THE ALUMASC GROUP PLC - INTERIM RESULTS ANNOUNCEMENT

Alumasc (ALU.L), the premium building and engineering products group, announces interim results for the six months ended 31 December 2014.

^*Underlying profits and earnings per share from continuing operations are stated prior to the deduction of brand amortisation charges of £0.1 million (2013: £0.1 million), IAS19 pension costs of £0.7 million (2013: £0.5 million) and pre-tax losses from discontinued operations of £0.2 million (2013: £0.5 million).

Key points

·      The group's best first half performance since 2008

·      Decision taken to focus the group's strategic development on accelerating the growth of its Building Products activities. Discussions with potential buyers of Alumasc Precision Components in progress

·      All H1 growth driven by Building Products which increased revenue by 11% to £45.2m and underlying operating profit by 22% to £4.6m, outperforming UK Construction output growth of 6%.

·      Roofing & Walling operating profit doubled on revenue up 24% with performance benefiting from a widened product range and increased sales in the South East.  Facades experienced strong demand in Scotland and for new products.

·      Solar Shadingprofit up 18% and Construction Products profit down 37%, each mainly reflect timing of large contracts.

·      Revenue from Rainwater, Drainage and Housebuilding Products up 17%. Capacity is being added to support growth.

·      H1 Building Products order intake up 30% on prior H1 to £48.9m.

·      14% interim dividend increase reflects improved performance and prospects.

Paul Hooper, Chief Executive, commented:

"…the Board believes the group is well positioned to continue to grow its Building Products business both in this financial year and beyond."

Enquiries:

REVIEW OF INTERIM RESULTS

Overview

Alumasc is pleased to report its best first half year result since 2008, with the strong performance attributable to ongoing profitable growth in the Building Products division where revenues again increased at a faster rate than the UK construction market as a whole:

·      Group revenues from continuing operations increased by 8% to £49.0 million.

·      Underlying profit before tax from continuing operations advanced by 14% to £4.0 million.

·      Underlying earnings per share from continuing operations was 8.9 pence, some 17% ahead of a year ago.

·      Statutory profit before tax of £3.0 million was 24% up on the prior year and basic earnings per share of 6.6p was 27% ahead. A reconciliation of underlying profits and earnings to the statutory figures is provided in note 5 to the interim financial statements.

·      The Board has decided to increase the interim dividend by 14% to 2.5 pence.

As announced in October 2014, the Board has concluded that Alumasc Precision Components ("APC") no longer fits the group's strategy for growth. In line with this decision, the group is currently discussing the sale of APC with a number of potential trade buyers. The results of this business have therefore been presented in the interim financial statements as a discontinued operation. The net book value of APC, shown as a current asset available for sale in the group balance sheet, is £6.5 million.

Strategic Developments

In our 2014 Annual Report we stated that the Board would refresh its appraisal of how best to direct the group's resources in building value for shareholders.

Following this review:

1.     The Board has decided to focus the group's strategic development on accelerating the growth of its Building Products activities:

·      the combination of the strategic positioning of these businesses in sectors that help manage the scarce resources of energy and water with initiatives to increase our share of those markets through new product development and geographic expansion has begun to deliver an acceleration in revenue and profit growth;

·      the group is more proactively seeking Building Products acquisitions to complement organic growth opportunities; and

·      having sold the non-core Pendock Profiles business in September 2014, the group does not intend to divest any other Building Products businesses.

2.     The Board has decided to divest APC, the larger of our two engineering businesses and, as described above, is in discussions with a number of potential acquirers of that business.

Operational review - continuing operations

Group revenues from continuing operations for the six months ended 31 December 2014 increased by 8% to £49.0 million (2013: £45.2 million), with underlying operating profits increasing by 12% to £4.3 million (2013: £3.8 million). Operating margins in 2014 improved to 8.8% from 8.5% in 2013. All of the growth came from the Building Products division. Group interest costs on bank borrowings were similar year on year, and the resultant group underlying profit before tax of £4.0 million (2013: £3.5 million) was ahead of the prior year by 14%.

Building Products revenues grew by 11% to £45.2 million (2013: £40.7 million) and divisional operating profits rose by 22% to £4.6 million (2013: £3.7 million) at operating margins of 10.1% (2013: 9.2%). 

This improved performance was driven mainly by our Roofing and Walling businesses, where actions taken over recent years to strengthen management and sales resources, introduce new products, and expand the product range and geographical reach are now bearing fruit against a backdrop of an improving UK market place. The large Kitimat smelter refurbishment contract is now very close to completion and made only a modest contribution to first half results in 2014.

Our Rainwater, Drainage and House Building Products businesses continued the strong momentum of the previous year, growing revenues by a further 17%. Investments in new product development and in adding new capacity gave rise to some additional costs in the transitional period, resulting in the generation of a similar level of operating profit to that delivered in the first half of the prior financial year.

In the Construction Products segment, Gatic had a satisfactory first half, without the benefit of any individual large project in the UK this year. The multi-million US Dollar project at Doha Port won last summer is under way and will also benefit the second half year. SCP, our scaffolding and related building products business, performed well benefiting from a broadening of both product ranges and routes to market.

Enquiry levels and order intake at Levolux is showing early signs of improvement, indicative of some recovery in the UK new build commercial market, particularly in London and the South East. However, market activity in this segment remains around 30% below its 2008 peak. Levolux's improved first half result benefited from ongoing works, now close to complete, on the large commercial building in London that commenced last year, and on the substantial final project at Chiswick Park where the majority of the work is now done. Steady progress continues in developing export markets, with most success so far in North America.

Dyson Diecasting had a solid first half performance without matching the record highs of the prior year which had benefited from the initial stocking of some new product lines.

Operational review - discontinued operations

APC incurred a modest trading loss in the period, a much improved performance compared with a year ago due to recovery plan actions taken. These included exiting loss making work last year, purchasing savings, operational efficiencies and strong overhead control. However, we were notified in the Autumn that certain export work to Europe would not be renewed as customer engine variants were updated. Unexpectedly at that time APC also received some significant retrospective claims for alleged quality and delivery issues on the work that had come to an end. Some of these claims have now been settled and we are in discussions to resolve the remaining matters. Provisions against the expected value of the settlement of the claims more than offset the improved trading performance of the business, resulting in an increase in APC's overall operating losses for the period to £1.1 million (2014: loss of £0.7 million).

Pendock Profiles made a small trading profit prior to the sale of this business in September 2014. The book gain made on the sale was £0.8 million.

Cash flow, balance sheet, pensions and risk

The group's cash performance was in line with expectations, with overall cash inflows and outflows balanced for the period as a whole. Net debt at 31 December of £7.7 million therefore remained unchanged compared to both 30 June 2014 and also 31 December 2013. The average level of net debt on a cleared funds basis was also similar to the prior half year, as was the net interest charge relating to bank borrowings for the period of £0.3 million.

Close to record low corporate bond yields used to discount pension liabilities to present values caused an increase in the valuation of the pension deficit shown on the group balance sheet to £21.4 million (30 June 2014:  £17.9 million, 31 December 2013: £15.5 million). This in turn led to a reduction in shareholders' funds to £15.0 million (30 June 2014:  £17.0 million, 31 December 2013: £18.3 million). The valuation of pension liabilities for accounting purposes has no direct impact on the level of deficit repair contributions of £3.0 million per annum (including scheme running expenses) that the company is committed to pay into the pension schemes. The next full triennial actuarial review is scheduled to take place in 2016. In the meantime, further actions are being taken to reduce gross pension liabilities and improve pension fund investment returns within an acceptable level of risk.

The group's key business risks are as set out on pages 16 and 17 of the group's 2014 Annual Report, except as stated in note 3 to the interim financial statements.

Outlook

Traditionally, Alumasc has experienced some seasonal bias in favour of second half year results, but in the current year this is expected to be offset by the timing of larger construction projects, which are anticipated to make a more significant contribution to the first half of the 2014/15 financial year.

This is reflected in order books, where Building Products order intake in the period was up by 30% to £48.9 million (2013: £37.5 million), some of this relating to projects scheduled beyond this financial year. The value of the Building Products order book of £19.2 million at 31 December 2014 was similar to the prior financial year end, as billings during the period on larger contracts offset the general growth in the order book.

More broadly, the Board believes the group is well positioned to continue to grow its Building Products business both in this financial year and beyond.

Dividend

In view of the strong first half performance and belief in the improving medium to longer term prospects for the group, the Board has decided to increase the interim dividend by 14% to 2.5 pence per share (2013/14: 2.2 pence). This will be paid on 7 April to shareholders on the register at 6 March.

Paul Hooper, Chief Executive

3 February 2015