Dewhurst plc : Preliminary Results for the year ended 30 September 2011

Preliminary Results
1 December 2011

Dewhurst PLC

("Dewhurst" or the "Group")

Preliminary Results for the year ended 30 September 2011

Chairman's Statement

Results

With the continued turbulent economic climate I am pleased to be able to report sales at record levels and operating profit before goodwill write-off also just ahead of last year's record. Sales were up 12% to £41.5 million (2010: £37.0 million), operating profit before goodwill write-off was £4.9 million (2010: £4.9 million) and profit before tax was £4.3 million (2010: £4.8 million) after goodwill write-off.
Sales benefited from the first time contribution of Elevator Research and Manufacturing (ERM) in the USA and JAS Engineering (JAS) in Australia. We also saw improved sales from Hong Kong. The lift market picked up over the summer and we ended the year with stronger sales.
It has been a tough year in many respects and these results are a real credit to the Group's employees, who have worked hard to overcome the difficult conditions. My congratulations and thanks to the whole team.

Property

We have put in a huge amount of work over the year preparing our new headquarters and factory for occupation. Our plan is for a phased move during this December and January. We should be fully operational in the new premises by the end of January and our AGM will take place at the new site. This will be a good opportunity for shareholders to see the new facilities.

Acquisitions

During the year we acquired a controlling interest in ERM on the basis of our agreement with the shareholders in July 2010. As a result the assets of the company are now consolidated in the Group's results. The US market has not been an easy one over the past year and so we have felt it prudent to write down the goodwill on acquisition by £0.5 million. This is disappointing, but we still believe the business has good long term prospects in the US market and will prove a worthwhile investment when economic conditions improve. In the meantime we have taken action to reduce fixed costs at the company to lower its breakeven point.
Earlier in the year we also acquired JAS, a lift fixture company based in Sydney. JAS builds on the market position we have with ALC in Australia, but also allows us to expand the range of sheet metal products and services we offer to customers in New South Wales.

Outlook

The more positive feel to the lift market that started in the summer has continued through the autumn. Despite the uncertain financial position in Europe we expect our UK and main international markets to remain reasonable for the first half after which they may tail off depending on the economic environment.
Keypad sales are likely to rise due to a change in product content, but margins will fall in percentage terms. Transport demand remains weak due to Local Authority and Central Government cutbacks. There will be costs this year due to the premises move but we will be doing our best to minimise both the costs and any disruption to our customers.

Richard Dewhurst Chairman

Review of Operations

Operating Highlights

We anticipated that this year would not see any real improvement over the last financial year and that has been the case. Although not all our markets were down, indeed Australia and Canada were quite robust, trading conditions in the UK and the USA were extremely tough. It is therefore encouraging that towards the end of the year these markets, particularly certain sectors in the UK, started to show some signs of recovery.
Once again, all our employees across all companies have made a significant contribution and we are very grateful to them for their hard work and dedication.

UNITED KINGDOM Dewhurst UK Manufacturing

This year has been another year of progress at Dewhurst UK Manufacturing and although the company once again did not show a profit, the losses were reduced on broadly flat sales.
Our programme of continuous focus on quality and errors has been very successful. The number of errors leaving the factory gate has fallen dramatically over the last twelve months. This helps support our image and reputation within the lift industry. We have also focused hard on our on time delivery and for the second year in a row we have achieved above 95% on time delivery.
Last year's Annual Report spoke of the move to our new site at Hampton Business Park. The move is now imminent and will take place effectively over the Christmas period in December 2011. A great deal of hard work has taken place to get us where we are now and even more activity will take place over the next month as we complete the office and factory fit out and carry out the actual move itself. Senior management have been supported by a relatively small team led by Keith Timberlake, Martin O'Neill and Steve Ward who have worked tirelessly to ensure that the new building is set up for our needs and that the move goes seamlessly. They have had to work long hours, focus on intricate detail and remain calm at all times, so that Dewhurst employees can look forward to their future in the new location; we owe this team a great debt of gratitude.
The move to Hampton Business Park also made us think long and hard about the current structure of our UK business. The UK lift industry was served by LiftStore out of two locations: Flint where we make controllers and Hounslow where we supply fixtures and loose components. The management team for LiftStore has always been based in Flint and the management of the Hounslow operation has always been problematic. Also, customer feedback led us to believe that the brands we were not using in the UK, Dewhurst and Thames Valley Controls, were stronger than that of LiftStore. The move to Hampton was a catalyst for addressing these issues and as a result the activities of Dewhurst UK Manufacturing and LiftStore Hounslow were merged. This means that Dewhurst UK Manufacturing now supplies fixtures and lift components throughout the UK as well as to Europe and the rest of the world.
The LiftStore Flint operation has revived the Thames Valley Controls name and their focus now is purely on controllers, control systems and monitoring. The feedback from the market to this significant change in our UK structure has been very positive. It has also been well received internally.
We have not had any major new product launches this year but we have worked hard on extending our existing product range. We have introduced two new hall lanterns both of which appear in pictures in this report. We have extended our offering on pressel finishes so that customers can now choose any bespoke finish for their pushbuttons.
On the keypad side of the business we have developed a very neat 38 key keypad for a Canadian customer who manufactures parking payment machines. This keypad allows people to enter their licence plate, which is then printed on their parking ticket.

LiftStore

This year began quite slowly for LiftStore as the UK lift industry market did not show any signs of recovery. However the second half of the year saw a significant improvement in general market conditions. It is not easy to determine why there has been such a marked improvement but our impression is that work has been postponed over the last couple of years and people are now in a situation where they cannot put off these works any longer. We have seen this growth in both private and local authority work during the year.
The Ethos Hall Call Destination System has been a major development project for LiftStore for more than a year and has absorbed a significant amount of resource. This year following all the hard work to bring the product to market we were delighted to win two major Ethos HCD projects. The installation of the first of these projects is currently underway and initial reactions from the customer are very positive. The Ethos controller, which is the mainstay of the LiftStore product range, continues to gain market share in the UK and now has an excellent reputation amongst both private and public users.
The Monitoring Division has had a steady year with good sales throughout the year. Demand for their autodialler products and monitoring systems continues to be reasonable. The CMS Anywhere product that was launched a number of years ago and allows customers to monitor their lifts from any PC over the internet, has given our monitoring products new lease of life. It provides customers with the flexibility they require in today's world.

Traffic Management Products (TMP)

Local authority spending on bollards and road signage has been held back throughout the year and this has made 2011 a very challenging year. We have also seen an increasing number of competitors enter the market for non-illuminated and solar powered bollards. The sales team at TMP has nonetheless worked hard and achieved a good level of sales in this difficult market.
There has been a lot of emphasis placed on development work and a number of new designs are currently in the pipeline. The first of these is an improved design for our self fronting bollard base, which will be launched very shortly.
We exhibited two new sign lights at the Traffex exhibition and these were well received. These are now moving to tooling with a launch programmed for the second half of the financial year. We have made the conscious decision to invest heavily in new product development for TMP, with the aim of increasing revenue and profit in the medium term.

Cortest

Cortest has been successful in securing larger projects this year particularly on Private Finance Initiative contracts where we have provided non-destructive and electrical testing services to some of the largest highways and electrical contractors in the UK.
As a result our customer portfolio now includes several blue chip companies as well as our traditional mix of Local Authority and private customers. Much of our work has remained oriented towards street lighting and street furniture for highways and airports but we have also completed Specialist Non-Destructive inspections for both the Port of Dover and Bournemouth Pier, supporting our strategy to extend our services further into the non-highways arena.
Despite strong sales growth, margins remain under pressure as we continue to invest in new equipment and people to drive the business further forward in 2012.

EUROPE Dewhurst Hungary

Having completed its third full year of operation Dewhurst Hungary has settled down and the team there operate quite autonomously now.
They continue to face the same problems that we have always faced in the keypad market, where there is constant focus on price and margins are always under pressure. We have completed some successful value engineering projects on a number of products this year and the focus in the New Year will be to extend such projects more widely.
Our customers in this sector have sustained their pressure on product and process quality. This has meant that the team in Hungary have had to further enhance their quality processes and procedures towards the levels found in the auto components industry. Operating at this level is very useful for the Group as a whole and once we have established a stable system in Hungary, we need to look at how we can use this knowledge more widely in our other subsidiary companies.
Demand for our keypad products has held up well and we have shipped a significantly greater quantity of keypads in this financial year.

NORTH AMERICA Dupar Controls

We had another strong year of sales at Dupar and a reasonable improvement in profits.
Dupar have continued the theme of the last few years with further process improvements in their manufacturing plant to streamline the labour intensive assembly of Car Operating Panels. This has been quite successful, allowing them to increase the flow of work through the plant. Dupar are currently setting the benchmark for fixture production within the Group and in the coming year we need to flow these advances through to Dewhurst UK, ERM and ALC. We are tasking our Group Operations Director with this job and we look forward to seeing the benefits of this project.
We launched the new US91 Optic pushbutton in this financial year. This is an upmarket product where the braille tag to the side of the button is permanently illuminated. It has been very well received by the market and has already been installed in a number of prestigious sites across North America.

Elevator Research & Manufacturing (ERM)

We acquired a majority stake in ERM at the end of 2010. It has been a difficult time to take on a new acquisition in the United States and the Californian market, where ERM predominantly operates, has been weak throughout 2011. However all our acquisitions are long term ventures and the opportunity to expand ERM out of California and to gain sales from the Western half of the USA remains excellent.
There are two divisions within ERM. One side designs and manufactures lift fixtures, making this business very similar to Dupar Controls and ALC. ERM however have a second division which designs and manufactures lift cars, doors and entrances. The manufacture of lift cars is a complementary business to fixtures and is a possible opportunity in other markets.
Just after the end of the year we carried out some organisational changes at ERM to put us in a stronger position to move forward in the medium term.

AUSTRALASIA & ASIA Australian Lift Components (ALC)

ALC recorded slight growth in sales over the previous year. The growth was due to strong sales of GAL and Hollister Whitney products, which we started to distribute in 2010. The team at ALC have done an excellent job in promoting these products throughout Australia.
The fixture business has proved more difficult. The demand for new lifts in Australia has reduced and although modernisation work has increased quite substantially there was still a contraction in our overall market.

Lift Material

Many of the components sold by Lift Material are aimed more at the modernisation market than that for new lifts, and Lift
Material have benefited from this swing in the market.
We continue to search for opportunities to extend our product range and this year we have been successful in adding two new product groups to our portfolio which should help us build sales in the medium term.

JAS Engineering

We acquired JAS at the end of 2010. Their business is very similar to that of ALC but they focus on smaller, shorter lead time work and have a high level of flexibility. They are also able to engineer and manufacture a wide range of bespoke sheet metal fabrications for the industry.
They achieved a reasonable first year and the outlook for the coming year looks promising.

Dewhurst Hong Kong

Dewhurst Hong Kong have had a very good second year in business. They have built up a reputation for good service and prompt deliveries and this has allowed them to more than double lift component sales.
There continues to be a lot of activity in Hong Kong which is encouraging for the future.

David Dewhurst Group Managing Director

Financial Review

Strong Results

We experienced two sides to the unsettled UK economy with strong demand in the lift sector in the second half of the year but poor demand throughout the year in the transport sector as public sector spending cuts continued. Despite this environment Dewhurst returned a strong performance on the back of its lift and keypad products. Revenue increased 12.2% from £37.0 million to £41.5 million whilst operating profit before goodwill write down remained at £4.9 million.
The growth in revenue principally came from our acquisitions in the year: JAS in Australia and ERM and Winter & Bain (W&B) in America. With the current 'soft' US market, ERM and W&B struggled to deliver the kind of returns required for the long-term and this resulted in an impairment of £0.5 million against goodwill at the year end.

Acquisition Integration

ERM and W&B, being US corporations operating from the same premises and under common control, were merged into one legal organisation, ERM during May 2011. Dewhurst plc's controlling stakes in each company became a collective 80% holding of the combined business with the remaining 20% stake being held by ERM's General Manager. All acquisitions have successfully implemented our Group IT system and policies and procedures are being reviewed and harmonised.

Solid Cash Position

Cash flow was once again very good with £4.0 million of cash being generated from operations. Despite increased pension contributions of £1.4m, two acquisitions totalling £1.8m during the year and investment of £4.9m to date in the new property the group still ended the year with cash and short-term deposits at a very respectable £5.0 million. This is aligned with the Group's philosophy of maintaining a strong cash position together with minimal borrowing.
We started and finished the year with no borrowing but as a precaution secured a £2m bank overdraft facility.

Pension Scheme Deficit

A more detailed analysis of the retirement benefit fund assets and liabilities movements is reported in note 22 under IAS 19, but this year has seen the scheme deficit increased further from £8.1 million to £9.3 million. Although we closed the scheme to future accrual from 1 October 2010 and paid £1.4m into the scheme during the year this was more than offset by the poor performance of equities in the last few months of the year. The FTSE 100 index stood at 5,128 at 30 September 2011 compared to 5,549 a year ago.
The Group will continue to pay a fixed sum of £1.4 million annually to reduce the defined benefit pension scheme deficit and all recommendations made by the scheme's actuary to eliminate the scheme deficit within an agreed timeframe have been fully implemented.

Treasury Policy

The Group seeks to reduce or eliminate financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The policies and procedures operated are regularly reviewed and approved by the board. By varying the duration of its fixed and floating cash deposits, the Group maximises the return on interest earned.
With just under a half of profit before tax earned and held in foreign currencies the Group continues to hedge internally where possible and to consider the need to use derivatives in the form of foreign exchange contracts to manage its currency risk, as reported in note 25.

Dividends

Dividends are accounted for when paid or approved by shareholders, and not when proposed, therefore the proposed final dividend for 2011 has not been accrued at the balance sheet date. The total dividend for 2011 of 6.69p per share, up 5.2% against last year's 6.36p, is covered 5.1 times by earnings. Total equity improved from £21.1 million to £21.8 million.
There was no change in the number of allotted shares during the year.

Jared Sinclair Finance Director

For further details please contact:
Dewhurst Plc Tel: [phone]
Jared Sinclair, Finance Director
Seymour Pierce Ltd (Nominated Adviser) Tel: [phone]
Freddy Crossley / David Foreman (Corporate Finance) Paul Jewell (Corporate Broking)

Consolidated income statement

For the year ended 30 September 2011

2011 2010 Continuing operations £(000) £(000) Revenue 41,487 36,975

Operating costs (37,063) (32,104)
Operating profit before goodwill write down 4,880 4,871
Goodwill write down (456) -

Operating profit 4,424 4,871

Share of (loss)/profit from associates (29) 6
Finance income 62 103
Finance costs (137) (153)

Profit before taxation 4,320 4,827

Tax on profit (1,428) (1,339)

Profit for the financial year 2,892 3,488

Attributable to:
Equity shareholders of the Company 2,924 3,488
Non-controlling interests (32) -

2,892 3,488 Basic and diluted earnings per share 33.98p 40.97p

Consolidated statement of recognised income and expense

Net income/(expense) recognised directly in equity: 2011 2010 £(000) £(000)

Actuarial gains/(losses) on the defined benefit pension scheme (2,423) (2,497) Exchange differences on translation of foreign operations (41) 613
Tax on items taken directly to equity 640 528
Net income/(expense) recognised directly in equity in the year (1,824) (1,356) Profit for the financial year 2,892 3,488

Total recognised income and expense for the year 1,068 2,132

Attributable to:
Equity shareholders of the Company 1,071 2,132
Non-controlling interests (3) -

1,068 2,132

Consolidated balance sheet

At 30 September 2011

Non-current assets 2011 2010 £(000) £(000)

Goodwill 7,357 6,122
Other intangibles 158 184
Property, plant and equipment 9,581 4,609
Deferred tax asset 1,779 1,563
Investments in associates - 639

18,875 13,117 Current assets

Inventories 4,269 4,009
Trade and other receivables 8,394 6,908
Current tax assets 203 111
Cash and cash equivalents 5,009 9,593

17,875 20,621 Total assets 36,750 33,738 Current liabilities

Trade and other payables 5,222 4,234
Short-term provisions 475 349

5,697 4,583 Non-current liabilities

Retirement benefit obligation 9,299 8,068

Total liabilities 14,996 12,651 Net assets 21,754 21,087 Equity

Share capital 851 851
Share premium account 157 157
Capital redemption reserve 286 286
Translation reserve 2,059 2,089
Retained earnings 18,252 17,704

Total attributable to equity shareholders of the Company 21,605 21,087

Non-controlling interests 149 - Total equity 21,754 21,087

Consolidated cash flow statement

For the year ended 30 September 2011

Cash flows from operating activities 2011 £(000)

2010

£(000)

Operating profit 4,424 4,871
Goodwill write down 456 - Depreciation and amortisation 812 680
Additional (income)/costs to pension scheme (1,313) (654) Exchange adjustments (208) 23 (Profit)/loss on disposal of property, plant and equipment (4) (2)

4,167 4,918 (Increase)/decrease in inventories 202 (26) (Increase)/decrease in trade and other receivables (674) 169

Increase/(decrease) in trade and other payables 191 (306)
Increase/(decrease) in provisions 126 (9) Cash generated from operations 4,012 4,746
Interest paid (16) -
Income tax paid (1,095) (1,262)

Net cash from operating activities 2,901 3,484 Cash flows from investing activities

Acquisition of subsidiary undertakings (869) - Acquisition of business and assets (907) - Acquisition of associate undertakings - (667) Proceeds from sale of property, plant and equipment 7 75
Purchase of property, plant and equipment (5,124) (484) Development costs capitalised (129) (38) Interest received 61 103

Net cash used in investing activities (6,961) (1,011) Cash flows from financing activities

Dividends paid (551) (524)

Net cash used in financing activities (551) (524) Net increase/(decrease) in cash and cash equivalents (4,611) 1,949

Cash and cash equivalents at beginning of year 9,593 7,476
Exchange adjustments on cash and cash equivalents 27 168

Cash and cash equivalents at end of year 5,009 9,593

Notes

1. AGM, results and dividends

The trading profit for the year, after taxation, amounted to £2,892k (2010: £3,488k).
A final dividend on the Ordinary and 'A' non-voting ordinary shares of 4.46p per share (2010: 4.24p) for the financial year ended
30 September 2011 will be proposed at the Annual General Meeting (AGM) to be held on 26 January 2012. If approved, this dividend will be paid on 14 February 2012 to members on the register at 13 January 2012.
An interim dividend of 2.23p per share (2010: 2.12p) was paid on 30 August 2011.

2. Earnings per share and dividend per share 2011 2010 Weighted average number of shares No. No.

For basic and diluted earnings per share 8,511,398 8,511,398
The calculation of basic and diluted earnings per share is based on the profit for the financial year of £2,892,223 and on
8,511,398 Ordinary 10p and 'A' non-voting ordinary 10p shares, being the weighted average number of shares in issue throughout the financial year.

2011 2010 Paid dividends per 10p ordinary share £(000) £(000)

2010 final paid of 4.24p (2009: 4.04p) (361) (344)
2011 interim paid of 2.23p (2010: 2.12p) (190) (180)
The final proposed dividend is based on 3,309,200 Ordinary 10p shares and 5,202,198 'A' non-voting ordinary 10p shares, being the latest number of shares in issue. The directors are proposing a final dividend of 4.46p (2010: 4.24p) per share, totalling £380k (2010: £361k). This dividend has not been accrued at the balance sheet date.

3. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September
2011 or 2010. Statutory accounts for 2010, have been delivered to the Registrar of Companies. The statutory accounts for 2011 which are prepared under IFRS as adopted by the EU will be delivered to the Registrar of Companies following the company's annual general meeting.
The preliminary statement of results has been reviewed by and agreed with the Company's auditor, Chantrey Vellacott DFK LLP, who have indicated that they will be giving an unqualified opinion in their report on the statutory financial statements for
2011. The auditor has also reported on the 2010 accounts. Their report was unqualified, did not include references to any matters to which the auditor drew attention to by way of emphasis without qualifying the opinion and did not contain a statement under section 498 of the Companies Act 2006.
Dewhurst plc has prepared its consolidated and company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) from 1 October 2005. The group and company financial statements have been prepared in accordance with those parts of the Companies Act 2006 that are applicable to companies adopting IFRS. The company is registered and incorporated in the United Kingdom; and quoted on AIM.
It is expected that the audited Report and Accounts for the year ended 30 September 2011 will be sent to shareholders and will also be available on the Company's website www.dewhurst.co.ukon 22 December 2011.