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RPC Group Plc Announces Interim results for the 6 months ended 30 September 2006

Published on 2006-12-14. Author : SpecialChem

RPC Group Plc ("RPC" or the "Group"), Europe's leading supplier of rigid plastics packaging, announces its interim results for the six months ended 30 September 2006.

Financial highlights:

  • Group turnover stable at £308.4m (2005: £307.8m)
  • Unchanged reported operating profit at £18.4m (2005: £18.4m), excluding restructuring costs
  • Underlying operating profit up £0.7m to £19.1m (2005: £18.4m)
  • Underlying operating margin up from 6.0% to 6.3%
  • Reported earnings per share down 0.7p to 9.2p (2005: 9.9p)
  • Interim dividend up 8% to 2.70p (2005: 2.5p)

Corporate highlights

  • Some disappointments on the sales side
  • Launch of Dolce Gusto product for Nestlé
  • Cost increases were largely recovered
  • Extension of working week at certain Mainland Europe operations at no extra cost
  • Major position established in the beauty packaging market
  • Consolidation of Blow Moulding operations completed

Commenting on the results, Peter Williams, Chairman said:

"In the face of a number of challenges, it is pleasing to report a respectable performance for the first half with an underlying improvement in operating profit and margins. Recent acquisitions demonstrate our ability to acquire businesses at attractive prices which complement and enhance our existing activities.

As a result of a number of Group initiatives and an easing of input costs, the Board expects the Group to make progress for the year as a whole".

Statement by the Chairman and Chief Executive

RPC has delivered a respectable performance in the first half of 2006/07 in the face of a number of challenges. Oil prices exceeded $75 per barrel during the period, which increased the pressure on our input costs – this was felt particularly in the prices of polymer, electricity, transport and packaging materials. There was a further 18.5% increase in the cost of polymer compared with the first half of last year, taking the overall increase to over 50% since 2003/04 and more than two-thirds since 2001/02; whilst the cost of electricity in the UK doubled year-on-year. As before we were able to pass on the majority of the increase in raw material prices to customers and had some success with other cost pressures. Compared with last year we have also experienced some disappointments on the sales side with lower volumes of fruit bowls, medical devices and vending cups.

Under these circumstances, we are pleased to be able to report improving underlying profit and margins. Sales in the first half were stable on a like for like basis compared with last year. Operating profit fell from £17.4m to £16.2m, but after allowing for restructuring costs of £2.2m (2005/06: £1m) and the impact of acquisitions (a loss of £0.7m), it improved by £0.7m to £19.1m. Restructuring costs and the impact of foreign currency hedging instruments have reduced the reported profit before tax to £12.9m (2005/06: £13.3m), which, with a 30% tax charge, leads to a reduction in the earnings per share to 9.2p before dilution compared to 9.9p in the first half of 2005/06.

Going forward, the performance of the Group should benefit from an improvement in a number of these factors. There has been a modest reduction in polymer prices in November. We have also actively sought to increase our selling prices to recover the non-polymer cost increases that we have incurred in the first half of 2006/07. Sales of pharmaceutical devices and fruit bowls have also recovered to some degree, but demand for "Tassimo" discs, although above last year, has continued to be below expectations.

Operations

Injection Moulding

Injection Moulding volumes were comparable with last year. The six months saw a recovery of sales to the surface coatings market in the UK from the low levels of last year, and good sales of tooling and cream dispensers from our German operations. "Tassimo" discs, although disappointing during the period under review, are now running at a higher level than we have hitherto experienced. Handihaler production and sales from our Mellrichstadt operation were also at a low level as stocks were run down in anticipation of a design change which has now happened.

A variety of initiatives are underway to address our cost-base in order to maintain our competitiveness. The biggest of our injection moulding operations in Germany has agreed to extend its working week by 3½ hours at no extra cost and this is now in place. Headcount reductions have been achieved across the board in the UK and focused on temporary workers on Mainland Europe in order to minimise the expense.

Thermoforming

Volumes in thermoforming were affected by a number of factors, reducing year-on-year by 7%. Our Cobelplast sheet business suffered from the decline in the volume of sheet for fruit bowls which is subsequently formed into tubs at our Bebo factory in the Netherlands. This business is also particularly vulnerable to movements in polymer prices because this represents as much as 70% of the cost of these products. Our PET sheet business in Italy, on the other hand, was strong.

Our Bebo business in the Netherlands also suffered from the decline in fruit bowls, but our margarine business in Germany and the Netherlands was buoyant. In the UK we found it difficult to pass on polymer price increases.

Our Tedeco-Gizeh disposables business suffered from the loss of a major contract in the Netherlands. However, some higher added-value products are growing to replace this business and a cost-reduction exercise is also underway in the Netherlands which incorporates headcount reductions as well as a 2-hour increase in the working week at no extra cost. The UK business performed better than in recent years, and in France we commenced the production of coffee pods for Nestlé's "Dolce Gusto" coffee system for which the customer has high expectations. This coffee system utilises an intricately-manufactured multi-layer pod which we have developed with the customer over a number of years, the launch of which went flawlessly.

Blow Moulding

Blow Moulding volumes were comparable with last year. Our co-extruded operation at Corby as well as our PET business at Llantrisant and our operation at Kutenholz in Germany, all performed particularly well. We had a more difficult time in Benelux where the poor weather during the first half of 2006 adversely affected sales of agrichemicals and we suffered the knockon effects of weak export markets for the lubricating oil industry during the period. The closure of the Woburn Sands facility acquired from Nampak was completed as planned and the equipment and turnover has been transferred to Rushden, Raunds and Plenmeller. The transfer and commissioning of the relocated lines proved more difficult than expected which had an adverse impact on the performance of these sites; once these lines have bedded down into their new locations the benefit will progressively accrue.

Acquisitions

We have made three acquisitions – two during the half year under review, and one at the end of October. All demonstrate our clear intent to buy businesses which complement and enhance our existing activities, and to do so at sensible prices.

At the beginning of July we bought the Risdon beauty packaging businesses of the Crown Group in Europe at Marolles in France and Mozzate in Italy. In 2005 these had sales of €45m and EBITDA of €2m: we paid €5.7m. We are integrating these with our lipstick and compact case manufacturing facilities on Teeside to form RPC beauté, now trading on the market as the third largest beauty packaging manufacturer in Europe. This new RPC cluster has been extremely well received by the customer-base, and the performance of the cluster has already started to improve from the very low level to which it had dropped in early 2006 before the acquisition. In August we acquired 4 You Sigal in Poznan, Poland. Sales in 2005 were €1.4m and EBITDA was €0.4m: we paid €0.6m. It was therefore only a very small acquisition, but it nevertheless gave us the leading position in the manufacture of meat trays in Poland and fitted well with our other thermoforming activities in Poland.

On 31 October we acquired Barplas from the Barghout family in Bradford. Sales of Barplas in 2005 were £4.3m. EBITDA was £0.9m. We paid £4.2m. Barplas manufactures pails and paint cans for the surface coatings and similar markets in the UK, and therefore complements our Oakham and Blackburn facilities. It increases our critical mass in these product areas and frees up some machinery which could be transferred to one of our facilities in eastern Europe should our customer base so require.

Finances

The sales revenue of £308.4m includes £6m generated by acquisitions which compares with sales of £307.8m last year. Excluding the impact of acquisitions, sales reduced by 2%, but is unchanged when the effect of the shorter working calendar in 2006 is taken into account. Operating profit fell from £17.4m to £16.2m, but after allowing for restructuring costs of £2.2m (2005/06: £1m) and the impact of acquisitions (a loss of £0.7m), operating profit improved by £0.7m to £19.1m reflecting our success in reducing costs and managing the effects of higher polymer and electricity costs. Allowing for these adjustments the operating profit margin improved from 6% in the first half of 2005/06 to 6.3% in the current period.

The restructuring charge of £2.2m covers the cost of closing the Woburn Sands site which was vacated on 31 October 2006. This compares to a £1m charge in the same period last year. The net financing costs this year were £3.3m compared to £4.1m in the first half of last year. The movement can be mainly attributed to the £1.2m credit arising on foreign currency hedging instruments in relation to the $40m bond (last year it gave rise to a charge of £0.5m). The tax rate applied to the profits in the first half is 30% (2005/06: 28%). This increase is due to the increasing proportion of our profits which are being generated in Germany where the tax rate is higher.

The Balance Sheet and Cash Flow Statement both reflect a higher level of working capital: stocks and, to a lesser extent, debtors increased whilst creditors fell substantially. The increase in stocks reflects the impact of the acquisitions and rising polymer costs whilst the increase in debtors is entirely due to the acquisitions. The reduction in creditors is due to a tightening of credit terms by polymer suppliers and to a lower level of capital creditors at 30 September 2006 than at 31 March 2006.

Additions to fixed assets in the period amounted to £16.4m compared with £22.1m in the first half of 2005/06. The actual cash spend on capital items in the period was higher at £21.2m (2005/06: £25.5m); the difference between the additions and cash spend figures in the first half of 2006/07 reflects the net reduction in capital creditors referred to above. Nearly half of the capital spend was on expansionary projects like the "Dolce Gusto" production facilities which we are installing at Bouxwiller.

The substantial increase in working capital together with the spend on acquisitions of £4.3m have been the primary factors behind our net borrowings increasing from £117.7m at 31 March 2006 to £144.6m at 30 September 2006. At this level, the debt is still only 2 times our EBITDA whilst our interest cover in the first half is a healthy 4.9 times.

Review conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2006.

RPC Group is Europe's leading manufacturer of rigid plastic packaging and is unique in that it is able to offer products made by all three conversion processes, blow moulding, injection moulding and thermoforming. It has 49 operations in 12 different countries and employs over 6,800 people. RPC services a comprehensive range of customers – from the largest European manufacturers of consumer products to the smallest national businesses. It has particularly strong positions in the beauty and personal care sector, the vending and drinking cup market, the margarine industry, and in multi-layer sheet and packs for oxygen sensitive food products. Our objectives are to further strengthen RPC's position in these and other sectors of the European market and to optimise our production, thereby generating a good return for our shareholders and the best possible security for our employees, suppliers and customers.

Source: RPC Group


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