Interim Results

API Group PLC 21 May 2001 21 May 2001 Interim results for the six months to 31 March 2001 * Operating profit (before goodwill amortisation and exceptional items) £0.3m (£6.9m) on sales of £91.3m (£87.0m) * Loss before tax, goodwill amortisation and exceptional items of £ 0.5m (£6.7m profit), reflecting deteriorating trading conditions as indicated in the statement at the Annual General Meeting in February * Derek Ashley, new Chief Executive, appointed to the Board in February, is concentrating on the priority of returning the Group to profitability and also undertaking a strategic review of the Group's options * Considerable progress has been made in reorganising the Group - creation of more focused and distinct businesses in Foils and Laminates division - shortened reporting lines with divisional management layer removed - major site rationalisation ongoing - investment in strengthened sales teams * No interim dividend, reflecting adjusted loss per share of 3.2p (12.8p profit) * Net assets per share of £2.26p and balance sheet gearing of 27% * Benefits of reorganisation and cost reduction programmes expected towards end of this year with full effect estimated to produce £6m of savings and productivity benefits in 2002 Commenting on the results, Chairman, Moger Woolley said: 'The results reflect my comments at the time of our AGM. The difficult trading conditions encountered in the second half of last year deteriorated further in the first half of the current year. The reorganisation of management and reduction in the cost base, set in train towards the end of last year, is progressing well. The full benefit of these actions, amounting to £6 million of savings and productivity benefits, is expected next year. Derek Ashley is also in the process of conducting a strategic review of the Group's options.' CHAIRMAN'S INTERIM STATEMENT Results for the half-year ended 31 March 2001 The Group experienced adverse trading conditions throughout the period with a general decline in profitability across API's two divisions, with the exception of the Chinese operation, where profits increased. The Group's Foils business in the USA was particularly badly affected and accounted for almost half of the profit shortfall compared with the previous year. The loss for the half-year before tax, one off costs, exceptional items, and goodwill amortisation and impairment, was £0.5m (£6.7m profit) on sales of £91.3m (£ 87.0m). Adjusting for the effect of acquisitions, sales on an underlying basis were 2% down on the previous year. Sales in the UK were down 7%, overseas and export sales rose by 16%, mainly due to the acquisition of the Van Leer Metallised Paper business in April 2000. Gross margin was 6% down, reflecting a shortfall in contribution of approximately £6.0m due to material cost increases and lower average sales prices, particularly in the Foils businesses in the USA and Europe. As anticipated, the Metallised Paper business suffered some disruption in the half year, with the move of major items of plant and equipment to the Caerphilly site where production is scheduled to restart in June. The Group incurred a pre-tax loss for the half-year of £25.2m (£5.5m profit) after charging exceptional costs of £24.1m (£0.7m). These exceptional costs relate to: - goodwill written off, mainly in relation to the Foils business in the USA (£12.9m); - site rationalisation, management restructuring and related costs (£ 10.6m); - write down to market price of API Group plc shares purchased and held by the trustee of the Group's employee benefit trust (£0.6m); Adjusted loss per share (before goodwill amortisation and exceptional costs) was 3.2p (12.8p profit) with FRS 3 earnings showing a loss of 71.8p (earnings 10.3p). Reflecting the loss in earnings, no interim dividend is to be paid. Following the former Chief Executive's departure from the Group in July 2000, the Board embarked on a programme of rationalisation and cost reduction involving primarily the closure and consolidation of a number of the Group's manufacturing sites in the UK. This programme, together with recent actions, should deliver £6m in cost reduction and improved productivity in the next full financial year. The rationalisation programme comprises four major projects: - closure of the Metallised Paper site in Macclesfield and transfer of plant to Caerphilly. The equipment moves have been completed and machine trials are currently being conducted with production scheduled for June; - closure of the Metallised Laminates site in Rochdale planned for the end of May, with major equipment being transferred to Poynton and full production expected in September; - consolidation in Scotland of the European graphics hot stamping foil manufacturing operations which was completed in May; and - transformation of the Group's site in Salford to create a secure environment for more specialist holographic and security foils. Since his appointment, our new Chief Executive, Derek Ashley, is undertaking a strategic review of all the Group's options. In addition to the significant ongoing site rationalisation programme, short term actions have been taken to refocus the Group's management, including bringing together the worldwide Foils operations under a single team, removing the divisional management layer from the Foils and Laminates division and restructuring management in the USA and in a number of other businesses. These changes are designed to shorten reporting lines, strengthen the sales functions, revitalise technical development, improve productivity and reduce the operating cost base. There was an operating cash inflow of £2.7m in the period. Depreciation and a reduction in working capital have offset poor trading results and contributed to the positive net operating cash inflow. Capital expenditure commitments carried over from the previous year and expenditure involved in consolidating the Metallised Paper business in Caerphilly of £3.6m are included in capital expenditure of £7.1m in the half year. Net borrowings rose by £8.5m to £20.6m representing gearing of 27%. Capital expenditure in the second half is forecast at £5.5m including £1.2m of expenditure in connection with the consolidation of the Laminates business. Shareholders' funds of £76.4m (£ 99.0m) are equivalent to £2.26 per share. REVIEW OF OPERATIONS Foils and Laminates Operating profits declined by £5.1m to £0.03m (£5.2m) (before goodwill and exceptional costs) on sales up 8% to £66.9m (£62.2m) On a like-for-like basis, adjusting for the acquisition of the Van Leer Metallised Paper business in April last year, sales fell by 2%. The decline in profitability was particularly severe in the USA while lower volumes, raw material price increases and reduced selling prices applied across the division. In addition to the rationalisation programme instigated last year to reduce costs and improve focus, divisional management changes have been made. Foils is now structured as a single business servicing worldwide customers from operations in Europe, USA and China. The Laminates and Paper Metallising businesses are being consolidated onto two sites, (from the previous four). One effect of this simplified structure has been the removal of the divisional management layer. The businesses now report direct to Derek Ashley. Converted Products The division made an operating profit of £0.2m (£1.7m profit) on sales down 2% to £24.4m (£24.8m). Continuing pressure on selling prices and raw material cost increases halved the results of Tenza (self-adhesive products), with Coated Products (siliconised release coatings) achieving a modest increase in profits. The most disappointing results were from Learoyd (film based flexible packaging) accounting for £1.2m of the profit shortfall. Management has been strengthened in the Learoyd Group with the objective of improving the sales and marketing profile, with emphasis on developing and exploiting opportunities presented by the recently installed £1.5m ten-colour press and £ 4.0m investment in the new polypropylene co-extrusion facility. Tenza has significant European exports where margins remain under pressure. Following the sale of the anti-corrosive papers business, Coated Products is now concentrating on its core business of siliconised papers and films. New film products are showing growth potential, particularly in the Far East. PROSPECTS The outlook for the full year continues to be difficult to predict. Raw material prices appear to have stabilised and there is some evidence that sales prospects are improving. However, margins are likely to remain under pressure, particularly for the Group's 30% of sales into Europe. Significant cost reduction measures, the restructuring of the management teams, improved margin business from increasing sales of low cost foil from China-based Shen Yong and new capacity in the Converted Products division, should all contribute to an improvement in the Group's performance next year. J. Moger Woolley, Chairman 21 May 2001 Enquiries: Derek Ashley, Chief Executive Tel: 020 7831 3113 (21/05/01) Dennis Holt, Finance Director Tel: 01625 610334 (thereafter) API Group plc Tim Spratt Financial Dynamics Tel: 020 7831 3113 GROUP PROFIT & LOSS ACCOUNT for the six months ended 31 March 2001 6 months to 31 March 2001 6 months to 12 months to Continuing Exceptional 1 April 30 operations items Total 2000 September 2000 £'000 £'000 £'000 £'000 £'000 Turnover 91,323 - 91,323 87,008 188,772 Cost of sales (73,378) (20,348) (93,726) (64,347) (155,809) Including goodwill amortisation (601) - (601) (503) (1,112) Gross 17,945 (20,348) (2,403) 22,661 32,963 profit/(loss) Distribution (3,777) (88) (3,865) (3,480) (7,800) costs Administrative (14,486) (3,655) (18,141) (13,475) (28,520) expenses Operating (318) (24,091) (24,409) 5,706 (3,357) (loss)/profit Loss on - - - - (97) disposal of land and buildings (Loss)/profit (318) (24,091) (24,409) 5,706 (3,454) on ordinary activities before interest and tax Net interest (762) (200) (677) expense (Loss)/profit (25,171) 5,506 (4,131) on ordinary activities before tax Taxation 1,869 (1,520) (1,885) (Loss)/profit (23,302) 3,986 (6,016) on ordinary activities after tax Profit (569) (553) (1,144) attributable to minority equity interests (Loss)/profit (23,871) 3,433 (7,160) attributable to ordinary shareholders Ordinary - (2,186) (5,060) dividends Balance (23,871) 1,247 (12,220) transferred (from)/to reserves Earnings per ordinary 25p share Basic (71.8p) 10.3p (21.5p) Diluted (71.8p) 10.3p (21.5p) Adjusted earnings per ordinary 25p share (before exceptional items and goodwill amortisation) Basic (3.2p) 12.8p 22.4p Diluted (3.2p) 12.8p 22.4p Dividends per ordinary 25p share - 6.55p 15.19p GROUP BALANCE SHEET at 31 March 2001 31 March 1 April 30 September 2001 2000 2000 £'000 £'000 £'000 Fixed assets Intangible assets 6,931 19,876 20,162 Tangible assets 64,940 60,171 61,722 Investments 852 2,416 1,499 72,723 82,463 83,383 Current assets Stocks 27,950 23,686 30,355 Debtors 46,716 46,740 52,444 Cash at bank and in hand 9,394 6,155 8,502 84,060 76,581 91,301 Creditors - Amounts falling due within one year Creditors (66,874) (37,185) (59,309) Current taxation - (2,645) (1,600) Dividends - (2,186) (2,874) (66,874) (42,016) (63,783) Net current assets 17,186 34,565 27,518 Total assets less current liabilities 89,909 117,028 110,901 Creditors - Amounts falling due after more than one year (284) (344) (304) Provisions for liabilities and charges (5,470) (651) (4,197) Accruals and deferred income (232) - (274) 83,923 116,033 106,126 Minority interests (7,485) (6,344) (7,083) Total net assets 76,438 109,689 99,043 Share capital and reserves Called up share capital 8,463 8,463 8,463 Share premium account 50,563 50,563 50,563 Revaluation reserve 2,616 2,189 2,616 Capital redemption reserve 549 549 549 Profit and loss account 14,247 47,925 36,852 Equity shareholders' funds 76,438 109,689 99,043 GROUP CASHFLOW STATEMENT for the six months ended 31 March 2001 6 6 months months 12 months to to to 31 1 April 30 March September 2001 2000 2000 £'000 £'000 £'000 Reconciliation of operating (loss)/profit to net cash inflow from operating activities Operating (loss)/profit (24,409) 5,706 (3,357) Amortisation and depreciation less government grants 4,178 3,869 8,560 Impairment charge against tangible fixed assets and investments 1,276 - 7,806 Impairment charge against intangible assets 12,906 - - Loss/(profit) on disposal of fixed assets 71 (15) 110 Decrease/(increase) in stocks 2,804 (3,827) (8,423) Decrease/(increase) in debtors 6,649 4,204 (413) (Decrease)/increase in creditors (2,073) (6,865) 1,037 Increase/(decrease) in provisions 1,273 (163) 3,383 Net cash inflow from operating activities 2,675 2,909 8,703 Cash flow statement Net cash inflow from operating activities 2,675 2,909 8,703 Returns on investments and servicing of finance (1,240) (404) (1,206) Taxation (125) (1,470) (3,947) Capital expenditure and financial investment (7,129) (4,188) (11,613) Acquisitions and disposals (69) (1,852) (3,798) Equity dividends paid (2,874) (2,890) (5,076) Net cash outflow before financing (8,762) (7,895) (16,937) Financing - (5) (33) Decrease in cash in the period (8,762) (7,900) (16,970) Exchange movement 234 278 859 Balance sheet movement in net cash (8,528) (7,622) (16,111) Reconciliation of net cash flow to movement in net (debt)/funds Decrease in cash (8,762) (7,900) (16,970) Repayment of the capital element of finance leases - 5 33 Change in net (debt)/funds resulting from cash flows (8,762) (7,895) (16,937) Exchange differences 234 278 859 Movement in net (debt)/funds (8,528) (7,617) (16,078) Net (debt)/funds at start of period (12,042) 4,036 4,036 Net (debt) at end of period (20,570) (3,581) (12,042) OTHER STATEMENTS 6 months 6 months 12 months to to to 31 March 1 April 30 September 2001 2000 2000 £'000 £'000 £'000 Statement of total recognised gains and losses (Loss)/profit attributable to members of the parent company (23,871) 3,433 (7,160) Currency translation differences on foreign currency net investments 1,266 1,297 4,118 Total gains and losses recognised since last annual report and accounts (22,605) 4,730 (3,042) Reconciliation of movements in shareholders' funds (Loss)/profit attributable to members of the parent company (23,871) 3,433 (7,160) Dividends - (2,186) (5,060) Currency translation differences on foreign currency net investments 1,266 1,297 4,118 Net (deduction)/addition to shareholders' (22,605) 2,544 (8,102) funds Opening shareholders' funds 99,043 107,145 107,145 Closing shareholders' funds 76,438 109,689 99,043 NOTES SEGMENTAL ANALYSIS 6 months 6 months 12 months to to to 31 March 1 April 30 September 2001 2000 2000 £'000 £'000 £'000 Analysis of turnover by destination United Kingdom 39,431 42,351 88,145 Continental Europe 26,515 20,008 49,110 Americas 15,788 15,773 33,031 Rest of World 9,589 8,876 18,486 91,323 87,008 188,772 Analysis of turnover by origin United Kingdom 66,933 64,335 141,774 Continental Europe 1,471 761 2,506 Americas 15,700 16,284 33,388 Rest of World 7,219 5,628 11,104 91,323 87,008 188,772 Analysis of profit/(loss) before interest and tax by origin United Kingdom 307 4,059 7,608 Continental Europe 137 126 195 Americas (1,603) 1,432 1,839 Rest of World 1,442 1,251 2,620 283 6,868 12,262 Exceptional items and goodwill amortisation (24,692) (1,162) (15,716) (24,409) 5,706 (3,454) £8,320,000 of the exceptional items and goodwill amortisation arise in the United Kingdom (April 2000 £748,000: September 2000 £15,016,000), £16,151,000 arise in the Americas (April 2000 £366,000: September 2000 £610,000) and £ 221,000 arise in the Rest of the World (April 2000 £48,000: September 2000 £ 90,000). Analysis of turnover by activity Foils & laminates 66,904 62,185 137,429 Converted products 24,419 24,823 51,343 91,323 87,008 188,772 Analysis of profit/(loss) before interest and tax by activity Foils & laminates 34 5,159 8,854 Converted products 249 1,709 3,408 283 6,868 12,262 Exceptional items and goodwill amortisation (24,692) (1,162) (15,716) (24,409) 5,706 (3,454) £21,585,000 of the exceptional items and goodwill amortisation relate to the foils and laminates division (April 2000: £1,069,000, September 2000 £ 14,434,000) and £3,107,000 relate to the converted products division (April 2000 £93,000: September 2000: £1,282,000). OPERATING (LOSS)/PROFIT 6 months to 6 months to 12 months to 31 March 1 April 30 September 2001 2000 2000 £'000 £'000 £'000 Exceptional items charged against operating profit comprise Restructuring of operating businesses 10,538 659 12,059 Impairment of intangible assets 12,906 - - Provision against own shares held in ESOP 647 - 959 Other - - 1,489 24,091 659 14,507 EARNINGS PER SHARE 6 months to 6 months to 12 months to 31 March 2001 1 April 30 September 2000 2000 pence £'000 pence £'000 pence £'000 Earnings per share are based on (Loss)/profit attributable to ordinary shareholders (71.8) (23,871) 10.3 3,433 (21.5) (7,160) Add exceptional items 72.4 24,091 2.0 659 43.9 14,604 Add goodwill amortisation 1.8 601 1.5 503 3.3 1,112 Less tax relief (5.6) (1,869) (1.0) (330) (3.3) (1,109) Adjusted (loss)/profit attributable to ordinary shareholders (3.2) (1,048) 12.8 4,265 22.4 7,447 Basic weighted average ordinary 33,262,578 33,262,578 33,262,578 shares The weighted average number of shares exclude the 588,000 shares owned by the API Group plc No. 2 Employee Benefit Trust. BASIS OF PREPARATION The interim financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 30 September 2000. The taxation credit relates entirely to the exceptional items. The estimated effective rate of taxation for the full year excluding exceptional items is 50%. Other expenses are accrued in accordance with the same principles used in the preparation of the annual accounts. PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information contained in this interim statement is unaudited and does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 30 September 2000. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. INDEPENDENT REVIEW REPORT To API Group plc Introduction We have been instructed by the company to review the financial information set out on pages 5 to 10 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information, in respect of the six months ended 31 March 2001, which is the responsibility of, and has been approved by, the directors. Our responsibility is to report on the results of our review. Director's responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 March 2001. Ernst & Young Manchester 21 May 2001 INTERIM STATEMENT The interim statement is being mailed to shareholders on 25 May 2001 and will be available at the company's registered office, Silk House, Park Green, Macclesfield, Cheshire, SK11 7NU.

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