Tyman Regulatory News (TYMN)

TYMAN PLC

("Tyman" or the "Group" or the "Company")

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

Tyman plc, a leading international supplier of engineered components to the door and window industry, announces preliminary audited results for the year ended 31 December 2017.

Financial highlights

(1) CC LFL = Constant Currency Like for Like (see definition on page 36)

Included within this announcement are alternative performance measures which provide additional useful information to shareholders on the underlying performance of the business. A detailed description of APMs, which have been consistently applied, is included on page 34.

Statutory financial highlights

Business highlights

· Further year of profitable growth assisted by increased contributions from Bilco and Giesse acquisitions and favourable exchange rates

· AmesburyTruth ahead of last year with strong Bilco growth partially offset by some short term market share loss in smaller residential customers and operational issues in Juarez, Mexico, which are now largely resolved

· ERA gained share in both OEM and Distribution in what remains a slow market

· SchlegelGiesse increased margins by c. 190 bps as its enlarged product offering continues to gain traction

· Synergy targets for both Giesse and Bilco acquisitions exceeded

· Leverage back within the Group's target range of 1.50 to 2.00x at year end

· Industry leading facilities opened in Sioux Falls, South Dakota; Statesville, North Carolina and Wolverhampton, West Midlands

· Group effective tax rate for 2018 expected to reduce by c. 400 bps to 26.0 - 27.0 per cent. following changes to US Federal tax rate

2018 highlights and trading

· Volumes in 2018 to date are in line with expectations and there is a promising order book in each Division

· Banking facilities increased to £240.0 million together with a £70.0 million accordion and extended to at least February 2023

· The Group has today announced the proposed acquisition of Ashland Hardware by AmesburyTruth for an enterprise value of US$101.0 million

Louis Eperjesi, Chief Executive, commented:

"2017 saw a further year of profitable growth for the Group with increased contributions from the Bilco and Giesse acquisitions, and continued favourable exchange rates on translation.

"Footprint projects in each of the Divisions progressed well such that the Group has the safe, modern and flexible facilities necessary to support our customers' needs, increase our product quality and improve our service levels.

"Volumes in 2018 to date are in line with our expectations across each of the Divisions. North American markets remain positive and AmesburyTruth is confident that 2018 will see market share recovery, like for like sales growth and a return to margin expansion with the proposed acquisition of Ashland also bringing opportunities.

"The UK market is likely to remain subdued in 2018; however ERA will continue to focus on its self-help initiatives, profitable market share growth and new product introductions, particularly in the smart home.

"European markets should continue their broad based recovery and the SchlegelGiesse businesses in Latin America and the Middle East expect the positive trends of the second half will be sustained into 2018.

"Tyman expects to see a further year of profitable growth in 2018."

Analyst and investor presentation

Tyman will host an analyst and investor presentation at 9.30 a.m. today, Wednesday 7 March 2018, at the offices of MHP.

The presentation will be webcast at the Group's website - www.tymanplc.com - and the audio conference call details are set out below.

Conference Call Dial In Details

Forthcoming dates

Notes to editors

Tyman is a leading international supplier of engineered components to the door and window industry. The Group's three Divisions - AmesburyTruth, ERA and SchlegelGiesse - are market leaders in their respective geographies.

The Group employs nearly 4,000 people and operates facilities in 19 countries worldwide. Tyman is listed on the London Stock Exchange under the ticker TYMN.

Further information on the Group and the Group's products are available at the Group's website - www.tymanplc.com.

RESULTS OVERVIEW

Tyman has again demonstrated its resilience in producing a solid set of results for 2017 and a further year of profitable growth; assisted by increased contributions from the Bilco and Giesse businesses purchased in 2016 and by further margin expansion in the enlarged SchlegelGiesse business.

These results were achieved despite the Group encountering some challenges during the year. Operational issues in Juarez, Mexico took longer to resolve than expected, there was some short term market share loss in AmesburyTruth and subdued market conditions continued in the United Kingdom.

Reported Revenue and Underlying Operating Profit increased by 14.2 and 10.0 per cent. respectively, principally due to the Bilco and Giesse acquisitions and favourable exchange rates on translation. On a constant currency like for like basis, Revenue increased by 1.7 per cent. in the year; and Underlying Operating Profit decreased by 1.5 per cent..

Cash generation was lower than in recent years due to targeted investment in working capital and continued investment in the balance sheet, including gross capital expenditure at 1.27x Depreciation. The Group remains cash generative and Leverage at the year end of 1.83x was again comfortably back within the Group's core year end target range of 1.50x to 2.00x.

ROCE decreased slightly in the year to 13.6 per cent.; with the Group continuing to target achieving a ROCE of 15.0 per cent. over the medium term.

2018 Priorities

Tyman's key priorities for 2018 are an extension of the themes that the Group has developed over the past few years and include:

1. Health and safety

The Group's health and safety performance in the past two years has been disappointing, despite the significant investment made in both time and resources dedicated to health and safety functions in each Division.

Securing a demonstrable improvement to the Group's health and safety record in 2018 is regarded by the Board as being of the highest importance. 2018 will see further investment made in employee training, the development of safer working practices, additional capital investment and sharing of best practice across Divisions.

2. Footprint

Tyman made significant changes to its footprint in 2017 in each of its Divisions such that the Group has safe, modern and flexible facilities necessary to support customers' needs, increase product quality and improve service levels.

2018 will see the completion of moves into the new facilities in the UK and US and the exit from two significant sites in North America. Successful management of these moves, with minimal operational disruption to the businesses, will be a key priority for the Group during the year.

3. Group collaboration

The Group has successfully established inter Divisional teams in the areas of health and safety, risk management and supply chain through TSA. Cross selling of other Division's products continued to gain traction most notably with the Giesse products in North American and UK markets.

Encouraging effective communication, consistency of approach, sharing of best practice and standards of operational excellence across each of the Divisions remains a focus in 2018.

4. Financial objectives

A return to like for like Revenue growth and margin expansion in each Division, underpinned by working capital discipline and cash generation to enable the Group to make further progress towards its committed medium term ROCE target of 15.0 per cent..

Input cost inflation pressures in 2018 will be managed through a combination of effective purchasing, price management and cost reduction programmes.

5. Self help initiatives

Continuing with the Group's well established self help initiatives to improve the businesses; in particular in the areas of new product development, people, supply chain and capital projects with a focus on automation and lean manufacturing to ensure Tyman differentiates itself from the competition and continues to grow market share.

6. M&A

Pursuing the Group's active acquisition programme, prioritising hardware and seals businesses in the UK and Europe and select emerging markets together with commercial hardware businesses in key end markets.

7. Integration

The completion of the integration of Bilco and the start of the integration of Ashland Hardware into AmesburyTruth.

Outlook

AmesburyTruth expects US residential and commercial markets will show growth in 2018, possibly assisted by increasing real wages as the changes to the US tax code become established. The Canadian market for the Division's products is expected to show further growth, although at a slower rate than was seen in 2017.

AmesburyTruth is well placed to capture the opportunities that exist in 2018, and expects to see market share recovery among smaller customers, like for like sales growth and a return to margin expansion during the year.

ERA expects that UK residential RMI demand will continue to be slow in 2018 and, as a consequence, expects that the market will contract to a similar extent to 2017. Given the subdued market backdrop ERA's focus will be on further share gains, leveraging the opportunities offered by ERA's new facility, new product introductions and management of costs and overheads. The outlook for ERA's commercial and light infrastructure products remains promising in 2018.

SchlegelGiesse expects that Continental European markets will show broad based incremental growth in 2018 and is well placed to take further market share. The second half momentum established in the Middle East and Latin America is expected to continue, with key Brazilian and Argentine markets recovering. China and Asia Pacific markets are likely to remain variable with opportunities for growth in certain countries.

Volumes in 2018 to date are in line with expectations and there is a promising order book in each Division. Tyman expects to see a further year of profitable growth in 2018.

AmesburyTruth Division

(1) 2016 restated for transfer of Bilco UK from AmesburyTruth to ERA

Market

US residential

US residential markets saw further growth in new build starts and completions during 2017. Seasonally adjusted single family starts and completions each increased to 0.8 million units; increases of 3.5 per cent. and 6.9 per cent. respectively. Multifamily starts declined during the year reflecting a rebalancing of US construction towards single family units. Total residential completions in the US increased by 7.4 per cent. in the year to 1.2 million units.

Repair and remodelling improved in 2017 with the NAHB RMI sentiment index averaging 57 (2016: 54) and the LIRA index increasing by 6.4 per cent.. The aggregate value of residential construction put in place in the US in 2017 increased by 6.2 per cent. to US$532.9 billion (2016: US$502.0 billion). Market data is aggregated across all aspects of repair and remodelling; the Division believes that the repair and remodelling for its products grew at a slower rate than the overall market.

The Division believes that the residential door and window market in the US increased in value terms by c. 4.5 per cent. during the year.

US commercial

US commercial markets were flat in 2017 with the value of non-residential construction put in place increasing marginally to US$720.4 billion (2016: US$719.6 billion).

Canadian market

Canadian housing starts increased by 5.4 per cent. in 2017 with continued growth in multifamily. The value of Canadian non-residential construction put in place grew by 1.6 per cent. year on year; with commercial construction flat.

Business performance and developments

AmesburyTruth had a mixed year during 2017 despite generally favourable market conditions. On a reported basis, Revenue increased by 9.1 per cent. to US$428.8 million (2016 restated: US$393.1 million); principally due to the full year contribution of Bilco to the Division in the year. Like for like Revenue for the year was 1.9 per cent. ahead of 2016 following an improved second half performance from Bilco; with volumes in the core AmesburyTruth business marginally ahead of last year.

Reported Underlying Operating Profit increased by 3.9 per cent. to US$77.0 million (2016 restated: US$ 74.1 million). Like for like Underlying Operating Profit was flat year on year.

Input costs increased significantly, most notably for zinc where the spot unit cost at December increased by 57.0 per cent. year on year, as well as for other raw materials such as paint and oil derivatives. The impact of these increases was not fully recovered through price; although AmesburyTruth expects to resume its usual practice of cost recovery through price in 2018. Overheads in the Division increased principally due to higher freight costs than usual.

AmesburyTruth's Underlying Operating Margin decreased to 17.9 per cent. (2016 restated: 18.8 per cent.), due to the consolidation of Bilco for a full twelve months and the increased input costs previously discussed. The Division remains confident that it will achieve a blended Underlying Operating Margin of 20.0 per cent. over the medium term.

Residential and commercial

Volumes into residential were broadly flat during the year with modest growth in US tiers one and two customers and from Bilco residential products being offset by volume declines in US tier three and four customers. The Division lost some market share in US residential during the year.

The Division's commercial offering made good progress during the year with increased contributions from both the Bilco and Giesse product offerings. Revenue in commercial increased by 4.3 per cent. to US$62.7 million (2016 Full Year restated: US$60.1 million). The run rate of major project quote activity in Bilco in Q4 2017 was significantly higher than in Q4 2016.

Canada

Performance in Canada for the Division improved during 2017, reflecting better market conditions and some recovery of share lost in previous years assisted by more favourable exchange rates. Canadian Revenue increased by 8.8 per cent, to US$46.0 million (2016 Full Year: US$42.3 million) with new customer and product wins across both AmesburyTruth and Bilco products.

Tier three and four account coverage

In June, AmesburyTruth transferred its US tier three and four account coverage to a national sales representative network, ISC. Previously coverage was managed through state or regional representatives, which led to some inconsistencies in service depending on location. Progress with ISC has been promising with trading in US tiers three and four during the second half of the year increasing by 4.7 per cent. compared with the equivalent period in 2016 and c. $1.4 million of annualised incremental orders secured to date, which should convert into Revenue in 2018.

At the same time the Division started its first distribution pilot with ISC, taking pallet space in a Dallas, Texas warehouse. The warehouse allows customers in the region access to over 200 AmesburyTruth SKUs with guaranteed order fulfilment within four hours if required. The pilot has exceeded expectations and in 2018 ISC plans to take space in a second warehouse in Nashville, Tennessee and to extend the range of SKUs available to customers.

The Division is confident that this differentiated twin track approach to service and distribution of product will lead to a recovery in AmesburyTruth's market share among US tier three and four customers.

Footprint project

Further progress was made with the footprint project in 2017. The Juarez centre of excellence became fully operational and two new centres of excellence opened in Sioux Falls, South Dakota and Statesville, North Carolina. The manufacturing facility in Canton, South Dakota and the vacated facilities in Sioux Falls and Statesville all closed.

The movement of plant and machinery and key personnel to the new centres of excellence was completed on time and within budget; however the operational issues encountered by the Division in 2016 at the Juarez facility persisted into 2017. Recruitment and retention of qualified semi-skilled operatives proved more challenging than expected and the facility did not meet its initial targeted output and quality levels. This led to increased levels of scrap and product rework and the requirement to support US tier one and two customers led to increased levels of expedited freight.

Encouragingly, AmesburyTruth has seen the expected reductions in direct labour and direct overhead from the moves starting to come through during the year which gives the Division confidence that the targeted net financial benefits from the footprint project will be achieved now that the business has reached its targeted output and quality levels and freight costs have started to normalise.

In 2018 the facilities in Rochester, New York and Amesbury, Massachusetts will close with production moving to the Statesville centre of excellence. These production moves are relatively low risk in that they are contained within the United States and the Division has been a significant employer in the Statesville area for a number of years.

The facility build out phase of the project is now substantially complete, with the exception of a potential extension to the fourth centre of excellence in Owatonna, Minnesota which remains under evaluation. 

At the end of 2019 the AmesburyTruth manufacturing footprint, excluding the Bilco and Ashland sites, is expected to be as follows:

Footprint project financials

(1) P&L charge comprises exceptional items incurred and to be incurred in connection with the footprint project

(2) Operational expenditure comprises gross cash costs incurred and expected to be incurred in connection with the footprint project in respect of items that are not capitalised

(3) The Division expects to realise gross cash receipts of up to US$5.0 million from disposals of capital assets/exits from lease obligations as part of the footprint project. Only proceeds from completed disposals and exits are included in the table above and in net project cost estimates

Cash costs incurred during 2017 in connection with the footprint project were US$13.1 million; in line with expectations coming into the year. The overall net project cost is now estimated at c. US$37.0 million (2016: US$34.0 million) with the increase year on year principally due to firmer estimates of the cost to close the Rochester site.

Following announcement of the decision to close the Amesbury and Rochester sites, agreements have been reached with the relevant trade unions covering severance and exit arrangements. These agreements include the closure of the Rochester post retirement medical benefit scheme at the end of 2018 with no future obligations to AmesburyTruth in respect of the scheme from that date (see page 28). The closure of the scheme has reduced AmesburyTruth's actuarial liability by US$4.2 million. As AmesburyTruth has entered into a firm commitment in respect of these sites; the estimated costs to close of US$10.2 million have been provided for in the 2017 financial statements.

At the start of the year incremental P&L savings of US$2.0 million were expected to be realised in 2017; however scrap, product rework and increased levels of expedited freight meant that there were no net benefits realised in 2017. 2018 should see c. US$2.0 million of incremental P&L savings realised as the Division starts to progress towards its cumulative target of US$10.0 million savings per annum from 2020.

Bilco

A new senior management team was appointed for Bilco during the year and has made good progress in improving the focus of the business. A more structured approach to pricing has been adopted and savings were secured in the areas of freight, procurement, personnel and warehousing.

In 2017 Bilco, including the contribution from Bilco UK, increased Revenue by 3.1 per cent. to US$59.9 million (2016 Full Year: US$ 58.1 million) and Underlying Operating Profit by 69.3 per cent. to US$9.4 million (2016 Full Year: US$5.6 million). Installations of Bilco products in the year included the LA Metro, the San Francisco Bay Area Rapid Transit and the Blue Origin Exploration Park in Florida.

The increase in Bilco's Underlying Operating Profit was principally due to improved trading, particularly in the second half of the year, as well as delivery of US$2.8 million of cost and revenue synergies during the year. The run rate of synergies at 31 December 2017 was US$3.0 million; some 20.0 per cent. ahead of the target set out at the date of acquisition and twelve months ahead of schedule. Bilco is on track to meet the Group target run rate ROAI of 15.0 per cent. within two years of ownership. Bilco has a promising order book for 2018.

NPD and investment

In 2017 customers started the transition to the new proprietary Elon foam seal from the legacy Qlon foam seal. A new constant force balance, Stasis, which offers superior features and benefits compared with the industry standard products will be launched in the second half of 2018. The Division expects to bring to market its electronic patio door and multi point locks during 2018. Additional investments in manufacturing capability and automation in connection with the footprint project are expected in 2018 with a focus on operational and quality improvements.

Outlook

AmesburyTruth expects US residential and commercial markets will show growth in 2018, possibly assisted by increasing real wages as the changes to the US tax code become established. The Canadian market for the Division's products is expected to show further growth, although at a slower rate than was seen in 2017.

AmesburyTruth is well placed to capture the opportunities that exist in 2018, and expects to see market share recovery among smaller customers, like for like sales growth and a return to margin expansion during the year.

ERA Division

(1) 2016 restated for transfer of Bilco UK from AmesburyTruth to ERA

Market

The UK market was challenging in 2017. New build residential construction continued to grow, however the RMI sector of the market, which comprises the substantial majority of UK residential construction activity, contracted as consumers elected to defer significant items of expenditure.

ERA estimates that the window and door market volumes contracted by between 6.0 and 8.0 per cent. in 2017, although there were certain sub sectors that showed encouraging growth; most notably bifold doors.

Business performance and developments

ERA performed credibly in 2017 against a difficult market backdrop. ERA's like for like Revenue for the year increased by 2.8 per cent. with the increase reflecting the 2016 pricing and surcharge actions which more than offset small aggregate volume decreases. On a reported basis, Revenue increased by 10.0 per cent.; principally due to the incremental contributions from Bilco UK and Howe Green.

Underlying raw material prices continued to increase through 2017 and consequently the Division implemented a price increase in November 2017; the benefits of which will largely flow through in 2018. Overheads in the Division increased in part due to the higher property costs of the new facility.

Underlying Operating Margins in the Division were impacted by increased raw material costs and overheads, although benefitted from the inclusion of the higher margin business at Bilco UK and Howe Green. The 2016 comparator margin benefitted from currency hedges put in place at a time when Sterling was significantly stronger against international currencies. ERA continues to target an Underlying Operating Margin in the mid teens in the medium term.

OEM and distribution

Despite the challenging market conditions, OEM volumes decreased by only 2.9 per cent., reflecting the continued growth in bifold hardware products and door cylinders together with encouraging take up from new product introductions.

The Division made further progress in distribution with incremental listings secured at both existing and new customers. As a result, distribution volumes increased by 6.8 per cent. across the year.

ERA Home

Smartware sales in the year were broadly in line with 2016. During 2017 a new range of trade alarms and door intercoms were launched into the market with an encouraging level of listings secured with retailers and specialist distributors.

The TouchKey night latch is in beta testing phase and is expected to be launched commercially during 2018 with the TouchKey multipoint lock offering to follow.

The Division has branded its smartware product family "ERA Home" which includes the full range of cloud based home alarms and video intercoms as well as the TouchKey electronic access products.

UK commercial

From 1 January 2017, responsibility for Bilco UK was transferred from AmesburyTruth to ERA and in March the Group acquired Howe Green. Accordingly, ERA's results for the year ended 31 December 2017 include the post acquisition contribution from Howe Green and a full twelve month contribution from Bilco UK.

The combination performed well during the year, contributing £7.2 million to the Division's Revenue in 2017 at a promising margin, with installations including the new Crossrail stations, Heathrow Terminal Five and Battersea Power Station. The two businesses provide ERA with a platform to develop a meaningful commercial and light infrastructure access business for the UK market.

The Division has appointed a dedicated product manager to support the promotion of Giesse products to the UK commercial market and expects this initiative will start to yield benefits in 2018.

Ventrolla

Ventrolla moved to a new facility in the first quarter of the year which allows the business to manufacture larger timber windows for commercial projects as well as its core residential joinery offering. Revenue in the year for Ventrolla increased by 7.0 per cent. to £5.3 million (2016: £5.0 million); however profitability was impacted by capacity constraints prior to the facility move, lower installer productivity and a small (£0.1 million) exposure to Carillion; which has been fully provided.

Ventrolla has a promising order book for 2018, has secured a number of commercial contract wins and, since the half year, has seen installer productivity improve.

Tyman Sourcing Asia

TSA reports through ERA and is responsible for the Group's Far Eastern sourcing operations. TSA manages the supply chain for the majority of the Division's UK sales. In 2017 purchases made by TSA on behalf of all Group companies totalled US$75.1 million across 47 active suppliers. The management team was strengthened during 2017 and investments made in the areas of product quality, logistics and supplier assessments.

New facility

ERA occupied its new facility at Wolverhampton in the West Midlands during the second half of the year; with the final warehouse moves taking place in the first two months of 2018. The purpose built 136,000 sq. ft. facility has allowed the consolidation of three distribution warehouses onto a single site and incorporates the Divisional head office, test centre and showroom as well as light manufacturing and assembly operations.

The facility has significant room for expansion as ERA grows. The Division is now able to offer customers improved service levels with later despatch cut off times, same or next day delivery of products, and consolidated shipments of multiple SKUs.

Outlook

ERA expects that UK residential RMI demand will continue to be weak in 2018 and, as a consequence, expects that the market will contract to a similar extent to 2017. Given the subdued market backdrop the focus of the Division will be on further share gains, leveraging the opportunities offered by the new facility, new product introductions and management of costs and overheads. The outlook for ERA's commercial and light infrastructure products remains promising in 2018.

SchlegelGiesse Division

Market

Markets in Europe continued to recover in 2017 with most countries showing year on year market growth. Middle Eastern markets saw variable demand patterns through the year and Indian markets remained positive.

China and Asia Pacific markets continued to grow, albeit at lower levels than in recent years. Latin American markets remained subdued in the first half of the year however recovered promisingly in the second half of the year.

Business performance and developments

SchlegelGiesse had another strong year during 2017 as the enlarged hardware and seals product proposition continued to gain traction in the Division's core markets.

Revenue of €125.2 million for the year was broadly flat on a like for like basis with further growth in EMEAI offset by more challenging markets in the UK, China, Australia and Latin America. Encouragingly, the Division's second half performance improved compared with the first half, reflecting good sales growth in Latin America and the Middle East and sustained improvements in Continental Europe.

Price increases were achieved by the Division during the year, principally in Continental Europe, which offset small aggregate volume decreases elsewhere in the Group. On a reported basis, Revenue increased by 16.0 per cent.; assisted by the full year contribution from Giesse.

Reported Underlying Operating Profit increased by 27.0 per cent. to €14.6 million (2016: €11.5 million) and by 19.0 per cent. on a constant currency like for like basis. The largest contributor to the improved profitability was the delivery of increased synergy benefits during the year.

Underlying Operating Margins in the Division increased to 11.6 per cent. (2016: 10.0 per cent.) as SchlegelGiesse made further progress towards its medium term target of a 15.0 per cent. Underlying Operating Margin.

EMEAI

Performance in continental Europe was encouraging with Revenue increasing by 5.0 per cent. across the region; and most end markets showing meaningful year on year improvement. Spain, Russia and Turkey saw significant growth with good performance recorded in Benelux, Southern Europe and the Nordics. The UK was relatively subdued with sealing Revenue down 3.4 per cent., reflecting general market conditions.

In the Middle East the second half was notably stronger than the first half leading to Revenue for the year 3.2 per cent. ahead of 2016. The Division entered 2018 with an encouraging order book in the region. The business in India continues to grow rapidly from a low base with Revenue increasing by 28.0 per cent. in the year.

China and Asia Pacific

China and Asia Pacific markets were more challenging for the Division in 2017. In China, Revenue decreased by 16.2 per cent. due to project postponements and cancellations; particularly in Southern China. During 2018 SchlegelGiesse intends to review the Division's route to market in China.

Australasian Revenue was slightly lower in 2017 with improved performance in New Zealand more than offset by weaker trading in the Australian market which slowed incrementally in the second half. Profitability in the region was enhanced by the mix of product sales.

As expected, Revenue in the Pacific Rim was lower than last year following changes to the route to market made at the end of 2016. There were some pockets of growth in the region, most notably in Vietnam and Indonesia. Further penetration of Pacific Rim markets remains an opportunity for the Division.

Latin America

Revenue in Latin America decreased by 10.0 per cent. across the year, following a very subdued first half. The second half of the year was much improved in the region; with market recovery evident in both Argentina and Brazil.

Despite lower sales, profitability in Latin America remained in line with the previous year due to the savings made from the consolidation of the Brazilian sites that took place towards the end of 2016. The Latin American region remains profitable, cash generative and makes an operating margin in line with the rest of the Division.

Giesse integration

The integration of Giesse completed with the launch of the new Divisional brand "SchlegelGiesse" at the start of March 2018. The Division now operates through a functional reporting structure under a unified executive team and with a greatly simplified legal and financial structure.

The Division has a single salesforce in each key market selling the complete range of hardware, seals and extrusions, supported by dedicated product managers. Cross selling initiatives within the Division delivered €4.0 million of incremental revenue during the year and intercompany sales to other Group Divisions increased to c. €4.0 million. 

In 2017 the two Giesse facilities in Bologna, Italy were consolidated onto the larger manufacturing site, with an offsite logistics warehouse retained for the storage and despatch of finished goods. New general managers were appointed during the year in Australasia, Brazil, China, and the Middle East and a new Divisional CFO was recruited.

As at 31 December 2017, in aggregate €7.6 million of synergy benefits have been recorded from the Giesse acquisition; €0.7 million of which have been recorded below Underlying Operating Profit and €2.2 million of which relate to incremental cross selling of products within the Division and the Group. The delivered synergies represent an increase of approximately 90.0 per cent. over the original targets put in place at the date of the acquisition. Total costs of the integration of Schlegel and Giesse incurred since acquisition were €2.7 million.

NPD and investment

The Division has continued to invest in the seals and hardware ranges with extensions to the Giesse hardware range due to be launched in 2018 and new sealing technology in advanced testing. The Henlow facility moved onto the Divisional SAP platform during the year and plans are in process to move further facilities onto SAP during 2018. Additional investments in manufacturing capability and automation are expected in 2018.

Outlook

2018 has started promisingly for SchlegelGiesse in most geographies.

SchlegelGiesse expects that Continental European markets will show broad based incremental growth in 2018 and is well placed to take further market share. The second half momentum established in the Middle East and Latin America is expected to continue, with key Brazilian and Argentine markets recovering. China and Asia Pacific markets are likely to remain variable with opportunities for growth in certain countries.

FINANCIAL REVIEW

INCOME STATEMENT

Revenue and profit

Reported Group Revenue increased by 14.2 per cent. to £522.7 million (2016: £457.6 million) assisted by favourable exchange movements and the enlarged size of the Group. On a constant currency, like for like basis, Group Revenue was 1.7 per cent. ahead of last year, with 2.2 per cent. of the increase relating to pricing and surcharge actions; offset in part by a 0.5 per cent. decrease in sales volumes.

Reported Gross Margin was 36.5 per cent. (2016: 36.5 per cent.). Underlying Administrative Expenses increased to £114.1 million (2016: £97.5 million), with £4.0 million of the increase attributable to the impact of foreign exchange and the balance principally due to the inclusion of Bilco for a full twelve months. Centrally incurred costs in the year were well controlled at £5.9 million (2016: £6.0 million).

Underlying Operating Profit increased by 10.0 per cent. to £76.8 million (2016: £69.8 million), and decreased by 1.5 per cent. on a constant currency like for like basis. The favourable impact on the full year Underlying Operating Profit from acquisitions, exchange movements and pricing actions were partially offset by higher input costs and other inflationary increases. The Group's Underlying Operating Margin decreased by 60 bps to 14.7 per cent. (2016: 15.3 per cent.).

Underlying Profit before Taxation increased by 10.0 per cent. to £68.3 million (2016: £62.1 million), and decreased by 1.4 per cent. on a constant currency like for like basis. Reported Profit before Taxation increased by 17.6 per cent. to £34.5 million (2016: £29.4 million).

Materials and input costs 

(1) FY 2017 materials cost of sales for raw materials, components and hardware for overall category in £'m

(2) Average 2017 tracker price compared with average 2016 tracker price

(3) Spot tracker price as at 31 December 2017 compared with spot tracker price at 31 December 2016

Raw material costs increased in the year with average prices across most commodity categories being higher than 2016. On a spot basis at the year end, commodities were significantly more expensive compared with 31 December 2016, with the exception of US stainless steel. This confirms the Group's view that commodity cycles have turned; with input costs mainly trending upwards.

The Group will manage the impact of input cost inflation in 2018 through a combination of effective purchasing, pricing actions, surcharging and cost reduction programmes.

Exceptional items

Exceptional items comprise £10.2 million of net costs cash settled in the year (2016: £5.3 million) and net non-cash credits of £0.2 million (2016: net non-cash costs of £5.6 million). These items are regarded by the Group as exceptional as they are significant and non-recurring in nature.

Footprint restructuring

As announced in March 2015 and reported in previous periods, footprint restructuring principally relates to directly attributable costs incurred in the ongoing North American footprint project. Gross costs attributable to footprint restructuring in the year amounted to £16.4 million of which £15.2 million (2016: £2.6 million) relates to the North American project.

Credits relating to footprint restructuring include £1.8 million relating to the respective disposal and exit from the Canton, South Dakota and Sioux Falls, South Dakota facilities, and a reduction of £3.3 million in past service costs relating to the expected closure of the Rochester post-retirement benefit medical plans on 31 December 2018. The North American footprint project is expected to conclude by 2020.

The remaining £0.6 million of exceptional costs relate to footprint projects in ERA and SchlegelGiesse. 

M&A and integration

M&A and integration credit of £0.7 million comprises gross costs of £2.2 million offset by credits of £2.9 million. The gross costs relate to the net legal, financial, taxation and consultancy costs associated with the Howe Green acquisition, intellectual property defence costs relating to pre-acquisition periods (see page 23) as well as the integration of businesses acquired in prior years. The credits principally comprise £2.3 million associated with the pension liability recoverable from and indemnified by the previous owners of Bilco (see page 28) together with £0.6 million of surplus provisions created on acquisition no longer required.

Prior year exceptional items

Write-off of inventory fair value adjustments in 2016 are non cash adjustments relating to the IFRS 3 requirement that finished goods held in inventory must be revalued to their market value on acquisition. The equivalent revaluation of Howe Green inventory acquired in March 2017 was immaterial.

Profit on disposal of business relates to the net deferred consideration for EWS received in 2016. Property provision releases and disposals relate to surplus onerous lease provisions released in 2016.

Finance costs

Net finance costs increased to £9.4 million (2016: £7.8 million). Interest payable on bank loans, private placement notes and overdrafts increased to £8.2 million (2016: £7.8 million) reflecting the rise in the Group's average cost of funds in the second half of 2017.

Non-cash movements charged to net finance costs in the year include amortisation of borrowing costs of £0.4 million (2016: £0.4 million), pension interest of £0.6 million (2016: £0.5 million) and a loss on the revaluation of fair value currency hedges of £0.4 million (2016: gain of £0.3 million).

Income from short term bank deposits decreased to £0.2 million (2016: £0.5 million).

Underlying net finance costs increased by £0.8 million to £8.5 million (2016: £7.7 million).

Interest rates on borrowings

The Group's average cost of funds and margin payable over the year increased by 10 bps to 3.4 per cent. (2016: 3.3 percent.) reflecting increases in margins payable on facility borrowings in the second half of the year as well as increased base rates.

Interest rate swap contracts

A portion of the Group's floating rate borrowings are held at fixed rates via interest rate swap contracts. At the year end, the notional value to swap of the Group's outstanding borrowings under the revolving credit facility was 14.0 per cent. (2016: 14.2 per cent.). The weighted average fixed rate of the swap contracts was 1.7 per cent. (2016: 1.7 per cent.).

In addition, the Group has issued US$100 million in aggregate under its US Private Placement programme, all of which is held at fixed rates. In total, 35.9 per cent. (2016: 37.2 per cent.) of the Group's Underlying Gross Indebtedness is effectively held at fixed rates of interest.

At 31 December 2017, the Group held interest swap contracts amounting to a fair value liability of £0.3 million (2016: £0.3 million). During the year, the movement in fair value was immaterial (2016: fair value loss of £0.2 million).

Forward exchange contracts

At 31 December 2017, the Group's portfolio of forward exchange contracts at fair value amounted to a net asset of £0.1 million (2016: £0.5 million). The notional value of the portfolio amounted to £10.9 million, comprising US$ and Chinese Renminbi forward exchange contracts with notional values of US$8.5 million and RMB40.0 million respectively. These contracts have a range of maturities up to 22 May 2018.

During the year, a fair value loss of £0.4 million (2016: fair value gain of £0.3 million) was recognised directly in the income statement.

Taxation

The Group reported an income tax charge of £3.3 million (2016: £8.6 million), comprising a current tax charge of £15.0 million (2016: £11.4 million) and a deferred tax credit of £11.7 million (2016: £2.8 million). The deferred tax credit includes a £6.9 million credit in respect of the revaluation of the Group's net deferred tax liabilities following the reduction in the US Federal tax rate. As this credit is exceptional in nature it has been excluded from the Group's Underlying tax charge.

The Underlying tax charge was £20.6 million (2016: £18.1 million), representing an Underlying effective tax rate for the year of 30.1 per cent. (2016: 29.2 per cent.).

During 2016 the Group paid corporation tax of £15.1 million (2016: £12.7 million) which equates to a cash tax rate on Underlying Profit before Taxation of 22.1 per cent. (2016: 20.4 per cent.).

US tax legislation and impact on the Group's Underlying effective tax rate

As the majority of the Group's operations are in the US there will be a significant impact on the Underlying effective tax rate from US tax legislation which came into force on 1 January 2018. The most significant change is to the US Federal tax rate which has reduced from 35.0 per cent. to 21.0 per cent.. The reduced rate applies to a broader tax base under the new legislation as certain credits and deductions are removed, most notably the §199 domestic production activities deduction.

In 2018 Tyman will benefit from the lower tax rate applied to its US taxable profits; however will lose the benefit of the §199 deduction. Exports from the US account for approximately 10.0 per cent. of AmesburyTruth's US sales so the Group can expect to gain a small benefit from changes to the taxation of foreign sourced income.

In aggregate, Tyman expects a reduction in the Underlying effective tax rate in 2018, compared with 2017, of approximately 400 bps to between 26.0 and 27.0 per cent..

It is not yet clear what incremental tax laws or regulations may be introduced in the US and Tyman's Underlying effective tax rate will be sensitive to further changes to tax legislation or changes to US state tax rates. The final Underlying effective tax rate for the year will also depend on the Group's geographical mix of taxable profits.

Earnings per share

Basic Earnings Per Share increased by 47.0 per cent. to 17.61 pence (2016: 11.98 pence). Diluted Earnings Per Share increased to 17.49 pence (2016: 11.93 pence).

Underlying Earnings Per Share increased by 5.9 per cent. to 26.91 pence (2016: 25.41 pence). Underlying Diluted Earnings Per Share increased to 26.73 pence (2016: 25.31 pence).

The increase in Earnings Per Share measures reflects the improvement in Underlying Operating Profit, offset by higher finance costs in the year and the higher Underlying effective tax rate for the Group.

Intellectual property defence

The Group incurred higher than normal intellectual property defence costs in 2017 of £1.5 million (2016: £0.9 million).

£1.2 million of these costs related to the successful litigation defence of a significant intellectual property claim made against AmesburyTruth concerning the Truth casement operator product line. The claim looked back to 2005 and accordingly £0.8 million of the defence costs have been accounted for through the utilisation of specific provisions created on the acquisition of Truth to cover pre-existing intellectual property and warranty claims. The balance of the defence costs was taken to exceptionals.

Tyman has a portfolio of 1,148 patents, trademarks and designs. Where intellectual property is threatened or compromised by third parties the Group will seek to defend its position in order to protect the interests of both customers and shareholders.

CASH GENERATION, INVESTMENT, FUNDING AND LIQUIDITY

Cash and cash conversion

Operational Cash Flow decreased by 11.1 per cent. to £65.7 million (2016: £73.9 million). The decrease is principally driven by the year on year investment in trade working capital. Exceptional cash costs settled in the year were £10.2 million (2016: £8.3 million).

Free Cash Flow in the year decreased by £13.4 million to £31.7 million (2016: £45.1 million), due to the £8.2 million decrease in operational cash flow, £2.5 million higher level of taxation payments on account (see Taxation on page 22) and the increase in exceptional cash costs (see Exceptional items on page 20).

The Group's Operating Cash Conversion in 2017 decreased to 85.6 per cent. (2016: 105.9 per cent.). Over the past five years, a period which has seen significant capital investment made in the Group, Operating Cash Conversion has averaged 92.9 per cent. and each Division remains targeted on delivery of 100 per cent. cash conversion of Underlying Operating Profit.

Bank facilities and US private placement notes

Total facilities available to the Group, as at 7 March 2018, were as follows:

On 19 February 2018, the Group entered into the 2018 Facility and incurred up front financing costs of £2.1 million. The 2018 Facility gives the Group access to up to £310.0 million of borrowings with seven relationship banks and comprises a £240.0 million committed revolving credit facility and a £70.0 million uncommitted accordion facility. The 2018 Facility expires in February 2023 although has provision for an extension to February 2024. On signing the 2018 Facility, the 2014 Facility was repaid in full and cancelled.

Liquidity

At 31 December 2017, the Group had gross outstanding borrowings of £206.2 million (2016: £217.7 million), cash balances of £42.6 million (2016: £40.9 million) and committed but undrawn facilities of £50.0 million (2016: £46.5 million). The 2018 Facility increases the Group's committed but undrawn facilities to £111.4 million as at 7 March 2018 together with potential access to the uncommitted £70.0 million accordion facility.

Underlying Net Debt at the year end was £163.7 million (2016: £176.7 million). Under IFRS, which reduces gross debt by the unamortised portion of finance arrangement fees, net debt was £162.9 million (2016: £175.6 million).

Covenant performance

(1) Calculated covenant performance consistent with the Group's banking covenant test

(2) The approximate amount by which EBITDA would need to decline before the relevant covenant is breached

The Group continues to retain significant headroom on its banking covenants.

Leverage, which is measured on an average exchange rate basis across the trailing twelve months, decreased slightly over the year to 1.83x (2016: 1.89x). Leverage at the year end was comfortably within the Group's core target range of 1.50x to 2.00x.

Interest Cover decreased to 11.38x from 11.41x in 2016, driven by the marginally higher average cost of funds in the second half of 2017. 

BALANCE SHEET - ASSETS AND LIABILITIES

Goodwill and intangible assets

At 31 December 2017, the carrying value of Group goodwill and intangible assets was £427.2 million (2016 restated: £475.6 million). Amortisation of intangible assets through the income statement during the year was £24.2 million (2016: £22.7 million). Of the movement in carrying values, £6.0 million related to the acquisition of Howe Green and £31.0 million to exchange movements. The exchange movement reflects the average appreciation of Sterling against the US Dollar over the year impacting the translation of the underlying US$-denominated carrying values of intangible assets into the Group's functional currency at the year end.

Capital expenditure

Gross capital expenditure increased by £1.0 million to £16.4 million (2016: £15.4 million) or 1.27x Depreciation (2016: 1.32x).

Property, plant and equipment gross expenditure increased by £2.8 million to £15.4 million (2016: £12.6 million) reflecting the Group's continued programme of targeted capital development across the Divisions, most notably expenditures on the construction and fit out of new facilities in the ERA and AmesburyTruth Divisions.

Intangible assets gross expenditure decreased by £1.7 million to £1.1 million reflecting the conclusion of the AmesburyTruth ERP project at the end of Q4 2016.

Net capital expenditure decreased in the year to £12.6 million (2016: 15.3 million) or 0.98x Depreciation (2016: 1.31x).

Property

As part of the footprint projects taking place across the Group, a number of property transactions took place during the year. The significant transactions are detailed below.

Significant new properties

Exited properties

(1) Cash incentive received for early termination of the lease

Properties marketed for sale

At the year end, the following freehold properties were being marketed for sale by the Group. The Statesville freehold property was sold in February 2018 for consideration of US$1.4 million and so has been classified in the 2017 financial statements as an asset held for sale at the year end.

Working capital

(1) The fair value of working capital items assumed at the acquisition date less IFRS 3 exceptional inventory fair value adjustments

At the year end trade working capital, net of provisions, was £94.7 million (2016 restated: £88.6 million). Of the increase, £0.7 million relates to working capital assumed on the acquisition of Howe Green and £10.4 million relates to the net cash outflow of trade working capital across the year; offset by £5.0 million exchange movements.

Inventories increased by £4.2 million to £75.3 million (2016 restated: £71.1 million). The majority of the movement relates to temporary investment in inventory at AmesburyTruth to support service levels, offset by exchange rate movements of £4.0 million.

Trade receivables increased by £1.8 million to £57.1 million (2016: £55.3 million). There was a cash benefit of £0.6 million following the full settlement with interest of a long outstanding Italian trade receivable, which had previously been fully provided for. As with the 2016 year, bad debts written off in the year as a percentage of Revenue were negligible.

Trade payables remained flat at £37.7 million with all movements in the year being offset by the impact of foreign exchange.

Pension and post-retirement medical benefit obligations

(1) The Bilco retirement benefit plan is fully recoverable and indemnified by the previous owners of Bilco, with a proportion held in escrow. The Bilco post-retirement pension plan is expected to terminate in 2018

At 31 December 2017, the Group had four post-retirement pension and one post-retirement medical benefit schemes in operation. Apart from the Italian pension scheme, all schemes originate from the US. Excluding the Bilco scheme, there was a 32.9 per cent. reduction in the Group's net effective post-retirement benefit obligation in the year.

At 31 December 2017, the Group's gross pension and post-retirement medical benefit obligations under IAS 19 were £42.8 million (2016: £52.7 million). Net obligations at 31 December 2017 were £12.4 million (2016: £17.1 million).

The AmesburyTruth schemes are closed to new entrants. Gross obligations under the AmesburyTruth schemes at the year end were US$35.4 million (2016: US$39.3 million) with US$4.2 million of the reduction due to the expected closure of the Rochester, New York post-retirement medical benefit plan at the end of 2018.

The Italian scheme relates to TFR termination obligations payable to employees of the Group's Italian operations. As at 31 December 2017, the Group's TFR termination obligations amounted to €3.4 million (2016: €3.7 million). TFR payments made to former Italian employees in the year were €0.2 million (2016: €0.2 million). TFR termination obligations are unfunded.

Cash contributions made to the schemes during the year were £1.2 million (2016: £0.9 million). Favourable exchange movements of £4.2 million were mostly offset by interest expense of £1.9 million and remeasurement losses of £2.1 million.

Provisions

Property related

Property provisions include provisions for onerous leases of £2.1 million (2016: £2.8 million) and leasehold dilapidations of £1.4 million (2016: £1.0 million). The utilisation in the year principally relates to costs associated with the Silver End, Essex property.

Restructuring

Restructuring provisions include provisions for ongoing employee redundancy costs at certain restructured European business units as well as restructuring provisions raised in the year relating to the closures of the Rochester, New York and Amesbury, Massachusetts properties. The utilisation in the year principally relates to the ongoing costs associated with business unit closures.

Warranty

Warranty provisions include provisions for the ultimate cost of settling product warranty claims which arose from the Group's M&A activities. The utilisation in the year primarily relates to the costs associated with US product litigation applied against provisions recognised on the acquisition of Truth Hardware (see intellectual property defence on page 23).

BALANCE SHEET - EQUITY

Shares in issue

At 31 December 2017, the total number of shares in issue was 178.6 million (2016: 178.6 million). In addition, the Group held 0.5 million shares in Treasury (2016: 0.5 million).

The basic weighted average number of shares at the year end was 177.2 million (2016: 173.0 million). The diluted weighted average number of shares was 178.4 million (2016: 173.8 million). 

Employee Benefit Trust purchases

At the year end, the Tyman Employees' Benefit Trust held 0.8 million shares (2016: 1.0 million). On 9 March 2017, the Trust purchased 267,752 shares in Tyman plc at a total cost of £0.8 million to satisfy certain share awards vested in March 2017 as well as future obligations under the Group's various share plans.

Dividends

A final dividend of 7.75 pence per share (2016: 7.50 pence), equivalent to £13.7 million based on the shares in issue as at 31 December 2017 will be proposed at the Annual General Meeting (2016: £13.3 million). The total dividend declared for the 2017 financial year is therefore 11.25 pence per share (2016: 10.50 pence), an increase of 7.1 per cent.. This equates to a Dividend Cover of 2.40x, towards the upper end of the Group's target range of 2.00x to 2.50x.

The ex-dividend date will be 19 April 2018 and the final dividend will be paid on 18 May 2018 to shareholders on the register at 20 April 2018.

Only dividends paid in the year have been charged against equity in the 2017 financial statements. In aggregate £19.5 million (2016: £15.6 million) of dividend payments, representing 61.4 per cent. of 2017 Free Cash Flow, were made to shareholders during 2017.

At 31 December 2016, the Company's reserves available for distribution to shareholders were £199.9 million. Total dividends paid during 2017 utilised approximately 9.8 per cent. of the estimated reserves available for distribution at the beginning of the year.

OTHER FINANCIAL MATTERS

Returns on capital

ROCE decreased by 20 bps to 13.6 per cent. (2016: 13.8 per cent.) and ROCCE decreased by 60 bps to 49.6 per cent. (2016: 50.2 per cent.). The fall in both measures is principally due to increases in the average capital and controllable capital employed, following the 2016 acquisitions.

At 31 December 2017, average capital employed was £563.6 million (2016: £505.8 million) and average controllable capital employed was £154.8 million (2016: £139.0 million).

The Group continues to target a ROCE of 15.0 per cent. over the medium term.

Returns on Acquisition Investment

See Alternative Performance Measures on page 34

Giesse has made a significant contribution to the Group since its acquisition in March 2016 and has materially exceeded the Group's minimum target return threshold on both a run rate and annualised basis.

The ROAI for Bilco has increased as synergy benefits have started to be realised in the year. Bilco is expected to exceed the minimum run rate target return threshold within two years of acquisition.

Howe Green has been owned by the Group for ten months at the year end and has performed encouragingly since acquisition.

Currency

Currency in the consolidated income statement

The principal foreign currencies that impact the Group's results are the US Dollar, the Euro, the Australian Dollar and the Canadian Dollar. On average in 2017, each of these currencies were materially stronger than Sterling.

Translational exposure

(1) Impact of other currencies is immaterial

(2) Percentage movement in average exchange rate Dec 2017 to Dec 2016

(3) Underlying Operating Profit impact

(4) Defined as the approximate favourable translation impact on the Group's Underlying Operating Profit of a 1c decrease in the Sterling exchange rate of the respective currency

The net effect of currency translation caused Revenue and Underlying Operating Profit from ongoing operations to increase by £21.5 million and £3.7 million respectively compared with 2016. This result is driven by a combination of the increase in the proportion of the Group reporting in currencies other than Sterling; as well as average Sterling exchange rates compared with major currencies being lower than in 2016.

Transactional exposure

The 2017 transactional impact of weakness in Sterling against the US Dollar and Renminbi on the Operating Profit of ERA was approximately a cost of £3.2 million (2016: £1.5 million cost). In the year ERA benefitted from surcharge recoveries of £3.7 million (2016: £0.7 million) and gains on hedges of £0.2 million (2016: £0.8 million).

The Group's other transactional exposures generally benefit from the existence of natural hedges or are immaterial.

Currency in the consolidated balance sheet

The Group aims to mitigate the translational impact of exchange rate movements by denominating a proportion of total borrowings in those currencies where there is a material contribution to Underlying Operating Profit. Tyman's banking facility allows for funds to be drawn in many different currencies.

The Group's gross borrowings are denominated in the following currencies:

New IFRS standards (unaudited)

The following IFRS standards, which have not been adopted in the 2017 financial statements, were in issue but not yet effective:

IFRS 9 - Financial Instruments

IFRS 9 provides revised guidance on the classification, impairment and measurement of financial assets; and hedge accounting.

Tyman is in the process of assessing the impact of adopting IFRS 9 with the main areas of consideration being hedge accounting, impairment of accounts receivable and re-financing transactions. Based on the work undertaken to date, the adoption of IFRS 9 is not expected to have a material impact on the Group financial statements.

IFRS 15 - Revenue from Contracts with Customers

IFRS 15 provides revised guidance on revenue recognition and establishes principles for the reporting of information about the nature, timing, amount and uncertainty of revenue and cash flows from contracts with customers. Tyman is in the process of assessing the impact of adopting IFRS 15 and notes that Revenue of the Group is transactional in nature with limited judgement applied in recognising the amounts recorded. In addition, contracts with customers are predominantly based on standard terms and conditions. Based on work undertaken to date, the adoption of IFRS 15 is not expected to have a material impact on the Group financial statements.

IFRS 16 - Leases

IFRS 16 requires lessees to recognise almost all lease contracts on the balance sheet, with optional exemptions for certain leases of a short term or low-value nature. Instead of operating lease costs being recognised in the income statement, a "right of use asset" depreciation charge will be recognised within operating profit and a lease interest expense will be recognised within finance costs.

The adoption of IFRS 16 is expected to be relatively significant to the Group's financial statements and the Group's assessment of the likely impact is ongoing.

2018 summary guidance

Exceptional costs are expected to be c. £4.0 - £5.0 million reflecting M&A and integration costs associated with Ashland and footprint projects. The IFRS 3 charge in respect of the proposed Ashland acquisition has yet to be estimated. Exceptional costs cash paid in 2018 are expected to be c. £9.0 - £10.0 million.

Interest payable on borrowings for the full year is expected to be c. £10.0 - £11.0 million. The actual amount payable will be dependent on Leverage and the currency of borrowing. The non-cash amortisation and accelerated amortisation of capitalised borrowing costs is expected to be c. £1.1 million.

The Underlying effective tax rate for Tyman in 2018 is expected to be c. 26.0 to 27.0 per cent. reflecting the reduced US Federal tax rate that will apply to the Group's US profits. 2018 cash taxation rates are expected to be broadly in line with the Group's 2018 Underlying effective tax rate.

Trade working capital trough to peak for the year is expected to be c. £15.0 - £20.0 million with the working capital peak occurring around the half year.

Maintenance and investment capital expenditure for the year for the Group is expected to be c. £18.0 million - £20.0 million.

Share purchases by the Employee Benefit Trust to satisfy LTIP and other share plan awards are expected to be c.£2.0 - £3.0 million. The share-based payments charge will be c. £1.1 million. 

Alternative performance measures

Alternative Performance Measures used by the Group are:

APMs provide additional useful information to shareholders on the underlying performance of the business. These APMs are consistent with how business performance is measured internally by the Group. Underlying profit is not recognised under IFRS and may not be comparable with underlying profit measures used by other companies. APMs are not intended to be superior to or a substitute for GAAP measures.

The following adjustments are made to reported profit to derive underlying profit:

Exceptional items

Exceptional items are largely one off and non-trading in nature and therefore create volatility in reported earnings. Items accounted for by the Group as exceptional include M&A transaction costs, IFRS 3 inventory revaluations and the costs of integrating acquired businesses; as well as major restructuring initiatives.

These items are excluded from the underlying results of the Group due to their material, non-trading and/or non-recurring nature.

The Group aims to be both consistent and clear in its recognition and disclosure of exceptional gains and losses.

Amortisation of acquired intangible assets and impairment of acquired intangible assets and goodwill

The amortisation charge of intangible assets recognised on business combinations and any subsequent impairment of intangibles or goodwill is excluded from the underlying results of the Group as these are considered to be of a non-trading nature.

Other

Amortisation of borrowing costs, accelerated amortisation of borrowing costs, gains and losses on the fair value of derivative financial instruments, and unwinding of discount on provisions are all accounted for as exceptional. These are non-trading in nature and are not considered reflective of the core performance of the Group.

For all adjustments, both the materiality and nature of the items are considered in determining presentation. In addition, the taxation effect of adjustments is excluded from the Underlying profit after taxation and earnings per share metrics. Material tax effects are disclosed separately.

Reconciliation of reported profit numbers to Underlying profit numbers

Reconciliation of Profit before taxation to the Underlying Profit after taxation APM:

(1) Tax effect of exceptional items, amortisation of borrowing costs, amortisation of acquired intangible assets, gain or loss on revaluation of fair value hedge and unwinding of discount on provisions.

Underlying Operating Profit is reconciled to Operating Profit on the face of the Income Statement.

In their operational reviews the AmesburyTruth and SchlegelGiesse Divisions disclose Revenue and Underlying Operating Profit in US Dollars and Euros respectively, translated at average exchange rates for the relevant period. This is for the convenience of users and to reflect the principal currencies in which those Divisions transact.

Additional information on APMs

Additional information and definitions relating to the APMs used by the Group is provided below.

Where appropriate "Underlying" is defined as before Amortisation of acquired intangible assets, deferred tax on Amortisation of acquired intangible assets, Impairment of acquired intangible assets, Impairment of goodwill, Exceptional items, Unwinding of discount on provisions, Gains and Losses on the fair value of derivative financial instruments, Amortisation of borrowing costs, Accelerated amortisation of borrowing costs, and the associated tax effect.

Tyman plc

Consolidated income statement

For the year ended 31 December 2017

1 Before amortisation of acquired intangible assets, deferred taxation on amortisation of acquired intangible assets, impairment of goodwill, exceptional items, unwinding of discount on provisions, gains and losses on the fair value of derivative financial instruments, amortisation of borrowing costs and the associated tax effect. See definitions on page 34 for non-GAAP alternative performance measures.

Tyman plc

Consolidated statement of comprehensive income

For the year ended 31 December 2017

Items in the statement above are disclosed net of tax.

Tyman plc

Consolidated statement of changes in equity

For the year ended 31 December 2017

1 Other reserves are distributable reserves which arose on previous acquisitions.

2 Share-based payments include a tax credit of £0.5 million (2016: deferred tax debit £0.3 million) and a release of the deferred share-based payment bonus accrual of £0.4 million (2016: £0.2 million).

3 On 21 June 2016, the Group issued 8,478,128 shares by way of a placing with institutional investors.

Tyman plc

Consolidated balance sheet

As at 31 December 2017

Tyman plc

Consolidated cash flow statement

For the year ended 31 December 2017

1. General information

Tyman plc and its subsidiaries is a leading international manufacturer and supplier of engineered components to the door and window industry. At 31 December 2017 the Group had 23 manufacturing sites in nine countries along with a further fourteen sourcing and distribution sites across North America, Europe, South America, Asia and Australasia with its products being found in homes and buildings worldwide.

Tyman plc is a public limited company listed on the London Stock Exchange, incorporated and domiciled in England and Wales. The address of the Company's registered office is 29 Queen Anne's Gate, London SW1H 9BU.

2. Accounting policies and basis of preparation

The accounting policies in this section relate to the financial statements in their entirety. Accounting policies, including critical accounting judgements and estimates used in the preparation of the financial statements, that relate to a particular note are described in the specific note to which they relate. The accounting policies have been consistently applied to all the years presented, unless otherwise stated.

Certain comparatives have been restated for fair value adjustments made in respect of business combinations completed in the 2016 financial year. See note 10.

2.1 Basis of preparation

The consolidated financial statements of Tyman plc have been prepared in accordance with IFRS as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRSs.

The consolidated financial statements are principally prepared on the basis of historic cost. Where other bases are applied, these are identified in the relevant accounting policy.

2.2 Going concern

The Directors are confident, on the basis of current financial projections and the banking facilities available, and after considering sensitivities, that the Company and the Group has sufficient resources for its operational needs that will enable the Group to remain in compliance with its financial covenants in its bank facilities for at least the next twelve months. Accordingly, the Directors continue to adopt the going concern basis.

3. Segment reporting

3.1 Accounting policy

3.1.1 Revenue recognition

3.1.2 Segment reporting

3.2 Segment information

The reporting segments reflect the manner in which performance is evaluated and resources are allocated. The Group operates through three clearly defined divisions: AmesburyTruth, ERA and SchlegelGiesse.

AmesburyTruth comprises all the Group's operations within the US, Canada and Mexico. ERA comprises the Group's UK and Ireland hardware business, together with Ventrolla and Tyman Sourcing Asia. During the year, ERA acquired Howe Green and assumed responsibility for the Bilco UK business. These businesses are now included in the ERA reporting segment with the 2016 comparatives have been restated for the AmesburyTruth and ERA segments in respect of the reallocation of Bilco UK. SchlegelGiesse comprises all the Group's other businesses outside of the US, Canada and Mexico as well as the two UK seal manufacturing plants.

Centrally incurred functional costs that are directly attributable to a Division are allocated or recharged to the Division. All other centrally incurred costs and eliminations are disclosed as a separate line item in the segment analysis.

Each reporting segment broadly represents the Group's geographical focus, being the North American, UK and international operations respectively. In the opinion of the Board, there is no material difference between the Group's operating segments and segments based on geographical splits. Accordingly, the Board does not consider geographically defined segments to be reportable. For completeness, the Group discloses certain financial data for business carried on in the UK that is not accounted for in the ERA Division in notes 3.2.1 and 3.2.4.

The following tables present Group revenue and profit information for the Group's reporting segments, which have been generated using the Group accounting policies, with no differences of measurement applied, other than those noted above.

3.2.1 Revenue

Included within the SchlegelGiesse segment is revenue attributable to the UK of £17.8 million (2016 restated: £17.3 million).

No revenue from any single customer exceeds 10 per cent of total revenue from continuing operations.

3.2.2 Profit before taxation

3.2.3 Operating profit disclosures

3.2.4 Segment assets and liabilities

1 Included within unallocated segment liabilities are borrowings of £186.3 million (2016: £173.9 million), provisions of £0.4 million (2016: £1.2 million) and other liabilities of £2.8 million (2016: £4.2 million).

2 Non-current assets exclude amounts relating to deferred tax assets.

Non-current assets of the SchlegelGiesse segment include £13.0 million (2016 restated: £12.2 million) attributable to the UK.

3.2.5 Capital expenditure

3.2.6 Other disclosures

4. Exceptional items

4.1 Accounting policy

4.2 Exceptional items

Footprint restructuring

As announced in March 2015 and reported in previous periods, footprint restructuring principally relates to directly attributable costs incurred in the ongoing North American footprint project. Gross exceptional costs amounted to £16.4 million of which £15.2 million (2016: £2.6 million) relates to the North American project. Credits relating to footprint restructuring include £1.8 million from the respective disposal and exit from the Canton, South Dakota and Sioux Falls, South Dakota facilities, and £3.3 million past service costs relating to the closure of the Rochester post-retirement benefit medical plans on 31 December 2018. The North American footprint project is expected to conclude by 2020.

The remaining £0.6 million relates footprint projects in ERA and SchlegelGiesse.

M&A and integration

The M&A and integration credit of £0.7 million comprises gross costs of £2.2 million offset by credits of £2.9 million. The gross costs relate to the net legal, financial, taxation and consultancy costs associated with the Howe Green acquisition, intellectual property defence costs relating to pre-acquisition periods as well as the integration of businesses acquired in prior years. The credits principally comprise £2.3 million associated with the pension liability recoverable from and indemnified by the previous owners of Bilco together with £0.6 million of surplus non-trading provisions no longer required.

Write-off of inventory fair value adjustments

Write-off of inventory fair value adjustments relate to the IFRS 3 requirement that finished goods held in inventory must be revalued to their market value on acquisition. The equivalent revaluation for Howe Green inventory acquired in March 2017 was immaterial.

Profit on disposal of business

Profit on disposal of business relates to the net deferred consideration for EWS received in 2016.

Property provision releases and disposals

Property provision releases and disposals comprises surplus onerous lease provisions released during the 2016 year.

5. Taxation

5.1 Accounting policy

5.1.1 Key source of estimation uncertainty: deferred tax assets

5.2 Taxation - income statement and other comprehensive income

5.2.1 Tax on profit on ordinary activities

The standard rate of corporation tax in the UK changed from 20.0 per cent to 19.0 per cent with effect from 1 April 2017. Accordingly, the Group's UK profits for this accounting period are taxed at an effective rate of 19.25 per cent (2016: 20.0 per cent).

A further reduction to the UK corporation tax rate to 17.0 per cent was introduced in Finance Act 2016 with effect from 1 April 2020. The deferred tax balances have been remeasured to reflect the future change of rate.

Under the Tax Cuts and Jobs Act 2017 the US Federal tax rate reduced from 35.0 per cent to 21.0 per cent with effect from 1 January 2018. The Act was substantively enacted on 22 December 2017 and so the deferred tax balances that will be settled with the United States tax authorities have been remeasured to reflect the reduced rate. The impact of the deferred tax change has been disclosed separately as a component of the income tax charge for the year.

Taxation for other jurisdictions is calculated at rates prevailing in those respective jurisdictions.

5.2.2 Reconciliation of the total tax charge

The tax assessed for the year differs from the standard rate of tax in the UK of 19.25 per cent (2016: 20.0 per cent). The differences are explained below:

6. Earnings per share

6.1 Non-GAAP alternative performance measures accounting policy

The Directors believe that the underlying profit and earnings per share measures provide additional useful information to shareholders on the underlying performance of the business. These measures are consistent with how business performance is measured internally. The underlying profit before tax measure is not recognised under IFRS and may not be comparable with underlying profit measures used by other companies (see Alternative Performance Measures on page 34).

6.2 Earnings per share

Basic earnings amounts are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.

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

6.2.1 Weighted average number of shares

The weighted average number of shares was:

6.2.2 Non-GAAP alternative performance measure: underlying earnings per share

The Group presents an underlying earnings per share measure which excludes the impact of exceptional items, certain non-cash finance costs, amortisation of acquired intangible assets and certain non-recurring items. Underlying earnings per share has been calculated using the underlying profit before taxation and using the same weighted average number of shares in issue as the earnings per share calculation. See Alternative Performance Measures on page 34.

Underlying profit after taxation is derived as follows:

1 Tax effect of exceptional items, amortisation of borrowing costs, amortisation of acquired intangible assets, gain or loss on revaluation of fair value hedge and unwinding of discount on provision.

Underlying earnings per share is summarised as follows:

7. Goodwill and intangible assets

7.1 Accounting policy

7.1.1 Goodwill

7.1.2 Intangible assets

7.1.3 Impairment of goodwill and intangible assets

7.1.4 Critical accounting estimates and judgements: carrying amount of goodwill and intangibles

7.2 Carrying amount of goodwill

Goodwill is monitored principally on an operating segment basis and the net book value of goodwill is allocated by CGU as follows:

7.2.1 Impairment tests for goodwill

Assumptions

The Group's CGUs have been defined as each of the Group's three operating Divisions. In the opinion of the Directors, the Divisions represent the smallest groups of assets that independently generate cash flows for the Group consistent with the approach adopted in 2016.

The recoverable amounts of CGUs are determined from VIU calculations. VIU is determined by discounting the future pre-tax cash flows generated from the continuing use of the CGU, using a pre-tax discount rate.

Cash flow projections, which have been reviewed and approved by the Board, are derived from five-year forecasts produced by each Division comprised of a detailed bottom up budget for 2018 and a forecast, based on the Division's strategic plan for 2019 to 2022. The five-year period cash flows were extrapolated using a long term growth rate of 1.5 per cent in order to calculate the terminal recoverable amount.

Discount rates are estimated using pre-tax rates that reflect current market assessments of the time value of money and the risk profiles of the CGUs.

The key assumptions used in the VIU calculations in each of the Group's CGUs at 31 December are as follows:

Impairment review results: 2017

A review of the carrying amount of goodwill and intangible assets across the Group has been carried out at year end in light of current trading conditions and future prospects. The annual impairment review did not result in any impairment losses being recognised in 2017.

The ERA CGU has significant headroom such that a permanent diminution of the VIU to below the carrying value of goodwill is considered by the Board to be highly unlikely.

AmesburyTruth is the CGU with the lowest relative VIU headroom. If the average EBITDA margin for AmesburyTruth for the five years from 2018 to 2022 was to decrease by 830 basis points from 23.4 per cent to 15.1 per cent and continue at that reduced level in perpetuity, the VIU headroom for AmesburyTruth would be zero. Given that the EBITDA margin achieved in 2017 was 20.7 per cent and considering the margin uplift potential of the footprint rationalisation project once completed, this scenario is unlikely to occur.

SchlegelGiesse is the CGU with the smallest absolute VIU headroom. If the average EBITDA margin for SchlegelGiesse for the five years from 2018 to 2022 was to decrease by 240 basis points from 17.1 per cent to 8.9 per cent and continue at that reduced level in perpetuity, the VIU headroom of SchlegelGiesse would be zero. Given that the EBITDA margin in 2017 was 14.0 per cent and the margin uplift potential for the enlarged Division once realised, this scenario is unlikely to occur.

Impairment review results: 2016

The annual impairment review did not result in any impairment losses being recognised in 2016.

7.3 Carrying amount of intangible assets