Interim Results
API Group PLC
21 May 2001
21 May 2001
Interim results for the six months to 31 March 2001
* Operating profit (before goodwill amortisation and exceptional
items) £0.3m (£6.9m) on sales of £91.3m (£87.0m)
* Loss before tax, goodwill amortisation and exceptional items of £
0.5m (£6.7m profit), reflecting deteriorating trading conditions as indicated
in the statement at the Annual General Meeting in February
* Derek Ashley, new Chief Executive, appointed to the Board in
February, is concentrating on the priority of returning the Group to
profitability and also undertaking a strategic review of the Group's options
* Considerable progress has been made in reorganising the Group
- creation of more focused and distinct businesses in Foils and
Laminates division
- shortened reporting lines with divisional management layer removed
- major site rationalisation ongoing
- investment in strengthened sales teams
* No interim dividend, reflecting adjusted loss per share of 3.2p
(12.8p profit)
* Net assets per share of £2.26p and balance sheet gearing of 27%
* Benefits of reorganisation and cost reduction programmes expected
towards end of this year with full effect estimated to produce £6m of savings
and productivity benefits in 2002
Commenting on the results, Chairman, Moger Woolley said:
'The results reflect my comments at the time of our AGM. The difficult
trading conditions encountered in the second half of last year deteriorated
further in the first half of the current year. The reorganisation of
management and reduction in the cost base, set in train towards the end of
last year, is progressing well. The full benefit of these actions, amounting
to £6 million of savings and productivity benefits, is expected next year.
Derek Ashley is also in the process of conducting a strategic review of the
Group's options.'
CHAIRMAN'S INTERIM STATEMENT
Results for the half-year ended 31 March 2001
The Group experienced adverse trading conditions throughout the period with a
general decline in profitability across API's two divisions, with the
exception of the Chinese operation, where profits increased. The Group's
Foils business in the USA was particularly badly affected and accounted for
almost half of the profit shortfall compared with the previous year. The loss
for the half-year before tax, one off costs, exceptional items, and goodwill
amortisation and impairment, was £0.5m (£6.7m profit) on sales of £91.3m (£
87.0m).
Adjusting for the effect of acquisitions, sales on an underlying basis were 2%
down on the previous year. Sales in the UK were down 7%, overseas and export
sales rose by 16%, mainly due to the acquisition of the Van Leer Metallised
Paper business in April 2000. Gross margin was 6% down, reflecting a shortfall
in contribution of approximately £6.0m due to material cost increases and
lower average sales prices, particularly in the Foils businesses in the USA
and Europe. As anticipated, the Metallised Paper business suffered some
disruption in the half year, with the move of major items of plant and
equipment to the Caerphilly site where production is scheduled to restart in
June.
The Group incurred a pre-tax loss for the half-year of £25.2m (£5.5m profit)
after charging exceptional costs of £24.1m (£0.7m). These exceptional costs
relate to:
- goodwill written off, mainly in relation to the Foils business in
the USA (£12.9m);
- site rationalisation, management restructuring and related costs (£
10.6m);
- write down to market price of API Group plc shares purchased and
held by the trustee of the Group's employee benefit trust (£0.6m);
Adjusted loss per share (before goodwill amortisation and exceptional costs)
was 3.2p (12.8p profit) with FRS 3 earnings showing a loss of 71.8p (earnings
10.3p). Reflecting the loss in earnings, no interim dividend is to be paid.
Following the former Chief Executive's departure from the Group in July 2000,
the Board embarked on a programme of rationalisation and cost reduction
involving primarily the closure and consolidation of a number of the Group's
manufacturing sites in the UK. This programme, together with recent actions,
should deliver £6m in cost reduction and improved productivity in the next
full financial year. The rationalisation programme comprises four major
projects:
- closure of the Metallised Paper site in Macclesfield and transfer of
plant to Caerphilly. The equipment moves have been completed and machine
trials are currently being conducted with production scheduled for June;
- closure of the Metallised Laminates site in Rochdale planned for the
end of May, with major equipment being transferred to Poynton and full
production expected in September;
- consolidation in Scotland of the European graphics hot stamping foil
manufacturing operations which was completed in May; and
- transformation of the Group's site in Salford to create a secure
environment for more specialist holographic and security foils.
Since his appointment, our new Chief Executive, Derek Ashley, is undertaking a
strategic review of all the Group's options. In addition to the significant
ongoing site rationalisation programme, short term actions have been taken to
refocus the Group's management, including bringing together the worldwide
Foils operations under a single team, removing the divisional management layer
from the Foils and Laminates division and restructuring management in the USA
and in a number of other businesses. These changes are designed to shorten
reporting lines, strengthen the sales functions, revitalise technical
development, improve productivity and reduce the operating cost base.
There was an operating cash inflow of £2.7m in the period. Depreciation and a
reduction in working capital have offset poor trading results and contributed
to the positive net operating cash inflow. Capital expenditure commitments
carried over from the previous year and expenditure involved in consolidating
the Metallised Paper business in Caerphilly of £3.6m are included in capital
expenditure of £7.1m in the half year. Net borrowings rose by £8.5m to £20.6m
representing gearing of 27%. Capital expenditure in the second half is
forecast at £5.5m including £1.2m of expenditure in connection with the
consolidation of the Laminates business. Shareholders' funds of £76.4m (£
99.0m) are equivalent to £2.26 per share.
REVIEW OF OPERATIONS
Foils and Laminates
Operating profits declined by £5.1m to £0.03m (£5.2m) (before goodwill and
exceptional costs) on sales up 8% to £66.9m (£62.2m) On a like-for-like basis,
adjusting for the acquisition of the Van Leer Metallised Paper business in
April last year, sales fell by 2%. The decline in profitability was
particularly severe in the USA while lower volumes, raw material price
increases and reduced selling prices applied across the division.
In addition to the rationalisation programme instigated last year to reduce
costs and improve focus, divisional management changes have been made. Foils
is now structured as a single business servicing worldwide customers from
operations in Europe, USA and China. The Laminates and Paper Metallising
businesses are being consolidated onto two sites, (from the previous four).
One effect of this simplified structure has been the removal of the divisional
management layer. The businesses now report direct to Derek Ashley.
Converted Products
The division made an operating profit of £0.2m (£1.7m profit) on sales down 2%
to £24.4m (£24.8m). Continuing pressure on selling prices and raw material
cost increases halved the results of Tenza (self-adhesive products), with
Coated Products (siliconised release coatings) achieving a modest increase in
profits. The most disappointing results were from Learoyd (film based
flexible packaging) accounting for £1.2m of the profit shortfall. Management
has been strengthened in the Learoyd Group with the objective of improving the
sales and marketing profile, with emphasis on developing and exploiting
opportunities presented by the recently installed £1.5m ten-colour press and £
4.0m investment in the new polypropylene co-extrusion facility. Tenza has
significant European exports where margins remain under pressure. Following
the sale of the anti-corrosive papers business, Coated Products is now
concentrating on its core business of siliconised papers and films. New film
products are showing growth potential, particularly in the Far East.
PROSPECTS
The outlook for the full year continues to be difficult to predict. Raw
material prices appear to have stabilised and there is some evidence that
sales prospects are improving. However, margins are likely to remain under
pressure, particularly for the Group's 30% of sales into Europe.
Significant cost reduction measures, the restructuring of the management
teams, improved margin business from increasing sales of low cost foil from
China-based Shen Yong and new capacity in the Converted Products division,
should all contribute to an improvement in the Group's performance next year.
J. Moger Woolley, Chairman
21 May 2001
Enquiries:
Derek Ashley, Chief Executive Tel: 020 7831 3113 (21/05/01)
Dennis Holt, Finance Director Tel: 01625 610334 (thereafter)
API Group plc
Tim Spratt
Financial Dynamics Tel: 020 7831 3113
GROUP PROFIT & LOSS ACCOUNT
for the six months ended 31 March 2001
6 months to 31 March 2001 6 months to 12 months to
Continuing Exceptional 1 April 30
operations items Total 2000 September
2000
£'000 £'000 £'000 £'000 £'000
Turnover 91,323 - 91,323 87,008 188,772
Cost of sales (73,378) (20,348) (93,726) (64,347) (155,809)
Including
goodwill
amortisation (601) - (601) (503) (1,112)
Gross 17,945 (20,348) (2,403) 22,661 32,963
profit/(loss)
Distribution (3,777) (88) (3,865) (3,480) (7,800)
costs
Administrative (14,486) (3,655) (18,141) (13,475) (28,520)
expenses
Operating (318) (24,091) (24,409) 5,706 (3,357)
(loss)/profit
Loss on - - - - (97)
disposal of
land and
buildings
(Loss)/profit (318) (24,091) (24,409) 5,706 (3,454)
on ordinary
activities
before
interest and
tax
Net interest (762) (200) (677)
expense
(Loss)/profit (25,171) 5,506 (4,131)
on ordinary
activities
before tax
Taxation 1,869 (1,520) (1,885)
(Loss)/profit (23,302) 3,986 (6,016)
on ordinary
activities
after tax
Profit (569) (553) (1,144)
attributable
to minority
equity
interests
(Loss)/profit (23,871) 3,433 (7,160)
attributable
to ordinary
shareholders
Ordinary - (2,186) (5,060)
dividends
Balance (23,871) 1,247 (12,220)
transferred
(from)/to
reserves
Earnings per ordinary 25p share
Basic (71.8p) 10.3p (21.5p)
Diluted (71.8p) 10.3p (21.5p)
Adjusted earnings per ordinary 25p share
(before exceptional items and goodwill
amortisation)
Basic (3.2p) 12.8p 22.4p
Diluted (3.2p) 12.8p 22.4p
Dividends per ordinary 25p share - 6.55p 15.19p
GROUP BALANCE SHEET
at 31 March 2001
31 March 1 April 30 September
2001 2000 2000
£'000 £'000 £'000
Fixed assets
Intangible assets 6,931 19,876 20,162
Tangible assets 64,940 60,171 61,722
Investments 852 2,416 1,499
72,723 82,463 83,383
Current assets
Stocks 27,950 23,686 30,355
Debtors 46,716 46,740 52,444
Cash at bank and in hand 9,394 6,155 8,502
84,060 76,581 91,301
Creditors - Amounts falling due within one
year
Creditors (66,874) (37,185) (59,309)
Current taxation - (2,645) (1,600)
Dividends - (2,186) (2,874)
(66,874) (42,016) (63,783)
Net current assets 17,186 34,565 27,518
Total assets less current liabilities 89,909 117,028 110,901
Creditors - Amounts falling due after more
than one year (284) (344) (304)
Provisions for liabilities and charges (5,470) (651) (4,197)
Accruals and deferred income (232) - (274)
83,923 116,033 106,126
Minority interests (7,485) (6,344) (7,083)
Total net assets 76,438 109,689 99,043
Share capital and reserves
Called up share capital 8,463 8,463 8,463
Share premium account 50,563 50,563 50,563
Revaluation reserve 2,616 2,189 2,616
Capital redemption reserve 549 549 549
Profit and loss account 14,247 47,925 36,852
Equity shareholders' funds 76,438 109,689 99,043
GROUP CASHFLOW STATEMENT
for the six months ended 31 March 2001
6 6
months months 12 months
to to to
31 1 April 30
March September
2001 2000 2000
£'000 £'000 £'000
Reconciliation of operating (loss)/profit to net cash
inflow from operating activities
Operating (loss)/profit (24,409) 5,706 (3,357)
Amortisation and depreciation less government grants 4,178 3,869 8,560
Impairment charge against tangible fixed assets and
investments 1,276 - 7,806
Impairment charge against intangible assets 12,906 - -
Loss/(profit) on disposal of fixed assets 71 (15) 110
Decrease/(increase) in stocks 2,804 (3,827) (8,423)
Decrease/(increase) in debtors 6,649 4,204 (413)
(Decrease)/increase in creditors (2,073) (6,865) 1,037
Increase/(decrease) in provisions 1,273 (163) 3,383
Net cash inflow from operating activities 2,675 2,909 8,703
Cash flow statement
Net cash inflow from operating activities 2,675 2,909 8,703
Returns on investments and servicing of finance (1,240) (404) (1,206)
Taxation (125) (1,470) (3,947)
Capital expenditure and financial investment (7,129) (4,188) (11,613)
Acquisitions and disposals (69) (1,852) (3,798)
Equity dividends paid (2,874) (2,890) (5,076)
Net cash outflow before financing (8,762) (7,895) (16,937)
Financing - (5) (33)
Decrease in cash in the period (8,762) (7,900) (16,970)
Exchange movement 234 278 859
Balance sheet movement in net cash (8,528) (7,622) (16,111)
Reconciliation of net cash flow to movement in net
(debt)/funds
Decrease in cash (8,762) (7,900) (16,970)
Repayment of the capital element of finance leases - 5 33
Change in net (debt)/funds resulting from cash flows (8,762) (7,895) (16,937)
Exchange differences 234 278 859
Movement in net (debt)/funds (8,528) (7,617) (16,078)
Net (debt)/funds at start of period (12,042) 4,036 4,036
Net (debt) at end of period (20,570) (3,581) (12,042)
OTHER STATEMENTS
6 months 6 months 12 months
to to to
31 March 1 April 30
September
2001 2000 2000
£'000 £'000 £'000
Statement of total recognised gains and
losses
(Loss)/profit attributable to members of the
parent company (23,871) 3,433 (7,160)
Currency translation differences on foreign
currency net investments 1,266 1,297 4,118
Total gains and losses recognised since last
annual report and accounts (22,605) 4,730 (3,042)
Reconciliation of movements in shareholders'
funds
(Loss)/profit attributable to members of the
parent company (23,871) 3,433 (7,160)
Dividends - (2,186) (5,060)
Currency translation differences on foreign
currency net investments 1,266 1,297 4,118
Net (deduction)/addition to shareholders' (22,605) 2,544 (8,102)
funds
Opening shareholders' funds 99,043 107,145 107,145
Closing shareholders' funds 76,438 109,689 99,043
NOTES
SEGMENTAL ANALYSIS
6 months 6 months 12 months
to to to
31 March 1 April 30
September
2001 2000 2000
£'000 £'000 £'000
Analysis of turnover by destination
United Kingdom 39,431 42,351 88,145
Continental Europe 26,515 20,008 49,110
Americas 15,788 15,773 33,031
Rest of World 9,589 8,876 18,486
91,323 87,008 188,772
Analysis of turnover by origin
United Kingdom 66,933 64,335 141,774
Continental Europe 1,471 761 2,506
Americas 15,700 16,284 33,388
Rest of World 7,219 5,628 11,104
91,323 87,008 188,772
Analysis of profit/(loss) before interest and
tax by origin
United Kingdom 307 4,059 7,608
Continental Europe 137 126 195
Americas (1,603) 1,432 1,839
Rest of World 1,442 1,251 2,620
283 6,868 12,262
Exceptional items and goodwill amortisation (24,692) (1,162) (15,716)
(24,409) 5,706 (3,454)
£8,320,000 of the exceptional items and goodwill amortisation arise in the
United Kingdom (April 2000 £748,000: September 2000 £15,016,000), £16,151,000
arise in the Americas (April 2000 £366,000: September 2000 £610,000) and £
221,000 arise in the Rest of the World (April 2000 £48,000: September 2000 £
90,000).
Analysis of turnover by activity
Foils & laminates 66,904 62,185 137,429
Converted products 24,419 24,823 51,343
91,323 87,008 188,772
Analysis of profit/(loss) before interest and tax by
activity
Foils & laminates 34 5,159 8,854
Converted products 249 1,709 3,408
283 6,868 12,262
Exceptional items and goodwill amortisation (24,692) (1,162) (15,716)
(24,409) 5,706 (3,454)
£21,585,000 of the exceptional items and goodwill amortisation relate to the
foils and laminates division (April 2000: £1,069,000, September 2000 £
14,434,000) and £3,107,000 relate to the converted products division (April
2000 £93,000: September 2000: £1,282,000).
OPERATING (LOSS)/PROFIT
6 months to 6 months to 12 months to
31 March 1 April 30 September
2001 2000 2000
£'000 £'000 £'000
Exceptional items charged against
operating profit comprise
Restructuring of operating businesses 10,538 659 12,059
Impairment of intangible assets 12,906 - -
Provision against own shares held in
ESOP 647 - 959
Other - - 1,489
24,091 659 14,507
EARNINGS PER SHARE
6 months to 6 months to 12 months to
31 March 2001 1 April 30 September
2000 2000
pence £'000 pence £'000 pence £'000
Earnings per share are based on
(Loss)/profit attributable to
ordinary shareholders (71.8) (23,871) 10.3 3,433 (21.5) (7,160)
Add exceptional items 72.4 24,091 2.0 659 43.9 14,604
Add goodwill amortisation 1.8 601 1.5 503 3.3 1,112
Less tax relief (5.6) (1,869) (1.0) (330) (3.3) (1,109)
Adjusted (loss)/profit
attributable to ordinary
shareholders (3.2) (1,048) 12.8 4,265 22.4 7,447
Basic weighted average ordinary 33,262,578 33,262,578 33,262,578
shares
The weighted average number of shares exclude the 588,000 shares owned by the
API Group plc No. 2 Employee Benefit Trust.
BASIS OF PREPARATION
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's statutory accounts for the year
ended 30 September 2000. The taxation credit relates entirely to the
exceptional items. The estimated effective rate of taxation for the full year
excluding exceptional items is 50%. Other expenses are accrued in accordance
with the same principles used in the preparation of the annual accounts.
PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this interim statement is unaudited and
does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The financial information for the full preceding year is
based on the statutory accounts for the financial year ended 30 September
2000. Those accounts, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies.
INDEPENDENT REVIEW REPORT
To API Group plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 5 to 10 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information, in respect of the
six months ended 31 March 2001, which is the responsibility of, and has been
approved by, the directors. Our responsibility is to report on the results of
our review.
Director's responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally
of making enquiries of group management and applying analytical procedures to
the financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2001.
Ernst & Young
Manchester
21 May 2001
INTERIM STATEMENT
The interim statement is being mailed to shareholders on 25 May 2001 and will
be available at the company's registered office, Silk House, Park Green,
Macclesfield, Cheshire, SK11 7NU.
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