REG - Alumasc Group Plc - Final Results <Origin Href="QuoteRef">ALUG.L</Origin> - Part 2
29/10/2014 07:23
- Part 2: For the preceding part double click ID:nRSB5652Qa
5
Actuarial gain on defined benefit pensions, net of tax - - - - - 2,673
2,673
Dividends 7 - - - - - (1,069) (1,069)
At 1 July 2013 4,517 445 (618) (12) 51 18,060 22,443
Profit for the period - - - - - 4,041 4,041
Exchange differences on retranslation of foreign operations - - - - (19) - (19)
Net loss on cash flow hedges - - - (70) - - (70)
Tax on derivative financial liability - - - 20 - -
20
Actuarial loss on defined benefit pensions, net of tax - - - - - (7,732)
(7,732)
Dividends 7 - - - - - (1,675) (1,675)
Share based payments - - - - - 34 34
At 30 June 2014 4,517 445 (618) (62) 32 12,728 17,042
1 basis of preparation
The Alumasc Group plc is incorporated and domiciled in England and Wales. The
company's ordinary shares are traded on the London Stock Exchange.
The group's financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European
Union as they apply to the financial statements of the group for the year
ended 30 June 2014, and the Companies Act 2006.
Going concern
The group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Strategic
Report. The financial position of the group, its cashflows and liquidity
position are set out in the group's full audited financial statements for the
year ended 30 June 2014.
The group has £23 million of banking facilities, of which £20 million is
committed until June 2016. In addition, the group has recently renewed
overdraft facilities totalling £3 million for another year. At 30 June 2013
the group's net indebtedness was £7.7 million (2013: £7.7 million).
On the basis of the group's financing facilities, pension deficit recovery
plan, commitments current financial plans and sensitivity analyses, the Board
is satisfied that the group has adequate resources to continue in operational
existence for the foreseeable future and accordingly continues to adopt the
going concern basis in preparing the financial statements.
2 Judgements and estimates
The key sources of estimation uncertainty that have a significant risk of
causing material adjustment to the carrying amounts of assets and liabilities
within the next financial year are the measurement and valuation of intangible
assets and goodwill, the measurement and valuation of defined benefit pension
obligations and, to a lesser degree, recognition of revenues and profit on
construction contracts.
The measurement of intangible assets other than goodwill on a business
combination involves estimation of future cash flows and the selection of a
suitable discount rate. The group determines whether goodwill is impaired on
an annual basis and this requires an estimation of the value in use of the
cash generating units to which the intangible assets are allocated. This
involves estimation of future cash flows and choosing a suitable discount
rate.
Measurement of defined benefit pension obligations requires estimation of
future changes in inflation, mortality rates and the selection of a suitable
discount rate.
Revenue recognised on construction contracts is determined by the assessment
of completion stage of each contract. The requirement for Directors'
judgement is limited in most cases due to the involvement of quantity
surveyors during the assessment process as detailed within the revenue
recognition accounting policy.
3 Principal Risks and Uncertainties
Alumasc's portfolio of businesses generate sales in a variety of
building/construction and industrial markets.
This reduces the group's exposure to any single end-market or third party
customer or supplier.
Risks Mitigating actions taken
Group-wide and corporate risks
Loss of key employees Comment Generally, staff turnover is low. • Market competitive remuneration and incentive arrangements. • Changes in numbers of people employed monitored in monthly subsidiary board meetings, with staff turnover a KPI in most businesses. • Key and high potential employees identified and monitored
on a local company and group basis. • Focused training and development programmes for key and high potential people. • Exit interviews held for senior people who leave the business.
Product/service differentiation relative to competition not developed or maintained Comment Innovation and an entrepreneurial spirit is encouraged in all group companies. • Group-wide innovation best practice days introduced last year.• Innovation and new product development workshops held regularly in most group companies. • Annual group strategic planning meetings encourage innovation and "blue sky" thinking, with group
resources allocated and prioritised as appropriate to support approved ideas.
Economic and market risks Comment Alumasc is a UK-based group of businesses and the UK construction sector contracted significantly in size during the recent recession. Construction forecasts now anticipate some recovery. Risk of loss of customers. • Develop and retain strong management teams (see above). • Ensure Alumasc products are market leading and differentiated against the competition to improve specification to protect margin (see above). • Develop export sales (particularly in the USA,
Middle & South East Asia and France). • Increase sales to the more resilient building refurbishment (relative to new build) markets.• Increase mix of UK sales towards the stronger London & South East regional markets. • Develop and maintain strong
relationships with key customers through regular contact and superior service. • Good project tracking and enquiry/quote conversion rate tracking. • Increasing use of, and investment in, customer relationship management (CRM) software.
International Business Development risk CommentInternational business development plans might take longer to succeed than initially anticipated or, in some instances, not succeed as intended. • Group board involvement in export development programme planning and monitoring.• Monthly agenda item (where relevant) in Operating Company board meetings.• Employ people with knowledge of both local markets and our products/systems.• Take appropriate UK
and local professional advice.• Regular monitoring/tracking of progress against plans and forecasts, adapting management action accordingly.
Pension obligations Comment Alumasc's pension obligations are material relative to its market capitalisation and net asset value. • Continue to grow the business so the relative affordability of pension contributions is improved over time. • Maintain a good, constructive and open relationship with Pension Trustees. • Meet agreed pension funding commitments. • Pension scheme
management is a regular group board agenda item. • The Board engages specialist advisors on both actuarial and investment matters. • Monitor and seek market opportunities to reduce gross pension liabilities.
Health and safety risks Comment The group has a strong overall track record of health & safety performance, with the number of lost time accidents significantly reduced over the last 10 years. Health and safety risks are inherently higher in the Engineering Products businesses, particularly foundry operations, and this is an area of specific focus. • Health and safety is the number one priority of management and the first agenda item on all subsidiary and group board agendas. • Risk assessments are carried out and safe systems of work documented and communicated. • All safety incidents and near
misses reported to board level with appropriate remedial action taken. • Group health and safety best practice days are held twice a year and chaired by the Chief Executive. • Annual audit of health and safety in all group businesses by independent
consultants. • Specific focus on improving health and safety in foundry environments and higher risk operations. • All safety incidents and near misses reported monthly.
Product warranty/recall risks Comment The group has a good track record with regard to the management of these risks and does not have a history of significant claims. • Robust internal quality systems, compliance with relevant industry standards (eg ISO, BBA etc) and close co-operation with customers in their design and specification of the group's products.• Group insurance programme to cover larger potential risks and
exposures, where available.• Back to back warranties from suppliers, where appropriate.• Seek to manage contractual liabilities to ensure potential consequential losses are minimised and proportionate, and overall liabilities are capped, where possible.
Reliance on key suppliers Comment Whilst the group does not have undue concentration on any single or small group of suppliers, certain Alumasc businesses do have key strategic suppliers, some of whom are located in the Far East. • Annual reviews of supplier concentration as part of strategic planning/formal business risk review process, with alternative suppliers sought and developed where practicable. • Regular visits to key suppliers, good relationships maintained and quality
control checks/training carried out. • Regular reviews as to whether work should be brought back to the UK (or elsewhere) as economic conditions evolve. • Selling price adjustment mechanisms built into longer term sales contracts wherever possible, or
material, to mitigate input cost inflation and, where possible, foreign exchange risk.
Loss of key production facilities/business continuity Comment The group has not experienced any significant loss of production facilities causing business continuity issues. Whilst the likelihood of a catastrophic loss is low, the impact if it were to happen could be high. • Business continuity plans have been prepared at subsidiary level, having regard to the specific risk factors. • Advice is being taken from insurers on continuous improvement of these plans. • IT disaster recovery plans are in place, with close to real
time back up arrangements using either off-site servers or cloud technology. • Critical plant and equipment is identified, with associated breakdown/recovery plans, including assessment of engineering spares held on site.
Business systems change Comment Alumasc is part way though implementing common business (ERP) systems. Experience so far has been generally positive. • Ensure use of proven, reliable software solutions and implementation consultants with industry specific track record of success. • Implementation projects are governed by Steering Committees sponsored by the managing director of the business, with group
executive director involvement, supported by independent consultants. • Project boards established. The project manager reports to the Steering Committee. • Careful documentation and challenge of legacy business processes prior to implementation to avoid
bespoking of software wherever possible. • Pre-implementation testing, training and communication, with go-live delayed if implementation risk is judged to be too high.
Credit risk Comment The group has a generally good record in managing credit risks. Risks are higher amongst smaller building contractor customers, who are often installers of the group's products. • Most credit risks in the building products division are insured. • Customers in the Engineering Products division tend to be large, well-funded international OEM's and are therefore generally lower risk. • Large export contracts are backed by letters of
credit, performance bonds, guarantees or similar. • Any risks taken above insured limits in the Building Products division are subject to strict delegated authority limit sign offs, including group executives' sign off for risks above £50k. • Credit checks
when accepting new customers/prior to accepting new work. • The group employs experienced credit controllers, and aged debt reports are reviewed in monthly Board meetings.
Additional Building Products' risks
Risks Mitigating actions taken
Failure of or delays in large construction contracts Comment Most of Alumasc's business is product supply only, so many risks associated with large construction contracts involving installation of product are avoided. However, Levolux and Blackdown do install their own products in the UK. Alumasc can experience construction project delays beyond its control. • Experienced, specialist resources manage construction contract risks in the relevant Alumasc businesses. • Inherent risks of consequential loss though delay in caused by Alumasc businesses are somewhat mitigated as solar shading and green roofing
products tend to be installed towards the end of the construction of the overall building. • Risk reviews are carried out on significant or unusual contracts, and are submitted to local boards, and in some cases the group board, as appropriate for approval
before the work is accepted. • Close and collaborative relationships are maintained with customers so any issues are resolved as soon as possible as and when they arise. • Robust contract terms negotiated with indemnity and consequential loss clauses
managed to acceptable levels and overall limits of liability agreed wherever possible/practicable. • Close relationships with customers to understand latest project developments. • Appropriate contingency allowances built into business and financial plans,
which are reviewed regularly.
Additional Engineering Products' risks
Customer concentration Comment There is a higher level of customer concentration in the Engineering Products division than for Building Products. The Caterpillar Group is the Alumasc's largest customer. • Diversify the business into a wider variety of end use markets and develop a wider customer base over time. • Maintain good and close relationships with larger customers as strategic partners. • Maintain Alumasc Precision's differentiation through
engineering expertise, and a "one stop shop" for a range of diecasting and machining solutions. • Continuous improvement of quality and service levels. • Seek to achieve robust customer contracts with liability clauses that are proportionate to the work
being. undertaken and avoidance, wherever possible, of "cost down" commitments to protect margin over time.
Project risk Comment Some engineering products contracts can potentially last a number of years, and any issues relating to inaccurate pricing and costing of work at the outset and/or not optimising up-front tooling development can cause lower than expected margins. • Specialist engineering, operational and commercial resources with significant industry experience are employed in the engineering businesses to manage the specific risks. • The Engineering Products division has its own specialist non-executive director
representation at divisional board level. • Formal project risk reviews are carried out on all significant new or unusual/higher risk contracts, requiring divisional or group board approval, as appropriate prior to committing to the work. • Strong
engineering functions to ensure tooling is properly developed in collaboration with the customer to deliver mutual benefit.
4 segmental analysis
In accordance with IFRS8 Operating Segments, the segmental analysis below
follows the group's internal management reporting structure.
The Chief Executive reviews internal management reports on a monthly basis,
with performance being measured based on segmental operating result as
disclosed below. Performance is measured on this basis as management believes
this information is the most relevant when evaluating the impact of strategic
decisions.
Inter-segment transactions are entered into applying normal commercial terms
that would be available to third parties. Segment results, assets and
liabilities include those items directly attributable to a segment.
Unallocated assets comprise cash and cash equivalents, deferred tax assets,
income tax recoverable and corporate assets that cannot be allocated on a
reasonable basis to a reportable segment. Unallocated liabilities comprise
borrowings, employee benefit obligations, deferred tax liabilities, income tax
payable and corporate liabilities that cannot be allocated on a reasonable
basis to a reportable segment.
Analysis by reportable segment 2013/14
Revenue
External Inter-segment Total Segmental OperatingResult
£'000 £'000 £'000 £'000
Solar Shading & Screening 16,339 - 16,339 507
Roofing & Walling 26,927 - 26,927 2,929
Energy Management 43,266 - 43,266 3,436
Construction Products 15,534 - 15,534 1,676
Rainwater, Drainage & Other 24,626 60 24,686 3,196
Water Management & Other 40,160 60 40,220 4,872
Building Products 83,426 60 83,486 8,308
Alumasc Precision 29,976 1,068 31,044 (198)
Engineering Products 29,976 1,068 31,044 (198)
Elimination / Unallocated costs - (1,128) (1,128) (1,332)
Total 113,402 - 113,402 6,778
£'000
Segmental operating result 6,778
Brand amortisation (268)
IAS19 (revised) - pension scheme administration costs (452)
Total operating profit 6,058
Capital expenditure
Segment Assets Segment Liabilities Property,Plant &Equipment OtherIntangibleAssets Depreciation Amortisation
£'000 £'000 £'000 £'000 £'000 £'000
Solar Shading & Screening 17,914 (4,818) 16 50 49 168
Roofing & Walling 12,387 (6,208) 203 12 132 10
Energy Management 30,301 (11,026) 219 62 181 178
Construction Products 7,291 (2,947) 211 97 176 38
Rainwater, Drainage & Other 13,095 (5,319) 378 7 460 133
Water Management & Other 20,386 (8,266) 589 104 636 171
Building Products 50,687 (19,292) 808 166 817 349
Alumasc Precision 16,791 (6,643) 424 8 1,017 19
Engineering Products 16,791 (6,643) 424 8 1,017 19
Unallocated 6,071 (30,572) 1 1 225 13
Total 73,549 (56,507) 1,233 175 2,059 381
Alumasc Precision
16,791
(6,643)
424
8
1,017
19
Engineering Products
16,791
(6,643)
424
8
1,017
19
Unallocated
6,071
(30,572)
1
1
225
13
Total
73,549
(56,507)
1,233
175
2,059
381
Analysis by reportable segment 2012/13
Revenue
External Inter-segment Total Segmental OperatingResult
£'000 £'000 £'000 £'000
Solar Shading & Screening 18,086 - 18,086 841
Roofing & Walling 32,569 - 32,569 3,094
Energy Management 50,655 - 50,655 3,935
Construction Products 17,109 - 17,109 2,415
Rainwater, Drainage & Other 20,448 77 20,525 2,029
Water Management & Other 37,557 77 37,634 4,444
Building Products 88,212 77 88,289 8,379
Alumasc Precision 28,557 859 29,416 (461)
Engineering Products 28,557 859 29,416 (461)
Elimination / Unallocated costs - (936) (936) (1,269)
Total 116,769 - 116,769 6,649
£'000
Segmental operating result 6,649
Brand amortisation (273)
Restructuring costs (814)
IAS19 (revised) - pension scheme administration costs (400)
Impairment (625)
Total operating profit 4,537
Impairment
(625)
Total operating profit
4,537
Capital expenditure
Segment Assets Segment Liabilities Property,Plant &Equipment OtherIntangibleAssets Depreciation Amortisation
£'000 £'000 £'000 £'000 £'000 £'000
Solar Shading & Screening 17,999 (5,047) 13 10 67 168
Roofing & Walling 11,260 (6,413) 156 10 148 169
Energy Management 29,259 (11,460) 169 20 215 337
Construction Products 7,768 (3,595) 300 1 192 1
Rainwater, Drainage & Other 12,324 (5,082) 175 13 513 139
Water Management & Other 20,092 (8,677) 475 14 705 140
Building Products 49,351 (20,137) 644 34 920 477
Alumasc Precision 18,413 (7,131) 729 9 1,178 53
Engineering Products 18,413 (7,131) 729 9 1,178 53
Unallocated 11,936 (29,989) 2 - 233 13
Total 79,700 (57,257) 1,375 43 2,331 543
Total
79,700
(57,257)
1,375
43
2,331
543
Analysis by geographical segment 2013/14
United North Middle Far Rest of
Kingdom Europe America East East World Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Sales to external customers 91,607 9,003 7,642 1,795 2,342 1,013 113,402
Segment non-current assets 31,279 - - - 35 - 31,314
Analysis by geographical segment 2012/13
United North Middle Far Rest of
Kingdom Europe America East East World Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Sales to external customers 89,111 6,609 14,191 1,518 4,190 1,150 116,769
Segment non-current assets 32,303 - 7 - 43 - 32,353
Segment revenue by geographical segment represents revenue from external
customers based upon the geographical location of the customer. The analyses
of segment non-current assets are based upon location of the assets.
5 non-UNDERLYing items
2013/14 2012/13(re-stated)
£'000 £'000
Brand amortisation (268) (273)
IAS19 (revised) - pension scheme administration costs (452) (400)
IAS19 (revised) - net pension scheme finance costs (448) (996)
Restructuring and acquisition costs - (814)
Impairment - (625)
(1,168) (3,108)
(3,108)
Restructuring and acquisition costs in the prior year related to both
restructuring and redundancy costs and the costs of acquiring Rainclear
Systems Limited.
The impairment charge in the prior year of £625,000 related to a partial write
down of the carrying value of goodwill in Blackdown Greenroofs. Goodwill
relating to Blackdown Greenroofs was reduced from £1,251,000 to £626,000 at 31
December 2012.
6 TAX EXPENSE
(a.) Tax on profit on ordinary activities
Tax charged in the statement of comprehensive income
2013/14 2012/13(re-stated)
£'000 £'000
Current tax:
UK corporation tax charge 971 909
Overseas tax 30 40
Amounts over provided in previous years (26) (21)
Total current tax 975 928
Deferred tax:
Origination and reversal of temporary differences 249 1
Rate change adjustment (176) (41)
Total deferred tax 73 (40)
Total tax expense 1,048 888
1,048
888
Tax recognised in other comprehensive income
Deferred tax:
Actuarial (losses)/gains on pension schemes (1,618) 924
Cash flow hedge (20) (5)
Tax (credited)/charged to other comprehensive income (1,638) 919
Total tax (credit)/charge in the statement of comprehensive income (590) 1,807
(b.) Reconciliation of the total tax charge
The total tax rate applicable to the tax expense shown in the statement of
total comprehensive income of 20.6% is lower than (2012/13: 32.0% was higher
than) the standard rate of corporation tax in the UK of 22.5% (2012/13:
23.75%). The differences are reconciled below:
2013/14 2012/13(re-stated)
£'000 £'000
Profit before taxation 5,089 2,774
Current tax at the UK standard rate of 22.5% (2012/13: 23.75%) 1,145 659
Expenses not deductible for tax purposes 105 291
Rate change adjustment (176) (41)
Tax over provided in previous years - corporation tax (26) (21)
1,048 888
888
(c.) Unrecognised tax losses
The group has agreed tax capital losses in the UK amounting to £21 million
(2013: £21 million) that relate to prior years. Under current legislation
these losses are available for offset against future chargeable gains. A
deferred tax asset has not been recognised in respect of these losses, as they
do not meet the criteria for recognition.
Revaluation gains on land and buildings amount to £1 million (2013: £1
million). These may be offset against the capital losses detailed above,
therefore net capital losses carried forward amount to £20 million (2013: £20
million). The capital losses are able to be carried forward indefinitely.
(d.) Deferred tax
A reconciliation of the movement in deferred tax during the year is as
follows:
Acceleratedcapitalallowances Short termtemporarydifferences Totaldeferred Pensiondeferred
Brands Hedging tax liability taxasset
£'000 £'000 £'000 £'000 £'000 £'000
At 1 July 2012 1,094 (43) 624 19 1,694 (3,489)
(Credited)/charged to the statement of comprehensive income - current year (201) (1) (89) - (291) 251
Debited/(credited) to equity - - - (5) (5) 924
Acquired in business combination 2 - 115 - 117 -
At 1 July 2013 895 (44) 650 14 1,515 (2,314)
(Credited)/charged to the statement of comprehensive income - current year (171) 34 (138) - (275) 348
Credited to equity - - - (20) (20) (1,618)
At 30 June 2014 724 (10) 512 (6) 1,220 (3,584)
Deferred tax assets and liabilities are presented as non-current in the
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