RHL.L Regulatory News (RHL)

6 Dec 2007 07:01

Redhall Group PLC06 December 2007 For Immediate Release 6 December 2007 Redhall Group plc ("Redhall" or the "Group") Preliminary Results for the year ended 30 September 2007 Redhall Group plc, the specialist engineering support services group, announcesits preliminary results for the year ended 30 September 2007. Key points • Turnover at £57.0 million (2006: £31.6 million) Up 80% • Operating profit of £2.43 million* (2006: £933,000) Up 160% • Profit before taxation of £2.39 million* (2006: £772,000) Up 209% • Adjusted earnings per share of 12.29p* (2006: 5.77p) Up 113% • Total dividend 2.25p per share (2006: 1.00p) Up 125% • Acquisitions of Jex Engineering Company Limited and Steels Engineering Services Limited completed during the year and performing well • Forward order book of £64 million * 2007 results are stated before goodwill amortisation David Jackson, Chairman and Chief Executive of Redhall, commented: "This has been another milestone year in the development of Redhall with oursecond year of significant growth in turnover and profit since managementchanges in 2005. The pace of growth is a reflection of our focused strategy andsuccess in investing in long-term relationships in sectors where support anddevelopment of critical assets is a client priority. "Our order book remains healthy with 60% of 2007/08 turnover in hand at thestart of the year. We look forward to the coming year with confidence as wecontinue to expand our Group businesses both organically and by acquisitionwithin our chosen fields." For more information please contact:Redhall Group plc Tel: +44 (0)1924 385 386 David Jackson, Chairman and Chief ExecutiveSimon Foster, Deputy Chief ExecutiveChristopher Lewis-Jones, Group Finance Director Buchanan Communications Tel: +44 (0) 20 7466 5000Tim Anderson / Isabel Podda / James Strong CHAIRMAN'S STATEMENT Introduction This has been another milestone year in the development of Redhall with oursecond year of significant growth in turnover and profit since managementchanges in 2005. The pace of growth is a reflection of our focused strategy andsuccess in investing in long-term relationships in sectors where support anddevelopment of critical assets is a client priority. Our key markets in nuclear,oil, gas, petro-chemical, defence and food represent long-term growthopportunities where our direct delivery model is increasingly rare. We are alsoexpanding our service offering on a more integrated basis to provide a totalsolution. Trading Results Turnover for the year ended 30 September 2007 increased by 80% to £57.0 million(2006: £31.6 million). Profit before tax was £2.4 million prior to theamortisation of goodwill, an increase of 209% on the 2006 figure of £772,000.Excluding acquisitions made in the year turnover growth was 37% and pre-taxprofit growth was 109%. The operating margin pre-goodwill achieved on this turnover was 4.3% (3.8%excluding acquisitions). Basic earnings per share stood at 11.02p compared to a2006 performance of 5.77p, an increase of 91%. Adjusted basic earnings per shareat 12.29p increased by 113% at the actual tax rate of 10.9%. A more detailed review of trading can be found in the Business Review section ofthis report. Acquisitions in the Year The two businesses acquired in the year, Jex Engineering Company Limited andSteels Engineering Services Limited, have made a considerable contribution tothe results of the year. Turnover achieved by these businesses was £13.8 millionproducing an operating profit prior to amortisation of goodwill of £778,000, anet operating margin of 5.7%. Both businesses show considerable scope for futuregrowth in both product offering and geographical markets and are also beginningto benefit other Group companies with cross selling opportunities. In addition,their higher margin operating profits should have a beneficial effect on theoverall operating margin achieved as we now aim for in excess of 5% overall. Financial Position Cash generated by our operating activities during the year stood at £2.6 millionprior to a special contribution of £3.0 million to our defined benefit pensionscheme. The special contribution eliminated the actuarial deficit and hasobviated the need for annual contributions of approximately £250,000. On a day to day basis we tend to have little or no net debt although at the yearend the net debt figure was £1.3 million. With net assets of £18.0 million atthe year end gearing stood at a modest 7.2%. We have deliberately avoided takingon high levels of debt and as a result are in a strong position to takeadvantage of any opportunity that may occur in an economic climate that haschanged markedly during the second half of 2007. We continue to have strongsupport from our shareholder base and our banking partner, Bank of Scotland, andwe will seek to use that support should the right acquisition opportunity arise. Our tax charge in the year is £264,000 or 10.9% of pre-goodwill operatingprofit. We continue to use losses brought forward to good effect and we now havea structure in place to maximise the advantage of the tax losses inherited. Weenvisage that this structure will take several years to be fully utilised. Dividend The Board has proposed the payment of a dividend of 2.25p per share for theyear, of which 1.00p has already been paid as an interim dividend. The finaldividend of 1.25p per share will be paid to shareholders on 28 February 2008 whoare on the register on 1 February 2008. Board Appointment I am delighted that Ian Butcher is joining the Board as a non-executive directorwith effect from 6 December 2007. A Chartered Accountant who spent more than 11years as Group Finance Director of The Go-Ahead Group plc, a FTSE-250 listedplc, Ian has considerable experience of both the financial markets and growthmanagement over a sustained period. He will head our Audit Committee and willjoin the Remuneration and Nomination Committees. Employees The results that we have reported on here and the strong foundations that havealready been laid for the future can only be achieved with dedicated employeesthat have exceptional skills and experience in their field. We have anexceptional team of people and I would like to take this opportunity to thankthem for their efforts last year and for their continued support going forward. Strategy and Growth Prospects We continue to drive organic growth through the existing trading businesses andthis is a key platform of our strategy for 2007/08 and beyond. In addition, wecontinue to seek complementary acquisitions which will add to our productoffering or extend our geographical reach in our key markets. There are specificareas of opportunity which will enable us to achieve our goals. 1. Nuclear Services We have already grown the profile of our nuclear businesses, Jordan Nuclear andSteels Engineering Services, to the point where we are undertaking aconsiderable proportion of our turnover directly with Sellafield Limited andAtomic Weapons Establishment ("AWE") at Aldermaston. The opportunities on thesesites for our skill sets are numerous and we now have a management team capableof negotiating successfully at the highest level. We aim to place more emphasisgoing forward on working directly with our principal clients rather than workingas a sub-contractor. Wherever we feel there is a need we will enter into a jointventure with a strategic partner. 2. Engineering Services We have made considerable progress during the last twelve months in our chosenmarkets of oil, gas, food and petro-chemical. There are opportunities in foodwith our key branded customers due to potential relocation of productionfacilities and additional lines, and in the oil and gas field with geographicalexpansion. 3. Specialist Manufacturing The main opportunity lies in the nuclear industry with a vast requirement forstorage vessels of varying types. We are striving to negotiate term agreementswith our principal clients which will ensure continuity of production andevenness of trading performance. We anticipate the waste to energy sector to bea market in which we will make a significant contribution. Outlook The current year has commenced with trading in line with managementexpectations. We continue to actively seek complementary acquisitions and our principaltargets are in electrical engineering and nuclear design. We are also interestedin expanding our geographical coverage of the oil and gas markets. Once we haveachieved this balance we will look for an expansion of our activities into NorthSea decommissioning. Our order book remains healthy with 60% of 2007/08 turnover in hand at the startof the year. The order book currently stands at £64 million. David JacksonChairman and Chief Executive 5 December 2007 BUSINESS REVIEW Performance Our strategy of long-term relationships, integrated offering and direct deliveryhas underpinned growth in 2006/07. Revenues have increased by 80% to £57.0million whilst adjusted operating profit has increased to £2.4 million whichrepresents growth of 160%. Profit before tax and goodwill was up 209% to £2.4million (2006: £0.8 million). Given the mobilisation on new major contracts itis a credit to the quality of the business that Group adjusted operating marginhas increased to 4.3%. Nuclear Services+-------------------------+--------------------+--------------------+---------+| | 2007 | 2006 | |+-------------------------+--------------------+--------------------+---------+|Revenue | £19.8m | £7.8m | +155% |+-------------------------+--------------------+--------------------+---------+|Operating profit | £1.2m | £0.4m | +207% |+-------------------------+--------------------+--------------------+---------+|Margin | 6.1% | 5.1% | |+-------------------------+--------------------+--------------------+---------+ * Operating profits and margin are stated prior to goodwill amortisation andcentral overhead The Group's nuclear services operations have seen a significant step change in2007 with turnover up 155% at £19.8 million (2006: £7.8 million) and operatingprofit rising 207% to £1.2 million (2006: £0.4 million). Operating marginimproved to 6.1% reflecting leverage of the existing cost base and the highermargin of acquired activities in Steel Engineering Services Limited ("Steels").The strategy of focusing on the key nuclear markets of Sellafield and AWEAldermaston is paying dividends. At Sellafield we have concentrated on reinforcing and expanding our foothold inasset support, decommissioning of legacy waste facilities and new build ofinterim storage plant. Jordan Nuclear was awarded a £7.5 millionMulti-Discipline Site Works term contract for up to four years forpost-operational clean-up activities at Sellafield and a £6.0 million evaporatorcontract for the Thorp reprocessing plant, both of which are key priorities forthe Nuclear Decommissioning Authority ("NDA") and Sellafield. The awards arerecognition of our technical skills and solutions based approach. We alsoengaged in a major site mobilisation on the Sellafield Product Residue Storeproject which has now moved into its installation phase. Steels has been fully integrated and performed above our expectations sinceacquisition in January 2007. The positive attitude of Steels' principal client,AWE, and Steels management together with the finance to support and developfurther skills has culminated in Steels securing contracts of wider and largerscope. AWE is embarking on a programme of upgrades to key facilities in the highsecurity radiological areas of Aldermaston and Burghfield where Steels plays amajor part. In the first half we secured our first three year Re-kit termcontract and in October 2007 this was complemented by the award of a three yearcontract for the provision of direct labour, management services and third partyprocurement estimated to be worth £9.0 million. Steels' 15 years of experiencein supporting AWE is already proving invaluable to the balance of the Group withcross-selling of design and manufacturing now proving successful. Being part of Redhall is also helping Steels win new business, such as that withBritish Energy where it is undertaking the design and installation of upgradedenvironmental stack sampling systems for Hartlepool Power Station. This followsthe completion of similar projects at Aldermaston and Dounreay. Furtheropportunities in this area are anticipated. With the NDA anticipating an expenditure of £73 billion to deal with high hazardwaste reduction and decommissioning, principally at the UK's most complex siteat Sellafield, and AWE forecasting increased spend to support its newconstruction and refurbishment activities, the Group is well placed for thefuture and we continue to develop and grow our capabilities to match and supportour clients' needs. Engineering Services+-------------------------+--------------------+--------------------+---------+| | 2007 | 2006 | |+-------------------------+--------------------+--------------------+---------+|Revenue | £20.5m | £8.7m | +135% |+-------------------------+--------------------+--------------------+---------+|Operating profit | £1.2m | £0.3m | +357% |+-------------------------+--------------------+--------------------+---------+|Margin | 5.9% | 3.1% | |+-------------------------+--------------------+--------------------+---------+ * Operating profits and margin are stated prior to goodwill amortisation andcentral overhead Revenues in engineering services have increased by 135% to £20.5 million (2006:£8.7 million) reflecting an out-performance from Jordan Engineering Services,our newly renamed site based oil, gas, and petro-chemical operation. There wasalso a strong contribution from recently acquired Jex Engineering CompanyLimited ("Jex") the Group's food and process engineering services business whichjoined the Group in May 2007. Operating profit rose 357% to £1.2 million (2006:£0.3 million) and operating margin increased to 5.9% (2006: 3.1%). Jordan Engineering Services (formerly CHB-Jordan Engineering) traded well asdemand for our engineering services increased in the onshore refinery sector inour existing geographic markets. A series of successful plant shutdowns and themobilisation at Exxon Mobil Fawley under our newly secured three year termcontract led to near full utilisation of resource and benefited margins. We continue to focus on developing our project activities particularly in theareas of petro-chemical tank farm repair and refurbishment and have beensuccessful in securing work in Grangemouth with Ineos. This has already provideda footprint for future expansion in the area. We are already looking to targetgrowth in the Humber Bank oil refinery market utilising the local knowledge,infrastructure and selected services provided by Jex. Jex had a good summer period with major project works for Cadbury, Nestle andCereal Partners across the UK. Most notably, Jex provided engineering design andsite support services for the Cadbury Monkhill popcorn facility following arecent fire and the major upgrade of its Marlbrook chocolate plant. Jex has built up a reputation for quality turnkey engineering services to thefood market, in particular for confectionery and cereal clients where theoutsourcing of engineering support is prevalent. Given Jex's experience with itsblue chip clients and the increase in process plant relocation and factoryconsolidation, the future for the food sector remains good. Notwithstandingthis, Jex is refocusing its efforts on developing its chemical andpharmacuetical revenue particularly in the Humber Bank region where a number ofprojects are under discussion. Specialist Manufacturing+-------------------------+--------------------+--------------------+---------+| | 2007 | 2006 | |+-------------------------+--------------------+--------------------+---------+|Revenue | £16.7m | £15.1m | +11% |+-------------------------+--------------------+--------------------+---------+|Operating profit | £1.5m | £1.2m | +27% |+-------------------------+--------------------+--------------------+---------+|Margin | 9.0% | 7.8% | |+-------------------------+--------------------+--------------------+---------+ * Operating profits and margin are stated prior to goodwill amortisation andcentral overhead Specialist manufacturing saw a year of steady growth with revenues increasing by11% to £16.7 million (2006: £15.1 million) and operating profit rising 27% to£1.5 million (2006: £1.2 million). Operating margins have improved to 9.0%(2006: 7.8%) with a greater mix of work in the civil and nuclear markets forboth Booth Industries and Jordan Manufacturing. Booth Industries' key oil and gas markets have remained active with new blastprotection schemes for on and offshore facilities driven by increasinginvestment in new oil and gas production. We have also benefited in our highermargin repair and maintenance activities on refurbishment schemes for existingfacilities that have become once again financially viable. Continuing emphasis has also been placed on developing existing and new productlines and services. We are providing key design support to AWE Aldermaston,where we are looking to take projects through to manufacture and have launchedour fire and security commercial doors range which allows us to meet clients'demands for a one-stop shop. Nowhere was this more evident than when we receivedour first order for St. Pancras Station following the successful tunnel doorsproject for the Channel Tunnel Rail Link completed in 2006. We are alsoreceiving orders for security and radiation doors at Sellafield and beyond. Jordan Manufacturing saw its contribution increase in the year principally as aresult of the NDA's growing investment in the nuclear sector. Our major project,Sellafield Product Residue Store, progressed well although it is now notexpected to complete until the second half of 2008. We also secured a number ofcontainer contracts in the period for the Sellafield Thorp reprocessing plant.We expect decommissioning and the new build of interim storage facilities atSellafield to drive demand for storage and transport vessels. This will be a keycornerstone of the business for the coming years. In conjunction with Steels, we have also made our first steps in manufacturingsupport for AWE Aldermaston and gained a number of smaller orders for specialistplant manufacture. The quality of our service and proximity to Aldermaston arekey selling points and we are looking for growth in this area. Our design and specialist manufacture is increasingly important to our keyclients for delivery of major projects and our UK base is proving valuable. Assuch in 2008, we will be embarking on an investment programme to support thisfuture potential. People and Safety The momentum behind the Group is assisting us to attract and retain qualitypeople which is proving critical in our success and our engineering resource hasmore than doubled in the year. It is key therefore that we attach the greatest importance to health and safety,quality and environmental practices and support our people and clients.Investment in these areas in the year has delivered tangible benefits with nolost-time accidents and a fall of 43% in our accident frequency rate, well aheadof our target and the wider industry average. Our goal will be to continue thistrend of improvement in the year to come. Outlook Overall we are very pleased with the progress made in 2007 and given thestrengths of our operations and the markets in which we operate we are lookingforward to making further progress in the year to come. R Simon FosterDeputy Chief Executive 5 December 2007 FINANCIAL REVIEW Summary I am pleased to report that 2007 has been a year of significant growth anddevelopment for the Group. Turnover increased by 80% to £57.0 million andadjusted operating profit increased 160% to £2.4 million. Basic earnings pershare increased by 91% to 11.02p and adjusted basic earnings per share increasedby 113% to 12.29p (note 1). The Board will propose a final dividend for the yearof 1.25p which brings the total for the year to 2.25p compared with 1.00p in2006. The balance sheet has strengthened substantially and net assets now stand at£18.0 million compared with £2.0 million last year. Cash generation has been strong with £2.6 million of cash (prior to a specialcontribution to the pension scheme of £3.0 million to eliminate the actuarialdeficit) generated from adjusted operating profit of £2.4 million, being anoperating profit to cash conversion rate of 106%. Operating results The major financial headlines are as follows: 2007 2006 £000 £000Group turnoverOngoing operations 43,291 31,618Acquisitions 13,758 -Total 57,049 31,618 Adjusted operating profit *Ongoing operations 1,652 933Acquisitions 778 -Total 2,430 933 Net interest 27 (48)Other finance charges (69) (113)Profit before tax * 2,388 772Retained profit* 2,124 780 Adjusted basic EPS * 12.29p 5.77pAdjusted diluted EPS* 11.99p 4.91p * 2007 results exclude goodwill amortisation reported in that year. In total, turnover has increased in the year by £25.4 million (80%). On alike-for-like basis, before acquisitions, turnover increased by £11.7 million(37%). The acquisitions of Steels Engineering Services Limited and SteelsEngineering and Design Limited (collectively "Steels") and Jex EngineeringCompany Limited ("Jex") generated a further £13.8 million of turnover during theperiod of ownership by the Group (eight months and four months respectively). Adjusted operating profit before goodwill increased by £1.5 million (160%). Thecontribution from ongoing businesses grew by £719,000 (77%) and the acquisitionscontributed £778,000. The total adjusted operating margin for the year increasedto 4.3% compared with 3.0% in 2006. The adoption of FRS 20 (Share Based Payments) in the year has resulted in anon-cash charge to the profit and loss account of £37,000 which is credited to'Other reserves' in the balance sheet (2006: Nil). The Group has benefited from net interest receivable in the year of £27,000(2006: charge of £48,000). Robust working capital management has enabled theGroup to operate with strong positive cash balances throughout the year whichhas more than offset the interest charged on the term loan advanced at the timeof the Jex acquisition. Other finance charges relate to the final salary pension scheme. The reductionin this charge in the year reflects the improvement achieved in the schemeassets at the commencement of the year, compared with the prior year. The total tax charge of £264,000 comprised a current tax charge of £120,000 anda net deferred tax charge of £144,000. The current tax charge is low because wehave benefited from the utilisation of historical tax losses and a tax deductionin the year for part of the special pension contribution. The total charge fordeferred tax reflects a charge of £948,000 in connection with the reduction inthe pension scheme deficit following the special contribution. This has beenoffset by a deferred tax credit of £613,000 for the remaining tax deduction inconnection with the special contribution which will be spread over three years.The remaining deferred tax credit relates to tax losses recognised and movementsin other timing differences. The effective rate of tax is 10.9% of thepre-goodwill operating profit. Acquisitions Redhall completed two acquisitions during the year, investing a total of £18.0million including costs. On 31 January 2007 the Group acquired the entire issued share capital of Steels.Steels undertake mechanical and electrical engineering design and installationand operate largely on the AWE site at Aldermaston. Total consideration pluscosts amounted to £2.2 million and goodwill of £2.1 million arose as a result ofthis acquisition. On 31 May 2007 the Group acquired the entire issued share capital of Jex. Thisbusiness undertakes engineering design, fabrication, installation, relocationand maintenance of process plant principally for the food, pharmaceutical andpetro-chemical industries. Jex is based in Grimsby and has additional operationsin Manchester, serving the North West, and Birmingham, serving the Midlands. Thetotal consideration plus costs amounted to £15.8 million which included £3.7million of cash remaining on the balance sheet at acquisition which was deemedto be surplus to the working capital requirements of Jex. Goodwill of £9.0million arose as a result of this acquisition. Cash flow and net funds 2007 2006 £000 £000Cash inflow from operating activities:Cash inflow before special pension contribution 2,583 348Special pension contribution (3,000) -Interest and dividends (344) (319)Tax (602) -Net capital expenditure (557) (326)Acquisitions:Cash acquired with subsidiaries 3,829 -Cash expended on acquisitions (3,931) -Financing including bank term loan 4,957 (422)Increase/(decrease) in cash in the year 2,935 (719) Excluding the special pension contribution, cash inflow from operatingactivities amounted to £2.6 million, reflecting the continuing robust managementof working capital across the Group. During the year the Group raised funds to substantially eliminate the deficitpreviously reported in our final salary pension scheme. The scheme, which wasclosed to new entrants in 1997, had a £3.0 million deficit determined by thescheme actuary at the latest triennial valuation as at 5 April 2006.Accordingly, as part of the fundraising performed in connection with theacquisition of Jex, an additional £3.0 million was raised and paid into thescheme to resolve the actuarial deficit. The scheme actuary has confirmed thatno further deficit repair contributions are required to be paid into the scheme(previously £250,000 rising by 3% pa from June 2004) and that the position willbe reviewed again at the time of the next triennial valuation as at 5 April2009. Corporation tax payments of £602,000 relate to Jex and are largely forpre-acquisition periods. Capital expenditure was controlled throughout the period, as in previous years,to meet operational needs but there remains the expectation that additionalinvestment will be required as our businesses continue to grow. We ended the year with cash of £3.7 million and net borrowings of £1.3 million,after deducting the term loan of £5.0 million, resulting in gearing of 7.2%. Despite the growth in the businesses we have controlled the investment inworking capital and maintained a high level of cash throughout the year. Thishas been driven in part by negotiating substantial payments on account across anumber of contracts in a number of our businesses. The cash advantage on thesecontracts will unwind as they move towards closure. Future cash balances willdepend on the nature of contracts at that time, but will be maximised as wecontinue to seek to secure the best payment terms. Balance sheet Shareholders' funds increased by £16.0 million in the year reflecting the sharesissued in connection with the acquisitions (£14.0 million), the retained profit(£1.9 million) less dividends paid (£371,000), an actuarial gain net of deferredtax on the defined benefit pension scheme (£237,000) and a surplus arising onthe revaluation of freehold and long-leasehold properties (£112,000). The pension scheme deficit which remains on the balance sheet after eliminatingthe triennial valuation deficit reflects the more prudent assumptions which arerequired to be applied to the calculation of liabilities under FRS 17. Key performance indicators The Board monitors the activities and performance of our trading subsidiariesthrough a system of internal control procedures which are summarised in thestatement on Corporate Governance. At the Group level, key performanceindicators and a comparison with the prior year are summarised below. +-------------------------------------------+------------+----------+|Key performance indicators | 2007| 2006|+-------------------------------------------+------------+----------+|Adjusted operating profit margin | 4.3%| 3.0%|+-------------------------------------------+------------+----------+|Interest cover | N/A| 19|+-------------------------------------------+------------+----------+|Dividend cover | 4.0 times| 4.9 times|+-------------------------------------------+------------+----------+|Work in hand and secured orders | £64 million| £40|| | | million|+-------------------------------------------+------------+----------+|Earnings per share: | | || | | ||Basic | 11.02p| 5.77p||Fully diluted | 10.75p| 5.12p||Adjusted basic | 12.29p| 5.77p||Adjusted diluted | 11.99p| 4.91p|+-------------------------------------------+------------+----------+ Treasury Policies, objectives and strategies The Group's objective is to maintain a balance between continuity of funding andflexibility through the use of borrowings with a range of maturities. Generally,we believe it is appropriate to have facilities and borrowings on a floatinginterest rate basis, although this is kept under review. The Group's liquidity, interest rate and foreign exchange risks are managedcentrally following guidelines laid down by the Board. All non-routinetransactions require Board approval. Liquidity risk The liquid resources available to the Group are cash and a banking facilityprovided by Bank of Scotland. The objective is to maintain sufficient resourceto meet the funding needs for the foreseeable future. At 30 September 2007 therewas cash in hand of £3.7 million, a term loan of £5.0 million and an undrawnbanking facility of £4.0 million. Interest rate risk Cash is held on treasury deposit and earns interest at variable rates. The termloan and banking facility bear interest that is variable and linked to LIBOR. Noinstruments have been entered into to mitigate interest rate risk, although thisis kept under review. Foreign currency risk Currency options are used to provide protection against foreign exchangeexposures, typically in relation to contract amounts receivable that aresignificant. There were currency options to put Euro 1.0 million and US Dollar750,000 in place at 30 September 2007 (2006: currency options to put NorwegianKrone 8.8 million). The currency options did not have a material fair value at30 September 2007. Such financial derivatives are used only to manage risk andspeculation is not permitted. Developments in Financial Reporting Standards International Financial Reporting Standards ("IFRS") The Group is required to issue its financial statements for the year ending 30September 2008 in accordance with IFRS, in line with mandatory AiM rules. I canconfirm that substantial progress has been made in assessing the impact of theadoption of IFRS and that other than presentational and disclosure differences,the main areas that will affect the Group accounts include: • IFRS 3 Business Combinations and IAS 36 Impairment of Assets. IFRS 3 requires that separately identifiable intangible fixed assets acquired with a business be valued and recognised in the consolidated balance sheet. The remaining excess of consideration over the fair values of the net assets and intangible assets acquired will represent goodwill. IAS 36 requires that the intangible assets are amortised over their estimated useful lives. IFRS 3 also requires that goodwill is not amortised, but is to be subjected to an annual impairment review in accordance with IAS 36. • IAS 12 Income Taxes. To the extent that this standard creates additional timing differences over those that would be recognised under UK Generally Accepted Accounting Practice, the deferred tax position will change. Such differences in deferred tax are likely to include property revaluations, fair value adjustments and intangible assets arising on acquisitions. As the interim results for 2008 are required to be issued under IFRS, a detailedanalysis of the impact will be made by the time that the interim results areannounced. Chris Lewis-Jones Group Finance Director5 December 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 30 September 2007 +-----------------------+----+------------+--+------------+--+--------+--+--------+| |Note| 2007| | 2007| | 2007| | 2006|+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | Before| |Amortisation| | Total| | Total|| | |amortisation| | of goodwill| | | | || | | of goodwill| | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | £000| | £000| | £000| | £000|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Turnover | | | | | | | | || | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Ongoing operations | | 43,291| | -| | 43,291| | 31,618|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Acquisitions | | 13,758| | -| | 13,758| | -|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Continuing operations | | 57,049| | -| | 57,049| | 31,618|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Cost of sales and | | (54,619)| | (219)| |(54,838)| |(30,685)||operating costs | | | | | | | | || | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Operating profit | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Ongoing operations | | 1,652| | -| | 1,652| | 933|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Acquisitions | | 778| | (219)| | 559| | -|| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Continuing operations | | 2,430| | (219)| | 2,211| | 933|+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Net interest receivable| | 27| | -| | 27| | (48)||/(payable) | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Other finance charges | | (69)| | -| | (69)| | (113)|+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | (42)| | -| | (42)| | (161)|+-----------------------+----+------------+--+------------+--+--------+--+--------+|Profit on ordinary | | 2,388| | (219)| | 2,169| | 772||activities before | | | | | | | | ||taxation | | | | | | | | || | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Tax on profit on | | (264)| | -| | (264)| | 8||ordinary activities | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Profit on ordinary | | 2,124| | (219)| | 1,905| | 780||activities after tax | | | | | | | | ||transferred to reserves| | | | | | | | || | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Earnings per share | 1| | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Basic | | | | | | 11.02p| | 5.77p|+-----------------------+----+------------+--+------------+--+--------+--+--------+|Diluted | | | | | | 10.75p| | 5.12p|+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Dividends per share | | | | | | | | |+-----------------------+----+------------+--+------------+--+--------+--+--------+|Interim paid | | | | | | 1.00p| | -|+-----------------------+----+------------+--+------------+--+--------+--+--------+|Final proposed | | | | | | 1.25p| | 1.00p|+-----------------------+----+------------+--+------------+--+--------+--+--------+| | | | | | | 2.25p| | 1.00p|+-----------------------+----+------------+--+------------+--+--------+--+--------+ There was no amortisation of goodwill in the year ended 30 September 2006. CONSOLIDATED BALANCE SHEET At 30 September 2007 Note 2007 2006 £000 £000Fixed assetsIntangible assets 10,986 -Tangible assets 4,391 2,543 15,377 2,543Current assets Stocks 303 218Debtors 22,540 10,130Cash at bank 3,658 723 26,501 11,071Creditors - amounts falling due within (18,623) (8,751)one year Net current assets 7,878 2,320 Total assets less current liabilities 23,255 4,863 Creditors - amounts falling due after (4,827) (8)more than one year Net assets excluding pension scheme 18,428 4,855deficit Pension scheme deficit (466) (2,871) Net assets including pension scheme 17,962 1,984deficit Capital and reserves Called-up share capital 5,331 3,664Share premium account 1,116 1,110Merger reserve 12,679 294Other reserve 37 -Revaluation reserve 1,117 1,005Profit and loss account (2,318) (4,089) Equity shareholders' funds 2 17,962 1,984 CONSOLIDATED CASH FLOW STATEMENT Year ended 30 September 2007 Note 2007 2006 £000 £000 £000 £000 Cash inflow from operating 3 2,583 348activities before specialpension contribution Special pension 3 (3,000) -contribution Cash (outflow)/inflow from 3 (417) 348operating activities Returns on investments andservicing of financeInterest paid (130) (334)Interest received 163 17Interest element of (6) (2)finance lease rentals 27 (319) Taxation UK corporation tax paid (602) -(in connection with Jexand principallypre-acquisition) Capital expenditure andfinancial investmentPurchase of intangible (78) -fixed assetsPurchase of tangible fixed (487) (337)assetsProceeds from disposals of 8 11tangible fixed assets (557) (326) Acquisitions Steels businesses (30) - Jex Engineering (3,901) - Cash acquired with 3,829 -subsidiary undertakings (102) - DividendsEquity dividends paid (371) - Net cash outflow before (2,022) (297)financing Financing Issue of new shares 27 858Finance lease repayments (13) (23)New bank loan 5,000 -Cost of bank loan (57) -Loan stock repayments - (1,157)Medium term loan - (100)repayments 4,957 (422) Increase/(decrease) in 4 2,935 (719)cash in the year CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended 30 September 2007 +----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | 2007| | | | 2006|+----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | £000| | | | £000|+----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+|Profit for the financial | | | | 1,905| | | | 780||year | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+|Actuarial gain in respect of| | | | 339| | | | 518||defined benefit pension | | | | | | | | ||scheme | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+|Movement on deferred tax | | | | (102)| | | | (155)||relating to defined benefit | | | | | | | | ||pension scheme deficit | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+|Surplus on revaluation of | | | | 112| | | | -||properties | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+| | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+|Total recognised gains | | | | 2,254| | | | 1,143||relating to the year | | | | | | | | || | | | | | | | | |+----------------------------+-----+---+--+-----------+--+---+--+-----------+ NOTES TO THE FINANCIAL STATEMENTS 1. Earnings per share Basic earnings per share The calculation of basic earnings per share of 11.02p (2006: 5.77p) is based on17,282,345 shares (2006: 13,515,489), being the weighted average number ofshares in issue throughout the year and on earnings of £1,905,000 (2006:£780,000). Diluted earnings per share The calculation of diluted earnings per share of 10.75p (2006: 5.12p) is basedon profit for the year of £1,905,000 because there were no adjustments required(2006: adjusted profit £814,000) and on 17,721,920 ordinary shares (2006:15,888,638) as calculated below. 2007 2006 £000 £000 Earnings: Profit on ordinary activities after tax 1,905 780 Interest and redemption premium on - 49 convertible loan stock Tax relating to interest and redemption - (15) premium Adjusted profit 1,905 814 Number Number Basic weighted average number of shares 17,282,345 13,515,489 Dilutive potential ordinary shares arising 439,575 346,573 from share options Dilutive effect of provision for convertible - 2,026,576 loan stock (repaid during the year) Adjusted weighted average number of shares 17,721,920 15,888,638 Adjusted earnings per share The Directors believe that helpful additional earnings per share calculationsare earnings per share on adjusted (before goodwill amortisation) bases. Thebasic and adjusted weighted average number of shares are set out above. Theadjusted earnings have been calculated as follows: 2007 2006 £000 £000 Earnings: Profit on ordinary activities after tax 1,905 780 Goodwill amortisation 219 - Adjusted profit 2,124 780 Adjusted basic earnings per share 12.29p 5.77p Adjusted diluted earnings per share 11.99p 4.91p 2. Reconciliation of movement in shareholders' funds 2007 2006 £000 £000 New shares allotted 14,058 858 Profit for the year 1,905 780 Actuarial gain recognised in the pension scheme 339 518 Movement in deferred tax relating to the pension (102) (155) scheme Surplus on revaluation of properties 112 - Dividends paid (371) - Share based payments 37 - Net movement in shareholders' funds 15,978 2,001 Opening shareholders' funds 1,984 (17) Closing shareholders' funds 17,962 1,984 3. Reconciliation of operating profit to net cash inflow/(outflow) from operating activities 2007 2006 £000 £000 Operating profit 2,211 933 Difference between pension charge and normal (185) (271) cash contributions Depreciation charge 349 250 Amortisation of goodwill 219 - Share based payments 37 - (Profit)/loss on sale of tangible fixed assets (1) 2 (Increase) in stock (25) (34) (Increase) in debtors (2,857) (2,120) Increase in creditors 2,835 1,588 Net cash inflow from operating activities 2,583 348 before special pension contribution Special pension contribution (3,000) - Net cash (outflow)/inflow from operating (417) 348 activities 4. Reconciliation of net cash flow to movement in net debt 2007 2006 £000 £000 Increase/(decrease) in cash in the year 2,935 (719) Cash outflow from decrease in debt and lease 13 1,280 financing New bank loan, net of costs (4,943) - Change in net debt arising from cash flows (1,995) 561 New finance leases - (24) Loan stock - 252 (Increase)/decrease in net debt during the year (1,995) 789 Opening net funds/(debt) at 1 October 701 (88) Closing net (debt)/funds at 30 September (1,294) 701 5. Acquisitions (a) Steels Engineering Services Limited and Steels Engineering and DesignLimited (collectively "Steels" or "the Steels businesses") On 31 January 2007 the Company completed the acquisition of Steels. Details ofthis acquisition are: Book value and fair value £000Tangible fixed assets 32Stock and work in progress 246Debtors 1,058Cash at bank and in hand 164Creditors (1,422) Total fair value 78 Consideration:Shares (1,128,032 ordinary 25p shares issued at 2,143a fair value of £1.90 each)Return of cash following agreement of (50)completion accountsCosts of the acquisition 80 Total consideration 2,173 Goodwill arising on acquisition 2,095 The Steels businesses contributed £211,000 to the Group's net operating cashflows and utilised £36,000 for capital expenditure. They did not incur any cashflows in respect of net returns on investments and servicing of finance ortaxation. They earned a profit after tax of £21,000 in the year ended 30September 2007 (year ended 30 September 2006: profit of £2,000). The summarised profit and loss account for the period from 1 October 2006 to 31January 2007, the date of acquisition, is: £000Turnover 1,499 Operating loss (260)Interest paid (1)Loss before and after taxation (261) There were no other recognised gains or losses. The Group profit and loss account includes the following amounts inrespect of this acquisition in the year: £000Turnover 5,178Raw materials, consumables and other external charges (1,975)Staff costs (2,018)Depreciation (11)Other operating costs (869)Operating profit 305 (b) Jex Engineering Company Limited ("Jex") On 31 May 2007 the Company completed the acquisition of Jex. Details of thisacquisition are: Book value Adjustments Fair value £000 £000 £000Tangible fixed assets 1,197 376 1,573Stocks 60 - 60Debtors 7,575 - 7,575Cash 3,665 - 3,665Creditors (5,987) - (5,987)Deferred taxation (130) - (130) 6,380 376 6,756 Consideration:Shares (5,454,546 ordinary 25p shares issued 12,436at a fair value of £2.28 each)Cash 2,906Costs of the acquisition 446 Total consideration 15,788 Goodwill arising on acquisition 9,032 The fair value adjustment made upon acquisition was the professional revaluationof properties. This acquisition contributed £963,000 to the Group's net operating cash flows,and utilised £2,000 for capital expenditure and £602,000 in respect of taxation.It did not incur any cash flows in respect of net returns on investments andservicing of finance. It generated a profit after tax of £1,028,000 in the 11month period ended 30 September 2007 (year ended 30 September: profit of£1,152,000). The summarised profit and loss account for the period from 1 November 2006 to 31May 2007, the date of acquisition is: £000Turnover 15,314 Operating profit 729Interest received 107Profit before taxation 836Taxation (251)Profit after taxation 585 There were no other recognised gains or losses. The Group profit and loss account includes the following amounts inrespect of this acquisition in the year: £000Turnover 8,580Raw materials, consumables and other external charges (3,151)Staff costs (3,972)Depreciation (27)Other operating costs (956)Operating profit 474 6. General Information The financial information set out above for the years ended 30 September 2007and 2006 ("the financial information"), has been prepared with consistentaccounting policies except for the adoption of FRS 20 Share Based Payments whichresulted in a charge to the profit and loss account in the year ended 30September 2007 of £37,000. There was no equivalent impact in respect of theprior year and therefore there was no prior year adjustment. The financial information does not constitute the statutory financial statementsfor those years. The 2007 financial statements, upon which the auditors issuedan unqualified opinion, have not yet been delivered to the Registrar. The 2006financial statements have been delivered to the Registrar and included theauditors' report which was unqualified and did not contain a statement eitherunder sections 237(2) or 237(3) of the Companies Act 1985. The annual report andaccounts for the year ended 30 September 2007 will be posted to shareholders.Copies will be available from the company's registered office, 1 Red Hall Court,Wakefield, WF1 2UN. This information is provided by RNS The company news service from the London Stock Exchange