Plastics firm BPI bullish as European performance soars

The Greenock-based firm – which makes packaging for industries such as retail, construction and agriculture – said yesterday that investment in equipment for its factories on the Continent had improved capacity and product quality.

Chief executive John Langlands said the investment is continuing with a production line for silage wrapping due to become operational in May.

He said the production line will not add to sales this year because the season for silage products will be over, but will bring added revenues in 2013.

“As we look forward we feel our business is in better shape than ever,” Langlands said. “It’s growing in the more resilient areas of the economy – that’s agriculture and the retail food chain. These areas are now making up 33 per cent of our sales.”

Environmental demands and cost pressures mean BPI has upgraded technology to make its products thinner. Last year its sales reached £508 million, up from £478m in 2010, but the tonnage of plastics it sold was slightly lower.

The firm said the drop in volume also reflected a reduction in demand in the second half from industrial and construction customers in the UK.

Adjusted profit before tax was £19.1m in 2011, up from £15.8m the year before.

Langlands said the company’s performance in the UK was also affected by much higher electricity costs, with BPI’s bill coming in £1.6m higher than in 2010.

BPI has also faced a volatile market for its main raw material, polyethylene polymer, in recent years. However, many of its contracts ensure extra costs or savings are automatically passed on to clients.

Langlands said: “We have demonstrated in the past that we can cope with significant raw material volatility, which we see again with prices rising in this quarter, and we anticipate another satisfactory year in 2012.”

Improved cash generation meant the company was able to reduce its borrowings from more than £46m to £31m during 2011, although it said that was unlikely to be repeated in the current year.

Instead BPI plans to spend a further £18m on equipment. Major items planned to come on line in 2012 include a washing plant for contaminated film waste at Rhymney, the silage plant at Zele in Belgium, and new production line at Sevenoaks.

Following an the increase in the interim dividend from 3.65p to 4p earlier in the year, the board is now recommending hiking the final dividend to 8.5p, from 7.85p in 2010, making a total for the year 1p higher at 12.5p.

John Lawson, an analyst at Investec Securities, said the results were slightly ahead of market expectations.

“Self-help has been a factor in this robust performance,” he said. “Capacity is now much better aligned with demand, so the group is well-placed to benefit from an upturn in the economy, and rises in input costs are being actively managed.”

He said that by closing several production facilities – including its factories in Brampton, Stockton and Swansea in recent years – management had focused the business on high value-added product areas. The company is also less exposed to economic risks and has less surplus capacity, Lawson added.

Investec upped its target price for BPI from 400p to 450p, reiterating its “buy” recommendation.

Shares closed down 1.8 per cent or 7p at 385.5p.