12th Sep 2007 08:01
Alumasc Group PLC12 September 2007 Wednesday 12 September 2007 THE ALUMASC GROUP PLC - PRELIMINARY ANNOUNCEMENT Alumasc (ALU.L), the premium building and engineering products group, announcesstrong gains in performance and strategic development in the year to 30 June2007. Financial Highlights •Total group revenue increased by 22% to £163.4m. •Pre-tax profit increased by 74% to £9.9m and basic EPS increased by 76% to 19.5p reflecting good performances in the Building Products division, an exceptional profit from Brock Metal prior to its sale at the year end and a prior year result which included the closure costs of Copal Castings. •On continuing operations, revenue increased by 10% to £103.6m, pre-tax profit increased by 4% to £7.8m and basic EPS increased by 6% to 15.6p •The final dividend per share is increased by 4.8% to 6.6p, giving a total for the year of 9.7p, covered 2.0 times by earnings. Commercial Highlights • Building Products made an operating profit, adjusted to exclude property disposal gains and acquisition accounting adjustments, of £6.6m (2006: £6.4m) on revenue up 7.9% at £59.6m (2006: £55.3m). In the two month period following acquisition, Levolux contributed an adjusted operating profit of £0.4m from revenue of £3.0m. • Five of the group's building products businesses reported record results. However, this profitable growth was largely offset by significantly lower social housing refurbishment activity after a buoyant prior year, and lower metal roofing sales on the Fjardaal project. • Engineering Products made an operating profit of £2.2m (2006: £2.1m) on revenue up 12.3% at £44.0m (2006: £39.1m). • Alumasc Precision had a strong start to the year, but a tougher second half, whilst Alumasc Dispense had a relatively quiet year. • In May, Alumasc acquired Levolux, the UK's leading supplier of solar shading systems for buildings, for £13.5m (excluding cash acquired). Levolux falls squarely into the sustainable building products category where Alumasc has a growing family of market leaders. Levolux is anticipated to be earnings enhancing in the current year. • The sale of Brock Metal at the year end was a strategically important step for Alumasc, enabling management to focus further on growing the group's higher margin core premium building and precision engineering product businesses. • The group entered the new financial year with stronger order books than a year ago, particularly in the Building Products division. Paul Hooper, Chief Executive, stated, "2006/07 was a year of transformation forAlumasc. The acquisition in May 2007 of Levolux and the disposal in June 2007 ofBrock Metal, a producer of zinc and aluminium alloys, were both majortransactions which demonstrate the group's commitment to increasing itsstrategic focus on niche premium building product and precision engineeringbusinesses." John McCall, Chairman, added "The growth in total earnings in the past year setsa new and challenging target for the current year, not least given theexceptional contribution from Brock. The acquisition of Levolux towards the endof the year, with its profitable record and growth prospects, will help in thisregard. Overall, the shape of the group is stronger than for many years andprovides a strong base for further development." Presentation: Today, from 09.30am to 10.30am, a presentation to broker's analysts and privateclient brokers will be held at the offices of Bankside Consultants, 1Frederick's Place, London EC2R 8AE. Enquiries: The Alumasc Group plc 01536 383844Paul Hooper (Chief Executive) [email protected] Magson (Finance Director) Bankside Consultants LimitedCharles Ponsonby 020 7367 8851 [email protected] Chairman's Statement Summary Alumasc made strong gains in performance and strategic development during thepast year. Earnings per share were, in total, some 76 per cent ahead of theprior year and corporate activity accelerated the focus on the group's coreactivities. The growth in earnings is set against a prior year figure depressed by closurecosts. Nevertheless, profit before tax for those businesses in the group at thebeginning of the financial year rose by over 25 per cent on a like-for-likebasis. Both of the group's divisions contributed to this profit growth and adetailed review appears in the Chief Executive's Business Review following thisStatement. Brock Metal, the business sold on the final day of the financial year, was amajor contributor to this growth. The acquisition of Levolux two months earlieris intended to replace the earnings from Brock with a profit stream much moreclosely aligned with our company's strategy. After two years during which the dividend was unchanged, the Directors werepleased to increase the interim dividend by 3.3% in April 2007. The Directorsare now recommending an increase in the final dividend of 4.8% to 6.6p pershare, giving a total for the year of 9.7p per share (2006: 9.3p per share), anincrease of 4.3%. Development The Board has, for a number of years, directed Alumasc's future towards highperformance building and engineering products. The growing demand forsustainable building products, which contribute to environmentally responsiblesolutions in building, has added focus to this direction. Brock Metal, while anexcellent business in the field of commodities, did not fit these criteria, andwe are delighted to have found a home where its skills and market position areindeed mainstream. Levolux, the UK's leading supplier of solar shading products, acquired in Mayfor £13.5 million, falls squarely into the sustainable building productscategory. We are delighted to welcome Levolux into Alumasc's growing family ofmarket leaders in the sector. The group's balance sheet has undergone a number of changes in the course of theyear. Most obviously, the acquisition of Levolux was financed largely byadditional borrowings of £12.3 million. The subsequent sale of Brock yielded£8.9 million, much of which related to working capital. Shareholders approved arestructuring of the parent company's capital in May 2007 - since approved bythe High Court and implemented - as part of the exercise to ensure that thecurrent dividend policy is maintained; and the group's combined pensions deficitfell by £6.7 million during the year, in line with rising bond yields,investment gains and company contributions. The combination of these factors led to increased gearing of 40% at the year end(2006: 14%) and interest cover of over 10 times1 (2006: 16 times). Board There was one appointment to the Board during the year, with Andrew Magsonjoining as Group Finance Director in October 2006. We welcome Andrew and wishDavid Sowerby, his predecessor, a happy retirement along with our gratitude forhis considerable contribution during 15 years in that role. Prospects The growth in total earnings in the past year sets a new and challenging targetfor the current year, not least given the exceptional contribution from Brock.The acquisition of Levolux towards the end of the year, with its profitablerecord and growth prospects, will help in this regard. Overall, the shape of ourgroup is stronger than for many years and provides a strong base for furtherdevelopment. J McCall Chairman 1: The interest cover calculation excludes profit on property disposals, Levoluxacquisition accounting adjustments and amortisation and notional pensioninterest costs. Business Review Chief Executive's Operating Review Overview 2006/07 was a year of transformation for Alumasc. The acquisition in May 2007 ofLevolux, the UK's leader in the provision of solar shading and control systemsfor buildings, and the disposal in June 2007 of Brock Metal, a producer of zincand aluminium alloys, were both major transactions which demonstrate the group'scommitment to increasing its strategic focus on niche premium building productand precision engineering businesses. Following these transactions, Alumasc believes it has significantly strengthenedthe overall portfolio of businesses within the group. This should facilitate ahigher quality of ongoing earnings due to the growth potential offered byLevolux, and the increased proportion of the group's income derived from itspremium products which are, in many cases, market leaders in growing or stablemarkets. The group's overall financial results in the year were strong. Total grouprevenue (including discontinued operations) increased by 21.8% to £163.4million, and total group profit before tax increased by nearly 75% to£9.9million. This significant increase in profit benefited from an excellentperformance at Brock Metal prior to its sale at the year end, and a prior yearresult which was impacted by the closure costs of Copal Castings. Revenue from continuing operations increased by 9.7% to £103.6 million, withadjusted profit before tax from continuing operations (stated prior to propertydisposal gains and one-off acquisition accounting adjustments) up 3.9% on lastyear at £7.5 million. Unadjusted profit before tax, benefiting from gains onproperty disposals, increased by 4.1% to £7.8 million. Growth in profits fromcontinuing businesses was restricted by the impact of lower social housingrefurbishment market activity, and lower levels of work on the major Fjardaalmetal roofing supply contract, mostly completed last year, which togetherreduced profits by an estimated £1.7 million. This was largely recovered by someexcellent performances elsewhere within the Building Products division, wherefive businesses (including the two businesses acquired in 2004) reported recordprofits for the year. Strategy The group's strategy is to focus on sustainable growth in earnings from itspremium building and engineering product businesses. Organic growth isencouraged across Alumasc by empowering local management teams to focus onserving their own individual niche markets and customers, supporting this byinvestment in new product introductions, marketing and brand development,quality people and capital equipment. The Building Products division will growfurther by selective acquisitions, but only in circumstances where the strategicfit is good, the market position of the target is strong and where we believethe post-acquisition returns generated will add value for shareholders. Over the last five years, the impact of this strategy is illustrated by anincrease in the proportion of the group's revenue relating to core BuildingProducts and Precision Engineering activities from 56% to 89%. This proportionincreases from 77% to 98% at operating profit levels. In the same period, theproportion of the group's adjusted operating profit from the Building Productsdivision increased from 50% to 75%, and grew from £4.0 million to £6.6 million,at an average compound annual growth rate of 13%. On a pro forma basis, including Levolux, over 60% of ongoing group revenue isnow being derived from Building Products, representing a clear evolution overrecent years from the group's origins as an Engineering Products business. The group also seeks to grow export sales, particularly where there areopportunities to repeat successes we have enjoyed in the UK. Exports as aproportion of Group sales increased from 14.5% five years ago to 21% this year.Particular successes this year have been increased sales of precision componentsto non-automotive diesel engine manufacturers in Europe and the USA, the growthin sales of Gatic Slotdrain in Europe and increased demand for Gatic accesscovers in airport projects in the Middle East and Far East. The group is increasingly well positioned, both through businesses that havebeen owned for many years, and through more recent investments includingLevolux, to benefit from growing demand for environmentally sustainableproducts. Over half of the group revenue is estimated to derive from productsthat give particular benefits in the fields of insulation, energy reduction andrainwater management. The group's major activities in this area are: • the number one position in the UK's intensive green roof market, which in turn "pulls-through" demand for Alumasc's associated roofing and waterproofing membranes; • leading market positions in the rainwater management and drainage markets, with Gatic Slotdrain systems, in particular, benefiting from software that enables engineers quickly to design bespoke solutions tailored to projections of rain and surface water flow in specific locations; • Levolux, the UK market leader in solar shading and control systems which reduce heat in buildings through either external or internal sun shading; • MR render systems, the UK market leading exterior wall insulation system used to refurbish social houses of solid wall construction; and • the manufacture of aluminium components by Alumasc Precision which, in addition to being recyclable, reduce weight, transfer heat quickly and thereby reduce energy use and carbon emissions from the engines and vehicles in which they are used. Health, Safety & Environment The group's number one priority is health and safety, and the first agenda itemon all operating company and group board meetings is a review of health andsafety performance in the month and of performance trends. The group holdsregular health and safety best practice days, and there are health and safetycommittees in each of the group's operating businesses. In addition, eachoperation is subject to an annual independant health and safety audit and theimplementation of action points arising is monitored in board meetings. The key performance indicator used to measure the groups improvement in itshealth and safety performance is the safety performance rate, which is animprovement based measure weighing risks, hazard levels and events withoperational size of business unit. The group's safety performance index for the 2006 calendar year was 68 and a 20%improvement target was set for 2007. In the six months to 30 June 2007, thistarget is being achieved with the safety performance index reduced to 45. In line with its focus on environmentally sustainable building products, thegroup manages its businesses within sound environmental principles. During theyear, a fourth facility, at St. Helens, achieved ISO 14001 accreditation. Inaddition, businesses are encouraged to conserve energy and to use recycled andrecyclable materials from sustainable sources. Progress in this area is alsomonitored. Acquisition of Levolux Alumasc acquired Levolux, the UK's leading supplier of solar shading and controlsystems for buildings, on 1 May 2007, for a total consideration of £13.5 million(excluding cash acquired). Levolux designs, manufactures and installs internal and external shading systemswhich are used to control the impact of sunlight on a building's internalenvironment. These systems, which include Brise Soleil, Aerofoil Fins, Louvresand External and Internal Blinds, are increasingly specified in new buildingsand refurbishment projects in order to improve energy performance and thecomfort of occupants. As a result of working closely with architects and otherspecifiers, Levolux systems are frequently an integral part of a building'sfunctional and aesthetic design. The acquisition of Levolux fits right at the core of Alumasc's strategy,described above, to develop the group's high performance building productsactivities. Levolux will spearhead the group's growing presence in sustainable"green" building products and will also grow the opportunity, believed to besubstantial, for developing markets for these products outside the UK. With the introduction of the updated Document L building regulations aimed atimproving the energy efficiency and reducing the UK's carbon emissions incommercial buildings, Levolux is in a strong position to assist architects inmeeting such important demands as well as contributing to external and internaldesign aesthetics. In addition, the introduction in June 2007 of energyperformance certification (required for each building by 2009) will furtherfocus the construction industry on reducing energy consumption in buildings. In the year prior to its acquisition by Alumasc, Levolux generated revenues of£20.7 million. Levolux has made a good start in the group, contributing revenuesin the two months to 30 June 2007 of almost £3 million, and operating profit,prior to acquisition accounting adjustments, of nearly £0.4 million, giving areturn on sales of 11.9%. Detailed synergy reviews are currently underway that should result in benefitsto both Levolux and other group companies. In particular, opportunities tocombine aluminium purchases are being reviewed, whilst the sharing of marketinformation will undoubtedly benefit the division as a whole. Operating Results: Continuing Operations 2007 2006 Building Engineering Group Building Engineering Group Products Products Total Products Products Total £000 £000 £000 £000 £000 £000 Revenue Continuing operations 56,668 43,954 100,622 55,292 39,134 94,426 Acquisition of Levolux 2,979 - 2,979 - - - 59,647 43,954 103,601 55,292 39,134 94,426 Adjusted Operating Profit(1) Continuing operations 6,217 2,174 8,391 6,432 2,132 8,564 Acquisition of Levolux 355(2) - 355(2) - - - 6,572 2,174 8,746 6,432 2,132 8,564 Operating margin 11.0% 4.9% 8.4% 11.6% 5.4% 9.1% (1) Operating profit excluding gains on disposal of properties, acquisition accounting adjustments and brand amortisation (2) The operating profit of Levolux is stated prior to deduction of one-off, non-cash acquisition adjustments of £320,000 relating to valuation of inventory, and a non-cash amortisation charge of £50,000 relating to the Levolux brand. Operating Review: Continuing Operations Group revenue from continuing operations increased by 9.7% to £103.6 million, ofwhich approximately 2.3% was attributable to selling price increases, 3.2% arosedue to the acquisition of Levolux, and 4.2% was attributable to underlyingorganic growth. The major contributors to organic growth were the group'srainwater and drainage businesses, particularly Gatic Slotdrain, together withincreased export sales of Gatic access covers. This was offset by reducedrevenues from the MR renders and Pendock brands which suffered fromsignificantly lower social housing refurbishment activity after a buoyant prioryear. Despite a disappointing year in this market segment, government fundsremain committed to upgrading social housing under the Decent Homes Initiativein the medium-term, from which Alumasc should derive future benefit. Adjusted group operating profit (prior to gains on disposal of properties andacquisition accounting adjustments) of £8.7 million was £0.2 million higher thanin the prior year, after benefiting from a £0.4 million post-acquisition profitcontribution from Levolux. However, non-cash acquisition accounting adjustmentseliminated most of Levolux's profit contribution and reduced reported operatingprofit, prior to property disposal gains, to £8.4 million (2005/06: £8.6million). Prior to these accounting adjustments, both Building Products' andEngineering Products' divisional profits were each almost 2% ahead of prior yearcomparators. Group operating margins in 2006/07 were slightly lower at 8.4% (2005/06: 9.1%)due to the impact of continued cost inflation, particularly aluminium and energycosts. Whilst much of this inflation was passed on to customers through sellingprice increases, no incremental profit was made on the pass through. The profit impact of organic volume growth during the year was offset by changesin sales mix, with exports, in particular, having lower margins on average.Whilst the group was not able to pass through all cost inflation to customersdue to market pressures, a good cost saving performance added £1.5 million (1.4%of revenue), which more than recovered the shortfall. Capital expenditure in theprior year contributed to the volume growth and cost savings, but added £0.4million to the depreciation charge. Building Products Division Building Products' divisional revenues grew by 7.9% to £59.6 million. Thisgrowth was assisted by two months of post-acquisition sales from Levolux whichadded 5.4%, with average selling price increases of some 2% also contributing.Underlying activity levels were marginally up overall, but varied significantlyby business, with rainwater and drainage activities growing strongly and Gaticaccess covers benefiting from buoyant export demand, largely offset bysignificantly lower sales of MR renders and Pendock profiles to the socialhousing refurbishment market, and lower metal roofing sales to the Fjardaalproject. The modest increase in activity levels, taking the division as a whole,is broadly consistent with the UK construction market, which grew by just over1% in 2006, according to Experian. Divisional operating profit increased by 2.2% to £6.6 million, prior to Levoluxacquisition accounting adjustments. Excluding Levolux, like-for-like divisionaloperating profit was £0.2 million lower than the prior year, due to an estimatedprofit reduction of £1.7 million arising from lower social housing refurbishmentactivity and reduced Fjardaal sales. Excellent performances elsewhere in thedivision, including five businesses which reported record profits, helped toeliminate a substantial part of this shortfall. Divisional operating margins,also prior to Levolux accounting adjustments, remained strong at 11.0% albeit alittle reduced from the previous year's 11.6%, mostly due to cost inflation. Alumasc's building products activities span a number of end user markets givinga portfolio effect which allows the group to absorb both rises and falls in theactivity of individual sub-segments. Relative to the UK construction market as awhole, and consistent with the group's range of high quality specificationproducts, Alumasc has a greater weighting of sales (approximately 58% of thedivisional total) to major commercial property and public projects, both ofwhich have been buoyant sectors recently. Alumasc's income from these marketshas now further increased following the acquisition of Levolux. However, throughits MR Swisslab brand and Pendock pipe-boxing products, Alumasc also derives ahigh proportion (currently approximately 11%, 2006 15%), relative to the UKconstruction market as a whole, of its revenue from the social housingrefurbishment market. Revenue growth rates in 2006/07 varied significantly by activity within theBuilding Products division, as described in more detail below. Revenues from rainwater and drainage activities grew by 15.1% to £17.8 million,driven by strong demand and market share gains for Gatic Slotdrain in both theUK and Europe, growth in soil and waste drainage sales which benefited from aproduct launch and a number of large hospital projects, and a robust performancefrom the rainwater business. Gatic Slotdrain has been a particular success forthe group. The relatively narrow throat to the drain reduces surface exposureand helps prevent damage, thereby improving durability. The flexibility in sizesof Gatic Slotdrain systems, combined with market-leading design software, meanthe product is adaptable to a variety of applications and weather conditions,making it the increasingly popular choice for specifiers and engineers. Successin the UK was repeated in a number of European export markets, and there arefurther opportunities to grow export sales of this product. Investments haverecently been made to increase Gatic Slotdrain manufacturing capacity, whichalso reduced the operational risk of over-dependence on key machines. Alumaschas recently introduced an internal drainage system for use in wet environments,Linearis, which is a similar product in style to Gatic Slotdrain. Initialinterest in this product is promising. Roofing revenues reduced by 4.2% to £10.7 million, largely due to a £1.8 millionreduction in metal roof sales from lower activity this year in completing themajor Fjardaal roofing project in Iceland. This was mitigated by goodperformances in other roofing activities, in particular waterproofing, whererevenues grew by 13.5% to £6.2 million. Growing demand for market-leading ZinCogreen roof systems had a "pull-through" effect on waterproofing membranes suchas Hydrotech or Derbigum. Green roofs are being increasingly specified byarchitects because they provide thermal benefits, absorb rainwater, and reducerun-off and have attractive aesthetic characteristics. Alumasc's "green product"range within the roofing area was widened through the introduction of DerbigumBrite, a white-coated waterproofing membrane, which reflects heat from flatroofs. Roof-Pro, the business acquired by Alumasc in 2004, had a very good year.Specifiers and building owners are increasingly recognising the benefits ofRoof-Pro's modern support systems that elevate building services such as airconditioning and cooling units above the waterproofing layer on flat roofs,thereby enabling lower maintenance and refurbishments costs over the lifespan ofthe roof. Revenues from businesses where products are sold mostly into the social housingrefurbishment sector fell by around £3.5 million to £11.8 million, due to delaysin funds being released by local government. Whilst the recovery in demand hopedfor in the second-half of 2006/07 did not materialise, there are signs of amodest uplift in activity early in the new financial year. Demand weakness inthis sector led to increasing competitive pressure, particularly for Pendockprofiles, following the entry of new competitors into the market in recentyears. Alumasc has responded by re-focusing its sales activity and commencingin-house production of profiles in order to reduce costs and to protect margins. Revenues from Timloc products, which are sold primarily in the new housebuilding sector, showed good growth, increasing by more than 10% to over £5million. This business, acquired by Alumasc in 2004, achieved its improvedrevenue performance against a flat marketplace by expanding its productdistribution and increasing its market share. During the year Timloc was alsosuccessful in broadening its product range, whilst improving cost efficiencythrough investment in further automation. Export demand for Elkington Gatic's access covers was exceptional, particularlyas a result of orders from a number of major airport projects in the Middle Eastand the Far East. The latter benefited Elkington China, the marketing companybased in Hong Kong. Scaffold and Construction Products had a good year, withstrong underlying demand for core products such as props and jacks andadditional growth from products added to the product range such as ladders. Engineering Products Division Engineering Products' revenue grew by 12.3% to £44.0 million, of which some 4%related to selling price inflation, principally the pass-through of increasedaluminium costs, and around 8% was underlying growth. Divisional operatingprofit improved by 2.0% with both businesses in this division, Alumasc Precisionand Alumasc Dispense, ahead of the prior year. Operating margins reduced from5.4% to 4.9%, mainly due to cost inflation, which it was not possible to recoverfully from customers. Alumasc Precision had a strong start to the year, with first-half performanceresurgent following the ramp-up of new projects with non-automotive dieselengine manufacturers that mitigated the impact of the collapse of MG Rover in2005. With some older established projects, such as for Land Rover, coming to anend during the year, and not being replaced at the same rate by new projects,the second half-year was tougher. Management continued to focus on quality,customer service and cost reduction, with encouraging progress on all threemeasures in the second half. Some of the business transferred from Copal Castinglast year has proved not to be sufficiently profitable and this, along withother lower valued added work, is being increasingly outsourced to the Far East. Nonetheless, some exciting new projects are coming on-stream, including acomplex windshield surround for Aston Martin and a number of aluminium and zinccomponents for the same customer. New components for Caterpillar, which arebeing shipped to the USA, are also due to come on-stream in 2007/08. Alumasccontinues to win work outside the diesel engine market. Examples includehigh-performance hi-fi speaker components for Bowers & Wilkins, and componentsfor Siemens and Rotork. Investments have been made in new machines and cells,where needed, to support new work and in equipment that will reduce overallenergy use in the foundry whilst also improving health and safety. Alumasc Dispense, a supplier to the drinks industry, had a relatively quietyear, albeit both revenue and operating profit improved despite no new majorbespoke projects. Sales of decorated glassware were much stronger, but this workhas less value added and has a lower margin. A particular highlight was thewinning of a decorated glass contract for the Magners cider brand. AlumascDispense continues to be innovative in the design of new products, particularlyin wireless illumination of point of sale display and in high performance nichebeer coolers. There are plans to strengthen the sales team to ensure these newproducts realise their potential. Discontinued Operation: Disposal of Brock Metal On 29 June 2007, Alumasc disposed of the Brock Metal business to ChelyabinskZinc Plant ("CZP") for a final cash consideration of £8.9 million, higher thanoriginally envisaged due to a greater level of working capital at completion.The consideration was equal to the net book value of the assets beingtransferred. Alumasc retains ownership of Brock's freehold factory near Cannock,which is being leased for a 15 year period to CZP. All of Brock's existingmanagement team and employees transferred with the business. The disposal of Brock was a strategically important step for Alumasc, andenables the group's management to focus further on growing higher margin corepremium building and precision engineering products businesses. Whilst Brock was never loss making under Alumasc's ownership, operating marginswere low, and return on investment over the last few years had been at, orbelow, the group's cost of capital on average. Nonetheless, Brock had an exceptional final trading year in Alumasc, benefitingfrom worldwide zinc prices that peaked at almost three times their levels in theprevious year. This, together with high volatility in market prices andrelatively high premiums for physical zinc supplies, allowed Brock to increaseits operating margins from 1% to 3.6% and to generate operating profit beforetax of £2.1 million (prior year £0.4 million). Towards the end of its periodunder Alumasc's ownership, conditions in the zinc market were beginning tobecome less favourable and, with it, Brock's profitability began to reduce fromlevels experienced during the winter. As Brock is fundamentally a commodity business, its operating margins were muchlower than those for the rest of the Alumasc Group. Consequentially theclassification of Brock as a discontinued operation in our accounts this yearincreased the return on sales from the group's continuing operations in 2006from the 6.7% published last year to 9.1% published in this year's comparativefigures. Prospects The Group entered the new financial year with stronger order books than a yearago. In particular, the Building Product companies are ahead of the prior year. Rising interest rates globally and in the UK, and their impact particularly onactivity levels in the UK building and construction sector, are a key concern,although demand does not appear to have been affected to date. Whilst aluminium costs on the world markets have become more stable recently,duties on imports of aluminium and steel from the Far East are on the rise, andother material cost inflation, for example zinc, lead, polymers and insulation,remains persistent. General inflation in the UK has also risen. However, thegroup has largely locked in its energy costs for most of the current year atlower rates than in 2007. The market environment for the Engineering Products businesses is demanding,with customers insisting on ever-increasing quality standards at lower cost. Thefocus in the new financial year is on continued cost reduction and efficiency,including outsourcing lower value added work to the Far East, whilst workinghard to ensure the successful introduction of new contracts, especiallycomponents for Aston Martin and Caterpillar, and seeking to win further newcustomer accounts and contracts. Alumasc will benefit from a full year's Levolux profit contribution in 2008although in the current financial year, after incremental financing costs, thismight not fully replace the exceptional level of profit generated by Brock in2007. Nonetheless, the early signs from Levolux are encouraging, and order bookshave strengthened since its acquisition in May. Levolux is anticipated to beearnings enhancing in 2008. The Building Products division more generally is well positioned to benefit froma number of industry-specific and public policy factors in the UK which coulddrive demand in the coming year and beyond, including: •A growing awareness of the importance of sustainability and life-cycle cost in building decision-making; •Building regulations, including Document L and energy performance certification requirements, which encourage the construction of more energy efficient buildings, including superior insulation and acoustic performance; •The government's Decent Homes and Building Schools for the Future initiatives. However, as we have seen this year, the timing of the release of funds to these initiatives can be unpredictable; •The government's objective to build more homes in the UK; •Extremes of weather, whilst disruptive to construction sites and leading to greater lumpiness or seasonality of sales in the short-term, could drive increasing demand for Alumasc's solar shading, rainwater, drainage and roofing products; and •Construction activity in London will increase ahead of the Olympics in 2012. Summary In the last few years the group has worked proactively to focus on higher addedvalue and sustainable niche markets. It will continue to move forward throughinvestment to achieve organic growth while supplementing this with theacquisition of building product companies which have strong market positions.Sustainable building products are of particular interest to the group. Moregenerally the characteristics of premium building products with high levels ofspecification and the ability to differentiate through excellence in service andtechnical support, combined with good cash generation and low levels of capitalrequirement, are attractive features that fit the group's more clearly definedprofile. Following the acquisition of Levolux, the sale of Brock, and developmentselsewhere in the group during 2007, Alumasc's current portfolio of businesses isstronger and has greater medium and long-term potential than those of a yearago. G P Hooper Chief Executive Business Review Group Finance Director's Financial Review Profit before tax A reconciliation of adjusted profit before tax from continuing operations tototal reported profit before tax is shown below. The main features are: •the year-on-year increase in overall reported profit before tax by 74.2% to £9.9 million, explained mainly by the exceptionally strong financial performance of Brock Metal prior to its sale at the end of the year, and a prior year comparator which included closure costs relating to Copal Casting, both of which are classified as discontinued activities in the table below •adjusted profit before tax from continuing operations increased by 3.9% to £7.5 million (2006: £7.3 million), with both the Building Products and Engineering Products divisions reporting increased profits, as described in the Chief Executive's Operating Review. Adjusted profit before tax is stated prior to property disposal gains, and prior to Levolux acquisition accounting adjustments and brand amortisation. The results from continuing operations in 2006/07 include only two months ofpost-acquisition revenue, £3.0 million, and adjusted operating profit, £0.4million, from Levolux and therefore do not yet reflect the full year run-rate ofrevenues and profits from the group's continuing operations. Income statement summary and reconciliation of adjusted profit before tax 2007 2006 Discon- Discon- Continuing tinued Total Continuing tinued Total £000 £000 £000 £000 £000 £000 Revenue 103,601 59,803 163,404 94,426 39,701 134,127Increase in revenue 9.7% 50.6% 21.8% Adjusted profit before tax 7,535 2,090 9,625 7,255 (1,819) 5,436Increase in adjusted profit before tax 3.9% 77.1% Levolux fair value adjustment & amortisation (370) - (370) - - -Property disposal gains 637 - 637 242 - 242 Reported profit before tax 7,802 2,090 9,892 7,497 (1,819) 5,678Increase in reported profit before tax 4.1% 74.2% Tax The underlying group tax rate remains consistent with the prior year atapproximately 32%, slightly above the statutory rate of 30%, due to routineexpenditure disallowable for tax purposes where Alumasc takes a prudent stancein estimating the level of disallowances in preparing the estimated tax chargein the accounts. After property disposal gains and discontinued activities, the group's overalltax rate reduced to 30.0% (2006: 30.5%), mainly due to the higher profits fromproperty disposals in 2007, which are tax-free due to brought forward capitallosses, and adjustments to the deferred tax charge partly relating to theforthcoming reduction in the UK corporation tax rate to 28%. The group's cash tax charge for 2007 is significantly lower than the overall taxrate due to capital allowances exceeding depreciation, pension paymentsexceeding the pension expense, and the timing of payments, which in 2007benefited from the lower level of profitability in 2006. The benefit of the two percentage point reduction in the corporation tax ratesannounced in the 2007 Budget, effective in the 2008/09 tax year, is expected tobe offset in cash tax terms by less favourable capital allowances. As aconsequence, Alumasc anticipates that the group's underlying cash tax rate willincrease marginally next year. In overall rate terms, the 2007 Budget changes are likely to result in thegroup's effective underlying tax rate on continuing activities reducing toaround 30% from the current 32%. Earnings per share Basic earnings per share increased by almost 76% to 19.5 pence (2006:11.1pence), a greater increase than the growth in total profit before tax because ofthe lower overall group tax rate. Adjusted earnings per share from continuingactivities increased by 3.6% to 14.5 pence. Dividends The Board has proposed a final dividend of 6.6 pence per share (2006: 6.3pence), an increase of 4.8%, giving a total dividend for the year of 9.7 penceper share (2006: 9.3 pence) payable on 31 October 2007 to shareholders on theregister at 5 October 2007. The dividend is covered two times by earnings. Property disposals The total gain in the year arising from property disposals was a net £0.6million (2005/06: £0.2 million), comprising the sale in April of a disusedindustrial property in Walsall for net proceeds of £2.3 million at a profit of£1.0 million; and a £0.4m impairment charge taken on the former Copal warehousein Birmingham following agreement reached after the year end to sell theproperty for £0.7 million. Capital structure and financing The group financed the £13.5 million acquisition of Levolux (excluding cashacquired) with £12.3 million of debt and £1.2 million of new share capital. Byfunding the acquisition mostly with borrowings the group has achieved a moreefficient overall capital structure and lowered the weighted average group costof capital, now estimated to be in the range 8 - 9%. Net borrowings at 30 June 2007 were £12.9 million (2006: £3.4 million). Interestcover for the 2007 year was 10 times (2006 16 times), and net debt/EBITDA1 at 30June 2006 was 0.8 times. Gearing at 30 June 2007 was 40% (2006: 14%). In conjunction with the acquisition of Levolux, the group improved the qualityand term of its debt financing by entering into a committed 5-year, £15 millionrevolving credit facility. The group has the option to cancel and repay elementsof this facility at short notice should it wish to do so. In addition, the groupretains some £19 million of overdraft facilities to cover working capital andother corporate needs and therefore has total debt financing facilitiesavailable of £34 million. The revolving credit facility is unsecured but subjectto interest cover being maintained at above three times and net debt/EBITDAbeing below three times. As can be seen from the previous paragraph, the groupoperated well within these covenant limits. In order to manage the additional interest rate risk arising on the increasedlevels of debt, the group has entered into interest rate swap and captransactions to hedge £10 million of group borrowings, with the objective ofensuring that between a half and two-thirds of net debt at any time is protectedagainst rising interest rates. These transactions become effective when LIBOR isabove 6%. The group's overall pre-tax cost of debt finance at current interestrates is just over 7%. The net interest charge on borrowings for the year was £811,000 (2006:£546,000), with the increase explained mainly by the increased levels of debtfor the final two months of the year following the acquisition of Levolux andsteadily increasing interest rates during the year as a whole. Capital invested and return on investment The group's average capital invested in the year increased to £51.1 millionlargely due to the acquisition of Levolux. Post-tax return on average capitalinvested improved from 13.0% in 2006 to 13.9% in 20072. Shareholders' funds and return on shareholders' funds Shareholders' funds grew from £24.3 million at 30 June 2006 to £32.2 million at30 June 2007, due to the retained profit for the year of £3.6 million, post-taxactuarial gains on defined benefit pension schemes of £2.9 million, new sharesissued with the acquisition of Levolux, £1.2 million and other movements of £0.2million. Post-tax return on average shareholders' funds improved from 22.8% in2006 to 25.0% in 20072. Summarised cash flow statement 2007 2006 £m £m EBITDA 15.3 10.3Non-Cash items included in EBITDA (0.6) (0.4)Change in working capital (3.7) (0.9)Operating cash flow 11.0 9.0 Capital expenditure (3.0) (5.3)Interest (0.8) (0.5)Tax (1.3) (1.3)Pension deficit funding (2.5) (2.3)Dividends (3.3) (3.3)Free cash flow 0.1 (3.7) Property disposal proceeds 2.4 1.1Acquisitions (net of equity financing) (11.2) (0.1)Disposals & other discontinued (0.8) 2.6Increase in net debt (9.5) (0.1) Cash flow, working capital and capital expenditure A summary of the group cash flow statement is given above. EBITDA grew from£10.3 million in the prior year to £15.3 million, but conversion of theseearnings into cash was restricted due to a £3.7 million increase in workingcapital requirements from continuing operations. A number of factors explainthis increase, such as the introduction of new projects for industrial customersat Alumasc Precision (including investment in tooling not yet fully recovered),longer working capital cycles caused by increased levels of internationalbusiness (imports and exports), and acceptance of settlement discounts offeredby suppliers where economically attractive. Efficient use of working capital andconversion of profit into cash is a key management focus throughout the group. The increase in working capital, some of which is expected to reverse in the2008 financial year, restricted the overall free cash inflow for the year to£0.1 million (2006: outflow of £1.8 million), after lower capital expenditure of£3.0 million (2006: £5.3 million). The lower level of capital expenditure in 2007 was largely attributable to thetiming of capital projects. All major capital investment requests from operatingmanagement teams were approved. The group's principal capital investments duringthe year related to capacity enhancements in the Building Products division; andcost efficiency, health and safety, and general asset replacement projects inboth the Building Products and Engineering Products divisions. Pensions The group's overall pre-tax pension deficit measured under IAS19 reduced from£24.3 million at 30 June 2006 to £17.6 million at 30 June 2007, due mainly toimproved investment returns, contributions made by the group to fund thedeficit, and the increase in bond yields which had the effect of reducing thepresent value of scheme liabilities. The triennial actuarial valuation as at 30 April 2007 of the Benjamin PriestGroup pension scheme is currently taking place, and an actuarial valuation ofthe Alumasc Group pension scheme is due next year. A full review and update ofactuarial assumptions will be performed in conjunction with these valuations,including an update of mortality assumptions used. Capital reduction and distributable reserves The company obtained approval from shareholders and the High Court during theyear to cancel its share premium account and capital redemption reserve,together amounting to £29.2 million, in order to increase the reserves legallyavailable for making distributions to shareholders. The reason for this actionwas to ensure that there remained sufficient headroom in the company's reservesto allow the group to continue its existing dividend policy. In return for agreement from the group's Pension Trustees to support the capitalreduction, the company agreed that, of the new £29.2 million profit and lossaccount reserve arising in its balance sheet, £14.0 million would be retained asa non-distributable reserve. This will be amortised as the group's pensiondeficit is reduced. The remainder of the new reserve, amounting to £15.2million, became a distributable reserve prior to the year end. A Magson Group Finance Director 1 EBITDA: Earnings before interest, tax, depreciation and amortisation-including EBITDA of discontinued activities. 2 Return on investment and return on shareholders' funds are calculated usingtotal group post-tax operating profit and profit for the year figures,respectively. Copal closure costs are excluded from the prior year comparative.Net debt and the post-tax pension deficit are included in the calculation ofaverage capital invested. Consolidated Income Statement For the year ended 30 June 2007 2007 2006 Notes £'000 £'000Continuing operations Revenue 1 103,601 94,426Cost of sales (71,800) (63,775)Gross profit 31,801 30,651Selling and distribution costs (11,927) (11,203)Administrative expenses (11,498) (10,884) 8,376 8,564Profit on disposal of property 637 242Operating profit 9,013 8,806 Finance revenue 72 22Finance costs (883) (568)Other finance expense - pensions (400) (786)Share of post tax profit in associates - 23Profit before taxation 1 7,802 7,497Tax expense 4 (2,248) (2,310)Profit for the year from continuing 5,554 5,187operations Discontinued operations Profit/(loss) for the year from 6 1,370 (1,243)discontinued operationsProfit for the year 6,924 3,944 Profit for the year attributable to:Equity holders of the parent 6,889 3,928Minority interest 35 16 6,924 3,944 Pence PenceBasic earnings per share- continuing operations 15.6 14.7- discontinued operations 3.9 (3.6) 3 19.5 11.1 Diluted earnings per share- continuing operations 15.6 14.6- discontinued operations 3.8 (3.5) 3 19.4 11.1 Consolidated Statement of Recognised Income and Expense For the year ended 30 June 2007 2007 2006 £'000 £'000 Income and expense recognised directly in equity Actuarial gain on defined benefit 4,676 3,784pensionsMovement in cash flow hedging position 99 1Exchange differences on retranslation of foreign (6) -operationsTax on items taken directly to or transferred from (1,754) (1,135)equityNet income recognised directly in equity for the year 3,015 2,650Profit for the year 6,924 3,944Total recognised income for the yearattributable to parent company equity 9,939 6,594holders Attributable to:Equity holders of the parent 9,904 6,578Minority interest 35 16 9,939 6,594 Consolidated Balance SheetAt 30 June 2007 2007 2006Assets Notes £'000 £'000Non-current assetsProperty, plant and equipment 22,877 25,407Goodwill 5 14,966 5,556Other intangible assets 4,171 563Financial assets 17 34Deferred tax assets 4,917 7,292 46,948 38,852Current assetsInventories 13,714 14,626Trade and other receivables 28,916 31,744Cash and short term deposits 4,814 167Derivative financial assets 106 1,346 47,550 47,883Non-current assets classified as held 678 1,618for saleTotal assets 95,176 88,353 LiabilitiesNon-current liabilitiesInterest bearing loans and (14,873) -borrowingsEmployee benefits payable (17,561) (24,307)Provisions (1,125) (430)Deferred tax liabilities 4 (1,352) (1,245) (34,911) (25,982)Current liabilitiesBank overdraft (2,837) (2,817)Interest bearing loans and (12) (722)borrowingsTrade and other payables (22,523) (31,684)Provisions (214) (962)Income tax payable (2,468) (534)Derivative financial liabilities - (1,333) (28,054) (38,052)Total liabilities (62,965) (64,034) Net assets 32,211 24,319 EquityCalled up share capital 7 4,479 4,412Share premium 7 - 27,406Other reserve 7 1,251 1,401Capital redemption reserve 7 - 693Capital reserve - own shares 7 (133) (133)Hedging reserve 7 100 1Foreign currency reserve 7 (6) -Profit and loss account reserve 7 26,482 (9,495)Equity attributable to equity holders of the 32,173 24,285parentMinority interest 7 38 34Total equity 32,211 24,319 Consolidated Cash Flow Statement For the year ended 30 June 2007 2007 2006Operating activities Notes £'000 £'000 Operating profit from continuing operations 9,013 8,806Adjustments for:Depreciation 3,433 2,887Amortisation 207 142Impairments 469 -Gain on disposal of property, plant and (1,039) (297)equipmentGain on sale of investments (32) (78)Increase in inventories (228) (3,138)Increase in receivables (893) (1,746)(Decrease)/increase in trade and other (1,671) 3,906payablesMovement in provisions (779) 9Movement in retirement benefit obligations (2,470) (2,272)Cash generated from continuing operations 6,010 8,219 Profit/(loss) before taxation from 2,090 (1,819)discontinued operationsDepreciation 579 273Movement in working capital from discontinued (9,295) 2,149operationsCash flow from discontinued 8 (6,626) 603operations Tax paid (1,339) (1,264)Net cash (outflow)/ inflow from operating (1,955) 7,558activities Investing activities Purchase of property, plant and equipment (2,716) (4,953)Payments to acquire intangible fixed assets (353) (390)Proceeds from sale of property, plant and 2,424 1,108equipmentAcquisition of subsidiary undertakings net of cash (12,432) (50)acquiredProceeds from sale of business activities 8 8,150 201Proceeds from sale of investments 8 305 281Net cash outflow from investing activities (4,622) (3,803) Financing activities Interest paid (811) (546)Equity dividends paid 2 (3,309) (3,271)New borrowings (net of arrangement fees) 14,860 -Repayment of amounts borrowed (725) (831)Proceeds from issue of share capital 1,195 22Net cash inflow/(outflow) from financing 11,210 (4,626)activities Net increase/(decrease) in cash and cash equivalents 4,633 (871) Cash and cash equivalents at beginning of year (2,650) (1,780)Effect of foreign exchange rate changes (6) 1Cash and cash equivalents at end of year 8 1,977 (2,650) Cash and cash equivalents comprise:Cash and short term deposits 4,814 167Bank overdrafts (2,837) (2,817) 1,977 (2,650) NOTES 1. Segment information Primary reporting format - business segments The following tables present revenue and profit and certain asset and liabilityinformation regarding the group's business segments for the years ended 30 June2007 and 2006. Segment revenue represents revenue from external customers arising from the saleof goods, plus inter-segment revenue. Inter-segment transactions are priced onan arm's length basis. The type of products sold by each segment is detailed in the Business Review. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis.Unallocated assets comprise deferred tax assets and corporate assets that cannotbe allocated on a reasonable basis to a business segment. Unallocatedliabilities comprise borrowings, employee benefit obligations, deferred taxliabilities, income tax payable and corporate liabilities that cannot beallocated on a reasonable basis to a business segment. Analysis by business segment 2007 Building Building Building products products products Engineering Elimi- Continuing Discontinued Elimi- ongoing acquisition total products nation operations operations nation Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to external 56,668 2,979 59,647 43,954 - 103,601 59,803 - 163,404customersInter-segment revenue 32 - 32 1,611 (1,643) - 1,963 (1,963) - 56,700 2,979 59,679 45,565 (1,643) 103,601 61,766 (1,963) 163,404 Adjusted operating 6,217 355 6,572 2,174 8,746 2,236 10,982profitAcquisition accounting - (370) (370) - (370) - (370)adjustment and brandamortisationLoss on sale - - - - - (146) (146)Segment operating 6,217 (15) 6,202 2,174 8,376 2,090 10,466resultProfit on disposal of property 637 - 637Operating profit 9,013 2,090 11,103Finance revenue 72 - 72Finance costs (883) - (883)Other finance expense - (400) - (400)pensionsProfit before tax 7,802 2,090 9,892Tax (2,248) (720) (2,968)Profit after tax 5,554 1,370 6,924 1. Segment information (continued) Analysis by business segment 2006 Building Engineering Elimi- Continuing Discontinued Elimi- products products nation operations operations nation Total total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to external customers 55,292 39,134 - 94,426 39,701 - 134,127Inter-segment revenue 50 1,554 (1,604) - 1,604 (1,604) - 55,342 40,688 (1,604) 94,426 41,305 (1,604) 134,127 Segment operating result 6,432 2,132 8,564 (1,819) 6,745Profit on disposal of property 242 - 242Operating profit 8,806 (1,819) 6,987Finance revenue 22 - 22Finance costs (568) - (568)Other finance expense - pensions (786) - (786)Share of post tax profit of associate 23 - 23Profit before tax 7,497 (1,819) 5,678Tax (2,310) 576 (1,734)Profit after tax 5,187 (1,243) 3,944 Secondary reporting format - geographical segments Analysis by geographical segment 2007 Rest of United Europe - Europe - Rest of Continuing Discontinued Kingdom EU Non EU World operations operations Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to external customers 81,413 11,947 1,632 8,609 103,601 59,803 163,404Segment assets 85,505 - - 56 85,561 85,561Unallocated assets 9,615 9,615 95,176 95,176 1. Segment information (continued) Analysis by geographical segment 2006 Rest of United Europe - Europe - Rest of Continuing Discontinued Kingdom EU Non EU World operations operations Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to external customers 76,591 8,867 2,930 6,038 94,426 39,701 134,127Segment assets 80,476 - - 113 80,589 80,589Unallocated assets 7,491 7,491Equity accounted investments - 273 - - 273 273 88,353 88,353 Segment revenue by geographical segment represents revenue from externalcustomers based upon the geographical location of the customer. 2. Dividends 2007 2006 £'000 £'000 Interim dividend for 2007 of 3.1p paid on 10 April 2007 1,091 -Final dividend for 2006 of 6.3p paid on 2 November 2006 2,218 -Interim dividend for 2006 of 3.0p paid on 6 April 2006 - 1,052Final dividend for 2005 of 6.3p paid on 28 October 2005 - 2,219 3,309 3,271 A final dividend per equity share of 6.6p has been proposed for 2007, payable on31 October 2007. In accordance with IFRS accounting requirements this dividendhas not been accrued in these consolidated financial statements. 3. Earnings per share Basic earnings per share is calculated by dividing the net profit for the periodattributable to ordinary equity shareholders of the parent by the weightedaverage number of ordinary shares in issue during the period. Diluted earnings per share is calculated by dividing the net profit attributableto ordinary equity shareholders of the parent by the weighted average number ofordinary shares in issue during the period, after allowing for the exercise ofoutstanding share options. The following sets out the income and share data used in the basic and dilutedearnings per share calculations: 2007 2006 £'000 £'000 Net profit attributable to equity holders of the parent - continuing operations 5,519 5,171Profit/ (loss) attributable to equity holders of the parent - discontinued operations 1,370 (1,243)Net profit attributable to equity holders of the parent 6,889 3,928 000s 000s Basic weighted average number of shares 35,371 35,291Dilutive potential ordinary shares - employee share options 118 59 35,489 35,350 Reconciliation to adjusted earnings pershare: 2007 2006 £'000 £'000Continuing operations:Profit before taxation 7,802 7,497less profit on property sale (637) (242)add back Levolux acquisition adjustments and brand amortisation 370 - 7,535 7,255 Tax at underlying group tax rate of 32% (2006: 32%) (2,411) (2,322)Adjusted earnings 5,124 4,933Adjusted earnings per share 14.5p 14.0p The adjusted earnings per share figure is based on profit adjusted for profit ondisposal of property and for the Levolux acquisition adjustments andamortisation of brands, and on the same weighted average number of shares asused in the basic earnings per share calculation above. The directors considerthat this measure provides an additional indicator of the underlying performanceof the group. 4. Tax expense a. Tax on profit on ordinary activities Tax charged in the income statement 2007 2006 £'000 £'000Current tax:UK corporation tax - continuing operations 1,678 1,711- discontinued operations 720 (576)UK corporation tax 2,398 1,135Amounts overprovided in previous years (128) (41)Total current tax 2,270 1,094 Deferred tax:Origination and reversal of temporary 721 676differencesTax under/ (over) provided in previous years 74 (36)Rate change adjustment (97) -Total deferred tax 698 640Tax charge in the income statement 2,968 1,734 The tax charge in the income statement is disclosed as follows:Income tax expense on continuing activities 2,248 2,310Income tax expense/ (credit) on discontinued activities 720 (576) 2,968 1,734 Tax relating to items charged or credited to equityDeferred tax:Actuarial gains and losses on pension schemes 1,403 1,135Rate change adjustment on above 351 -Tax charge in the statement of recognised income and expense 1,754 1,135 The corporation tax rate in the UK will change in April 2008 from 30% to 28%.The deferred tax balance has therefore been adjusted to reflect that deferredtax should now be provided at 28% instead of 30%, as the relevant legislationwas substantively enacted at the balance sheet date. 4. Tax expense (continued) b. Reconciliation of the total tax charge The tax expense in the income statement equates to (2006: is higher than) the standard rate ofcorporation tax in the UK of 30% (2006 - 30%). The differences are reconciled below: 2007 2006 £'000 £'000 Profit from continuing operations before tax 7,802 7,497Profit/(loss) before tax from discontinued operations 2,090 (1,819)Accounting profit before income tax 9,892 5,678 Accounting profit multiplied by the UK standard rate of corporation tax of 2,968 1,70330% (2006: 30%)Expenses not deductible for tax purposes 192 160Impairment of long leasehold property 106 -Other differences 71 (16)Profit on disposal of property (297) (73)Profit on disposal of investment (10) -Tax overprovided in previous years - corporation tax (128) (41)Tax under/ (over) provided in previous years - deferred tax 74 (36)Sale of property - residue of IBAs 89 -Share of associate tax - 37Rate change adjustment (97) - 2,968 1,734 Total tax expense is recorded in the income statement at an effective tax rateof 30.0% (2006: 30.5%). c. Unrecognised tax losses The group has agreed tax capital losses in the UK amounting to £21 million(2006: £21 million) that relate to prior years, and under current legislationthese losses are available for offset against future chargeable gains. Adeferred tax asset has not been recognised in respect of these losses, as theydo not meet the criteria for recognition. Deferred tax on revaluation gains on land and buildings that are available foroffset against capital losses amount to £6.5 million (2006: £6.5 million). Afterthis offset net capital losses carried forward amount to £14.5 million (2006:£14.5 million). The capital losses are able to be carried forward indefinitely. 4. Tax expense (continued) d. Deferred tax The deferred tax included in the balance sheet is as follows: 2007 2006 £'000 £'000Deferred tax liabilityAccelerated capital allowances 1,505 1,469Other temporary differences (153) (224) 1,352 1,245 Deferred tax assetPensions (4,917) (7,292) Deferred tax assets and liabilities are presented as non-current in theconsolidated balance sheet. Of the total deferred tax assets, £0.9 million(2006: £0.9 million) are receivable within one year. Deferred tax assets have been recognised where it is probable that they will berecovered. Deferred tax assets of £6.3 million (2006: £6.3 million) have notbeen recognised in respect of tax losses of £21 million (2006: £21 million). 5. Goodwill 2007 2006 £'000 £'000 Cost:At 1 July 5,556 5,556Acquisition of Levolux 9,508 -At 30 June 15,064 5,556Impairment:At 1 July - -Impairment of Armaseam goodwill 98 -At 30 June 98 -Net book value at 30 June 14,966 5,556Net book value at 1 July 5,556 5,556 5. Goodwill (continued) Goodwill acquired through acquisitions has been allocated to cash generating units forimpairment testing as set out below: 2007 2006 £'000 £'000 Building products:Roof-Pro 3,194 3,194Timloc 2,264 2,264Armaseam - 98Levolux 9,508 - 14,966 5,556 Impairment The group considers each of the operating businesses, which are those units forwhich a separate cash flow is computed, to be a cash generating unit (CGU) andeach CGU is reviewed annually for indicators of impairment. In assessing whetheran asset has been impaired, the carrying amount of the CGU is compared to itsrecoverable amount. The recoverable amount is the higher of its fair value lesscosts to sell and its value in use. In the absence of any information about thefair value of a CGU, the recoverable amount is deemed to be its value in use. For the purpose of impairment testing, the recoverable amount of cash generatingunits is based on value in use calculations. The value in use was derived fromdiscounted management cash flow forecasts for the businesses, based on budgetsand strategic plans. These budgets and strategic plans cover a four year period.The growth rate used to extrapolate the cash flows beyond this period is 2%which is in line with the medium term GDP forecasts. Key assumptions included in the recoverable amount calculation relate to: (i) Sales and gross margins (ii) Overhead costs (iii) Replacement capital expenditure levels The pre-tax discount rate used for the cash generating units was 8.4% (2006: 9.2%). The reduction in the discount rate is explained by a review of all inputs to thegroup's weighted average cost of capital calculation during the year based onexternal advice, together with the increased proportion of debt in the group's2007 capital structure. The surplus headroom above the carrying value of goodwill at 30 June 2007 wassignificant in each case, except for Timloc. Timloc's goodwill would be at riskof impairment based on current forecasts if the discount rate were increased toabove 10%, unless there was an improvement in the cash flow forecasts for thebusiness. 5. Goodwill (continued) Business combinations Levolux Limited and Levolux A.T. Limited - "Levolux" On 1 May 2007 the group acquired 100% of the ordinary shares of Levolux Limitedand Levolux A.T. Limited for a total consideration of £16,923,000 inclusive ofcash acquired. The investment in Levolux Limited and Levolux A.T. Limited has been included inthe group's balance sheet at its fair value at the date of acquisition. An analysis of the provisional fair value of the Levolux net assets acquired andthe fair value of the consideration paid is set out below: Net assets at date of acquisition: Book Fair value Fair value value adjustments to group £'000 £'000 £'000 Property, plant and equipment 389 (204) 185Intangible assets 18 - 18Inventories 960 320 1,280Trade and other receivables 3,624 - 3,624Cash 4,491 - 4,491Trade and other payables (3,756) (87) (3,843)Obligations under lease/ hire purchase agreements (25) - (25)Provisions (566) (160) (726)Income tax payable (1,003) - (1,003)Deferred tax (30) - (30)liabilitiesNet assets 4,102 (131) 3,971Goodwill arising on acquisition 9,508Brands acquired on acquisition 3,444 16,923Satisfied by:Cash purchase consideration 12,300Fair value of shares issued (542,000 at £2.21 - market price at date of acquisition) 1,200Enterprise value 13,500Payment for cash acquired 3,076Costs associated with the acquisition settled in cash 347 16,9235. Goodwill (continued) Fair value adjustments comprise unprovided amounts in relation to contractualobligations at the acquisition date, £160,000, a revaluation to reflect theprofit in inventory at the acquisition date, £320,000, an accrual for holidaypay under IAS 19, £87,000, and an adjustment to property, plant and equipment toalign depreciation policies with those of the group, amounting to additionalaccumulated depreciation of £204,000. The amount paid for cash acquired was less than the actual cash acquired due toan agreement that Alumasc would settle Levolux's pre acquisition corporation taxliability and certain other working capital balances after acquisition. From the date of acquisition to 30 June 2007, (two months), Levolux reported aprofit of £355,000 which after the acquisition accounting adjustments related toprofit in inventory at the date of acquisition, £320,000, and brandamortisation, £50,000, resulted in a net loss of £15,000. If the combination had taken place at the beginning of the year, 1 July 2006,the revenue for the group from continuing operations would have been £123.9million. The annual operating profit of Levolux on which the acquisitionvaluation was based was £2.5 million. In the two month period since acquisition Levolux contributed £90,000 to thegroup's net operating cash flows, utilised £3,000 for purchase of property,plant and equipment, and utilised £4,000 for financing activities. Its new financial year as part of the Alumasc Group began on 1 May 2007. Included in the £9.5 million of goodwill recognised above are certain intangibleassets that cannot be individually, separately and reliably measured from theacquiree due to their nature. These items include the value of the managementand workforce. 6. Discontinued operations Discontinued operations in the year comprise the sale of the Brock Metalbusiness, the leading UK supplier of zinc and aluminium diecasting alloys, toChelyabinsk Zinc Plant ("CZP") for cash consideration of £8.9 million,comprising £8.15 million received in cash at the year end and a receivable of£0.75 million in respect of a completion accounts adjustment relating to workingcapital. The consideration represented receipts for working capital and plantand equipment sold. There was no gain or loss arising on sale, except for costsof disposal of £146,000. Discontinued operations in the prior year comprised the closure of CopalCasting, a gravity aluminium diecasting manufacturer. The loss on closurecomprised redundancy and other closure costs. Production ceased by the end ofFebruary 2006 and plant and equipment was either sold externally or transferredinto the other Alumasc Precision businesses. 6. Discontinued operations (continued) The results of discontinued operations that have been included in the consolidated incomestatement are as follows: 2007 2006 2006 2006 Brock Brock Copal Total £'000 £'000 £'000 £'000 Revenue 59,803 38,043 1,658 39,701Cost of sales (55,574) (35,395) (2,695) (38,090)Gross profit/(loss) 4,229 2,648 (1,037) 1,611Selling and distribution costs (616) (687) (76) (763)Administrative expenses (1,377) (1,555) (1,112) (2,667)Operating profit/(loss) 2,236 406 (2,225) (1,819)Loss on disposal (146) - - -Profit/(loss) before taxation 2,090 406 (2,225) (1,819)Income tax (charge)/credit (720) (98) 674 576Profit/(loss) after taxation 1,370 308 (1,551) (1,243) The net cash flows attributable to discontinued operations are as follows: 2007 2006 £'000 £'000Operating cash flows (6,626) 603Investing cash flows 8,150 201Net cash inflow 1,524 804 The operating outflow, relating to working capital in 2007, was recovered indisposal proceeds from the sale of Brock. The basic earnings per share on discontinued operations is 3.9 p (2006: loss pershare 3.6 p). 6. Discontinued operations (continued) Details of the sale of Brock Metal are analysed as follows. Sale proceedscomprise an amount for plant and equipment and an amount for working capital,which is subject to completion accounts adjustment. £'000Sale proceeds 8,897 Net assets disposed of:Plant and equipment (350)Working capital - stock, debtors and (8,547)creditors (8,897) Costs of disposal (146)Loss on disposal (146) Sale proceeds are made up as follows:Cash 8,150Receivable relating to completion accounts adjustment 747 8,897 7. Reconciliation of movements in equity Share Share Other Capital Capital Hedging Foreign Profit Minority Total capital premium reserve redemption reserve reserve currency and interests equity reserve own reserve loss shares account reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 July 2006 4,412 27,406 1,401 693 (133) 1 - (9,495) 34 24,319New shares issued 67 1,128 - - - - - - - 1,195Excess dep'n on - - (150) - - - - 150 - -previouslyrevalued assetsCapital - (28,534) - (693) - - - 29,227 - -reorganisationNet gains on cash - - - - - 99 - - - 99flow hedgesExchange - - - - - - (6) - - (6)differences onretranslation offoreignoperationsActuarial gain on - - - - - - - 2,922 - 2,922defined benefitpensions net oftaxDividends - - - - - - - (3,309) (31) (3,340)Profit for the - - - - - - - 6,889 35 6,924periodShare based - - - - - - - 98 - 98payments At 30 June 2007 4,479 - 1,251 - (133) 100 (6) 26,482 38 32,211 Share capital and share premium The balances classified as share capital and share premium are the proceeds ofthe nominal value and premium value respectively on issue of the company'sequity share capital net of issue costs. 7. Reconciliation of movements in equity (continued) Capital reorganisation During the year, the Alumasc Group plc (the company) obtained approval fromshareholders and the High Court to cancel its share premium account and capitalredemption reserve, together amounting to £29,227,000, in order to increasereserves in the company legally available for making distributions toshareholders. In connection with the capital reorganisation the company reached agreement withthe Pension Trustees that £14.0 million of the profit and loss account reserveshown above would be retained as a non-distributable reserve until the group'spension deficits reduced further (as determined by full actuarial valuations).Therefore the directors consider that £14.0 million of the company profit andloss account reserve is non-distributable. In addition, the group committed tomake an exceptional contribution of assets and/or cash of £1.5 million to thegroup's defined benefit pension schemes. After the year end it was agreed withthe Pension Trustees that a property with a value of £1.1 million and cash of£0.4 million would be transferred to the pension schemes, anticipated to beeffective by the end of September 2007. Other reserve The other reserve is an asset revaluation reserve which was used in previousyears to record increases in the fair value of land and buildings, and decreasesto the extent that such decrease relates to an increase on the same assetpreviously recognised in equity. Capital reserve-own shares The capital reserve-own shares relates to 91,000 (2006: 91,000) ordinary ownshares held by the company. The market value of shares at 30 June 2007 was£207,000, (2006: £138,000). These are held to help satisfy the exercise ofawards under the company's Long Term Incentive Plan. A Trust holds the shares inits name and shares are awarded to employees on request by the company. Thecompany bears the expenses of the Trust. Hedging reserve This reserve records the portion of the gain or loss on a hedging instrument ina cash flow hedge that is determined to be an effective hedge. Foreign currency reserve This foreign currency reserve is used to record exchange differences arisingfrom the translation of the financial statements of foreign subsidiaries. 8. Notes to the cash flow statement (i ) Cash flows relating to discontinued operations 2007 2006 £'000 £'000Operating activities:Profit/(loss) before taxation from discontinued 2,090 (1,819)operationsDepreciation 579 273Working capital movements:Inventories (1,325) 86Receivables (4,035) (1,348)Trade and other payables (3,248) 3,637 (8,608) 2,375 Cash flows in relation to Copal costs of (687) (226)discontinuanceCash flows from operating activities (6,626) 603 Investing activities:Gross proceeds on sale of business 8,897 201activitiesReceivable relating to completion accounts (747) -adjustmentProceeds from sale of business 8,150 201activitiesProceeds from sale of investments 305 281Cash flows from investing activities 8,455 482Cash flows from discontinued operations 1,829 1,085 8. Notes to the cash flow statement (continued) (ii) Movement in net borrowings Cash and Bank Finance Net bank loans leases borrowings overdrafts and secured loans £'000 £'000 £'000 £'000 At 1 July 2006 (2,650) - (722) (3,372)New borrowings (net of arrangement fees) - (14,860) (28) (14,888)Cash flow movements 4,633 - 725 5,358Effect of foreign exchange rate changes (6) - - (6)At 30 June 2007 1,977 (14,860) (25) (12,908) At 1 July 2005 (1,780) - (1,553) (3,333)Cash flow movements (871) - 831 (40)Effect of foreign exchange rate changes 1 - - 1At 30 June 2006 (2,650) - (722) (3,372) 9. Post balance sheet events On 4 September 2007 the group exchanged contracts to sell the Copal longleasehold property, shown on the balance sheet as an asset held for sale, for£0.7 million. 10. Basis of preparation The preliminary results for the year ended 30 June 2007 have been prepared inaccordance with International Financial Reporting Standards (IFRS) as adopted bythe EU. The financial information in the preliminary statement of results does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985 (the "Act"). The financial information for the year ended 30 June 2007has been extracted from the statutory accounts on which an unqualified auditopinion has been issued. Statutory accounts for the year ended 30 June 2006 willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting. The financial statements, and this preliminary statement, of The Alumasc Groupplc (the Group) for the year ended 30 June 2007 were authorised for issue by theBoard of Directors on 12 September 2007 and the balance sheet was signed onbehalf of the Board by Andrew Magson. The statutory accounts have been delivered to the Registrar of Companies inrespect of the year ended 30 June 2006 and the Auditors of the Company made areport thereon under Section 235 of the Act. That report was an unqualifiedreport and did not contain a statement under Section 237(2) or (3) of the Act. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Alumasc Group