RNS Number:2400D
Inveresk PLC
23 September 2004
Inveresk PLC
Interim results for the six months ended 30 June 2004
HIGHLIGHTS
* Profits before interest decline to #1.254m (2003: #2.021m) against a
background of depressed European markets coupled with margin pressure and
significant adverse currency influences.
* Retained profits attributable to shareholders amount to #0.730m (2003:
#1.609m)
* Interest costs of #0.524m (2003: #0.412m) in line with expectations
following the series of rate increases by the Bank of England.
* At Carrongrove successful re-launch of Gemini and the introduction of
InverX Pure and InverX Superfine offering potential for entry into new
international markets.
* At St Cuthberts successful introduction of new products including a
range of partial pre-impregnated resin based foils and top quality artist
papers.
* Pulp prices remain fairly steady throughout the period and in line with
expectations.
* Asset realisation programme on track in terms of sales and cash
generation. Progress on development plans for the Inverkeithing site in
consultation with Fife Council and its regeneration of the community
surrounding Inverkeithing.
* The welcome appointment of well-renowned industry leader, Stephen Mason,
as a non-executive director to the Board of Inveresk plc.
"The six month period under review has been most frustrating. The volume of
tonnes sold whilst on a par with last year has seen profits eroded by adverse
currency influences. We remain highly committed to our customers' needs and
through our asset realisation programme expect significant enhancement to
shareholder value in due course. We welcome Stephen Mason to our Board of
Directors".
Alan Walker, Chief Executive Officer
CHAIRMAN'S STATEMENT
Results
As forecast when delivering our trading update at the Annual General Meeting on
27 April 2004, the first half of this year has experienced difficult trading
conditions within the paper sector including the speciality niche paper markets
in which we operate. In common with most other export orientated businesses, the
results for the six months to 30 June 2004 have been heavily influenced by
adverse currency movements with both the US dollar and Euro weakening against #
sterling. Despite the volume of tonnes sold of 21,156 being almost identical to
that sold in the same period in 2003, our sales, more than 60% of which are to
export markets, in the six months to 30 June 2004 have declined by 8.8% to
#19.986m from #21.922m in the first six months of the previous year.
Mainly as a result of the adverse currency movements, profits before interest
have declined to #1.254m from #2.021m despite being enhanced by the gain on sale
from assets no longer required within the core business. The negative impact of
currency on profits was restricted to #842k year on year as a result of forward
hedging of both the Euro and US dollar and the forward purchase at a fixed price
of a portion of our US dollar denominated pulp supplies.
Marketing conditions remain generally depressed with strong competition
restricting our ability to increase margin contribution.
Core Businesses
During the period the Group comprised:
* The Foil, Decor and Artist Paper business based at the St Cuthberts Mill
in Somerset.
* The Graphics Boards business based at the Carrongrove Mill, Denny,
Stirlingshire in Scotland.
St Cuthberts
The performance of this mill in the first half of the year has been
disappointing. The volumes of foil based furniture and decorative papers have
been depressed in line with the poor market conditions prevalent in the
furniture industry throughout Europe. Our order book remains volatile which
creates difficulties for our production team and their ability to operate the
mill efficiently so as to minimise down time. Margins have remained under
pressure in part due to currency influences but also due to end users looking to
reduce their raw material supply costs. In response to this the Mill has
successfully introduced a new range of partially pre-impregnated resin based
papers (PPIP) whose technical features appeal to a number of our major European
customers with whom we work closely in terms of technical development and
innovation.
In artist papers demand has remained steady throughout the period as our
principal brands, Bockingford and Somerset, gain wider appeal throughout the
global market. The rate of expansion needs to be faster in this highly
specialised and lucrative niche field and steps are being taken to extend our
product range in a number of ways so as to build increased brand awareness
internationally.
Carrongrove
In contrast to the volatility experienced at St Cuthberts, our Graphic Boards
business has performed steadily throughout the period against a background of
depressed market conditions throughout Europe. Whilst not achieving its full
potential Carrongrove remains a well managed and significantly profitable
business with a diverse customer base throughout the UK and continental Europe.
The measures taken in 2003 to improve production efficiency through planned
maintenance programmes and capital expenditure have continued throughout the
first half of 2004.
The re-launch in autumn 2003 of the mill's principal brand Gemini was a great
success and has been complemented by the introduction of a wider range of
products to include InverX Pure and InverX Superfine which have been well
received by our customers, both in the UK and further afield. The planned
expansion into the United States and Canada has taken place albeit at a slower
pace than originally envisaged due in part to the number of trials carried out
in the local US market and the currency influences already referred to above. A
major risk factor within this mill can be the level of pulp prices. These have
remained fairly steady throughout the period and remain in line with budget
expectations. Protective steps have been taken to "buy" forward and also "hedge"
the currency exposure created by purchasing pulp in US dollars.
Asset Realisation Programme
Shareholders will be fully aware of this programme which commenced late in 2003
following the surrender of the lease by our tenant at Caldwells Mill in
Inverkeithing. The plan is twofold:-
* To turn the plant and paper making equipment located at the Caldwells
Mill into cash.
* To secure planning consents that will permit alternative uses for the
land assets located in Inverkeithing so as to enhance shareholder value and
eliminate debt.
I am pleased to advise that the plan is progressing satisfactorily with
equipment realisations already in excess of #2.2M to buyers from all corners of
the world. Missives have also been exchanged in respect of the sale of Borelands
Reservoir on which a profit of approximately #700k will be realised.
We continue to work closely with the strategic planners at Fife Council and
Scottish Enterprise to achieve the joint objective of creating a new
infrastructure around the Inverkeithing area which will offer an improved
environment for the town and its catchment area adjacent to the Forth Road and
Rail Bridges not far from Edinburgh. The project will take time to deliver but
we are already in discussion with developers and financiers with whom we intend
to work closely in the future. Fife Council's master plan for the community has
just been announced and is now out for public consultation and we expect to play
an integral part in the regeneration of Inverkeithing and its surrounding bay.
Finance
The Balance Sheet remains sound with no material deficit on the pension funds
and tax losses of in excess of #20M remain available for set-off against future
profitability.
Borrowings are in line with expectations with the shortfall in sales compensated
for by the sale of paper making equipment at the Caldwells Mill.
Interest charges of #0.524m (2003: #0.412m) are in line with the expected upward
movement in interest base rates imposed by the Bank of England. Our corporate
ambition remains to become debt free over time through the asset realisation
programme referred to above.
Costs remain a constant focus of attention. The continuous burden of regulation
and increasing level of statutory requirements from Government and the EU cast a
shadow over manufacturing industry in the UK. Energy costs continue to rise but
we have taken steps at both mills to ensure that operating costs are kept under
constant review in line with our level of activity.
Shareholder Value
One of our principal objectives and duties lies in the enhancement of
shareholder value. The new Inveresk has been fortunate in being the beneficial
owner of a diverse but valuable portfolio of assets which are no longer required
within the core business. Your Board will continue in its efforts to harvest
these assets over time so as to produce a debt free balance sheet with which to
meet the challenges of the future.
Non-Executive Director
Your Board is particularly pleased to be able to announce the appointment as a
non-executive director of Stephen Mason who until his recent retirement was the
Chairman of the UK, Ireland and South Africa operations of PaperlinX. His
legendary career within the paper industry has spanned no less than 36 years
where he was one of the leading forces in establishing paper merchanting as a
global business. Inveresk will benefit enormously from Stephen's vast experience
and knowledge of the industry where the relationship and commitment to our
network of paper merchants remains a cornerstone of Inveresk's ongoing future
strategy.
Outlook
In common with our peer group of industry manufacturers we recognise that the
market is still suffering from a general lack of demand. We remain highly
specialised within the niche sectors we serve and continue to work with our UK
and European customers in terms of technical development and the introduction of
innovative products designed to specific customer requirements.
The industry faces significant challenges as costs rise and Health & Safety
regulation continues to bite ever deeper. Inevitably consolidation within the
paper industry has and will continue to be a symptom of size and economies of
scale. As a small specialist producer we are regularly examining the many and
varied opportunities to improve shareholder value through strategic alliances or
merger with or acquisition of other European producers. This process is ongoing
and will be relentlessly pursued.
For the remainder of the year much depends on the strength of # sterling against
the Euro and also the US dollar in the run up to the US Presidential Election in
November. This will ultimately determine the level of profitability to be
recorded for the year as a whole. Central overheads remain firmly under control.
We have a strong and focused management team and will continue to search out
opportunities which will enable us to build shareholder value.
Jan Bernander, Chairman
23 September 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited Unaudited Audited
26 weeks to 26 weeks to Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Turnover 19,986 21,922 39,742
Cost of sales (16,361) (17,097) (31,995)
----------- ----------- -----------
Gross profit 3,625 4,825 7,747
Distribution costs (1,808) (1,756) (3,189)
Administrative expenses (1,334) (1,112) (2,530)
----------- ----------- -----------
Group operating profit 483 1,957 2,028
Fundamental reorganisation credit - 64 704
Gain on sale and termination of
businesses 771 - 1,216
----------- ----------- -----------
Profit before interest 1,254 2,021 3,948
Net interest payable - Group (524) (412) (645)
Other finance expense - - (271)
----------- ----------- -----------
Profit on ordinary activities before
taxation 730 1,609 3,032
Taxation on profit on ordinary
activities - - 130
----------- ----------- -----------
Profit for the financial period 730 1,609 3,162
Dividends - - (360)
----------- ----------- -----------
Retained profit for the period 730 1,609 2,802
----------- ----------- -----------
Basic earnings per share 0.5 p 1.8 p 2.7 p
Diluted earnings per share 0.5 p 1.7 p 2.7 p
Earnings per share before exceptional
items 0.1 p 1.7 p 1.1 p
----------- ----------- -----------
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
(restated) (restated)
#'000 #'000 #'000
----------- ----------- -----------
Fixed assets
Tangible assets 24,210 27,591 26,394
----------- ----------- -----------
Current assets
Stocks 4,791 4,299 4,842
Debtors 7,943 7,545 7,808
Debtors - deferred taxation 3,750 3,750 3,750
Cash at bank and in hand 61 123 70
----------- ----------- -----------
16,545 15,717 16,470
----------- ----------- -----------
Creditors: amounts falling due within one
year
Bank overdrafts and short term debt (7,480) (4,375) (8,146)
Other creditors (7,423) (10,836) (8,478)
----------- ----------- -----------
(14,903) (15,211) (16,624)
----------- ----------- -----------
Net current assets/(liabilities) 1,642 506 (154)
----------- ----------- -----------
Total assets less current liabilities 25,852 28,097 26,240
Creditors: amounts falling due after more
than one year (8,000) (8,000) (8,000)
Provisions for liabilities and charges (312) (3,332) (601)
----------- ----------- -----------
Net assets excluding pension
assets/(liabilities) 17,540 16,765 17,639
Pension assets/(liabilities)
Defined benefit schemes with net assets 3,110 - 3,166
Defined benefit schemes with net (3,229) (3,373) (3,910)
liabilities ----------- ----------- -----------
Net assets including pension
assets/(liabilities) 17,421 13,392 16,895
----------- ----------- -----------
Capital and reserves
Called up share capital 1,438 6,282 1,438
Investment in own shares (605) (400) (400)
Share premium account - 22,072 -
Revaluation reserve 11,279 11,459 11,369
Capital redemption reserve - 173 -
Profit and loss account 5,309 (26,194) 4,488
----------- ----------- -----------
Total equity shareholders' funds 17,421 13,392 16,895
----------- ----------- -----------
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Net cash outflow from operating activities (983) (5,465) (9,192)
Returns on investment and servicing of
finance (512) (466) (886)
Capital expenditure and financial 2,152 (156) 167
investment ----------- ----------- -----------
Net cash inflow/(outflow) before financing 657 (6,087) (9,911)
Financing - 4,512 8,827
----------- ----------- -----------
Increase/(decrease) in cash in the period 657 (1,575) (1,084)
----------- ----------- -----------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Profit for the period 730 1,609 3,162
Exchange adjustments on foreign currency
net 1 (3) (4)
investments
Actuarial gains recognised in the pension
schemes - - 3,672
Deferred tax arising on gains in the
pension - - (1,361)
schemes ----------- ----------- -----------
Total recognised gains and losses relating
to the financial period 731 1,606 5,469
----------- ----------- -----------
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Profit for the financial period 730 1,609 3,162
Dividends - - (360)
----------- ----------- -----------
Retained profit for the financial period 730 1,609 2,802
Shares purchased by ESOP trust (205) (100) (100)
Other recognised gains/(losses) for the
financial period 1 (3) 2,307
Issue of ordinary shares - 6,346 6,346
Loans converted to equity - 2,200 2,200
----------- ----------- -----------
Net increase/(reduction) in shareholders'
funds 526 10,052 13,555
----------- ----------- -----------
Shareholders' funds at beginning of
financial period 16,895 3,340 3,340
(originally #17,295,000 restated for prior
year adjustment of -#400,000) ----------- ----------- -----------
Shareholders' funds at end of financial
period 17,421 13,392 16,895
----------- ----------- -----------
NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Reported profit on ordinary activities
before taxation 730 1,609 3,032
Difference between historical cost
depreciation charge and the actual
depreciation charge of the year calculated
on the revalued amount 90 90 180
----------- ----------- -----------
Historical cost profit on ordinary
activities before taxation 820 1,699 3,212
----------- ----------- -----------
----------- ----------- -----------
Historical cost profit for the period
retained after 820 1,699 2,982
taxation, minority interests and
dividends ----------- ----------- -----------
NOTES TO THE INTERIM ACCOUNTS
1. Basis of Preparation
The interim accounts for the twenty six weeks ended 30 June 2004 and twenty six
weeks ended 30 June 2003, which are unaudited, have been prepared on the basis
of accounting policies consistent with those set out in the Company's financial
statements for the period ended 31 December 2003, except for the adoption of
UITF38 "Accounting for ESOP schemes", which has been adopted in this period with
the 2003 interim and full year figures being restated accordingly.
Following the adoption of UITF38 the investment in own shares is included in
share capital and reserves with the effect of reducing net assets at 31 December
2003 and 30 June 2003 by #400,000 to #13,392,000 and #16,895,000 respectively.
The information for the year ended 31 December 2003 does not constitute
statutory accounts and has been abstracted, following restatement for UITF38,
from the financial statements for that period which have been filed with the
Registrar of Companies. The independent auditors' report on those accounts was
unq ualified.
The valuation of net liabilities of the defined benefit pension schemes in the
interim accounts at 30 June 2004 reflects the opening balance sheet position
adjusted for current service costs and contributions made to the schemes. A full
review and update of the net pension assets/liabilities for the defined benefit
pension schemes will be carried out for the end of the financial year.
2. Taxation
As a result of tax losses brought forward there is anticipated to be no current
tax charge or credit in the current year.
The deferred tax asset continues to represent the directors' estimate of losses
that will be utilised in the foreseeable future based on current levels of
profitability and will be reviewed at the end of the financial year.
3. Interim Dividend
There will be no payment of interim dividend for the half year.
4. Earnings/(loss) per share
---------- --------- --------- --------- --------- --------- ---------
6 months ended 6 months ended 12 months ended 6 months ended 6 months ended 12 months ended
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
Earnings/(loss)
Earnings/(loss) Earnings/(loss) Earnings/(loss) pence per share Earnings/(loss) Earnings/(loss)
#'000 #'000 #'000 pence per share pence per share
---------- --------- --------- --------- --------- --------- ---------
Basic 730 1,609 3,162 0.5 1.8 2.7
Adjusted
for:
Exceptional
costs (771) (64) (1,920) (0.6) (0.1) (1.6)
Tax Relief
on
exceptional 231 19 - 0.2 - -
costs
---------- --------- --------- --------- --------- --------- ---------
Adjusted 190 1,564 1,242 0.1 1.7 1.1
basic --------- --------- --------- --------- --------- ---------
----------
Diluted 730 1,609 3,162 0.5 1.7 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.
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
2003
2004 2003
Number of Number of Number of
Shares
Shares Shares
(000s) (000s) (000s)
----------- ----------- -----------
Average of shares in issue
during the financial
period 139,996 91,407 116,309
Adjustment for the
dilutive effect of
employee and director
share options 966 1,500 1,214
----------- ----------- -----------
Average of shares in issue
during the financial
period diluted 140,962 92,907 117,523
----------- ----------- -----------
5. Provisions for Liabilities and Charges
Restructuring Onerous Lease Total
#'000 #'000 #'000
----------- ----------- -----------
At 31 December 2003 412 189 601
Charge/(credit) to profit and loss - - -
Costs incurred (218) - (218)
Amounts released unused (71) - (71)
----------- ----------- -----------
At 30 June 2004 123 189 312
----------- ----------- -----------
6. Reconciliation of Operating Profit/(Loss) to Net Cash Inflow/(Outflow) from
Operating Activities
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Group operating profit 483 1,957 2,028
Exceptional items 771 64 1,920
Depreciation charges 527 935 1,089
Impairment of fixed assets - - 1,319
Amortisation of government grants - - (3)
Net Pension asset/liability (625) (242) (700)
Gain on sale of tangible fixed assets (700) - (599)
Increase in working capital (1,150) (6,595) (9,931)
Decrease in provisions (289) (1,584) (4,315)
----------- ----------- -----------
Net cash outflow from operating activities (983) (5,465) (9,192)
----------- ----------- -----------
7. Movement in Net Debt
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
2004 2003 2003
#'000 #'000 #'000
----------- ----------- -----------
Increase/(decrease) in cash 657 (1,575) (1,084)
Cash outflow from debt financing - 1,834 (281)
Loans converted to equity - 2,200 -
Translation differences - - -
----------- ----------- -----------
Decrease/(increase) in net debt in period 657 2,459 (1,365)
Net debt at beginning of period (16,076) (14,711) (14,711)
----------- ----------- -----------
Net debt at end of period (15,419) (12,252) (16,076)
----------- ----------- -----------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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