AGA FOODSERVICE GROUP, INTERIM RESULTS 2003

SLIDE 2 - AGA FOODSERVICE A GROWTH STORY

WBM: Good morning and welcome to the Aga Foodservice Group's interim results presentation. Today, we are a force internationally in our chosen markets. We have Aga at the heart of our consumer operations and bakery leading the way in foodservice.

This morning, Shaun and I will review the results for the six months to June 2003; Stephen will then focus on major products and initiatives across the Group that underpin our plans and I will finish by focusing on current trading and the work which supports the idea of 'Aga Foodservice Group : a growth story'.

You may recall a key component of our thinking back in 2001 was that Aga-Rayburn was underdeveloped and that by bringing Aga centre stage, providing greater marketing support, linking it to empathetic brands and creating a new, more confident retail and outlet strategy and eventually translating this approach overseas, we would create a strong brand-led grouping and a growth business. Aga-Rayburn has learnt its lines and is producing record sales, record profits, and has widened horizons.

This broader vision is seen in the first 'Aga Address Book' - the complete range of stylish interiors'. It will be sent to the targeted audience created from the newly consolidated customer databases of Aga-Rayburn, Fired Earth, Rangemaster, Elgin & Hall, Domain and Grange - a 300,000 mail shot. The Address Book describes the family of brands sharing a passion for design, quality and panache and supports it with kitchen, sitting room, bedroom and bathroom shots using products almost entirely from our businesses. It then explains where to see these products and how to contact the stores. There are calls to action and direct consumer offers. It provides something of a consumer mission statement and is central to our collective and individual company, autumn marketing and sales drives.

In the foodservice equipment market, being a stand-alone, niche, fabrication-driven business with market strengths and cyclical weaknesses could never guarantee long-term growth. To be a growth story, more is needed. To do so we are bringing collective know-how to bear to help our customers. This week we have launched Aga Foodservice 'Know-How', a capability document to be sent to our distributors and end users.
Aga Foodservice 'Know-How' also provides a corporate position statement. It is to be sent out in October with the industry's leading magazine "Caterer & Hotelkeeper" - circulation 55,000. It shows that in each of our geographical markets we have a wide product offering, produced internationally although available locally. All products, all customised for local market requirements is the aim. That is how to create a growth proposition.

From the directional to the immediate and current trading. Continuing turnover in the first half was up 30 per cent on last year with 18 per cent growth coming from consumer and 43 per cent from foodservice. However, adjusting for last year's acquisitions, the underlying year-on-year turnover increase was 13 per cent for consumer and a 2 per cent decrease for foodservice. Turnover in the first half confirms the evolving shape of the Group as being around £400 million for the full year of which around 60% is in the UK, something over 20 per cent in the US and the remainder in Europe. Europe's percentage increases and the other percentages fall if we take into account first half turnover of around Euros 24 million for Grange - now a 40% associate.

Looking at operating profit. Operating profits before goodwill amortisation of £14.3 million were 8 per cent ahead year on year with consumer and foodservice accounting for approximately half each.

The UK consumer story was particularly strong. Aga-Rayburn was ahead by over 10% in sales, orders and profits, and made 5 times as much as it did in the first half 4 years ago on turnover 40 per cent ahead. Aga sales for the first half were over 5,000. The operational gearing, a key factor behind the decision to make it the Group's centre stage business means volume growth can produce further significant profit growth.

At Rangemaster the plan implemented last year to reposition the business has worked particularly well. Volumes are only 40 per cent of levels pre the brand sales to Beko last spring but operating profits have improved sharply. The combination of investment in the factory, a strong, product offering and assertive marketing has worked well as has the sinks/cooker combination for major accounts like MFI and Allders, and buying groups like CIH.

Fired Earth achieved record turnover up over 15 per cent largely driven by new stores, and operating profits were ahead 10%. The benefits of the expanded retail space and inspirational formats have further to go.

The overall consumer results were held back by the USA where Domain's sales were down 7 per cent and a first half contribution in 2002 of £1.8 million compares to £100,000 this half. The home furnishing industry remains subdued and has been among the weaker US retail sub sectors this year. Encouragingly, the two Aga/Domain pilot stores in Virginia and now Princeton have been the stars in the chain this year and following August's retrofit programme, 12 of the 30 Domain stores now have Aga room sets. There will be 14 by the year end. Grange, like Domain, experienced tough consumer markets in the US and Europe but has continued to make good progress with the Aga connections. There are two Aga/Grange locations in France - Marseille and Lyon - and as of this week there is now the Aga shop managed by Grange on Rue du Bac by the Louvre in Paris. We do not claim to have immunity from consumer cycles but we do have a solid international business in place.

In foodservice, winning the equipment and facilities management contract with Sainsbury's had a major impact not only being the Group's largest single contract, but also being the trigger to consolidate production at Mono and make Millers the facilities management centre of excellence. Gearing up for the contract had upfront costs which Millers and Mono absorbed in the first half. Such contracts alongside that with Marks and Spencer on its store bakery roll outs ensured trading was good in spite of the uncertain future for UK supermarkets. In contrast, for Falcon and Williams in the UK, many key markets including hotels and pubs were too quiet for us to show any progress. To focus our energy in the UK foodservice sector we have put both Falcon and Williams under one MD and sales director.

On the continent, Bongard did well in France helped by strong major, French supermarket accounts. In Holland and Italy, markets were distinctly quiet. Overall, its performance was little changed from the first half of last year before it was acquired. Bongard has responded well to providing products for other Group companies and has launched a foodservice range for its customer base.

In the USA, progress was impressive. Victory had its best six months since acquisition and with increased production capacity and new products on the way it is moving towards the 10 per cent return on sales target set when it joined the Group in 1999.

Adamatic was down reflecting shipping timing on major roll lines.
Belshaw, buoyed by its thermoglaze frozen doughnut system - now adopted by WalMart - is trading strongly.

In foodservice the excellent work on products and launch plans for cement projects is not yet visible in the reported numbers mainly as we are requiring businesses to go through transitional phases, but they are fundamentally much stronger. But, you are only as good as your last results so here is Shaun to talk more about them.

SLIDE 10 - PROFIT & LOSS ACCOUNT (i)

Good morning.

Picking up first on the operating profit before goodwill amortisation of £14.3 million, itself up 8 per cent year on year, and looking further through the profit and loss account where goodwill amortisation has increased with the advent of Bongard to £3.9 million in the half year and will be around £8 million in the full year.

Interest receivable was £0.5 million in the first half. Net cash at the end of the half year was £42.1 million and will rise by the year end to a level comparable to that of last December's £55.5 million - new acquisitions apart. With the cashflow seasonality and with interest on deposits at around 3 per cent, interest in the second half will be similar to that of the first half.

The benefits of careful tax planning for both established and acquired businesses and conservative accounting over a long period are now being seen with a tax rate below the UK standard rate at 23 per cent. This can now be expected to hold for this year and next. Profit after tax for the half year was ahead of the prior year.

EPS before goodwill amortisation is up 9 per cent to 9.5 pence per share - and up 2 per cent after goodwill. With EPS moving ahead and with the objective of above market dividend growth set, the Group is again in a position to make a substantial increase in the dividend - up at the interim stage by 16 per cent to 2.2 pence reflecting not only the financial strength of the business, but also confidence in its long term prospects. This leaves the interim dividend covered 4.4 times out of pre goodwill earnings.

Looking at the cashflow.

Operating cashflow was strong in the period with the UK consumer businesses and notably Rangemaster producing impressive figures. Depreciation at £3.7 million was up from £2.9 million reflecting our continuing high level of capital investment over the last year. Net capital expenditure is likely to be close to £20 million in 2003. The most significant item of capital expenditure involves the move to a new factory site for Falcon.

Falcon is to move to Wallace View, Stirling in 2004 from its existing ageing site in Larbert. The Stirling factory, formerly occupied by Wang, has been acquired for £5 million since the half year. Much of the cost has been financed from the sale of the existing site for housing to Bryant and from Scottish Government grants - cash is largely receivable following the actual move next year. The profit on sale of fixed assets of over £1 million this half includes the Larbert sale, providing a level of other income around that of the last 2 years and a level to be expected in coming years.

In working capital terms, the first six months' performance was good and, for the first time in many years, there was a positive net cash inflow in the first half from operating activities.

On the balance sheet, net operating assets have increased with the Bongard acquisition. So too has goodwill. Goodwill in the balance sheet itself is now £134 million. The balance sheet is conservatively prepared. Indeed, we retain under review the relatively high level of provisions still in place after the Etex disposal as the risks being covered are diminishing.

What is interesting to note is the level of return the Group is achieving on the capital of £278 million that we have employed. The historical return on assets held pre the Pipe Systems disposal is about 20 per cent, largely driven by Aga and historical capital values; the overall return on capital invested is in the region of 15 per cent, and compares to 3 per cent on cash.

Looking at the return on investments made since the Pipe Systems disposal, given a 9 per cent cost of capital, Belshaw is achieving substantially in excess and Mono, Millers, Domain, Fired Earth, Williams and Victory are at or above 9 per cent. Those currently below the cost of capital are Bongard and Adamatic.

A new actuarial valuation as at 31st December 2002 has been completed by Watson Wyatt. The valuation shows, on a SSAP 24 basis, as will be adopted in the 2003 Accounts, that there was a surplus in the scheme. Further, the cash contribution rate required from the company is set to fall. As a result any profit and loss charge will be covered, as indicated at the year end presentation, by the provisions already in place and the cash contribution which will fall from £7.4 million in 2002 to £4.5 million in 2003. It should fall again in 2004. The steps taken as far back as 1997 to reduce the risks to the changing group of pension costs have proved their worth and although a scheme with assets of around £600 million is obviously large in relation to the company, the moves to match assets and liabilities, and to understand the nature of the Group's liabilities, have worked, enabling us to avoid pension issues being a dominant consideration and to set the financial strategy.

We remain aware that with net cash of over £40 million, we do not yet have an efficient balance sheet and we expect to move progressively to a geared balance sheet.

Our acquisition appraisal processes are continuing. We have noted several times that share buy-backs is a policy instrument to keep available as, indeed, is the use of treasury shares from December. We also recognise that we do have the scope for a progressive dividend policy. The 20% full year 2002 dividend increase has been followed with a 16% interim increase. There is still further scope as some of the initiatives within the operations bring the benefits that Stephen will now explain.

SLIDE 17 - PRODUCT AND PRODUCTION PROGRESS

Good morning. At the preliminary results we talked about how we were working to create the right structures within the Group to drive growth. Group resources were being made available, notably within foodservice, to support cross-company initiatives -cementing them together. This year we expect in foodservice the value of the product made by one company and sold by another group company should reach £8 million and that should multiply by 3 next year. This morning, I will provide examples of where we see product initiatives offering engines for growth.

The examples come from Aga-Rayburn and Rangemaster within the consumer businesses, and at Falcon/Williams and Adamatic within foodservice.

The Coalbrookdale foundry is an integral part of a world heritage site. At Aga-Rayburn a £5 million investment in our Coalbrookdale and Telford sites to create a world class foundry for cast iron and an enamelling centre almost without comparison, has been fundamental to creating the operational gearing from which we are now benefiting. Here we are seeing cross-selling benefits. Rangemaster's new upmarket ranges have cast iron pan supports from Aga-Rayburn and this increases foundry efficiency. The overall prize is that unit costs would fall still further should overall production run up to 50 per cent higher than currently required. Product and process quality has also improved. For example, we have rigorous enamelling standards which help minimise field calls. Warranty costs as a percentage of revenue are at an all time low.

Aga has also been through a remarkable new product development phase. Apart from the continuing work to make fuel types regulatory compliant by country, there are key new products now coming to market. The conventional cooking but cast iron Six-Four series launched last year is running at 5 per cent of UK sales and over 25 per cent of US sales. It will be joined next year by a 60 cm Four-Two Series (four burners/two ovens) version.

2003 has already seen the launch of the 3-oven Aga. Priced to encourage a move up from 2 to 3 ovens given it is the same size, it is now running at around 7 per cent of Aga production. With 2/3/4 oven variations and a percentage of customers also taking a conventional cooker module, it is the enriched product mix, not only sales volumes, driving profitability.

The technical breakthroughs continue. By the end of the year there will be the all new electric Aga. Heat storage cooking is about constant heat not bursts of power and an Aga can now run on a 13 amp plug - real plug and play, completely flexible in where it goes in the kitchen. With no flue needed and no ignition systems, it will be low maintenance. Internationally it can be a major driver.

Looking now at Rangemaster. Its transformation from commodity cooker to specialist range cooker producer over the last two years has been a major advance - a business reinvented. It is now a manufacturer of premium cookers and sinks. With nearly £3 million spent on the Leamington Spa site and on manufacturing upgrades and lean processes, the two-hundredth year since the Flavel family moved to Leamington has been among the most successful. The relaunch as Rangemaster and the sustained higher market profile as an Aga company have really helped. But again, you need the right product and with the sustained strength of Rangemaster, backed by the Elan and Classic, the current mix is strong.

Now comes the move into modernism with the launch of the Elite, a stainless quality finish, bespoke hood, all new control panel - a unique look on show here today. We are, however, acutely aware that we have been here before and it was not enough. The Kitchener, the debonair original Rangemaster, brought glory days - temporarily; the long term success for Rangemaster needs larger markets overseas. Again, Aga has given the impetus. As for Aga, Rangemaster has Holland as a major market with displays this year at over 200 - more than doubled. Rangemaster is also linking in with Aga's US distributors and is heading for a 2004 product launch. Rangemaster has been set the task of having 30 per cent of its business outside the UK within 3 years - up from the current figure of around 5 per cent.

To help achieve it we have devised an exciting retail format usable internationally which ties in with our key lifestyle retail themes. Row upon row of regimented appliances are an uninspiring way to sell. Contextualisation using Fired Earth tiles and quality lighting, creating an Aga-Rangemaster Premier studio area in stores, is a major new theme we are taking to specialist retailers this autumn.

Now looking at foodservice and the proposition contained in the Aga Foodservice 'Know-How' document. Whether you are the chef in a five-star hotel; the buyer for a casual dining chain or opening a snack bar, we should be your equipment source for assistance in menu development. The 'Know-How' covers not only key product areas of the major companies but also areas like:

- Menu development, working with our in-house chef and at our cookery centre.
- Technology use and innovation, as with use of Glycol to produce better working environments as well as protecting the environment.
- Concept development - like Snack-in-a-Box based on the package to be seen in Marks and Spencer's Simply Food stores.
- Procurement management using technology to control buying by remote sites tied to centrally agreed deals.
- Facilities management - all your bakery, refrigeration, cooking and cleaning requirements catered for under one contract.

This is a two way process in order for us to meet our growing customers needs.

Aga Foodservice 'Know-How' is also part of our effort to produce more directed, ambitious presentations for national accounts and key distributors to show we are attuned to their needs.

Looking more specifically at product development. From Falcon already there has been the Dominator Fusion which adds a powerful wok burner to our already market leading six-burner range. We are now launching a new grill to great reviews. By early 2004 we will also have a new, radically innovative fryer range which uses technology developed by Aga-Rayburn and for which we have considerable worldwide expectations.

Williams has tooled up to produce fridges for Aga and for a new Falcon fridge to be launched this autumn. Having moved slowly into the domestic refrigeration market over the last 18 months we are confident in our products and that they are well attuned to market needs. We are ready to accelerate and indeed broaden the range using potentially OEM products to gain breadth and credibility in what is an attractive market place. We continue to see an opportunity for us in the significant price differentials between the domestic and commercial markets.

We made the case last time for the impact of cement money to draw businesses together and make the foodservice operations more than a series of fabricators. Perhaps the progress of Adamatic may make the case. In 2003 Adamatic, the producer of roll lines may see profits fall from the record achieved last year because of weaker markets and the timing and delays to major projects. Yet Adamatic is having a particularly exciting year. It has worked with Mono and Bongard to produce new deck and rack ovens for its key customer, the rapidly growing US chain, Panera Bread, for which it currently third party sources. These are already on test. It has also taken Bongard's Esmach mixers successfully to the USA. It has sold Mono's depositors and is launching Mono's convection ovens. Adamatic is no longer just a narrow, niche player. It is suddenly a major player in the US bakery market - something being highlighted this week at the major industry trade show, NAFEM, for which the brochure shown here has been prepared.

While today's numbers are of great significance it is also right to see how much potential there is already and can be generated within the businesses we have. The global pattern of play is well established, understood and is producing. North, south, yeast, west - Aga Foodservice Equipment is everywhere.

WBM:

SLIDE 28 - CURRENT TRADING

Now looking at current trading. Consumer spending is important to us. The Group now has over 200 retail outlets covering over 500,000 square feet. In the UK consumer businesses have performed well and this trend is continuing. Home surveys, a good lead indicator, at Aga are still well up year on year and we are optimistic Aga's Project 10,000 targets will be achieved. Rangemaster's improved performance should continue. Further, margins can improve for both Aga and Fired Earth retail as the speed and costs of new openings slow.

Aga is making progress in the US where we now have well over 200 displays and over 100 live Agas, doubled in the last year. We have a strong national distribution structure including some of the leading US upscale appliance dealers. In addition, there are now the 12 Aga/Domain shops. We expect orders this year to reach 750 - more than double last year and for Domain's Fair Oaks, Virginia store to be the largest single outlet with orders reaching 20. Next year sales should double again to over 1,500.

For Domain, markets remain tough. Domain itself has product ranges that are catching attention and it has now been featured in cult TV shows, like NBC's, "Queer Eye for a Straight Guy" was a help - a product endorsement picked up in both Time and Newsweek. A bounce is expected in sector sales this autumn. Given order to delivery timeframes, the benefits are largely for 2004 and Domain will trade down in 2003.

In foodservice, orders in the UK have remained lacklustre this summer with the major accounts remaining circumspect - although there are some more positive signs. On the continent Bongard markets are patchy. In the USA, in contrast, the operations continue to show real progress.

The US and European slow downs have made this year hard pounding but we expect a reasonable out-turn in a year that has had a focus on establishing the interconnections which will enable us to deliver a compelling growth story in 2004.

We do think the time is right to add to the marketing push because we have the products and infrastructure to support it. To emphasise the point here is a montage of the marketing campaigns primarily for the consumer operations this autumn.

RUN CAMPAIGN (slides 29 - 32)

On the strategic and acquisitions front we are sticking to the 2001 plan. We have not looked for acquisitions to transform the business - the Pipe Systems sale did that. We have looked for businesses strong in their own right with growth prospects but which would become stronger as part of a major team that we now are. This has meant a slower process than individual major moves would mean - but it allows for care in selection and for integration. We have never had more opportunities to consider. Discussions continue to highlight that within our sector the speed of progress; the strategic logic underpinning it and the growth potential mean we are a Group that, target company management teams, want to join. We have not rushed to conclude deals but discussions should result in at least one addition this year. We see acquisitions giving a greater presence in North America and Europe as attractive. We believe the UK consumer brand portfolio, as seen in the address book, is enticing and that more brands could be added to it. Once that process is complete, we believe we will have created a grouping that is cohesive, straightforward and exciting.

In conclusion, we are pleased with progress.

Current trading has its clear concerns : last year's North American and European acquisitions were made recognising the risks of short term market weakness - but the underlying potential is as great as we had envisaged. We will add marketing resource to ensure the potential is realised. We have a really strong management team happy to deal with the broad strategic and the narrow operational issues - and increasingly confidence is based on empirical evidence as well as logic and aspiration.

Finally, the Address book concludes, and so will I, with a quote from the essayist Matthew Arnold, with which I hope we have complied: "Have something to say : say it as clearly as you can, that is the only secret of style."