Note: Prior year comparatives throughout this report have been restated as a consequence of the prior year adjustment to Alumasc Precision's 2006/07 figures, as described within note 1 to the financial information contained in this announcement.

Income statement summary and reconciliation of underlying to reported profit before tax

Operating Profit
Group underlying operating profit from continuing operations in 2007/08 increased by £3.7 million to £11.2 million compared with the prior year. The increase arose mainly from the acquisition of Levolux, and continued organic growth across the Building Products division. Further details are given in the Chief Executive's Operating Review. Reported group operating profit from continuing operations was £11.6 million (2006/07: £7.8 million) benefiting from property disposal gains which more than offset the restructuring and other non-cash costs described below.

Net Interest Charge
The group net interest charge increased year on-year by £0.4 million to £1.6 million, comprising interest on borrowings of £1.1 million and non-cash pension interest of £0.5 million. Of the increase, £0.3 million was in respect of interest on borrowings, arising from the funding of recent acquisitions almost entirely with debt. Net interest charged on borrowings was covered over 10 times by underlying operating profit.

Profit Before Tax
Group underlying profit before tax from continuing operations was £9.6 million in 2007/08, over 50% ahead of the prior year.

After including property disposal gains, restructuring costs, and the other non-cash costs described below, total reported group profit before tax from continuing operations of £10.0 million was also around 50% higher than the prior year.

When the profits of Brock Metal (the business sold by the group on 29 June 2007 and included within discontinued operations) are added into the prior year comparator, the total reported group profits of £10.0 million were almost 12% ahead of the prior year.

A reconciliation of underlying profit before tax from continuing operations of £9.6 million to total reported profit before tax of £10.0 million is shown in the table above. The main features are:

• A £1.2 million gain from property disposals, comprising £1.0 million on the sale of the former Alumasc Dispense property at Borehamwood for net cash proceeds of £1.6 million, and a £0.2 million gain on the contribution of the property being leased to Brock Metal into the group's defined benefit pension schemes at market value of £1.1 million.
• Restructuring costs of £0.5 million arising from the relocation of Alumasc Dispense onto one site in Kettering in December, and the costs arising from the investigation and subsequent changes to the management team at Alumasc Precision, described in the Chief Executive's Operating Review.
• Brand amortisation costs, and the post-acquisition reversal of non-cash fair value adjustments relating to inventories at Blackdown Horticultural Consultants (“Blackdown”), together £0.4 million.

Tax
The underlying group tax rate of 31.4% was slightly lower than the prior year reflecting the reduction in the UK corporation tax rate by 2% to 28% with effect from 6 April 2008, benefiting the last quarter of the group's financial year.

After the property disposal gains and one-off costs described above, the group's overall tax rate reduced to 26.6% (2006/07: 30.0%), as a result of the higher profits from property disposals in 2007/08 which are not taxable.

Earnings per share
Underlying earnings per share were 18.3 pence, some 51.2% ahead of the prior year, broadly inline with the increase in underlying profit before tax. Total reported earnings per share of 20.3 pence were 15.3% above the prior year, when the pre-disposal profits of Brock Metal are included in the comparator. This increase was greater than the increase in total profit before tax due to the lower overall tax rate.

Dividends
The Board has proposed a final dividend of 6.75 pence per share (2006/07: 6.6 pence), to be paid on 29 October 2008 to shareholders on the register on 3 October 2008. This will give a total dividend for the year of 10.0 pence per share (2006/07: 9.7 pence), an increase of 3.1%. The full year dividend is covered 1.8 times by underlying earnings from continuing operations.

Capital invested and return on investment
The group considers its capital invested to be the sum of shareholders' funds, minority interests, net debt and the net of tax pension deficit. The group's average capital invested in the year increased by around 10% to almost £56 million, reflecting the full year impact of the Levolux acquisition. Post-tax return on average capital invested 1 improved from 13.2% in 2006/07 to 13.9% in 2007/08, mainly due to the improved operating margins described in the Chief Executive's Operating Review.

Shareholders' funds and return on shareholders' funds
Shareholders' funds decreased from £31.4 million at 30 June 2007 to £30.9 million at 30 June 2008, with the retained profits for the year of £3.8 million and new shares issued of £0.4 million more than offset by a post-tax actuarial loss of some £4.7 million relating to the IAS19 valuation of defined benefit pension obligations. Post-tax return on average shareholders' funds 1 improved from 21.0% in 2006/07 to 21.3% in 2007/08.

1 Return on investment and return on shareholders' funds are calculated using underlying profit figures, and include Brock Metal's results in the prior year comparative

Impairment Review
The Board conducted an impairment review which covered all assets that contribute to the goodwill figure on the Group balance sheet, together with any other assets where indicators of impairment existed. No assets were found to have been impaired.

Summarised Cash Flow Statement

1 EBITDA: Earnings before interest, tax, depreciation and amortisation.
2 Re-stated for prior period adjustments relating to Alumasc Precision.
3 Includes pre-acquisition tax payments relating to Levolux made in 2008.

Cash flow, working capital and capital expenditure
A summary of the Group cash flow statement is given above. The net cash inflow for the year was £3.5 million and consequently group net debt reduced from £12.9 million to £9.4 million.

Operating cash flows grew from £11.0 million in the prior year to £15.2 million, as a result of increased operating profits and a reduction in working capital following management action taken to improve the conversion of profits into cash.

Capital expenditure of £2.5 million in the year was below the annual depreciation charge of £3.4 million. Nonetheless, all major capital investment proposals from group businesses were approved. There were no particularly large projects of note, with most of the investment during the year supporting the new diesel engine projects at Alumasc Precision, further automation at Timloc and business systems improvements.

The acquisition of Blackdown was funded through the use of the group's committed borrowing facilities. The initial acquisition cost of £1.75 million was paid during the year, with further consideration of £0.25 million deferred pending achievement of certain financial targets relating to Blackdown's year ending 30 September 2008. The other main acquisition-related cash flow in 2007/08 was the settlement of a £1.0 million pre-acquisition tax liability relating to Levolux that had been funded by a reduction in the acquisition consideration paid for Levolux in the prior year.

The overall level of cash generation in the year was boosted by:

• property disposal proceeds amounting to some £2.3 million, relating to the former Alumasc Dispense property referred to previously and the sale of the former Copal warehouse in Birmingham for book value; and
• a net £1.9 million receipt arising from the agreement of completion accounts in the 2007/08 financial year relating to the disposal of Brock, and share issues totaling £0.4 million during the year.

Capital structure and financing
The group's capital structure remained broadly unchanged during the year, save for the £3.5million reduction in net debt through the overall cash in-flows for the year described above. Gearing at 30 June 2008 reduced to 30.3% compared with 41.1% on 30 June 2007.

The group retains the five year £15.0 million revolving credit facility drawn down in connection with the acquisition of Levolux in May 2007. These funds remain committed until 2012. The group has total available debt finance of £34.0 million, with the excess above the revolving credit facility available on overdraft. With net debt levels at £9.4 million on 30 June 2008, the group had almost £25 million in unutilised borrowing facilities at the year end. The group's balance sheet therefore remains strong, with capacity to finance further acquisitions in the Building Products division should attractive investment opportunities arise.

Pensions
The group's overall pre-tax pension deficit measured under IAS19 increased from £17.6 million at 30 June 2007 to £19.8 million at 30 June 2008. Despite increased cash and property contributions from the company of £5.3 million in the year, the increased deficit arose because of falling equity values in the investment portfolio and the impact of increased longevity expectations on projected pension liabilities. The increased deficit at 30 June 2008 will adversely impact the non-cash pension interest charge in the group's accounts in the current financial year to 30 June 2009.

The triennial actuarial valuation at 30 April 2007 of the Benjamin Priest Group pension scheme concluded that the deficit was £10.2 million compared with £11.2 million in the previous review. Pension deficit reduction contributions and investment gains in the intervening three year period had been largely offset by the impact of improved longevity assumptions. The actuarial review of the Alumasc Group pension scheme at 30 April 2008 is currently taking place.

Internal Control
The group's approach to internal control is described in the Statement of Corporate Governance in the Annual Report. In view of the growth in the Building Products division and the changing nature of some of the risks the group faces, the Board decided over a year ago to increase the level of both internal and external resource allocated to internal control and audit activities to provide further assurance on the effectiveness of the group's internal control systems. Concerns raised by internal audit work at Alumasc Precision Components during the year culminated in the investigation into that business and the revelation of the overstatement of profits and assets described in note 1 of the financial information contained in this announcement. All other operations within the group have independent accounting and control systems from those at Alumasc Precision Components, and were unaffected. However, as a prudent measure, the Board decided to extend the scope of the external audit at the 30 June 2008 period end close, and a further increase in the level of internal audit work is planned across the group in the current year.

Andrew Magson
Group Finance Director

Published Wednesday 10th September 2008