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BPI-003 Annual Rpt Cover 07 SMc


									Chief Executive’s Statement

                                                       Our performance in 2007 was well down on 2006 as we continued
                                                       to suffer from the impact of regular small increases in our raw
                                                       material prices combined with continued competitive markets.
                                                       Business Overview                                          Acquisition
                                                       Raw Material Prices                                        In August we acquired from the Celanese Corporation,
                                                       Raw material price volatility continued through 2007       for US$12 million, the AT Films business, a Canadian
                                                       with the price rising every month until September.         manufacturer of polythene film products for the
                                                       The average LD Platts reported price increased by          North American horticultural and agricultural markets.
John Langlands                                         15% over the year to produce yet another record            The business has a film manufacturing plant in
                                                       average for the calendar year. While prices did not        Edmonton, Alberta and a conversion facility in Westlock,
                                                       reach the all-time record sterling high achieved in        some 80 miles north of Edmonton. The business had
Strategy                                               October 2005, a significant price increase in January      annual sales of US$35 million on 12,500 tonnes for
                                                       2008 has taken prices to a new high of £970 per            the year ended 31 December 2006.
  Our strategy for the business remains                tonne for LD polymer. Increases in February have
  unchanged in that we are a focused polythene         resulted in the LD Platts price reaching £1,000 per        This acquisition enables us to progress our strategy
  film and bag business.                               tonne for the first time, a new record. Prices are         of developing our international agricultural and
                                                       expected to remain firm for the first half of 2008         horticultural business. It also brings new products
  Our primary objective is to grow operating profits   but may soften during the second half as new               to the Group including a range of agricultural bags
  and earnings per share.                              capacity begins to come on stream. The new UK LD           which, as well as being used to store silage, are now
                                                       capacity in the North East of England is now planned       being used to store grain which can be subsequently
  We aim to provide first class customer service       to start in the last quarter of 2008 and we are starting   used in the manufacture of biofuels.
  by delivering high quality products at               to see some product from new Middle East
  competitive prices.                                  production facilities.                                     The business acquired formed part of a much
                                                                                                                  larger business and has not received the appropriate
  We aim to be No.1 or No.2 in the major markets       Selling Prices and Margins                                 investment over the years. We will, therefore,
  in which we operate.                                 The small regular price increases in 2007 were             require to improve and update the current plant
                                                       very difficult to pass on to customers on a regular        and machinery and to date have authorised
  We aim to achieve organic growth in product areas    basis and resulted in compression in margins.              £0.4 million on capital expenditure.
  and market sectors that continue to develop.         Silage stretchwrap margins were reduced as we
                                                       faced higher raw material costs and increased market       Since the year end, we have acquired the trade,
  We will invest in modern manufacturing               capacity. Europe faced higher energy prices which,         brands and plant of Sacomatic in Canada for a small
  equipment to enable us to develop new                as with the UK in 2006, proved difficult to recover.       cash consideration of £0.12 million. The Sacomatic
  products and meet our customers’ ever                                                                           memory bale tube is used to store forage for animal
  changing requirements.                               Sales Volumes                                              feed and the acquisition of this brand will enable
                                                       The total sales volumes of manufactured product            us to expand sales in this product area.
  We intend to develop our European and                from our UK and European operations increased to
  Chinese operations.                                  311,000 tonnes as higher sales in silage stretch and       Restructuring
                                                       Europe offset reducing volumes in plain films in the       In January 2007, we announced the closure of our
  We see further growth opportunities in               UK. The high price of raw materials, combined with         loss making site at Scunthorpe with the loss of fifty
  agricultural markets and recycling.                  the sentiment to reduce packaging, encouraged              jobs. The plant was closed by the end of May and
                                                       further downgauging as many products continued             equipment transferred to other sites. Some marginally
  Other objectives include a continual improvement     to become thinner. Good weather conditions                 profitable volume was lost as a result of the closure.
  in our operational performance and a continuing      throughout Europe resulted in higher volumes
  reduction in our cost base to ensure we              of silage stretch products. Total volume sales were        In January, we also announced the closure of refuse
  remain competitive.                                  316,000 tonnes after including nearly 5,000 tonnes         sack manufacture at Stockton as we consolidated
                                                       from our Canadian acquisition.                             this activity at Heanor.
  Acquisition opportunities will be considered
  but will only be completed at the right price.                                                                  In January, we also closed recycling at Greenock
                                                                                                                  as we consolidated at Heanor and Dumfries. We also
  We firmly believe that the prevention of                                                                        ceased the manufacture of plastic pallets and
  accidents involving personal injury is essential                                                                geoblock for ground stabilisation as these products
  to the successful operation of our business                                                                     had become uncompetitive.
  and we regard the health & safety of our
  employees as paramount.                                                                                         Total costs of restructuring were £2.0 million and were
                                                                                                                  partially offset by a profit of £1.2 million on the sale of
  As a leading manufacturer and supplier of                                                                       a surplus property from a site closed in 2006.
  polythene, we recognise our responsibility to
  operate with due concern for the environment
  in which we live and work and to minimise the
  impact of our activities on that environment.

  We recognise that our people continue to be
  central to the development of the business.

                                                                                                                                         Report by Directors & Business Review 15
Chief Executive’s Statement

In January 2008, we announced some further                   Senior Management
restructuring at our Industrial plant in Stockton which      Steve Moss, Managing Director of our Industrial
will result, together with non replacement of leavers        business left at the end of September to take up
and retirees, in a reduction in staff levels of around       another position in the packaging industry. He was
thirty. Along with other actions on the site, this will      replaced by David Harris who was Business Director
produce annualised savings of around £1 million.             at our Consumer business and formerly Finance
The cost of restructuring will be around £0.15 million.      Director in our Industrial business. David joined our
                                                             Management Board in October 2007. Andrew Green,
Capital Expenditure                                          Managing Director of our Recycled business has
Total capital expenditure at £15.4 million was above         assumed responsibility for our Consumer business
the depreciation of £12.7 million as we purchased our        in addition to Recycled Products. Ian McDarmaid
remaining leased property at Stroud for £2.7 million.        was appointed Group Purchasing Director and
The Group now owns the freehold of all our                   joined the Management Board in February 2008.
manufacturing sites.
Other expenditure totalled nearly £13 million                The significant price increase in raw materials in
as we continued to invest for new products,                  January followed by a further increase in February
additional capacity for growth products and                  has set an early challenge to increase our selling          Visqueen® – damp proof membrane
production efficiencies.                                     prices. These raw material increases together with
                                                             a high level of energy costs will make our first quarter
In the UK, we authorised a major investment in our           very difficult. We have, however, taken some early
successful agricultural business at Leominster with          action to reduce costs and are aggressively increasing
the installation of two new five layer stretch lines.        sales prices. Early sales of silage stretch in Europe are
This investment in new, state of the art extrusion           encouraging. The weakening in sterling against the
equipment will increase output and efficiency                Euro may provide some assistance in export markets
and enhance our excellent quality and customer               for our UK business.
service standards.
                                                             With the oil price at US$100 a barrel and LD polymer
In our Industrial business at Ardeer we installed,           at £1,000 per tonne, 2008 looks to be a very
towards the end of the year, a backseam conversion           challenging year.
line with in-line printing which will enable us to supply
the cement industry which is beginning to move from
paper to polythene packaging.                                Operating Review
At Heanor, in Recycled Products, we installed a further
conversion line to increase capacity for refuse sacks.
                                                                                                   2007          2006
In Worcester, in our Consumer business, we installed         Operating Profit                      £6.7m        £7.4m    Tuklok® – food and freezer bags
a laminator to extend our range of products and
eliminate subcontract costs.                                 Tonnes Sold                          64,200       59,400

In Europe at Zele, we replaced two older printing
                                                             Our European business comprises two manufacturing
presses with a new eight colour printing press to
                                                             sites in Belgium, one site in the Netherlands and a
increase capacity and improve efficiency.
                                                             sales operation in France. The business specialises in
                                                             the manufacture and sale of high quality printed film
We continue to invest to improve efficiency,
                                                             for the food industry, form fill and seal films (FFS) and
particularly to reduce energy usage.
                                                             heavy duty sacks, including valve bags and waviblok
                                                             for the chemical, construction, horticulture and
In November 2007, we authorised expenditure
                                                             fertiliser industries, pallet protection films including
at Zele for a further stretchline to cope with the
                                                             stretch hoods, insulation film, general industrial films
growth in Silotite®, SilotitePro®, Baletite® and Bontite®.
                                                             and silage and packaging stretchwrap. Main markets
                                                             are Belgium, Holland, North of France and Germany
In February, we authorised the purchase of two ten
                                                             except for silage stretch which is sold throughout
colour printing presses, for our Consumer business,
                                                             mainland Europe.
to meet increasing demand, replace two older six
colour printing presses and our original eight colour
                                                             Operating profits reduced despite sales volumes
printing press and satisfy customer requirements for
                                                             moving ahead as margins were lower due to increased
ten colour printing.
                                                             raw material costs and higher energy costs.

16 Report by Directors & Business Review
                               Film Products                                             UK & Ireland
                               Europe produces a range of film on the reel products
                               which are supplied to a wide variety of markets.                                                  2007          2006

                               Volume sales of silage stretch including our market       Operating Profit                       £7.0m         £9.7m
                               leading brand, Silotite®, increased by over 20% as
                               excellent weather conditions throughout the summer        Tonnes Sold                          247,300       249,000
                               kept sales going until October. New competitor
                               capacity, a slow start to the season and higher raw       Our UK & Ireland business consists of eighteen UK
                               material prices all contributed to pressure on selling    manufacturing sites and five sales/service offices
                               prices and resulted in lower margins. This resulted in    in the UK & Ireland. It also includes our plant in
                               some loss of volume in certain markets, but was offset    China as most of its production is sold in the UK.
                               by good growth in France, Germany, Poland and Russia.
                                                                                         Our operating profit reduced in the UK as margins were
                               New products were launched in November under              squeezed by the regular small polymer price increases.
                               the brand name Baletite®, a replacement for traditional
                               round bale net and Silotitepro®, a new generation         Volumes were down 1% to 247,300 tonnes as we
Silotite® – silage bale wrap   of silage film with improved economical and               lost some volume on the closure of our loss making
                               environmental properties. We are confident                Scunthorpe business and some export volumes to
                               that these new products have a good future on             very competitive European pricing. This was partially
                               a medium-term timescale and will reinforce our            offset by increased volumes in silage stretch due to
                               market leading position in the silage wrap business.      good growing conditions.

                               Sales of pallet protection film moved ahead due           Film Products
                               to increasing sales of stretch hoods following our        Film products include a range of film on the reel
                               investment in 2006.                                       products for a variety of different markets and
                                                                                         offers products such as stretchfilm, plain shrink film,
                               Sales of general and insulation films were broadly in     printed shrink film, produce films, bread films,
                               line with 2006 with increased sales of our high quality   lamination films, liquid packaging films and surface
                               industrial stretch film Bontite®.                         protection films. Incorporating highly respected
                                                                                         brand names such as Novetek, Brithene and
                               Converted Products                                        Supreme the range of products provides secure,
                               Converted products include all our printed and            cost effective transit and primary packaging
                               converted products which are supplied to a wide           for the most demanding applications.
                               range of markets.
                                                                                         Sales of collation shrink films, which are mainly to
                               Sales of printed film for deep frozen vegetables          the food and drinks industries, were modestly ahead
Baletite® – silage bale wrap   and chips were down on 2006 due to the shortage           of 2006 despite some small downgauging. This was
                               of supply of vegetables and potatoes in the first half    despite a poor summer which prevented the normal
                               of the year. From June onwards with the harvesting        seasonal uplift in sales to the soft drinks industry.
                               of the new crop volumes were back to normal levels.       Sales of printed shrink were in line with 2006 and
                                                                                         we see further opportunities in this growth market.
                               Industrial sales were broadly in line with 2006           Margins saw erosion due to the upward creep of raw
                               with a reduction in all types of bags being offset        material prices in what is a very competitive market.
                               by increases in FFS as the market continued to
                               move from bags to FFS. Margins were lower due             Sales to the converter sector were down significantly
                               to the change in sales mix and the difficulty in          as we lost business on the closure of our Scunthorpe
                               recovering the monthly polymer price increases.           operation, from closure of customer plants, competitive
                                                                                         pricing in Europe and transfer of production to
                               Capital Expenditure                                       customer in-house facilities. Over capacity in both
                               In Zele, we installed a new eight colour printing press   the UK and Europe kept margins under pressure.
                               to replace two older presses and a prestretch unit.       As we start 2008, there are some good prospects
                               In December, we authorised the purchase of an             helped by the weakness of sterling which makes
                               additional stretch line to meet the growing demand        us more competitive against mainland Europe.
                               for silage stretch and provide capacity for our new
                               products Baletite® and Silotitepro® and Bontite®,
                               our industrial packaging stretch product.

                                                                                                                Report by Directors & Business Review 17
Chief Executive’s Statement

Our total sales volume of industrial stretchwrap was        Sales of container liner films reduced as our main
broadly in line with 2006 as we again saw some              customer sourced local films for their conversion
downgauging in both hand reels and cast film.               plants in India and China.
Competition remained intense with margins under
pressure. We have developed an improved blown               Recycled Products
machine film which we are able to sell at better            We are the leading recycler of polythene films in the
margins. This film is in great demand from our customers    UK with an annual recycling capacity of nearly 70,000
who use it as the base film to manufacture prestretched     tonnes. We recycle scrap from our own operations,
products which enable the production of much thinner        used products taken back from customers and scrap
films. We have invested in 2007 for the production of       purchased in the open market. We are also able to
packaging prestretch and coreless film products which       recycle the more heavily contaminated scrap
will enable us to offer higher added value products. We     including agricultural films. Recycled material is used
are now selling our Wrapsmartultra® hand roll products      in the manufacture of construction films including
at 7 to 9 micron compared to traditional hand rolls in      damp proof course, refuse sacks and rigid products.
the 12 to 17 micron range. These new hand rolls offer
the same strength and high performance levels as            Recycled volumes increased during the year with
standard stretchfilm products despite their ultra           higher outputs at all sites and enabled us to show
lightweight and thinner gauge and enable our                a reduction in our bought-in pellet. This arose           Recycled pellet
customers to use less weight of materials.                  despite the closure of recycling at Greenock as we
Sales of Wrapsmartultra® are growing rapidly                consolidated our recycling on four sites. The market
and we are now supplying two of the four large              remained very tight for scrap with continued high
UK supermarkets and have just installed additional          levels of export to the Far East as even the more
conversion machines to increase capacity.                   contaminated scrap is now exported. Upward
                                                            pressure on scrap prices continued. The price of
Volume sales of silage stretchwrap recovered the            Packaging Recovery Notes remained at a low level.
10% lost in 2006 as the good weather conditions in
the UK and Ireland led to very high sales in these          At Dumfries, recycling outputs increased following
markets. The season started slowly resulting in some        our major investment in 2006.
pressure on selling prices but finished strongly as ideal
weather conditions ensured that demand continued            In April 2007, we purchased a small washing plant
well into September and October. The late start to the      in the Rhymney area from the Company’s
season, increasing raw material prices and severe           administrators for £0.4 million. This equipment was
price competition resulted in disappointing margins         able to process very dirty grades of scrap which we
particularly in Ireland. Sales to US$ markets were          could not handle elsewhere. Unfortunately, the costs
adversely affected by exchange rates but we                 of running this equipment on a third-party site were
accepted lower margins in order to maintain                 too high and we exited that site in November. We will
our brands’ presence in these markets.                      reinstall the equipment at our Rhymney site in April
                                                            2008. The equipment will also provide a base for a
We have authorised investment in two five layer                                                                       Refuse sacks made from recycled pellet
                                                            second washing plant for the heavily contaminated
extrusion lines at our main facility for the manufacture    agricultural film which will be available once the new
of silage stretchwrap in Leominster as we plan to           regulations on non packaging farm plastic waste
modernise the facility and improve efficiencies.            are introduced.
These lines should be ready for production in quarter
2 of 2008 and will also enable us to produce our new        Our construction business trades under the Visqueen
products SilotitePro® and Baletite®. Raw material input     Building Products name and manufactured volumes
prices are much higher for production for the 2008          were well ahead of 2006, although there was evidence
season which will require a significant increase in         during the final quarter of demand slowing. Our new
selling prices. Volumes, as always, will be dependent       computer system was implemented at the end of
on weather conditions during the grass growing season.      last year and some teething problems impacted
                                                            on customer service levels during the first quarter.
Volumes of silage sheet were disappointing as we lost       These problems were resolved and we are now
business in Ireland due to low prices from a competitor     operating at our expected high levels of
who had installed new capacity. This business has           customer service.
been regained for 2008.

Sales of our wide horticultural films increased
significantly due to more sales of field cover film
and exports to Europe, particularly Germany where
storm damage required replacement film. We see
opportunities for further growth in export markets.

18 Report by Directors & Business Review
                                    We again saw a strong performance from our                   Sales of aggregate sacks recovered in 2007 but other
                                    Specification Products business. The growth in               sales to the construction sector fell below last year
                                    products specified by architects and end users is driven     due to low activity levels towards the end of the year
                                    by the efforts of our dedicated sales team for this sector   from many customers.
                                    and the growing demand for products required for
                                    brownfield sites. We are constantly reviewing our            Horticulture volumes recovered in 2007 due to better
                                    product offering in order to supplement our traditional      spring weather.
                                    Visqueen products and provide a more complete
                                    service to our major customers. Our specification sales      Sales of fertiliser products were in line with expectations
                                    grew by over 35% and Visqueen Building Products              but animal feed products saw a reduction, particularly in
                                    is now recognised as the leading supplier of these           the final quarter, with the market remaining depressed
                                    products in the UK.                                          and extremely price sensitive.

                                    Sales volumes at our Greenock operations which               Margins remained under pressure as raw material
                                    now sits within Recycled Products increased during           prices climbed throughout the year.
                                    the year.
                                                                                                 Sales volumes at our small manufacturing sites were
Factory at Xinhui, China            Total volume sales of refuse sacks fell in the year as       in line with 2006 despite very competitive market
                                    we lost some business on pricing. Manufacture at             conditions. Edinburgh saw volumes reduce as a major
                                    Stockton was closed and extrusion and conversion             customer moved to production in-house while Flint
                                    capacity at Heanor expanded.                                 volumes increased as an extrusion line and related
                                                                                                 business was transferred on the closure of Scunthorpe.
                                    Total volumes at our Chinese plant increased over
                                    2006 as we moved some refuse sack business to                Sales from our small trading operations fell against
                                    China on the closure of refuse sack manufacture at           2006 as we repatriated some business back to the
                                    Stockton. Sales from our new investment have been            manufacturing sites. Despite the challenging
                                    slow as we continue to run trials for customers in           conditions, our trading business improved over
                                    Europe, North America and Australasia. We are also           2006 as it eliminated lower margin business.
                                    in discussions with significant European and North
                                    American customers for supply within China as the            Our Consumer Products business, VMB, is involved
                                    requirements for hygienic packaging of produce               in printing and converting plain film mainly from our
                                    increase. The plant is now approved for the British          Films business into packaging for the fresh produce,
                                    Retail Consortium hygiene accreditation.                     bread and other food markets. After some strong
                                                                                                 initial interest in degradable, biodegradable and
                                    Our main issues in China are regulatory with the             compostable products, demand has been confined
                                    European Commission imposing an anti-dumping                 to a small number of customers. We now anticipate
                                    duty of 8.4% on all bags imported into Europe from           that the emphasis on reducing the use of packaging
                                    China. We have successfully requested an individual          will concentrate on downgauging products to
                                    review and the duty will be reduced to 4.3% from             enable less material to be used. The plant at
                                    early 2008. While this represents an improvement,            Worcester comprises seven eight colour printing
                                    we are extremely disappointed that the duty has not          presses, three six colour printing presses together
                                    been reduced to zero which would have been the               with slitting and conversion machinery. In the second
                                    conclusion of any business orientated and logical            quarter of 2007, we installed a laminator that enabled
                                    review. The Chinese authorities have also impacted           the business to provide a complete solution to
                                    on the business by reducing the amount of                    customers’ packaging requirements.
                                    reclaimable VAT on exports.
                                                                                                 Overall sales levels were consistent with 2006 as
                                    Converted Products                                           growth with our larger customers and more food
                                    Converted Products comprise all our print and                packaging offset the loss of a large customer at the
                                    conversion plants and serve a wide range of                  beginning of the year. The year posed significant
                                    markets from Industrial to Consumer.                         challenges due to the prolonged rise in raw material
                                                                                                 costs, the introduction of lamination, design changes
                                    Overall sales volume of industrial packaging was             by several major customers and a much later year
                                    in line with 2006 despite some downgauging.                  end surge in demand. VMB won a bronze award
                                                                                                 (environmental category) at the EFTA print awards
                                                                                                 for Morrison’s organic apples range.

New extrusion equipment at Xinhui

                                                                                                                        Report by Directors & Business Review 19
Chief Executive’s Statement

Our pre-press and plate making business provides         The business acquired was run as a small part
artwork, origination and plate making to both Group      of the much larger AT Plastics polymer business
businesses and external customers. Towards the end       and it is necessary for us to build our own business
of the year we installed the Du Pont FAST thermal        infrastructure including IT, Finance, Logistics and
plate making equipment allowing us to eliminate          Purchasing. We have been fortunate to acquire an
completely the use of solvent from our plate             experienced and committed management team led
manufacturing. Sales were down due to lower activity     by Calvin Mazurenko who is now Managing Director.
levels from external customers who still account for     We seconded one of our recently retired business
over 50% of total sales.                                 Finance Directors from the UK to Canada to manage
                                                         the transition and recruited an experienced Financial
North America                                            Controller. AT Films will implement our standard
                                                         IT system in the first half of the year.
                                                         The business should deliver some volume growth in
 Operating Profit                               £0.2m    2008 as we expect stronger demand for the supply of
                                                         bags to store grain for the biofuels industry. Polymer
 Tonnes Sold                                     4,700
                                                         prices have risen sharply in North America since we
                                                         acquired the business and the outlook for 2008 is
Our North American business comprises AT Films           dependent on the success in recovering these higher
based in Edmonton in Canada. They manufacture            raw material costs.
polythene film for the North American horticultural
and agricultural markets and have a small conversion
facility which folds and packs bags used for the
storage of silage and grain.

The business was acquired in mid-August 2007 and
made a small operating profit based on volume sales
of 4,700 tonnes. AT Films is a seasonal business with
the main sales volumes in quarters two and three of
the calendar year.

                                                                                                                  Bags for storage of silage and grain

20 Report by Directors & Business Review

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