Interim Results

LATCHWAYS PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

Latchways plc designs, manufactures and sells a complete range of fall protection systems offering continuous protection to individuals working at height. The systems are sold worldwide through a network of trained installers and are used to provide worker safety on applications as diverse as buildings, bridges, aircraft, telecommunications towers, wind turbines, manufacturing plants, entertainment arenas and offshore platforms. Latchways' equipment may be fitted either to new structures or retrofitted to existing ones.

Key Points

· Group revenues £16.4 million (2013: £19.7 million)

· Operating profit £2.3 million (2013: £4.0 million)

· Basic earnings per share 17.34 pence per share (2013: 28.39 pence)

· Interim dividend maintained at 12.10 pence per share

· Strong cash generation, cash balance £10.4 million (£10.4 million)

· Challenging European economic backdrop compounded by project delays and destocking

· UK construction business making early stage recovery

· Good growth in Latin American revenues

Commenting on the results, Chairman, Paul Hearson said:

"This has been a disappointing period for Latchways. We have made progress in developing our business for the future but this has yet to be reflected in revenues and profit. Strong growth in our Latin American revenues, combined with some recovery in the UK construction-facing business, has been more than offset by weakness in European markets and some significant temporary setbacks in North America and the offshore wind energy market.

Economic activity in Europe will take time to recover and therefore we are looking elsewhere for growth. The other setbacks that we have suffered this year are temporary in nature and are in the process of being resolved. In the meantime the underlying business remains robust with strong cash flows and a solid balance sheet. We see significant potential for our existing products such as Wingrip and our Vertical systems given the groundwork currently being laid with new prospects, whilst our ground-breaking new products provide us with the wherewithal to change the face of the global Self Retracting Lifeline market. International prospects offer growth opportunities and we are reshaping our sales team to realise this potential. North America remains a core market which will resume growth once current overstocking issues have worked through."

Chairman's Statement

This has been a disappointing period for Latchways. We have made progress in developing our business for the future but this has yet to be reflected in revenues and profit. As we stated in our trading update of 7th October, strong growth in our Latin American revenues, combined with some recovery in the UK construction-facing business, has been more than offset by weakness in European markets and some significant temporary setbacks in North America and the offshore wind energy market.

Whilst these setbacks are frustrating, they have led us to redouble our efforts in our core target markets. We are making further long term investments in our revenue generating activities, specifically sales and new product development, which take time to provide returns but which are essential to return us to the considerable growth rates that we have enjoyed over the past decade.

Our operations are now fully consolidated within the Devizes site, with the new production facility allowing improved efficiency in terms of product handling and logistics. As revenues recover we expect this to feed through to margin improvements, whilst also giving us several years' expansion capability.

Results

Group revenues were £16.4 million (2013: £19.7 million).

Safety Products revenues were 21% lower at £12.6 million, while Safety Services revenues increased by 3% to £5.2 million.

Gross margins were less than 1% lower than last year at 51%, resulting from the relative weakness of the Euro this year. This represents an improvement on the second half of last year, reflecting the operational efficiencies achieved despite the reduction in revenues. We expect this improvement to continue as revenues recover due to the reduced impact of fixed costs.

Investment in sales and new product development has continued during the period, with the first incremental costs of Latchways Inc being incurred this year. Despite these effects, we have been able to reduce overall operating costs by 3% to £6.1 million (2013: £6.3 million). This has been achieved through careful control of discretionary costs as well as natural attrition in non-revenue generating functions, where a recruitment freeze is in place. We expect the second half to see some increase in operating costs due to ongoing investment in sales resources.

Due to the operational gearing of the business, group operating margins reduced to 14% (2013: 20%). The improvements in underlying gross margins mentioned above should underpin a strong recovery in operating margins as revenues return to growth.

Group profit before tax was £2.3 million, 42% lower than last year (2013: £4.0 million). Both basic and diluted earnings per share were 39% lower at 17.34 pence (2013: Basic 28.39 pence, diluted 28.34 pence). An effective tax rate of 16% has been forecast for the year, compared with a forecast 21.5% last year. The reduction is due to the 2% decrease in the main rate of UK corporation tax (from 23% to 21%) and the impact of Patent Box and R&D tax credits.

Cash generation has been strong in the period. Revenue related reductions in receivable balances resulted in cash generated from operations reaching 168% of operating profit. As a result, notwithstanding the payment of the final 2014 dividend of £3.1 million, cash at the period end was marginally higher than at the year end at £10.4 million (2013: £10.4 million).

Dividends

The board is declaring an unchanged interim dividend of 12.10 pence per share (2013: 12.10 pence).

Historically Latchways has maintained dividend cover of around twice earnings, while progressively increasing the annual dividend. Given the likely reduction in earnings per share for the current year, the board has noted that a maintained dividend will not be fully covered from current year earnings. However, the board is of the view that profitability should recover significantly in the next financial year and thereafter. Taking this, the continuing strength of cash flows and cash on the balance sheet into account, the board is confident in maintaining the dividend this year and resuming dividend growth in due course.

The interim dividend will be paid on 6 March 2015 to shareholders on the register as at 6 February 2015.

Review

The performance of the Latchways business over the past twelve months needs to be viewed within the context of increasing uncertainty in our core European markets, which has led to potential customers deferring and cancelling capital projects across Europe. Furthermore, we have seen a number of one-off impacts this year which have adversely affected revenues. In the light of these, it is clear that our project pipeline needs to be more robust in order to mitigate such effects. The revenue growth we are achieving in Latin America demonstrates that there is much that can be done to develop our business in new geographies. We will be looking to develop further our overseas business in the coming months and years, as well as adding resources on key growth products.

Latchways' business is divided into two segments; Safety Products, which sells fall protection equipment to global markets from our base in Devizes, Wiltshire and to North America from our US subsidiary Latchways Inc in Houston, Texas; and Safety Services, which installs and services a range of fall protection equipment in the UK.

Safety Products

Safety Products is the largest division of the group, accounting for 68% of group revenues and 86% of operating profits in the period. Our products are sold through a flexible distribution base comprising a network of primarily independent installers, distributing agents and also direct sales to key end customers in specific industries. Since 1 April 2014 we have operated a sales and warehousing subsidiary in the US to service our North American clients, the results of which are included in the Safety Products division. The sales performance for the division is monitored on a geographic and product line basis.

Overall, the Safety Products business produced revenues of £12.6 million including inter segment sales (2013: £15.8 million). Operating profits were £2.0 million (2013: £3.7 million).

Geographic review

Total UK revenues were in line with last year. The period saw signs of improvement in our commercial construction facing business, with revenues in this sector up 11%. Vertical system revenues to the utilities sector also improved. These encouraging effects were offset by a very quiet period for offshore wind turbine business, which was affected by project delays and a strong comparative period.

European revenues were down 31% in the period. Our core installer business was impacted by reduced construction activity across our main geographies, brought about by renewed economic uncertainty in the Eurozone in particular. These effects were exacerbated by delays to ongoing projects, for which we expect to resume deliveries in due course. Our offshore wind energy business was also considerably reduced in the period, although this was largely due to construction delays resulting from market uncertainties over feed-in tariffs and connections to the grid. These have now largely been resolved, and specification activity has noticeably increased, but this will be primarily 2015/16 business as the main offshore construction season for this year has now passed. None of this business has been lost to competitors, rather it is a function of market activity.

Our new North American operation is making good progress on raising our profile and increasing our representation across the market, with Horizontal system revenues up 15% on last year. However, overall revenues have been severely curtailed in the short term by destocking at our largest US customer, specifically relating to SRL and PRD revenues. We have been disappointed by the rate at which these products have been rolled out, but we have been working with our customer and we are confident in their commitment to the products. We expect to see revenues improve on the SRL product line early in the next financial year, although PRD sales are likely to take longer to recover. These temporary effects, coupled with the timing of Wingrip business, have resulted in North American revenues reducing by 42% against last year's strong comparative. We remain convinced of the long term potential of this market.

The Rest of the World saw revenues increase by 13%. We have made good progress in Latin America, and we are looking to further increase our presence in the key geographies. We are also expanding our Wingrip customer base globally, and we will be adding further resource to ensure we are able to service the demands of this business. Our Vertical system sales remain subdued due to the hiatus in investment by our largest customer, but we expect this business to resume in due course, possibly as soon as next year. We are excited by the long term prospects for our business in the emerging economies and we expect this diverse grouping to become a much larger element of group revenues over time.

Product review

Our Horizontal systems have seen a 7% reduction in revenues, with growth in the UK, North America and the Rest of the World offset by the decline in Europe. We expect conditions in Europe to remain challenging for the near term but growth in other areas and the delivery of specific projects should limit the impact.

Our Vertical business was in line with last year. We have increased our sales resource in this important area of the business and we have a number of new prospects under discussion. By their nature these large utility contracts take time to crystallise but we are encouraged by progress to date.

Wingrip revenues were 23% lower in the period. This was due to one large project in 2013 which was not repeated this year. Wingrip is an inherently lumpy business but the prospects for the second half give us confidence that, for the year as a whole, Wingrip will deliver a strong performance. We have made good progress in extending our reach into new geographies during the period which will help to generate further growth in years to come.

Our Self Retracting Lifeline revenues have been significantly impacted by both the delays in offshore wind turbine construction mentioned above and the destocking in North America, resulting in a 46% fall in revenues. Both of these effects are temporary in nature and we have added further sales resource to this market in order to reduce our reliance on larger prospects.

The Personal Rescue Device was also affected by the destocking in North America. This is our largest market for the PRD and hence the absence of orders this year has had a disproportionate impact on PRD revenues, which are down 80% on last year. To mitigate this impact, we have recently launched a new variant of the PRD aimed at the utilities market which we expect to generate increasing volumes, and we are exploring other initiatives to improve volumes elsewhere. The slow take up of the PRD is a disappointing situation for what is a highly innovative solution to a long standing fall protection issue. In due course we believe that market acceptance will grow and that the PRD will prove itself to be a useful addition to our product range.

Safety Services

Safety Services has had a mixed first half, with early weakness in installation revenues reversing in later months. Overall revenues were up 3% on last year, and operating costs were reduced by 5%. These positive results were offset by ongoing pressure on installation margins in what remains a competitive UK environment despite the early stages of recovery. As a result Safety Services saw a small reduction in operating profit.

New Products

Latchways remains at the forefront of innovation in our industry. In the coming weeks we will be launching the first variant in a new range of Self Retracting Lifelines. We believe this new range will significantly enhance our position in the SRL market, which is estimated at around $200 million per annum worldwide. Our new products, which will use revolutionary, patented technology, will be smaller and lighter than any comparable competitor, and much simpler to maintain. The rollout of this range is expected to continue over the coming two years.

Additionally, we continue to add new additions to existing product lines. The first of our new "Arcflash" PRD devices was shipped in October, unlocking the potential of the utilities market to the PRD. This device is designed for high voltage environments and should produce incremental revenues in a market previously not open to us.

People

During the period we have continued to develop our sales team to ensure that we have the right mix of representation across the business. We have added resources to our North American team, as well as looking to strengthen our senior sales leadership. We have recently recruited a new Head of International Sales, and will be adding to our European coverage shortly. This process is ongoing. Further investments will follow in developing our global coverage as we seek to take advantage of the increasing attention to fall protection being paid in emerging markets.

At board level, our long standing non executive director, Brian Finlayson, stood down at our AGM in September. As previously stated it is our intention to replace Brian with a non executive with considerable international commercial experience. The search for this candidate is in progress and I hope to report a successful conclusion in due course.

This has been a demanding period for all our staff as they have been asked to do more with less given market conditions. We have been proud of the manner in which they have risen to this challenge, and on behalf of the board I would like to express my thanks to them all.

Principal Risks

As a provider of fall protection solutions to a global marketplace, the group is subject to a number of external factors which affect its risk profile. The board reviews its risk profile regularly throughout the year, and the key business risks are analysed in our annual report. The most important risks and uncertainties for the remaining six months of this financial year are discussed below.

Latchways' product range is predominantly of a capital nature and business confidence is critical to the capital expenditure decision making process. Therefore the global economic situation, and in particular that of the UK and Eurozone, is a key risk to our business. Whilst the UK has seen some recovery in construction activity, this recovery remains fragile, and the Eurozone economies have recently taken a turn for the worse. As such we have seen an impact on our revenues this period. Our response to this risk is to continue the diversification of our geographic and industry markets, in order to mitigate the effects of a downturn in any particular area.

Latchways' products are generally made of either marine grade stainless steel or aluminium. Fluctuations in the market price of these commodities can have a substantial impact on our costs. Although both commodities have seen some upward movement this year, given the overall weakness in the global economy this seems unlikely to become a major concern in the short term.

Currencies, particularly the Euro and the US, Australian and New Zealand Dollars, remain an important risk factor for Latchways. All sales to mainland Europe are invoiced in Euros, while North American sales are denominated in US Dollars. Part of this exposure is subject to a natural hedge in that we now make a proportion of material purchases in Euros, and our US operating costs are in US Dollars. The remainder is subject to exchange risk. This is mitigated where practicable using forward exchange contracts.

Future Prospects

We share our investors' disappointment in these results. Economic activity in Europe will take time to recover and therefore we are looking elsewhere for growth. The other setbacks that we have suffered this year are temporary in nature and are in the process of being resolved. In the meantime the underlying business remains robust with strong cash flows and a solid balance sheet.

Looking to the medium term, we see significant potential for our existing products such as Wingrip and our Vertical systems given the groundwork currently being laid with new prospects, whilst our ground-breaking new products provide us with the wherewithal to change the face of the global SRL market. International prospects offer growth opportunities and we are reshaping our sales team to realise this potential. North America remains a core market which will resume growth once current overstocking issues have worked through.

Paul Hearson

17 November 2014

Statement of directors' responsibilities

The directors confirm that this condensed set of consolidated half yearly financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· An indication of important events that have occurred during the first six months 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 financial year; and

· Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The directors of Latchways plc are listed in the annual report.

By order of the Board

DN Hearson

Chief Executive

17 November 2014

RA Orton

Financial Director

17 November 2014

The results for the periods arose wholly from continuing operations.

Notes to the consolidated interim financial statements

1. General information

Latchways plc is domiciled in England.

This condensed consolidated half-yearly financial information was approved for issue on 14 November 2014.

These interim financial results, which have been neither reviewed nor audited, do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 were approved by the Board of directors on 6 June 2014 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2. Forward-looking statements

Certain statements in this half-yearly report are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

3. Basis of preparation

This condensed consolidated half-yearly information for the half-year ended 30 September 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 March 2014, which have been prepared in accordance with IFRSs as adopted by the European Union.

4. Going concern basis

The group is cash generative and currently holds substantial cash balances. The group's forecasts and projections, taking account of reasonably possible variations in trading performance, show that the group should be able to continue to operate within the level of its current bank facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing these condensed interim financial statements.

5. Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2014, as described in those annual financial statements.

New accounting standards and interpretations have been adopted during the year as follows:

· IFRS 10, 'Consolidated financial statements' (effective 1 January 2014)

· Amendments to IAS 36, 'Impairment of assets'

· Amendment to IAS 32, 'Financial instruments: Presentation', on offsetting financial assets and financial liabilities

The following standards, amendments and interpretations are mandatory for the first time for the current accounting period but are not relevant to the group's operations:

· IFRS 11, 'Joint arrangements'; Revised IAS 27, 'Separate Financial Statements'

· Revised IAS 28, 'Investment in associates and joint ventures'

· Amendments to IFRS 10, 11 and 12 on transition guidance

· Amendments to IFRS 10, 'Consolidated financial statements', IFRS 12 and IAS 27 for investment entities

· IFRS 12, 'Disclosure of interest in other entities'

· Amendment to IAS 39, 'Financial instruments: Recognition and measurement', on novation of derivatives and hedge accounting

· IFRIC 21, 'Levies'

The following interpretations to existing standards have been published that are mandatory for the group's future accounting periods but which are not relevant to the group's operations:

· Amendment to IAS 19 regarding defined benefit plans.

6. Segment information

7. Income taxes

Income tax expense is recognised in these interim financial statements based on management's best estimates of the weighted average annual effective tax rate expected for the full year. The estimated average annual tax rate used for the year to 31 March 2015 is 16% (the estimated tax rate for the 6 months to 30 September 2013 was 21.5%).

The reasons for the reduced effective tax rate are the 2% reduction in the main rate of corporation tax (from 23% to 21%) and the impact of Patent Box and R&D tax credits.

8. Earnings per Share

Earnings per share attributable to equity holders of the company arise from continuing operations as follows:

The impact of dilutive share options in the prior period resulted from pre-existing share options.

9. Dividends

A dividend of £3,090,000 that related to the year ended 31 March 2014 was paid in September 2014 (2013: £2,809,000).

An interim dividend of 12.10 pence per share (2013: 12.10 pence), totalling £1,360,000 (2013: £1,360,000) has been declared and will be paid on 6 March 2015 to shareholders on the register as at 6 February 2015.

In accordance with IAS 10 "Events after the balance sheet date", these interim financial statements do not reflect the interim dividend payable.

10. Reconciliation of operating profit to cash flow from operations

13. Financial instruments at fair value

The group holds derivative financial instruments used for hedging which are measured at fair value.

Where market values are not available, the fair values of forward foreign exchange contracts are calculated by reference to actual currency spot rates at the reporting date. The fair value measurements included in the financial statements are shown below and are categorised as level 2 fair value measurements.

For all other financial assets and liabilities their carrying values approximate fair value.

14. Contingent liabilities

There were no contingent liabilities as at 30 September 2014, 31 March 2014 or at 30 September 2013.

15. Related party transactions

During the period, Latchways plc made sales of £1,367,000 (2013: £1,111,000) to HCL Safety Limited. At the period end the balance outstanding to Latchways plc from HCL Safety Limited was £679,000 (2013: £565,000).

During the period, Latchways plc made sales of £7,000 (2013: £207,000) to Latchways Australia Pty Ltd. At the period end the balance outstanding to Latchways plc from Latchways Australia Pty Ltd was £nil (2013: £nil).

During the period, Latchways plc made sales of £15,000 (2013: £9,000) to Sigma 6 d.o.o. Sigma 6 d.o.o made sales to Latchways plc of £579,000 (2013: £736,000). At the period end the net trading balance outstanding to Sigma 6 d.o.o from Latchways plc was £199,000 (2013: £297,000). In addition, Latchways had loans outstanding to Sigma 6 amounting to £122,000 (2013: £298,000).

During the period, Latchways plc made sales of £1,700,000 (2013: £nil) to Latchways Inc. At the period end the balance outstanding to Latchways plc from Latchways Inc was £1,700,000 (2013: £nil). In addition, Latchways plc had loans outstanding to Latchways Inc amounting to £916,000 (2013: £nil).

At the period end, Latchways plc owed HCL Group Plc £350,000 (2013: £350,000).

16. Interim Report

Copies of this interim report will be sent to all shareholders. Additional copies will be available from the group's registered office at Hopton Park, Devizes, Wiltshire SN10 2JP, or will be available for download from the group's website at www.latchways.com.