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Alumasc Group Plc (ALU)

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Wednesday 10 September, 2008

Alumasc Group Plc

Preliminary Announcement

RNS Number : 0955D
Alumasc Group PLC
10 September 2008
 



Wednesday 10 September 2008


THE ALUMASC GROUP PLC - PRELIMINARY ANNOUNCEMENT


"STRONG TRADING RESULTS"


Alumasc (ALU.L), the UK-based supplier of premium building and precision engineering products, announces a year of significant progress for the Group in terms of both strategic development and financial performance, with an improved quality of earnings.


Financial Highlights


  • Revenue from continuing operations increased by 21% to £125.8m, of which 17% was attributable to the full year benefit of the acquisition of Levolux on 1 May 2007 and of Blackdown on 31 March 2008

  • Underlying operating profit from continuing operations improved by £3.7m, or 49%, to £11.2m, with operating margins increasing from 7.3% to 8.9%

  • Underlying† pre-tax profit from continuing operations increased by 52% to £9.6m. Underlying† earnings per share from continuing operations increased by 51% to 18.3p

  • Reported pre-tax profit increased by 12% to £10.0m. Reported earnings per share increased by 15% to 20.3p. The 2007 profit included an exceptional contribution from Brock Metal, which was sold on 29 June 2007

  • Full year dividends per share are raised by 3.1% to 10.0p

  • Net debt at 30 June 2008 reduced by 28% to £9.4m


† underlying excludes property disposal gains and non-recurring restructuring and other 

costs


Commercial Highlights


  • Two-thirds of group revenue and over 85% of group operating profit is now generated by the Building Products division. Well over half of Building Products' divisional revenue is derived from sustainable building products

  • Building Products revenue increased by 40% to £83.5m (of which 11% was organic growth), whilst underlying operating profit improved by 54% to £10.7m (of which 17was organic growth)

  • Revenue from sustainable energy management products almost trebled to £35.5m and related operating profit more than quadrupled to £4.8m. Levolux, the UK leader in solar shading systems, had an excellent first full year in the group, whilst Blackdown, the green roof supplier, made a good start at Alumasc and contributed immediately to group earnings

  • Revenue from sustainable water management products increased by 5% to £33.7m. Operating profit increased by 6%, at a slightly improved operating margin of 14.8% 

  • Only 7% of group revenues are exposed to the new house building market - mainly the Timloc brand

  • Engineering Products' divisional underlying operating profit remained stable at £1.7m despite revenues that were 3.7% lower at £42.3m

  • Profit reduced at Alumasc Precision Components, but Dyson Diecastings had another good year and Alumasc Dispense's profits doubled

  • The cumulative over-statement of profit and assets at Alumasc Precision Components, announced in the Interim Management Statement of 19 May, has been assessed at £2.5m, slightly below the most recent previous estimate, and the investigation is now completeRobust and swift action has been taken to strengthen management and controls. The business remains profitable and opportunities for further profit improvement have been identified


John McCall, Chairman, stated "Alumasc performed strongly in 2008, demonstrating the benefits of realigning its business during the previous year towards markets with stronger prospects for growth.


The year to June 2008 ended on a strong note for Alumasc, reflecting growing demand for the group's products and their resilience in the face of some negative external factors such as rising material and energy costs.


Whilst it would be unrealistic to expect the industries served by Alumasc to be unaffected by the general economic situation, the group has purposefully positioned itself to benefit from areas where demand is expected to grow. As we enter the new financial year with a strong balance sheet and order books higher than a year ago, we remain confident in the group's ability to perform well".


Presentation:


Today, a presentation will be made to institutional broker's analysts and private client brokers by Paul Hooper (Chief Executive) and Andrew Magson (Group 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 Bankside Consultants, 1 Frederick's Place, London EC2R 8AE (which is off Old Jewry, which itself runs between Cheapside and Gresham Street, approximately 200 yards from the Bank of England).


Enquiries:

The Alumasc Group plc

01536 383844

  Paul Hooper (Chief Executive)


  Andrew Magson (Group Finance Director)




Bankside Consultants Limited


  Charles Ponsonby

020 7367 8851

[email protected]

  Chairman's Statement


Overview

Alumasc performed strongly in 2007/08, demonstrating the benefits of realigning its business during the previous year towards markets with stronger prospects for growth.


In financial terms, its performance was ahead on all relevant criteria, including revenue from continuing operations 21.4% higher at £125.8 million (2007: £103.6 million) and underlying profit before tax1 of £9.6 million, 52% ahead on the same basis. The growth in revenue and profit arose in the group's core business areas, where long term growth prospects remain encouraging.


It is pleasing to report that total pre-tax profit of £10.0 million was also ahead of the prior year figure of £9.0 million, which included an exceptional contribution from Brock Metal, sold at the prior year end.


The drive into sustainable building products brought benefits from both acquisition and organic growth in the year and resulted in Building Products divisional revenue of £83.5 million and underlying operating profit1 of £10.7 million rising by 40% and 54% respectively.


The promising prospects for this sector are founded on a combination of economic and environmental considerations, which have been further enhanced by recent surges in the cost of energy.


Our Engineering Products division performed at a similar level to the prior year, with revenues of £42.3 million, 4% lower, and underlying operating profit1 unchanged at £1.7 million. As the year progressed, Alumasc Dispense showed the benefits of consolidating its business onto a single site. Alumasc Precision's performance was weaker than expected, with the wide range of new projects not fully replacing maturing automotive work. However, the growth of work with newer customers in the second half year provides confidence that the strategic advances of recent years will continue.


Following the increased dividend in the prior year, the Directors raised the interim dividend by 0.15p per share (4.8%) in April 2008. The Board is now recommending that the final dividend be increased by a further 0.15p per share to 6.75p, giving a total for the year of 10p per share (2007: 9.7p per share), an increase of 3.1%.


Development

Levolux, the UK's leading supplier of solar shading products, was acquired for £13.5 million in May 2007, adding significantly to the group's presence in the sustainable building products arena, and consistent with the Board's strategy to focus the group's business on high performance building and engineering activities. Levolux has performed superbly during its first full year within Alumasc, encouraging the group to continue its quest for organic and acquisition growth in this sector.


In March 2008, Alumasc acquired Blackdown Horticultural Consultants, a leading supplier of green roofs, for £2 million. Blackdown specialises in supplying lightweight roofs, which complement Alumasc's existing presence in the more intensive range of living roof systems, combining to form the UK's leading supplier of green roofs.


Three freehold properties were disposed of during the year. The site previously occupied by Alumasc Dispense prior to its relocation to Kettering was sold for £1.6 million, the former Copal warehouse was sold for £0.7 million, and the site occupied by Brock Metal, retained on the sale of that business in June 2007, was transferred as a special contribution to the group's pension funds at a value of £1.1 million.


Net debt reduced from £12.9 million at the start of the year to £9.4 million at the end, representing gearing of 30%. The group remains in a strong position to finance further development opportunities that may arise.


Board

Martin Rhodes resigned from the Board in June 2008. An exercise to align the Board's non-executive team more closely with its strategic direction is under way.


Prospects

The year to June 2008 ended on a strong note for Alumasc, reflecting growing demand for the group's products and their resilience in the face of some negative external factors such as rising material and energy costs.


While it would be unrealistic to expect the industries served by Alumasc to be unaffected by the general economic situation, the group has purposefully positioned itself to benefit from areas where demand is expected to grow. As we enter the new financial year with a strong balance sheet and order books higher than a year ago, we remain confident in the group's ability to perform well.


John McCall

Chairman


1 A reconciliation between underlying operating profit and reported operating profit is given in the Group Chief Executive's Review, whilst a similar reconciliation of profit before tax is given in the Group Finance Director's Review. Prior year comparatives have been re-stated to reflect the adjustments at Alumasc Precision Components described within note 1 to the financial information in this announcement.



Business Review

Chief Executive's Operating Review


Note: all references to profit in this review refer to either underlying operating profit or underlying profit before tax, unless stated otherwise.  A reconciliation of underlying to reported operating profit is provided below. A reconciliation of underlying to reported profit before tax is given in the Group Finance Director's Review. Prior year comparators have been adjusted for the restatement of results at Alumasc Precision described within note 1 to the financial information contained in this announcement.


Reconciliation of Underlying to Reported Operating Profit: Continuing Operations





2007/08

2006/07


£'000

£'000




Underlying operating profit

11,233

7,545




Property disposal gains

1,240

637

Restructuring costs

(465)

-

Brand amortisation & fair value adjustments

(428)

(370)




Reported operating profit

11,580

7,812


Note: the allocation of property disposal gains, restructuring costs, brand amortisation and fair value adjustments to business segments is provided in note 2 to the financial information.


Overview


Strategy and Performance 

Following the strategic transformation of the group towards the end of the last financial year through the acquisition of Levolux, the UK's leading solar shading company, and the disposal of Brock Metal, 2007/08 was a year of significant progress for the group in terms of both strategic development and financial performance.


Alumasc's strategy of seeking superior shareholder returns by growing its core premium building and engineering product businesses, with particular focus on the development of the group's portfolio of sustainable building product businesses, led to both significantly better financial results and an improved quality of earnings during the year. Approximately two-thirds of group revenue and over 85% of group operating profit is now generated by the Building Products division. Well over half of this divisions' revenue is derived from sustainable building products, where we believe demand is growing faster than for the construction market as a whole. 


The group added to its portfolio of sustainable building products companies with the acquisition of Blackdown Horticultural Consultants ("Blackdown") on 31 March 2008 for a total purchase consideration of £2.0 million. When combined with Alumasc's existing green roof business under the ZinCo brand, this has given Alumasc the UK number 1 market position in the embryonic and rapidly expanding market for green roofs. 


Group revenues from continuing operations in the year to 30 June 2008 increased by 21.4% to £125.8 million, and underlying profit before tax rose by over 50% to £9.6 million, driven by acquisitions and the continued growth in demand for sustainable building products. Group operating margins improved from 7.3% to 8.9%.


Total group profit before tax, after gains from property disposals and exceptional costs and after including Brock Metal's pre-disposal profits in the prior year comparator, increased by nearly 12% to £10.0 million.



Alumasc Precision Components

The revelation of the cumulative over-statement of profit and assets by some £2.5 million at Alumasc Precision Components, announced in our interim management statement on 19 May 2008, was undoubtedly the low point of the year, and was particularly frustrating given the ongoing strong trading performances across the rest of the group. The investigation work is now complete. Robust and swift action was taken to strengthen general and financial management at Alumasc Precision Components, and more wide-ranging actions are ongoing to improve business systems and controls. The business remains profitable, and there are opportunities for further improvement, many of which have been identified and are being implemented by the management team.


Health and Safety

The group's number one priority continues to be to provide a safe place of work for employees, and health and safety remains the first agenda item for all subsidiary and group board meetings. Further details on the group's health, safety and environmental performance will be given in the Corporate and Social Responsibility section within the Annual Report.


Operating Review: Continuing Operations

Group revenues grew by 21.4% to £125.8 million. Of this growth, approximately 17% was attributable to the full year benefit of the acquisition of Levolux on 1 May 2007 and the acquisition of Blackdown on 31 March 2008. Good organic growth in the Building Products division due to growing demand for sustainable building products was largely offset by some contraction in the Engineering Products division where Alumasc Precision began the year with lower activity levels, as previously reported.


Group operating profit from continuing operations improved by £3.7 million, or 48.9%, to £11.2 million.


Group operating margins improved from 7.3% to 8.9% as a result of the change in mix caused by the addition of recent acquisitions into the group's portfolio of businesses and increased revenue and profitability across most of the Building Products division.


Building Products


Building Products Divisional Operating Performance


2007/08

2006/07




Revenue (£'000's)

83,485

59,647




Underlying operating profit (£'000's)

10,720

6,960




Operating Margin

12.8%

11.7%


Divisional revenues grew by 40% to £83.5 million, with much of the growth driven by the acquisitions described previously. Organic revenue growth was also strong at 11%, with nearly all product brands within the division reporting good performances.


Divisional profits improved by 54% to £10.7 million. Organic profit growth was 17%, benefiting in particular from improved revenues and profitability in the MR Facades and Alumasc rainwater brands, and further export-led growth for Gatic engineered access covers and Gatic Slotdrain. 2007/08 was another record year for Timloc building products, which are sold mostly into the new-build housing sector. This was a particularly notable performance in view of more difficult conditions experienced in the housebuilding market as the year progressed.


The table below shows an analysis of divisional revenues by end user market segments. Of note are:


  • The increased proportion of divisional revenues attributable to the new-build private commercial market, now 46%, compared with 42% last year, mainly due to the acquisition of Levolux. This has been a buoyant market in the last 12 months and current order books remain strong in this area.

     

  • The relative importance to Alumasc of the new-build public non-residential sector market with many of the group's products used in major public buildings, particularly schools and hospitals. This was also a buoyant segment in 2007/08, and is expected to remain so in the current year given government funding commitments.

  • The relative importance of the public housing repair and maintenance sector to the group, particularly through sales of MR exterior wall insulation products and Pendock profiles, used mainly to enclose exposed internal pipework.

  • The low overall proportion, 11% of divisional revenues, exposed to the weakening new housebuilding market. Most of this relates to Timloc building products.


Building Products' divisional revenue in 2007/08 analysed by end-user market







Private commercial





46%

Public non-residential





11%

New housing





11%

Private industrial





7%

Public housing repair & maintenance





10%

Other repair and maintenance





15%






100%

Source: Alumasc estimates







Following the acquisition of Levolux last year and the group's increased strategic focus on growing its sustainable building products businesses, divisional results have been further segmented this year (see note 2 to the financial information) into:


  • sustainable building products, sub-divided into those products allowing customers to improve energy efficiency and manage water in the built environment;

  • premium building products.


Details of the allocation of the group's brands to these segments are given in note 10 to the financial information.


Sustainable Building Products - Energy Management

Revenue from products that assist customers to manage energy use in buildings almost trebled to £35.5 million mainly as a result of the acquisition of Levolux in May 2007 and Blackdown in March 2008. Organic revenue growth was almost 40%, with growth in demand from public sector refurbishments, further penetration into new build applications for the MR Facades product range and another record year for Roof-Pro systems, which included a substantial contract at a retail development in the first-half.


Profits in this segment more than quadrupled to £4.8 million, attributable to both acquisition-led and organic sales volume growth. Organic growth, together with the inclusion of recent acquisitions in the profit mix, led to a 4.7 percentage point improvement in operating margins to 13.7%.


Levolux, the UK's leader in solar shading systems, had an excellent first full year in the group, with order books rising to record levels during the year and a strong order pipeline carried forward into the new year. The business continues to seek to expand export sales, particularly into Ireland and the USA. During the year the business introduced a new patented insulation fixing bracket that is designed to prevent heat transfer from external louvres into the building, thereby avoiding condensation. Major projects of note during the year were a further building at Chiswick Park in London, an office in Threadneedle Street in the City of London that incorporates photovoltaics into glass louvres and, in the USA, a headquarters building for The Royal Bank of Scotland, and work at the Harley Davidson Museum. 

 

Blackdown made a good start in Alumasc and contributed immediately to group earnings. The UK market for green roofs is fast expanding and Alumasc is supporting the realisation of this growth potential by investing in additional capacity and resources. Order books continue to grow.


Sustainable Building Products - Water Management

Revenue from products that manage water, both above and below ground level, increased by 4.6% to £33.7 million. Most brands in this segment had strong performances, although overall growth was constrained by lower revenues from Metal Roofs following the completion of the major Fjardaal contract in Iceland last year and lower activity levels at Elkington China following the completion of some major international airport contracts.


All other brands in this segment reported good growth. Of particular note was the widened distribution of Alumasc rainwater products through further agreements with merchants, the launch of the Linearis shower drain and the addition of Minislot and Facadeslot to the Gatic Slotdrain range. A high profile contract for Alumasc Heritage cast iron rainwater products was a major project at the newly refurbished St. Pancras International Station. Alumasc also supplied bespoke fascia and soffit products to the new roof being installed on the Centre Court at Wimbledon. Currency appreciation impacted the profitability of drainage and waterproofing brands where certain materials are imported from Europe, despite buoyant overall activity levels.


Both Gatic brands enjoyed another strong year, albeit more uneven domestic demand from airports and distribution centres and significant increases in cast iron and steel material costs impacted access covers and Slotdrain production respectively. Management was nonetheless successful in again delivering profitable growth through further development of export markets whilst recovering increased material costs through a combination of selling price rises, more cost effective sourcing and internal production efficiency gains. Significant successes in the early part of the year were contracts to supply over 10 kilometres of Slotdrain to Barcelona airport and a major contract for the supply of two thousand access covers to a Caribbean utilities project.


Profits in this segment increased by 5.6%, at slightly improved operating margins of 14.8%.


Premium Building Products

Revenue and profits were each a little lower than the prior year in this segment, largely due to a reduction in sales volumes at Scaffold and Construction Products as a result of lower demand from Ireland and start up costs associated with the in-house manufacture of Pendock profiles.


Pendock has responded to increased competition in the pre-formed plywood pipe boxing market in recent years by manufacturing in-house. This has allowed the business to establish a stable and more efficient cost base that is no longer dependent on imported product from Europe, thereby avoiding the impact of the appreciation of the Euro against Sterling during the year. Encouragingly, sales volumes, particularly into the social housing sector, improved in the second half of the year.


Timloc housebuilding products had a record year benefiting from widened geographical distribution and new product launches. A particular success was the cavity closer launched in the final quarter, with further growth from other new products such as gas barrier supports that have been introduced in recent years. Profitability also benefited from efficiency gains though recent investments in automation.



Engineering Products


Engineering Products' Divisional Operating Performance


2007/08

2006/07




Revenue (£'000's)

42,323

43,954




Underlying operating profit (£'000's)

1,664

1,660




Operating Margin

3.9%

3.8%


Across the Engineering Products division, profits remained stable at £1.7 million compared with the prior year, despite revenues that were 3.7% lower at £42.3 million. Activity levels were down in the first half of the year at Alumasc Precision but Alumasc Dispense benefited both from improved demand and from efficiency gains in the second-half arising from the relocation of the business onto a single new site in Kettering at the beginning of the calendar year.


Alumasc Precision

Alumasc Precision's revenues were 5.8% lower than the prior year mainly due to two older established automotive projects coming to an end at the start of the year. New projects for Aston Martin, Caterpillar, Deutz, Siemens and Rotork began to ramp up in the second half year, resulting in final quarter sales ahead of the prior year. These projects will be complemented by new work commencing in 2008/09 with Jaguar and Land Rover for a suite of interior products. In addition, we will begin to supply components to a new customer within the Caterpillar group, based in Kiel, Germany, which produces large diesel engines used, for example, to power cruise liners. Despite the reduced levels of profitability at Alumasc Precision Components highlighted by the recent investigation, this business remains profitable and there is much potential for further improvement, which should be assisted by the anticipated growth in sales volumes described above and a lower overall level of new project start-up costs. Dyson Diecastings, the sister business to Alumasc Precision Components, was unaffected by the investigation and had another good year, recording improvements in both revenue and profits.


Alumasc Dispense

Alumasc Dispense had a much improved year during which profitdoubled, benefiting from the success of its supply of countermounts, taps and decorated glasses to the drinks industry and a reduced cost base following the relocation of the business to one site in Kettering. A noteworthy success was the Beck's Vier condensation countermount used for a highly successful product launch that was rated by AC Nielsen On-Trade as the most successful draught launch of the decade. An exciting development for the business was winning a first soft drinks contract with Britvic for a condensation font featuring the Pepsi brand.


Prospects

Alumasc has begun the new financial year well with order books ahead of 12 months ago. Factors likely to affect performance in the remainder of the year are:


  • Growth in demand for the group's sustainable building and engineering products

  • The degree of growth or contraction in UK construction activity, particularly in new commercial and new public sector buildings

  • The level of demand in the public sector refurbishment market, particularly exterior wall insulation for housing associations in Glasgow and the M62 corridor

  • Progress in Alumasc's ambitions to grow export sales, particularly in the USA and Europe

  • The extent to which recent rapid cost inflation on metals, energy, other oil-based materials and imports from the Euro-zone and the United States can be mitigated through selling price increases 

  • Success in winning major building project work generally, including, in particular, work on the London Olympics

  • The level of demand from OEM customers and new work wins at Alumasc Precision

  • Business performance improvement plans at Alumasc Precision.


Overall, Alumasc is well positioned to meet the challenges that market conditions will bring in the remainder of the year.



Paul Hooper

Chief Executive



Business Review

Group Finance Director's Review


Note: Prior year comparatives throughout this report have been restated as a consequence of the prior year adjustment to Alumasc Precision's 2006/07 figures, as described within note 1 to the financial information contained in this announcement. 


Income statement summary and reconciliation of underlying to reported profit before tax







2007/08



2006/07


Continuing operations and total

Continuing operations


Discontinued operations



Total


£'000

£'000

£'000

£'000






Revenue

125,808

103,601

59,803

163,404






Underlying profit before tax

9,642

6,334

2,351

8,685






Property disposal gains

1,240

637

-

637

Restructuring costs

(465)

-

-

-

Brand amortisation & 

fair value adjustments


(428)

(370)


-


-






Reported profit before tax

9,989

6,601

2,351

8,952


Operating Profit

Group underlying operating profit from continuing operations in 2007/08 increased by £3.7 million to £11.2 million compared with the prior year. The increase arose mainly from the acquisition of Levolux, and continued organic growth across the Building Products division. Further details are given in the Chief Executive's Operating Review. Reported group operating profit from continuing operations was £11.6 million (2006/07: £7.8 million) benefiting from property disposal gains which more than offset the restructuring and other non-cash costs described below.


Net Interest Charge

The group net interest charge increased year on-year by £0.4 million to £1.6 million, comprising interest on borrowings of £1.1 million and non-cash pension interest of £0.5 million. Of the increase, £0.3 million was in respect of interest on borrowings, arising from the funding of recent acquisitions almost entirely with debt. Net interest charged on borrowings was covered over 10 times by underlying operating profit.


Profit Before Tax

Group underlying profit before tax from continuing operations was £9.6 million in 2007/08, over 50% ahead of the prior year.


After including property disposal gains, restructuring costs, and the other non-cash costs described below, total reported group profit before tax from continuing operations of £10.0 million was also around 50% higher than the prior year.


When the profits of Brock Metal (the business sold by the group on 29 June 2007 and included within discontinued operations) are added into the prior year comparator, the total reported group profits of £10.0 million were almost 12% ahead of the prior year.


A reconciliation of underlying profit before tax from continuing operations of £9.6 million to total reported profit before tax of £10.0 million is shown in the table above. The main features are:


  • A £1.2 million gain from property disposals, comprising £1.0 million on the sale of the former Alumasc Dispense property at Borehamwood for net cash proceeds of £1.6 million, and a £0.2 million gain on the contribution of the property being leased to Brock Metal into the group's defined benefit pension schemes at market value of £1.1 million.

  • Restructuring costs of £0.5 million arising from the relocation of Alumasc Dispense onto one site in Kettering in December, and the costs arising from the investigation and subsequent changes to the management team at Alumasc Precision, described in the Chief Executive's Operating Review.

  • Brand amortisation costs, and the post-acquisition reversal of non-cash fair value adjustments relating to inventories at Blackdown Horticultural Consultants ("Blackdown"), together £0.4 million.


Tax

The underlying group tax rate of 31.4% was slightly lower than the prior year reflecting the reduction in the UK corporation tax rate by 2% to 28% with effect from 6 April 2008, benefiting the last quarter of the group's financial year.


After the property disposal gains and one-off costs described above, the group's overall tax rate reduced to 26.6% (2006/07: 30.0%), as a result of the higher profits from property disposals in 2007/08 which are not taxable.


Earnings per share

Underlying earnings per share were 18.3 pence, some 51.2% ahead of the prior year, broadly inline with the increase in underlying profit before tax. Total reported earnings per share of 20.3 pence were 15.3% above the prior year, when the pre-disposal profits of Brock Metal are included in the comparator. This increase was greater than the increase in total profit before tax due to the lower overall tax rate.


Dividends

The Board has proposed a final dividend of 6.75 pence per share (2006/07: 6.6 pence), to be paid on 29 October 2008 to shareholders on the register on 3 October 2008. This will give a total dividend for the year of 10.0 pence per share (2006/07: 9.7 pence), an increase of 3.1%. The full year dividend is covered 1.8 times by underlying earnings from continuing operations.


Capital invested and return on investment

The group considers its capital invested to be the sum of shareholders' funds, minority interests, net debt and the net of tax pension deficit. The group's average capital invested in the year increased by around 10% to almost £56 million, reflecting the full year impact of the Levolux acquisition. Post-tax return on average capital invested1 improved from 13.2% in 2006/07 to 13.9% in 2007/08, mainly due to the improved operating margins described in the Chief Executive's Operating Review.


Shareholders' funds and return on shareholders' funds

Shareholders' funds decreased from £31.4 million at 30 June 2007 to £30.9 million at 30 June 2008, with the retained profits for the year of £3.8 million and new shares issued of £0.4 million more than offset by a post-tax actuarial loss of some £4.7 million relating to the IAS19 valuation of defined benefit pension obligations. Post-tax return on average shareholders' funds1 improved from 21.0% in 2006/07 to 21.3% in 2007/08.


1 Return on investment and return on shareholders' funds are calculated using underlying profit figures, and include Brock Metal's results in the prior year comparative



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. No assets were found to have been impaired.


Summarised Cash Flow Statement




2008

20072


£m

£m




EBITDA1

14.1

13.8

Change in working capital

1.1

(2.8)

Operating cash flow

15.2

11.0




Capital expenditure

(2.5)

(3.0)

Pension deficit funding

(3.6)

(2.5)

Interest 

(1.1)

(0.8)

Tax

(2.5)

(1.3)

Dividends

(3.6)

(3.3)

Free cash flow

1.9

0.1




Property disposal proceeds

2.3

2.4

Acquisitions (net of equity financing) 3

(3.0)

(11.2)

Cash flows from discontinued operations and other

2.3

(0.8)




Decrease/(increase) in net debt

3.5

(9.5)


1  EBITDA: Earnings before interest, tax, depreciation and amortisation.

2  Re-stated for prior period adjustments relating to Alumasc Precision.

3  Includes pre-acquisition tax payments relating to Levolux made in 2008.


Cash flow, working capital and capital expenditure

A summary of the Group cash flow statement is given above. The net cash inflow for the year was £3.5 million and consequently group net debt reduced from £12.9 million to £9.4 million.


Operating cash flows grew from £11.0 million in the prior year to £15.2 million, as a result of increased operating profits and a reduction in working capital following management action taken to improve the conversion of profits into cash.


Capital expenditure of £2.5 million in the year was below the annual depreciation charge of £3.4 million. Nonetheless, all major capital investment proposals from group businesses were approved. There were no particularly large projects of note, with most of the investment during the year supporting the new diesel engine projects at Alumasc Precision, further automation at Timloc and business systems improvements.


The acquisition of Blackdown was funded through the use of the group's committed borrowing facilities. The initial acquisition cost of £1.75 million was paid during the year, with further consideration of £0.25 million deferred pending achievement of certain financial targets relating to Blackdown's year ending 30 September 2008. The other main acquisition-related cash flow in 2007/08 was the settlement of a £1.0 million pre-acquisition tax liability relating to Levolux that had been funded by a reduction in the acquisition consideration paid for Levolux in the prior year.



The overall level of cash generation in the year was boosted by:


  • property disposal proceeds amounting to some £2.3 million, relating to the former Alumasc Dispense property referred to previously and the sale of the former Copal warehouse in Birmingham for book value; and

  • a net £1.9 million receipt arising from the agreement of completion accounts in the 2007/08 financial year relating to the disposal of Brock, and share issues totaling £0.4 million during the year.


Capital structure and financing

The group's capital structure remained broadly unchanged during the year, save for the £3.5million reduction in net debt through the overall cash in-flows for the year described above. Gearing at 30 June 2008 reduced to 30.3% compared with 41.1% on 30 June 2007.


The group retains the five year £15.0 million revolving credit facility drawn down in connection with the acquisition of Levolux in May 2007. These funds remain committed until 2012. The group has total available debt finance of £34.0 million, with the excess above the revolving credit facility available on overdraft. With net debt levels at £9.4 million on 30 June 2008, the group had almost £25 million in unutilised borrowing facilities at the year end. The group's balance sheet therefore remains strong, with capacity to finance further acquisitions in the Building Products division should attractive investment opportunities arise.


Pensions

The group's overall pre-tax pension deficit measured under IAS19 increased from £17.6 million at 30 June 2007 to £19.8 million at 30 June 2008. Despite increased cash and property contributions from the company of £5.3 million in the year, the increased deficit arose because of falling equity values in the investment portfolio and the impact of increased longevity expectations on projected pension liabilities. The increased deficit at 30 June 2008 will adversely impact the non-cash pension interest charge in the group's accounts in the current financial year to 30 June 2009.


The triennial actuarial valuation at 30 April 2007 of the Benjamin Priest Group pension scheme concluded that the deficit was £10.2 million compared with £11.2 million in the previous review. Pension deficit reduction contributions and investment gains in the intervening three year period had been largely offset by the impact of improved longevity assumptions. The actuarial review of the Alumasc Group pension scheme at 30 April 2008 is currently taking place.


Internal Control

The group's approach to internal control is described in the Statement of Corporate Governance in the Annual Report. In view of the growth in the Building Products division and the changing nature of some of the risks the group faces, the Board decided over a year ago to increase the level of both internal and external resource allocated to internal control and audit activities to provide further assurance on the effectiveness of the group's internal control systems. Concerns raised by internal audit work at Alumasc Precision Components during the year culminated in the investigation into that business and the revelation of the overstatement of profits and assets described in note 1 of the financial information contained in this announcement. All other operations within the group have independent accounting and control systems from those at Alumasc Precision Components, and were unaffected. However, as a prudent measure, the Board decided to extend the scope of the external audit at the 30 June 2008 period end close, and a further increase in the level of internal audit work is planned across the group in the current year.



Andrew Magson 

Group Finance Director


Consolidated Income Statement

For the year ended 30 June 2008




2008

2007




Restated


Notes

£'000

£'000

Continuing operations








Revenue

2

125,808

103,601

Cost of sales


(84,145)

(72,740)

Gross profit


41,663

30,861





Selling and distribution costs


(15,049)

(11,927)

Administrative expenses


(16,274)

(11,759)



10,340

7,175





Profit on disposal of property

3

1,240

637

Operating profit

2

11,580

7,812





Finance revenue


159

72

Finance costs


(1,249)

(883)

Other finance expense - pensions


(501)

(400)

Profit before taxation

2

9,989

6,601





Tax expense

6

(2,656)

(1,888)

Profit for the year from continuing operations


7,333

4,713





Discontinued operations




Profit after taxation for the year from discontinued operations


-

1,553





Profit for the year


7,333

6,266





Profit for the year attributable to:




Equity holders of the parent


7,315

6,231

Minority interest


18

35



7,333

6,266







Pence

Pence

Basic earnings per share




- continuing operations


20.3

13.2

- discontinued operations


-

4.4


5

20.3

17.6





Diluted earnings per share




- continuing operations


20.2

13.2

- discontinued operations


-

4.4


5

20.2

17.6


Consolidated Statement of Recognised Income and Expense

For the year ended 30 June 2008





2008

2007




Restated



£'000

£'000

Income and expense recognised directly in equity








Actuarial (loss)/gain on defined benefit pensions


(6,557)

4,676

Movement in cash flow hedging position


(60)

99

Exchange differences on retranslation of foreign operations


7

(6)

Tax on items taken directly to or transferred from equity


1,836

(1,754)





Net (loss)/income recognised directly in equity for the year


(4,774)

3,015





Profit for the year


7,333

6,266





Total recognised income for the year 


2,559

9,281





Attributable to:




Equity holders of the parent


2,541

9,246

Minority interest


18

35



2,559

9,281







Consolidated Balance Sheet

At 30 June 2008



Note

2008

2008

2007

2007





Restated

Restated



£'000

£'000

£'000

£'000

Assets






Non-current assets






Property, plant and equipment


20,078


22,877


Goodwill

7

16,788


15,637


Other intangible assets


4,496


4,171


Financial assets


17


17


Deferred tax assets

6

5,549


4,917





46,928


47,619







Current assets






Inventories


13,060


12,793


Trade and other receivables


29,790


28,878


Cash and short term deposits


5,529


4,814


Derivative financial assets


48


106





48,427


46,591







Non-current assets classified as held for sale



-


678







Total assets



95,355


94,888







Liabilities






Non-current liabilities






Interest bearing loans and borrowings


(14,881)


(14,873)


Employee benefits payable


(19,818)


(17,561)


Provisions


(781)


(775)


Deferred tax liabilities

6

(2,291)


(2,316)





(37,771)


(35,525)

Current liabilities






Bank overdraft


-


(2,837)


Interest bearing loans and borrowings


(15)


(12)


Trade and other payables


(26,307)


(22,737)


Provisions


(116)


(214)


Income tax payable


(237)


(2,133)





(26,675)


(27,933)







Total liabilities



(64,446)


(63,458)







Net Assets



30,909


31,430







Equity






Called up share capital

8

4,517


4,479


Share premium

8

383


-


Other reserve

8

1,101


1,251


Capital reserve - own shares

8

(106)


(133)


Hedging reserve

8

40


100


Foreign currency reserve

8

1


(6)


Profit and loss account reserve

8

24,951


25,701








Equity attributable to 

equity holders of the parent



30,887


31,392

Minority interest

8


22


38

Total equity



30,909


31,430


Consolidated Cash Flow Statement

For the year ended 30 June 2008




2008

2007




Restated


Notes

£'000

£'000

Operating activities




Operating profit from continuing operations


11,580

7,812

Adjustments for:




Depreciation 


3,427

3,433

Amortisation


399

207

Impairments


-

469

Gain on disposal of property, plant and equipment


(1,259)

(1,039)

Gain on sale of investments


-

(32)

Decrease in inventories


194

517

Increase in receivables


(2,412)

(855)

Increase/(decrease) in trade and other payables


3,392

(1,483)

Movement in provisions


(92)

(779)

Movement in retirement benefit obligations


(3,651)

(2,470)

Share based payments 


8

-

Cash generated from continuing operations


11,586

5,780





Profit before taxation from discontinued operations


-

2,351

Depreciation


-

579

Movement in working capital from discontinued operations


1,204

(9,295)

Cash generated from discontinued operations

9

1,204

(6,365)





Tax paid


(2,451)

(1,339)

Tax payments settling liabilities of subsidiaries on acquisition


(1,004)

-

Net cash inflow/(outflow) from operating activities


9,335

(1,924)





Investing activities




Purchase of property, plant and equipment


(2,124)

(2,716)

Payments to acquire intangible fixed assets


(379)

(353)

Proceeds from sales of plant and equipment


1,651

2,424

Proceeds from the sale of non-current property 

assets classified as held for sale



678

-

Acquisition of subsidiary undertakings net of cash acquired


(2,039)

(12,432)

Proceeds from sale of business activities

9

710

8,150

Proceeds from sale of investments


-

305

Interest received


159

72

Net cash outflow investing activities


(1,344)

(4,550)





Financing activities




Interest paid


(1,268)

(883)

Equity dividends paid

4

(3,550)

(3,309)

Equity dividends paid to minority interests


(34)

(31)

New borrowings (net of arrangement fees)


-

14,860

Repayment of amounts borrowed


(14)

(725)

Proceeds from issue of share capital


421

1,195

Net cash (outflow)/inflow from financing activities


(4,445)

11,107





Net increase in cash and cash equivalents


3,546

4,633





Cash and cash equivalents brought forward


1,977

(2,650)

Effect of foreign exchange rate changes


6

(6)

Cash and cash equivalents carried forward


5,529

1,977





Cash and cash equivalents comprise:




Cash and short term deposits


5,529

4,814

Bank overdrafts


-

(2,837)



5,529

1,977


Notes


1    Basis of Preparation


The preliminary results for the year ended 30 June 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.


The financial information in the preliminary statement of results does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the "Act"). The financial information for the year ended 30 June 2008 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued. Statutory accounts for the year ended 30 June 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.


The financial statements, and this preliminary statement, of The Alumasc Group plc (the Group) for the year ended 30 June 2008 were authorised for issue by the Board of Directors on 10 September 2008 and the balance sheet was signed on behalf of the Board by Paul Hooper and Andrew Magson.  


The statutory accounts have been delivered to the Registrar of Companies in respect of the year ended 30 June 2007 and the Auditors of the Company made a report thereon under Section 235 of the Act. That report was an unqualified report and did not contain a statement under Section 237(2) or (3) of the Act.


Profit re-statement

The results of internal audit work and an independent accountants' investigation during the year revealed an overstatement in prior years in the accounting records of profit before tax, and consequently inventories and other assets within Alumasc Precision that totalled £1,116,000.  £940,000 of this adjustment related to the 2006/07 financial year, with £176,000 relating to 2005/06. The adjustment impacts the Precision Engineering reporting segment within the Engineering Products division. No other reporting segments were affected. An adjustment with the related tax effect, as set out below, has been made to restate 2006/07 and the prior year.



2007

2006


£'000

£'000




Increase in cost of sales

940

176

Decrease in corporation tax charge

(282)

(53)

Decrease in profit

658

123




Decrease in work in progress

745

176

Decrease in trade and other receivables

38

-

Increase in trade and other payables

157

-

Decrease in corporation tax liability

(282)

(53)


658

123




Decrease in equity

658

123


The effect on the basic and diluted earnings per share as a result of these restatements is to reduce the previously disclosed amounts by 1.9p and 1.8p respectively in 2007 and 0.3p for both in 2006.


2    Segmental Analysis


Segment information is presented in respect of the group's business segments. The primary format, business segments, is based on the group's management and internal reporting structure. The allocation of the group's brands to business segments is shown in note 10 and a description of each segment's activities and products is given within the Chief Executive's Operating Review.


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 as well as those that can be allocated on a reasonable basis. Unallocated assets comprise deferred tax assets 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 business segment. The presentation of results by business segments has been revised during the year to reflect the evolution in the group's business and management structure. Central and other unallocated costs are no longer allocated to the business segments, resulting in the prior year comparative and the discontinued operations result being restated.


Business Segments


Analysis by business segment 2008

 

 

 

 

 

 

 


 

 

 

 

Sustainable:

Sustainable:

Premium 

Building

 

 

Engineering


Continuing

 

 

 

Energy 

Water

Building 

Products

Precision 

Alumasc

Products


Operations 

 

 

 

Management

Management

Products

Total

Engineering

Dispense

Total

Elimination

Total

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 


 

Sales to external customers

 

 

35,477

33,737

14,271

83,485

30,369

11,954

42,323


125,808

Inter-segment revenue



-

314

-

314

1,994

-

1,994

(2,308)

-




35,477

34,051

14,271

83,799

32,363

11,954

44,317

(2,308)

125,808

 

 

 

 

 

 

 

 

 

 


 

Underlying segmental operating profit

4,849

4,984

887

10,720

1,002

662

1,664


12,384

Brand amortisation 

& fair value adjustments

(428)

 - 

 - 

(428)

 - 

 - 

 - 


(428)

Restructuring costs

-

-

-

-

(315)

(150)

(465)


(465)

Segmental property disposal gains

 

-

-

-

-

-

990

990


990

Segment operating result

4,421

4,984

887

10,292

687

1,502

2,189


 12,481

Unallocated costs

 

 

 

 

 

 

 

 


(1,151)

Unallocated property disposal gains

 

 

 

 

 

 

 

 

250

Operating profit

 

 

 

 

 

 

 

 


11,580

Finance revenue

 

 

 

 

 

 

 

 


159

Finance costs

 

 

 

 

 

 

 

 


(1,249)

Other finance expense - pensions

 

 

 

 

 

 

 

 

(501)

Profit before tax

 

 

 

 

 

 

 

 


9,989

Tax

 

 

 

 

 

 

 

 

 


(2,656)

Profit after tax

 

 

 

 

 

 

 

 


7,333

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 


 


Restructuring costs of £465,000 arise from the relocation of Alumasc Dispense onto one site, £150,000, and the investigation and subsequent changes to the management team at Alumasc Precision, £315,000.



Analysis by business segment 2007 (restated) 

 

 

 

 

 

 


 




 

 

 

 

 

 

 

 


 




 

Sustainable:

Sustainable:

Premium 

Building

 

 

 


Continuing 




 

Energy 

Water

Building 

Products

Precision 

Alumasc

Engineering


Operations

Discontinued



 

Management

Management

Products

Total

Engineering

Dispense

Products

Elimination

Total

Operations

Elimination

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 


 

 


 

Sales to external customers

12,958

32,250

14,439

59,647

32,252

11,702

43,954


103,601

59,803

-

163,404

Inter-segment revenue

-

32

-

32

1,611

-

1,611

(1,643)

-

1,963

(1,963)

-


12,958

32,282

14,439

59,679

33,863

11,702

45,565

(1,643)

103,601

61,766

(1,963)

163,404

 

 

 

 

 

 

 

 


 

 



Underlying segmental operating profit

1,170

4,719

1,071

6,960

1,330

330

1,660


8,620

2,351


10,971

Brand amortisation 

& fair value adjustments


(370)


-


-


(370)


-


-


-



(370)


-



(370)

Segment operating result

800

4,719

1,071

6,590

1,330

330

1,660


8,250

2,351


10,601

Unallocated costs

 

 

 

 

 

 

 


(1,075)

 -


(1,075)

Unallocated property disposal gains

 

 

 

 

 

 

 


637

-


637

Operating profit

 

 

 

 

 

 

 


7,812

 2,351


10,163

Finance revenue

 

 

 

 

 

 

 


72

 -


72

Finance costs

 

 

 

 

 

 

 


(883)

 -


(883)

Other finance expense - pensions

 

 

 

 

 

 

 


(400)

-


(400)

Profit before tax

 

 

 

 

 

 

 


6,601

 2,351


8,952

Tax

 

 

 

 

 

 

 


(1,888)

 (798)


(2,686)

Profit after tax

 

 

 

 

 

 

 


4,713

1,553


6,266

 

 

 

 

 

 

 

 


 

 


 




Analysis by geographical segment 2008





United Kingdom


Rest of Europe 

- EU



Europe - 

Non EU



Rest of World

Continuing 

operations and 

total


£'000

£'000

£'000

£'000

£'000







Sales to external customers

103,509

12,790

2,144

7,365

125,808








Analysis by geographical segment 2007 (restated)




United Kingdom

Rest of Europe 

- EU

Europe

 - Non EU


Rest of World


Continuing operations


Discontinued operations 



Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000









Sales to external customers


81,413


11,947


1,632


8,609


103,601


59,803


163,404










Segment revenue by geographical segment represents revenue from external customers based upon the geographical location of the customer.  


Sales to external customers by discontinued operations in 2007 amounted to £30,673,000 in the UK, £24,055,000 in the rest of Europe within the EU, £4,367,000 in non-EU parts of Europe and £708,000 in the rest of the world.


3    Profit on disposal of property

Profit on disposal of property comprises:


2008

2007


£'000

£'000




Profit on sale of Borehamwood freehold property

990

-

Profit on transfer of Cannock freehold property 

250

-

Profit on sale of Walsall freehold property

-

991

Impairment of Handsworth long leasehold property prior to sale

-

(354)





1,240

637


The profit on the Cannock freehold property arose from the contribution of the property into the group's defined benefit pension schemes at market value.


4    Dividends


2008

2007


£'000

£'000




Interim dividend for 2008 of 3.25p paid on 7 April 2008  

1,172

-

Final dividend for 2007 of 6.6p paid on 31 October 2007

2,378

-

Interim dividend for 2007 of 3.1p paid on 10 April 2007 

-

1,091

Final dividend for 2006 of 6.3p paid on 2 November 2006

-

2,218


3,550

3,309




A final dividend per equity share of 6.75p has been proposed for 2008, payable on 29 October 2008. In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements.





5  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:



2008

2007



Restated


£'000

£'000




Net profit attributable to equity holders of the parent - continuing operations  

7,315

4,678

Profit attributable to equity holders of the parent - discontinued operations

-

1,553


7,315

6,231





000s

000s




Basic weighted average number of shares

36,063

35,371

Dilutive potential ordinary shares - employee share options

63

118


36,126

35,489


Reconciliation to underlying earnings per share:


2008

2007



Restated


£'000

£'000




Continuing operations:  



Profit before taxation

9,989

6,601

less profit on property sales

(1,240)

(637)

add back acquisition accounting adjustments and brand amortisation

428

370

add back restructuring costs

465

-


9,642

6,334




Tax at underlying group tax rate of 31.4% (2007: 32.7%)

(3,032)

(2,069)




Underlying earnings

6,610

4,265




Underlying earnings per share

18.3p

12.1p


The underlying earnings per share figure is based on profit adjusted for profit on disposal of property, acquisition accounting adjustments and amortisation of brands, and restructuring costs, and on the same weighted average number of shares as used in the basic earnings per share calculation above. The directors consider that this measure provides an additional indicator of the underlying performance of the group.


Excluded from the calculation of fully diluted number of shares are the LTIP awards that are not dilutive at 30 June 2008 but could be dilutive in the future.



6    Tax expense


(a)  Tax on profit on ordinary activities

Tax charged in the income statement


2008

2007



Restated


£'000

£'000

Current tax:



UK corporation tax - continuing operations 

1,581

1,318

    - discontinued operations

-

798

UK corporation tax

1,581

2,116

Amounts overprovided in previous years

-

(128)

Total current tax

1,581

1,988




Deferred tax:



Origination and reversal of temporary differences

1,125

721

Tax (over)/under provided in previous years

(50)

74

Rate change adjustment

-

(97)

Total deferred tax

1,075

698




Tax charge in the income statement

2,656

2,686




The tax charged in the income statement is disclosed as follows:



Income tax expense on continuing activities

2,656

1,888

Income tax expense on discontinued activities

-

798


2,656

2,686


Tax relating to items (credited)/charged to equity



Deferred tax:



Actuarial gains and losses on pension schemes

(1,836)

1,403

Rate change adjustment on above

-

351

Tax (credited)/charged in the statement of 

recognised income and expense

(1,836)

1,754


(b)  Reconciliation of the total tax charge


The tax expense in the income statement is less than (2007: equates to) the standard rate of corporation tax in the UK of 29.5% (2007: 30%). The differences are reconciled below:



2008

2007



Restated


£'000

£'000




Profit from continuing operations before tax

9,989

6,601

Profit before tax from discontinued operations

-

2,351

Accounting profit before income tax

9,989

8,952




Accounting profit multiplied by the UK standard rate of 

corporation tax of 29.5% (2007: 30%)

2,947

2,686

Expenses not deductible for tax purposes

186

192

Impairment of long leasehold property

-

106

Other differences

-

71

Profit on disposal of property

(366)

(297)

Profit on disposal of investment

-

(10)

Tax overprovided in previous years - corporation tax

-

(128)

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

(50)

74

Sale of property - residue of IBAs

-

89

Rate change adjustment

(61)

(97)


2,656

2,686


Total tax expense is recorded in the income statement at an effective tax rate of 26.6% (2007: 30.0%)


(c)  Unrecognised tax losses


The group has agreed tax capital losses in the UK amounting to £21million (2007: £21million) that relate to prior years, and 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 that are available for offset against capital losses amount to £6.5 million (2007: £6.5 million). After this offset net capital losses carried forward amount to £14.5 million (2007: £14.5 million). The capital losses are able to carried forward indefinitely.


(d)  Deferred tax


The deferred tax included in the balance sheet is as follows:



Liability

Asset


Accelerated

capital

allowances

Short term timing differences



Brands



Total



Pension


£'000

£'000

£'000

£'000

£'000







At 1 July 2007

1,505

(153)

964

2,316

(4,917)







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


(49)


20

(50)

(79)


1,204

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


24


(60)

(14)

(50)


-

Charged/(credited) to equity

-

-

-

-

(1,836)

Acquisition of subsidiary undertaking


1


6

97

104


-







At 30 June 2008

1,481

(187)

997

2,291

(5,549)








Deferred tax assets and liabilities are presented as non-current in the consolidated balance sheet.  

Deferred tax assets have been recognised where it is probable that they will be recovered. Deferred tax assets of £5.9 million (2007: £6.3 million) have not been recognised in respect of tax capital losses of £21 million (2007: £21 million).


(e)  Post balance sheet events


The legislation in the Finance Act 2008 to abolish industrial buildings allowances (IBAs) received Royal Assent on 21 July 2008.  As such, an adjustment will be required in the 30 June 2009 accounts to increase the deferred tax liability in respect of assets qualifying for IBAs. The estimated impact is a £330,000 tax charge to the income statement to increase the deferred tax liabilities.



7    Goodwill and business combinations




2008

2007



£'000

£'000




Restated

Cost:




At 1 July


15,735

5,556

Acquisition of Levolux


-

10,179

Acquisition of Blackdown


1,151

-

At 30 June


16,886

15,735





Impairment:




At 1 July


98

-

Impairment of Armaseam goodwill


-

98

At 30 June


98

98





Net book value at 30 June


16,788

15,637





Net book value at 1 July


15,580

5,556


Goodwill acquired through acquisitions has been allocated to cash generating units for impairment testing as set out below:




2008

2007



£'000

£'000

Building products:




Roof-Pro


3,194

3,194

Timloc


2,264

2,264

Levolux


10,179

10,179

Blackdown


1,151

-

At 30 June


16,788

15,637


At the time of signing the June 2007 accounts, the fair value exercise in relation to Levolux was only provisionally complete. During the year, fair value adjustments were finalised and, as a result, warranty provisions at the date of acquisition were reduced by £350,000, accruals in respect of taxation fees were increased by £57,000 and a deferred tax liability in respect of brands of £964,000 was introduced. 


Business combinations


Blackdown Horticultural Consultants Limited


On 31 March 2008 the group acquired 100% of the ordinary shares of Blackdown Horticultural Consultants Limited ("Blackdown"). The investment in Blackdown has been included in the group's balance sheet at its fair value at the date of acquisition.


An analysis of the provisional fair value of the Blackdown net assets acquired and the fair value of the consideration paid is set out below:



Net assets at date of acquisition:



Book value

Fair value

adjustments

Fair value to

group


£'000

£'000

£'000





Property, plant and equipment

56

(10)

46

Brands arising on acquisition

-

345

345

Inventories

211

250

461

Trade and other receivables

506

-

506

Bank overdraft

(32)

-

(32)

Trade and other payables

(213)

-

(213)

Obligations under hire purchase agreements

(7)

-

(7)

Income tax payable

(138)

85

(53)

Deferred tax liabilities

(7)

(97)

(104)





Net assets

_________
376

________
573

______________
949

Goodwill arising on acquisition



1,151




2,100

Satisfied by:




Cash purchase consideration



1,750

Deferred consideration



250

Enterprise value



2,000

Costs associated with the acquisition settled in cash


100




2,100


£250,000 is the maximum amount of deferred consideration payable within 12 months of the balance sheet date and is management's best estimate of the amount likely to be paid.


From the date of acquisition to 30 June 2008 (three months), Blackdown reported a profit of £77,000 which, after the acquisition accounting adjustments related to the reversal of the fair value adjustment in respect of profit in inventory at the date of acquisition, £250,000, and brand amortisation, £10,000, resulted in a net loss under IFRS3 conventions of £183,000.


If the combination had taken place at the beginning of the year, 1 July 2007, the revenue for the group from continuing operations would have been £127,175,000 and the profit for the year (after tax) from continuing operations would have been £7,648,000. In the three month period since acquisition, Blackdown contributed £58,000 to the group's net operating cash flows.


Included in the £1,151,000 of goodwill recognised above are certain intangible assets that cannot be individually, separately and reliably measured from the acquiree due to their nature. These items include the value of the directors, management and workforce. 







8    Reconciliation of net movements in equity




Share

Share


Other

Capital redemption

Capital reserve -


Hedging

Foreign currency

Profit 

and loss

Minority

Total


Capital

Premium

Reserve

Reserve

Own shares

Reserve

Reserve

Reserve

Interest

Equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000












At 1 July 2006

4,412

27,406

1,401

693

(133)

1

-

(9,495)

34

24,319

Impact of prior years' adjustments

-

-

-

-

-

-

-

(123)

-

(123)

At 1 July 2006, as restated

4,412

27,406

1,401

693

(133)

1

-

(9,618)

34

24,196

New shares issued

67

1,128

-

-

-

-

-

-

-

1,195

Excess depreciation on previously revalued assets

-

-


(150)


-

-


-


-


150

-

-

Capital reorganisation

-

(28,534)

-

(693)

-

-

-

29,227

-

-

Net gains on cash flow hedges

-

-

-

-

-

99

-

-

-

99

Exchange differences on retranslation of foreign operations

-

-


-


-

-


-


(6)


-

-

(6)

Actuarial gain on defined benefit pensions net of tax

-

-


-


-

-


-


-


2,922

-

2,922

Dividends

-

-

-

-

-

-

-

(3,309)

(31)

(3,340)

Profit for the period

-

-

-

-

-

-

-

6,231

35

6,266

Share based payments

-

-

-

-

-

-

-

98

-

98












At 1 July 2007, as restated

4,479

-

1,251

-

(133)

100

(6)

25,701

38

31,430












New shares issued

38

383

-

-

-

-

-

-

-

421

Excess depreciation on previously revalued assets

-

-


(150)


-

-


-


-


150

-

-

Net loss on cash flow hedges

-

-

-

-

-

(60)

-

-

-

(60)

Vesting of own shares

-

-

-

-

27

-

-

(27)

-

-

Exchange differences on retranslation of foreign operations

-

-


-


-

-


-


7


-

-

7

Actuarial loss on defined benefit pensions net of tax

-

-


-


-

-


-


-


(4,721)

-

(4,721)

Dividends

-

-

-

-

-

-

-

(3,550)

(34)

(3,584)

Profit for the period

-

-

-

-

-

-

-

7,315

18

7,333

Share based payments

-

-

-

-

-

-

-

8

-

8

Tax on share options

-

-

-

-

-

-

-

75

-

75












At 30 June 2008

4,517

383

1,101

-

(106)

40

1

24,951

22

30,909

                


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.

Other reserve
The other reserve is an asset revaluation reserve.

Capital reserve - own shares
The capital reserve - own shares relates to 69,000 (2007: 91,000) ordinary own shares held by the company. The market value of shares at 30 June 2008 was £121,000 (2007: £207,000). These are held to help satisfy the exercise of awards under the company's Long Term Incentive Plan. 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 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


9    Notes to the cash flow statement

 

(i)  Cash flows relating to discontinued operations



2008

2007



Restated


£'000

£'000

Operating activities:



Profit before taxation from discontinued operations

-

2,351

Depreciation

-

579

Working capital movements:



Inventories

-

(1,325)

Receivables

1,330

(4,035)

Trade and other payables

(126)

(3,248)


1,204

(8,608)

Cash flows in relation Copal costs of discontinuance

-

(687)

Cash flows from operating activities

1,204

(6,365)




Investing activities:



Gross proceeds on sale of business activities

-

8,897

Receivable relating to completion accounts adjustment

710

(747)

Cash flows from investing activities

710

8,150




Cash flows from discontinued operations

1,914

1,785







 

(ii)  Movement in net borrowings


Cash and 


Finance



bank overdrafts

Bank loans 

leases and

secured loans

Net

borrowings


£'000

£'000

£'000

£'000






At 1 July 2007

1,977

(14,860)

(25)

(12,908)

Cash flow movements 

3,546

-

14

3,560

Acquisition of subsidiary undertakings

-

-

(7)

(7)

Non-cash movements

-

(18)

-

(18)

Effect of foreign exchange 

rate changes

6

-


-


6






At 30 June 2008

5,529

(14,878)

(18)

(9,367)






At 1 July 2006

(2,650)

-

(722)

(3,372)

New borrowings 

(net of arrangement fees)

-

(14,860)


-


(14,860)

Acquisition of subsidiary undertakings

-

-

(28)

(28)

Cash flow movements 

4,633

-

725

5,358

Effect of foreign exchange 

rate changes

(6)

-


-


(6)






At 30 June 2007

1,977

(14,860)

(25)

(12,908)



10    Segmental allocation of major applications and brands


Sustainable building products -

Energy management

Sustainable building products -

Energy management



Solar Shading

Engineered Access Covers

Levolux

Elkington Gatic



Insulation

Roofing & Waterproofing

MR Facades

Derbigum


Hydrotech

Green Roofs

Armaseam

Blackdown Horticultural Consultants 


Zinco

Rainwater & Drainage


Gatic Slotdrain

Roofing Serivices Support Systems

Alumasc

Roof-Pro

Harmer


SML



Premium building products

Engineering products



Interior Casing Systems

Precision Engineering

Pendock

Alumasc Precision Components


Dyson Diecastings

Housebuilding Products


Timloc

Drinks Dispensing


Alumasc Dispense

Scaffolding


Scaffold and Construction Products










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