RNS Number:9713K
Inveresk PLC
13 April 2005
INVERESK PLC
("Inveresk" or "the Company")
Preliminary Results for 12 months to 31 December 2004
Inveresk is pleased to announce its annual results for the 12 months to 31
December 2004.
In difficult market conditions, the Company recorded a pre-tax profit of #0.184M
compared to #3.162M for the 12 months to 31 December 2003.
Highlights 2004
* Inveresk's sales increased by 2.4% to #40.7M (2003 #39.7M)
despite the negative impact of adverse currency variations
* Volume of tonnes sold up by 9.5% to 42,877 (2003 39,167) year
on year but profits eroded by adverse currency influences throughout 2004.
* Proposed dividend payment of 0.25p, in line with previous year,
reflecting the Board's confidence in the Company's future prospects.
* Successful relaunch of Gemini SBS coated boards at Carrongrove
plus the introduction of InverX Pure and InverX Superfine to global markets.
* Planned penetration of Gemini into US and Canadian markets in
final quarter of 2004 with the appointment of 3 major distributors
* St Cuthberts tonnage sold was up year on year by 4.3% with new
product development and major new customers offering expansion opportunities for
the future.
* #1M taken out of combined mills' fixed costs on a year on year
basis including moving to a 4 shift pattern at St Cuthberts to maximise
operating efficiencies
* Improved operating efficiencies at both mills with reduction in
machine downtime and broke levels leading to increased productivity
* Asset realisation programme on track in terms of sales and cash
generation including sales of plant and equipment, sales of peripheral sites and
the advancement of the "master plan" for the principal site at Inverkeithing Bay
in Fife
* Following the adoption of FRS17 in respect of the two closed
defined benefit pension schemes, the 2003 net pension deficit has been turned
into a net surplus in 2004.
* The appointment of Stephen Mason, an experienced paper industry
specialist, as a Non Executive Director.
Alan Walker, Chief Executive commented "Volume increases leave us well
positioned to take advantage of any structural changes which arise from price
and currency movements. Costs remain under control but are subject to rigorous
review. Significant benefits will accrue as the asset realisation programme
falls to cash and retires debt."
For further information contact:
Alan Walker Chief Executive Officer 0207 240 1234 (Mobile: 07710 620260)
Gordon Thomson Finance Director 01324 827200
Jan Bernander Chairman (00 46) 708 556 400
CHAIRMAN'S STATEMENT
Results
Your Company has experienced a difficult year throughout 2004 characterised by
weak demand in many international markets, by over capacity in the industry
which has acted as a disincentive to increase sales prices to cover increases in
energy and raw material costs, and by significant adverse currency influences.
As already reported at the interim stage because the company sells almost 65% of
its products overseas the results are heavily influenced by currency movements
of both the US dollar and the Euro. The company's increased level of sales into
North America is to a large extent hedged by the purchases of pulp transacted in
US dollars whereas the weakening of the Euro against Sterling for most of 2004
had a negative impact on profits which would have been approximately #0.725M
higher if the exchange rates had remained the same.
Turnover for 2004 was #40.71M as compared to #39.74M for the corresponding year
in 2003. Operating profits were #0.90M (2003 #2.03M) before exceptional charges
of #0.29M whilst profits after interest but before tax amounted to #0.18M (2003
#3.03M) giving earnings per share of 0.1p (2003 2.7p).
Whilst these results are broadly in line with mid year expectations your Board
of Directors is disappointed with these figures which are generally a reflection
of the cyclical trough through which the industry has been travelling over the
past eighteen months. The interest charges of #1.102M (2003 #0.645M) are high as
compared to the previous year due to the regular increases in base rate imposed
by the Bank of England throughout 2004 and also due to the fact that the
creditors' equalisation from which the company benefited in 2003 had ended in
the latter part of 2003. Successful disposal in due course of the major land
asset within the asset realisation programme at Inverkeithing, which I refer to
later in my statement, will lead to a substantial reduction in external
borrowings (with a corresponding reduction in the amount of interest) required
to service both the working capital needs of the business and the selective
capital expenditure identified for future reinvestment in plant and equipment
deemed necessary to maintain the integrity of the productive capacity within
both mills.
The Balance Sheet continues to be in good order, and it remains one of the
principal aims of your Board of Directors to de-gear the borrowing levels
through the disposal of land assets which are peripheral to the company's core
paper business so as to maximise both cash flow and profitability in the future.
Shareholders will note that the auditors' report for 2004 contains a technical
qualification in respect of a disagreement between them and the Directors as to
the accounting treatment of a sale of land, namely, Borelands Reservoir in
Inverkeithing in Fife, which in their opinion did not take place until 2005 and
therefore should not have been recorded in the accounts for 2004. Your Board
strongly believes that inclusion of this sale in the 2004 accounts portrays
clearly to shareholders very much what happened in reality. In August 2004 the
Company entered into a conditional contract to sell Borelands Reservoir but this
sale did not conclude post year end as the purchaser was unable to proceed to
completion. In March the Company moved quickly into an unconditional contract
with a major developer to acquire the same land and the contract was financially
completed on 7 April, and in the Directors' view this sale is a straight
substitution for the earlier one. If the sale had not been recognised in 2004
the effect would have been to change the profit for the year of #0.184M into a
loss for the year of #0.417M, which in your Board's opinion would have been
misleading to shareholders.
Dividend
Despite the difficult trading conditions which prevail in most markets including
those on continental Europe where we operate, your Directors have decided to
recommend the payment of a final dividend of 0.25p per share in line with that
which was declared last year. Whilst this dividend is not fully covered by post
tax profits it is a measure of your Board's confidence in the steps which are
being taken in the day to day business, coupled with the belief we have in being
able to complete the asset realisation programme in due course to the advantage
of all those associated with our Company, that we wish to maintain our dividend
policy at this time. If approved by Shareholders at the forthcoming Annual
General Meeting the dividend will be paid on 1 July 2005 to shareholders on the
register on 3 June.
Papermaking
The Company operates from its two speciality mills at Carrongrove outside
Stirling in Scotland and St Cuthberts adjacent to the City of Wells, Somerset in
England. At Carrongrove the downturn in demand experienced in the second half of
2003 continued through to the summer months of 2004. It was only in the final
quarter of the year with the appointment of three major distributors to the
North American market that volumes increased in line with our stated objectives.
This success allowed overall volumes to grow by over 10% year on year. Further
growth in volume is expected in 2005 as order books remain healthy with efforts
being more directly focused on customer service and the spring 2005 launch of
InverX Pure and InverX Superfine. Sales prices remain predictably static as
competitors refuse to recognise the difficulties faced by over capacity in the
industry and the inevitable struggle to control costs which are rising
disproportionately given the increases in energy and raw materials which are
already biting and which are directly associated with the price of oil.
Fortunately pulp prices have remained stable throughout the period and active
steps are taken to manage our future requirements of pulp in line with our own
and industry forecasts.
At St Cuthberts a slow start to the year, which was a reflection of a downturn
within the furniture industry, gave way to a strengthening of order books from
September 2004 which coincided with a move from 5 to 4 shift working which has
been a demonstrable success and which has significantly reduced fixed costs in
the mill. Demand for our highly specialised pre-impregnated resin based
decorative papers has remained at similar levels to 2003 with an increase of
4.3% in volume tonnes sold. Active steps have been taken to differentiate
ourselves from other producers by using the considerable technical expertise
within the mill to successfully engineer lower cost material for less demanding
applications. The technical demands placed on producers are greater than ever
and in order to protect our customers from raw material increases it is
incumbent upon us to work with them in terms of technical innovation in order to
create bespoke product applications which are often unique to that particular
customer or indeed the equipment on which they process our product. This creates
a high level of interaction between customer and supplier and as a result we
have seen a significant increase in the number of customers who wish to work
with us.
With regard to artist papers there have been a number of structural changes in
the distribution routes to market for these products in 2004 which has somewhat
restricted our ability to grow within this lucrative market niche. However these
changes have created a number of opportunities and we intend to approach the
market with renewed dynamism following the decision to offer converted pads of
our watercolour papers as part of our product range. Our Bockingford (artist)
and Somerset Enhanced (inkjet) brands rank among the best known branded products
which are available in today's global market and we are currently evaluating how
best to exploit the significant potential which exists within this product area
where we have considerable expertise. Here again the weakness of the US dollar
has had a pronounced effect on unit sales of these quality products. The
challenge in 2005 is to increase our market share through a focused sales and
marketing campaign.
Continuing Commitment To Customer Service
Inveresk recognises that product acceptance is not so much won as awarded by
customers. To retain the support of loyal customers, unceasing efforts are being
made across both mills to push back the boundaries in the search for excellence
of service in all its facets. Because each of our businesses within Inveresk
works in a unique market situation each develops its own response to the service
challenges, and examples of such responses include:-
* Major initiatives launched at Carrongrove to address
just-in-time deliveries and our ability to supply graphic board into new defined
areas of the market on time and in the right quantity and quality.
* At St Cuthberts the development of technical strategic
alliances with specific customers designed to reengineer product offerings to
assist customers to meet special requirements within their own production
environment in a cost effective manner.
* Our commitment to comply with the increased demands imposed by
changing legislation at both mills in respect of Health & Safety at work and our
responsibilities in the area of effluent treatment.
* The importance of training both within the mills and also for
high profile merchants who distribute our product and need an increasing level
of comprehension as to the range of applications to which our products are
ideally suited.
Capital Expenditure
Through a policy of active repair and maintenance throughout 2004 the
operability of our various paper making machines has been good but remains under
constant review. Our management teams have identified a number of capital
projects which, with the exception of those which are needed to comply with
Health & Safety legislation, are designed to promote efficiency as well as
produce a rapid payback in terms of return on capital.
Asset Realisation Programme
We are pleased to be able to confirm to shareholders that we are on track so far
as this programme is concerned. Sales of plant and equipment from the closed
Caldwells Mill will conclude shortly with the disposal of the last few items
which remain. Buyers for this equipment have visited the mill from all corners
of the world. The Borelands Reservoir has now been sold unconditionally and the
deal has completed financially, yielding a realised profit in line with
expectations. There are other projects on which we are continuing to work
including, inter alia, the future use of the main Caldwell site adjacent to the
banks of the River Forth located at Inverkeithing Bay in Fife. It is now within
the public domain that the planners at Fife Council have a "master plan" which
is destined to change the landscape surrounding the town of Inverkeithing
encompassing the entire area around the bay. This massive project will have a
substantial impact on the area which is within commuting distance of the City of
Edinburgh. Our discussions with potential developers, land owners and waterside
development specialists are continuing in conjunction with the planners with
whom we continue to work closely, so that in time Fife can be proud of the
eventual transformation from the present example of industrial decay to a
vibrant new community to include leisure, business and housing and which will
herald the regeneration of the entire area into a better living environment for
those residing and working there. We will continue in our efforts to deliver
this pivotal project for the enhancement of the local community, the financial
benefits of which will accrue in terms of shareholder value.
The Board
This year the Board has been strengthened by the appointment of Stephen Mason as
a Non-Executive Director of the Company. Stephen is a highly respected and
experienced paper industry specialist who brings to the Company a wealth of
industry knowledge and contacts gained in a career lasting no less than 36 years
as the former Chairman of UK, Ireland and South African operations of Paperlinx.
Employees
On behalf of your Board I extend sincere thanks to all Inveresk employees for
their hard work, dedication and enthusiasm during 2004. It is the collective
efforts of all employees that play such a vital part in converting strategies
into business realities.
Current Trading and Outlook
The paper industry has not been a place for the faint hearted over the past year
or two. The industry is high on fixed cost and the bureaucracy which attaches to
the increasing levels of Health & Safety legislation are not applied uniformly
across international borders including many countries within the EU. The
industry is crying out for change, consolidation and integration and there is
evidence to suggest that structural changes are taking place. At Inveresk we
remain highly specialised within the confines of industry segments which are
mature but where technical innovation has an important role to play. We continue
to explore regularly strategic opportunities as they present themselves and
remain fully committed to the improvement of shareholder value through the
harvesting of our underutilised peripheral assets and by corporate activity
through partnership, strategic alliance or merger with like-minded European
producers.
The current year has started positively in terms of volume but sales price
increases are elusive in international markets where either demand is slow to
pick up or where competitive pressures including currency influences mean in
real terms that prices are treading water.
I am confident therefore that Inveresk has a good future as a focused niche
supplier of quality papers where our technical innovation can set us apart from
our competitors as we deploy our undoubted skills and expertise to market our
quality brands to a wider international audience. Our core businesses remain
sound with growth dynamics which may be influenced by the strength of the Euro
and we await with interest the outcome of our asset realisation programme which
will play such a pivotal role in the near future.
Jan Bernander
Chairman
13 April 2005
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the financial year ended 31 December 2004
Year ended Year ended
31 December 31 December
Continuing Exceptional 2004 2003
Mill Business Items Total Total
#'000 #'000 #'000 #'000
--------- --------- ---------- ----------
Turnover 40,711 - 40,711 39,742
Cost of Sales (33,395) (429) (33,824) (31,995)
--------- --------- ---------- ----------
Gross profit/(loss) 7,316 (429) 6,887 7,747
Distribution costs (3,620) - (3,620) (3,189)
Administrative (2,798) 142 (2,656) (2,530)
expenses --------- --------- ---------- ----------
Group operating profit 898 (287) 611 2,028
/(loss)
Fundamental - 58 58 704
reorganisation credit
(Loss)/gain on sale
and termination - (100) (100) 1,216
of businesses
Gain on sale of fixed - 601 601 -
assets --------- --------- ---------- ----------
Profit before interest 898 272 1,170 3,948
Net interest payable - (1,102) (645)
Group
Other finance income/ 116 (271)
(expense) --------- --------- ---------- ----------
Profit on ordinary
activities before 184 3,032
taxation
Taxation on profit on
ordinary - 130
activities --------- --------- ---------- ----------
Profit for the 184 3,162
financial year
Dividends (360) (360)
--------- --------- ---------- ----------
Retained (loss)/profit
for the (176) 2,802
financial year --------- --------- ---------- ----------
Basic earnings per 0.1 p 2.7 p
share
Diluted earnings per 0.1 p 2.7 p
share
--------- --------- ---------- ----------
(Loss)/earnings per
share before (0.1) p 1.1 p
exceptional items --------- --------- ---------- ----------
A final dividend of 0.25p on 143,804,750 ordinary shares is proposed for the
financial year ended 31 December 2004 (2003: 0.25p)
CONSOLIDATED BALANCE SHEET
At 31 December 2004
2004 2003
(restated)
#'000 #'000
---------- ----------
Fixed assets
Tangible assets 23,980 26,394
Current assets
Stocks 4,565 4,842
Debtors 8,462 7,808
Debtors - deferred taxation 3,750 3,750
Cash at bank and in hand 60 70
---------- ----------
16,837 16,470
Creditors: amounts falling due within one year
Bank overdrafts and short term debt (8,961) (8,146)
Other creditors (8,832) (8,478)
---------- ----------
(17,793) (16,624)
Net current liabilities (956) (154)
Total assets less current liabilities 23,024 26,240
Creditors: amounts falling due after more than one year (6,769) (8,000)
Provisions for liabilities and charges (320) (601)
---------- ----------
Net assets excluding pension assets/(liabilities) 15,935 17,639
Pension assets/(liabilities)
Defined benefit schemes with net assets 3,655 3,166
Defined benefit schemes with net liabilities (3,125) (3,910)
---------- ----------
Net assets including pension assets/(liabilities) 16,465 16,895
---------- ----------
Capital and reserves
Called up share capital 1,438 1,438
Revaluation reserve 11,260 11,369
Profit and loss account 3,767 4,088
---------- ----------
Total equity shareholders' funds 16,465 16,895
---------- ----------
CONSOLIDATED CASH FLOW STATEMENT
for the financial year ended 31 December 2004
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
---------- ----------
Net cash inflow/(outflow) from operating
activities 294 (9,192)
Returns on investment and servicing of finance (1,059) (886)
Capital expenditure and financial investment 1,531 167
Dividends paid (360) -
---------- ----------
Net cash inflow/(outflow) before financing 406 (9,911)
Financing - 8,827
---------- ----------
Increase /(decrease) in cash in the year 406 (1,084)
---------- ----------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
---------- ----------
Increase/(decrease) in cash in the year 406 (1,084)
Cash inflow from debt and lease financing - (281)
---------- ----------
Change in net debt resulting from cash flows 406 (1,365)
Net debt at beginning of the year (16,076) (14,711)
---------- ----------
Net debt at end of the year (15,670) (16,076)
---------- ----------
Notes to the accounts
Note 1
The financial information set out above does not constitute the Company's
statutory accounts for years ended 31 December 2004 or 2003 but is derived from
those accounts. Statutory accounts for 2003 have been delivered to the Registrar
of Companies, and those for 2004 will be delivered following the Company's
Annual General Meeting. The auditors have reported on those accounts; their
report for 2003 was unqualified and did not contain a statement under section
237(2) or (3) of the Companies Act 1985. The auditors' report for 2004 was
qualified in respect of a disagreement as to the recording of a sale of land
which in their opinion did not take place until 2005 and therefore should not
have been recorded in the accounts for the year ended 31 December 2004. If the
sale had not been recognised the effect would have been to change the profit for
the year of #184,000 into a loss for the year of #417,000 and to reduce Group
and Company debtors at 31 December 2004 by #650,000 and reduce Group and Company
provisions at 31 December 2004 by #49,000. Their report did not contain a
statement under sections 237(2) or (3) of the Companies Act 1985.
Note 2
PRIOR YEAR ADJUSTMENT
As a result of adopting UITF 38 "Accounting for ESOP trusts" the investment of
the Group in its own shares, to satisfy employee share option obligations, is
presented as a deduction in shareholders' funds rather than as an asset. This
adjustment has had the effect of reducing the net assets at 31 December 2004 by
#767,000 to #16,465,000 (2003: a reduction of #400,000 to #16,895,000). There is
no effect on the profit and loss account for the year or the previous year.
Note 3
EXCEPTIONAL ITEMS
Exceptional (credits)/charges included within the profit on ordinary activities
before taxation are analysed as follows:
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
---------- ----------
Cost of Sales - Operating exceptional costs
New product development 119 -
Mill restructuring 310 -
---------- ----------
429 -
---------- ----------
Administrative expenses - Operating exceptional
credit
Release of onerous lease provision (142) -
---------- ----------
(142) -
---------- ----------
Fundamental reorganisation costs
Release of unused provisions (58) (704)
---------- ----------
(58) (704)
---------- ----------
Loss /(gain) on sale and termination of businesses
Profit on termination of labels business - (600)
Loss on sale of Graphics business 278 1,024
Profit on sale of Kilbagie Mill - (375)
Release of unused provisions (178) (1,265)
---------- ----------
100 (1,216)
---------- ----------
Gain on sale of fixed assets (601) -
---------- ----------
Total exceptional credits (272) (1,920)
---------- ----------
In August 2004 the Group entered into a conditional contract to sell a piece of
land. In March 2005 the purchaser withdrew from the contract. Also in March 2005
the Group then entered into an unconditional contract with another party to
acquire the same land and the contract was settled on 7 April 2005. In the
opinion of the directors the original 2004 contract conditional only upon
planning permission has been replaced with an unconditional contract, with a
financially strong purchaser, which has now been settled and the sale therefore
is recorded in the accounts for the year ended 31 December 2004.
Note 4
EARNINGS/(LOSS) PER SHARE
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2004 2003 2004 2003
Earnings/(loss) Earnings/(loss) Earnings/(loss) Earnings/(loss)
#'000 #'000 pence per share pence per share
---------- ----------
---------- ----------
Basic 184 3,162 0.1 2.7
Adjusted for:
Exceptional
credits (note
3) (272) (1,920) (0.2) (1.6)
---------- ---------- ---------- ----------
Adjusted basic (88) 1,242 (0.1) 1.1
---------- ---------- ---------- ----------
Diluted 184 3,162 0.1 2.7
---------- ---------- ---------- ----------
The adjusted figures are shown to provide shareholders with additional
information on operations before exceptional items.
Earnings per share are calculated for the issued shares excluding those
registered in the name of The Inveresk ESOP Trustee Company Limited in
accordance with UITF 13.
The weighted average number of shares used in each calculation is as follows:
Year ended Year ended
31 December 31 December
2004 2003
Number of Number of
shares shares
(000s) (000s)
---------- ---------
Average of shares in issue during the financial
period 139,531 116,309
Adjustment for the dilutive effect of employee and
director share options 1,143 1,214
---------- ---------
Average of shares in issue during the financial
period diluted 140,674 117,523
---------- ---------
Note 5
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the financial year ended 31 December 2004
Year ended Year ended
31 December 31 December
2004 2003
(restated)
#'000 #'000
---------- ----------
Profit for the financial year 184 3,162
Dividends (360) (360)
---------- ----------
Retained (loss)/profit for the financial year (176) 2,802
Shares purchased by ESOP trust (417) (100)
Share options expensed 50 -
Other recognised gains for the financial year 113 2,307
Issue of ordinary shares - 6,346
Loans converted to equity - 2,200
---------- ----------
Net (decrease)/increase in shareholders' funds (430) 13,555
Shareholders' funds at the beginning of financial
year 16,895 3,340
(originally #17,295,000 restated for prior year
adjustment of -#400,000)
---------- ----------
Shareholders' funds at the end of the financial
year 16,465 16,895
---------- ----------
Note 6
DIVIDENDS
A final dividend of 0.25 p per ordinary share, amounting to #360,000, is
proposed for the financial year ending 31 December 2004 (2003 : 0.25p).
Note 7
RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
---------- ----------
Group operating profit 611 2,028
Exceptional credits 559 1,920
Depreciation charges 1,068 1,089
Impairment of fixed assets - 1,319
Expensing of share options 50 -
Amortisation of government grants (2) (3)
(Gain)/loss on sale of tangible fixed assets (1) 1
Gain on sale of tangible fixed assets -
exceptional items (601) (600)
Movement on net pension asset/liability (1,045) (700)
Decrease/(increase) in Stocks 277 (1,245)
(Increase)/decrease in Debtors (654) 3,791
Increase/(decrease) in Creditors 313 (12,477)
Decrease in provisions (281) (4,315)
---------- ----------
Net cash inflow/(outflow) from operating
activities 294 (9,192)
---------- ----------
Note 8
ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
---------- ----------
Returns on investment and servicing finance
Interest received 26 15
Interest paid (1,085) (901)
---------- ----------
(1,059) (886)
---------- ----------
Capital expenditure
Purchase of tangible fixed assets (719) (333)
Purchase of own shares by ESOP (417) (100)
Sale of tangible fixed assets 2,667 600
---------- ----------
1,531 167
---------- ----------
Financing
Issue of ordinary share capital net of expenses - 6,346
Bank and other loans repaid - (7,713)
New bank loans - 8,000
New loans - 2,200
Capital element of hire purchase repayments - (6)
---------- ----------
- (8,827)
---------- ----------
This information is provided by RNS
The company news service from the London Stock Exchange
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