LTC.L Regulatory News (LTC)

9 Jun 2008 07:00



9 June 2008

LATCHWAYS PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2008

Latchways plc is the world leader in the design, manufacture and sale of engineered fall protection safety systems, which offer continuous protection to individuals working at height. Latchways' systems are sold globally through a network of trained installers to a legislation-driven marketplace. These systems are used to provide worker safety on a diverse range of applications including commercial rooftops, wind power turbines, electricity transmission towers, aircraft wings and industrial plants.

Summary

Profit before tax and exceptional items increased by 17% to £9.12 million (2007: £7.81 million) 

Exceptional charge of £0.5 million (2007: £nil) for marking-to-market of Euro currency contracts at 31 March 2008

Statutory profit before tax increased by 10% to £8.62 million (2007: £7.81 million)

Adjusted Diluted earnings per share up 14% to 57.65 pence (2007: 50.55 pence)

Statutory Diluted earnings per share up 8% to 54.51 pence (2007:50.55 pence)

Final dividend increased by 20% to 14.21 pence (2007: 11.84 pence)

Total dividend for the year 21.31 pence (2007: 17.76 pence plus 30.00 pence special dividend), a 20% increase

Acquisition of Height Solutions Limited and Sigma 6 d.o.o, enhancing product range

Launch of Self Retracting Lifeline product range

Underperformance of Specialist Fixing division expected to improve in 2008/09

Commenting on the results, Paul Hearson, Chairman, said

"The core Latchways business of designing, manufacturing and installing fall protection systems has had another excellent year, with both the Safety Products and Safety Services divisions posting pre-exceptional operating profit growth in excess of 25%.

The current year has started strongly with good progress across all divisions. Order intake has been strong in April and May and our customers continue to report healthy order books.

With the investments being made in new products and the sales team, we are confident of continuing to provide excellent returns for our shareholders going forward."

Enquiries: Latchways plc Threadneedle Communications

David Hearson, Chief Executive  Graham Herring

Rex Orton, Financial Director  Tel: 020 7936 9605

Tel: 01380 732700

9 June 2008

LATCHWAYS PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2008

Chairman's Statement

The core Latchways business of designing, manufacturing and installing fall protection systems has had another excellent year, with both the Safety Products and Safety Services divisions posting pre-exceptional operating profit growth in excess of 25%.

As previously reported, overall group performance has been adversely affected by poor trading in the Specialist Fixings division, which has reported profits well below previous years' levels despite some recovery in the second half. The outlook for this division in the coming year is for further recovery.

We have continued to enhance our product offering during the year, with the acquisition of Height Solutions Limited, a leading provider of PVCu walkway systems, and more recently Sigma 6 d.o.o, a Slovenia-based supplier of aluminium guardrails, together with the launch of the internally developed Self Retracting Lifeline range.

Results

Group revenue for the year ended 31 March 2008 was £35.2 million (2007: £31.9 million), 10% ahead of last year.

Group profit before exceptional charges and taxation was 17% higher than last year at £9.1 million (2007: £7.8 million).

Adjusted (pre-exceptional charge) diluted earnings per share rose 14% to 57.65 pence (2007: 50.55 pence). Statutory diluted earnings per share rose 8% to 54.51 pence (2007: 50.55 pence).

Exceptional Charge

An exceptional charge of £0.5 million (2007: £nil) was taken for unrealised losses relating to the marking-to-market of Euro denominated foreign exchange contracts as at 31 March 2008. This resulted from liabilities incurred on contracts to sell Euros received from customers during the period April to September 2008 which were taken out during the second half of the financial year. The unrealised loss was due to the unprecedented fall of Sterling against the Euro during the final four months of the financial year. As the group does not apply hedge accounting the underlying liability has been charged to the income statement. Prior year mark-to-market adjustments have been immaterial.

Dividends

This year saw significant cash outlays on the acquisition of Height Solutions, capital expenditure on tooling and increases in working capital to assist the growth of the business. Despite these outlays, and the subsequent acquisition of Sigma 6, the board remains confident of the cash generative nature of the business. Indeed, at the year end the group had £4.5 million of net cash, up £0.4 million on last year. Accordingly, the board is pleased to propose a final dividend for the year of 14.21 pence, a 20% increase on last year. Taken together with the interim dividend of 7.10 pence, the total dividend for the year of 21.31 pence per share represents a 20% increase on 2007, excluding special dividends.

Our trading environment

Much has been written in recent months about the state of the world economy, and the effect of restricted credit and reduced growth upon both industry and commercial construction. This could lead one to expect pressure on both volumes and margins in businesses such as ours that service these sectors. However, to date there is no evidence of any slowdown in Latchways' business, whether in terms of order intake or at the very early stages of the construction cycle, where enquiries from architects are currently at record levels. The majority of our installers, both in the UK and overseas, continue to report robust business.

Whatever the economic climate, we remain firmly committed to our long term strategy of providing the highest quality fall protection solutions, backed up by the best customer service, in our marketplace. This philosophy has served us well over the years and will continue to do so going forward. The complementary additions that we have made to our product range this year will provide further cross-selling opportunities.

Latchways' product margins were affected by substantial increases in stainless steel prices during the year. Whilst some of the increase was passed on, we take the view that our relationship with our customers is a long term one and that it is important for us to share the cost of such issues. The steel price has retreated from the peak levels seen in September 2007 but is still at historically very high levels.

Acquisitions

Latchways has made two complementary acquisitions during the past twelve months. Firstly, in June 2007 we acquired Height Solutions Limited, a leading PVCu walkway supplier, for a net cash consideration of £0.8 million. This product is often used in conjunction with Latchways systems on rooftop applications, and as such is a natural fit with our existing range. It is now specified by our architectural specification team when designing rooftop systems for architects, which has significantly increased the product's exposure to the market. We have already seen growth from this product in the first nine months and I am confident that more will follow. 

More recently, in April 2008 we acquired Sigma 6 d.o.o, a supplier of high quality, aluminium guardrail products based in Slovenia, for an initial cash consideration of 1.6 million Euros (£1.3 million). This product gives us immediate access to the collective fall protection market, which is sometimes preferred by end clients to the individual protection afforded by our existing range. Sigma 6 is a relatively new entrant to the market but the quality of their product fits well with our own and we are confident that it will achieve strong growth in the coming year.

New Product Development

The much anticipated launch of the Self Retracting Lifeline (SRL) in the second half of the year was the culmination of the largest development project undertaken by Latchways. Launched initially in North America, order intake is beginning to flow and, with a recent launch in Europe, we are starting to see a return on our investment.

Further developments on variants of the SRL range, as well as other product launches, are in the pipeline for the coming year.

People

This year saw continued investment in our new product development team, and a step change in sales resource is in progress to ensure that we capitalise on the opportunities that our new products and the market are presenting to us. 

As ever, it should not be forgotten that our success to date is entirely due to the combined efforts of our current team. On behalf of the board I would once again like to thank and congratulate them all for another tremendous performance this year.

Current Trading and Prospects

Over the past five years, Latchways' operating profits before exceptional items have tripled. This underlines the success of our business model, and we will continue to follow this model into the future.

The current year has started strongly with good progress across all divisions. Order intake has been strong in April and May and our customers continue to report healthy order books.

With the investments being made in new products and the sales team, we are confident of continuing to provide excellent returns for our shareholders going forward.

Paul Hearson

Chairman

OPERATING AND FINANCIAL REVIEW

The board of Latchways plc is pleased to report these consolidated results for the year ended 31 March 2008. 

Financial Results

Group revenue for the year was £35.2 million, an increase of 10% over the 2007 figure of £31.9 million. This resulted in an operating profit before exceptional items of £9.0 million, up 18% on 2007 (2007: £7.6 million), and a pre-exceptional pre-tax profit of £9.1 million (2007: £7.8 million).

After accounting for the exceptional charge of £0.5 million (2007:£nil), pre-tax profits were up 10% at £8.6 million (2007: £7.8 million).

Both gross and operating margins are a key performance indicator for the group.

The consolidated gross margin was slightly lower than last year at 52.9% (2007: 54.1%). Product margins were adversely impacted by increased steel costs during the mid part of the year.

Excluding exceptional charges, overheads were unchanged on 2007 levels at £9.7 million. Cost control was an area of particular focus during the year, given the pressure on gross margins that resulted from the high steel price. As a result, operating margins (before exceptional charges) improved by 1.7% to 25.5%. Excluding exceptional items, operating margins have now increased every year since 2002, reflecting ongoing efficiency improvements across the group.

The effective rate of taxation for the year was 29.3% (2007: 27.8%). 2007 was affected by corporation tax relief on share options exercised during the year, an effect which was not repeated this year.

Adjusted earnings per share are calculated on the same basis as statutory earnings per share but before accounting for exceptional charges and their related tax impact. Adjusted earnings per share increased by 14% to 57.93 pence (2007: 50.97 pence), whilst adjusted diluted earnings per share increased by 14% to 57.65 (2007: 50.55 pence).

After accounting for the exceptional charge, basic earnings per share increased by 7% to 54.77 pence (2007: 50.97 pence), whilst diluted earnings per share increased by 8% to 54.51 pence (2007: 50.55 pence). 

On the balance sheet, non-current assets increased by £1.4 million to £8.0 million (2007: £6.6 million). Goodwill of £0.4 million arose on the acquisition of Height Solutions Limited in June 2007, increasing total goodwill to £2.6 million. Other intangible assets of £1.8 million (2007: £1.3 million) comprise the intellectual property, brand, order book and customer relationships acquired on the purchase of Wingrip in 2004 and Height Solutions Limited in 2007, internally generated patents and trademarks, computer software and ongoing development costs capitalised. Tangible assets of £3.4 million (2007: £2.9 million) mainly represent the premises at Devizes, together with production plant and tooling. The premises consist of a 2,000 square metre warehouse and head office, together with a further 2 acres of additional land directly adjacent. The group has detailed planning permission for a second unit on this land, providing ample scope for foreseeable future expansion. The £0.5 million increase in tangible assets in the year was mainly due to additional tooling and assembly line facilities for the Self Retracting Lifeline.

Inventory of £3.6 million was £1.1 million higher than last year (2007: £2.5 million). This year saw the introduction of the Self Retracting Lifeline and Walkway products and a range of new vertical systems for specific customers and wind power applications, along with a general volume related increase. 

Trade and other receivables increased by £2.6 million to £9.2 million (2007: £6.6 million). The majority of this increase was in the Safety Products division. While at first glance this looks a concern, it was affected by the timing of shipments for electricity transmission customers, which normally take place throughout the fourth quarter but this year almost all took place in March, and were therefore unpaid at the year end. Debtor days at year end were below the 2007/08 average.

Group creditor days were 44 days (2007:36 days).

Cash generation is a key performance indicator for the group. Cash generated from operations as a proportion of pre-exceptional operating profit was 75% (2007: 98%). This was affected by the increases in inventory and receivables. The average over the past five years remains over 100% of operating profit, demonstrating how cash generative the business is. Tax payments in the year reduced by 12% to £2.1 million (2007: £2.4 million). This was mainly due to tax credits arising on the exercise of share options in July 2006, which reduced the tax payable in 2007. Capital expenditure on tangible assets increased by £0.3 million in the year, due to additional tooling for the Self Retracting Lifeline and walkway product lines. The acquisition of Height Solutions Limited cost a further £0.9 million, although cash of £0.1 million was received as part of the deal.

Dividend payments reduced by £3.0 million to £2.1 million (2007: £5.1 million). In 2007, a special dividend costing £3.3 million was paid.

Net cash, which represents cash and cash equivalents less bank and other borrowings, was £0.4 million higher than last year at £4.5 million (2007: £4.1 million). 

Strategic Overview

Latchways is a world leader in the provision of quality fall protection equipment and related services. Our aim is to maximise shareholder return through providing the most innovative and functional equipment to a largely legislation-driven market, with a customer support network and after-sales service that is unrivalled in our industry.

Our products are sold both directly and through a network of trained independent installation companies. We place significant importance on developing strategic partnerships with key customers around the world, and on developing products which address their needs. New product offerings, whether developed in-house or acquired, form a central pillar of our growth strategy. Such products, for example the Self Retracting Lifeline, the walkway and the recently acquired guardrail, are complementary to our range and provide excellent cross selling opportunities to existing and new customer bases.

Operating Review

The Latchways group has three business segments, each of which is managed independently with strategic input from the group board. These segments are as follows:

Safety Products and Safety Services both achieved record profits in the year. 

Safety Products

Latchways designs and manufactures fall protection equipment for people working at height. This equipment is sold worldwide, both directly to end users and also through a network of independent, trained installers. The business is broadly categorized between horizontal business (systems for those working at height, eg on rooftops, crane rails etc) and vertical business (systems for those climbing to or from height, eg ladders, telecom masts, electricity transmission towers). During the year, the walkway business of Height Solutions Limited was integrated into this division.

The Safety Products business achieved revenue growth of 20% in the year. Excluding the walkway business, the underlying growth was 16%, with the strongest growth in North America. Operating profits increased by 31% to £7.2 million.

As the Safety Products business operates in a worldwide market, a key performance measure is the relative geographic split of revenues.

The UK business continues to perform well, with revenue up 17%, compared with 11% last year. Excluding walkways, underlying growth was 11%. Once again our traditional installer business provided steady growth, whilst vertical business was particularly strong. This year saw significant first business from the wind power generation market, with substantial investments in fall protection being made by leading companies such as Vestas and Nordex. The electricity transmission market was also strong in the year. 

Our European business achieved further growth in the year, with revenue up 19%. Europe has been our most significant growth area for a number of years. Germany, France and Spain have all made good progress during the year, and we expect this progress to be further enhanced in the coming year by the Sigma 6 acquisition. 

North America provided substantial growth this year, primarily in our traditional installer business but also with Wingrip and an initial contribution from the Self Retracting Lifeline. Revenues increased by 46% to £3.5 million. Excluding the SRL, growth was 36%.

After very strong growth in the previous year, the rest of the world settled back slightly this year, with revenues down 8% at £1.2 million. There remain good opportunities in a number of countries, upon which we are well placed to capitalise, on a project by project basis.

The walkway product range, which has been rebranded as Walksafe by Latchways, made an excellent contribution in its first year. Initially a UK product, the range has contributed revenues of £0.7 million in its first nine months in the Latchways group, and we are confident of growth in the coming year. 

Safety Services

Safety Services had another excellent year, with revenue up 11% to £9.5 million (2007: £8.6 million) and operating profits 25% higher at £1.5 million (2007: £1.2 million). The focus of this business remains on efficient installation and system certification, whilst continuing to provide the "one-stop shop" solution to customers such as telecommunications companies and wind power operators.

During the year, Safety Services, as the largest installer of Latchways products, purchased £2.8 million of product from Latchways, a 9% increase.

Specialist Fixing

Specialist Fixings had a disappointing year, with revenues down 44% to £2.1 million (2007: £3.8 million). Through careful control of costs during this period, the business was still able to generate £0.4 million profit before tax, a 60% reduction.

This poor performance was largely due to delays in expenditure by the division's principal customer base, ex-local authority housing associations. These delays resulted in both direct reductions in business, but also sharply increased the competitive environment faced by the division as competitors fought over the remaining business. The division took on sales resource late in the prior year to reduce its reliance on large customers but, whilst significant leads have been generated, these have taken time to convert into business.

The second half of the year saw a modest improvement over the first half and we see this improvement continuing into the new year. As such, we expect this division to contribute to growth.

Risks and the Operational Environment

As a provider of fall protection solutions to a global marketplace, the group is subject to a number of external factors which affect its risk profile. The more important of these are discussed below.

The Legislative Environment

The increasing emphasis on Health and Safety legislation throughout the European Union has been one of the key drivers of the fall protection business over the past decade. The UK and certain other EU countries which have interpreted this into specific fall-protection legislation have become significant markets for the Latchways product range. Within the UK, the most obvious examples of this legislation are the Workplace (Health, Safety & Welfare) Regulations 1992, the Construction (Design and Management) Regulations 1994 (revised in 2007), and the Working at Height Regulations 2005. Latchways sees the development of appropriate, workable safety regulations as of critical importance, not just to its own business but to business as a whole. As a result, we have ensured that Latchways is represented on a number of key legislative standards committees, both in the UK and overseas.

The Commercial Construction Market

Latchways operates in a diverse and growing range of markets. This ensures that we are not excessively dependent on one market for our growth. The largest individual market is the UK commercial construction market. Given the relative importance of this market to Latchways, we have been vigilant during the current global concerns and the falls in commercial property values, for signs of a slowdown in our business. To date, we have seen no conclusive evidence of any slowdown. Indeed, levels of enquiries and quotations are at record levels, and our installer network continues to report strong trading.

The 2005 Working at Height Regulations, which increase the responsibilities of building owners to provide fall protection for personnel working in their buildings, together with the investments in infrastructure that will precede the 2012 London Olympics, give us confidence that growth opportunities will continue in the years ahead.

Stainless Steel Commodity Prices

In common with many other commodities, Marine Grade Stainless Steel has seen rapid rises in market prices over the years, with a particular spike in prices during the summer of 2007. Despite some retracing, as at 31 March 2008, the market price of 316 Hot Rolled Stainless Steel plate remains over three times the levels of five years ago. 

The rapid increases seen during this year inevitably had some effect on product margins. However, as evidenced by the overall performance of the Safety Products division, Latchways has been able to employ a sufficient combination of modest price increases together with ongoing product re-sourcing to lower cost economies to ensure that margins were reasonably protected. These efforts are continuing.

Currency Risk

Latchways has significant exposure to fluctuations in the Sterling/Euro exchange rate, as our European sales are invoiced in Euros. There is also some exposure to the Sterling/USD exchange rate. Both risks are mitigated where possible using forward exchange contracts. 

Prospects

The new product additions made over the past year, whether through acquisition or through internal innovation, have significantly enhanced our product offering to our existing customer base, as well as providing us with access to new routes to market for our product range. In addition, our existing business continues to grow and to present new opportunities.

We are in the process of strengthening our sales team to ensure that we make the most of these opportunities, and that we continue to grow the business profitably for our shareholders in the years ahead. I look forward to the future with confidence.

David Hearson

Chief Executive

Adjusted earnings per share exclude the post-tax impact of exceptional items.

The directors propose a final dividend of 14.21 pence per share (2007: 11.84 pence) at an estimated cost of £1,581,000 (2007: £1,317,000), which will be subject to shareholder approval at the Annual General Meeting on 12 September 2008.

  NOTES

4. Dividends

In addition, the directors are proposing a final dividend in respect of the financial year ending 31 March 2008 of 14.21p (2007:11.84p) per share which will absorb an estimated £1,581,000 of shareholders' funds (2007: £1,317,000). It will be paid on 19 September 2008 to shareholders who are on the register of members on 22 August 2008.

5. The Annual Report and Accounts 

The Annual Report and Accounts for Latchways plc for the year ended 31 March 2008 will be posted to shareholders on or before 31 July 2008 and copies will be available from the registered office, Latchways plc, Hopton Park, Devizes, Wiltshire, SN10 2JP.

6. The Annual General Meeting 

The Annual General Meeting will be held at Hopton Park, Devizes, Wiltshire, SN10 2JP on 12 September 2008 at 12 noon.