Financial Review

Dividend Sales Trends Turnover Trading Profit Rationalisation and Non-Trading Items	Net Finance Costs Funds Flow Financial Performance Indicators Pension Deficit

OVERVIEW

2009 saw a fall in Group turnover of 33% and a decrease in operating profits (before non-trading items) of 60%. At a constant currency, sales were down 28% and operating profits were down 57%. The trend in sales has improved somewhat being down 35% in H1 2009 vs H1 2008 and 30% in H2. Overall from peak (H1 2007) to trough (H2 2009), Group sales suffered a decline of 42%. Given the Group’s relatively high operational gearing in certain products, this fall-off in sales has had a disproportionate impact on operating profits, which was mitigated somewhat by a rapid response through fixed cost reductions and rationalisation of some manufacturing facilities.

The gross margin (gross profit as % of turnover) was 27.4% for the year, compared to 27.9% in 2008. There was a slight improvement in H2 over H1 (H1 27.2%, H2 27.4%) as raw material prices stabilised.

Fixed overheads were reduced by approximately €50mn in the year compared to 2008. This is a like-for-like comparison at constant currency, excluding the acquisition of the Panels business in the United States, and is a reduction of €66mn from the peak. There were rationalisation costs in the year of €6.5mn which are included in operating costs.

The weakness of Sterling against the Euro (average rate 2008: 0.796 v average rate 2009: 0.8917) has had a negative impact on the translation of results when compared with last year. The overall impact of all currency movements on Euro reported turnover was €71mn and operating profit was €4mn.

There was capital investment of €48.1mn in the year including the acquisition of AIR-CELL Innovations. Based in Perth in Australia, AIR-CELL is a market leading distributor of flexible reflective insulation foil products with inter-state presence across the Australian market. Other capital investment mainly related to the completion of projects from 2008 and maintenance capital. Operating working capital at year end of €123.3mn was reduced by €99mn compared to 2008, due to increased focus and lower activity levels.

Dividend

The Board is recommending that no final dividend in respect of 2009 be paid. Resumption of dividend payments will be considered by the Board in 2010 in light of debt reduction achieved in 2009, and ongoing cash flow and operating performance reaching expectations.

Segment Reporting

Following on from the restructuring of the businesses and the requirements of IFRS 8, the segmental reporting of the results has been changed. From 1 January 2009 the following four business segments are reported on:

Insulated Panels

Manufacture of insulated panels, structural framing and metal façades;

Insulation Boards

Manufacture of rigid insulation boards, building services insulation and engineered timber systems;

Environmental & Renewables

Manufacture of environmental, pollution control and renewable energy solutions;

Access Floors

Manufacture of raised access floors.

INCOME STATEMENT

	2009 €’mn	2008 €’mn
Sales Revenue	1,125.5	1,672.7
Gross Profit	308.9	467.5
Gross Profit %	27.4%	27.9%
Operating Profit	(241.8)	(305.8)
Trading Profit	67.1	161.7
Amortisation	(4.4)	(4.6)
Non Trading Items	-	(75.1)
Operating Profit	62.7	82.0

ANALYSIS BY
CLASS OF ACTIVITY

	Year ended 31.12.09 €’mn	Year ended 31.12.08 €’mn	% Change 2009-2008	% Change @ constant rates
Insulated Panels	593.9	862.1	-31%	-27%
Insulation Boards	215.3	345.2	-38%	-33%
Environmental & Renewables	168.7	266.7	-37%	-29%
Access Floors	147.6	198.7	-26%	-25%
	1,125.5	1,672.7	-33%	-28%

ANALYSIS BY
GEOGRAPHICAL MARKET

	Year ended 31.12.09 €’mn	Year ended 31.12.08 €’mn	% Change 2009-2008	% Change @ constant rates
Ireland	78.1	173.8	-55%	-55%
Britain and Northern Ireland	503.3	826.6	-39%	-32%
Mainland Europe	310.9	453.1	-31%	-28%
Americas	192.7	177.1	+9%	+5%
Other	40.5	42.1	-4%	+2%
	1,125.5	1,672.7	-33%	-28%

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Sales Trends

Insulated Panels in the UK, Irish and Western European markets

Currency	Volume	Price & Mix	Total
-4%	-33%	-3%	-40%

• Sales were down 40% for the year. Volume, down 33% overall, was 37% lower in the first half and 27% in the second half.
• Order intake was down 40% in the first half, down 18% in the second half and down 32% for the full year.

Insulated Panels in Central & Eastern European markets

Currency	Volume	Price & Mix	Total
-5%	-25%	-3%	-33%

• Sales were down 33% for the year. Volume was down 28% in the first half and down 21% in the second half, down 25% overall.
• Order intake was down 28% year-on-year being down 40% in the first half but down 11% in the second half.

Insulated Panels in the North American markets

Currency	Volume	Acquisitions	Total
+5%	-23%	+62%	+44%

• Metecno Inc. was acquired by the Group in August 2008. Turnover for the year 2009 was $111.2mn (€79.7mn), down 25% on the same period in 2008.
• In Canada sales were down approximately 23% year-on-year.

Insulation Boards

Currency	Volume	Price & Mix	Total
-6%	-23%	+4%	-25%

• Insulation sales volumes were down 23% for the year, down 32% in the first half, and down 13% in the second half. This decline in volumes was offset by increased value of sales of 4%.

Engineered Timber Systems

Currency	Price & Volume	Total
-3%	-69%	-72%

• Sales of Off-site/Engineered Timber Systems were down 72% versus 2008 (down 69% on constant currency).

Environmental & Renewables

Currency	Price & Volume	Disposals	Total
-8%	-21%	-8%	-37%

• Sales were down 37% of which price/volume was down 21% year-on-year, being down 23% in the first half and 18% in the second half.

Access Floors

Currency	Volume	Price & Mix	Total
-1%	-31%	+6%	-26%

• Sales were down 26% in the year. 31% of this reduction was represented by volume, being down 25% in the first half and down 36% in the second half.
• Order intake, declined by 25% in the North American market and by 44% in the European markets compared to 2008.

With the exception of Access Floors, which is mainly into a late cycle market, the downward trend in order intake and sales showed a significant abatement in the second half of the year, continuing into 2010.

Up to December 2008 Insulated Panels and Insulation Boards were reported on as one combined segment. In addition, Offsite & Structural was reported as a segment in its own right. Following the restructuring of this business unit, the part of Offsite & Structural that relates to timber framing and engineered timber systems has been transferred to Insulation Boards and the rest of the business (relating to metal framing, façades and structural products) has been transferred to Insulated Panels.

Note 6 of the supplementary information in the attached accounts gives further analysis of the segments and the rest of this report deals with the results analysed under the new segments and corresponding comparisons.

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Turnover

Turnover for the year ended 31 December 2009 was €1,125.5mn, a drop of 33% on 2008. The acquisition of Metecno Inc. in August 2008 generated incremental turnover in 2009 of €41.3mn. In 2009, the decline in the value of Sterling against the Euro continued and the average rate in 2009 was 0.8917 versus an average rate in 2008 of 0.796. Approximately 45% of Group turnover was in the Sterling area and this, combined with movements in average exchange rates for other operating currencies, resulted in an adverse
translation impact on turnover of €71mn. Stripping out the impact of the adverse effect of movement in translation and the incremental impact of the acquisition of Metecno Inc., underlying turnover was down by 31%. This reduction results from an overall volume decline of approximately 25% and price/product mix decline of 6%.

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Trading Profit

Trading profit, before amortisation and non-trading items, was €67.1mn compared to €161.7mn in 2008, a decline of 59%. There was a negative impact of the translation of trading profits from non-Euro currencies at the average exchange rates of €4mn. Stripping out the translation impact the decline in operating profit was 57%.

The return on sales in 2009 was 5.6% compared to 9.4% in 2008.

Cost of sales comprises variable costs i.e. raw material and direct labour plus other production overheads which are fixed or semi-fixed. Variable costs as a percentage of sales reduced by approximately 1% compared to last year. While production overheads were reduced by €28mn, as a percentage of sales they increased by approximately 1.5%. As a result the gross profit at €308.9mn representing a return of 27.4% on sales, compares to 27.9% last year.

Operating costs (including amortisation) at €246.2mn are down by €64.2mn compared to 2008. Excluding the effect of the acquisition of Metecno on 2009 overheads and the effect of exchange rate movements between the two periods, the net overhead reduction in the year was €50mn.

The table below shows the trading margin for the product groups.

Insulated Panels margin decreased to 5.3% (2008: 12.9%). Raw materials purchased in quarter four 2008, acquired at higher prices and carried through in inventory into 2009, had a negative impact on margins, particularly in the first half of the year.

There were also specific issues in Canada where the Group is still manufacturing on an inefficient line pending the move to an upgraded manufacturing process. This new plant will be fully commissioned in Quarter 1 2010. In the United States incremental costs were incurred as the process of product, market and management development got underway. In Central Europe overcapacity in the industry resulted in pressure on margins. In addition, all business units suffered from the loss of leverage on fixed costs resulting from the decline in volumes.

Insulation Boards margin increased to 6.4% (2008: 5.9%). The incorporation of Engineered Timber Systems into this business from Off-Site & Structural depressed the margin, particularly in 2008. The underlying profitability of the Division continues to remain robust and should not be materially affected by Engineered Timber Systems in the future.

The margin in Environmental & Renewables at 1.7% is up from 1.0% last year. Efficiencies have been coming through in the Environmental part of this Division since the consolidation of sites in Ireland was completed last year and further consolidation was completed in Britain in 2009. Costs continue to be incurred in relation to the warranty issues arising from faulty raw material supplied to the division in the past, which at €6mn is a somewhat higher charge than last year. In the Renewables business, sales have been disappointing in the year, particularly in mainland Europe, which had accounted for approximately 75% of this units’ turnover. At the same time the Group has significantly increased resources in respect of new geographical market development and product development. The investment in a new manufacturing facility, which will be fully commissioned in Quarter 1 2010 will result in significant unit cost savings.

Access Floors delivered an operating margin of 17.5% (2008: 14%). The gross margin has held up strongly, despite steel price volatility in the first half of 2009. The mix of product also had a positive impact on sales pricing and related margins. There are challenges to come, given the position of these products in the construction cycle and indicated by the negative trends in sales volumes, quotations and order book, that will put pressure on the margins here in the medium term.

TRADING MARGIN BY PRODUCT GROUP
(excluding amortisation/rationalisation costs*/non-trading items)

	2008	2009
Insulated Panels	12.9%	5.3%
Insulation Boards	5.9%	6.4%
Environmental & Renewables	1.0%	1.7%
Access Floors	14.0%	17.5%
Group	9.7%	6.5%

*Rationalisation costs of €6.5mn in 2009 have been added back to the profits in the relevant division

REDUCTION IN OVERHEADS

	Actual Overheads €’mn		Overhead Reduction €’mn
	Half 1	Half 2
2007	145	149
2008	149	133
2009	118	114
Reduction H1 09 vs H1 08			31
Reduction H2 09 vs H2 08			19
H2 08 vs H2 07			16
			66

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Rationalisation and Non-Trading Items

Included in non-trading items in 2008 was goodwill impairment of €43.6mn. Further analysis of the carrying cost of goodwill on the balance sheet was carried out in 2009 and this review resulted in no further impairment charges. There were rationalisation costs incurred in 2009 of €6.5mn included in operating overheads.

As a result of site rationalisation, production properties surplus to requirements with a book value of €19.0mn have been transferred in the Balance Sheet from “Property” to “Assets held for resale”. None of these properties, which are still believed to have a disposal value in excess of book value, were disposed of during the year. Since year end the sale of one of these properties has been agreed, at a price slightly in excess of its book value.

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Net Finance Costs

The net finance costs in the year were €5.9mn. This comprises interest paid or payable of €12.7mn and interest received of €1.8mn giving a net interest charge of €10.9mn. In addition there was a translation gain on the private placement debt of €11.8mn and the fair value movement on the related cross currency interest rate swaps resulted in a loss of €6.9m. These two non-cash adjustments, a net credit of €4.9mn, have been credited off the net interest charge of €10.9mn.

The circumstances of this credit to the profit and loss account are set out below:

The Group had a private placement of US$158mn fixed interest 10-year bullet repayment loan notes maturing on 29 March 2015 and US$42mn fixed interest 12-year bullet repayment loan notes maturing on 29 March 2017. The Group, being Euro denominated and with mostly Euro cash flows, wished to economically hedge the risk and therefore entered into US dollar fixed/Euro fixed cross currency interest rate swaps for the full amount of the private placement with semi-annual interest payments. The weighted average interest rate is 4.15%. The maturity date of these cross currency interest rate swaps is identical to the maturity date of the private placement debt.

These cross currency interest rate swaps had not been designated under the IAS39 hedge accounting rules. Consequently the change in fair value of the cross currency interest rate swaps is recognised in the Income Statement (€6.9mn above) and the translation gain on the private placement debt is also recognised in the Income Statement in accordance with
IAS21 (€11.8mn above).

On 26 February 2010, these cross currency interest rate swaps were designated under IAS39 hedge accounting rules, thus removing any significant volatility from reported earnings.

Taxation

Taxation provided for on profits is €8.7mn after adjustment in respect of prior years of €6.3mn, or a composite rate of 15.4% of profit. This compares with an equivalent rate of 14.6% in 2008.

Earnings Per Share

Basic earnings per share at 28.7 €cent compares with 26.7 €cent last year, an increase of 7%. This includes the net credit €4.9mn in relation to the cross currency swaps and revaluation of the US$ loan described above. In the absence of this credit the underlying earnings per share in the year was 25.7 €cent, a fall of 4% on 2008.

The Group’s shares traded in a range of €2.02 to €7.00 during 2009 and at year end the share price was €6.00.

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Funds Flow

The table below summarises the Group’s funds flow for 2009 and 2008:

GROUP FUNDS FLOW

	2009 €’mn	2008 €’mn
Operating profit	62.7	82.0
Depreciation	35.8	40.6
Amortisation	4.3	4.6
Working capital decrease/(increase)	105.4	43.6
Pension contributions	(2.9)	(2.6)
Interest	(12.9)	(12.7)
Taxation paid	(10.1)	(18.1)
Others	5.4	60.3
Free cash	187.7	197.7
Acquisitions	(8.0)	(92.6)
Net capital expenditure	(45.9)	(97.5)
Dividends paid	(0.3)	(42.3)
Share buy-back	-	(32.6)
	(54.2)	(265.0)
Cash flow movement	133.5	(67.3)
Debt translation	1.8	(7.3)
Decrease/(Increase) in net debt	135.3	(74.6)
Net debt at start of year	(299.6)	(225.0)
Net debt at end of year	(164.3)	(299.6)

Earnings before finance costs, tax, deprecation, amortisation (EBITDA) and before Non-Trading Items was €102.8mn (2008: €202.3mn). In 2009, the Group delivered free cash flow of €187.7mn. This included a positive contribution of €105.4mn from working capital reductions. This was used to fund investment of €8.0mn in acquisitions and net capital expenditure of €45.9mn.

Net debt, including amounts outstanding in respect of acquisitions, at the end of year was €164.3mn, a decrease of €135.3mn on 2008.

Operational working capital at the year end was €123.3mn (2008: €222.3mn), a reduction of €99mn and represented 11.0% of turnover (2008: 13.3%). Approximately €58mn of this reduction was due to the fall off in the level of activity and the balance resulted from improved management of the components of working capital. There can be expected to be some increase in the general level of working capital requirements during 2010 but the target remains to manage this on average at about 15% of sales.

NET DEBT

	31.12.09 €’mn	31.12.08 €’mn
Cash and cash equivalents	83.9	75.3
Bank debt < 1 year	(31.9)	(16.8)
Private placement debt > 5 years	(151.4)	(151.4)
Bank debt 2-5 years	(61.6)	(194.0)
Contingent deferred consideration	(3.3)	(12.7)
Total Net debt	(164.3)	(299.6)

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Financial Performance Indicators

There are three principle financial covenants relating to the funding facilities:

EBITDA/net interest cover of not lower than 4 times; Net Debt/EBITDA no higher than 3.5 times; Net Assets greater than €400mn. These covenants are tested at June and December each year. At 31 December 2009 the Group was comfortably within these covenants with interest cover of 9.4, Net Debt/EBITDA of 1.6 and Net Assets of €585.5mn. Some key financial performance indicators which measure performance and the financial position of the Group are set out in the table below.

FINANCIAL PERFORMANCE INDICATORS

	2009	2008	2007
EBITDA/interest cover	9.4x	14.6x	22.8x
Net debt/EBITDA	1.6x	1.48x	0.79x
Effective tax rate	15.4%	14.6%*	16.4%
Net debt as % of total equity	28.1%	57.7%	33.4%
Return on capital employed	8.4%	19.2%	26.4%
Return on Equity	8.6%	7.6%	30.7%
Gross margin	27.4%	27.9%	30.2%
Trading margin	6.5%	9.7%	12.9%

*yoy rate is 14.6%, including non-trading costs the rate was 35.4%

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Pension Deficit

The Group has three legacy defined benefit pension schemes in the UK, two of which were merged during the year. These schemes have been closed and the liability relates only to past service. Details on the movement during 2009 on the scheme deficits are set out below:

PENSION DEFICIT

	€’mn
Opening net deficit	(3.7)
Translation	(0.32)
Contributions paid	2.9
Actuarial gains/(losses)	(3.9)
Net finance (charge)/credit	(0.08)
Closing deficit	(5.1)

Summary

The Group goes into 2010 with a strong balance sheet, with a streamlined business and a business model very much intact. There is capacity in the Group to service turnover of a figure in the order of €2bn without any significant capital investment. Given the operational leverage in the business, in the short term any incremental increase in sales should be relatively profitable. The Group continues to invest selectively in product, process and market development and will be ready to capitalise on any up-tick in markets and any opportunities that arise.

Dermot Mulvihill
Finance Director
1 March 2010