29th Nov 2007 07:00
Scapa Group PLC29 November 2007 29 November 2007 Scapa Group plcInterim Results Scapa Group plc, a global supplier of technical adhesive tapes, today announcedits Interim Results for the six months ended 30 September 2007. Highlights • Good growth in all regions - underlying* sales up 6% • Trading profit* of £4.8m - 70% up on an underlying basis; 26% up on last year's reported result • Return on Sales of 5.6% - 60% up on an underlying basis • Significant reduction in financing costs due to repayment of Group debt following strategic disposals in 2006/07 • New funding agreement with Trustees on UK pension funds deficit contributions - payments consistent with prior agreement (£3.4m p.a.) • Pension deficit now £10.3m lower at £48.0m Commenting on the results, Chief Executive Calvin O'Connor said: "The ongoing improvement in trading performance reflects the combination of goodrevenue growth in all three regions together with the full year impact of costreduction programmes put into place in the last two years. The twin benefits ofimproving operating cash flows and a balanced outcome on pension contributionsgives the business a robust platform on which to invest to further improveprofitability. "Whilst the market conditions have softened somewhat in North America, and oilprices remain high, the Group's operational performance is still expected tocontinue to improve on prior year due to internal business improvementinitiatives in place." For further information: Calvin O'Connor Chief Executive Tel: 0161 301 7430Brian Tenner Finance Director Tel: 0161 301 7430Mark Stirzaker Company Secretary Tel: 0161 301 7430 * Figures shown here and elsewhere as 'underlying' adjust for the impact of disposals and currency movements. 'Trading profit' is operating profit before exceptional costs. Report of the Directors The first half of the year showed a continued improvement in the businessdespite the weaker US Dollar and continued upward pressure on raw materialcosts, particularly crude oil derivatives. Turnover of £85.2m was £12.7m lowerthan the previous year. However, after eliminating the impact of the prior yeardisposals (£14.9m) and adverse currency movements (£2.9m), underlying salesincreased by £5.1m (6.4%). This increase was due to growth in Europe (7%),North America (5%) and Asia (14%). Approximately two-thirds of this growth wasdue to sales volumes, with the balance being sales price and mix. Operating profit before exceptional costs (trading profit) was £4.8m compared to£3.8m in the first half of last year. On an underlying basis adjusting fordisposals (£0.8m) and currency (£0.2m), trading profit showed a year-on-yearincrease of £2.0m (70%). An exceptional charge of £0.3m was made in the periodto cover the outstanding deferred consideration on the disposal in 2006 of ourloss-making Irish business (this has now been put into liquidation by thebuyer). The prior year result included reorganisation costs of £0.5m and acredit to the asbestos litigation reserve of £0.5m (netting to exceptional costsof nil). Financing charges of £0.9m (2006/07: £1.7m) in the current period weresignificantly improved following last year's strategic disposals and theresulting repayment of Group debt. Profit before tax was £3.6m (2006/07:£2.1m). Profit after tax was £1.5m (2006/07: Nil) with earnings per share of1.0p (2006/07: Nil pence). As last year, no interim dividend is proposed. Review of Operations Europe Sales in Europe of £48.4m showed an underlying increase of 7% against the firsthalf of 2006/07 when adjusted for the impact of prior year business disposalsand foreign exchange movements, with all market sectors outperforming the prioryear. Improvements in customer service continued throughout the period, withon-time delivery performance rising from an average of 89% in 2006/07 to 96% inSeptember 2007. Improving customer service has been a key underpin to revenuegrowth. The trading profit of £2.0m (2006/07: £1.3m) reflects a fourfoldimprovement over the prior year when compared to the underlying profit whichexcludes business disposals (2006/07: £0.5m). This significant improvementreflected the combination of higher turnover, operational gearing of ourproduction facilities and full benefits from the previous major cost reductionprogrammes. The turnaround in the performance of the UK business in the lasttwo years, from a negative return on sales of 9.7% in 2005/06 to a positivereturn of 2.8% in the current period is particularly strong. The return onsales for the European business as a whole was 4.1% (2006/07: 1.1%) North America North American sales of £32.8m (2006/07: £33.6m) were negatively impacted by theeffects of the weakening Dollar, and on an underlying basis were 5% ahead of theprior year. Trading profit of £3.9m for the region was in line with prior yeardespite the £0.2m impact of adverse foreign exchange movements. Growth was seenin both the industrial and medical sectors, whilst market demand in theautomotive and building and construction sectors was generally a little subdued. The return on sales was maintained at its high historical level at 11.9% (2006/07: 11.5%). Asia Asia's sales, at £4.0m, were £0.3m higher than the 2006/07 half year despite thedisposal of the Megolon compounding products in October 2006. This representsgrowth of £0.5m (14%) when compared to the underlying result in the previoushalf year with strong sales into the electronics and regional infrastructuremarkets. Trading profit increased to £0.3m (2006/07: £0.1m loss) largely due tosales growth but also reflecting the organisational and management changes putin place at this time last year. Corporate Corporate costs, at £1.4m, were slightly above the prior year due to the netimpact of a number of one-off pension costs, such as additional adviserexpenditure resulting from the negotiations for the new future fundingagreements. These costs were offset in part by a one-off pension curtailmentcredit resulting from the closure to future accrual of the last two open UKpension schemes. These closures, coming at the end of the half year, areexpected to benefit the current year results by £0.2m compared to the prioryear. Profit before tax and taxation charge Following the repayment of the Group's borrowings in the second half of lastyear (from the proceeds of business disposals) net interest income totalled£0.3m (2006/07: £0.6m charge). Other finance charges (discount on litigationprovision and IAS 19 finance cost) increased slightly to £1.2m (2006/07: £1.1m),giving a net finance charge of £0.9m (2006/07: £1.7m). The resulting profitbefore tax was £3.6m (2006/07: £2.1m). The tax charge of £2.1m reflects an improvement in the effective tax rate of theGroup from 62% in 2006/07 (or 100% in the first half of 2006/07) to 54% in thecurrent half year. The charge includes underlying tax payable of £0.9m anddeferred tax of £1.2m. The improvement in effective tax rate is largely due tothe combination of growth in UK operating profits (where tax losses areavailable and no deferred tax asset is recognised) and improvements to theGroup's internal capital/financing structure. The resulting earnings per share were 1.0p (nil pence in the first half of 2006/07). Cash flow Net cash generated from operating activities was £2.0m (2006/07: £1.6m). Tradingworking capital as at 30 September 2007 was higher than at 31 March 2007 as aresult of the increased activity (sales) levels. This resulted in a £0.4mtrading working capital cash outflow (2006/07: £0.9m). Spend against previouslyraised reorganisation provisions was £0.3m (2006/07: £0.4m) with additionaldeficit funding payments into the pension funds amounting to £2.3m (2006/07:£2.0m). Asbestos litigation defence spend reduced to £0.3m (2006/07: £0.4m),due to lower legal activity during the period. Capital investment of £0.7m(2006/07: £1.2m) in the first half of the year reflects a back end loadedexpenditure profile and thus the current underspend of £0.5m is a timingdifference that will reverse. The overall net cash position of £12.5m(excluding the remaining Waycross deposit of $10m) was £1.3m better than 31March 2007 (£11.2m). Pensions The IAS 19 pension deficit at 30 September 2007 was £48.0m (31 March 2007:£58.3m). The majority of this £10.3m improvement reflects current marketconditions, especially the trends in gilts (and hence discount rates) and equityperformance. During the period the Company made deficit payments to the variousUK funds of £2.3m (2006/07: £2.0m). The Company also completed its discussionswith Trustees concerning the future funding of the UK defined benefits schemes.The agreements reached were submitted to the Pensions Regulator during theperiod. Significant highlights of the agreements are:- i) closure of all funds to future benefit accrual (the two largerschemes from 1 October 2007, the smaller from 1 April 2007); and ii) future deficit funding of £3.4m per year (consistent with the lastthree years plus RPI). The Company continues to pay a S75 debt, triggered by the disposal of our Irishsubsidiary, of £0.7m per year up to, and including, 2009/10. 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 which wasmanufactured by a business sold to J M Voith AG in 1999. The downward trend inthe overall number of claims has continued from its peak of 34,000 in 2004 tojust over 19,000 claims at 30 September 2007. In June 2007 a jury in a trial in Middlesex County, New Jersey, returned averdict in respect of claims of asbestos exposure brought by five formerpapermill workers, two of whom are deceased, against Scapa Dryers Inc. Theverdict was in favour of the defence in respect of two of the plaintiffs, and averdict against in respect of the other plaintiffs amounting to US$823,050.Counsel for Scapa have advised the Board that they believe significant andmaterial error was committed by the court during the trial sufficient to providegrounds for appeal. Accordingly, an appeal has been lodged with the New JerseyCourt of Appeals. The Company's insurance cover counsel has advised that thereis sufficient liability insurance to satisfy the judgement in full if it is notreversed on appeal. In the USA no Scapa Group company, nor any of our insurance carriers, hasadmitted liability to date, nor made any payment to any plaintiff. Accordingly,our insurance cover remains intact and the Board will continue to defendvigorously the outstanding claims. The Board Brian Tenner was appointed to the Board as Finance Director on 14 June 2007.Keith Hopkins retired from the Board on 30 September 2007, having first beenappointed in January 2002, becoming Chairman on 31 March 2002. Keithsuccessfully stewarded the Group through a very difficult period in its historyand we wish him a long and healthy retirement. James Wallace was appointed tothe Board on 30 August 2007 and subsequently became Chairman on 30 September2007. The Company is currently in the process of strengthening the Board withthe appointment of a further Non-Executive Director. Prospects The major turnaround in the Group's fortunes is clearly demonstrated by theresults of the last 18 months. Momentum for change and growth continues in allof our businesses with improvement sought in every line of our profit and lossstatement. Market conditions remain firm in Europe and Asia but have softenedin North America following the much publicised sub prime mortgage problems andhigh oil prices. However, we expect the Group's operational performance tocontinue to improve on prior year due to internal business developmentinitiatives already in place. Consolidated Income StatementFor the half year ended 30 September 2007 (unaudited) Half year ended Half year ended Year ended 30 September 2007 30 September 2006 31 March 2007 note £m £m £m Turnover 2 85.2 97.9 184.3 Operating profit 2 4.5 3.8 15.7 Trading profit* 4.8 3.8 7.0Exceptional items and movements in exceptionalprovisions:- Business disposals 3 (0.3) - 11.9- Reorganisation costs and exceptional provision - (0.4) (1.3)movements- Movement in asbestos litigation costs provision - 0.5 0.9- Property, plant and equipment and goodwill impairment - - (2.9)- Other - (0.1) 0.1 Operating profit 2 4.5 3.8 15.7 Interest payable (0.1) (0.8) (1.2)Interest receivable 0.4 0.2 0.7 0.3 (0.6) (0.5)Discount on provisions (0.2) (0.2) (0.4)IAS 19 finance costs (1.0) (0.9) (1.9)Net finance costs (0.9) (1.7) (2.8) Profit on ordinary activities before taxation 3.6 2.1 12.9 Taxation on operating activities (2.1) (2.1) (2.6)Exceptional tax credit - - 3.0Taxation (charge)/credit 4 (2.1) (2.1) 0.4 Retained profit for the period 1.5 - 13.3 Weighted average number of shares 144.8 144.8 144.8 Basic and diluted earnings per share (p) 1.0 - 9.2 Consolidated Statement of Recognised Income and ExpenseFor the half year ended 30 September 2007 (unaudited) Half year ended Half year ended Year ended 30 September 2007 30 September 2006 31 March £m £m 2007 £m Retained profit for the period 1.5 - 13.3Exchange differences on translating foreign operations 0.3 (2.4) (5.2)Actuarial gains 8.4 - 3.1Total recognised income/(expense) for the period 10.2 (2.4) 11.2 * Operating profit before business disposals and exceptional costs Consolidated Balance SheetAs at 30 September 2007 (unaudited) Half year ended Half year ended Year ended 30 September 2007 30 September 2006 31 March 2007 note £m £m £m AssetsNon-current assetsGoodwill 9.4 10.4 9.8Property, plant and equipment 32.7 39.5 33.5Deferred tax asset 5.9 8.2 6.2 48.0 58.1 49.5 Current assetsAssets held for sale - 6.5 -Inventory 19.8 19.6 18.5Trade and other receivables 37.9 44.2 38.6Financial assets - derivative financial instruments 0.1 - -Current asset investments 4.9 5.4 5.1Current tax asset 0.1 - 0.1Cash and cash equivalents 8 14.0 1.7 12.5 76.8 77.4 74.8 LiabilitiesCurrent liabilitiesFinancial liabilities - Borrowings and other financial liabilities 8 (1.1) (14.3) (0.8)- Derivative financial instruments (0.1) - (0.1)Trade and other payables (29.8) (32.7) (29.0)Current tax liabilities - (0.6) (0.1)Provisions 5 (1.3) (1.1) (1.6) (32.3) (48.7) (31.6) Net current assets 44.5 28.7 43.2 Non-current liabilitiesFinancial liabilities- Borrowings and other financial liabilities 8 (0.4) - (0.5)Other non-current liabilities (1.2) (1.6) (2.0)Deferred tax liabilities (2.2) (5.1) (0.9)Other tax liabilities (3.1) (2.6) (3.2)Retirement benefit obligations (48.0) (62.2) (58.3)Provisions 5 (7.9) (9.5) (8.4) (62.8) (81.0) (73.3) Net assets 29.7 5.8 19.4 Shareholders' equityOrdinary shares 7.2 7.2 7.2Retained earnings 23.9 (2.6) 13.9Translation reserve (1.4) 1.2 (1.7)Total shareholders' equity 6 29.7 5.8 19.4 Consolidated Cash Flow StatementFor the half year ended 30 September 2007 (unaudited) Half year ended Half year ended Year ended 30 September 2007 30 September 2006 31 March 2007 note £m £m £m Cash flows from operating activities Net cash flow from operations 7 2.7 2.8 6.9 Cash generated from operations before reorganisation and 7 3.3 4.2 9.1movements in exceptional provisionsCash outflows from reorganisation and movements in 7 (0.6) (1.4) (2.2)exceptional provisionsNet cash flow from operations 2.7 2.8 6.9 Net interest received/(paid) 0.3 (0.5) (0.5)Income tax paid (1.0) (0.7) (1.3)Net cash generated from operating activities 2.0 1.6 5.1 Cash flows from investing activities Proceeds from business disposals - 0.6 21.2Purchase of property, plant and equipment (0.7) (1.2) (2.8)Proceeds from sale of property, plant and equipment - - 0.5Repayment of government grant - - (0.2)Net cash (used)/generated from investing activities (0.7) (0.6) 18.7 Net cash flow before refinancing activities 1.3 1.0 23.8 Cash flows from financing activities Repayment of borrowings (0.1) - (12.4)Net cash used in financing activities (0.1) - (12.4) Net increase in cash and cash equivalents and bank 1.2 1.0 11.4overdrafts Cash and cash equivalents and bank overdrafts at 12.0 0.9 0.9beginning of the yearExchange losses on cash and cash equivalents - (0.2) (0.3) Cash and cash equivalents and bank overdrafts at end of 13.2 1.7 12.0the period Notes 1. Basis of preparation This interim financial report has been prepared under the historical costaccounting convention and in accordance with the policies used in the Group'sfinancial statements for the year ended 31 March 2007. The IFRS interpretationsthat will be applicable as at 31 March 2008, including those that will beapplicable on an optional basis, are not yet known with certainty at the time ofpreparing this report. The financial information included in this interim financial report for the sixmonths ended 30 September 2007 does not constitute statutory accounts as definedin section 240 of the Companies Act 1985 and is unaudited. The comparativeinformation for the six months ended 30 September 2006 is also unaudited. Thecomparative figures for the year ended 31 March 2007 have been extracted fromthe Group's financial statements as filed with the Registrar of Companies, onwhich the auditors gave an unqualified opinion and did not make a statementunder duties of auditors section 237(2) or section 237(3) of the Companies Act1985. 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. Thehome country of the Company is the United Kingdom. Segment results The segment results for the half year ended 30 September 2007 are as follows: Europe N America Asia Eliminations Corporate Group £m £m £m £m £m £m External sales 48.4 32.8 4.0 - - 85.2Inter-segment sales 2.0 1.3 0.7 (4.0) - -Total revenue 50.4 34.1 4.7 (4.0) - 85.2 Segment result (before exceptional items) 2.0 3.9 0.3 - (1.4) 4.8 Exceptional items and movements in exceptionalprovisions:- Other (0.3) - - - - (0.3)Exceptional items (0.3) - - - - (0.3) Operating profit/(loss) 1.7 3.9 0.3 - (1.4) 4.5Net finance costs (0.9)Profit on ordinary activities before taxation 3.6Taxation (2.1)Profit on ordinary activities after taxation 1.5 Sales are allocated based on the country in which the order is received. All revenue relates to the sale ofgoods. The sales analysis based on the location of the customer is as follows: Europe N America Other Group £m £m £m £m External sales 43.2 30.8 11.2 85.2 The segment results for the half year ended 30 September 2006 are as follows: Europe N America Asia Eliminations Corporate Group £m £m £m £m £m £m External sales 60.6 33.6 3.7 - - 97.9Inter-segment sales 2.5 1.6 0.8 (4.9) - -Total revenue 63.1 35.2 4.5 (4.9) - 97.9 Segment result (before exceptional items) 1.3 3.9 (0.1) - (1.3) 3.8 Exceptional items and movements in exceptionalprovisions:- Reorganisation (0.6) - - - 0.2 (0.4)- Movement in asbestos litigation costs - - - - 0.5 0.5 provision- Other - - - - (0.1) (0.1)Exceptional items (0.6) - - - 0.6 - Operating profit/(loss) 0.7 3.9 (0.1) - (0.7) 3.8Net finance costs (1.7)Profit on ordinary activities before taxation 2.1Taxation (2.1)Profit on ordinary activities after taxation - Sales are allocated based on the country in which the order is received. All revenue relates to the sale ofgoods. The sales analysis based on the location of the customer is as follows: Europe N America Other Group £m £m £m £m External sales 58.0 31.2 8.7 97.9 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 £m External sales 111.2 65.3 7.8 - - 184.3Inter-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 exceptional costs) 2.1 7.6 0.2 - (2.9) 7.0 Exceptional items and movements in exceptionalprovisions:- Business disposals 11.9 - - - - 11.9- Property, plant and equipment and goodwill - (2.9)impairment (2.8) - (0.1) -- Movement in asbestos litigation costs - - - - 0.9 0.9provision- Reorganisation costs and exceptional (1.0) - (0.2) - (0.1) (1.3)provision movements- Other - (0.2) - - 0.3 0.1Exceptional items 8.1 (0.2) (0.3) - 1.1 8.7Operating profit/(loss) 10.2 7.4 (0.1) - (1.8) 15.7Net finance costs (2.8)Profit on ordinary activities before taxation 12.9 Taxation on operating activities (2.6)Exceptional tax credit 3.0Taxation credit 0.4Retained profit for the year 13.3 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 3. Exceptional items An exceptional charge of £0.3m in the half year ended 30 September 2007 was madeto cover the outstanding deferred consideration from the disposal of theloss-making Irish subsidiary in the prior year. The acquired entity has beenplaced into members' voluntary liquidation by the acquirer. 4. Taxation The tax charge of £2.1m represents tax payable of £0.9m, movements in deferredtax in profit-making jurisdictions of £0.9m and a prior year adjustment todeferred tax for £0.3m. No benefit has been recognised for potential future taxcredits in loss-making jurisdictions (primarily in the UK) as there is littleexpectation of recovery within the foreseeable future. The tax charge for theperiod ended 30 September 2006 was £2.1m, representing tax payable of £0.8m plusmovements in deferred tax of £1.3m. 5. Provisions Reorganisation Other Total Asbestos and leasehold litigation costs commitments £m £m £m £m At 30 September 2006 7.5 1.8 1.3 10.6Exchange differences (0.4) - (0.1) (0.5)(Released)/provided in the period (0.4) 0.6 - 0.2Unwinding of discount 0.2 - - 0.2Utilised in the period (0.1) (0.3) (0.1) (0.5)At 31 March 2007 6.8 2.1 1.1 10.0Exchange differences (0.4) - - (0.4)Unwinding of discount 0.2 - - 0.2Utilised in the period (0.3) (0.3) - (0.6)At 30 September 2007 6.3 1.8 1.1 9.2 6. Reserves Share Translation Retained Total capital reserves earnings equity £m £m £m £m At 30 September 2006 7.2 1.2 (2.6) 5.8Currency translation differences - (2.8) - (2.8)Recycling of foreign exchange differences - (0.1) - (0.1)Actuarial gain on pension schemes - - 3.1 3.1Net (loss)/gain recognised directly in equity - (2.9) 3.1 0.2Profit for the period - - 13.3 13.3Total recognised income for the period - (2.9) 16.4 13.5Employee share option scheme- value of employee services - - 0.1 0.1 At 31 March 2007 7.2 (1.7) 13.9 19.4Currency translation differences - 0.3 - 0.3Actuarial gain on pension schemes - - 8.4 8.4Net income recognised directly in equity - 0.3 8.4 8.7Profit for the period - - 1.5 1.5Total recognised income for the period - 0.3 9.9 10.2Employee share option scheme- value of employee services - - 0.1 0.1Balance at 30 September 2007 7.2 (1.4) 23.9 29.7 7. Reconciliation of operating profit to operating cash flow Half year ended Half year ended Year ended 30 September 2007 30 September 2006 31 March £m £m 2007 £mOperating profit 4.5 3.8 15.7 Adjustments for:Depreciation 2.1 2.7 5.0(Profit)/loss on disposal of fixed assets - 0.1 (0.5)Profit on disposal of businesses - - (11.9)Impairment of tangible fixed assets - - 2.8Impairment of goodwill - - 0.1Pensions payments in excess of charge (2.3) (2.0) (3.7)Pension curtailment (0.5) - -Movement in fair value of financial instruments (0.1) (0.1) 0.1Share options charge 0.1 - 0.1Grant income release (0.1) - (0.1) Changes in working capital:- Inventories (1.1) (0.5) (0.8)- Trade debtors 0.3 0.2 4.6- Trade creditors 0.4 (0.6) (2.0)Changes in trading working capital (0.4) (0.9) 1.8Other debtors 0.8 0.2 (0.4)Other creditors (0.8) 0.4 (0.3)Net movement in other provisions - (0.2) (0.3)Net movement in reorganisation provisions (0.3) - (0.1)Net movement in asbestos litigation provision (0.3) (0.9) (1.4)Net movement in leasehold commitment provisions - (0.3) - Cash generated from operations 2.7 2.8 6.9 Cash generated from operations before reorganisation and 3.3 4.2 9.1movements in exceptional provisionsCash outflows from reorganisation and movements in (0.6) (1.4) (2.2)exceptional provisionsCash generated from operations 2.7 2.8 6.9 8. Reconciliation of net debt Analysis of net debt At Cash At 1 April 2007 flow 30 Sept 2007 £m £m £m Cash and cash equivalents 12.5 1.5 14.0Overdrafts (0.5) (0.3) (0.8) 12.0 1.2 13.2 Borrowings due within one year (0.4) 0.1 (0.3)Borrowings due after more than one year (0.4) - (0.4) (0.8) 0.1 (0.7) Total 11.2 1.3 12.5 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SCPA.L