Interim Results

LATCHWAYS PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013

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 profit before tax up 12% to £4.0 million (2012: £3.6 million)

· Group revenues up 5% to £19.7 million (2012: £18.8 million)

· Basic earnings per share up 18% to 28.39 pence (2012: 24.00 pence)

· Strong cash generation. Cash balance £10.4 million, only £0.1 million lower than year end despite £2.1 million spend on new production facility (2012: £8.7 million)

· Interim dividend increased by 10% to 12.10 pence per share (2012: 11.00 pence)

· Strong growth for SRL and PRD product lines, and North American region, although traditional markets remain subdued

· Reduced Vertical revenues for the period due to timing of customer spend

Commenting on the results, Chairman, Paul Hearson said:

"This has been a very active period for the Latchways business. Substantial growth has been achieved for both the Self Retracting Lifeline ("SRL") and Personal Rescue Device ("PRD") product lines, whilst geographically we have made excellent progress in North America. We expect these successes to be maintained into the second half of the year and beyond. Offsetting these successes has been the ongoing lack of commercial construction activity in the UK and Europe. Furthermore, lower utility and telecom company spending has reduced our Vertical revenues for the first half. Short term budgetary constraints among our largest utility customers mean that this will continue for the remainder of the year, and in light of this we now expect full year profits to be below current market expectations and slightly below last year's pre-exceptional profit. We anticipate that utility customer spending will return to normal levels next year, whilst we are encouraged by early signs of increased activity in the UK construction market."

Chairman's Statement

This has been a very active period for the Latchways business. Substantial growth has been achieved for both the Self Retracting Lifeline ("SRL") and Personal Rescue Device ("PRD") product lines, whilst geographically we have made excellent progress in North America. We expect these successes to be maintained into the second half of the year and beyond, and have recently set up a Latchways operation in the United States to further drive our business there.

We have also nearly completed construction of a new 2800 square metre production facility adjacent to our Head Office in Devizes. This unit is approximately 40% larger than our existing factory, and will enable us to consolidate all our local production into one site, improving operational efficiency and providing considerable capacity for further expansion.

Offsetting these successes has been the ongoing lack of commercial construction activity in the UK and Europe. Furthermore, lower utility and telecom company spending has reduced our Vertical revenues for the first half. Short term budgetary constraints among our largest utility customers mean that this will continue for the remainder of the year, and in light of this we now expect full year profits to be below current market expectations and slightly below last year's pre-exceptional profit. We anticipate that utility customer spending will return to normal levels next year, whilst we are encouraged by early signs of increased activity in the UK construction market.

Results

Group revenues increased by 5% to £19.7 million (2012: £18.8 million).

Safety Products revenues increased by 5% to £15.8 million, while Safety Services revenues increased by 3% to £5.0 million.

Gross margins were 0.6% better than last year at 52.0%.

We have continued to invest in the future of the business in terms of the sales and technical teams. These additional costs have been largely offset by other savings, so that administrative expenses have increased by just 2.6% to £6.3 million (2012: £ 6.1 million). This has led to an improvement in the operating margin, from 19.0% last year to 20.3% this year.

Group profit before tax was £4.0 million, 12% better than last year (2012: £3.6 million). Basic earnings per share were 18% higher at 28.39 pence (2012: 24.00 pence), whilst diluted earnings per share were 23% higher at 28.34 pence (2012: 23.03 pence). Basic earnings per share were assisted by the 1% reduction in the main rate of Corporation Tax, together with the initial impact of the new Patent Box legislation, which enables patented products to benefit from a reduced rate of Corporation Tax. As Latchways has a substantial patent portfolio covering many of its core products, the new legislation will have a considerable positive impact, reducing our effective tax rate for the year by around 2.5%. Diluted earnings per share were further increased by the absence of previous year effects relating to the Latchways plc 2010 Value Creation Plan, which expired during the period.

Our balance sheet strengthened further during the period. Receivables at the period end were £12.0 million, £2.9 million less than at year end. Inventories were in line with both year end and last year at £5.3 million (2012: £5.2 million). As a result, cash generated from operations in the period was very strong at 154% of operating profit. A total of £2.1 million was spent in the period on the new factory build, which is now nearing completion. Despite this spend, cash at the period end was only £0.1 million lower than at the year end at £10.4 million (2012: £8.7 million). There is approximately £0.5 million remaining spend on the new facility.

Dividends

The board remains committed to the progressive dividend policy which it has followed for many years. The business has continued to deliver strong cash flows and we expect this to continue into the future. Therefore, the board is declaring an interim dividend of 12.10 pence per share (2012: 11.00 pence), a 10% increase on last year. This dividend will be paid on 7 March 2014 to shareholders on the register as at 7 February 2014.

Review

The success of our newest product ranges during the period has been achieved despite the challenging economic backdrop, and clearly demonstrates the importance of our long term strategy of reducing our reliance on traditional UK and European construction-related markets for growth. We have continued to invest in sales resources to drive the SRL and PRD product lines, whilst our emphasis on North America and new geographies is also producing results. At the same time, we remain fully committed to our traditional markets, adding further resources during difficult times to ensure that we are in prime position for when activity starts to recover. We have recently begun to see increased quotation and tendering activity in the UK market, and many European economies now appear to be through the worst of the recession. Whilst it will take some time before these translate into significant commercial construction business, these early indicators bode well for the future.

Latchways' business is divided into two segments; Safety Products, which sells fall protection equipment to global markets from our base in Devizes, Wiltshire; 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 75% of group revenues and 91% 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. The sales performance for the division is monitored on a geographic and product line basis.

Overall, the Safety Products business produced revenues of £15.8 million including inter segment sales (2012: £15.1 million). Operating profits were £3.7 million (2012: £3.3 million).

Total UK revenues fell by 6% compared with last year. Commercial construction activity continued to reduce, whilst timing of both vertical business and Wingrip projects also contributed to the fall. Offsetting these effects was a strong performance for the SRL, with offshore wind projects such as Thanet, Ormonde and Kentish Flats as well as improving general SRL sales.

European revenues were down 4% in the period. Traditional installer business held up well against a poor economic backdrop, but reduced Wingrip and Vertical business resulted in a slight decline in overall revenues.

North America saw significant improvements across all the major product lines, resulting in an 80% increase in total revenues. Of particular note was the success of the PRD, which produced over £0.9 million of revenue in the period, whilst the recently enhanced installer base also produced significant growth in other product lines. Wingrip was selected by the US military to provide fall protection for the C5 transport plane, whilst SRL sales also improved through our relationship with 3M. In order to consolidate these improvements, and to drive growth into the future, we have recently created Latchways Inc, to provide sales and support activity for the North American market. Based in Houston, Texas, the business will provide direct support to our distribution network, as well as working with end customers to ensure Latchways is specified for key projects.

The Rest of the World saw revenues fall by 10%. This was entirely attributable to the reduction in Vertical business caused by the timing of utility spend. All other significant aspects of revenue for this segment produced increased revenues, with Wingrip and SRL sales particularly strong. Excluding the Vertical business, sales to the Rest of the World increased by 42%, with notable successes in South America and the Far East.

From a product perspective, we have made significant progress with both the SRL and the PRD during the period, whilst the traditional installer business has maintained revenues despite the economic situation in the UK and Europe.

The SRL has seen revenues increase by 93% in the period, with strong sales to the wind energy sector and early stage successes in Oil & Gas. We expect to see further growth in the second half as volumes to 3M in North America start to ramp up, while general distributor sales worldwide continue to gain traction.

The PRD has made good progress with revenues up 65% in the period. The majority of this success has come in North America, and we are working with a number of potential customers to further increase take up, including the development of new variants for industry-specific applications.

Wingrip has also performed well in the first half, with revenues up 3% despite a relatively quiet period for Airbus requirements. Business in the period included a significant project for the US military's C5 transport planes, as well as a number of aircraft maintenance companies worldwide. Whilst last year's second half included a substantial Airbus order which we do not expect to be repeated this year, we have sufficient other prospects under discussion to give us confidence in Wingrip revenues for the year as a whole.

Our Vertical business has seen a 47% reduction in revenues in the period, mainly due to timing of utility company spend but also due to the absence of two telecom related projects this year. Most significantly, our largest utility customer has reduced expenditure this year due to budgetary constraints. New budgets are in place for next year which should ensure a resumption of normal business levels, but the situation has resulted in reduced revenues in the period, the impact of which will be greater in the second half due to the strong revenues in late 2012/13. We are in the process of restructuring and investing in our Vertical systems sales team in order to increase our customer base and business pipeline.

Safety Services

Safety Services has achieved improved earnings in the period despite the very poor market conditions in which it is operating. This has been achieved through a modest improvement in revenues of 3%, reflecting initial revenues from long term refurbishment projects, together with tight control of operating costs, which were unchanged in the period. Whilst the short term outlook for installation work remains uncertain, the 32% improvement in profits for the period is an encouraging performance on which to build.

New Products

Given the recent success of in-house developed products such as the SRL and PRD, we continue to dedicate resources to developing additional product ranges for the future. The current year is devoted to a key project to substantially re-engineer one of our major product ranges to improve both cost and functionality, but in the meantime we are launching a number of different variants of existing product ranges.

People

Our team continues to evolve. Our recent progress in North America has convinced us of the need for local representation, and to that end I would like to welcome David Lee, our new General Manager for Latchways Inc., to the group. David will be leading our US based sales effort as we look to make the most of the opportunities that this enormous potential market offers us. We will be making further additions to this team over the coming months. In addition, we continue to build our team to address other markets such as South America, India and the Far East.

In addition to our previously announced commitment to the UK Living Wage, which we have now been paying as a minimum for all employees for the past three years, we have recently added Apprenticeships to our portfolio. With two new apprentices recently starting, we believe we can offer an excellent all round grounding in engineering, including new product development, and we expect to extend this programme in the future.

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. The ongoing recession in UK Construction and many Eurozone countries has resulted in a reduction in construction related projects. Whilst there are early indications of improvements in the UK and some Eurozone economies, it will take some time before this starts to affect commercial construction activity in a material way.

Latchways' products are predominantly made of either marine grade stainless steel or aluminium. As such, fluctuations in the market price of these commodities can have a substantial impact on our costs. Commodity prices have remained subdued over the period, and are currently forecast to remain so for at least 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. Part of this exposure is subject to a natural hedge in that we now make a proportion of material purchases in Euros but the remainder, along with our Dollar exposures, is subject to exchange risk. This is mitigated where practicable using forward exchange contracts. As our North American business grows, the US Dollar is also becoming more significant to Latchways and hence similar hedging of exposure is being put in place.

Future Prospects

The strong performance from our North American business shows that we can continue to unlock growth opportunities despite difficult economic conditions. Whilst the current year performance is being affected by the timing of utility spending, we remain confident in the future prospects for the business and are excited about the opportunities that are presenting themselves.

Paul Hearson

18 November 2013

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

18 November 2013

RA Orton

Financial Director

18 November 2013

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 15 November 2013.

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 2013 were approved by the Board of directors on 7 June 2013 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 2013 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 2013, 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 2013, as described in those annual financial statements.New accounting standards and interpretations have been adopted during the year as follows:

· IFRS 13, 'Fair Value Measurement' (effective 1 January 2013)

· Amendment to IFRS 7, 'Financial instruments: Disclosures', on offsetting financial assets and financial liabilities (effective 1 January 2013) 

· IFRS 10, 'Consolidated financial statements'

· Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income

· IFRS 9, 'Financial instruments'

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:

· Amendment to 'IFRS 1, First time adoption' on fixed dates and hyperinflation

· Amendment to IAS 19, 'Employee benefits'

· IFRS 11, 'Joint arrangements'

· Amendment to IFRS 1, 'First time adoption', on government loans

· IAS 27 (revised 2011), 'Separate financial statements'

· Revised IAS 28, 'Investment in Associates and Joint Ventures'

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

· IFRS 12, 'Disclosures of interests in other entities'

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

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

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:

· IFRIC 20, 'Stripping costs in the production phase of a surface mine'

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

· Amendments to IAS 36, 'Impairment of assets'

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

· IFRIC 21, 'Levies'

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 2014 is 21.5% (the estimated tax rate for the 6 months to 30 September 2012 was 25.0%).

The reasons for the reduced effective tax rate are the 1% reduction in the main rate of corporation tax (from 24% to 23%) and the initial impact of Patent Box tax relief.

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 period results from pre-existing share options. The impact in the previous period also includes potential ordinary shares in relation to the Latchways plc 2010 Value Creation Plan, which expired in 2013.

9. Dividends

A dividend of £2,809,000 that related to the year ended 31 March 2013 was paid in September 2013 (2012: £2,539,000).

An interim dividend of 12.10 pence per share (2012: 11.00 pence), totalling £1,360,000 (2012: £1,228,000) has been declared and will be paid on 7 March 2014 to shareholders on the register as at 7 February 2014.

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 2013, 31 March 2013 or at 30 September 2012.

15. Related party transactions

During the period, Latchways plc made sales of £1,111,000 (2012: £1,172,000) to HCL Safety Limited. At the period end the balance outstanding to Latchways plc from HCL Safety Limited was £565,000 (2012: £519,000).

During the period, Latchways plc made sales of £207,000 (2012: £596,000) to Latchways Australia Pty Ltd. At the period end the balance outstanding to Latchways plc from Latchways Australia Pty Ltd was £nil (2012: £281,000).

During the period, Latchways plc made sales of £9,000 (2012: £9,000) to Sigma 6 d.o.o. Sigma 6 d.o.o made sales to Latchways plc of £736,000 (2012: £584,000). At the period end the net trading balance outstanding to Sigma 6 d.o.o from Latchways plc was £297,000 (2012: £13,000). In addition, Latchways had loans outstanding to Sigma 6 amounting to £298,000 (2012: £284,000).

At the period end, Latchways plc owed HCL Group Plc £350,000 (2012: £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.