Interim Results

4imprint Group PLC 27 August 2003 Press Release 27 August 2003 4imprint Group plc Interim Results for the six months to 28 June 2003 4imprint Group plc, the leading global distributor of imprinted promotional products, today reports its Interim Results for the six months ended 28 June 2003. Financial highlights • US Dollar sales were up 7.7% in total, driven by strong sales performances from AIA and the Corporate Programmes channel • European Premiums volume was down from last year's exceptional performance • After the negative impact of exchange rates of £2.25m, there was an overall decrease in turnover of 4.4% • Exceptional operating charge of £1.3m related to AIA restructuring - the associated changes are anticipated to produce annual cost savings in excess of £1m from 2004 onwards • An operating loss before tax, operating exceptional items and goodwill amortisation of £587k (£520k profit in same period of 2002) • Interim dividend is unchanged at 1p per share Operational highlights • Integration of the programmes acquired from Gearworks - MG Rover, Lexus, Mazda and Accenture - in June has proceeded as planned, and these are expected to contribute to profits in the second half. • Strong order intake in European Premiums has recovered a significant part of the first half shortfall compared to last year. • System-wide US dollar billings for Adventures in Advertising (AIA), our franchise organization, increased 8% and service fee income was up 9%. • Overheads continue to be tightly controlled • Recent US Corporate Programmes wins are expected to make a positive contribution in the second half Commenting on the Results, Dick Nelson, Chief Executive of 4imprint Group plc, said: 'The malaise that has hung over the broader advertising market for the better part of two years has brightened slightly for us in the past few months. Trading across the Group relative to our markets and competitors gives us optimism that the Board's expectations for the full year can be met.' - Ends - www.4imprint.com www.4imprint.co.uk For further information, please contact: 4imprint Group plc Dick Nelson, Chief Executive Tel: +44 (0) 20 7444 4140 Email: dnelson@4imprint.com (today only) Issued by: Bankside Henry Harrison-Topham / Russell Elliott Tel: +44 (0) 20 7444 4140 Email: henry.ht@bankside.com www.bankside.com Chief Executive's Review Introduction Group turnover decreased from the prior year by £1.99m. Two-thirds of this decrease arose from our European operations, with the remainder coming from the US. This, coupled with the continued investment in US Corporate Programmes, led to a loss before tax, exceptional items and goodwill amortisation of £587k in the first half of 2003, (£520k profit in 2002). However, the cash position remains healthy and, given the Group's high operational gearing and traditionally busier second half of the year, we anticipate a much stronger trading performance in the remainder of the financial year. Financial Summary US dollar sales were up 7.7% in total, driven by strong performances from AIA and the Corporate Programmes channel. However, this did not fully offset the translation effect of a higher exchange rate, which amounted to £2.25m. European sales were lower, due primarily to a reduction in European Premiums volume from last year's exceptional performance. These factors resulted in a fall in Group turnover to £43.04m, from £45.03m in 2002. Overheads continue to be tightly controlled and a number of business processes have been reviewed to ensure superior client service, but without increasing overall overheads from the levels incurred in 2002. The process of removing under-performing AIA franchise owners, which was commenced last autumn, should largely be completed by year-end. A further review resulted in the trading update on 10 June, which announced the relocation of AIA to Oshkosh, and the removal of further non-compliant or under performing franchise owners. The associated costs of collection and debtor provisions, along with the costs of relocation, resulted in the creation of an operating exceptional item totalling £1.3m. These changes are anticipated to produce annual cost savings in excess of £1m from 2004 onwards. Working capital control remains a priority and, despite the usual pressures in the first half of the year, the Group's cash performance was strong. Capital expenditure has been further reduced and, with the exception of stock relating to Corporate Programmes growth, other working capital has been reduced in Europe and AIA from the interim stage in 2002. On the advice of our actuaries and as noted in our 2002 Annual Report, our pension fund, which has been closed to new members for several years, now requires a cash contribution of £1.44m per annum, up from £0.12m. The next scheduled full actuarial valuation is in April 2004 and, although options available for the group in respect of the pension scheme appear to be limited, it remains under review because of its relative size and the unknown future burden that it represents for the company. The increased contribution rate commenced in May 2003, and the total additional payment of £220k in the first half is held in the balance sheet as a prepayment as required under current accounting regulations (SSAP24). The Board has declared an interim dividend of 1 pence per Ordinary Share (2002 - 1 pence). Corporate Programmes Our Corporate Programmes channel designs, sources, manufactures, warehouses and distributes promotional products for major clients, which include Barclays, BT, Cessna, IBM, JCB, Microsoft and Union Pacific. The UK Corporate Programmes group saw the benefits of the reductions in the cost base made last year and, despite significant downward pressure in the economy, sustained only a slight decrease in turnover from the first half of 2002. Integration of the programmes acquired from Gearworks in June of this year (MG Rover, Lexus, Mazda and Accenture) has proceeded as planned. These programmes will contribute to profits in the second half of the year. We also expect to build on an encouraging first half performance in Germany. Revenues in US Corporate Programmes increased 55% over the same period last year as the investment we have made to build this division continues to produce significant results. Wins so far in 2003 include ABB, Royal Purple, Fidelity Information Systems, Sikorsky Aircraft Corporation, Raytheon, Orkin, Trinity Healthcare and Borg Warner, all of which will be in operation within the next six months and are expected to help this channel make a positive contribution in the second half. Direct Marketing Our Direct Marketing channel mails over 8 million catalogues and other pieces annually to customers and prospects, and serves more than 150,000 customers worldwide. The decision to mail fewer catalogues in 2002, justified by the forecast weakness in both UK and US economies at the time, has had a negative impact on 2003 revenues in both the UK and US direct marketing units. As a result, sales were down 3.3% and 1.5% respectively from the prior half year. Our catalogues have a significant shelf life, often producing orders six months or more after the original mailing date. By mailing fewer catalogues in the autumn of 2002, we have so far received less orders relating to those catalogues in 2003 than comparatively in the prior year. However, response rates and average order values for catalogues mailed this year are generally in line with expectations, and mailings have now been increased for the remainder of this year. Orders received via the Internet in this channel are now 25% of the total compared to 20% in 2002. Premiums Our Premiums channel designs, sources and arranges offshore manufacturing of large one-off imprinted promotional products orders, most often used by larger companies in consumer promotions. The UK Premiums group had an exceptionally strong first half in 2002. In the first half of 2003, sales were down 20% due principally to the negative impact on our airline customers of the travel slowdown caused by the war in Iraq and SARS. However, a strong order intake in recent weeks has recovered much of the first half's shortfall. The US Premiums team continues to make good progress and, although it was only recently established and with relatively low sales at present, they more than doubled revenues over the first half of 2002. Partner Services Our Partner Services channel leverages our bespoke enterprise operating system and industry-leading supply chain management processes into other channels of distribution. System-wide billings for Adventures in Advertising (AIA), our franchise organisation, increased 8% and service fee income was up 9%. As previously reported, we have raised the standards for joiners and, as a result, we have added 32 new owners in the first half of this year compared to 78 in 2002. The relocation of the AIA offices from Boston to Oshkosh, Wisconsin, is proceeding to plan and will be substantially completed by year-end. We continue vigorously to pursue old debts owed to us by franchisees. To assist in this complex process we have retained the services of a specialist debt collection agency, whose regular updates are used as the basis for our bad debt provision. We also commissioned a separate report from PricewaterhouseCoopers, which has given us additional comfort as to the adequacy of the provision. An additional £742k of bad debt provision is contained within the operating exceptional charge of £1.3m, but the nature of these balances means that any provision is judgmental and requires regular re-assessment. Dan Carlson, founder of AIA, retired with effect from 30 June 2003. David Woods, the new CEO, and other members of the management team have assumed Dan's duties, primarily the recruitment of new owners. The UK Field Sales group has found the marketplace more competitive than anticipated and much work has been done to refocus this team. Outlook The malaise that has hung over the broader advertising market for the better part of two years has brightened slightly for us in the past few months. Trading across the Group relative to our markets and competitors gives us optimism that the Board's expectations for the full year can be met. Dick Nelson Chief Executive Officer 27 August 2003 Consolidated Profit & Loss Account (Unaudited) For the six months to 28 June 2003 Notes Half year Half year Full year 2003 2002 2002 £'000 £'000 £'000 Turnover 2 43,044 45,034 94,625 Operating (loss)/profit before goodwill (597) 381 2,368 amortisation and exceptionals Operating exceptional item 3 (1,300) (2,366) (2,366) Goodwill amortisation (373) (473) (858) Operating loss 2 (2,270) (2,458) (856) Exceptional item 3 - - 503 Interest 10 139 245 Loss before taxation (2,260) (2,319) (108) Taxation 4 679 696 373 (Loss)/profit after taxation (1,581) (1,623) 265 Dividends 5 (287) (287) (646) Transfer from reserves (1,868) (1,910) (381) Earnings per share 6 (5.51)p (5.65)p 0.92p Basic & diluted Dividend per share 1.00p 1.00p 2.25p All operations relate to continuing activities. Reconciliation of Movement in Shareholders' Funds (Unaudited) Half year Half year Full year 2003 2002 2002 £'000 £'000 £'000 (Loss)/profit for the financial period (1,581) (1,623) 265 Dividends (287) (287) (646) (1,868) (1,910) (381) Other recognised losses relating to the period - exchange (738) (350) (1,821) adjustments Net movement in shareholders' funds (2,606) (2,260) (2,202) Opening shareholders' funds 43,513 45,715 45,715 Closing shareholders' funds 40,907 43,455 43,513 These financial statements should be read in conjunction with the attached notes. Consolidated Balance Sheet (Unaudited) As at 28 June 2003 At 28 June At 29 June At 28 December 2003 2002 2002 £'000 £'000 £'000 Fixed assets 18,518 20,832 19,587 Current assets Stock 7,344 6,721 6,269 Debtors due within one year 28,418 36,020 31,140 Debtors due after more than one year 2,348 4,258 2,732 Cash at bank and in hand 10,137 14,410 9,268 48,247 61,409 49,409 Creditors: amounts falling due within one year (24,413) (35,310) (23,999) Net current assets 23,834 26,099 25,410 Total assets less current liabilities 42,352 46,931 44,997 Provisions for liabilities and charges (1,445) (3,476) (1,484) Net assets 40,907 43,455 43,513 Capital and reserves Called up share capital 11,044 11,044 11,044 Other reserves 29,863 32,411 32,469 Equity shareholders' funds 40,907 43,455 43,513 4,745 228 4,828 Net cash These financial statements should be read in conjunction with the attached notes. Consolidated Cash Flow (Unaudited) For the six months to 28 June 2003 Notes Half year Half year Full year 2003 2002 2002 £'000 £'000 £'000 Cash inflow/(outflow) from operating activities 7 675 (2,053) 3,293 Returns on investments and servicing of finance 10 139 245 Taxation 335 (199) (130) Capital expenditure (860) (1,168) (2,072) Acquisitions and disposals - - (153) Equity dividends paid (355) (358) (645) Cash (outflow)/inflow before the use of liquid resources and financing (195) (3,639) 538 Financing Repayment of loans (311) (8,262) (19,310) Decrease in cash in the period (506) (11,901) (18,772) Cash inflow from movement in debt 311 8,262 19,310 Change in net debt resulting from cash flows (195) (3,639) 538 Translation differences 112 571 994 Movement in net cash in the period (83) (3,068) 1,532 Opening net cash 4,828 3,296 3,296 Closing net cash 4,745 228 4,828 These financial statements should be read in conjunction with the attached notes. Notes to the Financial Statements 1 Basis of preparation This Interim Report for the half year ended 28 June 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 year ended 28 December 2002. Those accounts carry an unqualified auditors' report and have been delivered to the Registrar of Companies. The comparative results for the year ended 28 December 2002 are abridged and, as such, do not represent statutory accounts. 2 Segmental analysis Half year 2003 Half year 2002 Full year 2002 Operating Operating Operating (loss)/ (loss)/ (loss)/ Turnover Profit Turnover Profit Turnover Profit £'000 £'000 £'000 £'000 £'000 £'000 ORIGIN United Kingdom 22,623 (178) 23,982 317 49,376 1,029 Goodwill amortisation - (138) - (138) - (284) 22,623 (316) 23,982 179 49,376 745 United States 20,421 (419) 21,052 64 45,249 1,339 Exceptional item - (1,300) - (2,366) - (2,366) Goodwill amortisation - (235) - (335) - (574) 20,421 (1,954) 21,052 (2,637) 45,249 (1,601) TOTAL 43,044 (2,270) 45,034 (2,458) 94,625 (856) 3 Exceptional items As a result of a strategic review of our Partner Services channel in the US we have provided for certain one-off costs of £1.3m relating to the relocation of the Franchise operation, AIA, to Oshkosh and the restructuring of the operation. The operating exceptional in 2002 relates to provisions made predominantly for amounts due from debtors in AIA. The release in 2002 of the exceptional provision of £0.5m relates to costs on a prior year disposal. 4 Taxation The taxation charge for the 6 months to 28 June 2003 has been calculated by applying the best estimate of the Group's annual tax rate to the loss before taxation for the period. 5 Dividend The interim dividend for 2003 of 1p per ordinary share (2002 : 1.00p) will be paid on 10 November 2003 to ordinary shareholders on the register at the close of business on 17 October 2003. 6 Earnings per share The Earnings Per Share for the half year is based on the loss after tax of £1,581,000 (2002 : loss £1,623,000) and weighted average shares in issue (excluding those held in 4imprint QUEST) of 28,709,185 (2002 : 28,709,185). The Diluted Earnings Per Share for the half year is based on the same loss figures as above and there is no dilutive effect of share options outstanding. The weighted average number of shares in issue for Diluted Earnings Per Share purposes is therefore 28,709,185 (2002 : 28,709,185). 7 Reconciliation of operating loss to operating cashflows Half year Half year Full year 2003 2002 2002 £'000 £'000 £'000 Operating loss (2,270) (2,458) (856) Depreciation charge 1,143 1,241 2,399 Amortisation of goodwill 373 473 858 (Profit)/loss on sale of tangible fixed assets (6) - 3 Exceptional reorganisation costs paid - (603) - Increase in stocks (1,110) (1,466) (1,108) Decrease in debtors 3,253 358 4,078 (Decrease)/increase in creditors (262) 402 (824) Expenditure against provisions (446) - (1,257) Net cash inflow/(outflow) from operating activities 675 (2,053) 3,293 8 Retirement benefits The Group operates a defined benefit pension scheme in the UK. A full actuarial valuation was carried out at 5 April 2001 and updated to 28 June 2003 (for FRS 17 purposes) by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms): Half Year Half Year Full Year 28 June 29 June 28 December 2003 2002 2002 Rate of increase in salaries 3.75% 4.00% 3.50% Rate of increase of pensions in payment 2.50% 2.75% 2.25% Discount rate 5.50% 6.00% 5.75% Inflation 2.50% 2.75% 2.25% The assets in the scheme and the expected rates of return were:- Half Year Half Year Full Year 28 June 29 June 28 December 2003 2002 2002 £'000 £'000 £'000 Equities 7.00% 32,416 7.50% 43,757 7.00% 31,510 Bonds 5.00% 29,001 5.50% 23,092 5.00% 28,585 Other 6.00% 739 6.50% 1,118 6.00% 1,485 Total market value of assets 62,156 67,967 61,580 Actuarial value of liability (84,108) (78,739) (78,091) Deficit in the scheme (21,952) (10,772) (16,511) Related deferred tax asset 6,586 3,232 4,953 Net pension liability (15,366) (7,540) (11,558) The movement in the net pension liability was: Half year to Half year to Full year to 28 June 29 June 28 December 2003 2002 2002 £'000 £'000 £'000 Net pension liability at beginning of period (11,558) (2,402) (2,402) Movement in period: Current service cost (40) (55) (110) Contributions 390 60 120 (Interest cost)/net return on assets (382) 100 200 Actual return less expected return on assets 1,834 (6,129) (12,830) Experience gains and losses on liabilities 27 45 290 Changes in assumptions (7,270) (1,362) (750) Movement in deferred tax asset 1,633 2,203 3,924 Net pension liability at end of period (15,366) (7,540) (11,558) This information is provided by RNS The company news service from the London Stock Exchange

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