Final Results

Superglass Holdings PLC

("Superglass" or the "Company or the "Group")

Preliminary Results for the Year Ended 31 August 2015

Superglass Holdings PLC, the UK's leading independent manufacturer of glass fibre insulation solutions, today announces its preliminary results for the year ended 31 August 2015.

Financial highlights

Trading performance

Operational highlights

Board structure

Mark Cubitt, Chairman of Superglass commented:

"Superglass continues to execute the strategic plan presented to shareholders in 2014 and has successfully reconfigured the manufacturing plant into a reduced capacity, more flexible and lower cost facility. We have a new management team in place, the public endorsement of our largest shareholder, an increased focus on innovation and new product development, a number of new products recently launched, further cost savings still to be delivered and additional selling price increases announced for early 2016. As a result, the Group is in a stronger position to make real progress in the months ahead than has been the case for many years."

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Chairman's statement

Having been appointed Interim Chairman following John Colley's departure on 19 June 2015, it is my pleasure to report on the progress the Group has made during the year and to confirm that I have agreed to accept the role of Chairman on a permanent basis.

John guided the Group through the last three extremely challenging years, completing two fundraising exercises, as the Group adapted to cope with the collapse of the Government-sponsored energy efficiency schemes. He was assisted by Alex McLeod as Chief Executive Officer and David Gray as Senior Independent Director, both of whom also left the Group during the year, having served for six years. I wish to thank John, Alex and David for their effort, commitment and dedication to repositioning the Group in new markets and for the major investment in infrastructure, product quality and business processes which was undertaken under their stewardship.

Loss before interest, taxation, depreciation, amortisation and exceptional items (LBITDAE) was £2.3m, in line with expectations and representing an improvement of £0.9m on the prior year. It is encouraging that the repositioning of the business to focus on growing construction markets, the implementation of a price increase and the continued aggressive management of our cost base has reduced the LBITDAE loss by almost 80% to £0.4m in the second half, compared to £1.9m in the first half of the year.

Despite the challenging trading conditions, through strong working capital management, the cash balance at 31 August 2015 was £3.6m and the net cash balance was £1.2m (2014: net debt of £0.4m).

I was pleased to appoint Ken Munro as Chief Executive Officer on 12 June 2015. Having been with the Group for two years, first as Director of Strategic Development and Sales and later as Managing Director of the operating subsidiary Superglass Insulation Limited, Ken brings knowledge of the Group, its customers and markets alongside his strategy and vision to lead the business in its next stage of development.

As a consequence of the October 2014 placing, Peter Gyllenhammar AB (formerly Bronsstädet AB) became a cornerstone investor, currently holding 38.32% of the equity, and I am delighted to report that Peter has asked me to put on the public record his endorsement of Ken Munro and his management team and his strong support for the strategy they are implementing to reposition Superglass. We are currently in discussion with Peter about the re-appointment, subject to the usual formalities, of a representative of Peter Gyllenhammar AB to the Board as a Non-executive Director.

During the year, the Group successfully delivered the infrastructure investment which underpinned the £6.25m placing completed on 30 October 2014. This capital investment required a partial closure of the manufacturing plant in July 2015 to allow for the mothballing of one of the Group's two furnaces. The associated reconfiguration of the production operations leaves the Group with a reduced capacity, but a more flexible manufacturing facility with lower fixed running costs. A key associated investment in a replacement forehearth has delivered much greater control over the glass streams and fiberising process, yielding further product quality improvements for our customers. Plans are now underway to procure and install a new furnace in 2018/19 to replace both the operational and mothballed furnaces, thereby increasing production capacity, improving operating efficiencies, lowering costs and reducing emissions.

After a lengthy trial process, in May 2015 the Group achieved British Board of Agrément certification of "Superwhite 34", a blowing wool product utilised in the construction of new houses. This opens up a new, premium-priced market to the Group, which is expected to be of material benefit in the current financial year. This new product introduction, the first of a number of new product launches in recent months, reflects the Group's renewed focus on innovation and new product development, supported by the investment in an Innovation Centre on the Stirling site.

Having observed the significant milestones achieved by the executive management team during the past six months, first as an independent Non-executive Director and, more recently, as Interim Chairman, I was pleased to be invited by my Executive colleagues to consider taking the chair on a permanent basis, and this I have agreed to do with immediate effect. The appointment of an additional Non-executive Director nominated by Peter Gyllenhammar AB would further refresh the Board, restoring our complement of Directors to four, comprising two Executive and two Non-executive Directors, with the added benefit of the active participation of our largest shareholder in shaping the future direction of Superglass.

Our strategy for the current financial year remains to continue to reposition the business through product and service innovation, delivering enhanced product quality and outstanding customer service. We also plan to make further improvements in efficiency during the year, including energy, waste and overhead savings. The combined effect of these further cost savings, strengthening volumes, the benefit of new products and a further price increase already announced for 2016 leaves Superglass in a stronger position to make real progress in the months ahead than has been the case for many years.

Mark Cubitt

Chairman

18 November 2015

Chief Executive Officer's review

Having been appointed as Managing Director of Superglass Insulation Limited in February 2015 and then as Chief Executive Officer of the Group in June, it is my pleasure to present my first Chief Executive Officer's review.

It is presented against a backdrop of continuing recovery in the UK construction and housebuilding markets (although recovery is still nascent in segments of the insulation market), which presents new opportunities for the Group, and it also tracks implementation progress against the strategy set out in the 2014 annual report. Central to the strategic direction outlined at that time was the embedding of innovation in everything that we do as a business and particularly focusing our resources and investment on the development of new products and services.

Alongside this drive towards delivering future-proofed and differentiated solutions, the Group also emphasised its continuing commitment to infrastructure investment and, in particular, a key initiative aimed at giving the business the capability to manage and reduce output in a market that continues to suffer from excess capacity.

It was anticipated that these two key elements of the Group's strategy (innovation and capacity management) would, allied to continued market recovery, deliver price growth in the year under review.

Innovation

With the opening of "Futureworks", the new Superglass Innovation Centre and conference facility, we delivered on our commitment to a better showcase for Superglass Solutions and an immersive environment where customer workshops and future-solution planning can take place.

Our dedicated 3,000 sq. ft. centre, located on our Stirling campus, provides a new entry portal for all customer visits, incorporating full product displays, conferencing areas and workspace for our solutions development team. This centre was the "R&D hub" for a number of new solutions delivered over the past year, most notably our BBA certified 034 blown wool solution for new build housing, a significant achievement for the Group and an important addition to our broadening product range.

It was also the central point for consultation with customers and supply chain partners on the roll-out of our new product packaging programme, with the first product family phase delivered during summer 2015 and the remaining phases rolling out over the coming months. This new livery has been exceptionally well received by customers, who have complimented its fresh design and clear product (colour coded) delineation.

Infrastructure investment

Circa £1.1m was spent during summer 2015 replacing the forehearth on the operational furnace. Associated control equipment and linked infrastructure was also replaced and upgraded in a best-in-class implementation, project managed by our experienced in-house team. This significant investment is delivering greater process control and reliability and resultant improvements in product quality and consistency.

Additional capital investment projects were completed, delivering continual health and safety improvements and general infrastructure and reliability enhancements, supported by an enhanced preventative maintenance programme.

Price growth

In November 2014, all three UK glasswool manufacturers announced substantial price increases, the first for many years, effective 1 March 2015. This welcome increase began the process of reversing the downward price pressure which has been a characteristic of the industry in recent years. The delivery of growth in pricing has been made with an associated impact on volume as the Group imposed a more rigid pricing policy and focused on customers with higher growth prospects and a greater proportion of higher value-added products in their mix. A further price rise, necessary for the ongoing sustainability of the industry, has again been announced by all UK glasswool manufacturers for implementation on 1 February 2016.

Continued rebalancing of business towards housebuilding

Construction Products Association Summer 2015 Forecast data continues to predict healthy growth in 2016, with overall construction output and housebuilding growth of 4.2% and 5.5%, respectively. With 9% year-on-year growth, over 90% of the Group's sales volumes now being delivered from construction-related markets and new solutions enabling broader penetration of the new build housing market in particular, the Group is well positioned to capitalise on rising construction markets over the medium term.

These growing construction and housebuilding markets present strong value-added product sales opportunities and are well aligned to the Group's continued focus on innovation and new product introduction.

Cost savings

Our previously announced strategy to create a reduced but more flexible production capacity, with associated fixed costs savings, was implemented during the summer. This critical initiative was delivered by the in-house team. The anticipated cost savings are being realised in full. In addition, a further efficiency project which should result in substantial water usage reduction has been identified. This capital project is in the early stages of implementation and should begin delivering savings during the next fiscal year.

Routine interrogation of our supply chain and logistic processes is continuing, with a number of incremental and meaningful potential savings being scheduled for further examination and prioritisation. As this now standard activity continues, we expect additional opportunities to be identified.

Quality

With the Phoenix investments of 2012/13 and the further infrastructure spending identified earlier in this report now mature and stable, continued product quality gains are being delivered. In addition, a number of lean manufacturing techniques have been implemented in recent months, further improving quality across our full range of solutions. Customer feedback and compliance audits are encouraging evidence of these improvements.

In January 2015, the Group's cullet supplier, Viridor, commissioned a new glass recycling plant at Newhouse in Scotland. The switchover of supply to this new facility adversely impacted the quality and reliability of cullet supply required for our processes, the Group's major raw material, representing 84% of raw material input. As a consequence, the Group suffered a number of interruptions to its production and incurred substantial additional costs. Since then, significant progress has been made to stabilise supply and the Group is working with the supplier towards a long-term, sustainable supply of high quality cullet, essential to providing consistency to the manufacturing process and reliable product quality. The long-term solution is likely to require substantial investment in the Newhouse facility by Viridor and we await confirmation that this investment will go ahead in the near future.

Ken Munro

Chief Executive Officer

18 November 2015

Financial review

Revenue

Annual sales revenues reduced by 11% from the prior year to £20.8m (2014: £23.5m). Overall volumes fell 13% from the prior year, with the increased volumes from UK construction markets being more than offset by a planned reduction in exports as a consequence of the strengthening of Sterling and a further deterioration in the activity from the government-sponsored schemes, ECO and Green Deal. Whilst ECO will continue to 31 March 2017, on 23 July 2015 the UK Government announced it was to cease funding Green Deal and a number of contractors have subsequently ceased trading, the highest profile casualty being Mark Group Limited which went into administration on 7 October 2015.

Alongside other UK glasswool manufacturers, the Group implemented a substantial increase in selling prices effective 1 March 2015, the first such increase for many years. Ahead of the planned reduction in manufacturing capacity which took place towards the end of the financial year, the Group prioritised quality of revenue over quantity and, as a consequence, withdrew from a number of low margin sales opportunities in the merchant sector in particular. Significant price increases were also applied to export markets, which had an adverse impact on volumes to the Eastern European and Scandinavian markets.

All UK manufacturers have announced a further increase in selling prices to take effect from 1 February 2016.

Loss before taxation, exceptional items and amortisation of intangible assets

Notwithstanding the reduction in revenues outlined above, price growth coupled with the effect of the ongoing cost-saving programme had led to a reduction in the loss before taxation, exceptional items and amortisation of intangibles from £5.5m in 2014 to £4.6m this year. The full effect of the existing cost saving initiatives has yet to be reflected in the operating results, with the major cost saving initiative being the mothballing of one of the Group's two furnaces having been implemented only in August 2015.

Loss before interest, tax, depreciation, amortisation and exceptional items (LBITDAE)

The Directors believe that LBITDAE is a key measure of financial performance. LBITDAE is calculated as follows:

Loss before interest, taxation, depreciation, amortisation and exceptional items improved by £0.9m to £2.3m (2014: £3.2m). During the period, production costs were impacted by line shutdowns to facilitate a major capital project in June and July, together with inefficiencies arising from poor quality cullet supply in the early part of 2015 as the cullet supplier commissioned a new recycling plant. The Group has, however, benefited significantly from low energy prices and has changed energy supplier to one that now allows the Group to fully implement its hedging strategy.

Despite the planned shutdown to facilitate capital investment during the second half of the financial year, LBITDAE improved to £0.4m in the six months ends 31 August 2015, as compared with £1.9m in the first half. This significant improvement in profitability was achieved through a combination of selling price increases on sales volumes 2% higher and by cost savings and production efficiencies.

Loss before taxation

The loss before taxation was £9.4m (2014: £6.8m) after exceptional expenses of £4.8m (2014: £1.3m). The 2015 loss also includes a £4.5m goodwill impairment charge and a credit of £0.4m relating to the early repayment of debt following the October 2014 refinancing.

Cash and borrowings

Despite the challenging trading conditions, the gross cash balance at 31 August 2015 was £3.6m and the net cash balance at the end of the year was £1.2m (2014: net debt of £0.4m). Capital expenditure in the year was £1.7m (2014: £0.8m), reflecting further investment in one of the production lines and changes made in the plant to further improve product quality, reduce production capacity and deliver additional cost savings. The Group has commenced planning for the replacement of the furnaces in the next three to four years, due to their age and upcoming environmental legislation, and this will place a significant capital investment burden on the Group.

Finance costs

Finance charges (excluding exceptional items) amounted to £0.2m (2014: £0.2m).

Dividends

Whilst the Board intends to pay dividends when the Group's profitability, cash generation and underlying growth justifies it, it does not currently expect the Company to pay a dividend for the foreseeable future.

Exceptional costs

The results for the period include exceptional expenses of £4.8m (2014: £1.3m) including a further impairment of goodwill of £4.5m. Exceptional costs are stated net of a discount of £0.4m on the early repayment of the Clydesdale Bank debt following the refinancing completed in October 2014, and include accelerated depreciation of £0.3m on the furnace which was recently mothballed, and a number of redundancy and similar compensation costs as the Group continues to manage its cost base. Further details of the exceptional items are set out in note 2.

Taxation

The underlying effective current tax charge (excluding adjustments in respect of prior years, exceptional items and the deferred tax adjustments in respect of the substantively enacted tax rate reduction) for the Group is £nil (2014: £nil).

Loss per share

Adjusted loss per share (excluding amortisation of intangible assets and exceptional items) was 2.9p (2014: adjusted loss per share of 18.9p). The basic loss per share amounted to 6.5p (2014: loss per share of 23.4p).

Pension scheme

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

Net assets

Net assets as at 31 August 2015 were £14.2m compared to £17.1m at 31 August 2014, reflecting the loss for the year and the increase in equity (net of expenses) following the £6.25m placing in October 2014.

Treasury and financial risk management

Superglass aims to reduce financial risks wherever possible and ensure that it has sufficient liquidity to meet all foreseeable needs.

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 normally enters long-term flexible energy supply contracts, which allow it to forward purchase a variable proportion of its power requirements for up to 36 months. In April 2014, the then electricity and gas supplier withdrew the facility to forward purchase, although, following a change of electricity supplier on 1 September 2014 and a change of gas supplier on 1 April 2015, the Group is now able to hedge its energy requirements. Although these commitments are not reflected on the balance sheet, they are covered by own-use exemptions under accounting standards and are not therefore required to be measured at fair values.

Proven credit control procedures have been developed which, together with cover provided by its credit insurer, minimise the credit risk to the Company. For the year ended 31 August 2015 the bad debt expense amounted to nil% of sales (2014: 0.1%).

Refinancing - October 2014

On 14 October 2014 the Group announced details of a £6.25m placing, issuing 125 million new shares at 5p each, and the refinancing of the bank debt owed to Clydesdale Bank plc. New banking facilities of up to £4.8m were secured from Close Brothers plc through a combination of term loans, leasing and invoice discounting facilities.

The refinancing was formally approved at the extraordinary general meeting on 30 October 2014 and provided funds for additional capital investment, new product development, new cost-saving initiatives and a further strengthening of the balance sheet. The Clydesdale Bank debt was repaid on 7 November 2014 at a discount of £370,000 and new borrowings from Close Brothers were drawn down on 10 November 2014.

As part of the refinancing, the ordinary shares of 25.0p were subdivided into new ordinary shares of 1.0p and deferred shares of 24.0p. The deferred 24.0p shares do not entitle holders to receive any dividend or other distribution or to receive notice or speak or vote at a general meeting of the Company, the deferred shares have no rights to participate in a return of assets on a winding up, are not freely transferrable and the Company has the right at any time to purchase all of the deferred shares for an aggregate consideration of 0.01p.

One of the consequences of the refinancing was to permit the conversion of the 2,800,757 convertible shares owned by Clydesdale Bank plc into ordinary shares in accordance with their terms. On 13 May 2015, Clydesdale Bank plc exercised a proportion of their conversion option and thereby acquired 2,500,000 new ordinary shares of 1p which equated to 1.6% of the ordinary shares in issue.

Chris Lea

Finance Director

18 November 2015

Principal risks and uncertainties

Future market conditions may be less favourable than the Directors expect

The Directors expect that Government-led initiatives aimed at improving the energy efficiency of residential, commercial and industrial buildings, together with changes to UK building regulations, will be of continuing importance in underpinning the Group's markets in the future. In the event that these initiatives do not proceed in the form anticipated by the Directors, the Group's sales volumes and trading prospects may be adversely affected. The Directors believe that the development of new products, increased quality, increased specification activity and the ability to sell blown cavity wall insulation to a wider customer base will help mitigate this risk.

There may be excess glasswool manufacturing capacity in the UK in the future, resulting in more competitive market conditions

In the event that future market demand does not grow in accordance with the Directors' expectations or available UK glasswool manufacturing capacity increases more rapidly than they currently anticipate due, for example, to new market entrants, there may be an excess supply of product in the domestic market. Such a situation could create downward pressure on selling prices. The Directors are confident that the additional cost savings identified will ensure Superglass can maintain a competitive and sustainable cost position in the market and that this will mitigate the effect of continuing price pressures.

The Group derives a significant proportion of its sales from a small number of key customers

In the financial year ended 31 August 2015, approximately 73% of the Group's total turnover was derived from ten major customers. In the event that orders placed by these key customers fall below the Directors' expectations in the future or the Group's relevant contracts with these key customers are renewed on less favourable terms or are terminated, the Group's prospects and financial performance may be adversely affected. The risk of material loss of sales volume is mitigated by the decentralised nature of the Group's key trading relationships and related purchasing decision making and the Group's continued push into new markets through innovation and new product development.

The Group has very limited forward-order visibility

Whilst annual trading agreements are negotiated with the Group's major customers, these rarely contain guaranteed volume commitments, with customer orders typically placed for delivery one to four weeks in advance. This lack of forward-order visibility introduces additional volatility risk to operational and financial forecasts. This risk is mitigated through the decentralised nature of the Group's key trading relationships which provides a large portfolio of potential order points serviced by a national sales team.

The Group derives all its sales from one type of product

Unfavourable publicity or other adverse reputational factors concerning the Group and its products, as well as a reduction in demand for this type of product or new products entering the market, could damage customer goodwill and the Group's market position. The Group continues to develop new product applications and works to expand routes to market to help mitigate this risk.

The Group operates from a single manufacturing site with a single furnace

The Group produces glasswool insulation at a single manufacturing site in Stirling and, following a recent capital investment programme, now operates a single furnace. In the event of a prolonged interruption to production at this site or a major failure of the furnace, Superglass would not have the ability to transfer its manufacturing activities to other facilities and may not be able to meet the demand for its products from customers and prospective customers, potentially eroding its market position. Appropriate insurance cover is in place and the Group has a back-up furnace which could be brought back into use, albeit it would take several months to recommence manufacturing operations. The Group has begun planning its investment in a new furnace which will be required in the next three to four years.

The Group purchases cullet, its major raw material, from a single supplier

The major raw material is recycled glass known as cullet. The Group purchases the majority of its cullet from Viridor's recycling plant at Newhouse in Scotland. In the event of a disruption to cullet supply over a few days it may not be possible to source sufficient cullet of the right quality to continue manufacturing operations and to meet customer demand. This could have a material effect on the financial performance and prospects of the Group. To mitigate this risk, the Group is seeking a long-term contract with Viridor to guarantee continuity of supply and has developed relationships with a number of other cullet suppliers in the UK.

The Group's operations could be adversely affected if it is unable to maintain a co-operative relationship with WF Engineering Inc., a supplier of key technology

The Group has a long-term agreement with WF Engineering Inc. for the use of certain fiberising technology and knowhow. Additionally, the Group purchases fiberising equipment that is used in the production process; WF Engineering Inc. is the exclusive supplier of this equipment. In the event that the technology or fiberising equipment ceased to be available to Superglass, there could be a material adverse effect on its ability to trade and therefore on the financial performance and prospects of the Group until alternative manufacturing arrangements could be implemented. To mitigate this risk, the Group has entered into a finance lease and a supply contract with the supplier.

Infrastructure limitations

The Group relies on the uninterrupted operation of its IT, manufacturing and other systems for the proper running of its commercial operations. Any significant breakdown of, or disruption to, these systems could have an adverse effect on production or the effective control of its commercial operations and risks. This could have a material adverse effect on the Group's business, financial performance and prospects. This risk is mitigated by the Group entering into support contracts with key suppliers where appropriate and also by the Group's own internal engineering team and IT disaster recovery plan.

The Group's operations expose it to the risk of health and safety

The Group has no higher priority than ensuring the health and safety of its employees and those who come into contact with our processes and products. It is the policy of the Group to ensure that its employees work in as safe an environment as possible and that the risk and incidence of industrial accident or injury is minimised. Nevertheless, there are certain hazards associated with its manufacturing activities. The Group has actively promoted health and safety in the workplace in recent years and seeks to actively comply with its health and safety regulations. However, future occurrences could result in financial liabilities or penalties or a prolonged suspension of production.

The Group's operations expose it to the risk of environmental liabilities

The Group strives to comply with current environmental legislation. Future changes to environmental law may require the Group to adopt alternative and less efficient or more costly production processes and were the Group to infringe environmental legislation that could result in prolonged suspension of manufacturing operations and possible financial liabilities or penalties.

The Group mitigates these risks by performing internal safety audits on a weekly basis and also performing routine emissions testing outwith the mandatory test periods and is currently seeking a derogation from the Scottish Environment Protection Agency as regards the Best Available Techniques (BAT) conclusions under Directive 2010/75/EU of the European Parliament and of the Council on Industrial Emissions for the Manufacture of Glass, which comes into effect from the end of February 2016.

The supply of energy may be subject to disruption or price fluctuation

Gas and electricity supplies are required for the operation of the Group's plant and production processes. Whilst the Group has entered into purchasing agreements that provide non-interruptible energy supplies and an element of price stability in the short term, increasing energy costs in particular may impact on trading margins if they cannot be passed on to customers. However, the Group aims to mitigate short-term fluctuations in energy prices through an appropriate hedging policy under medium-term supply agreements with energy suppliers.

The Group's continued success depends on the future services and performance of key executives and personnel

The Group depends on the continued service of its senior management, including its Executive Directors and senior management team. The Executive Directors and senior managers have significant industry and operational experience that is of key importance to the Group's business. The Group has entered into service agreements and, in certain cases, long-term incentive programmes with each of these individuals, but the retention of their services cannot be guaranteed.

If the Group lost or suffered an interruption in the services of any of its Executive Directors or of a number of its senior managers, or if it was unable to continue to attract or develop new senior management with appropriate skills, the Group's financial performance and prospects may be adversely affected.

Consolidated income statement

for the year ended 31 August 2015

Consolidated statement of comprehensive income and expense

for the year ended 31 August 2015

Consolidated balance sheet

at 31 August 2015

These financial statements were approved by the Board of Directors on 18 November 2015 and were signed on its behalf by:

Consolidated cash flow statement

for the year ended 31 August 2015

Consolidated statement of changes in equity

for the year ended 31 August 2015

Notes forming part of the financial statements

for the year ended 31 August 2015

1 Accounting policies

Superglass Holdings PLC is a company domiciled and incorporated in the United Kingdom. The financial statements were approved by the Board on 18 November 2015.

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 principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years unless otherwise stated. The financial statements have been prepared on the going concern basis for the reasons set out below.

The preparation of financial statements in conformity with EU adopted IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The estimates and judgements 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 judgements 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 set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

Going concern

In determining whether the Group's 2015 financial statements can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and financial position, including cash flows, liquidity position and borrowing facility, and the risks and uncertainties relating to the business activities in the current economic climate. These are set out in the Principal Risks and Uncertainties on pages 12 and 13 and in the notes to the financial statements.

The key factors considered by the Directors were:

The Group prepares regular forecasts and projections of revenues, profits and cash flows that are essential for identifying areas on which management can focus to improve performance and mitigate possible adverse impact of a deteriorating economic outlook. They also provide projections of working capital requirements and adherence to banking covenants.

The Directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including downside sensitivities, which take into account the uncertainties in the current operating environment.

Having considered all the factors impacting the Group's business and having prepared relevant financial projections and sensitivities including financial projections which allow for reasonably possible downsides to the Group's base case projections, and taking account of mitigating actions that can be taken in periods when headroom is tight, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Group's 2015 financial statements.

2 Exceptional items

Items of exceptional income and expenditure in the year ended 31 August 2015 include a gain on repayment of borrowings, accelerated depreciation on the mothballing of a furnace, goodwill impairment and an unexpected supplier invoice relating to a true-up exercise covering six prior years. Reorganisation costs relate to professional fees related to the aborted sale process and compensation for loss of office and related costs.

Items of exceptional income and expenditure in the year ended 31 August 2014 include the write-off of yellow wool stock and the associated storage and disposal costs. Reorganisation costs relate to redundancy costs and professional fees related to the aborted sale process.

3 Taxation

Recognised in the income statement

Reconciliation of effective tax rate

The rate of corporation tax has been falling since 2011 from 28% to 20%.

The Finance Bill 2013 was substantively enacted on 2 July 2013 and included a reduction in the corporation tax rate effective to 21% from 1 April 2014 and 20% from 1 April 2015.

As a result of this tax rate change, the tax rates in force were 23% from 1 September 2013 to 31 March 2014, 21% to 31 March 2015 and 20% thereafter.

The substantively enacted tax rate at the year end, for deferred tax purposes, was 20% (2014: 20%). The unrecognised deferred tax asset in relation to tax losses at the year end was £1,956,000 (2014: £1,467,000).

In November 2015 legislation was enacted which provides that the tax rate will reduce to 19% from 1 April 2017 and to 18% from 1 April 2020. This will affect the Company's deferred tax and current tax charges and balances in future years.

4 Share capital

Disclosed as:

At the end of the year the Group held 790 own shares (2014: 790). The market value of the shares at 31 August 2015 was £25 (2014: £192).

2015

In the year ended 31 August 2015 the Group concluded a capital reorganisation, an issue of equity share capital and the refinancing of bank debt that was approved by shareholders at an Extraordinary General Meeting on 30 October 2014 and had the following impact:

The existing 25.0p ordinary shares were sub-divided into one ordinary share of 1.0p (post-capital reorganisation shares) and one deferred share of 24.0p.

Following the capital reorganisation the equity share issue of 125,000,000 ordinary shares with a par value of 1.0p at an issue price of 5.0p proceeded, increasing the equity share capital of the Company by £6,250,000. Issue costs of £448,000 were recognised directly in equity.

During the year the Group settled the secured bank loan of £2,500,000 at a discount of £370,000. One of the consequences of the refinance was to permit the conversion of the 2,800,757 convertible shares owned by the Group's bankers into ordinary shares in accordance with their terms. As at 31 August 2015 2,500,000 of these shares had been converted into ordinary shares.

2014

In the year ended 31 August 2014 there were no changes to the capital structure in place.

5 Loss per share

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

6 Post-balance sheet events

There are no significant post balance sheet events.