Coral Products Regulatory News (CRU)

8 December 2014

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 2014.

* Group sales including inter-group sales in 2014 were £10.58m, of which inter-group sales were £1.51m (2013: total sales £10.01m of which intra- group sales were £1.20m).

Operational highlights 

- Consolidated sales performance as increasing non-media sales rising to £7.08m (2013:£6.04m) offset further media decline.

- Non-media sales now 81% of turnover of the combined businesses and still increasing.

- Interpack continues to increase returns and further production capacity to be available for 2015 onwards.

- Margins have improved and combined with a reduction in operating costs has increased underlying operating profit by 82%.

- Strong net assets have been maintained and gearing has fallen from 52% to 42% over the last six months.

- Acquisition in July 2014 of Tatra Plastics Manufacturing Limited, a company specialising in extrusion and injection moulding of PVC and plastic. This business is making a positive contribution to the results.

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. Profit before tax increased to £450,000 for the first six months representing earnings per share of 0.86p. 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 they now represent less than 20% of the consolidated sales. In July we purchased the business of Tatra Plastics Manufacturing Limited which has been successfully integrated into the Group. This business has enabled us to broaden our range of services whilst, at the same time, obtain benefits from integration within our existing facilities. Demand has remained on track with our targets and we have recently approved further expenditure on tooling and robotics to increase our production capacity of food containers. We reported earlier in the year that we had an agreement to supply a range of totes to a leading national on-line retailer which would have a positive impact on the second half. We are presently close to final approvals of these products which will lead to initial trial orders ahead of expected full production by next spring.

"With a good order book and a strong pipeline of opportunities, the Board's expectation for the current year remains unchanged."

Enquiries

Operating review

Results

The Group's results for the first six months of the year reflect an improved performance as the business continued its move to non-media markets. Reported sales in the six months to 31 October 2014 increased by 3% to £9.07 million (six months to 31 October 2013: £8.81 million), which resulted in a profit from operations of £542,000 compared to £298,000 in 2013. Gross margins increased to 24.6% from 24.3% in 2013. Actual group sales including inter-group sales were £10.6 million (2013: £10.0 million) with inter-group sales of £1.5 million (2012: £1.2 million). These results represent further improvements on our previous six months and the comparable period for last year.

Dividends

It is the board's intention to pay an interim dividend of 0.2 pence per share to be paid in March 2015 followed by a final dividend once the full year's results have been announced. Any final dividend will depend upon the outcome for the year as a whole. This continues to reflect our confidence in the recovery path and improvement this will bring to our results.

Operations

The Group acquired Tatra Plastics Manufacturing Limited in July which specialises in injection and extrusion moulding of PVC and plastic. The benefits of integration of this company within the group are now being seen with the ability to quote a stronger range of more varied products.

In trade moulding we will be starting production early in 2015 of the specially designed crates for use in on-line delivery centres for which we have signed a ten year supply agreement. This has been delayed due to small adjustments in product dimensions but is now ready to meet the full operational trials. The expected sales of this will be at least £2 million per annum over the contract. We are also actively seeking opportunities to roll-out this product further with the same on-line retail distributor.

Interpack again has recorded improved sales and margins from the sale of food containers. This has led the Group to take the decision to expand the production capability and product range for Interpack in order to meet further expected demand next year. We continue to invest in this side of the business and in the second half of this year we will be converting more existing machines and installing additional automation lines for a new larger product. Two new tools are presently being manufactured to cover this additional production and orders for an additional £1m have already been agreed with existing customers.

The improved performance of Interpack did go a long way to offset the lower sales of media products which continued to fall faster than expected. This sector of our business contributed just under 19% to group sales including inter-group turnover compared with 40% in the same six month period of 2013. We have been successful in managing the move from our traditional physical media products and diversifying into other products with more sustainable margins and growth trends. The market for CD products does seem to be stabilising and we will continue to support it whilst there is enough demand from customers. The DVD market continues to decrease under the effect of digital down-loading and we await seeing how much further this has to fall before we stabilise our production resources.

Turnover from trade moulding of customers' products continued to increase even before we added Tatra's sales. We are actively developing our existing relationships and seeking new customers for our production facility.

Recycling crate and caddy sales were disappointing and remain affected by a reduction in large-scale contracts from local authorities, as they were constrained by their reduced budgets, which resulted in tighter spending controls. There continues to be, however, more pressure for all authorities to roll-out a system of recycling food waste and we expect some increase in interest for our range of products, particularly in regard to municipal contracts, in 2015.

As announced on 1 December 2014, the Board commissioned an independent review of operations at Haydock which was completed recently and which recommended some fundamental improvements. In order to improve the performance and efficiency of the Company's manufacturing plant, the board has appointed an experienced plastics executive as managing director of Coral Products (Mouldings) Ltd, the subsidiary of the Company responsible for manufacturing at Haydock.

Acquisitions and capital expenditure

The Group completed the purchase of Tatra Plastics Manufacturing Limited on 9 July 2014 for a consideration of £2,655,000 of which £500,000 was in the form of consideration shares.

Total capital expenditure in the first six months was £390,000 (2013:£142,000) a considerable portion of which related to new projects that had not yet commenced. These projects include increasing food container production capacity and also reducing energy usage to improve efficiencies and utilisation.

Financial position and cash flow

Our balance sheet asset position has improved after a share placing of 12.6 million shares and net assets remain strong at £9.9 million (2013: £8.6 million). EBITDA remained high at £817,000 (2013:£860,000) and the net cash inflow from operations was £819,000 (2013: £156,000). The Group had undrawn banking facilities of £450,000 at 31 October 2014.

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.

Retirement of Directors

The Group announced on 28 November 2014 and 1 December 2014 the retirements of Jonathan Lever, Warren Ferster and Stuart Ferster. The Board wishes them the very best for the future.

Outlook

We are pleased with the continued improvement in performance of the Group. We have now diversified away from physical media products into food containers and trade moulding. Despite the tight market conditions with price increases remaining difficult to implement, the Group has managed to improve its margins and operating costs and maintain its positive momentum. Progress with our new on-line retail customer has been slower than we would have hoped but we are working towards a long-term relationship which will afford benefits to the Group with new markets and improved products.

The Group has maintained a strong balance sheet and managed to substantially reduce its gearing which gives it a foundation for development and growth whilst enabling an improvement in returns on capital employed and to its shareholders. The Board continues to have confidence in its strategy and believes that growth can be achieved in future financial years.

Joe Grimmond

Executive Chairman

8 December 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months to 31 October 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 October 2014

* Goodwill on acquisition increased by £1,692,000 being the difference between the cost of acquisition of £2,655,000 and the net assets acquired of £963,000.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the six months to 31 October 2014 (unaudited)

 For the six months to 31 October 2013 (unaudited)

For the year ended 30 April 2014 (audited)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months to 31 October 2014

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 2014 and are unchanged from those disclosed in the Group's published consolidated financial statements for the year ended 30 April 2013.

The financial information for the six months ended 31 October 2013 and 2014 is unaudited and does not constitute statutory financial statements for those periods.

The comparative financial information for the twelve months ended 30 April 2014 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 30 April 2014 and for the year ended 30 April 2014.

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 2014 is based on the effective taxation rate, which is estimated will apply to earnings for the year ending 30 April 2014.The rate used is below the applicable UK corporation tax rate of 21% 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 52,495,190 (31 October 2013: 41,935,609 and 30 April 2014: 41,935,609). The earnings used to calculate basic earnings per share are £450,000 (31 October 2013: £185,000 and 30 April 2014: loss of £785,000). The earnings used to calculate underlying earnings per share are £450,000 (31 October 2013: £185,000 and 30 April 2014: £506,000). 

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: