Final Results

4imprint Group PLC 04 March 2008 4 March 2008 4imprint Group plc Preliminary Results for the period ended 29 December 2007 4imprint Group plc announces today its results for the period ended 29 December 2007 Highlights • Group sales increased to £146.82m, £27.30m ahead of 2006 with organic growth in the Direct Marketing Division producing a 21% increase on 2006, organic growth in the End User Division a 7% increase, while the Trade Division sales more than doubled those in 2006 reflecting the acquisition of Supreme in November 2006. • Operating profit at £10.16m before exceptional items and a one off share grant was 35% ahead of 2006 and pre tax profit on the same basis was 26% ahead. • Profit before tax, after exceptional items and one off share grant was £3.30m. • Tax charge was £1.07m (32%) (2006: £2.35m: 32%). • Basic earnings per share before exceptional items and one off share grant was up 24% at 26.40p (2006: 21.34p). • Basic earnings per share was 8.93p (2006: 20.29p). • Final dividend of 8.00p per share is proposed, 28% over 2006 giving a total dividend paid and proposed of 12.00p, 26% ahead of 2006, in line with the established progressive dividend policy adopted by the Board. Commenting on the results, Ken Minton, Executive Chairman, said: '2007 was another year of significant progress for the 4imprint Group with strong growth in operating and pre tax profit before exceptional items. The latter were principally incurred in preparing the Trade and End User Divisions for sustained profitable growth. The Direct Marketing Division delivered another year of strong growth in sales and profits'. - Ends - For further information, please contact: Ken Minton Executive Chairman 4imprint Group plc Tel. +44 (0) 207 299 7201 Executive Chairman's Statement In my statement to Shareholders in the interim report for 2007, I advised that the Board expected that the progress made by the Group at the half year would continue though the second half. I am pleased to report that the Group achieved that objective. Group sales were £146.82m, £27.30m or 23% ahead of 2006. Of this £27.30m, organic growth in the Direct Marketing Division contributed £13.31m or 21% over 2006, organic growth in the End User Division contributed £3.37m or 7% over 2006 and the Trade Division contributed £10.62m or 117% over 2006, reflecting the acquisition of Supreme in November 2006. Operating profit before exceptional items and share grant at £10.16m was 35% ahead of 2006. Exceptional charges were substantial at £5.27m; the main components of which were:- (a) The integration of the Product Source business into the Supreme site at Blackpool, (b) The major rationalisation of the Manchester Broadway site, made possible by the Product Source move to Blackpool, (c) The cost of the termination of a significant and onerous contract in the Manchester based Corporate Programmes business, which took place in the first half and for which a partial provision was recorded in the interim report. In addition, a non recurring share grant of £1.14m, relating to shares granted to the Executive Chairman as an element of his overall remuneration package was made. Details of which are given in note 4. Operating profit after these charges was £3.75m. Net interest costs were £0.45m producing profit before tax of £3.30m. Tax charges were £1.07m producing profit after tax of £2.23m. Earnings per share before exceptional items and share grant was 26.40p an increase of 24% on last year. The acquisition of the Supreme trade business at the end of 2006 provided the Group with the opportunity to transfer its Manchester based Product Source trade business onto the Supreme site at Blackpool. This integration, in July last year, resulted in the recruitment of over 120 more staff at Blackpool and a similar reduction of jobs in Manchester. Furthermore, the overhead structure needed to support the remaining businesses at Manchester was able to be substantially reduced also leading to a transformation of the profitability of that business. The whole integration/rationalisation programme was a major undertaking for the Trade Division. Despite extensive planning, production capability was unable to meet the major increases in demand placed on it. As a result customer satisfaction fell and sales likewise. In response, resources in many areas were increased, particularly in customer service, and by the end of 2007 output and customer satisfaction had greatly improved. During the first two months of this year production/quality/customer satisfaction were at planned levels. The Group now comprises three completely separate Divisions, all of which delivered substantial progress during 2007, as follows:- a) End User Division This Division comprises the Manchester based Corporate Programmes/Field Sales business, the London based specialist premiums business and Kreyer, the Germany based Corporate Programmes/Field Sales business. Like for like total sales for this Division increased by 7% to £50.85m while operating profit before exceptional items at £2.88m increased by 23%, reflecting the benefits particularly of the rationalisation of the Manchester based business. b) Direct Marketing Division During the second half of the year, the fast growing Direct Marketing Division was repositioned to develop internationally. The UK Direct Marketing business was put under the direct control and management of the US business, and the Division is now additionally focussed on diversifying its business into Western Europe. Like for like, sales of this Division increased by 21% to £76.74m, while Divisional operating profit increased by 26% to £6.17m. Sales in the US and Canada continued to grow strongly throughout the second half and full year sales were 30% ahead of prior year. c) Trade Division The Trade Division has almost doubled in size with the acquisition of Supreme. Total sales in 2007 at £23.73m were 81% up on 2006. Divisional operating profit before exceptional items at £3.33m was 41% ahead. Sales were lower than planned in the second half, caused by the supply and customer service problems at Blackpool, particularly in the period July to October. These issues and the increased costs incurred, produced lower profits in the second half than planned. However, as I said earlier, these problems are now resolved and sales are now recovering steadily. Cash management The Group started the year with £0.25m of net debt and ended the year with £7.08m of net debt and borrowings. Cash inflow from operating profit adjusted for non cash items and before exceptional items was £12.94m, principal outflows were tax, dividends, interest and defined benefit pension contributions of £7.52m; cash incurred on exceptional items was £3.03m and operating working capital and capital invested amounted to £9.12m. Strategy When the acquisition of Supreme was announced, the Company stated that its intention would be to first merge its Product Source business with that of Supreme, and when this was completed, the Company would pursue the placing of the merged business into separate ownership. With the completion of the merger, the Company will now pursue the second part of this strategy. Dividend The Board has a well established policy of ensuring that dividend payout is kept in line with the growth of the Group's earnings, while maintaining dividend cover pre exceptional items in excess of two. Accordingly, the Board is proposing a final dividend of 8.00p per share, which with the interim payment already made of 4.00p per share means a dividend payout of 12.00p per share, an increase of 26% over 2006. People 4imprint has achieved sustained growth over recent years, and profit before exceptional items for 2007 is the highest for many years. Credit for achieving this excellent performance must go to everyone working in the Divisions and in the Group and on behalf of the Board I congratulate everyone for this achievement and thank them for their great effort and commitment. Outlook Group sales in the first two months of this year were ahead of the same period last year. Sales in the Direct Marketing Division were strongly ahead of 2007, the End User Division sales more modestly so, while in the Trade Division sales were lower than in the same period last year, but confirmed the recovery seen at the end of 2007. In addition, 2008 should see a full year's benefit from the reduced cost base at Manchester and the successfully completed Trade Division integration. Ken Minton Executive Chairman 4 March 2008 Finance Director's Report The Group's results are reported in three divisions, in accordance with the way the business is now managed: Trade Division End User Division Direct Marketing Division A description of each division is given in the Operating Review. The UK Direct Marketing business was transferred from the End User Division to the Direct Marketing Division during 2007 and prior year comparatives have been restated accordingly. Group results 2007 2006 £m £m Change Group sales 146.82 119.52 +23% Group operating profit before exceptional items and share grant 10.16 7.54 +35% Group profit before tax, exceptional items and share grant 9.72 7.72 +26% Group profit before tax 3.30 7.34 -55% Sales and operating profit before exceptional items from all three divisions were ahead of prior year. Head office costs at £1.33m were greater than prior year (2006: £1.02m), principally reflecting increased professional advisory costs in the year. Share option charges The Group charged £0.60m (2006: £0.74m) to operating profit in accordance with IFRS2 'Share based payment'. Pensions The Group sponsors a closed defined benefit scheme with 4 active members, 940 pensioners and 1,434 deferred members at 5 April 2007, the date of the last actuarial valuation. The pension charge to profit in the period for this scheme was £0.30m (2006: £0.33m) and the cash contributions by the Company were £1.90m (2006: £1.50m). The pension fund deficit reduced to £10.55m (2006: £18.44m). The scheme assets at 29 December 2007 were £80.99m (2006: £81.91m); the liabilities were £91.54m (2006: £100.35m); the reduction in liabilities was principally due to an increase in the discount rate from 5.3% to 6.0%; partly offset by increases in inflation and mortality assumptions. Exceptional items The exceptional charge of £5.27m in 2007, comprised the following items:- i) Costs of £3.49m related to relocating the Manchester based Trade Businesses to Blackpool; ii) Costs of £0.98m of reorganisation in the End User Division following the exit of the Trade Businesses; iii) Contract exit costs of £0.80m related to the cost of exiting an onerous customer contract in the End User Division, including an inventory write down of £0.50m. Share grant 200,000 shares were granted to the Chairman on 1 August 2007. The charge of £1.14m represents the number of shares awarded at the share price on the date of grant plus associated costs. In view of the magnitude of the charge arising and non-recurring nature of the award, separate disclosure has been made on the face of the income statement. Taxation The tax charge was £1.07m (32%) compared to £2.35m (32%) in 2006. Tax paid in the year amounted to £2.73m (2006: £0.85m), principally in overseas territories. The current tax charge at £2.19m relates principally to overseas subsidiaries and the deferred tax credit of £1.12m is due to the recognition of deferred tax assets in both the UK and US. Deferred tax of £2.94m was debited to reserves relating to a reduction in the deferred tax assets for both pensions and share options. Earnings per share Basic earnings per share for the year was 8.93p (2006: 20.29p); basic earnings per share before exceptional items and share grant was 26.40p (2006: 21.34p). Dividends The Board proposes a final dividend of 8.00p which together with the interim dividend of 4.00p gives 12.00p (2006: 9.50p) for the period, an increase of 26%. Cash flow The Group's net debt and borrowings at 29 December 2007 were £7.08m (2006: £0.25m). The principal components of the £6.83m cash outflow are as follows: £m Cash generated from operating profit* before exceptional items and share grant 12.94 Defined benefit pension contributions (1.90) Cash cost of exceptional items (3.03) Operating working capital outflow before exceptional items (7.23) Tax, dividends and interest (5.62) Capital investment (1.89) Other items (0.10) (6.83) *Plus defined benefit pension charge, share option charge, depreciation and amortisation. Operating working capital absorption is spread across all three divisions principally comprising: £0.50m in the Direct Marketing Division in line with higher sales; £3.20m in the End User Division principally due to around £2m higher receivables as a result of an increase in last quarter sales in the specialist premiums business and around £1m increase in ageing of receivables. £2.90m in the Trade Division due to £0.70m higher receivables and £0.90m higher inventory as a result of integration issues and a further £1.30m increase in receivables due to the fact that the Supreme business was purchased with no trade receivables in November 2006. Balance sheet and Shareholders' funds Equity Shareholders' funds increased by £4.64m to £24.72m. Profit, net of dividends paid in the period was £(0.33)m and movements relating to pensions, employee share options, share grant, exchange and related tax taken to reserves represented an increase of £4.91m, principally due to a reduction in the pension deficit reflected in reserves (£3.89m net of tax). Exchange and cash management The average exchange rates during the period used to translate the income statements of principal overseas subsidiaries were US dollars: $2.0025 (2006: $1.8581) and Euros: €1.4559 (2006: €1.4660) to the pound. The movement compared to prior year in US dollar exchange rate reduced profit of the US business by £0.49m. The exchange rates at the balance sheet date used to translate assets and liabilities were US dollars: $1.9929 (2006: $1.9572) and Euros: €1.3553 (2006: €1.4842). This resulted in a decrease in US dollar denominated overseas subsidiaries assets of £0.09m and an increase in Euro denominated overseas subsidiary assets of £0.23m. Critical accounting policies Critical accounting policies are those that require significant judgements or estimates and potentially result in materially different results under different assumptions or conditions. It is considered that the Group's critical accounting policies are limited to pensions, exceptional items, deferred taxation, share based payments and inventory provisions. Further details are given in the notes. Treasury policy Treasury policy is to manage centrally the financial requirements of the Divisions in line with their business needs. The Group operates cash pooling arrangements on currency accounts separately for its US operations and its UK operations. The Group matches currency requirements in its UK Divisions with currency cash flows arising in its subsidiaries and actively seeks to hold the majority of cash or borrowings with its principal UK banker. Gillian Davies Group Finance Director 4 March 2008 Operating Review Direct Marketing Division 2006 2007 (restated) £'000 £'000 Sales 76,738 63,423 Operating profit 6,167 4,910 2007 was another year of great progress in the Direct Marketing Division. As part of its plan to expand on an international scale, the UK based Direct Marketing business was transferred into the Division and the Divisional results for 2007 include this business. The results for 2006 have been restated to reflect this change. Total Divisional sales in sterling increased by 21% and operating profit by 26% over 2006. The Division now markets directly into three countries: the US, UK and Canada. Sales from the UK and Canada now comprise more than 10% of total sales. The North American business continued the strong growth pattern of the last four years: sales have nearly tripled over that time period. In 2007 total sales for the North American business in US dollars were $145.35m (2006: $111.39m), 30% ahead of prior year, and US dollar operating profit was 39% above prior year. The fundamentals of the catalogue/internet based business model continue to drive the growth, enhanced by new product and service offerings for an ever-increasing customer base. New customer orders were 33% up over 2006, and the overall retention rate of existing customers continued to increase over prior year. Increased effort in the Canadian market continued to produce favourable results, as sales grew more than 70% over the prior year. The small US Corporate Programmes business had a successful year, providing first class personalised service to a select group of larger clients. From 1 July 2007, the UK Direct Marketing operation has been managed as part of the Direct Marketing Division. All of the necessary people, structure and systems work has been done to allow the UK Direct Marketing business to operate independently from the UK End User Division. The team is now focused on implementing the appropriate elements of the US and Canadian methodology to drive growth in the UK market. Cash generation across the Direct Marketing Division remains very healthy, with low working capital requirements relative to the overall size of the business. Operating Review End User Division 2006 2007 (restated) £'000 £'000 External and inter division sales 50,846 47,448 External sales 50,383 47,018 Operating profit before exceptional items 2,880 2,345 Operating profit 1,099 2,175 The End User Division comprises three separate businesses each with its own management team, based in Manchester, London and Germany. The core activity of this group of businesses is the distribution of promotional items principally to large corporate clients through the use of innovative product design and project management capabilities and the use of technology based solutions. Although the businesses operate largely independently, the specialist skills within each business and their geographical locations are complementary to each other in meeting the needs of our client requirements. Taking each of these businesses in turn: a) Manchester Following the relocation of the Product Source and MT Golf trade businesses to the Blackpool based Trade Division and the transfer of UK Direct Marketing to the executive control of US Direct Marketing, a major reorganisation of the remaining business, infrastructure and support services took place and was operational throughout the second half of 2007. The result is the merger of the Corporate Programmes and Field Sales businesses and the incorporation of the revised infrastructure and support services into this business. The reduction in support and infrastructure costs and focus on this single business produced an excellent second half profit performance. Sales at this site grew by 4% in the year and from a breakeven profit position at the half year, the re-organisation programme transformed the site's profitability to produce an excellent operating profit performance in the second half. In the year, operating profit before exceptional items increased by 35%. (b) London Our specialist Premiums business delivered a strong second half performance and sales for the full year were 18% ahead of 2007. This resulted from the growth of sales to existing clients and acquisition of new clients particularly in the Health and Beauty and Airline sectors. Operating profit for the London based business increased by 21%. (c) Germany This business provides a similar type of service as the Manchester business, offering value added services and corporate programme solutions to its clients, working on occasions in partnership with the Manchester business. Sales in the business were 3% ahead of 2006 while operating profit was 13% higher aided by tight control of costs. The exceptional charges incurred in the year relate to the re-organisation programme in Manchester (£980,000) and to the termination of a significant, underperforming contract in the Manchester business (£801,000). Operating Review Trade Division 2007 2006 £'000 £'000 External and inter division sales 23,727 13,137 External sales 19,702 9,078 Operating profit before exceptional items 3,334 2,361 Operating (loss)/profit (158) 2,361 For two reasons, 2007 has been a year of major change for the Trade Division:- (a) The acquisition in November 2006 of the Blackpool based business of Supreme almost doubled the size of the Trade Division and made it the largest supplier to the Promotional Products trade in the UK. (b) The transfer of the Product Source business from Manchester to Blackpool in the second half of the year provided further significant opportunity to optimise the cost structure of both businesses and enhanced the resources available to develop the combined business. The integration process was a complex operation including the recruitment and training of over 50% more staff at Blackpool, together with the commissioning of new and transferred equipment on the Blackpool site. The integration process extended over the whole of the second half, during which the normal high standards of customer service and production output were seriously weakened. Costs were also considerably higher as we dealt with these problems. By the end of 2007, both capacity and service were approaching the desired levels and further progress has been made in the early weeks of 2008 to the point where our production capability, quality and delivery are at planned levels. Excess costs were removed at the end of the year. During the year the product range of the combined business was extended and sales into export markets expanded; these now represent over 14% of the total sales of the Division. Managerial resources were strengthened during the second half and the Division is now in a strong position to pursue its planned growth opportunities. The exceptional charge of £3.49m represents the costs attributable to the relocation and integration of the Manchester based Product Source and MT Golf trade businesses onto the Blackpool site. Income statement for the period ended 29 December 2007 2007 2006 Note £'000 £'000 Sales 2 146,823 119,519 Operating expenses (143,076) (112,355) Operating profit 2 3,747 7,164 Operating profit before exceptional items and share grant 10,160 7,541 Exceptional items 3 (5,273) (377) Share grant 4 (1,140) - Operating profit 2 3,747 7,164 Finance costs (458) (44) Finance income 13 218 Profit before tax 3,302 7,338 Taxation 6 (1,072) (2,348) Profit attributable to equity Shareholders 2,230 4,990 Earnings per share Basic 8 8.93p 20.29p Diluted 8 8.65p 19.44p Balance sheet at 29 December 2007 Note 2007 2006 £'000 £'000 Non current assets Property, plant and equipment 10,240 10,315 Goodwill 9,084 9,084 Intangible assets 1,459 1,616 Investments 8 7 Deferred tax assets 4,334 6,149 25,125 27,171 Current assets Inventories 9,335 8,409 Trade and other receivables 31,156 23,748 Cash and cash equivalents 2,744 2,115 43,235 34,272 Current liabilities Trade and other payables 22,950 18,710 Current tax 322 857 Borrowings 3,821 2,364 27,093 21,931 Net current assets 16,142 12,341 Non current liabilities Retirement benefit obligations 5 10,549 18,436 Financial liability - 1,000 Borrowings 6,000 - 16,549 19,436 Net assets 24,718 20,076 Shareholders' equity Share capital 9 9,823 9,766 Share premium reserve 9 37,943 37,757 Capital redemption reserve 9 208 208 Cumulative translation differences 9 (1,690) (1,750) Retained earnings 9 (21,566) (25,905) Total equity 24,718 20,076 The US dollar to sterling exchange rate at the balance sheet date was $1.9929 (2006: $1.9572). Cash flow statement for the period ended 29 December 2007 2007 2006 Note £'000 £'000 Cash flows from operating activities Cash generated from operations 10 782 3,052 Tax paid (2,734) (848) Finance income 82 167 Finance costs (406) (23) Net cash (used in)/ generated from operating activities (2,276) 2,348 Cash flows from investing activities Acquisition of subsidiary (266) (2,058) Cash acquired with subsidiary - 520 Proceeds on disposal of subsidiary - 526 Purchases of property, plant and equipment (1,220) (822) Purchases of intangible assets (672) (643) Proceeds from sale of property, plant and equipment - 27 Net cash used in investing activities (2,158) (2,450) Cash flows from financing activities Repayment of borrowings on acquisition - (7,219) Proceeds from new borrowings 6,000 - Proceeds from issue of ordinary shares 243 205 Dividends paid to Shareholders 7 (2,557) (1,911) Net cash generated from/(used in) financing activities 3,686 (8,925) Net movement in cash and bank overdrafts (748) (9,027) Cash and bank overdrafts at beginning of the period (249) 9,012 Exchange losses on cash and bank overdrafts (80) (234) Cash and bank overdrafts at end of the period (1,077) (249) Analysis of cash and bank overdrafts Cash at bank and in hand 2,744 2,115 Bank overdraft (3,821) (2,364) (1,077) (249) 1 Basis of preparation The consolidated financial statements of 4imprint Group plc are prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 1985 applicable to those companies reporting under IFRS. These consolidated financial statements are prepared under the historical cost convention. Critical accounting policies Critical accounting policies are those that require significant judgement or estimates and potentially result in materially different results under different assumptions or conditions. Pensions As disclosed in note 5 the Group operates a closed defined benefit scheme. Year end recognition of the liabilities under this scheme and the return on assets held to fund these liabilities require a number of significant actuarial assumptions to be made including inflation, asset returns, discount rate and mortality rates. Small changes in assumptions can have a significant impact on the expense recorded in the income statement and on the pension liability in the balance sheet. Deferred Taxation The Group is required to estimate the income tax in each of the jurisdictions in which it operates. This requires an estimation of the current tax liability together with an assessment of the temporary differences which arise as a consequence of different tax and accounting treatments. Assumptions are made around the extent to which it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are recognised at the balance sheet date based on these assumptions. Share based payments The fair values of employee share option plans are calculated using the Binomial or Monte Carlo models as appropriate. The fair value is charged to the income statement over the vesting period of the share option schemes. The calculations require a number of estimates and judgements including the historical volatility of the Company's share price, expected forfeiture rates of options and expected life of options. Inventory provisions Inventory provisions are made in relation to slow moving and obsolete inventory and are based on assumptions on expected usage using historic and forecast sales as a basis. Exceptional items The Group presents certain items separately as 'exceptional'. These are items which in management's judgement need to be disclosed separately by virtue of their size and occurrence. 2 Segmental reporting At 29 December 2007, the Group is reported in three primary business segments: Gross segment sales Inter-segment sales External sales 2006 2006 2007 (restated) 2007 2006 2007 (restated) £'000 £'000 £'000 £'000 £'000 £'000 Trade Division 23,727 13,137 (4,025) (4,059) 19,702 9,078 End User Division 50,846 47,448 (463) (430) 50,383 47,018 Direct Marketing Division 76,738 63,423 - - 76,738 63,423 Total 151,311 124,008 (4,488) (4,489) 146,823 119,519 As discussed in the Operating Review, during 2007, the UK Direct Marketing business was transferred to the Executive control of the Direct Marketing Division (previously called the North American Division). Its results for 2007 have been included in this Division and 2006 has been restated accordingly. Inter-segment sales are made on an arms-length basis. Operating profit/(loss) before exceptional Exceptional items Operating items and share grant and share grant profit/(loss) 2006 2006 2007 (restated) 2007 2006 2007 (restated) £'000 £'000 £'000 £'000 £'000 £'000 Trade Division 3,334 2,361 (3,492) - (158) 2,361 End User Division 2,880 2,345 (1,781) (170) 1,099 2,175 Direct Marketing Division 6,167 4,910 - - 6,167 4,910 Head Office (1,331) (1,015) (1,140) (207) (2,471) (1,222) Operating profit before defined benefit 11,050 8,601 (6,413) (377) 4,637 8,224 pension and share option charges Defined benefit pension charges (295) (325) - - (295) (325) Share option charges (595) (735) - - (595) (735) Total 10,160 7,541 (6,413) (377) 3,747 7,164 The overheads and infrastructure costs of the Manchester site are shown entirely in the European End User Division. As discussed in the Operating Review these overheads supported the Manchester site, including the Manchester based trade businesses until their relocation in the second half of 2007. Net finance cost totalling £445,000 (2006 income: £174,000) and taxation charge of £1,072,000 (2006: £2,348,000) cannot be separately allocated to individual segments. A review of the segments is included in the Operating Review. 3 Exceptional items 2007 2006 £'000 £'000 Trade Division integration costs (3,492) - End User Division reorganisation costs (980) - Contract exit costs (801) - Group restructuring costs - (143) OFT fine and related costs - (64) European reorganisation charge - (170) (5,273) (377) The exceptional item above comprises £3,025,000 cash expenditure in 2007, £1,253,000 non cash items and £995,000 cash items included in accruals at 29 December 2007. Trade Division integration costs and End User Division reorganisation costs represent the costs attributable to the relocation of the Manchester based Product Source and MT Golf trade businesses to the Supreme trade business in Blackpool, together with the resultant reorganisation of the business and related infrastructure in Manchester. Contract exit costs represent the costs of exiting an onerous customer contract in the European End User Division, including a £500,000 inventory write down. The Group restructuring costs in 2006 comprise legal, accounting and tax fees relating to a one-off project to restructure the legal entities within the Group to create further distributable reserves in 4imprint Group plc (the Company). The OFT fine in 2006 was imposed in relation to breaches of competition law relating to the supply of stock check pads by BemroseBooth Limited (a former group company) and Achilles Paper Group Ltd. The period during which Bemrose Corporation plc (now 4imprint Group plc) was involved in such supply was from 20 April 2000 to 2 July 2000. Legal costs of defence were also included in this charge. The European reorganisation charge in 2006 relates to rationalisation of the Manchester based business. 4 Share Grant On 1 August 2007, 200,000 shares were awarded to the Chairman. The charge of £1,140,000 represents the number of shares awarded at the share price on the date of grant plus associated costs. In view of the magnitude of the charge arising and non-recurring nature of the award, separate disclosure on the face of the income statement is relevant to assisting an understanding of the Group's financial performance. 5 Employee pension schemes The Group operates defined contribution plans for the majority of its UK and US employees. The regular contributions are charged to the income statement as they are incurred. The Group also operates a UK defined benefit scheme which is closed to new members. 2007 2006 £'000 £'000 Net pension costs Defined contribution plans 396 365 Defined benefit scheme Current service cost 91 96 Net interest cost 204 229 691 690 Defined benefit scheme In the most recent actuarial review of the 4imprint Group plc defined benefit scheme the principal assumptions made by the actuaries were: 2007 2006 Rate of increase in pensionable salaries 4.30% 4.00% Rate of increase in pensions in payment and deferred pensions 3.30% 3.00% Discount rate 6.00% 5.30% Inflation assumption 3.30% 3.00% Expected return on scheme assets 7.00% 6.20% The mortality assumptions adopted at 31 December 2007 imply the following life expectancies at age 65: 2007 2006 Male currently age 40 21.4 years 19.8 years Female currently age 40 24.2 years 22.8 years Male currently age 65 20.2 years 19.8 years Female currently age 65 23.0 years 22.8 years The amounts recognised in the balance sheet are determined as follows: 2007 2006 £'000 £'000 Present value of funded obligations (91,544) (100,347) Fair value of scheme assets 80,995 81,911 Net liability recognised in the balance sheet (10,549) (18,436) The major categories of plan assets as a percentage of total scheme assets are as follows: 2007 2006 Equities 42% 42% Bonds 32% 31% Property 22% 15% Cash 4% 12% The amounts recognised in the income statement are as follows: 2007 2006 £'000 £'000 Current service cost 91 96 Interest cost 5,200 4,722 Expected return on scheme assets (4,996) (4,493) Total included in staff costs 295 325 Changes in the present value of the defined benefit obligation are as follows: 2007 2006 £'000 £'000 Defined benefit obligation at start of period 100,347 98,023 Current service cost 91 96 Interest cost 5,200 4,722 Contributions by scheme participants 3 3 Actuarial (gains)/losses (9,524) 932 Benefits paid (4,573) (3,429) Defined benefit obligation at end of period 91,544 100,347 Changes in the fair value of scheme assets are as follows: 2007 2006 £'000 £'000 Fair value of assets at start of period 81,911 77,093 Expected return on assets 4,996 4,493 Actuarial (losses)/gains (3,242) 2,251 Contributions by employer 1,900 1,500 Contributions by scheme participants 3 3 Benefits paid (4,573) (3,429) Fair value of assets at end of period 80,995 81,911 Analysis of the movement in the balance sheet liability: 2007 2006 £'000 £'000 At start of period 18,436 20,930 Total expense as above 295 325 Contributions paid (1,900) (1,500) Actuarial gains taken directly to equity (6,282) (1,319) At end of period 10,549 18,436 The actual return on scheme assets was £1,754,000 (2006: £6,744,000). 6 Taxation 2007 2006 £'000 £'000 Analysis of charge in the period: UK tax - current (341) (96) Overseas tax - current 2,534 1,041 Deferred tax (1,146) 1,403 Impact of change in UK tax rate on deferred tax 25 - Taxation 1,072 2,348 The tax for the year is different to the standard rate of corporation tax in the UK (30%). The differences are explained below: 2007 2006 £'000 £'000 Profit before tax 3,302 7,338 Profit on ordinary activities multiplied by rate of corporation tax in the UK of 30% 991 2,201 Effects of: Adjustments in respect of foreign tax rates 360 235 Expenses not deductible for tax purposes 88 86 Timing differences and other differences (367) (174) Taxation 1,072 2,348 7 Dividends 2007 2006 Equity dividends - ordinary shares £'000 £'000 Interim paid: 4.00p (2006: 3.25p) 1,008 809 Final paid: 6.25p (2006: 4.50p) 1,549 1,102 2,557 1,911 In addition, the Directors are proposing a final dividend in respect of the period ended 29 December 2007, of 8.00p per share, which will absorb an estimated £2.01m of Shareholders' funds. It will be paid on 28 April 2008 to Shareholders who are on the register of members on 28 March 2008. These financial statements do not reflect this proposed dividend. 8 Earnings per share Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary Shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held in the Employee Share Trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. The potential dilutive ordinary shares relate to those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares at the balance sheet date. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: 2007 2006 Weighted Weighted average average number number Earnings of shares Pence per Earnings of shares Pence per £'000 '000 share £'000 '000 share Earnings attributable to ordinary Shareholders 2,230 4,990 Ordinary shares in issue 25,470 25,343 Shares held by Employee Share Trust (501) (754) Basic EPS 2,230 24,969 8.93 4,990 24,589 20.29 Effect of dilutive share 802 (0.28) 1,084 (0.85) options Diluted EPS 2,230 25,771 8.65 4,990 25,673 19.44 9 Statement of changes in Shareholders' equity Retained earnings Share Capital Cumulative Profit Share premium redemption translation Own and Total capital reserve reserve differences shares loss Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2006 9,634 37,684 208 (210) (1,822) (29,534) 15,960 Profit for the period 4,990 4,990 Exchange adjustments net of tax (1,540) (1,540) Shares issued 132 73 205 Own shares utilised 424 (424) - Employee share options taken to reserves 650 650 Deferred tax on employee share options taken to reserves 459 459 Current tax deduction on exercise of employee share options 492 492 Actuarial gains taken to reserves 1,319 1,319 Deferred tax on pensions taken to reserves (548) (548) Dividends (1,911) (1,911) Balance at 30 December 2006 9,766 37,757 208 (1,750) (1,398) (24,507) 20,076 Balance at 31 December 2006 9,766 37,757 208 (1,750) (1,398) (24,507) 20,076 Profit for the period 2,230 2,230 Exchange adjustments net of tax 60 60 Shares issued 57 186 243 Own shares utilised 830 (830) - Own shares purchased (183) (183) Employee share options taken to reserves 595 595 Share grant taken to reserves 908 908 Deferred tax on employee share options taken to reserves (540) (540) Actuarial gains taken to reserves 6,282 6,282 Deferred tax on pensions taken to reserves (2,396) (2,396) Dividends (2,557) (2,557) Balance at 29 December 2007 9,823 37,943 208 (1,690) (751) (20,815) 24,718 The cumulative goodwill written off to the reserves in respect of subsidiary companies currently held amounts to £15,297,000 (2006: £15,297,000). 10 Cash generated from operations 2007 2006 £'000 £'000 Operating profit 3,747 7,164 Adjustments for: Depreciation charge 1,206 604 Amortisation of intangibles 688 778 Profit on disposal of property, plant and equipment - (1) Exceptional non cash items 1,253 - Share option charge 595 735 Share grant 1,140 - IAS 19 pension charge for defined benefit scheme 295 325 Contributions to defined benefit pension scheme (1,900) (1,500) Changes in working capital: Increase in inventories (1,426) (1,162) Increase in trade and other receivables (7,537) (5,195) Increase in trade and other payables 2,721 1,589 Decrease in provisions - (285) Cash generated from operations 782 3,052 11 Five Year Financial Record IFRS IFRS IFRS IFRS UK GAAP 2007 2006 2005 2004 2003 Income statement £'000 £'000 £'000 £'000 £'000 Continuing operations Sales 146,823 119,519 96,481 88,965 89,773 Operating profit 3,747 7,164 5,388 2,625 1,340 Operating profit before exceptional 1,761 items and share grant 10,160 7,541 5,703 3,150 Exceptional items (5,273) (377) (315) (525) (421) Share grant (1,140) - - - - Operating profit 3,747 7,164 5,388 2,625 1,340 Finance costs (458) (44) (47) (140) (234) Finance income 13 218 300 325 216 Profit before tax 3,302 7,338 5,641 2,810 1,322 Taxation (1,072) (2,348) (1,691) 492 548 Profit from continuing operations 2,230 4,990 3,950 3,302 1,870 Profit/(loss) from discontinued operations - - 4,012 3,270 (10,006) Profit/(loss) attributable to equity Shareholders 2,230 4,990 7,962 6,572 (8,136) Earnings/(loss) per ordinary share 8.93p 20.29p 30.94p 22.97p (28.34)p Dividend per share - paid and 12.00p 9.50p 7.00p 5.25p 4.00p proposed For consistency UK GAAP results have been split between continuing and discontinued operations as required by IFRS. 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