2010 Preliminary Results

24 November 2010

Superglass Holdings plc

("Superglass" or the "Group")

2010 Preliminary Results

Superglass Holdings plc, the UK's leading independent manufacturer of glass fibre insulation solutions, today issues its Preliminary Results for the year ended 31 August 2010.

Results highlights

·; Results in line with market expectations

·; Revenue £31.4m (2009: £38.1m)

·; PBTA £3.7m (2009: £5.0m)*

·; Cash generated from operations £8.1m (2009: £8.0m) due to strong working capital management

·; Net debt reduced by £4.5m to £17.2m

·; Adjusted earnings per share of 7.0 pence (2008: 8.3 pence)*

Operational highlights

·; Confirmed CERT extension provides opportunity for significant growth in 2010/11

·; Strong growth in sales to builders merchants channel

·; New sales team helps to deliver distributor growth in H2 2010

·; Further £1m of funding secured for 2011 from SSE for SUPERDAD initiative

·; Major furnace failure solved on schedule - second half profits impacted by approximately £0.9m

·; Amended banking facilities maturing in May 2014

·; Operational and business review creates focus for improvement in key areas

* PBTA - Profit before tax adjusted for the effect of amortisation of intangibles. Similarly EPS is also adjusted for the amortisation of intangibles

Tim Ross, Chairman commented: 

"Superglass is in a period of significant change. Actions started over the last twelve months have begun to deliver results and there are signs of an improvement in our markets.

The business is being repositioned in order to reduce reliance on any single route to market. Management initiatives will start to deliver new products to market during 2010/11. The operations team has been reorganised and fresh talent has been introduced to deliver improvements in operating efficiency.

The extension to the CERT programme from April 2011 to December 2012 is welcome news. With the introduction of a minimum insulation requirement of 68%, we expect significant growth from this channel during 2011. Whilst there remains a great deal more to do, the Board views the future with greater confidence."

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Chairman's statement

We are pleased to report a Profit before Tax and Amortisation (PBTA) of £3.7m, in line with recent management expectations, but down 26% on 2008/09. Overall revenues have declined by 17.6% to £31.4m due to a significant decrease in carbon reduction activity ("CERT"- related) partly offset by a growth in sales in the new-build housing and repair, maintenance and improvement markets. A major failure to one of our furnaces restricted output for the final two months of the financial year and impacted profits by an estimated £0.9m.

Operational capacity at the plant has been fully restored subsequent to the year end. Having refurbished the first furnace, the Group has decided to bring forward the refurbishment of the second furnace. To accommodate the ongoing impact of the furnace failure and the investment required, whilst maintaining financing flexibility, we have agreed amendments to our banking facilities subsequent to the year end and the Board has decided not to pay a final dividend.

Superglass is in a period of significant change, following recent executive and board appointments. The business is being repositioned in order to reduce reliance on any single route to market. Management initiatives will start to deliver new products to market during 2010/11. The operations team has been reorganised and fresh talent has been introduced to deliver improvements in operating efficiency.

The extension to the CERT programme from April 2011 to December 2012 is welcome news. With the introduction of a minimum insulation requirement of 68%, we expect significant growth from this channel during 2011. We are not affected by the ending of the Government's Warm Front Initiative.

Actions started over the last twelve months have begun to deliver results, particularly with the growth in value-added solutions, and there are signs of an improvement in our markets. Our growth over the next two years, however, will be underpinned by the anticipated demand generated by CERT. Our goal is to build a business with more diverse sales channels, a stronger customer base and, in the longer term, a business which can provide a stable platform from which to grow a more broadly based Group. Whilst there remains a great deal more to do, the Board views the future with greater confidence.

Tim Ross

Chairman

Operational Review

Introduction

I am pleased to present this review of the financial year ended 31 August 2010. Economic and political circumstances combined with a plant failure in the final two months of the year have contributed to a very challenging trading environment for Superglass. Overall revenues have declined by 17.6% to £31.4m due to a significant decrease in carbon reduction activity ("CERT"- related) partly offset by growth in sales in the new-build housing and repair, maintenance and improvement markets. A major failure to one of our furnaces restricted output for the final two months of the financial year and impacted profits by an estimated £0.9m. Operational capacity at the plant has been fully restored subsequent to the year end.

In these circumstances, we are pleased by a Profit before Tax and Amortisation (PBTA) of £3.7m, in line with recent management expectations. Whilst the delay to the extension to CERT has impacted volumes in 2009/10, we expect that this will be a timing delay and that demand will increase in 2010/11 as utility providers seek to meet their carbon emissions reduction targets.

Trading performance

Superglass trading is focused on three main sales channels:

·; Carbon reduction - sales of loft insulation and cavity wall insulation for existing residential housing stock via specialist installation contractors funded primarily via CERT and Community Energy Saving Programmes ("CESP")

·; Specialist distribution - addressing mainly new-build housing and other new-build construction

·; Builders merchants - mainly repair, maintenance and improvement to existing housing stock

The table below highlights the recent drive to re-position the business by targeting growth in specialist distribution and builders merchant customers, thereby reducing the Group's historic reliance on CERT. As a result, carbon reduction volumes have declined to 36% of overall volumes from a peak of nearly 60% in 2008, whilst specialist distribution and builders merchants' volumes have increased from approximately 40% to a current level of 57% of overall volumes.

Carbon reduction

CERT and CESP are the UK Government's mechanisms to obligate energy suppliers and generators to reduce carbon emissions attributable to residential housing in the UK by improving the energy efficiency of existing housing stock. Together these programmes are worth in excess of £1bn per annum. Loft insulation and cavity wall insulation are two of the most cost-effective methods to achieve this. Superglass is well placed to support this channel with the second largest available capacity of blown wool cavity wall insulation in the UK and good trading relationships with all of the major insulation installers.

Underlying demand from energy suppliers during the second half of the year, especially during the fourth quarter, was weak, driven primarily by the continued delay in Government finalising the extension to the CERT programme. CERT volumes were down 33% year on year and second half volumes were 40% down on 2008/09 as activity slowed still further as the carbon reduction targets for utility suppliers remained to be fulfilled.

The confirmation on 30 June 2010 that the CERT programme would be extended to December 2012 is welcome news. Important changes were also introduced to the structure of CERT in respect of the extension period. The most important is that the CERT extension has set out a requirement to deliver a higher proportion (68%) of savings through professionally installed traditional insulation measures, providing opportunities for installers. Whilst we have not seen the benefit of this extension in 2009/10, we expect increasing demand in 2010/11.

Superglass also provided a DIY offering, part-funded through CERT during 2009/10. Sold through our independent builders merchant network, some 6,000 householders benefited from energy efficiency improvements through the unique SUPERDAD scheme. We are already developing an improved offer for 2010/11 and have secured funding of a minimum of £1m from our partner, Scottish & Southern Energy, for the next calendar year.

Specialist distribution

Sales through specialist drylining and insulation distributors such as Sheffield Insulation (part of SIG plc) and Encon (part of Wolseley Group) have recently been in decline, but are now recovering strongly. We also experienced some modest growth in activity for the new-build housing market during the second and third quarters of 2009/10, following the introduction of a sales team focused on increasing our activity in this area, a market we had not previously targeted.

As a result, whilst specialist distribution volumes were 15% down year on year, second half sales were up 7% on the first half. Sales mix also improved as focus was given to value-added products such as those for the acoustic and timber frame channels. Sales to distributors now represent 32% of total volumes, up from 28% in 2008/09.

Housing activity may slow in the near term, primarily due to continued lack of mortgage availability. However, we expect continued growth within specialist distribution as we introduce more sales resource, re-launch our range of acoustic products and introduce other product innovations during 2011. Building regulations were changed on 1 October 2010, requiring a 25% improvement in energy efficiency in new buildings. Whilst there is always an inevitable time lag in the implementation of regulation changes on construction sites, growth is expected from this significant change during 2011.

Builders merchants

Private repair, maintenance and improvement activity is a key driver of activity for builders' merchants and has been broadly flat on previous year's levels. Superglass has, however, gained market share in this channel with volumes up 30% on last year. Additional independent builders' merchant buying groups were acquired as customers at the end of 2009 and this has helped the channel to grow from 13% to 25% of total sales volumes. Our CERT funded DIY offering, SUPERDAD, provides welcome additional sales for our builders' merchant customers and is a strong factor in differentiating our offer from competitors in this channel.

Operations

Key achievements in operations during the second half of 2009/10 have been to strengthen the team and build the foundations for improvements in operating efficiency. We appointed a new Operations Director in May of this year. The operations team has been reorganised and refocused on delivering significant improvements in plant efficiency. The focus is to:

·; further improve furnace integrity and sustainability

·; develop relationships with key technology partners

·; identify further opportunities for cost reduction

Energy prices reduced significantly in the first half of 2009/10 cutting overall operating costs by £1.4m. Recent substantial increases in energy costs will impact on 2010/11 and, despite the benefits of a progressive hedging policy we expect our energy costs to increase. Renegotiated material contracts have resulted in savings of £0.2m, offsetting some of this increase.

Furnace

We announced on 28 June 2010 that Superglass had experienced a failure of one of the furnaces at its Stirling plant. I am pleased to report that the furnace is once again fully operational. Repairs were completed in early September, at a cost of £0.5m. The shortfall in capacity was, in part, offset by increased output from the remaining furnace but the Group experienced a shortfall in sales volumes during July, August and the early part of September. The impact on Group profitability during 2009/10 is estimated to be £0.9m arising from a combination of lower sales, repairs to damaged plant and increased short-term labour costs. Negotiations are ongoing with the Group's insurers and while some recovery is expected, the entire cost was charged against profits in the financial year.

Investigations into the causes of the failure are continuing. The work done should improve the operational performance of the furnace and will extend its working life, deferring a planned rebuild of the unit previously scheduled for 2011 (at an estimated capital cost of between £1.0m and £1.5m) until at least the end of 2013.

As already reported we intend to undertake pre-emptive maintenance and upgrading of the second furnace, taking this furnace out of production for a period of approximately six weeks over the Christmas period, with planned shutdown now imminent. The planned expenditure on this furnace is within our normal capital expenditure budgets and we have already built additional stock to ensure that supplies to our customer base are not disrupted. As a result, the working life of the second furnace is expected to be extended until at least the end of 2015.

Operational and business review

Following a comprehensive review of our commercial and business strategy which we completed during the year, we identified opportunities for significant improvement across four key aspects of our business and work has begun to implement some of our findings:

·; Reaching out to new markets: a new focus on delivering value-added solutions in housing, targeting independent builders' merchants has already delivered growth in the second half of 2009/10. Plans are in place to expand sales resource further in this current financial year to drive additional growth in these areas. The aim is to reduce the Group's dependence on any single market channel, something that has particularly impacted Superglass in recent years with the decline in CERT activity.

·; New product innovation: we will promote the very high recycled content of our products. Currently glass used in the manufacture of our products is sourced entirely from waste bottles. We have introduced a new product development process and will launch a new range of acoustic products early next year.

·; Improving our efficiency: areas of significant waste reduction and efficiency improvement have been identified. Often these areas are not quick wins and progress will require investment and significant change in culture as we implement more modern operations methods to eliminate waste and inefficiency. Improvement will also require new partnerships with key technology suppliers covering glass, furnace and other technologies.

·; Building a stronger team: Since my appointment on 1 November 2009, I have placed a great deal of emphasis on strengthening the management team. Key achievements have been to appoint:

·; a new sales specification team focused on growing sales in the housing market and other new-build construction markets

·; a new Operations Director to develop more modern methods of manufacturing in Superglass. Since this appointment was made a major reorganisation of the operations team has been undertaken to provide focus on key areas of improvement

·; a new Safety Manager. A comprehensive safety improvement plan is being implemented, ensuring Superglass remains a safe place for all our employees. Key areas of focus include standardising operating procedures, better understanding of risks and reinforcing safety culture

·; the creation of a new supply chain organisation from within our existing resource to drive improvements to our planning processes and identify and deliver opportunities for improvement in logistic costs

There is considerable scope to improve performance by organic growth. We will, however, continue to monitor opportunities which could broaden our product offering and improve our routes to market.

Outlook

The key drivers underpinning carbon reduction in existing housing stock are strengthening once again. I am confident that Superglass is well placed to capitalise on the opportunities this will present. I am encouraged by the recovery in sales during October and November and believe momentum will build further during the second half.

New-build house building activity will not grow until mortgage availability improves. This is an area of the market which historically Superglass has not targeted and it represents an important part of our strategy to grow the business. By introducing sales specification resource and widening our product range, we are positioning Superglass to take advantage of future opportunities as they arise.

Our aim is to become the independent supplier of choice for the independent builders merchant through continued focus on service and flexibility and the development of our CERT funded SUPERDAD scheme. Currently we trade with four out of the five largest independent buying groups.

The recent furnace failure has had a continuing impact in the first quarter of 2010/11. We do, however, expect volumes to increase in the second half. With the timing of developments in the market and the expected profile of operational improvements, we anticipate that trading in the current financial year will be second-half weighted.

Financial Review

Revenue

Sales in the year fell by 17.6% to £31.4m (2009: £38.1m). Reduced CERT related activity was the biggest factor in this, declining by 33.0% from the prior year. Confirmation of the CERT programme extension is expected to result in a recovery of activity within this important market. There was continued growth in sales to builders' merchants achieved despite the challenging conditions that prevailed in this market, reflecting both the resilience of the independent merchant and Superglass' increasing presence in this area, driven by initiatives such as the SUPERDAD campaign.

Investment in specification-based sales resource improved sales penetration through the specialist distributor channel during the second half. Sales volumes were adversely affected by reduced production availability during the last two months of the year, following the failure of one of our furnaces, leading to approximately £1.2m of lost sales.

Operating profit

EBITA fell from £6.6m in the period ended 31 August 2009 to £4.3m, with operating profit margins reducing from 17.2% to 13.7%. There was, however, an estimated £0.9m of lost profitability through lost sales and adverse cost variances associated with the furnace failure in June, without which operating margins would have been at 16.0%.

Despite significantly reduced market volumes, selling prices remained relatively stable. Annual prices fell by 2.0% on average compared to the prior year, however, second half recovery saw prices return to similar levels experienced twelve months previously. The second half sales mix of product was also improved as the Group expanded its product range to develop and support the drive into the specialist distributor market.

Reduced volumes continued to adversely affect operational gearing. Waste elimination initiatives that had been implemented following the strengthening and reorganisation of the operations team and were providing improvements, were overtaken by the furnace problems towards the end of the financial year. These initiatives have been refocused following the restart of the damaged furnace in mid-September. Energy purchasing prices reduced by £1.2m compared to the previous year.

A further £4.4m was charged for amortisation of intangibles. 2010 represents the penultimate year in which this charge will occur and subsequent to 2011 net profit should be more closely aligned with the cash generation of the Group.

Finance costs

The Group benefited from both reduced debt and lower interest rates during the period under review. Finance costs reduced during the year by £0.9m to £0.6m (2009: £1.5m). Following changes to the facility profile described further below, term loan interest charges will increase by 1.3% per annum.

Taxation

The underlying effective current tax charge (excluding adjustments in respect of prior years and the deferred tax adjustments in respect of the substantively enacted tax rate reduction) for the Group is 30.0% (2009: 29.0%).

Dividends

As a result of the trading performance largely due to the impact of the recent furnace failure, the Board has decided not to pay a final dividend The total dividend for the full year is 0.25p (2009: 1.5p). In determining the level of future dividend payments the directors will take account of the profitability, cash generation and underlying growth of the business while seeking to maintain an appropriate level of dividend cover.

Earnings per share

Adjusted earnings per share (excluding amortisation of intangible assets) was 7.0p (2009: 8.3p). The basic (loss)/earnings per share amounted to (0.5p) (2009: 0.8p).

Pension scheme

The Group continues to operate a defined contribution Group personal pension plan which is administered by a major specialist pension provider and therefore has no unforeseen present or future pension liabilities.

Cash and borrowings

Despite a challenging trading environment and furnace failure, the Group reduced net debt by an impressive £4.5m. Net borrowings at 31 August 2010 were £17.2m (2009: £21.7m), with £3.3m of long-term loans being repaid during the year in accordance with facility terms. Cash generated from operations was £8.1m, improved on 2009 (£8.0m) despite the reduction in operating profit.

This performance has been achieved by focusing effort and resource during the year on managing working capital. The Group continues to work closely in partnership with customers and suppliers to maximise working capital benefits. Raw material and engineering stock increases towards the financial year end offset some of this earlier work as forward purchase commitments were greater than required due to the reduced production volume as a result of the furnace failure in June. The Directors are currently in negotiations with the Group's insurers in relation to the furnace failure. These negotiations are at an early stage and any recovery that arises will be reflected within the results in subsequent years.

Capital expenditure was £1.2m (2009: £0.8m) representing 83.0% of depreciation (2009: 49.0%). The increase over the previous year reflects the additional cost associated with restoring furnace integrity. This does however mean that between £1.0m and £1.5m of expenditure planned for 2011-2012 is not now necessary until at least the end of 2013. We are planning to carry out similar refurbishment of our other furnace, imminently, at a cost of £0.6m. This cost will form part of the normal capital expenditure budget for the current financial year and allows deferment of £1.7m rebuild cost from 2012-2013 until at least the end of 2015.

There were other cash outflows of £1.4m of taxation and £0.4m of dividend paid.

The Group met both its interest cover and debt financing covenants throughout the year and continues to benefit from established long-term facilities, with term loans of £12.6m (2009: £15.9m) repayable quarterly until May 2014 and a bullet repayment of £5m (2009: £5m) repayable in July 2014. Subsequent to the year end, we have agreed adjustments to the terms of our banking facilities. This has involved a deferral or partial deferral of scheduled quarterly repayments under Tranche A of the facility, from November 2010 through to May 2011. The amounts deferred will be spread equally over the remaining term of the loan commencing November 2011. In addition we have agreed a reduction of £1.0m in the overdraft facilities available to the group to £5.0m by May 2011.

These adjustments are intended to ensure that our debt facilities are structured with a sensible level of tolerance for any unexpected deviation from forecast levels of operating profitability to allow the Group to absorb both the direct and consequential costs of the recent furnace failure and the imminent planned refurbishment of the second furnace. The agreed revision to our facility terms will increase our annual financing charges by approximately £0.2m, per annum. We expect the Group to retain a strongly cash-generative profile.

Treasury and financial risk management

The Group aims to reduce financial risks wherever possible and ensure that it has sufficient liquidity to meet all foreseeable needs. Forward currency contracts in US Dollars are used to hedge foreign currency purchases of certain manufacturing consumables with the objective of minimising the effect of fluctuations in exchange rates on future transactions and cash flows.

To the extent that Group income denominated in Euros cannot be offset against raw material and capital expenditure purchases, forward currency contracts in Euros are used. Separate bank accounts are held for all currencies in which trade is conducted, in order to facilitate the collection of debts and the management of currency positions.

The Group has long-term flexible power supply contracts, which from time to time allow it to forward purchase a variable proportion of its power requirements for up to 36 months.

As part of its overall service package, Superglass provides credit to customers and as a result there is an associated risk that the customer may not be able to pay outstanding balances. Superglass has developed proven credit control procedures which, together with cover provided by its credit insurer, minimise its credit risk. For the year ended 31 August 2010 the bad debt expense amounted to 0.09% of sales (2009: 0.13%), achieved against a backdrop of restricted availability of credit insurance from commercial insurers for parts of the customer base. The Group successfully negotiated redirection of some regular business through insured buying societies, reducing the risk associated with uninsured debt default.

 Share capital

The Company has only one class of share capital. The ordinary shares carry no right to fixed income, but holders are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets and there are no restrictions on the transfer of the Company's shares. During the period the Company complied fully with the requirements that apply to the Company's shares as a consequence of these shares being listed on The London Stock Exchange.

* Underlying results exclude the £4.4m charge for amortisation of intangible assets (2009: £4.4m). The term underlying is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substitute for, or superior measure to, IFRS measures.

Operational risks and uncertainties

There are a number of potential risks and uncertainties which could have an impact on the Group's performance. The Group has introduced improved risk profile reporting, closely monitoring market trends and risks on an ongoing basis, which are the focus of monthly management meetings where performance is measured against budget, forecast and prior year.

The key risks and uncertainties facing the Group are as follows:

Market demand

The Group's products are sold into both the residential and commercial construction sectors. As a result the Group is exposed to movements in demand, which may arise from changes in Government policy and expenditure plans, the general economic climate and individual business and consumer confidence. Over the past twelve months the Group, in line with its peers, experienced weaker demand but Superglass has invested in increased sales resource and extended its product range to broaden its customer base and product offering in order to spread the risk from future downturns affecting individual sales channels.

Customer concentration

The reduction of sales into the CERT channel during the course of the financial year under review, highlighted the Group's dependence upon this market. Cavity blowing wool makes up approximately 50% of these sales and as Superglass sells all cavity blowing wool in the UK under a solus agreement there is a risk of reliance upon this customer. Whilst recognising the risk involved in customer concentration, the contract includes a rolling two year notice period and the Group has a long relationship with the customer dating back to 1991. In order to reduce customer concentration the management team has grown the customer base and continues actively to seek sales growth in other areas and diversification within the residential carbon saving market through the introduction of retail-focused schemes such as SUPERDAD. Our top 2 customers have reduced from 51.7%, of total turnover in 2008/09 to 37.9% in 2009/10.

Competitors

The Group operates within a competitive environment and there is a risk to its results and financial performance arising from the actions of its competitors, including competitors' marketing strategies and product development. Competitive pressure can intensify when there is contraction in the overall market size which can lead to lower margins. The Group looks to counter any such movements by ensuring a low cost manufacturing base, industry leading customer service and flexibility.

Input prices

The Group's operating performance is impacted by the pricing and availability of its key inputs which include energy, recycled glass, resin, borax and polythene packaging, some of which are themselves subject to volatile input cost influences. The Group looks to minimise the adverse effects of such movements in materials through strong long-term relationships with suppliers, forward purchasing, inventory management and multiple suppliers.

As the Group's sales are delivered to customers, prolonged disruption of road transport systems or availability of vehicle fuel could result in reduced sales over the period covered. Additionally, a significant increase in vehicle fuel prices can affect profitability.

Information Technology ("IT")

The Group is reliant upon IT systems for operational and financial control. A lengthy failure or disruption could affect day to day operations. Dedicated IT support staff are employed together with external support services to monitor the IT systems and a robust continuity plan has been developed.

Reliance on production facilities

The Group experienced a significant failure in one of its two furnaces during the financial year. This had a material effect on profitability. The potential effect of this disturbance to production was partially offset by the availability of other production capacity at the plant. Monitoring controls have been improved and the Group will move away from its full life replacement program to a policy of more regular, but smaller planned furnace refurbishments.

Quality control

Superglass is at potential risk with regard to a possible failure of its products leading to reputational damage and warranty claims. The Group has implemented rigorous quality control procedures for both raw materials and its own manufacturing processes. These established quality control systems are assessed and improved on an ongoing basis, supported by external audits to ensure that Superglass meets the highest British standards and ISO accreditation.

Consolidated income statement

For the year ended 31 August 2010

Consolidated statement of comprehensive income

For the year ended 31 August 2010

Consolidated balance sheet

At 31 August 2010

These financial statements were approved by the Board of Directors on 24 November 2010 and were signed on its behalf by:

Tim Ross Tony Kirkbright

Chairman Finance Director

Consolidated cash flow statement

At 31 August 2010

Consolidated statement of changes in equity

At 31 August 2010

Notes to the accounts

For the year ended 31 August 2010

1 Accounting policies

Superglass Holdings Plc ("the Company") is a company domiciled and incorporated in the United Kingdom. The financial statements were approved by the Board on 24 November 2010.

Statement of compliance

The consolidated financial statements have been prepared in accordance with IFRS (including International Financial Reporting Interpretations Committee (IFRIC) interpretations) as adopted by the EU ("adopted IFRS"). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.

Basis of preparation

The financial statements are prepared on the historical cost basis. The consolidated financial statements are presented in Pounds Sterling which is the Company's presentational and functional currency. The financial statements have been prepared on the going concern basis. The Directors considered all factors likely to influence its future performance and financial position, including cash flows, borrowing facilities and the risks and uncertainties relating to its business activities. The key factors considered by the Directors were:-

·; the implications of the challenging economic environment and weakening levels of demand

·; the impact of upward price pressure on input prices;

·; the ability of the Group to maintain its frequency of trade receivables and the credit risk associated with these balances;

·; the competitive environment in which the Group operates

·; the potential actions that could be taken in the event that revenues are worse than expected, in order to protect cash flows and operating profit

·; the finance facilities available and the ability of the Group to be able to operate within agreed banking covenants, at the year end the Group had access to a £6.0m undrawn overdraft facility.

The preparation of financial statements in conformity with adopted IFRS requires the Directors to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The estimates and judgments are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The accounting policies have been applied consistently to all periods presented in these financial statements.

2 Taxation

Recognised in the income statement

Reconciliation of effective tax rate

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of 4 years from 2011. The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010 and will be effective from 1 April 2011. This will reduce the company's future current tax charge accordingly.

The rate change from 28% to 27% has had the effect of reducing the deferred tax liability recognised at the start of the period by £141,000. It has not yet been possible to quantify the full anticipated effect of the announced further 3% rate reduction, although this will further reduce the company's future current tax charge and reduce the company's deferred tax liabilities

3 Earnings per share

The calculation of basic earnings per share and underlying earnings per share is based on the profit attributable to ordinary shareholders as follows:

4. Status of accounts

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 August 2010 or 31 August 2009 but is derived from those accounts. Statutory accounts for the year ended 31 August 2009 have been delivered to the Registrar of Companies, and those for the year ended 31 August 2010 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

These results were approved by the Board of Directors on 24 November 2010.