1st Jun 2005 07:03
API Group PLC01 June 2005 API GROUP PLC INTERIM STATEMENT SIX MONTHS ENDED 31 MARCH 2005 1 June 2005 Highlights • Operating profit before goodwill amortisation and exceptional items improved to £0.1m (£0.6m loss) on sales lower at £65.2m (£82.2m) following disposals of loss-making and non-core businesses • Metallised Paper and Converted Products divisions sold during the period for cash consideration of up to £12.6m, £9.0m of which was received in the period • Operating profit from continuing operations, before goodwill amortisation and exceptional items, increased to £1.4m (£1.2m) on sales virtually unchanged at £52.6m (£52.9m) • Loss per share before goodwill amortisation and exceptional items of 3.3p (6.5p loss) • Balance sheet strengthened with net debt reduced to £6.4m, representing gearing of 21% (26% at financial year end) • Group now focused solely on the manufacture of foils and laminates • Full year results will benefit from seasonally stronger second half Commenting on the results, Chief Executive David Walton said: "We have successfully re-focused API on its profitable foils and laminatesactivities. We have strong positions in attractive markets, a sound financialbase and opportunities for further improvement. The results for the year willbenefit from the seasonally stronger second half." Enquiries:API Group plc 020 7653 3300 David Walton, Chief ExecutiveFinancial Dynamics 020 7831 3113 Tim Spratt/Caroline Long As a manufacturer of specialised packaging and security products for thetobacco, drinks, food, luxury and consumer goods sectors, the Group in recentyears has faced considerable challenges. Nevertheless, it has successfullyrepositioned itself as a focused provider of reflective-surfaced packagingmaterials for premium branded goods. Earlier this year, we completed thisprocess with the disposal of the remaining businesses in the Converted Productsdivision for cash consideration of up to £12.2m, which followed the sale of theheavily loss-making Metallised Paper division in December 2004 for £0.4m incash. In January 2005, the Group received an approach from Illinois Tool Works, Inc.("ITW"), a large US-based industrial conglomerate. This led to an announcementon 11 February that the Board was in discussions regarding the possibility of apublic offer being made to acquire the Group. Detailed discussions were heldwith ITW, but those discussions were terminated on 13 April 2005 and a period ofuncertainty was put behind us. API today has strong positions in attractivemarkets and the Board is confident of the Group's ability to deliver anappropriate return to shareholders as an independent entity. The trading results for the six months ended 31 March 2005 represent animprovement over the same period in the previous year, although this is largelyattributable to the disposal of loss-making and underperforming businesses. Thecontinuing operations performed strongly in the first quarter, but tradingconditions were more challenging in the second quarter. There was a markedslowdown in certain markets, which led to a reduction in demand, and the US andEuropean Foils businesses were both affected by the uncertainty caused by theITW approach. Following the disposal of the Metallised Paper and Converted Products businessesand the termination of offer discussions, the Group is now committed to thedevelopment of its profitable foils and laminates business, where there is stillscope for further improvement. The Board is conducting a review of the Group'sremaining businesses and we will be making changes later this year that willboth improve effectiveness and result in substantial overhead reductions. Review of Results For the six months ended 31 March 2005, the Group reported a loss beforeinterest and taxation of £11.7m (£19.7m loss) comprising: • operating profit before goodwill amortisation and exceptional items of £0.1m (£0.6m loss) • goodwill amortisation of £0.2m (£0.2m) • exceptional items of £0.2m (£4.3m) • loss on disposal of discontinued operations of £11.4m (£14.5m), comprising £7.8m loss on sale of assets and a transfer between reserves of £3.6m The operating result before goodwill amortisation and exceptional items for thesix months ended 31 March 2005 improved from a £0.6m loss to a profit of £0.1m.The improvement was principally due to the disposal of the Metallised Paper andConverted Products divisions which reported operating losses of £1.3m (£1.8mloss) for the period. Operating profit from continuing operations, beforegoodwill amortisation and exceptional items, improved to £1.4m (£1.2m) on salesvirtually unchanged at £52.6m, reflecting trading conditions in the period as awhole. The exceptional item of £0.2m related to the costs incurred by the Groupin connection with the approach made by ITW. Sales in the UK from the Group's continuing businesses increased by 3% to £19.8m(£19.2m) and were virtually unchanged in Continental Europe at £13.9m. A strongperformance from Laminates was partially offset by a reduction in sales in theEuropean Foils business. Sales in the US from the Group's continuing businessesdecreased by 12% to £10.8m (£12.3m) but much of this decrease was attributableto significant one-off contracts for the Laminates business in the US in theprior year. Underlying sales in the US Foils business increased by 2%, but the continuingweakness of the US dollar adversely affected the result and reported salesdeclined by 4%. Sales to the Rest of the World increased 4% to £8.1m (£7.8m)principally due to increased exports to these markets from the UK. In contrast,sales in the Chinese Foils business decreased by 23% compared with the previousyear. Although 4% of the deterioration was attributable to the continuedweakness of the Chinese Renminbi, the main cause was the adverse effect of therestructuring of the domestic Chinese tobacco industry. The Group will receive total consideration of up to £12.6m on the disposal ofMetallised Paper and Converted Products. Of this, £9.0m had been received by 31March 2005, with the balance attributable to a combination of deferred andcontingent consideration. A receivable balance of £2.4m has been included withindebtors at 31 March 2005, representing the proportion relating to deferredconsideration. No allowance had been made for any consideration that iscontingent on the future performance of the sold businesses. Loss per share before goodwill amortisation and exceptional items improved to3.3 pence (6.5 pence loss). The Board is not recommending the payment of aninterim dividend. Review of Operations Continuing Operations Operating profits before goodwill amortisation and exceptional items improvedslightly in Foils and Laminates to £1.4m (£1.2m) on sales of £52.6m (£52.9m). The US Foils business continues to focus on profit improvement and performedwell. Underlying sales increased and the return to profitability achievedtowards the end of the prior year was sustained, despite the market slowdown anduncertainty referred to above. Increases in raw materials costs weresuccessfully absorbed through more effective purchasing, reduced waste and priceincreases. Good progress was also made in reorganising the manufacturingcapabilities and the management team successfully pursued a sales strategy thatdelivered growth in a number of key accounts and product areas. In contrast, the European Foils business experienced challenging tradingconditions throughout the first half. Sales reduced in both the UK andContinental Europe offsetting the margin improvement initiatives that had beensuccessfully implemented and it has proven difficult to recover increased rawmaterial costs linked to increases in oil prices. In recent months, themanagement team has been strengthened and action is now underway to improvemanufacturing effectiveness and reduce the cost base. A number of important newproducts have also been launched and we remain optimistic of some improvement inthe second half. In China, restructuring of the domestic tobacco industry resulted in asignificant reduction in demand for holographic foil and pressure on margins.Although this was partially offset by growth in other product areas, underlyingsales were down by 23% compared with the prior year. Demand is expected toimprove, but the extent and timing of the recovery is currently uncertain. Inresponse, the management team has redoubled its efforts to position the businessas a provider of higher quality, premium products and we continue to progressmajor capital projects, such as the relocation of the business to a new facilityjust outside Shanghai. The Laminates business performed strongly again, with significant volumeincreases in the traditional drinks and health and beauty sectors and growth inthe new markets for media, microwave and other food packaging. During theperiod, we also successfully implemented Oracle, the Group's new ERP system. Inrecent years, productivity and factory output have been increased dramaticallyto support the sustained growth in demand for laminated board products and weare now evaluating the options for investment in additional laminating capacity. Discontinued Businesses The operating loss before goodwill amortisation and exceptional items of thediscontinued businesses was £1.3m (£1.8m) on sales of £12.6m (£29.3m). Theperformance of both the Metallised Paper and Converted Products divisionsdeteriorated during the periods immediately preceding their sale in December2004 and January 2005 respectively. Finance Cash Flow The Group's net cash inflow from operating activities in the period was £0.8m(£1.7m outflow). Working capital increased by £1.5m (£3.6m), principally due toan increase in stocks of finished goods, although £1.8m (£3.2m) was attributableto increases that occurred in the discontinued businesses prior to theirdisposal. Capital expenditure of £2.4m (£1.6m) was slightly below depreciation of £2.5m(£3.6m). Expenditure was in line with expected levels and included £1.3m onimplementation of the Group's new Oracle-based ERP system. Returns on investment and servicing of finance of £1.4m (£1.0m) included bankinterest and minority dividends. The Group paid interest of £1.0m (£0.6m)compared to the interest charge of £0.8m (£0.8m). The interest charge remains inline with the prior year as the effect of the lower level of average borrowingshas been offset by an increase in bank base lending rates. Borrowings Net borrowings were reduced by £4.1m during the period to £6.4m and representedgearing of 21% at 31 March 2005, compared with 26% at 30 September 2004. TheGroup benefited from receipts of £9.0m from the sale of businesses. However,this was offset by transaction costs of £0.9m, increased cash requirements ofthe discontinued businesses during the period immediately prior to sale and thenormal seasonal increase in working capital in the continuing businesses. TheGroup's net debt position is expected to further improve in the seasonallystronger second half. Following the sale of the Metallised Paper and Converted Products businessescommitted UK bank facilities were reduced by £4.0m to £25.0m, resulting inundrawn UK facilities of £12.2m at 31 March 2005. Shareholders' funds at 31 March 2005 were £30.0m. Net tangible assets per sharewere equivalent to 89p per share. IFRS All listed companies in the European Union will adopt International FinancialReporting Standards (IFRS) for accounting periods beginning on or after 1January 2005. The adoption of IFRS will first be reflected in the Group'sinterim statement for the six months ending 31 March 2006 with appropriaterestatement of comparative figures. The Group has implementation plans in placeto ensure a smooth transition to IFRS. Although the adoption of IFRS willimpact the reported results the underlying performance of the business will beunaffected. People David Hudd, the Group's Non-Executive Chairman and the Chairman of the AuditCommittee, will retire by rotation at the next Annual General Meeting to be heldin February 2006 and has indicated that he will not be seeking re-election. TheBoard have nominated Richard Wright, who joined the Board in September 2001 andis currently the Senior Independent Director and also Chairman of theRemuneration Committee, to the role of Non-Executive Chairman following David'sretirement. The Nomination Committee will shortly commence a search for anotherindependent Non-Executive director, who would also be expected to assume theresponsibilities of Chairman of the Audit Committee. The Board would like to take this opportunity to sincerely thank David for thesignificant contribution that he has made to the development of the Group sincehe joined the Board as a Director in July 1998, and for the leadership that hehas provided during challenging times since he assumed the role of Non-ExecutiveChairman in September 2001. Outlook The performance of the US Foils business continues to improve steadily and theEuropean holographic foils and Laminates businesses continue to perform well.Actions taken to address the underperformance in the European Foils businesses,in challenging markets, are beginning to deliver benefits. We remain optimisticof some recovery in demand for holographic foils in China during the second halfof the year. The Group is now repositioned as a focused supplier of reflective-surfacedpackaging materials for premium branded goods in the US, Europe and Far East.The Board believes that the Group has strong positions in attractive markets andremains confident of the Group's ability to deliver an appropriate return toshareholders. For and on behalf of API Group plc David Hudd David WaltonNon-Executive Chairman Group Chief Executive 1 June 2005 Group Profit and Loss Accountfor the six months ended 31 March 2005 6 months to 31 6 months to 31 12 months to 30 March 2005 March 2004 September 2004 £'000 £'000 £'000TurnoverContinuing operations 52,579 52,930 111,831Discontinued operations 12,638 29,262 57,714 65,217 82,192 169,545 Operating profit/(loss) Before goodwill amortisation andexceptional itemsContinuing operations 1,354 1,196 4,196Discontinued operations (1,288) (1,820) (2,778) 66 (624) 1,418Goodwill amortisationContinuing operations (204) (204) (406)Discontinued operations - (21) (44) (204) (225) (450)After goodwill amortisation but beforeexceptional itemsContinuing operations 1,150 992 3,790Discontinued operations (1,288) (1,841) (2,822) (138) (849) 968Exceptional itemsContinuing operations (158) (837) (1,657)Discontinued operations - (3,503) (6,904) (158) (4,340) (8,561)Group operating profit/(loss)Continuing operations 992 155 2,133Discontinued operations (1,288) (5,344) (9,726) (296) (5,189) (7,593) Share of operating loss in discontinued (55) - (91)joint ventureTotal operating loss: group and share (351) (5,189) (7,684)of joint venture Loss on disposal of discontinuedoperationsBefore goodwill (7,774) (100) (100)Goodwill previously charged to reserves (3,555) (14,365) (14,365) (11,329) (14,465) (14,465) Profit/(loss) on ordinary activitiesbefore interest and taxationContinuing operations 992 155 2,133Discontinued operations (12,672) (19,809) (24,282) (11,680) (19,654) (22,149) Net interest expense (787) (787) (1,696) Loss on ordinary activities before (12,467) (20,441) (23,845)taxationTaxation (38) (375) (559) Loss on ordinary activities after (12,505) (20,816) (24,404)taxationProfit attributable to equity minority (267) (387) (982)interests Loss attributable to ordinary (12,772) (21,203) (25,386)shareholdersOrdinary dividends - - - Balance transferred from reserves (12,772) (21,203) (25,386) pence pence pence Basic and fully diluted loss per share (38.4) (63.7) (76.3)Adjusted loss per share before (3.3) (6.5) (5.7)exceptional items and goodwillamortisation Group Balance Sheetat 31 March 2005 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000Fixed assetsIntangible assets 5,313 5,742 5,516Tangible assets 28,210 43,141 38,579Investment in joint venture - 186 490 33,523 49,069 44,585Current assetsStocks 13,372 17,067 16,957Debtors 21,597 32,251 34,918Cash at bank and in hand 7,839 11,996 11,719 42,808 61,314 63,594 Creditors - amounts falling due within one year (28,169) (35,958) (41,251) Net current assets 14,639 25,356 22,343 Total assets less current liabilities 48,162 74,425 66,928 Creditors - amounts falling due after more than (10,908) (22,914) (19,712) one yearProvisions for liabilities and charges (1,429) (1,657) (1,499)Accruals and deferred income (228) (418) (323) 35,597 49,436 45,394 Share capital and reservesCalled up share capital 8,494 8,463 8,463Share premium account 51 - -Revaluation reserve 1,866 2,892 2,886Capital redemption reserve 549 549 549Merger reserve 17,920 14,365 14,365ESOP reserve (2,432) (2,513) (2,513)Profit and loss account 3,587 19,982 16,135Equity shareholders' funds 30,035 43,738 39,885Equity minority interests 5,562 5,698 5,509 35,597 49,436 45,394 Group Cash Flow Statementfor the six months ended 31 March 2005 6 months to 6 months to 12 months to 30 31 March 2005 31 March 2004 September 2004 £'000 £'000 £'000Reconciliation of operating loss to net cash flowfrom operating activitiesGroup operating loss (296) (5,189) (7,593)Amortisation and depreciation less government grants 2,591 3,753 6,852Impairment charge against tangible fixed assets - 3,405 6,665Profit on disposal of tangible fixed assets other (25) (4) (1)than land and buildingsIncrease in stocks (2,470) (476) (287)Decrease/(increase) in debtors 4,930 722 (2,000)(Decrease)/increase in creditors (3,980) (3,787) 490Decrease in provisions - (92) (90)Net cash inflow/(outflow) from operating activities 750 (1,668) 4,036 The cash outflow in respect of working capital movements in the discontinued businesses prior to disposal was£1,818,000 (2004: £3,202,000) Cash flow statement Net cash inflow/(outflow) from operating activities 750 (1,668) 4,036Returns on investments and servicing of finance (1,446) (1,030) (2,127)Taxation (400) (190) (662)Capital expenditure and financial investment (2,315) (1,565) (3,667)Acquisitions and disposals 7,701 2,171 2,295Net cash inflow/(outflow) before management of liquid 4,290 (2,282) (125)resources and financingManagement of liquid resources - 1,351 1,335Financing (7,874) 4,099 1,575(Decrease)/increase in cash in the period (3,584) 3,168 2,785Exchange movement (296) (568) (462)Balance sheet movement in net cash (3,880) 2,600 2,323 Reconciliation of net cash flow to movement in netdebt(Decrease)/increase in cash (3,584) 3,168 2,785Decrease in short term investments - (1,351) (1,335)Increase in short term borrowing (763) (4,099) (1,775)Decrease in long term borrowing 8,800 - 200Change in net debt resulting from cash flows 4,453 (2,282) (125)Exchange movement (308) (634) (552)Other non-cash movements (18) - (37)Movement in net debt 4,127 (2,916) (714)Net debt at start of period (10,535) (9,821) (9,821)Net debt at end of period (6,408) (12,737) (10,535) Other Statements 6 months to31 6 months to 12 months to 30 March 2005 31 March 2004 September 2004 £'000 £'000 £'000 Statement of total recognised gains and losses Loss for the period excluding share of joint venture (12,717) (21,203) (25,295)lossesShare of joint venture losses for the period (55) - (91) Loss attributable to shareholders (12,772) (21,203) (25,386) Currency translation differences on foreign currency (796) (1,833) (1,503)net investments Total recognised gains and losses relating to the (13,568) (23,036) (26,889)period Prior year adjustment - (435) (435) Total gains and losses recognised since the previous (13,568) (23,471) (27,324)annual report and accounts 6 months to 6 months to 12 months to 30 31 March 2005 31 March September 2004 2004 £'000 £'000 £'000Reconciliation of movements in shareholders' funds Loss attributable to shareholders (12,772) (21,203) (25,386)New shares issued net of costs 82 - -Exercise of share options to acquire shares held by 81 - -the ESOPGoodwill reinstated on sale of subsidiaries 3,555 14,365 14,365Currency translation differences on foreign currencynet investments (796) (1,833) (1,503) Net deduction to shareholders' funds (9,850) (8,671) (12,524) Opening shareholders' funds (as previously stated) 39,885 52,844 52,844Reclassification of ESOP shares - (435) (435) Opening shareholders' funds (as restated) 39,885 52,409 52,409 Closing shareholders' funds 30,035 43,738 39,885 Notes Segmental Analysis 6 months to31 6 months to 31 12 months to 30 March 2005 March September 2004 2004 £'000 £'000 £'000Analysis of turnover by destination United Kingdom Continuing operations 19,833 19,173 42,386Discontinued operations 6,007 13,162 24,954 25,840 32,335 67,340Continental EuropeContinuing operations 13,899 13,696 27,937Discontinued operations 5,474 14,095 29,185 19,373 27,791 57,122AmericasContinuing operations 10,783 12,267 25,266Discontinued operations 66 141 405 10,849 12,408 25,671Rest of WorldContinuing operations 8,064 7,794 16,242Discontinued operations 1,091 1,864 3,170 9,155 9,658 19,412 65,217 82,192 169,545 Analysis of turnover by origin United KingdomContinuing operations 37,551 36,354 76,905Discontinued operations 12,631 29,262 57,714 50,182 65,616 134,619 Continental Europe - continuing operations 507 560 1,008 Americas - continuing operations 10,309 10,438 22,206Rest of World Continuing operations 4,212 5,578 11,712Discontinued operations 7 - - 4,219 5,578 11,712 65,217 82,192 169,545 Analysis of loss before interest and tax by origin United KingdomContinuing operations 732 589 2,340Discontinued operations (1,288) (1,820) (2,778) (556) (1,231) (438) Continental Europe - continuing operations 25 92 166 Americas - continuing operations (22) (597) (558)Rest of World - continuing operations 619 1,112 2,248 66 (624) 1,418 Share of losses in discontinued joint venture (55) - (91) Exceptional items and goodwill amortisation (11,691) (19,030) (23,476) (11,680) (19,654) (22,149) Notes Segmental Analysis (continued) 6 months to31 6 months to 31 12 months to 30 March 2005 March September 2004 2004 £'000 £'000 £'000Analysis of turnover by activityContinuing operationsFoils and Laminates 52,579 52,930 111,831Discontinued operationsMetallised Paper 3,340 10,771 22,959Converted Products 9,298 18,491 34,755 12,638 29,262 57,714 65,217 82,192 169,545 Analysis of loss before interest and tax byactivity Continuing operationsFoils and Laminates 2,412 2,460 6,416Central Costs (1,058) (1,264) (2,220) 1,354 1,196 4,196Discontinued operationsMetallised Paper (767) (1,675) (2,679)Converted Products (521) (145) (99) (1,288) (1,820) (2,778) 66 (624) 1,418Share of losses in discontinued joint venture (55) - (91)Exceptional items and goodwill amortisation (11,691) (19,030) (23,476) (11,680) (19,654) (22,149) Operating Loss 6 months to31 6 months to 12 months to 30 March 2005 31 March September 2004 2004 £'000 £'000 £'000 Exceptional items charged against operating losscomprise Professional expenses incurred in respect of takeover 158 - -approachRestructuring of operating businesses - 935 1,896Impairment of tangible assets - 3,405 6,665 158 4,340 8,561 Notes Earnings per share 6 months to 6 months to 12 months to 31 March 31 March 30 September 2005 2004 2004 pence £'000 pence £'000 pence £'000Earnings per share are basedon Loss attributable to (38.4) (12,772) (63.7) (21,203) (76.3) (25,386)shareholdersAdd loss on disposal of 34.0 11,329 43.5 14,465 43.5 14,465discontinued operationsAdd exceptional items 0.5 158 13.0 4,340 25.7 8,561Add goodwill amortisation 0.6 204 0.7 225 1.4 450 Adjusted loss attributable (3.3) (1,081) (6.5) (2,173) (5.7) (1,910)to shareholders Basic and diluted weighted 33,273,392 33,262,578 33,262,578average number of ordinaryshares The weighted average number of shares excludes the shares owned by the API Groupplc No.2 Employee Benefit Trust. Basis of Preparation The interim statements have been prepared in accordance with the accountingpolicies set out in the financial statements for the year ended 30 September2004. Publication of Non-Statutory Accounts The financial information contained in this interim statement is unaudited anddoes not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The financial information for the full preceding year isbased on the statutory accounts for the financial year ended 30 September 2004.Those accounts, upon which the auditors issued an unqualified opinion, have beendelivered to the Registrar of Companies. Interim Statement The interim statement is being mailed to shareholders on 8 June 2005 and will beavailable at the company's registered office, Second Avenue, Poynton IndustrialEstate, Poynton, Stockport, Cheshire, SK12 1ND. Independent Review Report To API Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2005, which comprises Group Profit and LossAccount, Group Balance Sheet, Group Cash Flow Statement, Statement of TotalRecognised Gains and Losses, Reconciliation of Movements in Shareholders' Fundsand the related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein is theresponsibility of, and has been approved by, the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in the preceding annual accounts except where any changes,and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and based thereon, assessingwhether the accounting policies and presentation have been consistently applied,unless otherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with UnitedKingdom Auditing Standards and therefore provides a lower level of assurancethan an audit. Accordingly we do not express an audit opinion on the financialinformation. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2005. Ernst & Young LLPManchester1 June 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Abrdn Property