Interim Results
API Group PLC
27 May 2004
27 May 2004
API GROUP PLC
CHAIRMAN'S INTERIM STATEMENT
SIX MONTHS ENDED 31 MARCH 2004
RESULTS
• Results in line with trading statement issued in March 2004
• Operating loss before goodwill amortisation and exceptional items of £0.6m
(£0.1m profit) reflects encouraging recovery in Foils and Laminates offset
by poor performance from Metallised Paper
• Sales down 2% to £82.2m (£84.2m), although sales from continuing
businesses were virtually unchanged at £80.0m
• Good progress in restructuring Converted Products, although Group's
results affected by losses on disposals
• Loss per share before exceptional items and goodwill amortisation 6.5p
(2.2p loss)
• Balance sheet remains strong with net debt of £12.7m and gearing of 29%
• Return to profitability expected in seasonally stronger second half
Commenting on the results, Chairman David Hudd said:
'While disappointing, these results are in line with the statement we made at
the end of March. We continue to see improvement in the performance of Foils and
Laminates and recognise that vigorous action is required in Metallised Paper. We
remain committed to our strategy of repositioning the Group, while continuing to
explore options for realising value for our shareholders.'
Enquiries:
API Group plc 020 7653 3300
David Walton, Chief Executive
Financial Dynamics 020 7831 3113
Tim Spratt/Michelle Morton
API GROUP PLC
CHAIRMAN'S INTERIM STATEMENT
SIX MONTHS ENDED 31 MARCH 2004
API manufactures specialised packaging and security products for the tobacco,
drinks, food, luxury and consumer goods sectors. In recent years, significant
efforts have been made to restructure and refocus the Group on its core
activities - which comprise the manufacture of reflective-surfaced packaging
materials for premium branded goods.
As outlined in the trading update published by the Company on 24 March 2004,
although good progress has been made in many areas, this has yet to be reflected
in an improvement in the Group's overall results, due principally to a
substantial deterioration in the performance of the Metallised Paper division
which incurred an operating loss before exceptional items of £1.7m during the
period. The deterioration in the Metallised Paper division arose from weak
demand, production issues which gave rise to significant increases in costs and
adverse movements in the US Dollar exchange rate.
In contrast, there has been an encouraging recovery in the performance of the
Foils and Laminates division, which in the previous year had been affected by
the impact of the war in Iraq and SARS. Good progress has also been made in
restructuring the non-core activities of the Converted Products division, with
the disposal of the loss-making Learoyd Packaging and Morris Plastics businesses
and improvements in most of the remaining businesses.
REVIEW OF RESULTS
The operating result before goodwill amortisation and exceptional items for the
six months ended 31 March 2004 deteriorated to a loss of £0.6m (£0.1m profit)
principally due to the increased loss in the Metallised Paper division. Overall,
sales declined in the period by 2% to £82.2m (£84.2m), although the level of
sales from continuing businesses was virtually unchanged at £80.0m.
Sales from the Group's UK businesses remained stable as a strong performance
from the Laminates business offset an 8% decline in the Metallised Paper
division. Sales into the UK and Continental Europe declined by 4%, but there
was an increase in sales to the US and the Rest of the World, particularly from
the Laminates business.
Although sales in the US increased by 2%, this was due to the relative success
of the Laminates business. Sales made from the Group's US businesses themselves
reduced by 14% compared with the same period in 2003. Two thirds of this
reduction was due to the translational impact of the adverse movement in the US
Dollar exchange rate and one third to a reduction in underlying sales, due
principally to the continuing impact on the US Foils business of the decline in
sales of metallic ink products - which was referred to in the 2003 Annual
Report.
Sales from the Group's Chinese Foils business declined by 10% due to adverse
movements in the Chinese Renminbi exchange rate. However, demand remains robust
and both sales and operating margins were maintained in local currency terms.
In the six months ended 31 March 2004, the Group reported a loss before interest
and taxation of £19.7m (£0.1m loss), comprising:
• operating loss before goodwill amortisation and exceptional items of £0.6m
(£0.1m profit), of which £0.4m was attributable to continuing businesses
(£0.8m profit)
• goodwill amortisation of £0.2m (£0.2m)
• exceptional items of £4.3m (£nil), of which £4.2m was attributable to
continuing businesses
• loss on disposal of Learoyd Packaging and Morris Plastics of £14.5m,
comprising a loss on sale of assets of £0.1m and a transfer between reserves
of £14.4m
The operating loss before goodwill amortisation and exceptional items
attributable to the Group's continuing businesses deteriorated by £1.2m,
reflecting an improvement of £0.3m in the Foils and Laminates division, offset
by a £1.5m reversal in the Metallised Paper division.
Exceptional items of £4.3m (£nil) comprise an impairment of fixed assets in the
underperforming Metallised Paper division of £3.0m, £0.4m of other asset
impairments and £0.9m relating to the costs of the reorganisation programme
mentioned in the 2003 Annual Report which is now substantially complete.
The consideration received on the disposal of Learoyd Packaging and Morris
Plastics totalled £2.5m of which £0.3m is deferred and is payable within one
year. The loss on disposal comprises a loss of £0.1m on sale of the tangible
net assets, together with a charge to the profit and loss account of £14.4m
arising from the transfer of purchased goodwill previously written-off against
the merger reserve. This treatment accords with FRS 10 and, because it
represents a transfer between two reserves, it has no impact on operating profit
or cash.
Earnings per share before exceptional items and goodwill amortisation
deteriorated to a loss of 6.5 pence (2.2 pence loss). The Board is not
recommending payment of a dividend.
REVIEW OF OPERATIONS
Foils and Laminates
Operating profits before goodwill amortisation and exceptional costs improved to
£2.5m (£2.2m) on sales of £52.9m (£51.8m).
The US Foils business continues to focus on profit improvement. The impact of
reduced sales on margins has been mitigated through effective management of
overheads. A new management team is working to improve productivity and
performance and to restore the business to previous levels of profitability.
Progress has been made during the first half and further improvement is expected
in the remainder of the year.
The European Foils business continued to experience challenging trading
conditions and, although sales increased, margins remained under pressure. Sales
in the core graphics and pigment foils business increased by 5% and operating
losses in the security foils business were significantly reduced. Productivity
and efficiency in manufacturing continues to improve and is expected to be
translated into further performance improvement in due course.
In China, exchange rate movements impacted heavily and sterling equivalent
revenues declined. Demand remains robust and sales and operating profits were
maintained in local currency terms. The Chinese business continues to
successfully refocus itself as a leading provider of higher margin products such
as holographic foils. To support these initiatives, further capital investment
is planned, including the relocation of the plant to a more suitable facility.
The Laminates business continues to perform strongly with sales increased by
18%, following growth of 16% in the previous year. Operating margins have been
maintained and profits have increased in line with sales. Expansion into new
consumer goods markets such as food, healthcare and beauty products and
resurgence in demand for traditional tobacco related products are both key
factors in this performance.
Metallised Paper
The operating loss before goodwill amortisation and exceptional items for the
period increased to £1.7m (£0.2m loss) on sales down 8% to £10.8m (£11.7m).
This result is particularly disappointing in view of the substantial progress
made in the business during the previous two years.
Production related issues, weak demand for label paper and adverse movements in
the US Dollar exchange rate all contributed to the significant deterioration in
performance. Reliability problems with key items of equipment resulted in
significant disruption and a dramatic increase in waste and overtime working.
As a consequence, production costs increased significantly as efforts were made
to maintain continuity of supply to major customers. The management team has
been strengthened and the issues which gave rise to the deterioration in
performance are being addressed. The Board remains concerned regarding the long
term prospects for this business.
Converted Products
Operating losses before goodwill amortisation and exceptional costs reduced to
£0.1m (£0.5m loss) on sales down 11% to £18.5m. Operating profits in the
continuing operations were £0.1m (£0.3m profit) on sales unchanged at £16.3m.
The loss-making Learoyd Packaging and Morris Plastics businesses were both sold
during the period, realising proceeds of £2.5m. In the remaining businesses,
good progress was made with strategic and operational initiatives at both API
Tenza and API Coated Products, although this has yet to be reflected in improved
trading results. Losses increased slightly at Filmcast Extrusions where efforts
continue to increase sales to acceptable levels. A new joint venture in China
has been established for the siliconising of film and paper for use in medical
and hygiene applications.
The Board recognises that the remaining businesses in the Converted Products
division do not form part of the Group's core reflective-surfaced packaging
activities and will regularly evaluate the strategic options for these
businesses.
FINANCE
Cash Flow
The Group's net cash outflow from operating activities in the period was £1.7m
(£3.6m inflow). Working capital increased by £3.6m (£0.6m), principally due to a
reduction in creditors.
Capital expenditure of £1.6m (£2.9m) was below expected levels as a number of
businesses deferred major projects in response to disappointing trading results.
Depreciation of £3.6m (£4.1m) continued to exceed expenditure. Capital
expenditure is expected to return to normal levels in the second half.
Expenditure on the implementation of the Group's new Oracle-based information
technology systems was in line with expectations and the project is progressing
according to plan.
Returns on investment and servicing of finance of £1.0m include bank interest
and minority dividends. The Group paid interest of £0.6m (£0.7m) compared to the
interest charge of £0.8m (£0.7m). The increased interest charge reflects the
slightly higher level of average borrowings during the period and an increase in
bank lending rates.
Borrowings
Net borrowings increased by £2.9m during the period to £12.7m and represented
gearing of 29% at 31 March 2004, compared with 19% at 30 September 2003. The
Group benefited from receipts of £2.2m from the sale of businesses. However,
this was substantially offset by the deterioration in performance of the
Metallised Paper division. The first half increase in net debt was anticipated
and is expected to reverse in the seasonally stronger second half.
Shareholders' funds at 31 March 2004 were £43.7m. Net tangible assets were
equivalent to £1.29 per share.
Cancellation of share premium account
At the Annual General Meeting held in January 2004, the Board proposed and
shareholders approved the cancellation of the Company's share premium account of
£50.6m. This cancellation was proposed in order to eliminate the accumulated
deficit on the profit and loss account of the Company and, in due course, to
create distributable reserves which would be available to pay future dividends
to shareholders and also to fund the market repurchase of shares if, at any time
in the future, the Board considers that it is in the interests of shareholders
to do so. The proposal was recently approved by the High Court and became
effective in March 2004.
OUTLOOK
The performance of the Foils and Laminates division continues to improve and
vigorous action is being taken to address the underperformance in the Metallised
Paper division. The restructuring initiatives referred to in the 2003 Annual
Report are substantially complete and savings are being progressively realised.
Although trading conditions in many of the Group's markets continue to be
challenging, the Board expects the Group to return to profitability in the
seasonally stronger second half.
The Board is committed to its strategy of repositioning the Group as a provider
of reflective-surfaced packaging materials for premium branded goods. The Board
will also continue to explore options for realising value for the benefit of
shareholders.
David Hudd
Non-Executive Chairman
API Group plc
27 May 2004
GROUP PROFIT & LOSS ACCOUNT
for the six months ended 31 March 2004
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Turnover
Continuing 80,036 79,823 167,286
Discontinued 2,156 4,367 8,906
Total 82,192 84,190 176,192
Operating profit/(loss)
Before goodwill amortisation and exceptional items
Continuing (351) 814 2,250
Discontinued (273) (734) (1,650)
Total (624) 80 600
Goodwill amortisation continuing operations (225) (225) (447)
Before exceptional items
Continuing (576) 589 1,803
Discontinued (273) (734) (1,650)
Total (849) (145) 153
Exceptional items
Continuing (4,254) - (1,158)
Discontinued (86) - (4,435)
Total (4,340) - (5,593)
Total operating loss
Continuing (4,830) 589 645
Discontinued (359) (734) (6,085)
Total (5,189) (145) (5,440)
Loss on disposal of discontinued operations
Before goodwill (100) - -
Goodwill previously charged to reserves (14,365) - -
(14,465) - -
Loss on ordinary activities before interest and taxation
Continuing (4,830) 589 645
Discontinued (14,824) (734) (6,085)
Total (19,654) (145) (5,440)
Net interest (787) (704) (1,621)
Loss on ordinary activities before taxation (20,441) (849) (7,061)
Taxation (375) 322 753
Loss on ordinary activities after taxation (20,816) (527) (6,308)
Equity minority interests (387) (421) (995)
Loss attributable to shareholders (21,203) (948) (7,303)
Dividends - - -
Balance transferred from reserves (21,203) (948) (7,303)
Earnings per ordinary 25p share (FRS3)
pence pence pence
Basic and fully diluted (63.7) (2.9) (22.0)
Adjusted loss per ordinary 25p share (before exceptional
items and goodwill amortisation)
Basic and fully diluted (6.5) (2.2) (3.8)
GROUP BALANCE SHEET
at 31 March 2004
31 March 31 March 30 September
2004 2003 2003
Restated Restated
£'000 £'000 £'000
Fixed assets
Intangible assets 5,742 6,188 5,966
Tangible assets 43,141 58,749 50,545
Investments 186 - -
49,069 64,937 56,511
Current assets
Stocks 17,067 22,081 18,368
Debtors 32,251 35,608 35,019
Short term investments - 1,506 1,440
Cash at bank and in hand 11,996 6,320 9,396
61,314 65,515 64,223
Creditors - amounts falling due within one year (35,958) (39,224) (39,759)
Net current assets 25,356 26,291 24,464
Total assets less current liabilities 74,425 91,228 80,975
Creditors - amounts falling due after more than (22,914) (21,806) (19,926)
one year
Provisions for liabilities and charges (1,657) (2,484) (1,749)
Accruals and deferred income (418) (605) (511)
49,436 66,333 58,789
Share capital and reserves
Called up share capital 8,463 8,463 8,463
Share premium account - 50,563 50,563
Revaluation reserve 2,892 2,892 2,892
Capital redemption reserve 549 549 549
Merger reserve 14,365 - -
ESOP reserve (435) (435) (435)
Profit and loss account 17,904 (2,275) (9,623)
Equity shareholders' funds 43,738 59,757 52,409
Equity minority interests 5,698 6,576 6,380
49,436 66,333 58,789
GROUP CASH FLOW STATEMENT
For the six months ended 31 March 2004
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Reconciliation of operating loss to net cash flow
from operating activities
Operating loss (5,189) (145) (5,440)
Amortisation and depreciation less government grants 3,753 4,237 8,586
Impairment charge against tangible fixed assets 3,405 - 5,215
(Profit)/loss on replacement of tangible fixed assets (4) 22 26
(Increase)/decrease in stocks (476) (2,766) 620
Decrease in debtors 722 2,811 2,447
(Decrease)/increase in creditors (3,787) (198) 2,082
(Decrease)/increase in provisions (92) (401) (357)
Net cash flow from operating activities (1,668) 3,560 13,179
Cash flow statement
Net cash flow from operating activities (1,668) 3,560 13,179
Returns on investments and servicing of finance (1,030) (680) (2,478)
Taxation (190) 770 (897)
Capital expenditure and financial investment (1,565) (2,887) (4,505)
Acquisitions and disposals 2,171 (25) (51)
Net cash flow before management of liquid resources (2,282) 738 5,248
and financing
Management of liquid resources 1,351 3 (23)
Financing 4,099 2,531 1,410
Increase in cash in the period 3,168 3,272 6,635
Exchange movement (568) 44 (243)
Balance sheet movement in net cash 2,600 3,316 6,392
Reconciliation of net cash flow to movement in net
debt
Increase in net cash 3,168 3,272 6,635
(Decrease)/increase in short term investments (1,351) (3) 23
Issue costs of new long term loans - - 158
Increase in borrowings (4,099) (2,531) (1,410)
Change in net debt resulting from cash flows (2,282) 738 5,406
Exchange movement (634) 173 (450)
Movement in net debt (2,916) 911 4,956
Net debt at start of period (9,821) (14,777) (14,777)
Net debt at end of period (12,737) (13,866) (9,821)
OTHER STATEMENTS
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Statement of total recognised gains and losses
Loss attributable to shareholders (21,203) (948) (7,303)
Currency translation differences on foreign currency (1,833) 83 (910)
net investments
Total recognised gains and losses relating to the (23,036) (865) (8,213)
period
Prior year adjustment (435)
Total gains and losses recognised since the previous (23,471)
annual report and accounts
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Reconciliation of movements in shareholders' funds
Loss attributable to shareholders (21,203) (948) (7,303)
Goodwill reinstated on sale of a subsidiary 14,365 - -
Currency translation differences on foreign currency
net investments
(1,833) 83 (910)
Net deduction to shareholders' funds (8,671) (865) (8,213)
Opening shareholders' funds (as previously stated) 52,844 61,057 61,057
Reclassification of ESOP shares (435) (435) (435)
Opening shareholders' funds (restated) 52,409 60,622 60,622
Closing shareholders' funds 43,738 59,757 52,409
NOTES
SEGMENTAL ANALYSIS
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Analysis of turnover by destination
United Kingdom 32,335 33,637 70,859
Continental Europe 27,791 29,138 61,635
Americas 12,408 12,128 24,664
Rest of World 9,658 9,287 19,034
82,192 84,190 176,192
Analysis of turnover by origin
United Kingdom 65,616 64,543 135,652
Continental Europe 560 1,360 3,765
Americas 10,438 12,089 24,675
Rest of World 5,578 6,198 12,100
82,192 84,190 176,192
Analysis of loss before interest and tax by origin
United Kingdom (1,231) (1,186) (895)
Continental Europe 92 447 233
Americas (597) (386) (1,258)
Rest of World 1,112 1,205 2,520
(624) 80 600
Exceptional items and goodwill amortisation (19,030) (225) (6,040)
(19,654) (145) (5,440)
Analysis of turnover by activity
Foils and Laminates 52,930 51,795 106,679
Metallised Paper 10,771 11,724 26,421
Converted Products
Continuing 16,335 16,304 34,186
Discontinued 2,156 4,367 8,906
82,192 84,190 176,192
Analysis of loss before interest and tax by activity
Foils and Laminates 2,460 2,185 4,155
Metallised Paper (1,675) (192) (387)
Converted Products
Continuing 128 253 857
Discontinued (273) (734) (1,650)
Central Costs (1,264) (1,432) (2,375)
(624) 80 600
Exceptional items and goodwill amortisation (19,030) (225) (6,040)
(19,654) (145) (5,440)
NOTES
OPERATING LOSS
6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
£'000 £'000 £'000
Exceptional items charged against operating loss
comprise
Restructuring of operating businesses 935 - 378
Impairment of tangible assets 3,405 - 5,215
4,340 - 5,593
EARNINGS PER SHARE 6 months to 6 months to 12 months to
31 March 31 March 30 September
2004 2003 2003
pence £'000 pence £'000 pence £'000
Earnings per share are based
on
Loss attributable to (63.7) (21,203) (2.9) (948) (22.0) (7,303)
shareholders
Add loss on disposal of 43.5 14,465 - - - -
discontinued operations
Add exceptional items 13.0 4,340 - - 16.8 5,593
Add goodwill amortisation 0.7 225 0.7 225 1.4 447
Adjusted loss attributable (6.5) (2,173) (2.2) (723) (3.8) (1,263)
to shareholders
Basic and diluted weighted 33,262,578 33,262,578 33,262,578
average number of ordinary
shares
The weighted average number of shares excludes the shares owned by the API Group
plc No.2 Employee Benefit Trust.
BASIS OF PREPARATION
The interim statements have been prepared in accordance with the accounting
policies set out in the financial statements for the year ended 30 September
2003, apart from the adoption of UITF 38 (ESOP trusts). UITF 38 was issued in
December 2003, and its requirements apply to the 2004 annual financial
statements and, as such, must be reflected in these interim accounts. UITF 38
requires own shares held though an ESOP trust to be deducted in arriving at
shareholders' funds and recommends the creation of a separate negative reserve
which we have described as an 'ESOP reserve'. The Abstract requires the change
to be retrospective and therefore comparatives have been restated. There is no
effect on the profit and loss account but equity shareholders' have been reduced
by £0.4m in both the current and prior periods.
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 2003.
Those accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the Registrar of Companies.
INTERIM STATEMENT
The interim statement is being mailed to shareholders on 7 June 2004 and will be
available at the company's registered office, Second Avenue, Poynton Industrial
Estate, Poynton, Stockport, Cheshire, SK12 1ND.
INDEPENDENT REVIEW REPORT
To API Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 March 2004, which comprises Group Profit and Loss
Account, Group Balance Sheet, Group Cash Flow Statement, Statement of Total
Recognised Gains and Losses, Reconciliation of Movements in Shareholders' Funds
and the related notes. 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.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which 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 guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. 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 United
Kingdom 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 2004.
Ernst & Young LLP
Manchester
27 May 2004
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