Final Results - Pre-tax Profit Up 4%
API Group PLC
6 December 1999
IMPROVING MOMENTUM AT API
Preliminary audited results for the 52 weeks ended 3 October 1999
- Pre tax profits up 4% to £18.3m (£17.6m) before goodwill amortisation and
exceptional reorganisation costs of £1.5m, on sales up 8% to £176.7m
(£163.7m)
- Adjusted basic earnings per share of 37.9p (41.1p)
- Dividend for the year up 10% to 14.6p (13.3p), covered 2.6x - eighth
consecutive 10% dividend increase giving a compound improvement of 116%
since 1991
- Ungeared balance sheet - net funds of £4.0m (£6.2m)
- Successful expansion and restructuring improves competitive position -
low cost Chinese operation acquired. Further integration efficiencies in UK
and USA and international sales organisation launched.
- Good prospects reflecting improved international economic climate and
increased order levels. These, coupled with a full year contribution from
Shen Yong and further integration cost savings, provide encouragement for
the current year
Commenting on the results and API's progress, Group Chief Executive Michael
Smith said:
'While this has been a difficult trading year, much has been achieved. We
have successfully reorganised and restructured areas of the business which
will ensure cost efficiencies and support our marketing and manufacturing
focus.'
'At the interims we anticipated a robust second half and this was duly
achieved. There is a positive momentum within the business and we expect to
make good progress in the current year.'
THE YEAR'S RESULTS
The Group's 'headline' pre tax profits of £18.3m (£17.6m) are 4% higher than
the previous year (before goodwill amortisation and exceptional reorganisation
costs) despite challenging market conditions.
Sales increased 8% to £176.7m (£163.7m.) and pre tax profits after charging
goodwill of £0.9m and exceptional costs of £1.5m, totalled £15.9m (£15.7m).
The exceptional costs related primarily to the integration of the UK Foils
manufacturing operations into one cost-effective operation, which we announced
at the Interim results. The relative strength of Sterling and the US dollar
against European currencies, the uncertainty over the ending of duty free
sales in Europe and the well documented downturn in Asian, Russian and South
American markets have all had an adverse impact both on sales volume and
price.
Adjusted basic earnings per share before goodwill and exceptional costs of
37.9p (41.1p) reflect the increase in the share capital following the placing
and open offer in May 1998 relating to the acquisition of the Astor foils
business. Basic earnings per share after goodwill and exceptional costs were
32.8p (36.7p). A final ordinary dividend of 8.64p is recommended, making a
total for the year of 14.6p (13.3p), representing a 10% increase, covered 2.6
times by adjusted basic earnings per share. This is the eighth consecutive
increase of 10% bringing the total compound dividend improvement to 116% since
1991.
On 1 March 1999 API acquired a majority interest in Shen Yong, China's largest
manufacturer of hot stamping foil, through an association with a leading Hong
Kong based laminator and printer. This important strategic initiative provides
API with an excellent low cost manufacturing base and a launch pad for
extending API's product range into the Chinese, Far Eastern, and other
international markets.
The Group's balance sheet continues to be ungeared, finishing the year with
net funds of £4.0m (£6.2m) and a rise in shareholder's funds to £107.1m
(£101.3m). Operating cash flow of £22.4m was generated during the year. This
inflow funded £7.9m of net group capital expenditure and £9.9m of payments for
taxation, dividends and interest leaving a positive free cash flow of £4.6m.
Acquisitions, including the investment in Shen Yong, resulted in a net outflow
of £4.8m. The cancellation of the preference shares cost £0.5m and financial
investment cost £1.2m. Exchange effects reduced net funds by £0.3m to leave a
closing balance of £4.0m
THE GROUP'S BUSINESS
The Group is currently structured as two main divisions: - Foils and
Laminates, and Converted Products and Variable Information. A growing
proportion of the Group's sales within both divisions is being channelled
towards the markets of premium packaging, security, variable information,
speciality coatings and office consumables. These sectors enable API to focus
on added value products which provide better margins than general commodity
print, packaging and paper.
FOILS AND LAMINATES
Operating profit rose 20% to £14.0m (£11.7m) (before goodwill and exceptional
costs) on sales up 13% to £126.6m (£112.4m), producing an improved operating
margin of 11.1% (10.5%). These results include seven months of Shen Yong,
which contributed £1.1m operating profit (before goodwill) on sales of £4.6m.
Excluding the results of this acquisition the Group's existing foil and
laminating activities improved operating profits by £1.2m (10%).
Profit margins have improved compared to last year but sales volumes of foil
and laminate products adjusted (on a like for like basis) for the acquisition
of Shen Yong and the phasing of Astor in 1998 have fallen by 7% reflecting
weaker sales in tobacco and spirits markets as a result of economic conditions
in the Far East. The Group's international distributors were also badly
affected by the downturn in these markets and the general trend of de-
stocking. As a result the sales of foils were poor for the first nine months
of the financial year. However, from July there was a significant improvement
in sales and a consequent recovery in profitability.
Premium packaging sales into toiletries, cosmetics, confectionery and foil for
greetings cards showed modest growth, albeit not sufficient to offset fully
the decline in tobacco and spirits packaging sales.
Despite the general background of reduced international demand for premium
tobacco and spirits products, API's greenfield paper metallising operation
increased sales by 20% to £12.3m, although it has not yet reached our
performance objective. To help achieve this a new vacuum metalliser was
installed in August which, on an annualised basis, will lift the plant's sales
potential to £20m plus. This increased capacity will improve profitability by
providing additional flexibility to manage the summer peak demand, when the
requirement for metallic finish labels for bottled drinks is at its height.
The foils rationalisation programme, which involves merging the foil
operations of Astor with those of API in Europe and the US is proceeding to
plan, producing cost savings of £3.2m. The programme is continuing with
estimated annual efficiency and cost savings of £4.3m by September 2000, which
will result in further exceptional costs of £0.5m being incurred during the
current year.
During the first seven months following acquisition, Shen Yong's performance
has been ahead of target and initial expectation. Shen Yong's Chinese
management is embracing change with enthusiasm and making good progress in
conjunction with on site API management towards producing world class basic
hot stamping foil. Advances are also being made towards manufacturing the
more technically difficult holographic and security products.
The European and USA foils and laminates businesses have also been focused
under a single management team, ensuring an integrated sales approach and a
comprehensive choice of substrates and coatings for customers. There are good
opportunities for world-wide growth in hot stamping foil, diffraction and
holographic security products and there has been great progress in the
transfer of the manufacturing of these products to the appropriate region
thereby reducing costs and improving customer service.
In addition to the re-organisation and rationalisation of the division during
the year, a significant number of new products have been introduced over the
last six months and more are in the process of being launched. Examples
include:
- A new range of thermal transfer ribbon products for the high speed
marking and date coding of packaging substrates for snacks and foods.
- Die-less/cold foils represent a breakthrough by API in foil technology
allowing in-line application of foil on standard printing machines.
- The stock range of decorative holographic diffraction foils is being
extended, and a range of embossed holographic papers is being developed to
meet the growing demand for high visual impact gift wrap and labels in areas
such as beer, soft drinks and spirits.
- The 'Hi brite' range of electron beam cured highly reflective metallised
papers. These provide a superior finish, compared to other direct and
transfer metallised products.
- A unique range of metallised paper based moisture and vapour barrier
products for food wraps and airtight cartons is being launched. The
advantage of this material is that it is an environmentally friendly
recyclable single substrate.
A new security division has recently been formed to develop and exploit API's
numerous technologies, which will provide a unique and single source range of
security devices for brand protection, document authentication and anti-
counterfeiting.
Security marketing and manufacturing operations in Europe and the USA are
being merged under one executive team and, with Shen Yong's potential, the
Group will be able to offer multi- national customers global coverage in this
important and developing sector. The cost to the world economy of product
counterfeiting, retail theft and related areas, has been estimated to be as
high as £300bn. This, together with the safety implications of counterfeit
products, is establishing a rapidly growing market for product authentication.
API is well positioned to meet our customers' growing requirement to
authenticate product and track its progress through the supply chain. At the
present time, the supply to this market is largely fragmented and API's
ability to combine its established security products, e.g. holographic
security devices together with developing technologies, into its existing
supply of high value packaging materials, provides an exciting base for future
growth.
CONVERTED PRODUCTS AND VARIABLE INFORMATION
Operating profit reduced by 25% to £4.6m (£6.1m) on sales down 2% to £50.1m
(£51.3m), giving an operating margin of 9.2% (11.8%).
The division comprises three operations: Tenza's self adhesive office products
business incorporating Data's variable information operation; Learoyd Group's,
flexible plastic packaging, plastic component moulding and polypropylene
extrusion; and API Coated Products, silicone release coating of papers and
films and anti-corrosion papers.
The disappointing performance of the division was the result of lower than
expected sales of security bags restricting Learoyd's profits together with
unfavourable exchange rates and over capacity leading to a tough competitive
environment for API Coated Products. 1999 has been a frustrating year for
Learoyd with the potential for security bag sales continuing to be evident but
its realisation elusive as the take-up of applications was slower than
planned.
Tenza's self adhesive business achieved a 6% increase in volume with an
equivalent fall in sales prices leaving sales value unchanged. Tenza was able
to maintain profits, offsetting the adverse effects of the strength of
Sterling by the implementation of significant cost reduction and efficiency
programmes.
Market opportunities are encouraging for increasing the sales of Tenza's
customised self-adhesive laminates, packing list envelopes and, Learoyd's new
generation of tamper evident security bags. Deliveries to major UK and South
American security carriers for Learoyd's new products have commenced during
the last few months and these, along with current indications from ongoing
discussions, suggest that a substantial improvement in Learoyd's performance
is possible in the coming year.
Trading conditions for API's silicone coating operations, particularly in the
high volume market continue to be difficult. A number of niche high added
value products have been introduced to differentiate API's business from the
volume producers; these include two sided differential release films, a unique
micro-embossed release film for hygiene products and a high performance range
of ultra smooth coated papers for quality graphics and label applications.
PROSPECTS
The outlook, compared to this time last year, is more promising with
international trading conditions improving and with API experiencing recent
strong sales and order input. This has led to an improvement in trading in
the first months of the current year.
Less encouraging is the continuing relative strength of Sterling and the US
dollar along with the trend of raw material price increases.
The early momentum, in what traditionally is a slow trading quarter, coupled
with the cost benefits of recent re-organisation programmes suggest sound
progress can be achieved in the current year.
Enquiries:
Michael Smith, Group Chief Executive Tel: 0171 831 3113 (6/12/99)
Dennis Holt, Group Finance Director Tel: 01625 610334 (thereafter)
API Group plc
Tim Spratt, Director
Financial Dynamics Tel: 0171 831 3113
GROUP PROFIT & LOSS ACCOUNT
for the year ended 3 October 1999
12 months to 3 October 1999 12 months
to
Continuing Exceptional 3 October
operations Acquisitions items Total 1998
£'000 £'000 £'000 £'000 £'000
Turnover 172,124 4,576 - 176,700 163,678
Cost of sales (125,239) (3,102) - (128,341) (119,292)
Including
goodwill
amortisation (893) (55) - (948) (479)
Gross profit 46,885 1,474 - 48,359 44,386
Distribution
costs (6,436) (100) - (6,536) (6,655)
Administrative
expenses (23,828) (305) (1,866) (25,999) (21,812)
Operating
profit 16,621 1,069 (1,866) 15,824 15,919
Profit on
disposal of
land and
buildings - - 405 405 -
Profit on
ordinary
activities
before interest
and taxation 16,621 1,069 (1,461) 16,229 15,919
Net interest
expense (323) (254)
Profit on
ordinary
activities
before taxation 15,906 15,665
Taxation (4,453) (4,261)
Profit on
ordinary
activities
after taxation 11,453 11,404
Profit
attributable to
minority
equity interest (492) -
Profit for the
financial year 10,961 11,404
Preference
dividends (9) (21)
Profit
attributable to
ordinary
shareholders 10,952 11,383
Ordinary
dividends (4,886) (4,489)
Balance
transferred to
reserves 6,066 6,894
Earnings per ordinary 25p share
Basic 32.8p 36.7p
Diluted 32.6p 36.7p
Adjusted earnings per ordinary 25p share
(before reorganisation costs and goodwill
amortisation)
Basic 37.9p 41.1p
Diluted 37.8p 41.1p
Dividends per ordinary 25p share 14.6p 13.3p
GROUP BALANCE SHEET
at 3 October 1999
1999 1999 1998 1998
£'000 £'000 £'000 £'000
Fixed assets
Intangible assets 18,093 17,013
Tangible assets 58,083 51,099
Investments 1,823 77,999 684 68,796
Current assets
Stocks 19,584 17,858
Debtors 51,518 51,135
Cash at bank and in hand 12,002 10,485
83,104 79,478
Creditors - amounts falling
due within one year
Creditors (41,185) (35,297)
Current taxation (2,847) (3,958)
Dividends (2,890) (2,656)
(46,922) (41,911)
Net current assets 36,182 37,567
Total assets less current
liabilities 114,181 106,363
Creditors - amounts falling
due after more than one year (409) (4,430)
Provisions for liabilities
and charges (814) (592)
112,958 101,341
Minority interests (5,813) -
107,145 101,341
Share capital and reserves
Called up share capital 8,463 9,012
Share premium account 50,563 50,563
Revaluation reserve 2,616 2,189
Capital redemption reserve 549 -
Profit and loss account 44,954 39,577
98,682 92,329
Non-equity shareholders'
funds - 549
Equity shareholders' funds 107,145 100,792
Shareholders' funds 107,145 101,341
CASH FLOW STATEMENT
for the year ended 3 October 1999
Reconciliation of operating profit to net cash inflow from operating
activities
1999 1998
£'000 £'000
Operating profit 15,824 15,919
Amortisation and depreciation less government 7,117 5,560
grants
(Profit)/loss on disposal of fixed assets (35) 48
(Increase)/decrease in stocks (68) 867
Decrease/(increase) in debtors 3,503 (4,666)
(Decrease) in creditors (4,075) (734)
Increase in provisions 222 150
Net cash inflow from operating activities 22,488 17,144
Cash outflow of £1,866,000 (1998: £1,408,000) resulted from the exceptional
reorganisation charges incurred during the year.
1999 1999 1998 1998
£'000 £'000 £'000 £'000
Cash flow statement
Net cash inflow from
operating activities 22,488 17,144
Returns on investments and
servicing of finance
Interest paid (111) (92)
Interest received 90 39
Interest element of finance
lease rentals (302) (201)
Preference dividend paid (9) (332) (21) (275)
Taxation
UK (4,058) (3,034)
Overseas (838) (4,896) (1,494) (4,528)
Capital expenditure and
financial investment
Payments to acquire tangible
fixed assets (8,346) (6,566)
Receipts from sales of
tangible fixed assets 419 245
Payments to acquire
investments (1,200) (9,127) (136) (6,457)
Acquisitions and disposals
(Note C) (4,808) (31,462)
Equity dividends paid (4,652) (3,848)
Net cash outflow before
financing (1,327) (29,426)
Financing
Issue of new shares - 30,138
Cancellation of preference
shares (549) -
Capital element of finance
lease rental payments (4,478) (5,027) (259) 29,879
(Decrease)/increase in cash
in the period (6,354) 453
Exchange movement (62) (181)
Balance sheet movement in net
cash (6,416) 272
CASH FLOW STATEMENT
for the year ended 3 October 1999
Notes to the cash flow statement
A. Analysis of net funds
Cash Exchange
1998 flow difference 1999
£'000 £'000 £'000 £'000
Cash at bank and in hand 10,485 1,579 (62) 12,002
Bank overdrafts - (7,933) - (7,933)
10,485 (6,354) (62) 4,069
Finance leases (4,313) 4,478 (198) (33)
6,172 (1,876) (260) 4,036
B. Reconciliation of net cash flow to movement in net funds
1999 1998
£'000 £'000
(Decrease)/increase in net cash (6,354) 453
Repayment of capital elements of finance leases 4,478 259
Change in net funds resulting from cash flows (1,876) 712
Finance leases acquired with subsidiaries - (4,381)
Exchange differences (260) (61)
Movement in net funds (2,136) (3,730)
Net funds at start of year 6,172 9,902
Net funds at end of year 4,036 6,172
C. Analysis of the net outflow of cash in respect of the acquisition of
subsidiary undertakings and businesses
Label Gold
Shen Yong World Impressions Learoyd Total
£'000 £'000 £'000 £'000 £'000
1999
Cash consideration
paid 6,962 388 123 33 7,506
Cash at bank and in
hand acquired (2,698) - - - (2,698)
Net outflow in
respect of
acquisitions 4,264 388 123 33 4,808
Astor Label Gold
Universal World Impressions Learoyd Total
£'000 £'000 £'000 £'000 £'000
1998
Cash consideration
paid 31,358 698 121 33 32,210
Cash at bank and in
hand acquired (642) (106) - - (748)
Net outflow in
respect of
acquisitions 30,716 592 121 33 31,462
OTHER STATEMENTS
Statement of total recognised gains and losses
1999 1998
£'000 £'000
Profit for the financial year 10,961 11,404
Currency translation differences on foreign
currency net investments 287 (1,204)
Total gains and losses recognised since last
annual report and accounts 11,248 10,200
Reconciliation of movements in shareholders' funds
1999 1998
£'000 £'000
Profit for the financial year 10,961 11,404
New shares issued - 1,418
Premium on shares issued (net of associated
issue costs) - 28,720
Cancellation of preference shares (549) -
Dividends (4,895) (4,510)
Currency translation differences on foreign
currency net investments 287 (1,204)
Net addition to shareholders' funds 5,804 35,828
Opening shareholders' fund 101,341 65,513
Closing shareholders' funds 107,145 101,341
NOTES TO THE ACCOUNTS
SEGMENTAL ANALYSIS
Analysis of turnover by destination
1999 1998
£'000 £'000
United Kingdom 89,083 92,195
France 8,427 6,928
Germany 7,119 5,829
Scandinavia 7,865 7,366
Other European countries 16,621 16,873
Americas 34,714 26,672
Rest of World 12,871 7,815
176,700 163,678
Analysis of turnover, profit before interest and tax, and net assets by origin
Profit before Net
Turnover interest and tax operating assets
1999 1998 1999 1998 1999 1998
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 133,384 136,348 13,019 14,187 67,768 65,107
Continental
Europe 2,281 1,211 73 208 1,324 1,443
Americas 35,858 25,559 4,429 3,405 21,017 16,640
Rest of World 5,177 560 1,117 6 5,244 658
176,700 163,678 18,638 17,806 95,353 83,848
Exceptional
items and
goodwill - - (2,409) (1,887) - -
Non operating
assets - - - - 11,792 17,493
176,700 163,678 16,229 15,919 107,145 101,341
Turnover originating in the United Kingdom includes £44,956,000 of sales to
overseas destinations (1998: £45,026,000). £1,699,000 (1998: £1,568,000) of
the exceptional items and goodwill arise in the UK, £nil (1998: £26,000) arise
in Continental Europe, £655,000 (1998: £293,000) arise in the Americas and
£55,000 (1998:£nil ) arise in the Rest of the World.
Analysis of turnover, profit before interest and tax, and net assets by
activity
Profit before Net
Turnover interest and tax operating assets
1999 1998 1999 1998 1999 1998
£'000 £'000 £'000 £'000 £'000 £'000
Foils and
laminates
Continuing
operations 122,021 112,358 12,900 11,743 66,353 60,943
Acquisitions 4,576 - 1,134 - 5,129 -
126,597 112,358 14,034 11,743 71,482 60,943
Converted
products and
variable
information 50,103 51,320 4,604 6,063 23,871 22,905
176,700 163,678 18,638 17,806 95,353 83,848
Exceptional
items and
goodwill - - (2,409) (1,887) - -
Non operating
assets - - - - 11,792 17,493
176,700 163,678 16,229 15,919 107,145 101,341
Net operating assets comprise total assets excluding goodwill less current
liabilities and exclude dividend, taxation and all assets and liabilities of a
financing nature. £2,169,000 of the exceptional items and goodwill relate to
the foils and laminates division (1998: £1,446,000) and £240,000 relate to the
converted products and variable information division (1998: £441,000).
Dividends
If approved, the final ordinary dividend will be paid on 7 February 2000 to
shareholders on the register on 10 January 2000.
Basis of preparation
The accounts have been prepared on the basis of the accounting policies as set
out in the 1998 Annual Report and Accounts.
Publication of abridged accounts
The preliminary announcement figures for the year ended 3 October 1999 and the
comparative figures for the year ended 3 October 1998 are an abridged version
of the Group's statutory accounts which carry unqualified audit report and do
not contain a statement under S237 (2) or (3) of the Companies Act 1985. The
Group's audited statutory accounts for the year ended 3 October 1999 will be
filed in due course with the Registrar of Companies. The Group's audited
statutory accounts for the year ended 3 October 1998 have been filed with the
Registrar of Companies.
The Annual Report and Accounts for the year ended 3 October 1999 will be
posted to shareholders on 4 January 2000 prior to the Annual General Meeting
on 3 February 2000. Copies of the Annual Report and Accounts will be
available to members of the public from 5 January 2000 at the Group's
registered office at Silk House, Park Green, Macclesfield, Cheshire SK11 7NU.
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