Darby Group plc - Preliminary Results Show Return to Profitability

Stephen Knight, Non-Executive Chairman of Darby Group plc has announced that a trading update will be given at the AGM on 7th May 2003. 'The Company continues to operate in an extremely competitive marketplace, and at present there are some signs of uncertainty in the economy. Nevertheless, we view the future with confidence, and the Company is now well equipped in terms of management and capacity to maximise the opportunities which do exist.' The Group has enjoyed a return to overall profitability - profit before tax £0.8m (2001: loss £1.9m)

Highlights
* Return to overall profitability - profit before tax £0.8m (2001: loss £1.9m)
* EBITDA up 32% to £2.0m (2001: £1.5m)
* Group operating profit from continuing facilities up 51% to £0.8m (2001: £0.6m)
* Basic earnings per share 2.0p (2001: loss 5.4p)
* Proposed resumption of dividends totalling 1.0p per share (2001: nil)
* Balance sheet reconstruction complete
* Operating cashflow up 82% to £1.9m (2001: £1.0m)
* Group remains ungeared, net funds of £1.2m (2001: £0.7m)
* Net asset value per share up 5% to 21.8p per share (2001: 20.9p per share)
* Substantial investment in advanced plant and machinery for the glazing division underway

Chairman's Statement
In my first statement as Chairman of the Company I am pleased to report the continuing improvement in the Company's trading results and financial health, and to announce the Company's intention to resume dividend payments subject to shareholder approval at the forthcoming AGM. 2002 saw the completion of the previously announced restructuring exercise, with the Capital Reconstruction of the Balance Sheet being approved by the High Court and filed in July, this being the final phase in the rehabilitation of the Company.

Trading
Turnover for the year was £21.2m (2001: £22.3m), on which a pre-exceptional operating profit of £0.8m (2001: £0.1m) was achieved.

Revenues in the Glazing Products division improved strongly in 2002, assisted by the increasing demand for more thermally efficient insulating glass units following the changes to the Building Regulations in April 2002.

The Processed Glass division had a difficult year as demand for glass for the outdoor advertising and street furniture markets continued to be depressed, and much management effort went into developing alternative markets for this division during the period.

There were no exceptional costs in 2002 (2001: £1.9m), reflecting the completion of the restructuring exercise of the last few years. As a result, profit before tax was £0.8m (2001: loss before tax £1.9m).

Balance Sheet
Operating cashflow was very strong this year, at £1.9m (2001: £1.0m), reflecting the improved trading profitability and continuing tight working capital control.

Despite increased capital expenditure in the year, partially offset by new finance leases on specific items of equipment, the Company remains ungeared, with net funds at the year end of £1.2m (2001: £0.7m).

As highlighted in the Interim Report, the Company completed a Capital Reconstruction early in the second half, reducing its share premium account by £5m to offset the deficit within its profit and loss account and creating a special reserve with the surplus.

At the year end, Net Asset Value per share was 21.8p (2001: 20.9p).

Personnel
The year's tough trading conditions in changing markets provided strong challenges for the Company's management team, several of whom were newly appointed during the year. The results achieved reflect well on the team, and the Board thanks all employees for their efforts.

The year also saw the resignation from the Board of Mr. Mark Abrahams after five years service, the last three in the role of Non-Executive Chairman. The Board thanks Mark for his contribution during the restructuring phase, and wishes him well for the future.

Dividend
Following the return to profitability and the completion of the Capital Reconstruction exercise, the Company is now in a position to resume dividend payments from distributable reserves.

The Company generated a stronger profit performance in the second half of 2002, and subject to shareholder approval intends to pay a final dividend of 0.5p to recognise this performance. In addition, the Company intends to pay a special dividend of 0.5p, making a total payment for the year of 1.0p per share. The proposed dividends will be paid on 9th May 2003 to shareholders on the register as at 11th April 2003.

Chairman's Statement - Outlook
2003 has started in line with expectations, and a trading update will be given at the Annual General Meeting to be held on 7th May 2003. The Company continues to operate in an extremely competitive marketplace, and at present there are some signs of uncertainty in the economy. Nevertheless, we view the future with confidence, and the Company is now well equipped in terms of management and capacity to maximise the opportunities which do exist. During the current year, we intend to concentrate hard on further improving the Company's performance and on looking at all ways of increasing shareholder value.

Stephen Knight
Non-Executive Chairman

Chief Executive's Review
2002 was the first full year for some time when management had not been distracted by restructuring activities. Although trading remained difficult in certain areas, the slimmed down and focused Group operations produced a much better overall result for shareholders.

The year was also notable for the beginning of the planned medium term investment strategy outlined last year, with benefits still to be fully realised. Despite the investment programme, cash has continued to be aggressively managed, and the Balance Sheet remains strong with the Company still ungeared and with net funds of £1.2m.

The Glazing Products division had a very positive and exciting year, trading well from all six sites. Overall sales grew by 14%, assisted by the changes in the Building Regulations detailed in last year's Report and Accounts. These changes, colloquially called 'Part L'in England and Wales, and 'Part J'in Scotland, require windows in most new and replacement installations to meet significantly better standards of insulation than previously required with the tighter standards introduced in April 2002, and tightening again in Scotland in March 2003. From April 2002 the Company saw a steadily increasing percentage of its product sales to be of a specification suitable to meet the new regulations, where the onus falls on the window installer to correctly specify and warrant the window frames and unit installations. The Company now produces a significant percentage of its insulating glass units to the new standards, and expects further sales growth of this type of product as the window industry moves to full compliance in the UK.

The division invested heavily in plant and equipment in the year, with new automated unit production lines installed at our Glengarnock (Scotland), Gloucester, and Scunthorpe sites in April, June, and August respectively. These new lines provide the division with substantial extra production capacity for units produced to a consistently high quality, and are all capable of handling higher thermal performance glasses that future amendments to the Building Regulations will require. I am pleased to report that despite the disruption caused by the installation of this and other equipment, determined site and divisional management ensured that the service levels to customers were not severely affected during the installation and commissioning phases, and that the improved and consistent product quality now being achieved has enhanced our status in the markets supplied by these operations.

The division won some attractive business in the second half, and ended the year with a strong trading performance.

Glass prices continued to rise in 2002, especially those of coated glass necessary for inclusion in the higher specification insulating units, but the average price of uncoated float glass was managed well by selective supplier changes and spot purchases where appropriate.

The Processed Glass division in contrast continued to be affected by the serious downturn in the street furniture and outdoor advertising markets, where the division has a significant market share. This downturn started in late 2001 and lasted throughout 2002, seriously affecting the activity levels of this division which specialises in thicker glass in flat, curved, painted, printed, and similar applications. The division invested heavily in market research during 2002, identifying a much greater demand for thicker glass for the architectural market in general, and a need for a new entrant in the internal architectural market in particular, servicing the needs for partitioning and balustrading applications. Late in the year the management structure of the division was changed, the product offer defined, and a new divisional package launched to architects, specifiers, contractors, and similar industry specialists, supported by a concentrated marketing and awareness campaign. Enquiry levels since the launch have improved dramatically, although as the market application is contract driven, the sales growth rates are expected initially to be modest, but ultimately robust. The investment in market research, product development, and marketing was supported by capital investment in a new print table and a heat soak oven both specifically to assist sales into the targeted sector in 2003 and beyond.

Behind the market facing trading activities, the Company continued to run efficient and disciplined support services, resulting in continuing tight control of cashflow, with a consequently strong ungeared Balance Sheet throughout much of the year. In the absence of any significant long term debt, the opportunity to part fund our capital investment in new plant by medium term HP finance was taken.

Chief Executive's Review

Prospects
2003 presents a number of challenges related to the progress made last year. Further product mix changes related to the Building Regulation amendments of last year are expected in the Glazing Products division, which after last year's investment has more unit capacity available. In addition, the Company has started to invest in more automated and productive glass cutting machinery to reduce costs, with the first new machine being commissioned at Glengarnock (Scotland) in February 2003, and with other new cutting machinery to follow later in the year at our Gloucester operation. These cutting tables are capable of handling innovative advanced glass types, and are part of our long term investment strategy.

The Processed Glass division's new direction will see our first large sales into the internal architectural market following last year's launch, and by the end of the year we expect to be significantly less reliant on the street furniture market.
The Company retains scope to further improve its results from better material utilisation and productivity, and will be concentrating on these key internal factors throughout 2003, at the same time pushing for further sales growth.

The Company's operational strategy remains essentially unchanged from that outlined last year. In the Glazing Products division we are concentrating on becoming a top quality manufacturer and supplier of glazing units, able to handle high thermal performance glasses and to take advantage of market developments driven by changes in legislation. The Processed Glass division's strategy is based on developing a position within the architectural market, and reducing our dependency on the street furniture sector. The Company is able to fund its organic development from internal cash generation capabilities, and also has unencumbered properties should the need to raise additional funding be required. The Company also has bank borrowing facilities in place, which are currently unutilised.

To complement the organic growth operating strategy the Company continues to review acquisition opportunities as and when they arise, and believes that there will be some opportunity for complementary acquisitions in the future despite present price expectations being unrealistic.

Hugh Hayes
Chief Executive