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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