Coral Products Regulatory News (CRU)

11 December 2013

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, announces its half yearly report for the six months ended 31 October 2013.

Key features

- Increasing proportion of non-media sales rising to £6.04m (2012: £5.68m), which represents 60% of turnover of the combined businesses (2012: 53%).

- Sales at Interpack continue to perform strongly with further growth expected.

- Temporary drop in margins across all divisions due to spike in polymer prices during the summer. Cost increases are now being recovered.

- New 1,150 tonne injection moulding line with robotic handling to meet increasing demand is to be delivered in January 2014.

- Sales and profit before tax are up compared to the second half of FY2013 with further improvement expected in the second half of FY2014. While the result for the year to 30 April 2014 overall is expected to be ahead of FY2013, it is also expected to be significantly below market expectations.

- Improved outlook for 2014/15.

Outlook

- Purchase order received for tooling and sampling in anticipation of a signed ten year supply agreement with a leading national on-line distributor for supply of specially designed crates with significant additional annual revenues expected from May 2014 onwards.

- Additional contract from existing customer for a range of products with estimated £1.5m annual value, expected to be delivered in next financial year.

- Awarded framework status with a major national service company for local governments and leading companies enabling Coral to tender for supply of recycling products.

- Products approved on Scotland Excel framework status enabling Coral to tender to all of Scotland's local authorities for supply of recycling products.

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

"Whilst the results for the six months to 31 October 2013 are not as strong as anticipated, I am encouraged that the Group has managed to increase the proportion of sales in non-media products, which represented over 60% of total sales in the period. This trend is set to continue and we are putting in place further production capacity to enable us to meet demand. Profit before tax, whilst reducing to £205,000 in the period, reflects the changing product mix of our business and is a material improvement compared to our performance in the six months to 30 April 2013."

Enquiries

Operating review

Results

The Group's results for the first six months of the year, while significantly below market expectations, reflect a material improvement compared to the six months ended 30 April 2013 in a business environment that continued to be challenging. Reported sales in the six months to 31 October 2013 were £8.81 million (six months to 31 October 2012: £9.41 million; six months to 30 April 2013: £7.87 million), which resulted in a profit from operations of £298,000 (six months to 31 October 2012: profit of £561,000; six months to 30 April 2013: loss of £65,000). Gross margins decreased slightly to 24.3% from 24.8% in the same period in 2012 (six months to 30 April 2013: 24.3%) resulting from a delay in being able to recover raw material price increases.

Coral was affected late in the period by reduced margins in media products and significantly reduced sales in recycling crates and caddies, whilst Interpack has continued to operate strongly. Coral now supplies a large part of the food containers sold by Interpack (an increase of £0.5 million compared to last year) and this is expected to continue to improve results. We are presently investing further in new machinery which will increase our ability to supply a greater range of products. This production capacity will be in place by our final quarter and we already have a number of enquiries for products.

Dividends

Subject to the outcome of the full year's results, the board anticipates that it will pay a final dividend following the reporting of the full year's results. This reflects our continued confidence in the Group's recovery.

Operations

The Group's disappointing overall performance in the first half is due partly to lower margins in media products, caused by continued challenging retail market conditions. Our strategic plan of diversifying away from media products has reduced the Group's dependence on this product range and provides a stronger base from which to move forward.

In recycling products, a significant reduction in sales in the period compared with last year, caused by a reduction in large-scale contracts from local authorities constrained by tighter spending budgets, had a further adverse effect on Group performance. Local authorities are under pressure to roll-out a system of recycling food waste and we have recently seen some increase in interest for our range of products, particularly with regard to municipal contracts. Coral was recently awarded approved status from Scottish Excel, the purchasing framework for Scottish local authorities, giving increased access to Scottish markets and we have also been awarded framework status with a major national service company for local governments and leading companies enabling Coral to tender for the supply of their recycling products. As a result of these initiatives, we anticipate significant incremental sales in the next year financial year.

At Interpack, we have increased the number of food containers serving the catering sector manufactured at our Haydock plant. Interpack has continued to expand its customer base and generated increased revenues although a dip in margins has affected contribution in the period. Further progress is expected in the second half.

Turnover from trade moulding of customers' products continued to increase as we developed existing relationships and also introduced new customers to our production facility. We have continued to invest in this division of our business by converting a number of existing machines and, in the second half of this year, we expect to install a new machine with automation that will increase the size of product that can be manufactured. This will enable us to take on an additional contract from an existing customer for a range of products with an estimated £1.5 million annual value, which is expected to be delivered in next financial year.

In addition, the Group has recently received a purchase order for tooling and sampling in anticipation of a signed ten year supply agreement with a major distributor for the supply of specially designed crates for use in their on-line delivery centres. This is expected to generate significant sales over the life of the contract with delivery expected from May 2014. Additional opportunities to grow this area further are being explored and this could be an exciting new sector for the Group.

Capital expenditure

Total capital expenditure in the first six months was £142,000 (2012: £455,000) of which £7,000 (2012: £17,000) was for intangibles for design and development work on new recycling products.

Financial position and cash flow

Our balance sheet has net assets of £8.6 million (2012: £8.2 million). EBITDA remained high at £860,000 (2012: £1,084,000) although the increased working capital demands reduced this to a cash inflow from operations of £156,000 (2012: outflow of £684,000). The Group had undrawn banking facilities of £400,000 at 31 October 2013.

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

Outlook

Despite the disappointing performance in the period, we are pleased that the Group has continued to diversify away from physical media products. Despite retail market conditions remaining difficult and the adverse impact this has had on these results, the Group has maintained positive momentum in progressing its strategic plan. Progress in these difficult economic times has been slower than we would have hoped for but a reshaped Group is beginning to emerge with markets and products that have increased potential and are expected to achieve higher margins.

Whilst we have improved on the performance of the previous six months, the Group's performance is significantly below market expectations and we do not expect this shortfall to be made up in the second half of the financial year. Nevertheless, the positive impact of new contracts outlined above lead us to be optimistic about our performance in the 2014/15 financial year.

Warren Ferster

Chief Executive

11 December 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months to 31 October 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 October 2013

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the six months to 31 October 2013 (unaudited)

 For the six months to 31 October 2012 (unaudited)

For the year ended 30 April 2013 (audited)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months to 31 October 2013

1. Basis of preparation

These interim financial statements have been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively "Adopted IFRS").

The principal accounting policies used in preparing these interim financial statements are those expected to apply to the Group's consolidated financial statements for the year ending 30 April 2013 and are unchanged from those disclosed in the Group's published consolidated financial statements for the year ended 30 April 2012.

The financial information for the six months ended 31 October 2012 is unaudited and does not constitute statutory financial statements for those periods.

The comparative financial information for the twelve months ended 30 April 2012 has been derived from the audited statutory financial statements for that year. These financial statements were approved by shareholders at the Annual General Meeting and have been delivered to the Registrar of Companies. The Auditors' Report on those financial statements was unqualified, did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and did not include a statement under section 498(2) or 498(3) of the Companies Act 2006.

Seasonality

In addition to economic factors, revenues are subject to some element of seasonal fluctuation largely driven by orders for media products being higher in the period before Christmas whilst demand for food containers is strongest early in the year ahead of the warmer months. In addition, the Christmas holiday results in a period of inactivity with fewer trading days.

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 and for the year ended 30 April 2012.

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 2013 is based on the effective taxation rate, which is estimated will apply to earnings for the year ending 30 April 2013.The rate used is below the applicable UK corporation tax rate of 23% due to the utilisation of tax losses in the period.

5. Earnings per share

Basic earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the financial period of 41,935,609 (31 October 2012: 38,103,609 and 30 April 2013: 39,613,965). The earnings used to calculate basic earnings per share are £185,000 (31 October 2012: £448,000 and 30 April 2013: £427,000).

Diluted earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the financial period of 42,415,609 (31 October 2012: 38,583,609 and 30 April 2013: 40,093,965).

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: