Final Results

IMMEDIATE RELEASE

Tuesday 3 September 2024

THE ALUMASC GROUP PLC

("ALUMASC" or the "GROUP")

FULL YEAR RESULTS ANNOUNCEMENT

DELIVERY OF STRATEGIC PRIORITIES DRIVING MARKET OUTPERFORMANCE WITH FURTHER UPGRADE TO 2024 PROFIT

Alumasc (ALU.L), the premium sustainable building products, systems and solutions Group, announces results for the year ended 30 June 2024.

HIGHLIGHTS (continuing operations):

·      Record underlying^* pre-tax profit grew by 16.1% to £13.0m (2023: £11.2m), ahead of our recently upgraded expectations

o  5.5% contribution from ARP, net of attributable interest

o  10.6% organic growth, reflecting strong operational execution and investments in people and processes

·      Revenue grew by 13.0% to £100.7m (2023: £89.1m)

o  6.5% organic growth sales increase, against an estimated 2.9% decline in UK construction over 2024, with growth in all three Group divisions driven by a focus on sustainable solutions and effective new product development

o  ARP, acquired in December 2023, delivered a 6.5% contribution to revenues, while developing cross-selling and purchasing synergies

·      Group underlying operating margin^* of 14.1% (2023: 13.6%), progressing towards 15-20% target margin range, with all divisions contributing to the improvement

·      Strong cash performance: operating cash conversion^* of 120% (2023: 104%) and net bank debt^* of £7.2m, after net £8.5m outflow on acquisition of ARP, representing a leverage multiple^* of 0.5x

·      Pension derisking continuing: £0.8m IAS 19 surplus at year end (2023: £4.3m deficit)

·      Basic earnings per share 24.3p (2023: 23.3p), underlying earnings per share^* 26.9p (2023: 25.0p)

·      Progressive dividend policy reflects Board's continued confidence in outlook

o  Final dividend proposed at 7.3p (2023: 6.9p) per share, contributing to a total dividend of 10.75p (2023: 10.3p) per share, within our medium term objective of 2.5-3.0 times earnings cover

STRATEGIC POSITIONING: LEADERSHIP IN ENVIRONMENTAL SOLUTIONS DRIVING FUTURE GROWTH

Market leading positions in sustainable products, with

·      >80% of portfolio aligned with strong environmental growth drivers

·      Achievements during the year:

o  Further 4.7% reduction in scope 1, 2 and business travel carbon intensity

o  Full scope 3 calculations well underway

DIVISIONAL HIGHLIGHTS

Water Management

·      Strong performance, assisted by ARP contribution and export sales growth

·      Revenue +21% to £48.3m (2023: £39.8m); underlying operating profit^* +32% to £7.6m (2023: £5.8m)

·      Organic growth (excluding ARP): revenue +7%, underlying operating profit* +16%

·      Underlying operating margin* 15.8% (2023: 14.5%)

Building Envelope

·      Delivering on investment in technical sales and customer support capabilities

·      Revenue +9% to £37.6m (2023: £34.6m); underlying operating profit^* +13% to £4.6m (2023: £4.1m)

·      Underlying operating margin* 12.3% (2023: 11.8%)

Housebuilding Products

·      Very strong performance against a very challenging new build housing market backdrop, driven by investment in new product development

·      Revenue +1% to £14.8m (2023: £14.7m); underlying operating profit^* +7% to £3.8m (2023: £3.5m)

·      Underlying operating margin* 25.3% (2023: 23.9%)

OUTLOOK

The strong performance during the full year reflects Alumasc's focus on sustainable products which are recognised as highly effective solutions to the growing challenge of climate change across the built environment.

The management team continues to progress with its long-term growth strategy, to accelerate organic growth, drive margin improvement and enhance delivery through value-accretive investment which continues to underpin the future growth ambitions for Alumasc.

Alumasc's performance against the backdrop of challenging markets during 2024 shows the business's quality, and as we progress into 2025 we have a clear line of sight of our growth plans, capacity to invest and opportunity to deliver significant shareholder value.

While demand headwinds in Alumasc's commercial markets are likely to persist for the remainder of 2024, we are encouraged by early indicators of easing in planning, improving consumer confidence and the interest rate outlook which suggests an improved trading outlook in due course. With the positive trading momentum Alumasc has carried into the new financial year, and the improving economic environment, the Board is optimistic for another year of growth.

Commenting on the results reported today, Paul Hooper, Chief Executive, said:

"We are extremely pleased to report a further upgrade to our 2024 profit, with underlying profit before tax* of £13.0m, 16% ahead of the prior year. All three divisions saw organic revenue and strong profit growth, a result of continued delivery on our strategic priorities and Alumasc's position as a market leader in the provision of sustainable products, which provide efficient solutions to the challenges presented by our changing climate.

Sustainability is at the core of what the construction industry needs to do to address climate change and the Group is well placed to benefit from these long-term growth drivers. This environmental focus, together with an effective commercial strategy, has enabled us to continue to outperform the wider UK construction market.

Since we completed the strategic acquisition of ARP Group and welcomed our new colleagues, the business has performed extremely well, bringing exciting synergies and opportunities for cross-selling to the business.

Alumasc's performance against the backdrop of challenging markets during 2024 shows the business's quality and as we progress into 2025 we have a clear line of sight of our ambitious growth plans, capacity to invest and opportunity to deliver significant shareholder value."

* Alternative performance measures: see Note 1

Enquiries:

The Alumasc Group plc                                                                   +44 (0)1536 383844

Paul Hooper (Chief Executive)        

Simon Dray (Group Finance Director)            

Peel Hunt (Broker)                                                                            +44 (0)207 418 8831

Mike Bell              

Ed Allsopp           

Cavendish Capital Markets Ltd (Nominated Adviser)             +44 (0)207 220 0561

Julian Blunt

Edward Whiley   

Camarco (Financial PR)                                                                  [email protected]

Ginny Pulbrook                                                                                    +44 (0)203 757 4992

Rosie Driscoll

Tilly Butcher                                        

Notes to Editors:

Alumasc is a UK-based supplier of premium sustainable building products, systems and solutions. Almost 80% of Group sales are driven by building regulations and specifications (architects and structural engineers) because of the performance characteristics offered.

The Group has three business segments with strong positions and brands in their individual markets. The three segments are: Water Management; Building Envelope; and Housebuilding Products.

Strategic Report

Chair's Statement

Record profits, delivering strategically and ambitious going forward

Despite geopolitical and economic uncertainty, Alumasc delivered organic revenue and strong profit growth in all three divisions. Together with an encouraging performance from ARP in the first six months of our ownership, this resulted in a record Group profit, with underlying profit before tax (UPBT*) of £13.0 million (2022/23: £11.2 million), and an underlying operating margin* of 14.1% (2022/23: 13.6%). Statutory profit before tax from continuing operations was £11.7 million (2022/23: £10.5 million).

Performance - financial and environmental

The record UPBT* of £13.0 million arose from higher revenues (now above £100 million), from a strategic focus on environmentally sustainable solutions, new product development, investment in people and processes, the ARP acquisition, and driving efficiencies.

Our underlying operating margin* of 14.1% (2022/23 13.6%) is progressing towards our target of 15% - 20%, with all three divisions contributing to the improvement.  Operating cashflow was once again strong at £16.2 million (2022/23 £12.2 million), enabling us to continue to invest in strategic initiatives.

Our environmentally focused product portfolio continues to benefit from long term growth drivers, helping us to outperform the general UK construction market. We saw a further 4.7% reduction in our scope 1, 2 and business travel GHG emissions intensity (70% reduction since we began reporting it in FY18). Our full scope 3 emission calculations are well underway as we support our divisions on the Group's pathway to Net Zero.

Strategy and ambitions

We aspire to grow revenues faster than the UK construction sector, while increasing operating margins to accelerate profit growth and deliver superior shareholder value. To this end, Alumasc continues to make clear and sustained progress towards each of our four strategic objectives:

·      Organic revenue growth (+6.5%);

·      Operating margin improvement (+50bps);

·      Sustainable product revenues (which represented over 85% of Group revenue); and

·      Value-enhancing investments to support our longer-term growth objectives.

Investments continued in support of our commercial strategy, in sales/customer support and new product development. In addition to the ARP acquisition, we invested £3.6 million of capital in organisational capability, including automation of access cover manufacturing at our Halstead site, and in providing better information to support commercial decision-making through ERP and CRM upgrades.

We have been pursuing this growth-focused strategy for around three years now, and aspire to grow revenues faster than the UK construction sector while increasing operating margins to accelerate profit growth and deliver superior shareholder value.

Pension scheme

Alumasc continues to work constructively with the Trustees of the defined benefit pension scheme to fund and derisk the scheme.  On an accounting/"technical" basis, the June 2024 surplus of £0.8 million compares to the June 2023 deficit of £4.3 million. Alumasc continues to contribute £1.2 million p.a. to the scheme until the next formal actuarial valuation exercise in 2025 while working constructively with the Trustees to help reduce the scheme's volatility and its dependence on the Group.

Dividends

Reflecting the Board's confidence, a final dividend of 7.3p per share will be recommended to shareholders, payable on 1 November 2024.  If approved, when added to the interim dividend of 3.45p paid in April 2024, this would represent a total dividend per share of 10.75p per share (2023:10.3p), in accordance with our progressive dividend policy and medium term objective of 2.5 to 3.0 times cover.

Our people - past, present and future

It is Alumasc's people who deliver our purpose of providing building products for a sustainable future. On behalf of all stakeholders, I thank all our colleagues (past, present and future) for their dedication and commitment.

In December 2023 we welcomed new colleagues with the ARP acquisition in Leicester, who are already making a strong contribution to the group.

Sadly, as we increase automation with modern machinery at our facility in Halstead, we recently announced the planned closure of our long-standing site in Dover. Our thanks go to the staff affected by this for their professionalism and dedication over many years of service.

Outlook

While we still expect market headwinds to persist in the near term before commercial conditions strengthen materially, including anticipated further interest rate reductions, Alumasc is confident in its future prospects.  Our recent track record of consistently delivering profitable growth; investments in people/processes/new products/ARP; the evolving regulatory/environmental and construction/housebuilding landscape; and our self help measures cause us to be optimistic about the delivery of our medium term aspirations, as market conditions improve.

Vijay Thakrar

Chair

3 September 2024

* a reconciliation of underlying to statutory profit before tax is provided in note 5.

Chief Executive's Review

Financial Highlights and Overview                                  

*A reconciliation of underlying to statutory profit before tax is provided in note 5.

Overview of Performance

Against a challenging background, it is very encouraging to report a record Group performance in 2024.  Revenue grew by 13% to £100.7 million and underlying profit before tax by 16% to £13.0 million. The operating margin grew to 14.1% (from 13.6%), with all divisions contributing to the improvement, and represents further progress towards our medium term ambition of 15%-20%. All of the above was achieved despite a slowdown in overall UK construction activity and, in particular, a significant slowdown in UK house construction activity.

Group sales included £5.8 million from ARP, the Water Management business acquired in late December 2023. Organic sales growth was 6.5%, significantly outperforming the estimated 2.9% decline in overall UK construction activity over 2024. There was encouragingly strong growth in export activity following the investment in export sales representation, which was achieved despite the limited call-offs from the significant project at Chek Lap Kok airport in Hong Kong. This mitigated some UK project delays which impacted the Water Management division's domestic revenues. Non-UK sales represented 10.0% of total Group revenue (2022/23: 5.6%).

The ARP business has performed very well in the six months following its acquisition. Cross-selling opportunities are being taken, and work is well underway to realise the substantial purchasing synergies presented by the acquisition, which will benefit the Group from next year.

Divisional review                                              

(a)    Water Management

Revenue: £48.3 million (2022/23: £39.8 million)

Underlying operating profit*: £7.6 million (2022/23: £5.8 million)

Underlying operating margin*: 15.8% (2022/23: 14.5%)

Operating profit: £6.8 million (2022/23: £5.6 million)

* Prior to restructuring costs of £0.6 million (2022/23: £0.1 million) and acquired IA amortisation charges of £0.2 million (2022/23: £0.1 million)

The Water Management Division grew its revenue by £8.5 million (21%), a very commendable achievement. Included in this was the excellent first six months' contribution from ARP of £5.8 million, together with strong organic growth of 7%. Underlying operating margins improved to 15.8% (2022/23: 14.5%), reflecting the volume growth and continued focus on operational excellence. Underlying operating profit grew 32%, with 16% organic growth and 16% from ARP.

Several government-backed projects assisted in a healthy UK growth of Gatic's special access covers. This activity was supplemented by first successes from our new export sales personnel in particular in Latin America for Colombia, Peru and Mexico. Chep Lap Kok airport in Hong Kong had limited pull through of the £7.0 million contract originally awarded in 2022. Drainage products had a quieter year, with delays to some larger UK projects, although we anticipate an improved performance in the next financial year.

ARP, acquired in late December 2023, has performed very well. We have been impressed by the skill and dedication of its team and look forward to working with them to deliver the significant synergies this acquisition presents.

(b)    Building Envelope

Revenue: £37.6 million (2022/23: £34.6 million)

Underlying operating profit*: £4.6 million (2022/23: £4.1 million)

Underlying operating margin*: 12.3% (2022/23: 11.8%)

Operating Profit: £4.6 million (2022/23: £4.1 million)

* No adjustments in 2023/24 or 2022/23

The Building Envelope division grew its revenue by £3.0 million (9%) and underlying operating profit by £0.5 million (13%), driven by its previous investment in high calibre technical sales staff. A strategic focus on developing new and improved systems which enhance sustainability is helping the division gain share: in particular carbon absorbing membranes, and Bio Solar systems which combine cost reduction and energy generation to enhance payback.

Legislation drivers on heat loss reduction, green technologies and suburban environments assisted in the increase in demand. Long term warranties, beneficial life cost cycles and enhanced customer support in technical and customer service complete the offer to the high-end market.

Benefits continue to accrue from very strong and long-standing relationships with specifiers, surveyors, multi building owners, contractors and suppliers. Work is ongoing to continually improve the performance of the product range and thus enhance divisional margins.

(c)   Housebuilding Products

Revenue: £14.8 million (2022/23: £14.7 million)

Underlying operating profit*: £3.8 million (2022/23: £3.5 million)

Underlying operating margin*: 25.3% (2022/23: 23.9%)

Operating profit: £3.8 million (2022/23: £3.3 million)

* Prior to restructuring costs of £nil (2022/23: £0.2 million)

During a challenging housebuilding market in 2023, where the CPA reported a decline in new starts of 18%, it was a very creditable achievement for our Housebuilding Products Division, Timloc, to grow its revenue. This was through 'self-help' including the increased sales of both Inventive roof tile vents and roofline products to roofing merchants, where Timloc has now established itself in this adjacent channel. This, combined with Timloc's excellent reputation for its industry leading next day service, has led to more merchants stocking Timloc's expanding product range.

In addition to its excellent sales performance, Timloc grew its overall underlying operating profit by £0.3 million (7%) to £3.8 million. This resulted in a 25.3% underlying operating margin, 1.4 percentage points ahead of the prior year and driven by product mix and improved efficiencies.

Additional new products are being developed and further investments are also planned in operational capability (including automation), external sales and additional NPD resource. Timloc will be very well placed when the housebuilding market eventually recovers. The interest rate outlook and the commitments from the new UK Government on building targets and easing planning restrictions provide some encouraging early signs.

Strategic review

The Group continued to progress its long-term growth strategy.

Championing sustainable building products

·      Resilient performance demonstrates the structural demand underpin for environmental solutions

·      Building Envelope establishing itself as a leader in sustainable roofing systems

·      Scope 3 GHG calculations, EPD and net zero programme underway, SBTi accreditation later in year

·      Product development targeting new environmental/safety legislation (including Building Regulations Part B/L/F, Biodiversity Net Gain, Building Safety Act 2023 and building decarbonisation)

Accelerating organic revenue growth

·      6.5% organic growth (vs decline in UK general construction market activity)

·      New products continue to be a key part of our growth strategy, and 16% of FY24 sales were from products launched in the last three years

·      UK sales robust

o  Investment in new product development, sales, technical service and support

·      Strong growth in export sales

o  Investment in Water Management division's overseas sales resource

Driving margin improvement

·      Operating margin* 14.1% (2022/23: 13.6%)

·      Further progress towards 15-20% Group operating margin target

·      Drop-through from additional volumes

·      Continual efficiency improvements

·      Investment in common ERP/CRM platform to enhance commercial decision making

·      Delivery commenced on ARP synergies, with further benefits to come in FY25

·      Relocation of access cover production from Dover site to Halstead from January 2025:

o  Automates currently manual manufacturing processes;

o  £0.8 million annualised cash saving;

o  Net cost circa £3.3 million (spend to 30 June 2024 £2.7 million).

Value-accretive investment to underpin our future growth ambitions

·      Strong financial position enabled continued investment despite challenging commercial markets

·      Key revenue investments:

o  Technical sales and customer service resource at Building Envelope;

o  New product development at Housebuilding Products

·      Acquisition of ARP strengthens our presence in rainwater management, and helps accelerate our growth ambitions

·      £3.6 million capital spend in year includes:

o  CNC machines to automate access covers manufacturing at Halstead

o  ERP and CRM investments to improve efficiency and commercial decision making

Outlook

·      Demand headwinds unlikely to alleviate until 2025

·      Medium term drivers strong:

·      Supportive environmental and building safety regulations

·      New Government housebuilding targets

·      Strong business model and significant capacity to invest

·      Opportunity to deliver significant shareholder value.

The strong performance during the year reflects Alumasc's portfolio of highly effective solutions to the growing challenge of climate change across the built environment.

The management team continues to progress with its long-term growth strategy, to accelerate organic growth, drive margin improvement and enhance delivery through value-accretive investments which continue to underpin our future growth ambitions.

Alumasc's performance against the backdrop of challenging markets during 2024 shows the business's quality, and as we progress into 2025 we have a clear line of sight of our growth plans, capacity to invest and opportunity to deliver significant shareholder value.

While demand headwinds in Alumasc's commercial markets are likely to persist for the remainder of 2024, the positive trading momentum has continued into the new financial year, and the Board is optimistic for another year of growth.

G Paul Hooper

Chief Executive

3 September 2024

Financial Review

Performance (continuing operations)

The Group delivered a strong financial performance in FY24, despite continued macro-economic uncertainty and demand headwinds in the majority of its commercial markets, reflecting the strength of the Group's sustainable product portfolio, its consistent focus on strategic execution and ongoing investments in growth capability and efficiency.

Strong organic and inorganic growth

Group revenue was £100.7 million, 13.0% higher than 2022/23 (£89.1 million). This comprised 6.5% from organic growth and a 6.5% contribution from ARP, which was acquired at the end of December 2023. Year-on-year net inflationary price changes were negligible.

Gross profit was £38.3 million (2022/23: £32.7 million), with gross margin 130 basis points ahead at 38.0% (2022/23: 36.7%). Commodity raw material cost prices were broadly stable over the year, although labour costs remain high, and prices continued to rise for some specialist materials; and the increase reflects the Group's active and disciplined management of prices and costs.

Underlying operating profit* was £14.2 million (2022/23: £12.1 million), representing an underlying operating margin* of 14.1%, a 50 basis point improvement on the prior year (2022/23: 13.6%). The Group aims to grow revenues while strengthening margins, and this year represents further progress towards its medium term 15-20% operating margin target range.

Underlying profit before tax* grew by 16.1% to £13.0 million (2022/23: £11.2 million). ARP contributed 5.5% (£0.6 million) of the increase, after interest charges on the acquisition consideration. Organic growth was 10.6%.

Statutory profit before tax from continuing operations - calculated after deduction of non-underlying items - was £11.7 million (2022/23: £10.5 million).

* A reconciliation of underlying to statutory profit before tax is provided in note 5.

Non-underlying items

The Board reports underlying profit and underlying earnings as an alternative performance measure, for internal performance analysis, planning and employee compensation arrangements. This measure excludes certain items such as amortisation of acquired intangible assets, pension scheme finance costs, acquisition expenses and restructuring costs, which are non-trading and/or exceptional by their size and incidence. The non-underlying items in the current and prior financial year were:

-     Amortisation of acquired intangible assets of £0.2 million (2022/23: £0.1 million) is a non-cash charge arising from the application of accounting standards, to write off the estimated value of brands and other intangibles associated with acquired businesses over their estimated useful life.

-     Current year restructuring costs of £0.5 million were incurred in reorganising the Water Management division's sales and commercial teams (£0.2 million) and in the planned closure of the division's Dover site and relocation of its operations to Halstead (£0.3 million). The £0.3 million charge in the prior year charge relates mainly to the resolution of a commercial dispute.

-     Acquisition expenses of £0.3 million (2022/23: £0.2 million) relate primarily to the acquisition of ARP, completed in December 2023.

-     IAS19 pension scheme finance costs of £0.2 million (2022/23: £0.1 million) are non-cash charges related to the Group's legacy defined benefit scheme, and are calculated by actuaries to reflect the notional financing cost of the Group's pension deficit.

Taxation

The Group's underlying effective tax rate was 25.5% (2022/23: 20.0%), compared to the average UK corporation tax rate for the year of 25.0% (2022/23: 20.5%). The Group's effective tax rate varies in line with the UK tax rate and the balance of available reliefs, non-taxable income and expenses. The Group's underlying effective tax rate for FY25 is expected to be around 25.4%.

The Group's effective tax rate on statutory profit before tax was 25.5% (2022/23: 24.9%). A reconciliation of this rate to the average UK corporation tax rate for the year is included in Note 7.

Earnings per share

Basic earnings per share from continuing operations was 24.3p (2022/23: 23.3p), and underlying earnings per share from continuing operations was 26.9p (2022/23: 25.0p) (note 9).

Dividends

The Board have recommended to shareholders a final dividend of 7.3 pence per share (2022/23: 6.9 pence), which will absorb an estimated £2.6 million of shareholders' funds. This has not been accrued in these accounts as it was proposed after the end of the financial year. Subject to shareholder approval at the Annual General Meeting on 24 October 2024, it will be paid on 1 November 2024 to members on the share register on 27 September 2024.

Together with the interim dividend of 3.45 pence per share (2022/23: 3.40 pence) paid to shareholders on 8 April 2024, this will bring the total distribution for the year to 10.75 pence per share (2022/23: 10.3 pence), which is covered 2.5 times (2022/23: 2.4 times) by underlying earnings per share. This is consistent with our medium-term dividend cover objective of 2.5 to 3.0 times cover.

Cash flows and net debt

Underlying operating cash flow

Cash generated by underlying operating activities - before non-underlying cash flows - was £17.1 million, £4.4 million higher than the prior year (2022/23: £12.7 million), representing 120% (2022/23: 105%) of underlying operating profit, against a Group target of at least 100%.

The challenges of volume growth, and some disruption to global supply chains from the Red Sea crisis, were well managed, and there was a £0.9 million inflow from working capital in the year (2022/23: £0.9 million outflow). Annual pension payments of £1.2 million (2022/23: £1.6 million) reflected the reduction in contributions from October 2022 agreed with the trustees.

Cash outflows in respect of non-underlying items were £0.9 million (2022/23: £0.5 million).

Movement in net bank debt

Capital expenditure was £3.6 million (2022/23: £2.7 million), representing 124% (2022/23: 93%) of depreciation/amortisation. This higher-than-usual spend supported important strategic initiatives, including:

-     £2.3 million of machinery, tooling and building work at the Group's site in Halstead, Essex, to allow relocation of access cover manufacturing from Dover, and automation of the currently largely manual process; and

-     £0.4 million to update the Enterprise Resource Planning ('ERP') software used at the Group's sites in Burton Latimer, Northants and St Helen's, Merseyside. Five of the Group's seven sites - representing over 80% of Group revenues - have now upgraded to the Group's common ERP platform, strengthening the internal control environment while allowing improved efficiency and better data to support sales, customer service and commercial decision-making. The remaining sites will be upgraded to the new system over the next two years.

Interest payments of £1.1 million (2022/23: £0.8 million) increased due to the higher debt following the acquisition of ARP.

Tax payments were £2.1 million, £1.6 million higher than the prior year (2022/23: £0.5 million), due to the benefit in the prior year from super-deductions on capital allowances.

After repayment of £0.8 million (2022/23: £0.8 million) lease liabilities and other payments of £0.3 million (2022/23: £0.1 million), free cash flow was £8.3 million (2022/23: £7.3 million).

The net cash paid for the ARP acquisition, including cash acquired, net debt and working capital adjustments and the first earn-out payment, was £8.5 million in the year (2022/23: £nil). The final £0.75 million earn-out payment - payable in January 2025, subject to ARP achieving certain financial performance targets in the year to November 2024 - has been accrued in full. There was a £1.7 million cash outflow in the prior year on the disposal of Levolux.

Cash paid to acquire shares in the Group, to fulfil the vesting of employee share options, totalled £0.5 million (2022/23: £0.1 million); and dividend payments in the year were £3.7 million (2022/23: £3.6 million).

The net increase in debt in the year was £4.4 million (2022/23: £1.9 million reduction).

Net debt

Net bank debt at 30 June 2024, on which the Group's banking covenants are based, was £7.2 million (2023: £2.8 million). Total debt, including lease liabilities, was £13.1 million (2023: £8.1 million).

Financial position

Group net assets at 30 June 2024 were £33.5 million (2023: £25.7 million).

Pensions

The Group accounts for its legacy defined benefit pension retirement obligations in accordance with IAS 19 Employee Benefits, based on the market value of scheme assets and a valuation of scheme liabilities using a discount rate based on AA rated corporate bond yields at year end. Mortality and inflation rates assumptions have been aligned with updated actuarial information. The IAS 19 defined benefit scheme net surplus at 30 June 2024, before deferred taxes, was £0.8 million (2023: £4.3 million deficit). Investment gains increased scheme assets by £3.1 million to £74.6 million, and scheme liabilities decreased by £2.0 million. The scheme surplus has been recognised on the Group balance sheet, as the Group has an unconditional right to recover any surplus on settlement of the scheme's liabilities.

The contribution rate is agreed with the Trustees based on actuarial valuations rather than the IAS 19 deficit. Following the triennial review in March 2022, the Group agreed to reduce its annual contributions to £1.2 million from October 2022. The Group's initial objective is to enable the scheme to reach a position of low dependency (where the scheme is expected to be able to meet its future liabilities using prudent investment assumptions, with a low likelihood of requiring further deficit repair contributions from the Group) over a reasonable timescale.

Banking facilities and covenants

The Group's treasury function aims to ensure the availability of sufficient liquidity to meet the Group's operational and strategic needs, at optimal cost. The Group projects facility utilisation and compliance with the associated covenants during its short-term forecasting, annual budgeting and strategic planning exercises, to ensure adequate headroom is maintained, taking account of the Group's expected performance and investment plans.

At 30 June 2024, the Group's banking facilities comprised:

-     An unsecured committed £25.0 million revolving credit facility, which expires in August 2026 with a one year extension option. The Group exercised this option in August 2024, extending the facility expiry to August 2027;

-     An uncommitted £20.0 million accordion facility, which would allow the Group to increase its revolving credit facility to £45.0 million if exercised and approved; and

-     Overdraft facilities, repayable on demand, of £4.0 million.

Facility headroom against committed facilities at 30 June 2024 was £17.7 million (2023: £22.1 million).

The covenants associated with these facilities are set out below, together with the reported figures at 30 June 2024 and 2023:

Return on investment

The Group defines its invested capital as shareholders' funds, including historic goodwill but excluding net bank debt, pension deficit (net of tax) and lease liabilities. The Group's post-tax return on invested capital (underlying operating profit after tax, divided by invested capital) was 26.0% (2022/23: 26.1%), substantially in excess of the Group's weighted average cost of capital, which the Group estimates to be circa 11%.

Capital structure and capital allocation

The Group aims to create value by delivering strong and sustainable financial returns well in excess of its cost of capital. It achieves this by investing the capital provided by its cash-generative operations and its strong balance sheet in a disciplined manner consistent with its long-term strategy. The Board's capital allocation priorities are:

-     Maintaining debt at a prudent level, with a gearing ratio (net debt to EBITDA) below 1.5x, while:

-     Investing in organic growth, principally through capital expenditure and investment in organisational capabilities, particularly in research and development, manufacturing capacity and efficiency, and sales, customer support and marketing resources;

-     Providing regular returns to shareholders through a progressive dividend policy, which aims to increase dividends broadly in line with earnings, while maintaining a prudent level of cover; and

-     Investing in inorganic growth, identifying bolt-on acquisition targets in current or adjacent markets, which complement the Group's existing businesses and deliver synergies.

Simon Dray

Group Finance Director

3 September 2024

PRINCIPAL RISKS AND UNCERTAINTIES

consolidated STATEMENT of comprehensive income

For the year ended 30 June 2024

Reconciliations of underlying to statutory profit and earnings per share are provided in notes 5 and 9 respectively.

consolidated statement of financial position

At 30 June 2024

The financial statements were approved by the Board of Directors and authorised for issue on 3 September 2024

Paul Hooper                                                        Simon Dray                        
Director                                                                  Director                                 

Company number 1767387

consolidated STATEMENT of cash flows

For the year ended 30 June 2024