Final Results

RNS Number : 8339N

4imprint Group PLC

25 February 2009

 

25 February 2009

4imprint Group plc

Preliminary Results for the period ended 27 December 2008

4imprint Group plc announces today its results for the period ended 27 December 2008

Highlights

• Group revenue increased to £168.09m, a 14% increase on 2007

• Operating profit before exceptional items and share grant was £9.34m, compared to £10.16m in 2007

• Operating profit was £5.79m, compared to £3.75m in 2007

• Profit before tax was £5.07m, an increase of 54% over 2007

• Basic earnings per share before exceptional items and share grant was 23.91p (2007: 26.40p)

• Basic earnings per share was 14.06p (2007: 8.93p), an increase of 57%

• Final dividend of 8.0p per share is proposed

• Group net debt was £4.19m, a reduction of £2.89m

- Ends -

For further information, please contact:

Ken Minton

Executive Chairman

4imprint Group plc                                                            Tel. [phone]

Gillian Davies

Group Finance Director

4imprint Group plc

Executive Chairman's Statement

At the interim statement I said that the Board expected to make further progress in the second half of the year. The Group did indeed see second half sales continue the 14% growth established in the first half.

However, market conditions weakened considerably in the fourth quarter, affecting particularly sales volumes in the Trade Division and gross margin and yield on catalogue investment in the North American Direct Marketing business.

Group revenue, at £168.09m was 14% ahead of 2007, Group operating profit before exceptional costs at £9.34m was 8% down on 2007 reflecting the weaker market conditions in November and December mentioned earlier.

Exceptional charges were £3.55m and were mainly due to:-

(a)   The completion of the restructuring of the Trade Division including write down of inventory and trade receivables, and costs associated with the major productivity improvements achieved. Manning levels were reduced from 353 at the start of 2008 to 245 currently.

 

(b)   Costs associated with de-manning and organisation improvements in the End User Division.

 

Operating profit after these exceptional charges was £5.79m. Net finance costs were £0.72m producing profit before tax of £5.07m. Taxation charge at an effective rate of 30% produced post tax profit of £3.55m.

Basic earnings per share before exceptional costs was 23.91p (2007: 26.40p). Basic earnings per share was 14.06p (2007: 8.93p).

Cash flow was rigorously controlled and as a result, net debt was reduced from £7.08m at the start of 2008 to £4.19m at the end of the year. 

Looking now at the performance of the three divisions which comprise the Group, the picture in 2008 was as follows:-

(a)    Direct Marketing Division

 

In North America, the Division maintained its strong growth, with revenue of US$170.57m, a 17% increase on 2007. After a modest start to the year where the yield on the catalogue prospecting investment was lower than expected, growth accelerated and continued until November, when the market weakness intensified and catalogue yields fell sharply. Operating profit in November and December was correspondingly affected and operating profit for the year was marginally lower than 2007. In the UK, the Direct Marketing business grew strongly with revenue at £5.18m, 25% ahead of last year.

 

(b)  End User Division

 

The End User Division delivered an excellent performance with revenue at £54.97m, 8% ahead of 2007, and divisional operating profit before exceptional items at £4.72m, 64% ahead of 2007. All three businesses in the division performed well.

 

(c)  Trade Division

 

The financial performance of this division was disappointing. While the quality and customer service issues which badly affected the second half of 2007 have been totally resolved, the recovery of sales has occurred more slowly than expected, in a UK market which was considerably weaker in the second half of the year. To combat these conditions, substantial reductions in costs have been achieved with manning reduced by 30% over the year and total annualised fixed costs more than £2m lower than at the start of the year.
 

Furthermore, the management team has been completely restructured. The principal focus is now centred on expanding sales in the UK and export markets.

 

External and inter division revenue in 2008 was £19.76m and the division made a small loss before exceptional items of £0.04m.

Dividend 

A final dividend of 8.0p per share will be proposed for Shareholders' approval at the Annual General Meeting to be held on 23 April 2009.

People

The impact of the crisis in the financial world and its recessionary consequences for trade is inevitably putting strains on all employees in the Group. The Board recognises this and appreciates the co-operation of everyone as we adjust to these new conditions, and take the necessary actions to ensure that the Group continues the progress that everyone has made possible in recent years. 

Outlook 

The markets served by 4imprint remain uncertain and the Group has entered 2009 with a modest level of debt and all three divisions prepared for a challenging year. Costs and cash flow remain under tight control.

Ken Minton

Executive Chairman

25 February 2009

Finance Director's Report

Group results	2008 £m	2007 £m	Change
Group revenue	168.09	146.82	+14%
Group operating profit before exceptional items and share grant	9.34	10.16	-8%
Group profit before tax	5.07	3.30	+54%
Net debt and borrowings	(4.19)	(7.08)	+£2.89m

Revenue in the Direct Marketing Division was 26% ahead of prior year in Sterling, End User Division revenue was 8% ahead and Trade Division revenue was 15% down on prior year.

Operating profit before exceptional items and share grant was 5% ahead in the Direct Marketing division, 64% ahead in the End User division and the Trade Division made a loss of £0.04m. 

Head office costs were £1.59m compared to £1.33m in 2007. The increase was principally represented by increased employment costs, addition of strategic resource and the cost of relocation of the head office in the year. 

Share option charge

The Group charged £0.37m (2007: £0.60m) to operating profit in accordance with IFRS2 'Share based payments'. The reduction is due to employee cancellation of SAYE schemes which are underwater and expiry of Group senior management and Executive schemes which have vested.

Pensions

The Group sponsors a defined benefit scheme, closed to new members, with 4 active members, 954 pensioners and 368 deferred members at the date of the last scheme accounts. There is a credit of £0.15m to profit in the period and cash contributions to the scheme were £2.26m.

The pension fund deficit has increased to £16.94m, as a result of a reduction in assets of £14.76m, principally due to actuarial losses; offset by a £8.37m reduction in liabilities, principally due to an increase in the discount rate from 6.0% to 6.5%.

KPI'S

The Board monitors progress on the Group's strategy by reference to the following KPI's:

-          Revenue by division

-          Operating profit by division

-          Operating cash flow by division

-          Group profit before tax

-          Group cash flow

-          Headcount

These are discussed in the divisional operating reviews and in this report. 

Exceptional items

The exceptional charge of £3.55m, comprised the following items:-

 

i)                     £2.79m finalisation of the major rationalisation and restructuring of the Trade Division. This included £0.41m relating to headcount reduction; £1.72m cost of inventory write down and £0.66m write down of trade receivables.

 

ii)                   Costs of £0.58m of reorganisation in the UK End User Division and closure of a small, unprofitable overseas office.

 

iii)                  Costs of £0.18m for onerous leases retained in the Group on the disposal of businesses in 2000. These costs relate to excess costs which have been incurred by the Group in 2008 and provision for net costs up to the date of exit from the final lease in 2011. 

£2.43m of this exceptional charge represented non cash items.

Taxation

The tax charge was £1.52m, an effective rate of 30% (2007: 32%). Cash paid in the period was £0.96m (2007: £2.73m), principally in overseas territories. The current tax charge of £0.57m related to overseas tax and the deferred tax charge of £0.95m related principally to the utilisation of deferred tax assets for pension, share options and other timing differences offset by the recognition of deferred tax assets in subsidiaries for trading losses carried forward. 

Earnings per share

Basic earnings per share for the year was 14.06p (2007: 8.93p). Basic earnings per share pre exceptional items and share grant was 23.91p (2007: 26.40p). 

Dividends

The Board proposes a final dividend of 8.0p which together with the interim dividend of 4.25p gives 12.25p for the period, an increase of 2% over prior year.

Cash flow

The Group's net debt at 27 December 2008 was £4.19m, of which £1.90m represents a new borrowing facility entered into in 2008 to fund the construction of a new distribution centre in US Direct Marketing.  

The principal components of the cash inflow in the period were:

	£m
Cash generated from operations before exceptional items	11.54
Defined benefit contributions	(2.26)
Cash cost of exceptional items	(1.41)
Operating working capital	4.69
Tax, dividends and interest	(4.77)
Capital investment	(3.41)
Deferred consideration on the acquisition of Supreme Holdings Ltd in 2006	(1.09)
Other, including exchange	(0.40)
Movement in net debt	2.89

• Capital investment included £1.81m relating to the freehold land and building for the US Distribution Centre (at US dollar average rate). 

Balance sheet and Shareholders' funds

Equity Shareholders' funds decreased by £(3.16)m. Profit, net of dividends paid, in the period is £0.46m; exchange gains are £2.84m; net of tax actuarial losses are £(6.34)m and other movements are £(0.12)m. 

Exchange and cash management

The average exchange rates during the period used to translate the income statements of principal overseas subsidiaries were US dollars: $1.86 (2007: $2.00) and Euros: €1.26 (2007: €1.46) to Sterling. The movement compared to prior year in US dollar exchange rate increased profit of the US business by £0.44m.

The exchange rates at the balance sheet date used to translate assets and liabilities were US dollars: $1.47 (2007: $1.99) and Euros: €1.05 (2007: €1.36). This resulted in an increase in US dollar denominated overseas subsidiaries assets of £1.70m and an increase in Euro denominated overseas subsidiary assets of £0.83m.

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 pensions, deferred taxation, share based payments, inventory provisions, trade receivables provisions and exceptional items. 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 holds the majority of cash or borrowings with its principal UK banker.

Gillian Davies

Group Finance Director

25 February 2009

Operating Review

Direct Marketing Division

		2008		2007
		£'000		£'000
Revenue		96,663		76,738
Operating profit		6,466		6,167

The Direct Marketing Division is comprised of two main operating units:

• The North American business, based in Oshkosh, Wisconsin, which services the promotional product requirements of customers throughout the USA and Canada primarily through a catalogue/internet-based direct marketing model. This is a well-established business which has a demonstrated track record of strong growth and cash generation characteristics.

• The Manchester based UK direct marketing operation, which in 2008 completed its first full year operating as a standalone business unit, after previously operating as part of the End User Division of the group.

In North America, total revenue in US dollars at $170.57m was 17% ahead of prior year, the result of continued expansion of catalogue mailings, internet presence and existing customer marketing programs. Performance in Canada was particularly impressive, with revenue increasing by more than 50% over 2007. Across the business, over 95,000 new customers were acquired in 2008, an increase of 20% over the 79,000 acquired in 2007 and importantly, existing customer revenue continued to grow in line with expectations. 

However, the yield on our prospect marketing investment to acquire new customers decreased in the US, in particular in the fourth quarter, as economic turbulence coincided directly with a significant increase in prospect marketing activity, the bulk of which had been committed to in the third quarter. In addition, volatility in the US/Canadian dollar exchange rate in quarter four produced a significant adverse exchange movement. These factors combined to leave operating profit in US dollars 5% below prior year, although this result was mitigated in the Division's overall results by the favourable movement in the US dollar/Sterling exchange rate in 2008 compared to 2007. 

In the UK, the Manchester based direct marketing business made excellent progress in its first year of independent operation. Revenue increased by 25% over 2007. Closer interaction with the expertise in the US business was complemented by a talented and increasingly confident local management team. For the first time, the business did make a very modest operating profit in the year, despite still being in the 'investment phase' of its development. Planning continues for potential future organic expansion into the wider European market.

With no customer making up more than 1% of revenue, and more customers using the internet and catalogues to order promotional products, the Direct Marketing Division is well positioned for the future. Although net margins are temporarily affected as prospecting yield is under pressure due to the challenging economic situation on both sides of the Atlantic, the business continues to produce attractive growth. The Division's working capital requirements are modest, and consequently it remains highly cash-generative.

Operating Review

End User Division

		2008		2007
		£'000		£'000
External and inter division revenue		54,968		50,846
External revenue		54,647		50,383
Operating profit before exceptional items		4,721		2,880
Operating profit		4,138		1,099

The End User Division distributes promotional items principally to large corporate clients, through its three operations of Brand Addition in Manchester, Product Plus International in London and Kreyer Promotion Service in Hagen, Germany. These businesses provide their clients with product design, sourcing and delivery services, primarily via a contractual relationship.

Following the transfer and integration of the Product Source business into the Trade Division and the transfer of the UK Direct Marketing business to the Direct Marketing Division, 2008 was the first full year of trading as a division dedicated to serving clients who require specialist support for their corporate and consumer promotions. The sharpness of this focus has been reflected in the excellent progress made.

Total divisional revenue increased by 8% and operating profit before exceptional items, increased by 64% over 2007.

Taking each of the businesses in turn:

a) Brand Addition (Manchester)
This business is the largest of the three operations, representing 50% of the revenue within the End User Division and successfully rebranded itself as 'Brand Addition' in early 2008.

The business has increased its revenue by 5% over 2007. This revenue increase was achieved in conjunction with lower overheads established in the second half of 2007. As a result, operating profit before exceptional items more than doubled against prior year.

b) Product Plus International (London)
Our specialist Premiums business represents 25% of the total revenue in the division. Revenue in the year was broadly in line with 2007.

This business continues to evolve by focussing on market sectors where value can be added to our product offering through design and logistics solutions. This has led to an increase in operating profit before exceptional items of 21% over 2007.

c) Kreyer (Hagen, Germany)
The services provided by this business are similar to those of Brand Addition, offering value added out-sourced promotional product marketing programmes to our clients and working in partnership with the Manchester business where appropriate. This business continued its development in the year and has now become a substantial part of the division's revenue and operating profit. In Sterling, revenue increased by 31% over 2007 and operating profit before exceptional items increased by 20% as investment has been made to support revenue growth.

Across the division cash generation was strong. Cash generated from operations was almost double operating profit before exceptional items, with a significant reduction in working capital levels compared to 2007. 

The exceptional charge in the year relates to the reorganisation of UK operations and the closure of a small, unprofitable overseas office.

Operating Review

Trade Division 

	2008	2007
	£'000	£'000
External and inter division revenue	19,764	23,727
External revenue	16,775	19,702
Operating (loss)/profit before exceptional items	(38)	3,334
Operating loss	(2,831)	(158)

The Trade Division is based in Blackpool. It is one of the largest promotional products trade supply companies in the UK; utilising its specialist manufacturing and print facilities and worldwide sourcing of other product ranges.

Total external and inter division revenue was 17% down on 2007. This poor performance arose from:

(a)     Weaker demand in the first half as customers waited for evidence that the delivery and quality problems of the second half of 2007 had been resolved.

 

(b)     In the second half, the impact of the credit turmoil on the UK promotional products market gradually intensified, with quarter four being particularly weak.

However, during the year, great progress was made in dealing with the consequences of the weaker revenue position: 

Firstly, the delivery and quality performance rose substantially and customer feedback in the second half confirmed that in most areas we had returned to the high 'pre integration' standards. 

Secondly, operating costs which had increased significantly over planned levels during the integration process were steadily reduced and are now below the levels predicted prior to integration. Manning levels at the start of 2009 were 30% below those at the start of 2008.

The division overhead base and customer service performances are now fully competitive.

During 2008, a new experienced executive management team was installed and is fully operational. Product design, procurement, sales and marketing resources have all been strengthened. A renewed focus on export markets where there are substantial opportunities was implemented in the fourth quarter. 

The exceptional charge related to the finalisation of the major rationalisation and restructuring in the division. This included £0.41m relating to headcount reduction; £1.72m cost of inventory write down and £0.66m write down of trade receivables. 

Income statement for the period ended 27 December 2008 

		2008	2007
	Note	£'000	£'000
Revenue	1	168,085	146,823
Operating expenses		(162,296)	(143,076)
Operating profit	1	5,789	3,747
Operating profit before exceptional items and share grant		9,342	10,160
Exceptional items	2	(3,553)	(5,273)
Share grant		-	(1,140)
Operating profit	1	5,789	3,747
Finance income		37	13
Finance costs		(756)	(458)
Profit before tax		5,070	3,302
Taxation	4	(1,520)	(1,072)
Profit attributable to equity Shareholders		3,550	2,230
Earnings per share
Basic	6	14.06p	8.93p
Diluted	6	13.67p	8.65p

Statement of recognised income and expense for the period ended 27 December 2008

		2008	2007
	Note	£'000	£'000
Profit for the period		3,550	2,230
Exchange gains offset in reserves net of tax		2,841	59
Actuarial (losses)/gains taken to reserves net of tax	7	(6,336)	3,886
Net (losses)/gains not recognised in income statement		(3,495)	3,945
Total recognised income for the period		55	6,175

Balance sheet at 27 December 2008

	Note	2008	2007
		£'000	£'000
Non current assets
Property, plant and equipment		12,548	10,240
Goodwill		9,084	9,084
Intangible assets		1,630	1,459
Investments		11	8
Deferred tax assets		5,861	4,334
		29,134	25,125
Current assets
Inventories		8,449	9,335
Trade and other receivables		28,854	31,156
Cash and cash equivalents		4,411	2,744
		41,714	43,235
Current liabilities
Trade and other payables		(23,601)	(22,950)
Current tax		(151)	(322)
Borrowings		-	(3,821)
		(23,752)	(27,093)
Net current assets		17,962	16,142
Non current liabilities
Retirement benefit obligations	3	(16,937)	(10,549)
Borrowings		(8,600)	(6,000)
		(25,537)	(16,549)
Net assets		21,559	24,718
Shareholders' equity
Share capital	7	9,846	9,823
Share premium reserve	7	38,016	37,943
Capital redemption reserve	7	208	208
Cumulative translation differences	7	1,151	(1,690)
Retained earnings	7	(27,662)	(21,566)
Total equity		21,559	24,718

Cash flow statement for the period ended 27 December 2008

		2008	2007
	Note	£'000	£'000
Cash flows from operating activities
Cash generated from operations	8	12,563	782
Tax paid		(960)	(2,734)
Finance income		37	82
Finance costs		(761)	(406)
Net cash generated from/(used in) operating activities		10,879	(2,276)
Cash flows from investing activities
Acquisition of subsidiary	8	(1,090)	(266)
Purchases of property, plant and equipment		(2,809)	(1,220)
Purchases of intangible assets		(623)	(672)
Proceeds from the sale of property, plant and equipment		24	-
Net cash used in investing activities		(4,498)	(2,158)
Cash flows from financing activities
Proceeds from borrowings		2,600	6,000
Proceeds from issue of ordinary shares		96	243
Purchase of own shares		(652)	-
Dividends paid to Shareholders	5	(3,090)	(2,557)
Net cash (used in)/generated from financing activities		(1,046)	3,686
Net movement in cash, cash equivalents and bank overdrafts		5,335	(748)
Cash, cash equivalents and bank overdrafts at beginning of the period		(1,077)	(249)
Exchange gains/(losses) on cash and bank overdrafts		153	(80)
Cash, cash equivalents and bank overdrafts at end of the period		4,411	(1,077)
Analysis of cash, cash equivalents and bank overdrafts
Cash at bank and in hand		4,411	2,744
Bank overdraft		-	(3,821)
	8	4,411	(1,077)

General Information 

4imprint Group plc is a public limited company incorporated and domiciled in the UK and listed on the London Stock Exchange. Its registered office is 7/8 Market Place, London W1W 8AG.

The consolidated financial statements were authorised for issue in accordance with a resolution of the Directors on 25 February 2009.

Basis of preparation

The consolidated financial statements and the accompanying notes do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.

The auditors have reported on the Group's statutory accounts for each of the years ending 27 December 2008 and 29 December 2007 under S235 of the Companies Act 1985. These reports do not contain statements under S237(2) or S237(3) of the Companies Act 1985 and are unqualified. The statutory accounts for the year ending 29 December 2007 have been delivered to the Registrar of Companies and the statutory accounts for the year ending 27 December 2008 will be filed with the Registrar in due course.

The audited consolidated financial statements from which these results are extracted have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and those parts of the Companies Act 1985 applicable to companies reporting under IFRS.

The accounting policies set out below represent an extract of the policies set out in the consolidated financial statements. There have been no changes in accounting policy in the year.

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 3 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 and 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 of expected usage using historic and forecast sales as a basis.

Trade receivables provisions

A provision for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due in accordance with the original terms of the receivables. 

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.

1 Segmental reporting

Primary reporting format - business segments

At 27 December 2008, the Group is reported in three primary business segments:

	Gross segment revenue		Inter-segment revenue		External revenue
	2008 £'000	2007 £'000	2008 £'000	2007 £'000	2008 £'000	2007 £'000
Trade Division	19,764	23,727	(2,989)	(4,025)	16,775	19,702
End User Division	54,968	50,846	(321)	(463)	54,647	50,383
Direct Marketing Division	96,663	76,738	-	-	96,663	76,738
Total	171,395	151,311	(3,310)	(4,488)	168,085	146,823

Inter-segment revenues are on an arms-length basis.

	Operating profit/(loss) before exceptional items and share grant		Exceptional items And share grant		Operating  profit/(loss)
	2008 £'000	2007 £'000	2008 £'000	2007 £'000	2008 £'000	2007 £'000
Trade Division	(38)	3,334	(2,793)	(3,492)	(2,831)	(158)
End User Division	4,721	2,880	(583)	(1,781)	4,138	1,099
Direct Marketing Division	6,466	6,167	-	-	6,466	6,167
Head Office	(1,587)	(1,331)	(177)	(1,140)	(1,764)	(2,471)
Operating profit before defined benefit pension and share option charges	9,562	11,050	(3,553)	(6,413)	6,009	4,637
Defined benefit pension charges	150	(295)	-	-	150	(295)
Share option charges	(370)	(595)	-	-	(370)	(595)
Total	9,342	10,160	(3,553)	(6,413)	5,789	3,747

Net finance cost totalling £719,000 (2007: £445,000) and taxation charge of £1,520,000 (2007: £1,072,000) cannot be separately allocated to individual segments. 

A description and review of the segments is included in the Operating Review. 

2 Exceptional items

	2008	2007
	£'000	£'000
Trade Division reorganisation and integration costs	(2,793)	(3,492)
End User Division reorganisation costs	(583)	(980)
Contract exit costs	-	(801)
Onerous lease	(177)	-
	(3,553)	(5,273)

Following the integration of the Product Source business into the Trade Division in Blackpool in July 2007, the division has gone through a significant period of restructuring and rationalisation. The Trade Division exceptional costs in 2008 represent the finalisation of this major reorganisation. These costs principally comprise £409,000 relating to headcount reduction; £1,719,000 inventory write down and £665,000 provision for irrecoverable trade receivables.

The End User Division reorganisation costs in 2008 relate to the restructuring of the UK operations across the London and Manchester businesses and the closure of a small, unprofitable overseas office. 

The onerous lease costs relate to leases which were retained by the Group following the disposal of businesses in 2000. Since the disposal, the properties have not been used by the Group and are sublet if possible. These charges relate to excess costs incurred in 2008 and the net costs which will be incurred by the Group for the remainder of the lease periods. The final lease expires in 2011.

Trade Division integration costs and End User Division reorganisation costs in 2007 represent the costs attributable to the relocation of the Manchester based Product Source business to the Supreme trade business in Blackpool, together with the resultant reorganisation of the business and related infrastructure in Manchester.

Contract exit costs in 2007 represent the costs of exiting an onerous customer contract in the End User Division, including a £500,000 inventory write down. 

Cash expenditure on exceptional items in 2008 was £1,411,000 including £962,000 in respect of 2007 exceptional items. Non cash items were £2,432,000 and £705,000 of cash items are included in accruals at 27 December 2008.

3 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. 

		2008	2007
		£'000	£'000
Net pension costs
Defined contribution plans		460	396
Defined benefit scheme
Current service cost		68	91
Net interest (income)/cost		(218)	204
		310	691

The whole of the above charge was included within operating expenses. 

Defined benefit scheme

In the most recent actuarial review of the defined benefit scheme the principal assumptions made by the actuaries were:

	2008	2007
Rate of increase in pensionable salaries	3.8%	4.3%
Rate of increase in pensions in payment and deferred pensions	2.8%	3.3%
Discount rate	6.5%	6.0%
Inflation assumption	2.8%	3.3%
Expected return on scheme assets	6.3%	7.0%

The mortality assumptions adopted at 27 December 2008 imply the following life expectancies at age 65:

	2008	2007
Male currently age 40	21.4 yrs	21.4 yrs
Female currently age 40	24.2 yrs	24.2 yrs
Male currently age 65	20.3 yrs	20.2 yrs
Female currently age 65	23.1 yrs	23.0 yrs

The amounts recognised in the balance sheet are determined as follows:

	2008	2007
	£'000	£'000
Present value of funded obligations	(83,170)	(91,544)
Fair value of scheme assets	66,233	80,995
Net liability recognised in the balance sheet	(16,937)	(10,549)

The major categories of plan assets as a percentage of total scheme assets are as follows:

	2008	2007
Equities	33%	42%
Bonds	38%	32%
Property	20%	22%
Cash	9%	4%

  The amounts recognised in the income statement are as follows:

	2008	2007
	£'000	£'000
Current service cost	68	91
Interest cost	5,366	5,200
Expected return on scheme assets	(5,584)	(4,996)
Total included in staff costs	(150)	295

Changes in the present value of the defined benefit obligation are as follows:

	2008	2007
	£'000	£'000
Defined benefit obligation at start of period	91,544	100,347
Current service cost	68	91
Interest cost	5,366	5,200
Contributions by scheme participants	3	3
Actuarial gains	(9,510)	(9,524)
Benefits paid	(4,301)	(4,573)
Defined benefit obligation at end of period	83,170	91,544

Changes in the fair value of scheme assets are as follows:

	2008	2007
	£'000	£'000
Fair value of assets at start of period	80,995	81,911
Expected return on assets	5,584	4,996
Actuarial losses	(18,309)	(3,242)
Contributions by employer	2,261	1,900
Contributions by scheme participants	3	3
Benefits paid	(4,301)	(4,573)
Fair value of assets at end of period	66,233	80,995

Based on the current schedule of contributions, contributions by the employer for 2009 would be broadly in line with the 2008 contributions. 

Analysis of the movement in the balance sheet liability:

	2008	2007
	£'000	£'000
At start of period	10,549	18,436
Total (income)/expense as above	(150)	295
Contributions paid	(2,261)	(1,900)
Actuarial losses/(gains) taken directly to equity	8,799	(6,282)
At end of period	16,937	10,549

The actual return on scheme assets was a loss of £(11,920,000) (2007: gain £1,754,000).

  4 Taxation

	2008	2007
	£'000	£'000
Analysis of charge in the period:
UK tax - current	-	(341)
Overseas tax - current	568	2,534
Total current tax	568	2,193
Deferred tax	525	(1,146)
Adjustment in respect of prior years' deferred tax	427	-
Impact of change in UK tax rate on deferred tax	-	25
Total deferred tax	952	(1,121)
Taxation	1,520	1,072

The tax for the year is different to the standard rate of corporation tax in the UK (28.5%). The differences are explained below:

	2008	2007
	£'000	£'000
Profit before tax	5,070	3,302
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 28.5% (2007: 30%)	1,445	991
Effects of:
Adjustments in respect of foreign tax rates	83	360
Expenses not deductible for tax purposes and non taxable income	(58)	88
Timing differences and other differences	(377)	(367)
Adjustments in respect of previous years	427	-
Taxation	1,520	1,072

Factors which may affect future tax charges

No provision has been made for deferred tax assets relating to trading losses carried forward of £2.34m (2007: £2.80m). These losses may be available for offset against future trading profits.   

No provision has been made for deferred tax assets relating to capital losses carried forward of £9.85m (2007: £9.85m). These amounts will be utilised should the UK Group have any chargeable gains in the future. No material gains were anticipated as at 27 December 2008.

5 Dividends

	2008	2007
Equity dividends - ordinary shares	£'000	£'000
Interim paid: 4.25p (2007: 4.00p)	1,070	1,008
Final paid:  8.0p (2007: 6.25p)	2,020	1,549
	3,090	2,557

In addition, the Directors are proposing a final dividend in respect of the period ended 27 December 2008, of 8.0p per share, which will absorb an estimated £2.02m of Shareholders' funds. It will be paid on 28 April 2009 to Shareholders who are on the register of members on 27 March 2009. These financial statements do not reflect this proposed dividend. 

6 Earnings per share

Basic and diluted

The basic and diluted earnings per share are calculated based on the following data:

	2008	2007
	£'000	£'000
Profit for the financial period	3,550	2,230
Add back:
Exceptional items	3,553	5,273
Share grant	-	1,140
Tax effect of the above items	(1,066)	(2,052)
Adjusted profit for the financial period	6,037	6,591
	Number 000's	Number 000's
Basic weighted average number of shares	25,251	24,969
Dilutive potential ordinary shares - employee share options	715	802
Diluted weighted average number of shares	25,966	25,771
Basic earnings per share	14.06p	8.93p
Adjusted basic earnings per share	23.91p	26.40p
Diluted earnings per share	13.67p	8.65p

The basic weighted average number of shares excludes shares held in the Employee Share Trust. The effect of this is to reduce the average by 343,000 (2007: 501,000).

The basic earnings per share is calculated based on the profit for the financial period divided by the basic weighted average number of shares.

For diluted earnings per share, the basic 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.

The adjusted basic earnings per share is calculated before the after tax effect of exceptional items and share grant and is included because the Directors' consider this gives a measure of the underlying performance of the business.

7 Statement of changes in Shareholders' equity 

						Retained earnings
		Share	Share premium	Capital redemption	Cumulative translation	Own	Profit and	Total
		capital	reserve	reserve	differences	shares	loss	Equity
Group		£'000	£'000	£'000	£'000	£'000	£'000	£'000
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
Balance at 30 December 2007		9,823	37,943	208	(1,690)	(751)	(20,815)	24,718
Profit for the period							3,550	3,550
Exchange adjustments net of tax					2,841			2,841
Shares issued		23	73					96
Own shares utilised						701	(701)	-
Own shares purchased						(469)		(469)
Employee share options taken to reserves							370	370
Deferred tax on employee share options taken to reserves							(121)	(121)
Actuarial losses taken to reserves							(8,799)	(8,799)
Deferred tax on pensions taken to reserves							2,463	2,463
Dividends							(3,090)	(3,090)
Balance at 27 December 2008		9,846	38,016	208	1,151	(519)	(27,143)	21,559

The cumulative goodwill written off to the reserves in respect of subsidiary companies currently held amounts to £15,297,000 (2007: £15,297,000).

Own shares held comprises 290,325 ordinary shares (2007: 355,000)

8 Cash generated from operations

	2008	2007
	£'000	£'000
Operating profit	5,789	3,747
Adjustments for:
Depreciation charge	1,298	1,206
Amortisation of intangibles	661	688
Loss on disposal of property, plant and equipment	19	-
Exceptional non cash items	2,432	1,253
(Decrease)/increase in exceptional accrual	(290)	995
Share option charge	370	595
Share grant	-	1,140
IAS 19 pension (credit)/charge for defined benefit scheme	(150)	295
Contributions to defined benefit pension scheme	(2,261)	(1,900)
Changes in working capital:
Increase in inventories	(267)	(1,426)
Decrease/(increase) in trade and other receivables	5,614	(8,532)
(Decrease)/increase in trade and other payables	(652)	2,721
Cash generated from operations	12,563	782

During the year £1,090,000 of deferred consideration and interest accrued, relating to the purchase of Supreme Holdings Limited in 2006, was paid.

		Group
		2008	2007
Reconciliation of net debt		£'000	£'000
Cash at bank and in hand		4,411	2,744
Current bank overdrafts		-	(3,821)
		4,411	(1,077)
Non current bank loans		(8,600)	(6,000)
Net debt		(4,189)	(7,077)

 

END

 

 

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