28th Feb 2005 07:01
British Polythene Industries PLC28 February 2005 28 February 2005 BRITISH POLYTHENE INDUSTRIES PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 • Results in line with pre-close statement and show reassuring performance in challenging conditions • Sales from continuing operations of £359m (2003: £341m) • Profit before tax of £9.7m (£11.4m) reflect difficult market conditions and significant raw material price rises during the year • Diluted EPS of 27.61p (38.25p) • Final dividend of 14.0p per share, giving a maintained total dividend of 21.0p per share • Sound balance sheet with interest cover of 4.3 times • 2005 has started well with turnover expected to exceed £400m for the year Commenting on the results, Cameron McLatchie, BPI Chairman said: "It became clear as 2004 progressed that re-pricing our products was our biggestchallenge. Some of our businesses were very successful in passing throughincreases, while others struggled. We're pleased that current increases arebeing implemented with less of a lag than six months ago. "2005 has started well. We have order books which are in line with ourexpectations and current price increases continue to be passed through, althoughthe lag will have some effect on our margins. We do envisage that raw materialsupply and price will continue to be an issue, but one which has become betterunderstood by competitors and customers. "Our turnover for 2005 should be over £400 million before we factor in thebenefits of any potential acquisitions and we're confident that we can restoreour earnings in these circumstances." Enquiries Cameron McLatchie, ChairmanJohn Langlands, Chief ExecutiveBritish Polythene Industries PLC Tel: 01475 501000 Tim SprattFinancial Dynamics Tel: 020 7831 3113 CHAIRMAN'S STATEMENT We indicated in our Interim Statement and again in our Pre Close Statement inDecember that raw material issues were affecting our business. These issuesimpacted significantly in the second half as we attempted to pass on increasesto our customers as timeously as possible. In total, we received 11 monthlyprice increases from our suppliers in 2004 and by January 2005 these have addedover £80 million per annum to our cost base. These raw material price increases, in the last year, have been greater, inquantum and frequency, than any in the history of our industry. At the sametime, we have been faced with a customer base accustomed to price reductions orlow inflationary increases, making for very difficult trading. Given thesefactors, our results are reassuring and in line with current marketexpectations. RESULTS On continuing sales of £359 million (2003 - £341 million), our operating profitfell to £12.6 million from £17.4 million, reflecting market conditions. We hadno exceptional operating costs (2003 - £0.8 million), nor non operatingexceptional losses (2003 - £2.0 million). After a reduction in interest costsfrom £3.6 million to £2.9 million, the profit before tax was £9.7 million (2003- £11.4 million). Diluted earnings per ordinary share fell to 27.61p from38.25p. DIVIDEND The Board is recommending a maintained final dividend of 14p per share for theyear ended 31 December 2004, giving a total for the year of 21p per share. Therecommended final dividend, is payable on 13 May 2005, to shareholders on theregister at the close of business on 11 March 2005. CASH FLOW, BORROWINGS & SHAREHOLDERS' FUNDS The raw material cost increases significantly increased our working capitalrequirements. We have managed this situation well and the year end borrowingsof £57 million are near the bottom end of our expectations. Interest cover remained sound at 4.3 times. Our net cash spend on fixed assetsof £13 million for the year was similar to 2003, some £3 million less than wepredicted at this time last year and also similar to our depreciation charge.Several large projects fell for payment in January 2005, and we currentlyenvisage that for 2005 our net cash spend on fixed assets will be slightly aheadof 2004. GROUP PENSION SCHEME Our scheme net deficit increased by £5 million to £30 million in 2004. Despitereasonable investment performance and an increased rate of contributions fromthe Group and our employees in the scheme, we saw a reduction in long terminvestment yields and prospective increases in inflation and longevity. The Board approved an increase in the level of pensionable earnings, from 6April 2005, of some 2%. Pensionable earnings, as opposed to total earnings,have been frozen since January 2003. It is not currently envisaged that therewill be an increase in pensionable earnings in 2006 unless there is a dramaticreduction in the scheme's deficit. Due to the introduction of International Financial Accounting Standards in 2005,the net pension deficit will, in future, be deducted from Shareholders' Funds.Our Articles of Association currently limit the Group's borrowing powers tothree times consolidated Shareholders' Funds. At the forthcoming AGM, aresolution will be proposed to change the definition of Shareholders' Funds forthis purpose to exclude the pension deficit. GROUP DEVELOPMENT & STRATEGY We indicated last year that our focus would continue to be on improving theoperating performance of our core polythene film and bag business and makingselective acquisitions that complement our existing business. This remains ourstrategy and we have clear acquisition criteria. Although we have not yet madeany acquisitions, this is more to do with us seeking to buy at the right pricethan lack of opportunities. Any such acquisitions will be for cash and ourlenders have indicated their willingness to support us if the appropriateopportunity arises. EUROPEAN COMMISSION ENQUIRY We are still not in a position to assess the quantum of any financial cost tothe Group that may result from any historical anti-competitive actions nor topredict with any degree of accuracy when a conclusion will be reached on thesematters. As noted in previous years' Report and Accounts, in August 2001 the Group, alongwith a number of other businesses in the industrial and agricultural plasticfilms market in Europe, was visited by officials from the CompetitionDirectorate of the European Commission investigating alleged infringements ofEuropean competition law. The Group has offered its full cooperation to theCommission in connection with this original inquiry. In May 2004 we reported that, following the introduction of our Group widecompliance programme in relation to both EU and UK competition law, in November2001 the Group brought certain practices in our industrial bag operations inmainland Europe to the attention of the European Commission and made a formalapplication for leniency. As a result of our information, the Commission begana second inquiry and has begun formal proceedings against a number of partiesincluding the Group. If successful, our leniency application will result in areduction of between 75% and 100% in the penalties that would otherwise havebeen imposed by the Commission in relation to industrial bags practices.However, the necessary appraisal cannot be made by the Commission until the endof the procedure when they adopt their decision. The Group continues to operate a rigorous compliance programme aimed at ensuringthat all of our Group activities are compliant with all competition laws. OUR PEOPLE The number of people employed by the Group at the year end fell to 2,987compared to the 3,056 employed at the end of 2003. We envisage this modestdecline continuing as we rationalise products, update our production processes,through new investment, and introduce our new information technology standardsacross the Group. Our people have cooperated fully in these changes and we must record our thanksfor their efforts. TRADING FOR 2004 AND PROSPECTS FOR 2005 It became clear as 2004 progressed that re-pricing our products was our biggestchallenge. Some of our businesses were very successful in passing throughincreases, particularly in Europe where local pricing customs are more suited tothis degree of volatility. However, in the UK, we had several businesses whichreally struggled to pass through increases and our margins came under severepressure, with resistance from customers who reported that our competitors werenot applying all of the raw material increases. We subsequently discovered thatthis was the case and the consequence was several competitors have either shutdown, gone into receivership or have made very significant losses. The failureof one of these competitors, who was also a customer, adversely affected ourprofits for 2004 by some £0.6 million. There was a change in attitude in thefourth quarter of the year as customers realised that increases had to beaccepted or their choice of supply would be limited. I am pleased to reportthat current increases are being implemented with less of a lag than six monthsago. Our 2004 annual volumes were very slightly behind 2003, but after eliminatingour discontinued retail carrier bag volumes for 2003, we were slightly ahead. 2005 has started well. We have order books which are in line with ourexpectations and current price increases continue to be passed through, althoughthe lag will have some effect on our margins. We do envisage that raw materialsupply and price will continue to be an issue, but one which has become betterunderstood by competitors and customers. With our investments in recent years in improved equipment, process control andrecycling technology, we are well placed to benefit from prices at currentlevels. Our turnover for 2005 should be over £400 million before we factor in thebenefits of any potential acquisitions. Your Board has every confidence that wecan restore our earnings in these circumstances. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 2004 Restated Year ended Year ended 31 December 31 December 2004 2003 Continuing Continuing Discontinued Notes operations operations operations Total £m £m £m £m Turnover 359.4 341.3 9.4 350.7 Operating profit before exceptional operating items 12.6 17.4 0.4 17.8Exceptional operating costs - (0.8) - (0.8)Operating profit 12.6 16.6 0.4 17.0Exceptional non operating itemsGain on disposal of business - - 1.1 1.1Goodwill written off on disposal of business - - (3.2) (3.2) Net loss on disposal of business - - (2.1) (2.1)Gain on disposal of property - 0.1 - 0.1 12.6 16.7 (1.7) 15.0Profit / (loss) on ordinary activities before interestand taxationNet interest payable and similar charges (2.9) (3.6) 9.7 11.4 Profit on ordinaryactivities before taxationTax on profit on ordinary activities (2.6) (3.8) Profit on ordinary activities after taxation 7.1 7.6Dividends (5.4) (5.4) 1.7 2.2 Retained profit for the financial year Basic earnings per ordinary share 2 27.64p 29.51pDiluted earnings per ordinary share 2 27.61p 29.36pDiluted earnings per ordinary share 2 27.61p 38.25pon continuing operations before all exceptional items Dividend per ordinary share 3 21.00p 21.00p CONSOLIDATED BALANCE SHEET At 31 December 2004 Restated 2004 2003 £m £m £m £mFixed assetsIntangible assets 0.3 0.3Tangible assets 81.7 84.3Investments 0.1 0.1 82.1 84.7Current assetsStocks 58.4 49.2Debtors 61.9 50.0Cash at bank and in hand 1.0 0.9 121.3 100.1Creditors - amounts falling due within one yearBank and other borrowings 34.5 9.2Other creditors 75.1 66.6 109.6 75.8Net current assets 11.7 24.3 Total assets less current liabilities 93.8 109.0 Creditors - amounts falling due after more than one yearBank and other borrowings 23.2 40.0Deferred government grants 0.7 0.9 Provision for liabilities and chargesDeferred taxation 6.6 6.0Minority interests 0.1 0.1 30.6 47.0Net assets 63.2 62.0 Capital and reservesCalled up share capital 6.5 6.5Share premium account 23.7 23.4Other reserves 7.7 7.6Revenue reserves 25.3 24.5Shareholders' funds - equity interests 63.2 62.0 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2004 2004 2003 Notes £m £m £m £m Operating profit 12.6 17.0 Depreciation charges 13.1 14.4 Amortisation of goodwill - 0.1 Gain on disposal of tangible fixed assets (0.1) (0.1) 25.6 31.4 Increase in stocks (9.2) (6.9) (Increase)/decrease in debtors (11.9) 6.2 Increase in creditors 11.9 3.3 (9.2) 2.6 16.4 34.0 Net cash inflow from operating activities Returns on investments and servicing of finance (3.0) (3.4) Interest paid (3.2) (2.4) Taxation Capital expenditure Purchase of tangible fixed assets (13.2) (13.7) Sale of tangible fixed assets 0.2 0.3 (13.0) (13.4) Acquisitions and disposals Disposal of business 4 - 7.5 (5.4) (5.4) Equity dividends paid Net cash (outflow)/ inflow before financing Financing Decrease in bank loans - (5.9) Capital amount of finance lease payments (1.0) (0.9) Capital amount of finance leases received 5.0 - Purchase of ordinary shares (0.6) - Issue of ordinary share capital 0.4 0.1 3.8 (6.7) (Decrease) / increase in cash in the financial year (4.4) 10.2 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 December 2004 2004 2003 £m £m Profit for the financial year 7.1 7.6 Currency translation differences on foreign currency net (0.3) (0.2) investments and related borrowings Total recognised gains for the financial year 6.8 7.4 RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS for the year ended 31 December 2004 2004 2003 £m £mOpening shareholders' funds 62.0 56.7Profit for the financial year 7.1 7.6Dividends (5.4) (5.4)Retained profit for the financial year 1.7 2.2Purchase of ordinary shares (including expenses) (0.6) -New share capital subscribed (net of expenses) 0.4 0.1Movement on translation of overseas undertakings (0.3) (0.2)Goodwill transferred to profit and loss account on disposal of businesses - 3.2Net increase in shareholders' funds 1.2 5.3Closing shareholders' funds 63.2 62.0 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT At 31 Movement in Cash Flow At 31 December exchange December 2003 rates £m 2004 £m £m £m 0.9 - 0.1 1.0 Cash at bank and in hand Bank loans and overdrafts (9.2) 0.3 (4.5) (13.4) (8.3) 0.3 (4.4) (12.4) Bank loans (20.0) - - (20.0) Finance leases - (0.3) (4.0) (4.3) Other loan (20.0) - - (20.0) Net debt (48.3) - (8.4) (56.7) Prior year (63.4) (1.9) 17.0 (48.3) NOTES 1. BASIS OF PREPARATIONThe balance sheet incorporates the shares held by the British PolytheneIndustries Employee Share Ownership Trust (the Trust) and which have not vestedunconditionally by the balance sheet date. In line with UITF 38 - Accounting forESOP Trusts - which is applicable to accounting periods ending on or after 23June 2004, the cost of shares held by the Trust is accounted for as a deductionin arriving at shareholders' funds. Comparative figures have been amended accordingly 2. EARNINGS PER ORDINARY SHARE OF 25p Basic earnings per share is based on the profit attributable to ordinaryshareholders of £7.1 million (2003 - £7.6 million) using the weighted averagenumber of shares in issue of 25,683,000 (restated 2003 - 25,753,000). Diluted earnings per share on continuing operations before all exceptionalitems is calculated as follows: Restated 2004 2003 Earnings Earnings Earnings Earnings attributable to per share attributable ordinary to ordinary per share shareholders shareholders £m pence £m penceDiluted earnings per share based on: 7.1 27.61 7.6 29.36 Profit attributable to ordinary shareholdersNet loss on disposal of operation - - 2.1 8.11Other exceptional non operating items - - (0.1) (0.39)Exceptional operating costs - - 0.8 3.09Discontinued operations - - (0.4) (1.54)Less tax relief on all exceptional costs - - (0.2) (0.77)Tax charge on discontinued operations - - 0.1 0.39Diluted earnings on continuing operations before all 7.1 27.61 9.9 38.25exceptional items Diluted earnings per share on continuing operations before all exceptional itemsgives the most appropriate measure of the business on an ongoing basis. '000 '000Weighted average number of ordinary shares in issue during the year 25,856 25,903Weighted average number of own shares held during the year (173) (150) 25,683 25,753Dilutive potential ordinary shares - share options 34 131Diluted weighted average number of ordinary shares 25,717 25,884 3. DIVIDENDS The final dividend of 14p per ordinary share of 25p (2003: 14p) will be payable,if approved, on 13 May 2005 to shareholders on the register on 11 March 2005. The total dividend proposed forthe year is 21p per share (2003: 21p). 4. DISCONTINUED OPERATIONS On 27 June 2003 the Group sold its non core consumer paper bag business, WeltonBibby & Baron for a cash consideration of £7.5 million. The sale comprised thebusiness, freehold property, machinery, stocks and goodwill of that part of thebpi.consumer business located at Midsomer Norton. Welton Bibby & Baronmanufactures and sells paper bags and paper printed reels. The sale produced atotal profit of £1.1 million which was offset by a charge of £3.2 million forgoodwill previously written off to reserves. 5. RETIREMENT BENEFITS Financial Reporting Standard 17 on retirement benefits requires certaindisclosures under the transitional arrangements. In summary, the UK definedbenefits pension scheme has assets with a current market value of £129.8 million(2003:£118.7 million) and liabilities discounted at the AA bond yield of £172.8million (2003:£154.1 million). On this valuation method, there is a deficit of£43.0 million (2003:£35.4 million) which is partially offset by a deferred taxasset of £12.9 million (2003:£10.6 million) giving a net deficit of £30.1million (2003:£24.8 million). 6. STATUTORY ACCOUNTS The above financial information does not constitute statutory accounts of theGroup for the relevant periods. Statutory accounts for the year ended 31December 2003 have been delivered to the Registrar of Companies and those forthe year ended 31 December 2004 will be delivered following the Annual GeneralMeeting. The auditors have reported on those accounts; their reports wereunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 7. ANNUAL GENERAL MEETING The Annual General Meeting will be held on Thursday, 12 May 2005 at 12 noon atthe Company's Head Office,96 Port Glasgow Road, Greenock, PA15 2UL. 8. RESULTSThe results will not be advertised in any newspapers. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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