RNS Number:6617J
Inveresk PLC
29 September 2006
Inveresk PLC
Interim Results for the six months ended 30 June 2006
Highlights
*Operating loss of #444,000 (2005 #510,000) arising out of continuing
operations at St Cuthberts Mill in Somerset, before exceptional costs and
interest.
*Interest costs of #325,000 (2005 #536,000) in line with expectations
following the sale of the Gemini brand.
*Costs continue to be reduced at St Cuthberts with numbers employed
falling by 18 to 98. Re-organisation costs including redundancy amounted to
#394,000.
*Exceptional costs of #526,000 incurred in respect of the closure of the
Carrongrove Mill site and preparing both the Carrongrove and Caldwells Mill
sites for sale.
*Raw material prices and energy costs continue to rise with consequential
pressure on gross margins.
*New product development of top of the range papers used in the
photographic and computer industries, for launch in 4th quarter of 2006.
*Significant volumes of new business gained for production of
pre-impregnated resin based papers on PM1 for delivery 4th quarter of 2006
and early 2007.
*Ministerial approval of the Fife Council Structure Plan awaited from the
Scottish Executive allowing the commencement of the redevelopment scheme
around Inverkeithing Bay on the banks of the River Forth opposite Edinburgh.
*Significant progress on the Carrongrove site with the establishment of a
draft Planning Brief and a number of proposals for the redevelopment of the
site predominantly into residential housing.
"In common with most paper manufacturers we remain concerned by the depressed
trading conditions which continue to prevail within the industry. All possible
efforts are being expended at our St Cuthberts Mill in Somerset to maximise
capacity utilisation allied to the reduction of operating costs. Even within the
niche markets in which we operate competitive pressures dictate that measures be
taken to improve efficiency. We are very encouraged with the progress we are
making with our various Real Estate projects which are so important to future
cash generation within the company and the enhancement of shareholder value."
Alan Walker
Chief Executive Officer
CHAIRMAN'S STATEMENT
Results
The first six months of 2006 have continued to haunt the European paper industry
through closures, down scaling and disappointing results in all segments of the
industry. Our business is no exception save for the fact that following the sale
of our Gemini brand back in 2005 the scale of operations conducted from the mill
at St Cuthberts in Somerset has reduced our exposure in a number of key areas to
those directly associated with the specialist niche areas in which we operate.
Turnover in the six months to 30th June 2006 rose by 3.2% to #7.24m (2005
#7.01m) with an operating loss of #444,000 (2005 loss of #510,000) and is viewed
as both unsatisfactory and unsustainable. Shareholders are aware of the
strategic direction in which your Board of Directors is refocusing our business
in the future by majoring on real estate. After exceptional costs of #920,000
(2005 gain of #5.29m), arising from further reorganisation at St Cuthberts Mill
and site closure costs at Carrongrove and Caldwells Mills, and interest charges
of #325,000 (2005 #536,000), the Company reports a loss on ordinary activities
before taxation of #1.63m (2005 profit of #4.64m).
Core Business
During the six months under review which continues to be a period of transition
the Company comprised:-
*Foil and decor based papers produced on PM1 at St Cuthberts Mill in
Somerset and used primarily for the furniture and decor markets.
*Specialist papers for artists and inkjet computer/photographic products
manufactured on PM2 at St Cuthberts Mill in Somerset distributed under a
number of proprietorial brands to a wide and varied customer base.
*The realisation for development purposes of the Company's substantial
land portfolio which extends to approximately 90 acres in various locations.
St Cuthberts
This business has experienced a difficult six months of trading during which
demand has remained flat in all areas, albeit with volumes slightly higher than
the corresponding period in 2005, with continued pressure on margins both of a
competitive nature and in terms of rising raw material prices as well as energy
costs. Trading conditions remain very tough.
However as a result of the series of initiatives introduced last year which
increased the emphasis on selling and marketing, St Cuthberts has recently won
significant new volumes of business which will kick in during the 4th quarter of
the current year and from January 2007. Of equal significance is the fact that
average run sizes will increase considerably allowing our PM1 machine to benefit
from longer runs thereby promoting greater efficiencies and the elimination of
down time.
Management believe this increased volume of business allied to the steps which
have been and continue to be taken to reorganise and reduce our cost structure
will restore the business to profit in the short to medium term.
Shareholders will recall that we announced at the time of the release of last
year's Annual Report that we had established a presence in the Far East with a
view to exploiting the clear opportunities which exist throughout that region.
Although it is early days, results to date have been encouraging with shipments
already supplied to a number of customers where our brands appear to be well
recognised and respected. The market potential throughout this entire region
remains both real and likely to grow at a much faster rate than in any other
geographical area in the world.
The current strategic initiatives at St Cuthberts include the following:-
*Regular cost reviews in order to operate the mill with the most efficient
cost base possible leveraged by the maximisation of throughput and turnover.
*More efficient production and the elimination of unnecessary down time
allowing the mill to operate close to full capacity.
*New product innovation for which St Cuthberts is renowned tailored to the
needs of our loyal customers.
*Commitment to technical alliances with customers designed to meet
customer needs and promote internal efficiencies. Customers are seen as
partners.
*Promote on-line training throughout all levels at the mill in order to
improve output performance and operating efficiencies.
*Maintain our reputation for flexibility and creativity which customers
have come to expect and which sets St Cuthberts apart from its competitors.
*Develop and maximise the competitive edge arising out of brand
recognition where our principal brands Bockingford, Saunders Waterford and
Somerset are viewed as industry benchmarks on an international basis.
Asset Realisation Programme
Shareholders will be aware that all plant and equipment at the Caldwells site in
Inverkeithing has been sold. The programme at Carrongrove has not moved at the
same pace partly due to the more specialised nature of the coated board
equipment and the generally depressed state of the industry as a whole which has
seen increased amounts of second hand equipment appearing on the world market at
the same time. Negotiations for the sale of the paper making machine at
Carrongrove continue with a range of international buyers and it is envisaged
that contracts will be concluded for the sale of this equipment before the end
of the year.
Land for Development
Inverkeithing
Shareholders were updated at the Annual General Meeting in May 2006 since when
there have been no further specific developments which need to be reported.
Ministerial approval to the overall Structure Plan of Fife Council for
Inverkeithing Bay is awaited from the Scottish Executive. The Caldwells Mill has
been decommissioned in all material respects and is ready for redevelopment. The
Structure Plan for the shores of the River Forth is of considerable proportion
and is likely to transform the gateway to the Kingdom of Fife and have a highly
positive impact on the landscape. Substantial improvements to the local
infrastructure will provide a range of benefits to the entire community. At this
stage we continue to work with our professional advisers and, bearing in mind
that our land has provided the impetus for the entire project, we remain
confident that the eventual development of the early phases of the Structure
Plan will deliver significant returns to your Company. At this stage we have
held a series of initial discussions with a number of developers regarding the
future ownership of this land going forward. These are due to continue for some
time to come.
Carrongrove
In contrast with the speed of change at Caldwells in Inverkeithing where we are
part of a wider development programme, the site at Carrongrove is likely to
reach the development stage much sooner. Together with our professional advisers
we have been working cohesively with Falkirk Council in establishing the site as
one predominantly suitable for residential housing and which will significantly
enhance the town of Denny. Following more than 20 expressions of interest which
we reduced to 13 firm proposals from almost all the major national house
building companies, we now have a clear vision as to how this site will be
transformed in the future. Your Board of Directors is confident that the
strategy we embarked upon back in 2005 is not only the correct one in these
difficult times for manufacturing in the United Kingdom but one which will
result in greater financial returns for shareholders. We now intend to proceed
with a shortlist of 5 or 6 developers to determine the optimum planning brief,
site investigations and eventual sale. As in the case of Inverkeithing, the
successful development of the Carrongrove estate into residential housing
bordering the Fintry countryside and yet set between the two motorways to both
Glasgow and Edinburgh some 6 miles from Stirling will have long term benefits to
the local community.
Finance
Pursuant to the sale of Gemini the Balance Sheet of the Company continues to be
slimmed through the elimination of working capital at Carrongrove and the
retirement of debt. The full impact of the asset realisation programme together
with the sale of land for development will eliminate bank debt and provide net
cash, the benefit of which will be transferred to shareholders in due course.
Interest charges at #325,000 (2005 #536,000) are more or less as expected.
Whilst the current bank debt supports the continuing operations at St Cuthberts,
increasingly interest costs arise from holding the land assets for sale when
appropriate.
Outlook and Shareholder Value
Whilst the state of the European paper industry gives genuine cause for concern
due to the lack of profitability, we believe that we are on course to deliver
the new strategic ambitions we set in train back in 2005. We remain in active
discussion with a number of international companies who have similar strengths
and weaknesses within their paper manufacturing and where the need for
consolidation and to fill capacity remains a priority. In the meantime the mill
at St Cuthberts is likely to fill its capacity which should improve the mill's
short term prospects while we shall continue to advance our real estate
interests with a view to harvesting these in due course in order to achieve a
debt free status and enhance shareholder value.
Jan Bernander
Chairman
29th September 2006
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited Unaudited Audited
26 weeks to 26 weeks to Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
=========== ========== ===========
Turnover
Continuing operations 7,243 7,013 13,574
Discontinued operations - 13,532 22,811
----------- ---------- -----------
7,243 20,545 36,385
Cost of sales (6,614) (17,239) (30,834)
----------- ---------- -----------
Gross profit 629 3,306 5,551
Distribution costs (459) (2,073) (3,503)
Administrative expenses (614) (1,342) (3,144)
Other operating income - - 7,520
----------- ---------- -----------
Group operating(loss)/ profit
----------- ---------- -----------
Continuing operations (444) (510) (1,991)
Discontinued operations - 401 8,415
----------- ---------- -----------
(444) (109) 6,424
Fundamental reorganisation
charge (394) - (7)
(Loss)/gain on sale and
termination of businesses (526) 4,685 (2,695)
Gain on sale of fixed assets - 601 606
----------- ---------- -----------
(Loss)/profit before interest (1,364) 5,177 4,328
Net interest payable - Group (325) (536) (880)
Other finance income 56 - 370
----------- ---------- -----------
(Loss)/profit on ordinary
activities before taxation (1,633) 4,641 3,818
Taxation on profit/(loss) on
ordinary activities - - (4,897)
----------- ---------- -----------
(Loss)/profit on ordinary
activities after taxation (1,633) 4,641 (1,079)
----------- ---------- -----------
(Loss)/profit for the
financial period (1,633) 4,641 (1,079)
----------- ---------- -----------
Basic (loss)/earnings per
share - total (1.2)p 3.4p (0.8)p
Basic loss per share -
continuing operations (0.6)p (0.4)p (0.9)p
Diluted (loss)/earnings per
share - total (1.2)p 3.3p (0.8)p
Diluted loss per share -
continuing operations (0.6)p (0.4)p (0.9)p
=========== ========== ===========
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========= ========= ===========
Fixed assets
Tangible assets 10,160 23,440 10,410
Current assets
Properties held for sale 10,005 - 10,005
Stocks 2,743 4,309 2,989
Debtors 3,444 8,740 5,462
Debtors - deferred taxation - 3,750 -
Cash at bank and in hand 12 75 16
--------- --------- -----------
16,204 16,874 18,472
Creditors: amounts falling due within
one year
Bank overdrafts and short
term debt (5,931) (5,659) (3,923)
Other creditors (4,138) (8,300) (6,048)
--------- --------- -----------
(10,069) (13,959) (9,971)
Net current assets 6,135 2,915 8,501
Total assets less current
liabilities 16,295 26,355 18,911
Creditors: amounts falling
due after more than one year (4,923) (6,154) (5,538)
Provisions for liabilities
and charges (538) (254) (575)
--------- --------- -----------
Net assets excluding pension
assets/(liabilities) 10,834 19,947 12,798
Pension assets/(liabilities)
Defined benefit schemes with
net assets 2,105 3,575 2,173
Defined benefit schemes with
net liabilities (2,088) (2,825) (3,768)
--------- --------- -----------
Net assets including pension
assets/(liabilities) 10,851 20,697 11,203
========= ========= ===========
Capital and reserves
Called up share capital 1,438 1,438 1,438
Revaluation reserve 11,197 11,205 11,220
Profit and loss account (1,784) 8,054 (1,455)
--------- --------- -----------
Total shareholders' funds 10,851 20,697 11,203
========= ========= ===========
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========== ========= ===========
Net cash (outflow)/inflow
from operating activities (1,169) 4,199 7,788
Returns on investment and
servicing of finance (313) (684) (980)
Capital expenditure and
financial investment 85 417 341
Acquisitions and disposals - - (564)
Dividends paid - - (360)
---------- --------- -----------
Net cash (outflow)/inflow
before financing (1,397) 3,932 6,225
Financing (615) (615) (1,231)
---------- --------- -----------
(Decrease)/increase in cash
in the period (2,012) 3,317 4,994
========== ========= ===========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========= ========= ===========
(Loss)/profit for the
financial period - before
restatement (1,633) 4,641 (1,079)
Unrealised surplus on
revaluation of properties - - 60
Exchange adjustments on
foreign currency net
investments (1) 2 (1)
Actuarial gains/(losses)
recognised in the pension
schemes 1,289 - (3,478)
Deferred tax arising on gains
in the pension schemes (7) - 228
--------- --------- -----------
Total recognised gains and
losses relating to the
financial period (352) 4,643 (4,270)
Prior year adjustment (note
1) - (241) (241)
--------- --------- -----------
Total gains and losses
recognised since last interim
report (352) 4,402 (4,511)
========= ========= ===========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========= ========== ===========
(Loss)/profit for the
financial period (1,633) 4,641 (1,079)
Dividends - - (360)
--------- ---------- -----------
Retained profit for the
financial period (1,633) 4,641 (1,439)
Shares purchased by ESOP
trust - (82) (126)
Treasury shares purchased - (88) (266)
Share options expensed - - 1
Other recognised
gains/(losses) for the
financial period 1,281 2 (3,191)
--------- ---------- -----------
Net (decrease)/increase in
shareholders' funds (352) 4,473 (5,021)
Shareholders' funds at the
beginning of financial period 11,203 16,224 16,224
--------- ---------- -----------
Shareholders' funds at the
end of financial period 10,851 20,697 11,203
========= ========== ===========
NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========= ========= ===========
Reported (loss)/profit on
ordinary activities before
taxation (1,633) 4,641 3,818
Difference between historical
cost depreciation charge and
the actual depreciation
charge of the year calculated
on the revalued amount 23 55 100
--------- --------- -----------
Historical cost (loss)/profit
on ordinary activities before
taxation (1,610) 4,696 3,918
--------- --------- -----------
========= ========= ===========
Historical cost (loss)/profit
for the period retained after (1,610) 4,696 (979)
taxation
========= ========= ===========
NOTES TO THE INTERIM ACCOUNTS
1. Basis of Preparation
The interim accounts for the twenty six weeks ended 30 June 2006 and twenty six
weeks ended 30 June 2005, 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 2005.
The information for the year ended 31 December 2005 does not constitute
statutory accounts and has been abstracted from the financial statements for
that period which have been filed with the Registrar of Companies. The
independent auditors' report on those accounts was unqualified.
As a result of adopting FRS21 "Events after the balance sheet date", a prior
year adjustment has been made in respect of the recognition of proposed
dividends. The adjustment has not affected the reported net assets at 31
December 2005, but has increased the reported net assets at 30 June 2005 by
#360,000.
As fully explained in the financial statements for the year ended 31 December
2004 the profit on the sale of a piece of land, which was entered into on 24
March 2005 and concluded on 7 April 2005, was recorded as a profit in the
financial statements for the year ended 31 December 2004 as the directors
believed at that time that the sale in 2005 was a substitute for a conditional
sale of the same piece of land which was entered into in August 2004. The sale
recorded in the 2004 financial statements did not conclude post the 2004 year
end as the purchaser was unable to proceed to completion. The auditors qualified
their opinion on the financial statements for the year ended 31 December 2004 in
relation to this accounting treatment, as they believed that the two
transactions were separate and that the conclusion of the April 2005 sale was a
non-adjusting event so far as the 2004 financial statements were concerned.
After further discussions and consideration, the directors now agree that the
accounting treatment adopted in the financial statements for the year ended 31
December 2004 was incorrect and have restated the comparative figures in the
financial statements for the twenty six weeks ended 30 June 2005. The effect of
this prior year adjustment is to increase the profit for the twenty six weeks
ended 30 June 2005 by #601,000.
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.
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
2006 2005 2005 2006 2005 2005
Earnings/(loss) Earnings/(loss) Earnings/(loss) Earnings/(loss) Earnings/(loss) Earnings/(loss)
#'000 (restated) #'000 (restated)
#'000 pence per share pence per share pence per share
======== ======== ======== ========= ======== ========
Basic -
continuing
operations (782) (510) (1,220) (0.6) (0.4) (0.9)
Basic -
discontinued
operations (851) 5,151 141 (0.6) 3.8 0.1
-------- -------- -------- --------- -------- --------
Basic - Total (1,633) 4,641 (1,079) (1.2) 3.4 (0.8)
Adjusted
for:
Exceptional
charges/
(credits) 920 (5,286) 2,660 0.7 (3.9) 2.0
Tax relief
on
exceptional
charges/ - - (174) - - (0.1)
(credits)
Exceptional
deferred tax
charge - - 3,750 - - 2.7
-------- -------- -------- --------- -------- --------
Adjusted
basic (713) (645) 5,157 (0.5) (0.5) 3.8
- Total -------- -------- -------- --------- -------- --------
Diluted -
continuing
operations (782) (510) (1,220) (0.6) (0.4) (0.9)
Diluted -
discontinued
operations (851) 5,151 141 (0.6) 3.7 0.1
-------- -------- -------- --------- -------- --------
Diluted - (1.633) 4,641 (1,079) (1.2) 3.3 (0.8)
Total ======== ======== ======== ========= ======== ========
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 and those held as Treasury shares.
The weighted average number of shares used in each calculation is as follows:
6 months ended 6 months ended 12 months ended
30 June 2006 30 June 2005 31 December
2005
Number of Number of Number of
Shares
Shares Shares
(000s) (000s) (000s)
=========== =========== ===========
Average of shares in issue
during the financial
period 135,055 137,186 136,334
Adjustment for the
dilutive effect of
employee and director
share options 2,044 1,778 1,897
----------- ----------- -----------
Average of shares in issue
during the financial
period diluted 137,099 138,964 138,231
=========== =========== ===========
5. Provisions for Liabilities and Charges
Restructuring Onerous Lease Total
#'000 #'000 #'000
=========== =========== ===========
At 31 December 2005 551 24 575
Profit and loss charge 920 - 920
Costs incurred in period (957) - (957)
Amounts released unused - - -
----------- ----------- -----------
At 30 June 2006 514 24 538
=========== =========== ===========
6. Reconciliation of Operating (Loss)/Profit to Net Cash (Outflow)/Inflow from
Operating Activities
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
(restated)
#'000 #'000 #'000
========== ========== ===========
Group operating (loss)/profit (444) (109) 6,424
Exceptional items (920) 5,286 (2,096)
Depreciation charges 265 554 3,507
Impairment of goodwill - - 564
Expensing of share options - - 1
Amortisation of government
grants - - (2)
Pension curtailments - - (194)
Movement on net pension
asset/liability (274) (220) (561)
Gain on sale of tangible
fixed assets (100) (601) (615)
Decrease/(increase) in
working capital 341 (694) 456
(Decrease)/increase in
provisions (37) (17) 304
---------- ---------- -----------
Net cash (outflow)/inflow
from operating activities (1,169) 4,199 7,788
========== ========== ===========
7. Movement in Net Debt
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 2006 30 June 2005 31 December
2005
#'000 #'000 #'000
=========== ========== ===========
(Decrease)/increase in cash (2,012) 3,317 4,994
Cash outflow from debt
financing 615 615 1,231
----------- ---------- -----------
Increase/(decrease) in net
debt in period (1,397) 3,932 6,225
Net debt at beginning of
period (9,445) (15,670) (15,670)
----------- ---------- -----------
Net debt at end of period (10,842) (11,738) (9,445)
=========== ========== ===========
This information is provided by RNS
The company news service from the London Stock Exchange
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