Latchways PLC (LTC)



LATCHWAYS PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

Latchways plc designs, manufactures and sells a complete range of fall protection systems offering continuous protection to individuals working at height. The systems are sold worldwide through a network of trained installers and are used to provide worker safety on applications as diverse as buildings, bridges, aircraft, telecommunications towers, manufacturing plants, entertainment arenas and offshore platforms. Latchways' equipment may be fitted either to new structures or retrofitted to existing ones.

Highlights 

• Strong cash generation. Cash balance £6.2 million (2008: £3.8 million)
• Trading environment significantly tougher due to recession and construction financing constraints
• Group revenues 14% lower at £16.6 million (2008: £19.3 million)
• Profit before tax 26% lower at £3.6 million (2008: £4.9 million)
• Diluted earnings per share 24% lower at 22.82 pence (2008: 30.10 pence)
• Interim dividend maintained at 7.81 pence (2008: 7.81 pence)
• Working capital and operating cost reductions achieved whilst continuing to invest for the future
• Non-construction related prospects encouraging
• Launch of Sealed Self Retracting Lifeline range for offshore applications

Commenting on the results, Chairman, Paul Hearson said:

"The past 12 months have seen global recession, the credit crunch and the structural failure of the worldwide banking system. It is therefore no surprise that we have seen a crisis in confidence throughout industry, and a marked reluctance to commit to capital spending projects. All these effects have accumulated to make the current year significantly more challenging for Latchways, most particularly in its construction facing markets.

Prospects in non-construction related markets continue to improve, and we are cautiously optimistic that the negative sentiment which has delayed many decisions may be lifting.

The underlying strength of the Latchways business, which remains robustly profitable and cash generative, gives us confidence that we will emerge from the current economic climate well placed to achieve profitable growth." 

  Chairman's Statement

The past 12 months have seen global recession, the credit crunch and the structural failure of the worldwide banking system. It is therefore no surprise that we have seen a crisis in confidence throughout industry and a marked reluctance to commit to capital spending projects. All these effects have accumulated to make the current year significantly more challenging for Latchways, most particularly in its construction facing markets.

Despite these impacts, Latchways remains robustly profitable and cash generative. Whilst customers are taking longer to commit to spending plans, we remain in a strong position to benefit when those plans are approved. In particular, non-construction related business continues to generate prospects which we expect to provide growth in due course. We remain confident of achieving current market forecasts for the year.

Results

Group revenue was £16.6 million (2008: £19.3 million), a 14% reduction on the first half of last year. Construction related markets were worst affected by the downturn, although this was offset by resilient sales to utilities and growth for our newest product ranges, the Versirail guardrail system and the Self Retracting Lifeline range. 

Gross margins remained unchanged at 55%. Operating costs were 5% lower, with some efficiency savings achieved whilst maintaining essential long term growth spending on marketing and product development. As a result, operating profits were £3.6 million (2008: £4.8 million). Profit before tax was 26% lower at £3.6 million (2008: £4.9 million). Diluted earnings per share reduced by 24% to 22.82 pence (2008: 30.10 pence).

Group cash balances have increased by £1.4 million since the year end, and £2.4 million since last year, to £6.2 million (2008: £3.8 million). Cash generation has been particularly strong, with net cash generation from operations representing 132% of operating profit. This has been achieved through close attention to working capital requirements, with both inventory and receivables reduced since year end. We continue to pay our suppliers on time, an important cornerstone of our ethical approach to our business.

Dividends

Whilst the short term outlook for revenues and profit remains challenging, the board remains confident in the strength of the Latchways business, especially with regard to cash generation. As a result, an unchanged interim dividend of 7.81 pence per share (2008: 7.81 pence) will be paid on 5 March 2010 to shareholders on the register as at 5 February 2010.

Review

The global economic crisis that has unfolded over the past twelve months has had a significant impact on business confidence across our markets. As a result, customers have become more cautious in their investment decision making, particularly with regard to construction related expenditure. This has naturally affected the Latchways business, most significantly in the UK where construction represents a higher proportion of our overall business. Despite the downturn, we see cause for optimism, particularly in overseas markets.

Latchways' business is divided into three primary segments; Safety Products, which sells fall protection equipment to a global marketplace from our base in Devizes, Wiltshire; Safety Services, which installs and services a range of fall protection equipment in the UK, and Specialist Fixing, which undertakes a range of structural refurbishment services.

Safety Products

UK product sales were 35% lower than last year. Construction related sales were significantly affected by the downturn, with many projects delayed or cancelled, although enquiry levels remain encouraging. Walksafe walkway system revenues have been particularly badly affected as spending on walkways is of a more discretionary nature than fall protection. Conversely, the Versirail guardrail has seen further growth after last year's strong performance. 

Mainland Europe saw sales reduce by 14%. Sales to utility companies were slightly ahead of last year, and we continue our long term prospecting in this area. The overall reduction in business was due to lower public sector spending in specific areas. Overall, we have been encouraged by the resilience of the underlying European business. 

Despite being affected by the construction downturn, North America saw revenues increase by 22%. This was partly due to improving sales of the new Self Retracting Lifeline (SRL) product range, which is beginning to take market share despite being launched into the teeth of the recession. Excluding the SRL, product revenues were still up 14%.

The Rest of the World achieved a 4% increase in sales, with some successes in new geographies. We remain confident that our vertical systems will achieve further growth.

Wingrip, Latchways' aircraft fall protection system, is now specified by a number of national air forces as well as its traditional airline and aircraft manufacturing customer base. Timing of military orders has resulted in lower first half revenues this year, but we expect this situation to improve significantly in the second half.

Safety Services

The Safety Services division installs and maintains fall protection equipment across a wide variety of applications in the UK. The majority of its revenues, however, are derived from the commercial and public construction sectors. As a result, revenues and profits have been affected by the recession, with revenues down 16% and operating profits 30% lower than last year. Operating costs have been trimmed where appropriate and the business remains profitable and cash generative.

Specialist Fixing

The Specialist Fixing division has seen significant improvement this year, with revenues up 26% and operating profits 117% ahead of last year. This division is focused on structural repair of existing housing and other building stock and as such has proven resilient to the effects of the recession, with some notable new business won this year. 

New Products

The introduction of innovative new solutions to fall protection remains a key cornerstone of our strategy. As a result, we have maintained our development programme despite the impact of the recession on current trading, and this will continue to be the case.

The SRL product range is beginning to build up its market share. The initial product launch was for the construction sector, and as a result progress has been slower than we would have liked. However, the product has been well received by the market both in the UK and North America, and we are confident that we have the right product for the medium term. The new Sealed SRL range, which was developed for offshore operations, achieved its first revenues in July, with interest being shown by both the oil & gas and offshore wind farm industries.

Principal Risks

As a provider of fall protection solutions to a global marketplace, the group is subject to a number of external factors which affect its risk profile. The board updates its risk profile at least annually, and the key business risks are analysed in our Annual Report. The most important risks and uncertainties for the remaining six months of this financial year are discussed below.

The severity of the global recession and its effect on business confidence has resulted in a significant reduction in capital project spend. Latchways has not been immune to this and our revenues have been adversely affected. A prolonged economic downturn in any of our major markets could be expected to further impact on Latchways' performance. 

The state of the UK government finances represents a specific risk should infrastructure spending be significantly curtailed. However this may be partially mitigated by improving conditions in the private sector, as well as our ongoing emphasis on addressing the retrofit market for existing structures.

Despite these risk factors, Latchways business has proven to be resilient and we have seen continued growth in a number of areas. The legislative environment is strong and we expect it to remain so. Our continuing efforts to expand our business both geographically and with new products have substantially reduced our reliance on UK construction over the years and we will continue this strategy. Within the UK, we are already seeing positive influences from the 2012 Olympic infrastructure spend.

Latchways's products are predominantly made of either marine grade stainless steel or aluminium. As such, fluctuations in the world market price of these commodities can have a substantial impact on our costs. So far this year prices have fallen and then recovered, reflecting expectations of global demand. At this time we are not seeing any significant upward pressure on costs.

Currency fluctuations, particularly with respect to the Euro and the US Dollar, remain an important risk factor for Latchways. All sales to mainland Europe are invoiced in Euros. Part of this exposure is subject to a natural hedge in that we now make an increasing proportion of material purchases in Euros, but the remainder, along with our US Dollar exposure, is subject to exchange risk. This is mitigated where possible using forward exchange contracts.

Future Prospects

Our long term strategy of developing markets in new geographies and introducing new products for specific industry applications has been further vindicated by the past year's events. The construction sector, particularly in the UK, is likely to remain subdued for the immediate future, although specific local events such as the 2012 Olympics will help to mitigate this. Prospects in non-construction related markets continue to improve, and we are cautiously optimistic that the negative sentiment which has delayed many decisions may be lifting.

The underlying strength of the Latchways business, which remains robustly profitable and cash generative, gives us confidence that we will emerge from the current economic climate well placed to achieve profitable growth. 

Paul Hearson, Chairman
9 November 2009

  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 European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
  

• Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The directors of Latchways plc are listed in the Annual Report.

By order of the Board

DN Hearson 

Chief Executive

9 November 2009

RA Orton

Financial Director

9 November 2009  Latchways plc

Statement of Comprehensive Income

The results for the periods arose wholly from continuing operations.

  Latchways plc

Consolidated Balance Sheet

  Latchways plc

Consolidated Statement of changes in shareholders' equity

Latchways plc

Consolidated Cash Flow Statement

  Notes to the consolidated interim financial statements

1. General information

Latchways plc is domiciled in England.

This condensed consolidated half-yearly financial information was approved for issue on 6 November 2009.

These interim financial results, which have been neither reviewed nor audited, do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2009 were approved by the Board of directors on 5 June 2009 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act 1985.

2. Forward-looking statements

Certain statements in this half-yearly report are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

3. Basis of preparation

This condensed consolidated half-yearly information for the half-year ended 30 September 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 March 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

4. Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2009, as described in those annual financial statements.

The group has adopted IFRS 8 Operating Segments during the period. No restatement of prior period information has been necessary as a consequence of adopting this standard. Operating segments are reported in a manner consistent with the internal reporting provided to the board of directors, which is identified as the Chief Operating Decision Maker for the Company.

The group has adopted IAS 1 (revised) Presentation of Financial Statements. The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity. 'Non-owner changes in equity' are required to be presented separately from owner changes in equity. All 'non-owner changes in equity' are required to be presented in a performance statement. The group has elected to present a single statement of performance, being the statement of comprehensive income.

The group has adopted the amendment to IFRS 2 during the period. No restatement of prior period information has been necessary as a consequence of adopting this standard. 

New accounting standards and interpretations have been issued during the year. The group's approach to these is as follows:

The following standards, amendments and interpretations are mandatory for the first time for the current accounting period but are not relevant to the group's operations:

• IFRIC 13, Customer loyalty programmes; 
• IFRIC 14, IAS 19, the limit on a defined benefit asset, minimum funding requirements and their interaction; 
• IFRIC 15, Agreements for the construction of real estate; 
• IFRIC 16, Hedges of a net investment in a foreign operation; 
• IAS 27 (Revised), Consolidated and separate financial statements; 
• IAS 23 (2007), Borrowing costs.

The following interpretations to existing standards have been published that are mandatory for the group's future accounting periods but which the group has not early adopted:

• IFRS 3, (Revised), Business combinations;

The following interpretations to existing standards have been published that are mandatory for the group's future accounting periods but which are not relevant to the group's operations:

• IFRIC 17, Distributions of non-cash assets to owners; 
• IFRIC 18, Transfers of assets from customers.

5. Segment information

6. Income taxes

Income tax expense is recognised in these interim financial statements based on management's best estimates of the weighted average annual effective tax rate expected for the full year. The estimated average annual tax rate used for the year to 31 March 2010 is 29.0% (the estimated tax rate for the 6 months to 30 September 2008 was 31.0%).

7. Earnings per Share

Earnings per share attributable to equity holders of the company arise from continuing operations as follows:

8. Dividends

A dividend that related to the year to 31 March 2009 and that amounted to £1,739,000 was paid in September 2009 (2008: £1,581,000).

An interim dividend of 7.81 pence per share (2008: 7.81 pence), costing £869,000 (2008: £869,000) has been declared and will be paid on 5 March 2010 to shareholders on the register as at 5 February 2010.

In accordance with IAS 10 "Events after the balance sheet date", these interim financial statements do not reflect this dividend payable.

9. Reconciliation of operating profit to cash flow from operations

10. Capital expenditure

11. Share capital

12. Borrowings and loans

13. Contingent liabilities

There were no contingent liabilities as at 30 September 2009, 31 March 2009 or at 30 September 2008.

14. Events occurring after the balance sheet date

Details of the interim dividend declared are given in Note 8.

15. Related party transactions

During the period, Latchways plc made sales of £1,215,000 (2008: £1,672,000) to HCL Safety Limited. At the period end the balance outstanding to Latchways plc from HCL Safety Limited was £602,000 (2008: £778,000).

During the period, Sigma 6 d.o.o made sales of £443,000 (2008: £173,000) to Latchways plc. At the period end, the trading balance outstanding to Sigma 6 from Latchways plc was £40,000 (2008: £82,000). In addition, Latchways made loans to Sigma 6 amounting to £365,000 (2008: £264,000).

16. Interim Report

Copies of this interim report will be sent to all shareholders. Additional copies will be available from the group's registered office at Hopton Park, Devizes, Wiltshire SN10 2JP, or will be available for download from the group's website at www.latchways.com.