6th Mar 2006 07:01
British Polythene Industries PLC06 March 2006 6 March 2006 BRITISH POLYTHENE INDUSTRIES PLC PRELIMINARY RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2005 • Significant increase in revenues, profits and earnings per share. • Sales increase 14% to £410m (£359m) • Profit before tax up 79% to £19.7m (£11.0m) • Diluted earnings per share improve 72% to 54.28p (31.50p) • Total dividend raised, having been maintained for last 7 years, by 4.8% to 22.0p (21.0p), with dividend cover of 2.5x • Sound interest cover at 7x • Good start to 2006 Commenting on the results and prospects, Cameron McLatchie, BPI Chairman said: "This has been an outstanding performance in a challenging business environment." "We have seen a good start to 2006. Despite continuing concerns on volumes fromcertain sectors, our margins are holding up well. It is our objective in 2006to maintain and hopefully improve on the trading performance of 2005. YourBoard believes that our business has the potential to deliver against thatobjective." Enquiries Cameron McLatchie, ChairmanJohn Langlands, Chief Executive 01475 501000 Tim Spratt/Caroline WellsFinancial Dynamics 020 7831 3113 BRITISH POLYTHENE INDUSTRIES PLC CHAIRMAN'S STATEMENT We indicated in our Pre-Close Trading Statement in December that we wereexpecting to produce results materially above the expectations of the market. Iam now pleased to report significant increases in both revenues and profits,with diluted earnings per share up over 70% to a record level of over 54 pence.This has been an outstanding performance in a challenging business environment. These are the first full year results which we have presented under the newInternational Financial Reporting Standards (IFRS) and, as with other companiesreporting for the first time in this new format, this has involved restating ourbase figures for prior periods. The two main differences which shareholderswill detect are changes in accounting for pensions and dividends. RESULTS On continuing sales of £410 million (2004 - £359 million), our operating profitrose to £23.3 million (2004 - £13.7 million), reflecting recovery in the marginslost during the polymer increases of 2004. After an increase in actual interest costs to £3.2 million (2004 - £2.9million), and pension financing adjustments under IFRS rules of a net charge of£0.4 million, (2004 - net credit of £0.2 million), the profit before tax was£19.7 million (2004 - £11.0 million). Diluted earnings per share rose to 54.28pence (2004 - 31.50 pence). DIVIDEND The Board is recommending an increased final dividend of 15 pence per share forthe year ended 31 December 2005 (2004 - 14 pence), giving a total for the yearof 22 pence (2004 - 21 pence). If approved by shareholders, the recommendedfinal dividend is payable on 12 May 2006 to shareholders on the register at theclose of business on 17 March 2006. CASH FLOW, BORROWINGS & SHAREHOLDERS' FUNDS We have managed the cash position well during 2005 and the year end borrowingsof £47 million are in line with our expectations and some £10 million lower thanthe figure at the end of 2004. The progress in reducing our borrowings in thelast few years would have been even more marked, but for the fact that ourworking capital requirements, at current raw material prices, are some £10million higher than when raw material prices started to rise at the end of 2003.In the event that raw material prices fall at some future date, we wouldexpect that change to be reflected in our requirement for working capital. Interest cover on bank borrowings was extremely sound at over 7 times. Asenvisaged, our cash spend on fixed assets of £14 million for the year was £1million more than 2004. We envisage that our spend on fixed assets in 2006 willbe higher than in 2005, as we expand our operation in China and continue toinvest in new equipment in the UK and in continental Europe. GROUP PENSION SCHEME Our scheme net deficit increased by £8 million to £38 million in 2005. Despitereasonable investment performance and the benefit of increased contributionsfrom both the Group and our employees in the scheme, we were impacted on theliability side by a sharp drop in long term bond yields. It is clear that radical action is required to contain the cost of funding thescheme and, in due course, substantially reducing the deficit. Your Board iscurrently considering a series of specific measures that will address thisissue. GROUP DEVELOPMENT & STRATEGY Our strategy will continue to focus on improving the operating performance ofour core business through improved efficiency and investment, and makingselective acquisitions that complement that business. EUROPEAN COMMISSION ENQUIRY As previously reported, the Group has been involved in two separate inquiries bythe European Commission into infringements of competition law. The firstinquiry into BPI and a number of its competitors was initiated by the Commissionin August 2001 and related to the agricultural and industrial plastic filmmarket. Following the initiation of this inquiry, we conducted a comprehensivecompetition compliance audit, which led to us uncovering certainanti-competitive practices in our industrial bags businesses in mainland Europefrom 1982 until end 2001. The Group acquired the businesses involved in 1997.We disclosed this evidence to the European Commission as part of a formalapplication for leniency in November 2001 under the Commission's leniencyprogramme. As a result of information provided by us to the Commission, asecond inquiry began relating to industrial bags. We have cooperated fully withthe Commission since then. On 30 November 2005, the European Commissionannounced its decision in this second inquiry and confirmed that, as a result ofour successful application for leniency, the fine imposed of 53 million euroswas reduced to zero. The Commission has indicated that it is still considering the first inquiry. Wedo not expect a conclusion this year and there is no time limit within which theCommission must raise proceedings if it wishes to pursue this original inquiry.Should the Commission pursue this inquiry, due to our leniency application, areduction in fines of up to 50% is potentially available. OTHER REGULATORY ISSUES In addition to being investigated for engaging in anti-competitive activities,your Group could be impacted adversely by a complaint from certain EU bagproducers that product from China, Malaysia and Thailand is being dumped intothe EU. Shareholders should be aware that our operation in China is run on a for profitbasis and, in addition, we have consistently made commercial margins on importsfrom China to the UK. However, if the EU is minded to impose an additionaltariff on bags from China, then this will have an impact on our Chinesebusiness, as some £4 million of sales (60% of the output of that plant) isimported to the UK under the relevant tariff heading. Much has been written about the many political and cultural risks of investingin China. It is now clear to us that the greatest risk is much closer to home. Your Group has also been actively engaged in discussions with the ScottishExecutive regarding a Members Bill which is currently in Committee stage andseeks to introduce a levy on plastic bags, and in particular, retail carrierbags. This misguided piece of legislation has already been the subject of anexpert report which shows that, if enacted, it would have no net environmentalbenefits. Despite this, the Bill lingers on and is likely to become a politicalfootball in the run up to the elections in Scotland in 2007. Your Group hasminimal exposure to carrier bag sales, having disposed of its mainstream retailcarrier bag business some five years ago. Our sales of carrier bags are lessthan £1 million per annum and production is concentrated in one operation inCowdenbeath. Any tariff will certainly jeopardise the future of this plant,where sales of carrier bags constitute a significant proportion of turnover. OUR PEOPLE The number of people employed by the Group at the year end fell to 2,928compared to the 2,987 employed at the end of 2004. We do not currently envisagea further drop in numbers as we are expanding our facility in China and have thepossibility of small acquisitions in the UK. Our employees should be congratulated for their success in 2005 and it isgratifying to note the increases in Employee Profit Sharing in so many of ouroperations. Sound progress on a Group wide basis in reducing accident statistics wasovershadowed by a tragic fatality in July at our operation in Xinhui in China.A rigorous investigation into that accident by both local and UK managementconfirmed that, while all group operating procedures had been in force, thisunfortunate incident reinforced the need for constant vigilance in every detailin the area of health and safety. It is also my sad task to report to shareholders the deaths of two colleagueswho were instrumental in helping British Polythene to become the successfulbusiness which it is today. In September, we learned of the death of Jim Henderson, a Director of the Groupfor over 20 years until his retirement in 1988. It was Jim's initial vision, inpersuading the Board of Scott & Robertson PLC, to purchase Anaplast Ltd in 1983,that led, some years later, to the creation of British Polythene Industries PLC.Jim was a real enthusiast and a huge supporter of our Group. In February 2006, we had to report the death of Professor Neil Hood, our longestserving Non-Executive Director. His contribution to our Board was alwayspertinent and incisive and I was hugely grateful for his advice and support,particularly during the difficulties of the final quarter in 2000. His wisecounsel will be greatly missed both by our Board and the many organisations inwhich he was involved. TRADING FOR 2005 AND PROSPECTS FOR 2006 2005 began as 2004 had finished. Our total focus was on repricing product in anattempt to recover the margins squeezed by the relentless increases in rawmaterial prices during 2004. However, as 2005 progressed, we did get somerespite from this, as raw material prices, although remaining at cyclically highlevels, failed to increase further. Indeed, in certain months, there weremoderate falls from the record highs seen around the end of 2004. The relieffrom the constant upward movement was welcome. We exited 2005 with raw material prices having eased very slightly but withsignificant pressure from our suppliers for increases in the opening months of2006. This has translated into real supplier increases for February and thelikelihood of modest increases in March. Polymer prices look to remain firm forat least the next few months and possibly the remainder of 2006. I believe that the 2005 results clearly demonstrate that we can deal with highpolymer prices. Our industry is forced to pass through raw material increasesto its customers and as prices get higher the more efficient will benefit. YourGroup has invested heavily in reprocessing and recycling technology whichproduces better returns at this point in the polymer price cycle. The squeeze in margins in 2004 was caused by the difficulty of constantlyrepricing our products when raw material prices rose continually for months onend. This circumstance is unlikely to repeat in the next few years as pricesare currently close to all time highs and the next significant move should bedownward in 2007, when considerable new global capacity comes on stream. Despite the growth in sales values, our 2005 overall volumes were behind 2004,although we did record modest volume gains in printed film and agriculturalstretchwrap. As we had difficulties, at certain times during the year, gettingall of the raw material which we required, we did not chase volume which we wereunable to deliver. Towards the end of the year, and as we have previously indicated, our UKbusinesses were impacted by steep increases in the costs of electricity. Wesucceeded, where contractual terms permitted, to pass on these increases to ourcustomers. Whether it is vehicle fuel, electricity or gas, the UK is now ourmost expensive location for energy and the large disparity in costs between theUK and Mainland Europe is influencing our investment strategy. Many of ourenergy intensive customers are similarly affected and the issue of energypricing requires an urgent review by the UK government. We have seen a good start to 2006. Despite continuing concerns on volumes fromcertain sectors, our margins are holding up well. It is our objective in 2006to maintain and hopefully improve on the trading performance of 2005. Your Boardbelieves that our business has the potential to deliver against that objective. British Polythene Industries PLCConsolidated income statementFor the year ended 31 December 2005 2005 2004 Note £m £m Turnover 2 410.2 359.4 Profit from operations 23.3 13.7 Borrowing costs (3.2) (2.9)Interest on pension liabilities (9.1) (8.2)Expected return on pension scheme assets 8.7 8.4Net financing costs (3.6) (2.7) Profit before tax 19.7 11.0Tax (5.4) (2.9) Profit for the year 14.3 8.1 Attributable to:Equity holders of the parent 14.2 8.1Minority interests - equity 0.1 - 14.3 8.1Earnings per shareBasic 4 55.20p 31.54pDiluted 4 54.28p 31.50p Consolidated statement of recognised income and expenseFor the year ended 31 December 2005 2005 2004 £m £m Profit for the year 14.3 8.1 Cash flow hedges: effective portion of net changes in fair value 0.3 -Actuarial loss on defined benefit pension scheme (11.8) (8.9)Tax on items taken directly to equity 3.5 2.7Movement on translation of overseas undertakings and related borrowings 0.2 (0.3) Net expenses recognised directly in equity (7.8) (6.5) Total recognised income and expense for the period 6.5 1.6 Attributable to:Equity holders of the parent 6.4 1.6Minority interests - equity 0.1 - 6.5 1.6 British Polythene Industries PLCConsolidated balance sheetAt 31 December 2005 2005 2004 £m £m NoteNon-current assetsGoodwill 0.3 0.3Other intangible assets 1.7 2.3Property, plant and equipment 79.2 79.4Investments 0.1 0.1Deferred tax assets 12.2 8.6 93.5 90.7Current assetsInventories 55.3 58.4Trade and other receivables 63.2 61.9Cash at bank 0.9 1.0 119.4 121.3Current liabilitiesBank overdraft 5.8 13.4Other loans and borrowings 1.0 21.1Trade and other payables 64.9 68.1Current tax liabilities 3.8 2.3 75.5 104.9 Net current assets 43.9 16.4 Total assets less current liabilities 137.4 107.1 Non-current liabilitiesOther loans and borrowings 41.2 23.2Retirement and employee benefit obligations 5 56.0 44.7Deferred tax liabilities 2.3 2.4Deferred government grants 0.7 0.7 100.2 71.0 Net assets 37.2 36.1 EquityIssued share capital 6.5 6.5Share premium account 23.8 23.7Other reserves 7.9 7.4Retained earnings (1.2) (1.6)Total equity attributable to equity holders of the parent 37.0 36.0Minority interests 0.2 0.1 Total equity 37.2 36.1 British Polythene Industries PLCConsolidated cash flow statementFor the year ended 31 December 2005 2005 2004 £m £m NoteProfit before tax 19.7 11.0Net financing costs 3.6 2.7 Profit from operations 23.3 13.7 Amortisation of intangible assets 0.9 0.6Depreciation of property, plant and equipment 12.4 12.5IFRS 2 charge in relation to equity settled transactions 0.3 -Gain on disposal of property, plant and equipment (0.9) (0.1)Adjustment relating to pensions (0.9) (1.1)Operating cash flows before movements in working capital 35.1 25.6 Decrease / (increase) in inventories 2.7 (9.2)Increase in trade and other receivables (1.4) (11.9)(Decrease) / increase in payables (2.6) 11.9 Movements in working capital (1.3) (9.2) Cash generated from operations 33.8 16.4 Interest paid (3.2) (3.0)Income taxes paid (4.0) (3.2) Net cash from operating activities 26.6 10.2 Investing activitiesPurchase of property, plant and equipment (14.0) (12.9)Purchase of intangible assets (0.3) (0.3)Proceeds from sale of property, plant and equipment 2.7 0.2 Net cash used in investing activities (11.6) (13.0) Net cash flows before financing 15.0 (2.8) Financing activitiesDividends paid 3 (5.4) (5.4)Net decrease in bank loans (0.9) -Repayment of obligations under finance leases (1.1) (1.0)Capital amount of finance leases received - 5.0Repurchase of ordinary shares (0.4) (0.6)Proceeds from issue of share capital 0.1 0.4 Net cash from financing activities (7.7) (1.6) Net increase / (decrease) in cash and cash equivalents 7.3 (4.4) Cash and cash equivalents at beginning of period (12.4) (8.3)Effect of foreign exchange rate changes 0.2 0.3 Cash and cash equivalents at end of period (4.9) (12.4) British Polythene Industries PLCNotes to the preliminary announcementFor the year ended 31 December 2005 1. Basis of preparation The impact of the transition to adopted International Financial ReportingStandards ("IFRS") and the significant accounting policies of the Group whichhave altered as a result of the adoption of IFRS, were included in the interimstatement for the 6 month period ended 30 June 2005. 2. Segment reporting Segment information is presented in respect of the Group's geographical andbusiness segments. Inter-segment pricing is determined on an arms length basis.Segment results, assets and liabilities include items directly attributable tothe segment as well as those that can be allocated on a reasonable basis. Primary segment - Geographical The Group operates in two principal geographic regions - "UK & Ireland" and "Continental Europe". UK & Ireland includes all of the UK manufacturing andmerchanting activities along with the Irish sales offices which distributepredominantly UK manufactured products. It also includes the manufacturingoperation in China from which substantially all of the output is exported forsale by the Group in the UK. Continental Europe comprises the manufacturing andmerchanting activities located in Belgium, Holland and France. These two regionsare the basis on which the Group reports its primary segment information. Segment information about these regions is presented below. Segment information by UK & Ireland Continental Europe Eliminations Consolidatedgeographic region 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £mTurnoverExternal sales 330.5 292.2 79.7 67.2 - - 410.2 359.4Inter-segment sales 2.3 1.4 0.4 1.9 (2.7) (3.3) - - Total turnover 332.8 293.6 80.1 69.1 (2.7) (3.3) 410.2 359.4 Profit from operations 17.8 9.5 5.5 4.3 - (0.1) 23.3 13.7 Net financing costs (3.6) (2.7) Profit before tax 19.7 11.0Tax (5.4) (2.9) Profit for the year 14.3 8.1 Segment assets 165.5 167.6 41.9 42.8 (7.6) (8.0) 199.8 202.4Segment liabilities (112.3) (102.8) (16.9) (18.7) 7.6 8.0 (121.6) (113.5)Net segment assets 78.2 88.9Net borrowings (47.1) (56.7)Taxation 6.1 3.9Net assets per balance sheet 37.2 36.1 Capital expenditure 11.2 6.8 3.5 3.8 14.7 10.6Depreciation and 10.4 10.4 2.9 2.7 13.3 13.1amortizationOther non-cash expenses (1.5) (1.2) - - (1.5) (1.2) British Polythene Industries PLCNotes to the preliminary announcementFor the year ended 31 December 2005 2. Segment reporting (continued) Secondary segments - Business The Group comprises the following principal secondary business segments: "Films" - Single process of extruded polythene reels "Converted" - Predominantly two or three stage process of extrusion, print andconversion "Recycled" - Recycles scrap from group and external sources and converts intopredominantly recycled products. Segment information about these businesses is presented below. Segment information by business segment External sales Segment assets Capital expenditure 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £mFilms 160.8 132.6 77.1 78.1 4.4 5.9Converted 175.8 159.4 98.1 99.3 8.3 3.5Recycled 73.6 67.4 32.2 33.0 2.0 1.2Eliminations - - (7.6) (8.0) - - 410.2 359.4 199.8 202.4 14.7 10.6 3. Dividends 2005 2004 £m £mAmounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 December 2004 of 14.0p per share(2003:14.0p) 3.6 3.6Interim dividend for the year ended 31 December 2005 of 7.0p per share(2004: 7.0p) 1.8 1.8 5.4 5.4 Proposed final dividend for the year ended 31 December 2005 of 15.0p per share (2004:14.0p) 3.9 3.6 The proposed final dividend is to be approved by shareholders at the AnnualGeneral Meeting on 11 May 2006 and has not been included as a liability as at 31December 2005. 4. Earnings per ordinary share The calculation of basic and diluted earnings per share at 31 December 2005 wasbased on the profit attributable to ordinary shareholders of £14.2 million(2004: £8.1 million). Weighted average number of ordinary shares 2005 2004 '000 '000Issued ordinary shares at 1 January 25,864 25,930Effect of shares issued 22 46Effect of shares repurchased - (120)Effect of own shares held (160) (173) Weighted average number of ordinary shares 25,726 25,683Effect of share options and long term incentive plan shares in issue 433 34 Diluted weighted average number of ordinary shares 26,159 25,717 British Polythene Industries PLCNotes to the preliminary announcementFor the year ended 31 December 2005 5. Retirement and employee benefit obligations 2005 2004 £m £mDefined benefit pension schemeFair value of scheme assets 154.5 129.8Present value of scheme liabilities (208.8) (172.8) Deficit in the scheme (54.3) (43.0)Other employee benefit obligations (1.7) (1.7) Retirement and other employee benefit obligations (56.0) (44.7)Related deferred tax asset 16.5 13.1 Net liability (39.5) (31.6) 6. Statutory accounts The consolidated financial information set out above does not constitute thecompany's statutory accounts for the years ended 31 December 2005 or 2004 but isderived from the 2005 accounts. Consolidated statutory accounts for 2004, whichwere prepared under UK GAAP, have been delivered to the registrar of companies,and those for 2005, prepared under International Financial Reporting Standards("IFRSs") as adopted for use in the EU, will be delivered in due course. Theauditors have reported on those accounts; their reports (i) were unqualified,(ii) included a reference to the uncertainty over the amount of financialpenalties that may result from the Competition Directorate of the EuropeanCommission inquiry into alleged infringement from European Competition law, and(iii) did not contain statements under section 237(2) or (3) of the CompaniesAct 1985. 7. Annual general meeting The Annual General Meeting will be held on Thursday, 11 May 2006 at 12 noon atthe Company's Head Office, 96 Port Glasgow Road, Greenock, PA15 2UL. 8. Results The results will not be advertised in any newspapers. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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