ANNUAL RESULTS ANNOUNCEMENT

IMMEDIATE RELEASE

3 September 2013

THE ALUMASC GROUP PLC - ANNUAL RESULTS ANNOUNCEMENT

Alumasc (ALU.L), the premium building and engineering products group, announces results for the year ended 30 June 2013.

Financial summary

	2012/13	2011/12
Group revenues (£m)	116.8	110.6
Underlying profit before tax (£m)	5.1	1.6
Underlying earnings per share (pence)	10.7	3.0
Reported profit before tax* (£m)	3.4	0.4
Basic earnings per share (pence)	6.6	1.2
Dividends per share (pence)	4.5	2.0

* After brand amortisation, restructuring costs & impairment charges of £1.7m (2011/12: £1.2m)

Key points

·    Building Products revenues rose by 18% to £88.3m with underlying operating profit up 91% to £8.4m, reflecting strong growth in both the UK and export markets, including the Kitimat smelter refurbishment project in Canada.

·    Engineering Products revenues fell by 20% to £29.4m as a result of a fall in demand in the second half year, as major customers experienced a slowdown in the mining industry.  Nevertheless, as a result of further progress with Alumasc Precision's profit improvement plan and strong profitability achieved by Dyson Diecasting, the division reduced its operating loss by 40% to £0.5m. Demand started to recover in the final quarter of the year.

·    £5.5m net cash inflow (2011/12: £2.5m outflow), reflected higher overall profit, further working capital efficiency improvements, carefully prioritised and controlled capital spend, and some cash received in advance on construction contracts.  

·    Net debt was £7.7m at 30 June 2013 (30 June 2012: £13.2m).

·    A proposed final dividend of 2.5p makes a total for the year of 4.5p (2011/12: 2.0p), reflecting recovery in profitability and strong cashflow, whilst taking into account future cashflow needs, including investment to further grow the business and pension funding.

 

Chairman, John McCall, commented:

"The Board expects the improvements of the past year to flow through to our new financial year.  While confident of the rewards to be had from our own actions, uncertainties inevitably remain as to external demand and the effectiveness of government stimulus programmes.  On balance, we expect the recovery achieved in the past year to continue."

 

 

Enquiries:

The Alumasc Group plc	01536 383844
Paul Hooper (Chief Executive) Andrew Magson (Finance Director)
Bankside Consultants Limited	020 7367 8888
Simon Bloomfield

 

 

 

Chairman's Statement:

 

Alumasc recovered strongly from the poor performance of the previous year, growing revenues, profits and cash generation.  As a result, the Board is recommending an increased final dividend of 2.5 pence per share (2012: 1 penny).

 

The improved group result reflects the outperformance by our Building Products companies, where underlying operating profits rose 91% above the previous year to £8.4 million, on revenues 18% higher at £88.3 million.

 

The success achieved across our Building Products division was in contrast to a UK domestic market, reportedly still in decline, particularly in the commercial sector where the group has a strong presence.  This is a testament to the product and brand quality built up by our businesses over many years, in conjunction with a greater recent emphasis on innovation and service.  The major projects that have been won as a result of these attributes have been well executed and there have been significant shifts in regional and sectoral activity in response to market conditions.

 

This improving performance has enabled the group to continue developing the management teams critical to its future success, while investing in additional resources and marketing initiatives.  The development of overseas markets in particular requires both resource and patience, and we are encouraged by the progress that is being made.  Our export activity for building products rose to 20% of the divisional total during the year (2011/12: 13%).

 

The acquisition in December 2012 of Rainclear, an internet-based supplier of rainwater products, is consistent with the thrust of our development activity, in opening up new channels in a mature market place, while adding to our existing product range.  This approach more generally, coupled with the wider initiatives referred to above, set the foundation for maintaining the momentum achieved in the most recent year.

 

Despite weakness in the global market served by our OEM customer base, our Engineering division reduced underlying operating losses from £0.8 million to £0.5 million in the year, thanks to a good performance by Dyson Diecasting and progress in the recovery at Alumasc Precision Components.  The latter had to contend with an unexpected reduction of 23% in customer demand, principally reflecting the revised outlook for Chinese growth that emerged during the year.

 

It is probable that the current triennial valuation of our pension schemes will produce a higher actuarial deficit at the valuation date of March 2013.  However, if gilt yields continue to rise as they have since that date, as reflected in our statutory accounts at the year end, this may prove to have been an unrepresentatively low point from a pensions valuation point of view.

 

The group's improving performance, and consequent strength of balance sheet, enables the Board to maintain its strategy of developing our niche building product businesses through determined organic initiatives coupled with selective add-on acquisitions.  This endeavour can only be enhanced by an eventual recovery in market demand.  Meanwhile, our Engineering division remains focused on a return to sound profitability across the division, building on its traditional strengths of high customer service and added value.

 

The Board expects the improvements of the past year to flow through to our new financial year.  While confident of the rewards to be had from our own actions, uncertainties inevitably remain as to external demand and the effectiveness of government stimulus programmes.  On balance, we expect the recovery achieved in the past year to continue.

 

 

John McCall

Chairman

 

 

 

 

  

 

Business Review

 

Chief Executive's Review

 

Strategic developments

 

Building Products division

 

Our strategic intention is to build on the success of the Building Products division in recent years by continuing to retain strategic focus on products and systems used for the management of the finite resources of energy and water.

The execution of the strategy will be delivered through:

•        Developing further the group's well established brands including the launch of new products.

•        Maintaining leading positions in chosen market niches through the differentiation of products and services.

•        Market development, with an emphasis on those businesses with scalability.  Export sales are targeted to grow sustainably to over 20% of total division sales.

•        Developing new routes to market, of which the acquisition of Rainclear is an example.

•        Seeking related acquisitions with a good product or service fit, or the ability to widen routes to market, or to give a geographical presence that could assist a faster market development for our current businesses.

•        Building on the strength of management teams, both individually and through the greater interaction between businesses.

•        Bringing innovation to the forefront of activities.  The commencement of a new Group Innovation Best Practice Day will assist this focus.

•        Fostering an entrepreneurial and innovative culture.

•        Incremental investment in people, innovation and market development.  There will also be the requirement to invest in some strategic capacity expansion, infrastructure renewal and to drive efficiency improvements.

 

The strategic goal for the Building Products division continues to be to outperform the UK construction market.

Engineering Products division

The Engineering Products division will continue to exploit its strength and reputation as a pre-eminent manufacturer and supplier of complex aluminium and zinc components to blue chip customers.  With environmental pressure to reduce energy use and to increase metal recycling, the global use of aluminium has increased and is likely to continue to do so.

The execution of the strategy will involve:

•        Maintaining our leading position in high and low pressure diecasting and precision machining while building on the efficiency improvements achieved to date.

•        Developing further business with global customers to target exports representing over 30% of divisional sales.

•        Assisting customers to 'on-shore' production back to the UK.

 

Health, Safety and Environment

The group's number one priority continues to be to provide a safe place of work for employees.  Significant progress has been made and the performance rate index in this year improved to 3.5 from 5.3 in the prior year.  The performance rate index in 2006/07 was 9.5.  There has been a major and successful focus on near misses in the year which is expected to improve the current Health and Safety performance. 

Performance Overview
	2012/13	2011/12
Revenue (£m)	116.8	110.6
Underlying operating profit (£m)	6.6	2.6
Underlying operating margin (%)	5.7	2.3
Net financing costs (£m)	(1.5)	(1.0)
Underlying profit before tax (£m)	5.1	1.6
Non-recurring items and brand amortisation (£m)	(1.7)	(1.2)
Profit before tax (£m)	3.4	0.4

The group result for the year has seen a significant improvement over the prior year.  Group revenues grew by £6.2 million (6%) to £116.8 million.  Underlying profit before tax grew by 229% to £5.1 million (2011/12: £1.6 million).

Building Products divisional revenues grew by £13.4 million (18%) to £88.3 million.  Of this growth, £6.9 million came from delivering products to the Rio Tinto Alcan Kitimat project in Canada.  Nevertheless, all but one of the Building Product operating segments grew their revenues, a commendable effort against significant reductions in UK construction activity, which Experian estimates saw commercial construction output decline by 10% in 2012.  Divisional underlying operating profit rose by £4 million, or 91%, to £8.4 million, giving a 9.5% return on sales.  All of the Building Product operating segments grew their underlying operating profits.

In the Engineering Products division, Alumasc Precision's revenue reduced significantly by £7.4 million (20%) to £29.4 million following a slowdown in demand in our customers' markets, in particular in the mining sector.  Nevertheless, successful initiatives to improve the commercial arrangements with several customers, combined with the benefits of significant operational efficiencies and cost savings, improved the overall performance at Alumasc Precision Components.  Dyson Diecasting continued to perform strongly.  The divisional underlying loss for the year was reduced by £0.3 million to £0.5 million.

Net financing costs increased to £1.5 million (2011/12: £1.0 million) principally linked to a £0.5 million increase in the pension interest charge.

The group generated a net cash inflow of £5.5 million, with year end net debt reducing to £7.7 million, the lowest level for seven years.  This was the result of the improvement in profitability, good control over working capital and capital expenditure and some cash received in advance of profit recognised on construction contracts.

Reported profit before tax increased to £3.4 million (2011/12: £0.4 million) despite the increase in non-recurring costs relating to a number of restructurings, including merging two smaller roofing companies into our mainstream waterproofing business, and the £0.6 million impairment charge taken at the half-year relating to Blackdown Greenroofs.

The group finished the year with a strong order book of £44 million (30 June 2012: £53.1 million, including £9 million of outstanding orders relating to the Kitimat contract).

Building Products Division

Building Products' Divisional Performance
	2012/13	2011/12
Revenue (£m)	88.3	74.9
Underlying operating profit (£m)	8.4	4.4
Underlying operating margin (%)	9.5	5.9
Brand amortisation (£m)	(0.3)	(0.3)
Restructuring costs (£m)	(0.7)	(0.3)
Impairment (£m)	(0.6)	-
Reported operating profit (£m)	6.8	3.8

 

Divisional revenues grew by 18% to £88.3 million with operating profit up by 91% to £8.4 million.

This was a strong performance, particularly when set against the background of further falls in UK construction activity particularly in the commercial construction sector where this division has its highest proportion of end user market sales.  According to Experian, UK commercial activity fell in 2012 by 10% and is forecast to fall by a further 8% in 2013.

The Building Products division's outperformance against this difficult UK background has been due to sustained execution of the strategy to introduce new products, grow export sales,  enter new markets and build further on our strong brands, all underpinned by the reinvestment in, and development of, strong management teams.  The year benefited from shipment of the majority of product to the group's £11 million contract to supply the aluminium smelter refurbishment at Kitimat in Canada.  In total, Building Products divisional exports grew by 81% to £18.8 million.  Excluding Kitimat, divisional exports grew by 17% to £10.7 million.

Energy Management

Solar Shading and Screening

Both in the UK and its export markets Levolux had a much improved year which resulted in a £1.3 million revenue increase to £18.1 million.  In the UK, revenue was bolstered by the project for Chiswick Park Building 6.  In addition, Levolux completed a significant project to screen a multi-storey car park in the UK with terracotta fins.  Increased use of Levolux's innovative solutions to screen buildings is a growing trend.  The previously announced £4.7 million order for a major non-commercial project in Central London will benefit the forthcoming year.  Levolux's underlying operating profit increased by 240% to £0.8 million.

Levolux carried out its strategic plans to develop its international presence and it is pleasing to report a trebling of sales to North America.  Focus on the Middle East resulted in a first order for Saudi Arabia which is likely to lead to further work.  New products launched in the year included a Lighting Control solution linked to Levolux's solar shading systems.  The first project for such a system has been secured at an art gallery.

Roofing & Walling

Despite the inclement weather in the UK at the start of the calendar year, which impacted installation of roofing and walling products in particular, the Roofing and Walling segment had a good year overall.  This operating segment increased its revenue by £10.2 million (46%).  Of this increase £6.9 million was attributable to the shipments made to the Rio Tinto Alcan Kitimat project in Canada.

The supply of insulated render systems was buoyed by the CESP (Community Energy Saving Programme) that completed in the third quarter of our financial year.  This helped to drive a record revenue performance by Alumasc Insulated Renders in the year. This business should now benefit from ECO (Energy Company Obligation) funding, which is expected to build momentum in the current financial year, and the Green Deal in future years.

New roofing products were launched in the year, again leveraging the strong Euroroof brand.  Towards the year end, the launch of the BluRoof system, an innovative concept in stormwater management using attenuation at roof level, was well received.

Markets have continued to be particularly difficult and highly competitive for our smaller roofing brands, Blackdown and Roof-Pro, and both have been restructured accordingly.  The supply to the significant £0.7 million Blackdown project to the Scottish National Arena is now underway, following project delays on site.

Water Management and Other

Construction Products

Revenues advanced strongly by £2 million (13%) to a record year of £17.1 million. The growth was driven by the supply of Gatic Access Covers and Gatic Slotdrain products to the large London Gateway project, combined with strong sales of Gatic Access Covers in international markets including the Middle East, South East Asia and Africa.  Delays to a number of projects, particularly overseas, resulted in a slight reduction in Slotdrain sales. Construction Products' segmental underlying operating profit grew strongly by 28% to £2.4 million.

During the year, Gatic successfully launched Assist Lift Access covers.  This helped the business win orders for Birmingham Airport and Changi Airport in Singapore.  Towards the year end Pro-Slot, a Slotdrain product developed for small project use and distributed via merchants in the UK, was launched successfully.  Another new product range is StreetWise, a suite of stainless steel street furniture, that complements Slotdrain when installed in areas such as pedestrian walkways in city centres.  Updates of the website and literature, combined with focused marketing, assisted the improved communication of this company's capability to its target audiences.  Gatic continues to be in the early stages of developing its Slotdrain business in the USA.  This has resulted in a number of specifications that should lead to stronger sales next year. 

SCP, our building and access products business, grew its revenues by 12% and made satisfactory returns in an increasingly competitive environment.  This business is working on further differentiating its product range while maintaining its excellent reputation for customer service.

Elkington China had a strong revenue and record profit year driven by good airport and other activity in Hong Kong.  The business is well placed to benefit from the current uplift in Hong Kong construction activity which is anticipated to last for up to five years.

Rainwater, Drainage, Plastics and Casings

The group's rainwater, drainage, plastics and casings brands delivered a strong performance, with revenues broadly in line with the prior year.  Segmental profit grew by 12% to £2.0 million, assisted by a seven month contribution by Rainclear, acquired during the year.  Excluding Rainclear, there was still a double digit percentage profit growth.

During the year much activity focused on the launch of new products which, in particular, assisted the renaissance of the Harmer drainage range.  In addition, Rainclear's steel rainwater product range was added to Alumasc's range.  Other products are planned for launch next year.  Another key development was the launch of successful rainwater and drainage calculators for specifiers. 

Rainclear was acquired in December 2012 and has subsequently traded in line with expectations.  It has taken Alumasc into the internet building products distribution market and brought with it the steel rainwater range referred to above.  Rainclear is widening the distribution of Alumasc's building products' range and this evolution will continue into next year.

Pendock, the group's pre-formed plywood pipe boxing brand, experienced a slowdown in its principal market of social housing refurbishment following the cuts in council budgets, which commenced in the final quarter of the prior year.  Management responded swiftly with cost reduction action at that time and achieved further efficiencies in the year under review.  This largely offset the impact of the revenue reduction.

Timloc, which supplies ventilation products, cavity trays, access panels and similar products, had a record year, winning market share, launching new products, including a full range of metal access panels.  New channels of distribution were established, particularly with light-side merchants and a significant rebranding exercise took place.  These actions together with operational efficiency improvements led to an improved gross margin.  Timloc operates mainly in the house building market, one of the few UK sectors so far to show some sign of recovery.  In 2012/13 Timloc reported its highest ever revenue and profit either before or after its acquisition by Alumasc.

The Building Products division finished the year with an order book of £21 million (30 June 2012:  £29 million including the record £9 million order from the Kitimat project).

Engineering Products Division

Engineering Products' Divisional Performance
	2012/13	2011/12
Revenue (£m)	29.4	36.8
Underlying operating loss (£m)	(0.5)	(0.8)
Underlying operating margin (%)	(1.6)	(2.1)
Restructuring costs (£m)	(0.1)	(0.6)
Reported operating loss (£m)	(0.6)	(1.4)

 

Alumasc Precision's revenues reduced by 20% to £29.4 million due to a softening in global customer demand last winter.  This impacted both Alumasc Precision Components and Dyson Diecasting.  Demand started to recover in the final quarter of the year.  However, this was not sufficient to enable the division as a whole to recover fully back to profit in the year, with an underlying operating loss of £0.5 million reported. 

The new divisional management team put in place at the end of the prior financial year quickly put in place a number of key actions with the objective of returning Alumasc Precision Components back to sustainable profitability.  These included improving selling prices and commercial terms with a number of customers, significant cost reductions, improving operational efficiencies and strengthening engineering and new product development processes.  These initiatives are ongoing.  In addition, selective investment has been made in factory equipment to remove specific capacity bottlenecks and further improve customer service, quality and operational efficiency.

Whilst these initiatives initially led to recovery to run rate profit earlier in the financial year, it was not possible to sustain this performance due to the subsequent reduction in global demand described above.

Meanwhile, Dyson Diecasting remained strongly profitable and delivered another double digit percentage return on sales, with operating profit at a similar level to the prior year on revenues that reduced by 10%.  This performance followed strong cost control and operational efficiencies.  It remained busy in new product development with new projects being won mainly with existing customers.  There is increasing evidence that Dyson Diecasting, in particular, is benefiting from an increasing trend to 'on-shoring' where customers are bringing work back into the UK.

Prospects

The investment made in experienced and motivated management, new products and markets, increased exports, and the strengthening of our established brands, has placed the Building Products division in a strong position.  Meanwhile, the ongoing progress being made by the new management team in the Engineering Products division will continue to benefit the current year.

Alumasc has a well developed strategy that continues to drive performance, despite the challenging market conditions.  The Board expects the group to continue to deliver these plans and make further progress in the year ahead.

 

Paul Hooper

Chief Executive

 

 

 

Financial Review 2012/13

Key Performance Indicators

The group's key performance indicators (KPIs) are summarised in the table below. Most KPIs show significant improvement this financial year, reflecting the strong recovery in group profitability and cash generation compared with a year ago.

	2012/13	2011/12
Safety performance index	3.5	5.3
Year end order book (£m)	44.0	53.1
Group revenues (£m)	116.8	110.6
Underlying operating margin (%)	5.7	2.3
Underlying EBITDA (£m)	9.2	5.4
Underlying PBT (£m)	5.1	1.6
Underlying earnings per share (pence)	10.7	3.0
Average trade working capital % sales	11.1	13.9
Net cash inflow/(outflow) (£m)	5.5	(2.5)
Shareholders' funds (£m)	22.4	18.9
Year end net debt (£m)	7.7	13.2
Capital invested (£m)	37.9	43.2
Return on investment (post tax) (%)	12.2	4.0
Gearing (%)	34.3	70.0
Underlying EBITDA interest cover (times)	12.0	7.6
Net debt/underlying EBITDA (times)	1.0	2.5

 

Underlying financial performance

Details of the group's trading performance are set out in the Chief Executive's Business Review.

Group revenues grew by 5.6% to £116.8 million, reflecting an 18% increase in the revenues of the Building Products division to £88.3 million, partly offset by a 20% contraction in revenue from Engineering Products to £29.4 million.

Group underlying operating profit improved to £6.6 million (2011/12: £2.6 million) mainly due to the growth in Building Products revenues, assisted by progress in the recovery plan at Alumasc Precision.

Group underlying profit before tax was £5.1 million (2011/12: £1.6 million), all attributable to improved underlying operating profit. 

Non-recurring items and brand amortisation

Total costs excluded from the calculation of both underlying operating profit and underlying profit before tax were £1.7 million (2011/12: £1.2 million). These costs comprised restructuring costs and brand amortisation in both 2011/12 and 2012/13 and an impairment charge in 2012/13. An analysis of these items is shown in the table below.

The impairment charge of £0.6 million in 2012/13 was recognised at the half year stage and related to a write down of acquired goodwill at Blackdown Greenroofs. This followed a change of management and a restructuring that will make the business stronger and more competitive, particularly in the current economic environment.

Restructuring costs for the year amounted to £0.8 million and related mainly to re-organising the group's two smaller roofing businesses, Blackdown (as described above) and Roof-Pro to enable them to compete more effectively in the current market place. The group's two engineering products businesses were also re-organised to enhance the performance of the division as a whole, including through greater use of cross-divisional management resources and expertise.

Brand amortisation charges, mainly relating to acquisitions made in prior years, were similar overall to the prior year at £0.3 million.

Reported profit before tax

Reported profit before tax was £3.4 million (2011/12: £0.4 million) reflecting the higher  level of underlying profit, offset a little by the higher non-recurring and brand amortisation charges.

Reconciliation of underlying to reported profit before tax
		2012/13	2011/12
		£m	£m
Underlying profit before tax		5.1	1.6
Brand amortisation		(0.3)	(0.3)
Restructuring costs		(0.8)	(0.9)
Impairment charge		(0.6)	-
Reported profit before tax		3.4	0.4

 

Tax

The group's underlying tax rate reduced significantly from 31.6% in the prior year to 25.7%. This was due to the recovery in group profitability which reduced the significantly dilutive prior year impact of non-tax allowable charges on the overall tax rate; and also reflected the reduced UK statutory tax rate. The blended average UK tax rate for Alumasc's 2012/13 financial year was 23.75% (2011/12: 25.5%).

After non-recurring items, the group's overall effective tax rate for the year was 30.3%.  The overall effective tax rate in 2012/13 was higher than the underlying rate mainly due to the impairment charge being a non-tax allowable cost.

Underlying and basic earnings per share

Underlying earnings per share were 10.7 pence (2011/12: 3.0 pence) and basic earnings per share were 6.6 pence (2011/12: 1.2 pence), both reflecting higher group profit after tax. The average number of shares used in the calculation of earnings per share remained unchanged over the year at 35.6 million.

Summarised Cash Flow Statement
			2012/13	2011/12
			£m	£m
EBITDA*			9.2	5.4
Underlying change in working capital			1.7	1.7
Cash received in advance of profit recognised on construction contracts			1.8	(0.9)
Operating cash flow			12.7	6.2
Capital expenditure			(1.4)	(1.9)
Pension deficit & scheme expenses funding			(2.3)	(2.4)
Interest			(0.7)	(0.9)
Tax			(0.3)	(0.1)
Dividends			(1.1)	(2.8)
Reorganisation costs			(0.9)	(0.6)
Acquisitions, disposals & other			(0.5)	-
Decrease/(increase) in net debt			5.5	(2.5)

 

^*  EBITDA: Underlying earnings before interest, tax, depreciation and amortisation

The group's cash performance in the year was strong, benefiting from higher profit, further gains from working capital management and carefully prioritised and controlled capital spend. The overall net cash inflow for the year (including changes in drawn debt) was £5.5 million (2011/12: outflow of £2.5 million), leading to a reduction in net debt from £13.2 million on 30 June 2012 to £7.7 million at 30 June 2013. A summary of the group's cash flow performance is shown in the table above.

The group's ratio of average trade working capital to sales reduced from 13.9% to 11.1%. This was the fourth year of successive improvement. Approximately half of the gain in the year was attributable to further underlying efficiency initiatives. The remainder related to strong cash control on larger construction contracts, where the group had received cash payments of some £0.9 million in advance of cumulative profits recognised at 30 June 2013. This cash flow benefit, which initially had been expected to reverse prior to the financial year end, is now expected to do so during the 2013/14 financial year. 

The group made capital investments of £1.8 million during the year, of which £1.4 million related to property, plant, equipment and software and £0.4 million initial consideration for the acquisition of Rainclear Systems. This compares with combined depreciation and amortisation charges for the year of £2.9 million. Other than the purchase of Rainclear, which is described in the Chief Executive's review, the principal capital investments made were the completion of projects to alleviate specific capacity constraints at Alumasc Precision Components, improvements to capacity and operational efficiency at Gatic and various infrastructure improvements across the group. Current operating plans suggest a need to increase capital spend in the coming years to support further growth in the business, however, this is unlikely to be to levels that would on average exceed combined annual depreciation and amortisation charges.

Pensions

The pension deficit recorded on the group's balance sheet, calculated under IAS19 accounting conventions, reduced from £14.5 million at 30 June 2012, to £10.1 million at 30 June 2013. This improvement was driven principally by ongoing deficit reduction payments of £2.0 million made by the group during the year and higher long dated AA-corporate bond yields at the year end. This partly reversed the significant increase in the deficit recorded in the prior financial year, which was caused largely by a fall in bond yields at that time. This illustrates the significant volatility that can be inherent in short term pension fund valuations. In Alumasc's case a 0.1 percentage point decrease or increase in the gilt or bond rate used to discount future pension liabilities to present values can increase or decrease (respectively) the liabilities of the scheme and therefore the pension deficit by £1.4 million.

The group's defined benefit pension funds are currently undergoing their formal triennial valuation, with a valuation date of 31 March 2013. This valuation uses a more prudent methodology than the accounting valuation described above with, for example, future liabilities to pay pensions are discounted using adjusted long dated gilt yields, as opposed to the (higher and more favourable) AA corporate bond yields used under IAS19. As gilt yields have fallen significantly overall in the three years to 31 March 2013, despite subsequent improvement and changes in actuarial assumptions such as mortality rates, it is likely that the group's actuarial pension deficit will have increased from the £11.5 million at 31 March 2010. The company has until 30 June 2014 to agree the new valuation and associated deficit reduction plan with the Pension Trustees.  The new valuation, when agreed, will be the basis for calculating future deficit reduction contributions paid by the company in cash each year, which currently amount to £2.0 million per annum as part of a six year recovery plan. In view of the above, it is possible that company contributions may need to increase in 2014/15. 

The group's defined benefit pension plans are both closed to future accrual, and therefore the group now contributes to defined contribution plans for current employees who benefit from company pension provision. The defined contribution scheme has recently been enhanced giving employees online access to the value of their pension savings and a wider range of investment options all at a lower average administrative cost. The group is making preparations to meet the legislative requirements of pensions auto-enrolment, which will become effective for Alumasc on 1 April 2014.

Capital structure, capital invested and shareholders' funds

The group defines its capital invested as the sum of shareholders' funds, bank debt and the (net of tax) pension deficit.

Capital invested decreased over the year from £43.2 million to £37.9 million, because capital expenditure was lower than the annual charge for depreciation and amortisation, and working capital efficiency was further enhanced during the year. Underlying post-tax return on average capital invested improved significantly from 4.0% to 12.2% for the year, well in excess of the group's weighted average cost of capital of circa 8%.  This reflected the significant increase in underlying operating profit for the year combined with the reduction in average capital invested.

Shareholders' funds increased from £18.9 million to £22.4 million during the year, mainly due to retained profit after tax of £2.4 million and post-tax actuarial gains on pension schemes of £2.2 million. Underlying post-tax return on average shareholders' funds also improved substantially from 4.2% to 18.4%.

The combination of the significantly lower level of net debt and increased shareholder funds resulted in a substantial reduction in financial gearing from 70% to 34% during the year. Using the definitions in the group's committed banking facility agreement, interest cover improved year on year from 7.6 times to 12.0 times and ratio of year end net debt to EBITDA improved from 2.5 times to 1.0 times. These ratios all indicate that, after addressing the issues experienced last year, Alumasc is now recovering its traditional balance sheet strength.

Going concern

Taking into account business plans, pension funding commitments and the group's banking facilities, and having made appropriate enquiries, the Directors consider that the group has adequate financial resources to continue in operation for the foreseeable future.

The group's banking facilities comprise a £20 million revolving credit facility and a £5 million finance lease facility that expire in June 2016. In addition, overdraft facilities of £3 million have just been secured for a further year.

Dividends

In the light of the much improved trading performance, strong balance sheet, and expectation of further progress in the current financial year, the Board is proposing a final dividend of 2.5 pence per share, to be paid on 30 October 2013 to shareholders on the register on 4 October 2013. This will give a total dividend for the year of 4.5 pence per share (2011/12: 2.0 pence per share).

More broadly, the Board intends to continue to grow the dividend in conjunction with future earnings growth, having regard to the cash required to invest in the business to support its strategic development and to continue to meet pension funding commitments.

Impairment review

The Board conducted an impairment review which covered all assets that contributed to the goodwill figure on the group balance sheet at the financial year end, together with any other assets where indicators of impairment existed. Other than the impairment of goodwill at Blackdown recognised at the half year stage and described above, no further impairments of goodwill of other assets were identified. In most cases, the headroom between value in use calculations and capital invested was substantial. However, headroom was more limited at Alumasc Precision Components, in view of the ongoing recovery of that business, and also the group's two small roofing businesses, Blackdown and Roof-Pro, both of which have been impacted by the recent recession and were recently restructured to improve business performance and financial returns.

Business risk and internal control

The group made further progress in improving both business risk management and internal control processes during the year. Internal audit activities during the year had particular focus on the higher risk areas, such as inventory control and costing. The overall number of remediation points outstanding from internal and external audits has further reduced compared with prior years.

Following the issues of last year, and as part of the recovery plan at Alumasc Precision Components, business risk management and improving internal control has been an area of priority for the new management team. Business risks were re-evaluated in depth, with key mitigating controls identified and either already implemented or (if not possible to do so in the timescale) are under development. A full review of product costings and cycle times was carried out during the year and inventory is counted every month. The inventory, costing and planning module of the business system has been updated, simplified and has recently been re-implemented. All significant new business proposals for longer term supply agreements are subject to a business case review and risk assessment at divisional (and where appropriate group) board level prior to pricing commitments being given, and such new work being accepted.

Future changes in presentation of group underlying profit before tax

With effect from 1 July 2013, IAS19 (revised) no longer permits the group to assume that investment returns on pension scheme assets will exceed the yield on AA-rated corporate bonds used to discount estimated future pension liabilities. This is contrary to the current investment strategy for our pension schemes, where the majority of investments are in equities or return seeking assets. Further, pension scheme running costs, including the levies of the Pension Protection Fund, will now form part of the financing charge. Together, and in isolation, these changes are expected to add between £0.7 million and £1.0 million to the group's overall financing charge in the 2013/14 financial year. 

In view of management's inability to directly control a charge that is more driven by capital market factors, and also the non-cash nature of the majority of the charge, the Board has decided to exclude net pension financing costs from calculation of underlying profit before tax and underlying earnings per share in 2013/14 and in future years.

At the same time, the Board decided that it will not in future exclude more routine restructuring costs from calculations of underlying operating profit and profit before tax, unless the restructuring is significant in relation to the group profit in the year. The level of restructuring costs incurred in total each year will continue to be disclosed in financial information published by the group, regardless of its treatment in presenting underlying results.

The impact that the above changes would have had on previously published group results is illustrated in the revised five year financial summary attached and on the group's website www.alumasc.co.uk.    

 

Andrew Magson

Group Financial Director

 

 

 

 

Responsibility Statement

We confirm that to the best of our knowledge:

(a)  The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the group and the company; and

(b)  The Directors' Report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that the group faces.

 

Paul Hooper                                                   Andrew Magson
Chief Executive                                     Group Finance Director

 

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the year ended 30 June 2013 which will be despatched to shareholders on or around 20 September 2013 and will be available at www.alumasc.co.uk. Accordingly the responsibility statement makes reference to the financial statements of the company and the group and to the relevant narratives appearing in that annual report and accounts rather than the contents of this announcement.