Final Results

RNS Number : 3607K

Epwin Group PLC

16 April 2015

 

Epwin Group Plc

Final results for the year ended 31 December 2014

Strong financial performance delivering expected improvements

Epwin Group Plc (AIM: EPWN) ("Epwin" or the "Group"), the vertically integrated manufacturer of low maintenance building products, supplying the Repair, Maintenance and Improvement ("RMI"), new build and social housing sectors, is pleased to announce its final results for the year ended 31 December 2014.

Highlights

·     Underlying operating profit before pre-IPO shareholder management charges (*) up 25.8% to £19.5 million (2013: £15.5 million).

·     Adjusted EBITDA (**) increased by 14.5% to £24.5 million (2013: £21.4 million) and adjusted EBITDA margin to 9.4% from 8.4%.

·     Profit before tax increased from £7.8 million in 2013 to £18.6 million in 2014.

·     Revenue from continuing operations increased by 1.6% to £259.5 million (2013: £255.3 million).

·     Positive net cash, £1.1 million, at 31 December 2014, up from a net debt position of £18.7 million at 31 December 2013. Cash generated from operations before tax up 54.3% at £19.9 million (2013: £12.9 million).

·     Basic earnings per share of 11.56 pence (2013: 4.09 pence).

·     Proposed final dividend of 2.83 pence per ordinary share, following on from an interim dividend of 1.41 pence per ordinary share, making the total dividend for the year 4.24 pence per share.

(*) Underlying operating profit before pre-IPO shareholder management charges is before amortisation of acquired intangible fixed assets, business re-organisation costs, share based payments and pre-IPO shareholder management charges. Pre-IPO shareholder management charges relate to management services provided by entities controlled by the pre-IPO majority shareholders. These charges ceased from the date of admission to AIM.

 (**) Adjusted EBITDA is before non-recurring costs, share-based payments, discontinued operations and pre-IPO shareholder management charges.

Jon Bednall, Chief Executive Officer, said:

 "We are pleased to present full year results which demonstrate that we are making progress in delivering our programme of operational improvements to enhance earnings and leverage the scale of the business." 

"There has been significant under-investment by landlords and property owners in the UK's housing stock and we believe that the Group will benefit from the UK economic upturn in the RMI market, as well as the increased focus on energy efficient buildings. We are well placed to continue to grow our operating profits in line with the expectations at IPO and to capitalise on future market growth opportunities."  

Enquiries:

Epwin Group Plc

[phone]

Jon Bednall, Chief Executive

Chris Empson, Group Finance Director

Zeus Capital Limited (Nomad and Broker)

Nick Cowles / Andrew Jones / Jamie Peel	[phone]
John Goold / Dominic King	[phone]

Maitland

[phone]

Tom Eckersley / Marina Burton

About Epwin

Epwin is a vertically integrated manufacturer of low maintenance building products, supplying the RMI, new build property and social housing sectors.

The Company is incorporated and domiciled in the United Kingdom. It operates principally in the United Kingdom.

www.epwin.co.uk

Chairman's Statement

I am pleased to present our maiden results as a public company for the financial year ended 31 December 2014. In what has been another year of significant change, Epwin has made good progress towards the Group's strategic and financial goals. I believe we will look back on 2014 as a year in which we laid the foundations for a very successful and competitive business.

Strategy & operational development

As well as the IPO, the senior management team have continued their strategy of restructuring and rationalisation as they continue to realise the opportunities presented by the merger with the Latium group of companies in 2012. This strategy has seen a number of senior appointments to strengthen the management team, in particular in the Fabrication and Distribution business, as well as the disposal of some non-core operations.

The completion of the restructuring, together with the refinancing of bank facilities and proceeds from the IPO, put the Group in a very healthy funding position and provides a platform from which to pursue the longer term Board strategy. This includes continued operational improvements and the intention to take advantage of opportunities to increase shareholder value as they arise.

Results

In the year under review, revenue from continuing operations increased by 1.6% to £259.5 million and underlying operating profit before pre-IPO shareholder management charges improved by 25.8% to £19.5 million. 

Strong cash conversion resulted in an operating cash flow before taxation of £19.9 million (2013: £12.9 million).  Net funds at the year-end were £1.1 million (2013: net debt of £18.7 million).

Dividends

In October 2014 we paid our first interim dividend of 1.41 pence per ordinary share. I am pleased to announce that, in line with our stated dividend policy, the Board is recommending a final dividend of 2.83 pence per ordinary share to be paid on 8 June 2015 to shareholders on the register on 15 May 2015.  This gives a full year dividend of 4.24 pence per ordinary share, which represents a yield of 4.24% based on the market capitalisation of Epwin Group Plc on admission to AIM.

People

2014 was another year of organisational change as management continued its programme of restructuring and rationalisation. The year just ended has also been about hiring and integrating a number of senior appointments that significantly strengthen the senior management team for the future.

On behalf of the Board and our shareholders I would like to thank our employees for the levels of commitment shown to the Group, and for the benefit of customers and shareholders, during this year of change. A number of employees throughout the Group have taken the opportunity that the IPO has presented to own shares in the Group. It is hoped that more will do so in the coming year as we launch an SAYE scheme.

Outlook

The Board believes that the Group is well placed to continue to grow its operating profits and to capitalise on anticipated future market improvements over the coming year.

Andrew Eastgate

Chairman

16 April 2015

Business Review

The year ended 31 December 2014 was a year of change for Epwin with the business being admitted to trading on AIM in July. At the same time, the year has been one of consolidation as the Group further progressed its strategy of rationalisation, disposing of non-core businesses and withdrawing from unprofitable business as well as realising further synergy benefits envisaged at the time of the merger in 2012 but delayed by the Competition Commission review of that year.

Extrusion

Within the Extrusion business revenues increased by 6.0% to £142.9 million, principally driven by sales of cellular profile.  Specification sales of cellular profile were strong in the year, assisted by the buoyant performance of housebuilders.  Trade sales also performed well, particularly in the second half of the year.  Encouragingly, sales of rainwater products grew organically 20% year on year and this remains an area of focus for the business, as too is the growth of drainage products. 

Window profile systems revenues were also up year on year, by 4.5%.  This has been driven by an increase in sales volumes of the Spectus brand, which has seen growth in both existing and new customer accounts.  Sales of window hardware increased by 4% over the prior year.

Operational performance within the extrusion business was excellent, with record levels of service and operational efficiencies being achieved.  There has been investment in capacity and demand at the extrusion sites during 2014 which has helped ensure that demand from the market has been met effectively.

The window systems foiling plant was successfully re-located to a better equipped site at the end of 2014, which is expected to enhance product offer and customer service.

There is currently a project underway to re-locate a warehouse from Telford to a newly constructed facility adjacent to the Tamworth cellular extrusion facility.  This will be completed in Q2 2015 and is expected to generate operational synergies. Together these projects are expected to realise synergies of £0.5 million annualised.

Additionally, the Group will build upon these developments by introducing further products in 2015/16, including entirely new, market leading, window profile systems to be sold under the Profile 22 brand.

Fabrication and Distribution

The Fabrication and Distribution business has had a year of significant change. The changes made are now substantially completed and have addressed the majority of the legacy issues in the business, consequently there is confidence in the greater robustness of the business going forward.  New management has been in post now for around twelve months and is driving the change process, focussing on upskilling across the business in order to improve efficiencies in operational performance and commercial execution. Revenues decreased by 3.2% to £116.6 million in the year as certain lower margin business was exited.

The Door business was consolidated during 2014, reducing from two sites to one. After a period of re-organisation the business is now moving forward and the launch of the new trade door in February 2015 strengthens the commercial offer significantly.

The Glass business has been through a process of reviewing customer profitability and has consequently reduced its revenue by around £2 million.  A new Insulated Glass Unit (IGU) line has been installed in the Northampton glass plant and this will add an additional £0.5 million of annualised benefit through improved operational efficiency and increased output and quality.  The Group also took the opportunity to dispose of a non-core, loss making bespoke glass business in August 2014.

Market outlook

There has been significant under-investment by landlords and property owners in the UK's housing stock. The Office for National Statistics figures indicate that there are 27.8 million homes across the country and only 60% of these are maintained to a satisfactory level. 

Recent industry figures indicate that around 4.3 million window frames are replaced each year, representing a replacement rate of less than 2% per annum. The Group believes that a replacement rate significantly above this is required to address the ageing population of fenestration products and due to the recent history of underinvestment in UK housing stock, there is further significant pent up demand within the RMI space.

The Group additionally believes that the same opportunities exist for its wider range of low maintenance building products designed for the broad spectrum of demand from the UK RMI market.

Forecast growth in real wages and growing consumer confidence should help the Group grow its revenues in coming years. The forthcoming General Election in May 2015 may cause some turbulence, however Government policy may assist the business as the Affordable Homes Programme has been extended to 2020. Additionally, the Government has said it will release public sector land with capacity for 150,000 homes by 2020 and the Group anticipates continued maintenance expenditure on social housing stock as well as schools, hospitals and other public buildings. Importantly, however, the Group's strategy is not dependent on improving markets, or government policy, but on operational improvement and selective capital investment.

The Directors believe that the Group will benefit from the UK economic upturn in the RMI market, as well as the increased focus on energy efficient buildings.

Jonathan Bednall

Chief Executive Officer

16 April 2015

Financial Review

Total revenue for the year ended 31 December 2014 increased by 1.6% to £259.5 million compared to £255.3 million for the year ended 31 December 2013. The growth in revenue was largely driven by strong demand for the Group's extruded products.

Underlying operating profit before pre-IPO shareholder management charges was £19.5 million (2013: £15.5 million), representing growth of 25.8%, as a result of cost savings from synergy and rationalisation projects, and higher extruded products volumes.

Operating profit was £19.3 million (2013: £8.8 million) as a result of the improvement in underlying business profitability and the release of provisions no longer required due to the settlement of a number of legacy property leases and elimination of the pre-IPO shareholder management charges.

	Year ended	Year ended
	31 December 2014	31 December 2013
	£m	£m
Revenue (excluding discontinued operations)
Extrusion	142.9	134.8
Fabrication and distribution	116.6	120.5
Total	259.5	255.3
Underlying segmental operating profit
Extrusion	16.6	11.0
Fabrication and distribution	4.5	6.1
Underlying segmental operating profit before corporate and other costs	21.1	17.1
Corporate and other costs	(1.6)	(1.6)
Underlying operating profit (*) before pre-IPO shareholder management charges (**)	19.5	15.5
Pre-IPO shareholder management charges	(1.2)	(2.2)
Underlying operating profit (*)	18.3	13.3
Amortisation of acquired intangible fixed assets	(1.7)	(1.7)
Business re-organisation	3.5	(2.8)
Share-based payments	(0.8)	-
Operating profit	19.3	8.8

(*) Underlying operating profit is before amortisation of acquired intangible fixed assets, business re-organisation costs and share based payments.

(**) Pre-IPO shareholder management charges relate to management services provided by entities controlled by the pre-IPO majority shareholders. These charges ceased from the date of admission to AIM.

Extrusion

·     Revenue increased by 6.0% to £142.9 million (2013: £134.8 million) during the year and operating profit increased to £16.6 million from £11.0 million.

·     Operating margins improved to 11.6% compared to 8.2% in the same period in 2013, due to volume increases and site integration savings.  

Fabrication and Distribution

·     Revenue decreased by 3.2% to £116.6 million (2013: £120.5 million). The revenue decreases are a combination of delays resulting from contract awards and the withdrawal from low margin work. 

·     Operating profit of £4.5 million, down from £6.1 million in 2013, due to lower sales volumes, disruption as a result of the reorganisation and the cost of improvement in operational and commercial efficiency which is now being addressed by new management.  Consequently operating margins decreased to 3.9% compared to 5.1% in 2013.

·     Improvements in the performance of commercial operations are being addressed through recruitment, training and improved management.

Business re-organisation gains and costs

Business re-organisation gains of £3.5 million (2013: £2.8 million expense) comprise redundancy costs associated with rationalisation and synergy projects offset by gains made on the favourable settlement of a number of legacy onerous leases.

	Year ended 31 December 2014	Year ended 31 December 2013
	£m	£m
Site rationalisation and redundancy costs	(1.2)	(2.8)
Gain on closure of non-trading, legacy distribution business	2.9	-
Settlement of legacy onerous lease obligations	1.8	-
	3.5	(2.8)

Cash flow

	Year ended 31 December 2014	Year ended 31 December 2013
	£m	£m
Pre-tax operating cash flow	19.9	12.9
Tax paid	(1.7)	(0.9)
Acquisition of subsidiary	-	(0.2)
Net capital expenditure	(5.6)	(4.9)
Net interest paid	(0.7)	(0.9)
Proceeds of IPO	10.0	-
Net repayment of borrowings	(17.9)	(6.3)
Dividends	(1.9)	-
Discontinued operations	(0.1)	(1.0)
Net increase in cash and cash equivalents	2.0	(1.3)
Net funds / (debt)	1.1	(18.7)

Cash

Pre-tax operating cash flow increased by 54.3% to £19.9 million (2013: £12.9 million) demonstrating the strong cash generative characteristics of the business. In addition to this, £10.0 million of funding was raised as part of the IPO and, in combination with the operating cash inflow, was used to pay down the borrowings. After payment of interim dividends of £1.9 million the Group ended the year in a net funds position of £1.1 million (2013: net debt £18.7 million).

Dividends

In October 2014 we paid our first interim dividend of 1.41 pence per ordinary share. In line with our stated dividend policy, the Board is recommending a final dividend of 2.83 pence per ordinary share to be paid on 8 June 2015 to shareholders on the register on 15 May 2015.  This gives a full year dividend of 4.24 pence per ordinary share, which represents a yield of 4.24% based on the market capitalisation of Epwin Group Plc on admission to AIM.

Christopher Empson

Group Finance Director

16 April 2015

Consolidated income statement for the year ended 31 December 2014

			2014	2013 (restated)
	Note		£m	£m
Group revenue			259.5	255.3
Cost of sales			(186.7)	(185.8)
Gross profit			72.8	69.5
Distribution expenses			(23.3)	(26.4)
Administrative expenses			(30.2)	(34.3)
Underlying operating profit			18.3	13.3
Amortisation of acquired intangible assets	5		(1.7)	(1.7)
Business reorganisation	5		3.5	(2.8)
Share-based payments	5		(0.8)	-
Operating profit from continuing operations			19.3	8.8
Net finance costs			(0.7)	(1.0)
Profit before tax			18.6	7.8
Taxation	6		(3.5)	(1.3)
Profit from continuing operations			15.1	6.5
Loss from discontinued operations net of tax	4		(0.3)	(1.5)
Profit for the year and total comprehensive income			14.8	5.0
Earnings per share			pence	pence
Basic	7		11.56	4.09
Basic - continuing operations	7		11.76	5.32
Basic - discontinued operations	7		(0.20)	(1.23)
Diluted	7		11.55	4.09
Diluted - continuing operations	7		11.75	5.32
Diluted - discontinued operations	7		(0.20)	(1.23)

Consolidated balance sheet as at 31 December 2014

	Note		2014 £m	2013 £m
Assets
Non-current assets
Goodwill			24.5	24.5
Other intangible assets			0.2	1.9
Property, plant and equipment			26.2	25.1
Deferred tax			2.9	3.2
			53.8	54.7
Current assets
Inventories			22.4	21.7
Trade and other receivables			37.6	40.1
Cash and cash equivalents			2.3	0.3
			62.3	62.1
Total assets			116.1	116.8
Liabilities
Current liabilities
Other interest bearing loans and borrowings			0.4	3.0
Trade and other payables			45.6	47.9
Income tax payable			2.0	0.5
Provisions			1.0	3.1
			49.0	54.5
Non-current liabilities
Other interest bearing loans and borrowings			0.8	16.0
Other payables			-	2.7
Provisions			3.5	7.0
			4.3	25.7
Total liabilities			53.3	80.2
Net assets			62.8	36.6
Equity
Ordinary share capital	9		0.1	-
Share premium	9		12.5	-
Merger reserve	9		15.6	27.0
Retained earnings	9		34.6	9.6
Total equity			62.8	36.6

Consolidated statement of changes in equity for the year ended 31 December 2014

		Share capital	Share premium	Merger reserve	Retained earnings	Total
		£m	£m	£m	£m	£m
Balance as at 31 December 2012		-	-	27.0	4.6	31.6
Comprehensive income:
Profit for the year		-	-	-	5.0	5.0
Total comprehensive income:		-	-	-	5.0	5.0
Balance as at 31 December 2013		-	-	27.0	9.6	36.6
Comprehensive income:
Profit for the year		-	-	-	14.8	14.8
Total comprehensive income:		-	-	-	14.8	14.8
Transactions with owners recorded directly in equity:
Issue of shares (pre IPO)		-	2.5	-	-	2.5
Bonus issue of shares		11.4	-	(11.4)	-	-
Cancellation of shares		(11.3)	-	-	11.3	-
IPO share placing		-	10.0	-	-	10.0
Share-based payments		-	-	-	0.1	0.1
Share warrants issued on IPO		-	-	-	0.7	0.7
Dividends		-	-	-	(1.9)	(1.9)
Total transactions with owners		0.1	12.5	(11.4)	10.2	11.4
Balance as at 31 December 2014		0.1	12.5	15.6	34.6	62.8

Consolidated cash flow statement for the year ended 31 December 2014

			2014	2013 (restated)
	Note		£m	£m
Cash flows from operating activities
Profit for the year			14.8	5.0
Adjustments for:
Depreciation and amortisation			6.7	7.6
Net finance costs			0.7	1.0
(Profit) on disposal of property, plant and equipment			(0.1)	(0.1)
Taxation			3.5	1.3
Share-based payments			0.8	-
Loss from discontinued operations net of tax	4		0.3	1.5
Operating cash flow before movement in working capital			26.7	16.3
(Increase) in inventories			(0.9)	(0.8)
Decrease/(increase) in trade and other receivables			2.4	(2.7)
(Decrease)/increase in trade and other payables			(2.7)	0.9
(Decrease) in provisions			(5.6)	(0.8)
			19.9	12.9
Tax paid			(1.7)	(0.9)
Net cash inflow from operating activities			18.2	12.0
Cash flow from investing activities
Acquisition of subsidiary, net of cash acquired			-	(0.2)
Acquisition of property, plant and equipment			(5.7)	(5.2)
Receipts from disposal of property, plant and equipment			0.1	0.3
Net cash (outflow) from investing activities			(5.6)	(5.1)
Cash flow from financing activities
Interest paid			(0.7)	(0.9)
Proceeds from the issue of share capital			10.0	-
Repayment of borrowings			(17.6)	(5.8)
Transaction costs related to loans and borrowings			-	(0.1)
Capital element of finance lease rental payments			(0.3)	(0.4)
Dividends paid	8		(1.9)	-
Net cash (outflow) from financing activities			(10.5)	(7.2)
Discontinued operations
Net cash flow from operating activities			(0.1)	(1.0)
Net cash (outflow) from discontinued operations			(0.1)	(1.0)
Net increase/(decrease) in cash and cash equivalents			2.0	(1.3)
Cash and cash equivalents at the beginning of year			0.3	1.6
Cash and cash equivalents at end of year			2.3	0.3
Secured bank loans			-	(18.4)
Finance lease liabilities			(1.2)	(0.6)
Net cash/(debt)			1.1	(18.7)

1.    Basis of preparation

Whilst the financial information included in this Preliminary Announcement has been prepared on the basis of the requirements of International Financial Reporting Standards (IFRSs) in issue, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.

The Group expects to publish full Consolidated Financial Statements in April 2015. The financial information set out in this Preliminary Announcement does not constitute the Group's Consolidated Financial Statements for the years ended 31 December 2014 or 2013, but is derived from those Financial Statements which were approved by the Board of Directors on 15 April 2015. The auditor, KPMG LLP, has reported on the Group's Consolidated Financial Statements and the report was unqualified and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

The statutory financial statements for the year ended 31 December 2014 have not yet been delivered to the Registrar of Companies and will be delivered following the Company's Annual General Meeting.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.

The financial statements are prepared on the historical cost basis except where Adopted IFRSs require an alternative treatment.

Going concern

The Group financial statements are prepared on a going concern basis as the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has considered financial resources, together with a strong ongoing trading performance. The bank facilities are available until July 2019. The Group has prepared a detailed business plan, including cash projections, for the period to 31 December 2017 and has applied sensitivities to these plans. These plans, and sensitised forecasts, demonstrate that the Group's current facilities provide adequate headroom for its current and future anticipated cash requirements.

Basis of consolidation

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are accounted for as described below.

Depreciation is charged to the consolidated statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

Leasehold improvements	over the term of the lease
Fixtures, fittings and equipment	3-15 years
Motor Vehicles	4 years

Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.

Intangible assets and goodwill

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but tested annually for impairment.

Other intangible assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation

Amortisation is charged to the statement of profit and loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Brand	10 years
Customer relationships	3 years

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Share based payments

The Group grants share options to certain employees, which may, if certain performance criteria are met, allow these employees to acquire shares in the Company.

The share options are measured at fair value at the date of grant and recognised as an employee expense, with a corresponding increase in equity, on a straight-line basis over the vesting period.  The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where variations are due only to share prices not achieving the threshold for vesting.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

Revenue recognition

Revenue comprises the fair value of goods sold to external customers, net of value added tax, discounts, rebates, VAT and other sales taxes or duty. Revenue is recognised on the sale of goods when the significant risks and rewards of ownership of the goods have passed to the customer and the amount of revenue can be measured reliably, usually on the dispatch of goods.

Taxation

Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future profits will be available against which the temporary difference can be utilised.

Non-current assets held for sale and discontinued operations

A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year.

On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent re-measurement although gains are not recognised in excess of any cumulative impairment loss. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Group's accounting policies. Intangible assets and property, plant and equipment once classified as held for sale or distribution are not amortised or depreciated.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative consolidated income statement restated as if the operation has been discontinued from the start of the comparative period.

Underlying operating profit

Underlying operating profit is a key measure used by management to monitor the underlying performance of the business and is defined as operating profit before amortisation of acquired intangible fixed assets, business reorganisation costs and share-based payments.

Adopted IFRS not yet applied

At the date of approval of these financial statements the following standards/improvements have been published and endorsed by the EU, but have not yet been applied by the Group in these financial statements:

·     IFRS 2 Share-based payments - definition of 'vesting condition';

·     IFRS 3 Business combinations - classification and measurement of contingent consideration and scope exclusion for the formation of joint arrangements;

·     IFRS 8 Operating segments - disclosures on the aggregation of operating segments;

·     IFRS 13 Fair value measurement - measurement of short-term receivables and payables and scope of portfolio exception;

·     IAS 16 Property, plant and equipment & IAS 38 Intangible assets - clarification of restatement of accumulated depreciation/amortisation on revaluation; and

·     IAS 24 Related party disclosures - definition of 'related party'.

2.    Critical judgements and estimations in applying the Group's accounting policies

The preparation of the consolidated financial statements requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods impacted.

The key judgements and estimates employed in the financial statements are considered below.

Impairment of goodwill

On an annual basis, the Group is required to perform an impairment review to assess whether the carrying value of goodwill is less than its recoverable amount. Recoverable amount is based on a calculation of expected future cash flows, which include estimates of future performance.

Allowances against the carrying amount of inventories

The Group provides against the carrying amount of inventories based on expected demand for its products to ensure that inventory is stated at the lower of cost and net realisable value.

Provisions

Provisions are made using the directors' best estimates of future cash flows based on the current level of information available to them. Actual cash flows will be dependent on future events.

Deferred taxation

The Group recognises deferred tax assets and liabilities based upon future taxable income and the expected recoverability of the balance. The estimate will include assumptions regarding future income streams of the Group and the future movement in corporation tax rates in the respective jurisdictions.

3.    Segmental reporting

Segmental information is presented in respect of the Group's reportable operating segments in line with IFRS 8 'Operating Segments', which requires segmental information to be disclosed on the same basis as it is viewed internally by the Chief Operating Decision Maker.

Following the IPO, the Group's Board of Directors, considered as the Chief Operating Decision Makers, reviewed the existing reportable segments and concluded the Group has two reportable segments based on the operations and products and services offered; Extrusion, and Fabrication and Distribution.

Reportable segments

Operations

Extrusion

Extrusion and marketing of PVC-U window profile systems, PVC-UE cellular roofline and cladding, rigid rainwater and drainage products.

Fabrication and Distribution

Fabrication and marketing of windows and doors, distribution of cellular roofline, cladding, rainwater and drainage products, and manufacture of glass sealed units.

In arriving at the reportable segments, the existing operating segments of Window Systems and Building Components have been aggregated as the Extrusion reportable segment.

Distribution operations, previously reported as part of the Building Components division are now reported in the Fabrication and Distribution reportable segment along with the fabrication and distribution operations previously reported in Building Products division.

		2014	2013
		£m	£m
Revenue from external customers
Extrusion - total revenue		170.2	161.2
Inter-segment revenue		(27.3)	(26.4)
Extrusion - external revenue		142.9	134.8
Fabrication and Distribution - total revenue		116.7	120.6
Inter-segment revenue		(0.1)	(0.1)
Fabrication and Distribution - external revenue		116.6	120.5
Total revenue from external customers		259.5	255.3
Segmental operating profit
Extrusion		16.6	11.0
Fabrication and Distribution		4.5	6.1
Segmental operating profit before corporate and other costs		21.1	17.1
Corporate and other costs		(1.6)	(1.6)
Underlying operating profit before pre-IPO shareholder management charges		19.5	15.5
Pre-IPO shareholder management charges		(1.2)	(2.2)
Underlying operating profit		18.3	13.3
Amortisation of acquired intangible fixed assets		(1.7)	(1.7)
Business re-organisation		3.5	(2.8)
Share-based payments		(0.8)	-
Group operating profit		19.3	8.8
Net finance costs		(0.7)	(1.0)
Profit before tax		18.6	7.8

4.    Discontinued operations

As part of the Group's overall rationalisation projects, following the merger in 2012, a number of non-core operations have been discontinued.

On 2 January 2014 the Group disposed of the trade and assets of Europlas, a non-core retail business.  No material gain or loss arose on disposal.  This disposal continues the strategy of rationalisation and focussing on the Group's core activities of window profile and cellular roofline extrusion, window and door fabrication and glass sealed unit manufacture.  The comparative consolidated income statement and cash flow statement have been restated to show the discontinued operation separately from continued operations.

		2014	2013
		£m	£m
Revenue		-	5.0
Cost of sales		-	(4.1)
Operating expenses		-	(0.9)
Loss before tax		-	-
Taxation		-	-
Loss after tax from discontinued operations		-	-

On 29 August 2014 the Group disposed of the trade and assets of a bespoke, glass distributor based in Portsmouth.  A loss of £0.2 million arose on disposal.  The comparative consolidated income statement and cash flow statement have been restated to show the discontinued operation separately from continued operations.

		2014	2013
		£m	£m
Revenue		2.4	3.8
Cost of sales		(2.0)	(3.1)
Operating expenses		(0.7)	(0.8)
Loss before tax		(0.3)	(0.1)
Taxation		-	-
Loss after tax from discontinued operations		(0.3)	(0.1)

In the year to 31 December 2013, the Group closed its material re-processing business. All employees were made redundant, the site cleared and the plant and equipment sold.

		2014	2013
		£m	£m
Revenue		-	2.8
Cost of sales		-	(2.8)
Operating expenses		-	(1.8)
Loss before tax		-	(1.8)
Taxation		-	0.4
Loss after tax from discontinued operations		-	(1.4)

5.    Non-underlying items

			2014	2013
			£m	£m
Amortisation of acquired intangible assets			1.7	1.7
Business re-organisation			(3.5)	2.8
Share-based payments			0.8	-
(Income)/expense			(1.0)	4.5

Non-underlying items included within operating profit include:

Amortisation of acquired intangible fixed assets

£1.7 million amortisation of brand and customer contract intangibles fixed assets created on the merger in 2012. Customer contract intangibles are fully amortised at 31 December 2014.

Business re-organisation gains and costs

Business re-organisation gains of £3.5 million (2013: £2.8 million expense) comprise redundancy costs associated with rationalisation and synergy projects offset by gains made on the favourable settlement of a number of legacy onerous leases.

	2014	2013
	£m	£m
Site rationalisation and redundancy costs	(1.2)	(2.8)
Gain on closure of non-trading, legacy distribution business	2.9	-
Settlement of legacy onerous lease obligations	1.8	-
	3.5	(2.8)

Site rationalisation and redundancy costs relate to the re-organisation programme within the Fabrication and Distribution business. This is now largely completed. In 2013, the site rationalisation and redundancy costs relate to expenditure incurred on projects to bring about synergistic benefits arising from the Epwin and Latium merger in 2012. They predominantly relate to severance and site move costs in the Extrusion business.

The closure of a non-trading, legacy distribution business generated a gain of £2.9 million as the business contained certain property related liabilities which are now no longer due by the Group.

The settlement of onerous lease obligations relates to legacy leases for vacant properties that have subsequently either been settled for less than the amount provided or an alternative use has been found for the property.

Share-based payments

The share-based payment expense of £0.8 million comprises £0.1 million in respect of the IFRS 2: Share-based payments charge for the Management Incentive Plan and £0.7 million in respect of share warrants issued as part of the IPO.

6.    Tax

	2014	2013
	£m	£m
Current tax expense
Current period	3.4	1.7
Prior period	(0.2)	-
Total current tax charge	3.2	1.7
Deferred tax expense
Current period	(0.4)	(0.8)
Prior period	0.7	0.4
Total deferred tax charge/(credit)	0.3	(0.4)
Tax expense from continuing operations	3.5	1.3
Tax expense from discontinued operations	-	(0.4)
Total tax expense	3.5	0.9

UK Corporation tax is calculated at 21.5% (2013: 23.25%) of the estimated assessable profit for the year.

The Group's total income tax charge is reconciled with the standard rates of UK Corporation tax for the year of 21.5% (2013: 23.25%) as follows:

		2014	2013
		£m	£m
Profit before tax		18.6	7.8
Tax at standard UK corporation tax rate of 21.5% (2013: 23.25%)		4.0	1.8
Factors affecting the charge for the period:
Expenses not deductible		0.4	0.1
Non-taxable income		(0.8)	-
Change in recognised deductible temporary difference		-	(0.4)
Losses utilised for which no deferred tax previously recognised		(0.6)	(0.6)
Prior period		0.5	0.4
		3.5	1.3

Factors that may affect future current and total tax charges

Reductions in the UK corporation tax rate from 26 per cent. to 24 per cent. (effective from 1 April 2012) and to 23 per cent. (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21 per cent. (effective from 1 April 2014) and 20 per cent. (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Company's future current tax charge accordingly. The deferred tax assets at 31 December 2014 have been calculated based on the rate of 20 per cent. substantively enacted at the balance sheet date (31 December 2013: 20 per cent.).

7.    Earnings per share (EPS)

Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. The weighted average number of shares has been adjusted for the issues and cancellations of shares during the period.

Diluted earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, plus the dilutive potential ordinary shares arising from share options in issue at the end of the period.

		2014	2013
EPS Summary		Pence	Pence
Basic earnings per share		11.56	4.09
Basic earnings per share - continuing operations	11.76		5.32
Basic earnings per share - discontinued operations		(0.20)	(1.23)
Diluted earnings per share		11.55	4.09
Diluted earnings per share - continuing operations		11.75	5.32
Diluted earnings per share - discontinued operations		(0.20)	(1.23)

Number of shares					2014	2013
					No.	No.
						(restated)
Weighted average number of ordinary shares (basic)					128,046,892	122,330,253
Effect of share options in issue					68,283	-
Weighted average number of ordinary shares (diluted)					128,115,175	122,330,253

The outstanding awards granted under the Management Incentive Plan are not dilutive as at 31 December 2014 and therefore are excluded from the diluted EPS calculation.

8.    Dividends

	2014	2014	2013	2013
	£m	Pence per share	£m	Pence per share
Previous year final dividend	-	-	-	-
Current year interim dividend	1.9	1.41	-	-
	1.9	1.41	-	-

9.    Share capital and reserves

	2014		2013
	Number of shares	£	Number of shares	£
Allotted and called up:
Ordinary A shares of 1p each	-	-	1,620,002	16,200
Ordinary A1 shares of 1p each	-	-	36,818	368
Ordinary B shares of 1p each	-	-	1,952,809	19,528
Ordinary B1 shares of 1p each	-	-	72,191	722
Ordinary C shares of 1p each	-	-	1,110	11
Ordinary shares of 0.05p each	135,000,000	67,500	-	-
Deferred shares of 1p each	1,800,000	18,000	-	-
		85,500		36,829

On 24 July 2014 the Company was admitted to AIM. In preparation for the flotation the following transactions with shareholders occurred:

On 4 July 2014 the Company capitalised £2.5 million loan notes in exchange for 76,378 ordinary A shares of 1 pence each and 2,998 ordinary A1 shares of 1 pence each, giving rise to a share premium of £2.5 million.

On 4 July 2014 1,800,000 deferred shares of 1 pence each were issued from the Company's share premium account. These deferred shares confer no entitlement to receive notice, attend or vote at any general meeting of the company. The shares may be redeemed at any time by the company for aggregate proceeds of £1.

On 8 July 2014 the Company made a bonus issue of 300 shares of each existing class of ordinary share for each existing ordinary share of each class. The total number of shares allotted was 1,128,691,800 resulting in the capitalisation of the sum of £11.3 million standing to the credit on the Company's merger reserve.

On 9 July 2014 the Company reduced its share capital by £11.3 million by the way of cancellation of the shares issued by way of the bonus issue on 8 July 2014.

On 24 July 2014 the company made the following bonus issues of shares:

·     0.46160647968 new ordinary A shares for every issued ordinary A share;

·     0.54736789230 new ordinary A1 shares for every issued ordinary A1 share;

·     0.58324751678 new ordinary B shares for every issued ordinary B share;

·     0.70686096605 new ordinary B1 shares for every issued ordinary B1 share;

·     444 new ordinary C1 shares for every issued ordinary C1 share;

·     444 new ordinary C2 shares for every issued ordinary C2 share; and

·     444 new ordinary C3 shares for every issued ordinary C3 share.

Following the bonus issue of shares every issued A ordinary share, A1 ordinary share, B ordinary share, B1 ordinary share, C1 ordinary share, C2 ordinary share and C3 ordinary share was sub-divided and reclassified as 20 ordinary shares of 0.05 pence each.

On 24 July 2014 the Company placed 10 million ordinary shares of 0.05 pence each for proceeds of £10.0 million as part of its admission to AIM.

Share premium

The share premium arose on the issue of the Company's shares at a premium to the nominal value of the shares, less any expenses of issue incurred in issuing equity.

Merger reserve

The merger reserve arose on the share for share exchange on the acquisition of subsidiaries.

Outstanding options

Outstanding options have been granted to the Directors and senior management of the Group under the Management Incentive Plan.

Share warrants for 3% of the fully diluted share capital of the company were issued to Zeus Capital for services related to the IPO. The warrant is exercisable anytime between the first and tenth anniversary of admission to AIM.

10.  Cautionary statement

This Report contains certain forward-looking statements with respect of the financial condition, results, operations and business of Epwin Group Plc. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual result or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this Report should be construed as a profit forecast.

11.  Annual General Meeting

The Annual General Meeting of the Company will be held on 26 May 2015 at Eversheds LLP,  115 Colmore Row, Birmingham B3 3AL.

12.  Electronic communications

The full Financial Statements for the year ended 31 December 2014 are to be published on the Company's website, together with the Notice convening the Company's 2015 Annual General Meeting by 30 April 2015. Copies will also be sent out to those shareholders who have elected to receive paper communications. Copies can be requested by writing to The Company Secretary, Epwin Group Plc, 1b Stratford Court, Cranmore Boulevard, Solihull, B90 4QT  or email to [e-mail]. 

 

END

 

 

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