Interim Results

27 August 2013

BRITISH POLYTHENE INDUSTRIES PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

Improved Performance in Challenging Conditions

Highlights

· Operating profits increased 14% at £16.4m (2012: £14.4m) despite challenging conditions

· Profit before tax up 17% to £14.1m (2012: £12.1m)

· Adjusted earnings per share up 12.5% to 40.12p (2012: 35.65p)

· Interim dividend per share increased by 7% to 4.5p (2012: 4.2p)

· Net borrowings reduced to £20.9m (June 2012: £23.2m)

Commenting on the results Cameron McLatchie, Chairman of BPI, said:

"The improvement in operating profits can be attributed to another excellent performance from our European business, a better performance from North America and a slight improvement from the United Kingdom.

The second half has started well and many of our operations are busier than at this time last year.

Your Board will be disappointed if the second half does not meet or exceed the outcome achieved during the same period last year."

Enquiries

INTERIM MANAGEMENT REPORT

Chairman's Statement

We indicated at the time of the AGM on 9 May that we anticipated the first half would produce a good result and confirmed in the Pre-Close Statement on 28 June that we expected an outcome comfortably ahead of the comparative period in 2012.

We can now confirm that profit from operations increased by 14% to £16.4 million and that adjusted earnings per share increased by 12.5% to 40.12p.

The Group balance sheet improved as borrowings fell to £20.9 million and the Group retirement and employee benefit obligations reduced to £53.6 million.

The Board has declared an increased interim dividend of 4.5p (2012: 4.2p). This dividend will be paid on 15 November 2013 to shareholders on the register at the close of business on 18 October 2013.

The improvement in operating profits can be attributed to another excellent performance from our European business, a better performance from North America and a slight improvement from the United Kingdom. The UK performance would have been better but for increased energy costs and previously reported issues around commissioning a new washing plant for contaminated waste film. Our UK business also suffered from pressure in margins on certain recycled and retail products.

Sales of agricultural film products, both stretchfilm and wide agricultural film, recovered well after the cold spring and we currently anticipate a year-on-year improvement in volumes of these products.

Overall Group volumes were marginally ahead for the first six months aided by the acquisition of the Flexfilm Group, details of which are contained in the business review.

The improvement in borrowings was better than anticipated mainly due to the phasing of the capital expenditure programme, currently targeted at over £20 million for the 12 months to 31 December 2013. The improved cash position was achieved after spending some £5.1 million on the acquisition of the Flexfilm Group. We expect to spend over £12 million on capital expenditure in the second half so shareholders should not necessarily anticipate a further reduction in borrowings by the year end.

The calculation of liabilities of the Group's UK Pension Scheme resulted in a drop of £3.8 million. Despite an increase in the assumption for long term inflation, the increase in the discount rate applied to these liabilities had a greater influence. During the same period the actual assets increased by some £7.1 million. This calculation reduced the deficit in these obligations by £10.9 million to £52.3 million.

We indicated in May that we felt that the upside for raw material prices was limited. This has proved optimistic and we have seen price increases in both July and August. This is despite fairly subdued demand from the market and reduced off-take during the holiday season. Despite this poor demand, polymer producers have seen an increase in ethylene costs in Western Europe and have successfully passed these on to the market. Prices in Western Europe are now well ahead of the Far East.

With increasing globalisation of the film market, this regional market pricing by polymer producers, based on an inefficient source of feedstock, looks to be increasingly unjustifiable.

The second half has started well and many of our operations are busier than at this time last year. Your Board will be disappointed if the second half does not meet or exceed the outcome achieved during the same period last year.

Cameron McLatchie

Chairman

BUSINESS REVIEW

Summary

The Group profit from operations increased by £2.0 million to £16.4 million with improvements in all businesses. The increase in Europe arose from higher sales volumes while both the UK and North America benefitted from operational improvements. The contribution from our agricultural sales is normally weighted to the first half and we expect this again to be the case in the current year.

Sales Volumes

Total sales volumes were marginally ahead at 150,700 tonnes reflecting the acquisition of Flexfilm and increased sales of silage stretch in Europe arising from the increased capacity installed in mid 2012. Sales volumes in Europe were over 7% ahead due to silage while the UK was marginally down reflecting reduced capacity in cast industrial stretchwrap and low demand in our plain film activities. North American volumes were down 10% reflecting the extended winter conditions. Down gauging of our products continued.

Sales and Margins

Sales for the first six months were up 3% reflecting the Flexfilm acquisition and higher volumes. Margins improved reflecting a better sales mix and operational improvements. The Group operating profit per tonne increased from £97 to £108.

Raw Material Prices

In Europe raw materials increased from January to March before falling back in April and May and then increasing in June. Prices increased in July with a further increase proposed for August. The average raw material price for Platts LD was slightly higher than 2012. The price increases seemed surprising against a background of lacklustre demand in Europe.

In North America, significant price increases took place in January and March and prices have remained at these levels since then. These very high prices do not reflect the very low feedstock costs in North America.

Prices in both Europe and North America remain significantly higher than the Far East.

Energy Costs

The UK has continued to suffer from increasing energy costs with our cost per tonne up on 2012 resulting in additional costs of £0.7 million. These increased costs reflect increased distribution and transmission costs, increased taxes including feed in tariffs as well as increases in the underlying cost of electricity.

Acquisitions

At the end of April we completed the acquisition of the UK based Flexfilm Group for a cash consideration of £5.1 million. Flexfilm based at Winsford is an extruder of high quality film for the converter sector mainly for food markets and has become part of our UK plain films operations. Jordan Plastics located in Northern Ireland supplies printed film and bags mainly to the food industry in Ireland and has joined our Consumer operations. This acquisition will further strengthen our position in servicing the food sector. The contribution to operating profits in the first half was almost offset by the adviser costs of completing the acquisition.

Borrowing Costs

Borrowing costs reduced by 9% to £1.0 million reflecting reduced borrowings and steps taken in 2012 to cancel surplus facilities and reduce the level of commitment fees.

Capital Expenditure

Capital expenditure at £7.9 million was ahead of depreciation and we continue to target the agricultural, recycling and food sectors. The main items consisted of deposits and site preparation work on our two major strategic projects comprising a further multi-layer line for stretchwrap at Zele to meet the growing demand for high quality and advanced products and a replacement seven layer wide agricultural film line in Canada which will improve efficiencies, reduce costs and scrap and produce an enhanced range of products.

Other items included new co-extrusion lines for Bromborough and Ardeer in the UK and a printing press for Hardenberg in Holland.

Cash Flow and Borrowings

Net borrowings reduced from £23.2 million at 31 December 2012 to £20.9 million at 30 June 2013. The impact of currency translation on non sterling borrowings, which are maintained to hedge the net investment in our overseas subsidiaries, accounted for an increase of £1.3 million. Working capital increased by £0.6 million compared to £0.8 million during the first half of 2012.

The Company purchased 395,200 of the Company's shares at a cost of £2.2 million to be held in the Employee Share Ownership Trust.

Total available bank facilities of £75 million are in place, comprising revolving credit facilities of £50 million of which £10 million is repayable in 2014, with the balance of £40 million repayable in 2015. There are also short term facilities of £25 million.

Pension Fund

The deficit in the UK Defined Benefit Pension Fund decreased from £63.2 million (net of tax £48.7 million) to £52.3 million (net of tax £40.3 million). The movement in the deficit is analysed below:

Whilst the assumed long term inflation rate increased to 3.2% from 2.8%, the discount rate applied to the liabilities increased to 4.7% from 4.2%.

For the year ending 31 December 2013 the Group is required to adopt IAS 19 (revised) Employee Benefits. The 2012 comparative figures have been restated to reflect IAS 19 (revised) and the impact of this restatement is set out in note 12.

Principal Risks & Uncertainties

The 2012 Annual Report (page 14) sets out the principal risks and uncertainties faced by the Group at December 2012, and details the process in place for managing those risks. There have been no significant changes to the risk management process in the interim period.

We do not consider these risk factors to have changed significantly, and therefore the principal risks and uncertainties facing the Group for the remaining six months of the year are consistent with those set out in the 2012 Annual Report. However, there may be additional factors which are not currently known to the Group, or which we currently deem immaterial, which may also have an adverse effect on our business.

Liquidity Risk

As highlighted in the section on Risk Factors referred to above, the economic conditions remain challenging; however, the Directors believe that the Group continues to perform well despite these circumstances and the Group has continued to reduce its level of borrowings.

Given continued uncertainty in the UK and Europe, the risk remains of further reductions in market demand. However, more than two thirds of the Group's business is in sectors such as agriculture, retail food chain, healthcare and waste services which, so far, have been shown to be relatively resilient in the face of the economic downturn. The main European markets are UK and Ireland, Benelux, Scandinavia, Germany and France with limited sales to the southern European nations.

In view of these market conditions, the risk of customer insolvency remains increased. However, customers are spread across a wide range of market sectors and geographical regions and only one customer represents marginally more than 3% of Group turnover. We continue to carry some credit insurance in Europe and in the agricultural sector.

A number of steps have been successfully taken to restructure parts of the UK business to reduce capacity in line with demand and reduce costs. Banking facilities are in place, which provide sufficient headroom to support the Group's trading and development plans. The revolving credit elements of these facilities are repayable in 2014 and 2015. Short-term overdraft facilities are renewable on an annual basis.

Where this renewal period falls within 12 months, no matters have been drawn to the attention of the Directors to suggest that renewal may not be forthcoming on acceptable terms.

Going Concern

The Group's projections, taking account of the risks outlined above, show that the Group should be able to operate comfortably within its current banking facilities. As a result, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Strategy

Our current strategy is set out in our 2012 Annual Report and, during the period, further strategic investments in agricultural films, food packaging, and recycling have been approved in support of this strategy.

Outlook

The second half looks challenging with increases in raw material prices but demand is beginning to look less uncertain. The hot dry weather experienced in July may reduce demand for silage products in the second half but we remain confident of delivering acceptable results.

OPERATING REVIEW

Mainland Europe

A very strong performance from Europe as operating profits increased from £8.4 million to £9.6 million as the business benefitted from additional capacity installed in 2012. A more favourable exchange rate conversion contributed £0.4 million.

Total volume sales from our three European sites increased by 7% as volume of silage products increased due to additional capacity installed in mid 2012. Sales of our advanced silage products were up by nearly 50% and now account for over 15% of our total silage sales.

In Quarter 1 we completed the installation of additional extrusion and conversion machinery at Roeselare for thinner products. Volumes of these new products were however disappointing as the slow down in the building market reduced the demand for insulation materials.

Sales from our plant in Holland increased despite a 15% reduction in demand from the polymer industry reflecting difficult markets for the European polymer industry. A replacement printing press for Hardenberg has been authorised and will be delivered in Quarter 4 of 2013.

Our latest multi-layer line for stretchwrap is now fully commissioned and following continued strong demand for our high quality products the Board has authorised another multi-layer line for delivery at the end of 2013.

Our strategy of investment and development of new products will enable the business to deliver good returns.

UK & Ireland

UK and Ireland profits increased from £5.8 million to £6.1 million despite a small reduction in sales volumes and higher energy costs of £0.7 million. The UK benefitted from operational improvements at Ardeer and Leominster but experienced margin pressure in some sectors.

Sales of industrial stretchwrap were lower following the reduction in available cast capacity at the Bridgwater plant in the second half of 2012 as cast stretchwrap product is increasingly imported from the Middle East and Far East. Demand for our thinner prestretched WrapsmartUltra product continues to grow.

Sales of silage stretchwrap were in line with 2012 despite a difficult start to the season. The hot dry weather in July may impact sales volume in the second half.

Good operational improvements were made at Leominster which has resulted in increased production and lower scrap rates.

The first quarter saw sluggish demand in plain film operations that service the food industry and shrink volumes were adversely impacted by the poor Easter weather. Sales to the soft drinks industry have picked up in July.

The Flexfilm acquisition contributed in line with expectations in a quiet market with staff and customers responding well to the change of ownership.

A new line to increase co-extrusion capacity and produce thinner films will be delivered and installed at Bromborough in the third quarter. A high output shrink co-extrusion line has been ordered for delivery at the end of the year to replace a number of older lines.

Sales of refuse sacks were slightly ahead of 2012 with growth in retail and janitorial sectors replacing reduced demand from the UK public sector. Margin pressure intensified in the healthcare and retail sectors.

Construction volumes were marginally ahead in what remains a challenging sector and our specification sales saw strong growth.

Our industrial activities continued to improve despite flat markets due to operational improvements at our Ardeer site with scrap and costs reduced. Investment in extrusion and conversion machinery should lead to further improvements.

Construction and peat markets were both adversely affected by the poor weather but animal feed volumes were strong for the same reason.

Sales of silage sheet increased as we grew sales outside the UK.

Volumes in our consumer markets were similar to 2012 but margin pressure remained intense. Our plant in China increased volumes but suffered margin reduction in sales to the UK retail and healthcare sectors.

In Recycling our new washing plant at Rhymney which was installed in 2012 has yet to achieve its targeted outputs and some additional equipment delivered in August should ensure this level is achieved in the final quarter. New equipment at Heanor to remove paper contamination from distribution transit waste plastic was installed at the end of the period. Obtaining good quality waste scrap remains a challenge.

The UK business continues to suffer from higher energy costs but should see improvements from a pick up in demand and new investment.

North America

North America recorded a significant increase in operating profits despite a 9% reduction in sales volumes as profits in 2012 were hit by lower production and higher operating costs caused by power outages.

Total sales at 5,000 tonnes are 9% below 2012 due to the very late winter depressing demand in both the agricultural and horticultural markets.

Operating profits are however significantly ahead due to the elimination of power outages and reduced scrap and operating costs.

The second half should see some recovery of sales but the final quarter may be affected by the removal of the largest extrusion line to make way for the new replacement wide line which should become operational in quarter 1 of 2014.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The interim report is the responsibility of, and has been approved by, the directors of British Polythene Industries PLC.

The directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the board

By order of the board

John Langlands David Harris

Chief Executive Finance Director

British Polythene Industries PLC

Condensed Consolidated Income Statement

For the six months ended 30 June 2013

*Refer to Note 12 for reconciliation between the published Annual Report and Interim Statements 2012 and restated 2012 financial information to reflect the implementation of IAS19R

British Polythene Industries PLC

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2013

British Polythene Industries PLC

Condensed Consolidated Balance Sheet

At 30 June 2013

British Polythene Industries PLC

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2013

British Polythene Industries PLC

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2013

1 Refer to note 14 for breakdown of other reserves.

2 As at 31 December 2012 the holding company retained earnings under UK GAAP amounted to £39.3m (2011: £39.5m) and are not currently affected by movements in retirement benefit obligations.

3 Refer to note 15 for breakdown of non-controlling interest

British Polythene Industries PLC

Condensed Consolidated Statement of Changes in Equity (continued)

For the period ended 30 June 2013

British Polythene Industries PLC

Condensed Consolidated Statement of Changes in Equity (continued)

For the period ended 30 June 2013

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

1. Basis of preparation and accounting policies

British Polythene Industries PLC (the "Company") is a company domiciled and incorporated in the United Kingdom. These interim financial statements ("interim statements") represent the condensed consolidated financial information of the company and its subsidiaries (together referred to as the "Group") for the six months ended 30 June 2013. They have been prepared in accordance with the Disclosure and Transparency rules of the UK's Financial Services Authority and the requirements of IAS 34 'Interim Financial Reporting' as adopted by the EU.

The interim statements were authorised for issue by the Directors on 23 August 2013.

The interim statements do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and do not include all of the information and disclosures required for full annual financial statements. They should be read in conjunction with the Annual Report 2012 which is available on request from the Company's registered office, or from the Company website; www.bpipoly.com.

The comparative figures for the financial year ended 31 December 2012 are not the Company's statutory accounts for that financial year. The statutory accounts for the year ended 31 December 2012, which were prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The interim statements for the current and previous period are unaudited. This statement has not been reviewed by the Company's auditor.

The interim statements are prepared on the historical cost basis except for derivative financial instruments and the assets of the defined benefit pension scheme which are stated at their fair value and the liabilities of the defined benefit pension scheme which are measured by the projected unit credit method.

The interim statements have been prepared on a going concern basis. The reasons for this are outlined in the Operating Review.

The accounting policies applied by the Group in these interim statements are the same as those applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2012 with the exception that IAS19 Revised (IAS19R) has been adopted since 1 January 2013. An outline of the amendments as a result of IAS19R were detailed in the Group accounts as at 31 December 2012 and a reconciliation between the Annual Report 2012 and the revised financial statements is included within Note 12 to these interim statements.

With the exception of above, although the Group has adopted a number of new interpretations and amendments to existing standards in the period, the application of these has not had any impact on the net assets or results of the Group.

The preparation of the interim statements requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There has been no change in the estimates and judgements applied in the 2012 Annual Report.

2. Seasonality of operations

Management do not consider the business to be highly seasonal. However, revenues in some sectors are subject to seasonal fluctuations. Sales to the agricultural sector generally peak in the first half of the year due to seasonal weather conditions.

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

3. Segment reporting

The Group has three reportable segments; UK and Ireland, Mainland Europe and North America.

UK & Ireland includes all of the UK manufacturing and merchanting activities along with the Irish sales office which distributes predominantly UK manufactured products. It also includes the manufacturing operation in China from which most of the output is exported for sale by the Group in the UK. Mainland Europe comprises the manufacturing and merchanting activities located in Belgium, the Netherlands and France. North America comprises the manufacturing business in Canada with sales throughout North America.

The accounting policies of the reporting segments are the same as those described in Note 1. Inter-segment pricing is determined on an arms length basis.

Segment profit

An analysis of the Group's revenue and results by operating segment for the periods is presented below.

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

3. Segment reporting (continued)

Segment assets

The Group's assets are analysed by operating segment as follows:

* The measure of non-current assets used for segmental reporting comprises goodwill, other intangible assets, investments and property, plant and equipment. It excludes deferred tax assets and retirement benefit assets.

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

4. Net retirement benefit financing

5. Tax

Corporation tax for the interim period is charged at 28% (June 2012: 27%), representing the estimated annual effective tax rate for the full financial year.

A reduction in the rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012. The deferred tax liability at 30 June 2013 has therefore been calculated based on the rate of 23% substantively enacted at the balance sheet date.

The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015. Substantive enactment of the rate of 21% with effect from 1 April 2014 took place on 17 July 2013, subsequent to the half year end. This will result in a deferred tax charge of £0.5 million once enacted.

Tax on items taken directly to equity relates to tax on the defined benefit pension schemes.

6. Dividend

The proposed interim dividend of 4.50p (2012: 4.20p) per share will be paid on 15 November 2013 to shareholders on the register at close of business on 18 October 2013.

The interim dividend was approved by the Board on 23 August 2013 and has not been included as a liability as at 30 June 2013.

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

7. Earnings per ordinary share

Adjusted earnings per share is stated before net retirement benefit financing and prior year tax items. 

8. Goodwill

On 30 April 2013 the Group acquired 100% of the share capital of Flexfilm Group for a cash consideration of £5.5 million, subject to an adjustment for net assets.

The pro forma consolidated results of the Group, as if the acquisition of Flexfilm Group had been at the beginning of the period, would include the revenue from continuing operations of £286.7 million (compared with reported Group revenue of £282.2 million) and profit after tax of £10.3 million (compared to reported profit after tax of £10.1 million).

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

8. Goodwill (continued)

In preparing the pro forma results, revenue and costs have been included as if the Flexfilm Group was acquired on 1 January 2013. This information is not necessarily indicative of the results of the combined Group that would have occurred had the purchase actually been made at the beginning of the period presented, or indicative of the future results of the Group.

9. Other intangible assets

10. Property, Plant and Equipment

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

10. Property, Plant and Equipment (continued)

Capital commitments were as follows:

11. Bank and other borrowings

12. Retirement and employee benefit obligations

British Polythene Industries PLC

Notes to the Condensed Consolidated Financial Statements

12. Retirement and employee benefit obligations (continued)

The movements in the British Polythene defined benefit pension scheme during the period are as follows: