A strategic direction for the future - Superglass Holdings Plc

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A strategic direction for the future

Management has taken positive action to confront the operational constraints on our business and the current market challenges

The Company’s assessment of the wider market suggests that there is a significant and continuing aggregate shortfall in CERT-related installations.

Volatility in CERT-related volumes has had a major influence on the Company’s performance since our last statement. Superglass has continued to win market share in other channels, but we continue to experience significant energy related input cost pressures which is proving difficult to pass on to customers in such difficult market conditions.

Throughout the year management took all appropriate actions to manage controllable costs. Even at this much reduced level of profitability, Superglass continued to be strongly cash generative at the operating level. Sales volumes finished ahead of forecast in cured products, compensating for continued underperformance in CERT related blowing wool product lines. As a result, output in non-CERT-dependent product lines ran at close to full capacity. However, product mix, market weakness and cost pressures all continue to affect margins.

The Government’s CERT targets remain in place and a substantial increase in energy suppliers’ activity is now required to achieve these targets by December 2012.

The management team has taken positive action to confront the operational constraints on our business and the current market challenges. With support from equity investors, Clydesdale Bank and Scottish Enterprise subsequent to the year end, we have been able to transform Superglass’ capital base. This has allowed us to implement a capital investment programme to commence March 2012, but also allows us to deliver significant returns on investment which will ensure the business becomes competitive again. The investment will substantially enhance the operating efficiency of our manufacturing plant which will, in turn, reduce our cost base, improve product quality and provide an additional production capacity.

Our strategy is to position Superglass to maximise its share of the potential benefits from structural growth drivers:

the successfully completed recapitalisation of the business;
improved operational efficiency, reduction in costs base of up to £3.6 million and improved product quality;
diversification and strengthening of the Group’s market position:
- broadening customer base; and
- penetrating new market channels.

With support from equity investors, Clydesdale Bank and Scottish Enterprise we have achieved:

an equity raise of £8.00 million (net);
RSA grant awarded of up to £2.00 million;
bank term loan reduced by £12.1 million to £5.1 million;
new revolving credit facilities including:
- 2 year repayment holiday; and
- 2 year convenant test holiday.

Reducing our CERT dependency...

CERT activity to end 2012
Continued focus on the independent merchant sector has given a year on year growth of 21%
Specification activity has driven 25% sales growth with specialist insulation distributors

Superwall Roll 36

Superwall Roll 36 is a BBA approved cavity wall roll. Treated with water repellent additives, Superwall Roll 36 is intended for new masonry walls in full fill applications.

Innovation process supports the changing market position:

10 active projects in the innovation pipeline
new product launch of Superwall Roll 36 in June is our first in more than 10 years and signals future intent
to date innovation focus has been on traditional markets, during 2012 focus will expand to new markets for Sugperglass

Overall Equipment Effectiveness (OEE) is our key measure in driving efficiency, increasing capacity and tracks our progress in:
- improving eqipment reliability;
- driving down waste; and
- maxmising material utilisation.
Furnace rebuilds have reduced risk profile and contributed to improved reliability
Introduced a new 24/7 shift pattern
Step change in performance facilitiates the higher sales volume levels leading to operational gearing benefits

We benchmark against "best in class"

2010-11 concluded a detailed exercise to benchmark Superglass against best practices in energy consumption, process, efficiencies and waste elimination. Working with Europe's premier glass and glass fibre consultants Superglass has created a multi-million pound investment plan for its site in Stirling. to be completed in late 2012, the investment will take Superglass on a jounrey to compete with best in class for efficiencies, "lowered delivered costs" and increased product quality and "desirability".

Superglass is committed to achieving the highest level of employee engagement in its journey to excellence.

Over the last year we have many reasons to be proud of the commitment and team spirit that underpins the changes taking place within the company. Over the last 12 months we have:

improved communication throughout the business so that all employees understand and are able to support our business strategy;
reduced absenteeism to best in class;
reviewed our HR Policies esuring they support a "one team approach"; and
positive impact of Specification Team on sales generation.

Pro forma net assets statement as at 31 August 2011

	Unadjusted Net assets at 31 August 2011 £000	Adjustment Issue of new shares £000	Adjustment New banking facilities £000	Pro forma Consolidated net assets at 31 August 2011 £000
Non-current assets
Property, plant and equipment	15,426	—	—	15,426
Intangible assets	10,021	—	—	10,021
Current assets
Inventories	2,284	—	—	2,284
Trade and other receivables	2,461	—	—	2,461
Cash and cash equivalents	—	7,637	—	7,637
Total assets	30,192	7,637	—	37,829
Current liabilities
Other loans and borrowings	5,500	(319)	(5,164)	17
Trade and other payables	11,362	—	—	11,362
Current tax	693	—	—	693
Non-current liabilities
Other loans and borrowings	12,086	—	(6,986)	5,100
Deffered tax	1,617	—	—	1,617
Total liabilities	31,258	(319)	(12,150)	18,789
Net (liabilities)/assets	(1,066)	7,956	12,150	19,040