Superglass Interim Results

Superglass Holdings plc

("Superglass" or the "Company")

Interim results for the six months ended 29 February 2012

Superglass, the UK's leading independent manufacturer of glass fibre insulation solutions, today announces its interim results for the six months ended 29 February 2012.

Highlights

·; Revenue up 14% to £17.2m (2011: £15.0m)

·; Loss before taxation, exceptional items and amortisation of intangible assets £0.8m (2011: £0.0m)

·; Net cash of £0.1m at the period end - ahead of expectations

·; £7.9m (net of expenses) fundraising completed in December 2011 and £12.15m of bank debt exchanged into convertible shares

·; Investment in manufacturing plant to complete in 2013 - Benefits expected to start to flow through in the year ending 31 August 2013

·; Results include significant exceptional items arising primarily from the refinancing

·; Underlying performance expected to be second half weighted in a challenging trading environment

John Colley, Chairman commented: 

"Superglass is making progress in its turnaround. It has completed its refinancing and is on the way to delivering the capital investment programme that was at the heart of the fundraising. It is seeing the benefit of increased volumes of CERT related activity and has been able to sustain price increases in the market. Tight control continues to be exercised over costs and working capital. However market conditions remain difficult. There is uncertainty over how the UK Government's flagship environmental policy Green Deal will operate and Superglass remains a company in transition."

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Chief Executive's statement

Introduction

The six months ended 29 February 2012 was a pivotal period for Superglass. I am delighted that the Company was able to complete its refinancing on 5 December 2011 and I'm very grateful for the support of existing and new shareholders, Clydesdale Bank plc and Scottish Enterprise, all of whom made this possible. I would also like to record my heartfelt appreciation of the commitment and dedication of our staff and the willingness of many of our customers and suppliers to maintain their often longstanding trading relationships with Superglass through a period of considerable uncertainty. The refinancing provides the opportunity to invest in our production facilities in Stirling to increase efficiency and to improve the quality of our products. It has also provided us with a much stronger balance sheet from which we are better able to operate.

Revenue for the period was up 14% from the first half of the previous financial year to £17.2m and earnings before interest, depreciation, amortisation and exceptional items for the period were satisfactory in the circumstances. We continue to manage working capital very tightly and the cash position at the end of February 2012 was ahead of expectations.

The £6.5m capital investment programme that was central to the refinancing, which is referred to as "Project Phoenix", is proceeding broadly in line with plan with completion expected in 2013. Annualised savings of up to £3.6m are expected to start to impact meaningfully in the year ending 31 August 2013.

Market conditions in the UK remain extremely challenging and difficult to predict. Against this background, it is encouraging that revenue in the first half of the financial year was significantly ahead of the same period last year.

At the time of the refinancing the Board believed that performance would be weighted towards the second half of the financial year. This was firstly because sales during the autumn months of 2011 were adversely impacted until the successful completion of the refinancing greatly reduced the uncertainty surrounding the Company; and secondly because we expected that Superglass would benefit from improving trends in demand particularly through Carbon Emission Reduction Target ("CERT") related activity and also from sustained sale price increases in markets where there has been price deflation over the last few years.

The Board's view is that trading will continue at or around the current run rate for the second half of the year. There has been a marked increase in CERT related sales in recent months and the outlook for the continuation of this strong activity in CERT is more encouraging than in other market channels. The UK mineral insulation market remains oversupplied and demand in parts of the market remains depressed as the UK construction sector in general and the house building and repairs, maintenance and improvement sectors in particular, continue to face considerable uncertainty and low levels of confidence.

The Board considers that whilst prices being achieved in the market are broadly in line with expectations sales volumes are not likely to be as strong as originally anticipated.

Sales and markets

Carbon reduction

After prolonged periods of anticipated growth in this sector failing to materialise, Superglass is at last seeing a significant improvement in sales through CERT related activity. Strong growth in sales has been achieved through our principal partner in this channel, Instagroup. We believe activity will continue to be strong as energy suppliers have to deliver on carbon reduction targets by December 2012.

The Government's flagship environmental policy, Green Deal, is set to be launched in the autumn of this year. There remains considerable uncertainty around the final shape of the Green Deal and its impact on demand for loft and cavity wall insulation, which, according to the Government's timetable, will not be clarified until the summer of this year. The Government's own impact assessment suggests that there may be a significant reduction in volumes under Green Deal as compared to those under CERT. Whilst recent announcements by the UK Government are very welcome, we believe more initiatives will be necessary to ensure a smooth transition from the current CERT programme to Green Deal. Without such initiatives there is a real risk that sales volumes in this channel will decline to a low level.

Distributors

New build housing and commercial construction remain key market channels for Superglass. Housing activity was broadly flat during the period, however there are some encouraging indicators emerging from the UK housebuilders. Whilst sales were much stronger than the equivalent period last year, due in part to the better winter weather during 2011/12 and the sales specification effort, we are cautious about the outlook for the second half of the financial year. Continued weakness in mortgage availability and generally low levels of consumer confidence are still affecting the housing market. Activity levels in the commercial sector remain very subdued and are forecast by the Construction Products Association to decline by 5.2% in 2012.

Builders Merchants

Sales continue to be driven by repairs, maintenance and improvement work. The market has been broadly flat during the period. Superglass supplies over 600 independent builders merchants nationwide and has provided an innovative offering in recent years. Superglass was the first insulation manufacturer to offer a CERT funded DIY scheme (Superdad) for builders merchants.

Operations

Once again this has been a challenging period. Our objective has been to operate the Stirling plant to produce good quality products efficiently and in compliance with all applicable regulations. However the plant continues to show signs of the effect of prolonged underinvestment. Capital investment continues to be carefully controlled with rigorous analysis of investment priorities. During the period £0.2m was spent on general capital expenditure. In addition £0.5m was spent on the early stages of Project Phoenix which is progressing broadly to schedule and in line with budget. As indicated in the trading update on 1 March 2012, the planning phase of Project Phoenix was completed in December 2011, contracts have been agreed for 53% of the aggregate project budget and negotiations are ongoing with key suppliers for the remaining projects. Implementation of key projects has commenced as planned during April 2012. Superglass has appointed an Engineering Director to start work on 1 May 2012 to report to the Operations Director, John Ivinson, in support of the delivery of Project Phoenix. In the meantime one of the individual projects within Project Phoenix, to mechanise a packing process which is expected to deliver the lowest payback of the seven projects, is being delayed following a review of available resources. Overall we believe Project Phoenix will deliver significant cost and quality benefits of a scale and to the timescale originally envisaged.

Finance

The results for the period reflect the continuing difficult trading conditions together with the impact of the refinancing.

Revenue for the period was £17.2m, 14% ahead of the same period last year. Earnings before interest, taxation, depreciation, amortisation and exceptional items were £0.4m, down from £1.1m for the same period last year. The loss before taxation, exceptional items and amortisation of intangible assets was £0.8m (2011: £0.0m) and profit before taxation after exceptional items was £8.1m (2011: Loss £2.2m).

During the period production costs were adversely impacted by increases in energy prices and in the cost of cullet and resin which are two of the principal raw materials used in the production process. The average price of gas in the period was 25.6% higher than in the corresponding period last year. The results for the period were also adversely affected by higher freight costs. Superglass continued to maintain tight control on overhead expenses.

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. Further details of the exceptional items are set out in note 4.

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

The Board

As previously announced there have been two recent changes to the Board.

On 21 February 2012 we announced that our Finance Director Tony Kirkbright had decided to step down and had resigned as a Director with immediate effect. The Board has commenced the process of recruiting a new Finance Director and in the meantime has an interim consultant covering this role.

John Colley was appointed as a Non-Executive Director on 12 March 2012 and succeeded Tim Ross as Chairman on 31 March 2012 at which time Tim stepped down from the Board.

Outlook

As we have set out above, the Board expects the Company's performance to be second half weighted and to show an improvement over the first half of the year, albeit lower than was expected towards the end of 2011.

The market in which Superglass operates remains extremely challenging. In the short term, construction activity levels in the channels other than housebuilding are declining. Whilst recent CERT related sales activity is encouraging, the CERT programme expires at the end of 2012. Thereafter, as noted above, the impact of Green Deal and its effect on Superglass' business remains very difficult to predict at this time. There is some encouragement to be drawn from recent Government announcements but we believe more initiatives are needed to ensure a smooth transition from CERT to Green Deal and, in the absence of such further initiatives future trading could be adversely impacted. Within other sales channels Superglass continues to experience generally weak levels of demand relative to supply.

The Board continues to believe that glass wool insulation products will be an important weapon in the drive to improve energy efficiency in the UK and that Superglass can be a strong independent force in the UK glass wool insulation market. Retrofitting of glasswool loft and cavity wall solutions remain two of the most cost effective methods of reducing carbon emissions. In the short term UK demand remains subdued and Superglass is disadvantaged by its relatively inefficient processes and remains a Company in transition. However, the proceeds of the December 2011 refinancing will enable Superglass to improve operating efficiency, allowing us to benefit from any movement towards a more stable market.

Alex McLeod

Chief Executive Officer

24 April 2012

Notes to the accounts

for the six months ended 29 February 2012

1 Basis of preparation

These interim financial statements represent the condensed consolidated financial information of the Company and its subsidiaries (together referred to as "the Group") for the six months ended 29 February 2012. They have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Services Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the EU. The interim financial statements were approved by the Board of Directors on 23 April 2012. The interim financial statements do not constitute financial statements as defined in Section 435of the Companies Act 2006 and do not include all of the information and disclosures required for full annual financial statements.

They should be read in conjunction with the annual report and accounts 2011 which are prepared in accordance with IFRS as adopted by the EU and which are available on request from the Company's registered office or to download from www.superglass.co.uk.

The comparative figures for the financial year ended 31 August 2011 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The Independent Auditors' Report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The current economic environment remains challenging and the Group has reported an operating loss for the period ended 29 February 2012. However, during the period shareholders approved an issue of equity share capital and the Group completed a capital restructuring which included, inter alia, a debt for equity swap of £12.15 million and an injection of new equity of £7.9 million net of expenses. In addition to the significant increase in the Company's equity base, as part of the capital restructuring the Group's bankers agreed to a repayment holiday of two years on the residual core borrowings of £5.1 million, these being repayable in equal quarterly instalments of £425,000 thereafter, and to no covenant tests being required for the next two years, with rolling twelve month cash flow and interest cover covenants being tested quarterly from November 2013. In addition, the Group has a revolving credit facility which steps up, over time, to a maximum of £5.0 million plus the value of offered grant funding.

The Group's projections, taking account of the capital restructuring outlined above, show that the Group should be able to operate within its current banking facilities. Whilst the Directors clearly cannot envisage all possible circumstances that may impact the Group in the future, the Directors believe that, having completed a detailed review of relevant internal forecasts and taking account of reasonably possible changes in trading conditions during the forecast period, the Group continues to have sufficient resources available to it to remain within its agreed borrowing facilities for the foreseeable future.

Further information regarding the Company's business activities, together with the factors likely to affect its future development, performance and position, is set out in the Chief Executive's Statement.

The interim financial statements are unaudited; however, the auditors have carried out a review and their report is set out at the end of this document.

2 Significant accounting policies

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

The preparation of the interim statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of the judgements made about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There has been no material change to the approach taken by Directors in considering estimates and judgements considered to be critical compared to that applied and detailed in the annual report and accounts 2011.

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 August 2011.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group as disclosed in its consolidated financial statements as at and for the year ended 31 August 2011, except in relation to the items noted:

New IFRS and amendments to IAS

The financial statements for the year ending 31 August 2012 are impacted by a number of new standards and interpretations, none of which amend income and net assets of the Group. The key new standards/amendments adopted are as follows:

IAS 24 Related Party Disclosures

IAS 24 Related Party Disclosures simplifies the definition of a related party and eliminates a number of inconsistencies.

3 Segment information

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

Manufacture and sale of insulation

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

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

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

Other information

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

Major customers

There were two customers (six months ended 28 February 2011: two; year ended 31 August 2011: three) that accounted for in excess of 10% of the Group's revenue. These customers accounted for £4.7million (six months ended 28 February 2011; £3.9 million: year ended 31 August 2011: £8.3 million) and £2.5 million (six months ended 28 February 2011: £2.2 million; year ended 31 August 2011: £4.8 million) of revenue respectively.

4 Exceptional items

Items of exceptional income and expenditure in the period to 29 February 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 as a result of the significant capital investment programme that the Group has commenced.

5 Tax charge

Tax for the interim period is charged at 24% on the loss before the accounting credit in respect of the debt for equity swap (six months ended 28 February 2011; 27%, year ended 31 August 2011: 28%) representing the estimated annual effective tax rate for the full year.

A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011 and deferred tax liabilities at 31 August 2011 were calculated at that rate. 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 rate will reduce to 22% by 2014.

This will reduce the Company's future current tax charge accordingly. It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although it is expected this will further reduce the Company's future current tax charge and reduce the Company's deferred tax liability accordingly.

6 Property, plant and equipment

The closing balance includes £547,000 (six months ended 28 February 2011: £373,000; year ended 31 August 2011: £141,000) of assets under construction.

7 Intangible assets

8 Cash and cash equivalents

The cash and cash equivalents balance at 29 February 2012 is stated net of £1,000,000 drawn down from the Group's available revolving credit facility.

9 Retirement benefit obligations

The Group operates a defined contribution Group Sponsored Personal Pension Plan, membership of which is voluntary. The assets of the scheme are held separately from those of the Company in independently administered funds. Employer contributions to the fund are recognised as an employee benefit expense in profit or loss when they are due. Contributions made in the period were £75,000 (six months ended 28 February 2011: £74,000; year ended 31 August 2011: £166,000).

10 Share capital

In the six months to 29 February 2012 the Company concluded an issue of equity share capital that was approved by shareholders at an Extraordinary General Meeting on 30 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 share capital of the Company consists of 50,189,410 ordinary shares with a par value of 20 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.

11 Earnings per share

The calculation of basic and diluted earnings per share at 29 February 2012 was based on the earnings attributable to ordinary shareholders of £8,622,000 (six months ended 28 February 2011: loss £1,612,000; year ended 31 August 2011: loss £3,589,000). The comparative periods have been restated to reflect the earnings per share to take account of the impact of the share consolidation approved on 30 November 2011 in the comparative information.

Adjusted (loss)/earnings per share

Adjusted loss per share at 29 February 2012 was 0.01 pence (six months ended 28 February 2011: earnings 20.2 pence; year ended 31 August 2011: earnings 29.2 pence). Adjusted earnings per share is based on the profit/(loss) attributable to ordinary shareholders after adding back amortisation of intangible assets and the impact of exceptional items. Adjusted loss amounts to £241,000 for the six months ended 29 February 2012. Earnings per share for the six months ended 28 February 2011 and the year ended 31 August 2011 have been restated to use the weighted average number of equity shares shown below with the calculation adjusted for the share consolidation approved as part of the equity raise completed in the six months ended 29 February 2012 as explained below.

Weighted average number of ordinary shares

In the three months to 30 November 2011 there was no change to weighted average number of shares in issue as previously reported by the Group. On 30 November 2011 the shareholders approved an equity issue and recapitalisation of the business at an Extraordinary General Meeting. As part of the approval of the equity share issue a share consolidation took place whereby 20 shares with a par value of 1 pence were swapped for one share with par value of 20 pence.

The figures presented below for the six months ended 29 February reflect the position from the date of ordinary share issue and the figures for the two comparative periods have been restated to reflect the shares in issue after share consolidation on the basis approved on equity raise.

12 Contingencies and commitments

13 Related party disclosures

The Group has a related party relationship with the defined contribution pension fund by virtue of some of the Directors being trustees and with its Executive and Non-executive Directors. There is no change in the position disclosed in the Superglass Holdings Plc annual report and accounts for the year ended 31 August 2011.

14 Principal risks and uncertainties

The 2011 annual report sets out the principal risks and uncertainties faced by the Group at August 2011 and details the processes in place for managing those risks.

The directors do not consider these risk factors to have changed significantly and therefore the principal risks and uncertainties facing the Group for the remaining six months of the year are consistent with those set out in the 2011 annual report. However, there may be additional factors which are not currently known to the Group, or which we currently deem immaterial, which may also have an adverse effect on our business.

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

Statement of Directors' responsibilities

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

The interim report, including the responsibility statement in the preceding paragraph which is made in accordance with DTR 4.2.10(1), was approved by the Board on 24 April 2012.

The Directors confirm that they have a reasonable expectation that the Company has adequate resources in existence for the foreseeable future. Accordingly the Directors continue to adopt the going concern basis in the preparation of the interim report.

The current Directors of Superglass Holdings Plc are as listed in the annual report for the year ended 31 August 2011 and on the Superglass Holdings Plc website [www.superglass.co.uk.]

By order of the Board

Alex McLeod John Colley

Chief Executive Officer Chairman

Independent review report

to the members of Superglass Holdings Plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 29 February 2012 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement Of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement, the Condensed Consolidated Statement Of Changes in Equity, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (DTR) of the UK's Financial Services Authority (UK FSA). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in thisreport and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 29 February 2012 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

M Ross

for and on behalf of KPMG Audit Plc

Chartered Accountants

191 West George Street

Glasgow G2 2LJ

24 April 2012