TDG PLC
27 February 2008
27 February 2008
TDG plc - Preliminary Results for 2007
'Profit growth through focus on specialised logistics'
TDG plc today announces Preliminary Results for the year to 31 December 2007.
Financial highlights:
- Headline* operating profit up 13% to £20.4m on turnover ahead 26% at
£669.5m.
- Headline* profit before tax up 9% to £15.7m. Headline* earnings per share
up 10% to 14.1p.
- Total profit before tax of £15.8m, compared to £15.2m in 2006. Total
continuing earnings per share up 14% to 17.5p.
- Proposed final dividend of 8.75p per share, maintaining the total dividend
for the year at 14.0p per share.
- Further good conversion of profits into cash flow. Total cash generated of
£17.1m prior to acquisitions.
- Net assets per share increased to 211p from 193p in 2006, with a net debt
of £21.1m giving gearing of only 12%.
* before property disposals, amortisation of acquisition intangibles and
exceptional items.
Business highlights:
- Strengthened positions in specialised sectors of the contract logistics
market, in freight forwarding and in supply chain management. These areas
now account for over 60% of Group turnover, up from a little above 40% two
years ago.
- Successful integration of and strong performance from Doman in Spain,
acquired at the end of February 2007 for £20.5m. Good performances from
all other businesses purchased in the last two years.
- Target markets continue to offer good opportunities for profitable growth.
- Net business wins of £69m (2006: £61m) with new contract wins ahead of
2006. Continued high retention rate on renewals.
Commenting on the Group's results and outlook, David Garman, Chief Executive
said:
'I am pleased to report improved results for 2007, with trading a little ahead
of our expectations set a year ago and clear signs that our strategy is
delivering.
We will continue to pursue this strategy - to build on our positions of strength
in specialised sectors of the contract logistics market, in freight forwarding
and in supply chain management - which has already improved the quality and
level of the Group's earnings.
At the same time we will continue to counter ongoing margin pressure through
effective account management and aggressive cost management to enhance
efficiencies.
Overall, we are confident that the Group will make further progress in 2008.'
Enquires:
TDG Financial Dynamics
David Garman, Chief Executive Andrew Dowler
Jeffrey Hume, Finance Director Marc Cohen
Tel: 020 7838 7775 Tel: 020 7831 3113
Notes for Editors:
1. TDG is a logistics and supply chain solutions provider with operations in
six countries across Europe. The Group's multinational customers include Coca-
Cola, Kimberly-Clark, SC Johnson, Kellogg's and Diageo in the Contract Logistics
division; together with Johnson Diversey, Corus, BASF, Bayer, PPG and Tesco in
the Chemicals division. In 2007 the Group had a headline profit before tax of
£15.7m on a turnover of £669.5m.
2. TDG announced in February 2007 that its emphasis throughout the business
would increasingly move toward more specialised areas where the group can
compete not solely on price but also on capability, flexibility and service.
These areas offer better returns and a competitive environment more suited to
the Group's strengths.
3. The Contract Logistics division has made two UK freight forwarding
acquisitions - Bradship in November 2006 and Brisk Airfreight in February 2007,
both of which complement TDG's successful freight forwarding and freight
management operations in Ireland and the Netherlands. In addition the UK
transport operations of SCA were acquired at the end of 2006, strengthening
capability in the specialised field of paper and packaging logistics.
4. In February 2007 the Chemicals division acquired Doman, a chemicals
logistics business in Spain, having previously acquired Mond, a speciality
chemicals logistics business based in Belgium, in February 2006. These
businesses have extended TDG's coverage of this growing market into the key
areas of Iberia, Benelux, the Ruhr and Northern France.
TDG plc
4-5 Grosvenor Place
London
SW1X 7HJ
Tel: 020 7838 7775
Fax: 020 7838 7760
Web: www.tdg.eu.com
Chairman's statement
Overview
I am pleased to report improved results for 2007, with trading a little ahead of
the expectations set a year ago and clear signs that our strategy is delivering.
The results reinforce confidence in our plan to build on our positions of
strength in specialised sectors of the contract logistics market, in freight
forwarding and in supply chain management.
Headline operating profit increased by 13% to £20.4m (2006: £18.0m) on turnover
up by 26% at £669.5m (2006: £531.3m). Headline profit before tax improved by 9%
to £15.7m (2006: £14.4m) and headline earnings per share by 10% to 14.1p (2006:
12.8p).
Total profit before tax was £15.8m (2006: £15.2m) after property disposals,
operating exceptional items and the amortisation of acquisition intangibles.
Basic earnings per share on the same measure was up 14% to 17.5p (2006: 15.4p).
The results included another strong operating cash performance. At the year end
the Group had net debt of £21.1m (2006: £10.9m net debt) representing a gearing
of 12% (2006: 7%), following cash investments of £23.2m in acquisitions, £16.8m
in capital expenditure and a further £5.0m additional contribution into the UK
pension fund. Proceeds of £17.9m were received from the sale of surplus
properties.
Net assets per share increased from 193p in 2006 to 211p with the benefit of the
retained profit for 2007 and a marked reduction in the IAS 19 assessment of our
pension liability, from a deficit of £7.1m at the end of 2006 to a net surplus
of £10.2m at the end of 2007.
Progress in 2007
The Group made good progress during 2007 in furthering its strategic objectives.
Most of the growth has been delivered by our Chemicals division, which is
predominantly specialised in nature, but the robust performance in the Contract
Logistics division was pleasing, given the challenging conditions that parts of
this business face in general markets.
We are particularly pleased with the performance of the five businesses acquired
over the last two years in support of our revised strategy. All of these have
met or exceeded their financial targets and from the outset have been earnings
enhancing.
In the Chemicals division the integration of Doman, the Spanish business
acquired at the end of February 2007, has been achieved smoothly with results to
date in line with expectations. This acquisition contributed £1.2m to the
Group's profit before tax, before the cost of support from the UK. Mond,
purchased in 2006, continues to progress strongly and we are investing further
in its development. The Bradship and Brisk Airfreight businesses, acquired
about a year ago, have traded well and the restructured transport operations of
SCA have enhanced our strong position in paper & packaging logistics.
We are further encouraged by the performance in new business development, where
the momentum evident at the half year stage was maintained. Both business wins
and net business wins (the annualised value of business wins in the year less
that lost on renewal or termination) for the full year were well ahead of levels
achieved in 2006 and we successfully retained the great majority of contracts up
for renewal.
We also made good progress in supply chain management. During 2007 the Corus
contract moved from implementation through to operation, delivering financial
savings in line with forecast, and we secured a further, albeit smaller contract
with British Vita which commenced operations in May. There is growing demand
for these larger integrated solutions.
Divisional reorganisation and Board change
The reorganisation of the Group into a Contract Logistics division and Chemicals
division, as announced in April 2007, has had a very positive effect. It better
meets the needs of our customers, makes more effective use of our resources and
is enabling faster delivery of our strategy.
As already announced, John Winston left the Group in May 2007 to pursue
opportunities outside the industry. We are grateful to John for all he achieved
in his four and a half years with the company, nearly three of which were as a
Director of TDG plc.
Employees
As a services business, our success depends primarily on the quality and
commitment of our employees. Staff numbers in the year rose to over 7,300 and
on behalf of the Board I would like to thank all our people for their continued
hard work and commitment.
Dividend
The Board is recommending an unchanged final dividend of 8.75p per share,
maintaining the total dividend for the year at 14.0p per share. The final
dividend is payable on 23 May 2008 to shareholders on the register at close of
business on 25 April 2008.
Outlook
Whilst the broad economic environment going forward looks uncertain, the
combined benefits of our revised strategy, our mix of open and fixed-price
contracts, our balanced property portfolio and a strong balance sheet should
provide resilience.
We will continue to pursue our strategy to build positions of strength in
specialised sectors. This strategy has already improved the quality and level
of the Group's earnings. At the same time we will look to counter ongoing
margin pressure though effective account management, bidding selectively for new
business and aggressive cost management to enhance efficiencies.
We have a strong balance sheet which provides the Board with flexibility. Where
suitable opportunities are available, we will continue to make selective and
earnings enhancing acquisitions that move the Group further into our chosen
areas. In this regard we are pleased with our recent progress.
Against this background we are confident that the Group will make further
progress in 2008.
Charles Mackay
Chairman
27 February 2008
Business Review
The market place
Though the overall trading environment remains challenging, in particular in the
larger more general markets, the evolving dynamics in TDG's chosen sectors offer
good opportunities for growth:
- As cost pressures on clients mount, there is strong demand for logistics
solutions that combine commercial flexibility and continuous performance
improvement alongside more established buying criteria.
- There is developing interest in more innovative supply chain management
concepts that offer new ways of enhancing client competitiveness. These
consultancy led propositions take customer relationships to a more strategic
level and offer scope for step change improvement through lower cost and
enhanced service and product availability.
- New and more rigorously enforced regulatory standards also create
opportunities for growth; examples include EU legislation relating to the
handling of hazardous chemical products and a range of recently introduced
environmental directives.
- Internationalisation is driving further market expansion, as manufacturers
rationalise production - often to low cost locations - and global sourcing
accelerates. With supply chains becoming longer and more complex, there is
growing demand for freight forwarding services and integrated end-to-end
logistics solutions.
- Also, as extended supply chains grow in complexity, interest is rising in
solutions that ensure continuity in the event of business interruption.
Turning to industry structure, despite recent consolidation, the European
logistics industry remains fragmented, with participants ranging in size from
global and Pan-European scale players to a high number of smaller, often
privately controlled, operators. The landscape varies by sector. The greater
intensity evident in larger general markets contrasts with the sectors where
TDG's activities are increasingly focused. These areas offer a competitive
environment more suited to our strengths.
Our strategy
TDG's strategy is to build positions of strength in sectors where the Group can
compete on capability, flexibility and service, and not solely on price. This
strategy takes into account significant trends in our core European markets, in
particular the ongoing challenging conditions in general market sectors,
internationalisation of customer supply chains and accelerating consolidation
amongst our competitors.
The strategy is focused on increasing presence in three priority areas, all
markets where TDG has developing positions of strength:
- Growth in specialised sectors of the contract logistics market: These
include chemicals, paper & packaging and temperature controlled services. We
expect to develop others in future.
- Continued expansion in freight forwarding and integrated end-to-end
logistics: These are attractive markets for TDG due to the growth in
international trade and clear evidence that success is not as scale dependent.
- Growth in supply chain management operations: Here we can deploy TDG's
managerial and technical skills to deliver step change improvements to client
competitiveness. Our contract for Corus is an excellent example of this
approach.
The increase in 2007 headline profits reflects good progress in implementing
this strategy and these three priority areas now combine to account for over 60%
of total Group turnover, compared to 50% in the previous year and a little above
40% in 2005.
The reorganisation of the Group into a Chemicals division and a Contract
Logistics division has at the same time facilitated more rapid execution of our
strategy. The creation of a combined Contract Logistics division, encompassing
all of TDG's businesses other than the Chemicals division, makes more effective
use of our resources. This is allowing us to better meet the needs of our
multinational customers such as Kimberly-Clark and ICI Paints, both whom we now
provide with land based contract logistics and inbound international logistics
services.
Trading results
Turnover in 2007 increased by 26% to £669.5m. Headline operating profits
increased by 13% to £20.4m and headline profit before tax by 9% to £15.7m.
2007 2006
£m £m
Turnover
Contract Logistics 421.7 377.5
Chemicals 247.8 153.8
669.5 531.3
Headline Operating Profits
Contract Logistics 11.8 11.5
Chemicals 8.6 6.5
20.4 18.0
Net finance costs (4.7) (3.6)
Headline profit before tax 15.7 14.4
References to operating profit in the narrative that follows are to headline
operating profits which are stated before property disposals, amortisation of
acquisition intangibles and exceptional items.
The Group's margin of operating profit on turnover decreased from 3.4% to 3.0%,
reflecting the shift in TDG's business to a less capital intensive business
model, as well as competitive pressures.
In the Contract Logistics division margins reduced from 3.0% in 2006 to 2.8%,
due to price pressure in the general market and the greater share of turnover
accounted for by freight forwarding following the acquisitions of Bradship and
Brisk Airfreight. The freight forwarding model is asset light, with the
forwarder employing third party assets, but is capable of earning high returns
from a small capital base.
The margin in the Chemicals division reduced from 4.2% in 2006 to 3.5%,
reflecting the growing supply chain management contract for Corus, with its
negligible capital requirement, as well as the use by Doman of subcontractors to
provide national and international transport services.
For the fifth year in succession we created significant value for both customers
and shareholders through cost reduction projects to offset general inflationary
pressures. During the year we developed further our operations excellence
programme which equips us to drive consistency in operational processes and
continuous improvement for customers. We also became the first logistics
company in the world to attain the globally accredited Business Continuity
Management standard BS25999. In 2008 we will maintain our cost down programmes
and we again expect savings to more than match inflation.
Business Development
In business development the momentum evident in the first half was maintained
and for the full year new business wins were again ahead, up 15% at £102m (2006:
£89m); a sixth consecutive annual increase. Pleasingly, close to two thirds of
wins were recorded in target sectors, reflecting the reorientation of our sales
and marketing resource in line with Group strategy.
Building on last year's strong performance net business wins were also well
ahead, up 13% at £69m (2006: £61m), despite our withdrawal from £12m of business
with Kwik Save, which subsequently went into administration.
We successfully retained the great majority of contracts that came up for
renewal, securing £94m of business (2006: £87m), a retention rate of well over
80% and an important component of our growth. Downward pressure on pricing
remained a feature, especially in general markets, but with the exception of one
legacy contract, margins were maintained.
Further details are set out in the divisional reviews that follow.
Divisional Review - Contract Logistics
Trading review
The new combined Contract Logistics division comprises our consumer, retail and
industrial contract logistics and freight forwarding activities in the UK,
Ireland and the Netherlands, as well as our UK Temperature Controlled Services
business.
For 2007 the division produced a robust result with operating profits 3% higher
at £11.8m (2006: £11.5m) on turnover ahead 12% at £421.7m (2006: £377.5m). The
result reflected strong performances in freight forwarding and other specialised
target sectors, improvement in the Netherlands and Ireland and benefits from the
divisional reorganisation. However, conditions in general markets remained
challenging.
Profits in the UK were comparable with the previous year. A key feature was the
further progress made in establishing a focused platform for the paper &
packaging sector, where the concept is now attracting considerable customer
interest as a high quality but low cost industry specific logistics solution.
The integration of the SCA transport activities acquired at the end of 2006 has
been successfully completed and combined with our existing operations create for
TDG a leading position in this specialised sector.
It was an encouraging year in freight forwarding, which is a key target market
with attractive financial characteristics and favourable forecasts for mid-term
growth. The recently acquired UK businesses Bradship and Brisk Airfreight
traded well, as did our freight forwarding activities generally, and we took
steps to bolster our sales force and marketing capabilities to capitalise on
market growth and capture cross selling opportunities. Together with our
existing operations in Ireland and the Netherlands, and the forwarding
activities undertaken in the Chemicals division by Doman, TDG now has a sizeable
presence in this higher growth sector.
In Ireland, though an anticipated better second half contributed to a
year-on-year improvement, the business continued to experience contrasting
fortunes. Our activities in freight forwarding and temperature controlled
logistics traded well, benefiting from growth with key customers. In contrast,
conditions in FMCG contracts for international clients remained difficult,
despite an improved result from our Dublin distribution centre.
In the Netherlands our high exposure to difficult general markets created
equally challenging conditions, though again an improved result was delivered.
This reflected further restructuring and cost reduction initiatives, business
development successes and an agreement concluded with local operator Bakker
Logistiek to act as TDG's transport partner for domestic transport services.
The deal enables TDG to offer more cost competitive distribution solutions for
domestic clients.
Finally, our Temperature Controlled Services business, which operates the
largest UK network in the sector, produced another strong result.
Differentiated by its wide geographic spread, flexible business model and high
service standards, occupancy levels were ahead of 2006, despite increasingly
competitive market conditions. These factors, combined with our energy
management programme, enabled profits to be maintained.
Looking forward, we are taking steps to further develop our business in
specialised sectors of the contract logistics market. We already have sizeable
operations in paper & packaging and temperature controlled services and other
potential sectors are under review. We also plan to expand further in freight
forwarding.
At the same time we have important contracts and customers in the general market
which we will seek to maintain and improve through account management and the
introduction of new value adding service propositions. We will continue to
support activities in this substantial sector but expect business in specialised
areas to increase as a proportion of the Group as we move forward.
Business Development review
The constituent parts of the new division had a record year in new business
development, securing a number of important wins and several major contract
renewals.
In paper & packaging we added further work with, amongst others, SCA, LPR,
Nampak and Playford Packaging in the UK and with Veriplast in the Netherlands.
Additional business was secured with Kimberly-Clark and Georgia-Pacific in both
geographies.
Our expanding freight forwarding operations won new business across all modes -
air freight, sea freight, and overland transport. Our UK operation, based
around Bradship and Brisk Airfreight, won a number of awards to manage product
flows from the Far East, including work for longstanding customer ICI Paints to
operate an end-to-end supply chain for paint accessories sourced from China. In
Ireland we secured further gains with Marks & Spencer and new business with
Masterfoods and Nutricia. Also, in the Netherlands an extended supply chain
management trial for a major consumer electronics manufacturer is now
operational and we are confident this will translate into a long term contract.
We secured a number of higher added value contracts in the manufacturing and
retail sectors. Particularly significant was an award late on in the year from
Kellogg's for TDG to operate nationwide warehousing and distribution for the UK
market. This major five-year deal is one of the US manufacturer's largest ever
contract logistics awards in Europe and will include a collaborative
distribution solution that delivers significant cost and environmental benefits.
Elsewhere, in the UK we expanded operations for Littlewoods Shop Direct Group
and were awarded a national distribution contract to supply a major book
retailer and in the Netherlands we won further co-packing work with SC Johnson
to cover the Belgium market. Also, our developing strength in managed-transport
solutions, utilising sophisticated proprietary IT, secured a three-year supply
chain management contract with British Vita.
Finally, the division was awarded contract renewals with a number of major
customers including ICI Paints, Honda and Sainsbury's in the UK, SC Johnson and
non-food retailer Intergamma in the Netherlands and Marks & Spencer and Boyne
Valley in Ireland.
Divisional Review - Chemicals
Trading review
The Chemicals division has contracts for the warehousing and transporting of
hazardous goods in the UK, Spain, Germany and the Benelux. The division also
manages a major supply chain management contract for Corus, now part of Tata
Steel.
The division continued to gather momentum in 2007 with operating profits ahead
32% to £8.6m (2006: £6.5m) on turnover 61% higher at £247.8m (2006: £153.8m).
The result reflected progress in the strategy to expand packed & speciality
chemicals operations into Mainland Europe, with a strong first ten months from
Doman and further growth and a full year contribution from Mond.
Doman in Spain, acquired in February 2007, has been integrated with results to
date in line with expectations. The business has built a leading position in an
attractive growth market, with warehousing, transport and freight forwarding
operations at eight locations under the control of an experienced management
team. The Spanish chemical industry is the fifth largest in Europe, is
developing at rates higher than the European average and has a significant
import/export dimension that plays well to Doman's expertise in international
transport.
Results at Mond in Belgium, acquired in February 2006, were well ahead in its
first full financial year under TDG ownership, benefiting from organic growth,
business wins and investments to extend capacity made immediately following our
purchase. During 2007 plans were approved to expand the business further by
constructing a £4.5m transhipment facility that will enable higher product
throughput. On completion in the first half of 2008, total capacity at Mond's
Welkenraedt site will have grown by close to 40% under our ownership.
The UK business performed well in a competitive market and despite lower
volumes, assisted by business won in the previous year and ongoing cost
reduction initiatives. As the UK chemical manufacturing sector matures, we took
pro-active measures to restructure our market leading packed chemicals business,
where results were held back by lower volumes. The more flexible operating
model now in place is far better suited to handling evolving supply chain
dynamics evident in the UK market.
Activities in the UK bulk chemical sector had a good year, again despite
customer plant closures, downsizing and temporary shutdowns. In this area we
have worked on developing specialist niches, such as tank cleaning, added value
services such as bagging & drumming and our bulk liquid tank farm facility at
Dagenham, which is being expanded. Results in this area also benefited from the
significantly enlarged operation for Tesco, for whom we now provide fuel
distribution nationwide.
During the year we took steps to develop our rail services to customers through
a reciprocal agreement with rail freight operator EWS which will provide
customers with greater access to rail routes within Europe. As part of this
deal EWS purchased our Grangemouth rail terminal.
During 2007 the supply chain management contract for Corus moved from
implementation through to operation, delivering financial savings in line with
forecast as well as significant environmental benefits. Believed to be the
largest exercise of its kind operated for a UK manufacturing company, by year
end 2008 the customer's entire UK transport spend is expected to be under TDG
management.
Our Chemicals division has been a consistently strong performer since its
formation in 2000.
The outlook is positive with plans in place to strengthen the existing
Continental European platforms and to cultivate additional niche activities that
will underpin our leading position in the UK market. We are also examining
emerging opportunities in the Gulf region, which is developing rapidly as a key
location for chemical manufacturing.
Business development review
The division delivered a further strong performance in business development.
In the UK a five year award from VWR International to take over and operate its
in-house distribution network was particularly significant, enabling TDG to
establish the UK's first fully ADR (EU hazardous goods regime) compliant light
freight distribution service. Complementary to our national ADR network for
loads up to 28 tonnes, this new service will target providers of chemicals,
consumables and equipment to customers within the pharmaceutical, R&D, clinical
and higher education markets.
Further gains in the UK packed & speciality sector included work with PPG to
manage warehousing operations for its new protective marine coatings business,
with Honeywell and Rentokil Initial for nationwide distribution and with
Kawneer. In hazardous bulk, the nationwide fuel distribution operation for
Tesco was expanded and new business added with Rohm and Haas, Prax Petroleum and
Axion Polymers.
In Belgium, we grew existing relationships with Johnson Diversey, Ashland and
Clariant and added new business with corrosion protection manufacturer Dacral
and Flint Group, the global printing inks business.
In Spain, our enhanced market profile has already delivered encouraging results.
Contract wins included warehousing and transport work for leading chemical
distributor Brenntag and several other smaller wins. Doman has an extensive
customer base with significant development potential.
Since the year end we have formed a joint venture in the UK with global
packaging manufacturer Mauser Group to provide a nationwide collection, cleaning
and reconditioning service for composite IBCs (intermediate bulk containers,
used to transport bulk liquids). It will also offer refurbished IBCs for sale.
Contract renewals during the year in the UK included Ciba, Dow Chemicals, BOC
Propellants and tank farm operations for Petrochem Carless. In Belgium, Mond's
long standing relationship with BASF was also extended.
Human Resources and Health & Safety
The Group's Human Resources strategy is working to realign the business with our
new objectives and targets. We continue to invest in staff training and
development and recently launched a senior management development programme to
advance talent in the business.
The Group's absolute commitment to safe working practices was reflected in a
Health & Safety performance that once again posted year-on-year improvements.
Financial Review
Profit before tax
The Group's headline profit before tax increased by 9% to £15.7m, with headline
operating profit increasing by 13% to £20.4m. Net finance costs increased from
£3.6m in 2006 to £4.7m in 2007 reflecting the increase in net borrowings
following the acquisition of Doman in Spain.
Total profit before tax, after amortisation of acquisition intangibles,
exceptional operating costs and profits from property disposals increased by 4%,
from £15.2m to £15.8m.
2007 2006
£m £m
Headline profit before tax 15.7 14.4
Amortisation of acquisition tangibles (0.4) (0.1)
Exceptional operating costs:
Acquisition integration - SCAT (0.7) -
Debtor impairment - Kwik Save (0.8) -
Asset impairment - Ireland - (2.0)
Leasehold property costs - UK (2.2) -
Property disposals 4.2 2.9
Total profit before tax from continuing operations 15.8 15.2
It is notable that in both 2007 and 2006 the headline profit, to which we
consistently give prominence, was exceeded by the Group's Total profit before
tax.
Profit from property disposals
Property disposals earned the Group £4.2m (2006: £2.9m), of which £3.6m was from
properties sold after becoming surplus to requirements and £0.6m was from an
overage receipt on a property disposal made in a previous year. £17.9m proceeds
were received during 2007, which included £9.6m from a property sold in 2006.
Exceptional operating costs
The Group incurred a £3.7m (2006: £2.0m) charge for exceptional costs of which
£2.2m was for excess leasehold property costs in the UK. The Group maintains a
balance between freehold and leasehold properties in order to manage its risks.
As reported at the half year we also incurred a £0.8m charge against an
un-provided debt due from Kwik Save, which went into administration, and spent
£0.7m on the planned restructuring of our UK paper and packaging operations
following the acquisition late in 2006 of the UK transport operations of SCA.
In 2006 we wrote down the fixed assets in our Irish operation by £2.0m due to
continuing poor trading conditions in third party logistics.
Acquisitions
The Group spent £23.2m cash in 2007 on acquisitions, net of cash acquired, on
the purchase of Doman in Spain and Brisk in the UK, plus earn out payments on
previous acquisitions. Both businesses have performed to expectations and have
been earnings enhancing from the outset.
In balance sheet terms these purchases resulted in additional acquisition
goodwill of £8.5m and acquisition intangibles of £2.9m. The amortisation during
the year of such intangible assets increased from £0.1m in 2006 to £0.4m, due to
the assets we acquired with Doman in Spain and the full year effect of the
acquisition of Mond made in 2006.
Finance costs
Net finance costs increased to £4.7m from £3.6m in 2006. This reflects an
increase in the net interest charge to £3.4m (2006: £2.2m) due an increase in
net borrowings to £21.1m from £10.9m and the greater impact of cash flow
fluctuations within the year.
Included in the interest charge is £0.8m (2006: £1.1m) relating to legacy high
interest rate swaps and debt. We continue to bear 12.5% fixed interest on
£10.0m loan stock, which matures in July 2008. The extra cost of the high
interest rate swaps, undertaken some years ago to convert variable debt to fixed
rate debt, was much lower this year as Euro interest rates increased and the
last remaining swap matured.
We continued to bear other finance charges of £1.3m (2006: £1.4m) mainly in
respect of charges from customers' paying agents and the unwinding, in
accounting terms, of the discount on our self insurance provisions.
Taxation
The Group had a tax charge of £4.1m (2006: £4.1m) on a headline profit before
tax of £15.7m (2006: £14.4m), giving an effective rate of 26.1% (2006: 28.5%).
This lower charge was primarily due to reductions in the standard rate of tax in
the Netherlands, together with the benefit of tax allowances against acquisition
goodwill in Spain.
The total Group tax charge reduced to £1.5m (2006: £2.7m) on a continuing profit
before tax of £15.8m (2006: £15.2m). This further reduction is mainly due to
the sale of properties which generated a profit of £4.2m but produced a deferred
tax credit of £0.8m. The credit is as a result of the property gains being
sheltered by indexation and capital gains losses brought forward, plus the
release of the deferred tax relating to the properties sold. In addition we
have benefited from a deferred tax credit of £0.4m arising from the lowering of
the UK tax rate in future years.
As announced in the 2007 budget industrial building tax allowances are to be
withdrawn. We therefore expect to make a charge of up to £6.6m in the 2008
financial statements, dependent upon the value of the Group's properties at that
time.
Exchange rates
Towards the end of 2007 the Euro strengthened significantly against Sterling,
resulting in an increase in the translation of our Euro assets held overseas by
£8.0m. Conversely the translation increased parent company Euro borrowings by
£4.9m, leaving a net gain of £3.1m.
The translation of overseas earnings in the income statement is based on average
rates. The movement has increased these Euro based earnings by 1% over the prior
year.
Balance sheet
We retain a strong balance sheet with a conservative gearing. Net assets
increased by 9.5% during the year to £171.0m, representing 211p per share,
compared to 165p at December 2005 and 193p at December 2006. This was due in
part to retained earnings and a positive movement in exchange, but also due to a
£12.5m improvement during 2007 in the Group's pension position net of deferred
tax, as discussed below.
Cash flow
There was another very healthy conversion of profit into cash, generating £13.7m
(2006: £6.1m) of free cash flow which more than covered the dividends paid.
This improvement was substantially due to a £7.1m (2006: £0.4m) reduction in
working capital and a higher headline operating profit. Within the free cash
flow was £5.0m (2006: £5.0m) additional funding into the UK pension scheme.
We invested a further £23.2m on acquisitions including £1.0m of deferred
consideration for acquisitions made in prior periods. £16.8m (2006: £17.4m) was
spent on capital expenditure and we generated £17.9m (2006: £5.6m) from property
sales and a further £2.2m (2006: £0.9m) from other asset sales at net book
value.
2007 2006
£m £m
Headline operating profit 20.4 18.0
Depreciation 16.8 17.1
Grant amortisation (1.6) (0.8)
EBITDA 35.6 34.3
Trading working capital 7.1 0.4
Pension fund additional funding (5.0) (5.0)
Trading cash flow 37.7 29.7
Capital expenditure (16.8) (17.4)
Asset disposals NBV 2.2 0.9
Finance costs (4.6) (3.4)
Tax (4.8) (3.7)
Free cash flow 13.7 6.1
Property disposals 17.9 5.6
Discontinued operation - 2.6
Other exceptional cash flows* (3.0) (2.6)
Dividends (including minorities) (11.5) (11.3)
17.1 0.4
Acquisition of businesses including debt acquired (23.2) (23.9)
Share transactions 0.8 1.0
Change in translation of Euro debt (4.9) 1.0
Net cash outflow (10.2) (21.5)
Net debt at 31 December 2006 (10.9)
Net debt at 31 December 2007 (21.1)
* Other exceptional cash flows are principally restructuring costs in the UK and
Netherlands, excess leasehold property costs and closure costs in France.
At 31 December 2007 the Group had net debt of £21.1m, an increase of £10.2m from
the net debt of £10.9m at 31 December 2006. Retranslation of our Euro borrowing
at 31 December 2007 increased our debt by £4.9m when compared with 31 December
2006 exchange rates.
Pensions
The Group's defined benefit pension schemes improved from a deficit of £7.1m at
31 December 2006 to a total net surplus of £10.2m at 31 December 2007. This is
measured in accordance with IAS 19 and therefore before deferred tax. The
principal movements were an 8% increase in assets to £373.4m reflecting better
asset returns and the additional £5.0m that we pay annually into the scheme to
progressively reduce the actuarial deficit. The liabilities increased from
£353.0m to £363.2m, taking account of assumed increases in longevity, offset by
an increase in bond yields. This entails an assumption that a male member aged
65 will have a further life expectancy of 22.1 years (previously 21.0 years) and
a female member to have 24.1 further years (previously 21.0 years).
The triennial actuarial valuation for the UK Pension Scheme, the largest scheme
in the Group, has been determined as a deficit of £21m at 31 December 2006,
compared to a deficit of £26m for the previous valuation, as at 5 April 2004.
It is this actuarial valuation and not the IAS 19 accounting valuation, which is
a year later and is based upon best estimate assumptions, that forms the basis
for determining the cash funding requirement.
The movement in the deficit for actuarial purposes between 2004 and 2006
reflects company contributions towards the deficit and higher investment
returns, offset by an increased life expectancy assumption. The Group will
continue to fund the ongoing accrual of benefits at the existing rate of 14%
against pensionable salary (approximately £4m per annum) and will continue to
make additional contributions of £5m per annum to fund the triennial actuarial
deficit.
International Accounting Standards
These financial statements for the Group have, as in 2006, been prepared in
accordance International Accounting Standards. There have been no material
changes to the accounting policies since the prior year. However we have
provided further disclosures on financial instruments, in accordance with IFRS
7. This new standard has had no impact on the classification or valuation of
the Group's financial instruments. The financial statements for the Parent
Company continue to be prepared under UK GAAP.
Key performance indicators
The Group uses a range of performance indicators and management controls, both
financial and non-financial, to monitor, measure and manage the business. These
are used to compare actual performance during the year against annual budgeted
targets, as well as progress towards longer term strategic goals.
The various indicators and controls are subject to regular and frequent review
at Divisional level, by the Executive Team and at meetings of the Board and its
Committees. Subject areas reviewed include operational, financial and business
development performance, strategic developments, market issues, health safety &
environmental performance, human resources and risk management. The means of
measuring performance ranges from quantitative, comparative performance to more
qualitative discursive analysis. Collectively these form an integral part of
building value for our shareholders on a consistent basis over the long term.
The principal key performance indicators for the business, in addition to
headline profit before tax, earnings per share and cash flow are:
- Total Shareholder Returns (TSR): This is depicted in the Directors'
Remuneration Report and shows that over the last five years the Group's TSR has
broadly matched that of both the FTSE Small Cap and FTSE All Share indices,
having consistently outperformed prior to the recent equity market conditions.
- The level of Business Development: As described in the Chief Executive's
Operating Review, the level of Business Development through net contract wins
has again improved this year, from £20m in 2005 and £61m in 2006 to £69m in
2007.
- Health & Safety: We publish a comprehensive Health, Safety and
Environmental Report which includes the further Key Performance Indicator of the
number of work place accidents per 1000 employees. The report for 2007 shows it
to have fallen by 19.2%, following the 29.5% reduction in 2006.
Further indicators of performance are discussed throughout this report.
Risk Management
TDG has well defined and established processes to identify, mitigate and manage
risk, including financial, operational and compliance controls. These processes
are monitored and refined on an ongoing basis to ensure that risks are being
properly managed and that we are taking into account changes year on year.
Each year the Board identifies and assesses significant risks to the achievement
of the Group's business objectives and processes for their management. These
are incorporated into a Group risk framework which is formally reviewed and
updated at the half year and full year stage. Whilst responsibility for the
maintenance and control of the risk framework rests with the Chief Executive, it
is the role of management to implement these policies.
Significant risks and uncertainties which could conceivably have an impact on
the Group's performance are summarised below:
- Commercial risk: The Group's competitiveness, commercial flexibility and
the quality and innovativeness of its service offerings are crucial to winning
new business and to the retention and further development of existing business.
- Operational risk: Excellence in operations through the consistent
application of well developed processes to implement and run contracts
flawlessly is central to our reputation. Additionally, where contracts contain
a performance element, our operational performance is an important driver of
budgeted earnings.
- Property risk: We maintain a balance between the operational sites that we
own and those which we lease, in order to mitigate the risk of lease terms which
exceed the length of our customers' commitments to us.
- Process and systems risk: With TDG's strategy predicated on strong organic
growth and further selective acquisitions, the Group's requirement and
subsequent dependency on efficient, effective and scaleable accounting, internal
audit and other controls is fundamental for managing growth.
- Regulatory risk: As an ever greater share of our business is subject to
rigorously enforced legislative standards, regulatory compliance is essential to
TDG's brand reputation and overall growth prospects.
- Pension risk: The levels of funding required for our pension schemes is
predominantly dependent upon fluctuations in equity markets, movements in
interest rates and changing life expectancy.
- Customer risk: Our top ten customers account for 36% of our annual sales.
Of the remaining customers, none accounts for more than 2% of our sales.
Customer retention is an important component of our growth and by delivering
operational excellence and added value at a competitive cost we achieve high
client renewal rates.
- People risk: With our success depending very substantially on the quality
and commitment of our employees, attracting, developing and retaining excellent
people is fundamental to our current and future success.
- Strategic risk: Continued growth in our existing markets and the
identification and successful development of new markets is essential to the
delivery of our strategic objectives.
Cautionary statement
This announcement contains certain forward-looking statements with respect to
the financial condition, results, operations and businesses of TDG plc. These
statements and forecasts involve risk and uncertainty because they relate to
events and depend upon circumstances that will occur in the future. There are a
number of factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward looking statements
and forecasts. Nothing in this announcement should be construed as a profit
forecast.
David Garman, Chief Executive
Jeffrey Hume, Finance Director
27 February 2008
Consolidated income statement
Year Ended 31 December 2007
2007 2006
£'m £'m
Continuing operations
Revenue 669.5 531.3
Net operating costs (649.0) (512.5)
Operating profit 20.5 18.8
Finance costs (6.2) (6.0)
Finance income 1.5 2.4
Profit before tax 15.8 15.2
Analysed as:
Headline profit before tax 15.7 14.4
Amortisation of acquisition intangibles (0.4) (0.1)
Acquisition integration costs (0.7) -
Impairment of current and non-current assets (0.8) (2.0)
Provision for leasehold property costs (2.2) -
Profit on sale of properties 4.2 2.9
Profit before tax 15.8 15.2
Tax on profit on continuing operations
UK tax (0.6) (2.0)
Overseas tax (0.9) (0.7)
(1.5) (2.7)
Profit for the year from continuing operations 14.3 12.5
Discontinued operations - 0.7
Profit for the year 14.3 13.2
Attributable to:
Equity holders of the parent 14.1 13.1
Minority interest 0.2 0.1
14.3 13.2
Dividends paid in the year
Final dividend for the year ended 31 December 2006 of
8.75p per share (2005: 8.75p per share) 7.0 7.0
Interim dividend for the year ended 31 December 2007 of
5.25p per share (2006: 5.25p per share) 4.3 4.2
11.3 11.2
Earnings per Ordinary Share
From continuing operations
Basic 17.5p 15.4p
Diluted 17.4p 15.4p
From continuing and discontinued operations
Basic 17.5p 16.3p
Diluted 17.4p 16.2p
Headline earnings per Ordinary Share is disclosed in note 4.
Consolidated balance sheet
31 December 2007
2007 2006
£'m £'m
Assets
Non-current assets
Goodwill 37.4 27.0
Acquisition intangibles 4.7 1.9
Other intangible assets 7.0 6.8
Property, plant and equipment 181.4 174.1
Retirement benefit asset 10.3 -
240.8 209.8
Current assets
Stocks 2.4 2.2
Trade and other receivables 117.2 98.5
Current tax assets 0.9 2.0
Cash and cash equivalents 59.5 64.0
180.0 166.7
Non-current assets held for sale - 3.1
Liabilities
Current liabilities
Trade and other payables 148.4 111.7
Current tax liabilities 2.0 6.2
Financial liabilities:
Borrowings 12.3 8.9
Derivative financial instruments - 0.2
Provisions 3.1 2.9
165.8 129.9
Net current assets 14.2 36.8
Non-current liabilities
Financial liabilities:
Borrowings 68.3 66.0
Retirement benefit obligations 0.1 7.1
Deferred tax liabilities 10.5 7.5
Other non-current liabilities 1.0 5.8
Provisions 4.1 4.1
84.0 90.5
Liabilities directly associated with non-current assets
held for sale - 3.0
Net assets 171.0 156.2
Equity
Ordinary Shares 0.8 0.8
Share premium 7.0 6.7
Treasury shares (0.8) (1.2)
Capital redemption reserve 51.6 51.5
Hedging and translation reserves 2.0 (1.2)
Retained earnings 110.2 99.4
Capital and reserves 170.8 156.0
Minority interest 0.2 0.2
Total equity 171.0 156.2
Consolidated cash flow statement
Year ended 31 December 2007
2007 2006
£'m £'m
Cash flows from operating activities
Cash generated from operations 34.4 27.0
Interest paid (6.1) (5.8)
Tax paid (4.8) (3.7)
Net cash from operating activities 23.5 17.5
Cash flows from investing activities
Interest received 1.5 2.4
Purchase of property, plant and equipment and intangibles (16.8) (17.4)
Proceeds from disposals of property, plant and equipment 20.9 6.7
Purchase of businesses (23.2) (17.5)
Proceeds from the sale of UK discontinued business - 2.6
Net cash outflow from investing activities (17.6) (23.2)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares 0.3 0.9
Increase in borrowings 12.1 9.6
Repayment of borrowings (8.9) -
Payment of finance lease liabilities (1.1) (1.0)
Repayment of secured borrowings (1.9) (1.8)
Dividends paid to equity holders of the parent (11.3) (11.2)
Dividends paid to minority interests (0.2) (0.1)
Net cash outflow from financing activities (11.0) (3.6)
Net decrease in cash and cash equivalents (5.1) (9.3)
Effect of exchange rate changes 1.2 (0.2)
Cash and cash equivalents at 1 January 63.4 72.9
Cash and cash equivalents at end of year 59.5 63.4
Reconciliation of net debt
Net decrease in cash and cash equivalents (5.1) (9.3)
Increase in debt (0.2) (6.8)
Secured debt acquired through purchases of business - (6.4)
Change in net debt from cash flows (5.3) (22.5)
Effect of exchange rate changes (4.9) 1.0
Increase in net debt during the year (10.2) (21.5)
Net (debt)/cash at 1 January (10.9) 10.6
Net debt at end of year (21.1) (10.9)
Consolidated statement of recognised income and expense
Year ended 31 December 2007
2007 2006
£'m £'m
Profit for the year 14.3 13.2
Net exchange adjustments offset in reserves net of tax 3.1 (0.2)
Cash flow hedges: net fair value gains net of tax 0.1 0.6
Actuarial gains on defined benefit pension schemes net of 8.0 20.8
tax
Net gains recognised directly in equity 11.2 21.2
Total recognised income and expense for year 25.5 34.4
Attributable to:
Equity holders of the parent 25.3 34.3
Minority interests 0.2 0.1
25.5 34.4
Segmental analysis
The Group's primary reporting format is business segments and its secondary is
geographical segments. The operating businesses are organised and managed
separately according to the markets they serve.
Primary segments - business activities
Year ended 31 December 2007
Contract
Logistics Chemicals Unallocated Total
£'m £'m £'m £'m
Revenue
Gross sales 421.9 248.5 - 670.4
Inter-segment sales (0.2) (0.7) - (0.9)
Sales to external customers 421.7 247.8 - 669.5
Segment results
Headline operating profit 11.8 8.6 - 20.4
Amortisation of acquisition intangibles (0.1) (0.3) - (0.4)
Exceptional operating profit/(cost) (3.0) 3.5 - 0.5
Operating profit 8.7 11.8 - 20.5
Finance costs - net (4.7)
Profit before tax 15.8
Tax (1.5)
Profit from continuing operations 14.3
Capital expenditure 9.0 9.6 - 18.6
Depreciation and amortisation 9.7 7.5 - 17.2
Balance sheet as at 31 December 2007
Assets:
Segment assets 223.1 137.3 - 360.4
Unallocated corporate assets:
Cash and cash equivalents - - 59.5 59.5
Tax and deferred tax balances - - 0.9 0.9
Consolidated total assets 223.1 137.3 60.4 420.8
Liabilities:
Segment liabilities 104.2 52.5 - 156.7
Unallocated corporate liabilities:
Financial liabilities - - 80.6 80.6
Tax and deferred tax balances - - 12.5 12.5
Consolidated total liabilities 104.2 52.5 93.1 249.8
Net assets/(liabilities) 118.9 84.8 (32.7) 171.0
Segmental analysis continued
Primary segments - business activities continued
Year ended 31 December 2006
Contract
Logistics Chemicals Unallocated Total
£'m £'m £'m £'m
Revenue
Gross sales 377.8 154.2 - 532.0
Inter-segment sales (0.3) (0.4) - (0.7)
Sales to external customers 377.5 153.8 - 531.3
Segment results
Headline operating profit 11.5 6.5 - 18.0
Amortisation of acquisition - (0.1) - (0.1)
intangibles
Exceptional operating profit/(cost) 0.5 0.7 (0.3) 0.9
Operating profit 12.0 7.1 (0.3) 18.8
Finance costs - net (3.6)
Profit before tax 15.2
Tax (2.7)
Profit from continuing operations 12.5
Profit from discontinued operations 0.7
Profit for the year 13.2
Capital expenditure 7.4 9.6 - 17.0
Depreciation and amortisation 11.0 6.2 - 17.2
Balance sheet as at 31 December 2006
Assets:
Segment assets 215.5 95.0 - 310.5
Discontinued operations - - 3.1 3.1
Unallocated corporate assets:
Cash and cash equivalents - - 64.0 64.0
Tax and deferred tax balances - - 2.0 2.0
Consolidated total assets 215.5 95.0 69.1 379.6
Liabilities:
Segment liabilities 93.6 38.0 - 131.6
Discontinued operations - - 3.0 3.0
Unallocated corporate liabilities:
Financial liabilities - - 75.1 75.1
Tax and deferred tax balances - - 13.7 13.7
Consolidated total liabilities 93.6 38.0 91.8 223.4
Net assets/(liabilities) 121.9 57.0 (22.7) 156.2
Segmental analysis continued
Secondary segments - geographical analysis
2007 2006
£'m £'m
Revenue
Sales to external customers
United Kingdom 478.0 404.2
Belgium 24.4 16.9
Spain 47.8 4.9
Other Europe 119.3 105.3
669.5 531.3
The following is an analysis of the carrying amount of segment assets, and
additions to property, plant and equipment and intangible assets, analysed by
the geographical area in which the assets are located:
Carrying amount of segment assets
2007 2006
£'m £'m
United Kingdom 232.2 224.1
Belgium 31.2 26.6
Spain 37.3 2.8
Other Europe 59.7 57.0
Unallocated 60.4 66.0
420.8 376.5
Discontinued - Other Europe - 3.1
420.8 379.6
Additions to property, plant and equipment and intangible assets
2007 2006
£'m £'m
United Kingdom 12.3 11.3
Belgium 3.3 4.2
Spain 1.1 0.6
Other Europe 1.9 0.9
18.6 17.0
Notes on the consolidated financial statements
1. The preliminary announcement for the full year ended 31 December 2007 has
been prepared on the going concern basis and in accordance with International
Financial Reporting Standards (IFRS and IAS) as adopted by the European Union
(EU) and IFRIC interpretations issued and effective, or issued and early
adopted.
The information set out in this preliminary statement does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 December 2006 have been filed with the
Registrar of Companies. The auditors' report on those accounts was unqualified
and did not contain any statement under Section 237 of the Companies Act 1985.
The information presented in this preliminary announcement for the year ended 31
December 2007 is extracted from, and is consistent with, that in the Group's
audited financial statements for the year ended 31 December 2007, and those
financial statements will be delivered to the Registrar of Companies following
the Company's Annual General Meeting.
2. Income statements of overseas companies have been translated into sterling
at the average rate for the year. Assets and liabilities are translated at
exchange rates ruling at the year end date.
3. Tax
Analysis of tax charge in the year
2007 2006
£'m £'m
Current tax
UK corporation tax 0.7 1.9
Overseas tax 0.9 0.4
1.6 2.3
Deferred tax:
UK (0.1) 0.1
Overseas - 0.3
(0.1) 0.4
Tax charge on continuing activities 1.5 2.7
Analysed as:
Tax on headline earnings 4.1 4.1
Tax credit on exceptional operating (profit)/cost (2.0) (1.0)
Prior year tax adjustments:
Corporation tax 0.2 (0.2)
Deferred tax (0.4) (0.2)
(0.2) (0.4)
Deferred tax credit in respect of rate change (0.4) -
Tax charge on continuing activities 1.5 2.7
Tax credit on discontinued activities - (0.7)
Tax charge on continuing and discontinued activities 1.5 2.0
4. Earnings per Ordinary Share from continuing and discontinued operations
2007 2006
Headline:
Basic 14.1p 12.8p
Diluted 14.0p 12.7p
Adjusted (headline) earnings per share are shown by reference to earnings before
items which the Directors consider as exceptional in nature and their related
tax. The Directors consider that this provides a meaningful measure of the
underlying performance of the Group.
2007 2006
Continuing operations:
Basic 17.5p 15.4p
Diluted 17.4p 15.4p
Discontinued operations:
Basic - 0.9p
Diluted - 0.8p
Continuing and discontinued operations:
Basic 17.5p 16.3p
Diluted 17.4p 16.2p
The calculations of earnings per Ordinary Share are based on the following
earnings and number of shares in issue:
2007 2006
£'m £'m
Earnings
Earnings for the purposes of basic earnings per
share attributable to equity holders of the parent
14.1 13.1
Profits from discontinued operations - (0.7)
Earnings from continuing operations 14.1 12.4
Exceptional operating profits and impairment charge (2.1) (1.8)
net of tax
Prior year tax adjustment (0.2) (0.4)
Tax credit in respect of rate change (0.4) -
Headline earnings 11.4 10.2
2007 2006
'000 '000
Shares in issue
Weighted average shares in issue in year 80,450 80,057
Effect of dilutive potential Ordinary Shares - share 784 387
options
Diluted weighted average of shares in year 81,234 80,444
There is no difference in earnings for the calculation of diluted earnings per
share.
5. Reconciliation of headline profit from operations to net cash from
operating activities
2007 2006
£'m £'m
Headline operating profit 20.4 18.0
Adjustments for:
Depreciation of property, plant and equipment 13.6 13.7
Amortisation of intangible assets 3.2 3.4
Gain on disposal of plant and equipment (0.8) (0.2)
Release of investment grants (1.6) (0.8)
Share options 0.5 0.1
35.3 34.2
Changes in working capital
Increase in stocks (0.2) (1.1)
Increase in debtors (10.7) (6.3)
Increase in creditors 18.0 7.8
Decrease in working capital 7.1 0.4
42.4 34.6
Pension deficit funding (5.0) (5.0)
Exceptional cash flows (3.0) (2.6)
Cash generated from continuing and discontinued
operations before interest and tax
34.4 27.0
This information is provided by RNS
The company news service from the London Stock Exchange