Preliminary Results

03 March 2014

BRITISH POLYTHENE INDUSTRIES PLC

PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2013

Good Performance despite an Uncertain Economic Environment

Highlights

· Operating profits, before restructuring costs, increased 10% to £24.0m (2012: 21.8m)

· Profit before tax up 9% to £18.5m (2012: £17.0m)

· Diluted earnings per share up 11% to 43.23p (2012: 38.93p)

· Final proposed dividend per share increased by 11% to 10.0p (2012: 9.0p) making a total of 14.5p for the year (2012: 13.2p), an increase of 10%.

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

"The Group performed well in 2013, with results ahead of the good performance of the previous year.

This further improvement in profitability is the result of our continuing capital investment programme and the decision taken to rationalise the UK business a number of years ago.

The year has started well, and we currently anticipate a further satisfactory performance in 2014."

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British Polythene Industries PLC

Chairman's Statement

For the year ended 31 December 2013

INTRODUCTION

The Group performed well in 2013, with results ahead of the good performance of the previous year. This further improvement in profitability is the result of our continuing capital investment programme and the decision taken to rationalise the UK business a number of years ago. It is all the more impressive in that this has been achieved despite the continuation of volatile raw material costs and in an uncertain economic environment.

The Board is recommending an increased final dividend and looks forward to 2014 with confidence.

RESULTS

Total volumes increased by 9,000 tonnes to 271,000 tonnes, an increase of 1.4% after excluding the additional volume from the Flexfilm acquisition at the end of April 2013. This volume increase was all the more encouraging, as we continue to deliver reductions in film thicknesses for many applications where improved formulations offer customers an opportunity to control their packaging costs.

On sales of £508 million (2012: £479 million), operating profit, before restructuring costs, increased to £24.0 million (2012: £21.8 million). This increase can be attributed to yet another very good year from our European business, and an improvement in the results of our UK and North American businesses. This performance was in spite of poor results from our UK Consumer operations where margins were under pressure from rising raw material costs and where we made a £1 million provision for restructuring costs, after the non-renewal of a major contract at the end of the year.

Finance charges fell slightly to £1.9 million (2012: £2.1 million). Although average borrowings throughout the year were roughly the same as the previous year, there was a reduction in the non-utilisation fees paid to banks after we cancelled some £20 million of facilities in December 2012 which we no longer required.

The calculated charge for net retirement benefit financing fell slightly from £2.7 million to £2.6 million. After the above charges, profit before tax rose 9% to £18.5 million (2012: £17.0 million).

Diluted earnings per share rose 11% to 43.23p (2012: 38.93p).

Following the adoption of IAS 19 (revised) the comparative figures for 2012 have been restated.

DIVIDEND

After an increase in the interim dividend to 4.5p per share (2012: 4.2p), the Board is recommending an increase in the final dividend to 10.0p (2012: 9.0p) making a total of 14.5p per share (2012: 13.2p).

The Board has also decided that payment of this dividend is brought forward to the week following the AGM. Accordingly, if approved by shareholders at the AGM, the dividend will be payable on 14 May 2014 to shareholders on the register at the close of business on 14 March 2014.

CASHFLOW AND BORROWINGS

Good cash generation was absorbed by the planned increase in capital expenditure, the acquisition of Flexfilm, and the increase in working capital due to higher input costs of polymer. We also finished the 2013 agricultural stretch-film season with higher stock levels than in 2012, when sales of this product benefitted from unusual growing conditions in the late summer, severely depleting our normal year-end stock levels, and reducing working capital at the end of 2012.

The Flexfilm acquisition in April was for a net cash consideration of £5.2million.

We spent £19.8 million (2012: £17.8 million) on new plant and equipment. This was slightly below our budgeted spend, as delivery of certain items of plant was delayed into 2014. We expect to see capital expenditure over £20 million in both 2014 and 2015.

The anticipated fall in raw material prices in 2013 did not materialise and we exited the year with polymer prices close to an all-time high. These high prices fed through to our working capital, with a year-on-year increase of £1.3 million. Any easing in prices would reduce the working capital requirement in our business.

As a consequence, year end borrowings rose to £30.1 million (2012: £23.2 million).

GROUP PENSION SCHEME

The IAS 19 deficit in the UK Defined Benefit Pension Scheme fell by £6 million to £57 million (£46 million net of tax) at 31 December 2013. 

The Scheme's assets delivered returns well in excess of the accounting assumptions. However, this benefit was partly offset by an increase in the calculated value of the Scheme's liabilities due to an increase in the assumed rate of inflation.

In response to the public statement issued by the Financial Reporting Council in January 2014 concerning Pension Funding Partnerships (PFP), the Company will review the structure of its PFP. Subject to agreement with the Trustees, this will result in changes to the accounting treatment of the PFP such that it will no longer be classified as a pension scheme asset for IAS 19 purposes. Had this been in place at 31 December 2013 it would have increased the IAS19 pension deficit by £19 million. This accounting change will have no impact on cashflow, shareholders funds or the actuarial valuation of the pension deficit.

GROUP DEVELOPMENT

We continue to support our very successful European business with investment in new plant and equipment. A five-layer co-extrusion line for agricultural stretch-film was commissioned last summer in Zele, and a large printing press late in the year in Hardenberg. Further multi-layer co-extrusion equipment is currently on order, and should be operating before the summer months this year.

These investments permit us to offer excellent quality and service, together with an enhanced product range.

In the UK, we completed the acquisition in April of the Flexfilm Group, a films business in Winsford, with a printing and converting subsidiary, Jordan Plastics, in Portadown, Northern Ireland.

Flexfilm has been added to our Films Operations in the UK, where it continues to supply high quality films to a number of converters and end-users in the UK, mainly in the retail foodsector.

Jordans joined our consumer packaging operations and continues to service many retail-facing customers in Ireland with a range of printed films and bags.

Both of the above operations made satisfactory returns in 2013 in line with our expectations.

Progress in the UK has been impacted by a poor performance in our consumer packaging operations in Worcester and in China. The Worcester printing and converting operation has come under margin pressure as input costs have not been fully recovered from their retail-facing customers. Non-renewal of a contract to manufacture bread bags led to 90 redundancies in December and a restructuring charge of £1 million. It is currently anticipated that this restructuring will improve the business in 2014.

In China, we had similar margin issues with a large UK contract and quality issues caused by defective raw material. These issues have now been overcome and we are anticipating a much better performance in 2014. We are currently installing a second high-speed flexo press in China together with new extrusion equipment. This investment will target the Far East and Australasian markets where our products have been well received. This should reduce this operation's dependency on the UK market.

Our Recycled Products operations had a poor start to the year, with the previously reported difficulties with a new washing plant for highly contaminated agricultural film, and disruption caused by the installation of a number of up-rated film lines for refuse sack production. These difficulties are now behind us, and these operations are looking to deliver better results in 2014, as new investments start to bear fruit. We have recently installed a paper-removal plant at Heanor and have ordered additional recycling equipment to be installed later this year.

All other operations in the UK showed improvement on the prior year, with a significant improvement in the Visqueen industrial operation. The new sack-film co-extrusion lines installed at Ardeer are performing fully up to expectation, and we have ordered another line for delivery this year. These investments enable us to produce better quality film with a reduction in energy cost.

RAW MATERIAL

A year ago, we indicated the changes that were taking place in North America with investment in polymer plants based on shale gas extraction. These investments are still underway, and we anticipate that they will make that continent a major exporter of polymer within a few years. This export activity should result in downward price pressure on polymers made from oil in many global markets. In the meantime we continue to experience considerable raw material price fluctuations, and prices at the year end were close to an all-time high.

Already it is clear that there is a wide differential in profits among the polymer producers, with oil-based producers making low margins or a loss, and those producers with access to cheap gas making substantial margins. Structural change and continuing price volatility is inevitable.

Our results in recent years demonstrate that we are capable of dealing with such volatility, but we have experienced an increase in working capital, and a reduction in price would reverse this position.

PROSPECTS AND CURRENT TRADING

A year ago we indicated that the prospects for growth were clear for 2014 and beyond. That remains our view and we currently expect to see a growth in volumes this year and the next. Much of that growth is targeted in the agricultural sector where our range of agricultural stretch-films is gaining favour in many geographic areas and, barring exceptionally poor growing conditions, we expect that our volumes will be ahead of 2013.

The year has started well, and we currently anticipate a further satisfactory performance in 2014.

Cameron McLatchie

Chairman.

British Polythene Industries PLC

Consolidated income statement

For the year ended 31 December 2013

British Polythene Industries PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2013

British Polythene Industries PLC

Consolidated balance sheet

At 31 December 2013

British Polythene Industries PLC

Consolidated cash flow statement

For the year ended 31 December 2013

British Polythene Industries PLC

Consolidated statement of changes in equity

For the year ended 31 December 2013

¹ As at 31 December 2013 the holding company retained earnings amounted to £39.8 million and are not affected by movements in retirement benefit obligations.

¹ As at 31 December 2012 the holding company retained earnings amounted £39.3 million and are not affected by movements in retirement benefit obligations.

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2013

1. Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("adopted IFRSs").

2. Segment reporting

The Group has three reportable segments: UK & Ireland, Mainland Europe and North America. The segments were established by reviewing the management information regularly presented to the entity's chief operating decision maker (CODM), which has been identified as the Board of Directors. The information presented to the Board is consistent with the three reportable segments identified above, with the UK & Ireland business further segregated by business activity. As all of the UK & Ireland segments meet the aggregation criteria set out in IFRS 8, they have been aggregated to form one reportable segment as permitted by the standard.

UK & Ireland includes all of the UK manufacturing and merchanting activities along with the Irish sales operation which distributes predominately 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.

Segment profit

An analysis of the Group's revenue and results by operating segment for the periods is presented below. The measure of segment profit provided to the CODM is profit from operations.

Segment assets

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

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

3. Taxation

The 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 and 20% with effect from 1 April 2015 took place on 17 July 2013. The impact of this (£0.7m) has been reflected in the deferred tax charge for prior years.

4. Dividends

The proposed final dividend of 10.0p per share will be paid on 14 May 2014 to shareholders on the register at close of business on 14 March 2014. It was approved by the Board on 28 February 2014 and has not been included as a liability as at 31 December 2013.

5. Earnings per ordinary share

6. Goodwill

On 30 April 2013 the Group acquired 100% of the share capital of Flexfilm Group for a cash consideration of £5.2 million:

The proforma 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 £512 million (compared with reported Group revenue of £507.5 million) and profit after tax of £13.2 million (compared to a reported profit after tax of £13.0 million).

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.

7. Retirement and employee benefit obligations

Implementation of IAS 19R

IAS 19 revised was implemented from 1 January 2013. A revised income statement for the period to 31 December 2012 and statement of comprehensive income have been outlined below showing the impact of IAS 19 revised on the 2012 accounts:

Pension Funding Partnership

Following the Financial Reporting Council's recent press release regarding asset backed funding arrangements such as the Pension Funding Partnership, the directors are discussing with the Scheme trustees amendments to the terms of The Pension Funding Partnership. The principal accounting effect of this change in the structure will be that the present value of the income stream currently reflected within the Group's financial statements will, following the change, no longer feature as a plan asset in the Group's financial statements and the corresponding credit currently reflected as a non controlling interest within equity will also no longer feature in the Group's balance sheet. It is anticipated that this revised form of presentation following the applicable changes in the structure being finalised will be adopted in the Group's interim financial statements drawn up to 30 June 2014. It is anticipated that following the applicable changes that net pension financing within the profit and loss account will increase by circa £0.8 m in the 12 months following implementation.

This change will have no impact on total equity attributable to equity holders of the parent or earnings per share. The Scheme funding and cash flow benefits of the Pension Funding Partnership will be unaffected and this accounting change will have no impact on the actuarial valuation of the pension deficit.

The table below sets out the impact on the Group's proforma balance sheet had this change been implemented prior to 31 December 2013:

8. Contingent Liabilities

The group is involved from time to time in certain claims and litigation. In the opinion of the Directors, as at 31 December 2013 liabilities, if any, arising from claims and litigation against the Group as at that date will not have a material adverse effect on the Group's reported consolidated financial position or results.

9. Statutory accounts

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from the 2013 accounts. Statutory accounts for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified and (ii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

10. Annual General Meeting

The Annual General Meeting will be held on Thursday, 8 May 2014 at 12 noon at the Company's Head Office, 96 Port Glasgow Road, Greenock, PA15 2UL.