Final Results

RNS Number : 7726I

API Group PLC

04 June 2014

 



Press Release

4 June 2014

API Group plc

("API" or the "Group")

Final Results

API Group plc (AIM:API), a leading manufacturer of specialist foils and packaging materials, announces its final results for the year ended 31 March 2014.

Financial Highlights

·	Revenues ahead by £2.3m (2.0%) to £114.7m (2013: £112.4m).
·	Profit before tax unchanged at £5.6m (2013: £5.6m).  Profit before tax of £6.3m on a pre-exceptional basis (2013: £6.6m).
·	Stronger second half, with pre-exceptional profit before tax ahead by £0.5m (+15%).
·	Diluted earnings per share 7.1p (2013: 7.2p).  Excluding exceptional items, diluted earnings per share 7.8p (2013: 8.4p).
·	Proposed final dividend of 1.3p per share, making 2.0p for the full year (2013: 0.0p).
·	Cash flow from operations of £9.0m (2013: £8.6m), converted at 91% of EBITDA (2013: 86%) and a net cash inflow of £2.8m (2013: £1.2m).
·	£0.2m net cash at year end (2013: net debt of £2.6m), the first time for 15 years that the Group has reported a net cash position.

Operational Highlights

·	Another good performance from Laminates and further progress at Foils Europe.  Holographics back to breakeven in final quarter after cost reduction measures.  Operating margin maintained at Foils Americas despite weaker sales in the second half.
·	Laminates major new supply contract fully on stream during second half.
·	Restructuring of UK foils operations completed; new distribution facility established in Sheffield, leaving Livingston to concentrate on manufacturing.
·	New ERP solution successfully implemented by Foils Americas; roll-out in Foils Europe scheduled for 2014.
·	Capital additions and joint venture investment of £3.8m (2013: £5.5m), including down payments on new metallising equipment for UK and US foils plants.

Commenting on the results, Andrew Turner, Group Chief Executive of API Group plc, said:

"In spite of a slightly weaker profit performance, these results demonstrate further strengthening of the Group's financial position, combined with continued substantial investment in the operating assets of the business.  The year-end net cash balance and the re-introduction of a dividend after a break of more than ten years, represent important milestones in the rehabilitation of the Group.

Operational improvement and investment initiatives already completed, as well as further projects planned for the new financial year, are expected to strengthen API's position in its key markets and enhance prospects for future sales and profit growth."

- Ends -

For further information:

API Group plc
Andrew Turner, Group Chief Executive	Tel: [phone]
Chris Smith, Group Finance Director	www.apigroup.com

Numis Securities (Broker)
James Serjeant	Tel: [phone]
	www.numis.com

Cairn Financial Advisers (Nominated Adviser)
Tony Rawlinson / Avi Robinson	Tel: [phone]
	www.cairnfin.com

Media enquiries:

Abchurch
Henry Harrison-Topham / Quincy Allan	Tel: [phone]
[e-mail]	www.abchurch-group.com

CEO Review

Overall financial results

Group revenues for the twelve months to March 2014 increased by 2.0%, at both actual and constant FX rates, to £114.7m (2013: £112.4m).  Sales volumes were higher by 2.7%, with second half volumes up 7.1% on the prior year compensating for a small decline in the first six months.

In spite of the higher sales levels, added value margin declined slightly due to sales mix between the business units, the impact of less favourable exchange rates and higher levels of production scrap at Laminates.  This, together with slightly higher variable costs, more than offset the contribution from higher sales to leave pre-exceptional operating profits down by 4.8% at £7.4m (2013: £7.8m).  Operating margin was also lower, by 0.4%, at 6.5%.

At segment level, full year profits advanced at Laminates (£0.2m) and Foils Europe (£0.1m) on the back of stronger volumes.  Holographics losses increased by £0.4m, due to lower external sales, and Foils Americas profits declined by £0.2m, due to lower activity in the last quarter.

In a reversal of the pattern experienced in the last two years and as anticipated in our interim results statement, profitability improved significantly in the second half; up £0.5m (+15%) on the first half.  Progress at Foils Europe (+£0.3m) and reduced losses at Holographics (+£0.4m), as a result of cost reduction measures, more than compensated for the weaker second half at Foils Americas (-£0.4m).  Operating margin for the second half improved to 6.9% compared to 6.1% in the first half.

For the year as a whole, profit before tax was unchanged, at £5.6m; although a small tax charge led to a marginal fall in diluted earnings per share to 7.1p (2013:7.2p).

Exceptional costs of £0.7m (2013: £1.0m) have been separately disclosed and relate to one-off costs and expenses associated with organisational change in three business units.  Interest costs, including the new IAS19 pension interest charge, were £0.1m lower at £1.1m (2013: £1.2m).  On a pre-exceptional basis, profit before tax was 4.5% lower at £6.3m (2013: 6.6m) and diluted earnings per share were 7.8p, compared to 8.4p for the prior year.

Cash from operations, post exceptional items, converted at 91% of EBITDA (2013: 86%), with a net cash inflow of £2.8m compared to £1.2m for the previous year.  Whilst cash capital expenditure of £3.5m was lower than the previous year (2013: £5.3m) capital additions still represented 1.4 times depreciation and will remain above depreciation for at least another two years as additional capacity is introduced into the Foils businesses.  The Group completed its investment in the Czech Joint Venture after a further £0.5m transfer of funds on top of the £0.4m paid last year.  With working capital broadly unchanged, the Group reported a small net cash position at the financial year end of £0.2m (2013: £2.6m debt).

Dividend

Following payment of the interim dividend in January, the Board is pleased to propose a final dividend of 1.3p per share.  The total, full-year dividend of 2.0p will be put to shareholders for approval at the Annual General Meeting on July 15th and subject to this approval, it is our intention that the final dividend will be paid on August 1st to shareholders on the register as at July 11th, with an ex-dividend date of Wednesday July 9th.

Outlook

The Board expects a continuation of the second half trading momentum, with progression in results for the first half and for the financial year as a whole.

At this stage, it is unclear how long Foils Americas will be affected by the reduced demand from metallic pigment customers, but any impact on the Group's results should be more than compensated by the elimination of trading losses at Holographics and the benefit of last year's restructuring at Foils Europe.

In respect of general market conditions, Foils Europe continues to experience steady overall demand, whereas recent activity in the decorative foils market in North America appears somewhat slower than usual.  At Laminates, the new financial year has started strongly and there is a good pipeline of new business development projects.

Management is pressing ahead with its operational improvement and growth agenda, including the roll-out of the Group's new ERP platform and investments in additional capacity for the Foils businesses.  These initiatives will strengthen API's ability to service customers in key markets and enhance the Group's prospects over the medium term.

Divisional Review

Laminates

As reported at the interim stage, API Laminates experienced lower first half activity due to net adverse 'churn' of customer packaging specifications moving between laminate and non-laminate constructions and a reduced volume allocation on one of its key supply positions.  In the second half, this was more than compensated by the commencement of bulk shipments against the major new supply contract, produced on the newly-installed laminator.  As a result, second half revenues were 11% ahead of the first six months and 25% higher than the comparative 6 month period last year and full year revenues ended 7.4% higher, at £59.2m (2013: £55.2m).

At the added value level, the contribution from higher sales was partially offset by the impact of changes in currency exchange rates and lower raw material efficiencies during the start-up phase on the new laminator.  Operating costs increased by 5% due primarily to higher spend on plant maintenance and sales and marketing, leaving operating profits £0.2m ahead of the prior year, at £6.7m.  Return on sales was slightly down on the prior year, but still a very creditable 11.3% (2013: 11.8%).

Foils Europe

In spite of the disruption caused by the reorganisation of its UK operations in the first half, Foils Europe recorded a second successive year of profits growth.  Revenues moved ahead 5.0% at constant FX rates to £28.6m, with the Polish distribution unit more than doubling sales in its second year, further progress in Italy and an increased contribution from Germany.  Revenues were lower in the UK and Australia, the latter due to a factory closure at a key customer in the label sector.

Full year volumes increased 9.1% and, whilst there was a fall in average selling price due to mix, added value margin was slightly ahead of prior year.  Production costs were higher despite second half labour savings arising from the UK restructuring, as were outbound freight costs, general overheads and marketing expenses.  It is estimated that £0.2m of non-repeatable costs were incurred in connection with the UK reorganisation in the first half year.  Profits increased by £0.3m in the second half with full year operating profits advancing by 7.4% to £2.1m (2013: £2.0m) and operating margin higher by 0.2%, at 7.5%.

Over the last three years, activity at Foils Europe's manufacturing plant in Livingston has increased by 18% due to growth in sales and repatriation of volume from the Group's discontinued joint venture in China.  With the facility now fully loaded and good prospects for further growth, the Board has approved capital investment to increase capacity, including a new vacuum metalliser which came on stream in May 2014 and an additional coating line planned for installation in the first quarter of 2015.  Foils Europe is also planning to roll out the Group's new ERP business, following its successful implementation in Foils Americas during the first half of the financial year just ended.

Foils Americas

Revenues at Foils Americas were down 8.2% at constant FX rates to £21.8m (2013: £24.0m) and were 9.0% lower than the prior year at actual FX rates.  Following several years of strong growth in sales to the metallic pigment sector, the business experienced a sharp decline in order levels in the last quarter, due primarily to reduced conversion activity at one key customer.  Sales of decorative foils were also lower due in part to capacity allocation in favour of the metallic pigment business in the earlier part of the year and a slow-down in the US market during the harsh winter period.

The impact on profits of the reduced sales contribution was mitigated by an improvement in added value margins due to a more favourable sales mix, lower average raw material costs and a partial reversal of the prior year's reduction in inventory.  With costs broadly flat, operating profits were down just £0.2m, to £1.7m (2013: £1.9m), with operating margins virtually unchanged at 7.8% (2013: 7.9%).

At the beginning of the financial year, the US-based foils business transitioned across to a new ERP platform.  Whilst there was a degree of initial disruption, the solution has now been running smoothly for several months and providing the business with a significantly improved information and control environment.

Holographics

API Holographics' revenues declined by 7.9% to £8.9m (2013: £9.6m) with a recovery in sales of decorative holographic products to sister API companies adding £0.5m (+23%), offset by a reduction in third party revenues of £1.2m (-16%).  The primary cause of the decline in external sales was the ending of a long-standing supply arrangement after the customer took production in house.  In addition, the timing of shipments on a second major contract adversely impacted year-on-year comparatives.

The lower sales contribution resulted in losses widening to £0.7m (2013: £0.3m) as operating cost savings of £0.2m were offset by a partial reversal of a credit to profit for inventory build in the previous year.  After losses of £0.5m in the first half, management successfully implemented a cost reduction programme aimed at bringing the business back to a break even position in the final quarter.

For the longer term, the Board remains committed to the strategy approved in 2011, aimed at growing API's presence in the security and authentication market.  Whilst a number of new sales opportunities have been developed in pursuance of that objective, progress has so far been slower than expected and undermined by the loss of one particular supply position due to factors beyond management's control.  In the meantime, significant capital investments have been completed in enhanced security and extended product capabilities at the Salford manufacturing facility, and the new Joint Venture in the Czech Republic is supporting the business development effort with a significantly improved holographic origination service.

Financial Review

Principal risks and uncertainties

Our management structure, business reporting and risk management processes ensure we are informed of and responsive to business and marketplace trends, thereby making timely and informed strategic and tactical decisions. Financial risks comprise foreign currency, interest rates, credit, liquidity and defined benefit pension schemes. Operational risks comprise markets, commercial relationships, geographic, input costs, health & safety and environment.

Exceptional items

Exceptional charges totalling £0.7m (2013: £1.0m) were incurred during the year in relation to reorganisation costs in Foils Europe, Holographics and Laminates.

Finance costs

Net finance costs for the year reduced by £0.1m to £1.1m.  The non-cash, pension-related finance charge, calculated in accordance with the new IAS19 accounting standard, increased by £0.2m to £0.6m.  This increase was offset by interest and other costs relating to bank borrowings which fell by £0.2m to £0.6m (2013: £0.8m) as a result of lower average net debt and lower interest margins on both UK and US facilities.

Taxation

The Group continues to benefit from historic tax losses and non-utilised capital allowances in the UK.  As a result, the current tax charge of £0.4m (2013: £0.2m) was mostly offset by a deferred tax credit of £0.3m (2013: 0.2m).

In the UK, the current tax of £0.2m (2013: £0.1m) related entirely to API Laminates, where tax losses are now fully utilised. Taxable profits were partially sheltered by UK group relief (losses in API Holographics and Central companies) and capital allowances.  Overseas tax of £0.2m (2013: £0.1m) related to taxable profits in Germany and Italy.  Overall tax on profits in the UK and US Foils businesses continues to benefit from previously accumulated tax losses and non-utilised UK capital allowances.  In the period, a deferred tax charge of £1.5m (2013: £1.5m) was balanced by a deferred tax credit of £1.7m (2013: £1.6m); mostly from further recognition of historic tax losses in the Foils businesses.

The net deferred tax asset recognised in the Group's balance sheet reduced in the year by £0.3m to £6.1m (2013: £6.4m) predominantly due to a reduced deferred tax asset of £2.8m relating to the pension deficit (2013: £3.1m) as a consequence of lower corporation tax rates in the UK.

Remaining unrecognised tax losses, as at 31 March 2014, amounted to £2.1m in the UK (2013: £2.8m) and $4.1m in the US (2013: $9.0m), in addition to unclaimed capital allowances in the UK of £2.1m (2013: £3.9m).

Earnings per share

Diluted earnings per share were 7.1p, compared to 7.2p for last year.  Excluding exceptional items, diluted earnings per share were 7.8p (2013: 8.4p).

Shareholders' Funds

At 31 March 2014, the Group's net assets were £26.4m, an increase over the year of £3.5m or 15.2%.

Cash flow and net debt

There was a net cash inflow from operating activities (after cash flows for pension and finance costs) of £7.4m; up from £7.0m in the previous year.

Cash-flows resulting from capital expenditure amounted to £3.5m (2013: £5.3m) of which £3.3m was capitalised (2013: £5.1m). Spend included payments of £1.9m for projects scheduled to complete in the new financial year.  Two new foil metallisers, which are scheduled for installation in the first half of the new financial year, incurred project costs of £1.2m.  A further £0.7m was incurred on the new business IT system which is now operational in the US, with Foils Europe expected to complete by March 2015.  A further investment of £0.5m (2013: £0.4m) was made in the Czech joint venture origination company to complete the funding of its new equipment.  For the third successive year, capital investment was significantly ahead of depreciation of £2.4m (2013: £2.2m).

The impact on working capital of stronger sales activity in the final three months of the year compared to the equivalent period a year earlier was offset by improved working capital efficiency, with the result that working capital ended the year broadly unchanged.  Year-end efficiency, which is measured internally by reference to trailing three month sales (annualised), improved by 0.9% to 7.3% as a result of reduced inventories.

Consistent with the charge in the income statement, cash flow for interest expense reduced by £0.2m, to £0.4m.

Net cash at 31 March 2014 amounted to £0.2m, compared to net debt of £2.6m a year earlier.  The Group's year-end debt cover ratio (net debt to trailing 12 month EBITDA) was therefore zero (2013: 0.3x), as was gearing (net debt to shareholders funds) (2013: 11%).

In light of the Group's recent record of strong cash conversion and the reduced levels of bank debt, and following a review of medium term business plans, the Board announced in December 2013 its intention to re-introduce a meaningful and sustainable dividend that would be affordable out of future cash flows after providing for finance and pension costs and funding of capital investment requirements.  An interim dividend of 0.7p was paid to shareholders in January at a cost of £0.5m and a final dividend of 1.3p is being recommended to shareholders for approval at the AGM on July 15th 2014.

Borrowings and liquidity

The Group's policy is to ensure that banking facilities are adequate to meet foreseeable peak requirements arising from variations in working capital and the timing of capital expenditure.  Facilities are in place to independently finance the two main operations based in the UK and North America.

During the year, new UK facilities were agreed with HSBC plc.  These include a Revolving Credit facility of £13.5m and ancillary facilities of £7.5m to cover FX contracts, Letters of Credit and sundry other items.  The facilities extend to December 2017 and are subject to two quarterly financial covenant tests.  Lending is secured via a floating charge over the Group's UK assets. Total facilities under the previous funding arrangement with Barclays Bank plc, as at 31 March 2013 amounted to £12.8m.

In North America, funding has been arranged with Wells Fargo Bank, until April 2015.  Facilities comprise an amortising loan, amounting to $0.9m at 31 March 2014 (2013: $1.2m), and a $5.5m asset backed working capital facility.  Borrowings are secured on working capital, plant and equipment and the Kansas property and are subject to quarterly covenant tests.  The soon-to-be-installed new metalliser for the Kansas facility is being funded via a separate asset financing agreement with Wells Fargo.

Foreign currency exchange rates

Exchange rates used for the translation of results and assets of US and Euro-zone based operations are shown below.

Rate to £1	US $	Euro
31 March 2014
Average	1.59	1.19
Closing	1.67	1.21
31 March 2013
Average	1.58	1.23
Closing	1.52	1.18

Pensions

The UK and US businesses each operate defined benefit pension schemes for the benefit of past and current employees.  Both schemes are closed to future accrual and are accounted for under IAS 19R.  At 31 March 2014 the Group's IAS 19R gross pension liability was assessed at £13.3m (2013: £13.3m).  When adjusting for the recognised deferred tax asset of £2.8m (2013: £3.1m), the net liability equates to £10.5m (2013: £10.2m).  A small increase in the gross UK deficit was matched by reduced net liabilities on the US plan.  The deferred tax asset reduced by £0.3m as a result of lower UK tax rates.

In the UK, the API Group plc Pension and Life Assurance Fund has approximately 1,520 pensioners and deferred members.  The fund was closed to future service accrual on 31 December 2008 following on from a decision to admit no new members since October 2006.  The UK scheme's last triennial valuation date was 30 September 2013.  The valuation results and funding plan were approved by the Trustees and the Company in May 2014.  The outcome was broadly in line with the funding plan from September 2010 and, as a consequence, the Company will continue its annual deficit reduction payment of £0.7m per annum.  The Company also pays all administration fees on behalf of the Fund and works collaboratively with the Trustees on many aspects of scheme management, in particular investment strategy.

As at 31 March 2014, the gross deficit of the UK fund has been calculated at £12.6m (2013: £12.3m) under the valuation principles of IAS 19R.  A benefit from a small increase in the discount rate to 4.40% (2013: 4.30%) was offset by changes to assumptions used for mortality.  The average life expectancy assumption has been increased by 0.65 years across the population as a result of a postcode review of the membership carried out for the 2013 funding valuation.  Additionally, an experience loss of £1.2m has been recognised relating to the triennial revision of expected future cash benefits to be paid.  Inflation assumptions remain unchanged.

In the US, the API Foils North America Pension Plan was closed to new entrants and future accrual in 2004.  Membership is approximately 160 current and past employees.  Details of the net deficit of £0.7m (2013: £1.0m) are included in Note 9 to the financial statements.  Also in the US, current and past employees covered by union contracts at the Group's New Jersey manufacturing facility are members of a union-managed, multi-employer defined benefit pension plan.  The plan operates under the terms of the site's collective bargaining agreement and remains fully open.  In accordance with IAS 19R, this scheme is accounted for as a defined contribution plan.

Group Income Statement

for the year ended 31 March 2014

		Year ended 31 March 2014		Year ended 31 March 2013*
	Note	£'000		£'000
Revenue	2	114,712		112,426
Cost of sales		(86,617)		(84,179)
Gross profit		28,095		28,247
Distribution costs		(3,952)		(4,249)
Administrative expenses (excluding exceptional items)		(16,716)		(16,196)
Operating profit before exceptional items	2	7,427		7,802
Exceptional items	3	(705)		(1,029)
Operating profit		6,722		6,773
Finance revenue	4	2		10
Finance costs	4	(1,132)		(1,217)
		(1,130)		(1,207)
Profit before taxation		5,592		5,566
Tax (expense) / credit	5	(150)		19
Profit for the year		5,442		5,585
Earnings per share (pence)
Basic earnings per share on profit for the year	6	7.4		7.6
Underlying basic earnings per share on profit for the year	6	8.1		8.8
Diluted earnings per share on profit for the year	6	7.1		7.2
Underlying diluted earnings per share on profit for the year	6	7.8		8.4

* restated for IAS19 - Employee benefits (revised)

All profits are attributable to equity holders of the Parent and relate to continuing operations.

Group Statement of Comprehensive Income

for the year ended 31 March 2014

			Year ended 31 March 2014					Year ended 31 March 2013*
			£'000					£'000
Profit for the year			5,442					5,585
Items that may be reclassified to profit or loss in subsequent periods:
Exchange differences on retranslation of foreign operations			(1,390)					703
Change in fair value of effective cash flow hedges			863					(639)
Items not reclassified to profit or loss in subsequent periods:
Re-measurement (losses)/gains on defined benefit pension schemes			(513)					(5,243)
Tax on items relating to components of other comprehensive income			(350)					1,228
Other comprehensive income for the year, net of tax			(1,390)					(3,951)
Total comprehensive income for the year attributable to equity holders of the Parent			4,052					1,634
* restated for IAS19 - Employee benefits (revised)

Group Balance Sheet

at 31 March 2014

		31 March 2014		31 March 2013
	Note	£'000		£'000
Assets
Non-current assets
Property, plant and equipment		21,490		21,313
Intangible assets - goodwill		5,188		5,188
Investment in joint venture interest		880		378
Financial assets		-		152
Deferred tax assets	5	6,412		6,617
		33,970		33,648
Current assets
Trade and other receivables		16,593		15,811
Inventories		12,126		12,864
Other financial assets		594		184
Cash and short-term deposits	7	8,606		6,189
		37,919		35,048
Total assets	2	71,889		68,696
Liabilities
Current liabilities
Trade and other payables		22,632		22,428
Financial liabilities	8	432		3,766
Income tax payable		635		373
		23,699		26,567
Non-current liabilities
Financial liabilities	8	8,033		5,574
Deferred tax liabilities	5	306		211
Provisions		56		66
Deficit on defined benefit pension schemes	9	13,364		13,349
		21,759		19,200
Total liabilities		45,458		45,767
Net assets		26,431		22,929
Equity
Called up share capital		767		767
Share premium		7,136		7,136
Other reserves		8,818		8,816
Foreign exchange reserve		(432)		958
Retained profit		10,142		5,252
Equity shareholders' funds		26,431		22,929

Group Statement of Changes in Equity

for the year ended 31 March 2014

	Equity share capital	Share premium	Other reserves	Foreign exchange reserve	Retained earnings	Total share-holders' equity
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2012	767	7,136	8,816	255	4,348	21,322
Profit for the year*	-	-	-	-	5,585	5,585
Other comprehensive income:
Exchange differences on retranslation of foreign operations	-	-	-	703	-	703
Change in fair value of effective cash flow hedges	-	-	-	-	(639)	(639)
Re-measurement losses on defined benefit pension schemes*	-	-	-	-	(5,243)	(5,243)
Tax on items relating to components of other comprehensive income*	-	-	-	-	1,228	1,228
Total comprehensive income for the year	-	-	-	703	931	1,634
Shares acquired by Employee Benefit Trust	-	-	(94)	-	-	(94)
Transferred on exercise of share options	-	-	94	-	(94)	-
Share-based payments	-	-	-	-	85	85
Tax relating to items accounted for directly through equity	-	-	-	-	(18)	(18)
At 31 March 2013	767	7,136	8,816	958	5,252	22,929
Profit for the year	-	-	-	-	5,442	5,442
Other comprehensive income:
Exchange differences on retranslation of foreign operations	-	-	-	(1,390)	-	(1,390)
Change in fair value of effective cash flow hedges	-	-	-	-	863	863
Re-measurement losses on defined benefit pension schemes	-	-	-	-	(513)	(513)
Tax on items relating to components of other comprehensive income	-	-	-	-	(350)	(350)
Total comprehensive income for the year	-	-	-	(1,390)	5,442	4,052
Dividends	-	-	-	-	(518)	(518)
Shares acquired by Employee Benefit Trust	-	-	(32)	-	-	(32)
Transferred on exercise of share options / LTIP	-	-	34	-	(34)	-
At 31 March 2014	767	7,136	8,818	(432)	10,142	26,431

* restated for IAS19 - Employee benefits (revised)

An interim dividend of 0.7 pence per share (2013: nil) was approved by the Board on 2 December 2013 and was paid on 9 January 2014 to equity holders on the register at the close of business on 13 December 2013.

Group Cash Flow Statement

for the year ended 31 March 2014

		Year ended 31 March 2014		Year ended 31 March 2013*
	Note	£'000		£'000
Operating activities
Group profit before tax		5,592		5,566
Adjustments to reconcile Group profit before tax to net cash flow from operating activities
Net finance costs		1,130		1,207
Depreciation of property, plant and equipment		2,367		2,173
Profit on disposal of property, plant and equipment		(4)		(5)
Movement in fair value foreign exchange contracts		44		(38)
Share-based payments		-		85
(Decrease)/increase in inventories		221		(361)
Increase in trade and other receivables		(1,216)		(101)
Increase in trade and other payables		832		68
Decrease in provisions		(10)		(10)
Cash generated from operations		8,956		8,584
Interest paid		(396)		(583)
Pension contributions and scheme expenses paid		(973)		(960)
Income taxes paid		(155)		(50)
Net cash flow from operating activities		7,432		6,991
Investing activities
Interest received		2		10
Purchase of property, plant and equipment		(3,465)		(5,296)
Investment in joint venture		(502)		(378)
Sale of property, plant and equipment		4		23
Net cash flow used in investing activities		(3,961)		(5,641)
Financing activities
Dividends paid		(518)		-
Purchase of shares by Employee Benefit Trust		(32)		(94)
New borrowings		12,340		-
Arrangement fees for new borrowings		(183)		-
Repayment of borrowings		(12,567)		(4,148)
Net cash flow used in financing activities		(960)		(4,242)
Increase/(decrease) in cash and cash equivalents		2,511		(2,892)
Effect of exchange rates on cash and cash equivalents		(92)		25
Cash and cash equivalents at the beginning of the year	7	5,955		8,822
Cash and cash equivalents at the end of the year	7	8,374		5,955

* restated for IAS19 - Employee benefits (revised)

Notes

1. Preparation of financial statements

Authorisation of financial statements

The Group's financial statements for the year ended 31 March 2014 were authorised for issue by the Board of Directors on 3 June 2014 and the balance sheet was signed on the Board's behalf by Andrew Turner, Group Chief Executive.

API Group plc is a public limited company incorporated and domiciled in England and Wales.  The Company's ordinary shares are traded on the Alternative Investment Market of the London Stock Exchange.

Publication of abridged accounts

The preliminary announcement figures for the year ended 31 March 2014 and the comparative figures for the year ended 31 March 2013 are an abridged version of the Group's statutory accounts which carry an unmodified audit report.  They do not constitute statutory accounts within the meaning of sections 434 to 436 of the Companies Act 2006 and no statutory accounts have yet been filed with the Registrar of Companies for the year ended 31 March 2014.  Statutory accounts for the year ended 31 March 2013 have been filed with the Registrar of Companies.  The auditor's report on these accounts was unqualified and did not contain an emphasis of matter, nor did it contain a statement under section 498 of the Companies Act 2006.  The statutory accounts for the year ended 31 March 2014 will be delivered to the registrar of Companies following the Company's Annual General Meeting.

The Annual Report and Accounts for the year ended 31 March 2014 will be posted to shareholders by 20 June 2014 prior to the Annual General Meeting on 15 July 2014.  Copies of the Annual Report and Accounts will be available to members of the public from 20 June 2014 at the Group's registered office at Second Avenue, Poynton Industrial Estate, Poynton, Cheshire SK12 1ND.

Basis of preparation and statement of compliance with IFRS

The Group's financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 March 2014 and applied in accordance with the Companies Act 2006. The Group has applied optional exemptions available to it under IFRS 1.

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

Going concern

The Directors are satisfied, on the basis of the Group's latest financial projections and facilities available, that the Group has adequate financial resources to continue to operate for the foreseeable future.  The Directors therefore continue to adopt the going concern basis in preparing these financial statements.

Changes in accounting policies

In the preparation of the group financial statements, the Group followed the same accounting policies and methods of computation as compared with those applied in the previous year, except for the adoption of new standards and interpretations and revisions of the existing standards as of 1 April 2013.

2. Segmental analysis

The Group produces monthly management information to enable the Board, including the Group Chief Executive, to monitor the financial performance of its constituent parts.  This information is analysed by business unit.

Revenue

		Year ended 31 March 2014		Year ended 31 March 2013
		£'000		£'000
Total revenue by origin
Laminates		59,237		55,163
Foils Europe		28,580		27,021
Foils Americas		21,819		23,972
Holographics		8,888		9,646
		118,524		115,802
Inter-segmental revenue
Laminates		13		2
Foils Europe		707		757
Foils Americas		567		556
Holographics		2,525		2,061
		3,812		3,376
External revenue by origin
Laminates		59,224		55,161
Foils Europe		27,873		26,264
Foils Americas		21,252		23,416
Holographics		6,363		7,585
Segment revenue		114,712		112,426

All revenue is derived from the sale of goods.

2. Segmental analysis (continued)

Segment result

	Year ended 31 March 2014		Year ended 31 March 2013*
	£'000		£'000
Operating profit before exceptional items
Laminates	6,680		6,515
Foils Europe	2,130		1,984
Foils Americas	1,699		1,893
Holographics	(724)		(275)
Segment result	9,785		10,117
Central costs	(2,358)		(2,315)
Total operating profit before exceptional items	7,427		7,802

Central costs comprise primarily salaries, defined benefit pensions costs, other employment costs and corporate advisory fees relating to the central management of the Group.

* restated for IAS19 - Employee benefits (revised)

	Year ended 31 March 2014		Year ended 31 March 2013
	£'000		£'000
Assets
Laminates	15,182		13,550
Foils Europe	18,586		17,889
Foils Americas	13,163		14,544
Holographics	8,295		8,719
Segment assets	55,226		54,702
Unallocated:
Deferred tax assets	6,412		6,617
Cash and short-term deposits	8,606		6,189
Other	1,645		1,188
Total assets	71,889		68,696

3. Exceptional items

	Year ended 31 March 2014		Year ended 31 March 2013
	£'000		£'000
Restructuring of operating businesses	(705)		(488)
Fees associated with the formal sale process	-		(541)
	(705)		(1,029)

Restructuring of operating businesses relates primarily to redundancy, severance settlements and other costs associated with business restructuring in the Foils Europe, Laminates and Holographics businesses.

4. Finance revenue and finance costs

	Year ended 31 March 2014		Year ended 31 March 2013*
	£'000		£'000
Finance revenue
Interest receivable on bank and other short-term deposits	1		2
Other interest receivable	1		8
	2		10
Finance costs
Interest payable on bank loans and overdrafts	(533)		(804)
Other interest payable	(41)		(17)
Finance cost in respect of defined benefit pension plans	(558)		(396)
	(1,132)		(1,217)

Included within interest payable on bank overdrafts and loans is £178,000 (2013: £235,000) relating to the amortisation of fees and expenses incurred in obtaining bank facilities.

* restated for IAS19 - Employee benefits (revised)

5. Taxation

a) Tax (expense)/credit in the income statement
	Year ended 31 March 2014				Year ended 31 March 2013
	£'000				£'000
Current income tax
UK corporation tax		(330)		(75)
UK corporation tax - adjustment to prior years		75		-
Overseas tax		(164)		(80)
Total current income tax expense		(419)		(155)
Deferred tax
Origination and reversal of temporary differences
- defined benefit pension plan		35		(135)
- tax losses and other short-term differences		501		588
- capital allowances		(118)		(275)
- effect of change in tax rate		(149)		(4)
Total deferred tax credit		269		174
Total tax (expense) / credit in the income statement		(150)		19

(b) Tax credit/(expense) on items accounted for through other comprehensive income
	Year ended 31 March 2014				Year ended 31 March 2013
	£'000				£'000
Deferred tax
Re-measurement gains and losses on defined benefit pension schemes		94		1,258
Change in fair value of effective cash flow hedges		(198)		151
Effect of change in tax rate		(246)		(181)
		(350)		1,228

(c) Tax (expense)/credit on items accounted for directly through equity
	Year ended 31 March 2014				Year ended 31 March 2013
	£'000				£'000
Deferred tax
Share-based payments		-		(18)

(d) Reconciliation of the total tax charge

The tax rate in the income statement for the year is lower than the standard rate of corporation tax in the UK of 23% (2013: 24%).  The differences are reconciled below:

		Year ended 31 March 2014				Year ended 31 March 2013
		£'000				£'000
Accounting profit before tax	5,592				5,566
Accounting profit multiplied by the UK standard rate of corporation tax of 23% (2013: 24%)	1,286				1,336
Adjustments to tax charge in respect of prior periods	(75)				(81)
Adjustments in respect of foreign tax rates	95				55
Increase in deferred tax asset recognised on losses and capital allowances	(1,454)				(1,595)
Losses for which deferred tax is not recognised	63				94
Other temporary differences for which deferred tax is not recognised	6				(33)
Effect of change in tax rate	152				4
Expenses not deductible for tax purposes	77				201
Total tax expense / (credit) reported in the income statement	150				(19)

(e) Unrecognised tax losses

The Group has unrecognised tax losses arising in the UK of £2,068,000 (2013: £2,819,000) that are available and may be offset against future taxable profits of those businesses in which the losses arose.  The UK tax Group also has unrecognised capital allowances of £2,078,000 (2013: £3,857,000) available to offset against future taxable profits at the rate of 18% (2013: 18%) a year on a reducing balance basis.  The Group has unrecognised US federal tax losses carried forward of $4,097,000 (2013: $8,963,000), which are available for offset against future profits for a period of between 9 and 17 years.

(f) Deferred tax

The deferred tax included in the balance sheet is analysed as follows:

	31 March 2014		31 March 2013
	£'000		£'000
Deferred tax liability
Revaluation of fixed assets	(183)		(211)
Fair value of cash flow hedges	(123)		-
	(306)		(211)
Deferred tax asset
Defined benefit pension plans	2,806		3,070
Tax losses	2,724		2,376
Capital allowances	737		941
Fair value of cash flow hedges	-		64
Share-based payments	145		166
	6,412		6,617

Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective from 1 April 2013) were substantially enacted on 26 March 2012 and 3 July 2012 respectively.  Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013.  This will impact the Group's future current tax charge accordingly.  The deferred tax assets and liabilities at 31 March 2014 have been calculated based on the rates of 20% and 21% substantively enacted at the balance sheet date.

6. Earnings per ordinary share

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net profit for the year attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

Earnings used to calculate underlying basic and diluted earnings per share exclude exceptional items, net of tax.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	Year ended 31 March 2014		Year ended 31 March 2013*
	£'000		£'000
Net profit attributable to equity holders of the Parent	5,442		5,585
Adjustments to arrive at underlying earnings:
Exceptional items	705		1,029
Tax credit on exceptional items	(162)		(103)
Underlying earnings	5,985		6,511
	Year ended 31 March 2014		Year ended 31 March 2013
	No		No
Basic weighted average number of ordinary shares	73,892,566		73,748,730
Dilutive effect of employee share options and contingent shares	3,265,060		3,600,787
Diluted weighted average number of ordinary shares	77,157,626		77,349,517

The basic weighted average number of shares excludes the 2,750,000 shares owned by the API Group plc No.2 Employee Benefit Trust (2013: 3,000,000). These contingent shares are included in the diluted weighted average number of shares. On 2 September 2013, 250,000 shares which had vested under the LTIP were exercised.

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. 

Earnings per ordinary share

	Year ended 31 March 2014		Year ended 31 March 2013*
	pence		pence
Basic earnings per share	7.4		7.6
Underlying basic earnings per share	8.1		8.8
Diluted earnings per share	7.1		7.2
Underlying diluted earnings per share	7.8		8.4

* restated for IAS19 - Employee benefits (revised)

7. Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following:

	31 March 2014		31 March 2013
	£'000		£'000
Short-term deposits	-		4,500
Cash at bank and in hand	8,606		1,689
Cash and short-term deposits	8,606		6,189
Bank overdrafts (Note 17)	(232)		(234)
	8,374		5,955

8. Financial liabilities
				31 March 2014		31 March 2013
				£'000		£'000
Current
Bank overdrafts				232		234
Current instalments due on bank loans				187		2,957
Interest rate swaps				-		16
Forward foreign exchange contracts				13		559
				432		3,766
Non-current
Non-current instalments due on bank loans				8,033		5,574
				8,033		5,574

Bank loans

Bank loans comprise the following:
	31 March 2014		31 March 2013
	£'000		£'000
Revolving loans (UK)	7,329		7,754
Term loans (US)	891		777
	8,220		8,531
Less: current instalments due on bank loans	(187)		(2,957)
	8,033		5,574

The Group's banking facilities comprise:

UK facilities

The Group's lending arrangements in the UK were moved from Barclays Bank plc to HSBC plc in November 2013.  The facilities with HSBC are for a period to 31 December 2017 and comprise a £13.5m multicurrency revolving facility agreement and ancillary facilities of £7.5m to cover FX contracts, letters of credit and sundry other items.  At 31 March 2014, UK facilities drawn down comprised revolving loans of £7.5m with interest rates of 2.0%.  The facilities are subject to two quarterly financial covenant targets reflecting the financial performance of the Group excluding the impact of the Foils Americas business unit.  Covenants relate to Interest Cover and Leverage.  At 31 March 2014, the covenant ratios were comfortably within targets.

US facilities

The US facilities are with Wells Fargo Bank; these facilities are scheduled for renewal in April 2015.  At 31 March 2014 they comprised amortising loans of $0.9m (2013: $1.2m), a revolving credit facility of up to $5.5m (2013: $5.5m), depending on the level of working capital and a new 5 year loan of $0.5m relating to the metalliser.  At 31 March 2014, interest rates were 3.5%.  The total debt outstanding is subject to a quarterly covenant obligation relating to Fixed Costs Cover.  During the year to 31 March 2014 the US business met all its covenant obligations.  The revolving credit facility is secured on working capital to the value of £5,189,000 (2013: £5,861,000) and the loans over certain property, plant and equipment.

9. Pensions and other post-retirement benefits

The assets and liabilities of the defined benefit schemes are:

At 31 March 2014

	United Kingdom		United States		Total
	£'000		£'000		£'000
Equities	40,485		918		41,403
Bonds	20,981		1,106		22,087
Hedge funds	11,105		-		11,105
Property	7,384		63		7,447
Cash	56		-		56
Fair value of scheme assets	80,011		2,087		82,098
Present value of scheme liabilities	(92,631)		(2,831)		(95,462)
Net pension liability before deferred tax	(12,620)		(744)		(13,364)

At 31 March 2013

	United Kingdom		United States		Total
	£'000		£'000		£'000
Equities	39,200		987		40,187
Bonds	22,075		986		23,061
Hedge funds	10,605		-		10,605
Property	6,677		82		6,759
Cash	-		-		-
Fair value of scheme assets	78,557		2,055		80,612
Present value of scheme liabilities	(90,880)		(3,081)		(93,961)
Net pension liability before deferred tax	(12,323)		(1,026)		(13,349)

The major assumptions used in determining the value of the defined benefit schemes are disclosed below.

	United Kingdom				United States
	31 March		31 March		31 March		31 March
	2014		2013		2014		2013
	%		%		%		%
Rate of increase in pensions in payment	2.35		2.35
Rate of increase to deferred pensions	2.35		2.35
Inflation - CPI	2.35		2.35
Discount rate	4.40		4.30		4.50		4.25
Post-retirement mortality (in years):
Member age 65 (current life expectancy) - male	20.9		20.3
Member age 65 (current life expectancy) - female	23.1		22.3
Member age 45 (life expectancy at 65) - male	22.7		22.0
Member age 45 (life expectancy at 65) - female	25.0		24.3

These assumptions have been selected after consultation with the Group's UK pension advisors, KPMG LLP and the Group's US actuaries, Prudential Retirement.

 

END

 

 

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