Preliminary Results

29 February 2016

BRITISH POLYTHENE INDUSTRIES PLC

PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2015

Highlights 

· Operating profits up 7% to £28.6m (2014: £26.7m) and up 13% on constant currency basis

· Operating profit, less interest, up 9% to £27.4m (2014: £25.1m) and up 16% on constant currency basis

· Adjusted EPS up 16% to 76.6p (2014: 66.2p)

· Dividend up 12.5% to 18p (2014: 16p)

· Capital investment programme continues

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

"Our results have shown an increase for the seventh consecutive year. This outcome is extremely encouraging given turbulent polymer costs during the first half, the adverse impact of currency on our European profits, and a year which delivered a marginal overall reduction in volumes.

2016 has started well and your Board is confident that 2016 will deliver further progress."

Enquiries

British Polythene Industries PLC

Chairman's Statement

For the year ended 31 December 2015

Introduction

Our results have shown an increase for the seventh consecutive year, and operating profits, before restructuring costs, are over 7% ahead of 2014. This outcome is extremely encouraging given turbulent polymer costs during the first half, the adverse impact of currency on our European profits, and a year which delivered a marginal overall reduction in volumes.

The Board is recommending the previously indicated increased final dividend of 12.0p per share (2014: 11.0p), making a total dividend for the year of 18.0p, an increase of 12.5%.

Results

Total volumes reduced by less than 1% to 272,000 tonnes, reflecting reduced demand from certain sectors in the UK, including the loss of an unprofitable contract to supply refuse sacks to a major retailer. Within these numbers, we saw an increase in demand for silage stretchwrap of just over 2%.

On sales of £468 million (2014: £499 million), reflecting lower average polymer costs for the year and the impact of currency translation on our European sales, operating profit, before restructuring costs, increased to £28.6 million (2014: £26.7 million). This improvement can be attributed to the return to profit of our North American operation, as previously reported difficulties with plant installation were rectified. UK and European returns were impacted by the turbulent raw material costs in the first half. However, UK returns still increased year on year as a result of a strong performance from our recycling operations. European returns increased by 7% on a local currency basis but exchange translation negated these improved returns.

During the year we closed a stretchfilm plant in Widnes and made redundancies at plants in Worcester and Sevenoaks, resulting in a restructuring charge of £1.1 million (2014: nil).

Finance charges reduced to £1.2 million (2014: £1.6 million), as average borrowings were slightly lower during the year, and we had the first full year of the more favourable terms negotiated in the first half of 2014. The calculated charge for net retirement benefit financing rose to £3.2 million (2014: £2.9 million).

After the above charges, profit before taxation rose to £23.1 million (2014: £22.2 million). Statutory diluted earnings per share rose by 11% to 63.82p (2014: 57.53p) and adjusted earnings per share increased by 16% to 76.58p (2014: 66.21p) both assisted by lower tax charges.

Dividend

As indicated at the time of the interim accounts in September, in an attempt to rebalance the dividend payments, there was an increase in the interim dividend to 6.0p (2014: 5.0p). We further indicated at that time that it was the Board's intention to recommend an increase in the final dividend to 12.0p (2014: 11.0p), making a total of 18.0p per share for the year (2014: 16.0p).

We can confirm that this is now the Board's recommendation, and that, if approved at the AGM on 10 May, this final dividend of 12.0p per share will be payable on 13 May 2016 to shareholders on the register at the close of business on 11 March 2016.

Cashflow and Borrowings

Operating cash flow, before adjustments for payments to the Pension Scheme and changes in working capital, increased to £43.6 million (2014: £42.7 million).

As previously reported, and noted in more detail below, we made a significant additional payment of £11.2 million into the UK Defined Benefit Pension Scheme. This significantly reduced the free operating cash flow in 2015, but has had a positive transformational impact on the consolidated balance sheet, at the same time improving the security of the Pension Scheme. Total equity has increased to £74.9 million (2014: £38.9 million).

As a consequence of the above payment, borrowings increased to £32.1 million (2014: £24.1 million).

As matters currently stand, and absent acquisitions, the free cash flow from 2016 and the proceeds of the sale of our Chinese operation, details of which are given below, should result in a significant reduction in borrowings by the end of 2016.

Group Pension Scheme

The IAS 19 deficit in the UK Defined Benefit Pension Scheme reduced to £53.2 million (£47.0 million net of tax) at 31 December 2015. The significant reduction from £99.1 million (£83.1 million net of tax) at the beginning of the year is due primarily to the change in 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 and had the impact of reducing the reported IAS 19 deficit by £27.6 million. To increase the security of pensions for Scheme members, the Company also made a one off payment of £11.2 million to the Scheme.

Group Development

Capital expenditure increased to £17.6 million (2014: £16.6 million), compared to depreciation of £15.0 million. We anticipate spending at least that amount in 2016. Our capital programme is producing considerable gains in output, quality and energy efficiency, particularly from extrusion equipment.

During the year, we took a number of actions to improve the performance of our UK business.

In October, we announced the sale of our Promopack reprographic business at Heanor to Reprographic Systems Limited for £0.2 million. Despite providing an excellent service, this business had failed to make a return for a number of years.

In November, we announced the closure of a stretchfilm plant at Widnes, with the transfer of production to a larger plant in Leominster. We also reduced numbers employed at VMB, our Consumer facility at Worcester, and in our Films business at Sevenoaks, in order to align staffing levels against current demand at these locations. 

The above actions resulted in a restructuring charge of £1.1 million in this year's accounts and should enhance future reported results by around £0.5 million.

Post Balance Sheet Events

We announced on 27 January that we have signed an agreement to sell our PRC subsidiary, BPI China, to a subsidiary of Amcor, the Australian based packaging company. The disposal is subject to the approval of the PRC authorities, and is expected to complete in the first half of 2016.

The consideration, payable in US dollars, including an amount for working capital, is estimated to be approximately £9.4 million with an estimated £6.4 million upon completion. The balance will be payable in cash in instalments, following the agreement of working capital and satisfaction of certain post completion arrangements, all of which are expected to take place within the next 12 months. The proceeds will be used to reduce borrowings. Our PRC subsidiary was established in 1993 to produce low cost carrier bags for the UK retail market. After selling the retail carrier bag business in 2002, BPI China diversified into other products for the UK market. Latterly the Group invested in high quality printing and conversion equipment to supply the Australasian market but progress has been slower than expected, despite an excellent record with product quality and service.

Total sales of the business, including sales to BPI in the UK of £6.1 million, were £9.6 million in the year to 31 December 2015 with a very small operating loss. Approximately 80% of sales to BPI in the UK are expected to continue after completion. The estimated gain on disposal which will be included in the accounts for year ended 31 December 2016 will be approximately £4 million comprising property and foreign exchange gains.

This disposal will remove uncertainty over future results from China, where, despite having an excellent workforce and a business well-equipped for expansion, we had a very small footprint and sales presence. 

Raw Material

At the time of writing the annual statement for 2014, we indicated that polymer costs had eased and that, based on our supplier's falling feedstock costs, it was generally envisaged that polymer costs would continue to ease during 2015. As subsequently reported during the year, this assessment proved spectacularly wrong, with polymer costs increasing by some 50% between early March and the end of June, the greatest short term increase that our industry has ever experienced. We have already reported the challenges this presented to our industry, and the short term impact on our margins last summer. Although polymer prices have subsequently eased back, they are still some 20% above last February, despite the continued fall in the oil price, with producers' margins over oil at very high levels. Middle East polymer producers continue to favour the Far East market, due to logistics costs and duty when importing product into Europe, and we still await new North American capacity, based on shale gas, coming on-stream.

It remains our view that polymer in Europe is overpriced and that we will see reductions in the medium to longer term. However, until we can see a few more shipments of polymer heading towards Europe, we feel that European polymer producers may be able to take advantage of the current market position, particularly if there are any further plant outages. 

Your Board

Despite the Board's unanimous view that, after eleven years of service, Hamish Grossart remains as independent as ever, continuing to challenge executives and fellow Board members alike, in accordance with corporate governance guidelines, we have agreed with Hamish that he will step down from the Audit and Remuneration Committees as from this year's AGM. He will also demit office as chair of the Nomination Committee, and as Senior Independent Director. He will remain as Deputy Chairman, and as a member of the Nomination Committee.

David Warnock has agreed to chair the Remuneration Committee, Ron Marsh has agreed to chair the Nomination Committee and Ian Russell has agreed to take the position of Senior Independent Director.

Prospects

2016 has started well. Our continuing investment programme in new plant, and action taken to bring facilities into line with demand are both designed to assist improved operating performance. We also expect continued success in supplying agricultural film markets. In addition the continued weakness of sterling should enhance our results, firstly through translation of our significant overseas earnings and secondly by improving the competitiveness of our UK business.

We continue to review a number of acquisition opportunities, both in the UK and on mainland Europe. It remains to be seen whether we can bring any of these to conclusion, but opportunities appear greater than they have been for some time.

Your Board is therefore confident that 2016 will deliver further progress.

British Polythene Industries PLC

Consolidated income statement

For the year ended 31 December 2015

British Polythene Industries PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2015

British Polythene Industries PLC

Consolidated balance sheet

At 31 December 2015

British Polythene Industries PLC

Consolidated cash flow statement

For the year ended 31 December 2015

British Polythene Industries PLC

Consolidated statement in changes in equity

For the year ended 31 December 2015

British Polythene Industries PLC

Notes to the consolidated financial statements

For the year ended 31 December 2015

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 assets 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 8 July 2015 announced that the UK corporation tax rate will reduce to 18% by 2020. Substantive enactment of the rate of 19% with effect from 1 April 2017 and 18% with effect from 1 April 2020 took place on 25 October 2015.

4. Dividends

If approved at the AGM on 10 May 2016, the proposed final dividend of 12.0p per share will be paid on 13 May 2016 to shareholders on the register at close of business on 10 May 2016. It was approved by the Board on 26 February 2016 and has not been included as a liability as at 31 December 2015.

5. Earnings per ordinary share

6. Goodwill

7. Retirement and employee benefit obligations

During the year 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 Group has therefore changed the index used to determine minimum pension increases from RPI to CPI. The resulting reduction in the present value of scheme liabilities of £27.6 million is included as a change in assumptions within other comprehensive income. To increase the security of pensions for Scheme members, the Company also made a one off payment of £11.2 million.

8. Post balance sheet events

On 27 January 2016 British Polythene Industries Plc signed an agreement to sell its PRC subsidiary BPI China (formally Xinhui Alida) to Amcor (China) Investment Co. Ltd, a subsidiary of Amcor, the Australian based packaging group (the Disposal). The Disposal is subject to the approval of the PRC authorities and is expected to complete in the second quarter of 2016.

The consideration, payable in US dollars, including an amount of working capital, is estimated to be approximately £9.4 million with an estimated £6.4 million upon completion. The balance will be payable in cash in instalments, following the agreement of working capital and satisfaction of certain post completion arrangements, all of which are expected to take place with the next 12 months. The proceeds will be used to reduce borrowings.

The estimated gain on disposal which will be included in the accounts for year ended 31 December 2016 will be approximately £4 million reflecting property and foreign exchange gains.

The assets and liabilities within BPI China have been classified as assets and liabilities held for sale.

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 2015 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 2015. 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 2015 or 2014 but is derived from the 2015 accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 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

The Company 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, 10 May 2016 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 2015. 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; and

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

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

By Order of the Board

John Langlands David Harris

Chief Executive Group Finance Director