5th Sep 2005 07:01
British Polythene Industries PLC05 September 2005 5 September 2005 BRITISH POLYTHENE INDUSTRIES INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 •Sales increase to £226m (£189m) reflects raw material price rises •Profit before tax up 31% to £10.1m (£7.7m) •Diluted earnings per share rise 34% to 28.13p (20.92p) •Full year expected to produce results ahead of last year, based on strong first half •Interim dividend maintained at 7p Commenting on the results and prospects, Cameron McLatchie, BPI Chairman said: "This was a good first half performance. Polymer prices are high, although atsuch levels BPI, as an efficient producer and recycler, has historically madereasonable returns. We are confident of a full year result ahead of 2004 basedon the good first half." Enquiries Cameron McLatchie, ChairmanJohn Langlands, Chief Executive 01475 501000 Tim Spratt/Caroline WellsFinancial Dynamics 020 7831 3113 BRITISH POLYTHENE INDUSTRIES PLC INTERIM STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2005 We indicated in our AGM Statement and in the Pre-Close Statement on 5 July thatour operating performance for the first six months would be ahead of the sameperiod in 2004 and I can now report that the Interim Results for 2005 have metour expectations for the period. These are the first results which we have presented under the new InternationalFinancial Reporting Standards (IFRS) and, as with other companies reporting forthe first time in this new format, this has involved restating our base figuresfor prior periods. The two main differences which shareholders will detect arechanges in accounting for pensions and dividends. RESULTS On sales of £226 million (2004: £189 million), our operating profit beforeinterest, but after charging £1.3 million of restructuring costs (2004: Nil),was £12.2 million (2004: £9.3 million). After an increased financing charge of£2.1 million (2004: £1.6 million), including the financial elements of thepension scheme of £0.3m (2004: £0.1m credit), our profit before tax improved 31%to £10.1 million (2004: £7.7 million). Fully diluted earnings per share were28.13p (2004: 20.92p). The increased value of sales was mainly driven by raw material costs passedthrough to customers. Sales volumes were marginally lower than the first half of2004. DIVIDEND Your Board has declared a maintained interim dividend at 7 pence per ordinaryshare, payable on 23 November 2005, to shareholders on the register at close ofbusiness on 28 October 2005. CASH FLOW & BORROWINGS The continuing high cost of raw material, and favourable opportunities forinvestment in new plant and equipment, have resulted in our borrowings remainingclose to the levels we have been experiencing for the last year or so. Otherthan the normal seasonal reduction in borrowings in the second half, we do notexpect any significant change until the outlook for raw material prices alters. PENSIONS Despite good investment performance and the pension scheme assets reaching anall time high of £139 million, lower discount rates on the scheme's projectedliabilities have led to an increase in the gross deficit for the scheme to £47million, against which can be set the deferred tax asset of £14 million,resulting in a net deficit of £33 million. The calculation of the projected deficit as at 30 June 2005 is greatlyinfluenced by the discount rate implied by long term bond yields which were attheir lowest point for many years. A 1.5% increase in these long term rates atthat date would have eliminated the scheme deficit. Under IFRS, we have to credit our Profit & Loss account with the expected returnfrom our pension scheme assets and charge the notional interest on the pensionliabilities. These notional figures have the potential to be highly volatile,depending on the performance of the scheme's assets and future changes ininterest rates, and it is possible in future periods that underlying results maybe distorted by these external factors. Shareholders should note that for the restated full year 2004, when the schemewas in net deficit of £30 million, the overall pension charge to the Profit andLoss account was £1.3 million lower as a result of the IFRS changes. On asimilar basis, the positive impact on our results for the first half of 2005 was£0.2 million (2004: £0.6 million). REORGANISATION We reported at our AGM that it was our intention to close two small factories inIpswich and Redditch. These closures have gone smoothly and the transfer of workhas been handled well by all involved. We continue to reduce our administrationcosts and the announced closures and other internal efficiencies will produceannual savings of some £1.5 million from the second half of this year. COMPETITION We have nothing to report on the original EC investigation but we do expect anoutcome to the investigation into the heavy duty bags market before the end ofthis year. We have been involved in objecting to the potential duty to beimposed by the EC on imports of thin bags from China, Malaysia and Thailand, asthis could affect importation of certain products from our plant in China. TRADING AND PROSPECTS Polymer prices, which eased slightly in the second quarter, seem set to returnto, and possibly exceed, the record highs experienced towards the end of 2004.With oil prices at record levels and high plant utilisation in the petrochemicalindustry, there seems little prospect of sustained downward movement in polymerprices until significant planned capacity comes on-stream in the Middle East, orthere is a noticeable drop in global demand. Historically, at higher pricelevels, your Group has made reasonable returns as an efficient producer andrecycler. Operating performance for July and August has been up to our expectations and,barring unforeseen circumstances, we are confident of a full year result aheadof 2004, based on the good first half. However, in the seasonally quieter secondhalf we remain cautious on sales volumes as some customers are not as busy asthey would like to be. We also face rapidly increasing energy costs which willimpact all our UK businesses from October when our last long term fixed pricecontract for electricity ends. We are currently informing customers of theseincreased energy costs. It is inevitable, however, that, as with polymer, wewill not manage to pass all of these increases to all customers timeously andsome short term margin compression will occur. Your Board is confident that the Group will continue to make progress in thesechallenging times for our industry. British Polythene Industries PLCConsolidated income statementFor the six months ended 30 June 2005 Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £m NoteTurnover 2 225.8 189.3 359.4_______________________________________________________________________ Profit from operations beforerestructuring costs 13.5 9.3 13.7 Restructuring costs 3 (1.3) - -_______________________________________________________________________ Profit from operations 12.2 9.3 13.7 Borrowing costs (1.8) (1.7) (2.9)Net retirement benefit financing 4 (0.3) 0.1 0.2_______________________________________________________________________ Net financing costs (2.1) (1.6) (2.7)_______________________________________________________________________ Profit before tax 10.1 7.7 11.0 Tax 5 (2.8) (2.3) (2.9)_______________________________________________________________________ Profit for the period 7.3 5.4 8.1_______________________________________________________________________ Attributable to:Equity holders of the parent 7.3 5.4 8.1Minority interests - - -_______________________________________________________________________ 7.3 5.4 8.1_______________________________________________________________________ Earnings per share_______________________________________________________________________ Basic 7 28.37 20.98 31.54_______________________________________________________________________ Diluted 7 28.13 20.92 31.50_______________________________________________________________________ The above activities relate to continuing operations. British Polythene Industries PLCConsolidated balance sheetAt 30 June 2005 Year June 30 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £m NoteNon-current assetsGoodwill 0.3 0.3 0.3Other intangible assets 2.0 2.4 2.3Property, plant and equipment 80.7 80.2 79.4Other investments 0.1 0.1 0.1Deferred tax assets 9.8 5.4 8.6______________________________________________________________________ 92.9 88.4 90.7 Current assetsInventories 45.6 41.9 58.4Trade and other receivables 82.5 75.5 61.9Cash at bank 1.1 1.3 1.0______________________________________________________________________ 129.2 118.7 121.3 Current liabilitiesBank overdraft 17.3 16.3 13.4Other loans and borrowings 1.1 - 21.1Trade and other payables 66.9 63.9 69.2Current tax liabilities 3.4 3.7 2.3______________________________________________________________________ 88.7 83.9 106.0______________________________________________________________________ Net current assets 40.5 34.8 15.3______________________________________________________________________ Total assets less current liabilities 133.4 123.2 106.0______________________________________________________________________ Non-current liabilitiesOther loans and borrowings 45.8 44.6 23.2Retirement benefit obligations 8 47.0 32.4 43.0Deferred tax liabilities 2.4 2.0 2.6Deferred government grants 0.8 0.9 0.7______________________________________________________________________ 96.0 79.9 69.5______________________________________________________________________ Net assets 37.4 43.3 36.5______________________________________________________________________ Equity Issued share capital 9 6.5 6.5 6.5Share premium account 23.8 23.5 23.7Other reserves 7.0 7.5 7.4Revenue reserves - 5.7 (1.2)______________________________________________________________________ Total equity attributable to equityholders of the parent 37.3 43.2 36.4Minority interests 0.1 0.1 0.1______________________________________________________________________ Total equity 37.4 43.3 36.5______________________________________________________________________ British Polythene Industries PLCConsolidated cash flow statementFor the six months ended 30 June 2005 Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 Note £m £m £m Profit before tax 10.1 7.7 11.0Net financing costs 2.1 1.6 2.7____________________________________________________________________________ Profit from operations 12.2 9.3 13.7 Amortisation of intangible assets 0.5 0.3 0.6Depreciation of property, plant andequipment 6.0 6.4 12.5Gain on disposal of property, plantand equipment - - (0.1)Adjustment relating to pensions (0.5) (0.5) (1.1)____________________________________________________________________________ Operating cash flows beforemovements in working capital 18.2 15.5 25.6 Decrease / (increase) in inventories 12.2 6.9 (9.2)Increase in trade and other receivables (21.1) (25.9) (11.9)(Decrease) / increase in payables (1.5) 8.2 11.9____________________________________________________________________________ Movements in working capital (10.4) (10.8) (9.2)____________________________________________________________________________ Cash generated from operations 7.8 4.7 16.4 Interest paid (1.8) (1.6) (3.0)Income taxes paid (1.8) (2.0) (3.2)____________________________________________________________________________ Net cash from operating activities 4.2 1.1 10.2____________________________________________________________________________ Investing activitiesProceeds from sale of property,plant and equipment 0.2 - 0.2Purchase of property, plant andequipment (8.3) (8.8) (12.9)Purchase of intangible assets (0.2) (0.1) (0.3)_____________________________________________________________________________ Net cash used in investing activities (8.3) (8.9) (13.0)_____________________________________________________________________________ Net cash flows before financing (4.1) (7.8) (2.8)_____________________________________________________________________________ Financing activitiesDividends paid 6 (3.6) (3.6) (5.4)Proceeds from the issue of sharecapital 0.1 0.1 0.4Repurchase of ordinary shares - (0.6) (0.6)Increase in bank loans 4.1 0.4 -Capital amount of finance leasesreceived - 5.0 5.0Repayment of obligations underfinance leases (0.5) (0.4) (1.0)_____________________________________________________________________________ Net cash from financing activities 0.1 0.9 (1.6) ____________________________________________________________________________Net decrease in cash and cashequivalents (4.0) (6.9) (4.4)____________________________________________________________________________ Cash and cash equivalents atbeginning of period (12.4) (8.3) (8.3)Effect of foreign exchange ratechanges 0.2 0.2 0.3____________________________________________________________________________ Cash and cash equivalents at end ofperiod (16.2) (15.0) (12.4)____________________________________________________________________________ British Polythene Industries PLCConsolidated statement of recognised income and expenseFor the six months ended 30 June 2005 Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £mProfit for the period 7.3 5.4 8.1____________________________________________________________________________ Actuarial (losses) / gains on definedbenefit pension schemes (4.2) 2.4 (8.9)Tax on items taken directly to equity 1.3 (0.7) 2.7Movement on translation of overseasundertakings - (0.2) (0.3)____________________________________________________________________________Total recognised income and expensefor the period 4.4 6.9 1.6____________________________________________________________________________ Attributable to:Equity holders of the parent 4.4 6.9 1.6Minority interests - - -____________________________________________________________________________ 4.4 6.9 1.6____________________________________________________________________________ Consolidated statement of changes in equityFor the six months ended 30 June 2005 Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £m Opening total equity 36.5 40.5 40.5____________________________________________________________________________ Total recognised income and expensefor the period 4.4 6.9 1.6 Dividends (3.6) (3.6) (5.4)Purchase of ordinary shares - (0.6) (0.6)New share capital subscribed (net ofexpenses) 0.1 0.1 0.4____________________________________________________________________________Closing total equity 37.4 43.3 36.5____________________________________________________________________________ Reconciliation of net cash flow to movements in net debtFor the six months ended 30 June 2005 At Movement 31 in At December exchange Cash 30 June 2004 rates Flow 2005 £m £m £m £m Cash at bank 1.0 - 0.1 1.1Bank overdrafts (13.4) 0.2 (4.1) (17.3)____________________________________________________________________________ (12.4) 0.2 (4.0) (16.2)Bank loans (20.0) 0.9 (4.1) (23.2)Finance leases (4.3) 0.1 0.5 (3.7)Other loan (20.0) - - (20.0)____________________________________________________________________________Net debt (56.7) 1.2 (7.6) (63.1)____________________________________________________________________________ Prior year (48.3) 0.6 (11.9) (59.6)____________________________________________________________________________ British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies British Polythene Industries PLC (the "Company") is a company domiciled in theUnited Kingdom. The consolidated interim financial statements ("interimstatements") of the Company for the 6 months ended 30 June 2005 incorporate thefinancial statements of the Company and its subsidiaries (together referred toas the "Group"). Statement of compliance In accordance with EU law, the next consolidated annual financial statements ofthe Group, for the year ending 31 December 2005, will be prepared in accordancewith International Financial Reporting Standards ("IFRSs"). As such, the interimstatements have been prepared in accordance with IFRSs as adopted by the EU andthose expected to be adopted by the EU by 31 December 2005. These are theGroup's first IFRS interim statements for part of the period covered by thefirst IFRS annual financial statements and IFRS 1 "First-time adoption ofInternational Financial Reporting Standards" has been applied, subject to theexceptions set out in the basis of preparation section below. The interimstatements do not include all of the information required for full annualfinancial statements. Comparative figures The comparative figures for the year ended 31 December 2004 are not theCompany's statutory accounts for that financial year. Those statutory accounts,which were prepared under UK Generally Accepted Accounting Practices ("UK GAAP"or "previous GAAP"), have been reported on by the Company's auditors anddelivered to the Registrar of Companies. The report of the auditors on thoseaccounts was unqualified and did not contain statements under section 237(2) or(3) of the Companies Act 1985. The adjustments made by the Company to derive the comparative figures inaccordance with IFRS 1 are set out in note 12. The comparative information forthe year ended 31 December 2004 has been reported upon by our auditors and anextract from their special purpose audit report is set out in note 13. Impact of IFRS As required by IFRS 1, an explanation of how the transition to IFRS has affectedthe reported financial position, financial performance and cash flows of theGroup is provided in note 12. This note includes reconciliations of equity andprofit or loss for comparative periods reported under UK GAAP to those reportedfor those periods under IFRS. Basis of preparation The interim statements are prepared on the historical cost basis except forderivative financial instruments which are stated at their fair value. The preparation of the interim statements requires the directors to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. Theestimates and associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that either areadopted by the EU and effective (or available for early adoption) at 30 June2005 or are expected to be adopted and effective (or available for earlyadoption) at 31 December 2005, the Group's first annual reporting date at whichit is required to use accounting standards adopted by the EU. Based on theserecognition and measurement requirements the directors have made assumptionsabout the accounting policies expected to be applied when the first annualfinancial statements are prepared in accordance with accounting standardsadopted by the EU for the year ending 31 December 2005. These are set out below. In particular, the directors have assumed that IAS 19 "Employee Benefits" (asamended in December 2004) issued by the International Accounting Standards Boardwill be adopted by the EU such that it will be available for use in the annualIFRS financial statements for the year ending 31 December 2005. British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies (continued) Basis of preparation (continued) In addition, the accounting standards adopted by the EU that will be effective(or available for early adoption) in the annual financial statements for theyear ending 31 December 2005 are still subject to change and to additionalinterpretations and therefore cannot be determined with certainty. Accordingly,the accounting policies for that annual period will be determined finally onlywhen the annual financial statements are prepared for the year ending 31December 2005. The accounting policies set out below have been applied consistently to allperiods presented in these interim statements, subject to the exemptionspermitted by IFRS 1 as outlined in note 12. Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. The interest of minority shareholders is stated at the minority's proportion ofthe fair values of the assets and liabilities recognised. Subsequently, anylosses applicable to the minority interest in excess of the minority interestare allocated against the interests of the parent. Turnover recognition Turnover from the sale of goods and services is measured at the fair value ofthe consideration, net of rebates, trade discounts, VAT and other sales-relatedtaxes. Turnover from the sale of goods and services is recognised when the Grouphas transferred the significant risks and rewards of ownership of the goods andservices to the buyer, the amount of turnover can be measured reliably and it isprobable that the economic benefits associated with the transaction will flow tothe Group. Leasing Leases are classified as finance leases when, on inception of the lease, theterms of the lease transfer substantially all the risks and rewards of ownershipto the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognised as assets of the Groupat their fair value or, if lower, at the present value of the minimum leasepayments, each determined at the inception of the lease. The correspondingliability to the lessor is included in the balance sheet as a finance leaseobligation. Lease payments are apportioned between finance charges and reductionof the lease obligation so as to achieve a constant rate of interest on theremaining balance of the liability. Finance charges are charged directly throughthe income statement as borrowing costs. Rentals payable under operating leases are charged to the income statement on astraight-line basis over the term of the relevant lease. British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies (continued) Foreign currencies Transactions in currencies other than pounds sterling are recorded at the ratesof exchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Non-monetaryassets and liabilities carried at historical cost that are denominated inforeign currencies are translated at the rates prevailing at the date when thehistorical cost was determined. Gains and losses arising on retranslation areincluded in income and expense for the period. On consolidation, the assets and liabilities of the Group's overseas operations,including goodwill and fair value adjustments arising on the acquisition of aforeign entity, are translated at exchange rates prevailing on the balance sheetdate. Income and expense items are translated at the average exchange rates forthe period. Exchange differences arising are recognised directly in the Group'stranslation reserve. Such translation differences are recognised as income or asexpenses in the period in which the operation is disposed of. Government grants Government grants on capital expenditure are released through selling andadministration expenses over the expected useful lives of the relevant assets orthe qualifying period if shorter. Grants of a revenue nature are credited toincome in the period in which the costs are incurred. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. Payments made to state-managed retirement benefitschemes are dealt with as payments to defined contribution schemes where theGroup's obligations under the schemes are equivalent to those arising in adefined contribution retirement benefit scheme. For defined benefit retirement benefit schemes, the cost of providing benefitsin respect of each plan is determined in an annual actuarial report using theProjected Unit Credit Method. Actuarial gains and losses are recognised in fullin the period in which they occur. They are recognised outside the incomestatement and presented in the consolidated statement of recognised income andexpense. The retirement benefit obligation recognised in the balance sheet represents anassessment of the present value of the defined benefit obligation as reduced bythe fair value of scheme assets. Taxation The tax expense represents the sum of the current taxes payable and deferredtax. The current tax payable is based on taxable profit for the year. Taxable profitdiffers from net profit as reported in the income statement because it excludesitems of income or expense that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible. The Group'sliability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the Group is able tocontrol the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies (continued) Taxation (continued) The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Goodwill Goodwill has been recognised on acquisitions of subsidiaries and represents theexcess of the cost of acquisition over the Group's interest in the fair value ofthe identifiable assets and liabilities and contingent liabilities at the dateof acquisition. Goodwill is stated at cost less any accumulated impairmentlosses. The carrying amount is allocated to cash-generating units and is testedannually for impairment. Any impairment is recognised immediately in income orexpense and is not subsequently reversed. In respect of acquisitions prior to 1 January 2004, goodwill is included on thebasis of its deemed cost, which represents the amount recorded under previousGAAP. The classification and accounting treatment of business combinations thatoccurred prior to 1 January 2004 has not been reconsidered in preparing theGroup's opening IFRS balance sheet at 1 January 2004 (see note 12). On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal, except for goodwill writtenoff to reserves under UK GAAP prior to 1998 which has not been reinstated and isnot included in determining any subsequent profit or loss on disposal.Negative goodwill arising on an acquisition is recognised directly in theconsolidated income statement. Other intangible assets Other intangible assets are carried at cost less accumulated amortisation andaccumulated impairment losses. Amortisation begins when an asset is availablefor use and is calculated on a straight-line basis to allocate the cost ofassets over their estimated useful lives as follows: Computer software 4 - 5 years The cost of intangible assets acquired in a business combination is the fairvalue at acquisition date. The cost of separately acquired intangible assets,including computer software, comprises the purchase cost and any directlyattributable costs of preparing the asset for use. Computer software costs thatare directly associated with the implementation of major business systems arecapitalised as intangible assets. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulateddepreciation and any accumulated impairment losses. Depreciation is charged to the income statement on a straight-line basis overthe estimated useful lives of each part of an item of property, plant andequipment. Land is not depreciated. The estimated useful lives are as follows: Freehold buildings 20 - 50 yearsLeasehold land and buildings 10 - 40 yearsPlant and equipment 4 - 10 years Residual values and useful lives are reassessed annually. Assets held under finance leases are capitalised and depreciated over theirexpected useful lives on the same basis as owned assets or, where shorter, overthe term of the relevant lease. British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies (continued) Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of itstangible assets and intangible assets with definite useful lives to determinewhether there is any indication that those assets have suffered an impairmentloss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss (if any).Where the asset does not generate cash flows that are independent from otherassets, the Group estimates the recoverable amount of the cash-generating unitto which the asset belongs. Intangible assets with indefinite useful lives andgoodwill are tested for impairment annually and whenever there is an indicationthat the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses in respect of assets other thangoodwill, the carrying amount of the asset is increased to the revised estimateof its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairmentloss been recognised for the asset in prior years. A reversal of an impairmentloss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs and thoseoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Net realisable value represents the estimated sellingprice less all estimated costs of completion and costs to be incurred inmarketing, selling and distribution. Trade and other receivables Trade and other receivables are stated at their cost less an allowance forirrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management are included asa component of cash and cash equivalents for the purpose of the statement ofcash flows. Trade and other payables Trade and other payables are stated at cost. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, when appropriate, the risks specific to theliability. Interest Interest is recognised in income or expense using the effective interest method.An appropriate proportion of financing fees to be written off in futureaccounting periods is set against borrowings. British Polythene Industries PLCNotes to the consolidated interim financial statements 1. Significant accounting policies (continued) Derivative financial instruments Derivative financial instruments are measured initially at cost then at fairvalue and include interest rate swaps, cross currency swaps and forward foreignexchange contracts. Certain derivative financial instruments are designated as hedges in line withthe Group's treasury policy. Hedges are classified as follows: o Fair value hedges that hedge the exposure to changes in the fair value of a recognised asset or liability. o Cash flow hedges that hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. o Net investment hedges that hedge exposure to changes in the value of the Group's interests in the net assets of foreign operations. For fair value hedges, any gain or loss from remeasuring the hedging instrumentat fair value is recognised in the consolidated income statement. Any gain orloss on the hedged item attributable to the hedged risk is adjusted against thecarrying amount of the hedged item and similarly recognised in the consolidatedincome statement. For cash flow hedges and net investment hedges, the portion of the gain or losson the hedging instrument that is determined to be an effective hedge, asdefined by IAS 39 "Financial Instruments: Recognition and Measurement", isrecognised in equity, with any ineffective portion recognised in theconsolidated income statement. When hedged cash flows result in the recognitionof a non financial asset or liability, the associated gains or losses previouslyrecognised in equity are included in the initial measurement of the asset orliability. For all other cash flow hedges, the gains or losses that arerecognised in equity are transferred to the consolidated income statement in thesame period in which the hedged cash flows affect the consolidated incomestatement. Any gains or losses arising from changes in fair value of derivative financialinstruments not designated as hedges are recognised in the consolidated incomestatement. Share-based payments The fair value of employee share options granted is calculated at grant date andthe resulting cost is charged to the income statement over the vesting period ofthe options with a corresponding increase in equity. The value of the charge isadjusted to reflect expected and actual levels of options vesting. Treasury shares When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. Repurchased shares are classified as treasury shares andpresented as a deduction from revenue reserves. 2. Segment reporting Segment information is presented in respect of the Group's geographicalsegments. Inter-segment pricing is determined on an arms length basis.Segment results, assets and liabilities include items directly attributable tothe segment as well as those that can be allocated on a reasonable basis. Primary segment - Geographical The Group operates in two principal geographic regions - "UK & Ireland" and"Continental Europe". UK & Ireland includes all of the UK manufacturing andmerchanting activities along with the Irish sales offices which distributepredominantly UK manufactured products. It also includes the manufacturingoperation in China from which substantially all of the output is exported forsale by the Group in the UK. Continental Europe comprises the manufacturing andmerchanting activities located in Belgium, Holland and France. These two regionsare the basis on which the Group reports its primary segment information. British Polythene Industries PLCNotes to the consolidated interim financial statements 2. Segment reporting (continued) Primary segment - Geographical (continued) Segment information about these regions is presented below. Segment information by geographic Continental region UK & Ireland Europe Eliminations Consolidated (unaudited) (unaudited) (unaudited) (unaudited)6 months ended30 June 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £mTurnoverExternal sales 177.1 150.5 48.7 38.8 - - 225.8 189.3Inter-segmentsales 1.6 0.9 0.2 1.6 (1.8) (2.5) - -_______________________________________________________________________________Total turnover 178.7 151.4 48.9 40.4 (1.8) (2.5) 225.8 189.3_______________________________________________________________________________ ResultSegment trading result 9.7 6.1 3.8 3.2 - - 13.5 9.3Restructuringcosts (1.3) - - - - - (1.3) -_______________________________________________________________________________Profit fromoperations 8.4 6.1 3.8 3.2 - - 12.2 9.3_______________________________________________________________________________ Net financingcosts (2.1) (1.6)_______________________________________________________________________________ Profit before tax 10.1 7.7Tax (2.8) (2.3)_______________________________________________________________________________ Profit for theperiod 7.3 5.4_______________________________________________________________________________ Segment information by geographic Continentalregion UK & Ireland Europe Eliminations Consolidated Year ended 31December 2004 2004 2004 2004 £m £m £m £m TurnoverExternal sales 292.2 67.2 - 359.4Inter-segmentsales 1.4 1.9 (3.3) -_______________________________________________________________________________Total turnover 293.6 69.1 (3.3) 359.4_______________________________________________________________________________ ResultSegmenttrading result 9.5 4.3 (0.1) 13.7Restructuring costs - - - -_______________________________________________________________________________Profit fromoperations 9.5 4.3 (0.1) 13.7_______________________________________________________________________________ Net financingcosts (2.7)_______________________________________________________________________________ Profit beforetax 11.0Tax (2.9)_______________________________________________________________________________ Profit for theperiod 8.1_______________________________________________________________________________ British Polythene Industries PLCNotes to the consolidated interim financial statements 3. Restructuring costs Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £mRestructuring of continuing operations:Redundancies 0.6 - -Asset write downs 0.3 - -Machinery relocation and reinstallation 0.3 - -Property costs and dilapidations 0.1 - -_______________________________________________________________________________ 1.3 - -_______________________________________________________________________________ 4. Net retirement benefit financing Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £m Expected return on pension scheme assets 4.3 4.2 8.4Interest on pension liabilities (4.6) (4.1) (8.2)_______________________________________________________________________________Net retirement benefit financing (0.3) 0.1 0.2_______________________________________________________________________________ 5. Tax Corporation tax for the interim period is charged at 28% (June 2004: 30%),representing the estimated annual effective tax rate for the full financialyear. 6. Dividends Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £mAmounts recognised as distributions to equityholders in the period:Final dividend for the year ended 31December 2004 of 14.0p per share 3.6 - -Final dividend for the year ended 31December 2003 of 14.0p per share - 3.6 3.6Interim dividend for the year ended 31December 2004 of 7.0p per share - - 1.8________________________________________________________________________________ 3.6 3.6 5.4________________________________________________________________________________ Proposed interim dividend for the 6 months ended30 June 2005 of 7.0p (2004: 7.0p) per share 1.8 1.8 -________________________________________________________________________________ The proposed interim dividend of 7.0p (2004: 7.0p) per share will be paid on 23November 2005 to shareholders on the register at close of business on 28 October2005. The interim dividend was approved by the Board on 2 September 2005 and has notbeen included as a liability as at 30 June 2005. British Polythene Industries PLCNotes to the consolidated interim financial statements 7. Earnings per share The calculation of basic earnings per share at 30 June 2005 was based on theprofit attributable to ordinary shareholders of £7.3million (six months ended 30June 2004 - £5.4 million, full year 2004 - £8.1 million) and a weighted averagenumber of ordinary shares in issue throughout the period of 25,733,000 (sixmonths ended 30 June 2004 - 25,735,000, full year 2004 - 25,683,000).Diluted earnings per share is calculated below: 6 months ended 6 months ended Year ended 30 June 2005 30 June 2004 31 December 2004 Earnings Earnings Earnings attributable attributable attributable to ordinary Earnings to ordinary Earnings to ordinary Earnings shareholders per shareholders per shareholders per share share share £m pence £m pence £m pence (unaudited) (unaudited)Diluted earnings per share based on:Profitattributableto ordinaryshareholders 7.3 28.13 5.4 20.92 8.1 31.50 Restructuringcosts 1.3 5.01 - - - -Less tax relief on restructuringcosts (0.4) (1.54) - - - -_______________________________________________________________________________________________Diluted earnings on continuing operations beforerestructuringcosts 8.2 31.60 5.4 20.92 8.1 31.50_______________________________________________________________________________________________ 000s 000s 000sWeighted average (unaudited) (unaudited)number of ordinary shares Issued ordinaryshares at 1 January 25,864 25,930 25,930Effect ofshares issued 17 33 46Effect of sharesrepurchased - (39) (120)Effect of ownshares held (148) (189) (173)_______________________________________________________________________________________________Weightedaverage numberof ordinaryshares 25,733 25,735 25,683 Effect ofshare optionsin issue 220 72 34_______________________________________________________________________________________________Dilutedweightedaverage numberof ordinaryshares 25,953 25,807 25,717_______________________________________________________________________________________________ Diluted earnings per share on continuing operations, before all restructuringcosts, gives the most appropriate measure of the business on an ongoing basis. On 13 May 2005, the Group made conditional share awards of 337,500 shares tocertain senior executives. These awards will vest, subject to performancecriteria, in 2008. British Polythene Industries PLCNotes to the consolidated interim financial statements 8. Retirement benefit obligations Year 6 months ended 30 June ended 31 2005 2004 December (unaudited) (unaudited) 2004 £m £m £m Fair value of scheme assets 138.6 121.0 129.8Present value of scheme liabilities (185.6) (153.4) (172.8)________________________________________________________________________________Deficit in the scheme (47.0) (32.4) (43.0)Related deferred tax asset 14.1 9.7 12.9________________________________________________________________________________Net pension liability (32.9) (22.7) (30.1)________________________________________________________________________________ Provision for retirement benefit obligations at 30 June has been calculated on asimilar basis as at the previous 31 December. The increase in the scheme deficitin 2005 is mainly the result of a reduction in the discount rate applied to thescheme liabilities which has been mitigated by a better than expected return onscheme assets. 9. Share capital Date of No of Issue SharesMovements in equity share capitalAt 31 December 2004 25,863,976Exercise of SAYE Options Various 28,274________________________________________________________________________________At 30 June 2005 25,892,250________________________________________________________________________________At 30 June 2004 25,777,430________________________________________________________________________________ 10. Contingent liabilities As noted in previous years' Report and Accounts, in August 2001 the Group, alongwith a number of other businesses in the industrial and agricultural plasticfilms market in Europe, was visited by officials from the CompetitionDirectorate of the European Commission investigating alleged infringements ofEuropean competition law ("the original inquiry"). Following the visits, theGroup implemented a group wide compliance programme in relation to both EU andUK competition law. As a result of this process, it became clear that some ofthe Group's previous practices had not been compliant with that legislation andthe Directors consider that the Group may incur financial penalties as a result. On 9 November 2001, the Group brought certain practices in its industrial bagsoperations in mainland Europe to the attention of the European Commission andapplied for leniency under the Commission's Notice of 18 July 1996 on the nonimposition or reduction of fines in cartel cases (96/C2-7/04). As a result ofthe information provided by BPI to the Commission, a second inquiry began ("theindustrial bags inquiry"). In May 2004, the European Commission notified theGroup that formal proceedings were being commenced against BPI and relevantsubsidiaries, as well as other third parties in respect of practices in relationto industrial bags in mainland Europe from 1982 until end 2001. There is nofixed timetable within which the European Commission must adopt a final decisionin relation to the industrial bags inquiry, though it is anticipated that theyare likely to do so by the end of 2005. The Directors believe that the Group's cooperation with the European Commissionin relation to the industrial bags inquiry has met the requirements of Section Bof the Commission's Notice. This cooperation is a key condition of a successfulleniency application. Section B provides for a reduction of 75% to 100% of thepenalties that would otherwise have been imposed by the Commission in relationto industrial bags practices, British Polythene Industries PLCNotes to the consolidated interim financial statements 10. Contingent liabilities (continued)Related Shares:
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