Abrdn Property Regulatory News (API)

19 Nov 2008 07:00



19 November 2008

API GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2008

Further improvement in Group results, representing a significant advance on last year and the prior six month period.

Sales of £50.5m, 7% ahead of last year and 4% up at constant exchange rates.

Operating profit before exceptional items £2.0m, compared to £0.2m loss for the same period last year.

Profit before tax on continuing operations £4.8m (after exceptional gains of £4.1m) compared to a £1.4m loss last year and earnings per share 3.2p (2007: 5.3p loss)

Net cash flow from operating activities £4.6m (2007: £0.6m) supplemented by an additional £3.0m from sale of surplus land in China.

Net debt reduced to £15.1m, representing gearing of 47%. This compares to £17.1m and 62% at 31 March 2008 and £23.0m and 116% at 30 September 2007.

Commenting, API's Chief Executive Andrew Turner said:

"This is the second consecutive six month period showing an improvement in the Group's trading performance, reflecting the cost reduction measures implemented in prior periods and a recovery in both volumes and margins in our European businesses.

"So far the overall level of demand for the Group's products has remained steady in the face of the generally worsening economic climate. However, conditions appear likely to deteriorate further in the near term which could adversely impact volumes. Whilst we expect our second half year to be much more challenging, the Group is now stronger, both financially and operationally, and is better placed to exploit market opportunities as and when they arise."

Enquiries:

  REPORT ON INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 30 SEPTEMBER 2008

Trading Performance

The Board is pleased to report an improvement in the Group's trading performance for the second successive six month period reflecting the cost reduction measures implemented in prior periods and a recovery in both volumes and margins in our European businesses.

Group sales for the six months ending 30 September 2008 were £50.5m, 7% higher than the same period last year (£47.2m) and 4% ahead at constant exchange rates. Growth in Europe more than compensated for lower sales in Asia Pacific and a decline in US sales on a local currency basis.

Reported operating profit, before exceptional items, was £2.0m compared with a prior year loss of £0.2m and a profit of £0.6m for the previous six month period ended 31 March 2008. Improved results against last year were due to significant advances in Europe, partly offset by weakness in the US and continuing difficulties with the Group's joint venture operation in China.

Net exceptional gains of £4.1m (2007: £0.2m loss) were predominantly related to the sale of surplus land assets in Shanghai after the relocation of the manufacturing operations in China to a new, purpose-built site on the outskirts of Shanghai. Sale proceeds have been recognised on the basis of amounts received as of the date of this report with further amounts due in line with the Company's announcement of 11 July 2008. Further information is provided in note 3 to the accounts.

Profit before tax after exceptional items was £4.8m (2007: £1.4m loss) and net profit from continuing operations for the period was £3.1m (2007: £1.7m loss). Basic earnings per share increased to 3.2p (2007: 5.3p loss). 

Net financing costs of £1.3m (2007: £1.0m) include UK pension plan interest of £0.4m (2007: £0.3m credit). Reported net interest includes a £0.3m revaluation gain on an interest rate derivative (2007: nil), reversing a charge taken in the prior period. Interest expense was reduced by £0.1m to £1.2m as a result of lower average borrowings.

The pension deficit, calculated in accordance with IAS19, was £3.2m, £0.3m lower than the reported figure at March 2008 of £3.5m (2007: £6.1m). A fall in the value of scheme assets since March 2008 has been compensated by a larger reduction in calculated scheme liabilities, primarily due to higher market value discount rate assumptions. During November, the company commenced formal consultation with active members of its UK defined benefit pension plan, with a view to closing the scheme to future service accrual.

Cash Flow and Borrowings

Net cash flow from operating activities was £4.6m (2007: £0.6m) reflecting the stronger operating profit performance and improved working capital control.

Capital expenditure at £2.3m was similar to the level last year (£2.7m) with the majority relating to the relocation project in China. The balance of expenditure on the Shanghai project is forecast at £0.5m and the final cost is expected to total £10.1m, £1.0m below the original budget on a constant currency basis. At the balance sheet date, cash proceeds from the land sale in China amounted to £3.0m.

The Group's net borrowings fell to £15.1m at 30 September 2008 compared with £17.1m at 31 March 2008 despite an upward revaluation of non sterling-denominated debt by £1.1m. Net borrowings were £23.0m at the end of September 2007. Gearing was down to 47% compared to 62% at 31 March 2008 and 116% twelve months earlier.

Throughout the period, the Group has continued to operate comfortably within its banking covenants.

Review of Operations

Europe

External sales from European operations were 13% above the prior year at £34.7m and 11% ahead on a constant currency basis, whilst operating profits, before exceptional items, improved to £3.4m from last year's break even result.

In Laminates, sales recovered by 27% from the prior year low as a result of a particularly buoyant period for new product developments. Projects utilising holographic finishes were particularly significant as well as API's recyclable laminate, Portabio. Margins improved due to favourable sales mix and the benefit of productivity gains and rigorous measures to reduce and control costs.

Turnover in Foils was unchanged overall with the contribution from the new distribution operation in Italy and growth in Germany being offset by a decline in the UK and lower external sales in security holographics. Nevertheless, profitability improved significantly due to cost savings and the margin impact of exchange rates.

North America

US sales, at £11.0m, were marginally behind the same period last year (£11.1m) and 4% down at constant exchange rates with tough economic conditions impacting most market segments. In addition, the US business faced rapidly increasing raw material and utility costs and suffered a time lag in passing these through to customers. Operating profit for the half year declined by £0.2m to £0.4m (2007: £0.6m).

Asia Pacific

Asia Pacific sales for the six months to September 2008 were down 12% at £4.7m (2007: £5.3m). At constant exchange rates, the Asia business saw sales fall 21%, predominantly due to the business in China. Quality, service and start up issues experienced during the relocation project continued to impact the business during the period and manufacturing volumes were depressed for both domestic and export markets. Lower sales, higher depreciation and other costs as well as the impact of a stronger currency on export margins all contributed to a poor result although losses before exceptional items, at £0.9m, narrowed slightly from the previous six month period (2007: £0.2m profit). Since the completion of the relocation project, a new management team is now refocusing the business on growth and the restoration of satisfactory levels of profitability.

Discontinued Operations

The Group reported a loss from discontinued operations of £0.3m in the six months to 30 September 2008 (2007: £0.9m). The loss principally represents legal fees incurred by the Group in defence of a claim of alleged warranty breaches in connection with a business disposed in 2005. Further information is provided in the notes to the accounts.

Dividend

The Board is not recommending the payment of an interim dividend (2007: none)

Management

The Board was pleased to announce the appointment of Chris Smith as Group Finance Director with effect from 23 September 2008. The Group will continue to strengthen its management team as it works to build on the recent improvement in trading performance and financial condition achieved in the last twelve months.

Outlook

So far, with the exception of the US and one or two other markets, the general level of demand for the Group's products has remained steady in the face of the generally worsening economic climate. However, conditions appear likely to deteriorate further in the near term which could adversely impact volumes. Prospects depend to some extent on the level of promotional activity maintained by customers and the Group's ability to offset the higher utility and raw material prices in the second half of the year.

In the current environment, the Group's management will continue to focus on realising further cost reduction opportunities, restoring profitability to the business in China and on generating cash to reduce the overall burden of debt.

Whilst we face challenging market conditions, the operational and financial strength of the Group has been much improved in the last 12 months and the Board believes the Group is better placed to exploit market opportunities as they arise.

  GROUP INCOME STATEMENT

for the six months ended 30 September 2008

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENDITURE

for the six months ended 30 September 2008

  GROUP BALANCE SHEET

at 30 September 2008

  GROUP CASH FLOW STATEMENT

for the six months ended 30 September 2008

NOTES

1. SEGMENTAL ANALYSIS

Primary reporting format - geographic segments:  At 30 September 2008, the Group is organised into three distinct independently managed geographic segments, Europe, North America and Asia Pacific. The following table presents revenue and profit information for these segments.

    NOTES CONTINUED

2. PRESENTATION OF INTERIM FINANCIAL STATEMENTS

Authorisation of interim financial statements

The consolidated interim financial statements of API Group plc for the six months ended 30 September 2008 were authorised for issue in accordance with a resolution of the directors on 18 November 2008. API Group plc is a public limited company incorporated in the United Kingdom whose shares are publicly traded.

Basis of preparation

These consolidated interim financial statements are presented in sterling and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.

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 and therefore does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's latest annual financial statements as at 31 March 2008 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU. The audited annual financial statements for the eighteen months ended 31 March 2008, which represent the statutory accounts for that period, and on which the auditors gave an unqualified opinion, have been filed with the Registrar of Companies.

Accounting policies

The accounting policies adopted are consistent with the annual financial statements for the eighteen months ended 31 March 2008, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU.

3. EXCEPTIONAL ITEMS

   NOTES CONTINUED

NOTES CONTINUED

  NOTES CONTINUED

  NOTES CONTINUED