3 Dec 2009 07:00
| For Immediate Release | 3 December 2009 |
Redhall Group plc
("Redhall" or the "Group")
Preliminary Results for the year ended 30 September 2009
Redhall Group plc, the specialist engineering support services group, announces its preliminary results for the year ended 30 September 2009.
FINANCIAL HIGHLIGHTS:
Revenue up 49% at £129.0 million (2008: £86.7 million)
Adjusted profit before tax up 39% to £6.5 million (2008: £4.6 million)
Adjusted fully taxed diluted earnings per share up 3.5% to 16.0p (2008: 15.4p)
Proposed 10% increase in final dividend to 4.4p per share (2008: 4.0p)
Net cash resources of £6.3 million (2008: £1.9 million)
Order book at £115 million
OPERATIONAL HIGHLIGHTS:
Cash generative growth
Future growth opportunities in key energy and defence markets
Completion of two major projects at Sellafield with an aggregate value in excess of £30 million
New contracts recently announced at Sellafield and AWE with a total value of £10 million
Well positioned in decommissioning and for the future nuclear power generation new build
David Jackson, Chairman of Redhall, commented:
"Since 2006 Group revenues have grown fourfold from £31.6 million to £129 million, adjusted PBT has increased over eight-times to £6.5 million and the Group remains focused on attractive growing markets with high barriers to entry. These markets offer the prospect of long term growth and our model of direct delivery continues to be the key differentiator.
The combination of a strong balance sheet and a quality order book and bid pipeline gives us confidence that we can continue to make progress in the coming year."
For more information please contact:
| Redhall Group plc David Jackson, Executive Chairman Simon Foster, Group Chief Executive John O'Kane, Group Finance Director | Tel: Today on +44 (0)20 7466 5000 and thereafter +44 (0)1924 385 386 |
| Buchanan Communications | Tel: +44 (0)20 7466 5000 |
| Tim Anderson / James Strong | |
| Altium, Financial Advisers and Brokers to Redhall Phil Adams / Simon Lord / Paul Lines | Tel : +44 (0)161 831 9133 |
Chairman's Statement
Introduction
The Group has continued to make progress, despite the current economic environment and the short term challenge of integrating a major acquisition. Since 2006 Group revenues have grown fourfold from £31.6 million to £129 million, adjusted PBT has increased over eight-times to £6.5 million and the Group remains focused on attractive growing markets with high barriers to entry. These markets offer the prospect of long term growth and our model of direct delivery continues to be the key differentiator.
In the year under review we have focused on our key markets in energy, defence and process services. In 2010 we will be consolidating our engineering businesses under the Redhall brand to strengthen the scope of our service offering to our major clients. We believe our strategy of acquiring, developing and integrating our engineering services is one that is attractive to our clients and provides a strong basis for long term growth. In particular, the continued need for investment in the UK's energy infrastructure and the ongoing maintenance of these critical assets provide potential for future sustainable growth.
2008/09 has been a year of challenges. The loss of our Sea Dragon contract early in the year was a setback although steps were taken to replace the order book. During the last quarter we experienced a slowdown in the oil and gas sector. The civil nuclear market went through significant change with the appointment of the new Sellafield Parent Body Organisation which led to a hiatus on decision making. We are however encouraged that our recent announcement on nuclear contract wins incorporating £5 million of work at Sellafield is an indication that the hiatus is over.
The process sector suffered as macro-economic decisions influenced expenditure but measures have been taken to adapt our model to drive efficiencies in delivery and to focus on higher value process design and project management.
The above was countered by strong performances in oil and gas for infrastructure maintenance, tankage and specialist blast equipment and the further developments in our defence operations, particularly at the Atomic Weapons Establishment ("AWE") at Aldermaston.
The Group retains its financial strength and growth perspective although we proceed more cautiously due to the difficulty of predicting the macro-economic environment and its effect on clients both in the public and private sectors. The client feedback we receive gives us confidence that we will continue to deliver growth in 2010.
Trading Results
The results for the year incorporate eleven months trading of Chieftain Group plc acquired on 31 October 2008.
Revenue for the year ended 30 September 2009 increased by 49% to £129.0 million (2008: £86.7 million). Adjusted profit before tax which excludes exceptional items and amortisation of intangible assets stood at £6.5 million, up 39% from the comparative of £4.6 million.
The adjusted operating margin achieved was 5.2% compared to 5.4% in 2008. Adjusted fully taxed and fully diluted earnings per share stood at 16.0p per share compared to 15.4p in 2008, an increase of 3.5%.
Segmental Analysis of Trading
Energy
Energy represented 51% of Group revenue at £65.6 million with adjusted operating profit* of £4.9 million. The margin achieved was 7.5%. Turnover is up 35% from a 2008 level of £48.4 million and adjusted profit up 26% (2008: £3.9 million). The principal contributors in the year were two major projects at Sellafield and our work on UK oil and gas infrastructure projects.
Defence
Defence incorporates our work at Aldermaston and Burghfield for AWE and at Barrow for BAE Systems and represented 19% of Group revenue in the year with sales of £24.7 million up 134% (2008: £10.5 million). Adjusted operating profit* of £1.7 million is up 115% on 2008 (£0.8 million). Operating margin of 7.0% was achieved on this revenue (2008: 7.6%) with the reduction being due to lower margin Chieftain work.
Process
Process operations include engineering services to the food and chemical sectors and account for 30% of Group revenue. A margin of 5.6% (2008: 7.9%) was achieved on revenue of £38.7 million, up 40% on the 2008 figure of £27.8 million. Adjusted operating profit* was flat at £2.2 million reflecting a more difficult market place. The major project undertaken in the year was the £9.0 million design and build carbon fibre line for Bluestar Fibres.
Note: *Adjusted operating profit is prior to amortisation of acquired intangible assets, exceptional items and central overhead.
Financial Position
The Group remains in a strong financial position with net assets of £42.9 million (2008: £20.8 million) and net cash at the year-end of £6.3 million (2008: £1.9 million). Our cash conversion of operating profit once again was excellent with cash generated from operations of £5.4 million representing 80% of our adjusted operating profit. Our average cash conversion over the last three financial years is 99%.
We currently have unutilised bank facilities of £8.5 million with Lloyds Banking Group Plc in addition to £10.6 million gross cash in hand at the year-end (2008: £6.7 million). These facilities are due for renewal in April 2012. The strength of our financial position is an increasingly critical factor in a client's assessment of a tendering proposal.
The Group's effective rate of tax in the year was 20.2% (2008: 17.7%), reflecting continued use of the losses brought forward. The unutilised losses now stand at £1.9 million and it is anticipated that the effective rate of tax next year will be in the region of 25%.
The IAS19 pension deficit increased to £2.2 million at the year-end (2008: £0.9 million), resulting primarily from a reduction in the rate used to discount liabilities. The triennial valuation of the defined benefit pension scheme as at April 2009 is currently ongoing and will be concluded during the current financial year.
Dividend
The Board has proposed the payment of a dividend of 4.4p per share for the year of which 1.65p has already been paid as an interim dividend. This represents an increase of 10% on last year's dividend of 4.0p and confirms the Board's confidence in the future trading of the business and its ability to generate cash from operations. The dividend remains in line with the Board's declared policy of a minimum of three times cover on taxed earnings. The final dividend of 2.75p per share will be paid to shareholders on 11 February 2010 who are on the register on 15 January 2010.
People
The Group employs some of the most highly skilled mechanical and electrical engineers in the UK. It is because of their skill and commitment that we are able to sustain long term working relationships with key clients.
Our staff continue to operate at the highest level in some extremely hazardous areas and continue to work in the safest manner possible. Overall the safety record in our Group is excellent and at Sellafield and Aldermaston it is impeccable. Our congratulations go to our staff for achieving such high standards in difficult operating environments.
We believe the recent senior management changes leave the Group with a stronger management team. This team will concentrate on the achievable but will continue to pursue the goal of moving up the supply chain.
Future Prospects
The Group remains well positioned in its core markets of Energy (nuclear, oil, gas, and power), Defence and Process (food, chemical and pharmaceutical). These markets offer the prospect of long term growth and our model of direct delivery continues to be the key differentiator between ourselves and much of our competition. What is becoming more evident is that clients want the assurance of the Redhall name and balance sheet to enable us to tender for larger projects and during the course of the next twelve months we will be consolidating our oil and gas contracting operations into one trading entity, Redhall Engineering. We anticipate worthwhile reductions in overhead costs with these changes.
We are encouraged by recent Government announcements which endorse that we have positioned the business in the right sectors and with the right skills to take advantage of the nuclear new build programme when it arrives both in terms of modular construction and on-site activity.
In addition to our established markets, we are entering new areas of expertise in waste to energy and carbon fibre which are rapidly expanding markets. We anticipate these new areas of activity will become increasingly important in the coming years.
We continue to examine acquisition opportunities. In the short term these will be confined to relatively small add-ons to existing areas of activity.
We have commenced the new financial year with trading in line with management expectations and an order book of £115 million (2008: £110 million). The combination of a strong balance sheet and a quality order book and bid pipeline gives us confidence that we can continue to make progress in the coming year.
David Jackson
Executive Chairman
2 December 2009
Business and Financial Review
Business Review
Introduction
We are pleased to be able to report another year of growth with adjusted profits ahead of 2008. Against an unprecedented backdrop, the Group has delivered cash generative growth and strength of balance sheet that positions us well to capitalise on future opportunities in our key growth markets.
At the core of the Group is its reputation for delivery in some of the most challenging environments. We continue to focus on improvement programmes in quality and health and safety. In 2009, we are pleased to have seen a further significant improvement in our health and safety record with a further reduction in our lost time incidents, with only three in the year and a 68% reduction in all accidents. We have achieved in excess of 16 years in aggregate without a lost time accident at Sellafield and AWE. These are impressive results and recognition must be given to all those in the Group who have shown such commitment.
Performance for 2008/09 has been driven by our Energy and Defence operations which now represent 70% of Group revenues. Group revenues increased 49% to £129.0 million whilst adjusted operating profit was up 43% to £6.8 million. Operating margin was 5.2% (2008: 5.4%).
The integration of Chieftain Group, following its acquisition in October 2008, has progressed on plan with financial integration completed and savings of £0.5 million per annum delivered. The Chieftain defence activities at Barrow were transferred to new Redhall management. The improvement in performance and reputation has been recognised by our client. We believe our presence in this geographic area to be strategically important for future energy and defence programmes.
We are also reshaping our Humber Bank operations which together with the Chieftain integration largely accounted for the exceptional cost of £655,000 in the year.
As the Group's profile grows there is increasing interest from our clients in the wider Redhall offering and the assurance of its balance sheet. Having consulted clients, our site activities in Energy (nuclear and oil and gas) and Defence (AWE and Barrow) will be rebranded as Redhall during early 2010. This will better place the Group to compete for larger contracts which is relevant as we approach future major infrastructure programmes such as nuclear power generation build.
Whilst government funding is under pressure, we have positioned the Group in programmes of work that have longevity and committed longer term spend. We believe these areas, whilst not entirely insulated, will be more resistant to spending cuts due to regulatory demands. Our balance of public and private sector clients also provides a robust business model. We recognise the risks to clients' short term budgets but believe the longer term national priorities of energy security and defence will prove persuasive.
Energy (51% of Revenue)
| 2009 | 2008 | ||
| Revenue | £65.6m | £48.4m | +35% |
| Adjusted operating profit* | £4.9m | £3.9m | +26% |
| 7.5% | 8.0% |
*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.
The Energy operations encompass our design, specialist manufacturing and engineering services to the nuclear, oil, gas and power sectors. We believe the breadth of service, experience and the manner in which we integrate them to meet client demands gives us a distinct advantage in the market place.
In the year, Energy activities grew and now represent in excess of 50% of Group revenues (2008: 47%) a trend that we expect to continue. Revenues increased 35% to £65.6 million and adjusted operating profit grew 26% to £4.9 million. Operating margin was 7.5% (2008: 8.0%).
The operating margin and overall profitability was impacted by slower than expected activity in the civil nuclear area following the appointment of the new Parent Body Organisation at Sellafield and issues surrounding funding within the Nuclear Decommissioning Authority. New major projects have been deferred in the short term. However we continue to focus on securing contracts that are suited to our capability and size whilst teaming with trusted partners for future major projects where we see greater chances for success.
In the year, we completed two major projects at Sellafield with an aggregate value in excess of £30 million. These reference projects provide strong credentials for future opportunities. Our framework contract in Sellafield legacy ponds and silos has been extended and we have broadened our scope of work across the site in infrastructure support and other facility upgrades. We secured new contracts further afield at Berkeley, Hunterston and Bradwell.
We completed our first contract for British Energy at Hartlepool which was a turnkey environmental monitoring project. This has led to a follow on project at Dungeness and additional opportunities at Hinkley and Heysham.
Following the award of the four year pond furniture framework contract in 2008, we have been disappointed with a lack of consistent orders for nuclear manufacture in its first year which undermined profitability. We have now received an order to manufacture specialist nuclear containers for the Sellafield fuel handling plant and are engaged to assist Sellafield in developing prototype equipment for the THORP reprocessing facility. We have also commenced manufacturing equipment for two new build projects including Evaporator D for Costain.
Whilst government funding constraints have impacted returns in the short term, we believe Redhall remains well positioned in decommissioning and for the future nuclear power generation new build programme.
In oil and gas, our performance has been strong despite the early disappointment of the loss of the Sea Dragon contract. A settlement was swiftly negotiated and progress has been made in replacing the order book.
Our manufacturing of blast wall, door and relief schemes for offshore production facilities achieved a good result and downstream activities in refinery maintenance and shutdowns grew. There was some contraction in margin in the second half as oil companies reacted to the reduced oil price which reduced profitability towards the end of the year.
The oil tankage repair and maintenance operations grew as our reputation developed. We have secured a new long term relationship with Ineos at Grangemouth and are preferred for national tankage work with Chevron which together have an aggregate estimated value of £13.5 million over three years. In the second half, we won an £8 million low sulphur diesel plant for Total Lindsay Oil Refinery. Other opportunities exist as clients consider energy, security and health and safety demands. As oil commodity prices stabilise, we believe that investment in previously deferred projects will recommence.
Our activities in the power market have grown, albeit from a small base. We completed the Thornton waste to energy plant for Lancashire and Blackpool councils and as a result of our performance we were awarded our second project at Leyland. This experience bodes well for future opportunities.
Defence (19% of Revenue)
| 2009 | 2008 | ||
| Revenue | £24.7m | £10.5m | +134% |
| Adjusted operating profit* | £1.7m | £0.8m | +115% |
| 7.0% | 7.6% |
*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.
The Defence operations now encompass our specialist manufacturing and engineering support services to the Atomic Weapons Establishment ("AWE") and submarine outfitting programme at Barrow.
Revenue at £24.7 million increased by 134%, whilst adjusted operating profit increased by 115% to £1.7 million. The key driver for growth was the award of further long term work at AWE. Operating margins fell slightly to 7.0% (2008: 7.6%) as a result of the lower margin business acquired at Barrow.
Despite the well publicised constraints in Defence spending, we believe that as a result of Redhall being engaged in areas of operation where regulatory or efficiency driven spend is necessary there will be an ongoing requirement. These include the highly regulated radiological areas of AWE and submarine outfitting projects that are already committed.
At AWE our revenues increased substantially with a broader spread of work in re-kit, infrastructure and projects. The contract wins recently announced for turnkey design and build projects in the radiological areas and cross site infrastructure work valued in aggregate at £6.7 million position us well.
Work commenced on the design and manufacture of a major relief scheme for a current AWE project, the contract for which was secured at £9 million. Design commenced on a number of other new build projects, and we are looking to convert these into fuller design and manufacture.
Redhall is a key partner to AWE and we continue to discuss ways in which we can assist them in delivery of technically complex and challenging programmes.
The submarine outfitting contract at Barrow has performed in line with expectations. In recent weeks the first submarine, 'HMS Astute' successfully left the yard for sea trials. We are working on boats two and three whilst discussing a contract for boat four and believe there is opportunity for long term visible work in partnership with BAE Systems.
Process (30% of Revenue)
| 2009 | 2008 | ||
| Revenue | £38.7m | £27.8m | +40% |
| Adjusted operating profit* | £2.2m | £2.2m | - |
| 5.6% | 7.9% |
*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.
Our Process operations represent our engineering services to the food and chemical sectors. Services include turnkey design through to mechanical installation and specialist manufacture activities.
In the year revenue grew 40% to £38.7 million and adjusted operating profit was flat at £2.2 million. Revenue was flat in our core food market whilst the chemical sector suffered volume pressures as clients deferred spend in response to economic conditions.
Our £9.0 million major project to design and build a new carbon fibre production line in Grimsby was largely completed in the year, with positive acclaim from our client Bluestar Fibres. We are hopeful of capitalising on future opportunities as they arise.
In food, volumes were impacted by the delay in a number of major projects with existing clients which resulted in the need to focus on a larger number of smaller value contracts. This impacted profitability in the short term. Progress was made in developing the business overseas as clients requested our assistance in Eastern Europe, South Africa and Turkey. There are some signs of market improvement, however we are cautious about the speed of recovery and are reducing our capacity accordingly. We have also refocused some of our process engineering capability towards supporting the growing energy sector.
Financial review
Group income statement
| 2009 | 2008 | |
| £000 | £000 | |
| Revenue | 128,964 | 86,706 |
| Adjusted operating profit* | 6,765 | 4,719 |
| Net finance charge | (300) | (72) |
| Adjusted profit before tax* | 6,465 | 4,647 |
| Tax | (1,037) | (777) |
| Retained profit | 4,098 | 3,602 |
| Adjusted fully taxed basic EPS* | 16.16p | 15.69p |
| Adjusted fully taxed diluted EPS* | 15.98p | 15.44p |
*Adjusted numbers exclude exceptional items and amortisation of acquired intangible assets.
The results for 2009 include eleven months for the Chieftain businesses acquired on 31 October 2008. Revenue has increased by 49% and adjusted operating profit by 43%. Operating margin fell slightly to 5.2% (2008: 5.4%) reflecting the lower average margins generated by Chieftain and the pressure on margins in certain sectors discussed earlier in this report. Excluding the acquired Chieftain businesses, organic revenue increased 6.6% and adjusted operating profit increased 3.7%.
Exceptional items incurred in the year amount to £655,000 and relate to the integration of Chieftain and the realignment of resources to match market conditions, particularly within the process sector.
The net finance charge is modest although it has shown an increase over that experienced in 2008. The increase reflects the lower interest rates secured on cash deposits and the increase in the IAS 19 deficit in the defined benefit pension scheme at the start of the year which was driven in large part by the fall in investment values.
The overall effective rate of corporation tax (ratio of tax charge to profit before tax) has increased marginally in the year to 20.2% from 17.7%, but remains less than the current full rate of 28%. This is due to the further utilisation of historical tax losses. There remains £1.9 million of tax losses which are being carried forward for future recognition.
Adjusted fully taxed basic and adjusted fully taxed diluted earnings per share have increased by 3.0% and 3.5% respectively.
Cash flow and net funds
| 2009 | 2008 | |
| £000 | £000 | |
| Cash inflow from operating activities before exceptional items | 5,402 | 5,753 |
| Exceptional items | (655) | - |
| Income taxes | (935) | (254) |
| Dividends | (1,224) | (586) |
| Capital expenditure | (828) | (1,736) |
| Issue of share capital | 20,041 | - |
| Net cash flow on acquisition of Chieftain | (17,408) | - |
| Loan repayments | (500) | (125) |
| Others | 48 | (21) |
| Net cash inflow | 3,941 | 3,031 |
| Cash at year end | 10,630 | 6,689 |
| Borrowings at year end | (4,335) | (4,826) |
| Net funds | 6,295 | 1,863 |
| Gearing | Nil | Nil |
Cash inflow from operations amounted to £5.4 million representing a cash conversion rate of 80% compared with 122% in 2008. The average cash conversion over the past three years has been 99%. Cash conversion is driven by the nature of our work and the timing of payments by our clients. Generally we continue to seek to minimise our working capital investment particularly in high value long-term contracts and to adhere to agreed payment terms with our suppliers.
The more challenging economy has led us to be more selective over investment in capital expenditure which has decreased this year. We have previously reported that further investment in capital expenditure is envisaged, but will only be executed when it can demonstrate a commercial return for the Group.
We closed the year with gross cash of £10.6 million, unutilised bank facilities of £8.5 million and nil gearing (2008: Net funds £1.9 million, unutilised bank facilities of £2.0 million and nil gearing), a position of strength in the current economic climate.
Balance sheet
Shareholders' funds increased by £22.1 million in the year reflecting the principal elements of the acquisition of Chieftain funded by a share issue of £20.0 million, retained profit of £4.1 million less dividends paid of £1.2 million and increase in the pension scheme deficit net of deferred tax of £0.9 million.
Pensions
The last formal valuation of the defined benefit pension scheme was performed as at 6 April 2006. We are currently in discussions with the scheme Trustees over the assumptions to be applied to the valuation to be performed as at 6 April 2009.
The deficit reported under IAS 19 has widened in the year to £2.2 million from £0.9 million at 30 September 2008. This is due largely to the reduction in the discount rate used to value the scheme liabilities and the impact of adopting the preliminary funding valuation results as at 6 April 2009. These updated funding valuation results crystallise unfavourable scheme experience compared with that which was assumed in the previous formal valuation as at 6 April 2006.
The pension scheme is of a long-term nature and the portfolio of assets underlying the investments has been selected to match the maturity profile of the pension liabilities. Furthermore, actuarial advice is sought periodically by the Group and the scheme Trustees to reconsider the asset portfolio and, where appropriate, to reallocate it to better reflect the longer term view of market conditions and changes in the liability profile.
Key performance indicators
The Board monitors the activities and performance of our trading subsidiaries through a system of internal control procedures which are summarised in the statement on Corporate Governance. At the Group level, key performance indicators and a comparison with the prior year are summarised below.
| 2009 | 2008 | |
| Adjusted operating profit margin | 5.2% | 5.4% |
| Net borrowings interest cover | N/A | 139 times |
| Work in hand and secured orders | £115m | £110m |
| Earnings per share: Adjusted fully taxed basic Adjusted fully taxed diluted All accident incident frequency rate | 16.16p 15.98p 3.7 | 15.69p 15.44p 5.2 |
Net borrowings interest cover is not applicable this year because the Group generated net interest receivable on its net cash balances.
Going concern
The consolidated financial statements have been prepared on a going concern basis. The Directors have taken note of the recent guidance issued by the Financial Reporting Council on Going Concern Assessments in determining that this is the appropriate basis of preparation of the financial statements and have considered a number of factors. The Group's business activities and markets in which it operates are set out earlier in this review and illustrate the diversity of our operations and the strength of our client base. The financial position of the Group, its trading performance and cash flows are also set out earlier and they demonstrate the overall significant net cash position of the Group, the strength of its trading performance and conversion of operating profit into cash. In addition note 22 to the consolidated financial statements sets out our risk management objectives and policies and also includes details of the Group's funding facilities which are largely undrawn. As a consequence the Directors believe that the Parent Company and Group are well placed to manage their business risks successfully despite the uncertainties surrounding the current general economic outlook.
The Directors have a reasonable expectation that the Parent Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Simon Foster
Chief Executive Officer
2 December 2009
Consolidated Income Statement
| Note | Year to 30 September2009 | Year to 30 September 2008 | |||
| £000 | £000 | ||||
| Revenue | 1 | 128,964 | 86,706 | ||
| Cost of sales | (104,702) | (70,039) | |||
| Gross profit | 24,262 | 16,667 | |||
| Administrative expenses | (18,827) | (12,216) | |||
| Operating profit | 1 | 5,435 | 4,451 | ||
|
| |||||
| Financial income | 2 | 189 | 350 | ||
| Financial expenses | 2 | (489) | (422) | ||
| Profit before tax | 5,135 | 4,379 | |||
| Adjusted profit before tax* | 6,465 | 4,647 | |||
| Exceptional items | (655) | - | |||
| Amortisation of acquired intangible assets | (675) | (268) | |||
| Profit before tax | 5,135 | 4,379 | |||
| Tax expense | 3 | (1,037) | (777) | ||
| Profit attributable to equity holders of the Parent Company | 7 | 4,098 | 3,602 | ||
| Earnings per share | 5 | ||||
| Basic | 14.23p | 16.89p | |||
| Diluted | 14.07p | 16.62p | |||
*Adjusted profit before tax is profit before tax, exceptional items and amortisation of intangible assets acquired with business combinations.
| Note | As at 30 September 2009 | As at 30 September 2008 | |||
| £000 | £000 | ||||
| Assets | |||||
| Non-current assets | |||||
| Property, plant and equipment | 6,577 | 5,246 | |||
| Intangible assets | 7,721 | 1,403 | |||
| Purchased goodwill | 23,785 | 10,085 | |||
| Deferred tax assets | 4 | - | 480 | ||
| 38,083 | 17,214 | ||||
| Current assets | |||||
| Inventories | 477 | 433 | |||
| Trade and other receivables | 28,823 | 24,817 | |||
| Cash and cash equivalents | 10,630 | 6,689 | |||
| Current tax asset | 39 | - | |||
| 39,969 | 31,939 | ||||
| Assets held for sale | 248 | 248 | |||
| Liabilities | |||||
| Current liabilities | |||||
| Trade and other payables | (27,264) | (22,220) | |||
| Borrowings | (491) | (491) | |||
| Current tax payable | - | (687) | |||
| (27,755) | (23,398) | ||||
| Non-current liabilities | |||||
| Borrowings | (3,844) | (4,335) | |||
| Deferred tax liabilities | 4 | (1,657) | - | ||
| Retirement benefit obligations | 6 | (2,179) | (886) | ||
| (7,680) | (5,221) | ||||
| Net assets | 42,865 | 20,782 | |||
| Shareholders' equity | |||||
| Share capital | 7 | 7,397 | 5,331 | ||
| Share premium account | 7 | 19,091 | 1,116 | ||
| Merger reserve | 7 | 12,679 | 12,679 | ||
| Revaluation reserve | 7 | 769 | 785 | ||
| Other reserve | 7 | 217 | 141 | ||
| Retained earnings | 7 | 2,712 | 730 | ||
| Total equity | 42,865 | 20,782 |
Consolidated Statement of Recognised Income and Expense
| Year to 30 September 2009 | Year to 30 September 2008 | ||||
| £000 | £000 | ||||
| Actuarial loss on pension scheme | (1,137) | (215) | |||
| Tax on items taken directly to or transferred from equity | 229 | (30) | |||
| Net income recognised directly in equity | (908) | (245) | |||
| Profit for the period | 4,098 | 3,602 | |||
| Total recognised income and expense for the period | 3,190 | 3,357 | |||
| Attributable to equity holders of the Parent Company | 3,190 | 3,357 | |||
Consolidated Cash Flow Statement
| Year to 30 September 2009 | Year to 30 September 2008 | ||||
| £000 | £000 | ||||
| Cash flows from operating activities | |||||
| Profit after taxation | 4,098 | 3,602 | |||
| Adjustments for: | |||||
| Depreciation | 808 | 501 | |||
| Amortisation of intangible assets | 690 | 281 | |||
| Exceptional items | 655 | - | |||
| Difference between pension charge and cash contributions | (13) | (15) | |||
| Loss/(profit) on disposal of property, plant and equipment | 21 | (1) | |||
| Share-based payments charge | 76 | 104 | |||
| Financial income | (189) | (350) | |||
| Financial expenses | 489 | 422 | |||
| Tax expense recognised in the income statement | 1,037 | 777 | |||
| Increase in trade and other receivables | (5) | (3,208) | |||
| Increase in inventories | (44) | (130) | |||
| (Decrease)/increase in trade and other payables | (2,221) | 3,770 | |||
| Cash generated from operations before exceptional items | 5,402 | 5,753 | |||
| Exceptional items | (655) | - | |||
| Cash generated from operations | 4,747 | 5,753 | |||
| Interest paid | (162) | (376) | |||
| Income taxes paid | (935) | (254) | |||
| Net cash from operating activities | 3,650 | 5,123 | |||
| Cash flows from investing activities | |||||
| Acquisition of businesses net of cash acquired | (16,437) | - | |||
| Acquired subsidiary's own costs of acquisition | (971) | - | |||
| Purchase of property, plant and equipment | (798) | (1,617) | |||
| Purchase of intangible assets | (30) | (119) | |||
| Proceeds from disposal of plant and equipment | 21 | 14 | |||
| Interest received | 189 | 350 | |||
| Net cash used in investing activities | (18,026) | (1,372) | |||
| Cash flows from financing activities | |||||
| Proceeds from issue of share capital | 20,041 | - | |||
| Repayment of long-term borrowing | (500) | (125) | |||
| Payment of finance lease liabilities | - | (9) | |||
| Dividends paid | (1,224) | (586) | |||
| Net cash used in financing activities | 18,317 | (720) | |||
| Net increase in cash and cash equivalents | 3,941 | 3,031 | |||
| Cash and cash equivalents at beginning of period | 6,689 | 3,658 | |||
| Cash and cash equivalents at end of period | 10,630 | 6,689 |
Notes to the Financial Statements
1. Segment analysis
Following the acquisition of Chieftain Group plc, and as a consequence of increasing co-operation across the Redhall businesses, the Group has decided to re-organise its segmental reporting. The revised reporting represents how the Group is and will be operating in the future. The 2008 comparatives have been restated. The activities in each segment are as follows:
Energy
Energy comprises the design and manufacture of bespoke plant and equipment, repair and maintenance of production and storage infrastructure and the implementation of major mechanical engineering projects in the UK nuclear, oil and gas and power generation sectors.
Defence
Defence encompasses activities on behalf of the Ministry of Defence ("MOD"), in particular the outfitting of Astute class submarines at Barrow, West Cumbria and the design, specialist equipment manufacture and mechanical and electrical engineering activities at the Atomic Weapons Establishments at Aldermaston and Burghfield.
Process
Process comprises the design, manufacture and mechanical installation of process plant and systems to the food, chemical and pharmaceutical sectors.
Primary business segments
Segment information is presented in respect of the Group's business and geographical segments. The primary analysis, business segments, is based on the Group's management and internal reporting structure.
Business segments
Year to 30 September 2009
| Revenue | Adjusted operating profit | Acquired intangible asset amortisation | Exceptional items | Groupoperatingprofit | |||||
| £000 | £000 | £000 | £000 | £000 | |||||
| Energy | 65,571 | 4,887 | (352) | (270) | 4,265 | ||||
| Defence | 24,672 | 1,734 | (118) | - | 1,616 | ||||
| Process | 38,721 | 2,172 | (205) | (310) | 1,657 | ||||
| Central costs | - | (2,028) | - | (75) | (2,103) | ||||
| Total continuing operations | 128,964 | 6,765 | (675) | (655) | 5,435 | ||||
| Financial income | 189 | - | - | 189 | |||||
| Financial expenses | (489) | - | - | (489) | |||||
| Group profit before tax | 6,465 | (675) | (655) | 5,135 | |||||
| Tax | (1,037) | - | - | (1,037) | |||||
| Group profit for the year | 5,428 | (675) | (655) | 4,098 |
Adjusted operating profit is stated before exceptional items and amortisation of acquired intangible assets.
Share based payment charges amounting to £76,000 (2008: £104,000) have been charged within central costs.
Year to 30 September 2008
| Revenue | Adjusted operating profit | Acquired intangible asset amortisation | Group operating profit | ||||
| £000 | £000 | £000 | £000 | ||||
| Energy | 48,426 | 3,891 | - | 3,891 | |||
| Defence | 10,525 | 805 | (53) | 752 | |||
| Process | 27,755 | 2,194 | (215) | 1,979 | |||
| Central costs | - | (2,171) | - | (2,171) | |||
| Total continuing operations | 86,706 | 4,719 | (268) | 4,451 | |||
| Financial income | 350 | - | 350 | ||||
| Financial expenses | (422) | - | (422) | ||||
| Group profit before tax | 4,647 | (268) | 4,379 | ||||
| Tax | (777) | - | (777) | ||||
| Group profit for the year | 3,870 | (268) | 3,602 |
Adjusted operating profit is stated before amortisation of acquired intangible assets.
2. Financial income and expenses
| 2009 | 2008 | ||
| £000 | £000 | ||
| Financial income | |||
| Interest income | 189 | 350 | |
| Financial expenses | |||
| Interest on bank loans and overdrafts | (170) | (382) | |
| Interest payable in respect of lease finance | - | (1) | |
| Net finance expense on pension scheme* | (319) | (39) | |
| (489) | (422) |
* Includes £150,000 of pension administration expenses paid for by the Company.
3. Tax expense
| 2009 | 2008 | ||
| £000 | £000 | ||
| (a) Recognised in the income statement | |||
| Current tax expense: | |||
| Current year | 695 | 873 | |
| Prior years | 19 | 21 | |
| Current tax expense | 714 | 894 | |
| Deferred tax expense/(credit) | 348 | (121) | |
| Prior years | (25) | 4 | |
| Deferred tax expense/(credit) | 323 | (117) | |
| Tax expense in the income statement | 1,037 | 777 | |
| 2009 | 2008 | ||
| £000 | £000 | ||
| (b) Reconciliation of the effective tax rate | |||
| Profit before tax | 5,135 | 4,379 | |
| Tax at standard rate of UK corporation tax of 28% (2008: 28%) | 1,438 | 1,226 | |
| Expenses not deductible for tax purposes | 48 | 43 | |
| Effect of tax losses | (443) | (712) | |
| Adjustment in relation to prior periods | (6) | 25 | |
| Change in tax rate | - | 30 | |
| Deferred tax in relation to industrial buildings | - | 165 | |
| Tax expense in the income statement | 1,037 | 777 |
| 2009 | 2008 | ||
| £000 | £000 | ||
| (c) Deferred tax (credit)/charge recognised directly in equity | |||
| Actuarial losses | (318) | (60) | |
| Revaluation of property | (5) | (7) | |
| Share options | 94 | 97 | |
| (229) | 30 | ||
4. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
The net deferred tax (liability)/asset at the year end and movement during the year is analysed as follows:
| Balance as at 1 October 2008 | Acquired with subsidiaries | (Charge)/ credit to Consolidated Income Statement | (Charge)/ credit directly to equity | Balance as at 30 September 2009 | |||||
| £000 | £000 | £000 | £000 | £000 | |||||
| Accelerated capital allowances | (281) | (19) | (78) | - | (378) | ||||
| Short term timing differences | 515 | 54 | (246) | - | 323 | ||||
| Losses | 574 | (1) | (195) | - | 378 | ||||
| Deferred tax on buildings | (403) | (233) | 52 | 5 | (579) | ||||
| Intangible assets | (342) | (1,844) | 79 | - | (2,107) | ||||
| Share options | 169 | - | 21 | (94) | 96 | ||||
| Retirement benefits | 248 | - | 44 | 318 | 610 | ||||
| 480 | (2,043) | (323) | 229 | (1,657) |
| Balance as at 1 October 2007 | Acquired with subsidiaries | (Charge)/ credit to Consolidated Income Statement | (Charge)/ credit directly to equity | Balance as at 30 September 2008 | |||||
| £000 | £000 | £000 | £000 | £000 | |||||
| Accelerated capital allowances | 45 | - | (326) | - | (281) | ||||
| Short term timing differences | 638 | - | (123) | - | 515 | ||||
| Losses | 154 | - | 420 | - | 574 | ||||
| Buildings | (446) | - | 36 | 7 | (403) | ||||
| Intangible assets | (416) | - | 74 | - | (342) | ||||
| Share options | 237 | - | 29 | (97) | 169 | ||||
| Retirement benefits | 181 | - | 7 | 60 | 248 | ||||
| 393 | - | 117 | (30) | 480 |
Unrecognised deferred tax assets
Deferred tax assets have not been recognised on tax losses of £1,921,000 (2008: £2,285,000) as their recovery is insufficiently certain.
5. Earnings per share
Basic earnings per share
The calculation of basic earnings per share of 14.23p (30 September 2008: 16.89p) is based on 28,797,206 shares (30 September 2008: 21,323,434) being the weighted average number of shares in issue throughout the period and on earnings of £4,098,000 (30 September 2008: £3,602,000).
Diluted earnings per share
The calculation of diluted earnings per share of 14.07p (30 September 2008: 16.62p) is based on profit for the period of £4,098,000 because there were no adjustments required (30 September 2008: £3,602,000 because no adjustments were required) and on 29,124,307 ordinary shares (30 September 2008: 21,672,172) as calculated below:
| 2009 | 2008 | ||
| £000 | £000 | ||
| Earnings: | |||
| Profit on ordinary activities after tax | 4,098 | 3,602 | |
| Number | Number | ||
| Basic weighted average number of shares | 28,797,206 | 21,323,434 | |
| Dilutive potential ordinary shares arising from share options | 327,101 | 348,738 | |
| Adjusted weighted average number of shares | 29,124,307 | 21,672,172 |
Adjusted earnings per share
The Directors believe that helpful additional earnings per share calculations are earnings per share on adjusted bases (i.e. based on profit before exceptional items and amortisation of acquired intangible assets and on a fully taxed basis). The basic and adjusted weighted average numbers of shares are set out above. The adjusted earnings have been calculated as follows:
| 2009 | 2008 | ||
| £000 | £000 | ||
| Earnings: | |||
| Profit before tax | 5,135 | 4,379 | |
| Exceptional items | 655 | - | |
| Amortisation of acquired intangible assets | 675 | 268 | |
| Adjusted profit before tax | 6,465 | 4,647 | |
| Tax at 28% | (1,810) | (1,301) | |
| Adjusted profit after tax | 4,655 | 3,346 | |
| Adjusted, fully taxed basic earnings per share | 16.16p | 15.69p | |
| Adjusted, fully taxed diluted earnings per share | 15.98p | 15.44p |
6. Retirement benefit obligation
The Group sponsors a defined benefit pension scheme in the United Kingdom, the Booth Industries Group PLC Staff Pension and Life Assurance Scheme ("the Booth Scheme") and operates a small number of defined contribution pension schemes and makes contributions to personal pension plans.
Defined benefit scheme
Pension benefits are linked to the members' final pensionable salaries and service at their retirement date (or date of leaving if earlier). The scheme is closed to new entrants. The Group has opted to recognise all actuarial gains and losses immediately through the Consolidated Statement of Recognised Income and Expense.
The most recent formal actuarial valuation is being carried out as at 6 April 2009, but has not yet been concluded. The preliminary results of this valuation have been updated to 30 September 2009 by an independent qualified actuary. The assumptions used were as follows:
Assumptions
| 2009 | 2008 | |
| Discount rate | 5.70% | 7.00% |
| Rate of inflation | 3.00% | 3.40% |
| Salary increases | 3.50% | 3.90% |
| Rate of increases to pensions in payment subject to inflationary increases: | ||
| - capped at 5% | 2.90% | 3.40% |
| - capped at 2.5% | 2.30% | 2.50% |
| Rate of increase for deferred pensioners | 3.00% | 3.40% |
| Mortality basis: | ||
| Before retirement | S1PAmc (year of birth) + 1 year | PCA00lc (year of birth) |
| After retirement | S1PAmc (year of birth) + 1 year | PCA00lc (year of birth) |
| Expected return on scheme assets at the year end | 5.70% | 6.20% |
Analysis of movement in retirement benefit obligation
| 2009 | 2008 | ||
| £000 | £000 | ||
| Retirement benefit obligation at start of the year | 14,564 | 16,530 | |
| Current service cost | 75 | 68 | |
| Interest cost on retirement benefit obligation | 1,009 | 984 | |
| Contributions by employees | 35 | 34 | |
| Benefits paid and transfers out | (402) | (367) | |
| Actuarial losses/(gains) | 921 | (2,685) | |
| Retirement benefit obligation at end of year | 16,202 | 14,564 |
Change in fair value of scheme assets during the year
| 2009 | 2008 | ||
| £000 | £000 | ||
| Fair value at start of the year | 13,678 | 15,883 | |
| Expected return on scheme assets | 840 | 945 | |
| Contribution from employer | 88 | 83 | |
| Contribution from scheme members | 35 | 34 | |
| Benefits paid and transfers out | (402) | (367) | |
| Actuarial losses | (216) | (2,900) | |
| Fair value at end of the year | 14,023 | 13,678 |
Amounts included in the balance sheet
The market value of the assets in the scheme and the present value of the liabilities in the scheme are:
| 2009 | 2008 | 2007 | |||
| £000 | £000 | £000 | |||
| Market value of scheme assets | 14,023 | 13,678 | 15,883 | ||
| Present value of retirement benefit obligation | (16,202) | (14,564) | (16,530) | ||
| Net deficit in scheme | (2,179) | (886) | (647) | ||
| Related deferred tax asset (note 4) | 610 | 248 | 181 |
7. Statement of changes in equity
| Share capital | Share premium | Merger reserve | Revaluation reserve | Other reserve | Retained earnings | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 September 2007 | 5,331 | 1,116 | 12,679 | 804 | 37 | (2,060) | 17,907 |
| Profit for the year ended 30 September 2008 | - | - | - | - | - | 3,602 | 3,602 |
| Actuarial loss recognised in the pension scheme | - | - | - | - | - | (215) | (215) |
| Movement on deferred tax relating to pension liability | - | - | - | - | - | 60 | 60 |
| Income taxes relating to items charged directly to equity | - | - | - | 7 | - | (97) | (90) |
| Total recognised income and expense for the period | - | - | - | 7 | - | 3,350 | 3,357 |
| Transfer between reserves in respect of depreciation on property revaluations | - | - | - | (26) | - | 26 | - |
| Employee share-based compensation | - | - | - | - | 104 | - | 104 |
| Dividends | - | - | - | - | - | (586) | (586) |
| At 30 September 2008 | 5,331 | 1,116 | 12,679 | 785 | 141 | 730 | 20,782 |
| Profit for the year ended 30 September 2009 | - | - | - | - | - | 4,098 | 4,098 |
| Actuarial loss recognised in the pension scheme | - | - | - | - | - | (1,137) | (1,137) |
| Movement on deferred tax relating to pension liability | - | - | - | - | - | 318 | 318 |
| Income taxes relating to items charged directly to equity | - | - | - | 5 | - | (94) | (89) |
| Total recognised income and expense for the period | - | - | - | 5 | - | 3,185 | 3,190 |
| Transfer between reserves in respect of depreciation on property revaluations | - | - | - | (21) | - | 21 | - |
| Shares allotted in connection with acquisition | 2,041 | 17,959 | - | - | - | - | 20,000 |
| Employee share-based compensation | 25 | 16 | - | - | 76 | - | 117 |
| Dividends | - | - | - | - | - | (1,224) | (1,224) |
| At 30 September 2009 | 7,397 | 19,091 | 12,679 | 769 | 217 | 2,712 | 42,865 |
8. Basis of preparation
The financial information set out above for the years ended 30 September 2009 and 2008 ("the financial information"), has been prepared with consistent accounting policies and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and are effective at 30 September 2009.
The financial information does not constitute the statutory financial statements (as defined by S434 of the Companies Act 2006) for those years. The 2009 financial statements, upon which the auditors issued an unqualified opinion, have not yet been delivered to the Registrar.
The 2008 financial statements have been delivered to the Registrar and included the auditors' report which was unqualified and did not contain a statement either under sections 237(2) or 237(3) of the Companies Act 1985.
The annual report and accounts for the year ended 30 September 2009 will be posted to shareholders. Copies will be available from the Company's registered office, 1 Red Hall Court, Wakefield, WF1 2UN.