Interim Results

RNS Number : 9275U

API Group PLC

21 May 2008

 



21 May 2008

API GROUP PLC

UNAUDITED PRELIMINARY RESULTS FOR THE 18 MONTHS TO 31 MARCH 2008

• 18 month reporting period reflecting change in year end to 31 March.

• Group sales of £143.8m and operating profit before goodwill and exceptional items of £0.4m for the 18 months to 31 March 2008.  Sales for 12 months to 31 March 2008 declined 7.8% to £93.4m and operating profit before exceptional items fell £0.6m to £0.4m.

• Operating profit before exceptionals for the last 6 months of £0.6m compared to loss of £0.2m in the previous half year.

• £2.4m of annualised savings achieved from overhead cost reduction programme, well ahead of original target of £1.0m. 

• Good progress in Europe as a result of lower costs and growth in foils and holographics. Lower demand experienced in the US.

• Relocation of Chinese manufacturing to new, purpose-built facility substantially complete although results hit by costs and disruption to supplies.

• Pre-tax loss on continuing operations for the 18 month period of £7.1m (£1.8m loss for 12 months to 30 September 2006) after charging exceptional costs of £3.4m for restructuring and asset impairments. Basic loss per share from continuing operations of 16.7p (8.9p loss).

• Net debt reduced by £5.9m from September 2007 peak of £23.0m, primarily as a result of £7.2m net proceeds raised in January's successful Open Offer to shareholders.  Further debt reduction anticipated in 2008/09 following the provisional agreement for disposal of surplus property in China. 

• Continued focus on costs and debt reduction in the year ahead, as well as product and sales development.  

Commenting, API's Non-Executive Chairman Richard Wright said:

'During the last six months of the reporting period we have started to see evidence of a turnaround in API's trading performance. The management team has been strengthened, the Group's financial position is much improved and the cost base is significantly lower going into the new financial year.  As yet we have not experienced any significant downturn in demand, outside of the USA, in spite of the adverse macro economic factors.

Overall, the significant changes at API over the last 18 months, and especially in the last half year, have led to a much leaner and more competitive business. The Board believes the Group will continue to make progress and is well placed to deliver improved returns to shareholders.'

Enquiries:

Andrew Turner, Group Chief Executive Officer, API Group plc	01625 650334
Tim Spratt, Nicola Biles, Financial Dynamics	020 7831 3113
Nick Westlake, Numis Securities Limited	020 7260 1000

CHAIRMAN'S STATEMENT

These results cover the 18 months to 31 March 2008, reflecting the change in the year end from the previous date of 30 September. The period under review was a difficult and challenging one for API although the Board is pleased with the progress that the Group has made since the interim results at the end of September 2007. Specifically, during the last six months we have strengthened the management team, improved our financial position and reduced the cost base which the Group is carrying into the new financial year. 

As previously announced, our shareholders overwhelmingly supported the Open Offer which raised net proceeds of £7.2m in January 2008 in order to strengthen the Company's balance sheet. The raising of new equity occurred simultaneously with the renegotiation of the Group's main lending facility and the combined re-financing package provides adequate working capital for the Group's foreseeable requirements and sufficient flexibility to support a turnaround in financial performance. Also in January 2008, the admission of the Company's shares to AIM will enable the Group to maintain a cost of compliance which is more appropriate to its current size and resources.  

Results Summary

Sales from continuing operations for the 18 months ended 31 March 2008 were £143.8m.  Sales for the 12 months to 31 March 2008 were £93.4m, down 7.8% on the prior year, reflecting contract losses in Laminates, weak demand in the US and operational difficulties in China, partially offset by steady growth in our European Foils and Holographics businesses.  

Operating profit before exceptional items was £0.4m for both the 18 months and 12 months ended 31 March 2008 compared with £1.0m for the 12 months to 31 March 2007. On year-to-year comparatives, the improvement in trading in Europe and reduced central costs were offset by declines in the US and Asia Pacific and especially one-off costs in China associated with the relocation to the new factory. 

After two loss-making six month periods at the operating level, the last half year has seen a return to overall profitability due to a much improved financial performance in Europe, reduced overhead costs and improved productivity partly countered by lower sales in the US and stock write-downs, costs and disruption caused by the factory relocation in China.  

After charging exceptional items of £3.4m and net finance costs of £4.1m, the loss before tax for continuing operations for the 18 months to 31 March 2008 was £7.1m (loss of £1.8m in year to 30 September 2006). Exceptional items for the period included restructuring expenses of £2.0m and a non-cash asset impairment charge of £1.9m relating to a suspended IT project.  Basic loss per share from continuing operations for the 18 month period was 16.7p per share.

Net borrowings at 31 March 2008 were £17.1m representing gearing of 62%. Compared to the position at the last interim results in September 2007, net borrowings were down £5.9m from a peak of £23.0m and gearing of 116%. The improvement in net borrowings primarily reflects the net receipt of £7.2m from the Open Offer. 

Following the relocation of the Group's operations in Shanghai to their new site on the outskirts of the city, provisional agreement has been reached with a branch of the local government to sell the vacated property. Net proceeds will initially be used to repay loans raised to finance the new factory investment project and return the Chinese business to a debt-free position.

Dividend

In view of the continuing need to reduce debt and reinvest in the business, the Board is not recommending the payment of a dividend.  

Board

The Board was strengthened by the appointment of Andrew Turner as Group Chief Executive with effect from 15 October 2007. After leading the Group's re-financing, Andrew has already made significant progress in reducing corporate and operating costs and driving performance improvement.  

Andrew Robertson resigned as Group Finance Director on 20 March 2008 and recruitment of a replacement is underway. In the interim period, the Group is benefitting from the services of a well-qualified acting Chief Financial Officer, Richard Scully.  

On 30 April 2008, Brian Birkenhead and Martin O'Connell stepped down as Non-Executive Directors in line with a decision to reduce the size of the Board. Brian and Martin have served the Board with distinction since their appointments and the Board would like to express its thanks for the significant contributions which they have made and to wish them well for the future.

Going forward, the composition of the Board will be more appropriate for a company of API's size and resources, whilst allowing us to maintain our commitment to high standards of corporate governance.

Employees, Customers and Suppliers

After the challenges of the past 18 months, API's employees have renewed their focus on performance and results. Their hard work and commitment is evident in the recent progress we have made in our businesses. On behalf of the Board and shareholders, I would like to thank them for their continuing contribution.  

The Board would also like to convey its appreciation to API's customers and suppliers, who have remained loyal trading partners through recent difficult times. 

Outlook

The successful Open Offer and renegotiated banking facilities have restored the Group's liquidity and strengthened the balance sheet. We expect to make further progress in improving gearing in the coming 12 months through strong cash generation from the businesses and disposal of surplus assets.  

General demand for the Group's products remains good and, outside of the US, there are no signs yet of an adverse impact from macro economic factors. Whilst there is much work to be done in re-stabilising our business in China after the relocation to its new facility, the majority of our businesses are carrying positive momentum into the new financial year. The recent overhead reduction programme has lowered the cost base by £2.4m on an annualised basis and ongoing performance improvement initiatives are expected to deliver further benefits. 

Overall, the significant changes to the Group over the last 18 months, and especially in the last half year, have led to a much leaner and more competitive business. The Board believes the Group will continue to make progress and is well placed to deliver improved returns to shareholders. 

Richard Wright

Non-Executive Chairman

CHIEF EXECUTIVE'S REVIEW AND BUSINESS REVIEW

Good progress has been made in the last six months in addressing the Group's financial problems, streamlining the business and starting to turn around the performance of our operations in Europe.  

The re-financing which was completed in January 2008 has re-established the cash and covenant headroom which management needs to operate the business, as well as significantly reducing the overall level of Group debt. Debt will reduce further in 2008/09 when consideration is received from the sale of the Group's surplus land asset in Shanghai, China. 

In November 2007, the management team launched an overhead cost reduction programme with an initial savings target of £1m per annum. The programme has now been concluded with the achievement of annualised savings of approximately £2.4m.

A review of centrally-controlled costs, including Group functions, shared service costs and central initiatives billed to operating units, yielded savings of approximately £1.5m per annum, the majority effective from January 2008 with the balance completing progressively during the remainder of the first quarter of 2008. In addition, streamlining of our UK operations has yielded a reduction of 24 people from our indirect labour headcount and a further 9 staff have been transferred from indirect to direct labour to provide additional production capacity. The saving in overhead costs associated with the business units is approximately £0.9m per annum, effective April 2008.  Total restructuring cost in relation to the November 2007 programme amounted to £1.2m out of total restructuring costs of £2.0m for the 18 month period. 

Group Results

Group sales for the 18 months to 31 March 2008 were £143.8m and operating profit before exceptional items was £0.4m. On a 12 month comparative basis to 31 March, Group sales reduced by 7.8% to £93.4m (6.8% reduction at constant exchange rates). This decline was due primarily to contract losses in the European Laminates business at the end of the prior year and lower sales from operations in the US and China. Operating profit for the 12 months was down £0.6m to £0.4m after a doubling of profits in Europe to £2.0m and a £0.6m reduction in central costs were neutralised by declines in Asia Pacific and the US. The last six months were particularly strong in Europe although the gains were partly offset by costs associated with the relocation of the operation in Shanghai and a particularly weak period of trading in the US.  The last six month's operating profit before exceptionals was £0.6m compared to a loss of £0.2m in the previous half year. 

Europe

External sales from our European operations were £95.8m for the 18 month period with an operating profit before exceptional items of £2.5m. In the year to 31 March 2008, European operating profits increased by £1.0m compared to the prior year to £2.0m on sales down 4.3% to £62.6m. On 12 month comparatives, Foils and Holographics grew by a combined 11% and operating profit advanced 13% despite significant operational problems in Holographics in the first half of the year. Volume growth was driven by advances in security holographics and by sales from our Continental distribution units, including the newly-established operation in Italy. Laminates returned to profit despite a 15% fall in sales, responding to contract losses at the beginning of 2007 with a deep restructuring programme and significant cost and efficiency gains. The major part of the improvement in performance in Europe occurred in the last three months aided by a strong recovery in Holographics, a significant new product line developed between our Laminates and Holographics businesses and tighter control of costs.  

North America

US sales for the 18 months were £33.3m with operating profit before exceptional items of £1.6m. On a 12 month basis US sales declined by 14% and operating profit declined by 44% against strong prior year comparatives. The impact of exchange rates was more pronounced in the US than other regions and on a constant currency basis sales and operating profit declined by 9% and 40% respectively year on year. The last six months were particularly difficult as the businesses suffered the effects of a general slow down in market activity and certain customers in the greeting card sector moving manufacturing to the Far East.  

Asia Pacific

18 months sales in Asia Pacific were £14.7m with an operating loss before exceptional items of £0.3m. Results in Asia Pacific suffered from general disruption to trading associated with the relocation project in China. By the end of April 2008, relocation of the China foils business to its new 300,000 square foot facility in the Jiading industrial zone of Shanghai was substantially complete and management was focusing on re-stabilising production and establishing normal service levels to customers.  Results in the last 6 months in China were disproportionally impacted by adjustments arising from a thorough balance sheet review.  Underlying profitability also declined due to the impact on export margins of exchange rates and the new VAT regime, general cost inflation and competitive conditions in the home market.

Prospects

Looking forward, we are encouraged by demand for the Group's products, the skills, commitment and teamwork of our global workforce and the loyalty of our customer base.  

Faced with strong inflationary pressure on raw material and utility prices, we will continue to bear down on costs through improved utilisation of key manufacturing assets across the Group, efficiency improvement programmes focused especially on waste, an energetic purchasing function and an ongoing review of headcount and overhead expenses.  In addition, further steps are likely to be required to raise selling prices if the current rate of increase in input costs persists. 

The Group continues to invest in research and development to enhance the performance of its products and to bring new finishes and effects, as well as environmentally-friendly packaging options, to brand owners. A number of exciting and profit-enhancing innovations are in the pipeline, some of which leverage technical synergies between the Group's businesses in standard foils, holographic foils and laminates. 

Directionally, we remain committed to the strategy of building on API's global position in the foils market, whilst concentrating for the foreseeable future on efficient execution, profit growth and improvement in the Group's overall financial condition. 

Andrew Turner

Group Chief Executive

EXTRACTS FROM THE FINANCIAL REVIEW

The Financial Results are presented for the 18 months to 31 March 2008. The comparatives are for the year ended 30 September 2006. In order to make a more meaningful comparison, the Financial Review also includes certain unaudited pro forma financial information for the year to 31 March 2008 for comparison with the 12 months to 31 March 2007. 

	18 months to 31 March 2008 (unaudited) £'000	12 months to   30 September 2006 £'000	12 months to   31 March  2008 (unaudited) £'000	12 months to   31 March 2007 (unaudited) £'000
Revenue	143,783	101,979	93,391	101,253
Operating profit before exceptional items	408	994	437	988
Exceptional items	(3,417)	(863)	(2,616)	(1,221)
Operating profit / (loss) from continuing operations	(3,009)	131	(2,179)	(233)

Revenue and Operating Profit

Revenue from continuing operations for the 18 months to 31 March was £143.8m. For the 12 months to March 2008, revenue from continuing operations was down 7.8% to £93.4m including 1.0% due to the effect of exchange rate movements. Revenue in Europe fell by 4.3%. On a local currency basis, sales in the US and China reduced by 9% and 14% respectively. 

Operating profit before exceptional items for the 18 months to 31 March 2008 was £0.4m. For the 12 months to March 2008, operating profit before exceptional items was down £0.6m to £0.4m.  Gross profit reduced by £1.4m, though gross margins were maintained at 20.4% of sales as the volume reduction was offset by improved mix of work and a proportionate reduction in direct labour costs. The loss of gross profit was partly offset by a reduction in other operating costs of £0.8m. 

Exceptional items for the 18 months to 31 March were £3.4m, with a net cash impact in the period of £1.5m. Redundancy and restructuring costs included £0.8m relating to the retrenchment of the Laminates business implemented during the 6 months to March 2007 and £1.2m relating to the Group cost reduction programme initiated in the last calendar quarter of 2007. Exceptional items also include an impairment of £1.9m against a previous investment in a Group-wide IT project.  The system has so far been implemented in two European locations but the project has been suspended. The Board has taken the view that there will be no further implementation in the foreseeable future, requiring a full provision against the value of 'construction in progress' relating to business units where implementation has been shelved. These exceptional costs are partly offset by a gain on the sale of a surplus property asset in Charlotte, US of £0.3m and a net credit of £0.2m in relation to the relocation of the Shanghai factory.

	18 months to 31 March 2008 (unaudited) £'000	12 months to   30 September 2006 £'000	12 months to   31 March  2008 (unaudited) £'000	12 months to   31 March 2007 (unaudited) £'000
Net finance costs	(4,126)	(1,924)	(2,873)	(2,468)
Loss on continuing activities before taxation	(7,135)	(1,793)	(5,052)	(2,701)
Tax credit / (expense)	407	(735)	783	(670)
Loss from continuing operations	(6,728)	(2,528)	(4,269)	(3,371)
Loss from discontinued operations	(1,130)	(230)	(1,130)	(127)
Loss for the period	(7,858)	(2,758)	(5,399)	(3,498)
Basic Loss per share (continuing operations)	(16.7p)	(8.9p)	(9.7p)	(11.6p)

Finance costs

Net finance costs in the 18 months ended 31 March 2008 were £4.1m, including £0.1m relating to the pension fund (£0.3m for 12 months to 30 September 2006). For the 12 months to 31 March 2008, finance costs increased by £0.4m to £2.9m including £0.3m amortisation of costs associated with bank refinancing. In addition, finance costs included realised and unrealised net exchange losses of £0.2m (2006 nil) arising on forward foreign currency contracts and an unrealised loss on an interest rate swap of £0.3m (2006 nil).  These exchange and interest rate losses have been reported within interest costs as they do not meet the requirements for hedge accounting under IFRS. 

Taxation

For the 18 months to 31 March 2008, the Group reported a loss before discontinued operations and taxation of £7.1m and an after tax loss from continuing operations of £6.7m.  The tax credit comprised a tax charge attributable to overseas operations of £0.5m (year to September 2006 £0.6m) and a deferred tax gain of £0.9m (£0.1m loss). Deferred tax in the period includes recognition of a deferred tax asset of £0.9m relating to carried forward tax losses in the US. In addition, further US Federal tax losses carried forward at 31 March 2008 amount to $12.2m ($11.8m) which are available for offset against future taxable profits in the US. 

At 31 March 2008 the Group had UK capital allowances of £27.3m (£26.9m) available to offset against future taxable profits at the rate of 25.0% per annum on a reducing balance basis and tax losses arising in the UK of £5.7m (£2.0m) available for offset against future taxable profits. Deferred tax assets in respect of UK tax losses and deferred capital allowances have not been recognised.  

Discontinued operations

The Group made a loss from discontinued operations of £1.1m in the 18 months ended 31 March 2008 comprising a £0.75m write-off of deferred consideration relating to the disposal of the Converted Products division in January 2005 and £0.35m in legal and settlement costs connected with disputes arising from various business disposals. 

Adjusted earnings per share 

Basic earnings per share from continuing operations were 16.7p for the 18 months to 31 March 2008 and a loss per share of 9.7p for the 12 months ended 31 March 2008 (11.6p 12 months ended 31 March 2007).  

	18 months to 31 March 2008 (unaudited) £'000	12 months to   30 September 2006 £'000	12 months to   31 March  2008 (unaudited) £'000	12 months to   31 March 2007 (unaudited) £'000
EBITDA after exceptional items	4,370	3,358	3,497	3,020
Working Capital Movements	(1,528)	(2,806)	362	(1,451)
Pension contributions above the amounts recognised in the income statement	(1,489)	(835)	(981)	(911)
Income Taxes paid	(359)	(656)	(93)	(628)
Other movements	37	109	(49)	132
Net Cash Flow from operating activities	1,031	(830)	2,736	162
Other selected cash flow information:
Purchase of property, plant and equipment	(8,180)	(6,140)	(4,533)	(7,106)
Interest paid	(3,280)	(2,047)	(2,319)	(2,186)
Proceeds from share issues	7,278	53	7,278	-
Net Debt	17,149	15,523	17,149	20,824

Cash Flow and Borrowings

Net cash inflow from operating activities was £1.0m for the 18 month period. EBITDA after exceptional items was £4.4m, offset by an increase in working capital of £1.5m and additional pension contributions of £1.5m. For the 12 month period to 31 March 2008, net cash inflow from operating activities increased by £2.5m to £2.7m. EBITDA after the cash impact of exceptional items increased from £3.0m to £3.5m. Working capital reduced by £0.4m largely due to lower inventory levels. 

Capital expenditure was £8.2m in the 18 months to 31 March 2008, compared to depreciation of £5.5m, and included £5.3m expenditure on the new facility in China. At the year end, outstanding spend on the China project scheduled for completion in 2008/09 amounted to £3.5m. Elsewhere in the Group, capital expenditure in the coming year is expected be well below depreciation as management focuses on efficiency improvements and better utilisation of existing assets.

Cash interest expense was £3.3m for the 18 months and on an annual basis increased from £2.2m to £2.3m for the 12 months ending 31 March 2008. Net receipts from the share issue completed in January 2008 amounted to £7.2m.  

Net debt (financial liabilities excluding the fair value of derivatives less cash) increased by £1.6m to £17.1m at 31 March 2008. However, good progress has been made in reducing debt by £5.9m from a peak of £23.0m at 30 September 2007. 

The ratio of net debt to earnings before interest, tax, depreciation, amortisation was 4.9 times at 31 March 2008, substantially reduced from 10.0 times (based on 12 month trailing EBITDA after exceptional items) at the last interim accounts on 30 September 2007.  The Group was within banking covenants and the Directors have agreed a plan for improving its debt cover in the next 12 months based on improved operational performance and disposal of surplus assets.

Pensions

At 31 March 2008 the Group's IAS19 gross pension liability was £3.5m (2006 £10.9m) with a net liability of £2.5m (2006 £7.6m) after accounting for a deferred tax asset of £1.0m (2006 £3.3m). The main UK defined benefit scheme is the API Group plc Pension and Life Assurance Fund. The IAS19 liability has been calculated using a discount rate of 6.5% (2006 5.1%).  

API Group plc

GROUP INCOME STATEMENT
for the eighteen months ended 31 March 2008
		18 months to 31 March 2008 (unaudited)		12 months to 30 September 2006
	Note	£'000		£'000
Continuing operations
Revenue	1	143,783		101,979
Cost of sales		(115,120)		(80,656)
Gross profit		28,663		21,323
Other operating costs		(28,255)		(20,329)
Operating profit before exceptional items	1	408		994
Exceptional items	3	(3,417)		(863)
Operating (loss) / profit from continuing operations		(3,009)		131
Finance revenue	4	292		85
Finance costs	4	(4,418)		(2,009)
		(4,126)		(1,924)
Loss on continuing activities before taxation		(7,135)		(1,793)
Taxation	5	407		(735)
Loss from continuing operations		(6,728)		(2,528)
Discontinued operations
Loss from discontinued operations	6	(1,130)		(230)
Loss for the period		(7,858)		(2,758)
Attributable to:
Profit attributable to minority equity interests		137		695
Loss attributable to equity holders of the parent		(7,995)		(3,453)
Total loss for the period		(7,858)		(2,758)
Earnings per ordinary share (pence)
Basic loss per share from continuing operations	7	(16.7)		(8.9)
Diluted loss per share from continuing operations	7	(16.7)		(8.9)
Basic loss per share on loss for the period	7	(19.5)		(9.5)
Diluted loss per share on loss for the period	7	(19.5)		(9.5)

API Group plc

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENDITURE
for the eighteen months ended 31 March 2008
		18 months to 31 March 2008 (unaudited)		12 months to 30 September 2006
		£'000		£'000
Exchange differences on retranslation of foreign operations		489		(972)
Actuarial gains / (losses) on defined benefit pension plans		5,936		(1,311)
Tax on actuarial gains / (losses) on defined benefit pension plans		(1,852)		393
Net income / (expense) recognised directly in equity		4,573		(1,890)
Loss for the period		(7,858)		(2,758)
Total recognised income and expense relating to the period		(3,285)		(4,648)
Attributable to:
Equity holders of the parent		(3,734)		(5,176)
Minority equity interests		449		528
		(3,285)		(4,648)

API Group plc

GROUP BALANCE SHEET
at 31 March 2008
		31 March 2008 (unaudited)		30 September 2006
	Note	£'000		£'000
Assets
Non-current assets
Property plant and equipment		30,901		30,500
Intangible assets		6,480		6,480
Deferred tax assets		2,062		3,263
		39,443		40,243
Current assets
Trade and other receivables		17,440		20,112
Inventories		11,760		13,195
Other financial assets		108		-
Cash		2,131		4,909
		31,439		38,216
Total assets		70,882		78,459
Liabilities
Current liabilities
Trade and other payables		18,762		22,306
Financial liabilities	8	6,794		1,758
Income tax payable		588		379
Provisions		83		306
		26,227		24,749
Non-current liabilities
Financial liabilities	8	13,041		18,674
Deferred tax liabilities		363		659
Provisions		70		93
Defined benefit pension plan deficit		3,482		10,879
		16,956		30,305
Total liabilities		43,183		55,054
Net assets		27,699		23,405
Equity
Called up share capital		8,998		8,612
Share premium		7,136		244
Other reserves		298		298
Foreign exchange reserve		(188)		(366)
Retained earnings		5,568		9,179
Total shareholders' equity	9	21,812		17,967
Minority interest in equity	9	5,887		5,438
Total equity		27,699		23,405
API Group plc
GROUP CASH FLOW STATEMENT
for the eighteen months ended 31 March 2008
		18 months to 31 March 2008 (unaudited)		12 months to 30 September 2006
		£'000		£'000
Operating activities
Group operating (loss) / profit		(3,009)		131
Adjustment to reconcile group operating (loss) / profit to net cash flow from operating activities
Operating loss from discontinued operations		-		(230)
Depreciation of property, plant and equipment		5,498		3,457
Impairment of property, plant and equipment		1,881		-
Profit on disposal of property, plant & equipment		(263)		(22)
Share-based payments		300		131
Difference between pension contributions paid and amounts recognised in the income statement		(1,489)		(835)
Decrease / (increase) in inventories		1,611		(870)
Decrease / (increase) in trade and other receivables		1,211		(523)
Decrease in trade and other payables		(4,118)		(1,120)
Movement in provisions		(232)		(293)
Cash generated from / (used in) operations		1,390		(174)
Income taxes paid		(359)		(656)
Net cash flow from operating activities		1,031		(830)
Investing activities
Interest received		184		85
Purchase of property, plant and equipment		(8,180)		(6,140)
Sale of property, plant and equipment		730		244
Payments to acquire investments		-		-
Sale of subsidiary undertakings		984		-
Net cash flow from investing activities		(6,282)		(5,811)
Financing activities
Interest paid		(3,280)		(2,047)
Dividends paid to minority interests		-		(487)
Proceeds from share issues		7,278		53
New borrowings		2,330		1,956
Repayment of borrowings		(3,459)		-
Net cash flow from financing activities		2,869		(525)
Decrease in cash and cash equivalents		(2,382)		(7,166)
Effect of exchange rates on cash and cash equivalents		51		116
Cash and cash equivalents at the beginning of the period		3,346		10,396
Cash and cash equivalents at the end of the period		1,015		3,346

API Group plc

Notes to the Financial Statements

1. SEGMENT ALANALYSIS

Primary reporting format - geographic segments:  At 31 March 2008, the Group is organised into three distinct independently managed geographic segments, Europe, North America and Asia Pacific. The following table presents revenue and profit information for these segments.

		18 months to 31 March 2008		12 months to 30 September 2006		12 months to 30 September 2006		12 months to 30 September 2006
		£'000		£'000		£'000		£'000
		Continuing and Total		Continuing		Discontinued		Total
By Geographical segment
Total revenue by origin
Europe		100,113		68,367		-		68,367
North America		33,796		25,958		129		26,087
Asia Pacific		15,863		12,775		-		12,775
		149,772		107,100		129		107,229
Inter-segmental sales
Europe		4,353		3,115		-		3,115
North America		513		494		-		494
Asia Pacific		1,123		1,512		-		1,512
		5,989		5,121		-		5,121
External sales by origin
Europe		95,760		65,252		-		65,252
North America		33,283		25,464		129		25,593
Asia Pacific		14,740		11,263		-		11,263
		143,783		101,979		129		102,108
External sales by destination
UK		50,527		34,398		14		34,412
Continental Europe		42,351		25,467		-		25,467
Americas		30,953		25,769		106		25,875
Asia Pacific		17,002		12,681		9		12,690
Africa		2,950		3,664		-		3,664
		143,783		101,979		129		102,108
Profit / (loss) from operations
Europe
before exceptional items		2,481		205		-		205
exceptional items		(790)		(597)		-		(597)
		1,691		(392)		-		(392)
North America
before exceptional items		1,560		1,521		(53)		1,468
exceptional items		297		(242)		(177)		(419)
		1,857		1,279		(230)		1,049
Asia Pacific
before exceptional items		(289)		1,276		-		1,276
exceptional items		238		-		-		-
		(51)		1,276		-		1,276
Central costs
before exceptional items		(3,344)		(2,008)		-		(2,008)
exceptional items		(3,162)		(24)		-		(24)
		(6,506)		(2,032)		-		(2,032)
Total loss from operations before exceptional items		408		994		(53)		941
Exceptional items		(3,417)		(863)		(177)		(1,040)
Total loss from operations		(3,009)		131		(230)		(99)

2. PUBLICATION OF ABRIDGED ACCOUNTS

The preliminary announcement figures for the 18 months ended 31 March 2008 are to be formally approved by the board on 22 May 2008 and are therefore unaudited. However, the directors are not aware of any matter that would give rise to an unmodified audit report. The comparative figures for the year ended 30 September 2006 are an abridged version of the Group's statutory accounts which carry an unmodified 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 18 months ended 31 March 2008 will be filed in due course with the Registrar of Companies. The Group's audited accounts for the year ended 30 September 2006 have been filed with the Registrar of Companies.  

The Annual Report and Accounts for the 18 months ended 31 March 2008 will be posted to shareholders by 6 June 2008 prior to the Annual General Meeting on 30 June 2008. Copies of he Annual Report and Accounts will be available to members of the public from 10 June 2008 at the Group's registered office at Second Avenue, Poynton Industrial Estate, Poynton, Cheshire SK12 1ND. 

3. EXCEPTIONAL ITEMS
		18 months to 31 March 2008		12 months to 30 September 2006
		£'000		£'000
Exceptional items charged against operating (loss) / profit comprise
Restructuring of UK operating businesses		(790)		(597)
Charlotte factory closure		297		(242)
Rationalisation of Group costs		(1,281)		(24)
Impairment of fixed assets		(1,881)		-
Factory relocation - China		238		-
		(3,417)		(863)

Exceptional items are material items which derive from events or transactions that fall within the ordinary activities of the Group and which need to be disclosed by virtue of their size or incidence.

Restructuring of UK operating businesses

These relate to employee redundancy, relocation and other one-off costs. In the eighteen months to 31 March 2008, this related largely to redundancy and other costs associated with business improvement measures within the UK businesses.

Charlotte factory closure

In the year ended 30 September 2006, provision was made in respect of the estimated closure costs of the Charlotte factory in the United States. In the eighteen months to 31 March 2008, these costs were utilised and the factory site was sold, realising a gain on disposal.

Rationalisation of Group costs

These costs relate to the severance and other related costs in respect of a number of senior executives who were made redundant during the period. The costs include compensation for loss of office paid to the former Chief Executive and the former Group Finance Director.

Impairment of fixed assets

As part of the review of Group costs, the project to install Oracle IT systems throughout the Group was suspended. As there will be no further implementation of the system for the foreseeable future, capitalised costs incurred to date relating to businesses where Oracle has not yet been installed have been fully impaired.

Factory Relocation - China

During the period, the Group's subsidiary in China, Shanghai Shen Yong received compensation for sale of a parcel of land acquired by the local authorities as a first stage of a full relocation of the Shanghai factory. This compensation was £541,000 net of costs incurred as a direct result of the compulsory acquisition.  Offset against this amount is £303,000 in relation to initial relocation costs, including dual running costs, of the new facility.

4. FINANCE REVENUE AND FINANCE COSTS
		18 months to 31 March 2008		12 months to 30 September 2006
		£'000		£'000
Finance revenue
Interest receivable on bank and other short term deposits		33		85
Gains arising on forward foreign currency contracts		259		-
		292		85
Finance costs
Interest payable on bank loans and overdrafts		3,556		1,698
Other interest payable		92		-
Losses arising on forward foreign currency contracts		433		-
Unrealised loss on interest rate swap		260		-
Finance cost in respect of defined benefit pension plan		77		311
		4,418		2,009

5. TAXATION
			18 months to 31 March 2008	12 months to 30 September 2006
			£'000	£'000
Current income tax
Foreign tax			(525)	(613)
Total current income tax			(525)	(613)
Deferred tax
Origination and reversal of temporary differences			932	(402)
Adjustment to previous year			-	280
Total deferred tax			932	(122)
Total credit / (charge) in the income statement			407	(735)
6. DISCONTINUED OPERATIONS
			18 months to 31 March 2008	12 months to 30 September 2006
			£'000	£'000
Revenue			-	129
Expenses			-	(359)
-	(230)
Loss on disposal of discontinued operations			(1,130)	-
Total charge in the income statement			(1,130)	(230)

The loss on disposal of discontinued operations relates to the sale of the Converted Products Division in January 2005. At 30 September 2006, £2,000,000 was held in other debtors in respect of deferred consideration. Only £1,250,000 of this deferred consideration was paid on the due date. Following settlement of a number of disputes with the purchaser, the remaining amount of £750,000 has been written off, together with other settlement costs payable to the purchaser and related legal fees. A claim in respect of alleged breach of warranties from the purchaser is still outstanding. Details of this are included in note 10.

Discontinued operations in the prior period represents the results of Chromagem, a subsidiary which ceased trading.

7. EARNINGS PER SHARE
		18 months to 31 March 2008	12 months to 30 September 2006
		£'000	£'000
Net loss attributable to equity holders of the parent company - continuing operations		(6,865)	(3,223)
Loss attributable to equity holders of the parent company - discontinued operations		(1,130)	(230)
Net loss attributable to equity holders of the parent company		(7,995)	(3,453)

		18 months to 31 March 2008	12 months to 30 September 2006
		number	number
Basic and diluted weighted average number of ordinary shares		41,018,077	36,198,528
		18 months to 31 March 2008	12 months to 30 September 2006
Earnings per share		pence	pence
Continuing operations
Basic loss per share		(16.7)	(8.9)
Diluted loss per share		(16.7)	(8.9)
Discontinued operations
Basic loss per share		(2.8)	(0.6)
Diluted loss per share		(2.8)	(0.6)
Total
Basic loss per share		(19.5)	(9.5)
Diluted loss per share		(19.5)	(9.5)

The weighted average number of shares excludes the shares owned by the API Group plc No.2 Employee Benefit Trust.  

The weighted average number of shares reflects the bonus element of the shares issued as a result of the open offer implied by the discount of 10% on the market price immediately prior to admission of the new shares. The comparative figures have also been adjusted to reflect this bonus element.

8. FINANCIAL LIABILITIES
		18 months to 31 March 2008	12 months to 30 September 2006
		£'000	£'000
Current
Bank overdrafts		1,116	1,563
Current instalments on bank loans		5,267	195
Forward currency hedging contracts		295	-
Interest rate swap		116	-
		6,794	1,758
Non-current
Non-current instalments due on bank loans		12,897	18,674
Interest rate swap		144	-
		13,041	18,674

9. CHANGES IN EQUITY
		Shareholders' equity	Minority interest	Total equity
		£'000	£'000	£'000
Balance at 1 October 2005		22,959	5,460	28,419
Total recognised income and expense for the period		(5,176)	528	(4,648)
Exercise of employee share options		53	-	53
Share based payment		131	-	131
Dividends		-	(550)	(550)
Balance at 30 September 2006		17,967	5,438	23,405
Total recognised income and expense for the period		(3,734)	449	(3,285)
Exercise of employee share options		80	-	80
Issue of shares under open offer		8,000	-	8,000
Costs relating to the shares issued under open offer		(802)	-	(802)
Share based payment		301	-	301
Balance at 31 March 2008		21,812	5,887	27,699

10. CONTINGENT LIABILITIES

During the period, the Group received a claim in respect of alleged breach of warranties in connection with the sale of the Converted Products Division in January 2005. The purchaser has acknowledged that the maximum amount which it may recover in connection with the material element of the claim is capped at £3.1 million plus interest and costs. The Directors believe that the Group has a strong basis upon which the claim can be defended. Accordingly, no provision has been made in the accounts in respect of this claim.

11. BASIS OF PREPARATION

The financial statements of the Group have been prepared in accordance with International Financial Standards (IFRS).  

 

END

 

 

IR PUUBWAUPRGBU