RNS Number:8153Y
Inveresk PLC
22 June 2007
INVERESK PLC
("Inveresk" or "the Company")
Preliminary Results for 12 months to 31 December 2006
Highlights 2006
* Loss before taxation of #4.277m compared to a profit of #3.817m for the
12 months to 31 December 2005.
* Group operating loss for the year of #2.002m as compared to #1.992m
before fundamental reorganisation costs and those costs associated with
transforming the activity base into real estate in preference to paper
manufacture.
* The paper industry continued to face problems on a global basis arising
from worldwide over capacity, higher costs of both raw materials and energy
against a background of static demand at reduced margins.
* Realignment of cost base at St Cuthberts Mill in the face of competitive
pressures, weaker margins and the need to reduce manpower.
* Land, buildings and certain related plant and equipment at Carrongrove
now contractually sold (subject only to the purification of title) for a
little over #11.0m which will be received in July 2007 and will be used to
pay down Bank debt.
* Borrowing at year end amounted to #12.753m (2005 #9.445m) but will
reduce significantly on completion of the sale of land, buildings and
related plant and equipment in July 2007.
* Efforts expended in 2006 to fill the spare capacity at St Cuthberts have
been reasonably successful as we have entered 2007 with a higher capacity
utilisation than experienced for some years. Margins, however, remain under
pressure from a combination of competitive influences and raw material and
energy cost increases, and St Cuthberts is focusing on longer production
runs designed to assist production efficiencies within the mill.
* Initiatives introduced in both Europe and the Far East confirm market
potential on a global basis for the company's products both within the decor
/pre impregnated papers and artists/inkjet ranges of paper on offer to a
wide, discerning customer base throughout the world.
* Ongoing Asset Realisation Programme is generally on track and will
feature continuing emphasis on the remaining real estate sites held within
the Company.
* Initiatives started in 2006 include successful development of wet
expansion pre-impregnated paper for the wood flooring sector for which
patent application has been made.
* Also planned in 2007 is the introduction of top of the range inkjet
paper to be marketed under the brand "Somerset Photo".
Alan Walker, Chief Executive, commented:
"Whilst we remain active participants in certain specialised sectors within the
paper industry it is self evident that our focus is in the process of shifting
to the added value represented by the exploitation of our real estate portfolio.
This source of revenue will feature prominently in future where the returns are
significantly greater."
For further information contact:
Alan Walker Chief Executive Officer 0207 240 1234 (Mobile 07900 445623
Gordon Thomson Finance Director 01324 827200
Jan Bernander Chairman (00 46) 708 556 400
CHAIRMAN'S STATEMENT
Overview
The year to 31 December 2006 has been a very difficult year for the paper
industry as a whole from which we were not immune as we continued to manage the
transition of switching out of core paper activities into real estate activities
with reduced dependence upon the paper industry for our future revenue streams.
The outlook for both UK and European paper companies cannot be viewed with any
degree of optimism at this time.
The decision to sell our internationally respected Gemini brand for #13m back in
2005 (excluding a yet to be determined additional consideration from the
continuing sales of Gemini) has proved to have been correct as the market for
SBS coated board continues to stagnate with further consolidation in the sector
expected. Agreement has been reached to sell the residual site at Carrongrove
together with certain related plant and equipment for #11m (subject only to the
purification of title) with financial completion expected to take place by mid
July 2007. The proceeds of sale will be used to significantly reduce bank
borrowings and reflect the Board's strategic desire to eliminate bank debt
totally from the Company.
Results
The operating results for the year ended 31 December 2006 remain disappointing
at the St Cuthberts Mill resulting in the Group overall, including central
overheads, producing an operating loss of #2.002m as compared to an operating
loss of #1.992m on continuing operations for the same period in 2005.
In addition to this, costs of #0.594m relate to the reorganisation and cost
reduction programme at St Cuthberts reducing manpower by 29 persons, and costs
of #1.023m were incurred in finally exiting from the SBS paperboard trade
allowing the sale of the decommissioned site at Carrongrove to take place, with
the benefit and profits accruing in 2007.
Interest costs incurred were #0.738m compared to #0.880m in 2005 leaving pre tax
losses of #4.277m compared to profits of #3.817m in 2005 which of course
included the proceeds of sale of the Gemini brands at that time.
With product sales at St Cuthberts of #13.304m for the year to 31 December 2006
as compared to #13.574m in 2005 it can be demonstrated that demand within the
specialised areas of furniture (PIP) papers, decor, artists and inkjet papers
remains flat with increasing levels of competition and consequential pressure on
margins across the entire range. A particular feature of the results in 2006 has
been the unprecedented increases in energy costs which simply have had to be
absorbed and could not be passed on to customers.
The Company's balance sheet remains soundly based as it is under-pinned by the
real estate portfolio which is likely to be realised for cash in the coming
years at values substantially in excess of the carrying values within the
Balance Sheet. This process is due to start in July 2007 with the realisation of
the Carrongrove site and the subsequent reduction in bank borrowings.
Asset Realisation Programme
Plant and Equipment
Some but not all of the plant and equipment at Carrongrove has been sold.
Following decommissioning of the Carrongrove Mill the plant and equipment has
been marketed to all corners of the world to a range of international buyers.
Due to the number of mill closures throughout Europe and North America there is
a surfeit of second hand equipment which has influenced prices downwards. The
directors are considering a number of strategic options in relation to the
future use and destination of the residual plant and equipment in order to
maximum the return to the Company.
Land for Future Development
Inverkeithing
As shareholders will be aware this 18 acre site is located on the shores of the
River Forth at Inverkeithing which lies due North of Edinburgh at the gateway to
the Kingdom of Fife. Inveresk will participate in the bigger picture in relation
to this site because it plays such a pivotal role in the overall Structure Plan
of Fife Council. This large scale scheme is likely to transform over time the
entire area around Inverkeithing Bay and will provide new homes, shops, schools,
leisure facilities and employment opportunities to many local people.
Shareholders will be aware that the Structure Plan was ratified by Fife Council
at the end of April 2006 and that for some time we have been waiting for the
formal adoption of it by the Scottish Executive. We continue to await this
endorsement so that the project may commence but the decision has been delayed
somewhat by the Scottish Parliament elections and the formation of a new
Government. The fundamentals remain the same and this forward thinking plan will
provide in due course substantial benefits to the local community in Fife as
well as accrue considerable financial returns to our shareholders. The site is
ready for immediate redevelopment.
Organisation
The management structure has been slimmed down over recent years with numbers
employed at St Cuthberts now numbering 92 with accounting and corporate
functions operating partly out of Scotland and London. The Company employs a
total of 106 including directors.
Environment
Inveresk develops and supplies paper products that print, beautify and promote
artistic expertise. From an environmental perspective it is important that both
manufacture and usage as well as waste products have as little impact on the
environment as possible. Inveresk is therefore in the forefront of the
development of products that combine function with environmental compatibility.
At St Cuthberts, as well as Carrongrove until the sale of Gemini, the Company
has been and continues striving to
* replace any hazardous substances or chemicals in products as far as is
technically feasible and financially viable
* minimise environmental impact in the manufacturing process
* minimise the volume of waste and waste products
* work continuously in-house with training, information and discussion in
order to stimulate the development of expertise in environmental as well as
health and safety issues.
Pensions
The Company's Pension Schemes remain in relatively good order and compare
favourably with the UK pensions industry as a whole. There are a number of
planned initiatives designed to reduce long-term liabilities.
Prospects at St Cuthberts
This mill remains an enigma within the Inveresk portfolio of assets in that it
offers so much in terms of potential but delivers little. This small mill (by
large scale paper manufacturing standards) lies just outside the idyllic City of
Wells in Somerset on a site in excess of 30 acres. It has for a number of years
struggled to achieve profitability given the age of its equipment and its lack
of investment over an extended period of time. It was one of the original
pioneers into pre-impregnated papers (PIP's) used extensively within the decor
and furniture sectors whilst also benefiting from some of the world's best known
brands in artist papers including, inter alia, Bockingford, Saunders Waterford
and the Somerset range of products. Notwithstanding the enviable reputation
which St Cuthberts enjoys for innovation, flexibility and a keen desire on the
part of customers to work with our technical team it is clear that we do not
have the economic scale to "go it alone" particularly in the PIP market which is
characterised by both customers and competitors driving down the sales margins
to levels which are in reality not sustainable. It is for this reason that your
Board continues to seek out strategic like minded partners with whom suitable
alliances can be agreed for future collaboration using the undoubted competitive
advantages of St Cuthberts know how with a more modern approach to production,
efficiency and productivity. As margins have been squeezed in 2006 the
management team has managed to reduce the headcount by 29 employees whilst at
the same time gaining an increase of 20% in annual tonnage for 2007 albeit at
margins which do not compare favourably with those earned in recent years.
Product development has also included a new process for dealing with wet
expansion for the wooden floor manufacturers and a top of the range inkjet
product of exceptional quality which will be launched in mid 2007 under the
Somerset Photo brand.
All efforts will be expended in returning the mill to profit whilst continuing
to seek the aforementioned strategic alliances for the future.
Dividend
As a direct consequence of the absence of distributable reserves the Board is
not in a position to propose a dividend. In 2007 now that our real estate
strategy is beginning to bear fruit and the Company approaches a debt free
status, your Board will be pursuing actively the various ways in which
shareholders can be rewarded in a tax efficient manner.
The Board
Your Board of Directors meets monthly and is always attentive to control over
operating costs within St Cuthberts and those central costs which arise from
being listed on the London Stock Exchange. The paper industry is no place for
the faint hearted and your Board has had a clear vision as to the alternative
strategy available through its portfolio of real estate. We will continue to
pursue this strategy in order to maximise shareholder value over time.
One of the Group's most valuable assets is the commitment, energy, innovation
and resourcefulness of its employees and we thank our staff for their continuing
support as the new strategic direction is pursued. The sale in 2007 of the
assets at Carrongrove and the substantial elimination of borrowings is seen as a
platform for future success.
Jan Bernander
Chairman
22 June 2007
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the financial year ended 31 December 2006
2006 2005
Total Total
(restated)
#'000 #'000
---------- ----------
Turnover
Continuing operations 13,304 13,574
Discontinued operations - 22,811
---------- ----------
13,304 36,385
Cost of Sales (12,925) (30,834)
---------- ----------
Gross profit 379 5,551
Distribution costs (856) (3,503)
Administrative expenses (1,525) (3,145)
Other operating income - 7,520
---------- ----------
Group operating (loss)/profit
---------- ----------
Continuing operations (2,002) (1,992)
Discontinued operations - 8,415
---------- ----------
(2,002) 6,423
Fundamental reorganisation charge (594) (7)
Loss on sale and termination of businesses (1,023) (2,695)
Gain on sale of fixed assets 100 606
---------- ----------
(Loss)/Profit before interest (3,519) 4,327
Net interest payable - Group (738) (880)
Other finance (expense)/income (20) 370
---------- ----------
(Loss)/Profit on ordinary activities before (4,277) 3,817
taxation
Taxation on (loss)/profit on ordinary activities 1,147 (4,897)
---------- ----------
Loss on ordinary activities after taxation (3,130) (1,080)
---------- ----------
Loss for the financial year (3,130) (1,080)
========== ==========
Basic loss per share - total (2.3) p (0.8) p
Diluted loss per share - total (2.3) p (0.8) p
Additional earnings per share measures are included
in note 4.
CONSOLIDATED BALANCE SHEET
At 31 December 2006
2006 2005
#'000 #'000
--------- ---------
Fixed assets
Tangible assets 9,708 10,410
--------- ---------
Current assets
Properties held for sale 10,005 10,005
Stocks 2,619 2,989
Debtors 3,231 5,462
Cash at bank and in hand 4 16
--------- ---------
15,859 18,472
Creditors: amounts falling due within one year
Bank overdrafts and short term debt (8,449) (3,923)
Other creditors (3,229) (6,048)
--------- ---------
(11,678) (9,971)
--------- ---------
Net current assets 4,181 8,501
--------- ---------
Total assets less current liabilities 13,889 18,911
Creditors: amounts falling due after more than one year (4,308) (5,538)
Provisions for liabilities and charges (440) (575)
--------- ---------
Net assets excluding pension assets/(liabilities) 9,141 12,798
Pension assets/(liabilities)
Defined benefit schemes with net assets 987 2,173
Defined benefit schemes with net liabilities (2,368) (3,768)
--------- ---------
Net assets including pension assets/(liabilities) 7,760 11,203
========= =========
Capital and reserves
Called up share capital 1,438 1,438
Revaluation reserve 11,170 11,220
Profit and Loss Account (4,848) (1,455)
--------- ---------
Total shareholders' funds 7,760 11,203
========= =========
CONSOLIDATED CASH FLOW STATEMENT
for the financial year ended 31 December 2006
2006 2005
#'000 #'000
---------- ----------
Net cash (outflow)/inflow from operating activities (2,679) 7,788
Returns on investment and servicing of finance (716) (980)
Capital expenditure and financial investment 87 341
Acquisitions and disposals - (564)
Equity dividends paid - (360)
---------- ----------
Net cash (outflow)/inflow before financing (3,308) 6,225
Financing (1,230) (1,231)
---------- ----------
(Decrease)/increase in cash in the year (4,538) 4,994
========== ==========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2006 2005
#'000 #'000
---------- ----------
(Decrease)/increase in cash in the year (4,538) 4,994
Cash outflow from debt and lease financing 1,230 1,231
---------- ----------
Change in net debt resulting from cash flows (3,308) 6,225
Net debt at beginning of the year (9,445) (15,670)
---------- ----------
Net debt at end of the year (12,753) (9,445)
========== ==========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the financial year ended 31 December 2006
2006 2005
(restated)
#'000 #'000
---------- ----------
Loss for the financial year (3,130) (1,080)
Unrealised surplus on revaluation of properties - 60
Exchange adjustments on foreign currency net investments (1) (1)
Actuarial losses recognised in pension schemes (335) (3,478)
Deferred tax arising on gains in pension schemes - 228
---------- ----------
Total recognised gains and losses relating to the year (3,466) (4,271)
Prior year adjustment (note 2) (1) (241)
---------- ----------
Total gains and losses recognised since last annual (3,467) (4,512)
report ========== ==========
Notes
Note 1
FINANCIAL INFORMATION
Accounting Policies
The preliminary financial information has been prepared on the basis of the
accounting policies set out in the most recent accounts for the year ended 31
December 2005, except that in the preliminary financial information FRS20
"Accounting for share based payments" has been adopted for the first time. The
accounting policy under the new standard is set out below together with an
indication of the effects of its adoption.
Basis of Preparation
The financial information set out above does not constitute the Company's
statutory accounts for years ended
31 December 2006 or 2005 but is derived from those accounts. Statutory accounts
for 2005 have been delivered to the Registrar of Companies, and those for 2006
will be delivered following the Company's Annual General Meeting. The auditors
have reported on those accounts; their report was
(i) unqualified, and
(ii) did not contain a statement under section 237 (2) or (3) of the Companies
Act 1985.
Annual Report and Accounts
The Annual Report and Accounts for the year ended 31 December 2006 will be
posted to shareholders shortly and will be available to the public, free of
charge, at the Company's registered office: Carrongrove Mill, Denny,
Stirlingshire FK6 5HJ.
Note 2
PRIOR YEAR ADJUSTMENT
As a result of adopting FRS20 "Accounting for share based payments", a prior
year adjustment has been made in respect of the fair value of share options
expensed. For the year to 31 December 2006 a charge to the profit and loss
account of #23,000 has been made with a corresponding increase in the charge to
the profit and loss account for the year to 31 December 2005 of #1,000.
There is no effect on the net assets at 31 December 2006 or 31 December 2005.
Note 3
EXCEPTIONAL ITEMS
Exceptional charges/(credits) included within the (loss)/profit on ordinary
activities before taxation are analysed as follows:
Year ended Year ended
31 December 31 December
2006 2005
#'000 #'000
---------- ----------
Administrative expenses - Operating exceptional charge
Goodwill impairment charge - 564
---------- ----------
- 564
---------- ----------
Fundamental reorganisation costs
Restructuring costs 594 7
---------- ----------
594 7
---------- ----------
Loss on sale and termination of businesses
Sale of intellectual property and related assets - (4,768)
Loss on termination of Paperboard business 911 7,466
Pension curtailment following termination of
Paperboard business - (194)
Loss on sale of Graphics business 271 192
Release of unused provisions (159) (1)
---------- ----------
1,023 2,695
---------- ----------
Gain on sale of fixed assets (100) (606)
---------- ----------
Total exceptional charges 1,517 2,660
========== ==========
The tax effect of the exceptional charges is #378,000 credit (2005: #174,000
credit).
Note 4
EARNINGS/(LOSS) PER SHARE
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2006 2005 2006 2005
Earnings/(loss) Earnings/(loss) Earnings/(loss) Earnings/(loss)
(restated) (restated)
#'000 #'000 pence per share pence per share
--------- ---------- ---------- ----------
Basic -
continuing
operations (3,130) (1,221) (2.3) (0.9)
Basic -
discontinued
operations - 141 - 0.1
--------- ---------- ---------- ----------
Basic - (3,130) (1,080) (2.3) (0.8)
Total
Adjusted
for:
Exceptional
charge 1,517 2,660 1.1 2.0
Tax relief
on exceptional
charges/ (378) (174) (0.3) (0.1)
(credits)
Exceptional
deferred tax
charge - 3,750 - 2.7
--------- ---------- ---------- ----------
Adjusted
basic (1,991) 5,156 (1.5) 3.8
- Total --------- ---------- ---------- ----------
Diluted -
continuing
operations (3,130) (1,221) (2.3) (0.9)
Diluted -
discontinued
operations - 141 - 0.1
--------- ---------- ---------- ----------
Diluted - (3,130) (1,080) (2.3) (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 and those
held as Treasury shares.
The weighted average number of shares used in each calculation is as follows:
Year ended Year ended
31 December 31 December
2006 2005
Number of Number of
shares shares
(000s) (000s)
---------- ---------
Average of shares in issue during the financial
year 135,055 136,334
Adjustment for the dilutive effect of employee and
director share options 1,660 1,897
---------- ---------
Average of shares in issue during the financial
year diluted 136,715 138,231
========== =========
Note 5
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the financial year ended 31 December 2006
Year ended Year ended
31 December 31 December
2006 2005
(restated)
#'000 #'000
---------- ----------
Loss for the financial year (3,130) (1,080)
Dividends - (360)
---------- ----------
Retained loss for the financial year (3,130) (1,440)
Treasury shares purchased - (266)
Shares purchased by ESOP trust - (126)
Share options expensed 23 2
Other recognised losses for the financial year (336) (3,191)
---------- ----------
Net decrease in shareholders' funds (3,443) (5,021)
Shareholders' funds at the beginning of financial
year 11,203 16,224
---------- ----------
Shareholders' funds at the end of the financial
year 7,760 11,203
========== ==========
Note 6
RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
Year ended Year ended
31 December 31 December
2006 2005
(restated)
#'000 #'000
---------- ----------
Group operating (loss)/profit (2,002) 6,423
Exceptional charges (1,517) (2,096)
Depreciation charges 715 3,507
Impairment of goodwill - 564
Expensing of share options 23 2
Amortisation of government grants (2) (2)
Gain on sale of tangible fixed assets (100) (615)
Pension curtailments - (194)
Pension contributions (701) (776)
Pension service costs 132 215
Decrease in Stocks 370 1,576
Decrease in Debtors 2,231 2,350
Decrease in Creditors (1,693) (3,470)
(Decrease)/increase in provisions (135) 304
---------- ----------
Net cash (outflow)/inflow from operating
activities (2,679) 7,788
========== ==========
Note 7
ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2006 2005
#'000 #'000
---------- ----------
Returns on investment and servicing finance
Interest received 10 24
Interest paid (726) (1,004)
---------- ----------
(716) (980)
========== ==========
Capital expenditure
Purchase of tangible fixed assets (39) (301)
Purchase of own shares by ESOP - (126)
Purchase of own shares - Treasury shares - (266)
Sale of tangible fixed assets 126 1,034
---------- ----------
87 341
========== ==========
Acquisitions and disposals
Purchase of subsidiary - (564)
---------- ----------
- (564)
========== ==========
Financing
Bank and other loans repaid (1,230) (1,231)
---------- ----------
(1,230) (1,231)
========== ==========
Note 8
TAX ON PROFIT ON ORDINARY ACTIVITIES
Year ended Year ended
31 December 31 December
2006 2005
#'000 #'000
---------- ----------
Current tax
Corporation tax at 30% (1,147) 1,147
Deferred tax
Origination/reversal of timing differences - 3,750
---------- ----------
Total excluding pension scheme movements (1,147) 4,897
========== ==========
This information is provided by RNS
The company news service from the London Stock Exchange
END
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