2nd Jun 2005 07:00
Scapa Group PLC02 June 2005 2 June 2005 Scapa Group plc Scapa Group plc, the global supplier of technical tapes and cable compounds,today announces the preliminary results for the year ended 31 March 2005. Highlights • Turnover £188.2 million (2003/04 £187.9 million) • Underlying turnover increased by £6.2 million (3.4%) reflecting strong underlying sales growth of 6.5% in North America particularly within Scapa Medical • Headline * operating profit £3.6 million (2003/04 £6.0 million) • Headline * profit before tax £1.2 million (2003/04 £4.1 million) • Steven Lennon appointed to COO in February 2005 • Board Changes: - Tony Watson resigned as CEO from June 1 2005 with immediate effect, Keith Hopkins will act as Executive Chairman until a new CEO is appointed - Michael Baughan will become deputy chairman - Richard Perry is appointed as a non-executive director from June 1 2005 • Net debt at year end £15.2 million; year end gearing 38.4% Commenting on the results, Chairman Dr Keith Hopkins said: "Trading in the first part of the 2005/06 financial year has been significantlybelow budget. Our main aim is to recover our trading margins by increasingselling prices and reducing costs, and the management changes implemented willprovide important momentum in achieving this. Looking further ahead the Boardis committed to reviewing all options to provide future value to shareholdersand is consequently undertaking a strategic review of our business." For further information: Keith Hopkins Chairman Tel: 01254 580 123Colin White Finance Director Tel: 01254 580 123Deborah Scott Financial Dynamics Tel: 020 7831 3113 A full copy of this announcement can be found at www.scapa.com * Figures shown here and elsewhere in the Preliminary Announcement as "headline"exclude operating exceptional charges of £ 4.5million (2003/04 £11.7million)and goodwill amortisation of £1.4 million (2003/04 £1.5 million) and whereapplicable the non-operating exceptional loss on disposal of fixed assets of£0.2 million (2003/04 profit of £0.9 million) Chairman's Statement Overview This was a very disappointing year. As highlighted in our 14 March 2005 tradingstatement significant increases in raw material prices, especially during thesecond half, reduced margins. We were also affected by the weakness of the USDollar and a sharp slowdown in overall demand in March. Steady progress in NorthAmerica and good sales growth in Asia were undermined by a poor result inEurope. Group sales in 2004/05 of £188.2 million were similar to last year (£187.9million). Operating profit before goodwill amortisation and exceptional itemswas £3.6 million (£6.0 million 2003/04). With goodwill amortisation of £1.4million (£1.5 million last year) and operating exceptional charges of £4.5million (£11.7 million last year) total operating loss was £2.3 million comparedto a total operating loss of £7.2 million last year. After an exceptional taxcredit of £6.8 million this year, profit after tax was £1.4 million (lossafter tax of £4.1 million last year) and earnings per share were 0.9p (2003/04loss of 2.8p per share). We successfully relocated our North American cable tape manufacturing plant fromMansfield, Massachusetts to our existing Canadian facility. We also completedthe buyout of our Chinese joint venture partner during the year which shouldaccelerate the development of our business in China. We have strengthened ourEuropean research and development team during the year and had anothersuccessful year in new product introductions in North America. Finance Capital expenditure was carefully controlled at £4.6 million (2003/04 £6.9million) and was focused on improving conversion efficiencies at a number of keylocations. Working capital increased by £4.0 million reflecting in partincreased raw material costs. Cash flow from operating activities was £1.5million (2003/04 £5.9 million). Net debt increased by £1.5 million to £15.2million. At the year end gearing was 38.4%. Trading in the first part of the 2005/06 financial year has been significantlybelow budget. Consequently the directors have prepared a revised forecasttaking account of current trading and reflecting improvement plans. The revisedforecast shows compliance with the relevant banking covenants. While we remainwell within our borrowing limits, as a precautionary measure, the Group hasinitiated discussions with its bankers to ease certain covenants if this becomesnecessary. The Board has decided that it cannot recommend the payment of afinal dividend. US Litigation We continue to defend personal injury claims in the USA from alleged exposure toasbestos that relate to a business we sold in 1999. The appeal processes for thetwo adverse verdicts, previously advised, are underway. In the last six monthswe have won two important cases; one in Arkansas, in December 2004, and a secondcase in Baltimore in May 2005. Over the last three years we have been dismissedfrom 176 cases covering 1,113 plaintiffs. In over ten years of successfuldefence in the USA no Scapa Group company, nor any of our insurance carriers,has admitted liability nor made any payment to any plaintiff under our policies.Accordingly, our insurance coverage remains intact and the Board will continueto defend vigorously the outstanding claims. The Board There have been a number of changes to the Board. Tony Watson resigned as aDirector on 1 June 2005. I would like to thank Tony for all his years of serviceand wish him well for the future. He will continue to assist us for a periodwith our US litigation. While we search for a new Chief Executive I will becomeExecutive Chairman and Michael Baughan, our Senior Non-Executive Director, willdelay his retirement from the Board and become Deputy Chairman. We are pleased to welcome Richard Perry as a non-executive Director of Scapawith effect from 1 June 2005. Richard is Finance Director of Fenner plc and willbring a wealth of experience to the Board. He will take over from MichaelBaughan as Chairman of the Audit Committee. In February 2005 we appointed Mr Steven Lennon to the position of ChiefOperating Officer of Scapa Group. Steven is a welcome addition to the ScapaBoard having led the reorganisation and development of our successful NorthAmerican operation. Outlook Trading in the first part of the 2005/06 financial year has been significantlybelow budget. Our main aim is to recover our trading margins by increasingselling prices and reducing costs, and the management changes implemented willprovide important momentum in achieving this. Looking further ahead the Boardis committed to reviewing all options to provide future value to shareholdersand is consequently undertaking a strategic review of our business. Operating Review 2004/05 Performance Overview 2004/05 was a year which encompassed many changes. Certain raw material costsrose significantly, triggered by rising oil prices and limited availability of anumber of materials. Competitive pressures, specifically from the Far East,have made it a challenge to maintain margins. Scapa has attempted to minimisethese pressures through a focused effort on leveraging our global purchasingpower and attaining cost reductions in our manufacturing process, throughimproved efficiencies and lower cost material alternatives. The continuedweakening of the US dollar (9.5% against sterling) has had a significant impacton group results as significant profits were derived from North Americanoperations. 2004/05 global sales were £188.2 million similar to 2003/04 sales of £187.9million. When re-stating results at constant exchange rates organic sales growthwas £6.2 million (3.4%). However, operating profit (before goodwill amortisationand exceptional items) at £3.6 million (2003/04 £6.0 million) was disappointing.Raw material cost pressures, combined with an adverse product mix and intensecompetitive pricing pressure at customers supplying the data cable market,accounted for the majority of the operating profit shortfall. Scapa has announced and implemented sales price increases to help offset the rawmaterial increases experienced in 2004/05 and further increases are planned in2005/06. Scapa is also on a global basis pursuing cost reductions throughidentifying lower cost suppliers and lower cost alternative raw materials with amajor focus in the Far East. Additionally, a major emphasis is being placedglobally on improving productivity and reducing manufacturing costs combinedwith other projects to improve process efficiencies. Scapa North America Review Scapa North America sales for 2004/05 were £64.1 million compared with £64.7million last year. At constant exchange rates this represents underlying salesgrowth of £3.9 million (6.5%) reflecting the generally buoyant market conditionsfor much of the period under review. 2004/05 operating profit (before goodwill amortisation and exceptional items)was £6.7 million (£7.1 million in the prior year). The weakening of the USDollar reduced operating profits upon translation by £0.5 million. Raw materialprice increases and sales mix issues caused the overall operating margin beforeexchange rate impact to deteriorate by 0.5%. In addition, in the second half of2004/05, the rising oil costs have had a significant impact on utility andcarriage costs. Cost control and reduction programmes in 2004/05 again wereinstrumental in helping to mitigate these effects. In addition, the NorthAmerican cable tape manufacturing plant at Mansfield was closed in the thirdquarter and relocated to our existing Canadian facility. Delivery performance,inventory control and accuracy have remained at high performance levels, whichhave aided customer response times and consequently improved customersatisfaction. Trading working capital performance and overall cash generation, althoughunfavourable to last year, continue to be at acceptable levels. Additionalcapital expenditure completed in 2004/05 is expected to yield further savings in2005/06 and future fiscal years by allowing us to increase productivity andefficiencies in a number of North American sites. These areas of expenditurewill be closely monitored and controlled to ensure they deliver expectedreturns. The immediate prospects for Scapa North America remain good, although there aresome concerns regarding a possible slowdown in the North American economy.Recent price increases to mitigate raw material increases have been implemented,but if raw material costs continue to increase a further round of priceincreases is likely later in the year. New product development continues to bestrong and is anticipated to support continuing sales growth into 2005/06. Scapa Europe Review For the European business, 2004/05 has been about building on the transformationprogrammes of recent years. With the new UK site at Ashton, Manchester and theredeveloped site at Dunstable, Bedfordshire becoming fully operational at thestart of 2004/05, combined with the focus on the 'Customer Now' programme, wehave significantly improved customer service levels. The trading conditions for much of the European business, however, have beenchallenging during the period. In 2004/05 Europe successfully transferredinvoicing responsibility, principally to Asia, for a number of key regionalaccounts. Adjusting for these transfers and at constant exchange rates salesgrew by £1.1 million to £115.3 million. Operating loss (before goodwillamortisation and exceptional items) was £3.6 million (loss of £1.5 million 2003/04). Overall margins during the year fell principally as a result of severe rawmaterial cost increases within the MegolonTM cable compound sector wherecompetitive pressures limited our ability to secure offsetting price increases.Overall operating costs were well controlled with savings achieved throughimproved operating efficiencies. Scapa Europe delivered another strong operating cash flow performance,maintaining the low working capital levels of prior years. During the year areview of the European SAP based business system was carried out. Thisdemonstrated that the effective useful life of the system would be 7-8 yearsrather than the originally assumed 5 years. Consequently, the depreciationcharge for this system has been adjusted and the charge for the year was £1.3million (2003/04 £2.0 million). An additional cash receipt of £0.5 million underthe UK Government grant scheme, to support the establishment of the new facilityat Ashton, was received during the year and is held on the balance sheet andamortised over the life of the lease. The Research and Development team was strengthened during the year and the levelof new product developments is starting to show promise. In the light of European performance, senior commercial management has recentlybeen strengthened. This will ensure a focus on developing and exploiting nichemarket opportunities, especially at key end users. In addition, two experiencedsite team leaders have joined the team to lead operational efficiencyimprovements at two key sites. Recent price increases have been implemented,particularly in the cable sector, to mitigate raw material cost increases.Nevertheless, there remain concerns going forward regarding the scale of furtherraw material cost increases and the underlying levels of demand as economicindicators for many European markets have weakened in recent months. Scapa Asia Review Sales in Asia achieved £8.8 million in 2004/05 (2003/04 £4.9 million). Businesswas successfully transferred from North America and Europe at the start of theyear and this accounted for £3.2 million of the sales increase in the region.Excluding these business transfers and after taking into account currencymovements, underlying growth was £1.0 million (12.8%). Operating profit (before goodwill amortisation and exceptional items) for 2004/05 was £0.5 million (£0.4 million 2003/04). During the year we have virtuallydoubled our sales and marketing coverage in the region to take advantage of themany market opportunities. During the year Scapa completed the buy out of its Chinese joint venture partnerMei Wei Holdings Ltd. The joint venture, Scapa Hong Kong Ltd was established inFebruary 2000 with Scapa having a 75% shareholding and Mei Wei Holdings Ltd 25%.The buy out will enable Scapa to accelerate plans to benefit from theincreased demand within China, by meeting the requirements of an increasinglybroad range of specialty tape end user markets. Prospects for Scapa Asia remain good. The enhanced sales and marketing teams arenow in place to enable sales to grow further and there are a number of newproduct developments where recent end user trials have been particularlyencouraging. Market Sector Review Medical Medical supplies hypoallergenic films, tapes and foams for wound managementsystems and medical disposable devices and represents 12.5% of Group sales. Scapa Medical sales in 2004/05 were £23.5 million (2003/04 £20.4 million). Thebusiness unit experienced exceptional growth of 15% during the year (23% whenadjusted to constant exchange rates), primarily related to North Americanoperations. There was impressive growth in the bandage and pulse oximetrymarkets at key accounts, combined with new business secured in these sectors. Wecontinue to solidify relationships with new and existing customers through thecommitment of our technical expertise and manufacturing flexibility to meettheir needs. There are a number of new projects planned in 2005/06 with our strategicpartners in order to continue the consistent growth of the medical business. Themedical device industry is a market where our focus continues into 2005/06.Also, projects have been submitted to Research & Development, which will take usinto medical markets where we have not had a significant presence. Scapa hassolid expertise in adhesive technology, which will enhance our effort in chosenareas of the medical market. The European Medical business unit grew during 2004/05 through consolidating ourposition with key healthcare customers and introducing several significant newopportunities to the Group. With global customers we have benefited from therecognition of our capabilities and past regional successes such that strategicnew projects are being brought to Scapa as a trusted adhesive technologydevelopment partner. The professional wound care market continues to be Europe's largest area ofmedical activity, with adhesive dressing membranes forming the largest part ofthis success. Strong growth from greater penetration into new territories hasalso contributed to the success. With the supply interruption from the final stages of our systems and siteinvestment programme during 2003/04 being resolved by mid-year, we now have avery stable supply platform on which to grow our business. The short-term impactof shorter lead times and strong delivery accuracy has meant customers have hadconfidence to remove transition and contingency stock during the second half of2004/05. It has been a challenging year to maintain margins with significant raw materialprice increases. To the largest extent possible we have offset these increasedcosts by productivity improvements and waste reduction, but we have still beenforced to seek price increases. Customer collaboration on leaner supply chainand alternative product formats has been used to moderate these whereverpracticable. Looking forward to 2005/06, although we see continued challenges with rawmaterial costs, we see a significant number of new customer and new productopportunities being generated. We are confident that the underlying healthcaremarket continues to demonstrate good growth with increasing demand for improvedhealthcare and the trend in developed economies towards an ageing population.Our strategy to offer key partners an integrated approach to the design,development and manufacture has proven successful and will continue to sustaingrowth in our chosen market sectors. Cable Cable supplies market leading MegolonTM compounds and cable tapes for power andcommunication cables and represents 18.6% of Group sales. The Cable business continued to grow in all regions. Overall sales grew to £35.0million (2003/04 £33.0 million) with underlying organic growth at constantexchange rates of 7.4%. This strong performance benefited from the successfulcommissioning of the new European cable products facility at Ashton, Manchester,where key customers have approved the compounds manufactured in this 'state-of-the-art' facility. Scapa has maintained its global market leadership inMegolonTM technology and the steady increase in the number of specificationsfocusing on the safety and environmental benefits of this halogen freetechnology will continue to spur market growth in the coming years. European MegotapeTM demand for sub-sea cable projects has slowed as existingprojects have been completed following a very strong prior year. In NorthAmerica, the demand for water blocking tapes started to recover in the secondhalf of 2004/05 on the back of investment into FTTH (Fibre To The Home) by amajor telephone operating company. There are some new opportunities in Asianmarkets for these products due to the rapid development of infrastructure in theregion, but competition in this area remains intense. The latter part of 2004/05 saw some dramatic and unprecedented rises in thecosts of, and in some cases shortages of, raw materials, owing to rapid growthin demand for these types of raw materials from China. These increases in costare being offset with operational and technical cost reductions coupled with aseries of price increases. Prospects for the Cable business remain good, with several new sub-sea cableprojects expected to commence in Europe in the second half of 2005/06. Thedevelopment pipeline of new products remains strong and the coming year will seean increasing emphasis on the expanding markets of Asia and Eastern Europe.However, competition in the halogen free cable compound market has been intenseover the past year and the challenge will be to ensure raw material costpressures are satisfactorily offset by sustained customer price increases,combined with the successful introduction of new, cost effective raw materialsources. Industrial Industrial supplies specialist tapes and films for industrial assembly,construction, printing and graphics and sports markets and represents 58.0% ofGroup sales. Scapa Industrial experienced mixed trading conditions during the year underreview. Global sales were £109.1 million (2003/04 £114.8 million). On a constantexchange rate basis sales fell by £1.9 million (1.7%). In North America, on a constant exchange rate basis sales grew by approximately1.1% year on year. However, there was a slowdown in overall activity in thefinal quarter of the fiscal year. Margins remained under pressure as rawmaterial cost increases accelerated during the year. To offset this impact twoseparate customer price increases have been successfully implemented.Nevertheless, despite the positive impact of new product development, thetermination of an important contract, due to the customer relocating itsoperations overseas, impacted sales growth during the second half of the year.Sales activity in the athletics tape market was affected by the labour disputein the North American Hockey League. Construction tapes saw modest growthreflecting underlying market demand. In Europe, market conditions softened through the second half of the year andsales fell reflecting weak underlying market demand. Good progress continued tobe made in the French construction industry. As a consequence of the completionof the manufacturing reorganisation, a number of products were withdrawn fromsale in the UK and Northern European markets. Additionally, the FinimatTM rangeof photo processing tapes continued to decline as a result of the move to theuse of digital camera technology. Southern European markets performed well as aconsequence of the acquisition of new customers, partly related to successfulnew product development. There was continued progress in developing sales intoEastern Europe. Asian sales continued to grow, although there was some evidence of a modestslowdown during the year. The completion of the buy out of the Chinese jointventure partner took longer than anticipated, but has left the team well placedto take advantage of the many market opportunities available. The introductionof a number of new products specifically developed for the fast movingelectronics industry has made good progress in the latter part of the year. The prospects for the Industrial business unit remain mixed. Although the NorthAmerican Industrial team is optimistic about 2005/06, especially with a numberof successful new product developments, there still remains some concernregarding the sustainability of underlying economic growth in the USA goingforward. The immediate outlook for the European business remains uncertain dueto the continued sluggish economy of much of Europe. However, the European teamhas identified a number of key new product initiatives, combined with a focus onselected niche market opportunities, to generate sales growth. Automotive Automotive supplies specialist tapes, sealants and films for the assembly,protection and sound attenuation of automobiles and other transportationvehicles and represents 10.9% of Group sales. Scapa Automotive had a successful year as sales grew to £20.6 million from £19.7million in the previous year. This growth comes despite the significant impactof the weaker US Dollar, with underlying growth before the negative impact ofcurrency at 6.7%. This growth came from exceptional European growth in both thewire harness and designed systems market sectors. In the first half of 2004/05 the European team continued to secure a number ofnew contracts following approvals for new proprietary products. These automotivetapes have been produced to support vehicle designers in eliminating noise andvibration from vehicle interiors to meet the most recent automotive standardsfor NVH (Noise, Vibration and Harshness). Although initial sales growth has nowaccelerated in all areas of the world, recent market trends in vehicleproduction are a cause for concern. Continued raw material cost increases added pressure to margins throughout thispast year. Price increases in the market place were initially met withtremendous resistance but, for the most part, were eventually accepted by abroad range of customers. The Scapa team mitigated some of these increases withfurther cost reduction measures and mix changes focussing on higher marginmarkets and products. This has helped reduce the impact of cost increases.Further raw material pressures in 2005/06 are likely to present more challengesto the automotive team in the coming year in what is already a highlycompetitive market. The North American team continued to focus on developing even closerpartnerships with key customers, with particularly good progress in the designedsystems business. New products, aided by continued global project developmentand approvals, have added new business with new customers helping to offset theloss of a major contract going forward. Sales of AutolonTM halogen free harnesstapes have been disappointing as reported last year. Scapa is working closelywith key Tier One automotive suppliers on a global basis, but the moves toeliminate PVC from cars completely (and hence giving significant opportunitiesto AutolonTM tapes) are proceeding slowly. Although the underlying demand for vehicles in many markets remains somewhatsubdued, the short-term prospects for Scapa's automotive sales remainreasonable. Recent development work in the designed systems sector hasidentified a number of new opportunities and this, coupled with salesdevelopment in the Asian growth market, should result in growth for the comingyear. In addition, the new products designed to meet the latest demandsregarding NVH should continue to bring additional benefits. Discontinued Businesses As shareholders are aware, the Group continues to be involved in a number ofcases in the USA arising from the alleged exposure of paper mill workers toasbestos in a product that was part of a business sold to J.M.Voith A.G. in July1999. Prior to 2003 all the cases against the company concerned had been won,dismissed or abandoned before going to court. However, in October 2003, a juryin Baltimore, Maryland, USA returned an award of up to US Dollar 3.5 million(£1.9 million) against Scapa Dryer Fabrics Inc. This wholly unexpected judgementis currently going through an appeals process, which is not expected to seeresolution before late 2005 or early 2006. A second adverse verdict in Louisianaadvised in July 2004 awarding in total US Dollar 187,500 (approximately£100,000) plus costs and interest to eight plaintiffs has now been confirmed bythe judge leading to the commencement of the appeal process in March 2005. In December 2004 a jury in Ashdown, Arkansas returned a defence verdict infavour of Scapa Dryer Fabrics Inc. in a case related to three paper millworkers. In May 2005 a jury returned a defence verdict in favour of Scapa DryerFabrics Inc. in a case related to one paper mill worker in Baltimore CityCircuit Court, Maryland, USA. We have also continued to be dismissed from manycases during 2004/05. Over the last three years Scapa has been dismissed fromover 176 cases covering approximately 1,113 plaintiffs. In over ten years ofsuccessful defence in the USA no Scapa Group company, nor any of our insurancecarriers, has admitted liability nor made any payment to any plaintiff under ourpolicies. Accordingly, our insurance coverage remains intact and the Board willcontinue to defend vigorously the outstanding claims. Financial Review Operating results The trading performance of the Group is discussed in detail in the OperatingReview. In summary, sales in 2004/05 of £188.2 million were similar to lastyear (£187.9 million). However, on a constant currency basis, sales increasedyear on year by £6.2 million or 3.4%. Headline operating profit (before goodwill amortisation and exceptional items)was £3.6 million (2003/04 £6.0 million), a reduction of £2.4 million. Atconstant exchange rates this represented a reduction of £1.9 million. Theweakness of the US Dollar, which weakened relative to Sterling by 9.5% year onyear, was the principle cause of the £0.5 million reduction in operating profitattributable to exchange rate movements. Increases in raw material prices, particularly in the cable business unit, aswell as an adverse mix, were the principal factors in the fall in operatingprofit. This primarily impacted the second half of the year. Overall employmentcosts (excluding redundancy costs treated as exceptional charges) fell £0.7million, a consequence of European head count savings in the previous andcurrent year, offset partly by inflationary increases and increases in staff inNorth America and Asia. Total other operating costs rose by around 1.4% year onyear, with increases in carriage and utility costs, due to rising oil and gascharges. Exceptional items Exceptional charges in 2004/05 amounted to £4.7 million (2003/04 £10.8 million)and comprised: • £0.4 million of costs associated with the transfer andconsolidation of the cable wrapping tape business from its site in the USA toScapa's Canadian plant. A loss of £0.2 million arising from the write down inthe value of lease additions at the US site, due to the transfer of thebusiness, was also charged as an exceptional loss on disposal. • As part of the Group's routine review of asset valuationswe have written down the value of assets at two sites. The value of aspecialist coater in North America was written down by £1.7 million. This was aconsequence of the loss of a key contract due to the overseas relocation of thecustomer's North American business. This coater was acquired in 2000 as part ofthe Great Lakes Technologies acquisition. The entire goodwill on thisacquisition was written off in 2002 due to under-performance of this business.The value of plant and equipment at the Group's Italian facility was alsowritten down, by £1.9 million. This is a consequence of a review of prospectivecash flows from this site, which are forecast to be insufficient to fullyjustify the carrying value of the site's assets. • In 2004/05 changes were made to the European seniormanagement team. Accordingly, management reviewed the status of the Europeansite reorganisation programme. As a consequence of this review certainadditional management changes in the UK were considered to be necessary. Inaddition, an onerous lease commitment that had been previously provided for aspart of the reorganisation was re-assessed. Overall this resulted in anexceptional charge of £0.5 million. Interest Net interest payable was £0.7 million, an increase of £0.3 million over theprior year charge. This increase was primarily the result of a higher interestmargin on the new borrowing facility and higher base rates. Interest cover,being earnings (before exceptional items, interest, tax and goodwillamortisation (EBITA)) as a ratio of interest paid on net borrowings, was fivetimes covered. The FRS17 finance charge was £1.2 million (2003/04 £1.5 million). Theaccounting discount on long term provisions was £0.5 million (2003/04 nil). Profit before tax Statutory loss before tax were reduced compared with the prior year at £4.9million (2003/04 £8.2 million), reflecting the benefit of lower exceptionalcharges helping to offset the reduced operating profit. Headline profit beforetax was £1.2 million (2003/04 £4.1 million). Taxation There was a tax charge of £0.5 million against profit on ordinary activitiesbefore exceptional items. The tax charge included the benefit of the favourablesettlement of a prior year related issue. The deferred tax credit arising fromUK losses incurred in the year has not been recognised. Expressed as a ratio ofoperating profit before goodwill and exceptional items, and before FRS17 financecharge and discount on provisions, tax was 17% of profit (2003/04 tax credit of£1.1 million). A £6.8 million exceptional tax credit (2003/04 £3.0 million credit) has beenrecognised. This is due primarily to the taxable loss arising on the transfer ofthe cable wrapping tape business from the USA to Canada, which is expected togenerate tax cash benefits over the next two years. This credit also includesthe release of provisions in respect of the favourable settlements of prior yearissues. A deferred tax loss asset of £6.8 million (2003/04 £5.8 million) has not beenrecognised in the Accounts. In addition, the deferred tax loss asset associatedwith the UK FRS17 pension liability totalling £12.5 million (2003/04 £10.9million) has also not been recognised in the Accounts. Earnings per share Earnings per share for the year was 0.9 pence per share (2003/04 loss of 2.8pence per share). This benefited from the exceptional tax credit which more thanoffset exceptional charges. Dividends An interim dividend of 0.1 pence per share was paid in February 2005. The Boardhas decided that it cannot recommend the payment of a final dividend. Cash flow Net borrowings at year end rose by £1.5 million to £15.2 million (31 March 2004£13.7 million) reflecting continued attention to cash management, despite thepressures on operating profit. The Group generated a net cash inflow from operating activities of £1.5 million(2003/04 £5.9 million). This was after deducting £3.0 million (2003/04 £0.6million) of additional pension fund cash contributions over the amount chargedagainst profit. This inflow is net of exceptional cash spend of £2.2 million(2003/04 £6.8 million). Of this £1.1 million (2003/04 £1.2 million) was incurredin connection with litigation defence costs in the USA associated with adiscontinued business. A long term provision for these litigation defence costswas created in 2003/04. The remaining £1.1 million of exceptional cash spendrelated to exceptional cost items charged during the year, together with otherexceptional items previously provided for. Working capital increased by £4.0 million, a consequence primarily of lowertrade creditors at the year end and some increase in inventory due to theunexpected slow down in sales in March. There were no major capital investment projects during the year and,consequently, capital spend was lower than the prior year at £4.6 million (2003/04 £6.9 million). This investment was focused particularly on improvingconversion efficiencies. This spend represents 67% of the depreciation chargefor the year of £6.9 million. The prior year spend included investmentassociated with the site reorganisation programme. The 25% share of the Group's Chinese joint venture was purchased from the jointventure partner during the year for £0.3 million. This control gives the Groupgreater opportunity to take advantage of the Chinese market. Goodwill of £0.1million was recognised on this acquisition. Balance sheet Shareholders' funds at 31 March 2005 were £39.6 million (31 March 2004 £44.3million). The effect of foreign currency translation at the year-end had a £1.3million favourable impact on shareholder funds (2003/04 £5.2 millionunfavourable). Pensions The Group operates a number of defined benefit schemes mainly in the UK and theUSA. The UK schemes were closed to new entrants in 2001. Defined contributionschemes are also provided by the Group which are open to new entrants. The net pension liability (net of deferred tax), that is calculated by theschemes' actuaries in line with FRS17 and based upon market values of schemes'assets and liabilities, increased by £5.5million to £44.4million (net of theassociated deferred tax asset). This was primarily a result of a change incertain actuarial assumptions, principally the reduction in the discount rateused and improved mortality assumptions. The total charge against profits for the year in respect of defined pensions andpost retirement benefits in the year was £1.9 million (2003/04 £1.5 million).Total cash contributions to these schemes in the year amounted to £4.9 million(2003/04 £2.0 million), of which the largest element relates to the UK schemes.These UK contributions are expected to remain at their current level for theimmediate future, and will be reviewed after the next actuarial valuation in2006/07. Treasury policies Treasury operations are managed as part of the world-wide finance function andare subject to policies and procedures approved by the Group Board. CorporateTreasury co-ordinates Group treasury activities and seeks to reduce financialrisk, ensure sufficient liquidity is available to the Group operations andinvest surplus cash. Corporate Treasury does not operate as a profit centre anddoes not take speculative financial positions. Very limited use is made ofderivative financial instruments. Corporate Treasury advises operationalmanagement on financial risks and executes all major transactions in financialinstruments, except for forward exchange contracts to hedge transactionalexposures on overseas operations, which are locally arranged. Borrowings aremanaged centrally. Funding requirements The Group requirement for funding is managed by the Group Treasury function. At31 March 2005 the Group had committed facilities of £30.0 million, of which£20.7 million were utilised. The Group also had uncommitted short term andoverdraft facilities of up to £15.0 million in the UK and overseas, of which£2.4 million were utilised at 31 March 2005. The committed facility, whichreduces to £27.5 million in September 2005 and to £25.0 million in September2006, expires on 10 March 2007. This facility has been secured on certain Groupfixed and floating assets. These facilities are projected to cover peak forecastborrowings for at least a twelve-month forward period. The accounts have been prepared on a going concern basis and the validity ofthis depends on the ability of the Group to retain its banking facilities, whichmay depend upon compliance with bank covenants under its loan agreements. Asdiscussed in the Chairman's Report trading in the first part of 2005/06 has beenbelow budget. While the Group remains well within borrowing limits, as aprecautionary measure, the Group has initiated discussions with its bankers toease certain covenants if this becomes necessary. The accounts do not includeany adjustments that would result should the Group be unable to continue inoperational existence as a consequence of being unable to meet its agreed bankcovenants and then being unable to secure alternative funding. Details of thecircumstances relating to this are described in the basis of preparation note tothe accounts. International Accounting Standards All listed companies are required to present consolidated financial informationthat fully complies with International Financial Reporting Standards (IFRS) foraccounting periods starting on or after 1 January 2005. The project to assessthe impact of this change is almost complete and a separate announcement will bemade during the second quarter of 2005/06. The current indications are that thecomparative for earnings per share before goodwill amortisation and exceptionalsunder UK GAAP will not be materially different under IFRS. Consolidated Profit and Loss AccountFor the year ended 31 March 2005 2005 2005 2005 Note Before Exceptional exceptional items items (Note 3) Total £m £m £m Turnover - continuing 2 188.2 - 188.2 Operating profit/(loss)Before goodwill amortisation 3.6 (4.5) (0.9)Goodwill amortisation (1.4) - (1.4) ______ ______ ______Operating profit/(loss) Continuing operations 2.2 (4.5) (2.3) Discontinued operations 3 - - - ______ ______ ______ Total operating profit/(loss) 2 2.2 (4.5) (2.3) (Loss)/profit on disposal of fixed assets 3 - (0.2) (0.2) ______ ______ ______Profit/(loss) on ordinary activities beforeinterest and taxation 2.2 (4.7) (2.5)Net interest payable (0.7) - (0.7)Other finance costs - FRS17 (1.2) - (1.2)Discount on provisions (0.5) - (0.5) ______ ______ ______(Loss)/profit on ordinary activities beforetaxation (0.2) (4.7) (4.9) Taxation (0.5) 6.8 6.3 ______ ______ ______ Profit/(loss) on ordinary activities after taxation (0.7) 2.1 1.4 Equity minority interests (0.1) - (0.1) ______ ______ ______ Profit/(loss) for the financial year (0.8) 2.1 1.3 Dividends 5 (0.1) - (0.1) ______ ______ ______Retained profit/(loss) for the year 5 (0.9) 2.1 1.2 Weighted average number of shares (m)For basic and diluted earnings/(loss) per share 144.8 ______Basic earnings/(loss) per share (p) 0.9 ______Diluted earnings/(loss) per share (p) 0.9 ______ Consolidated Profit and Loss AccountFor the year ended 31 March 2005 (continued) 2004 2004 2004 Note Before Exceptional Exceptional Items items (Note 3) Total £m £m £m Turnover - continuing 2 187.9 - 187.9 Operating profit/(loss)Before goodwill amortisation 6.0 (11.7) (5.7)Goodwill amortisation (1.5) - (1.5) ______ ______ ______Operating profit/(loss) Continuing operations 4.5 (5.5) (1.0) Discontinued operations 3 - (6.2) (6.2) ______ ______ ______ Total operating profit/(loss) 2 4.5 (11.7) (7.2) (Loss)/profit on disposal of fixed assets 3 - 0.9 0.9 ______ ______ ______Profit/(loss) on ordinary activities beforeinterest and taxation 4.5 (10.8) (6.3)Net interest payable (0.4) - (0.4)Other finance costs - FRS17 (1.5) - (1.5)Discount on provisions - - - ______ ______ ______(Loss)/profit on ordinary activities beforetaxation 2.6 (10.8) (8.2) Taxation 1.1 3.0 4.1 ______ ______ ______ Profit/(loss) on ordinary activities after taxation 3.7 (7.8) (4.1) Equity minority interests - - - ______ ______ ______ Profit/(loss) for the financial year 3.7 (7.8) (4.1) Dividends 5 (0.4) - (0.4) ______ ______ ______Retained profit/(loss) for the year 5 3.3 (7.8) (4.5) ______ ______ ______ Weighted average number of shares (m)For basic and diluted earnings/(loss) per share 144.8 ______Basic earnings/(loss) per share (p) (2.8) ______Diluted earnings/(loss) per share (p) (2.8) ______ Statement of Total Recognised Gains & LossesFor the year ended 31 March 2005 2005 2004 £m £m Profit/(loss) for the year 1.3 (4.1)Currency translation differences on foreign currency net investments 1.3 (5.2)Actuarial (loss)/gain on pension schemes (7.3) 2.6 ______ ______Total recognised losses for the year (4.7) (6.7) ______ ______ Consolidated Balance SheetAs at 31 March 2005 31 March 31 March 2005 2004 £m £mFixed assetsIntangible assets - goodwill 19.6 21.2Tangible assets 52.3 58.5 ______ ______ 71.9 79.7 ______ ______Current assetsStocks 19.3 17.3Debtors: amounts due within one year 43.8 43.8Debtors: amounts due after more than one year 6.1 3.4 ______ ______ 49.9 47.2Investments 10.9 12.5Cash at bank and in hand 8.1 9.8 ______ ______ 88.2 86.8 ______ ______ Creditors - amounts falling due within one year:Bank loans and overdrafts 3.1 23.5Creditors 31.6 34.0 ______ ______ 34.7 57.5 ______ ______Net current assets 53.5 29.3 ______ ______ Total assets less current liabilities 125.4 109.0 Creditors - amounts falling due after more than one year: Bank loans and overdrafts 20.2 -Creditors 9.0 12.6 ______ ______ 29.2 12.6 Provisions for liabilities and charges 12.2 13.1 ______ ______Net assets excluding pension liability 84.0 83.3 ______ ______ Net pension liability 44.4 38.9 ______ ______Net assets including pension liability 39.6 44.4 ______ ______ Capital and reservesCalled-up share capital 7.2 7.2Profit and loss account 32.4 37.1 ______ ______Shareholders' funds - equity (note 5) 39.6 44.3 ______ ______ Minority equity interests - 0.1 ______ ______Capital employed 39.6 44.4 ______ ______ These accounts were approved by the directors on 1 June 2005. Consolidated Cash Flow StatementFor the year ended 31 March 2005 Note 2005 2004 £m £mCashflow from operating activitiesNet cash inflow before exceptional items 4 3.7 12.7Net cash outflow related to exceptional items 4 (2.2) (6.8) ______ ______Net cash inflow from operating activities 1.5 5.9 ______ ______ Returns on investments and servicing of financeInterest received 0.6 1.5Interest paid (1.0) (2.1) ______ ______Net cash outflow from returns on investments and servicing of finance (0.4) (0.6) ______ ______ Taxation - 0.8 ______ ______ Capital expenditure and financial investmentNet receipts in respect of forward contracts 1.8 0.9Purchase of tangible fixed assets (4.6) (6.9)Proceeds from disposal of tangible fixed assets 0.1 3.4Receipt of government grant 0.5 1.6 ______ ______Net cash outflow from capital expenditure and financial investment (2.2) (1.0) ______ ______ Acquisitions and disposalsPayment to acquire investment in subsidiaries (0.3) -Net cash outflow in respect of previous years' acquisitions - (0.3)Net cash outflow in respect of previous years' disposals - (4.2) ______ ______Net cash outflow from acquisitions and disposals (0.3) (4.5) ______ ______ Equity dividends paid (0.5) - ______ ______ Net cash (outflow)/inflow before use of liquid resources and financing (1.9) 0.6 ______ ______Management of liquid resourcesDecrease in short term deposits 0.1 0.3 ______ ______Net cash inflow from management of liquid resources 0.1 0.3 ______ ______ FinancingDecrease in loan finance (1.9) (1.7) ______ ______Net cash outflow from financing (1.9) (1.7) ______ ______ Decrease in cash in the year (3.7) (0.8) ______ ______ Notes on the Accounts 1 Basis of Preparation The accounts have been prepared on the going concern basis which assumes thatthe company and all of its subsidiary undertakings will continue in operationalexistence for the foreseeable future having adequate funds to meet theirobligations as they fall due. If the Group were unable to continue in operational existence, substantial butunquantifiable adjustments would have to be made to reduce the balance sheetvalue of assets to their realisable values and to provide for furtherliabilities which might arise. Additionally, further adjustments would have tobe made to reclassify fixed assets and long-term liabilities as current assetsand current liabilities, respectively. Inter alia, the terms of the Group's borrowing agreements require compliancewith a range of financial covenants, which are measured at six-monthly intervalsRelated Shares:
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