Half Yearly Report

Superglass Holdings PLC

("Superglass" or the "Company")

Interim Results for the Six Months Ended 28 February 2014

Trading highlights

• Revenue down 17% at £11.4 million (2013: £13.7 million), with sales volumes down 13%

• Revenue up 7% on second half of 2013 due to increased activity in construction and export markets

• The continuing difficult trading environment reflects the collapse in activity as a result of the government initiated Energy Company Obligation ("ECO")/Green Deal schemes, leading to a 60% reduction in this market segment

• Strong sales growth in construction and export markets of 15% and 143%, respectively

• Loss before interest, taxation, depreciation and amortisation (pre exceptional items) of £2.3 million (2013: loss of £0.2 million)

• Project Phoenix implementation transforming the capability of the manufacturing plant and currently delivering cost savings at an annual run rate of £4.0 million

• Full year benefits from the above programme and other initiatives, totalling in excess of £5.0 million per annum, to be delivered by the end of the financial year ending 31 August 2014

• New bank facility has been negotiated in principle to provide additional headroom

• Net cash at 28 February 2014 of £1.3 million (2013: net debt of £6.9 million)

• Gross cash at 28 February 2014 of £4.8 million

John Colley, Executive Chairman of Superglass, commented:

"Despite the continued difficult trading conditions, Superglass has made good progress in delivering promised cost savings as part of our planned capital investment programme, Project Phoenix. Levels of activity in Green Deal and ECO continue to disappoint and the Government's announcement to make changes to the ECO has created further uncertainty in the short term. For the medium term the likely changes to the ECO to focus more on low cost cavity wall measures combined with the exit of a restrictive supply agreement will be of material benefit to the Company. Our strategy to open up further market opportunities for Superglass in construction and export markets is beginning to deliver, with strong sales growth in both channels. This has been helped by very strong growth in new build housebuilding and early signs of growth in repair, maintenance and improvement markets. I'm pleased to announce that a new bank facility has been agreed in principle, which will be more appropriate for the Company's needs and increase available cash headroom.  Superglass is now very well positioned to take advantage of recovering construction markets and deliver shareholder value."

For further information, please contact:

Superglass Holdings Plc

Alex McLeod, Chief Executive Officer 01786 451170

Chris Lea, Finance Director

N+1 Singer

Richard Lindley / James White 0207 496 3000

Chief Executive's statement

Superglass has continued to make progress in broadening its routes to market through an enlarged customer base and product range, including increasing its export sales. In addition, further cost saving initiatives have been implemented, resulting in a substantially more competitive cost base. Construction markets are showing signs of recovery from which the Company is beginning to benefit. The first half of the year has though been more challenging than expected in the retrofit market due to further decline and uncertainty in the Government sponsored schemes of Green Deal and Energy Company Obligation ("ECO"). However, very strong growth in construction related volume, some modest selling price recovery and delivery of promised cost savings have brought the Company closer to break even EBITDA on a monthly basis, which is expected to be delivered during the final quarter of this financial year.

With the Government's continued commitment to increased housebuilding, and changes to Green Deal and ECO that will bring focus on low cost cavity wall measures, the prospects for continued recovery in performance are much more positive.

There is a continued strong focus on cash management and the cash balance as at 28 February 2014 was £4.8 million. 

Results and Markets

Overall first half revenues fell 17% (to £11.4 million) compared to the first half of the previous financial year due to the collapse in demand resulting from the transition from the previous Government scheme, CERT (which ended on 31 December 2012), to Green Deal and ECO. The very low take up in the new schemes compared to very high levels of demand in the final months of the CERT programme has resulted in a volume decline in this channel of 64% on the same period last year. The consequence has been an over supplied market with a resultant decline in sales prices. In response to this hiatus in Government sponsored schemes, the Company has been repositioned to focus on construction and export markets to offset in part the decline in these schemes. Sales volumes in construction and export channels were ahead of the same period last year by 15% and 143%, respectively. Exports in the period were 10% of our total sales volume. However, these changes have not yet fully offset the collapse in demand from Government schemes. 

More encouragingly first half revenues were ahead of the second half of last year by 7% driven by growing demand in construction markets. The new build housing market is estimated to be around 20% ahead of last year and this is reflected in a sales volume increase into that channel of 18% in the first half of the year compared to the same period last year. This growth would have been stronger, but for poor weather in February closing many construction sites and impacting activity levels for most of that month. Further strong growth in this market channel is expected to continue, driven by Government support for the housing market. The extension of the Help to Buy scheme to 2020, combined with changes to Building Regulations in England and Wales in 2013 are expected to be strong drivers of growth in future for the Company.

Repair, maintenance and improvement ("RMI") activity is similarly driven by housing transactions which are believed to have shown more than 10% growth on last year. In comparison, the Company's overall RMI sales volumes are up 11% on prior year. Importantly, the Company has continued to develop trading relationships with a number of leading builders' merchant groups.

The Company has begun actively developing routes to Eastern European markets which, while less profitable than UK sales due to high transport costs, generate a positive contribution. Overall exports now account for more than 10% of total volumes compared to 3% in the first half of financial year 2013. 

The uptake in insulation measures by households under the Green Deal remains very low. This has been further compounded by the Government's announcement in the 2013 Autumn Statement to reduce the ECO and extend its duration to 2017. The change to the ECO is now the subject of a consultation process which is unlikely to be concluded until the summer and is creating a further slowdown in activity in this channel. On a more positive note, the Government's announcement contained a commitment to include low cost cavity insulation measures under ECO and this is expected to be of material benefit to the Company in the next financial year. In addition, the Company previously announced that it has been able to exit a restrictive distribution agreement on cavity wall insulation and this creates a further opportunity to access the wider market. 

With rising demand in construction channels there has been some modest recovery in pricing levels since January of this year. This trend is expected to continue in the second half of the year as demand increases and industry capacity utilisation begins to improve.

Loss before interest, taxation, depreciation and amortisation (pre exceptional items) was £2.3 million (2013: £0.2 million), heavily influenced by weaker than expected demand. The rate of EBITDA loss has slowed considerably during the first three months of 2014 and the Board expects to return to positive monthly EBITDA by the end of the second half of the current financial year. 

The Company incurred exceptional costs of £0.8 million in the period, the majority of which relate to the write off of yellow wool stocks, following termination of the InstaGroup agreement, as previously advised (2013: exceptional costs of £1.3 million).

Operations

The cost saving programme is in line with management expectations. The annual run rate of savings delivered has increased to £4.0 million. In addition, significant progress has been made in increasing the compression rates of our products, which will increase vehicle payloads and consequently reduce transport costs. Other cost savings have also been made in overheads and manning levels. Overall, the Company expects to deliver an annual run rate cost saving in excess of £5 million by autumn of this year, which is the quantum originally targeted.

With the weakness in demand through summer and autumn of 2013, production outages were taken during the autumn to rebalance stock levels. 

The Company's waste glass supplier, Viridor, has recently announced investment in a state of the art glass processing facility. The new plant is located in the central belt of Scotland and will provide Superglass with access to the highest quality waste glass, enabling a further step change in operational performance.

Executive Team

Further strengthening of the team continued with previously announced appointments of a new Director of Strategic Sales and Marketing, Ken Munro and Finance Director, Chris Lea. In addition, as part of a planned succession, Mark Atherton has replaced John Ivinson as Operations Director. Mark joined the business in April 2012 and has a 25 year background and track record in manufacturing and engineering including change management. Mark operated at a senior site level at BF Goodrich, Akzo Nobel and at the ETEX Group within plants in the UK and the Middle East. Mark has developed and introduced lean manufacturing systems and techniques which have resulted in improved operational performance.

Dividends

The Company will not be paying an interim dividend. Whilst the Board intends to pay dividends when the Company's profitability, cash generation and underlying growth of the business justifies, it does not currently expect the Company to pay a dividend for the foreseeable future.

Financing

The Company continues to trade with adequate cash headroom going forward and is expected to be generating cash on a monthly basis by the end of the second half of the current financial year. The Company has negotiated, in principle, a new bank facility which will better match the Company's working capital cycle, increasing available cash headroom. A further announcement will be made in due course.

Outlook

First half trading has been impacted by a shortfall in UK sales volumes and resultant production outage to reduce stock levels. Second half trading is expected to benefit from additional sales volumes, higher sales prices, normalised production levels and a higher run rate of cost savings. The overall trading performance of the business for the full year to 31 August 2014 is expected to be in line with revised management expectations, however, the pace of recovery remains uncertain. There are no changes to management expectations for 2015. With significant growth in construction markets and the full effect of cost saving initiatives on track, the Board is confident of a return to positive monthly EBITDA by the end of the second half of the current financial year. 

The Company is emerging from a significant repositioning to focus on growing construction markets. UK construction accounted for 70% of sales volumes in the first half of this financial year, compared to 45% in the same period two years ago. As a consequence, the Board is optimistic about the outlook and remains confident in the long term fundamentals for the business.

The interim report will be made available on our website (http://www.superglass.co.uk/investor_center/document_download/) on or around the 10th May 2014.

Alex McLeod

Chief Executive Officer

Notes to the accounts

for the six months ended 28 February 2014

1 Basis of preparation

These interim financial statements represent the condensed consolidated financial information of the Company and its subsidiaries (together referred to as "the Group") for the six months ended 28 February 2014. They have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the EU. The interim financial statements were approved by the Board of Directors on 29th April 2014. The interim financial statements do not constitute financial statements as defined in Section 435 of the Companies Act 2006 and do not include all of the information and disclosures required for full annual financial statements. 

They should be read in conjunction with the annual report and accounts 2013 which are prepared in accordance with IFRS as adopted by the EU and which are available on request from the Company's registered office or to download from www.superglass.co.uk.

The interim financial statements for the current and previous period are unaudited. This interim financial statement has not been reviewed by the Company's auditor. The comparative figures for the financial year ended 31 August 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The Independent Auditors' Report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

In determining whether the Group's 2014 interim financial statements can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowings facility and the risks and uncertainties relating to the business activities in the current economic climate.

The key factors considered by the directors were;

· the rate of growth in demand across construction markets and the impact of changes in government led demand generating initiatives such as ECO/Green Deal

· movements in input prices and the availability of credit from suppliers

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

· the competitive environment in which the Group operates

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

· the finance facilities available to the Group, including the availability of any short-term funding required

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.

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.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of time not less than 12 months from the date of this report. For this reason the going concern basis has been adopted in preparing this Interim Report.

2 Significant accounting policies

The interim financial statements are prepared on the historical cost basis (except in relation to derivative financial instruments, convertible shares and intangible assets arising on business combinations which are stated at fair value) and are presented in Pounds Sterling, rounded to the nearest thousand.

The preparation of the interim statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and income and expenses. The estimates and associated assumptions 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 the judgements made about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There has been no material change to the approach taken by Directors in considering estimates and judgements considered to be critical compared to that applied and detailed in the annual report and accounts 2013.

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 August 2013.

2 Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group as disclosed in its consolidated financial statements as at and for the year ended 31 August 2013.

3 Segment information

The Group has only one class of business: the manufacturing and sale of insulation materials and, as a result, has only one reportable segment with no aggregation having been applied. The reportable segment has been identified with reference to the activities of the Group and the information used by the Chief Operating Decision Maker (the Board). The performance of the segment is assessed by reference to its gross profit.

Manufacture and sale of insulation

All revenue is from external customers with no inter-segment revenues given the existence of only one operating segment.

The segment gross profit is reconciled to the total profit before income tax as shown in the Consolidated Statement of Comprehensive Income.

All of the assets of the Group are managed by the Board on a central basis. All of the assets of the Group are deemed to be attributable to the reportable segment and, as a result, no separate reconciliation of segment assets to the total assets figure on the Balance Sheet is necessary.

Other information

The Group operates predominantly within the UK and Ireland with some worldwide sales, largely in the EU. Revenue is attributed to external customers based on the location of the customer.

Major customers

There was one customer (six months ended 28 February 2013: three; year ended 31 August 2013: four) that accounted for in excess of 10% of the Group's revenue. This customer accounted for £1.8 million (six months ended 28 February 2013: £1.5 million; year ended 31 August 2013: £3.2 million).

4 Exceptional items

Items of exceptional income and expenditure in the period to 28 February 2014 relate to the disposal of Yellow wool stock and reorganisation activities undertaken during the period.

Items of exceptional income and expenditure in the year to 31 August 2013 included an accounting credit in respect of the debt for equity swap that the Group entered into and professional fees incurred in relation to the capital restructuring (see note 10). Other exceptional items related to the impairment of goodwill, a disposal charge recognised in respect of certain tangible fixed assets identified as being obsolete and disposed of as a result of the significant capital investment programme undertaken by the Group. Following the capital investment programme undertaken in the year the licence held within tangible fixed assets in relation to the use of certain technology is also no longer required and has been written off. In addition, further costs in respect of reorganisation of the Group were incurred during the year ended 31 August 2013.

5 Tax charge

The estimated effective rate of tax for the full year is 22% (six months ended 28 February 2013: 23%; year ended 31 August 2013: 20%). No provision has been made to increase the deferred tax asset as the directors do not believe there is sufficient certainty over the recoverability of this asset as yet. This position will be reviewed again at 31 August 2014.

6 Property, plant and equipment

The closing balance includes £290,000 (at 28 February 2013: £2,651,000; at 31 August 2013: £nil) of assets under construction.

7 Intangible assets

8 Cash and cash equivalents

Within cash and cash equivalents there are no borrowing facility balances offsetting the cash at bank (28 February 2013 is stated net of £5,125,000 drawn down from the Group's available revolving credit facility).

9 Retirement benefit obligations

The Group operates a defined contribution Group Personal Pension Plan, membership of which is voluntary. The assets of the scheme are held separately from those of the Company in independently administered funds. Employer contributions to the fund are recognised as an employee benefit expense in profit or loss when they are due. Contributions made in the period were £74,000 (six months ended 28 February 2013: £80,000; year ended 31 August 2013: £150,000).

10 Share capital

In the six months to 28 February 2014 and 28 February 2013 there have been no changes to the share capital issued by the Company. 

In the year to 31 August 2013 the Company concluded a capital reorganisation, a share consolidation and an issue of equity share capital that was approved by shareholders at a General Meeting on 20 May 2013 and has had the following impact on share capital.

The existing 20.0p ordinary shares at 1 September 2012 were sub-divided into one ordinary share of 1.0p (Post Capital Reorganisation Shares) and one deferred share of 19.0p.

The Post Capital Reorganisation Shares were consolidated such that every 25 shares will be consolidated into one New Ordinary Share. Following the share consolidation and prior to the issue of placing shares the Company's issued ordinary share capital comprised 2,007,577 Ordinary Shares of 25.0p each.

Following the share consolidation on 4 June 2013 the equity share issue of 26,000,000 ordinary shares with a par value of 25.0p at an issue price of 50.0p, approved by shareholders at the General Meeting on 20 May 2013, proceeded, increasing the equity share capital of the Company by £6,500,000. Issue costs of £781,000 were recognised directly in equity.

In addition to the issue of ordinary share capital the Group also entered into a debt for equity swap with its bankers and the conversion of the existing convertible shares held by its bankers into 14,985,748 deferred shares of 20.0p. The Group's bankers converted £5,725,000 of debt existing at 31 August 2012 into 2,800,757 convertible shares with a par value of 25.0p which subject to certain conditions will have the rights to convert into equity shares representing 10 per cent of the entire issued share capital following conversion.

The resulting convertible shares are presented within share capital with a par value of approximately £700,000 and the Group's outstanding long-term borrowings have reduced correspondingly to £2,500,000.

The Directors previously established a fair value of the convertible shares issued of approximately £1.0m. As required by accounting standards (IFRIC 19) a credit of £4,731,000 was recognised in the income statement as the differences between the carrying value of the borrowings and the fair value of the convertible shares. To comply with the requirements of UK company law a reserves transfer of £4,731,000 in respect of the accounting gain was made between retained earnings and share premium in addition to the transfer of £294,000 which represents the difference between the par value of the shares and their fair value for accounting purposes and as a result the net impact on share premium is £5,025,000.

11 Loss per share

The calculation of basic and diluted loss per share at 28 February 2014 was based on the loss attributable to ordinary shareholders of £4,279,000 (six months ended 28 February 2013: loss £2,219,000; year ended 31 August 2013: loss £5,541,000).

Adjusted loss per share

Adjusted loss per share at 28 February 2014 was 12.5 pence (six months ended 28 February 2013: loss 44.7 pence (restated); year ended 31 August 2013: loss 43.3 pence). Adjusted loss per share is based on the loss attributable to ordinary shareholders after adding back amortisation of intangible assets and the impact of exceptional items. Adjusted loss amounts to £3,497,000 for the six months ended 28 February 2014.

Weighted average number of ordinary shares

During the six months to 28 February 2014 there has been no change to the issued share capital of the Group and the figures presented for this period reflect the share capital in issue for the entire period.

The figures presented below for the six months ended 28 February 2013 and the year ended 31 August 2013 reflect the position taking into account the date of ordinary share issue. Comparatives for the six months ended 28 February 2013 have been restated to reflect the shares in issue after the share consolidation.

12 Contingencies and commitments

13 Related party disclosures

The Group has a related party relationship with its Executive and Non-executive Directors. There is no change in the position disclosed in the Superglass Holdings Plc annual report and accounts for the year ended 31 August 2013.

14 Principal risks and uncertainties

The 2013 annual report sets out the principal risks and uncertainties faced by the Group at August 2013 and details the processes in place for managing those risks.

The directors do not consider these risk factors to have changed significantly and therefore the principal risks and uncertainties facing the Group for the remaining six months of the year are consistent with those set out in the 2013 annual report. However, there may be additional factors which are not currently known to the Group, or which we currently deem immaterial, which may also have an adverse effect on our business.

There have been no significant changes to the risk management process in the interim period.

Statement of Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors of Superglass Holdings PLC.

The directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Alex McLeod John Colley

Chief Executive Officer Chairman