Half Yearly Results

Superglass Holdings PLC ("Superglass" or "the Company")

Half Year Results

Highlights

· Revenue and volume down 10% at £10.3 million (2014: £11.4 million) reflecting:-

- Planned focus on value, not volume

- Further weakness in Government schemes

- Customer uncertainty ahead of the successful placing

· Loss before interest, tax, depreciation and amortisation (pre-exceptional items) reduced to £1.9 million (2014: loss of £2.3 million)

· Turnaround plan remains broadly on track, with planned capacity reduction to take effect later this year and recent improvement in selling prices

· Refinancing completed and new Close Brothers facilities drawn down. Gross cash at 28 February 2015 of £4.1 million

Chairman's statement

The ongoing turnaround plan, the latest phase of which was commenced following the successful equity refinancing completed in October 2014, remains broadly on track, with the delivery of planned cost savings and the continued repositioning of the business towards growing construction markets yielding the positive margin improvements hoped for.

The Company is currently implementing the capacity constrained strategy announced last September and has increased its focus on the quality of its revenue. As a result volumes for the first half of 2014/15 were below the equivalent period last year. However the Company has continued to reposition its revenue with strategic partners, who offer a richer mix of value added products.

This focus on key partners together with careful management of costs yielded a £0.4 million improvement in the loss before interest, tax, depreciation, amortisation and exceptional items ("LBITDAE") as compared with the equivalent period last year. This improvement was achieved in advance of the implementation of the selling price increase announced by the Company in December 2014 and which became effective in March 2015. The Board is optimistic that the combination of growing markets and tighter overall capacity is likely to create a more positive environment for price and margin improvement over the balance of the year.

Over the period, construction markets (particularly housebuilding) have continued to show signs of recovery and growth and the Company has seen this begin to filter through into its sales volumes during the first quarter of 2015. The first half of the year has continued to be challenging in the retrofit market due to a further significant decline in volumes associated with the Government sponsored schemes of Green Deal and the Energy Company Obligation ("ECO"), which together represented less than 8% of the Group's sales by volume during the period (2014: 17%).

The Board continues to impose a strong focus on cash management and this was reflected in the cash balance as at 28 February 2015 of £4.1 million. The Company continues to trade with adequate cash headroom to implement its strategic plan.

With the company repositioned to focus on growing construction markets as evidenced by modest volume and price recovery during early 2015, with the benefits of the recent market price increase yet to be fully realised and additional cost savings being implemented, the prospects for the second half of this financial year are more favourable than in recent years and also give some basis for cautious optimism for the 2016 financial year.

Results and Markets 

During the period, Group revenues declined by 10% compared to the previous financial year primarily due to three main factors:

· Reduced demand from customers exposed to the Government Schemes that replaced the CERT Programme (Green Deal and ECO), which are currently operating at negligible levels. Volumes in this channel are one third of those seen last year.

· Uncertainty related to the refinancing of the company, set against the backdrop of a highly competitive market, adversely impacted sales volumes during the Autumn of 2014.

· The planned reduction in the export of cured products into Eastern Europe, as the Company focused available capacity on higher margin domestic sales.

Given the ongoing lack of confidence in the efficacy of the current government sponsored schemes, the Company is increasingly focused on UK domestic construction markets and, in particular, customers that offer a better mix of value added products, with the benefit of a stronger mix offsetting downward pressure on commodity pricing.

With growing construction markets (Construction Products Association Forecast Winter 2014/15 anticipates 10% growth in 2015) and the recent improvement in both the financial and commercial position of the Company, all UK glass wool insulation manufacturers have in recent months announced substantial price increases. This may be a sign of a return to a less fiercely competitive environment, which was necessary as pricing had continued to fall to unsustainably low levels. 

As previously announced, lower sales volumes in the early part of the reporting period resulted in increased manufacturing costs per tonne owing to the impact of lower plant utilisation. The reported loss before interest, taxation, depreciation and amortisation (pre-exceptional items) was £1.9 million (2014: £2.3 million), in line with management expectations and the recent trading update issued on 10 March 2015.

Operations

The planned reconfiguration of the plant to deliver cost savings and a reduced, but more flexible manufacturing output remains on track for completion before the end of the financial year. Further planned investment will be carried out in June within the overall budget of £1.0 million.

To date, approximately half of the incremental cost savings identified in September have been realised, with the remainder only becoming effective on the completion of a number of planned capital projects.

In January 2015 Viridor, the Company's waste glass supplier, switched deliveries to Superglass to a newly constructed plant capable of supplying higher quality material. This is welcome news for the longer term, however considerable unplanned work has been necessary to adapt the Company's manufacturing processes to accommodate supply from the new source and this has impacted production costs and capacity in the short term. The Company is working closely with Viridor with a view to securing regular and reliable deliveries of waste glass of a specification that is better suited to the Company's existing manufacturing infrastructure.

The Company's ability to capitalise on the evolving market opportunities is conditional upon production continuing as planned, including the on-time completion of the capital project to reconfigure the plant scheduled for June and the ability to adapt the manufacturing process to accommodate the improved quality of raw material. The Board remains confident that production stability can be maintained.

The Board has commenced planning for the replacement of the furnaces in the next three to four years, due to their age and upcoming environmental legislation.

Board

On 10 March 2015 the Board announced Alex McLeod's decision to step down as Chief Executive Officer, by mutual agreement, in August 2015 and a process has begun to find a replacement. In addition after six years David Gray announced in January 2015 his intention to resign from the board with effect from today. A process is close to being concluded to appoint an independent non-executive director.

Executive

Ken Munro was appointed Managing Director of the Company's principal subsidiary, Superglass Insulation Limited on 1 February 2015. Ken assumed overall control of the operations of the business at that point and continues to execute the strategy of the company as approved by the Board.

Dividends

Once again, the Company will not be paying an interim dividend. Whilst the Board intends to resume the payment of dividends when the Company's profitability, cash generation and underlying growth of the business justifies, the Board has not considered it appropriate to recommend the payment of dividends since 2010 and does not anticipate doing so in the current financial year.

Financing

Following the successful equity placing in October 2014 the Company repaid all outstanding sums due to Clydesdale Bank PLC at a discount of £0.4 million. The asset based lending facilities previously agreed with Close Brothers plc were drawn in November as planned.

There is a continued strong focus on cash management and the cash balance as at 28 February 2015 was £4.1 million.

Outlook

It is expected that the increase in volumes seen in the first quarter of calendar 2015 will be sustained and planned price growth realised, along with the delivery of planned cost savings. The overall trading performance of the business continues to be in line with management expectations as outlined in the recent trading update, underpinning the Board's confidence in a return to positive EBITDA in aggregate during the second half of the year. As a result the Board looks forward, for the first time in several years, with a sense of cautious optimism for the future.

For further information, please contact:

Superglass Holdings PLC

John Colley, Executive Chairman 01786 451170

Chris Lea, Finance Director

N+1 Singer

Sandy Fraser 0131 603 6873

Nick Owen

Notes to the accounts

for the six months ended 28 February 2015

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 2015. 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 29 April 2015. 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 2014 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 2014 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 2015 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 extent to which announced increases in selling prices can be realised

· the ability to adapt the manufacturing process to accommodate cullet from a new supply source

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 2014.

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 2014.

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 2014.

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 were two customers (six months ended 28 February 2014: one; year ended 31 August 2014: three) that accounted for in excess of 10% of the Group's revenue. These customers accounted for £3.4 million (six months ended 28 February 2014: £2.8 million; year ended 31 August 2014: £7.1 million).

4 Exceptional items

Items of exceptional income and expenditure in the period to 28 February 2015 relate to the settlement of the secured bank loan at a discount and professional fees associated to the refinancing activity.

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

5 Tax charge

The estimated effective rate of tax for the full year is 21% (six months ended 28 February 2014: 23%; year ended 31 August 2014: 22%). 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 2015.

6 Property, plant and equipment

The closing balance includes £196,000 (at 28 February 2014: £290,000; at 31 August 2014: £15,000) 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 2014 £nil).

9 Retirement benefit obligations

Superglass Insulation Limited operates a defined contribution Group Sponsored Personal Pension Plan, which is a qualifying pension scheme for auto-enrolment purposes. 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 £118,000 (six months ended 28 February 2014: £74,000; year ended 31 August 2014: £169,000).

10 Share capital

In the six months to 28 February 2014 the Group concluded a capital reorganisation, an issue of equity share capital and the refinancing of bank debt that was approved by shareholders at an Extraordinary General Meeting on 30 October 2014 and has the following impact.

The existing 25.0p ordinary shares at 1 September 2013 were sub-divided into one ordinary share of 1.0p (Post-capital Reorganisation Shares) and one deferred share of 24.0p.

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

In addition to the issue of ordinary share capital the Group also secured new banking facilities of up to £4,800,000 through a combination of term loans, invoice discounting, leasing and revolving credit facilities.

Following the refinance the Group settled the secured bank loan of £2,500,000 at a discount of £375,000. One of the consequences of the refinance was to permit the conversion of the 2,800,757 convertible shares owned by the Group's bankers into ordinary shares in accordance with their terms.

11 Loss per share

The calculation of basic and diluted loss per share at 28 February 2015 was based on the loss attributable to ordinary shareholders of £2,829,000 (six months ended 28 February 2014: loss £4,279,000; year ended 31 August 2014: loss £6,552,000).

Adjusted loss per share

Adjusted loss per share at 28 February 2015 was 2.8 pence (six months ended 28 February 2014: loss 12.5 pence; year ended 31 August 2014: loss 19.8 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 £3,122,000 for the six months ended 28 February 2015.

Weighted average number of ordinary shares

During the six months to 28 February 2015 there was an issue of equity share capital as outlined in note 10. 

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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 2014.

14 Principal risks and uncertainties

The 2014 annual report sets out the principal risks and uncertainties faced by the Group at August 2014 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 2014 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

John Colley Alex McLeod

Executive Chairman Chief Executive Officer