Final Results

4imprint Group PLC 29 March 2004 Press Release 29 March 2004 4imprint Group plc ('4imprint' or 'the Group') Preliminary Results for the year ended 27 December 2003 4imprint Group plc, the leading marketing support services and promotional products group, today reports its unaudited Preliminary Results for the year ended 27 December 2003. Highlights • Turnover increase of 8.3% in second half contributes to 2% rise for the year • Pre tax loss of £10.83 million due principally to the US Franchising operating loss of £12.18 million which includes the restructuring, bad debt and goodwill provisions announced in June 2003 and January 2004 • Operating profit excluding AIA, exceptional and one-off costs incurred in Marketing Support Services ('MSS') amounted to £2.48 million (2002: £1.69 million) • Pension deficit, on an FRS17 basis, net of tax reduced to £12.39 million from £15.37 million at interim stage • Net cash position of £7.65 million, an increase of 58% from £4.83 million at the end of 2002 • Improving overall trend of orders continues in 2004 • Rationalisation of US franchise operation completed and US corporate programmes rationalisation in progress • Continued improvement in sales and profit of MSS operations • Proposed final dividend of 3.00 pence per share compared to 1.25 pence per share in prior year • Chief executive search proceeding Commenting on the results, Edward Bramson, Chairman of 4imprint Group plc, said: 'The improvement in market conditions gives us confidence for growth in 2004. Based on this, our strong cash generation and a net cash balance of £7.65 million at the end of 2003, the Board is proposing to increase the final dividend to 3.00 pence per share from 1.25 pence per share last year.' - Ends - www.4imprint.com www.4imprint.co.uk For further information, please contact: 4imprint Group plc Edward Bramson, Chairman Tel: +44 (0) 20 7766 8400 Email: ebramson@hanoverinvestors.com Issued by: Bankside Henry Harrison-Topham Tel: +44 (0) 20 7444 4140 Email: henry.ht@bankside.com www.bankside.com Chairman's Statement The appointment to the Board of new non-executive Directors late last year led to a strategic review of each of the Group's businesses and the development of plans to improve financial performance. These plans are now under way and beginning to show results. As a consequence, the Directors announced in the trading statement dated 21 January 2004 provisions of £4.5 million, made up of £0.4 million of exceptional costs and another £4.1 million of mainly non-cash provisions, principally related to the Group's US franchising subsidiary, together with a write-off of US Franchising goodwill of £7.05 million. Combined with the provisions of £1.3 million announced in June 2003, this contributed to an overall Group loss before taxation for 2003 of £10.83 million (2002: loss before taxation £0.11 million). While such losses are clearly not desirable, the provisions somewhat obscure the underlying performance of most of the Group. As shown in our segmental analysis, operating profit excluding AIA, exceptional and one-off costs incurred in MSS amounted to £2.48 million (2002: £1.69 million). The Board believes that these provisions and the related action plans provide a sound basis for improvement in performance during 2004 and beyond. A net cash balance of £7.65 million, a significant increase from £4.83 million at the end of 2002, also provides a strong financial foundation for future growth. In recent years the Group's overall profitability and return on capital have been unsatisfactory. In part this is attributable to the environment for advertising and marketing spending, but the situation has been aggravated by problems specific to a small number of the Group's businesses. Encouragingly, about 85% of Group turnover comes from businesses that were profitable even in a difficult year such as 2003. The remaining 15% of turnover is generated by two components of the Group - the US Franchising operation and the US Corporate Programmes business - which are not strategically well positioned and have collectively lost significant sums of money in 2003, as well as in earlier years. Unfortunately, the sizeable losses from this minority of poorly performing businesses overwhelmed the profitability of the rest of the Group, while also tying up almost 40% of the Group's capital employed prior to the write-offs taken this year. The Board is actively addressing these issues and our strategy is to redeploy resources to support the growth of the best positioned parts of the Group whilst improving their performance and reducing risk. In order to make the underlying performance of the Group's businesses clearer and more easily understood, this year's Report and Accounts contains considerably more detailed disclosure of segmental financial performance than in prior years. This increased and more transparent segmental disclosure will be maintained in future reports, as we believe it is helpful to shareholders as well as to those considering an investment in our shares. The Group's final salary pension fund, which has been closed to new entrants for three years, continued to show a deficit on a FRS 17 basis. At the end of 2003, the deficit declined to £12.39 million, net of deferred tax, compared to £15.37 million at 28 June 2003. Our cash contributions, which are reviewed annually, are currently running at an annualised rate of £1.44 million before tax relief. The Board is reviewing the pension situation to see if any changes are appropriate. In the meantime, our cash balances and expected future cash flows appear more than adequate to deal with the fund's requirements. During 2003, Rodger Booth, the Chairman, David Dunn, Peter Evans and Michael Potter each non-executive Directors, resigned. I would like to express our thanks to each of them for their service to the Group in a difficult period. During the second half of the year, Nick Temple, Ian Brindle, Matthew Peacock and I joined the board as non-executive Directors. Ian, who chairs the Audit Committee and who is the Senior non-executive Director, was until recently the Chairman of Price Waterhouse UK and is currently the Deputy Chairman of the Financial Reporting Review Panel. Nick Temple chairs the Remuneration Committee and has many years of business experience, latterly as European Vice President of Sales and Marketing and Chairman of IBM UK, as well as from service on the board of several public and private companies. Matthew Peacock has many years of financial experience initially at CSFB and Barclays de Zoete Wedd as well as a strong operating background in industry. Matthew and I are both associated with Hanover Investors, which acquired a substantial shareholding in 4imprint during the course of 2003. One of the key short-term tasks for the Board is the appointment of a new Chief Executive to replace Dick Nelson, who resigned in December 2003. Dick managed the Group through the period following the sale of its printing and manufacturing assets and its transition to a promotional products and marketing services company. I would like to extend our thanks to him for his services and dedication to the business. The quality of Chief Executive candidates that we are seeing is extremely high and we expect to announce the appointment of a suitably qualified person in the relatively near future. In the meantime, we are fortunate that Craig Slater, the Group Finance Director, provides continuity and has agreed to assume the added duties of Chief Operating Officer during the search period. We are also fortunate to have a highly motivated and professional team of managers running the Group's operating businesses and I would like to express to them our thanks for their efforts and commitment throughout the year. Outlook In the last quarter of 2003, the Group achieved year-on-year gains in the number of orders received and I am pleased to report that this trend has continued into the early part of 2004. While our markets have not yet returned to the buoyant levels of a few years ago, current order levels suggest that we are seeing a notable improvement in the business outlook. The Group's prospects are strongly linked to advertising and marketing spending and given the operational gearing within our business, we believe that, with careful management, a moderate increase in sales can produce a marked improvement in profits. Our year-end net cash balance of £7.65 million, an increase of £2.82 million over last year, is indicative of the cash generating potential of our businesses and the continued improvements made to working capital management throughout the Group. Based on this and our confidence in the outlook for the coming year, the Board is proposing an increase in the final dividend to 3.00 pence per share from 1.25 pence per share last year, and intends to review the dividend policy again as the year progresses. Edward Bramson Chairman 29 March 2004 Operating Review This report incorporates expanded disclosure on the Group's businesses, which are now presented in three segments, US Direct Marketing, Marketing Support Services (MSS) and US Franchising. Group turnover for the year of £94.87 million represents an increase of £1.98 million over 2002. During the second half of 2003, sales increased by 8.3% over the same period of the prior year, more than making up for the sales decline reported at the interim stage. Performance in MSS and US Direct Marketing improved in the second half, reflecting more favourable market conditions and the benefit of rationalisation efforts on costs. The majority of the profit improvement was achieved in MSS where the Broadway, Manchester operation achieved a recovery in profits based on a successful restructuring. Other European operations also improved profits. Our US franchising operation made an operating loss in the year of £12.18 million. This loss included the provisions announced in June 2003 and January 2004 of £1.30 million and £10.38 million respectively. These provisions covered the costs of relocating AIA, which is now complete, the total write-off of the legacy franchise debts and the write-off of goodwill of £7.05 million ($12.5 million). The control improvements and more stringent franchise owner recruitment criteria that have been put in place should significantly reduce the potential incidence of bad debts in the future. We believe that the net asset value of US Franchising, £3.73 million, is now stated at a realistic level. Segmental Analysis US direct marketing 2003 2002 US$'000 £'000 US$'000 £'000 Turnover 48,095 29,282 48,781 32,391 Operating Profit 3,319 2,021 3,596 2,388 Capital Employed 4,764 2,683 5,790 3,615 Our Direct Marketing segment, which operates in the USA, is the leading business-to-business direct marketer of promotional products through catalogue mailings, internet marketing programmes and telemarketing. The business model is highly cash generative since no stocks are maintained and approximately 38% of sales are paid for by credit card, up from 36% in 2002. An increasing proportion, currently 27% of sales compared to 20% in 2002, is processed via the internet. In 2003, activity levels were adversely affected by the 25% reduction in marketing expenditure, primarily catalogue mailings, that occurred during the latter part of 2002. An increase in marketing expenditure and mailings throughout 2003, combined with improving market conditions, resulted in increased order levels in the later part of the year, which have continued in the early part of 2004. While marketing expenditure in 2004 will increase, other costs are being carefully controlled. If order levels continue to improve at their current rate, we are optimistic that sales, profits and cash generation in Direct Marketing will increase significantly in 2004. Marketing Support Services (MSS) 2003 2002 £'000 £'000 Turnover 60,491 54,787 Operating Profit 1,308 495 Capital Employed 17,561 18,401 Included within the above operating figures for 2003 is £440,000 (2002: £Nil) of one-off cost incurred as a result of the re-direction of the US Corporate Programmes business. This figure comprises severance pay and stock and rent provisions arising from that strategic change. MSS advises on, procures and provides logistical and other services for the promotional product needs of corporate customers. MSS predominantly operates in the UK, where it is the largest provider of promotional products for below-the-line marketing programmes (corporate programmes) and consumer promotions (premiums) of major corporations. It also includes the US corporate programmes business and our French and German operations. Our MSS businesses benefit from the strategic and scale advantages of combined market leadership in the UK. Through careful management, MSS ensures high levels of customer service with low levels of stock risk. All of our UK and Europe-based businesses increased profits in 2003 and the Broadway, Manchester operation made a notable recovery from operational problems in 2002. The previous strategy designed to create a corporate programmes business in the US led to a rise in North American MSS sales to US$13.61 million in 2003 compared to US$9.13 million in 2002. However, operating losses before allocation of site costs have increased to US$1.03 million in 2003 compared with a loss of US$0.74 million in 2002. The Board has concluded that our strategic position in US corporate programmes does not justify further investment and the business in 2004 is being rationalised with the objective of eliminating or substantially reducing the loss-making programmes and releasing the related £2.25 million of capital employed at the year end. MSS is planning further improvements in efficiency during 2004 and, in common with our other businesses, experienced increased orders in the fourth quarter. While the businesses in this segment tend to be reliant on a relatively small number of large customers, we are optimistic that their performance will continue to improve in 2004. US Franchising 2003 2002 US$'000 £'000 US$'000 £'000 Turnover 8,377 5,100 8,609 5,716 Operating Loss (21,346) (12,183) (3,404) (2,260) Capital Employed 6,624 3,730 30,089 18,787 The table above includes the restructuring, bad debt provisions and goodwill write-offs announced in May 2003 and January 2004 of £1.30 million and £10.38 million respectively. US Franchising operates in North America providing product sourcing, billing and other services, and customer receivable financing to a network of 464 independent franchisees (December 2002: 518) in return for fees ranging from 5% to 7% of its franchisees' sales. In 2003 the Board decided to write off all the goodwill of £7.05 million relating to AIA and also to write off the remaining legacy balances due from franchise owners in the amount of £3.36 million. During the year, the management team completed the rationalisation plan to consolidate all of the operations in Oshkosh, reduce the workforce and other expenses and to continue the improvements in controls identified in last year's report. As part of the plan, the number of franchise owners has been reduced and there are now much tighter standards for the acceptance of new franchise owners. Sales in 2003 were comparable with those in the prior year, despite the decline in the number of franchisees, who have recently been experiencing increased sales as a result of the improvement in business conditions noted in other areas of the group. With its costs now reduced, we expect that US Franchising will be moderately profitable in 2004. Our current strategy is to stabilize US Franchising and to make it profitable and cash generative while we consider our strategic options for the business. Group Outlook Our plans for 2004 assume that sales will increase as market conditions improve across most of our business units. We are rationalising our loss-making businesses and will focus on cost efficiency across the group. On this basis, we are optimistic that 2004 will be a better year for growth and cash generation. Edward Bramson Chairman 29 March 2004 CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE 52 WEEKS ENDED 27 DECEMBER 2003 (UNAUDITED) (UNAUDITED) Exceptional Total Exceptional Total items & items & goodwill goodwill amortisation amortisation 2003 2003 2003 2002 2002 2002 (restated) (restated) (restated) Note £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2 94,873 - 94,873 92,894 - 92,894 Change in stocks of finished 369 - 369 1,116 - 1,116 goods 95,242 - 95,242 94,010 - 94,010 Operating expenses before (97,883) - (97,883) (94,008) - (94,008) exceptional items, goodwill amortisation and impairment Goodwill amortisation and - (7,781) (7,781) - (858) (858) impairment Exceptional operating expenses 3 - (421) (421) - - - Total operating expenses (97,883) (8,202) (106,085) (94,008) (858) (94,866) Operating (loss)/profit (2,641) (8,202) (10,843) 2 (858) (856) Reversal of provision for loss 3 - - - - 503 503 on sale of operations Net interest receivable 11 - 11 245 - 245 (Loss)/profit on ordinary (2,630) (8,202) (10,832) 247 (355) (108) activities before taxation Taxation 4 2,570 126 2,696 11 362 373 (Loss)/profit on ordinary (60) (8,076) (8,136) 258 7 265 activities after taxation Dividends 5 (1,148) - (1,148) (646) - (646) Transfer (from)/to reserves (1,208) (8,076) (9,284) (388) 7 (381) (Loss)/earnings per share Basic 6 (0.21p) (28.34p) 0.90p 0.92p Diluted 6 (0.21p) (28.10p) 0.90p 0.92p All results relate to continuing activities. The prior year results have been restated upon adoption of application note G of FRS 5 for the restatement of certain sales from a gross to net basis. Turnover and raw materials and consumables have decreased by £2,315,000 (2002: £1,731,000) as a result of the restatement. There was no effect on operating profit. The year end profit and loss statement treats provisions of £1.3 million made at the announcement of the interim results for costs associated with the restructuring of US Franchising as non-exceptional given the difficulties of identifying the extent to which these or the further write-off of US Franchising receivables were part of the on-going operations of the business in prior periods. US Franchising review and restructuring costs in 2002 have been reclassified as non-exceptional costs. During the course of the year the average US dollar to sterling exchange rate was 1.6425 (2002: 1.5060). STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES 2003 2002 £'000 £'000 (Loss)/profit on ordinary activities after taxation (8,136) 265 Exchange adjustments offset in reserves (2,532) (1,572) Tax on exchange adjustments offset in reserves - (249) Total gains and losses for the financial year (10,668) (1,556) Tax was payable on UK exchange gains in 2002. No tax is payable on UK exchange gains in 2003 as this is covered by losses brought forward for which no deferred tax asset was previously recognised. RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS FOR THE 52 WEEKS ENDED 27 DECEMBER 2003 2003 2002 £'000 £'000 (Loss)/profit on ordinary activities after taxation (8,136) 265 Dividends (1,148) (646) (9,284) (381) Other recognised losses relating to the year - exchange adjustments (2,532) (1,572) - tax on exchange adjustment - (249) Net movement in shareholders' funds (11,816) (2,202) Opening shareholders' funds 43,513 45,715 Closing shareholders' funds 31,697 43,513 CONSOLIDATED BALANCE SHEET AT 27 DECEMBER 2003 2003 2002 £'000 £'000 Fixed assets Intangible assets 4,341 12,934 Tangible assets 5,299 6,644 Investments 7 9 9,647 19,587 Current assets Stocks 5,959 6,269 Debtors due within one year 28,523 31,140 Debtors due after more than one year 1,901 2,732 Cash at bank and in hand 10,128 9,268 46,511 49,409 Creditors: amounts falling due within one year (23,194) (23,999) Net current assets 23,317 25,410 Total assets less current liabilities 32,964 44,997 Provisions for liabilities and charges (1,267) (1,484) Net assets 31,697 43,513 Capital and reserves Called up share capital 11,044 11,044 Share premium account 37,630 37,630 Capital redemption reserve 208 208 Revaluation reserve - 37 Profit and loss account (17,185) (5,406) Equity shareholders' funds 31,697 43,513 The US dollar to sterling exchange rate at the balance sheet date was $1.7757 (2002 ; $1.6016). In accordance with SSAP 24 and the last actuarial valuation, which will be revised as at April 2004, the pension contributions made during the year have been recorded as prepayments in our balance sheet. CONSOLIDATED CASH FLOW STATEMENT FOR THE 52 WEEKS ENDED 27 DECEMBER 2003 2003 2002 Note £'000 £'000 £'000 £'000 Net cash inflow from operating activities 7 4,545 3,293 Returns on investments and servicing of finance 11 245 Taxation 397 (130) Capital expenditure (1,395) (2,072) Disposals - (153) Equity dividends paid (650) (645) Cash inflow before use of liquid resources and financing 2,908 538 Financing - Increase/(repayment) of unsecured loan 2,090 (19,310) Increase/(decrease) in cash in the period 4,998 (18,772) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in the period 4,998 (18,772) Cash (outflow)/inflow from movement in debt (2,090) 19,310 Change in net debt resulting from cash flows 2,908 538 Translation difference (84) 994 Movement in net debt in the period 2,824 1,532 Opening net cash 4,828 3,296 Closing net cash 7,652 4,828 NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PREPARATION This preliminary announcement for the 52 weeks ended 27 December 2003 has not been audited and does not constitute statutory accounts within the meaning of S240 of the Companies Act 1985. The financial information has been prepared on the basis of the accounting policies set out in the Group's Annual Report & Accounts for the 52 weeks ended 28 December 2002 except for the adoption of the new application note G to FRS5 as detailed on the face of the profit and loss account. Those accounts carry an unqualified auditor's report and have been delivered to the Registrar of Companies. The comparative results, restated for Application note G of FRS5, for the 52 weeks ended 28 December 2002 are abridged and as such do not represent statutory accounts. The full Annual Report & Accounts for the 52 weeks ended 28 December 2003 will be posted to shareholders shortly and, after adoption at the Annual General Meeting, delivered to the Registrar of Companies. 2 SEGMENTAL ANALYSIS The analysis of turnover, operating profit and net assets by origin is as follows: Turnover Operating profit/(loss) Net assets/(liabilities) 2003 2002 2003 2002 2003 2002 (restated) £'000 £'000 £'000 £'000 £'000 £'000 Europe 50,698 47,645 1,726 745 15,620 14,263 US 44,175 45,249 (12,148) (1,601) 9,289 24,779 94,873 92,894 (10,422) (856) 24,909 39,042 Net cash 7,652 4,828 Unallocated costs/ (421) - (864) (357) liabilities 94,873 92,894 (10,843) (856) 31,697 43,513 Unallocated costs relate to the aborted EGM costs and Chief Executive severance costs detailed in note 3. Unallocated liabilities relate to dividends due to be paid by the Group. Neither these costs nor liabilities can be allocated to the segments. The analysis of turnover, operating profit and net assets by business segment is as follows: Turnover Operating profit/(loss) Net assets/ (liabilities) 2003 2002 2003 2002 2003 2002 (restated) £'000 £'000 £'000 £'000 £'000 £'000 Marketing Support Services ('MSS') 60,491 54,787 17,561 18,401 • Pre goodwill 1,584 779 amortisation • Post goodwill 1,308 495 amortisation US Direct Marketing 29,282 32,391 2,683 3,615 • Pre goodwill 2,021 2,388 amortisation • Post goodwill 2,021 2,388 amortisation US Franchising 5,100 5,716 3,730 18,787 • Pre goodwill (4,678) (1,686) amortisation and impairment • Post goodwill (12,183) (2,260) amortisation and impairment Exceptional operating expenses - unallocated (421) 94,873 92,894 (9,275) 623 23,974 40,803 Net cash 7,652 4,828 Unallocated costs and assets/ (1,568) (1,479) 71 (2,118) (liabilities) 94,873 92,894 (10,843) (856) 31,697 43,513 A detailed review of the segments including the choice of segments, reasons for changes from prior year, business descriptions and performance analyses are included within the Chairman's statement and Operating Review. Costs have been allocated in terms of resources required and do contain some indirect costs which are not dependant on the level of business conducted. Unallocated costs relate to the Head Office. Unallocated assets/(liabilities) relate to taxation, Head Office working capital and dividends, which are unable to be allocated to the segments. Included within the MSS results are costs totalling £440,000 (2002: Nil) in respect of the re-direction of the US Corporate Programmes business. These costs are considered to be one-off. Reconciliation of operating profit excluding US Franchising and before goodwill amortisation, exceptional costs and one-off costs in MSS disclosed in Chairman's statement to operating loss. 2003 2002 £'000 £'000 Operating profit excluding US Franchising and before goodwill amortisation, 2,477 1,688 exceptional costs and one-off costs in MSS MSS one-off costs (440) - US Franchising (pre goodwill amortisation and impairment) (4,678) (1,686) Operating (loss)/profit before exceptional items and goodwill amortisation (2,641) 2 Exceptional items (421) - Goodwill amortisation and impairment (7,781) (858) Operating loss (10,843) (856) 3 EXCEPTIONAL ITEMS 2003 2002 restated £'000 £'000 Aborted EGM costs 209 - Severance costs of Chief Executive 212 - Operating exceptional items 421 - Reversal of provision for loss on sale of operations - 503 Non-operating exceptional items - 503 The operating exceptional item in 2003 relates to the costs incurred following the requisition of an EGM by Hanover Partners IV LP (the requisition was withdrawn on 10 October 2003) and the severance costs relating to the resignation of the Chief Executive on 15 December 2003. The operating exceptional item in 2002 relating to provisions made predominantly for amounts due from debtors in US Franchising has been reclassified as a trading expense. The release of the exceptional provision in 2002 of £503,000 relates to the provision for costs on a prior year disposal. 4 TAXATION 2003 2002 £'000 £'000 UK taxation: Corporation tax at 30% (2002: 30%) - - Adjustments in respect of previous years (942) 21 (942) 21 Overseas taxation: Current tax (405) (349) Adjustments in respect of previous years 24 - (381) (349) Total current tax (1,323) (328) Deferred tax: Current year (888) (45) Adjustment in respect of previous years (485) - (1,373) (45) Tax credit (2,696) (373) 5 DIVIDENDS ON ORDINARY SHARES 2003 2002 p p Interim dividend (paid 10 November 2003) 1.00 1.00 Final dividend 3.00 1.25 4.00 2.25 The final dividend per ordinary share in respect of 2003 of 3.00p is proposed to be paid on 27 May 2004 to shareholders on the Register at close of business on 30 April 2004. 6 (LOSS)/EARNINGS PER SHARE The pre exceptional and goodwill amortisation (loss)/earnings per share for the period are based on the loss after tax before exceptionals and amortisation of £60,000 (2002: restated profit - £258,000) and weighted average shares in issue of 28,709,862 (2002: 28,709,862). The (loss)/earnings per share for the period are based on the loss after tax of £8,136,000 (2002: Profit - £265,000) and weighted average shares in issue of 28,709,862 (2002: 28,709,862). The diluted earnings per share for the period is based on the same profit and loss figures as above, but take into account the dilutive effect of share options outstanding. The weighted average number of shares in issue for diluted earnings per share purposes is therefore 28,951,975 (2002: 28,709,862). 7 RECONCILIATION OF OPERATING LOSS TO OPERATING CASHFLOWS 2003 2002 £'000 £'000 Operating loss (10,843) (856) Depreciation charge 2,221 2,399 Amortisation of goodwill 736 858 Loss on sale of tangible fixed assets 5 3 US Franchising goodwill impairment 7,045 - Decrease/(increase) in stocks 162 (1,108) Decrease in debtors 3,111 4,078 Increase/(decrease) in creditors 2,906 (824) Decrease in provisions (798) (1,257) Net cash inflow from operating activities 4,545 3,293 8 PENSION DISCLOSURES UNDER FRS17 The Group operates a defined benefit scheme in the UK. A full actuarial valuation was carried out at 5 April 2001 and updated to 27 December 2003 for FRS17 purposes by a qualified independent actuary. The major assumptions were (in normal terms) 2003 2002 2001 Rate of increase in salaries 3.75% 3.50% 4.00% Rate of increase of pensions in payment 2.50% 2.25% 2.50% Discount rate 5.50% 5.75% 6.00% Inflation assumption 2.50% 2.25% 2.50% The assets in the scheme and the expected rates of return were: 2003 2002 2001 £'000 £'000 £'000 Equities 7.00% 35,029 7.00% 31,510 7.00% 50,427 Bonds 5.00% 30,305 5.00% 28,585 5.50% 17,317 Other 6.00% 682 6.00% 1,485 6.00% 4,991 Total market value of assets 66,016 61,580 72,735 Actuarial value of liability (83,718) (78,091) (76,166) Deficit in the scheme (17,702) (16,511) (3,431) Related deferred tax asset 5,311 4,953 1,029 Net pension deficit under FRS17 (12,391) (11,558) (2,402) Movement in FRS17 deficit during the period 2003 2002 £'000 £'000 FRS17 deficit in scheme at beginning of period after (11,558) (2,402) deferred tax credit Movement in year: Current service cost (71) (110) Contributions 1,110 120 Net return on assets (732) 200 Actuarial loss (1,498) (13,290) Deferred tax movement 358 3,924 FRS17 deficit in scheme at end of year after deferred tax credit (12,391) (11,558) As the scheme is closed to new members the current service cost will increase as active members approach retirement age. The current contribution rate will remain until the results of the next review in April 2004. The most sensitive of the major assumptions used by the actuary (in normal terms) for FRS17 purposes is the discount rate. A movement of 0.25% in the discount rate would impact the deficit, net of deferred tax, by £2.66 million (2002 ; £2.45 million). This information is provided by RNS The company news service from the London Stock Exchange

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