Preliminary Results

2 March 2015

BRITISH POLYTHENE INDUSTRIES PLC

PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2014

Highlights

· Operating profits up 11% to £26.7m (2013: £24.0m)

· Operating profit, less interest, up 14% to £25.1m (2013: £22.1m)

· Adjusted EPS up 12% to 66.21p (2013: 59.09p)

· Final dividend up 10% to 11p (2013: 10p)

· Borrowings reduced to £24m

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

"I am pleased to report that our results have shown an increase for a sixth consecutive year.

We anticipate a much better year in North America, continued progress in the UK, and another good performance in Europe and we look forward to the remainder of 2015 with confidence."

Enquiries

British Polythene Industries PLC

Chairman's Statement

For the year ended 31 December 2014

INTRODUCTION

I am pleased to report that our results have shown an increase for a sixth consecutive year, and that we have recorded positive volume growth for a second consecutive year.

This has been achieved despite difficulties we have had with a major installation in North America and adverse currency movements that have affected the translation of sales and profits from our European business.

The Board is recommending an increase of 10% in the final dividend.

RESULTS

Total volumes increased by just over 1% to 274,000 tonnes, despite the loss of a previously reported major contract early in the year. Against a background of continually reducing product thickness, this positive result is very encouraging.

On sales of £499 million (2013: £508 million), operating profit increased to £26.7 million (2013: £24.0 million, before restructuring). This improvement can be attributed to a significant increase in the performance of our UK business, offset by the previously reported difficulties we encountered with a major installation in North America. Our European business yet again performed extremely well, but their improved result was impacted, in our reported accounts, by currency translation as the Euro continued to weaken throughout the year.

Finance charges reduced to £1.6 million (2013: £1.9 million), as average borrowings were slightly lower during the year, and we had the benefit of more favourable terms negotiated during the first half of the year.

The calculated charge for net retirement benefit financing rose to £2.9 million (2013: £2.6 million).

After the above charges, profit before taxation rose to £22.2 million (2013: £18.5 million).

Statutory diluted earnings per share rose by 33% to 57.53p (2013: 43.23p).

Adjusted earnings per share increased by 12% to 66.21p (2013: 59.09p).

DIVIDEND

After an increase in the interim dividend to 5.0p per share (2013: 4.5p), the Board is recommending an increase in the final dividend to 11.0p (2013: 10.0p) making a total of 16.0p per share (2013: 14.5p).

This dividend will be payable on 15 May 2015 to shareholders on the register at the close of business on 13 March 2015.

CASHFLOW AND BORROWINGS

Our businesses continue to generate good cash flow; and this year saw yet another step increase. Operating cash flow, before any changes in working capital, increased by £4.4 million to £37.3 million. There were minor movements in working capital that reduced that number and it is likely that we will see more significant changes in working capital over the coming months, as the cost of our raw materials is currently reducing. This long-awaited easing should reduce the working capital requirement of the business.

After a reduction in interest costs and lower taxes paid, net cash from operating activities increased by £5.8 million to £29 million.

We had indicated an anticipated spend of some £20 million in 2014 on plant and equipment, but several major projects have now fallen into 2015, and actual expenditure on plant and equipment during the year totalled £16.6 million (2013: £19.7 million). We do expect 2015 expenditure to be in excess of £20 million, as the Board is committed to approve the expenditure that offers a satisfactory return for our shareholders and provides our customers with the quality of product and level of price that they expect.

As a consequence of this delayed spend, and the better operating cash flow, year end borrowings reduced to £24.1 million (2014: £30.1 million).

As reported in the Interim Statement, the Group has agreed new banking facilities on more favourable terms. These new facilities comprise revolving credit facilities of £70 million with five year duration.

GROUP PENSION SCHEME 

The IAS 19 deficit in the UK Defined Benefit Scheme increased to £99 million (£83 million net of tax) at 31 December, 2014.

The Scheme's assets delivered returns well in excess of the accounting assumptions and were valued at 31 December at £232 million. However, the assumed rate applied to discounting the long term liabilities fell to a record low number, resulting in a significant increase in the deficit. As we reported last year, the IAS 19 deficit also increased by £19 million following the change of accounting treatment of the Pension Funding Partnership which is no longer considered as an asset of the Scheme.

A triennial actuarial review of the fund was carried out at 6 April 2014 and the Actuary certified a deficit at that date of £78 million (April 2011: £54 million). The deterioration in the deficit can be attributed to a fall in real yields reducing the discount rate and was in spite of a good asset performance. The company agreed a future funding rate of £3.6 million per annum from 2015; rising in line with the consumer prices index subject to a cap of 5%. There is also provision for three additional one off payments in 2016-18 of between £0.25 million and £1.5 million, subject to the Group's profit before tax achieving agreed targets in 2015-17 in excess of the 2014 performance.

In February 2015 the company and trustees agreed to change the inflation index for pensions in payment from the Retail Prices Index to the Consumer Prices Index. This change reflects the Government's view that CPI is the most appropriate measure of inflation for pensions in payment due to the adoption of CPI for state, public sector and statutory minimum pension increases. Had this change been in place at 31 December 2014, the reported deficit on an IAS 19 basis would have been £27 million lower. This change will also impact the actuarial valuation and would have reduced the deficit at 6 April 2014 by £28 million. As part of this agreement, to increase the security of pensions for Scheme members, the company has agreed to make a one off payment of £11 million to the Scheme in June 2015 and this will further reduce the deficit.

All the above cash payments are treated as deficit repair contributions with no direct impact on profits.

GROUP DEVELOPMENT

The progress made in our UK business in 2014 was the result of hard decisions taken a few years ago to rationalise capacity, and thereafter to invest in new equipment. We continue to invest, in the UK, in Europe, and in North America. Sadly, it was one of these major capital investments that led to a very poor trading result in North America when a major item of replacement plant was delivered well behind schedule by a normally reliable supplier. This equipment is now running to expectations, and we do expect a much better result in 2015.

We have had a much better outcome with major installations in the UK and Europe, where new equipment has been delivered on schedule and installed and commissioned on time. Investments in new blown film extrusion equipment at Ardeer, Bromborough and Heanor in the UK are all showing considerable improvements in output and product specification. Printing capabilities at Hardenberg in Holland and Xinhui in China have been significantly upgraded.

We commissioned our first 9-layer blown film line for silage stretch-film last summer in Zele, in Belgium, and we have approved expenditure for a new high-speed printing press for that same site. Further major investment in printing and extrusion capability is planned for Ardeer during 2015.

Although our capital expenditure fell short of the £20 million we had projected for 2014, some of that was a timing issue, and we envisage a similar target spend for 2015.

RAW MATERIAL 

We indicated in the Interim Statement that we had detected a drop in the price of naptha, the main feedstock for the petro-chemical industry in Western Europe. Together with the dramatic drop in global oil prices this has resulted in significant cost reductions in polyethylene polymer around the end of 2014 and early 2015. At this stage, with prices still reducing, it is difficult to be precise; however we do expect our working capital to reduce, with a consequent reduction in our borrowings. Our reported sales turnover will reduce as lower polymer prices are reflected in selling prices.

We have been predicting a drop in raw material prices for several years, and this reduction has been slow in coming. It is difficult to predict a level where prices might settle, but just as we have demonstrated that we can cope with raw material price escalation, I am confident that we are capable of managing the current situation when prices are moving in the other direction.

YOUR BOARD

It is with considerable regret that I have to announce that Jamie Lindsay will be retiring from our Board at our AGM in May, by which time he will have served a nine year term. His knowledge of agriculture, the environment and regulatory matters has been of considerable assistance in our deliberations and I know that he will be missed by his Board colleagues and many friends in the Group.

He has agreed to continue as Chairman of the Pension Trustees with whom he has had to make a number of very significant decisions in the last few years.

We have no immediate plans to appoint another Board member.

PROSPECTS

We have made a good start to 2015. Our order books are similar to the same time last year and we expect good demand from the agricultural sector in the coming months. Reported results could be influenced by US dollar and Euro translation rates.

We anticipate a much better year in North America, continued progress in the UK, and another good performance in Europe and we look forward to the remainder of 2015 with confidence.

Cameron McLatchie

Chairman

British Polythene Industries PLC

Consolidated income statement

For the year ended 31 December 2014

British Polythene Industries PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2014

British Polythene Industries PLC

Consolidated balance sheet

At 31 December 2014

British Polythene Industries PLC

Consolidated cash flow statement

For the year ended 31 December 2014

British Polythene Industries PLC

Consolidated statement in changes in equity

For the year ended 31 December 2014

¹ As at 31 December 2014 the holding company retained earnings amounted to £38.7 million and are not affected by movements in retirement benefit obligations.

¹ As at 31 December 2013 the holding company retained earnings amounted £39.8 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 2014

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.

4. Dividends

The proposed final dividend of 11.0p per share will be paid on 15th May 2015 to shareholders on the register at close of business on 13th March 2015. It was approved by the Board on 27th February 2015 and has not been included as a liability as at 31 December 2014.

5. Earnings per ordinary share

6. Goodwill

7. Retirement and employee benefit obligations

Following the Financial Reporting Council's press release regarding asset backed funding arrangements the Group entered into discussions with the Trustees of the Pension Funding Partnership. This resulted in changes to the pension partnership agreement, restricting the ability of the scheme to sell or otherwise transfer its income interest without consent from the Group. The result of this change is that the income interest no longer meets the criteria for recognition as an IAS 19 plan asset and consequently the plan asset has been removed from the Group's balance sheet with an effective date of 30 June 2014. The accounting result of the change is an increase to the Group's reported post-employment obligation deficit by an amount of £19.1m, being the fair value of the income interest, and the elimination of the non-controlling interest which was previously recognised in equity in relation to the scheme income interest.

Contributions in 2015 will consist of an annual contribution of £3.6 million and an additional payment of £0.5m in June 2015 reflecting the Company having achieved an agreed profit target. This is in addition to contributions of £1.9 million per annum paid quarterly in relation to the Pension Funding Partnership. There will also be an additional contribution paid as set out in note 8.

8. Post Balance Sheet Events

Subsequent to the balance sheet date the Company agreed with the trustee of the British Polythene Pension Scheme to change the index used to revalue pensions in payment from RPI to CPI. This change reflects the Government's view that CPI is the most appropriate measure of inflation for pensions in payment due to the adoption of CPI for state, public sector and statutory minimum pension increases. The effect of this change had it been in place as at 31 December 2014 would have been to reduce the liabilities of the Scheme by £27m on an IAS19 basis. As part of this agreement, to increase the security of pensions for Scheme members, the Company has agreed to make a one off payment of £11 million to the Scheme in June 2015. This will be reflected in the 2015 report and accounts

9. 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 2014 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.

10. Related Party Transactions

The Group has a related party relationship with its subsidiaries, with its Directors and executive officers including key management personnel, and with the British Polythene Pension Scheme.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. 

There were no trading transactions with related parties who are not members of the Group in the year ended 31 December 2014. Transactions with the Group's pension schemes, which are related parties, are disclosed in note 7.

11. Statutory accounts

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013 but is derived from the 2014 accounts. Statutory accounts for 2013 have been delivered to the registrar of companies, and those for 2014 will be delivered in due course. The auditor has 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. 

12. Principal Risks

BPI may be affected by a number of risks, not all of which are within our control. Outlined below is a description of some of the most significant factors that may affect our business. There may be additional factors, in addition to those listed below, which are not currently known to the Group, or which we currently deem immaterial, which may also have an adverse effect on our business.

13. Annual General Meeting

The Annual General Meeting will be held on Tuesday, 12 May 2015 at 16:30 at the Company's Head Office, 96 Port Glasgow Road, Greenock, PA15 2UL.

14. Forward Looking Statements

This document contains forward-looking statements based on knowledge and information available to the Directors at the date the document was prepared. Although the Directors expectations are based on reasonable assumptions, these statements should be treated with caution due to the inherent uncertainties underlying such forward-looking information and any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

15. Responsibility Statement in respect of Annual Report

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31st December 2014. Certain parts thereof are not included within this Preliminary Announcement.

On behalf of the Directors of the Company, we confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

• the annual report and financial statements, taken as a whole, provides the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable. 

By Order of the Board

John Langlands David Harris

Chief Executive Group Finance Director