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Alumasc Group Plc (ALU)

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Tuesday 06 September, 2011

Alumasc Group Plc

ANNUAL RESULTS ANNOUNCEMENT

RNS Number : 6695N
Alumasc Group PLC
06 September 2011
 



IMMEDIATE RELEASE

Tuesday 6 September 2011

THE ALUMASC GROUP PLC - ANNUAL RESULTS ANNOUNCEMENT

"...continuing to grow in a challenging business environment..."

Alumasc (ALU.L), the premium building and engineering products group, announces results for the year ended 30 June 2011.

Financial Highlights (Continuing Operations*)

·    Group revenues of £106.8m (2009/10: £87.5m)

·    Underlying PBT of £4.3m (2009/10: £4.1m) **

·    Underlying EPS of 8.3p (2009/10: 8.0p) **

·    Reported PBT of £5.4m (2009/10: £3.5m)

·    Basic EPS of 10.7p (2009/10: 6.4p)

·    Robust cash performance - gearing held at 33.6% with net debt of £10.7m at 30 June 2011

·    Pension obligations (IAS19 valuation basis) of £2.9m at year end (2010: £11.6m)

·    Dividend maintained at 10p per share


Commercial Highlights

·    Building Products revenue up 10% to £71.2m; operating profit down to £3.9m (2009/10: £5.4m).  Profitable growth in rainwater and drainage offset by the impact on other areas of a lack of large commercial projects, margin pressure in a competitive UK building products market, and a £0.5m bad debt in the facades business.

 

·    Outstanding performance by Alumasc Precision with sales up 53% to £36.7m with profit more than doubling to £3.0m.  Growth driven by new work from a range of blue-chip customers, emerging market demand (construction & mining) and more stringent energy emission standards and increased use of lightweight, recyclable aluminium components.

 

·    Alumasc Dispense sold to management for £1.2m in April 2011.

 

·    Tight cash control resulted in a modest increase in group borrowings and banking arrangements were successfully renewed in June 2011.  Following the strong performance by Alumasc Precision, a £1.2m impairment charge was reversed.

 

*   excluding a £0.2m loss after tax (2009/10: £0.1m loss) from discontinued operations

** excluding a £1.1m net gain from an impairment charge reversal at Alumasc Precision, property disposal gains, restructuring costs and brand amortisation (2009/10: £0.6m charge for restructuring costs and brand amortisation)


Paul Hooper, Chief Executive, commented:

"The recently strengthened management teams across the Building Products division are working hard to continue to grow the business in the face of challenging economic and market conditions.  Alumasc Precision continues to grow, but this is anticipated to be at a more modest rate in the shorter term, prior to larger engine transmission systems coming on stream, expected in late 2012.  In view of the current level of trading, with group order books which now total some £44 million, the Board expects Alumasc to make further steady progress in 2011/12."

Presentation:

Today, a presentation will be made to institutions, broker's analysts and private client brokers by Paul Hooper (Chief Executive) and Andrew Magson (Finance Director), with John McCall (Chairman) in attendance. The meeting will commence at 9.30am and end at approximately 10.30am. It will be held at the offices of Peel Hunt, 111 Old Broad Street, London, EC2N 1PH.

Enquiries:

 

The Alumasc Group plc

01536 383844

    Paul Hooper (Chief Executive)

[email protected]

    Andrew Magson (Finance Director)




Bankside Consultants Limited

020 7367 8888

    Simon Bloomfield or James Irvine-Fortescue



Chairman's statement

2010/11 was a year of stark contrasts for UK business: early cycle businesses, such as precision engineering, where customers react swiftly to change in economic conditions, experienced strong recovery as distribution pipelines were replenished and global development programmes resumed. In contrast, those businesses with longer lead times, such as construction, continued to experience decline in demand as completed projects outstripped new work. The cut-back in public expenditure in the UK intensified this contrast.  Consistent with the above, Alumasc Precision made excellent progress, advancing strongly in the year, while our Building Products business had to fight hard in the face of contracting markets.

The cautiously positive views expressed in our statements one year ago were based largely on factors within our control. In that sense, they have been justified by events of the last year which has seen Alumasc begin to recover from the low point of the prior year. The initiatives lying behind the revenue growth for 2010/11 of 22 per cent are dealt with in detail in the Chief Executive's review, along with the factors which restricted growth in underlying profit to 4 per cent. A major bad debt with a long standing customer depressed this result towards the end of the year.

Despite the weak economic background, we have been successful in establishing Alumasc products in a number of new market places - the Chief Executive's review deals with these in some detail - and we will continue to press to convert these early successes into major revenue and profit streams for the future. It was encouraging to see export sales grow from 16 to 20 per cent of total sales during the year. We are receiving high levels of enquiries across all our major product areas, which encourages us to believe that Alumasc is in a strong position to benefit both from future economic growth and from the outperformance of which we believe our selected market niches to be capable.

For a number of years, Alumasc has increasingly concentrated its activities in the fields of Sustainable Building Products and Precision Engineering. In April this year, Alumasc Dispense was sold to its management team, representing a further step down this path and enabling our executive team to focus exclusively on developing the core businesses. A number of senior appointments have been made during the year, which strengthen the executive team and align it more directly with the group's strategic objectives.

Cash remained tightly managed with the result that the growth in business was accompanied by a modest increase in group borrowings and a sustained strong balance sheet. As a result, and as a reflection of its positive forward strategy, the group successfully renewed its banking arrangements in June 2011, with Barclays and HSBC.

For many years, the legacy of mature pension schemes has been an important feature in Alumasc's affairs. There has been steady progress in managing the three factors which determine the ongoing costs of these schemes: liabilities have been controlled, investments have performed well and the costs of administration have been curtailed where possible. As a result, the IAS19 deficit in this year's balance sheet amounts to £2.9 million, a fraction of recent equivalents. While there is scope for these constituents to move in the opposite direction - as we have seen in stock market performance in recent weeks - the group's pensions obligations represent a lighter burden on the group than for many years.

The Board is recommending an unchanged final dividend of 6.75 pence per share, giving an unchanged total for the year of 10 pence per share.  This reflects the improvement in the performance of the business over the past year and the Board's belief in the underlying strength of the business and its prospects, despite the negative external environment.  Current order books and other initiatives and developments yet to convert into orders, underpin this view.

Events of recent weeks make the prediction of the immediate future particularly difficult. In these circumstances, we believe it is especially important to focus on the fundamentals of customer service, costs, cash and market development. These have enabled Alumasc successfully to navigate the past year and should ensure that further progress is achieved.

 

John McCall
Chairman


Business Review

Chief Executive's Operating Review

Strategic and management developments
Alumasc's strategy is to grow shareholder value by:

·    Developing our sustainable Building Products business, where we believe growth rates through the construction cycle will exceed UK industry averages;

 

·    Continuing to grow the group's Precision Engineering business, through leveraging its strong customer, invested asset and skill base; and

 

·    Developing the further significant growth potential in export markets, where sales rose from 16% of group revenues in the last financial year to 20% in the year ended 30 June 2011.


We stated last year our belief that the group's solar shading, construction products and precision engineering businesses, including export sales opportunities, have the potential to double in size over the medium term. We also believe that our more UK-focused businesses have exciting growth potential under the leadership of market-focused, energetic and innovative management teams.

 Following the necessary cost reduction programme associated with the recession, Alumasc strengthened its senior management, sales and operational resources during 2010/11 to underpin delivery of the group's strategic growth potential:

·    The management of the group's rainwater & drainage business was separated from that of the roofing & walling business at the beginning of the year. New managing directors, both with sales and marketing backgrounds, were appointed to each of these businesses in order to drive growth. This has given these businesses fresh impetus which began to yield benefits in the year.

 

·    The group has invested approximately £1 million in general management, sales and operational resources, as well as in marketing and web-based activities, in order to support the growth of our businesses, whilst further strengthening customer service and improving quality. The group plans to invest a further £1 million in 2011/12 to build on these initiatives.

 

·    We recently finalised management succession arrangements in our solar shading and house building products businesses, with the appointment earlier this summer of new managing directors, each having a proven track record in growing and managing businesses of the size to which we aspire.


The group's strategic focus on sustainable building products and precision engineering activities led to the decision in April 2011 to divest the group's non-core drinks dispensing business, Alumasc Dispense.  This followed the sale in March 2011 of surplus property close to the group's head office near Kettering.

 

Health & Safety

The group's number one priority continues to be to provide a safe place of work for employees. Significant progress has been made in this area over the last five years with group achieving a further improvement in its safety performance rate from 3.7 in 2009/10 to 2.8 in 2010/11. The safety performance rate in 2006/07 was 9.5.

Performance Overview




Continuing Operations





2010/11

2009/10

% Change





Revenue (£m)

106.8

87.5

+22





Underlying operating profit (£m)

5.7

5.7

-

Operating margin (%)

5.3

6.5






Net financing costs (£m)

(1.4)

(1.6)



 

 


Underlying profit before tax (£m)

4.3

4.1

+4





Non-recurring items and brand amortisation (£m)

1.1

(0.6)






Profit before tax (£m)

5.4

3.5

+55


Alumasc began the 2010/11 financial year with cautious optimism, predicated on rising order books across the group and continuing strong growth from Alumasc Precision following recovery from recession and its return to profitability in the second half of 2009/10.

Our caution proved justified in the Building Products division, with the UK government's comprehensive spending review in October 2010 setting out plans for significant cuts to public sector expenditure in the construction sector, which began increasingly to bite in the new tax year, impacting Alumasc's second half performance. Meanwhile slower UK economic growth (following a short period of modest recovery a year ago boosted by government stimulus), and continuing wider UK and international economic uncertainties have undermined confidence leading to further delays in private sector investment in major construction projects.  For 2010/11, this resulted in further contraction of the UK's commercial new build construction market, which accounts for over 40% of Alumasc's divisional sales and the majority of end user market sales in the group's solar shading and roofing businesses.

Alumasc Precision, whose customer base comprises mainly global OEMs, benefited from a strong, export-led recovery, driven by demand for off-highway vehicles used in the mining and construction sectors of emerging market economies. By the latter part of the financial year, the run rate of sales at Alumasc Precision had already recovered to pre-recession levels. 

Against this background, it is not surprising that Building Products activities did not meet profit expectations set at the beginning of the year, whilst Alumasc Precision out-performed.

Nonetheless, Building Products revenues grew by 10% to £71.2 million.  This compares favourably with the small contraction in overall UK construction market, suggesting another year of market outperformance by the group, with sales further buoyed by growth in exports.

Alumasc Precision's revenues increased by an exceptional 53% to £36.7 million, to recover back to pre-recession levels, benefiting from the growth in international demand described above, re‑stocking and some buying ahead of the introduction of more stringent international engine emission standards which came into effect in January 2011.

Overall, full year group revenues from continuing operations grew by £19.3 million, or 22%, to £106.8 million.

The group's gross margins reduced, due to:

·    Margin mix across the group's portfolio of business with Alumasc Precision's revenues increasing as a proportion of overall group revenues, but at lower incremental margins on average than are earned from sales of building products;

 

·    Against a background of increasing raw material and energy costs, there was fierce competition for work in a weak UK construction market impacting the Building Products division, and the group had to accept some margin erosion in order to protect market share;

 

·    Lower margins in our construction products business, due to a higher proportion of relatively lower margin export and scaffolding product sales; and

 

·    Extra costs associated with rapid sales growth at Alumasc Precision, where some operating inefficiencies were necessary to meet demanding customer lead times and service levels.

 

It is an objective of the management teams within Alumasc to address the above factors, where possible, and there is a determination to improve the gross margin in the forthcoming year.

Despite continued tight control of overhead costs, the reduction in gross margins, combined with the £1 million investment in additional management and sales resources described above, and the £0.5 million impact of a bad debt in our facades business described further below, led to a reduction in underlying group operating margins from 6.5% to 5.3%.  As a result, underlying operating profit from continuing operations remained unchanged when compared with the prior year at £5.7 million.

Net interest costs improved by £0.2 million to £1.4 million, mainly relating to the reduction in the group's pension deficit, enabling underlying profit before tax from continuing operations to improve to £4.3 million from £4.1 million.

Statutory reported profit before tax from continuing operations improved to £5.4 million from £3.5 million in the prior year as the result of the reversal, following the strong recent resurgence at Alumasc Precision, of the £1.2 million impairment charge taken against this business in 2009, and a £0.8 million profit arising from a sale of surplus land near Kettering. A full reconciliation of underlying to reported profit is given in the Group Finance Director's Review.

Cash flow performance again exceeded expectations in the year, with working capital efficiency improving further, mitigating the additional funding requirements arising from increased group revenues, and careful control was again exercised over capital expenditure. Net debt at 30 June 2011 increased to £10.7 million from £9.3 million at 30 June 2010, mainly as a result of the net increased working capital requirements of £1.1 million to fund the £19.3 million growth in sales. Nonetheless, both interest cover and gearing remain at comfortable levels, and the group's balance sheet remains strong.



Building Products Division

Building Products' Divisional Operating Performance




2010/11

2009/10

% Change





Revenue (£m)

71.2

64.5

+10





Underlying operating profit (£m)

3.9

5.4

-27

Operating margin (%)

5.5

8.3






Restructuring costs (£m)

(0.2)

(0.2)


Brand amortisation(£m)

(0.3)

(0.3)






Reported operating profit (£m)

3.4

4.8

-30

 

Divisional revenues grew from £64.5 million to £71.2 million, but as a result of the margin pressures and additional investment in management, sales and operational resources described above and the net £0.5 million bad debt described further below, divisional operating margins reduced from 8.3% to 5.5%. This resulted in divisional underlying operating profit reducing from £5.4 million to £3.9 million.

Energy management

Solar shading

In the UK, Levolux had to manage through a period when there was a reduced number of high profile private or public sector buildings incorporating complex solar shading designs for which it is recognised as a leader in the industry. Nonetheless, it was a busy year, albeit on smaller projects, not only external solar shading and screening work, but also fit out work, acoustic fabric walling and interior blinds.  The Levolux team had to fight hard to ensure that its clear UK leadership position in the UK solar shading niche was not diluted.

At the same time, continued investment enabled Levolux to develop a presence in the North American and Middle Eastern export markets. Against this background, segmental revenues grew by 3% to £17.0 million, but operating profits reduced from £1.7 million to £0.8 million, reflecting a less favourable mix of project work, contract margin pressure in a highly competitive market place and the incremental overhead costs of investing in resources to develop the still embryonic export business.

Notable projects completed in the year were at Chiswick Park, the Aquatics Centre and Media Hub both at the Olympic Park, all in London; an office building for a large international company in Dubai; a new terminal building at Dublin airport and an internal shading system at the Grand Hyatt Hotel in New York.

International market sales development is progressing steadily, and Levolux has secured some £5.2 million of "Basis of Design" or "Acceptable Alternative" specifications in the USA, where work continues to develop these opportunities into firm sales orders. There are further promising signs in the Middle East and, more recently, opportunities have emerged in South Africa.

Levolux continues to invest in innovation, and is increasingly working to develop electronic control systems to increase the sophistication of its shading solutions to a level we believe is unparalleled in the industry.  A new managing director, Giovanni Simoni, has been appointed since the year end, with extensive experience in the construction industry as well as in the key areas of control systems and international business development. 

Ahead of their forthcoming retirement, I would like to express my personal thanks to John and Pamela Stern who, as the former owners of Levolux, built the company into the market leader that it is today and have made an outstanding contribution to Alumasc since the acquisition of the business in 2007. We are pleased that John and Pamela will continue to provide valuable support in a consultancy capacity in the future. 

Roofing & walling

The group's roofing businesses began the year benefiting from a strengthened order book, which was buoyed by a small number of large, high profile projects including an industrial building in Leicester for Caterpillar, the Peacehaven Wastewater Treatment Works facility on the South Coast, and a number of green roof projects at the Olympic Park. Other than these significant project wins, the underlying level of new build commercial work has been subdued throughout the year, and the forward order book reflects the current shortage of replacement work for these larger projects.  In response to the challenging environment, new management is extending the range of products offered, increasing technical sales presence in the busier London and South East market, widening distribution channels and increasing activity in the refurbishment sector. Following encouraging market research, Alumasc's various leading waterproofing membranes will be marketed again under the Euroroof umbrella brand, recognised in the industry for excellence in product quality and service.

Markets have been particularly difficult and highly competitive for our green roofing brands, Blackdown and ZinCo, where we believe we offer the UK's premium range of products. Sales efforts have focused on promoting the benefits of product quality in terms of rainwater management, insulation, bio-diversity, longevity and life cycle cost. However, this has not always been an easy task in a market that is still at a relatively early stage of development and lacking in clear quality and performance standards, at a time of significant pressure on roofing contractors' budgets.  Roof-Pro has also experienced a highly competitive environment during the year. These businesses have reacted positively by continuing to invest in quality, service and innovation, whist strengthening sales coverage, marketing materials and launching new web sites, and there are encouraging signs that these initiatives are beginning to bear fruit.

The MR Facades business, which supplies exterior wall insulation mainly in the social housing refurbishment sector, had a quiet start to the year with momentum improving as the Comprehensive Spending Review confirmed that funding would remain available to complete the Decent Homes initiative, whilst additional new work came on stream under the Community Energy Savings Plan funded by energy companies. Activity levels improved both on the Glasgow Housing Association project and on a number of schemes in the M62 corridor in the second half of the year. However, one of our long standing approved installers proved unable to fund the working capital required by this increased activity and became insolvent, causing the business to suffer a net bad debt charge of £0.5 million. There currently seems little prospect of recovering any funds from the insolvency process. More positively, there are potentially exciting prospects in this business arising from the government's Green Deal initiative which will begin to benefit 2013 and beyond, and significant work with possible delivery partners is underway on how to best exploit this opportunity. 

It is highly regrettable that the bad debt resulted in this business segment as a whole reporting a loss for the year of £0.4 million, after all the hard work that had driven a 16% increase in revenues to £19.9 million.


Water management & other

Construction products

Segmental revenues increased by 13% to £13.0 million, driven by an encouraging increase in export sales of both Gatic access covers and Gatic Slotdrain products, mainly into the Middle East and Southern Europe.  Further sales of Slotdrain in the USA and a strong recovery from recession at SCP, the group's scaffolding and related products business, also contributed to the results. However, the increased mix of lower margin export and SCP sales, particularly in the final quarter when steel costs increased rapidly, significantly diluted margins and underlying operating profit for the year reduced by £0.6 million to £1.5 million. It was not possible to recover all steel cost inflation in the final quarter, due to market conditions and competition from alternative materials.

Gatic is the most international business in the group, with almost 50% of sales in the year coming from export markets compared to 28% a year ago. Particularly pleasing was the steady development of exports into the USA, where feedback from contractors and potential customers at trade shows was encouraging, and successful projects at McCarran International Airport in Las Vegas and Hickam Airforce Base in Hawaii were completed in the year. Gatic intends to strengthen sales and business development resources in the USA in the new financial year in order to accelerate momentum in this market.

Increased investment has also been made in new product development (NPD), including Assist Lift products  to enhance the Gatic covers range, and a new CastSlot drainage product, ideal for asphalt conditions which is already proving popular in the UK market.  A programme of additional NPD is ongoing in both the Gatic covers and Slotdrain ranges.

SCP had an excellent year, with revenues benefiting from market recovery, a wider product range which assisted some market share growth and increased on-line sales.

Rainwater, drainage & other

The group's rainwater, drainage and other brands together delivered an excellent performance. This was led by Alumasc Rainwater where performance was buoyed by a large project to supply the London Olympics.  In addition, new management quickly identified opportunities to improve customer service and delivery levels which have now been implemented. Harmer drainage products also had an improved year, with the new shower drain launched in the latter part of the prior year experiencing strong demand. The new financial year is expected to be busy, benefiting from the current marketing campaign 'In extraordinary weather, ordinary rainwater systems just aren't good enough' with new product and product range extensions planned to build on recent successes.

Pendock, the group's pre-formed plywood pipe boxing brand had a slower start to the year, but built momentum in the second half through increased sales into the retail sector.  A number of important improvements in manufacturing efficiency were also delivered in the second half of the year.

Timloc, the group's house building products and plastic building products business, had another successful year, again winning market share and launching new products including the new Aero range, and a simple but effective modular ventilator system.  This business has been operating at close to capacity and the decision was taken to invest in larger premises locally with the move scheduled for completion prior to the end of the calendar year.  Timloc's managing director, David Preston, retired at the year end and will be succeeded by Michael Leaf who has extensive commercial and operational experience gained in larger businesses. I would like to put on record my personal thanks to David, who has grown Timloc consistently and successfully since the group's acquisition of the business in 2004, and leaves us after delivering another record year.

Segmental revenues increased by 10% to £21.4 million and underlying operating profit increased by 58% to £2.0 million, benefiting from new product introductions and relatively high levels of operational gearing, making this the best performing operating segment in the Building Products division during the year.

Engineering Products Division

Engineering Products' Divisional Operating Performance



Continuing Operations





2010/11

2009/10

% Change





Revenue (£m)

36.7

24.0

+53





Underlying operating profit (£m)

3.0

1.3

+100+

Operating margin (%)

8.1

5.5






Impairment charge reversal (£m)

1.2

-


Restructuring costs (£m)

-

(0.1)






Reported operating profit (£m)

4.2

1.2

+100+


Alumasc Precision

Following its return to profitability in the previous financial year, 2010/11 was another outstanding year for Alumasc Precision. Divisional revenues improved by 53% to £36.7 million and underlying operating profit more than doubled to £3.0 million. This result is a great credit to both the new management team who have joined the business over the last 2-3 years as well as to the loyal employees who remained with the business to see it through very difficult times in the recession and restore it back into health.

Revenue growth was driven mainly by:

·    Emerging market demand for off-highway vehicles, used mainly in the mining and construction sectors;

 

·    Re-stocking following the recession;

 

·    Buying ahead of the introduction of more stringent international engine emission standards which came into effect in January 2011;

 

·    Greater use of light weight, recyclable aluminium engine components for new generation diesel engines; and

 

·    New work won from customers such as Caterpillar, Perkins, Deutz, JCB, BMW, McLaren, Rotork and Bentley.


The most important business wins arose from the ability to leverage our expertise in both low pressure die-casting and machining to win new work to supply component parts for larger engine transmissions systems, first announced last October, which has so far added an incremental £2 million to revenues. We expect this programme to accelerate further in 12-15 months time, and are investing in additional machining capacity in the current year to ensure we are ready for the next phase of growth.

Whilst greatly improved by the increased volume throughput and better consequential capacity utilisation, margins were impacted during the year by the sheer pace of the increase in demand and challenging customer schedules and lead times. This inevitably caused some operational inefficiency, presenting an opportunity for improvement in the new financial year.

Some £0.3 million was spent on improving the strength and depth of operational and commercial management to support the greater level of business during the year, and we are planning to invest a similar amount in 2011/12. A key focus for the business is to ensure that its processes to underpin quality, service and efficiency are embedded, and programmes are underway to further develop world class manufacturing methodologies and disciplines into the division's two factories.

In view of the strong resurgence at Alumasc Precision Components over the last eighteen months and the encouraging future prospects for this business, the impairment charge booked following the operating losses incurred in 2009 has been reversed, giving rise to a one-off, non-cash gain of £1.2 million. The impairment charge reversal, which will increase the book value of plant and equipment, will give rise to a higher depreciation charge of £0.3 million per annum in the 2011/12 financial year and next few years.

Direct sales to international customers in China, where Alumasc Precision works closely with its local manufacturing partners are now beginning to gather pace following the establishment of this business last year. This is expected to provide the division with another incremental revenue and profit stream in the current financial year.

Discontinued Operations: Alumasc Dispense

Prior to its sale to management in April for £1.2 million, Alumasc Dispense had continued to experience challenging trading conditions and had reported an operating loss of £0.2 million. All at Alumasc wish the management team and the re-named business, ADS2 Brands Limited, every future success.

Prospects

The recently strengthened management teams across the Building Products division are working hard to grow the business in the face of continued challenging economic and market conditions. The Construction Products Association is forecasting further modest contraction in UK construction activity in the remainder of 2011 and into 2012, with recovery not anticipated until 2013. This phasing is supported by early evidence that a greater number of larger buildings are now being funded which, given lead times, could benefit the group's 2012/13 financial year, and Levolux in particular. In the meantime, export sales strategies are beginning to add incrementally to revenues, and there are numerous initiatives across the group to mitigate existing levels of concentration on commercial new build markets and drive growth through new and innovative products.

Alumasc Precision continues to grow, but this is anticipated to be at a more modest rate in the shorter term, prior to the next phase of the new work to supply components for larger engine transmission systems coming on stream, expected in late 2012.

In view of the current level of trading as the group enters its new financial year, group order books which now total some £44 million, and the various factors and actions described above, the Board expects Alumasc to make further steady progress in 2011/12.

Paul Hooper
Chief Executive


Business Review
Group Finance Director's Review

Key performance indicators

The group's key performance indicators (KPI's) are summarised in the table below. The group made positive progress on most metrics during the year.


2010/11

2009/10

% Change





Safety performance rate

2.8

3.7

+24.3%

Order intake for the year (£m)

119.6

99.9

+19.7%

Year end order book (£m)

44.1

34.0

+29.7%

Group revenues (£m)

106.8

87.5

+22.1%

Operating margin (%)

5.3

6.5

-18.3%

Underlying PBT (£m)

4.3

4.1

+3.9%

Underlying earnings per share (pence)

8.3

8.0

+3.8%

Average trade working capital % sales

14.1

15.9

+11.3%

Net cash (outflow)/inflow (£m)

(1.4)

1.0

-100%+

Shareholders' funds (£m)

32.0

27.7

+15.2%

Net debt (£m)

10.7

9.3

-15.2%

Capital invested (£m)

44.8

45.5

-1.4%

Return on investment (post tax) (%)

8.8

8.3

+5.8%

Return on shareholders' funds (post tax) (%)

10.0

9.8

+2.2%

Gearing (%)

33.6

33.5

-0.1%

Interest cover (times)

12.3

12.4

-1.0%

Net debt/EBITDA (times)

1.3

1.1

-18.7%

 

Underlying business performance

Details of the group's trading performance are set out in the Chief Executive's Business Review. Group revenues from continuing operations grew by 22% to £106.8 million. This was due to a strong recovery and new work wins at Alumasc Precision, and market share gains and increased export sales in the Building Products Division. The increased revenues in the Building Products Division were gained against a background of a flat UK construction market. This impacted margins, as did rising input cost inflation, particularly in the second half year. Following £8 million of overhead cost and efficiency savings in the two previous years, a strategic decision was taken to add £1 million to the group overhead base in order to further strengthen operational management, promote export sales growth in our Solar Shading and Construction Products businesses, and further improve manufacturing performance and quality at Alumasc Precision. The combination of increased revenues at lower margins, the £1 million overhead investment and a £0.5 million bad debt in the group's Facades business during the year resulted in underlying operating profit remaining unchanged overall at £5.7 million when compared with the prior year. However, underlying profit before tax improved from £4.1 million in 2009/10 to £4.3 million in 2010/11 due to a reduction in net financing costs, mainly arising from the group's reduced pension deficit.

Non-recurring items, brand amortisation and statutory profit before tax

Statutory profit before tax from continuing operations increased to £5.4 million from £3.5 million in the prior year. This was mainly due to the £1.2 million reversal of an impairment charge taken against Alumasc Precision in 2009 and a £0.8 million profit arising from the sale of surplus land during the year. Restructuring costs and brand amortisation costs were, in aggregate, similar to the prior year. In addition, in 2010/11 the group incurred £0.3 million of costs relating to the re-financing of the group in June. A reconciliation of underlying to statutory profit before tax from continuing operations is given in the table below. The impairment charge reversal is discussed further later in this review.


Reconciliation of underlying to reported profit before tax



Continuing Operations






2010/11

2009/10



£m

£m





Underlying profit before tax


4.3

4.1

   Impairment charge reversal


1.2

-

   Property disposal gain


0.8

-

   Re-financing costs


(0.3)

-

   Restructuring costs


(0.3)

(0.3)

   Brand amortisation


(0.3)

(0.3)





Reported profit before tax


5.4

3.5


Discontinued Operations

Alumasc Dispense was sold for £1.2 million in April. This equated broadly to the group's capital invested in that business at the date of sale. In the nine months of the year prior to disposal the business had incurred operating losses of £0.2 million, which increased to £0.3 million when transaction and other costs connected with the sale were added. Under IFRS conventions, this is presented in the group income statement as a post-tax loss from discontinued operations of £0.2 million.

Tax

The underlying group tax rate for the year of 30.3% compares to 30.4% in the prior year. The group's overall tax rate decreased from 33.7% to 28.7%, with the gain from the disposal of surplus land shielded by indexation on the tax base cost of the asset. The group's cash tax rate remains low, reflecting ongoing pension deficit reduction payments and the impairment charge reversal impacting deferred rather than current cash tax.

Earnings per share

Underlying earnings per share from continuing operations were 8.3 pence, 4% higher than the prior year and consistent with the improvement in underlying profit before tax.

Basic earnings per share from continuing operations increased by 67% to 10.7 pence, benefiting from the impairment charge reversal, the profit from the disposal of land and the lower overall tax rate.

Dividends

The Board has proposed an unchanged final dividend of 6.75 pence per share, to be paid on 31 October 2011 to shareholders on the register on 7 October 2011. This will give a total dividend for the year of 10 pence per share.

Capital invested, shareholders' funds and return on investment

The group defines its capital invested as the sum of shareholders' funds, non-controlling interests, bank debt and the (net of tax) pension deficit.  Capital invested decreased slightly from £45.5 million to £44.8 million, mainly because depreciation exceeded capital expenditure in the year. Post-tax return on average capital invested1 improved modestly from 8.3% to 8.8%, reflecting the similar level of underlying operating profit, and the slightly lower level of capital invested.

Shareholders' funds increased from £27.7 million to £32.0 million mainly due to the reduced group pension deficit. Post tax return on shareholders' funds1 improved from 9.8% to 10.0% due to the higher level of underlying earnings.

1 Return on investment and return on shareholders' funds are calculated using underlying profit figures.


Impairment Review

The Board conducted an impairment review which covered all assets that contribute to the goodwill figure on the group balance sheet, together with any other assets where indicators of impairment existed. Following Alumasc Precision's recovery to profit last year, the doubling of the profit in that business in 2010/11 and its encouraging future prospects, the Board concluded that the impairment of plant and equipment recognised in 2009 should be reversed. This gave rise to a one off, non-cash gain in the income statement of £1.2 million. As a consequence, and other things being equal, the future charge for depreciation in this business segment and for the group as a whole will increase by £0.3 million a year for the next few years. Reviews elsewhere in the group found that no assets had been impaired.

Cash flow, working capital and capital expenditure

Summarised Cash Flow Statement





2010/11

2009/10



£m

£m





EBITDA*


8.1

8.4

Change in working capital


(1.1)

1.7

Operating cash flow


7.0

10.1





Capital expenditure


(1.2)

(0.8)

Pension deficit & scheme expenses funding


(2.9)

(3.8)

Interest


(0.6)

(0.7)

Tax


(0.4)

(0.2)

Dividends


(3.6)

(3.6)

Property disposal proceeds


1.2

-

Exceptional pension contributions


(1.0)

-

Restructuring and other one-off cash flows


(1.0)

(0.6)

Cash flow from discontinued operations


1.1

0.6





(Increase)/decrease in net debt


(1.4)

1.0


EBITDA: Underlying earnings before interest, tax, depreciation and amortisation

The group's overall cash performance exceeded internal expectations for the year, reflecting continued strong control over working capital and capital expenditure. The £19.3 million increase in group revenues led to an increased investment in working capital, and this caused an overall net cash out flow for the year of £1.4 million and an increase in year end net debt to £10.7 million. Nonetheless, average trade working capital as a percentage of sales from continuing operations decreased from 15.9% to 14.1% over the year, reflecting further valuable efficiency gains. Capital expenditure of £1.2 million continued to run below the level of annual depreciation charge of £2.4 million. Capital expenditure is expected to more closely resemble the depreciation charge in the 2011/12 financial year, due to a need to invest ahead of further business growth, particularly at Alumasc Precision.

Capital structure and financing

The group's capital structure remained broadly unchanged during the year. Gearing at 30 June 2011 was 33.6% (2010: 33.5%).

Following the successful routine re-financing of the group announced in June, Alumasc continues to have a total of £20 million of committed financing facilities which now expire in June 2016, supplemented by a further £6 million of uncommitted overdraft facilities, which are reviewed annually. The principal terms of the new committed financing facility were similar to those of the facility it replaced. Whilst lending margins in the capital markets have increased since Alumasc's original committed banking facility was negotiated in 2007, the impact on the group's future overall effective interest rate is expected to be at least offset (at the current level of LIBOR) by changes to the group's interest rate hedging arrangements.

In the 2010/11 financial year:

·    Interest on borrowings was covered by underlying earnings before interest, tax, depreciation and amortisation ("EBITDA") by 12.3 times. This compares with the group's banking covenant of a minimum of 4 times; and

 

·    The group's ratio of net debt to EBITDA was 1.3 times. This compares with the group's banking covenant of not more than 3 times.


Based on current budgets and forecasts, the group expects to continue to operate within its banking facilities and banking covenants for the foreseeable future. 

Pensions

During the year, the group continued to build on the recent progress it has made in improving pension scheme funding over recent years, where the group's pension deficit measured under IAS19 has reduced from £24.3 million to £2.9 million in the five years to 30 June 2011.

The group's overall pre-tax pension deficit measured under IAS19 decreased from £11.6 million at 30 June 2010 to £2.9 million at 30 June 2011, reflecting deficit reduction payments of £3.4 million made by the company during the period, a benefit of approximately £2.8 million arising from the government's decision to change the statutory inflation rate to be applied to pensions in payment to consumer price inflation from retail price inflation, and investment, actuarial and other gains of £2.5 million. The company's overall cash payments into the pension schemes of £3.9 million in the year included routine deficit reduction payments of £2.4 million, a one-off contribution of £1.0 million funded by capital receipts arising from the sale of Alumasc Dispense and the surplus land and a £0.5 million reimbursement of scheme running expenses.

Since the year end the group's pension funding position, in common with many other corporate pension schemes, has suffered from the losses recorded in global capital markets. However, this does not alter the trend towards much improved pension funding levels achieved over the last few years.

Following the improved funding position shown in the April 2010 triennial actuarial review, by which time both of the group's defined benefit pension schemes had been closed to future accrual, Alumasc agreed with its Pension Trustees that regular deficit funding would reduce to £2.0 million per annum with effect from September 2010. Therefore the group is committed to make deficit contribution payments of £2.0 million in the 2011/12 financial year, and this level of funding is expected to continue until it is reviewed routinely as part of the next actuarial valuation exercise in April 2013.


Internal Control and Business Systems

Further steady progress has been made to strengthen the group's systems and standards of internal control during the year.

Following the net £0.5 million bad debt incurred by the group's Facades business during the year, a full review of the circumstances of this specific loss and a more general review of credit risk management was carried out. This concluded that underlying credit risk management procedures were sound, but that in this specific instance a commercial judgment had been taken to extend further credit beyond the initial limits set. There are, and were, no uninsured credit risk exposures of anything approaching this size elsewhere in the Building Products division. Credit approvals of this size, and beyond, are given by Alumasc Precision in the case of well funded, major global OEM customers with strong external credit ratings.

With regard to business systems, more than half of the group has in recent years implemented modern integrated business systems which are improving both internal control and management information for decision making, as well as increasing administrative efficiency. These implementations have also led to improvements in IT infrastructure across the group and associated procurement benefits.

Andrew Magson

Group Finance Director



Responsibility Statement

We confirm that to the best of our knowledge:

(a)  The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the group and the company; and

(b)  The Directors' Report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that the group faces.

Paul Hooper                                                   Andrew Magson
Chief Executive                                     Group Finance Director

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the year ended 30 June 2011 which will be despatched to shareholders on or around 21 September 2011 and will be available at www.alumasc.co.uk. Accordingly the responsibility statement makes reference to the financial statements of the company and the group and to the relevant narratives appearing in that annual report and accounts rather than the contents of this announcement.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year to 30 June 2011

 



2010/11


2009/10



Before

non-recurring items and brand amortisation

 

Non-recurring items and brand amortisation

 

 

 

 

 

Total


Before

non-recurring items and brand amortisation

 

Non-recurring

 items and brand amortisation

 

 

 

 

 

Total

Continuing operations

Notes

£'000

£'000

£'000


£'000

£'000

£'000










Revenue


106,805

-

106,805


87,488

-

87,488

Cost of sales


(77,172)

-

(77,172)


(57,939)

-

(57,939)

Cost of sales - impairment charge reversal

5

-

1,220

1,220


-

-

-

Gross profit


29,633

1,220

30,853


29,549

-

29,549










Net operating expenses before non-recurring items and brand amortisation


(23,954)

-

(23,954)


(23,854)

-

(23,854)

Brand amortisation

5

-

(320)

(320)


-

(315)

(315)

Profit on disposal of property

5

-

759

759


-

-

-

Restructuring costs

5

-

(241)

(241)


-

(320)

(320)

Net operating expenses


(23,954)

198

(23,756)


(23,854)

(635)

(24,489)










Operating profit

4

5,679

1,418

7,097


5,695

(635)

5,060










Finance income


3,879

-

3,879


3,926

-

3,926

Finance expenses

5

(5,286)

(307)

(5,593)


(5,510)

-

(5,510)

Profit before taxation


4,272

1,111

5,383


4,111

(635)

3,476










Tax expense

7

(1,294)

(257)

(1,551)


(1,250)

84

(1,166)










Profit for the year from continuing operations


2,978

854

3,832


2,861

(551)

2,310










Discontinued operations









Loss after taxation for the year from discontinued operations

6

(187)

-

(187)


(35)

(35)

(70)










Profit for the year


2,791

854

3,645


2,826

(586)

2,240










 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)
for the year to 30 June 2011

 

 

 

 

2010/11

2009/10

 

Notes

£'000

£'000

 

 

 

 

Profit for the year

 

3,645

2,240

 

 

 

 

Other comprehensive income

 

 

 

Actuarial gain/(loss) on defined benefit pensions

 

5,590

(2,058)

Effective portion of changes in fair value of cash flow hedges

 

544

(79)

Exchange differences on retranslation of foreign operations

 

(16)

12

Tax on items taken directly to or transferred from equity

7

(1,712)

598

 

 

 

 

Other comprehensive income for the year, net of tax

 

4,406

(1,527)

 

 

 

 

Total comprehensive income for the year, net of tax

 

8,051

713

 

 

 

 

Total comprehensive income for the year attributable to:

 

 

 

 

 

 

 

Equity holders of the parent

 

8,051

703

Non-controlling interest

 

-

10

 

 

8,051

713

 

Profit for the year attributable to:

 

 

 

 

 

 

 

Equity holders of the parent

 

3,645

2,234

Non-controlling interest

 

-

6

 

 

3,645

2,240

 

 

 

 

 

Earnings per share

 

 

 

Pence

 

Pence

Basic earnings per share

 

 

 

 

 

 

 

-  Continuing operations

 

10.7

6.4

-  Discontinued operations

 

(0.5)

(0.2)

 

9

10.2

6.2

Diluted earnings per share

 

 

 

 

 

 

 

-  Continuing operations

 

10.6

6.4

-  Discontinued operations

 

(0.5)

(0.2)

 

9

10.1

6.2

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2011






 

 

 

 

 


 

 

 

 

 


 

Notes

2011

2011

2010

2010

 

 

£'000

£'000

£'000

£'000

Assets

 

 

 



Non-current assets

 

 

 

 

 

Property, plant and equipment

 

14,605

 

15,131

 

Goodwill

 

16,888

 

16,888

 

Other intangible assets

 

3,556

 

4,003

 

Financial asset investments

 

17

 

17

 

Deferred tax assets

7

742

 

3,255

 

 

 

 

35,808

 

39,294

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

 

12,443

 

11,649

 

Biological assets

 

370

 

372

 

Trade and other receivables

 

23,848

 

21,280

 

Cash and cash equivalents

 

5,038

 

5,622

 

Income tax receivable

 

-

 

35

 

Derivative financial assets

 

98

 

1

 

 

 

 

41,797

 

38,959

 

 

 

 

 

 

Total assets

 

 

77,605

 

78,253

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Interest bearing loans and borrowings

 

(14,724)

 

(14,939)

 

Employee benefits payable

 

(2,853)

 

(11,626)

 

Provisions

 

(450)

 

(339)

 

Deferred tax liabilities

7

(2,012)

 

(1,853)

 

 

 

 

(20,039)

 

(28,757)

Current liabilities

 

 

 

 

 

Interest bearing loans and borrowings

 

(1,045)

 

-

 

Trade and other payables

 

(24,107)

 

(20,967)

 

Provisions

 

(143)

 

(213)

 

Income tax payable

 

(56)

 

-

 

Derivative financial liabilities

 

(250)

 

(540)

 

 

 

 

(25,601)

 

(21,720)

 

 

 

 

 

 

Total liabilities

 

 

(45,640)

 

(50,477)

 

 

 

 

 

 

Net assets

 

 

31,965

 

27,776

 

 

 

 

 

 

Equity

 

 

 

 

 

Called up share capital

10

4,517

 

4,517

 

Share premium

10

445

 

445

 

Capital reserve - own shares

10

(618)

 

(369)

 

Hedging reserve

10

44

 

(389)

 

Foreign currency reserve

10

29

 

45

 

Profit and loss account reserve

 

27,548

 

23,494

 

 

 

 

 

 

 

Equity attributable to equity holders of the parent

 

 

31,965

 

27,743

Non-controlling interest

 

 

-

 

33

Total equity

 

 

31,965

 

27,776


CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

For the year ended 30 June 2011

 

 

 

 

 

 

 

 

 

2010/11

2009/10

 

Notes

£'000

£'000

Operating activities

 

 

 

Operating profit from continuing operations

 

7,097

5,060

Adjustments for:

 

 

 

  Depreciation

 

2,074

2,266

  Amortisation

 

677

715

  Impairment reversal

 

(1,220)

-

  (Gain)/loss on disposal of property, plant and equipment

 

(774)

3

  (Increase)/decrease in inventories

 

(1,629)

467

  Decrease/(increase) in biological assets

 

2

(31)

  Increase in receivables

 

(3,807)

(1,791)

  Increase in trade and other payables

 

4,080

3,180

  Movement in provisions

 

41

53

  Movement in retirement benefit obligations

 

(3,928)

(3,844)

  Share based payments

 

16

44

Cash generated from continuing operations

 

2,629

6,122

 

 

 

 

Loss before taxation from discontinued operations

 

(269)

(98)

Depreciation

 

89

136

Amortisation

 

10

14

Movement in working capital from discontinued operations

 

104

538

Cash generated from discontinued operations

6

(66)

590

 

 

 

 

Tax paid

 

(418)

(219)

Net cash inflow from operating activities

 

2,145

6,493

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(931)

(707)

Payments to acquire intangible fixed assets

 

(305)

(139)

Proceeds from sales of property, plant and equipment

 

1,244

36

Acquisition of subsidiary undertaking

 

(50)

(200)

Acquisition of non-controlling interest

 

(49)

-

Proceeds from sale of business activity

 

1,173

-

Interest received

 

18

22

Net cash inflow/(outflow) from investing activities

 

1,100

(988)

 

 

 

 

Financing activities

 

 

 

Interest paid

 

(647)

(663)

Equity dividends paid

 

(3,580)

(3,602)

Equity dividends paid to non-controlling interests

 

-

(10)

Draw down of amounts borrowed

 

15,000

4,994

Repayment of amounts borrowed

 

(15,000)

-

Loan and overdraft facility fees

 

(303)

-

Purchase of financial instrument

 

(94)

-

Purchase of own shares

 

(249)

(191)

Repayment of refund of share issue costs

 

-

(7)

Net cash (outflow)/inflow from financing activities

 

(4,873)

521

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(1,628)

6,026

 

 

 

 

Net cash and cash equivalents brought forward

 

5,622

(405)

Effect of foreign exchange rate changes

 

(1)

1

Net cash and cash equivalents carried forward

 

3,993

5,622

 

 

 

 

Net cash and cash equivalents comprise:

 

 

 

Cash and cash equivalents

 

5,038

5,622

Bank overdrafts

 

(1,045)

-

 

 

3,993

5,622

 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the year ended 30 June 2011

 

 

 

 

 

 

 

 

 

Share

Share

 

 

Revaluation

Capital reserve -

 

 

Hedging

 

Foreign

currency

Profit

and loss account

 

Non-controlling

Total

 

 

capital

premium

 reserve

own shares

 reserve

reserve

reserve

 Total

interest

equity

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000


£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2009

4,517

452

 

951

(178)

 

(332)

 

37

 

25,349

 

30,796

33

30,829

 

Profit for the period

-

-

-

-

-

-

2,234

 

2,234

6

2,240

 

Exchange differences on retranslation of foreign operations

-

-

-

-

-

8

-

 

8

4

12

 

Net loss on cash flow hedges

-

-

-

-

(79)

-

-

 

(79)

-

(79)

 

Tax on derivative financial liability

-

-

-

-

22

-

-

 

22

-

22

 

Actuarial loss on defined benefit pensions, net of tax

-

-

-

-

-

-

(1,482)

 

(1,482)

-

(1,482)

 

Reserves transfer

-

-

(951)

-

-

-

951

-

-

-

 

Share premium costs refund

-

(7)

-

-

-

-

-

 

(7)

-

(7)

 

Acquisition of own shares

-

-

-

(191)

-

-

-

 

(191)

-

(191)

 

Dividends

-

-

-

-

-

-

(3,602)

 

(3,602)

(10)

(3,612)

 

Share based payments

-

-

-

-

-

-

44

 

44

-

44

 

At 1 July 2010

4,517

445

-

(369)

 

(389)

 

45

 

23,494

 

27,743

33

27,776

 

 











 

Profit for the period

-

-

-

-

-

-

3,645

 

3,645

-

3,645

 

Exchange differences on retranslation of foreign operations

-

-

-

-

-

(16)

-

 

(16)

-

(16)

 

Net gain on cash flow hedges

-

-

-

-

544

-

-

 

544

-

544

 

Tax on derivative financial liability

-

-

-

-

(111)

-

-

 

(111)

-

(111)

 

Actuarial gain on defined benefit pensions, net of tax

-

-

-

-

-

-

3,989

 

3,989

-

3,989

 

Acquisition of own shares

-

-

-

(249)

-

-

-

 

(249)

-

(249)

 

Dividends

-

-

-

-

-

-

(3,580)

 

(3,580)

-

(3,580)

 

Acquisition of
non-controlling interest

-

-

-

-

-

-

(16)

 

(16)

(33)

(49)

 

Share based payments

-

-

-

-

-

-

16

 

16

-

16

 

 

At 30 June 2011

4,517

445

-

(618)

44

29

27,548

31,965

-

31,965

 

 

 


1          basis of preparation

The annual results announcement for the year ended 30 June 2011 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

 

The financial information included within this announcement does not constitute the company's statutory accounts for the years ended 30 June 2011 or 2010 but is derived from those accounts. Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2010 or 2011.

Going concern

The group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business Review.  The group has £26 million of banking facilities, of which £20 million is committed until June 2016.  At 30 June 2011 the group's net indebtedness was £10.7 million (2010: £9.3 million).

 

On the basis of the group's financing facilities and current financial plans and sensitivity analyses, the Board is satisfied that the group has adequate resources to continue in operational existence for the foreseeable future and accordingly continues to adopt the going concern basis in preparing the financial statements.

2          judgements and estimates

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement and valuation of intangible assets and goodwill and the measurement and valuation of defined benefit pension obligations.  The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows and the selection of a suitable discount rate.  The group determines whether goodwill is impaired on an annual basis and this requires an estimation of the value in use of the cash generating units to which the intangible assets are allocated.  This involves estimation of future cash flows and choosing a suitable discount rate.  Measurement of defined benefit pension obligations requires estimation of future changes in inflation, as well as mortality rates, the expected return on assets and the selection of a suitable discount rate.

 

The group may from time to time become involved in legal action which could give rise to contingent assets or liabilities.  The group accounts for these under IAS 37 and will only accrue costs when it is probable that there will be a transfer of economic benefits based on independent legal advice and the Directors' judgement.

Revenue recognised on construction contracts is determined by the assessment of the stage of completion of each contract.  The requirement for Directors' judgement is limited due to the involvement of quantity surveyors during the assessment process as detailed within the revenue recognition accounting policy.

3          principal risks and uncertainties

Alumasc's portfolio of niche businesses generates sales in a variety of building, construction and industrial markets.  This reduces the group's exposure to any one end-market segment or single third party. The group's major risks are:

UK and Global Economy

Alumasc's principal operations are based in the UK. The majority of the group's building product sales are in the UK, with the remainder mostly to customers in the USA, Middle East and Europe. Any significant change in economic conditions, laws and regulations in these locations could affect demand, trading performance and profit margins.  Alumasc Precision supplies mainly global OEM's with the majority of its sales now made to end users based outside the UK.  As such Alumasc Precision's demand and trading performance is more influenced by global economic conditions, and demand for off highway diesel engines used in the construction and mining sectors, in particular.

Input cost inflation can generally be recovered from customers through selling price rises, and ratchets are in place to achieve this with regard to changes in aluminium costs at Alumasc Precision.  In circumstances where market demand is subdued and there is strong competition for work, such as in the current UK building products market, it is not always possible to recover all cost inflation from customers.  The group seeks to offset as far as possible such pressure on margin through internal cost savings and efficiency measures.

Customers
Certain of the group's businesses derive a significant proportion of their revenues from individual key customers. The management teams of these businesses and group management, where appropriate, maintain regular contact with all key customers to manage and develop these important business relationships. In general, the loss of any key customer could have a significant impact on the performance of an individual business within the group, but it is less likely to have as material an impact on the group as a whole.  However, the Caterpillar Group is a major customer of both Alumasc Precision and The Alumasc Group as a whole, representing approximately 16% of group sales in the 2010/11 financial year.

People 

The loss of key management and employees could impact operating performance through loss of know-how.  These risks are mitigated as far as possible through succession planning for key executives, teamwork and ensuring that key individuals are appropriately motivated and incentivised.

Innovation and competition

Alumasc encourages an entrepreneurial and innovative approach from its business and management teams as the group's performance is dependent on niche, differentiated products, systems and solutions. Insufficient innovation, particularly relative to competitors could result in loss of competitive advantage.

Product quality

The reputation of Alumasc products and brands could be impacted by significant product quality issues. The group's quality control procedures are designed to ensure that own-manufactured products and, where applicable, bought-in products perform to specification, provided they have been correctly installed. In circumstances where the group installs its own products, careful project management processes seek to ensure that any potential issues are pro-actively identified, managed and resolved on-site as far as possible. Residual risks are insured, where possible and economic to do so.

 

Supply chain

The loss or failure of key suppliers, or the prolonged loss of a major manufacturing site within Alumasc could impact ability to deliver to customer expectations. The increase over the last few years in Alumasc's raw materials, components or sub-assemblies that are being sourced from the Far East, whilst reducing costs, has introduced additional supply chain risks that are being carefully managed by senior personnel within each business.

Credit risk

Credit risk remains relatively high in the current economic environment, and this will continue to be the case as businesses recover from recession and have to finance the increased working capital needed to support recovery.  The group suffered a net £0.5 million bad debt in its Facades business during the 2010/11 financial year, where one of our preferred installers was unable to finance an increasing level of business.  There are, and were, no uninsured credit risk exposures of anything approaching this size elsewhere in the Building Products division.  Credit approvals of this size, and beyond, are given by Alumasc Precision in the case of well funded, major global OEM customers with strong external credit ratings.  Credit risks continue to be monitored carefully in all group businesses, including at monthly board meetings and, in certain specific cases where judged cost-effective, these risks are insured.

Foreign exchange rate risk

The group is exposed to movements in foreign exchange rates, particularly in relation to purchases and sales made in Euros, US Dollars and Hong Kong Dollars.  These risks are mitigated wherever possible by internal hedging between businesses and external forward foreign exchange contracts.  Such hedging can only protect the group against relatively short-term volatility in exchange rates and not against more structural changes to the relative strength of these currencies against Sterling.

 

Interest rate risk

The group has exposure to interest rate risk, aspiring principally on changes to sterling interest rates.  In order to manage this risk, the group has put in place an interest rate cap, which would protect the group in the event of a material increase in LIBOR to 5% or more.

Liquidity risk

The group renewed its £20.0 million committed banking facilities in June 2011.  The new facilities expire in June 2016 and amount to almost double the level of the group's net indebtedness at 30 June 2011.  In addition, the group has a further £6.0 million of overdraft facilities repayable on demand.  The Board believes these facilities are sufficient to meet the group's funding requirements for the foreseeable future. 

Acquisitions

An important part of the group's growth strategy is to acquire niche building product businesses, where we consider these will increase shareholder value. Poor execution of this strategy or poor management after acquisition could, conversely, erode value.  All acquisitions are approved by the group's main board. Senior management from both Alumasc Group and operating businesses, as appropriate to each case, are involved in all key aspects of acquisition execution and post acquisition management. In most cases, Alumasc seeks to retain key staff within acquired businesses and develop their responsibilities within the group.   

Pensions
Alumasc has mitigated some of the risks associated with its two defined benefit pension schemes in recent years by closing the schemes to future accrual and working with the Pension Trustees to substantially reduce the overall level of the funding deficit. Nonetheless, the group's pension obligations remain material and the future levels of funding required will be affected by changes in demographic, capital market and regulatory factors over time, many of which are beyond the group's control. These factors, and developments in the pensions industry more generally, are closely monitored by management and its advisors in order that the group can continue to improve the funding of its pension schemes in accordance with the recovery plans agreed with the Pension Trustees.

4          segmental analysis

In accordance with IFRS 8 "Operating Segments", the segmental analysis below follows the group's internal management reporting structure.

The Chief Executive reviews internal management reports on a monthly basis, with performance being measured based on underlying segmental operating profit as disclosed below.  Performance is measured on this basis as management believes this information is the most relevant when evaluating the impact of strategic decisions.

Inter-segment transactions are entered into applying normal commercial terms that would be available to third parties.  Segment results, assets and liabilities include those items directly attributable to a segment.  Unallocated assets comprise cash and cash equivalents, deferred tax assets, income tax recoverable and corporate assets that cannot be allocated on a reasonable basis.  Unallocated liabilities comprise borrowings, employee benefit obligations, deferred tax liabilities, income tax payable and corporate liabilities that cannot be allocated on a reasonable basis to a reportable segment. 

Analysis by reportable segment 2010/11


Revenue

Segmental


External

Inter-segment

 

Total

Operating

Result


£'000

£'000

£'000

£'000






Solar Shading

17,011

-

17,011

757

Roofing & Walling

19,869

-

19,869

(355)

Energy Management

36,880

-

36,880

402






Construction Products

12,965

-

12,965

1,547

Rainwater, Drainage & Other

21,309

65

21,374

1,965

Water Management & Other

34,274

65

34,339

3,512


 

 

 

 

Building Products

71,154

65

71,219

3,914






Alumasc Precision

35,651

1,093

36,744

2,978

Engineering Products

35,651

1,093

36,744

2,978






Elimination / Unallocated costs

-

(1,158)

(1,158)

(1,213)






Total

106,805

-

106,805

5,679



 

 





£'000






Segmental operating result




5,679

Impairment charge reversal




1,220

Profit on disposal of property




759

Restructuring costs




(241)

Brand amortisation




(320)

Total operating profit from continuing operations



7,097

 

 

 

 

 

 

 

 

 

Capital and

acquisitions expenditure

 

 

 

Segment Assets

 

Segment Liabilities

Property,

Plant &

Equipment

Other

Intangible

Assets

 

 

Depreciation

 

 

Amortisation

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Solar Shading

18,171

(3,901)

37

3

94

171

Roofing & Walling

11,634

(2,815)

155

84

220

234

Energy Management

29,805

(6,716)

192

87

314

405

 

 

 

 

 

 

 

Construction Products

6,382

(2,061)

94

1

203

5

Rainwater, Drainage & Other

12,462

(6,363)

266

63

407

170

Water Management & Other

18,844

(8,424)

360

64

610

175

 

 

 

 

 

 

 

Building Products

48,649

(15,140)

552

151

924

580

 

 

 

 

 

 

 

Alumasc Precision

22,287

(8,729)

651

84

1,006

82

Engineering Products

22,287

(8,729)

651

84

1,006

82

 

 

 

 

 

 

 

Unallocated

6,669

(21,771)

2

15

144

15

Discontinued operations

-

-

21

-

89

10

 

 

 

 

 

 

 

Total

77,605

(45,640)

1,226

250

2,163

687

 

 

 

 

 

 

 

 

Analysis by reportable segment 2009/10


Revenue

Segmental


External

Inter-segment

Revenue

Total

Operating

Result


£'000

£'000

£'000

£'000






Solar Shading

16,517

-

16,517

1,729

Roofing & Walling

17,119

-

17,119

209

Energy Management

33,636

-

33,636

1,938






Construction Products

11,473

-

11,473

2,171

Rainwater, Drainage & Other

19,330

89

19,419

1,242

Water Management & Other

30,803

89

30,892

3,413


 

 

 

 

Building Products

64,439

89

64,528

5,351






Alumasc Precision

23,049

905

23,954

1,311

Engineering Products

23,049

905

23,954

1,311






Elimination / Unallocated costs

-

(994)

(994)

(967)






Total

87,488

-

87,488

5,695








 





£'000






Segmental operating result




5,695

Restructuring costs




(320)

Brand amortisation




(315)

Total operating profit from continuing operations



5,060

 

 

 

 

Capital and

acquisitions expenditure

 

 

 

Segment Assets

 

Segment Liabilities

Property,

Plant &

Equipment

Other

Intangible

Assets

 

 

Depreciation

 

 

Amortisation

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Solar Shading

17,546

(3,434)

135

-

94

173

Roofing & Walling

11,774

(4,026)

275

10

178

129

Energy Management

29,320

(7,460)

410

10

272

302

 

 

 

 

 

 

 

Construction Products

5,692

(1,573)

149

3

173

5

Rainwater, Drainage & Other

12,815

(4,275)

205

26

678

274

Water Management & Other

18,507

(5,848)

354

29

851

279

 

 

 

 

 

 

 

Building Products

47,827

(13,308)

764

39

1,123

581

 

 

 

 

 

 

 

Alumasc Precision

18,083

(6,198)

103

100

1,107

132

Engineering Products

18,083

(6,198)

103

100

1,107

132

 

 

 

 

 

 

 

Unallocated

9,788

(29,796)

1

55

36

2

Discontinued operations

2,555

(1,175)

-

-

136

14

 

 

 

 

 

 

 

Total

78,253

(50,477)

868

194

2,402

729

 

 

 

 

 

 

 

 

Analysis by geographical segment

 


2010/11

2009/10


Sales to

external

customers

Segment

non-current

assets

Sales to

external

customers

Segment

non-current

assets


£'000

£'000

£'000

£'000






United Kingdom

85,230

35,065

73,822

35,611

Europe

7,800

-

6,997

-

USA

10,055

-

4,812

-

Middle East

2,524

-

546

-

Far East

647

1

902

1

Rest of World

549

-

409

-











Total (continuing)

106,805

35,066

87,488

35,612






 

Segment revenue by geographical segment represents revenue from external customers based upon the geographical location of the customer.  The analyses of segment non-current assets are based upon location of the assets.

 


5          non-recurring items and brand amortisation


2010/11

2009/10


£'000

£'000




Impairment charge reversal

1,220

-

Profit on disposal of property

759

-

Re-financing costs

(307)

-

Brand amortisation

(320)

(315)

Restructuring costs

(241)

(320)


1,111

(635)

 

The impairment charge reversal relates to the strong recovery in trading and future prospects at Alumasc Precision Components.

 

Profit on disposal of property relates to the sale of land during 2010/11 for net proceeds of £1.2 million.

 

Restructuring costs relate to restructuring and redundancy costs in both years.  Re-financing costs in 2010/11 relate to the renewal of the group's borrowing facilities.

 

6          DISCONTINUED OPERATION

The discontinued operation relates to the sale of the trade and assets of the group's drinks dispensing business, Alumasc Dispense, in April 2011.  The business was sold to management at the value of capital employed in that business at the date of disposal, £1,173,000.  No gain or loss arose on disposal, except for costs of disposal of £26,000.

 

The results of the discontinued operation included in the consolidated statement of comprehensive income are as follows:

 






Period to 11 April 2011

Year to 30 June 2010






£'000

£'000








Revenue





3,467

5,484

Cost of sales





(2,882)

(4,634)

Gross profit





585

850








Net operating expenses





(828)

(948)

Operating loss





(243)

(98)








Net loss on disposal





(26)

-

Loss before taxation





(269)

(98)








Tax credit





82

28

Loss after taxation





(187)

(70)

 

 

 

 

The net cash flows attributable to discontinued operations are as follows:






Period to 11 April 2011

Year to 30 June 2010






£'000

£'000








Operating cash flows





(66)

590

Investing cash flows





1,173

-

Net cash inflow





1,107

590

 

Details of the sale of the trade and assets of Alumasc Dispense are as follows:






£'000







Sales proceeds





1,173







Assets disposed of:






 

Plant and equipment





 

339

Intangible assets





10

Working capital





824

Gain/(loss) on disposal





 

-







Costs of disposal





(26)

Net loss on disposal





(26)

 

 

7          Tax expense

a)   Tax on profit on ordinary activities

Tax charged in the statement of comprehensive income

 

2010/11

 

2009/10


£'000

£'000

Current tax:



UK corporation tax - continuing operations

441

427

                                - discontinued operations

(82)

(28)

UK corporation tax

359

399

Amounts under/(over) provided in previous years

150

(53)

Total current tax

509

346




Deferred tax:



Origination and reversal of temporary differences

1,078

645

Tax (over)/under provided in previous years

(43)

147

Rate change adjustment

(75)

-

Total deferred tax

960

792




Total tax expense

1,469

1,138

 

The tax charge in the statement of comprehensive income is disclosed as follows:

 

 

 

Tax expense on continuing activities

1,551

1,166

Tax credit on discontinued activities

(82)

(28)

Total tax expense

1,469

1,138




Tax recognised in other comprehensive income



Deferred tax:



Actuarial gains/(losses) on pension schemes

1,601

(576)

Cash flow hedge

111

(22)

Tax charged/(credited) to other comprehensive income

1,712

(598)

 

Total tax charge in the statement of comprehensive income

3,181

540

 

 

b)   Reconciliation of the total tax charge

 

The total tax rate applicable to the tax expense shown in the statement of total comprehensive income of 28.7% is higher than (2009/10: 33.7% was higher than) the standard rate of corporation tax in the UK of 27.5% (2009/10: 28%).  The differences are reconciled below:

 


2010/11

2009/10


£'000

£'000




Profit before tax from continuing operations

5,383

3,476

Loss before tax from discontinued operations

(269)

(98)

Accounting profit before taxation

5,114

3,378




Current tax at the UK standard rate of 27.5% (2009/10: 28%)

1,406

946

Expenses not deductible for tax purposes

244

98

Income not taxable

(213)

-

Rate change adjustment

(75)

-

Tax under/(over) provided in previous years - corporation tax

150

(53)

Tax (over)/under provided in previous years - deferred tax

(43)

147


1,469

1,138

 

c)   Unrecognised tax losses

 

The group has agreed tax capital losses in the UK amounting to £21 million (2010: £21 million) that relate to prior years.  Under current legislation these losses are available for offset against future chargeable gains.  A deferred tax asset has not been recognised in respect of these losses, as they do not meet the criteria for recognition.

Revaluation gains on land and buildings amount to £1 million (2010: £1 million).  These may be offset against the capital losses detailed above, therefore net capital losses carried forward amount to £20 million (2010: £20 million).  The capital losses are able to be carried forward indefinitely.

d)   Deferred tax

 

A reconciliation of the movement in deferred tax during the year is as follows:

 


Accelerated

Short term




Total

Pension


capital

temporary




deferred tax

deferred tax


allowances

differences

Brands

Losses

Hedging

liability

asset


£'000

£'000

£'000

£'000

£'000

£'000

£'000









At 1 July 2009

1,209

24

930

(129)

(129)

1,905

(3,501)

(Credited)/charged to the statement of comprehensive income - current year

 

(180)

 

4

 

(67)

 

66

 

-

 

(177)

 

822

Charged to the statement of comprehensive income - prior year

 

84

 

-

 

-

 

63

 

-

 

147

 

-

Credited to equity

-

-

-

-

(22)

(22)

(576)









At 1 July 2010

1,113

28

863

-

(151)

1,853

(3,255)

Charged/ (credited) to the statement of comprehensive income - current year

 

180

 

35

 

(124)

 

-

 

-

 

91

 

912

Charged/(credited) to the statement of comprehensive income - prior year

 

42

 

(85)

 

-

 

-

 

-

 

(43)

 

-

Debited to equity

-

-

-

-

111

111

1,601









At 30 June 2011

1,335

(22)

739

-

(40)

2,012

(742)

 

Deferred tax assets and liabilities are presented as non-current in the consolidated statement of financial position. 

 

Deferred tax assets have been recognised where it is probable that they will be recovered.  Deferred tax assets of £5.2 million (2010: £5.6 million) have not been recognised in respect of net capital losses of £20 million (2010: £20 million).

 


8          dividends


2010/11

2009/10


£'000

£'000




Interim dividend for 2011 of 3.25p paid on 8 April 2011      

1,164

-

Final dividend for 2010 of 6.75p paid on 29 October 2010

2,416

-

Interim dividend for 2010 of 3.25p paid on 1 April 2010

-

1,170

Final dividend for 2009 of 6.75p paid on 30 October 2009

-

2,432


3,580

3,602




A final dividend of £2,406,000, 6.75p per equity share, has been proposed for the year ended 30 June 2011, payable on 31 October 2011.  In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements.

 

9          earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares in issue during the period.  Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares in issue during the period, after allowing for the exercise of outstanding share options.  The following sets out the income and share data used in the basic and diluted earnings per share calculations:

 


2010/11

2009/10


£'000

£'000




Profit attributable to equity holders of the

parent from continuing operations

 

3,832

 

2,304

Loss attributable to equity holders of the

parent from discontinued operations

(187)

(70)

Net profit attributable to equity holders of the parent

3,645

2,234





000s

000s




Basic weighted average number of shares

35,780

35,918

Dilutive potential ordinary shares - employee share options

465

95


36,245

36,013

 

Calculation of underlying earnings per share from continuing operations:

 


2010/11

2009/10


£'000

£'000




Profit before taxation

5,383

3,476

Add back brand amortisation

320

315

Deduct profit on disposal of property

(759)

-

Add back restructuring costs

241

320

Add back re-financing costs

307

-

Deduct impairment charge reversal

(1,220)

-

Underlying profit before taxation

4,272

4,111




Tax at underlying group tax rate of 30.3% (2009/10: 30.4%)

(1,294)

(1,250)




Underlying earnings

2,978

2,861




Basic weighted average number of shares

35,780

35,918




Underlying earnings per share

8.3p

8.0p

 

10        movements in equity

Share capital and share premium

The balances classified as share capital and share premium are the proceeds of the nominal value and premium value respectively on issue of the company's equity share capital net of issue costs. 

Capital reserve - own shares

The capital reserve - own shares relates to 485,171 (2010: 335,171) ordinary own shares held by the company.  The market value of shares at 30 June 2011 was £834,494 (2010: £350,253).  These are held to help satisfy the exercise of awards under the company's Long Term Incentive Plans.  A Trust holds the shares in its name and shares are awarded to employees on request by the company.  The company bears the expenses of the Trust.

Hedging reserve

This reserve records the post-tax portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.

Foreign currency reserve

This foreign currency reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.



 

11        Related party disclosure

The group's principal subsidiaries are listed below:

 

Principal subsidiaries

Principal activity

Country of

incorporation

% of equity interest

 and votes held




2011

2010

 

Alumasc Precision Limited

Engineering products

England

100

100

Alumasc Exterior

Building Products Limited

Building products

England

100

100

Alumasc Limited

Building products

England

100

100

Levolux Limited and

Levolux AT Limited

Building products

England

100

100

Blackdown Horticultural

Consultants Limited

Building products

England

100

100

Elkington China Limited

Building products

Hong Kong

100

70

 

Terms and conditions of transactions with related parties

Sales to and purchases from related parties are made at arms-length market prices.  Outstanding balances at the year end are unsecured and settlement occurs in cash.  There have been no guarantees provided or received for any related party receivables.

 

Transactions with other related parties

Key management personnel are determined as the Directors of The Alumasc Group plc.  There were no transactions with Directors during the year.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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