Coral Products Regulatory News (CRU)

2 December 2015

CORAL PRODUCTS PLC

("Coral" or the "Group")

HALF YEARLY REPORT

Coral Products plc, a specialist in the design, manufacture and supply of injection moulded plastic products, is pleased to report its half yearly report for the six months ended 31 October 2015.

* Total sales (including inter-group sales) in 2015 were £10.02m, of which inter-group sales were £1.76m (2014: total sales of £10.42m of which inter-group sales were £1.35m).

Operational highlights 

- Further increase in percentage of non-media sales rising to 85% (£7.02 million) compared to 78% in 2014 (£7.08 million).

- Underlying EBITDA increases by 38% to £1.13 million.

- Interpack continues to increase returns and profitability.

- Tatra improves results and renews contracts with long-term customers.

- Margins have improved and, combined with a reduction in operating costs, underlying operating profit has increased by 51%.

- Strong net assets have been maintained and gearing has fallen from 44% to 26% over the last six months.

- Acquisition in June 2015 of assets from Neiman Packaging to manufacture a range of packaging products. This business generated sales in the period of £650,000 with minimal contribution to profit due to integration and start-up costs. The contribution to profit is expected to be positive in the second half.

Commenting on today's results, Joe Grimmond, Coral's Chairman, said:

"I am pleased to report that the Group has continued to make good progress during the first half of this financial year with trading in line with expectations. Underlying profit from operations increased to £817,000 for the first six months and earnings per share rose to 1.06p. This represents a significant improvement and we anticipate this trend to continue in our second half.

"We have continued to diversify away from media markets to the extent that, in the first half, they represented just 15% of consolidated sales. In June 2015, we purchased certain assets from Neiman Packaging which manufacture a range of packaging products for which new capacity has been added. This business has enabled us to broaden our range of services into extrusion blow moulding and injection blow moulding whilst, at the same time, bringing new customers principally in the health, hygiene and personal care markets.

"Demand has remained in line with our targets and we have signed long-term contracts with certain of our larger customers in the telecoms and rail markets. Having received final approvals we have commenced production for our agreement to supply a range of totes to a leading national on-line retailer which will have a positive impact on the second half.

"With a good order book and a strong pipeline of opportunities, the Group's performance for the current year to date remains in line with market expectations."

Enquiries

Operating review

Results

The Group's results for the first six months of the year reflect a further improvement in performance as the business continued its move to new products in markets away from the traditional areas of media and recycling. Reported sales decreased to £8.26 million (six months to 31 October 2014: £9.07 million). Gross margins increased to 34.5% from 24.6% in 2014 which resulted in an underlying profit from operations of £817,000 compared to £542,000 in 2014. Actual group sales including inter-group sales were £10.02 million (2014: £10.42 million) with inter-group sales of £1.76 million (2014: £1.35 million). These results represent significant improvements on our previous six months and the comparable period for last year.

Dividends

It is the board's intention to pay an increased interim dividend of 0.3 pence per share. The ex-dividend date and the record date for the interim dividend will be 21 January 2016 and 22 January 2016 respectively. The interim dividend will be paid on 1 March 2016. This continues to reflect our confidence in the recovery path and improvement this will bring to our results.

Operations

On 24 June 2015, the Group acquired certain injection moulding, extrusion blow moulding and injection blow moulding plant and machinery from Neiman Packaging Limited. Neiman had used these assets to manufacture a range of packaging products for non-group customers principally in the health, hygiene and personal care markets. The assets were installed as two new production lines at Coral's manufacturing plant at Haydock and the benefits of integration are now resulting in a significant increase in utilisation of the Haydock facility.

In trade moulding we started production of the specially designed crates for use in on-line delivery centres. This had been further delayed due to final modifications at the customers handling depots but in that last few weeks we have commenced full production and are now ready to meet its operational demand. The expected sales of this will be at least £2 million in the second half and we also seek opportunities to roll-out this product further with the same on-line retail distributor.

Interpack had another successful initial six months in which its sales were maintained at the levels recorded in the previous year whilst margins were improved from its product mix. It has seen benefits from the expansion of its product range manufactured at Haydock and is expecting demand to further improve during the second half of the year.

Tatra has performed well with improved turnover resulting from continued development of its business with key accounts. A number of its long-term sales contracts were renewed in this period. Margins also benefited from sales of better added value products and from subcontracting production within the Group. New customers have also been sourced and the development of these relationships will bring further benefits to the Group in due course.

It is pleasing to state that recycling crate and caddy sales have started to improve as local authorities resume their task of increasing waste management by renewing or sourcing large-scale contracts. Whilst there are still the constraints from reduced budgets, which resulted in tighter spending controls, there is more pressure for these authorities to roll-out a system of recycling food waste and continue to improve waste management of other materials.

The improved performance of these areas and introduction of the new business from Neiman products has enabled the Group to maintain its turnover at a comparative level to the previous year despite a decline in media products sales of £1.5 million. As a result, turnover is now set to show an increased level for the full year. A further consequence of this improvement is that we have been able to reduce our dependence on subcontracted production for third party customers. This production, whilst previously enabling our production capacity to be filled, took away control and management of our resources whilst hindering risk management. We now have much greater contribution to Group results from our own products whilst we still appreciate the additional capacity that is generated from subcontracted work.

Media sales have shown a decline for reasons that have been well documented but at least they seem to have reached a level which is maintained to service the requirements of the market. As such we have a constant level of sales forecast and have future orders that take up all of our present production capacity for CD and DVD products.

Acquisitions and capital expenditure

In June 2015, the Company acquired certain injection moulding, extrusion blow moulding and injection blow moulding plant and machinery from Neiman Packaging Limited for a total consideration of up to £500,000 in cash, comprising an initial consideration of £300,000 and an earn-out consideration of up to £200,000.This plant is used to manufacture a range of packaging products for non-group customers principally in the health, hygiene and personal care markets and was installed in two new production lines at Coral's manufacturing plant at Haydock thereby significantly increasing utilisation of the Haydock facility.

Total capital expenditure in the first six months, including the expected £500,000 spend on the Neiman assets, was £985,000 (2014:£390,000) of which a considerable portion of the balance related to improving the infrastructure at Haydock in order to improve its efficiency and effectiveness. These projects include improving the compressor system and reorganising the factory production lines and capacity.

Financial position and cash flow

Our balance sheet asset position has improved following two share placings in June 2015 and August 2015 of a total of 7,753,330 new ordinary shares to raise, in aggregate, £1.14 million before expenses. Net assets remain strong at £10.5 million (2014: £9.3 million). Underlying EBITDA increased substantially to £1,130,000 (2014: £817,000) and the net cash inflow from operations was £1,316,000 (2014: £891,000). The Group had undrawn banking facilities of £1.5 million at 31 October 2015.

Asset finance has been extended to support the cash funding requirement of the planned expenditure on new machinery during the second half of the year. As a result, the Group expects to be able to generate surplus funds from operations above its investing and financing requirements.

Outlook

We are pleased with the continued improvement in performance of the Group and expect to make further progress during the remainder of the year. The acquisition of the Neiman business has started in the last quarter to improve our sales and production. We are improving our production facilities at Haydock in order to have increased capabilities and a more effective and efficient workplace. There is still more work scheduled to improve production control and monitoring but, despite the difficult conditions facing manufacturing companies, we expect to continue to roll-out improved performance to our key performance indicators.

The Group has a strong balance sheet and good financial position to invest in further acquisitions and businesses which will improve growth and enable better returns for our shareholders. The Board expects to make further progress which should accelerate rapidly as projects and developments mature through the remainder of the 5 year strategic plan.

Joe Grimmond

Executive Chairman

2 December 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months to 31 October 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 October 2015

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the six months to 31 October 2015 (unaudited)

 For the six months to 31 October 2014 (unaudited/restated)

For the year ended 30 April 2015 (audited)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months to 31 October 2015

1. Basis of preparation

The financial information set out in this Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 April 2015, prepared under IFRS, have been filed with the Registrar of Companies.

The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The interim financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) and

on the same basis and using the same accounting policies as used in the financial statements for the year ended 30 April 2015.

The Interim Report has not been audited or reviewed in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

2. Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated statements as at 30 April 2015 and for the year ended 30 April 2015.

3. Revenue

All production is based in the United Kingdom. The geographical analysis of revenue is shown below:

4. Taxation

The taxation charge for the six months to 31 October 2015 is based on the effective taxation rate, which is estimated will apply to earnings for the year ending 30 April 2015.The rate used is below the applicable UK corporation tax rate of 20% due to the utilisation of tax losses in the period.

5. Earnings per share

Underlying and basic earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the financial period of 61,118,164 (31 October 2014: 52,495,190 and 30 April 2015: 54,894,513). The earnings used to calculate basic earnings per share are £611,000 (31 October 2014: £291,000 and 30 April 2015: £191,000). The earnings used to calculate underlying earnings per share are £650,000 (31 October 2014: £450,000 and 30 April 2015: £1,165,000). 

6. Reconciliation of net cash flow to movement in net debt

Net debt incorporates the Group's borrowings and bank overdrafts less cash and cash equivalents. A reconciliation of the movement in the net debt is shown below: