API Group PLC: Interim Results
API Group PLC: Interim Results
STOCKPORT, UK -- (Marketwired) -- 12/03/13 -- *T
Press Release 3 December 2013
API Group plc
("API" or the "Group")
API Group plc (AIM: API), a leading manufacturer of specialist foils and packaging materials, announces its interim results for the six months ended 30 September 2013.
* Dividend reinstated, reflecting confidence in Group's prospects
* Revenues of GBP56.9m, compared to GBP58.8m for the first half of
* Operating profits, before exceptional items, of GBP3.5m (2012:
* Profit before tax and exceptional items of GBP2.9m (2012: GBP4.0 m)
* Diluted earnings per share 3.8p (2012: 5.1p)
* Improved results in the Foils businesses, despite disruption from
major change projects. Cost reduction programme underway in
Holographics to address trading losses. Satisfactory results at
Laminates but behind last year's strong first half
* Capital additions of GBP2.4m (2012: GBP3.0m) and net debt slightly
higher at GBP5.6m (2012: GBP5.2m)
* Significant progress in restructuring the UK foils operation,
completing investment projects in Holographics and Foils Americas
and bringing the new laminates supply contract up to full volumes
* As previously indicated, the Board expects a stronger second half
and some improvement in results for the year as a whole
* Interim dividend of 0.7p per share, payable January 2014
Commenting on the results, API's Chief Executive, Andrew Turner said: "Whilst results were, as expected, behind last year's strong first half comparatives, a number of important projects were completed in the period designed to strengthen the operating platform and enhance our proposition to customers.
These improvements, plus the cost reduction programme in Holographics and scheduled capacity additions for both Foils businesses, underpin our confidence in the Group's prospects and the Board's decision to recommence dividend payments after a break of more than ten years."
- Ends -
For further information:
API Group plc
Andrew Turner, Group Chief Executive Tel: +44 (0) 1625 650 334 Chris Smith, Group Finance Director www.apigroup.com
Numis Securities (Broker)
James Serjeant Tel: +44 (0) 20 7260 1000
Cairn Financial Advisers (Nominated Adviser)
Tony Rawlinson / Avi Robinson Tel: +44 (0) 20 7148 7900
Henry Harrison-Topham / Quincy Allan Tel: +44 (0) 20 7398 7710 email@example.com www.abchurch-group.com
This press release may contain forward-looking statements that reflect the Group's current expectations regarding its business, and management plans and objectives. API considers any statements that are not historical facts as "forward-looking statements". Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including factors in respect of which the Group has no control.
When used in this document the words "estimate", "project", "intend", "aim", "anticipate", "believe", "expect", "should" and similar expressions, as they relate to API or the management of the Group, are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this document. Neither API nor any other member of the Group undertakes any obligation publicly to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable laws, the AIM Rules or other applicable regulations.
If you are in any doubt as to the information contained in this press release, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other appropriate independent financial adviser.
This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities, or any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, such securities by any person in any circumstances in which such offer or solicitation is unlawful.
Shares in the Group (the "Shares") have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or under the applicable securities laws of any state or other jurisdiction of the United States. The Shares may not be offered, sold, taken up, resold, transferred or delivered, directly or indirectly, within the United States (as defined in Rule 902 under Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of the states of the United States.
REPORT ON THE INTERIM RESULTS
FOR THE 6 MONTH PERIOD ENDED 30 SEPTEMBER 2013
GROUP INCOME STATEMENT
Financial statements, including figures for prior year comparatives, have been prepared on the basis of the revised IAS19 pension accounting standard, further details of which are described in note 1(c).
Group revenues for the six months to September 2013 were GBP56.9m (2012: GBP58.8m), down 3.1% on the first half of last year and 4.1% lower at constant exchange rates. Lower sales in Laminates compared to a particularly strong first half last were partly compensated by growth in Foils Europe.
Gross margin declined by 0.8%, to 22.2%, due primarily to lower fixed cost recovery, higher freight and utility costs and the impact of less favourable exchange rates on Euro-denominated sales. These factors were partly mitigated by improved sales mix. Selling, general and administration costs were GBP0.2m higher, predominantly accounted for by increased sales and marketing expenditure and the full year effect of the new divisional management structure (separate management teams for Foils Europe and Holographics).
Costs in the two Foils businesses were impacted by significant operational change projects, specifically the restructuring of foils finishing and distribution operations in the UK and the implementation of a new ERP system in the US. Higher expenditure on overtime, sub-contract manufacture and outbound freight was incurred to mitigate the impact of any disruption on supplies to customers.
Pre-exceptional operating profits for the six month period came in at GBP3.5m compared to GBP4.7m at the interim stage last year, with an approximately equal impact on profits from lower sales and higher costs. In terms of segment split, profits at Laminates and Holographics were lower by GBP0.8m and GBP0.6m respectively, Foils Americas was ahead by GBP0.1m and Foils Europe advanced by GBP0.2m. Central costs were unchanged.
Compared to the second half of last year, sales and pre-exceptional operating profits were ahead by 6.1% and 10% respectively.
For the six months to 30 September 2013, exceptional charges of GBP0.3m were incurred associated with the restructuring of UK Foils operations. Exceptional costs last year amounted to GBP0.4m.
Net finance costs reduced by GBP0.1m to GBP0.6m as lower cash interest costs, down from GBP0.5m to GBP0.3m, were partly offset by an increase of GBP0.1m in non-cash interest charges relating to defined benefit pension schemes, as per the new IAS19 accounting standard.
A small tax credit of GBP0.02m comprised a current tax charge of GBP0.2m in the UK and certain European countries offset by additional recognition of net tax losses, predominantly in the US.
Underlying earnings per share (diluted) of 3.8p compares to 5.1p at the interim stage last year and 3.3p in last year's second half.
REVIEW OF OPERATIONS
Laminates delivered another solid performance, although results were down against strong comparatives from the first half last year.
Sales at GBP28.1m were 7.2% lower than last year and operating profits were 19.8% lower at GBP3.3m, representing an operating margin of 11.6%. The loss of volume on two key brands due to packaging specification changes and a reduced allocation from a key UK customer in the drinks sector was only partially compensated by the ramp-up of the major new supply contract.
Compared to last year's second half, Laminates revenues were 13.2% higher and profits 33.0% ahead.
The business cleared a significant milestone as volumes on the major new supply contract reached target levels after an extended period of product development and qualification. The higher level of core volume will increase the resilience of Laminates' trading performance and compensate for the anticipated near term impact on margins from production inefficiencies and a less favourable sales mix.
Foils Europe revenues increased by 9.0% over the first half last year to GBP14.4m (6.3% ahead at constant FX rates) driven by solid growth in key continental European territories of Italy, France and Germany. Sales in Poland were ahead more than 200% after the establishment of a new API-owned distribution channel in May 2012.
During the period, a reorganisation of the UK Foils business was completed with the establishment of a new sales and distribution hub in England, aimed at improving service levels to customers and increasing penetration of the home market. This will enable the facility at Livingston to focus on efficient manufacturing of high quality foils for bulk supply to the distribution network. The changes resulted in the loss of 25 jobs at Livingston and caused a degree of disruption to operations with an estimated profit impact in the period of GBP0.25m. Cost savings associated with the project are expected to be at least GBP0.3m per annum.
Despite the disruption from the UK restructuring, higher sales led to a 27.4% year-on-year increase in operating profits to GBP0.9m; an operating margin of 6.3%.
Compared to last year's second half, revenues were 4.0% higher (2.6% at constant FX) but profits declined by 29.4% due the impact of the UK re-organisation, higher costs and a one-off adjustment to customer rebates.
Foils Americas revenues for the six months to 30 September 2013 were down 3.1% at GBP11.9m; 5.3% lower at constant exchange rates.
The unit experienced some disruption from the implementation of a new ERP system, which went live on April 1st 2013 followed by an intense period of management focus on project delivery. Supply interruptions in the first two months impacted sales to small accounts which the business is working to recover now that the operations have been re-stabilised. System benefits are already evident in terms of supply chain management, control of inventory level and margin management.
Despite additional project-related expenses, overall operating costs were lower by GBP0.3m due to a non-repeat of last year's accounting charge relating to an increase in the level of inventory.
In spite of the internal challenges faced in the period, operating profits increased slightly to GBP1.1m, representing an operating margin of 8.8%.
Compared to last year's second half, revenues were 2.3% higher, with a slightly better sales mix resulting in a 22.3% increase in operating profits.
Holographics total revenues declined by 9.7% to GBP4.5m due to the loss of a long-standing supply contract to in-house manufacture by the customer and adverse timing of orders with another key account. Delays affected the commencement of a number of new business developments, although sales of decorative holographic products to sister API companies recovered strongly from last year's second half.
Operating costs increased by GBP0.3m due to expenditure on the new origination centre in the Czech Republic and higher sales and marketing spend. As a result, the unit recorded an operating loss of GBP0.5m compared to a marginal profit at the interim stage last year.
Compared with last year's second half, sales were down 3.3%, although losses increased by GBP0.2m due primarily to a non-recurrence of accounting credits associated with changes in inventory levels.
In view of the delays on new business developments, management initiated a cost reduction program with the aim of returning the business to a break-even position at the current level of sales by mid way through the second half.
In the meantime, good progress has been made in executing the previously-announced investment program designed to significantly enhance the proposition to customers in the security and authentication market. The Czech holographic origination centre is now up and running, a number of key new pieces of equipment have been successfully commissioned and the Salford production facility has been awarded high level security accreditation by the recognised industry body. After completing the short term cost reduction plan, management's priority is to leverage the benefits of these investments to grow third party revenues whilst at the same time maximising capacity fill by exploiting available opportunities for additional intercompany sales of decorative holographic products.
In line with comments made in the Final Results announcement released on 5 June 2013, the Board is pleased to confirm the re-introduction of dividend payments to shareholders. Dividends were last paid in 2001 and their re-instatement is recognition of the improved financial health of the Group and the Board's confidence in its long term prospects. A dividend of 0.7 pence per share will be paid on 9 January 2014 to shareholders on the register on 13 December 2013, with an Ex-dividend date of 11 December 2013.
CASH FLOW AND BORROWINGS
Net cash inflow from operating activities of GBP0.6m was below the GBP2. 7m for the same period last year as a result of lower operating profits and an adverse movement in working capital. Period-end working capital efficiency, measured by the ratio to sales, was 0.7% adverse, at 11.2%. This, combined with a higher exit rate of sales, meant that total working capital increased by GBP1.6m when compared to one year earlier.
Capital expenditure included GBP0.8m of payments relating to projects capitalised at the end of last financial year, the addition of GBP1.3m of new assets and GBP0.3m of further investment in the holographic origination joint venture. The total cash capital expenditure of GBP2.4m compares to GBP3.0m for the same period last year. Key projects included costs associated with the new ERP system and deposits paid on new metallisers for the two Foils businesses.
Group net debt of GBP5.6m compares to GBP5.2m at the interim stage last year and GBP2.4m at 31 March 2013. Levels of debt have remained under good control, with gearing at the period end of 23% (2012: 21%) and a ratio of net debt to trailing 12 month EBITDA of 1.2x (2012: 0.9x).
The Group's main borrowing requirements have recently been re-financed and facilities agreed with HSBC for the period to December 2017. The new GBP13.5m committed facility benefits from reduced interest margins, lower security requirements and less demanding covenants compared with the previous arrangements. The US business continues to be supported by funding from Wells Fargo, extending to April 2015.
The IAS19 calculated gross deficit on UK and US defined-benefit pension plans reduced slightly to GBP12.7m from GBP13.3m at 31 March 2013. Favourable movement in bond yields and inflation assumptions affecting liability valuation were mainly offset by lower investment returns compared to scheme objectives, in line with the performance of global equity markets. Associated deferred tax assets reduced by GBP0.4m, mostly as a result of lower UK corporation tax rates, leaving a net reported deficit of GBP10.1m compared to GBP10.3m at March 2013.
The UK plan is currently completing its triennial funding valuation as of 30 September 2013, the conclusion of which is expected during the middle of 2014.
The Board continues to be grateful for the support and efforts of the API workforce. The value of the contributions made by employees to the ongoing success and development of the Group is greatly appreciated.
In spite of a weaker first half, the Board still expects full year results to show some progress over last year.
The Foils businesses are already benefiting from their respective restructuring and ERP implementation projects completed in the first half and both units are experiencing encouraging levels of customer demand.
Continuation of the strong profit contribution from Laminates is underpinned by healthier core volumes now that the major new supply contract is fully on stream.
Holographics is well advanced with cost reduction measures aimed at restoring the business to a breakeven position ahead of the final quarter. Recovering lost ground in security and authentication markets will take more time, but will be greatly assisted by the recent investments in enhanced product capabilities and security credentials.
Overall, the business is in much better shape after the progress made during the first six months of the year. Opportunities for further improvements in operational effectiveness, as well as improving economic conditions, provide confidence in the outlook for the Group in 2014/15 and beyond.
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