7th Jun 2007 07:00
Scapa Group PLC07 June 2007 7 June 2007 Scapa Group plc Preliminary Results Scapa Group plc, a global supplier of technical adhesive tapes, today announcedits preliminary results for the 12 months ended 31 March 2007. Highlights • Underlying* sales 6% up due to growth in Europe following operational improvement initiatives • Trading Profit** of £7.0m - £1.6m up on last year's result despite £1.2m detriment from currency and £0.6m due to business disposals (£3.4m up on an underlying* basis) • Positive headline* earnings per share for the first time in 6 years • Further stage of major cost reduction programme put in place - cost of £1.5m with estimated annual savings of £1.2m • Sale of three businesses during the year. Total net proceeds £23.0m with a combined profit on disposal of £11.9m • New legal cost apportionment agreement on asbestos saving £0.5m of cash in the full year - exceptional credit in year of £0.9m. Over 12,500 claims (40% of total) dismissed since March 2006 Commenting on the results, Chairman Dr Keith Hopkins said: "Scapa made major progress in 2006/07 due to the operational initiatives putinto place over the last 18 months with the underlying trading profit doublethat of the previous year. "Business disposals made in the year have transformed the financial position ofthe Group with the next stages of our planned development programme targeted tofurther enhance performance." For further information: Calvin O'Connor Chief Executive Tel: 0161 301 7430 Mark Stirzaker Company Secretary Tel: 0161 301 7430 A full copy of this announcement can be found at www.scapa.com * Underlying sales and trading profits adjust for business disposals, currencyand exceptional items. Headline earnings per share adjust for business disposalsand exceptional items. ** Figures shown here and elsewhere as 'trading profit' in the PreliminaryAnnouncement relate to operating profit before profit on disposal of businessesof £11.9m (2006: nil), exceptional costs of £0.3m (2006: £3.3m) and goodwill/asset impairments of £2.9m (2006: £13.7m). Chairman's Statement Scapa made major progress in 2006/07 with a 30% increase in trading profit(operating profit before profit on business disposals, impairments andexceptional costs) over the previous year. This was due in the main to costsavings from the rationalisation plans put into place over the last two years.Business disposals during the year and the effect of a weaker US Dollar reducedsales by £14.1m and £3.9m respectively, leaving sales turnover for the year at£184.3m (2006: £191.5m). On an underlying basis (adjusting for these items)sales grew by 6% due to the strong performance of our European business. Trading profit of £7.0m was £1.6m up on last year, despite the reduction inprofit from businesses sold during the year (£0.6m), foreign exchangetranslation (£0.6m) and financial instruments (£0.6m). On an underlying basis(adjusting for these items) trading profit was a substantial £3.4m up on prioryear. Profit on business disposals amounted to £11.9m and more than offset goodwilland asset impairments of £2.9m (2006: £13.7m) and exceptional costs of £0.3m(2006: £3.3m). The operating profit for the year was £15.7m (2006: £11.6m loss).Profit before tax amounted to £12.9m (2006: loss of £14.5m) with the increasedue primarily to the profit on business disposals and the impact of impairmentsin 2006. The headline EPS was 1.1p per share compared to a loss of 0.1p pershare in 2005/06. As last year, no final dividend is proposed. Portfolio As outlined in our last annual report a key strategy is to reduce the spread ofour business by selling peripheral operations. Three disposals were made duringthe financial year comprising of our small loss-making Irish distributionbusiness, our Megolon compounding business and our Lymington sealants business.Total net proceeds, including working capital released of £2.0m, amounted to£23.0m with the total profit on disposal amounting to £11.9m. Whilst thesedisposals transformed the financial position of our Group we nevertheless intendto keep the role of all our businesses within the Group under review. Business performance During the year we implemented the third phase of the major rationalisationprogramme at a cost of £1.5m with annual savings of £1.2m. This brought thetotal cost of the three phases to date to £4.1m with annual savings in ongoingbusinesses of £3.5m. Profitability in our North American operations wasmaintained at its high historical level with significant progress made in ourEuropean operations. Finance Strict cash management has remained a key objective throughout the year.Substantial cash payments continued on legacy issues with a further £3.8m paidinto our pension funds. Underlying trading working capital increased by £0.2mdue to the impact of rising sales volumes in the last quarter. Cash inflow fromoperations was £6.9m (2006: £2.1m) before capital investment of £2.8m (2006:£2.7m). Net cash excluding the remaining US$10m in the Waycross deposit was£11.2m (31 March 2006 £13.2m debt). The elimination of our borrowings wasprimarily due to the sale of peripheral businesses during the year. Asbestos litigation The Company continues to defend itself from personal injury claims in the USAarising from alleged exposure to asbestos that relate to a business we sold in1999. During the year over 12,500 plaintiffs' claims were dismissed with thetotal now down to under 20,000 from a peak of 34,000 in 2004. In addition,agreement was reached with our insurance carriers to reduce our share oflitigation costs from approximately 50% to 25% for the three years commencing 1April 2006. This change gave rise to a reduction in the litigation reserveresulting in a credit of £0.9m to exceptional costs. We currently have one jurytrial in progress in New Jersey, where a verdict is expected in the next day orso. Pensions The IAS 19 pension deficit as at 31 March 2007 was £58.3m, some £5.1m down from31 March 2006 due to a slightly higher discount rate and change in actuarialassumptions, including the closure of the schemes to future accrual, togetherwith the cash contributions made during the year. Discussions on the futurefunding of our pension deficits are currently underway with both the SchemeTrustees and Pensions Regulator. Once these discussions are concluded we willgive a market update. The Board Michael Baughan and Sarkis Kalyandjian retired from the Board after the AnnualGeneral Meeting on 25 July 2006. We wish them a long and healthy retirement.Colin White resigned as a Director on 29 November 2006. I would like to thankhim for his service over the last five years and wish him well for the future.As announced in April I am pleased to say that Brian Tenner will join the Boardas Finance Director later this month. In the first quarter, I announced myintention to retire from the Company and the recruitment of a new Chairman iscurrently underway. Employees I would like to thank, on behalf of the Board, all of our staff for theircommitment and hard work over the last twelve months during a period ofsubstantial change for our Group. Outlook As we start our new financial year the US Dollar remains weak and raw materialprices remain relatively high. Demand in North America has strengthened a littlein recent months with Europe continuing to show the positive volume trendexperienced over the last year. Trading in April and May has been in line with expectations. This reinforcesconfidence that key business issues are being actively addressed with continuedemphasis on areas of under-performance and narrowing of our business spread.While last year has seen good overall progress against our strategic objectives,the next stages of our planned programme, to be completed over the next two tothree years, will improve Group performance further and enhance shareholderreturns. Business Review Scapa's Business Scapa is one of the leading technical adhesive tapes and film manufacturers inthe world with manufacturing and sales operations in eleven countries acrossNorth America, Europe and Asia. Within Scapa there is a depth of technicalcompetence and manufacturing expertise derived from tape manufacturingexperience over many years. The business is managed and structured around itsthree principal regions: North America, Europe and Asia. Strategy During 2005/06 we completed a major review of the business and developed aseries of strategic and operational initiatives to address the majorunder-performance seen in recent years. The first outcome of the review was thedecision to dispose of peripheral operations, three of which have been soldduring the year. On 19 June 2006 we completed the sale of our small £4.4mturnover, loss-making Irish distribution business for £1.0m, including £0.4m ofdeferred consideration. The loss on disposal after transaction costs was £0.1m.Following shareholder approval on 23 August 2006, we completed the sale of ourMegolon compounding business for £16.75m on 13 October 2006. The profit ondisposal after transaction costs was £9.4m. On 9 February 2007 we completed thesale of our £7m turnover Lymington sealants business for £4.9m. The profit ondisposal after transaction costs was £2.6m. The total profit on disposal was£11.9m and gave rise to a substantial improvement in the annual reported profitfor 2006/07, together with the much needed improvement in Group finances. The second outcome of the 2005/06 review was an extension of our major operatingcost reduction programme, the third stage of which was implemented during theyear at a cost of £1.5m with additional annual savings of £1.2m. Totalexpenditure over the three phases of the programme amounts to £4.1m, withestimated total annual savings of £3.5m in ongoing businesses. Thisrationalisation programme has been the main driver behind performanceimprovement in Europe. Relentless cost reduction will continue to be the way oflife at Scapa and will take a further two to three years to complete. The final outcome from the 2005/06 review was the need to find a more equitablebalance for the business in relation to the cash legacy costs of the asbestoslitigation and pension deficit. Major progress has been made on asbestoslitigation with a step reduction in plaintiff claims and legal costs followingthe negotiation of a new three-year cost apportionment agreement from the startof 2006/07. On pensions an initial reduction has been made in the deficitincluding the closure of the Southern Scheme to future accrual. Discussionscontinue with the Trustees of all three Schemes and the Pension Regulator tofinalise future funding of the deficits. 2006/07 Performance Overview Sales in 2006/07 reduced by 4% to £184.3m (2006: £191.5m) due to the impact ofbusiness disposals (£14.1m) and £3.9m from a weaker US Dollar despite stronggrowth in Europe. Trading profit increased by £1.6m to £7.0m, with an operatingmargin of 3.8%. The improvement here was again impacted by business disposals(£0.6m), foreign currency translation (£0.6m) and financial instruments (£0.6m).At constant exchange rates, underlying sales adjusting for disposals increasedby 6% and underlying trading profit by £3.4m. Raw material and energy priceincreases continued to be a challenge to margins in 2006/07. Sales priceincreases were implemented throughout the year across most market sectors andrecovered the majority of our raw material cost increase although there was atime lag in a number of areas. Reorganisation costs of £1.5m were incurred inthe year primarily to reduce our cost base in the UK with annual savings of£1.2m. The total number of Group employees fell by 199 during the financial yearas a result of the three business disposals together with the majorrationalisation programme. Europe Sales in 2006/07 reduced by 5% to £111.2m due to the sale of the threeperipheral operations mentioned earlier. Underlying sales in the continuing tapebusinesses rose by 8% with continued improvement in delivery performance andoverall customer service in the period. Trading profit improved by a further£1.4m and has moved from a loss of £0.4m in 2004/05 to a profit of £0.7m in 2005/06 followed by a profit of £2.1m in 2006/07 despite the loss of £0.6m of profitfrom peripheral operations following their sale part way through the currentyear. The key driver behind the performance improvement has been thethree-phased rationalisation plan with an additional benefit from this arisingin the year of £2.1m. All market sectors experienced underlying sales growth during the year. The mostsignificant gains were in the automotive, construction and the printing andgraphics markets. Targeted sales price increases were achieved across all marketsectors, largely offsetting increases in raw material prices in the year albeitthat some lag was experienced in a number of market areas. Utility costs wereagain high but had moderated somewhat following last year's severe hikes. Following the sale of our Megolon and Lymington businesses the third phase ofthe major cost reduction plan was implemented with anticipated annual savings of£1.2m. Despite the major rationalisation plan, performance has been modest in anumber of areas and, as a result of this, asset carrying values in the UK andSwitzerland were reduced at the end of March by a total of £2.8m. Working capital was higher at March 2007 due largely to the higher sales volumein the last quarter, which was 7% ahead of the prior year. Capital investmentwas focused primarily on health and safety and quick payback projects includingautomatic conversion equipment in France and Switzerland. European sales will be increasingly focused on exploiting niche geographic andend-user opportunities. New product development has been restructured andmanaged to support these objectives, following a number of years ofunder-performance. Overall Group co-ordination is now lead by our senior NorthAmerican technical, research and development management team. The pressure ofraw material price increases throughout 2006/07 and the resulting impact onmargins remains an area of emphasis with the business committed to continuedrestoration of margins over the course of 2007/08. North America North American sales of £65.3m were £1.4m down on the prior year due to thetranslation impact of a weaker US Dollar. At constant exchange rates sales were3% up, due to growth in the medical and industrial markets. Trading profit was£0.1m down on 2005/06, at £7.6m, due to a £0.5m detriment from the weaker USDollar. The underlying trading profit was £0.4m up on prior year with marginsalso slightly up at 11.6%. Medical sales returned to their previous growth trend with a strong increase of9% over prior year. Industrial sales grew by 4% year on year due to the strengthin the sports and entertainment markets with the construction performance flat.Sales of water swellable tapes grew due to increased demand from thetelecommunications industry. Automotive sales declined with the US domesticmanufacturers having a poor year. On average, raw material prices remained firm although both selective increasesand decreases were experienced in the period. Utility costs moderated after thesubstantial price hikes experienced in the last financial year. Previous salesprice increases helped to mitigate the impact of cost increases. Operationalcost control remained tight throughout the year although performance wasdisrupted by a fire at our Carlstadt facility in January which interruptednormal production in the final quarter and gave rise to an exceptional cost of£0.2m in the period. Trading working capital levels remained consistent with the prior year whilstcapital investment was again managed tightly, with investment focused on healthand safety and short-term cost reduction projects. Operating cash generationcontinued to be strong. Excellent delivery performance and inventory control accuracy levels contributedto high levels of customer satisfaction and service. With these in place weremain confident that underlying organic sales growth will continue, furtherleveraging the fixed cost base. Asia Sales in Asia were slightly up on prior year at £7.8m. On a constant exchangebasis sales increased by 3%. Trading profit for the year was £0.2m compared to aloss of £0.1m in 2005/06. The strength of the Korean Won does, however, stillcontinue to hamper profitability in the region. The second half of the yearshowed a welcome return to profit after the disappointing first half loss of£0.1m. Following the disposal of our Megolon business the £1.0m p.a.distribution agreement in Asia was terminated at the end of the year, which willresult after cost savings in a profit reduction of some £0.1m p.a. Goodwillarising on our Chinese acquisition of £0.1m was written off in the period due tomodest ongoing performance. Regional focus remains towards profitable growthrather than just higher volume. Corporate Corporate costs in the year reduced by £0.6m on an underlying basis followingthe closure of the corporate headquarters in Blackburn and consolidation of thecorporate team into the Ashton site at the end of 2005/06. The lease of theheadquarters was subsequently assigned to a third party which gave rise to acredit of £0.2m to exceptional costs. During the year we terminated currencyswaps that had historically been used to partially hedge the Balance Sheet at aloss of £0.1m (£0.5m benefit in 2005/06). Following shareholder approval, themove to AIM was completed in August 2006 and gave rise to an exceptional cost of£0.1m. In December we concluded the sale of several residual properties for£0.5m resulting in an exceptional profit disposal of £0.5m (2006: £0.1m). Asbestos litigation The Group continues to be involved in a number of cases in the USA arising fromthe alleged exposure of papermill workers to asbestos in a product that was partof a business sold to J M Voith AG in July 1999. Prior to 2003 the Company hadeither won all cases, or had been dismissed, or the case had been abandonedbefore going to court. In October 2003, a jury in Baltimore, Maryland, USA,returned an award of US$3.0m against Scapa Dryer Fabrics Inc. This whollyunexpected judgement was subsequently reversed on appeal in November 2005 andthe plaintiff's further appeal has been denied. The plaintiff has, however,applied for a retrial with a provisional court hearing date set for January2008. Another adverse verdict was entered in Louisiana in February 2005 awardingin total US$162,500 plus costs and interest to seven plaintiffs. The Company hasappealed against the judgement but the judicial process in Louisiana is stillbeing disrupted by the effects of Hurricane Katrina and it is not yet known whenthe appeal will be heard. During the year over 12,500 plaintiffs' claims were dismissed by the DistrictCourt for the Eastern District of Pennsylvania with the total number of claimsat 31 March 2007 now below 20,000 (the lowest level since 2002). In addition,major progress was made on renegotiating the apportionment of legal costs withour insurance carriers. Agreement was reached for the three years commencing 1April 2006 that our share of litigation costs would be reduced fromapproximately 50% to 25%. This change gave rise to a credit to exceptional costsof £0.9m in the period. Business risk There are a variety of business risks that can affect internationalmanufacturing companies like Scapa. International businesses routinely managerisks associated with foreign currency fluctuations and can be affected by costpressures associated with raw material pricing and availability, customerrelocations, developments in international tariffs and legislation and changesin the overall geo-political climate, including the development of competitorsfrom within low cost economies. Scapa is not dependent on any single customerand in 2006/07 the largest single customer represented less than 4% of totalGroup sales. The Registration, Evaluation and Authorisation of Chemicals (REACH) legislationwas adopted by the European Commission in December 2006 and came into force on 1June 2007. This legislation requires specific hazard testing for all chemicalsmanufactured or imported into the EU, placing the responsibility on themanufacturer or importer, to satisfy standardised testing protocols in relationto any long-term health risks relating to that chemical. In our view, we believethat the REACH legislation will have a limited impact on Scapa over the nextthree to five years. However the legislation will be monitored carefully toensure the Group is compliant with the standards that are eventually set. As described earlier Scapa continues to be involved in cases arising fromalleged exposure to asbestos. In over ten years of successful defence in the USAno Scapa Group company, nor any of its insurance carriers, has admittedliability nor made any payment to any plaintiff under our policies. Accordingly,our insurance coverage remains intact and the Board will continue to defendvigorously the outstanding claims. However this litigation still poses apotential risk to the Group. Appropriate advice is continually being sought toensure that these risks are managed in an appropriate manner. The Group operates three defined benefit pension schemes with significantfunding deficits. The three schemes were revalued during 2006 based on theposition as at 1 April 2006, and new contribution funding levels are in theprocess of negotiation with the trustees. The pensions regulator has providedgeneral guidance to trustees regarding the period over which deficits should bepaid down, and recent legislation has given additional powers to pensiontrustees to strengthen their negotiating position. We have continued to adopt a detailed review process at all levels of thebusiness to monitor and control business risks. Principal risks to the businessare reviewed on a regular basis by the senior management team and the GroupBoard and remedial action plans are developed as and when appropriate. Overallwe continue to consider that the policies and monitoring systems which are inplace and which have been reviewed regularly throughout the year remainsufficient to effectively manage the risks associated with our business. Finance Operating results Sales were 4% down at £184.3m (2006: £191.5m) but 6% ahead on constant currencybasis after adjusting for business disposals. Trading profit was £7.0m (2006: £5.4m), an increase of £1.6m, despite an impactof £0.6m due to business disposals, £0.6m due to foreign exchange translationand £0.6m due to financial instruments. Operating cost savings were the maincontributors to the improvement in profit. The operating profit for the year was£15.7m (2006: £11.6m loss) after profit on disposal of businesses of £11.9m(2006: nil), impairments of £2.9m (2006: £13.7m) and other exceptional items of£0.3m (2006: £3.3m). Exceptional costs Reorganisation costs and other exceptional items totalled £0.3m (2006: £3.3m).Of this, £1.5m (2006: £2.4m) was in connection with redundancies across theGroup with a £0.2m credit (2006: cost of £1.0m) on dilapidations and onerouslease provisions. In the year £0.9m was released from the asbestos litigationprovision following the new legal agreement effective from 1 April 2006. Sale ofresidual properties gave rise to a further credit of £0.5m (2006: £0.1m) withthe move to AIM costing £0.1m and a small fire at Carlstadt a further £0.2m. Goodwill and asset impairments Arising from the IAS 36, 'Impairment of Assets' annual review the residualgoodwill on the Chinese operations of £0.1m was written off (2006: £10.9mwrite-off on the Lusa, CCL, Medifix and Boldscope acquisitions). In addition the carrying values of certain fixed assets at two sites have beenwritten down as estimates of prospective cash flows are considered to beinsufficient to justify the current value of the business's assets. The totalamount of the writedown was £2.8m (2006: £2.8m) and related to our UK site atAshton, and to Rorschach in Switzerland. Interest Net interest payable was £0.5m, (2006: £1.0m) with major benefit from loweraverage levels of debt following the sale of peripheral businesses in the yeardespite the impact of the higher interest rates. Interest cover, being tradingprofit before finance costs and tax as a multiple of interest paid on netborrowings, was 14 times. The IAS 19, 'Employee Benefits' pensions finance charge was £1.9m (2006: £1.4m).The accounting discount on long-term provisions was £0.4m (2006: £0.5m). Profit before tax and taxation charge Statutory profit before tax was £12.9m. This was a substantial improvement onlast year's loss of £14.5m due to the improvement in underlying businessperformance, profit on business disposals and reduced impairments/exceptionalcosts. Trading profit before tax after all finance charges increased by £1.7m to£4.2m (2006: £2.5m). The tax credit of £0.4m includes a current year tax charge payable of £0.6m plusdeferred tax of £2.9m less a prior year tax credit of £0.9m and an exceptionalptax credit of £3.0m. No benefit has been recognised for potential future taxcredits for loss-making entities (mainly in the UK), as there is littleexpectation of recovery within the foreseeable future. The IAS 19 pensionsdeficit has an associated tax asset of £16.8m which has not been recognised inthe accounts, as there is little expectation of this being utilised in the nearterm. Earnings per share were 9.2p (2006: loss of 10.6p per share). The earnings pershare after eliminating profit on business disposals, impairment charges andexceptional items including taxation were 1.1p (2006: loss of 0.1p per share). Cash flow and Balance Sheet The Group generated a net cash inflow from operating activities (beforereorganisation and movements in exceptional provisions) of £9.1m (2006: £6.3m).Trading working capital increased by £0.2m (before exchange movements) in theyear to 31 March 2007 due primarily to an increase in sales volumes in the lastquarter. Payments into the pension funds in excess of the charge to profittotalled £3.8m (2006: £3.3m) and reorganisation spend was £1.4m (2006: £2.4m).Asbestos litigation defence spend reduced substantially to £0.5m (2006: £1.4m)due to lower legal activity together with the benefit of the new legal costapportionment agreement. Capital investment was in line with the prior year at£2.8m (2006: £2.7m) and reflected tight management of expenditure. The net cashflow from operating activities, after all investing activities, was an inflow of£23.8m (2006: £2.9m outflow). Net proceeds from business disposals in the period, including the resultingreduction in working capital and excluding £0.4m of deferred consideration,amounted to £22.6m (2006: nil). In September 2005 an agreement was reached with J M Voith AG to make a releaseof US$10m from the Waycross deposit and gave rise to a substantial improvementin the 2005/06 cash flow. The remaining balance of US$10m (£5.1m) will now beheld for an additional two years until 31 December 2011. The Group's net cash movement for the year was an inflow of £23.8m (2006:£2.8m), which after adjusting for the effects of foreign exchange translation,resulted in the elimination of net debt and establishment of a cash balance, netof debt, of £11.2m at 31 March 2007 (excluding the remaining Waycross deposit of£5.1m). The IAS 19 pensions deficit as at 31 March 2007 was £58.3m (31 March 2006£63.4m). This reduction was a consequence of a slightly higher discount rate,change in actuarial assumptions including the closure of the Southern Scheme tofuture accrual and cash contributions made during the year. The profit for the year together with the decrease in the pension deficitincreased shareholder funds at 31 March 2007 to £19.4m (31 March 2006 £8.2m).Currency translation at the year end had a £5.2m unfavourable impact onshareholder funds (2006: £2.3m favourable). Treasury policies Treasury operations are managed as part of the worldwide finance function andare subject to policies and procedures approved by the Group Board. CorporateTreasury co-ordinates treasury activities throughout the Group and seeks toreduce financial risk, ensure sufficient liquidity is available to theoperations and invest surplus cash. Corporate Treasury does not operate as aprofit centre and does not take speculative financial positions. Very limiteduse is made of derivative financial instruments. Corporate Treasury advisesoperational management on financial risks and executes all major transactions infinancial instruments, except for forward exchange contracts to hedgetransactional exposures on overseas operations, which are locally arranged. Funding requirements At 31 March 2007 the Group had committed unsecured facilities of $15.0m, none ofwhich was utilised. The Group also had uncommitted short-term and overdraftfacilities of up to £11.4m in the UK and overseas, of which £1.3m were utilisedat 31 March 2007. Further details on the Group's debt maturity profile are shownin note 19 to the accounts. These facilities are projected to more than coverpeak forecast borrowings for at least a twelve-month forward period. All bankcovenants were complied with during the year. The Group's £25m secured committedfacility was terminated during the year following the receipt of businessdisposal proceeds. Currency risk management Most of Scapa's assets and currency flows are denominated in currencies otherthan Sterling. In general terms it is Group policy to match, where costeffective and practicable, the currencies of costs to revenues and thecurrencies of liabilities to assets. The majority of borrowings taken out by theGroup are denominated in currencies other than Sterling, thus reducing part ofthe translation exposure on the Balance Sheet. As these borrowings are servicedby local cash flows reflecting local profits, so in turn the profit and lossaccount is partially and internally hedged against currency movements. The Groupdoes not hedge directly the translation exposure of the profit and loss account,whether by use of options or other derivatives. The Group does not create ormaintain any speculative risk exposures. Foreign currency transaction exposures are dealt with individually by theoperating businesses in accordance with Group policies and procedures usingforward foreign exchange contracts and currency overdrafts. Interest rate management Given the historically low rates that have been available in recent years,management of the Group's exposure to interest rates has been largely weightedtowards floating rate debt. In accordance with Board approved policy, thisexposure is regularly reviewed in order to maintain an appropriate mix of fixedand floating rate borrowings. In August 2004 the Group took out an interest ratecap covering a principal of US$10m for a three-year term, with US Dollarthree-month LIBOR interest cap fixed at 3.5%. As Group borrowings wereeliminated following the receipt of proceeds from business disposals, this capwas sold in the autumn of 2006 realising a net gain of £0.1m. Counterparty credit risk management Counterparty credit risk arises from the investment of surplus cash and the useof financial instruments. The Group restricts transactions to banks that have adefined minimum credit rating and limits the individual and aggregate exposureto each bank. Contingencies and legal proceedings risk management The Group monitors all material contingent liabilities including mattersrelating to the environment, through a process of consultation and evaluationwhich includes senior management, and internal and external advisers. Thisprocess results in an evaluation of potential exposure and provisions are madeor adjusted accordingly by reference to accounting principles. By thismethodology the Group has provided for contingencies which are anticipated to bemore likely than not to become payable in the future. Various Group companies, along with many other non-Scapa Group businesses, arenamed as defendants in claims in which damages are being sought for personalinjury arising from alleged exposure to asbestos. Based on advice from legalcounsel the Company believes that it has strong defences to the claims assertedin these proceedings and intends to vigorously defend such claims. The Directorsbelieve, having taken advice from legal counsel, that it is unlikely thatsignificant uninsured liabilities will arise from this litigation. Consolidated Income Statement For the year ended 31 March 2007All on continuing operations note Year ended Year ended 31 March 2007 31 March 2006 £m £m Turnover 2 184.3 191.5 Operating profit/(loss) 2 15.7 (11.6) Trading profit** 7.0 5.4Exceptional items and movements in exceptionalprovisions: - Business disposals 11.9 - - Reorganisation costs and exceptional provision 4 (1.3) (3.4)movements - Movement in asbestos litigation costs 0.9 -provision - Property, plant and equipment and goodwill 4,5 (2.9) (13.7)impairment - Other 0.1 0.1 Operating profit/(loss) 15.7 (11.6) Interest payable (1.2) (1.3) Interest receivable 0.7 0.3 (0.5) (1.0) Discount on provisions (0.4) (0.5) IAS 19 finance costs (1.9) (1.4) Net finance costs (2.8) (2.9) Profit/(loss) on ordinary activities before 12.9 (14.5)taxation Taxation on operating activities (2.6) (2.7) Exceptional tax credit 3.0 1.9 Taxation credit/(charge) 0.4 (0.8) Retained profit/(loss) for the year 13.3 (15.3) Weighted average number of shares 6 144.8 144.8 Basic and diluted earnings/(loss) per share (p) 6 9.2 (10.6) Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 March 2007 All on continuing operations note Year ended Year ended 31 March 2007 31 March 2006 £m £m Retained profit/(loss) for the year 13.3 (15.3) Exchange differences on translating foreign 7 (5.2) 2.3operations Actuarial gains/(losses) 7 3.1 (19.3) Total recognised income/(expense) for the year 11.2 (32.3) IFRS transition adjustment (IAS 32 and IAS 39) - 0.2 Total recognised income/(expense) 11.2 (32.1) ** Operating profit before business disposals, impairments, reorganisation costsand exceptional provision increases Consolidated Balance SheetAs at 31 March 2007 note 31 March 2007 31 March 2006 £m £mAssets Non-current assetsGoodwill 9.8 11.2Property, plant and equipment 33.5 46.9Deferred tax asset 6.2 9.4 49.5 67.5Current assetsInventory 18.5 21.6Trade and other receivables 38.6 46.5Financial assets - derivative financial - 0.2instrumentsCurrent asset investments 5.1 5.7Current tax asset 0.1 -Cash and cash equivalents 12.5 3.4 74.8 77.4Liabilities Current liabilitiesFinancial liabilities:- Borrowings and other financial liabilities (0.8) (3.0)- Derivative financial instruments (0.1) (0.1)Trade and other payables (29.0) (33.6)Current tax liabilities (0.1) (0.6)Provisions (1.6) (2.7) (31.6) (40.0) Net current assets 43.2 37.4 Non-current liabilitiesFinancial liabilities:- Borrowings and other financial liabilities (0.5) (13.6)Other non-current liabilities (2.0) (2.1)Deferred tax liabilities (0.9) (5.0)Other tax liabilities (3.2) (2.7)Retirement benefit obligations (58.3) (63.4)Provisions (8.4) (9.9) (73.3) (96.7) Net assets 19.4 8.2 Shareholders' equity Ordinary shares 7.2 7.2Retained earnings 13.9 (2.6)Translation reserve (1.7) 3.6Total shareholders' equity 7 19.4 8.2 Consolidated Cash Flow StatementFor the year ended 31 March 2007 All on continuing operations note Year ended Year ended 31 March 2007 31 March 2006 £m £m Cash flows from operating activities Net cash flow from operations 8 6.9 2.1 Cash generated from operations before 9.1 6.3reorganisation and movements in exceptionalprovisions Cash outflows from reorganisation and movements (2.2) (4.2)in exceptional provisions Net cash flow from operations 6.9 2.1 Net interest paid (0.5) (1.1) Income tax paid (1.3) (1.0) Net cash generated from operating activities 5.1 - Cash flows from investing activities Proceeds from business disposals 21.2 - Purchase of property, plant and equipment (2.8) (2.7) Proceeds from sale of property, plant and 0.5 0.1equipment Repayment of government grant (0.2) - Proceeds from release of $10m Waycross deposit - 5.7 Net payments in respect of forward contracts - (0.3) Net cash generated from investing activities 18.7 2.8 Cash flows from financing activities Repayment of borrowings (12.4) (8.0) Net cash used in financing activities (12.4) (8.0) Net increase/(decrease) in cash and cash 11.4 (5.2)equivalents Cash and cash equivalents at beginning of the 0.9 5.7year Exchange (losses)/gains on cash and cash (0.3) 0.4equivalents Cash and cash equivalents at end of the year 12.0 0.9 Notes on the Accounts 1. Basis of Preparation The consolidated financial statements of Scapa Group plc have been prepared inaccordance with International Financial Reporting Standards (IFRS) and IFRICinterpretations as endorsed for use in the European Union and with those partsof the Companies Act 1985 applicable to companies reporting under IFRS. Theconsolidated financial statements have been prepared under the historical costconvention, as modified by the revaluation of financial assets and financialliabilities (including derivative instruments) at fair value through profit orloss. 2. Segmental reporting Primary Reporting Format - Geographical Segments The Group operates in three main geographical areas: Europe, North America andAsia. All inter-segment transactions are made on an arms-length basis. The homecountry of the Company is the United Kingdom. Segment results The segment results for the year ended 31 March 2007 are as follows: Europe N America Asia Eliminations Corporate Group £m £m £m £m £m £mExternal sales 111.2 65.3 7.8 - - 184.3 Inter-segment sales 4.3 2.9 1.6 (8.8) - - Total revenue 115.5 68.2 9.4 (8.8) - 184.3 Segment result (before 2.1 7.6 0.2 - (2.9) 7.0exceptional costs) Exceptional items andmovements inexceptionalprovisions: - Business disposals 11.9 - - - - 11.9 - Property, plant and (2.8) - (0.1) - - (2.9)equipment and goodwillimpairment - Movement in asbestos - - - - 0.9 0.9litigation costsprovision - Reorganisation costs (1.0) - (0.2) - (0.1) (1.3)and exceptionalprovision movements - Other - (0.2) - - 0.3 0.1 Exceptional items 8.1 (0.2) (0.3) - 1.1 8.7Operating profit/ 10.2 7.4 (0.1) - (1.8) 15.7(loss) Net finance costs (2.8) Profit on ordinary 12.9activities beforetaxation Taxation on operating (2.6)activities Exceptional tax credit 3.0 Taxation credit 0.4 Retained profit for 13.3the year Sales are allocated based on the country in which the order is received. Allrevenue relates to the sale of goods. The sales analysis based on the locationof the customer is as follows: Europe N America Other Group £m £m £m £m External sales 100.3 61.8 22.2 184.3 2. Segmental reporting (Cont'd) Other segment items included within the Income Statement based on location ofassets are as follows: Europe N America Asia Corporate Group £m £m £m £m £m Depreciation (3.9) (1.1) - - (5.0) Impairment of goodwill - - (0.1) - (0.1) Impairment of property, plant and (2.8) - - - (2.8)equipment Litigation provision release - - - 0.9 0.9 The segment results for the year ended 31 March 2006 were as follows: Europe N America Asia Eliminations Corporate Group £m £m £m £m £m £m External sales 117.1 66.7 7.7 - - 191.5 Inter-segment sales 5.9 2.8 1.2 (9.9) - - Total revenue 123.0 69.5 8.9 (9.9) - 191.5 Segment result 0.7 7.7 (0.1) - (2.9) 5.4(before exceptionalcosts) Exceptional items andmovements inexceptionalprovisions: - Business disposals - - - - - - - Property, plant and (10.3) (2.7) (0.7) - - (13.7)equipment andgoodwill impairment - Movement in - - - - - -asbestos litigationcosts provision - Reorganisation (2.2) (0.1) - - (1.1) (3.4)costs and provisionincreases - Other - - - - 0.1 0.1Exceptional items (12.5) (2.8) (0.7) - (1.0) (17.0) Operating (loss)/ (11.8) 4.9 (0.8) - (3.9) (11.6)profit Net finance costs (2.9) Loss on ordinary (14.5)activities beforetaxation Taxation on operating (2.7)activitiesExceptional tax 1.9credit Taxation charge (0.8) Retained loss for the (15.3)year Sales are allocated based on the country in which the order is received. Allrevenue relates to the sale of goods. The sales analysis based on the locationof the customer was as follows: Europe N America Other Group £m £m £m £m External sales 106.7 63.5 21.3 191.5 Other segment items included within the Income Statement based on location ofassets were as follows: Europe N America Asia Corporate Group £m £m £m £m £m Depreciation (5.0) (1.3) (0.1) - (6.4) Impairment of goodwill (8.3) (2.6) - - (10.9) Impairment of property, plant and (2.0) (0.1) (0.7) - (2.8)equipment Other non-cash expenses - (0.1) - (0.1) (0.2) 3. Segment assets and liabilities The segment assets and liabilities at 31 March 2007 and capital expenditure forthe year then ended are as follows: Europe N America Asia Corporate Group £m £m £m £m £m Segment assets 63.4 36.5 3.2 21.2 124.3 Segment liabilities (56.0) (11.3) (1.1) (36.5) (104.9) Capital expenditure (1.5) (1.2) (0.1) - (2.8) The segment assets and liabilities at 31 March 2006 and capital expenditure forthe year then ended were as follows: Europe N America Asia Corporate Group £m £m £m £m £m Segment assets 78.4 52.9 3.8 9.8 144.9 Segment liabilities (63.1) (16.0) (0.8) (56.8) (136.7) Capital expenditure (1.5) (1.0) - (0.1) (2.6) The Group is organised into geographical areas and does not report to managementon any other basis. The Group has only one business segment, being the sale oftechnical adhesive tapes and as such there is no additional secondary segmentinformation to report under IAS 14. 4. Exceptional items In the year ended 31 March 2007 the exceptional items for the Group totalled anet credit of £8.7m and comprised: Business disposals during the year resulted in a profit of £11.9m following thesale of peripheral businesses; the Megolon compounding business was sold inOctober 2006 at a profit of £9.4m, followed by the sale of the Lymington sealantbusiness in February 2007 at a profit of £2.6m. These profits on disposals wereoffset by a £0.1m loss on the sale of the loss-making Irish distributionbusiness in June 2006. Reorganisation costs and exceptional provision movements totalled £1.3m in theyear, of which £1.5m was incurred in connection with redundancies across theGroup, offset by a credit of £0.2m relating to the net movements for exceptionaland onerous lease provisions. In addition, there was a provision release of £0.9m in the year relating to theasbestos litigation provision following the new legal agreement with theinsurance companies effective from April 2006. Impairments of property, plant and equipment of £2.8m were booked in the yearfollowing a review of the projected future cash flows relating to a UK site andthe Group's Swiss site. In addition, a goodwill balance of £0.1m was impairedrelating to the Group's activities in China following a slower than anticipateddevelopment in performance. Other exceptional items resulted in a net gain of £0.1m in the year largely dueto the profit on the sale of residual properties (£0.5m), offset somewhat byother exceptional items including the costs associated with a fire at theGroup's USA Carlstadt site (£0.2m). 5. Impairment of assets Year ended 31 March 2007 The carrying values of the Group's goodwill and property, plant and equipmentbalances have been reassessed at 31 March 2007 for any evidence that thecarrying value may be impaired. A discount rate of 9.5% based on the Group'sweighted average cost of capital has been used in each review. 5. Impairment of assets (Cont'd) Impairments in the year totalled £2.9m and were made up as follows: Impairment at the Rorschach site in Switzerland of £2.0m has been recorded inthe period against property. The property was reviewed against value in useusing discounted future cash flows of the operation and as a result of slowerthan anticipated growth in the trading of the local operation, the carryingvalue of the asset was found to be in excess of the discounted forecast cashflows. Impairment at the UK North site of £0.8m has been recorded in the period. Theplant and equipment at the UK North site were reviewed against the value in use,using discounted future cash flows of the operation, and as a result of therestructuring of the site following the sale of the Megolon business, thecarrying value of the remaining assets was found to be in excess of thediscounted forecast cash flows. In addition, an impairment of goodwill of £0.1m relating to the joint venturebuy-out of the Chinese operations in 2005 has been recorded in the period. Thesite has been assessed against value in use, using discounted future cash flowsfrom the site in China and as a result of slower than expected development inperformance of the local operation the goodwill balance was impaired in full. Year ended 31 March 2006 The following impairments were made in the year ended 31 March 2006 following areview of the carrying value of the Group's goodwill and asset values againstthe value in use at this time based on projected future cash flow forecasts: Impairment of goodwill £6.7m, IT systems £0.4m and £0.2m leasehold additions wasrecorded relating to the UK Dunstable site following a reduction in demand formedical products manufactured at this site. In addition, impairment of the UKNorth site of £1.6m goodwill, £0.8m IT systems and £0.6m leasehold additions wasrecorded following a review of the under-performance of certain productsmanufactured at the site. Property, plant and equipment at the Korean site werealso impaired totalling £0.7m, again following a review of the site'sperformance against the carrying value of the site's assets. Finally, a goodwillimpairment of £2.6m and £0.1m plant and machinery was recorded for the NorthAmerican cable business relating to the LUSA acquisition which had been combinedinto a cash generating unit (CGU) along with the cable property, plant andequipment in the region to assess the projected future cash flows of thebusiness. 6. Earnings per share Basic and diluted Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the year. Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The Company currently has no dilutive potentialordinary shares. 2007 2006 Profit/(loss) attributable to equity holders of the Company (£m) 13.3 (15.3) Weighted average number of ordinary shares in issue (m) 144.8 144.8 Basic and diluted earnings/(loss) per share (p) 9.2 (10.6) Headline (before exceptional items) 2007 2006 £m £m Profit/(loss) attributable to equity holders of the Company 13.3 (15.3) Adjusted for: Exceptional items (8.7) 17.0 Exceptional element of tax charge (3.0) (1.9) Adjusted profit/(loss) attributable to equity holders of the 1.6 (0.2)Company (£m) Weighted average number of ordinary shares in issue (m) 144.8 144.8 Headline and diluted headline earnings/(loss) per share (p) 1.1 (0.1) 7. Reserves Share capital Translation reserve Retained earnings Total equity £m £m £m £m Balance at 31 7.2 3.6 (2.6) 8.2March 2006 Currency - (5.2) - (5.2)translationdifferences Recycling of - (0.1) - (0.1)foreign exchangeon disposal Actuarial gain on - - 3.1 3.1pension schemes Net (loss)/income - (5.3) 3.1 (2.2)recogniseddirectly inequity Profit for the - - 13.3 13.3year Total recognised - (5.3) 16.4 11.1income for theyear Employee share - - 0.1 0.1option scheme- value ofemployee services Balance at 31 7.2 (1.7) 13.9 19.4March 2007 At 31 March 2007 financial liabilities of £0.1m have been recognised in theBalance Sheet relating to the fair values of derivative financial instruments inplace across the Group at this date. Movements in instruments used to hedge against the exposure to exchangedifferences due to the timing of cash flows are taken through the IncomeStatement as it is not Group policy to hedge account for these instruments. Cumulative actuarial losses on pension schemes recognised in reserves total£23.5m (2006: £26.6m). 8. Reconciliation of operating profit to operating cash flow, and reconciliationof net debt All on continuing operations Year ended Year ended 31 March 2007 31 March 2006 £m £m Operating profit/(loss) 15.7 (11.6) Adjustments for:Depreciation 5.0 6.4 (Profit)/loss on disposal of fixed assets (0.5) 0.2 Profit on disposal of businesses (11.9) - Impairment of tangible fixed assets 2.8 2.8 Impairment of goodwill 0.1 10.9 Pensions payments in excess of charge (3.7) (3.0) Movement in fair value of financial instruments 0.1 0.1 Share options charge 0.1 0.1 Grant income released (0.1) (0.2) Changes in working capital: - Inventories (0.8) (1.3) - Trade debtors 4.6 (0.7) - Trade creditors (2.0) (0.6) Changes in trading working capital 1.8 (2.6) Other debtors (0.8) (0.6) Other creditors (0.3) 0.4 Deferred consideration 0.4 - Net movement in other provisions (0.3) (0.2) Net movement in reorganisation provisions (0.1) 0.8 Net movement in asbestos litigation provision (1.4) (1.4) Cash generated from operations 6.9 2.1 8. Reconciliation of operating profit to operating cash flow, and reconciliationof net debt (Cont'd) All on continuing operations Year ended Year ended 31 March 2007 31 March 2006 £m £mCash generated from operations before 9.1 6.3reorganisation and movements in exceptionalprovisions Cash outflows from reorganisation and movements in (2.2) (4.2)exceptional provisions Cash generated from operations 6.9 2.1 The changes in working capital include the unwind benefit of £2.0m relating tothe business disposals made during the year ending 31 March 2007. Analysis of cash and cash equivalents and borrowings At Cash Exchange At 1 April 2006 flow movement 31 March 2007 £m £m £m £m Cash and cash equivalents 3.4 9.4 (0.3) 12.5 Overdrafts (2.5) 2.0 - (0.5) 0.9 11.4 (0.3) 12.0 Borrowings within one year (0.5) 0.1 - (0.4) Borrowings after more than one (13.6) 12.3 0.9 (0.4)year (14.1) 12.4 0.9 (0.8) Total (13.2) 23.8 0.6 11.2 Reconciliation of net cash flow to movement in net debt 2007 2007 2006 2006 £m £m £m £mIncrease/(decrease) in cash and cash equivalents Increase/(decrease) in net cash and cash equivalents 11.4 (5.2)in the year Cash outflow from decrease in loan finance 12.4 8.0 Change in net debt resulting from cash flows 23.8 2.8 Release of arrangement fees - (0.1) Translation differences 0.6 (0.7) Movement in net debt 24.4 2.0 Net debt at start of year (13.2) (15.2) Cash and cash equivalents/(net debt) at end of year 11.2 (13.2) Cash flows arising from business disposals for the year ended 31 March 2007 2007 £m Fixed Assets 6.1 Stock 2.7 Other net current assets 0.5 Gain on disposal 11.9 Net cash inflow 21.2 Costs 1.5 Gross proceeds from disposal 22.7 Deferred consideration (0.4) Net cash inflow from sale 22.3 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SCPA.L