Interim Results

2nd December 2010 API Group plc - Interim results for the six months ended 30 September 2010 * Sales from continuing operations 24% ahead of last year at £47.0m (23% ahead at constant exchange rates). * Operating profits from continuing operations of £2.5m, against a loss of £0.2m at the interim stage last year. * All business units ahead of last year with a particularly strong performance from Laminates.  Foil margins down on preceding six months due to escalating raw material costs. * Profit before tax of £1.3m (2009/10 first half: loss of £1.8m). * Net operating cash flow in the period of £2.7m reducing net debt to £14.4m compared to £18.5m at March 2010 and £16.0m at September 2009.  Debt cover ratio on main UK borrowings down from 2.6 at March 2010 to 1.7. * Decision to exit loss-making, foil manufacturing operation in China.  Sale of the Group's 51% shareholding at an advanced stage with completion expected in December 2010. * Loss from discontinued operations of £6.7m (£3.3m attributable to minority interests), primarily asset write-downs and trading losses in China. Commenting, API's Chief Executive, Andrew Turner said: "The Group has continued to benefit from the recovery in market volumes after the streamlining of the cost base during 2008 and 2009.  Exiting the loss-making joint venture in China will further strengthen the Group's performance. Management is now focused on improving the quality and resilience of the continuing businesses and exploiting opportunities for profitable growth. While escalating raw material costs present a challenge in the short term, the strong upturn in volumes at Laminates is particularly encouraging." Enquiries: +---------------------------+-----------------------------+--------------------+ |Andrew Turner |Chief Executive, API Group |+44 (0) 1625 650334 | | |plc | | +---------------------------+-----------------------------+--------------------+ |Chris Smith |Finance Director, API Group |+44 (0) 1625 650334 | | |plc | | +---------------------------+-----------------------------+--------------------+ |Philip Secrett / Colin |Grant Thornton Corporate |+44 (0) 20 7383 5100| |Aaronson |Finance | | +---------------------------+-----------------------------+--------------------+ |James Serjeant |Numis Securities |+44 (0) 20 7260 1000| +---------------------------+-----------------------------+--------------------+ REPORT ON THE INTERIM RESULTS FOR THE 6 MONTH PERIOD ENDED 30 SEPTEMBER 2010 GROUP INCOME STATEMENT The presentation of the income statement has been amended to reflect an expected change in the Group's portfolio of businesses. In June 2010, the Group announced a strategic review of its 51% interest in Shanghai Shen Yong Stamping Foil Company Limited located in China.  During the review, the Board considered all options for turning around the results of the operation, assessed future prospects and investment needs and concluded that it would be in the best interests of shareholders to exit the venture.  Subsequently, a sale process was conducted and at the time of going to press, negotiations were at an advanced stage to divest the Group's shareholding.  Results of the China subsidiary have therefore been classified as discontinued in the income statement and comparatives re-stated to reflect this treatment. Continuing operations now comprise the European laminated packaging material business, foil manufacturing and distribution operations based in the US and Europe and foils distribution units located in the Asia Pacific region.  The latter have been incorporated into Foils Europe for reporting purposes. Revenues from continuing operations, at £47.0m, were 23% higher than the same period last year at constant exchange rates and 24% higher at actual exchange rates.  Revenues were also 14% ahead of the preceding six month period.  All businesses saw revenues rise year on year, with Laminates increasing sales by 42%, Foils Europe by 12% and Foils US by 20%.  Operating profits from continuing operations, before exceptional items, increased from £0.2m to £2.5m, translating to an overall operating margin of 5.3%. For the Group as a whole, profits increased as a result of the contribution from higher revenues while improved sales mix partly offset the impact of rapidly increasing raw material costs towards the end of the period. Production costs rose by just over 5% to accommodate the 24% growth in revenues and non factory overhead costs increased by £0.7m as a result of measures to strengthen the sales force in anticipation of more favourable market conditions combined with higher accruals for management incentive programs in line with the improved results. All business units contributed to the improvement in the Group's results, with Laminates ahead £1.7m and the foils businesses in Europe and the US ahead £0.5m and £0.3m respectively.  Compared to the preceding six months, operating profits were down £0.5m, despite higher volumes, due to increased raw material costs and non factory overhead costs. There were no exceptional items in the period, compared to the £0.4m of re- organisation costs incurred in the first half of 2009/10. Net financing costs of £1.1m were down £0.5m due to reduced debt service costs (£0.3m) and lower pension related charges (£0.2m). Net profit after tax from continuing operations was £1.1m compared to a loss of £1.8m in the six months to September 2009.  Relative to the second half of last year, net profits from continuing operations were broadly unchanged after adjusting for the recognition of an additional £2.8m of deferred tax assets at March 2010. Earnings per share for continuing operations were 1.5p (2009: loss of 2.5p). REVIEW OF OPERATIONS Europe: Laminates After a quiet 2009/10, Laminates experienced a significant rebound in activity.  At £19.2m, interim sales were 42% ahead of the last year and 33% up on the preceding six months.  Investment in packaging development services paid dividends, with a number of important projects coming to fruition, adding to a recovery in demand for core product lines in the alcoholic drinks segment.  With improved sales mix and excellent cost control, operating results ended the first half at £2.4m compared to £0.7m for the same period last year. Europe: Foils The Foils Europe reporting segment now includes results from the residual operations in Asia Pacific since the Group's subsidiary in China has been classified as discontinued. Foils Europe sales, at £17.6m, were 12% higher at constant exchange rates compared to the same period last year and unchanged on the preceding six month period.  Overall volumes, primarily reflecting activity in the packaging sector, stabilised after a period of recovery and restocking post the 2008/9 recession.  All territories were ahead against last year's first half.  Compared to the second half of last year, further growth was registered in France, the UK, Hong Kong and Australia whilst sales fell back in Italy.  Security Holographics revenues also declined against the previous six months due to the timing of orders for certain key contracts. Foils Europe operating profits increased from £0.4m to £1.0m, representing an operating margin of 5.4%.  The improvement was due to the contribution from higher sales.  Compared to a particularly strong preceding six months, profits were down by just over a half due to weaker sales mix and especially increased raw material costs.  Market prices for polyester film increased by more than 50% over the period and are continuing to escalate due to global constraints on supply which are not expected to abate until significant new capacity comes on stream during late 2011/early 2012.  So far, action to raise selling prices has not kept pace with the speed and severity of cost increases, which has in turn led to an erosion of margins.  After successfully implementing one round of price increases, management is now pressing ahead with a second round, with the intention of restoring margins to acceptable levels. North America Sales from US operations continued their steady recovery from the collapse experienced in late 2008.  Revenues, at £11.7m, were 15% ahead of the same period last year at constant exchange rates and 8.5% higher than the preceding six months.  Sales to the label and ink sectors were particularly encouraging, partly offset by a drop in shipments to greeting card customers.    Operating results improved to breakeven from a loss of £0.3m at the interim stage last year, although profits fell back compared to last year's second half as sales growth was primarily satisfied from inventory draw-down and margins were eroded by rising raw material costs.  The US foils business is facing the same challenge as Foils Europe in dealing with escalating polyester costs, exacerbated by the ill-timed imposition of new import tariffs by the US Department of Commerce. Pricing action is being taken to ensure rising input costs are passed through to customers and margins restored to previous levels. DISCONTINUED OPERATIONS Third party sales originating from the operation in China were £4.1m, an increase of 59% over last year and 33% over the preceding six months at constant exchange rates.  Despite the improved volumes and a lower depreciation charge following the impairment of fixed assets at March 2010, losses reduced only marginally to £1.0m due to declining margins and the impact of higher raw material costs. As with the income statement, the balance sheet has been re-classified and now shows the China business as a disposal group and valued in line with expected proceeds from the sale of the Group's 51% shareholding. As a result, assets have been impaired by a further £5.9m, or £3.0m after accounting for minority interests. CASH FLOW AND BORROWINGS Group net cash flow from operating activities was £2.7m (2009:£0.4m) including a contribution from discontinued activities of £0.5m.  Working capital was held broadly flat in spite of the significant upturn in activity.  As a result, working capital efficiency, measured by reference to trailing three month sales, improved to 11.2% from 12.7% at March 2010. Capital expenditure at £0.6m was all spent in the continuing businesses, a £0.2m increase over the same period last year.  As the financial condition of the Group improves, it is expected that the Board will start to consider an increase in the rate of capital expenditure, especially in support of initiatives to enhance the product range and to take advantage of growth opportunities. Group net debt fell from £18.5m at March 2010 to £14.4m at 30 September 2010 assisted by the re-classification of £3.2m of net debt in China. The Group's main lending arrangements are with Barclays Bank plc in the UK and Wells Fargo in the US.  Both facilities are in place until July 2013.  In the period since 31 March 2010, all covenant requirements were comfortably met.  At 30 September 2010, debt cover, the ratio of borrowings to trailing 12 month EBITDA, on the main UK facility was 1.7 times compared with 4.5 at September 2009 and 2.6 at March 2010. PENSION DEFICIT The IAS 19 valuation of the UK and US defined benefit pension schemes reduced from £16.4m at March 2010 to £15.3m at 30 September 2010.  Scheme assets were broadly unchanged over the six month period with falling equity values offset by growth in the value of bond investments. Scheme liabilities reduced from £86.3m to £85.1m during the half year as assumptions on UK inflation more than compensated for a lower discount rate. The discount rate used to calculate the present value of future pension obligations is benchmarked to market yields on AA rated corporate bonds.  Yields fell by 0.5% in the six months to 30 September 2010. There were two changes to inflation assumptions, which contributed to a reduction in calculated scheme liabilities.  First, the long term outlook for UK inflation fell by 0.6% and secondly, the basis of indexation used for certain UK scheme benefits was revised from the RPI measure of inflation to the lower CPI.  The latter change is a consequence of an announcement by the UK government in July 2010 to the effect that CPI is to be adopted as the basis of "statutory inflation".  A detailed review of the impact of that decision on the API scheme has been carried and, after receiving independent advice, the Board is satisfied that it is valid to adopt CPI for certain elements of the scheme.  The effect of the change from RPI to CPI is an estimated reduction in scheme liabilities of £4.5m. EMPLOYEES The Board would like to recognise the contribution made by all employees to the improvement in the Group's performance and financial condition.  Their continued flexibility and commitment is essential in providing customers with the high quality, cost effective products and services on which the growth and development of the business is founded. OUTLOOK Laminates' strong performance is expected to be maintained over the coming months, although the second half is traditionally weaker in certain key market sectors. There is no sign of an easing in the pressure on margins in the foils businesses as raw material costs continue to escalate due to the global capacity imbalance affecting polyester film supply.  Whilst further increases in selling prices are essential to recover these exceptional cost increases, any time lag will inevitably impact results.  Second half profitability in Foils Europe will benefit from an improved mix, reflecting a particularly strong order book for higher added value holographic products. Further progress is expected on debt reduction, based on trading results, receipts from the China disposal and a modest level of capital investment. GROUP INCOME STATEMENT for the six months ended 30 September 2010   Unaudited   Unaudited Audited 6 months to    30 6 months to Year to September    2010 30 September     31 March   2009 2010 Note £'000   £'000 £'000 -------------------------------------------------------------------------------- Continuing operations Revenue 2 47,032   37,866 79,192 Cost of sales (35,598) (30,001) (60,541) -------------------------------------------------------------------------------- Gross profit 11,434   7,865 18,651 Other operating costs (8,939) (7,635) (15,385) -------------------------------------------------------------------------------- Operating profit 2 2,495   230 3,266 before exceptional items 3                   (423) (626) Exceptional items  - -------------------------------------------------------------------------------- Operating profit / 2,495   (193) 2,640 (loss) from continuing operations 4 8                      40 Finance revenue       - Finance costs 4 (1,159)   (1,616) (3,018) --------------------------------------------------------------------------------    (1,151)   (1,616) (2,978) -------------------------------------------------------------------------------- Profit / (loss) on 1,344   (1,809) (338) continuing activities before taxation Tax (expense) / credit 5 (269)   38 2,804 -------------------------------------------------------------------------------- Profit / (loss) from continuing operations 1,075   (1,771) 2,466 Discontinued operations (Loss) / profit from 6 (6,656)   2,001 (4,358) discontinued operations -------------------------------------------------------------------------------- (Loss) / profit for the period (5,581)   230 (1,892) -------------------------------------------------------------------------------- (Loss) / profit attributable to equity holders of the parent     - continuing 1,075   (1,771) 2,466 operations     - discontinued (3,348)   960 (2,342) operations (Loss) / profit attributable to minority equity interest     - discontinued (3,308)   1,041 (2,016) operations -------------------------------------------------------------------------------- (Loss) / profit for the period (5,581)   230 (1,892) -------------------------------------------------------------------------------- Earnings per share (pence) Basic earnings / 7 1.5   (2.5) 3.5 (loss) per share from continuing operations Diluted earnings / 7 1.4   (2.5) 3.3 (loss) per share from continuing operations Basic (loss) / 7 (3.2)   (1.2) 0.2 earnings per share on (loss) / profit for the period Diluted (loss) / 7 (3.0)   (1.2) 0.2 earnings per share on (loss) / profit for the period -------------------------------------------------------------------------------- GROUP STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 September 2010 --------------------------------------------------------------------   Unaudited    Unaudited Audited 6 months to  6 months to Year to 30 September  30 September 2009  31 March   2010  2010 £'000    £'000 £'000 -------------------------------------------------------------------------------- (Loss) / profit for the period   (5,581)               230       (1,892) -------------------------------------------------------------------------------- Exchange differences on retranslation of foreign operations (430)    (1,870) 5,973 Change in fair value of effective cash flow hedges   (209)    120 (360) Actuarial gains / (losses) on defined benefit pension plans 1,105    (3,968) (3,925) Movement in deferred tax asset relating to defined benefit pension plans   (496)    1,111 1,099 -------------------------------------------------------------------------------- Other comprehensive (loss) / income for the period (30)    (4,607) 2,787 -------------------------------------------------------------------------------- Total comprehensive (loss) / income and expense for the period, net of tax   (5,611)    (4,377) 895 -------------------------------------------------------------------------------- Attributable to: Equity holders of the parent   (2,293)    (4,663) (1,875) Minority equity interest   (3,318)    286 2,770 --------------------------------------------------------------------------------   (5,611)    (4,377) 895 -------------------------------------------------------------------------------- GROUP BALANCE SHEET at 30 September 2010 Unaudited   Unaudited Audited 30 September   30 September     31 March 2010 2009 2010 Note £'000   £'000   £'000 -------------------------------------------------------------------------------- Assets Non-current assets Property, plant and equipment 17,567   33,969   28,772 Intangible assets - goodwill 5,188   5,188   5,188 Trade and other receivables 122   176   134 Deferred tax assets 7,045   3,419   7,738 -------------------------------------------------------------------------------- 29,922   42,752   41,832 -------------------------------------------------------------------------------- Current assets Trade and other receivables 16,602   13,728   16,697 Inventories 9,521   11,008   13,110 Cash and short-term deposits 8 1,572   1,387   1,041 -------------------------------------------------------------------------------- 27,695   26,123   30,848 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Assets of disposal group held for sale 6 8,642          -            - -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Total assets 66,259   68,875   72,680 -------------------------------------------------------------------------------- Liabilities Current liabilities Trade and other payables 16,637   17,530   18,444 Financial liabilities 9 2,798   17,721   5,416 Income tax payable 402   372   346 -------------------------------------------------------------------------------- 19,837   35,623   24,206 -------------------------------------------------------------------------------- Non-current liabilities Financial liabilities 9 13,614       -   14,404 Deferred tax liabilities 256   256   256 Provisions 93   57   97 Deficit on defined benefit pension plans 10 15,251   11,133   16,406 -------------------------------------------------------------------------------- 29,214   11,446   31,163 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Liabilities attributable to disposal group held for sale 6 5,449          -            - -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Total liabilities 54,500   47,069   55,369 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Net assets 11,759   21,806   17,311 -------------------------------------------------------------------------------- Equity Called up share capital 701   701   701 Share premium 7,136   7,136   7,136 Other reserves 8,595   8,595   8,595 Foreign exchange reserve 2,889   2,377   3,309 Retained earnings (9,619)   (5,062)   (7,805) -------------------------------------------------------------------------------- API Group shareholders' equity 9,702   13,747   11,936 -------------------------------------------------------------------------------- Total equity 11,759   21,806   17,311 -------------------------------------------------------------------------------- GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the six months ended 30 September 2010 Equity Foreign Total share Share Other exchange Retained shareholders' capital premium reserves reserve earnings equity £'000   £'000 £'000 £'000   £'000 £'000 -------------------------------------------------------------------------------- Balance at 1 April 2009 701   7,136   8,595 3,492   (1,526)   18,398 Total recognised income and expense for the period  -  -  - (1,115) (3,548) (4,663) Share based payments  -  -  -  - 12 12 -------------------------------------------------------------------------------- Balance at 30 September 2009 701   7,136   8,595   2,377   (5,062)   13,747 Total recognised income and expense for the period  -  -  - 932 (2,761) (1,829) Share based payments  -  -  -  - 18 18 -------------------------------------------------------------------------------- Balance at 31 March 2010 701   7,136   8,595   3,309   (7,805)   11,936 Total recognised income and expense for the period  -  -  - (420) (1,873) (2,293) Share based payments  -    -  -  -   59 59 -------------------------------------------------------------------------------- Balance at 30 September 2010 701   7,136 8,595   2,889   (9,619) 9,702 -------------------------------------------------------------------------------- GROUP CASH FLOW STATEMENT for the six months ended 30 September 2010 --------------------------------------------------------------------   Unaudited   Unaudited Audited 6 months to 6 months to Year to 30 September 30 September   31 March    2010   2009 2010 Note £'000   £'000 £'000 -------------------------------------------------------------------------------- Operating activities Operating profit / 2,495   (193) 2,640 (loss) from continuing activities Adjustments to reconcile operating profit / (loss) from continuing activities to net cash flow from operating activities: Operating loss from (6,801)   (1,467) (7,752) discontinued activities Depreciation of 1,688   1,975 3,820 property, plant and equipment Impairment of property, plant and equipment 5,850            - 5,083 (Profit) / loss on (12)   19 10 disposal of property, plant and equipment Movement in foreign exchange hedging contracts    -   42             - Share-based 59   12 30 payments Difference between pension contributions paid and amounts recognised in the income statement (435)   (174) (854) Decrease / 1,279   1,157 (590) (increase) in inventories (Increase) / (2,650)   285 (2,302) decrease in trade and other receivables Increase / 1,281   (1,280) (862) (decrease) in trade and other payables Movement in (4)   (4) 36 provisions -------------------------------------------------------------------------------- Cash generated from operations 2,750   372 (741) Income taxes (paid) / recovered (37)   61 (96) -------------------------------------------------------------------------------- Net cash flow from operating activities 2,713   433 (837) -------------------------------------------------------------------------------- Investing activities Interest received 8            - 40 Purchase of (567)   (696) (1,193) property, plant and equipment Sale of property, 49   24 30 plant and equipment Payment of legal                   (281) (12) costs in respect of       - discontinued operations -------------------------------------------------------------------------------- Net cash flow from investing activities (510)   (953) (1,135) -------------------------------------------------------------------------------- Financing activities Interest paid (852)   (849) (1,458) Dividends paid to                   (434) (434) minority interests       - New borrowings 1,562   1,124 7,131 Repayment of (2,669)   (768) (3,850) borrowings -------------------------------------------------------------------------------- Net cash flow from financing activities (1,959)   (927) 1,389 -------------------------------------------------------------------------------- Increase / 244   (1,447) (583) (decrease) in cash and cash equivalents Effect of exchange 86   (93) (114) rates on cash and cash equivalents Cash and cash (546)   151 151 equivalents at the beginning of the period -------------------------------------------------------------------------------- Cash and cash 8 (216)   (1,389) (546) equivalents at the end of the period -------------------------------------------------------------------------------- NOTES TO THE INTERIM FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. (a) Corporate information The consolidated interim financial statements of API Group plc for the six months ended 30 September 2010 were authorised for issue in accordance with a resolution of the directors on 1 December 2010. API Group plc is a public limited company incorporated and domiciled in England and Wales.  The Company's shares are traded on the Alternative Investment Market of the London Stock Exchange. The principal activities of the Group are the manufacture and distribution of specialty foils, films and laminated materials.      (b) Basis of preparation The interim consolidated financial statements of the Group for the six months ended 30 September 2010 have been prepared in accordance with IAS 34 Interim Financial Reporting. These interim consolidated financial statements are unaudited.  They do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and therefore do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's latest annual financial statements as at 31 March 2010 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU.  The audited annual financial statements for the year ended 31 March 2010, which represent the statutory accounts for that period, and on which the auditors gave an unqualified opinion, have been filed with the Registrar of Companies. The Directors consider that after making appropriate enquiries that there is reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing these financial statements. The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2010. 2. SEGMENTAL INFORMATION The Group produces monthly management information to enable the Board, including the Chief Executive Officer, to monitor the financial performance of the constituent parts of the Group.  This information is analysed by two separately managed geographical segments, with the Europe segment being analysed further by the major product categories of Foils and Laminates.   Unaudited       Unaudited Audited 6 months to     6 months Year to      30 to 30  31 March September   September    2010  2010     2009 Continuing operations   £'000   £'000 £'000 ---------------------------------------------------------------------------------------- Total revenue by origin Europe     Foils *      17,613     15,738 33,328     Laminates      19,233     13,524 28,000     Intra- Europe      (225)     (188) (373) ----------------------------------------------------------------------------------------           36,621     29,074 60,955 North America      11,691     9,752 20,020 ----------------------------------------------------------------------------------------   48,312     38,826 80,975 ---------------------------------------------------------------------------------------- Inter- segmental revenue Europe     Foils *      1,072     935 1,687     Laminates      14     -       -     Intra- Europe      (225)     (188) (373) ----------------------------------------------------------------------------------------           861     747 1,314 North America      419     213 469 ----------------------------------------------------------------------------------------   1,280     960 1,783 ---------------------------------------------------------------------------------------- External revenue by origin Europe     Foils *      16,541     14,803 31,641     Laminates      19,219     13,524 28,000 ----------------------------------------------------------------------------------------           35,760     28,327 59,641 North America      11,272     9,539 19,551 ----------------------------------------------------------------------------------------   47,032     37,866 79,192 ---------------------------------------------------------------------------------------- Segment result Operating profit/(loss) Europe     Foils *      952     438 2,510     Laminates      2,392     736 2,034 ----------------------------------------------------------------------------------------           3,344     1,174 4,544 North America      4     (278) (64) ---------------------------------------------------------------------------------------- Segment result   3,348     896 4,480 Central costs (853)   (666) (1,214) ---------------------------------------------------------------------------------------- Total operating profit before exceptional items 2,495   230 3,266 ---------------------------------------------------------------------------------------- * Europe - Foils incorporates the continuing Asia Pacific businesses. 3. EXCEPTIONAL ITEMS 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. The charges included in continuing operations in the comparative periods comprise redundancy and other costs incurred in rationalising the Group's activities in line with reduced demand. 4. FINANCE REVENUE AND FINANCE COSTS Unaudited     Unaudited Audited 6 months to   6 months to Year to 30   30 September 31 September   2009 March 2010   2010 £'000   £'000 £'000 ------------------------------------------------------------------------------------------- Finance revenue Interest receivable on bank and other short term deposits  -        - 2 Other interest receivable 8     - 38 ------------------------------------------------------------------------------------------- 8     - 40 ------------------------------------------------------------------------------------------- Finance costs Interest payable on bank loans and overdrafts (744)   (1,041) (1,831) Other interest payable (4)      - (49) Finance cost in respect of defined benefit pension plans (411)   (575) (1,138) ------------------------------------------------------------------------------------------- (1,159)   (1,616) (3,018) ------------------------------------------------------------------------------------------- 5. TAXATION   Unaudited   Unaudited Audited 6 months to 6 months to Year to 30 30 September 31 March September 2009  2010 2010 £'000   £'000 £'000 ------------------------------------------------------------------------------------------- Current income tax UK Corporation tax - refund in respect of prior years        -   46 46 Overseas tax - current year charge (67)   (53) (134)                     - adjustments in respect of prior-year tax charge (34)       - - ------------------------------------------------------------------------------------------- Total current income tax charge (101)   (7) (88) ------------------------------------------------------------------------------------------- Deferred tax Origination and reversal of temporary differences (168)   45 2,892 Total Deferred Tax (168)   45 2,892 Total (charge)/credit in the Income Statement (269)   38 2,804 ------------------------------------------------------------------------------------------- Total deferred tax (168)   45 2,892 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- Total (charge) / credit in the Income Statement (269)   38 2,804 ------------------------------------------------------------------------------------------- 6. DISCONTINUED OPERATIONS In the financial statements for the year ended 31 March 2010, it was announced that the Board had commenced a strategic review of the Group's investment in its 51% owned subsidiary based in China.  As a result of that review, a decision has been taken to eliminate the Group's exposure to the continuing losses being incurred in China.  Negotiations to sell the Group's shareholding are at an advanced stage with completion expected in December 2010.  In accordance with IFRS 5, the results of the China business within the Asia Pacific reporting segment have been classified as discontinued and the comparative numbers for the six months to 30 September 2009 and the year to 31 March 2010 have been reclassified.  The China business has been classified as a disposal group held for sale on the balance sheet at 30 September 2010. The results of the China business are presented below:   Unaudited   Unaudited Audited 6 months to 6 months to Year to 30 September 2010 30 September      31 March 2009 2010 £'000   £'000 £'000 -------------------------------------------------------------------------------- Revenue - External 4,128   2,465 5,382              - Inter- Group 585   612 1,339 -------------------------------------------------------------------------------- 4,713   3,077 6,721 Cost of sales (4,257) (2,971) (6,286) -------------------------------------------------------------------------------- Gross loss (129)   (506) (904) Other operating costs (822) (694) (1,498) -------------------------------------------------------------------------------- Operating loss before exceptional items (951)   (1,200) (2,402) Exceptional items   Impairment of property, plant and equipment (5,850)         - (5,083)   Relocation of China factory  -   (267) (267) -------------------------------------------------------------------------------- Operating loss from discontinued operations (6,801)   (1,467) (7,752) Finance costs (90)   (52) (111) -------------------------------------------------------------------------------- Loss on discontinued activities before taxation (6,891)   (1,519) (7,863) Tax credit - reversal of prior-year tax charge  -   3,520 3,505 -------------------------------------------------------------------------------- (Loss) / profit on discontinued activities after taxation (6,891)   2,001 (4,358) -------------------------------------------------------------------------------- Impairment of property, plant and equipment In the year ended 31 March 2010, following two years of significant losses, the carrying value of the property, plant and equipment of the China business was written down to its fair value less costs to sell, resulting in an impairment of the property, plant and equipment of £5,083,000.  Following the decision to exit the China business and its reclassification as a disposal group held for sale, a further impairment review has been carried out.  A reassessment of the fair value of the disposal group less costs to sell has resulted in an additional write down of the property, plant and equipment in the six months ended 30 September 2010 amounting to £5,850,000.  The Group's 51 % share of this impairment is £2,984,000 (31 March 2010: £2,592,000), with a corresponding reduction in the minority interest of £2,866,000 (31 March 2010: £2,491,000). Tax credit - reversal of prior-year tax charge In the year to 31 March 2009, a provision of Rmb 38m was made in respect of the profit on sale of surplus property in Shanghai after the relocation of operations to a new site.  During the 12 months to 31 March 2010, documentation was received from the Chinese authorities which confirmed that no specific land taxation was payable on this transaction. Accordingly, the provision was released. (Loss)/profit from discontinued operations     Unaudited   Unaudited Audited   6 months to 30 6 months to Year to September    2010 30 September     31 March 2009 2010   £'000   £'000 £'000 -------------------------------------------------------------------------------- (Loss) / profit after taxation of China business (see page *)   (6,891)   2,001 (4,358) Adjustment to prior- year losses on disposal of discontinued businesses   235            -          - -------------------------------------------------------------------------------- Loss on discontinued operations per the Income Statement   (6,656)   2,001 (4,358) -------------------------------------------------------------------------------- The adjustment to prior-year losses on disposal of discontinued businesses relates to the reversal of accrued legal fees connected to a business disposal in 2005. Assets and liabilities of disposal group held for sale The assets and liabilities of the China business are as follows:       Unaudited         30 September  2010       £'000 -------------------------------------------------------------------------------- Assets Property, plant and equipment 3,826 Trade and other receivables 2,482 Inventories         2,153 Cash and short-term deposits 181 -----------------         8,642 ----------------- Liabilities Trade and other payables 2,509 Financial liabilities         2,940 -----------------         5,449 ----------------- Net cash flows relating to discontinued activities The net cash flows attributable to the China business are as follows: Unaudited   Unaudited Audited 6 months to 30 6 months to Year to September    2010 30 September     31 March 2009 2010 £'000   £'000 £'000 ---------------------------------------------------------- Operating activities 542   (856) (2,270) Investing activities (36)   (316) (673) Financing activities (480)   410 1,269 ---------------------------------------------------------- 26   (762) (1,674) ---------------------------------------------------------- 7. EARNINGS PER SHARE     Unaudited   Unaudited Audited   6 months to  6 months to Year to   30 September 30 September  31 March   2010  2009 2010     £'000 £'000 £'000 Profit / (loss) attributable to equity holders of the parent   1,075 (1,771) 2,466 company - continuing operations (Loss) / profit attributable to equity holders of the parent   (3,348) 960 (2,342) company - discontinued operations -------------------------------------------------------------------------------- Net (loss) / profit attributable to equity   (2,273)   (811) 124 holders of the parent company --------------------------------------------------------------------------------   Unaudited   Unaudited Audited   6 months to 6 months to Year to   30 September 30 September 31 March    2010  2009  2010   No.   No. No. -------------------------------------------------------------------------------- Basic weighted average   70,068,505   70,068,505 70,068,505 number of ordinary shares Dilutive effect of employee share   3,025,425       - 2,798,466 options Dilutive effect of   3,506,336                   1,210,406 warrants     - -------------------------------------------------------------------------------- Diluted weighted average   76,600,266   70,068,505   74,077,377 number of ordinary shares -------------------------------------------------------------------------------- The weighted average number of shares excludes the shares owned by the API Group plc No.2 Employee Benefit Trust (58,221; 30 September 2009 and 31 March 2010: 58,221). The warrants for 3,506,336 ordinary shares were exercised in October 2010. As any dilution would have the effect of reducing the loss per share, the diluted weighted average number of shares for the six months ended 30 September 2009 is equivalent to the basic weighted average number of shares. Unaudited   Unaudited Audited 6 months to 6 months to Year to  31 30 September 30 September     March  2010 2009 2010 Earnings per share £'000   £'000 £'000 -------------------------------------------------------------------------------- Continuing operations Basic earnings / 1.5 (2.5) 3.5 (loss) per share Diluted earnings / 1.4 (2.5) 3.3 (loss) per share Discontinued operations Basic earnings / (4.7) 1.3 (3.3) (loss) per share Diluted earnings / (4.4) 1.3 (3.1) (loss) per share Total Basic earnings / (3.2) (1.2) 0.2 (loss) per share Diluted earnings / (3.0) (1.2) 0.2 (loss) per share --------------------------------------------------------------------------------    8. CASH AND CASH EQUIVALENTS   Unaudited   Unaudited  Audited   30 September        30    31 March 2010 September  2010  2009   £'000   £'000    £'000 ------------------------------------------------------------------------------- Included in balance sheet Cash and short-term deposits   1,572   1,387    1,041 Bank overdrafts   (1,969)   (2,776)    (1,587) -------------------------------------------------------------------------------   (397)   (1,389)    (546) Included in assets of disposal group   181      -   - -------------------------------------------------------------------------------   (216)   (1,389)    (546) ------------------------------------------------------------------------------- 9. FINANCIAL LIABILITIES   Unaudited   Unaudited Audited   30 September       30 September   31 March 2010 2009 2010   £'000   £'000   £'000 ------------------------------------------------------------------------------- Current Included in balance sheet Bank overdrafts 1,969   2,776   1,587 Current instalments on bank loans 520   14,663   3,679 Forward currency hedging contracts 183   42   - Interest rate swaps 126   240   150 ------------------------------------------------------------------------------- 2,798   17,721 5,416 Included in liabilities of disposal group 2,940      -   - ------------------------------------------------------------------------------- 5,738   17,721   5,416 ------------------------------------------------------------------------------- Non-current Included in balance sheet Non-current instalments due on bank loans 13,462      -   14,302 Interest rate swap 152      -   102 ------------------------------------------------------------------------------- 13,614    -   14,404 ------------------------------------------------------------------------------- 10. DEFINED BENEFIT PENSION PLAN DEFICIT The Group operates two defined benefit schemes, the API Group Pension and Life Assurance Scheme in the UK and the API Foils Inc North American Pension Plan in the US.  Both of these schemes are closed to future accrual.  The assets and liabilities of the defined benefit schemes are: Unaudited   Unaudited Audited 30 September   30 September   31 March 2010 2009 2010 £'000   £'000   £'000 -------------------------------------------------------------------------------- United Kingdom Fair value of scheme assets 68,153 64,493 68,142 Present value of scheme liabilities (82,745) (74,786) (83,863) ------------------ ----------------- ---------------- (14,592) (10,293) (15,721) ------------------ ----------------- ---------------- United States Fair value of scheme assets 1,713 1,564 1,779 Present value of scheme liabilities (2,372) (2,404) (2,464) ------------------ ----------------- ---------------- (659) (840) (685) ------------------ ----------------- ---------------- ------------------ ----------------- ---------------- Net pension liability (15,251) (11,133) (16,406) ------------------ ----------------- ---------------- The movements in the net pension liability is as follows: Opening liability 16,406 7,081 7,081 Net cost recognised in arriving at operating profit    -     -  - Net cost recognised in finance costs 411 575 1,138 Taken to Statement of Comprehensive Income (1,106) 3,968 9,085 Contributions from and scheme expenses borne by employers (434) (413) (853) Exchange differences (26) (78) (45) ------------------ ----------------- ---------------- Closing liability 15,251 11,133 16,406 ------------------ ----------------- ---------------- The main assumptions used in valuing the present value of the scheme liabilities in the UK are as follows: Rate of increases in pensions in payment and deferred pensions 2.8% / 2.3% 2.75% 3.30% Inflation 2.9% / 2.4% 2.95% 3.50% Discount rate 5.15% 5.70% 5.65% The rate of increases in pension and the inflation rate assumptions have been reduced by 0.5% with effect from 1 October 2011 to reflect the change in the statutory inflation measure from RPI to CPI in the UK. [HUG#1467828] This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: API Group PLC via Thomson Reuters ONE

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