Chairmans Statement

OVERVIEW AND FINANCIAL HIGHLIGHTS

The group’s revenue for the year ended 31 December 2011 was £53.8 million, a decrease of £2.1 million, or 3.8%, compared with the same period last year. This decrease had a virtually direct impact on normalised operating profit* which fell by £2.0 million from £13.9 million last year to £11.9 million in the year under review. This decline in trading was, however, more than offset by the nonrecurring profit of £3.1 million on the sale of our freehold property in Gallions Road, London. Consequently the basic earnings per share increased by 11.8% from 24.19p last year to 27.05p this year.

The group continues to generate strong cash flows. Net cash inflow from operating activities was £11.6 million which, mainly due to the decline in normalised operating profit*, was down by £2.3 million compared with last year. Nevertheless, net funds increased from £4.9 million last year to £10.4 million at 31 December 2011 despite shareholder related cash outflows of £3.9 million on dividends and the purchase of own shares. External bank borrowings have been reduced by £6 million from £20 million at the start of the year to £14 million by the year-end.

Cost control, cash and working capital management continue to be priorities for the group. In total working capital has been reduced for the third year running, this time by £0.5 million. Capital expenditure on the hire fleet has been increased from £2.2 million in 2010 to £4.1 million this year and the group purchased a freehold property for £2.7 million to replace the property sold during the year. These actions will ensure that the group’s infrastructure and revenue generating assets are sufficient to support future growth and profitability. Hire fleet utilisation, condition and availability continue to be the subjects of management focus.

Operating Performance

The second half year is normally significantly more profitable than the first but 2011 proved to be an exception. The following table splits the results between the first and second half years:

Our main hire and sales business in the UK and Northern Europe has faced challenging trading conditions throughout 2011 mainly as a result of unhelpful weather conditions but also due to the current economic conditions.

Trading in the first half remained flat and profit was adversely affected by the temperate weather at the end of the 2010/11 winter which resulted in an early end to the heating season. This was followed by another mild summer that failed to stimulate demand for our all important air conditioning products. Unlike last year, the start of the 2011/12 winter was also mild which did not allow our heating division to compensate for the under-performance of the air conditioning business. The last 18 months have also been unusually dry resulting in the drought conditions recently announced for some parts of the UK. Overall the operating profit, excluding profit on the sale of property, of this business segment fell from £13.8 million last year to £12.0 million this year, this being the main reason for the decline in the group’s normalised operating profit* in the current period.

* Operating profit before non-recurring items as reconciled on the Consolidated Income Statement.

In the light of the above factors I consider that management’s performance has been creditable ensuring that the group produced another satisfactory trading performance. This clearly demonstrates our ability to return acceptable profit levels even in times of unfavourable external influence and is due, in part, to the continuing development of non-weather dependent niche markets which continue to benefit the performance of our specialist hire divisions. We will continue to invest in and develop these businesses as well as our traditional core products and services.

Our hire and sales business in the Middle East returned an operating profit of £0.6 million this year compared with £0.7 million in 2010 on similar turnover levels. Although the profit is lower than last year there are now some initial signs of improved trading conditions in Abu Dhabi although the economic conditions in Dubai remain challenging.

The UK fixed installation business continued to improve its trading performance, the segment profit increased by £0.1 million to £0.3 million this year and we look forward to further improvements again next year.

A more detailed review of this year’s operating performance is given in the Operations Review within the Directors’ Report.

PROFIT ON THE SALE OF PROPERTY

During the year the group sold the freehold of one of its main UK depots, based in Gallions Road, London, to a property developer. Gross proceeds were £3.7 million resulting in a profit on disposal of £3.1 million and this has been disclosed as a separate nonrecurring item on the face of the income statement.

Although the group was not actively looking for a sale, management took advantage of a unique opportunity to realise a significant profit and cash flow advantage for the benefit of shareholders. The group purchased a replacement freehold property locally in Peninsular Way for £2.7 million and expect the relocation to the new premises to be completed by the end of the first half of 2012. Part of the net cash inflow of £1 million will be spent on capital improvements in 2012 following which the group will have a much improved and enlarged operating base from which to serve its customers in London and the South East of England.

PROFIT FOR THE FINANCIAL YEAR AND EARNINGS PER SHARE (EPS)

Profit after tax increased by £1 million from £10.6 million last year to £11.6 million this year and basic EPS increased by 11.8% from 24.19p last year to 27.05p this year. However this was significantly influenced by the above profit on sale of property of £3.1 million. The adjusted basic EPS, excluding the profit on the sale of property, would have been 20.24p in 2011, a decrease of 15% compared with the equivalent figure last year of 23.81p.

A more detailed review of the profit for the financial year is given in the Operations and Financial Review within the Directors’ Report.

DEFINED BENEFIT PENSION SCHEME

During March 2012 the December 2010 funding valuation was agreed by management with the pension scheme trustees and accordingly revised “Schedule of Contributions” and “Recovery plan” have now been put into place. These provide that the group will make additional contributions, including an expense allowance, to the pension scheme of £840,000 in 2012, £960,000 in 2013, £1,080,000 in 2014 and £840,000 per annum thereafter until 31 December 2018, or until the funding shortfall has been eliminated if sooner, subject to review at the next actuarial funding valuation due as at 31 December 2013.

NET FUNDS

At 31 December 2011 the group had net funds of £10.4 million compared with £4.9 million last year, an increase of £5.5 million despite a dividend of £2.8 million and cash outflows on share buybacks of £1.1 million.

JG Murray
Chairman
1 May 2011

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