
Group operating profit 16.2 21.4 18.8 58.7
Principal points:
o Quarter 4 Group operating profit((1) was 8% below 2006 levels compared
with a decline of 49% for first three Quarters.
o The £40m investment by shareholders was completed in Quarter 4,
following agreement with the Group's Senior Lenders concerning amendments
to the terms of its senior facilities.
o In March 2008 the Group's foundry in France was disposed of at a cash
cost of €9.5m; this will result in annual cost savings of c€5m.
Negotiations with stakeholders concerning further reorganisation of the
French business are continuing.
--------------------------
(1) Before exceptional items, impairment charges and goodwill amortisation
Page 3
PART I - FINANCIAL INFORMATION
Baxi Holdings Limited
Unaudited consolidated profit and loss accounts
for the Three Months to 31 December 2007, the Three Months to 31 December 2006,
the Year to 31 December 2007, and the Year to 31 December 2006
Q4 2007 Q4 2006 YTD 2007 YTD 2006
3 months 3 months 12 months 12 months
to 31 Dec to 31 Dec to 31 Dec to 31 Dec
2007 2006 2007 2006
£m £m £m £m
Turnover 269.5 278.6 846.7 919.1
Cost of sales (181.1) (188.1) (597.9) (635.2)
Distribution expenses (30.1) (29.8) (109.0) (110.7)
Administration expenses/other (19.4) (18.4) (70.5) (71.0)
income (note 1) ----------------------------------------------
Group operating profit before 38.9 42.3 69.3 102.2
exceptional items, impairment ----------------------------------------------
charges and goodwill amortisation
Exceptional reorganisation (9.4) (4.6) (16.1) (8.6)
costs (note 1)
Goodwill amortisation (6.4) (6.4) (25.0) (25.0)
Impairment of goodwill and fixed (6.9) (9.9) (9.4) (9.9)
assets ----------------------------------------------
Group operating profit 16.2 21.4 18.8 58.7
----------------------------------------------
Associated company profit (note 2) 1.8 2.5 4.9 6.7
Associated company goodwill (0.2) (0.2) (0.7) (0.7)
amortisation
Profit on disposal of fixed - 0.1 - 5.6
assets (note 2)
Net interest payable and similar (17.1) (14.2) (59.0) (55.0)
charges
Tax (3.6) (0.3) (14.6) (12.2)
Minority interest (0.1) 0.1 (0.1) 0.1
---------------------------------------------
(Loss)/profit for the (3.0) 9.4 (50.7) 3.2
financial period ---------------------------------------------
(Note 1) - 2006 exceptional reorganisation costs were included within
administration expenses in the report for Q4 2006, but were reclassified as
exceptional reorganisation costs in the audited accounts for the year ended
31 December 2006, and have been similarly reclassified for comparative purposes
in these quarterly figures.
(Note 2) - The £5.6 million profit on disposal of fixed assets in 2006 includes
£1.9 million at an associated company. In the report for Q4 2006, this was
included within Associated company profit. In the audited accounts for the year
ended 31 December 2006 this was included within profit on disposal of fixed
assets and has been similarly reclassified for comparative purposes in these
quarterly figures.
Page 4
Baxi Holdings Limited
Unaudited consolidated balance sheet as at 31 December 2007 and 31 December 2006
31 December 31 December
2007 2006
£m £m
Fixed assets
Intangible assets 404.6 425.0
Tangible assets 102.5 109.5
Investments 31.0 25.2
---------------------------
538.1 559.7
Current assets
Stocks 104.3 105.0
Debtors 277.8 282.1
Cash at bank and in hand 19.2 24.7
---------------------------
401.3 411.8
Creditors: Amounts falling due within one year
Borrowings (36.6) (32.3)
Other (249.3) (259.1)
---------------------------
Net current assets 115.4 120.4
---------------------------
Total assets less current liabilities 653.5 680.1
Creditors: Amounts falling due after more
than one year
Borrowings (581.4) (558.2)
Provision for liabilities and charges (25.6) (25.5)
---------------------------
Net assets excluding pension assets/ 46.5 96.4
liabilities
Pension liabilities (31.1) (49.9)
---------------------------
Net assets 15.4 46.5
---------------------------
Capital and reserves
Called up share capital 0.1 0.1
Share premium account 11.4 11.4
Profit and loss account 2.6 34.0
---------------------------
Total equity shareholders' funds 14.1 45.5
Equity minority interest 1.3 1.0
---------------------------
15.4 46.5
---------------------------
Page 5
Baxi Holdings Limited
Unaudited consolidated cash flow statement
for the Three Months to 31 December 2007, the Three Months to 31 December 2006,
the Year ended 31 December 2007, and the Year ended 31 December 2006
Q4 2007 Q4 2006 YTD 2007 YTD 2006
3 months 3 months 12 months 12 months
to 31 Dec to 31 Dec to 31 Dec to 31 Dec
2007 2006 2007 2006
£m £m £m £m
Net cash inflow from operating 57.9 57.3 63.0 93.7
activities
Dividend from associated companies - 1.3 1.8 4.5
Return on investments and
servicing of finance
Interest paid (21.8) (19.8) (42.8) (40.6)
Debt finance costs (3.3) - (3.3) -
Tax paid (5.5) (7.9) (15.5) (17.7)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (8.2) (8.6) (16.6) (19.3)
Disposal of assets - 1.0 3.1 8.3
-------------------------------------------
(8.2) (7.6) (13.5) (11.0)
Acquisitions and disposals
Investments - - (0.6) -
Repayment of working capital post - - - 5.5
acquisition
Sale of assets - 3.6 - 3.6
Deferred consideration 0.1 (0.3) 0.5 -
Acquisition VAT recoverable - 8.3 - 11.3
-------------------------------------------
0.1 11.6 (0.1) 20.4
-------------------------------------------
Net cash flow before financing 19.2 34.9 (10.4) 49.3
Financing
Repayment of Senior Term Loans (19.6) (16.2) (35.9) (29.4)
Issue of DDB Series II 40.3 - 40.3 -
Repay VAT Loan - (8.3) - (11.3)
Other loans and finance leases - - - (0.1)
(Purchase)/sale of own shares - - (0.2) 0.3
-------------------------------------------
20.7 (24.5) 4.2 (40.5)
-------------------------------------------
Increase/(decrease) in net cash 39.9 10.4 (6.2) 8.8
-------------------------------------------
Baxi Holdings Limited
Unaudited reconciliation of consolidated net cash flow to movement in net debt
for the Three Months to 31 December 2007, the Three Months to 31 December 2006,
the Year ended 31 December 2007, and the Year ended 31 December 2006
Q4 2007 Q4 2006 YTD 2007 YTD 2006
3 months 3 months 12 months 12 months
to 31 Dec to 31 Dec to 31 Dec to 31 Dec
2007 2006 2007 2006
£m £m £m £m
Increase/(decrease) in net cash 39.9 10.4 (6.2) 8.8
Repay Senior Term Loans 19.6 16.2 35.9 29.4
Issue of DDB Series II (40.3) - (40.3) -
Repay VAT Loan - 8.3 - 11.3
Repay other loans - - - 0.1
--------------------------------------------
Changes in net debt resulting from 19.2 34.9 (10.6) 49.6
cash flows
Interest rolled up (3.8) (2.5) (11.7) (9.5)
Amortisation of loan issue costs (0.8) (1.3) (4.2) (4.7)
Debt finance costs 3.5 - 3.5 -
Effect of exchange movements (5.3) 1.9 (10.0) 2.6
--------------------------------------------
Movement in net debt 12.8 33.0 (33.0) 38.0
Net debt at beginning of period (611.6) (598.8) (565.8) (603.8)
--------------------------------------------
Net debt at end of period (598.8) (565.8) (598.8) (565.8)
--------------------------------------------
Page 6
Notes to the unaudited consolidated financial statements
Note 1 - General Note and Description of Business
Baxi Holdings Limited was formed on 6 October 2003 to facilitate the acquisition
of Baxi Group Limited and all its subsidiaries. The acquisition was completed on
12 March 2004. On 1 August 2005 the Group acquired the Roca Heating business.
We are a leading designer and manufacturer of residential heating and hot water
systems in Europe. We are one of the largest designers and manufacturers of
residential boilers in the United Kingdom and the third largest in Europe
(including the United Kingdom). We market our boilers in Europe's largest boiler
markets: the United Kingdom, France, Germany, Italy and Spain. Our broad range
of residential boiler products includes conventional wall-hung boilers, combis
and floor-standing boilers, all in both standard efficiency and high efficiency
condensing variants. In addition, we design and manufacture other complementary
products such as water heaters, radiators and decorative gas fires. We are the
market leader in the United Kingdom for water heaters and decorative gas fires,
and we are the second largest manufacturer of radiators in France. We are also
the largest wholesale boiler spare parts provider in the United Kingdom and we
operate an after sales maintenance and repair service business. We are the
market leader in heating products in Spain.
We are primarily a product design and assembly business with the majority of the
components used in our products being sourced externally. We are also focused on
developing our business in emerging and higher growth markets such as Turkey,
Eastern Europe, China and Russia. We principally sell our products to
wholesalers, who in turn generally sell our products to installers. Installers
tend to be the primary decision makers in the distribution chain in that they
advise and exert influence over the end users. We believe that we enjoy good
relationships with both wholesalers and installers across our markets, which we
primarily attribute to the reliability and quality of our products and to the
quality of our after sales service capabilities.
Note 2 - Basis of preparation
The statements in this Financial Information do not constitute statutory
accounts within the meaning of Section 434 of the Companies Act 2006, and are
unaudited. They have been prepared on the basis of the accounting policies set
out in the statutory accounts of Baxi Holdings Limited for the period ended 31
December 2007. They have been prepared in accordance with UK GAAP, which differs
in certain significant respects from US GAAP.
Note 3 - Guarantors
In Q4 2007 the Issuer and the Guarantors, as defined in the Indenture dated 26
March 2004 under which the Mezzanine Notes were issued, generated 40 % of
turnover and 62% of the cash flow, and held 34% of tangible fixed assets of the
Group. Non-guarantors generated 60% of turnover and 38% of the cash flow, and
held 66% of tangible fixed assets.
Page 7
Note 4 - Indebtedness
At 31 December 2007, borrowings due within one year of £36.6 million and due
after more than one year of £581.4 million, totalling £618.0 million, were the
following:
Debt at Due within Due Due Due after
31 Dec 2007 1 year 1-2 yrs 2-5 yrs 5 yrs
Unaudited Unaudited Unaudited Unaudited Unaudited
£m £m £m £m £m
Overdraft (1.2) (1.2) - - -
Senior Term Loans (409.6) (38.9) (43.7) (327.0) -
Debt finance costs 19.2 4.0 3.7 7.5 4.0
Mezzanine Notes (93.0) - - - (93.0)
Unsecured Loan Notes (91.4) - - - (91.4)
Unsecured Loan Notes (41.5) - - - (41.5)
Series II
Other loans (0.5) (0.5) - - -
----------------------------------------------------
(618.0) (36.6) (40.0) (319.5) (221.9)
----------------------------------------------------
Net debt at the end of the quarter of £598.8 million, as shown in the
reconciliation of consolidated net cash flow to movement in net debt on page 6,
is as follows:
Net Debt at
31 December 2007
Unaudited
£m
Total debt (637.2)
Debt finance costs 19.2
-------
(618.0)
Cash 19.2
-------
Net debt (598.8)
-------
On 19 October 2007 the group issued for cash a further £40.3 million of
Unsecured Loan Notes, with repayment due after 5 years.
Note 5 - Provisions for liabilities and charges
This primarily represents £25.6 million for product warranties.
Note 6 - Profit and loss account
Profit &
Loss account
Unaudited
£m
At 31 December 2006 34.0
Loss for the financial period (50.7)
Purchase of own shares (0.2)
Actuarial gain on pension liabilities net of deferred tax 10.6
Exchange adjustments on foreign currency net investments 8.9
------
At 31 December 2007 2.6
------
Page 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The trading operations in Q4 2007 and YTD 2007 compared to Q4 2006 and YTD 2006
are:
Q4 2007 Q4 2006 YTD 2007 YTD 2006
3 months 3 months 12 months 12 months
to 31 Dec to 31 Dec to 31 Dec to 31 Dec
2007 2006 2007 2006
£m £m £m £m
Continuing operations
Turnover
UK 111.7 114.9 331.7 342.9
France/Germany 67.3 70.8 215.2 253.3
Spain/Portugal 48.3 48.9 156.0 163.3
Italy 64.6 55.0 197.5 191.4
Rest of Europe 13.5 12.1 41.2 51.7
Inter regional turnover (35.9) (23.1) (94.9) (83.5)
--------------------------------------------
Turnover 269.5 278.6 846.7 919.1
Cost of sales (181.1) (188.1) (597.9) (635.2)
Distribution expenses (30.1) (29.8) (109.0) (110.7)
Administration expenses/other income (19.4) (18.4) (70.5) (71.0)
--------------------------------------------
Group operating costs (230.6) (236.3) (777.4) (816.9)
--------------------------------------------
Group operating profit before 38.9 42.3 69.3 102.2
exceptional items and --------------------------------------------
goodwill amortisation
Group operating profit before
exceptional items, impairment
charges and goodwill
amortisation:
UK 20.5 22.1 40.7 49.8
France/Germany 4.5 5.2 (6.2) 8.6
Spain/Portugal 4.4 6.0 13.9 15.5
Italy 7.6 6.8 19.0 21.5
Rest of Europe 1.9 2.2 1.9 6.8
-------------------------------------------
Group operating profit before 38.9 42.3 69.3 102.2
exceptional items, impairment -------------------------------------------
charges and goodwill
amortisation
Exceptional reorganisation costs (9.4) (4.6) (16.1) (8.6)
-------------------------------------------
Group operating profit before 29.5 37.7 53.2 93.6
goodwill amortisation -------------------------------------------
EBITDA (note 1) 44.0 46.9 89.3 122.3
Operating cash flows:
Net cash inflow from operating 66.6 61.9 79.7 102.3
activities excluding
exceptional spend
Exceptional reorganisation (8.7) (4.6) (16.7) (8.6)
spend -------------------------------------------
Net cash inflow from 57.9 57.3 63.0 93.7
operating activities -------------------------------------------
Gross capital expenditure (8.2) (8.6) (16.6) (19.3)
-------------------------------------------
(Note 1) EBITDA is operating profit before depreciation, exceptional
reorganisation items, impairment charges and goodwill amortisation.
Page 9
Q4 Trading Operations for the three months to 31 December
Turnover
Country sales include sales to other group companies, which are eliminated at
the consolidated level by the inter-regional turnover adjustment, shown
separately in the table of trading operations.
Total turnover decreased by £9.1 million from £278.6 million in Q4 2006 to
£269.5 million in Q4 2007.
UK
UK turnover decreased by £3.2 million from £114.9 million in Q4 2006 to £111.7
million in Q4 2007 reflecting lower volumes of boilers sold in the period.
France/Germany
Turnover in France and Germany decreased by £3.5 million from £70.8 million in
Q4 2006 to £67.3 million in Q4 2007 reflecting a decline in sales volumes in
weaker markets, offset by effect of the stronger Euro on translation into
sterling.
Spain/Portugal
Turnover of the Iberian businesses in Q4 2007 of £48.3 million was £0.6 million
below the £48.9 million in Q4 2006 reflecting a decline in sales volumes in
weaker markets, offset by effect of the stronger Euro on translation into
sterling.
Italy
Turnover of the Italian company increased by £9.6 million from £55.0 million in
Q4 2006 to £64.6 million in Q4 2007; the increase results from increased sales
in local currency and the effect of the stronger Euro on translation into
sterling.
Rest of Europe
In other European countries, aggregate turnover increased by £1.4 million from
£12.1 million in Q4 2006 to £13.5 million in Q4 2007. Included in 2007 is a new
subsidiary company in Czechia which contributed £3.5 million of the increase in
turnover, while the Group's Danish business continued to decline.
Inter regional turnover
In Q4 2007 the elimination of sales between group companies at £35.9 million was
£12.8 million higher than the £23.1 million in Q4 2006 reflecting mainly higher
sales out of Italy and the effect of the stronger Euro on translation into
sterling.
Cost of sales
Total cost of sales of £181.1 million in Q4 2007 was 67.2% of turnover, compared
to 67.5% of turnover in Q4 2006.
Distribution expenses
Aggregate distribution costs of £30.1 million in Q4 2007 were 11.1% of turnover
compared to 10.7% in Q4 2006.
Administration expenses, excluding exceptional reorganisation costs
Administration costs of £19.4 million for Q4 2007 were £1.0 million higher than
the £18.4 million in Q4 2006, including £0.8 million higher costs in 2007 as a
result of the effect of the stronger Euro on translation into sterling.
Page 10
Group operating profit before exceptional items, impairment charges and goodwill
amortisation
Total operating profit before exceptional items, impairment charges and goodwill
amortisation in Q4 2007 of £38.9 million was £3.4 million lower than the £42.3
million in Q4 2006.
UK
Operating profits of £20.5 million in Q4 2007 were £1.6 million lower than the
£22.1 million in Q4 2006.
France/Germany
In France and Germany, profits of £4.5 million in Q4 2007 compared to £5.2
million in Q4 2006.
Spain/Portugal
Operating profits of the Iberian businesses of £4.4 million in Q4 2007, were
£1.6 million lower than the £6.0 million in Q4 2006.
Italy
Operating profits of the Italian business for Q4 2007 of £7.6 million were £0.8
million above the £6.8 million earned in Q4 2006.
Rest of Europe
The companies in the rest of Europe returned a profit of £1.9 million in Q4 2007
in total, slightly below the £2.2 million of profit in Q4 2006.
Exceptional items
Exceptional reorganisation costs of £9.4 million in Q4 2007 and £4.6 million in
Q4 2006 relate to costs of restructuring/rationalising facilities, primarily in
the UK and France.
Goodwill
Goodwill amortisation was £6.4 million in both Q4 2007 and Q4 2006.
Impairment of goodwill and fixed assets
Following the continued losses in the French business a net realisable value
impairment review was carried out. Following this review, an impairment of £3.3
million has been recognised in Q4 2007 reflecting a reduction in the net
realisable value of the assets.
As part of the UK reorganisation a net realisable value impairment review was
carried out. Following this review an impairment of £3.6 million has been
recognised in Q4 2007 reflecting a reduction in the net realisable value of
the assets.
Operating Profit
The Group operating profit of £16.2 million in Q4 2007 was £5.2 million below
the operating profit of £21.4 million in Q4 2006.
Associated company profit
The share of operating profits before goodwill amortisation of the associated
companies was £1.8 million in Q4 2007, compared to £2.5 million in Q4 2006. The
goodwill amortisation was £0.2 million in Q4 2007 and £0.2 million in Q4 2006.
Page 11
YTD Trading Operations for the Twelve months to 31 December
Turnover
Country sales include sales to other group companies, which are eliminated at
the consolidated level by the inter-regional turnover adjustment, shown
separately in the table of trading operations.
Total turnover decreased by £72.4 million from £919.1 million in YTD 2006 to
£846.7 million in YTD 2007.
UK
UK turnover decreased by £11.2 million from £342.9 million in YTD 2006 to £331.7
million in YTD 2007, reflecting lower volumes sold.
France/Germany
Turnover in France and Germany decreased by £38.1 million from £253.3 million in
YTD 2006 to £215.2 million in YTD 2007, largely reflecting significant declines
in the boiler markets in those countries and the resultant impact on Baxi's
sales.
Spain/Portugal
Turnover of the Iberian businesses in YTD 2007 of £156.0 million was £7.3
million below the £163.3 million in YTD 2006, largely reflecting the decline in
the boiler markets in those countries and the resultant impact on Baxi's sales.
Italy
Turnover of the Italian company increased by £6.1 million from £191.4 million in
YTD 2006 to £197.5 million in YTD 2007.
Rest of Europe
In other European countries, aggregate turnover decreased by £10.5 million from
£51.7 million in YTD 2006 to £41.2 million in YTD 2007 as a result of reduced
sales of solid fuel boilers manufactured in Denmark.
Inter regional turnover
In YTD 2007 the elimination of sales between group companies at £94.9 million
was £11.4 million higher than the £83.5 million in YTD 2006.
Cost of sales
Total cost of sales of £597.9 million in YTD 2007 were 70.6% of turnover,
compared to 69.1% of turnover in YTD 2006, reflecting a changed sales mix and
increased component costs.
Distribution expenses
Aggregate distribution costs of £109.0 million in YTD 2007 were 12.8% of
turnover compared to 12.0% in YTD 2006.
Administration expenses, excluding exceptional reorganisation costs
Administration costs of £70.5 million for YTD 2007 were £0.5 million below the
£71.0 million in YTD 2006, including £0.8 million higher costs in 2007 as a
result of the impact of the stronger Euro in the last Q of 2007.
Page 12
Group operating profit before exceptional items, impairment charges and goodwill
amortisation
Total operating profit before exceptional items, impairment charges and goodwill
amortisation in YTD 2007 of £69.3 million was £32.9 million lower than the
£102.2 million in YTD 2006.
UK
Operating profits of £40.7 million in YTD 2007 were £9.1 million lower than the
£49.8 million in YTD 2006 as a result of lower margins on boiler sales and
reduced sales of decorative fires.
France/Germany
In France and Germany, there was an operating loss of £6.2 million in YTD 2007
compared to an operating profit of £8.6 million in YTD 2006 as a result of lower
sales in both countries.
Spain/Portugal
Operating profits of the Iberian businesses of £13.9 million in YTD 2007, were
£1.6 million below the £15.5 million in YTD 2006 as a result of lower sales.
Italy
Operating profits of the Italian business for YTD 2007 of £19.0 million were
£2.5 million below the £21.5 million in YTD as a result of adverse changes in
the mix of sales to different countries.
Rest of Europe
The rest of Europe had profits of £1.9 million in YTD 2007, compared to £6.8
million in YTD 2006 as a result of lower sales of solid fuel boilers.
Exceptional items
Exceptional reorganisation costs of £16.1 million in YTD 2007 and £8.6 million
in YTD 2006 relate to costs of restructuring/rationalising facilities, primarily
in France and the UK.
Goodwill
Goodwill amortisation was £25.0 million in YTD 2007 and in YTD 2006.
Impairment of goodwill and fixed assets
Following the continued losses in the French business a net realisable value
impairment of £5.8 million has been recognised in YTD 2007, being a £3.6 million
impairment of the tangible fixed assets and a £2.2 million impairment of the
business's goodwill.
As part of the UK reorganisation a net realisable value impairment of £3.6
million has been recognised in YTD 2007 reflecting a reduction in the net
realisable value of the business's assets.
Operating Profit
The Group operating profit in YTD 2007 of £18.8 million compared with a profit
of £58.7 million in YTD 2006.
Associated company profit
The share of operating profits before goodwill amortisation of the Group's
associated companies was £4.9 million in YTD 2007 compared to £6.7 million in
YTD 2006. The goodwill amortisation was £0.7 million in YTD 2007 and YTD 2006.
Page 13
Profit on disposal of assets
In YTD 2006, the profit of £5.6 million included £3.7 million on the sale and
leaseback of land and buildings, and a profit of £1.9 million at an associated
company on the disposal of land and buildings.
Interest
Net interest payable is as set out in the following table:
Q4 2007 Q4 2006 YTD 2007 YTD 2006
£m £m £m £m
Senior Credit Facility (9.1) (8.2) (34.6) (33.1)
Unsecured Loan Notes (3.7) (2.2) (11.0) (8.7)
Mezzanine Notes (Accreted) (0.2) (0.2) (0.8) (0.7)
Mezzanine Notes (2.0) (2.0) (7.9) (7.9)
Amortisation of loan issue costs (0.9) (1.3) (4.3) (4.7)
FRS17 Pension Funding (1.2) (0.3) (0.6) (0.1)
Associate company - - 0.2 0.2
----------------------------------------------
(17.1) (14.2) (59.0) (55.0)
----------------------------------------------
Taxation
The taxation charge was £3.6 million in Q4 2007 compared to £0.3 million in Q4
2006. The taxation charge was £14.6 million in YTD 2007 compared to
£12.2 million in YTD 2006. The tax charge is affected by our highly leveraged
financing structure, and consequently the level of the charge is very sensitive
to movements in profit from one year to the next, and any non-taxable items.
Profit transferred to reserves and other movements in profit and loss reserve
In the year to 31 December 2007, the Company reported a loss of (£50.7) million,
which was transferred to reserves; (£0.2) million for the purchase of own
shares; an actuarial gain on pension liabilities, net of deferred tax, of
£10.6 million; and a gain on exchange adjustments on foreign currency net
investments of £8.9 million; resulting in the profit and loss reserves
decreasing from £34.0 million at 31 December 2006 to £2.6 million at
31 December 2007.
Liquidity and Capital Resources
Cash flow
Cash flow from operating activities Q4 2007
Consolidated cash flow from operating activities in Q4 2007 was £57.9 million,
reflecting operating profit before depreciation and amortisation of £44.0
million; (£8.7) million of reorganisation costs; past service pension
contributions of (£4.4) million; and a decrease in working capital of £27.0
million, being a decrease in stock of £20.5 million, an increase in debtors of
(£26.9) million and an increase in creditors of £33.4 million.
Cash flow from operating activities Q4 2006
Consolidated cash flow from operating activities in Q4 2006 was £57.3 million,
reflecting operating profit before depreciation, amortisation and impairment
charges of £46.9 million; (£4.6) million of reorganisation costs; past service
pension contributions of (£2.4) million; and a decrease in working capital of
£17.4 million, being a decrease in stock of £13.2 million, an increase in
debtors of (£30.4) million and an increase in creditors of £34.6 million.
Page 14
Cash flow from operating activities YTD 2007
Consolidated cash flow from operating activities in YTD 2007 was £63.0 million,
reflecting operating profit before depreciation and amortisation of £89.3
million and (£16.7) million of reorganisation costs in the UK, France and in
Spain; past service pension contributions of (£9.7) million; and a decrease in
working capital of £0.1 million, being a decrease in stock of £8.3 million, a
decrease in debtors of £20.7 million and a decrease in creditors of (£28.9)
million.
Cash flow from operating activities YTD 2006
Consolidated cash flow from operating activities in YTD 2006 was £93.7 million,
reflecting operating profit before depreciation, amortisation and impairment
charges of £122.3 million; (£8.6) million of reorganisation costs; past service
pension contributions of (£4.7) million; and an increase in working capital of
(£15.3) million, being an increase in stock of (£12.2) million, an increase in
debtors of (£23.2) million and an increase in creditors of £20.1 million.
Dividends
Dividends of £1.8 million were received from associated companies in YTD 2007
(nil in Q4 2007). Dividends of £4.5 million were received in YTD 2006 (£1.3
million in Q4 2006).
Interest
Interest paid in Q4 2007 was £21.8 million, with £19.8 million paid in Q4 2006.
YTD interest paid in 2007 was £42.8 million compared to £40.6 million paid in
YTD 2006.
Debt Finance costs
Debt finance costs of £3.3 million were incurred in Q4 2007 and YTD 2007 in
respect of the £40.3 million of Unsecured Loan Notes issued on 19 October 2007.
Capital Expenditure and disposal of fixed assets
Gross capital expenditure was £8.2 million in Q4 2007, compared to £8.6 million
in Q4 2006. Gross capital expenditure was £16.6 million in YTD 2007, compared to
£19.3 million in YTD 2006.
The Group have received £3.1 million proceeds for the disposal of assets in
YTD 2007 (nil in Q4 2007). The Group received £8.3 million proceeds in YTD 2006
(£1.0 million in Q4 2006).
Acquisitions and disposals
In YTD 2007, the Group paid £0.6 million for a trade investment. In YTD 2007,
the Group received deferred consideration of £0.5 million.
In YTD 2006, the Group received £5.5 million repayment of working capital and
£11.3 million VAT recoverable in respect of the Roca acquisition (£8.3 million
in Q4 2006).
Financing
In YTD 2007, the Group repaid £35.9 million of Senior Term Loans (£19.6 million
in Q4 2007). In YTD 2006, the Group repaid £29.4 million of Senior Term Loans
(£16.2 million in Q4 2006), and repaid £11.3 million of the Roca VAT loan (£8.3
million in Q4 2006).
On 19 October 2007 the group received £40.3 million from the issue of Unsecured
Loan Notes.
Page 15
Total indebtedness
At 31 December 2007, the Group had outstanding total debt of £637.2 million,
compared to £610.4 million at 31 December 2006. The £26.8 million increase in
YTD 2007 comprised: repayments of £35.9 million of Senior Debt; a £40.3 million
issue of Unsecured Loan Notes; a £11.8 million increase due to rolled up
interest; a £10.0 million increase due to exchange translation effects on Euro
Senior Term Loans; and £0.6 million of increased bank overdrafts and other
loans.
Compared to the outstanding debt of £631.7 million at 30 September 2007, the
£5.5 million increase to £637.2 million in Q4 2007 comprised: repayments of
£19.6 million of Senior Debt; a £40.3 million issue of Unsecured Loan Notes; a
£3.9 million increase due to rolled up interest; a £5.6 million increase due to
the revaluing of Euro Senior Term Loans; and a £24.7 million decrease in bank
overdrafts and other loans.
The scheduled repayment of the outstanding indebtedness at 31 December 2007 is
shown in the following table:
Net debt at Payments due by period
31 Dec 2007 Less than After
1 year 1-2 years 2-5 years 5 years
Unaudited Unaudited Unaudited Unaudited Unaudited
£m £m £m £m £m
Overdraft (1.2) (1.2) - - -
Senior Term Loans (409.6) (38.9) (43.7) (327.0) -
Mezzanine Notes (93.0) - - - (93.0)
Unsecured Loan Notes (91.4) - - - (91.4)
Unsecured Loan Notes (41.5) - - - (41.5)
Series II
Other loans (0.5) (0.5) - - -
----------------------------------------------------
Total debt (637.2) (40.6) (43.7) (327.0) (225.9)
Cash 19.2 19.2 - - -
----------------------------------------------------
Total net debt (618.0) (21.4) (43.7) (327.0) (225.9)
----------------------------------------------------
The Mezzanine Notes due after 5 years mature in 2014, and the Unsecured Loan
Notes have a maturity date of 12 September 2035 subject to early redemption on
sale or exit. The Mezzanine Notes will accrete in value so that £100 million
will be due and payable at their maturity in 2014.
Contractual Commitments and Commercial Commitments
At 31 December 2007, £8,781,000 of the syndicated overdraft and working capital
facility was utilised as overdraft, letters of credit, bank guarantees and
foreign exchange contracts. At 31 December 2007 there were forward foreign
exchange contracts to purchase US$6.0 million in 2008.
Page 16
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks, including adverse changes in interest rates,
currency exchange rates and, to a lesser extent, commodity pricing.
Interest rate risk management
The Group's outstanding indebtedness includes both fixed and floating rate
instruments.
The Unsecured Loan Notes issued on 12 March 2004, totalling £91.4 million at
31 December 2007, are at an effective fixed interest rate of 12%. The Unsecured
Loan Notes issued on 19 October 2007, totalling £41.5 million at
31 December 2007, are at an effective fixed interest rate of 15%.
The £93.0 million of Mezzanine Notes are at a fixed cash interest rate of 7.875%
(of nominal value £100 million) plus accreted interest from the day of issue.
The combination of cash interest and the accrual of non-cash interest through
the increase of accreted value will produce an effective annual interest rate of
9.375% per annum, compounded semi-annually.
The Senior Term Loans include £355.9 million and €50.0 million of Senior Term
Loans issued in March 2004 less £61.5 million and €6.2 million subsequently
repaid, and €154.5 million issued in August 2005 less €41.6 million subsequently
repaid. These are at floating LIBOR and EURIBOR rates (plus the lenders' margin,
ranging from 2.25% to 3.00%). The effective rate of interest on the Senior Term
Loans at 31 December 2007 was 8.0388% on the Sterling term loans and 7.6898% on
the Euro term loans. Commencing 27 December 2007 using a reducing interest rate
swap £294.4 million has been hedged at a rate of 5.335% (excluding the
lenders' margin).
Exchange rate risk management
We conduct our business and sell our products in various markets, with the
majority of activity being within Europe and, as such, are exposed to foreign
exchange risks related to foreign currency denominated assets and liabilities
and debt service payments denominated in foreign currencies.
Our subsidiaries' major non-local currency cash flows are purchases of c.€80
million, including approximately c.€60 million inter group from the Italian
business by the UK heating business, and the purchase of c.US$5 million of water
heaters from the United States, on an annual basis. The Group's policy to
minimise the risk of fluctuations due to movements in the Sterling/Euro exchange
rate is to use its Euro denominated profits in its European subsidiaries to
provide a natural hedge against the Euro cash requirements of its UK
subsidiaries. The Group's policy to minimise the risk of fluctuations due to
movements in the Sterling/USD and Euro/USD exchange rates is to forward cover
USD requirements for the following twelve months.
Commodity risk management
Future commodity purchase requirements are hedged to varying degrees through
contracts for up to twelve months for the purchase of component and material
requirements.
Page 17
Forward-Looking Statements
The matters discussed in this report include forward-looking statements. By
their nature, forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that may or may not occur in
the future. We caution you that forward-looking statements are not guarantees of
future performance and are based on numerous assumptions and that our actual
results of operations, including our financial condition and liquidity and the
development of the industry in which we operate, may differ materially from (and
be more negative than) those made in or suggested by the forward-looking
statements contained in this report. In addition, even if our results of
operations, including our financial condition and liquidity and the development
of the industry in which we operate, are consistent with the forward-looking
statements contained in this report, those results or developments may not be
indicative of results or developments in subsequent periods. Important factors
that could cause these differences include, but are not limited to:
• risks related to our competitive position in our existing and new markets;
• risks related to business in our main markets, to our strategy, to our
expectations about growth in product demand and to our business operations,
financial condition and results of operations;
• our high leverage and ability to generate sufficient cash to service our debt;
• our ability to establish and maintain supply and distribution channels;
• failure to realise the expected return from investments in our product
portfolio;
• changes in international, legal, administrative or economic conditions;
• the impact of increasingly stringent environmental laws and their
enforcement by the relevant authorities;
• development of our pension and retirement obligations;
• disruptions of our business operations due to work stoppages or strikes;
• risks associated with our structure, the Mezzanine Notes and our other
indebtedness;
• our exposure to exchange and interest rate fluctuations; and
• other factors discussed in the offering memorandum dated 19 March 2004.
In light of these risks, uncertainties and assumptions, the forward-looking
events described in this report may not occur. We undertake no obligation to
update or revise any forward-looking statement, whether as a result of new
information or future events or developments.
Page 18
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
During the 92 day period to 31 December 2007, we have become involved in legal
proceedings arising out of our operations in the normal course of business
including disputes with suppliers, third party service providers, personal
injury and employment related matters. We believe that none of these, singly or
taken together, would have a material adverse effect on our business.
On 9th November 2004 representatives of the local competition authorities
visited Baxi Group's administrative offices in France and Germany in connection
with an investigation into alleged anti-competitive practices in the radiator
markets in those countries; various documents and records were taken by the
authorities. It is understood that similar visits were made to a number of other
radiator manufacturers. Baxi is cooperating with the authorities in their
enquiries. In the year ending 31 December 2007, radiators accounted for
approximately 12% (£114 million) of Baxi's total sales, although this total
includes £63 million of radiator sales by the Roca businesses acquired in August
2005.
We have received confirmation from the French competition council that it has
terminated its investigation.
Item 2 Changes in Securities and Use of Proceeds
There have been no changes in securities to report within the 92 day period to
31 December 2007.
Item 3 Defaults Upon Senior Securities
There have been no defaults upon senior securities to report within the 92 day
period to 31 December 2007.
Item 4 Submission of Matters to a Vote of Securities Holders
There have been no matters put to a vote of security holders within the 92 day
period to 31 December 2007.
Page 19
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKOKBPBKDANB
