The first half of 2004 saw a substantial improvement in demand compared with the corresponding period in 2003, with order growth of 12%. However, sales increased by a more modest 7%. A combination of good demand and lagging shipments, the latter partly caused by the failure of certain suppliers to deliver on time, resulted in an unusually large order book increase of £22.0m. These factors, plus the impact of adverse exchange rates and an increase in borrowing costs, led to a decline in profit before tax of £2.8m compared with the same period in 2003.

Sales in the first half of the year increased by 7% to £282.8m (2003: £264.7m) as a result of organic growth of 3% and a £9.7m contribution from bolt-on acquisitions. Operating profit (before exceptional items and goodwill amortisation) decreased to £21.0m (£22.0m) after a £4.0m change attributable to exchange rates, primarily in respect of the US dollar. Interest costs rose by £1.8m, largely as a result of higher rates. Profit before tax (before exceptional items and goodwill amortisation) decreased from £17.0m to £14.2m and earnings per share by 14% from 10.4p to 8.9p on a tax rate of 24% (26%).

As a consequence of the sales shortfall, inventories increased, with 43% (40%) of operating profit converted into cash. Debt was £177.5m at the half year compared with £163.4m at the prior year end. Annualised interest cover was unchanged at 4.7 times. The Board proposes to pay an interim dividend of 4.25p (4.05p), an increase of 5%. The dividend will be paid on 19 November 2004 to shareholders on the register at 22 October 2004.

The Board announces the resignation of Graham Zacharias, Group Finance Director. Graham will, however, remain with the company for a period long enough to ensure an orderly succession and to complete certain key assignments. The Board would like to take this opportunity to thank Graham for his considerable contribution over the last nine years and expects that an announcement regarding a successor will be made in the near future.

With a satisfactory performance during the summer months and a substantial portion of the order book scheduled for delivery by the end of the second half, the outlook, given current levels of demand, is positive. It is anticipated that the bolt-on acquisitions made in the first half will contribute to profits in the second half and interest costs will be comparable. If current exchange rates prevail, the adverse effect in the second half will be less than in the first six months.

Overall, therefore, we maintain our expectations of positive progress for the year.