The Group’s core business is the high value-added manufacture and supply of performance materials, based primarily on technical textiles, for strategically attractive niche markets. It now operates from 13 factories in three continents and supplies fibres, yarns, woven and non-woven fabrics for applications in markets including civil engineering, environmentally sustainable construction, leisure, architecture and general industrial applications. The success of our products is determined more by their performance characteristics than by their aesthetic properties. The Group is focused on becoming a global leader in current and other attractive niche markets for performance materials and aims to provide distinct and sustained added value to its customers’ businesses.
Strategic realignment in 2008
On 30th September 2008, we completed the sale of the Floors Division for £123.0m on a cash-free, debt-free basis (see Group Chief Executive's Business Review). The Board is grateful to the management and employees of the Division for their strong performance in recent years. Following the disposal of its Floors Division in September 2008, the Group has focused its business on two areas of activity in the international technical textiles industry: first, the production and supply of technical coated fabrics for use in the transport, print and architectural markets; and, secondly, of performance technical textiles, including woven and non-woven fabrics and yarns serving, inter alia, the civil engineering, leisure and horticultural markets.
This realignment is commented on further in the Group Chief Executive's Business Review.
Financial performance
As a result of the sale of the Floors Division we are giving 2007 comparative figures both restated for the disposal and as previously reported. These figures are set out in the table below.
Financial highlights
|
|
2007 |
2007 |
2008 |
% Growth |
£m |
As
previously
reported |
Restated
to exclude
Floors
Division |
Excluding
Floors
Division |
(2008
v. 2007
restated) |
| Group revenue |
311.8 |
210.3 |
335.2 |
59.4 |
Group operating profit before amortisation
and non-recurring items |
26.1 |
14.1 |
26.7 |
89.4 |
Group profit before tax, amortisation
and non-recurring items |
22.4 |
10.4 |
16.0 |
53.8 |
Reasons for the Placing and Open Offer and use of proceeds
The Group has announced the terms of a Placing and Open Offer which is expected to generate net proceeds of c.£30m for the Company. The Board believes that the funds raised from the Placing and Open Offer will improve the financial position and future prospects of the Group significantly and, at the appropriate time, allow it to invest in its planned organic growth initiatives and to take advantage of opportunities emerging from the current market environment.
Following its good results for the year ended 30th November 2008, but having given consideration to its strategy and current trading conditions, the Company has reviewed its financing arrangements and the structure of its balance sheet. Economic conditions are strained worldwide and highly uncertain and therefore, the Board believes that identified investment opportunities for organic earnings growth are being lost or delayed through the need to conserve cash. These opportunities include initiatives to reduce capacity constraints and costs and improve cash generation capabilities. Under more favourable economic conditions, and if finance were to be available, the Board would be likely to pursue such opportunities. Initiatives to grow sales include capacity expansion projects related to supplying growth markets such as civil engineering and artificial grass; geographic expansion; removing capacity constraints in weaving; research and development expenditure in woven textiles and yarns; and the need to fund the working capital consequences of such growth in due course. Cost reduction initiatives include process automation in Colbond and manufacturing productivity enhancements in MTX. The Company typically targets cash payback from cost reduction projects of one to three years and three to four years for organic sales growth projects. The Company believes that these initiatives, if implemented, will support the upward trend in operating profit margins and enhance its strategic position.
Whilst economic conditions remain uncertain and trading muted, the Company intends to use the net proceeds of the Placing and Open Offer to reduce net borrowings until such time as it deems it prudent to implement its strategic and operational initiatives.
Capital Reorganisation
It is proposed that the Placing and Open Offer will be undertaken at 25 pence per Placing and Open Offer Share. The Placing and Open Offer is conditional on, amongst other things, the completion of a Capital Reorganisation, for which the approval of shareholders is being sought, which will result in the nominal value of each New Ordinary Share being reduced to 5 pence.
Further details on the proposed Capital Reorganisation are given in note 32 .
Dividend
In light of the Placing and Open Offer, a final dividend will not be recommended for the year ended 30th November 2008. It is the Board’s intention, subject to the Group’s trading position and prevailing economic circumstances, to resume dividend payments for the year to 30th November 2009. It is the Board’s intention that the level of the dividend payment would be established at a sustainable level with the dividend per share to be covered at least twice by earnings per share (before amortisation and non-recurring items).
Employees
Once again I would like to thank our employees throughout the Group for their continued very positive responses and initiatives throughout the year. Their hard work and responsiveness underpins our strong positions across our markets.
Current trading and outlook
The Group has experienced material year-on-year sales volume falls since 30th November 2008, although significant cost actions already taken and benefits from falls in the prices of its key raw materials have helped to mitigate the impact on financial performance. These sales volume declines had been anticipated in part due to customer shutdowns and destocking, as well as the impact of the strained economic conditions.
Given the inherent seasonality in the Group’s markets and the uncertainty surrounding global economic conditions, a clearer picture of underlying trading conditions and the outlook for the Group in 2009 is likely to take some time to emerge. In addition to cost actions taken so far, the Group has identified other opportunities to reduce costs should conditions require it.
Our strategy of developing diverse product ranges for niche end markets and building leading market positions, allied to the underlying trend growth of the technical textile industry all give the Board confidence for the medium to long-term prospects of the Group.
Duncan Clegg
Chairman
19th February 2009