Preliminary Results

Superglass Holdings plc

("Superglass" or the "Company or the "Group")

Preliminary Results for the Year ended 31 August 2012

Superglass Holdings plc, the UK's leading independent manufacturer of glass fibre insulation solutions today announces its preliminary results for the year ended 31 August 2012.

Operational highlights

·; Project Phoenix implementation progressing well. The introduction of new fiberising technology will also:

o Improve product quality and provide up to an additional £1.4m of cost reductions

o Bring the annualised cost savings from Project Phoenix to a total of up to £5.0m per annum

·; Other potential cost reductions identified and implemented

·; Senior management team significantly strengthened with the appointment of a new Chairman, Finance Director, Sales Director and Engineering Director

Financial highlights

·; Transformational recapitalisation of the balance sheet completed on 2 December 2011, following a successful equity issue and capital restructuring

o £8.0m net of expenses raised from investors

o Core borrowings reduced to £5.1m through the conversion of £12.15m of bank debt into convertible shares

·; Borrowings at 31 August 2012, lower than forecast at £3.5m (2011: £17.6m) through strong working capital management

·; Amended bank facilities and Regional Selective Assistance (RSA) grant payments negotiated post year end to underpin the turnaround plan

Trading Performance

·; Revenue maintained at £32.4m (2011: £32.4m), sales volumes up 3% through broader routes to market and an expanded customer base

·; EBITDAE*: £0.4m (2011: EBITDAE: £1.6m)

·; Profit before tax and after amortisation of intangibles and exceptional items £6.8m (2011: loss of £5.0m)

·; Results include a significant exceptional credit arising primarily from the refinancing of £8.6m (2011: cost of £0.2m)

·; Adjusted loss per share of 3.7p (2011: adjusted earnings per share 29.2p)*

* EBITDAE - Profit before interest, depreciation and tax adjusted for the effect of amortisation of intangibles and exceptional items. Similarly Earnings Per Share (EPS) is also adjusted for the amortisation of intangibles and exceptional items and the effect of the capital restructuring undertaken in late 2011.

John Colley, Chairman of Superglass commented:

"Superglass continues to make progress in its turnaround despite the difficult market conditions. With additional financial headroom and the investment programme set to deliver up to £5.0m per annum of cost savings, the Group is well positioned to capitalise on expected long-term market growth derived from a construction industry recovery and a fully established Green Deal framework."

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Chairman's Statement

I am pleased to report that Superglass has made excellent progress in implementing the cost reduction plan which was central to the refinancing in late 2011. Meaningful benefits are expected to flow from our investment programme (Project Phoenix) from the start of the second half of this financial year. A significant development for the Group is the introduction of new fiberising technology which should both improve our product offering quality and further reduce our cost base, with expected annual cost savings confirmed at the previously announced level of up to £5.0m. The Group's turnaround plan has, however, been hampered by continuing weakness in our core market channels.

Results for the year were as expected with an EBITDAE reported of £0.4m.The increase in CERT activity experienced in the early part of 2012 proved to be short-lived and activity was well behind expectations during the second half of the year. Despite the challenging trading conditions net borrowings at the financial year end were significantly lower than we had forecast at £3.5m (2011: £17.6m).

Since the refinance there have been significant Board and management changes. Tim Ross left the Board as Chairman in March of this year, having served on the Board since 2007 when Superglass originally floated as a public company. David Shearer also left the Board in June 2012, again having served on the Board since the original float. I would like to thank both Tim and David for their support of Superglass in what has been a challenging environment.

Chief Executive Alex McLeod, has also set about a significant renewal of the executive team with the introduction of a new Finance Director, Sales and Marketing Director and Engineering Director. Further strengthening of the team is likely during this financial year.

Uncertainty has prevailed in key markets throughout the financial year. Construction market activity is down in volume terms more than 6% on the previous year and arrangements for the transition from CERT to Green Deal are still not settled. Recent announcements about initial support for Green Deal in the form of cash back offers are very welcome and the Group continues to bring pressure on Government, with all key industry members, to provide the necessary transitional arrangements to support its ambition for a substantial increase in activity through Green Deal in the long term.

The Group has secured additional financial headroom through support from key stakeholders to underpin the business as we progress our turnaround plan, including:

·; Scottish Enterprise who have accelerated payment of agreed RSA award; and

·; Amended banking facilities from Clydesdale Bank which provides additional headroom until end August 2015.

With additional financial headroom, the investment programme set to deliver up to £5.0m of annualised cost savings and the introduction of new fiberising technology, the Group is well positioned to capitalise on expected longer-term market growth derived from a construction industry recovery and a fully established Green Deal framework.

John Colley

Chairman

22 November 2012

Chief Executive's Review

Summary of Chief Executive's Review

·; Project Phoenix implementation on track with enhanced savings through the introduction of new fiberising technology

·; Transformational recapitalisation of the balance sheet completed

·; Senior management team strengthened during the year

·; Broadening of routes to markets despite difficult market conditions

Phoenix investment

Superglass is aggressively attacking its cost base. The cost reduction programme remains focused on Project Phoenix, the capital investment programme that was central to the refinancing completed on 5 December 2011. The Board is pleased to report that the project is on track to deliver the enhanced cost savings of up to £5.0m for a full financial year. The first phase of Phoenix is complete and new fiberising technology has been implemented. This new addition to the project will transform all our product characteristics and deliver the additional cost savings of up to £1.4m, from our previously expected £3.6m. New fiberising technology supplier, WFE, is providing Superglass with modern proven technology which will enable us to provide the market with affordable quality solutions. This combined with other cost saving actions will bring the Company's previously high cost base in line with the industry norm.

Transformational refinance

With support from equity investors, Clydesdale Bank and Scottish Enterprise, we have been able to transform Superglass' capital base during the year, enabling us to implement the capital investment programme, "Project Phoenix". The investment will substantially improve the operating efficiency of our manufacturing plant to reduce our cost base by more than 15% and to improve product quality.

Highlights of the recapitalisation were as follows:

·; Equity fundraising of £8.0m net of expenses

·; Regional Selective Assistance award of up to £2.0m

·; Bank term loan reduced by £12.15m to £5.1m through a conversion of debt into convertible shares, these being exercisable into ordinary shares after two years

Since the financial year end amended facilities have been secured to provide the Group with the necessary headroom to effect the turnaround in substantially weaker markets than originally envisaged. With support from key stakeholders including Scottish Enterprise and Clydesdale Bank up to £2.9m of additional financial headroom has been secured. Key highlights of the amendment to the terms of the group's bank facility and Regional Selective Assistance grant funding are as follows:

·; Deferrment of phased RCF repayment providing up to £2.9m of additional headroom

·; Term loan repayment profile unchanged.

·; Covenant testing to resume in July 2013 on rebased targets.

·; Committed Revolving Credit Facility (RCF) reconfirmed until November 2016

·; Accelerated terms of Regional Selective Assistance grant funding agreed with Scottish Enterprise

The additional facilities provide the Group with the necessary headroom to deal with an uncertain outlook through the transition from CERT to Green Deal, whilst continuing to execute the investment plan which will transform the cost base so significantly.

Organisation

Since the refinancing there have been significant Board and management changes. John Colley has joined as Chairman, having worked for over 20 years in the building materials industry including at Executive Director level for eight years. John brings a track record of adding value through sales growth and cost management together with extensive experience of operational restructuring and refocusing businesses.

Tony Kirkbright also left the Board in February and was replaced by David Wilton on an interim basis. Allan Clow was appointed as Finance Director and Company Secretary of Superglass with effect from 28 August 2012. Allan was previously Finance Director of the Interiors Division of Havelock Europa PLC, which had turnover of circa £100m and circa 700 employees. In addition a new Sales and Marketing Director and Engineering Director have been appointed during the financial year. I would like to thank Tony for his exceptionally long service, having worked for the Group for more than 20 years, and also David for his transitional support.

Trading performance

The trading performance for the year fell short of our original forecasts due to weaker than expected construction and CERT markets. Trading was also impacted by the loss of share in cavity wall insulation following a change in sourcing policy by our sole outlet for blowing wool, Insta. It is estimated that turnover has been reduced by £0.8m as a consequence.

Market conditions in the UK continue to be extremely challenging and difficult to predict, as reported in the Trading Update of 20 July 2012.Trading in the period since then has been in line with our expectations. The decline in CERT related sales appears to have levelled off and activity since the end of the financial year has strengthened as energy suppliers make a final push to attempt to achieve the targets due for completion by the end of this calendar year.

It is likely that some energy suppliers will not achieve their CERT targets by the end of December 2012 and this has been a major contributing factor in our trading performance in the second half of the year. OFGEM, which monitors the delivery of the CERT programme, has indicated a willingness to accept delivery of additional measures after 31 December 2012. This is welcome news and will assist in the transition to Green Deal. The Board believes that Green Deal represents a significant opportunity for growth in activity levels but, like many other members of the insulation industry, the Board remains very cautious about the immediate prospects for large scale take up of Green Deal measures for so long as such measures require a substantial cash investment by the consumer.

Construction market activity was lower than earlier expectations and has declined by 5% during the year. Our focus in this area has yielded some success, however, with revenues ahead of last year. In particular, our demand generation strategy to grow value added products (VAPs) in new build construction has yielded positive results with sales volumes of VAPs up 25% on the previous year. Value added solutions now represent 10% of our domestic sales volumes compared to 8% in the previous year, driven by increased specification activity with key housebuilders including Barratts and Redrow and the introduction of new and unique solutions for specific applications. Whilst the outlook for construction markets remains relatively weak for 2013, private housing is expected to show stronger growth, supported in part by Government initiatives. Superglass is well positioned to continue to show growth in housing.

Repair, maintenance and improvement markets were broadly in line with last year. Superglass volumes were 3% ahead of the previous year which is slightly ahead of market growth, due in the main to the acquisition of new customers. Superglass now supplies more than 70% of independent builders merchants in the UK.

During the financial year costs have been tightly controlled. Unit costs were broadly in line with management expectations despite lower than expected volumes. Tight control of discretionary spending has enabled this strong performance. In addition to the enhanced level of Project Phoenix cost savings of up to £5.0m, further cost savings have been identified and will also impact meaningfully during 2012/13.

Outside of Project Phoenix, capital spending has been restricted to priority replacement spending. Total non-Phoenix spending totaled £0.7m.

Superglass continues to manage its working capital effectively and, despite the challenging market conditions, the net borrowing position has remained consistently below forecast in recent months.

Outlook

Looking forward, there are as yet no signs of any sustained improvement in the market and there continues to be great uncertainty over the transition from CERT to Green Deal when the former expires at the end of 2012. The UK Government's own economic assessment suggests that the volume of insulation sales under Green Deal will be lower in 2013 than in 2012 under CERT which must be contrary to the desired outcome. We continue to make representations to the UK Government to encourage initiatives to ensure an effective transition from CERT to Green Deal. The retrofitting of glasswool loft and cavity wall solutions are two of the most cost effective methods of reducing carbon emissions and, in the opinion of the Board of Superglass, ought to be a priority for continuing Government action.

The strategic objectives remain to migrate Superglass into a lower cost, higher quality producer of glass fibre insulation solutions with an emphasis on selling its products through broader routes to market, an enlarged customer base and more comprehensive range. The Superglass team has made significant progress in the last twelve months towards achieving these objectives.

Whilst our end markets remain subdued because of broader economic uncertainty, the management team is focused on investing for the future and transforming Superglass into a business which will have the flexibility to respond to the changing shape of our marketplace.

Alex McLeod

Chief Executive Officer

22 November 2012

Financial Review

Revenue

Sales revenue was unchanged from the prior year at £32.4m (2011: £32.4m). Overall volumes were up 2.9% driven by CERT related growth in the Contractor channel. Sales during the second half reduced from first half levels with continued market uncertainty around the transition from CERT to Green Deal impacting volumes. Sales prices continued to be under pressure throughout much of the year.

Operating profit

Earnings before interest, taxation, depreciation, amortisation and exceptional items were £0.4m, down from £1.6m for the same period last year. During the period production costs were impacted by significant increases in energy costs. Despite hedging a proportion of our forward purchase requirements, average purchase prices for energy rose by 22%. In addition rising oil prices drove up costs for transport.

Administrative expenses rose, after adjusting for amortisation of intangible assets in the prior year, by £0.3m primarily due to increased depreciation and labour as a result of key position recruitment.

The loss before taxation, exceptional items and amortisation of intangible assets was £1.7m (2011: £0.6m) and profit before taxation after exceptional items and amortisation of intangibles was £6.8m (2011: loss £5.0m).

Cash and borrowings

Despite the challenging trading conditions net borrowings at 31 August 2012 were £3.5m (2011: £17.6m).

Finance costs

Finance charges amounted to £0.5m (excluding exceptional) in the 2011/12 financial year compared to £0.8m in the previous year. This reflected the reduced level of core borrowings in the business following the recapitalisation of the Company.

Dividends

In accordance with the terms of the refinancing, Superglass will not be paying a 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.

Exceptional costs

The results for the period include significant exceptional items arising in connection with the December 2011 refinancing. These consist of an exceptional credit of £10.3m arising on the exchange of circa £12.15m of bank debt for the convertible shares now owned by Clydesdale Bank plc. This credit is partially offset by exceptional costs including those incurred in the write-down of the remaining book value of certain tangible fixed assets and engineering stocks that are no longer believed to have any value to Superglass as a result of Project Phoenix and costs incurred in completing the refinancing which include professional fees and the write off of financing fees in respect of the prior financing structure that were being expensed over the expected life of those facilities. There is also a small amount charged for restructuring costs. Further details of the exceptional items are set out in note 5.

Taxation

The underlying effective current tax charge (excluding adjustments in respect of prior years and the deferred tax adjustments in respect of the substantively enacted tax rate reduction) for the Group is 25% (2011: 27%).

(Loss)/Earnings per share

Adjusted loss per share (excluding amortisation of intangible assets and exceptional items) was 3.7p (2011: adjusted earnings per share 29.2p). The basic earnings per share amounted to 18.6p (2011: loss per share 123.9p).

The comparative figures have been restated to take into account the effects of the equity issue in the year.

Pension scheme

The Group continues to operate a defined contribution Group personal pension plan which is administered by a major specialist pension provider and therefore has no unforeseen present or future pension liabilities.

Net assets

The equity issue and debt conversion during the year significantly strengthened the Group's balance sheet. Net assets as at 31 August 2012 were £16.3m compared to a net liability figure of £1.1m at 31 August 2011 with debt levels significantly reduced.

Treasury and financial risk management

Superglass aims to reduce financial risks wherever possible and ensure that it has sufficient liquidity to meet all foreseeable needs.

Separate bank accounts are held for all currencies in which trade is conducted, in order to facilitate the collection of debts and the management of currency positions.

The Group normally enters long-term flexible energy supply contracts, which allow it to forward purchase a variable proportion of its power requirements for up to 36 months. The electricity and gas supply contracts were both renewed during the year although these are not reflected on the balance sheet as they are covered by own use exemptions under accounting standards.

Proven credit control procedures have been developed which, together with cover provided by its credit insurer, minimise the credit risk to the Group. For the year ended 31 August 2012 the bad debt expense amounted to 0.01% of sales (2011: 0.03%).

Share capital

Following the recapitalisation during the year, the Company has two classes of share capital which consist of ordinary shares and convertible shares.

Ordinary shares

The ordinary shares carry no right to fixed income but holders are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets and there are no restrictions on the transfer of the Company's shares. During the period the Company complied fully with the requirements that apply to its shares as a consequence of these shares being listed on the London Stock Exchange.

Convertible shares

The convertible shares which are owned by Clydesdale Bank have rights of conversion into ordinary shares in the capital of the Company in two tranches, subject to certain conditions such that, if all the convertible shares were to be converted at the agreed conversion ratio, the resulting interest in ordinary shares held by Clydesdale Bank would be 14,985,748 ordinary shares (equivalent to 23% of the newly adjusted share capital).

The first tranche of 12% will be convertible if, between 2 December 2013 and 2 December 2023, the Company's average ordinary share price, for a period of at least 20 consecutive days, is greater than or equal to 70 pence.

If, during that same period and using the same methodology, the Company's average ordinary share price is greater than or equal to 90 pence, the second tranche of 11% will be convertible in full.

The convertible shares will be entitled to participate in a return of capital and, following an entitlement to convert into ordinary shares arising, the appropriate number of convertible shares will be entitled to participate in dividends and other distributions of profits paripassu with the ordinary shares in issue. The convertible shares will be entitled to participate in a future fundraising of the Company but will have no voting rights, save in limited circumstances.

The convertible shares will not be listed on the Official List of the London Stock Exchange nor will they be admitted to trading on an investment exchange.

*Underlying results exclude the £0.0m charge for amortisation of intangible assets (2011: £4.2m) and exceptional items of £8.6m (2011: £0.2m). The term underlying is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substitute for, or superior measure to, IFRS measures.

Allan Clow

Finance Director

22 November 2012

Operational risks and uncertainties

The Group has implemented improved risk profile reporting

There are a number of potential risks and uncertainties which could have an impact on the Group's performance.

The Directors have introduced improved risk profile reporting, closely monitoring market trends and risks on an ongoing basis, which is the focus of monthly management meetings where performance is measured against budget, latest forecast and prior year. The key risks and uncertainties facing the Group are as follows:

Future market conditions may be less favourable than the Directors expect

The Directors expect that Government-led initiatives aimed at improving the energy efficiency of residential, commercial and industrial buildings, together with changes to UK building regulations, will be of continuing importance in underpinning the Group's markets for the foreseeable future. In the event that these initiatives do not proceed in the form anticipated by the Directors, the Group's sales volumes and trading prospects may be adversely affected. The Directors believe that the delivery of new products, increased quality, increased specification activity and the ability to sell cavity wall insulation to a wider customer base will help mitigate this risk.

There may be excess glasswool manufacturing capacity in the UK in the future, resulting in more competitive market conditions

In the event that future market demand does not grow in accordance with the Directors' expectations or available UK glasswool manufacturing capacity increases more rapidly than they currently anticipate due, for example, to new market entrants, there may be an excess supply of product in the domestic market. Such a situation could create downward pressure on selling prices. The Directors are confident that the additional cost benefits from the new fiberising technology being implemented will ensure Superglass can establish a competitive and sustainable cost position in the market and that this will mitigate the effect of continuing price pressures.

Superglass derives a significant proportion of its sales from a small number of key customers

In the financial year ended 31 August 2012, approximately 86% of the Group's total turnover was derived from ten major customers. In the event that orders placed by these key customers fall below the Directors' expectations in the future or that the Group's relevant contracts with these key customers are renewed on less favourable terms or terminated, the Group's prospects and financial performance may be adversely affected. The risk of material loss of sales volume is mitigated by the decentralised nature of the Group's key trading relationships and related purchasing decision making.

The Group derives all its sales from one type of product

Unfavourable publicity or other adverse reputational factors concerning the Group and its products, as well as a reduction in demand for this type of product or new products entering the market, could damage customer goodwill and the Group's market position. The Group continues to develop new product applications and work to expand routes to market to help mitigate this risk.

The Group operates from a single manufacturing site

The Group produces glasswool insulation at a single manufacturing site in Stirling, Scotland. In the event of a prolonged interruption to production at this site, Superglass would not have the ability to transfer its manufacturing activities to other facilities and may not be able to meet the demand for its products from customers and prospective customers, potentially eroding its market position.

There is a major delay or failure in the implementation of Project Phoenix

The Group is currently in the process of implementing a £7.5m capital investment programme which will fundamentally alter our cost base and generate annual cost savings of up to £5.0m. This is a major technical change programme and any major delays of failures during the implementation phase could damage customer goodwill or inhibit our ability to deliver the quantum and timing of savings identified. The Directors believe that the recruitment of experienced managers and the use of industry proven external experts will ensure that the programme will be delivered on time and to cost. The programme is currently on schedule. 

Infrastructure limitations

The Group relies on the uninterrupted operation of its IT, manufacturing and other systems for the proper running of its commercial operations. Any significant breakdown of, or disruption to, these systems could have an adverse effect on production or the effective control of its commercial operations and risks. This could have a material adverse effect on the Group's business, financial performance and prospects. This risk is mitigated by the Group entering into support contracts with key suppliers where appropriate and also by the Group's own internal engineering team.

The Group's operations expose it to the risk of health and safety and environmental liabilities

We have no higher priority than ensuring the health and safety of our employees and those who come into contact with our processes and products. It is the policy of the Group to ensure that its employees work in as safe an environment as possible and that the risk and incidence of industrial accident or injury is minimised. Nevertheless, there are certain hazards associated with its manufacturing activities. The Group has actively promoted health and safety in the workplace in recent years and seeks to actively comply with its health and safety regulations. However, future occurrences could result in financial liabilities or penalties or a prolonged suspension of production.

The Group strives to comply with current environmental legislation. Future changes to environmental law may require the Group to adopt alternative and less efficient or more costly production processes and were the Group to infringe environmental legislation that could result in prolonged suspension of manufacturing operations and possible financial liabilities or penalties.

The Group mitigates these risks by performing internal safety audits on a weekly basis and also performing routine emissions testing outwith the mandatory test periods.

The supply of energy may be subject to disruption or price fluctuation

Gas and electricity supplies are required for the operation of the Group's plant and production processes. Whilst the Group has entered into purchasing agreements that provide non-interruptible energy supplies and an element of price stability in the short term, increasing energy costs in particular may impact on trading margins if they cannot be passed on to customers. However, the Group aims to mitigate short-term fluctuations in energy prices through an appropriate hedging policy.

Access to sufficient capital is vital during the investment stage of the business transformation

The recapitalisation of the Group in December 2011 provided the funds to progress with the Project Phoenix investment programme. The Group must ensure it operates within the agreed bank facilities whilst delivering the investment and its resultant benefits during the current market uncertainty. The Group has implemented improved working capital procedures to improve visibility and has frequent dialogue with all key stakeholders to ensure this risk is minimised.

The Group's continued success depends on the future services and performance of key Executives and personnel

The Group depends on the continued service of its senior management, including its Executive Directors and senior management team. The Executive Directors and senior managers have significant industry and operational experience that is of key importance to the Group's business. Superglass has entered into service agreements with each of these individuals but retention of their services cannot be guaranteed. If the Group lost or suffered an interruption in the services of any of its Executive Directors or of a number of its senior managers, or if it was unable to continue to attract or develop new senior management with appropriate skills, the Group's financial performance and prospects may be adversely affected.

Failure to conduct business dealings within the law

The Group depends on its employees conducting the business of the Group within its legal boundaries. The first and most important way of avoiding this risk is to ensure that people both inside and outside of the Group know that Superglass will not tolerate any bribery, corruption, unethical behaviour or illegal activity. This risk is mitigated by appropriate policies being in place regarding ethical behavior, whistle-blowing and appropriate contractual terms of employment being in place with employees of the Group.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income and Expense

for the year ended 31 August 2012

Consolidated Balance Sheet

at 31 August 2012

These financial statements were approved by the Board of Directors on 22 November 2012 and were signed on its behalf by:

John Colley Allan Clow Company number

Chairman Finance Director 05423253

Consolidated Cash Flow Statement

for the year ended 31 August 2012

Consolidated Statement of Changes in Equity

for the year ended 31 August 2012

Notes forming part of the financial statements

for the year ended 31 August 2012

1 Accounting policies

Superglass Holdings Plc is a company domiciled and incorporated in the United Kingdom. The financial statements were approved by the Board on 22 November 2012.

Statement of compliance

The consolidated financial statements have been prepared in accordance with IFRS (including International Financial Reporting Interpretations Committee (IFRIC) interpretations) as adopted by the EU (adopted IFRS). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP. These are presented on pages 56 to 59.

Basis of preparation

The financial statements are prepared on the historical cost basis. The consolidated financial statements are presented in Pounds Sterling, which is the Company's presentational and functional currency. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years unless otherwise stated. The financial statements have been prepared on the going concern basis for the reasons outlined on pages 24 to 25.

The preparation of financial statements in conformity with EU adopted IFRS requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The estimates and judgements 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 making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

2 Exceptional items

Items of exceptional income and expenditure in the year to 31 August 2012 relate to an accounting credit in respect of the debt for equity swap that the Group has entered into, bank charges written off as a result of the debt for equity swap, and professional fees incurred in relation to the capital restructuring.

Other exceptional items relate to an impairment charge recognised in respect of certain tangible fixed assets and engineering spares identified as being obsolete, aged and requiring provision as a result of the significant capital investment programme being undertaken by the Group. In addition further costs in respect of reorganisation of the Group have been incurred during the year to 31 August 2012.

3 Taxation

Recognised in the income statement

Reconciliation of effective tax rate

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate would reduce from 28% to 24% over a period of four years from 2011.

A reduction in the tax rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011. A further reduction to 24% (effective from 1 April 2012) was substantively enacted on 26 March 2012 following the March 2012 Budget which also announced that the UK corporation tax will reduce to 22% by 2014. Substantive enactment of the 23% rate with effect from 1 April 2013 took place in July 2012.

As a result of these tax rate changes, the current tax rate in force during the year was 26% from 1 September 2011 to 31 March 2012 and 24% thereafter.

The substantively enacted tax rate at the year end, for deferred tax purposes, was 23% (2011: 25%) and this has resulted in a reduction in the deferred tax liability recognised during the year by £191,000. It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further reduce the Group's future current tax charge and reduce the Group's deferred tax liabilities. The unrecognised deferred tax asset in relation to tax losses at the year end was £541,000 (2011: £nil).

4 Share capital

Disclosed as:

At the end of the year the Group held 19,750 shares (2011: 395,000). The market value of the shares at 31 August 2012 is £1,063 (2011: £35,550).

In the year to 31 August 2012 the Company concluded an issue of equity share capital that was approved by shareholders at an Extraordinary General Meeting on 31 November 2011 and has had the following impact on share capital:

• The existing 1.0 pence ordinary shares at 1 September 2011 were consolidated into post-consolidation ordinary shares on a twenty for one basis. An equity share issue of 47,272,745 ordinary shares with a par value of 20.0 pence was approved by shareholders increasing the equity share capital of the Company by £9,454,949. Issue costs of £1,276,000 were recognised directly in equity.

• The revised issued and fully paid up ordinary shares capital of the Company consists of 50,189,431 ordinary shares with a par value of 20.0 pence, of which the Company holds 19,750 shares in treasury.

• In addition to the issue of ordinary share capital the Group also entered into a debt for equity swap with its bankers. The Group's bankers have converted £12.15 million of the borrowing outstanding at 31 August 2011 into 14,985,748 convertible shares, which, subject to certain conditions, will have the rights of conversion into ordinary shares in the capital of the Company representing 23.0% of the entire issued share capital following conversion.

• The resulting convertible shares are presented within share capital with a par value of approximately £3.0 million and the Group's outstanding long-term borrowings have reduced correspondingly to £5.1 million.

• The Directors have established a fair value of the convertible shares issued of approximately £1.8 million. As required by accounting standards (IFRIC 19) a credit of £10,340,000 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 £10,340,000 in respect of the accounting gain was made between retained earnings and share premium in addition to the transfer of £1,187,000 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 £9,153,000.

5 Earnings/(loss) per share

The figures presented below for the year ended 31 August 2012 reflect the position from the date of ordinary share issue and the figures for the comparative period have been restated to reflect the shares in issue after the share consolidation on the basis approved on equity raise.

The calculation of basic loss per share and underlying profit per share is based on the loss attributable to ordinary shareholders as follows:

6 Post-balance sheet events

Subsequent to the year end the Group has entered into a finance lease arrangement in respect of new fiberising technology with a new technology partner. The new lease arrangement will mean that the intangible asset in respect of the license will be impaired in the year to 31 August 2013 and as a result the Group's results for this period will include an exceptional impairment charge of £489,000 in relation to the carrying value of the license. It is also expected that there will be a further impairment on tangible fixed assets as a result of this new arrangement however the value of this is yet to be determined.

Also, subsequent to the year end the Group as renegotiated the terms of the available bank facilities. Under the revised terms the Group has negotiated additional headroom on the available revolving credit facility of up to £2.9m up to 31 August 2015, agreed revisions to the targets on the existing covenant tests under the original facility and agreed to additional covenant testing at 31 July 2013 and 31 August 2013 based on agreed levels of earnings before interest, taxation, depreciation, amortization and exceptional items. The Group has also agreed revised terms on its RSA grant funding to ensure that the drawdown of the grant is more in line with the revised capital spend.

7. Status of accounts

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 August 2012 or 31 August 2011 but is derived from those accounts. Statutory accounts for the year ended 31 August 2011 have been delivered to the Registrar of Companies, and those for the year ended 31 August 2012 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts. Their reports were unqualified and did not contain statements under Section 489(2) or (3) of the Companies Act 2006.

These results are approved by the Board of Directors on 22 November 2012.