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FOR RELEASE                                                                                                  19 March 2009

MOUNT ENGINEERING Plc ('Mount' or 'Group')

PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS 

FOR 

THE YEAR ENDED 31 DECEMBER 2008

	Year Ended 31 December 2008	Period 30 April 2007 to 31 December 2007	Proforma Results for Year Ended 31 December 2007
	£000	£000	£000's
Revenue	11,778	5,433	10,825
Operating Profit	3,257	1,454	2,802
Profit before tax	3,071	1,305	2,551
Profit after tax	2,178	942	1,795
Earnings per share	8.9p	5.4p	7.4p
Dividends per share	2.3p	1.1p	n/a

• Increase in Turnover of  9%*

• Increase in Operating Profit of  16%* 

• Increase in Earnings Per Share  20%*

• Operational Cash generated of £3.3m

• Net Cash at end of year of £534,000

• Record results for Redapt and Raxton

• Satisfactory start to new financial year

* compared to pro-forma 2007 results

For further information:

Mount Engineering Group Plc   

Colin Ainger (Chairman)                               (07778 160365)

Dave Stanham (Chief Executive)                   (07834 046121)

Charles Stanley Securities

Nominated Adviser

Rick Thompson / Phil Davies / Carl Holmes     (0207 149 6000)

About: Mount Engineering Plc

Mount Engineering has three operating subsidiaries, Redapt, Raxton and Hi Flow Valves Ltd ('Hi Flow'). 

Redapt and Raxton, established in the 1970s, specialise in the manufacture and supply of thread converting Adaptors and Reducers that are 'Ex Certified', which means that they have been certified for use in potentially explosive or hazardous areas. The products of both companies provide a method of insulating and protecting electrical wiring and installations in hazardous areas such as oil refineries where a stray spark from an electrical installation could have severe consequences. The requirement for thread converting components arises due to the diverse range of thread specifications incorporated into equipment used in hazardous areas. Hazardous area certification is intrinsic to the market that Redapt and Raxton sell to.

Hi-Flow was established in 1994 and is engaged in the stocking, distribution and merchanting of industrial valves and actuators to the oil, gas, petrochemical, process and related industries throughout the world. The key attributes of Redapt, Hi-Flow and Raxton are that they are well-established companies within their industries, each having a strong brand name and recognition for quality products.

The major end user markets for all three subsidiaries are the oil and gas and petrochemical industries; however, they also serve a range of other industrial markets including mining, waste water and pharmaceuticals.

  

MOUNT ENGINEERING Plc

PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS

FOR

THE YEAR ENDED 31 DECEMBER 2008

Chairman's statement

Results

I am pleased to report our results for the year ended 31 December 2008 which includes a full years trading for all our subsidiary companies.

Turnover for the year of £11.8m (2007 £5.4m) has generated an operating profit of £3.25m (2007 £1.45m), representing 27.6% of turnover (2007 26.7%) and basic earnings per share of 8.9 pence per share (2007 5.4 pence). The Group has net cash at the year end of £0.5m.

The Board intend to propose to shareholders the payment of a final dividend of 1.3p per share, which, if approved at the AGM, will be paid on 3 June 2009 to shareholders on the register at 8 May 2009. Total dividend for the year is 2.3 pence per share.

Information on the progress made by the Group during the year, together with identifiable key risks to the business, and commentary on the Group's strategy can be found below in the Business Review section of the Director's Report.

Outlook

The final quarter of 2008 saw a considerable reduction in the oil price but this appears to have stabilised during the early part of 2009. The Board does not believe that there is a direct link between oil price movements and the current level of Mount's business. The Group's performance in the first quarter of 2009 has been in line with management's expectations, however the uncertainty created by the general economic conditions is beginning to be noticed in the order levels flowing through from our distributors. As we have no direct link with their end customers it is difficult to gauge the individual reasons behind these changes. Many of the fabrication contracts they supply have long gestation periods, typically 1-3 years, and the work can then be phased over several years, so any changes in client activity may be difficult to anticipate. The requirement to bring on stream replacement oil and gas reserves barely changes, despite the fluctuating nature of the oil price. Against this background, the Board anticipates that the market for its products will be less predictable than in previous years.

The positive impact of new product developments successfully launched towards the end of 2008 should be felt in 2009. 

   

Colin Ainger

Chairman

Business Review

Operations

The Redapt and Raxton Exd businesses have enjoyed a successful year, with collective turnover up by over 12% for the 12 months when compared to pro-forma sales for calendar year 2007. Demand for products increased most noticeably in North America where Redapt's US distributors continue to penetrate world markets. As far as is ascertainable when sales are routed through distributors, much of the growth was fuelled by increased demand for higher margin certified products resulting from buoyant oil and gas fabrication activity.

Following extensive testing, certification has been received for a newly designed Exd breather drain. Marketing of the new product commenced in the second half and initial orders were received prior to the year end. The breather drain has been a successful product over the last five years, and it is hoped that the introduction of an Exd version will quickly gain market acceptance.

Certification continues to play a major role in the marketing of Redapt and Raxton products and during the year hazardous area ATEX certification was updated to the latest standards whilst the GOST certification essential for the Russian market was renewed.

 

Hi-Flow Valves, our valve and actuator stockist and distributor, has seen considerable improvement in sales in the second half of the year enabling it to match prior year sales. The first half of the year was characterised by a lack of orders for merchanted product, i.e. where packages of various valve specifications are required on a project basis, but the order flow caught up in the second half, enabling like for like sales to be the same. The level of outstanding orders has been progressively increasing and 2009 will start with an order book approximately three times that at the start of the 2008 year. Stock sales for the year are marginally ahead of prior year and have been consistent throughout the year. Stock management has been more complicated this year because of long and inconsistent delivery times from suppliers, reflecting the pressure they have been under to deliver increased finished product, but every effort is being taken to manage appropriate stock levels.

 

In the last quarter of the year, Hi Flow introduced the first of a range of valves under its own branded banner, 'Saxon'. The Saxon range is aimed at penetrating a different market, previously closed to Hi Flow, from that satisfied by the high specification wafer check valves provided by our existing suppliers. The Saxon low specification wafer check valves gained PED Approval to European Directive 97/23/EC and marketing has commenced.

During the year, further improvements to key management information systems were made with the introduction of a standardised stock control and ordering system into Redapt and Raxton. With both West Midlands businesses on similar systems, efficiencies in raw material ordering and stock holding have been made.

The operational general managers appointed early in 2008 to both businesses are now well established and have contributed to the overall progress of the Group. Our staff are to be thanked for the diligent way they have coped with the pressure of increased sales and new product development.

A risk workshop was conducted during the year to establish a risk register for the Group. Top of the list was the absolute requirement to maintain all the certifications of the Group, which requires not only internal systems in place to monitor the certifications, but ensuring that conformance is confirmed by external audits carried out by the various approval authorities. Regular reviews of the identified top twelve risks will be carried out by management and any areas requiring attention will be notified to the Board and actioned accordingly. 

Raw material costs have continued to fluctuate over the past twelve months. A pricing review took place in September and increases were agreed with key customers. Although margins may vary on a month to month basis depending on the timing of stock ordering of raw materials and the mix of sales, the Group has managed to improve its overall operating profit margin for the year. The Group pays considerable attention to the movement in world metal prices, and whilst it is a factor outside of their control, such as a significant reduction noted in October 2008, makes appropriate changes in the pricing of the Group's products. 

There has been increased exposure to the US Dollar at the year end as a result of increasing sales in the important North America market. Price reductions in dollar terms have been agreed as a result of the weakness of Sterling towards the end of the year. However, overall within the Group, there is limited exposure to currency fluctuation as a result of being able to match sales and purchases in both the US dollar and the Euro. Sterling continues to be the dominant trading currency within the Group.

Although there is some overlap in the products sold by both Redapt and Raxton, there is very little client and limited geographical overlay. No customer accounts for more than 10% of the combined sales. In Hi-Flow, where much larger individual sales values can be found, this year no customer accounted for more than 10% of sales. The Group has increased sales outside the UK to 46% of turnover, up from 41% in the pro-forma prior year.

The Group employs some 86 people, 57% of whom are categorised as direct labour, working in the machine shops or warehouses. Health and safety systems are in place in all three locations and in the twelve month period to 31 December 2008, from a total of 88,589 man-hours worked, 69 hours were lost (0.08%) due to two minor first aid cases (prior period 46,755 man-hours worked and 2 hours lost). For the year to 31 December 2008, staff turnover was 10%, down on the comparative period which included some senior management changes following the acquisition of Raxton.

During the year, excluding orientation and job training of new employees, a total of 854 man-hours were spent on training, equivalent to an average of 10 hours per employee.

Anticipating the correct stock levels to meet customer demand is crucial to the success of the Group. At the year end, the Group held stock valued at £1.8m (31 December 2007 £1.6m).

Cash generated from operations was £3.3m (2007 £1.2m), debt repayment was £0.9m (2007 £2.3m) and cash balances increased by £0.7m at the year end. The Group has performed comfortably within the covenants set by the terms of its banking loans.

 

Strategy

The strategy of the Group continues to be the development of strong brand names and the manufacture and distribution of quality engineered products via excellent customer service. The Group will continue to focus on products that generate high gross margins which in turn are expected to deliver superior operating profit and strong cash flow. This strategy is equally applicable for organic growth or expansion through acquisition. A number of prospects have been reviewed for potential acquisition and the Board is actively seeking suitable additions to the Group.

Risk

The Group is exposed to a number of risks in executing its strategy, including, as already mentioned, maintenance of the Group's certification, and fluctuations in raw material costs. Further risks include the management of the Group's supply chain and the ability of Hi Flow to secure further merchanted orders. The market in which the Group sells the majority of its products, the oil and gas market, has been sustained by a historically high oil price, which has fuelled an increased demand for products from the oil and gas industry. Any long term prospect of a sub US$40 bbl may impact this market. The Group is looking to sell its products into new markets, such as the dust extractive industry. The Group employs a number of key individuals whose drive and commitment are fundamental to the ongoing success of the Group.

  

MOUNT ENGINEERING Plc

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	Notes	Year Ended 31 December 2008	Period 30 April 2007 to 31 December 2007	Proforma Results for Year Ended 31 December 2007
		£000	£000	£000
Revenue		11,778	5,433	10,825
Cost of sales		(6,249)	(2,829)	(5,747)
		--------------	--------------	--------------
Gross profit		5,529	2,604	5,078
Operating expenses		(2,272)	(1,150)	(2,276)
		--------------	--------------	--------------
Operating profit		3,257	1,454	2,802
Investment Income		165	79	88
Finance Costs		(351)	(228)	(339)
		--------------	--------------	--------------
Profit before taxation		3,071	1,305	2,551
Taxation	3	(893)	(363)	(756)
		--------------	-----------	-----------
Profit for the period		2,178	942	1,795
		=====	=====	=====
Basic and fully diluted earnings per share	2	8.9p	5.4p	7.4p
		======	======	======

  MOUNT ENGINEERING Plc

CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2008

	Notes	2008	2007
		£'000	£'000
Non current assets
Intangible	4	13,997	13,989
Tangible		1,442	1,520
		--------------	--------------
		15,439	15,509
		--------------	--------------
Current assets
Inventories		1,835	1,652
Trade and other receivables		2,418	2,179
Cash and cash equivalents		3,818	3,092
		--------------	--------------
		8,071	6,923
Total Assets		23,510	22,432
		--------------	--------------
Equity
Share Capital		244	244
Share Premium		15,532	15,532
Retained Earnings		2,622	946
		_______	_______
		18,398	16,722
Non Current Liabilities
Borrowings		2,318	3,270
Deferred Tax Liabilities		38	38
		________	________
		2,356	3,308
Current Liabilities
Trade and other payables		1,325	893
Tax liabilities		465	587
Borrowings		966	922
		________	________
		2,756	2,402
		_________	_________
Total Liabilities		5,112	5,710
		_______	_______
Total Equity and Liabilities		23,510	22,432

 

Attributable to equity holders of the Group
	Share		Share		Retained
	Capital		Premium		Earnings		Total
	£000		£000		£000		£000
As at 31 December 2007	244		15,532		946		16,722
Profit for the period	-		-		2,188		2,188
Dividends Paid					(512)		(512)
At 31 December 2008	244		15,532		2,622		18,398

 

  

MOUNT  ENGINEERING Plc

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED  31 DECEMBER 2008

	Year Ended 31 December 2008	Period 30 April 2007 to 31 December 2007
	£'000	£'000
Net cash inflow from operating activities	1,962	566
	------------	------------
Acquisition of subsidiary companies net of cash acquired	-	(6,633)
Interest Received	165	79
Proceeds from sale of property, plant and equipment	25	24
Purchases of property, plant and equipment	(6)	(11)
	------------	------------
Net cash from investing activities	184	(6,541)
	------------	------------
Cash flows from financing activities
Dividends Paid	(512)	-
Net proceeds from issue of ordinary shares	-	11,405
Repayment of bank loans	(835)	(2,338)
Repayment of loan notes	(73)	-
Net cash from financing activities	(1,420)	9,067
	------------	------------
Net increase in cash and cash equivalents	726	3,092
	------------	------------
Cash and cash equivalents at beginning of period	3,092	-
Cash and cash equivalents at end of period	3,818	3,092

					Year Ended 31 December 2008		Period 30 April 2007 to 31 December 2007
Reconciliation of operating profit to operating cash flow					£000		£000
Profit from operations					3,257		1,454
Depreciation on property, plant and equipment					65		36
(Gain) on disposal of property, plant and equipment					(5)		(2)
Operating cash flows before movements in working capital                                                     3,317							1,488
(Increase) in inventories					(183)		(6)
Decrease/(increase) in receivables					(239)		379
(Decrease)/increase in payables					433		(665)
Cash generated from operations					3,328		1,196
Taxation paid					(1,015)		(402)
Interest paid					(351)		(228)
Net cash from operating activities					1,962		566

  

NOTES TO THE FINANCIAL INFORMATION

       1.     Basis of preparation and financial information

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies set out in the financial statements of Mount Engineering Plc for the year ended 31 December 2008.

The financial information in this document does not constitute the Group's statutory accounts for the period ended 31 December 2008 but is derived from those accounts. Statutory accounts for 2008 will be delivered following the Company's Annual General Meeting.  

2.     Earnings per share

Earnings per share is calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue for 2008 of 24,401,429 (2007 17,569,201).

Pro-forma earnings per share have also been calculated to allow shareholders to gain a clearer understanding of the trading performance of the Group.

2008			2007
	Earnings £000's	Weighted Average No of Shares	Per Share Amount pence	Earnings £000's	Weighted Average No of Shares	Per Share Amount pence
Earnings attributable to ordinary shareholders	2,178	24,401,429	8.9p	942	17,569,201	5.4p

3.     Taxation

	Year Ended 31 December 2008	Period 30 April 2007 to 31 December 2007
	£'000	£'000
Corporation tax	893	385
Deferred tax	-	(22)
	-----------	-----------
	893	363
	=====	=====
Factors affecting the tax charge for the period
	£'000	£'000
Profit on ordinary activities before tax	3,071	1,305
	=====	=====
Profit before tax multiplied by standard rate	860	391
Effect of:
Expenses not deductible for tax purposes	11	2
Other timing differences	22	(30)
	-----------	-----------
Current tax charge for the period	893	363
	=====	=====

4.    Intangible fixed assets

	£'000
Goodwill	13,997
Total	13,997

Copies of the preliminary announcement are available from The Chocolate Works, Bishopthorpe Road, York YO23 1DE and also available on the company's website.  The Annual Report and Accounts for the year ended 31 December 2008 will be posted to shareholders on or about 27 April 2009.

Pro Forma Results

The Board considers that the prior year statutory numbers did not provide shareholders with the most meaningful financial information to enable them to assess properly the performance of the Group. The Board , therefore, prepared unaudited pro-forma financial information for the year ended 31 December 2007. This information was prepared on the basis that all companies within the Group were part of the Group for the full 12 month period commencing on 1 January 2007 and contributed to the performance of the Group for the full year to 31 December 2007. 

The pro-forma financial results for the 12 months ended 31 December 2007 showed that the Group revenue was £10.8 million, pro forma annualised operating profit was £2.9 million representing 26.7% of turnover and profit before tax was £2.6 million.

The Group came into existence on 2 July 2007, following completion by the Company of its acquisition of Mount (York) Limited. 

ENDFR JPMRTMMTBBLL