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Heywood Williams Grp (HYWD)

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Wednesday 04 March, 2009

Heywood Williams Grp

Final Results

RNS Number : 2507O
Heywood Williams Group PLC
04 March 2009
 





Date:    

Embargoed until 07.00 4 March 2009




Heywood Williams Group PLC


Full Year Results for the Twelve Months ended 31 December 2008



Results


  • Revenue of £219.2 million (2007: £250.5 million)
  • Operating profit1 was £2.5 million (2007: £11.7 million)
  • Exceptional items of £2.7 million - severance, plant closure and bank financing costs
  • Adjusted loss before tax2 of £2.3 million (2007: £9.1 million profit)
  • Loss after tax of £7.0 million (2007: £7.1 million profit)
  • Net cash inflow, prior to acquisitions and pensions, of £1.8 million (2007: £7.5 million)
  • Net debt of £46.7 million (2007: £36.9 million)
  • New medium term funding arrangements established in UK and US


Stated before exceptional items, amortisation of brands and patents and impairment of associates

2 Stated before exceptional items, amortisation of brands and patents, impairment of associates and notional interest


Robert Barr, Chief Executive, said:


'Residential building products markets around the world had a very tough 2008 and conditions are expected to worsen in 2009. We estimate that we mitigated the downturn in earnings by over £3 million, mitigated over £5 million of cost inflation and reduced working capital by £5 million.


The Group's priority over the medium term is to manage its balance sheet and maximise cash generation in order to weather the current difficult market conditions and be well positioned for the subsequent market upturn.


The two key objectives for 2009 are to:


1.    Ensure that the Group operates within its banking covenants and facilities; and

2.    Implement a more appropriate long term capital structure for the Group.


The Group has a clear and adaptable approach to dealing with current market conditions. In 2009 the Group will continue to outperform its competitors and markets, reduce costs and in particular maximise cash generation.'


For further information, please contact:





Contacts:

Heywood Williams Group PLC

Robert Barr, Chief Executive

Mike Richards, Finance Director

Tel: 020 7831 3113 (4 March)

Tel: 01422 328850 (thereafter)



Financial Dynamics 



Jon Simmons/Sophie Moate    

Tel: 020 7831 3113







Heywood Williams Group PLC


Chairman's Statement



In 2008, the Group faced unprecedented downturns in the markets it serves due to the impact of the global credit crunch on consumer spending. Our market leading specialist distribution businesses responded to the new market circumstances by reducing costs significantly, defending margins, continuing to drive new product introductions and, most importantly, generating cash by minimising working capital. 


The Group continues to have a supportive and close working relationship with its banks and they are apprised of the market challenges facing the Group. New, appropriate funding arrangements have been put in place in both North America and the UK, and the Group is also committed to implementing an appropriate long term capital structure during 2009.  


Results

The loss before tax (as adjusted1) was £2.3 million compared to a profit of £9.1 million in 2007. This was due to the severe economic downturn in 2008. The retained loss for the year was £7.0 million and shareholders' funds were £38.7 million.


The Board has recommended that no dividend is paid for the year ended 31 December 2008.


Directors & Employees

Our management teams around the world acted quickly and decisively to tackle the impact of the global credit crunch on the markets that the Group serves whilst continuing their strong focus on cash management.


All our employees showed exceptional commitment and dedication to the Group during what was an extremely difficult year. On behalf of the Board, I would like to take this opportunity to express our appreciation and gratitude to everyone at Heywood Williams for their continued support and contribution to the Group.


Summary

We believe that market conditions in the residential building products markets that the Group serves will continue to be extremely tough in 2009. The markets outlook for 2010 is unclear but we are assuming that it will remain difficult. Nevertheless, the Group will continue to demonstrate its resilience by continuing to focus on cash generation, margin delivery, tight cost control and new product introductions. 




R. F. Boyes

Chairman




1 Stated before exceptional items, amortisation of brand and patents, impairment of associates and notional interest



 

 

Heywood Williams Group PLC


Business Review



Heywood Williams had a very difficult year in 2008 given the significant reductions in residential building products markets across the globe.  


Approximately 80% of the Group's sales are branded building products to customers in the home improvement and residential new build market segments across Europe and North America. All of the markets that the Group serves declined sharply in 2008 and trading conditions became increasingly tough throughout the year due to the global credit crunch and its impact on consumer activity. This included the new build housing segment in the UK declining by circa 50% and the fourth quarter run rate in the recreational vehicle market in the USA being over 65% down on 2007. During the year, consumer credit for housing related activities reduced significantly whilst becoming more expensive. These very tough market conditions in the home improvement and residential new build markets deteriorated much further in the second half of 2008 and are expected to decline further in 2009. Little market recovery is currently anticipated until well into 2010.


The key features of 2008 were:


  • Sales decreased 12.5% to £219.2 million (2007: £250.5 million)
  • Operating profit1 decreased to £2.5 million (2007: £11.7 million)
  • The adjusted loss before tax2 was £2.3 million, compared to a profit before tax of £9.1 million in 2007
  • Exceptional costs of £2.7 million were incurred, primarily in respect of severance, plant closure and bank financing costs
  • Reported loss after tax of £7.0 million (2007: profit of £7.1 million)
  • Net cash inflow for the year, prior to acquisitions and pensions, amounted to £1.8 million (2007: £7.5 million)


The Group has a very clear approach on how it will manage its way through this market downturn. Each management team is working to outperform the market by:


  • Maximising cash generation by keeping working capital as efficient as possible
  • Pushing ahead with new product introductions and winning new business
  • Defending margins
  • Significantly reducing costs


It is estimated that this focused approach, which included reducing headcount by 24% in 2008, mitigated the downturn in earnings by over £3 million and mitigated over £5 million of cost inflation. Similarly, cash generation actions resulted in a cash inflow of £1.8 million before acquisition and pension cash flows in 2008, including a £5.0 million cash inflow from reductions in working capital levels.


European Specialist Distribution: Hardware Division 2008 Business Review

The Hardware Division offers a broad range of hardware design and product solutions for housing developers, architectural ironmongers and window/conservatory fabricators. The Division comprises Carlisle Brass and Avenco, which have significant market positions in the UK and Irish architectural hardware markets respectively and Heywood Williams' original hardware businesses, which supply door and window hardware and door panels to fabricators of windows, doors and conservatories. The Hardware Division has strong market leading positions in the UKIreland, Scandinavia and the Baltic States. The Division has some of the strongest brands in their respective markets, namely Mila™, Carlisle Brass™ and Eurospec™.


The key features of 2008 were:


  • Revenue was £120.1 million, down 7.6% on 2007, due to the reduction in market demand. This was partially offset by the successful launch of new products, including Carlisle Brass's EasiExit™ emergency door range and the full year contribution of Avenco which was acquired in 2007.
  • Operating profit1 declined to £5.6 million (2007: £10.5 million). The profit impact of the lower revenue was mitigated by a small improvement in margin and savings in overheads due to headcount reduction.
  • The Group's architectural hardware businesses continued to take market share and outperformed competitors in a very difficult market.


The Division performed satisfactorily against a backdrop of very difficult market conditions during the year. Home improvement activity was down in all markets and the residential new build market, particularly in the UK and Ireland, was down 40-50% in the year. A noticeable number of window fabricators in the UK and Ireland ceased to trade during the year. Many window fabricators in Ireland only worked three days per week for most of the year. The window fabrication market in the Baltics declined by over 35% in 2008 as export demand from Western Europe declined. The Scandinavian window fabrication market performed reasonably well until the fourth quarter of 2008 when activity levels reduced noticeably. These trends are expected to continue throughout 2009.


Carlisle Brass™ and Eurospec™ sales continued to outperform the overall market. The brands increased market penetration and new, exclusive products were launched, including the EasiExit™ emergency door range. Great emphasis continues to be placed on new product development to ensure delivery of a stream of new architectural hardware products. As an example, Eurospec™ has recently launched an impressive range of hydraulic door closers under the EasiExit™ brand to complement the other door hardware which it offers to the market.


The Carlisle Brass range of pre-packaged hardware, sold under the brand Carlisle Design GroupTM in architectural ironmongers and hardware stores, has been very well received in both the UK and Irish markets, with excellent year on year sales growth of 26% despite the prevailing market conditions. This success has been achieved by a combination of excellent product and packaging design, advising the customer on how best to merchandise the product and a consistent next day delivery service.


Mila had good business wins during the year, including commencing the supply of hardware to a major UK DIY retailer. In Scandinavia, Mila continues to take market share as fabricators switch to Mila's new Garant™ range of hardware for timber and timber/aluminium windows.


Margins across the Division have been managed satisfactorily and sales prices were increased. These increases were pushed through to reflect the higher raw material and energy costs which featured in the first half of the year and the effect of adverse currency movements on material purchase prices in the second half. The Division successfully expanded its range of low cost manufacturing partners, which gives it cost effective and flexible supply options for its ranges of exclusive products.


Management took significant cost reduction actions during the year to reduce costs in line with the lower market demand, including the planned closure of our remaining UK hardware manufacturing facility at Tamworth, which ceased production in February 2009. Headcount across the Division was reduced by 23% in the year.


North American Specialist Distribution: LaSalle Bristol 2008 Business Review

The LaSalle group of companies is a leading North American supplier of branded building products, especially plumbing, floor covering, lighting and air flow systems for the factory built housing and recreational vehicle markets. LaSalle Bristol has industry wide sales coverage and comprehensive distribution facilities, with 19 distribution centres located across North America. It also has late stage manufacturing operations which supply air flow systems, lighting and plumbing products, predominantly to the same markets.


The key features of 2008 were:


  • Sales were down 23.1% to $185.3 million (2007: $241.1 million). In sterling, revenue was down 17.8% to £99.1 million (2007: £120.5 million).
  • LaSalle Bristol had an operating loss of £1.4 million before the allocation of Group costs and a loss of £3.1 million after the allocation, compared to an operating profit after the allocation of Group costs of £1.2 million in 2007.
  • LaSalle Bristol continued to outperform its competitors in an extremely difficult market. The much publicised decline in the US housing and home improvement markets impacted the manufactured housing market which was down a further 14.5%, having already declined by 18.5% in 2007. In the first half of 2008, the recreational vehicle market declined 17%. In the second half of the year the recreational vehicle market essentially collapsed, with monthly year on year declines of up to 75% in the fourth quarter, giving an overall year on year decline compared to 2007 of 33%. The manufactured housing market also slowed in the second half with a year on year decline of 28% in the fourth quarter.
  • The LaSalle Bristol management team continued to respond swiftly to the downturn in the market by reducing costs early in the year, including a further headcount reduction of 28%, improving efficiencies to sustain gross margins and continuing to successfully launch new products.
  • In December, Bill Schmuhl retired as CEO of LaSalle Bristol. He remains the non executive Chairman of LaSalle Bristol and a member of the Group Board. Bill has been succeeded as CEO of LaSalle Bristol by Rick Karcher, who has been the Chief Financial Officer of LaSalle Bristol for the last two years and prior to that had extensive general and financial management appointments in the building products industry in both North America and Europe.


Clearly the accelerating rate of decline in the manufactured housing and recreational vehicle markets in the second half of 2008 is a major concern. Availability of funding for both manufactured houses and recreational vehicles is highly constrained and consumer confidence in North America is at an all time low. Against this unprecedented market backdrop, LaSalle Bristol has continued to provide excellent service to its customers, while at the same time reducing costs and working capital. This resulted in LaSalle Bristol being cash positive for most of the year and at the year end. Recently, a new $10 million, 3 year asset based banking facility has been agreed to ensure that LaSalle Bristol can operate effectively in these very difficult markets. Covenants in respect of earnings and net worth apply only when over $7 million of the facility is utilised.


  Group Funding

The Group's priority over the medium term is to manage its balance sheet and maximise cash generation in order to weather the current difficult market conditions and be well positioned for the subsequent market upturn.


The Group was pleased to announce recently new medium term funding arrangements with its UK banking syndicate involving a covenant package more suited to current market conditions and the establishment of additional asset based financing in North America to exclusively support LaSalle Bristol.


In North America, LaSalle Bristol has successfully replaced a one year committed $6 million credit facility with a new three year asset based $10 million facility. This facility is exclusively for the use of LaSalle Bristol and hence LaSalle Bristol has ring-fenced financing for the next three years.


The Group's main committed banking facility is in the UK. The Group has a £60 million syndicated facility with scheduled repayments of £1.67 million per quarter from September 2009. The facility runs to September 2011. The Group recently successfully agreed the following with both its UK banking syndicate and the independent trustee of the UK final salary pension plan:


  • The UK banking syndicate has reconfirmed that a committed £60 million facility based on revised covenants is available to the Group until 30 June 2010 following which the original covenants will apply.
  • The UK banking syndicate has agreed to defer capital repayments totalling £6.7 million, which were due to be made in the period September 2009 to June 2010, to be paid on a quarterly basis commencing in September 2010 through to September 2011.
  • In addition, the independent trustee for the Group's UK final salary pension plan has agreed to support the Group by suspending previously agreed deficit repair contributions totalling £3.75 million covering the period January 2009 to March 2010. These suspensions will be recovered over the period from April 2010 to December 2013.
  • The Group has agreed new covenants with its UK banking syndicate which more appropriately reflect current trading conditions. The three covenants, to be tested quarterly, relate to EBITDA, operating cash flow and operating net assets measured on the Group's UK, Avenco and Chinese companies only. Covenant levels have been set which provide comfort for the banks, whilst providing the Group with the flexibility required to operate its businesses in the current market conditions and allow for investment in new products and other planned value adding opportunities.
  • The Group has agreed to work with its UK banking syndicate to seek to establish a more appropriate long term capital structure for the Group. In the event that certain milestones are not met and as a result a satisfactory long term capital structure is not implemented by 30 September 2009, a charge of £4.5 million would be levied by the banks with payment due in five quarterly instalments commencing in September 2010.
  • Interest on borrowings from the UK banking syndicate will be calculated at 3.75% above LIBOR and £1.4 million of advisor and arrangement fees have been incurred in connection with these changes. This cost has been charged as part of the exceptional items in 2008.


Outlook

Residential building products markets around the world had a very tough 2008 and conditions are expected to worsen in 2009.


The Group's priority over the medium term is to manage its balance sheet and maximise cash generation in order to weather the current difficult market conditions and be well positioned for the subsequent market upturn. We estimate that we mitigated the downturn in earnings by over £3 million, mitigated over £5 million of cost inflation and reduced working capital by £5 million.


The two key objectives for 2009 are to:


1.    Ensure that the Group operates within its banking covenants and facilities; and


2.    Implement a more appropriate long term capital structure for the Group.


The Group has a clear and adaptable approach to dealing with current market conditions. Our objectives for 2009 will be achieved by the Group outperforming its competitors and markets, continuing to reduce costs and in particular maximising cash generation. 




R. G. Barr

Chief Executive




1 Stated before exceptional items, amortisation of brands and patents and impairment of associates

2 Stated before exceptional items, amortisation of brands and patents, impairment of associates and notional interest


  Heywood Williams Group PLC


Finance Director's Review



Results

The reported results have been adjusted to exclude exceptional items, notional interest, impairment of associates and amortisation and the related deferred tax credit in respect of intangible assets associated with the Carlisle Brass and Avenco acquisitions to arrive at an on-going, underlying adjusted income statement.


The significant downturn in our markets had a major impact on revenue, which reduced overall by 12.5% to £219.2 million. Revenue of our European Hardware division, including full year sales from Avenco, decreased 7.6% to £120.1 million. The decline in the US housing and home improvement market was particularly severe and LaSalle Bristol revenue fell 17.8% to £99.1 million.

  

The reduction in total revenue of £31.3 million had a substantial impact on adjusted operating profit which decreased to £2.5 million from £11.7 million in 2007. As the market downturn began to impact both divisions acted quickly in reducing costs, improving efficiencies and recovering cost inflation. It is estimated that cost mitigating actions, including a reduction in headcount of 24%, benefited the Group by over £3 million in the year and cost inflation of over £5 million was recovered. Operating profit in both divisions declined from 2007 with Hardware down £4.9 million and LaSalle Bristol down £4.3 million. 

  

The adjusted loss before tax was £2.3 million (2007: £9.1 million profit) including associate losses of £0.3 million and finance costs of £4.5 million. The adjusted loss after taxation was £3.4 million (2007: £6.9 million profit) as a result of a tax charge of £1.1 million. The net tax charge was primarily due to a non-cash deferred tax charge in respect of the unwind of part of the deferred tax asset on the UK pension deficit, with other elements of the tax charge offsetting each other.

  

The loss for the year resulted in an adjusted diluted loss per share of 4.0 pence (2007: 7.7 pence earnings per share).


Net cash generated in 2008, prior to expenditure on acquisitions and pensions, was £1.8 million (2007: £7.5 million). The Group had net debt of £46.7 million at the year end (2007: £36.9 million), an increase of £9.8 million due primarily to payment of the deferred consideration of £8.0 million in respect of the Carlisle Brass acquisition.


Shareholders' funds decreased by £2.9 million to £38.7 million during 2008, primarily due to the loss for the year and an increase in the IAS 19 pensions deficits being substantially offset by favourable exchange differences arising on the translation of the net assets of foreign subsidiaries. 


Income Statement

The table below highlights and reconciles the reported and adjusted income statement.


£ million

2008


2008


2007


2007

Continuing Operations

Reported

Adj.

Adjusted


Reported

Adj.

Adjusted




 




 

Revenue



 




 

Hardware

 120.1 

 - 

120.1 


 130.0 

 - 

130.0 

LaSalle Bristol

 99.1 

 - 

 99.1 


 120.5 

 - 

 120.5 


 219.2 

 - 

219.2 


 250.5 

 - 

 250.5 

Operating profit/(loss), pre exceptionals



 




 

Hardware

4.4 

 1.2

 5.6 


9.5 

1.0 

10.5 

LaSalle Bristol

(3.1) 

 - 

(3.1) 


1.2 

 - 

1.2 


 1.3 

1.2 

2.5 


10.7 

1.0 

11.7 

Operating exceptional items

(1.6) 

1.6

 - 


0.8

(0.8) 

 - 

Share of associates' (losses)/profits

(0.3) 

 - 

(0.3) 


 0.2 

 - 

 0.2 

Impairment of associate 

(0.3)

 0.3

 - 


 - 

 - 

 - 

Non-operating exceptional items

-

-

-


(0.4)

0.4

-

Finance costs

(5.3)

0.8

(4.5)


(2.3)

(0.5)

(2.8)

(Loss)/profit before taxation

(6.2) 

 3.9 

(2.3) 


 9.0 

 0.1 

 9.1

Taxation

(0.8)

(0.3)

(1.1)


(1.9)

 (0.3) 

(2.2)

(Loss)/profit for the year

(7.0) 

3.6

(3.4) 


 7.1

(0.2)

6.9 




 




 

Diluted EPS (p)

(8.3) 


(4.0) 


 8.0 


7.7 




Goodwill of £11.4 million arising on the acquisition of Carlisle Brass and Avenco has been allocated to intangible brands and patents. The amortisation charge on these assets is £1.2 million in 2008 (2007: £1.0 million) and this charge and the related £0.3 million deferred tax credit is added back to arrive at the adjusted profit.



The operating exceptional charge of £1.6 million in 2008 related to the following:


  • Severance costs of £0.8 million arising from headcount reductions.
  • Closure costs of £0.8 million relating to the closure of the Group's sole remaining UK hardware manufacturing business, which was announced in December 2008 and completed in February 2009.
  • Impairment of fixed assets and stock of £0.2 million caused by the closure of an associate's business.
  • Professional advisory costs of £0.3 million incurred by the Group in respect of the revised medium funding arrangements with its UK banking syndicate. A further £1.1 million of bank facility renegotiation costs and fees are included within exceptional finance costs.
  • A pension curtailment credit of £0.5 million which arose due to the benefits of the closed US salaried plan no longer attracting inflationary increases.


The operating exceptional profit of £0.8 million in 2007 related to a release from a surplus property provision due to the successful sub-let and surrender of properties during the year. 


Performance of the associate companies in which the Group has a shareholding was also impacted by the severe economic downturn and both associate companies were loss making in the year. In December 2008 the closure of Interconsulting SRL, a small Italian hardware manufacturer, was announced. The Group has impaired all of the remaining investment in its 25% shareholding in Interconsulting, resulting in a charge of £0.3 million.


The non-operating exceptional loss of £0.4 million in 2007 related to the loss on the sale of the Group's 20% shareholding in Molds Limited.


The reported finance cost of £5.3 million in 2008 includes a benefit of £0.3 million of notional interest in the year (2007: £0.5 million) and exceptional costs of £1.1 million relating to bank facility renegotiation costs and fees which have been excluded for the adjusted income statement. The notional interest relates to the unwinding of discounts on provisions, pension liabilities and deferred consideration and the expected return on the pension schemes' assets.


The adjusted finance cost increased by £1.7 million to £4.5 million in 2008 (2007: £2.8 million) due primarily to an increase in the average net debt of the Group, which rose by £16.5 million to £50.9 million in 2008 (2007: £34.4 million) caused principally by the deferred consideration payment in March 2008 in respect of the Carlisle Brass acquisition and the August 2007 Avenco acquisition.


On a reported basis, there was a loss before tax of £6.2 million (2007: £9.0 million profit) and the loss for the year was £7.0 million compared to a profit of £7.1 million in 2007. A reported diluted loss per share of 8.3 pence compared to an earnings per share of 8.0 pence in 2007.


Balance Sheet


£ million

2008


2007





Tangible fixed assets, associates & net financial items

18.9 


17.0 

Intangible assets

45.2 


46.3 

Working capital

45.5 


43.0 

Net debt

(46.7)


(36.9)

Net current and deferred tax

(0.7)


(4.2)

Provisions

(9.0)


(8.5)

Deferred consideration

-


(7.8)

Pension liabilities

(14.5)


(7.3)

Shareholders' funds

 38.7 


 41.6 



Tangible fixed assets, associates and net financial items increased by £1.9 million from 2007 due primarily to favourable exchange differences of £2.6 million offset by depreciation exceeding capital spend by £1.0 million. Intangible assets relate to goodwill, brand names and patents recognised on the acquisition of Carlisle Brass and Avenco. Brand names and patents are amortised on a straight line basis over 10 and 5 years respectively. Amortisation of brand names and patents in 2008 was £1.2 million (2007: £1.0 million).


Working capital levels were inflated at the year end by £7.5 million due to stronger US Dollar and Euro exchange rates compared to 2007. At constant exchange rates working capital levels have reduced by £5.0 million from 2007.


The net current and deferred tax creditor has reduced by £3.5 million as a result primarily of an increase in deferred tax assets due to the higher pension deficits and recognition of a £1.0 million income tax debtor arising in the US as a result of losses incurred in 2008.


Provisions have increased by £0.5 million during 2008 due to the provision for closure of the Group's sole remaining UK hardware manufacturing business. The closure provision related primarily to severance and property costs.  

  

The deferred consideration in 2007 of £7.8 million associated with the Carlisle Brass acquisition represented the present value of the £8.0 million consideration which was paid in March 2008.


The increase in pension liabilities results from a reduction in the value of assets offset by the impact of higher bond rates which are used to value future liabilities and the additional £3.0 million deficit repair contribution to the UK defined benefit scheme by the Group in 2008.


Cash Flow

 

£ million

2008


2007





Adjusted operating profit

 2.5 


11.7 

Working capital

5.0


(1.2)

Capex less disposals

(1.1)


(1.4)

Depreciation

1.9


 1.8 

Taxation

(0.5)


(0.5)

Finance cost

(5.0)


(2.9)

Provisions

(1.4)


(2.5) 

Other

0.4


2.5

Cash flow pre acquisitions & pensions

1.8


7.5

Acquisitions

(8.4)


(15.3)

Pensions

(3.2)


(3.7) 

Increase in net debt

(9.8)


(11.5)

Opening net debt

(36.9)


(25.4)

Closing net debt

(46.7)


(36.9)



A key focus for the Group is cash generation and in particular the efficient management of working capital. This approach generated a cash inflow before acquisitions and pensions of £1.8 million (2007: £7.5 million). Cash flow post acquisition and pension expenditure was an outflow of £9.8 million in the year resulting in net year end borrowings of £46.7 million.

  

As the market downturn began to impact the Group acted quickly to reduce stock levels and an increased focus and effort was placed on debtor collection and credit risk management. As a result of these actions working capital, at constant exchange rates, reduced by £5.0 million in the year.


Capital expenditure in the year was lower than 2007 by £0.3 million and lower than depreciation by £0.8 million and the taxation outflow at £0.5 million was similar to 2007.  


The increased finance cost outflow reflects the higher interest cost due to the increased average level of Group net debt following the Avenco acquisition in August 2007 and the deferred consideration payment in March 2008 relating to the Carlisle Brass acquisition. The finance cost outflow also includes £0.2 million in respect of bank facility renegotiation costs and fees.


The expenditure on provisions in 2008 related primarily to payments against property provisions in respect of surplus leasehold properties together with severance costs of £0.7 million arising from the significant reduction in headcount in the year.


The other cash inflow of £0.4 million related primarily to exchange gains. In 2007 the other cash inflow of £2.5 million was a by-product of the Group's net asset hedging policy which was changed in early 2008.


The 2008 acquisition expenditure related to the deferred consideration of £8.0 million associated with the Carlisle Brass acquisition and £0.4 million of final consideration and costs relating to the Avenco acquisition. The 2007 acquisition expenditure related solely to the consideration and costs associated with the Avenco acquisition.


The Group continued to fund the pension liabilities at agreed contribution rates. The pensions outflow included the additional deficit repair contribution of £3.0 million to the UK defined benefit scheme.


Group Funding and Going Concern

As at 31 December 2008 the major committed bank facilities of the Group were a £60.0 million facility with a UK banking syndicate (2007: £62.0 million) and a £4.1/$6.0 million facility in the US (2007: £3.0/$6.0 million). The UK facility is renewable in September 2011. In addition to committed facilities the Group had £6.9 million of uncommitted, short term overdraft facilities (2007: £4.7 million). The UK and US facilities are secured by first ranking fixed and floating charges over the majority of the Group's operating assets.


The US facility was replaced by a new £6.9/$10.0 million facility in January 2009 which expires January 2012. The facility is subject to net worth and earnings covenants if utilisation of the facility exceeds £4.8/$7.0 million.


In February 2009 the UK banking syndicate reconfirmed the £60.0 million facility and agreed new covenants through to June 2010. These covenants are based on maximum absolute variances against budget for EBITDA, operating cash flow and operating net assets of the UK, certain Irish and the Chinese companies within the Group and are measured on a quarterly basis. The UK banking syndicate has also agreed to defer £6.7 million of repayments of the term loan due quarterly from September 2009 to June 2010. These deferred capital repayments are to be paid over the remaining repayment term of the loan from September 2010 to September 2011.


The Group has inherent operational risks linked to its markets, customers, suppliers, management of working capital, commodity and currency fluctuations and treasury risks in respect of foreign exchange, funding, interest rates and pension funding.


The current economic environment is challenging and this creates uncertainty over these operational risks particularly in respect of demand for the Group's products and the exchange rate between sterling and the US dollar. However, we have undertaken a further review of our budgets and forecasts in light of current trading conditions and the revised covenants recently agreed with our banks and are confident that we can operate within our facilities. We also have in place plans to further reduce costs and generate cash through reductions in working capital should conditions worsen significantly as compared with our forecasts.


Pensions 

Heywood Williams has defined benefit schemes in the UK and US. The US schemes have an IAS 19 deficit of £5.6 million at the year end, which increased in the year from £2.1 million in 2007. The increase in the deficit of £3.5 million was primarily due to a reduction in the value of assets and exchange differences. Contributions in respect of this deficit are in line with practice in the US.


The UK defined benefit scheme has an IAS 19 deficit of £8.9 million, which increased by £3.7 million in 2008. This increase results primarily from a reduction in the value of assets of £14.2 million, which was partially offset by an increase in bond yields and the payment of £3.0 million of deficit repair contributions, as agreed with the trustee under a deficit repair plan.


As part of the revised medium term funding arrangements that have been put in place in the UK, the UK pension scheme trustee has agreed to suspend deficit repair contributions from January 2009 to March 2010. Thereafter contributions will be paid at £4.5 million per annum through to the end of 2013. During 2009 however, the next triennial actuarial valuation will be performed, which will determine a revised funding deficit and an associated revised long term recovery plan. The Group continues to provide a second ranking security to the trustee including a cross guarantee structure involving all major Group subsidiaries.


Treasury Policy

The Group's principle foreign exchange exposure is the translation of US dollar denominated results and net assets into sterling. The weighted average rate for 2008 was $1.87 (2007: $2.00) which, due to the operating losses at LaSalle Bristol, adversely impacted Group earnings by £0.1 million. The year end rate was $1.45.


In early 2008 the policy on hedging the net assets of the US and Europe was changed such that these assets are no longer hedged. This change was made due to the Group's strengthened balance sheet and to eliminate the risk of cash outflows that may occur from hedging. During 2008 the net gain on the retranslation of foreign investments was £11.1 million (2007: £0.5 million).


Accounting Policies and Standards

There were no changes in accounting policies or standards that had any significant impact on the Group's accounting policies during the year.




M. J. Richards

Finance Director

  HEYWOOD WILLIAMS GROUP PLC


CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 DECEMBER 2008



 


2008

2007



Total

Total


Note

£m

£m

Continuing operations




Revenue

2

219.2

250.5

Costs and overheads excluding exceptional items


(217.9)

(239.8)

Operating profit before exceptional items

2

1.3

10.7

Operating exceptional items

3

(1.6)

0.8

Operating (LOSS)/PROFIT


(0.3)

11.5

Non-operating exceptional items

3

-

(0.4)

Share of post-tax (losses)/profits of associates


(0.3)

0.2

Impairment of associate


(0.3)

-

Finance costs

4

(6.9)

(4.1)

Finance income

4

1.6

1.8

(LOSS)/Profit on continuing activities before taxation


(6.2)

9.0

Taxation

5

(0.8)

(1.9)

(LOSS)/Profit for the year attributable to equity holders of the parent company

7

(7.0)

7.1





(loss)/Earnings per ordinary share - continuing operations for (loss)/profit attributable to ordinary equity holders of the parent company

6


Basic    


(8.3p)

8.4p

Basic, excluding exceptional items


(5.1p)

7.9p

Diluted


(8.3p)

8.0p

Diluted, excluding exceptional items


(5.1p)

7.5p


 


STATEMENT OF RECOGNISED INCOME AND EXPENSE

YEAR ENDED 31 DECEMBER 2008





2008

2007



£m

£m

Currency translation differences on foreign investments


22.8

0.4

Currency translation differences on foreign currency hedges


(11.7)

0.1

Actuarial (loss)/gains on defined benefit pension plans


(10.3)

4.7

Deferred tax on actuarial gains and losses on defined benefit pension plans


3.2

(1.3)

Loss on interest rate hedge


(0.4)

(0.1)

Net income recognised directly in equity


3.6

3.8

(Loss)/profit for the year


(7.0)

7.1

Total recognised income and expense in the year


(3.4)

10.9

 

 HEYWOOD WILLIAMS GROUP PLC


CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2008



 

2008

2007


£m

£m

Assets



Non-current assets



Property, plant and equipment

16.3

15.6

Intangible assets

45.2

46.3

Investments accounted for using the equity method

1.8

2.3

Deferred income tax asset

4.8

3.2


68.1

67.4

Current assets



Inventories

47.5

45.2

Trade and other receivables

24.2

28.8

Financial assets

9.1

0.2

Income tax receivable

1.2

0.1

Cash at bank and in hand

5.4

7.6


87.4

81.9

Total assets

155.5

149.3

Equity and liabilities



Equity attributable to equity holders of the parent company



Called up share capital

17.0

17.0

Other reserves

11.3

0.2

Retained earnings

10.5

24.5

Own shares

(0.1)

(0.1)


38.7

41.6

Non-current liabilities



Defined benefit pensions deficit

14.5

7.3

Provisions

7.0

7.2

Financial liabilities

36.8

40.2

Deferred income tax liabilities

5.7

5.5


64.0

60.2

CURRENT LIABILITIES



Financial liabilities

23.6

13.2

Trade and other payables

26.2

31.0

Provisions

2.0

1.3

Income tax payable

1.0

2.0


52.8

47.5

TOTAL EQUITY AND LIABILITIES

155.5

149.3

  HEYWOOD WILLIAMS GROUP PLC


CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 DECEMBER 2008





2008

2007



£m

£m

Cash flows from operating activities




Cash generated by operations


5.5

6.9

Net income tax paid


(0.5)

(0.5)

Net cash inflow from operating activities


5.0

6.4

Investing activities




Interest received


0.8

0.4

Dividends received from associates


0.1

0.1

Purchase of intangible assets


(0.2)

(0.1)

Purchase of property, plant and equipment


(0.9)

(1.3)

Disposal of subsidiary undertakings and businesses


-

(0.6)

Disposal of associate undertaking


-

0.1

Acquisition of subsidiary


(0.4)

(15.3)

Forward exchange hedging contract 


(1.4)

2.1

Net cash flow from investing activities


(2.0)

(14.6)

Financing activities




Interest paid


(5.6)

(3.3)

Exceptional financing items


(0.2)

-

Additional borrowings


7.3

11.1

Repayment of borrowings


(0.1)

-

Payment of deferred consideration


(8.0)

-

Net cash flow from financing activities


(6.6)

7.8

Net movement in cash and cash equivalents 


(3.6)

(0.4)

Cash and cash equivalents at beginning of the year


7.6

8.0

Exchange gains on cash and cash equivalents


1.4

-

Cash and cash equivalents at end of the year


5.4

7.6



Reconciliation of net movement in cash and cash equivalents to movement in net debt




2008

2007



£m

£m

Net movement in cash and cash equivalents


(3.6)

(0.4)

Net movement in debt


(7.2)

(11.1)

Movement in net debt resulting from cash flows


(10.8)

(11.5)

Exchange fluctuations


1.0

-

Movement in net debt


(9.8)

(11.5)

Opening net DEBT


(36.9)

(25.4)

Closing net debt


(46.7)

(36.9)

  HEYWOOD WILLIAMS GROUP PLC


NOTES ON THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2008



1    Accounting policies and general information


Heywood Williams Group PLC is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Stock Exchange.


The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union.


The financial information for the years ended 31 December 2007 and 31 December 2008 is abridged and has been extracted from the 2008 statutory accounts of Heywood Williams Group PLC which were approved by the Board of Directors on 4 March 2009, along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies. The auditors have issued an unqualified opinion on the 2008 statutory accounts and their report did not contain any statement under section 237(2) or 237(3) of the Companies Act 1985. The 2007 statutory accounts have been delivered to the Registrar of Companies and included an unqualified auditors' report.


2    Segmental analysis


For management purposes, the Group is currently organised into two continuing operating divisions - Hardware and LaSalle Bristol. These divisions are the basis upon which the Group reports its on-going primary segment information.

Principal activities are as follows:


Hardware

The Hardware Division is a market leading specialist distributor of architectural hardware and door panels to the UK and certain other European markets. 


LaSalle Bristol

LaSalle Bristol is a market leading distributor of branded building products to the North American manufactured housing, recreational vehicle and modular housing markets.


Segment results for the year ended 31 December



Year ended 31 December 2008

Year ended 31 December 2007


Hardware

LaSalle Bristol

Unallocated

Total

Hardware

LaSalle Bristol

Unallocated

Total


£m

£m

£m

£m

£m

£m

£m

£m

Revenue

120.1

99.1

-

219.2

130.0

120.5

-

250.5










Segment Result

4.4

(3.1)

-

1.3

9.5

1.2

-

10.7

Operating exceptional items

(1.9)

0.3

-

(1.6)

-

-

0.8

0.8

Operating (loss)/profit

2.5

(2.8)

-

(0.3)

9.5

1.2

0.8

11.5

Non-operating exceptional items




-




(0.4)

Share of post-tax profits of associate



(0.3)




0.2

Impairment of associate




(0.3)




-

Finance cost




(6.9)




(4.1)

Finance income




1.6




1.8

(Loss)/profit before income tax




(6.2)




9.0

Taxation




(0.8)




(1.9)

(Loss)/profit for the year




(7.0)




7.1



3    Exceptional items 

(i)    The exceptional items comprise:


2008

2007


£m

£m

Restructuring costs:



  Severance

(0.8)

-

  Plant closures

(1.0)

-


(1.8)

-

Advisory fees associated with bank facility renegotiations

(0.3)

-

Pension curtailment

0.5

-

Release from surplus property provision

-

0.8

Operating exceptional items

(1.6)

0.8

Exceptional costs included within financing costs

(1.1)

-

Total exceptional items

(2.7)

0.8

The Group implemented a number of cost cutting measures during the year which involved significant head count reductions, thus incurring £0.8m of severance costs (employment costs) of which £0.7m has been expended in the year, with £0.1m being carried forward in provisions. All headcount reductions were announced prior to the year end. 

Plant closure costs include £0.8m in relation to the closure of the Group's sole remaining UK hardware manufacturing plant which was announced in December 2008. The remaining £0.2m relates to fixed asset tooling and stock impairment charges caused by the closure of an associate's business. The £0.8m of business closure costs includes a £0.3m surplus property provision to cover costs over the remainder of the lease period of the business premises, £0.2m for severance costs, £0.1m for professional advisory costs and £0.2m in respect of balance sheet impairment. The £0.2m impairment charge has been utilised at the year end and the remaining £0.6m is held within provisions. 

The Group has incurred professional advisory costs of £0.3m and bank fees of £1.1m associated with facility renegotiations during the year in respect of UK banking syndicate covenant waivers received in 2008, resetting covenants for the period to June 2010 and the continuation of the current £60m UK facility.

The pension curtailment credit is a one off benefit which arose as LaSalle Bristol management revised the funded plan benefits of the US scheme at the end of 2008 whereby benefits will no longer be subject to inflationary increases. 

The 2007 release of £0.8m from the surplus property provision arose as the Group sublet or surrendered four properties during the year.

(ii)    The 2007 non-operating exceptional loss of £0.4m relates to the loss on the sale of Molds Limited. 

Each of the above transactions are treated as exceptional since they are infrequent and material in nature. As such, the amounts earned or charged in any given year is not indicative of a trend in financial performance.


4    Finance cost and income


(i)    Finance cost comprises:


2008

2007


£m

£m

Bank loans and overdrafts

(4.5)

(3.1)

Notional interest relating to discounting on provisions

(0.3)

(0.3)

Notional interest relating to discounting on deferred consideration

(0.2)

(0.5)

Amounts payable on foreign exchange contracts

(0.8)

(0.1)

Other

-

(0.1)


(5.8)

(4.1)

Exceptional finance costs (note 3)

(1.1)

-


(6.9)

(4.1)

(ii)    Finance income comprises:


2008

2007


£m

£m

Bank interest

-

0.1

Notional interest relating to defined benefit pension obligations

0.8

1.3

Amounts receivable on foreign exchange contracts

0.8

0.4


1.6

1.8

     


5    Taxation 


(i)    Consolidated income statement


2008

2007


£m

£m

Current taxation



    UK corporation tax at 28.5% (2007: 30%)

-

0.6

    UK adjustments in respect of prior periods

(0.1)

(0.5)

    Overseas taxation current year

(0.7)

0.6

    Overseas taxation prior year

(0.6)

(0.3)


(1.4)

0.4

Deferred taxation

2.2

1.5


0.8

1.9


There were no tax credits or charges relating to operating or non-operating exceptional items in the current and prior year. 


6    Earnings per share

Basic EPS amounts are calculated by dividing net (loss)/profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net (loss)/profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The calculation of the basic and diluted EPS is based on the following data:


2008

2007


£m

£m

(Losses)/earnings - continuing operations



(Losses)/earnings attributable to members of parent company

(7.0)

7.1

Adjusted for exceptional items 

2.7

(0.4)

Adjusted (losses)/earnings

(4.3)

6.7



2008

2007


Number

Number


'000

'000

Number of shares



Weighted average number of ordinary shares    - basic

84,749

84,726

Effect of dilutive potential ordinary shares            - SRSOS

-

54

                                                                                      - PSP

-

4,297

                                                                                      - DSP

-

69

Weighted average number of ordinary shares   - diluted

84,749

89,146

Where share options under the savings related and executive schemes are not dilutive in the period they are not included in the calculation of EPS. These could be potentially dilutive in the future.

Dilutive potential ordinary shares constitute shares associated with the Group's Save As You Earn Scheme ('SRSOS'), the Performance Share Plan ('PSP') and the Deferred Share Plan ('DSP').

In order to provide a comparable measure of the underlying performance of the Group, the adjusted diluted EPS figure excludes the effect of exceptional items, net of related taxation.

Adjustments for exceptional items are analysed as follows:



2008

2007


Note

£m

£m

Operating exceptional items

3

(1.6)

0.8

Exceptional financing costs

3

(1.1)

-

Non-operating exceptional items

3

-

(0.4)



(2.7)

0.4

 


7    Reconciliation of movements in equity









Share

Foreign

Retained

Own



capital

exchange

earnings

shares

Total


£m

£m

£m

£m

£m

At 1 January 2007

17.0

(0.3)

13.5

(0.1)

30.1

Profit for the financial year

-

-

7.1

-

7.1

Exchange fluctuations:






    Foreign investment

-

0.4

-

-

0.4

    Foreign currency hedges

-

0.1

-

-

0.1

Loss on interest rate hedge

-

-

(0.1)

-

(0.1)

Employee share options

-

-

0.6

-

0.6

Pension gain*

-

-

4.7

-

4.7

Deferred tax on pension gain

-

-

(1.3)

-

(1.3)

At 1 January 2008

17.0

0.2

24.5

(0.1)

41.6

Loss for the financial year

-

-

(7.0)

-

(7.0)

Exchange fluctuations:






    Foreign investments

-

22.8

-

-

22.8

    Foreign currency hedges

-

(11.7)

-

-

(11.7)

Loss on interest rate hedge

-

-

(0.4)

-

(0.4)

Employee share options

-

-

0.5

-

0.5

Pension loss*

-

-

(10.3)

-

(10.3)

Deferred tax on pension loss

-

-

3.2

-

3.2

At 31 December 2008

17.0

11.3

10.5

(0.1)

38.7


* Actuarial loss/gain of defined benefit pension plans.



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