Disposal

API Group PLC
04 January 2005

4 January 2005

                                 API Group plc


                  Proposed disposal of API Converted Products


API Group plc, the specialist packaging group, announced today the proposed
disposal of its Converted Products businesses for a cash consideration of up to
£12.2m.


The sale is conditional upon the approval of shareholders, which will be sought
at an Extraordinary General Meeting to be held on 20 January 2005 or shortly
thereafter, and is in line with comments made in the preliminary results
announcement in November.


API Converted Products comprises three businesses specialising in the coating of
film and paper with either adhesive or silicon, and in the manufacture of
polypropylene film. Its products are used principally in the packaging industry.


The operating profit, before exceptional items, goodwill amortisation and share
of joint venture losses of Converted Products for the financial year ended 30
September 2004 reduced to £0.2m (2003 - £0.9 million), on sales down 4.6 per
cent. to £32.6m (2003 - £34.2m).


The cash consideration of £12.2m comprises:


  • Initial consideration of £9.0m (less any repayment of intra-group debt),
    payable on Completion



  • Between £1.25m and £2.0m deferred consideration, payable two years after
    Completion



  • 50% of the amount by which earnings before interest and tax for the three
    years ending 30 September 2007 exceeds £2.1m, up to a maximum of £1.2m.



The net proceeds from the sale will be applied to reduce Group debt.


Commenting on the disposal David Walton, who was appointed as API Group Chief
Executive in May 2004, said:

'The sale of Converted Products follows that of Metallised Paper announced in
December and represents another very significant step towards refocusing the
Group on its core Foils and Laminates activities, where we believe there are
attractive opportunities for further development. In future, the new management
of API will be concentrating its efforts on these businesses with a view to
building on their good progress during 2004, achieving further improvement in
both sales and profitability and creating value for our shareholders.'


Enquiries:


David Walton, Chief Executive, API Group plc               020 7653 3300



Tim Spratt/Michelle Morton, Financial Dynamics             020 7831 3113


API Group plc (the 'Company')


Proposed disposal of API Converted Products


Introduction



The Board of API Group plc is pleased to announce that that the Group has
entered into a conditional Disposal Agreement for the sale of API Converted
Products, for a consideration of up to £12.2 million before estimated costs of
disposal of £475,000 and incentive payments to members of the Converted Products
management team estimated at £300,000. API Converted Products specialises in
coating film and paper, and in the manufacture of polypropylene film. A
comprehensive sale process has been conducted and the Board believes that this
transaction optimises value for Shareholders.



In view of the size of the Disposal relative to the market value of the Company,
the sale is conditional upon the approval of Shareholders. A circular to
Shareholders, including a notice convening an Extraordinary General Meeting to
seek Shareholder approval for the Disposal, is expected to be posted to
Shareholders in the first week of January 2005.



The Disposal is also conditional upon the agreements pursuant to which the Buyer
and the Property Buyers expect to receive funding for the Disposal becoming
unconditional in accordance with their respective terms and being completed. The
Board has no control over the satisfaction of that condition and is, therefore,
unable to guarantee that it will be satisfied. The Board has, however, obtained
certain contractual undertakings from the shareholders of the Buyer and the
Property Buyers in relation to the matters which are required for the
satisfaction of that condition. Those undertakings are summarised in the
Circular.



Background to and reasons for the Disposal



In recent years, the Group has implemented a series of restructuring and
reorganisation initiatives in order to address underperformance in some of its
businesses. Good progress has been made in the Foils and Laminates Business, but
improvement in the Metallised Paper and the Converted Products divisions has
been slower. The Group's strategy has been to focus on the development of the
core Foils and Laminates Business and therefore a comprehensive sale process has
been conducted for the Group's non-core businesses.



As part of this strategy, the Group announced on 8 December 2004 the successful
sale of its loss-making Metallised Paper business, for a deferred consideration
of £0.5 million. The sale of Converted Products will complete the process of
refocusing the Group on its core activity of manufacturing reflective packaging
materials, a sector which the Board believes has excellent prospects for growth.



Information on API Converted Products



Converted Products specialises in coating film and paper with either adhesive or
silicon, and in the manufacture of polypropylene film. It principally supplies
the packaging industry and consists of three businesses: Tenza, Coated Products
and Filmcast, which produce the following products:



  • Tenza - a range of self-adhesive products, including packing list
    envelopes ('document enclosed' envelopes), laminates, book-covering films
    and self-adhesive labels. The products are sold mainly into the stationery,
    packaging and labelling supplies market segments;



  • Coated Products - silicone-coated papers and films providing special
    performance characteristics such as release, non-stick and non-absorbent
    properties. The products are used in medical, hygiene, food and industrial
    applications; and



  • Filmcast - cast polypropylene films manufactured through mono and co-
    extrusion processes. The co-extruded films provide special performance
    features such as controlled moisture retention, or high puncture and tear
    resistance. The films have a variety of applications in the food, media,
    medical and stationery market segments.



Products are sold either as base materials for further conversion, or as
finished goods to both end-users and distributors. The principal geographical
sales focus is the UK and Europe. There are also customers in South America, the
Middle East, the Far East, and Australia.



The division employs approximately 250 people and occupies freehold and
leasehold properties located in Saxmundham, Suffolk (Tenza), Cheltenham,
Gloucestershire (Coated Products) and Nelson, Lancashire (Filmcast), which were
valued by independent chartered surveyors in August 2004 at approximately £2.2
million, £1.75 million and £1.64 million respectively. All three properties are
being sold as part of the Disposal.



The following table is a summary of the key financial information of the API
Converted Products Division:



                                                                   Year ended 30 September
                                                                           2002         2003        2004
                                                                          £'000        £'000       £'000

Turnover                                                                 35,279       34,186      32,599
Gross profit                                                              7,844        7,439       5,494
Operating profit (before goodwill amortisation, exceptional items         1,262          857          83
and share of joint venture losses)
Loss before tax                                                         (2,697)        (606)     (1,563)
Loss after tax                                                          (2,779)        (277)       (915)



Principal terms of the Disposal



The Disposal is conditional upon the approval of Shareholders which will be
sought at the Extraordinary General Meeting. As noted above, the Disposal is
also conditional upon the agreements pursuant to which the Buyer and the
Property Buyers expect to receive funding for the Disposal becoming
unconditional in accordance with their respective terms and being completed.



Under the terms of the Disposal Agreement and subject to the Disposal Agreement
being completed, the Group will receive total cash consideration of up to £12.2
million. The consideration, all of which is payable in cash, is due to be paid
as follows:



(1)        £9.0 million (less any repayment of intra-group debt) is due to be
paid on Completion, subject to adjustment after Completion to the extent that
the net assets of Converted Products at Completion (excluding, for this purpose,
the values attributable to land and buildings) are higher or lower than
£10,621,000. Interest will accrue from Completion on the amount of any such
adjustment at a rate equal to 5 per cent. above the base rate from time to time
of Barclays Bank plc;



(2)        £2.0 million is due to be paid on the second anniversary of
Completion. This sum will be reduced to £1.25 million if Swanson Plastics
Corporation validly exercises its right (which arises upon a change of control
of Coated Products) to wind-up, or to acquire from Coated Products the
shareholding of Coated Products in, A.S. Holdings (UK) Limited, the joint
venture company established by Swanson Plastics Corporation and Coated Products;
and



(3)        if the earnings before interest and tax of Converted Products in the
period between 1 October 2004 and 30 September 2007 exceeds £2,139,000, a
further amount is due to be paid equal to the lesser of £1,200,000 and 50 per
cent. of such excess. Any such further amount is due to be paid following
agreement or determination of the amount of such earnings.



The pro forma net assets of the Continuing Group following the Disposal
(prepared on the bases which will be set out in the Circular to Shareholders)
will be £41,392,000.



The net proceeds of the Disposal, after having paid the transaction expenses,
will be used to reduce the Group's bank debt.



Information on the Buyer and the Property Buyers



The Buyer and the Property Buyers are (or are expected at Completion to be) each
wholly-owned by Nigel Craig Trilk and Martin Paul Urquhart, who are also their
only directors. The Buyer and the Property Buyers have entered into a
conditional agreement for the provision of funding for the Disposal by GE
Commercial Finance Limited.



Current trading and future prospects



The Group



The Group's core Foils and Laminates Business performed strongly during the last
financial year despite experiencing tough trading conditions. Whilst these
conditions have remained, and are expected to continue to be challenging, the
Group's operations have been trading satisfactorily and the benefits from
restructuring and other initiatives continue to be felt.



Following the Disposal, management will be able to focus on the core Foils and
Laminates Business, where the Board believes there are interesting development
possibilities and where the Board believes that the best opportunities for
further improvements in sales and profitability and the creation of value for
the Group's shareholders lie. Initiatives currently being implemented include:



(1)        greater emphasis being placed upon product technology, innovation and
service levels, which the Board believes are positive differentiating factors
for the Foils and Laminates Business and provide a route to sales and profit
growth;



(2)        continued phased capital investment programme intended to upgrade the
manufacturing capabilities of the Foils and Laminates Business; and



(3)        continued investment in new ERP systems supplied by Oracle, which
will provide much of the business systems infrastructure for the Foils and
Laminates Business and which is intended to improve the effectiveness and
automation of the business processes.



The Board views the financial and trading prospects of the Group with confidence
and expects further improvement in the Group's performance in 2005.



Converted Products



The operating profit, before exceptional items, goodwill amortisation and share
of joint venture losses for Converted Products for the financial year ended 30
September 2004 reduced to £174,000 on sales down 4.6 per cent. to £32.6 million.
Since then, the business has continued to trade broadly in line with the Board's
expectations. The investment in upgrading certain equipment at Filmcast is
underway, which the Board believes will enable it to increase its output and
product range.



Recommendation



The Directors, who have been advised by both Numis Securities Limited and RSM
Robson Rhodes LLP, consider the Disposal to be in the best interests of the
Company and of the Shareholders as a whole. In providing advice to the
Directors, each of Numis Securities Limited and RSM Robson Rhodes LLP have taken
into account the Directors' commercial assessments. Accordingly, the Board will
recommend Shareholders to vote in favour of the resolution to be proposed at the
Extraordinary General Meeting.



Definitions



The following definitions apply throughout this announcement:


Act                                   means the Companies Act 1985, as amended;


API Converted Products or             means together, Coated Products, Tenza, Filmcast, the Cheltenham
Converted Products                    Property and the Saxmundham Property


API-Stace                             means the Company's wholly-owned subsidiary, API-Stace Limited
                                      (registered in England and Wales with number 2850332), which is and
                                      will remain a member of the Continuing Group;


Board or Directors                    means the directors of the Company;


Buyer                                 means MC 335 Limited (registered in England & Wales with number
                                      5270955);


Cheltenham Property                   means the freehold and leasehold land and buildings at Gloucester
                                      Road, Cheltenham occupied by Coated Products;


Coated Products                       means the Company's wholly-owned subsidiary, API Coated Products
                                      Limited (registered in England and Wales with number 375718);


Company                               means API Group plc (registered in England and Wales with number
                                      169249);


Completion                            means completion of the Disposal;


Continuing Group                      means the Group as constituted after the Disposal has taken place;


Disposal                              means, together, the proposed disposal by the Company and Learoyd
                                      of the entire issued share capitals of Coated Products, Tenza and
                                      Filmcast and the proposed disposal by API-Stace of the Cheltenham
                                      Property and the Saxmundham Property, in each case pursuant to the
                                      Disposal Agreement;


Disposal Agreement                    means the conditional agreement dated 4 January 2005 and made
                                      between the Company, Learoyd, API-Stace, the Buyer, the Property
                                      Buyers, Nigel Craig Trilk and Martin Paul Urquhart relating to the
                                      Disposal;


Extraordinary General Business        means the extraordinary general meeting of the Company to consider
                                      a resolution to approve the Disposal and which is expected to be
                                      convened for Thursday, 20 January 2005, or shortly thereafter;


Filmcast                              means the Company's wholly-owned subsidiary, Filmcast Extrusions
                                      Limited (registered in England and Wales with number 2683570);


Foils and Laminates Business          means the Company's foil and laminate products manufacturing
                                      division;


Group                                 means the Company and its subsidiaries (as defined in sections 736
                                      and 736A of the Act);


Learoyd                               means the Company's wholly-owned subsidiary, Learoyd Group Limited
                                      (registered in England and Wales with number 3037060), which is and
                                      will remain a member of the Continuing Group;


Metallised Paper                      means the division of Henry & Leigh Slater Limited (a wholly-owned
                                      subsidiary of the Company) which division was sold by Henry & Leigh
                                      Slater Limited on 8 December 2004 and which manufactured a range of
                                      specialised aluminium-coated papers for use in cigarette packaging
                                      and as label papers in the food and drinks industries;


Property Buyers                       means MC 336 Limited (registered in England and Wales with number
                                      5270881) and MC 337 Limited (registered in England and Wales with
                                      number 5270877);


Saxmundham Property                   means the freehold land lying to the south of Carlton Road,
                                      Saxmundham occupied by Tenza;


Shareholders                          means holders of Shares;
Shares                                means the ordinary shares of 25p each in the capital of the
                                      Company; and


Tenza                                 means the Company's wholly-owned subsidiary, API Tenza Limited
                                      (registered in England and Wales with number 2027635).


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