Alumasc Group Regulatory News (ALU)

5 Feb 2009 07:00



Thursday 5 February 2009

THE ALUMASC GROUP PLC - INTERIM ANNOUNCEMENT

"a robust first-half trading performance"

Alumasc (ALU.L), the UK-based supplier of premium building and engineering products, announces a robust first-half trading performance in the six months to 31 December 2008, driven by continued profitable growth in the group's sustainable building products businesses against a backdrop of general economic and market conditions that became increasingly challenging as the period progressed.

Financial Highlights

Revenue grew by 1% to £60.7m .

Underlying(1) pre-tax profit of £3.5m fell just 3% short of the strong interim figure last year (2007: £3.6m) and underlying(1) earnings per share were little changed at 6.8p (2007: 7.0p). 

The reported pre-tax profit was £2.7m (2007: £4.4m, benefiting from a property disposal gain of £1.0m) and basic earnings per share were 4.8p (2007: 8.7p).

An unchanged dividend per share of 3.25p is declared. 

The £1.4m increase in net debt in the period, taking net debt to £10.8m (gearing of 37%), was consistent with Alumasc's usual first-half experience and some £2.0m better than internal expectations set at the beginning of the year. 

Commercial Highlights

Building Products revenue grew by 6% to £42.7m and underlying(1) operating profit increased by 7% to £5.2m. Operating margins remained healthy at 12.1%, a little ahead of prior-year levels. 

Sustainable building products activities generated close to two-thirds of the group's first-half revenue, achieving growth rates well-above UK construction market averages and delivering superior returns on both sales and capital invested. 

Within this category, Levolux, the UK's leading solar shading company, which was acquired in May 2007, delivered an outstanding first-half performance and continues to win high-profile and innovative project work. 

Engineering Products revenue totalled £18.8m (2007 £20.4m) and underlying operating losses were £0.3m (2007: underlying operating profit of £0.3m).

Engineering Products revenue and profit had both been ahead of prior period comparators at the end of the first quarter. 

John McCall, Chairman, stated:

"The Board believes that medium and long term prospects for the group's core Building Products' activities remain strong, particularly for sustainable building products. However, these activities are not immune to current economic and market conditions. Divisional profits are being impacted by Sterling's weakness and could be further affected should demand for new commercial buildings weaken in 2009, as is being anticipated by some industry commentators. Nonetheless, current order books for the division remain healthy, albeit below the levels seen six months ago.

The significant downturn in demand from OEM customers that impacted results in the Engineering Products division just prior to the calendar year end has continued into the new calendar year and costs have been reduced accordingly. 

In summary, the Board's expectations for the current year are unchanged from those given in the group's trading update of 19 December 2008.  The group's cash flow performance continues to be robust and the group's balance sheet remains strong. Alumasc is well placed to manage through current economic uncertainties and take advantage of opportunities."

Presentation:

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

Enquiries:

Notes

(1)excludes charges for restructuring, brand amortisation and asset impairment, as well as property disposal gains

CHAIRMAN'S STATEMENT

Overview

Alumasc delivered a robust first-half trading performance, driven by continued profitable growth in the group's sustainable building product businesses against a background of general economic and market conditions that became increasingly challenging as the period progressed. 

In the six months to 31 December 2008, group revenue grew by 1% to £60.7 million. Underlying profit before tax(1) of £3.5 million (stated prior to restructuring costs, brand amortisation and impairment charges) fell just 3% short of the strong interim result of £3.6 million last year(2), mainly due to significantly lower profitability experienced in the Engineering Products division in the last few weeks of the period. Reported profit before tax was £2.7 million (2007: £4.4 million(2)). This is stated after charging exceptional restructuring costs of £0.4 million, mostly incurred in December as management reduced the ongoing cost base of those businesses experiencing weakened demand, and non-cash impairment charges of £0.4 million. The prior year period's reported profit before tax had benefited from a property disposal gain of £1.0 million.

Underlying earnings per share(1) were 6.8 pence (2007: 7.0 pence(2)) and basic earnings per share were 4.8 pence (2007: 8.7 pence(2)). The Board has declared an unchanged interim dividend of 3.25p per share.

Building Products

Divisional revenue grew by 6% to £42.7 million and underlying operating profit increased by 7% to £5.2 million. Operating margins remained healthy at 12.1%, a little ahead of prior year levels as the growth in sustainable building products' margins more than offset the impact of reduced UK demand for house building products, and of the recent rapid appreciation of both the US Dollar and the Euro which inflated the cost of some imported materials. 

The group's sustainable building product activities, which are used by customers in managing energy and water in the built environment, generated close to two-thirds of the group's first-half revenues, achieving growth rates well above UK construction market averages and delivering superior returns on both sales and capital invested. Revenues and underlying profits increased by 14% and 16% respectively to £37.7 million and £5.2 million, at operating margins of almost 14%, after absorbing an adverse currency translation impact of some £0.5 million. Revenue growth also exceeded 10% on a like-for-like basis, after excluding the benefit of the Blackdown Horticultural Consultants green roof business acquired in March 2008. 

Levolux, the UK's leading solar shading company, which was acquired in May 2007, delivered an outstanding first-half performance and continues to win high profile and innovative project work, including photovoltaic cells incorporated into the shading system, allowing the solar energy captured to be re-used in the building. Green roofs are now the fastest growing product group within Alumasc's portfolio, with order intake continuing to increase in this still embryonic market niche. As part of this, Blackdown is settling down well in the group following its acquisition last year, and has won important projects at the Olympic coach station in east London and the Snow Dome in Hemel Hempstead. Elsewhere, demand remained strong for Gatic branded products, underpinned by domestic and international infrastructure projects, whilst demand for Alumasc branded rainwater systems, MR façades and Pendock profiles all benefited from ongoing high levels of UK government expenditure on public buildings and social housing refurbishment projects.

Engineering Products

Engineering Products' divisional revenue totalled £18.8 million (2007: £20.4 million) and underlying operating losses were £0.3 million (2007: underlying operating profit of £0.3 million(2)). The division had an encouraging start to the year, with both revenue and profits ahead of prior period comparators at the end of the first quarter, driven by new work wins at Alumasc Precision. However, worsening global economic conditions increasingly began to impact all principal markets in this division as the second quarter progressed. 

Demand from Alumasc Precision's international OEM customers, who serve principally the automotive and off-highway vehicles markets, reduced by over 30% in December from levels seen earlier in the year, which had a fundamental impact on the profitability of the business. Swift management action was taken to re-align shift patterns, eliminate overtime, extend the Christmas shut down and, regrettably, reduce numbers employed by more than 20%. We expect Alumasc Precision to benefit under the leadership of Warren Roberts, who joined as managing director of the company earlier this week. Warren was formerly managing director of Mahle Powertrain.

At Alumasc Dispense, general economic conditions, exacerbated by customer consolidation in the brewing industry, depressed capital spending by customers and consequently demand for drinks dispensing products. Alumasc Dispense continues to be highly innovative and has had some encouraging success in progressing trials of wireless energy technology with soft drinks companies.

Financial Position, Cash Flow, Pensions and Risk Review

There have been no significant changes to the group's balance sheet since 30 June 2008. Net assets at 31 December 2008 were £29.5 million (30 June 2008: £30.9 million).

The group's cash flow performance in the six months to 31 December was robust. Although there was an increase in net debt of £1.4 million in the period, consistent with Alumasc's usual first half experience, this performance was some £2 million better than internal expectations set at the beginning of the year as a result of strong control over capital expenditure and working capital. Net borrowings increased from £9.4 million at 30 June 2008 to £10.8 million at 31 December 2008. Gearing at 31 December 2008 was 37% and cash interest costs for the period were covered over 10 times by underlying operating profits. Group overdraft facilities of £11 million were renewed at the end of November for a further year, supplementing the group's £15 million revolving credit facility which remains committed until 2012. Together, these facilities are more than double the level of net debt at 31 December 2008.

The group's pre-tax pension deficit at 31 December 2008 of £18.4 million, as measured under IAS19, was £1.4 million lower than that at the year end, as company contributions exceeded the impact of changes in investment values and expected pension liabilities.

Underlying annualised post-tax return on investment advanced to 11.3% (2007: 10.9%) due to a small reduction in overall capital invested.

In view of the recent volatility in economic and market conditions, an update on the business risk review provided in the last annual report is given in note 3. Seasonality is not expected to have a significant impact on performance trends in this financial year.

Prospects

The Board believes that medium and long term prospects for the group's core Building Products' activities remain strong, particularly for sustainable building products. However, these activities are not immune to current economic and market conditions. Divisional profits are being impacted by Sterling's weakness and could be further affected should demand for new commercial buildings weaken in 2009, as is being anticipated by some industry commentators. Nonetheless, current order books for the division remain healthy, albeit below the levels seen six months ago.

The significant downturn in demand from OEM customers that impacted results in the Engineering Products division just prior to the calendar year end has continued into the new calendar year and costs have been reduced accordingly. 

In summary, the Board's expectations for the current year are unchanged from those given in the group's trading update of 19 December 2008. The group's cash flow performance continues to be robust and the group's balance sheet remains strong. Alumasc is well placed to manage through current economic uncertainties and take advantage of opportunities.

John McCall

Chairman

5 February 2009

Notes

(1): Underlying operating profit, underlying profit before tax and underlying earnings per share are stated prior to the deduction of restructuring costs of £0.4 million (2007: £0.15 million), brand amortisation charges of £0.1 million (2007: £0.1 million), asset impairment charges of £0.4 million (2007: £ nil) and property disposal gains of £nil (2007: £1.0 million).

(2): Prior period information has been restated to reflect adjustments to Alumasc Precision Components' prior year comparatives (see note 1).

CONDENSED CONSOLIDATED INCOME STATEMENT

for the half year to 31 December 2008

CONDENSED CONSOLIDATED STATEMENT 

OF RECOGNISED INCOME AND EXPENSE

for the half year to 31 December 2008

CONDENSED CONSOLIDATED BALANCE SHEET

at 31 December 2008

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the half year to 31 December 2008

NOTES ON THE CONDENSED CONSOLIDATED 

INTERIM FINANCIAL STATEMENTS

for the half year to 31 December 2008

1. Basis of preparation

The condensed consolidated interim financial statements of The Alumasc Group plc and its subsidiaries have been prepared on the basis of International Financial Reporting Standards (IFRS), as adopted by the European Union, that are effective at 31 December 2008. 

The condensed consolidated interim financial statements have been prepared using the accounting policies set out in the statutory accounts for the financial year to 30 June 2008 and in accordance with IAS 34 "Interim Financial Reporting".

The consolidated financial statements of the group as at and for the year ended 30 June 2008 are available on request from the Company's registered office at Burton Latimer,  Kettering, Northants, NN15 5JP or at the website www.alumasc.co.uk.

Comparative period information for the six months to 31 December 2007 has been restated to reflect the results of internal audit work and an independent accountants' investigation into Alumasc Precision Components in the prior year, further details of which are provided on page 34 of the group's 2008 Annual Report. Profit before tax and inventories in the six months to 31 December 2007 were each reduced by £844,000.

The condensed consolidated interim financial statements include comparative figures for the financial year ended 30 June 2008 which are an extract from the group's statutory accounts for that financial year.  Those accounts have been reported on by the company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

The condensed consolidated interim financial statements for the half year ended 31 December 2008 are not statutory accounts and have been neither audited nor reviewed by the group's auditors. They do not contain all of the information required for full financial statements, and should be read in conjunction with the consolidated financial statements of the group as at and for the year ended 30 June 2008.

These condensed consolidated interim financial statements were approved by the Board of Directors on 5 February 2009.

2. Estimates

The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates.

Except as described below, in preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2008.

During the six months ended 31 December 2008, management reassessed its estimates in respect of:

the recoverable amount of certain property, plant and equipment (see note 5)

retirement benefit obligations (see note 12)

3. Risks & Uncertainties

A summary of the group's principal risks and uncertainties was provided on pages 29 and 30 of Alumasc's 2008 annual report. In view of recent volatility in financial markets and changing economic circumstances, an update (by exception) of those risks where circumstances have changed or evolved in the intervening period is given below. This section of the interim report should be read in conjunction with the Chairman's Statement and the full risk review provided in the group's 2008 annual report.

UK and Global Economy

All of Alumasc's operations are based in the UK, and the majority of the group's sales are made to UK customers, with the remainder mostly to customers in the USA and Europe.  Any significant change in economic conditions in those locations, and particularly those that impact the building, construction, vehicle manufacturing and brewing sectors, could affect Alumasc's future revenues and profits.

Credit risk

As global economic conditions have become more challenging, credit risks have increased. Credit risks are monitored carefully in all group businesses, including at monthly board meetings, and, in certain specific cases where judged cost effective, these risks are insured. The group has a wide range of customers reflecting the variety of end user markets served, and this mitigates the group's exposure to any one end-market segment or single third party. The group does make significant sales to some sectors reported recently in the media to be under pressure in current economic circumstances, including US and UK-owned car manufacturers and UK house builders.

Foreign exchange rate risk

The group is exposed to movements in foreign exchange rates, particularly in relation to purchases made in Euros and US Dollars. These risks are mitigated wherever possible by internal hedging between businesses and external forward foreign exchange contracts. Such hedging can only protect the group against relatively short term volatility in exchange rates and not against more structural changes to the relative strength of these currencies against Sterling. The group's recent results have been impacted adversely by the recent appreciation of the Euro and US Dollar against Sterling and would continue to be impacted, when compared to last year, should current prevailing rates not recover.

Liquidity risk

The group has a £15 million revolving credit banking facility that remains committed until 2012. In addition, the group recently renewed overdraft facilities with two relationship banks, together amounting to £11 million, for the year to 30 November 2009. Total available banking facilities are therefore £26 million, more than double the level of net debt at 31 December 2008 of £10.8 million. 

Impairment risk

The group currently has two cash-generating units, Alumasc Precision Components and Timloc Building Products, where indicators of impairment under IAS 36 exist. These companies principally supply the international vehicle and UK house building markets respectively. Whilst the Board does not consider that an impairment of assets currently exists, the position in both cases will continue to be monitored carefully in the light of developments in the second half of this financial year.

4. Segmental analysis (continued)

5. Other non-recurring items

Restructuring costs of £242,000 arose in the Engineering Products division and £154,000 in the Building Products division. Impairment charges of £274,000 arose in the Engineering Products division and £80,000 in the Building Products division.

6. Profit on disposal of property

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.

8. Dividends

The directors have approved an interim dividend per share of 3.25p (2007: 3.25p) which will be paid on 7 April 2009 to shareholders on the register at the close of business on 6 March 2009.  In accordance with IFRS accounting requirements, as the dividend was approved after the balance sheet date, it has not been accrued in the interim consolidated financial statements. A final dividend per equity share of 6.75p in respect of the 2007/08 financial year was paid during the period.

9. Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares in issue during the period, after allowing for the exercise of outstanding share options.

The underlying earnings per share figure is based on profit adjusted for gains or losses on disposal of property, brand amortisation, restructuring costs, impairment charges and, in the full year to 30 June 2008, an acquisition accounting adjustment. The figure is based on the same weighted average number of shares used in the basic earnings per share calculation above.

12. Retirement benefit obligations

The actuarial review of The Alumasc Group Pension scheme was concluded in the period, including recognition of the increased longevity experience of members of the scheme. Together with the actuarial review of the Benjamin Priest scheme completed last year, the group has agreed to make annual cash payments to defined benefit pension schemes of over £4 million per annum to cover ongoing service costs and deficit reduction payments.

13. Related party disclosure

The group has a related party relationship with its directors and with the UK pension schemes. There has been no material change in the nature of the related party transactions described in the last annual report. Related Party information is disclosed in note 32 of the 2008 annual report.

Responsibility Statement

The Directors confirm that, to the best of their knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and

b) The interim management report includes a fair review of the information required by:

DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and 

DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

G P Hooper A Magson

Chief Executive Group Finance Director