Preliminary Results

4 March 2013

BRITISH POLYTHENE INDUSTRIES PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

Results ahead of market expectations despite challenging economic environment

Highlights 

·; Good performance achieved in a challenging economic environment 

·; Operating profit increased to £22.5m (2011: £21.6m) attributable to an improvement in performance by the UK business 

·; Profit before net restructuring gains and net retirement benefit financing rose by 7% to £20.4m (2011: £19.1m) 

·; Strong cash generation and net borrowings reduced by almost £8m to £23.2m (2011: £31.0m) 

·; Final proposed dividend per share increased to 9.0p (2011: 8.5p) making 13.2p for the year (2011: 12.5p)

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

"We are pleased to report a good performance in 2012 ahead of market expectations and ahead of the good performance in 2011. We have seen an improving trend in the returns from our UK business as well as a continued strong performance from our European business. The prospects for 2013 look equally good and, with the current capital investment targeting resilient and sustainable markets, prospects for growth in 2014 and beyond are now clear."

Enquiries

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2012

INTRODUCTION

The Group performed well in 2012, with results ahead of market expectations and ahead of the good performance in 2011.

This was achieved in a challenging economic environment with periods of reduced demand from certain sectors and with volatile raw material pricing.

Cash generation remained strong during the year resulting in a further marked reduction in Group borrowings.

The Board is recommending an increased final dividend and considers that the Group is well positioned to deal with a further challenging year in 2013.

RESULTS

Total volumes for the year were 262,400 tonnes (2011: 273,200 tonnes), most of that reduction coming in the first half, with second half volumes showing only a slight decline, mainly attributable to continuing reduction in product thickness through use of higher performance raw materials.

On sales of £479 million (2011: £508 million), operating profit increased to £22.5 million (2011: £21.6 million). This increase can be attributed to an improvement in performance by our UK business, which still has some way to go to match the consistently good returns from our European operations.

There were no net gains from restructuring in 2012 (2011: £0.6 million).

The reduction in average borrowings during the period resulted in reduced interest costs of £2.1 million (2011: £2.5 million).

The calculated charge for net retirement benefit financing increased to £1.0 million (2011: £0.5 million), and a fuller explanation on the impact of forthcoming rules on accounting for these costs is contained later in this Statement.

Before net restructuring gains and net retirement benefit financing, the adjusted profit before tax rose by some 7% to £20.4 million (2011: £19.1 million). On a similar basis, but before adjustments for prior years' tax items, adjusted diluted earnings per share is 53.35p (2011: 49.88p).

DIVIDEND

After an increase in the interim dividend to 4.2p per share (2011: 4.0p), the Board is recommending an increase in the final dividend to 9.0p (2011: 8.5p), making a total for the year of 13.2p per share (2011: 12.5p).

The dividend is payable on 18 July to shareholders on the register at the close of business on 15 March 2013.

CASH FLOW AND BORROWINGS

The Group again generated cash from its operations and, year-on-year, borrowings reduced by almost £8 million to £23.2 million (2011: £31.0 million). This was achieved despite an increase of £6 million in year-end inventories and an increase of £6 million in net capital expenditure during the period.

The medium term outlook for raw material prices seems to indicate that we will not experience the dramatic increase in price that we have seen over the last decade, and this bodes well for working capital requirements for the next few years. We do, however, have plans to increase our capital expenditure programme over the next few years to invest in a number of opportunities. We expect that expenditure for 2013 will exceed £20 million (2012: £17.5 million), and envisage that this higher level will continue in the following two years.

Despite this planned increase in capital expenditure, the Board continues to expect the Group to generate cash from its operations, and has concluded that a reduction in our banking facilities was appropriate. We have therefore cancelled some £20 million of the facilities previously arranged. This will reduce non-utilisation fees paid to the banks in 2013, and still gives the Group considerable headroom. Our current facilities now total £75 million and £40 million of these facilities are due for renegotiation in 2015.

GROUP PENSION SCHEME

The IAS 19 deficit in the UK defined benefit pension scheme increased from £60 million at 31 December 2011 to £63 million at 31 December 2012.

This was due to a further reduction in the net discount rate applied to the liabilities of the scheme. The returns from the scheme assets did significantly exceed the level previously assumed, however this was not sufficient to counter the impact of the reduced net discount rate.

For the year ending 31 December 2013 the Group is required to adopt IAS 19 (revised). This change will increase the net retirement benefit financing charge but will have no impact on cash or shareholders funds. A fuller explanation of this is given in note 6 to the financial statements in this preliminary announcement.

UK CORPORATE GOVERNANCE CODE

I can confirm that we do have an effective Board which is collectively responsible for the long-term success of the Company.

I regard the current Board as extremely competent, that it has the necessary breadth of skills to fulfil its tasks, and that the Board is supplied with sufficient and timely information upon which to make the necessary deliberations and judgements.

The Board is challenging of executive proposals, and the Committees of the Board do fulfil the independent functions that are required of them.

In line with current recommendations, all Directors seek re-election at each Annual General Meeting of the Company.

GROUP DEVELOPMENT

Last year I was able to comment very positively on the performance of our European business, and this success has been repeated in 2012. We have made further capital investments at all three European sites in 2012 and 2013, and have committed to an additional multi-layer stretch-film line for Zele in 2014. Over that three year period, these investments will have significantly increased our manufacturing capacity in Europe, enabling us to offer our customers excellent quality and service together with an enhanced product range.

In the UK, we have made considerable progress in many areas, but have been hindered by poor demand from the construction sector and delays in commissioning of a new washing plant for contaminated waste films. The net result was an increase in UK profits by over £1 million, a welcome improvement. New co-extrusion capacity was added to our Films operations and more has been ordered for 2013. Replacement heavy-duty sack co-extrusion capacity has been ordered for our Ardeer site and will be commissioned this summer. Up-rated refuse sack capacity is currently being installed at Heanor. These investments should reverse the decline in tonnage that we have seen in the UK over the last few years and improve output, quality and service levels before the end of 2013.

We indicated last year that we were evaluating options for our agricultural film operation in Canada and have decided to replace our largest 3-layer co-extrusion line with a new 7-layer line capable of making a range of products currently not offered by the Group. This line will be commissioned early in 2014 and financial benefits are unlikely to accrue before 2015.

Our Consumer Packaging operations have produced better returns in 2012, aided by an improved performance from China. We are currently evaluating further investment in our Chinese operation, as demand has increased from world export markets, particularly New Zealand and Australia.

All of the above investments will result in higher levels of capital expenditure over the next few years than we have seen over the last few. However, it is clear to us that the opportunities are there to make attractive returns and most of this spend targets the agricultural and retail food sectors.

RAW MATERIAL

2012 was a further volatile year for polymer prices. We saw April as the peak of the cycle, but the erosion in price of the following few months was halted by increases in August and September, since when prices moved sideways until January and February this year when producers have imposed increases in both months. Prices have not yet returned to the April levels, but, if they do, we may well see a re-run of last year, as new supply and weak demand combine to push down prices.

A new significant factor in global polymer supply is the current investment in North America in shale gas extraction. This will result in large quantities of lower cost feedstock for polymer producers in that area, and once again make North America a major exporter of polymer to world markets. These investments are current, and should start to impact the global market within a few years. Combined with new capacity from the Middle and Far East, the medium term outlook for polymer pricing looks favourable on a global basis. However, Western Europe is still very dependent on the traditional oil and naptha route for feedstock, resulting in high-cost ethylene and polyethylene polymer.

We are very aware of the challenges and opportunities that this price volatility brings, and also the potential impact of global changes in supply. In recent years we have been able to cope well with these issues and expect to continue so to do.

PROSPECTS AND CURRENT TRADING

Much work has been done by management over the last few years to implement the difficult decisions taken to bring our UK manufacturing capacity more into line with demand from our customers. The results in the UK are now starting to reflect these efforts, and we are seeing an improving trend in the returns from our UK business. We expect to see this continue in 2013 and beyond, as new capital investment begins to bear fruit.

Demand for agricultural film looks promising and, with the caveat of weather, we are anticipating another successful year with our enhanced product range.

We indicated last year that your Board anticipated a satisfactory year in 2012. The prospects for 2013 look equally good, particularly for further improvement in our UK business.

Current capital investment is targeting resilient and sustainable markets. We are confident that the prospects for growth in 2014 and beyond are now clear.

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2012

British Polythene Industries PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2012

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2012

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2012

¹ As at 31 December 2012 the holding company retained earnings amounted to £39.3 million (2011: £39.5 million) and are not affected by movements in retirement benefit obligations.

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 and retirement benefit assets.

3. Taxation

The Emergency Budget on 22 June 2011 announced that the UK corporation tax rate will reduce from 28% to 23% over a period of 4 years from 2011. To date, the reduction from 28% to 24%, effective from 1 April 2012 and to 23% from 1 April 2013 have been substantively enacted. The impact of this (£0.5m) has been reflected in the deferred tax charge for prior years.

4. Dividends

The proposed final dividend of 9.0p per share will be paid on 18 July 2013 to shareholders on the register at close of business on 15 March 2013. It was approved by the Board on 1 March 2013 and has not been included as a liability as at 31 December 2012.

5. Earnings per ordinary share

6. Retirement and employee benefit obligations

Implementation of IAS 19R

IAS 19 revised will be implemented from 1 January 2013. A revised income statement for the period to 31 December 2012 has been detailed below outlining how the implementation of IAS 19 revised would have impacted the Group accounts during 2012. The restated figures below will be disclosed within the 2013 accounts.

7. 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 2012 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.

8. Statutory accounts

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011 but is derived from the 2012 accounts. Statutory accounts for 2011 have been delivered to the registrar of companies, and those for 2012 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.

9. Annual General Meeting

The Annual General Meeting will be held on Thursday, 9 May 2013 at 12 noon at the Company's Head Office, 96 Port Glasgow Road, Greenock, PA15 2UL.