Final Results

St. Ives PLC 10 October 2006 10 October 2006 ST IVES plc Preliminary Results for the 52 weeks ended 28 July 2006 St Ives plc, the UK's leading printing group, announces preliminary results for the 52 weeks ended 28 July 2006. Key Points â€¢ Turnover Â£401.3m (2005: Â£419.5m) â€¢ Profit before tax Â£22.6m (2005: Â£20.2m) â€¢ Underlying* profit before tax Â£21.7m (2005: Â£38.2m) â€¢ Basic earnings per share 14.38p (2005: 11.14p) â€¢ Underlying* earnings per share 14.16p (2005: 24.73p) â€¢ Total dividend maintained at 17.15p per share * before restructuring costs and provision releases Commenting on the results, Chairman, Miles Emley said: 'Over-capacity and volatile demand in most of our markets made 2006 another challenging year. However the closure of a number of competitors in recent months should improve the balance of supply and demand. 'Our market leading reputation for service and our strong financial position mean that we are well positioned to respond rapidly to any opportunities that arise in our industry and we will continue to seek ways to develop and grow our core activities for the benefit of shareholders.' For further information contact: St Ives plc Miles Emley, Chairman Brian Edwards, Managing Director Ray Morley, Finance Director 020 7928 8844 Smithfield John Antcliffe Rupert Trefgarne 020 7360 4900 CHAIRMAN'S STATEMENT Results Sales were Â£401.3 million (2005 - Â£419.5 million) and profit before taxation was Â£22.6 million (2005 - Â£20.2 million). Profit before restructuring costs and provision releases and taxation was Â£21.7 million (2005 - Â£38.2 million). Earnings per share were 14.38p or 14.16p before restructuring costs and provision releases (2005 - 11.14p and 24.73p respectively). Dividends A maintained final dividend of 12.15p per share is proposed, making a total dividend of 17.15p per share for the year as a whole, the same as last year. If approved, the dividend will be paid on 8 December 2006 to shareholders on the register on 10 November 2006. Trading Conditions Over-capacity in most of our markets and the resultant intense price competition made it another challenging year for our Company. In all our markets demand has been more volatile and forward visibility more restricted than usual. Our Group Sales team, inaugurated in April, made an extremely promising contribution. Media Products Amongst Media Products in the UK, demand for books remained steady. Our own business performed well and was able to mitigate the effects of pricing pressure by winning increased volume. We continued to increase sales of ancillary logistics and distribution services. Our sales to magazine markets were lower as we were unwilling to reduce prices to the unsustainable levels offered by certain of our competitors, especially in the case of longer-run titles. Magazine paginations were particularly volatile towards the end of our financial year. Growth in demand for special packaging, mainly for DVD products, partly offset further reductions in demand for standard music products. Commercial Products Demand for Commercial Products in the UK varied widely. Over-capacity in the web offset sector, coupled with a volatile market, made for intense price competition. Demand for personalised direct mail products was weaker. Sales to retail and brand point-of-sale customers grew significantly although activity levels fluctuated during the year. We were especially busy in the first half of the financial year which led to manufacturing inefficiencies and increased costs and resulted in a reduced performance. Margins in the second half of our financial year were returned to more normal levels. We maintained our share of the market for Annual Report and Accounts, which continued to expand to accommodate increased disclosure requirements. Levels of activity in the market for corporate financial print both in the UK and USA remained subdued, against a background of increased migration towards electronic distribution. Pricing in these markets has reached levels which cannot be sustained indefinitely. USA In the USA, commercial and publication markets experienced similar conditions of over-capacity and fierce price competition to those in the UK. We experienced significant fluctuations in demand. The severe disruption to our South Florida operations in the first half of the financial year as a result of hurricanes contributed to a reduced result. Investment We continued to invest in our business where the projected returns justified it. During the year investment was focused on improving the responsiveness of our service so as further to distance our offering from that of the competition. Our equipment base is already technologically unequalled but additional investment will be hard to justify in many of our markets. We are actively considering acquisition opportunities which will further consolidate our position as the leading provider of specialist print-related services to UK markets. Staff On behalf of shareholders I should like to thank all the Group's employees for the contribution they have made in the face of continuing challenges. Board During the year Lorraine Baldry retired from the board after six years' service as a non-executive director. We thank her for her contribution over that period. We welcome David Best and Richard Stillwell as new non-executive directors: both took up their appointments on 1 September 2006. Outlook The launch of our new Group Sales team in April marked an important further step on the focusing of our offering on customers and markets which have a requirement for more than commodity print. As a result we have started the new financial year with a higher level of contracted sales, mainly to commercial rather than media customers. Demand remains volatile and forward visibility limited in all our markets. The recent closure or failure of a number of competitors holds the promise of a more rational pricing environment in the web offset and direct mail markets. Our market leading reputation for service and strong financial position will enable us to respond rapidly to any opportunities that arise as a result. Miles Emley Chairman 10 October 2006 BUSINESS REVIEW Strategy St Ives' strategy is to focus in all its markets on segments where there is a demand for time-sensitive service and where, in addition to print, it is able to supply services including complex logistical, fulfilment or distribution requirements. By adding value in this way, the Group seeks to provide lower cost solutions for its customers while generating an improved return. St Ives has avoided commodity markets, except where necessary to achieve economic utilisation. It is considered that the demand for focused and therefore shorter-run, quicker turnaround work will grow in the Group's markets. We expect that as advertisers accumulate more information on consumers' purchasing habits, they will focus their promotions accordingly; similarly, magazine customers will continue to target titles at more narrowly defined audience groups; book publishers will seek to avoid risky investment in long runs when they can rely on a quick reprint for a bestselling title; and requirements for point-of-sale materials for in-store promotions are immediate and time-sensitive and specifically targeted at individual stores within multiple chains. The Group often provides added value services such as stock management, fulfilment, distribution, mailing and logistics services in addition to the supply of the printed product. We concentrate on supplying markets which have high service requirements, and products are mostly supplied just-in-time to domestic markets. There is little export business and import penetration into the Group's markets is limited. During the year, in the UK, we set up a Group Sales team, offering customers the combined service and printing resources across both the Commercial and Media Products segments and a single point of contact with St Ives' facilities. This strategy is directed to offering customers an alternative to print management companies and other intermediaries who, in contrast to St Ives, predominantly sub-contract their customers' work to the trade thereby surrendering a large degree of control and accountability. We keep all areas of our business under continual review and remain committed to the development and growth of our core activities for the benefit of shareholders. Review of operations The business of the Group is reported on below by market segment. Media Products Comprise the production of books, magazines and printing for the multimedia and music industries. 2006 2005 Â£'000 Â£'000 Media Products total revenue 187,965 205,419 Media Products profit before restructuring costs, provision releases 23,904 28,670 and interest Media Products represented 47% of Group external sales. Books Cost effective short initial runs and quick turnaround reprints allow publishers to reduce risk stock on the initial run and respond quickly to market demand while still keeping their risk stock to a minimum. Books currently account for approximately 37% of Media Products' external sales. St Ives has a substantial share of the UK's monochrome trade and general book market. Some Bibles and reference books are also manufactured. The Group's principal competitors are CPI Group (Cox & Wyman, Bath Press, Mackays and Bookmarque) and other small to medium sized private companies. St Ives works for almost all of the major UK trade publishing houses, including Bloomsbury, Hachette (including Orion, Hodder, Headline and Little, Brown), Harper Collins, Penguin and Random House, which together account for the significant majority of sales. The UK demand for monochrome books remains strong and our Book business continues to benefit from its unrivalled reputation and ability to deliver a first class service. We have seen further growth in demand for direct deliveries and for post-bind services. Activities such as stickering and shrink wrapping are often a requirement as a result of books being delivered directly to retail outlets or customers' chosen distributors. During the year we once again produced a high proportion of the bestsellers which included 'Journey's End' (Josephine Cox) for HarperCollins; 'Mary, Mary' (James Patterson) for Headline; 'Being Freddie: The Story so Far' (Andrew Flintoff) for Hodder; 'I Can Make You Thin' (Paul McKenna) for Transworld; ' Labyrinth' (Kate Mosse) for Orion; 'Next to You' (Gloria Hunniford) and ' Freakonomics' (Levitt and Dubner), both for Penguin; 'Mao: The Unknown Story' (Chang and Halliday) for Random House; 'Predator' (Patricia Cornwell) and ' Extreme: My Autobiography' (Sharon Osbourne), both for Time Warner; 'Schott's Almanac' (Ben Schott) for Bloomsbury. Investment during the year included additional printing capacity further to strengthen our ability to respond to ever increasing demand for faster service; further development of electronic trading solutions for our customers; and the expansion of our cover and jacket printing capabilities. Utilising IT solutions to support the additional post-bind services being offered has been particularly important to our growth in this area. We continue to develop online solutions to enable our customers to track orders and to place production and delivery instructions. In addition to winning several new accounts, we are delighted to have renewed some major contracts during the year for periods of up to seven years. The current dollar exchange rates have made it difficult to grow sales to the US Bible market but we have retained some key customers, including IBS, Living Stream and Tyndale. Magazines UK magazines currently account for around 45% of Media Products' external sales. All types of consumer and business magazines are produced from shorter-run sheet fed titles of 1,000+ copies, to longer-run heatset web offset magazines. Our competitors include Cooper Clegg, Polestar, Southernprint, Wyndeham Press, and a number of small to medium sized private companies. Magazines with paginations that vary every issue are often produced for customers within hours of the disc or digital transmission being received. This allows customers more selling time for filling their advertising space and including up-to-the-minute editorial material. St Ives works for most of the UK magazine publishers including The Economist, EMAP and Time Out, as well as the UK businesses of international publishers such as AOL/Time Warner (IPC), Conde Nast and VNU. In order further to reduce our costs of production during the year we purchased a new Goss M600 press for our Plymouth site which, when fully operational in Autumn 2006, will replace two older, less productive, presses. This press, complemented by the high-speed Kolbus/Ferag perfect binder that was recently installed, will improve productivity. Pricing pressures remain due to continued over-capacity in the web offset market. During the year we declined work for a number of customers because we believed that prices had reached uneconomic levels. As a consequence, sales in the second half of the financial year were reduced in comparison to the previous year and further restructuring of our cost base was implemented mainly by reducing overheads. Our strategy of seeking shorter-run time-sensitive work, which has resulted in our winning over 80 new titles, continues to broaden our customer base and we are also able to offer our customers integrated printing, mailing and fulfilment services following the establishment of SouthWest Mailing on a site adjoining our factory at Roche. Multimedia The Group's Multimedia business provides CD and DVD booklets and inlays and a wide range of specialist board packaging to music, television series, movie and computer games publishers and manufacturers of electronic media in both the UK and Europe. Our main competitors in the UK and Europe are AGI and Shorewoods (both owned by US parent companies) and a range of smaller operations serving local markets: CMCS, Delga and Ingersol in the UK and Alt, Kaiser and Pozzolli in Europe. Two major disc duplicators serving publishers in Germany and The Netherlands have their own in-plant printing facilities. Booklets and inserts for new release music CDs are often produced with a large initial order to meet the product launch requirements followed by repeat, short-run, just-in-time orders. Quick reprints are linked to the CD disc duplicators' production control systems to keep customers' risk stock to a minimum. Customers include most of the major international home entertainment and media publishers including Electronic Arts, Microsoft, Universal Music, Universal Pictures, Warner Home Entertainment, Warner Music; large independent UK licensees and distributors including Anchor Bay and Contender; and the major European disc duplicators Cinram, EDC, MediaMotion, ODS, Sonopress, Sony DADC and Technicolor. The business made significant improvements in the pattern of sales over the prior year despite challenging market conditions. The UK business reaped full year benefits of cost savings implemented from a restructuring initiated in the second half of the previous financial year and from additional sales of multimedia print. Progress has been made in broadening the customer base at Uden, our business based in The Netherlands. Our reputation for quality and reliability throughout the year remains unrivalled amongst the specialist print suppliers serving multimedia publishers. This has resulted in our securing substantial additional contracted work from Universal Music and EDC Blackburn. The multimedia market is expected to remain highly seasonal and extremely price competitive. To mitigate this we are also offering our specialist packaging capabilities to other markets which present opportunities for winning some counter-cyclical work. There is little sign that the price pressure experienced in recent years will abate in the near future. In reaching longer-term agreements with our principal customers we have negotiated increased volumes and revised service levels in exchange for sharing resultant savings in costs. More flexible working arrangements with our workforce to better align our capacity with the seasonal requirements of our customers were achieved during the year. Commercial Products Include direct response and general commercial printing; corporate and financial security printing; and point-of-sale materials for major retailers and brands. 2006 2005 Â£'000 Â£'000 Commercial Products total revenue 151,431 150,216 Commercial Products profit before restructuring costs, 1,611 6,679 provision releases and interest Commercial Products accounted for 37% of Group external sales. Direct Response Products include mail order catalogues, business catalogues, brochures, leaflets, newspaper and magazine inserts and other promotional material and direct mail pieces mostly for more narrowly targeted, specialist and shorter-run markets. Services provided to customers include data manipulation, personalisation and fulfilment, as well as printing. The Group's main competitors are Communisis, Howitt, Pindar, Polestar, Wyndeham Press and other small to medium sized private companies. As almost all commercial enterprises and other organisations of any size have some requirement for print, the market is substantial. In the UK, significant customers for our targeted and personalised print services include Co-op, Focus, the Government (including HMRC, DWP and COI), HSBC, Makro, OgilvyOne, RBS, Shop Direct and Somerfield. Market conditions within our commercial markets have remained extremely challenging throughout the year as supply continued to exceed demand and, as a consequence, trading margins have declined on sales which were maintained overall, but which masked reductions in prices and added value. Managing capacity loadings was particularly challenging, with little forward visibility. There has, however, been growth in sales to our major commercial customers which has partly offset reductions in demand from those Government departments with whom we have dealt. In the commercial web offset market we have had some success within the retail sector in winning more time-sensitive, in-store marketing material. We are now even better placed to win this work following the commissioning of a new 5 unit 32-page short grain press at our Bradford site in May 2006. The overall profitability of our commercial web operations has declined over the prior financial year due mainly to lower sales volumes following the end of a contract with a major customer as well as reduced prices reflecting the wider commercial print market. More targeted direct marketing has resulted in a fall in demand for volume personalised direct mail although the number of individual campaigns undertaken for our customers has risen. We have also seen an increase in variable content colour personalised work, particularly in the automotive, entertainment and financial sectors as a result of the investment in digital print facilities in Leeds in the previous year. The trading performance of our direct mail, digital and graphics operations was adversely affected by fierce competition in an over-supplied market which saw a significant reduction in demand from the financial services sector in particular. Our commercial sheet fed businesses also suffered from significant over-supply within the wider market arena. During the year we established a new Group Sales team. The costs of setting up and developing the infrastructure were incurred from January 2006. Initial orders were won in April and sales have been built up as the year progressed, with incremental sales being secured from existing and new customers, including Atos, Ethel Austin, Halfords, Manor Bakeries and Verve Venues - an encouraging start. Customers are now able to have immediate access to the full range of St Ives' capabilities through a dedicated sales team, headed by the Group Sales director supported by a new business development director. Customers are offered a proprietary online tool, named 'dna'TM, to facilitate complete control of all their print activity, including progress monitoring, stock and logistics management, storage and management of creative assets and proofing. Access to a centralised customer service team gives customers the opportunity to simplify the process of specifying, buying and managing complex projects. Point-of-Sale We produce point-of-sale material for the retail market, predominantly in the UK, and for UK and international brands. Point-of-sale products and services account for approximately 38% of Commercial Products' external sales. Campaigns are mainly bespoke, store specific and produced to tight timetables to meet marketing needs. This market has grown considerably in importance for the Group following the acquisition of SP Group in September 2004 and of Marks and Spencer's in-house printing facility in August 2005. As well as supplying printed products, the Group usually provides ancillary services, including complex collation, fulfilment and distribution, front-end inventory control and asset management. Customers include Arcadia, Cadbury, Halfords, Levi's, Marks and Spencer and SPAR. Competitors include Augustus Martin, bezier and numerous small private companies. This was a year of mixed fortunes: sales grew 63%, year-on-year, as a result of the absorption of Crayford's point-of-sale activities; the implementation of a long-term exclusive supply agreement with Marks and Spencer for its point-of-sale requirements (including the purchase and integration of its print operation in Burnley); substantial sales growth from other new and existing customers; and the establishment of St Ives Logistics at a new purpose-built facility in Redditch. The significant volume increase and integration of additional facilities at St Ives Logistics and Burnley caused disruption to the business. High outsourcing and labour costs to meet customers' needs had a short-term detrimental impact on margins which, predominantly, affected the first half of the financial year. As announced on 29 August 2006 the previously robust accounting controls failed and there were a number of accounting errors which were identified at the year end. Trading and margins in the second half of the financial year were in line with expectations. Comment on our reponses to this failure in controls is made in the report on Corporate Governance contained in the Annual Report and Accounts. While competitive pressure in the UK continues, we maintain strong relationships with our customers by providing unique added value services to take costs out from the supply chain. High levels of customer service, fast response times and detailed reviews of performance against service level agreements, all serve to cement customer loyalty. The markets served are vulnerable to volatility in high street spending and consumer confidence but we believe that our business model gives us a competitive advantage. We remain a market leader in the point-of-sale field. Recent capital investments, most notably in a large format litho printing press, provides a platform for further growth and place us in a good position to pursue new sales opportunities as they arise. Financial Services supplied to these markets include the typesetting, proofing, proof distribution and production of statutory or regulatory documents either for the corporate finance transaction market (such as take-overs and mergers, reconstructions, and equity and debt issuance) or annual reports. We offer customers a range of internet-based products for proof distribution and amendment. These products comprise a suite of facilities under the brand name smartproducts(TM) which facilitate the editing and proof reading of time-sensitive confidential documents, including smartEDGAR(TM) (for electronic filing with the SEC), smartforum(TM) (for collaborative amendment of proofs) and smartapps(TM) (for the compilation of regular fund reports). Smartforum(TM) was used in compiling the Company's Annual Report and Accounts. Corporate finance documentation is produced securely and on an overnight basis. Annual Report and Accounts and projects requiring large and complex distributions are also printed to tight timetables, using the Group's facilities whenever practicable. Financial printing accounts for approximately 24% of the Group's external sales of Commercial Products, less than a quarter of which relates to corporate financial transactional work. This activity is mainly in the second half of our financial year. In the UK we produce Annual Report and Accounts for around 30% of FTSE 100 companies. The remaining turnover in financial printing has been the Group's most unpredictable market and low levels of activity have made further cost reductions necessary. The Group's principal competitors are Bowne, Merrill Corporation and RR Donnelley (US companies) and, in the UK, Greenaways, Imprima, Royles (a CPI Group subsidiary) and a number of small private companies. The market for transactional corporate finance work remains very competitive. Although there has been an increase in the amount of deal activity, over-capacity and more electronic distribution continue to reduce the size of the market. In some cases customers have ceased printing altogether, by making more use of the SEC's Access=Delivery legislation. Whilst this has led to a decline in printed volumes it has however created a new demand for stronger electronic tracking (provided by smarttrans). Total sales of financial printing declined during the year. Half of this is attributable to the transfer of the UK Funds business to the Group's Direct Response business. The balance was due to the loss of some low margin print contracts which were only renewable on an uneconomic basis and a reduction in printed volumes as more documents are distributed electronically. These low levels of activity necessitated further cost reduction initiatives, which included an increase in our outsourcing of typesetting to India. In the Annual Report and Accounts market, increased legislation has led to the growth of compliance work, with a requirement for greater disclosure within shorter timeframes. Whilst run lengths have remained steady, pagination has expanded and we expect that this trend will continue. In both the corporate finance and the compliance markets, customers are seeking ways of more effectively managing their content and data. They are searching for ways of saving time and reducing cost. Smartproducts(TM) will assist us to meet these market needs. USA Comprise magazine printing, general commercial printing and the supply of point-of-sale materials to retailers and franchisees. 2006 2005 Â£'000 Â£'000 USA total revenue 65,143 67,207 USA (loss)/profit before restructuring costs, provision releases and (241) 3,484 interest USA revenue represented 16% of Group external sales. In the USA, the Group produces controlled circulation magazines and specialist mail order catalogues and brochures (predominantly print runs of less than 150,000 copies) and magazines for the Spanish speaking market. We also produce point-of-sale material for franchise operators, such as Dominos Pizza and Pizza Hut, and for brand advertising for distribution in national store chains. In addition, we manufacture marketing coupons for News America, which are supplied to up to 30,000 outlets over recurring two week cycles, together with in-store advertising material. St Ives' competitors in the USA are Banta, Quad/Graphics, Quebecor, RR Donnelley and a large number of other printers. The loss sustained by the business resulted mainly from interruption during the most active and damaging hurricane season for many years and from continued industry over-capacity. Physical damage to our premises was light, but we suffered from lengthy power and telecommunications outages and many of our Florida based customers were also affected by the hurricanes and volume was reduced as a result. Our sites in Florida have relocated their computer servers offsite to ensure that they will be able to operate M.I.S. and St Ives On-LineTM services in the event of future hurricane disruption. We have concentrated on securing more repetitive work and continue to focus on customers with a requirement for shorter print runs and higher service levels. Competitors, in an over-supplied market, continue to price at uneconomic levels. Regulatory environment The principal regulations affecting the Group's day-to-day business and the markets we serve have been identified by the board as Employment Law, Health & Safety Law, Environmental Law, Planning Law, Data Protection legislation, Taxation Law, the law of defamation and Competition Law. The board each year reviews the impact that these might have on the business and how to manage the risks to the business. Capital expenditure The Group has a policy of continuous investment in the latest technology where it can be justified. The size of some capital items is such that expenditure is not evenly spread from year-to-year. Almost all the Group's properties are freehold or long leasehold. The Group has also invested significantly in systems to enable it to provide an increasingly rapid, flexible and tailored response to customers' changing requirements. All the Group's facilities are equipped with computer-to-plate systems which have been a major contributor to shorter lead times and enhanced service levels. Much of our business is just-in-time, to enable customers to meet their marketing needs, reduce stock levels and stock holding risk, extend selling time for advertising and keep editorial content up-to-date. Inevitably, however, this reduces our forward visibility of activity levels. Outlook Market characteristics have changed little since the start of our new financial year. The majority of the Group's businesses experienced low demand in the first few weeks of August although volumes have picked up since then. Our Group Sales team's efforts have added revenues: since its inception in April 2006 we have invoiced around Â£1 million of additional sales and signed up a number of long-term contracts for periods of one to three years. Although volume is not guaranteed these contracts currently have an estimated total value of over Â£20 million over their terms. Most of our markets have limited visibility and volume can be volatile. Oversupply is prevalent and consequently markets are very price competitive. We continue to seek ways of lowering the cost of production, including investment and refining working patterns to meet continuously changing customer requirements. None of our customers guarantees volume. However the majority of our book publishing customers are signed up to long-term contracts. We continue to win contracts from magazine customers, mainly in the short to medium run area to replace uneconomic and longer-run work. We have recently won additional titles previously produced by a competitor who has now closed. As always, our mix of work is subject to continuous review. The book business continues to perform well and we look forward to another successful year and further progress in developing our services beyond traditional book printing and binding services to provide a unique offering to the UK monochrome book market. Music and multimedia markets have extremely short visibility although demand for special packaging of, in particular, back list titles is a useful addition to the business. Music CD is now a mature product and we expect volumes to fall as downloading from the internet increases. At the beginning of our new financial year we decided to merge the sales management of our direct and point-of-sale activities. Many customers, particularly in retail and financial services, have requirements for the services of both. The extensive digital facilities of our point-of-sale business are particularly suited to the increasingly focused spend of marketing departments. Our logistics and fulfilment facility is also in demand as customers want more active management of marketing material to reduce waste and distribution costs. Markets for direct mail and commercial web offset products are still price competitive. Our focus remains on the shorter-run, personalised and targeted areas of this market. Whilst market conditions are expected to remain highly competitive, some customers are becoming concerned about the financial health of certain of our competitors and our financial standing and recent investments in new, technologically advanced, equipment position us well to pursue opportunities as they arise. Corporate financial documentation activity in both the UK and USA is flat. We have recently outsourced some typesetting requirements to affiliates in India where costs are lower. Similar market conditions to the UK face our magazine and commercial activities in the USA. The containment of utility and labour costs is an ever present challenge and there are continuous reviews of these items in particular. We are well invested and, as around 90% of our manufacturing space is occupied freehold or long leasehold, we can be flexible in responding to changing requirements. Market conditions remain challenging and consumer confidence and related markets do not seem to be particularly robust. However, we believe our continued focus on cost effective, usually shorter-run, time-sensitive, logistically complex and targeted products, coupled with strong commitment to customer service, will provide a base for improved returns for shareholders over time. Brian Edwards Managing Director 10 October 2006 FINANCIAL REVIEW Overview of revenue External sales revenue from our three market segments fell in total by Â£18.2 million to Â£401.3 million. Within this reduction Media Products was lower by Â£18.3 million (9%). Revenue from Books was 5% lower; Magazines were 10% lower and Print & Display, which includes multimedia activities, was 14% lower. Commercial Products revenue increased by Â£2.1 million (1.4%). Within this, significant growth in Point-of-Sale of 63%, more than offset the revenue lost as a result of the sale of our business in Germany and 19% lower revenues in our Financial business. Direct Response revenues were flat. In the USA revenues reduced by Â£2 million (3%). Adjusting for currency translation, the underlying reduction was Â£3.7 million (5.4%). The average exchange rate used to translate US dollars to sterling was 1.7975 (2005 - 1.8443). In geographical terms the Â£18.2 million reduction in external sales revenue represented a Â£1.5 million increase in the UK, a Â£4.7 million reduction in the USA (this geographical segment includes the US operation of our Financial business), and a Â£15.0 million reduction in the Rest of the World mainly as a result of the sale of our German business, Johler Druck, in April 2005. Key financial performance indicators The most significant key performance indicators ('KPIs') used by the Group are financial and are explained below. Other performance indicators of an operational nature are focused on individual machines, factories and divisions and, because of the varied and bespoke nature of the products and services provided by the Group, are necessarily detailed and specific to operations. Consequently it is not possible to present operational indicators in any meaningful way in a segmental context. The financial KPIs used are: i. Operating profit (as defined below) by segment ii. Operating profit as a percentage of added value by segment iii. Gross margin per Â£ of manufacturing labour by segment iv. EBITDA by segment v. Free cash flow by segment Operating profit by segment Operating profit represents the profit from operations before restructuring costs and provision releases and is in accordance with the segment reporting shown in note 2 except that the results of our German business, which was sold in April 2005, have been excluded from the KPIs for 2005. 2006 2005 Change Â£'000 Â£'000 % Media Products 23,904 28,670 (16.6) Commercial Products 1,611 6,946 (76.8) USA (241) 3,484 (106.9) Corporate (33) 1,844 (101.8) ------- ------- ------- Group 25,241 40,944 (38.4) ------- ------- ------- Operating profit as a percentage of added value by segment Using the operating profit by segment from the foregoing KPI, this KPI compares operating profit with the added value generated within a segment. Added value is the sum of total revenue less materials, outwork, consumables and carriage costs. 2006 2005 Change % % % Media Products 19.3 20.8 (7.2) Commercial Products 2.1 9.6 (78.1) USA (0.6) 8.5 (107.1) ------- ------- ------- Group 10.6 16.3 (35.0) ------- ------- ------- Gross margin per Â£ of manufacturing labour by segment Using the added value referred to above, this KPI compares the margin left after deducting manufacturing labour costs from added value with the manufacturing labour cost. The result represents the margin return, before manufacturing costs, sales and distribution costs and administrative expenses, for every Â£1 of manufacturing labour spent in the segment and it reflects the impacts of sales value, machines and people productivity and labour cost within a single measurement. Operationally this KPI is used extensively in the Group to measure operational performance and returns from both individual jobs and customers. 2006 2005 Change Â£ Â£ % Media Products 1.38 1.33 3.8 Commercial Products 1.95 2.27 (14.1) USA 1.03 1.18 (12.7) ------- ------- ------- Group 1.47 1.52 (3.3) ------- ------- ------- The three profit-related KPIs shown above reflect the comments made within the Chairman's Statement and the Business Review regarding business performance during the year. EBITDA by segment EBITDA is operating profit before depreciation and amortisation and is used as a measure of cash generation by segment. 2006 2005 Change Â£'000 Â£'000 % Media Products 37,013 43,849 (15.6) Commercial Products 9,396 14,168 (33.7) USA 3,918 8,295 (52.8) Corporate 1,722 3,374 (49.0) ------- ------- ------- Group 52,049 69,686 (25.3) ------- ------- ------- Free cash flow by segment Free cash flow provides a measure of the Group's liquidity and the cash generated from its operations. Capital payments are the amounts, by segment, from the Consolidated Cash Flow Statement for the purchase of property, plant and machinery and other intangibles. By deducting the capital payments from the EBITDA the cash available for acquisitions, dividends, tax and working capital is measured. 2006 ---------------------------------------- EBITDA Capital Free cash payments flow Â£'000 Â£'000 Â£'000 Media Products 37,013 (15,644) 21,369 Commercial Products 9,396 (10,365) (969) USA 3,918 (2,148) 1,770) Corporate 1,722 (3,738) (2,016) ------- ------- ------- Group 52,049 (31,895) 20,154 ------- ------- ------- 2005 ---------------------------------------- EBITDA Capital Free cash payments flow Â£'000 Â£'000 Â£'000 Media Products 43,849 (16,830) 27,019 Commercial Products 14,167 (7,369) 6,798 USA 8,295 (2,307) 5,988 Corporate 3,375 (6,884) (3,509) ------- ------- ------- Group 69,686 (33,390) 36,296 ------- ------- ------- The two cash-related KPIs shown above clearly demonstrate the impact that the reduced operating profit and lower depreciation charges in 2006, compared to 2005, have had on EBITDA and, in turn, cash flow. Capital payments were similar in both years. Free cash flow reduced considerably in 2006 and, but for the favourable working capital movement in 2006, our net debt position at the end of the year would have reflected the reduced free cash flow. International Financial Reporting Standards ('IFRS') The Group is complying with IFRS for the first time for the fifty two weeks to 28 July 2006. A summary of the transition process, explaining the main differences between UK GAAP and the new standards, is disclosed in note 11. Restructuring costs and provision releases The net income shown as restructuring costs and provision releases for the year of Â£0.9 million is a combination of profits on the disposal of assets sold following the closure of St Ives Caerphilly of Â£2.8 million, rationalisation measures in both the UK and USA of Â£2.4 million, and Â£0.5 million of provision releases relating to closures and the previous acquisition of Avanti. The net charge in 2005 of Â£18.0 million related to the disposal of Johler Druck, the closure of St Ives Caerphilly, the closure of the Woolwich operations and subsequent restructuring of the Financial printing business and other rationalisation measures throughout the Group. These costs were reduced by provision and accrual releases relating to previous closures and acquisitions. Balance sheet Net assets increased to Â£167.9 million (2005 - Â£164.3 million). The movement reflects an improvement in cash generated from operations and a reduction in retirement benefits obligations. Net debt Net debt reduced in the year from Â£23.5 million to Â£8.9 million. Cash generated from operations was Â£67.6 million (2005 - Â£41.8 million). The improvement primarily reflects working capital benefits as a result of timing differences. Within net debt are: bank loans of Â£19.5 million due within one year; unsecured loan notes of Â£1.6 million, Â£0.3 million of which will be redeemed during the next financial year and Â£1.3 million of which could be redeemed at the holders' request during the next financial year; and bank overdrafts of Â£0.3 million. The Group has overdraft facilities available of Â£50 million. None of the debt is secured. Capital expenditure and depreciation Capital expenditure in cash flow terms on property, plant and equipment, together with additions to intangible assets, other than goodwill, was Â£31.9 million (2005 - Â£33.6 million) and cash receipts from asset disposals were Â£7.0 million (2005 - Â£5.4 million). Net cash outflow in the year was Â£24.9 million (2005 - Â£28.2 million). Assets capitalised were Â£31.3 million due to timing differences compared with cash flow of Â£31.9 million. Depreciation charged in the year was Â£26.8 million (2005 - Â£29.7 million). Acquisitions On 1 August 2005 SP Group secured a long-term contract to supply all Marks and Spencer plc's point-of-sale requirements. At the same time the trade and certain assets and liabilities of their print business in Burnley were acquired by the Group for a cash consideration of Â£2.9 million. Tax The Group's tax rate on profit before restructuring costs and provision releases was 32.8% (2005 - 33.4%). The decrease in the rate includes favourable prior year adjustments. Dividends The board is recommending the payment of a final dividend of 12.15 pence bringing the total dividend for the year to 17.15 pence. The same total dividend has been paid in respect of each financial year from 2001. For this financial year the basic earnings per share are 14.38 pence so the dividend is uncovered by earnings in this year. The Group was cash generative and net debt levels remain relatively low. Pensions As part of the adoption of IFRS this financial year, the Group has applied International Accounting Standard 19: 'Employee Benefits' ('IAS 19'). Applying IAS 19 brings the deficit on the defined benefits pension scheme on to the balance sheet. The deficit in the scheme at the end of the year, excluding the related deferred tax asset, was Â£59.5 million (2005 - Â£66.6 million). The charge to operating profit for this scheme was Â£3.8 million (2005 - Â£2.8 million, less a curtailment credit of Â£0.6 million). The charge represents the cost of the benefits accrued to members of the scheme during the period. In addition the income statement includes a net financing cost of Â£2.0 million (2005 - Â£2.3 million) which represents the increase in the pension liability, because the benefits are one year closer to being paid, less the expected return on assets of the scheme based on market rates available at the start of the financial year. The defined benefits pension scheme was closed to new entrants from 6 April 2002; benefits continue to accrue for active existing members. A one-off payment of Â£25 million was made by the Company to the scheme in May 2004. Contributions were paid by the Company at the rate of 10.6% of pensionable pay from May 2004 and the accrual rate for future pensionable service was changed from 60ths to 80ths at the same time. Following the actuarial valuation in 2005 the contribution rate was changed from 1 February 2006 to 5.3% of pensionable pay plus Â£2.7 million per annum paid monthly (equivalent to approximately 13.5% of pensionable pay). The Company continues to keep the defined benefits scheme under review. Financial risk management and treasury policies The main financial risks of the Group relate to interest rate, liquidity, foreign exchange and credit (in relation to its trade receivables). The Group's treasury function is responsible for managing the Group's exposure to financial risk and operates within a defined set of policies and procedures approved by the board. The overall objective of the treasury policy is to use financial instruments to manage the financial risks that arise from the specific activities of the business. It follows, therefore, that the Group does not enter into speculative financial transactions for which there is no underlying business requirement. Interest rate risk The Group finances its operations from retained earnings and bank borrowings. The borrowings are predominantly short-term at floating rates. Liquidity risk The Group has sufficient available committed borrowing facilities to meet any forecasted funding needs. At the end of the year the Group had committed bank facilities (excluding US dollar denominated loans used to hedge net investments in the USA) of Â£50 million, the utilisation of which was minimal. Foreign exchange risk Currency risk management relating to transactional business is dealt with by the use of currency derivatives, which are mainly foreign currency forward contracts. Translational risk relating to the capital employed in overseas subsidiaries is covered, in part only, by the use of currency loans. Credit risk (trade receivables) The majority of sales of the Group to its customers are made on credit. It is Group policy that all customers granted credit are subject to credit verification procedures. A rigorous system of credit control is applied and receivables are continually monitored. Bad debt provisions represented 5.6% of gross trade debtors at the year end. Principal risks and uncertainties The Group has a large number of longstanding relationships with its customers, in many cases based on medium to long-term contractual agreements. However none of our customers guarantees volume and their individual requirements are subject to changes in consumer demand and/or advertising spend. As a result our markets afford limited forward visibility and can be subject to significant short-term fluctuations in demand. Since all our production is bespoke, often on a just-in-time basis, we are not able to manufacture any products for stock. As a result of these factors, utilisation of equipment and labour is subject to significant seasonal and short-term variation. Many of our competitors are not making economic returns and a number of them frequently offer prices which cannot be sustained and which do not offer an adequate return on the investment which is needed to maintain, or even enhance, production efficiency. Other risks are those to which any business employing significant numbers of both skilled and unskilled people and undertaking substantial capital investment in a mature market are subject. Critical accounting estimations In the course of applying the Group's accounting policies the following estimations have been made which could have a significant effect on the results of the Group, were they subsequently found to be inappropriate. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units ('CGUs') for which goodwill has been identified. In arriving at the value in use an estimation of the future cash flows of CGUs and selecting appropriate discount rates is required to calculate present values. This process involves estimation. The carrying value of goodwill at the balance sheet date was Â£54.1million (2005 - Â£53.9 million). Retirement benefit obligations The calculation of retirement benefit obligations requires estimates to be made of discount rates, inflation rates, future salary and pension increases and mortality. The net liability recognised in the balance sheet for retirement benefit obligations is Â£59.5 million (2005 - Â£66.6 million). Details of the assumptions made will be provided in the Annual Report and Accounts. Other accounting issues The year as a whole was marred by the discovery during our year end process of serious accounting errors in the Point-of-Sale business, which were the subject of a Trading Statement made on 29 August 2006. The errors arose from costs not being properly expensed, an over-valuation of work-in-progress, and unrecoverable debtors. The errors mainly affected the results of the first half of the financial year and totalled Â£2.8 million (before tax). The Group's profits for the year include the effects of these errors. The circumstances that led to the errors and their subsequent discovery have been thoroughly investigated. As a result, changes to our internal control procedures have been, and are being, introduced. These changes will be explained in the report on Corporate Governance contained in the Annual Report and Accounts. Ray Morley Finance Director 10 October 2006 CONSOLIDATED INCOME STATEMENT 52 weeks to 28 July 2006 52 weeks to 29 July 2005 ---------------------------------------- ----------------------------------------------- Before restruc- Restructuring Before Restructuring turing costs and restructuring costs and costs and provision costs and provision provision releases provision releases releases (note 3) Total releases (note 3) Total --------- --------- --------- --------- --------- --------- Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue 2 --------- --------- --------- --------- --------- --------- Existing activities 393,763 - 393,763 419,477 - 419,477 Acquired activities 7,500 - 7,500 - - - --------- --------- --------- --------- --------- --------- 401,263 - 401,263 419,477 - 419,477 Cost of sales (302,742 ) (1,176 ) (303,918 ) (308,824 ) (6,837 ) (315,661 ) --------- --------- --------- --------- --------- --------- Gross profit 98,521 (1,176 ) 97,345 110,653 (6,837 ) 103,816 Sales and distribution (29,030 ) (379 ) (29,409 ) (28,494 ) (843 ) (29,337 ) costs Administrative expenses (44,954 ) (383 ) (45,337 ) (42,058 ) (2,863 ) (44,921 ) Other operating income --------- --------- --------- --------- --------- --------- Profit on disposal of fixed - 2,084 2,084 - 626 626 assets Other income 704 717 1,421 576 72 648 --------- --------- --------- --------- --------- --------- 704 2,801 3,505 576 698 1,274 --------- --------- --------- --------- --------- --------- Profit from operations 2 --------- --------- --------- --------- --------- --------- Existing activities 24,426 863 25,289 40,677 (9,845 ) 30,832 Acquired activities 815 - 815 - - - --------- --------- --------- --------- --------- --------- 25,241 863 26,104 40,677 (9,845 ) 30,832 Loss on disposal of - - - - (8,135 ) (8,135 ) subsidiary Investment income 9,224 - 9,224 8,336 - 8,336 Finance costs (12,758 ) - (12,758 ) (10,794 ) - (10,794 ) --------- --------- --------- --------- --------- --------- Profit before tax 21,707 863 22,570 38,219 (17,980 ) 20,239 Income tax expense 4 (7,120 ) (636 ) (7,756 ) (12,772 ) 3,997 (8,775 ) --------- --------- --------- --------- --------- --------- Profit for the period 14,587 227 14,814 25,447 (13,983 ) 11,464 Basic earnings per share 6 14.38p 11.14p --------- -------- Diluted earnings per share 6 14.38p 11.13p --------- -------- All transactions are derived from continuing activities. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 52 weeks to 52 weeks to 28 July 29 July Note 2006 2005 ------ --------- Â£'000 Â£'000 Exchange (losses)/gains on translating foreign operations (899 ) 1,081 Losses on cash flow hedges taken to equity (85 ) - Actuarial gains/(losses) on defined benefits pension schemes 8,974 (21,078 ) Tax on items taken directly to equity (1,651 ) 5,913 ------ --------- Net income/(expense) recognised directly in equity 6,339 (14,084 ) Transfer to profit and loss from equity of exchange differences on - (101 ) disposal of foreign operation Transfer to the initial carrying amount on non-financial hedged (24 ) - items on cash flow hedges Tax on items transferred from equity 7 - Profit for the period 14,814 11,464 ------ --------- Total recognised income/(expense) 21,136 (2,721 ) --------- Transition adjustment on adoption of IAS 32 and IAS 39 10 24 ------ Total recognised income for the period 21,160 ------ CONSOLIDATED BALANCE SHEET 28 July 29 July Note 2006 2005 Â£'000 Â£'000 -------- -------- ASSETS Non-current assets Property, plant and equipment 160,909 158,908 Goodwill 54,135 53,946 Other intangible assets 1,089 649 Deferred tax asset 12,067 16,173 Other non-current assets 132 140 -------- -------- 228,332 229,816 -------- -------- Current assets Inventories 12,593 13,344 Trade and other receivables 67,000 77,762 Cash and cash equivalents 12,620 5,594 -------- -------- 92,213 96,700 -------- -------- Total assets 320,545 326,516 -------- -------- LIABILITIES Current liabilities Trade and other payables 63,480 54,408 Short-term borrowings 21,490 29,086 Current tax payable 3,350 5,623 Deferred income 81 102 Short-term provisions 2,126 3,659 Derivative financial instruments 85 - -------- -------- 90,612 92,878 -------- -------- Non-current liabilities Retirement benefit obligations 59,471 66,584 Deferred tax liabilities 2 46 Deferred income 411 206 Other non-current liabilities 714 947 Long-term provisions 1,434 1,518 -------- -------- 62,032 69,301 -------- -------- Total liabilities 152,644 162,179 -------- -------- Net assets 167,901 164,337 -------- -------- EQUITY Capital and reserves Share capital 10,355 10,349 Other reserves 7 46,334 46,723 Retained earnings 8 111,212 107,265 -------- -------- Total equity 167,901 164,337 -------- -------- CONSOLIDATED CASH FLOW STATEMENT 52 weeks to 52 weeks to 28 July 29 July Note 2006 2005 -------- -------- Â£'000 Â£'000 Operating activities Cash generated from operations 9 67,648 41,788 Interest received 255 574 Interest paid on overdrafts (634 ) (99 ) Income taxes paid (7,551 ) (8,882 ) -------- -------- Net cash from operating activities 59,718 33,381 -------- -------- Investing activities Acquisition of business (2,901 ) - Acquisition of subsidiary - (31,099 ) Purchase of property, plant and equipment (31,085 ) (33,192 ) Purchase of other intangibles (810 ) (379 ) Proceeds on disposal of property, plant and equipment 6,970 5,374 Disposal of subsidiary - 685 Regional grants received 285 - -------- -------- Net cash used in investing activities (27,541 ) (58,611 ) -------- -------- Financing activities Proceeds from issue of share capital 198 606 Loan notes redeemed (2,317 ) (3,449 ) Interest paid on loans (1,040 ) (612 ) Dividends paid 5 (17,672 ) (17,648 ) (Decrease)/increase in bank overdrafts (4,059 ) 4,344 -------- -------- Net cash used in financing activities (24,890 ) (16,759 ) -------- -------- Net increase/(decrease) in cash and cash equivalents 7,287 (41,989 ) Cash and cash equivalents at beginning of period 5,594 47,455 Effect of foreign exchange rate changes (261 ) 128 -------- -------- Cash and cash equivalents at end of period 9 12,620 5,594 -------- -------- NOTES TO THE PRELIMINARY RESULTS 1. Basis of preparation The preliminary results have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (' IFRS') as adopted by the European Union, and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Group is complying with IFRS for the first time for the fifty two weeks to 28 July 2006 and the accounting policies applicable to the Group from 31 July 2004 are those that are set out in a separate document, 'Restated Financial Information for International Financial Reporting Standards', published on 31 January 2006. The same accounting policies have been consistently applied to the preliminary financial statements except where the Group has taken advantage of the exemption in International Financial Reporting Standard 1: 'First-time Adoption of International Financial Reporting Standards' ('IFRS 1') from the requirement to restate comparative information for International Accounting Standard 32: 'Financial Instruments: Disclosure and Presentation' ('IAS 32') and International Accounting Standard 39: 'Financial Instruments: Recognition and Measurement' ('IAS 39'). These standards have been adopted from 30 July 2005 and the restated opening balance sheet is set out in note 10. The preliminary results do not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. The abridged information for the fifty two weeks to 28 July 2006 has been extracted from the Group's statutory accounts for that period which will be sent to all shareholders before 1 November 2006. The abridged information for the fifty two weeks to 29 July 2005 is based on information extracted from the Group's statutory accounts for that period prepared under UK GAAP, and restated in accordance with IFRS, as set out in note 11. The Group's 2005 statutory accounts, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditors' reports on the accounts of the Group for both periods were unqualified and did not contain a statement under either Sections 237(2) or Sections 237(3) of the Companies Act 1985. 2. Segment reporting The Group manages its business on a market segment basis and these segments are the basis on which the Group reports its primary segment information. The segment analysis is provided for the Group's continuing operations. Inter-segment sales are charged at arms length prices. Business segments 52 weeks to 28 July 2006 ---------------------------------------------------------------------- Media Commercial Products Products USA Elimination Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue External sales 186,253 149,955 65,055 - 401,263 Inter-segment sales 1,712 1,476 88 (3,276 ) - -------- -------- -------- -------- -------- Total revenue 187,965 151,431 65,143 (3,276 ) 401,263 -------- -------- -------- -------- -------- Result Segment result 23,211 1,095 (509 ) - 23,797 Add back restructuring costs and provision 693 516 268 - 1,477 releases -------- -------- -------- -------- -------- Segment result before restructuring costs 23,904 1,611 (241 ) - 25,274 and provision releases -------- -------- -------- -------- Unallocated corporate expense (net) (33 ) -------- Operating profit before restructuring 25,241 costs and provision releases Restructuring costs and provision releases 863 -------- Profit from operations 26,104 Investment income 9,224 Finance costs (12,758 ) -------- Profit before tax 22,570 Income tax expense (7,756 ) -------- Profit for the period 14,814 -------- 52 weeks to 29 July 2005 ---------------------------------------------------------------------- Media Commercial Products Products USA Elimination Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue External sales 204,598 147,870 67,009 - 419,477 Inter-segment sales 821 2,346 198 (3,365 ) - -------- -------- -------- -------- -------- Total revenue 205,419 150,216 67,207 (3,365 ) 419,477 -------- -------- -------- -------- -------- Result Segment result 21,432 3,612 5,158 - 30,202 Add back restructuring costs and provision 7,238 3,067 (1,674 ) - 8,631 releases -------- -------- -------- -------- -------- Segment result before restructuring costs and 28,670 6,679 3,484 - 38,833 provision releases -------- -------- -------- -------- Unallocated corporate income (net) 1,844 -------- Operating profit before restructuring costs and 40,677 provision releases Restructuring costs and provision releases (9,845 ) -------- Profit from operations 30,832 Loss on disposal of subsidiary (8,135 ) Investment income 8,336 Finance costs (10,794 ) -------- Profit before tax 20,239 Income tax expense (8,775 ) -------- Profit for the period 11,464 -------- Geographical segments The Group's operations are located in the United Kingdom, the United States of America and the Rest of the World. The Group's Media Products and Commercial Products services are carried out across the three locations. The following table provides an analysis of the Group's revenue and result by geographical market. 52 weeks to 28 July 2006 --------------------------------------------------- United United States Rest of Kingdom Of America the World Total Â£'000 Â£'000 Â£'000 Â£'000 Revenue 308,952 79,518 12,793 401,263 -------- -------- -------- -------- Segment result 26,918 (1,269 ) 455 26,104 Add back restructuring costs and provision releases (1,348 ) 485 - (863 ) -------- -------- -------- -------- Segment result before restructuring costs and provision releases 25,570 (784 ) 455 25,241 -------- -------- -------- -------- 52 weeks to 29 July 2005 --------------------------------------------------- United United States Rest of Kingdom of America the World Total Â£'000 Â£'000 Â£'000 Â£'000 Revenue 307,421 84,282 27,774 419,477 -------- -------- -------- -------- Segment result 24,211 5,492 1,129 30,832 Add back restructuring costs and provision releases 11,803 (1,958 ) - 9,845 -------- -------- -------- -------- Segment result before restructuring costs and provision releases 36,014 3,534 1,129 40,677 -------- -------- -------- -------- 3. Restructuring costs and provision releases Restructuring costs and provision releases included within the consolidated income statement are as follows: 2006 2005 Â£'000 Â£'000 Income/(costs) Rationalisation measures (2,471 ) (12,749 ) Provision releases 533 2,206 Profit on disposal of fixed assets 2,084 626 Other income 717 72 ------ ------ 863 (9,845 ) Loss on disposal of subsidiary - (8,135 ) ------ ------ 863 (17,980 ) Related income tax (636 ) 3,997 ------ ------ 227 (13,983 ) ------ ------ Rationalisation measures of Â£2,471,000 includes Â£1,458,000 relating to the restructuring of the magazine printing businesses within the Media Products segment and Â£403,000 for restructuring within the USA business segment. The remaining Â£610,000 relates to ongoing restructuring in other areas of the Group. Provision releases of Â£533,000 includes Â£312,000 relating to the closure of St Ives Caerphilly Limited, with the balance of Â£221,000 relating to a number of provision releases of items previously charged as restructuring costs. Profit on the sale of fixed assets of Â£2,084,000 relates to the sale of the Caerphilly factory which was closed in the previous financial period and other income of Â£717,000 relates to the net profit on the sale of other fixed assets at this site. 4. Tax Tax on profit as shown in the income statement is as follows: 2006 2005 Â£'000 Â£'000 United Kingdom corporation tax expense/(income) at 30% (2005 - 30%): Current year 6,141 7,521 Adjustments in respect of prior years (497 ) 549 ------ ------ 5,644 8,070 Overseas current tax expense/(income): Current year 129 561 Adjustments in respect of prior years (62 ) (590 ) ------ ------ Total current tax expense 5,711 8,041 Deferred tax on origination and reversal of temporary differences: United Kingdom deferred tax 1,482 594 Overseas deferred tax 196 (437 ) Adjustments in respect of prior years 367 577 ------ ------ 7,756 8,775 ------ ------ 5. Dividends per share 2006 2005 pence Â£'000 Â£'000 Final dividend paid for the 52 weeks ended 30 July 2004 12.15 - 12,499 Interim dividend paid for the 26 weeks to 28 January 2005 5.00 - 5,149 Final dividend paid for the 52 weeks ended 29 July 2005 12.15 12,521 - Interim dividend paid for the 26 weeks to 27 January 2006 5.00 5,151 - ------ ------ Dividends paid during the period 17,672 17,648 ------ ------ Proposed final dividend at the period end at 12.15p per share (2005 - 12.15p per share) 12,520 12,517 ------ ------ The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 6. Earnings per share The calculation of the basic and diluted earnings per share is based on the following information: Number of shares 2006 2005 million million Weighted average number of ordinary shares for the purpose of basic earnings per share 103.0 102.9 Dilutive potential ordinary shares from share options - 0.1 ------ ------ Diluted weighted average number of shares 103.0 103.0 ------ ------ Earnings 2006 2005 --------------------- --------------------- Earnings Earnings Earnings per share Earnings per share Â£'000 pence Â£'000 pence Earnings and basic earnings per share 14,814 14.38 11,464 11.14 Restructuring costs and provision releases (227 ) (0.22 ) 13,983 13.59 --------- --------- --------- --------- Adjusted earnings and adjusted earnings per share 14,587 14.16 25,447 24.73 --------- --------- --------- --------- Diluted earnings per share 14.38 11.13 --------- --------- Adjusted earnings is calculated by adding back restructuring costs and provision releases, as adjusted for tax, to the profit for the period. 7. Other reserves Hedging Capital Share and Share ESOP redemption option translation premium reserve reserve reserve reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 31 July 2004 45,909 (1,913 ) 1,238 985 - 46,219 Shares issued at premium 588 - - - - 588 Exchange differences and related tax - - - - 671 671 Transfer to profit and loss from equity of exchange differences on disposal of foreign operation - - - - (101 ) (101 ) Recognition of share-based payments - - - (654 ) - (654 ) ------ ------- ------- ------- ------- ------- Balance at 29 July 2005 46,497 (1,913 ) 1,238 331 570 46,723 Transition adjustment on adoption of IAS 32 and IAS 39 - - - - 59 59 ------ ------- ------- ------- ------- ------- Balance at 30 July 2005 46,497 (1,913 ) 1,238 331 629 46,782 Shares issued at premium 192 - - - - 192 Exchange differences and related tax - - - - (433 ) (433 ) Cash flow hedges: Losses taken to equity - - - - (85 ) (85 ) Transferred to fixed assets - - - - (24 ) (24 ) Tax on items taken directly to or transferred from equity - - - - 24 24 Recognition of share-based payments - - - (122 ) - (122 ) ------ ------- ------- ------- ------- ------- Balance at 28 July 2006 46,689 (1,913 ) 1,238 209 111 46,334 ------ ------- ------- ------- ------- ------- 8. Retained earnings Â£'000 Balance at 31 July 2004 128,204 Dividends paid (17,648 ) Profit for the year attributable to equity holders of the parent 11,464 Actuarial losses on defined benefits pension schemes (14,755 ) ------- Balance at 29 July 2005 107,265 Transition adjustment on adoption of IAS 32 and IAS 39 (35 ) ------- Balance at 30 July 2005 107,230 Dividends paid (17,672 ) Profit for the year attributable to equity holders of the parent 14,814 Actuarial gains on defined benefits pension schemes 6,840 ------- Balance at 28 July 2006 111,212 ------- Details of the adoption of IAS 32 and IAS 39 are set out in note 10. 9. Notes to the consolidated cash flow statement Reconciliation of cash generated from operations 2006 2005 Â£'000 Â£'000 Profit from operations 26,104 30,832 Adjustments for: Depreciation of property, plant and equipment 26,450 29,317 Impairment of property, plant and equipment - 3,278 Amortisation of intangible assets 358 384 Gain on disposal of property, plant and equipment (3,505 ) (1,274 ) Foreign exchange gains and losses - 84 Deferred income (101 ) (398 ) Share-based payment credit (122 ) (654 ) Decrease in provisions (1,575 ) (3,839 ) ------- ------- Operating cash inflows before movements in working capital 47,609 57,730 Decrease/(increase) in inventories 495 (1,568 ) Decrease/(increase) in receivables 10,088 (6,142 ) Increase/(decrease) in payables 9,456 (8,232 ) ------- ------- Cash generated from operations 67,648 41,788 ------- ------- Analysis of net debt 30 July Exchange 28 July 2005 Cash flow movements 2006 Â£'000 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 5,594 7,287 (261 ) 12,620 Bank overdrafts (4,386 ) 4,059 - (327 ) Debt due within one year (24,700 ) 2,317 1,220 (21,163 ) ------ ------ ------ ------ (23,492 ) 13,663 959 (8,870 ) ------ ------ ------ ------ Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The effective interest rates on cash and cash equivalents are based on current market rates. 10. Adoption of IAS 32 and IAS 39 The Group adopted IAS 32 and IAS 39 from 30 July 2005 and the impact on the financial information as at 30 July 2005 is set out below. At 30 July 2005 the fair values of forward contracts held at that date have been recorded on the balance sheet and directly in equity. The balance sheet includes derivative financial instruments within current assets of Â£62,000 and within current liabilities of Â£38,000. Closing Opening balance sheet IAS 32 and balance sheet at 29 July IAS 39 at 30 July 2005 adjustments 2005 Â£'000 Â£'000 Â£'000 Assets Non-current assets 229,816 - 229,816 Current assets 96,700 62 96,762 ------ ------ ------ 326,516 62 326,578 ------ ------ ------ Liabilities Current liabilities 92,878 38 92,916 Non-current liabilities 69,301 - 69,301 ------ ------ ------ 162,179 38 162,217 ------ ------ ------ Net assets 164,337 24 164,361 ------ ------ ------ Equity Share capital 10,349 - 10,349 Other reserves 46,723 59 46,782 Retained earnings 107,265 (35 ) 107,230 ------ ------ ------ Total equity 164,337 24 164,361 ------ ------ ------ During the period to 28 July 2006 losses on cash flow hedges of Â£85,000 were taken to equity and Â£24,000 was transferred to the initial carrying amount of non-financial hedged items on cash flow hedges. The related deferred tax taken directly to equity totalled Â£24,000. The resulting fair values of forward contracts held at 28 July 2006 were Â£85,000 recorded in current liabilities on the balance sheet. 11. Transition to IFRS The Group previously reported under UK Generally Accepted Accounting Principles ('UK GAAP') for all periods up to and including the fifty two weeks to 29 July 2005. These preliminary financial statements are the first the Group is required to prepare in accordance with IFRS. International Financial Reporting Standard 1: 'First-time Adoption of International Financial Reporting Standards'' ('IFRS 1') permits those companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. The Group has taken advantage of the following exemptions: Business combinations Business combinations that took place prior to 31 July 2004, the date of transition to IFRS, have not been restated. Goodwill IAS 21 requires goodwill arising on the acquisition of a foreign business to be retranslated at each period end. The Group has opted not to retranslate such goodwill for acquisitions arising prior to 31 July 2004 but continues to translate it at acquisition rate. Fair value as deemed cost The Group has opted to use the previous valuation of tangible fixed assets made under UK GAAP as deemed cost. Retirement benefits The deficits and surpluses of the defined benefits pension scheme have been recognised in full on the Group's balance sheet at 31 July 2004. The Group has opted to account for pension benefits under the amendment to IAS 19 issued in December 2004 in which all actuarial gains and losses are recognised in equity. This is similar to the UK GAAP treatment under FRS 17. FRS 17 was not previously adopted but the effects were disclosed in the Annual Report and Accounts. Cumulative translation differences Translation differences relating to foreign currency investments in subsidiaries in existence at the transition date are deemed to be zero at the date of transition, and as such the gain or loss on subsequent disposal of any foreign operation excludes translation differences that arose before that date. Financial instruments IAS 32 and IAS 39 have been applied from 30 July 2005 and as such the Group's opening IFRS balance sheet at 31 July 2004 and restated information for the fifty two weeks to 29 July 2005 excludes any adjustments required by these standards. Such adjustments are disclosed in note 10 above. Share-based payments IFRS 2 is applied to all share-based rewards made after 7 November 2002 that did not vest before 31 July 2004. IFRS 1 establishes the transitional requirements for the preparation of financial statements in accordance with IFRS for the first time. The effect of the adoption of IFRS is outlined below along with the opening consolidated balance sheet at 31 July 2004, consolidated income statement for the fifty two weeks to 29 July 2005 and the consolidated balance sheet at 29 July 2005. Changes to presentation: IAS 1: ''Presentation of Financial Statements'' ('IAS 1') Separately identifiable items Under IFRS a definition of exceptional items does not exist; however material items should be disclosed separately. As such the restructuring costs provided and any related provision releases previously reported under UK GAAP will continue to be shown separately on the face of the income statement. Deferred tax Under IAS 1 deferred tax assets and liabilities must be split by tax group. Provisions and deferred income IAS 1 requires provisions and deferred income to be split between current liabilities and non-current liabilities. Hedging and translation reserve Exchange differences written-off to reserves under UK GAAP were disclosed in the statement of total recognised gains and losses and included in the profit and loss reserve. Under IFRS they are disclosed in the statement of recognised income and expense and shown in equity in the hedging and translation reserve. IAS 7: ''Cash Flow Statements'' ('IAS 7') IAS 7 defines cash equivalents as 'short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value'. IAS 7 also recognises that bank overdrafts repayable on demand may form an integral part of an entity's cash management and should therefore be included in cash and cash equivalents. IAS 14: ''Segment Reporting'' ('IAS 14') On 30 September 2005 St Ives plc announced changes in board responsibilities, reflecting the structure under which the Group would be managed. The structure comprises three business segments which are Media Products, Commercial Products and USA. Changes to accounting: IAS 10: ''Events After the Balance Sheet Date'' ('IAS 10') Proposed dividends IAS 10 states that dividends declared after the balance sheet date should not be recognised as a liability at that date but recognised in the period in which they are formally approved for payment. The final proposed dividend for the fifty two weeks to 30 July 2004 of Â£12,491,000 has been reversed in the opening IFRS consolidated balance sheet and is recognised in the accounts for the fifty two weeks ended 29 July 2005. Similarly the final proposed dividend for the fifty two weeks ended 29 July 2005 of Â£12,517,000 has been reversed and has been recognised in the period to 28 July 2006. IAS 12: ''Income Taxes'' ('IAS 12') IAS 12 requires deferred tax to be provided on all temporary differences rather than only taxable timing differences. At 31 July 2004 an unprovided deferred tax liability of Â£825,000 has been recognised in respect of rolled over gains (net of capital losses). At 29 July 2005 the deferred tax liability increased to Â£1,234,000 reflecting a charge in the income statement of Â£409,000. Adjustments have also been made to the financial information where deferred tax liabilities and assets can be offset under the provisions of IAS 12. IAS 19: ''Employee Benefits'' ('IAS 19') St Ives defined benefits pension scheme IAS 19 requires the net pension liability relating to the defined benefits pension scheme to be recognised on the balance sheet. Under UK GAAP, the Group accounted for its defined benefits pension schemes under SSAP 24: ''Accounting for pension costs'' ('SSAP 24') and presented, within the notes to the financial statements, disclosures under FRS 17: '' Retirement benefits'' ('FRS 17'). Balance sheet impact In the opening IFRS balance sheet at 31 July 2004 the SSAP 24 prepayment of Â£25,068,000 and its related deferred tax liability of Â£1,875,000 have been reversed through opening retained earnings. The treatment of the pension deficit is similar under IAS 19 and FRS 17, and any differences are not considered material. As such the deficit of Â£44,931,000 at 30 July 2004 has been recorded in the opening IFRS balance sheet, along with the related deferred tax asset of Â£13,479,000. In addition, a deferred tax asset of Â£5,625,000 has been recognised in respect of Â£18,750,000 of pension costs which have been paid but for which tax relief had not been obtained at 31 July 2004. At 30 July 2005 the pension deficit was Â£66,584,000 and deferred tax asset Â£23,725,000. Income statement impact For the fifty two weeks to 29 July 2005 the SSAP 24 pension cost of Â£3,990,000 has been reversed and the IAS 19 current service cost of Â£2,202,000 (net of Â£1,200,000 age-related rebates) has been recognised in administrative expenses in the income statement. The IAS 19 net finance charge of Â£2,257,000 has also been reflected in the income statement within finance costs. The movement in the deferred tax asset recognised in the income statement is Â£161,000. The Group has opted to account for pension benefits in accordance with the amendment to IAS 19 issued in December 2004 under which all actuarial gains and losses are recognised directly in equity. The actuarial loss recognised for the fifty two weeks to 29 July 2005 was Â£21,118,000. The deferred tax recognised on the actuarial losses for the period was Â£6,335,000. Holiday pay Under UK GAAP the Group provided for holiday pay for some but not all employees, however IAS 19 is more prescriptive. Consequently holiday pay provisions have been calculated for all employees as at 30 July 2004 and an adjustment of Â£485,000 to increase the charge has been recorded at that date. Additionally, a provision of Â£120,000 for holiday pay in SP Group has been recorded at 13 September 2004, the date of acquisition, reducing the fair value of assets acquired and therefore increasing goodwill. There was no material movement in the total provision for the fifty two weeks to 29 July 2005. IAS 21: ''The Effect of Changes in Foreign Exchange Rates'' ('IAS 21') Loans between St Ives plc and its foreign operations Loans exist between St Ives plc and certain of its foreign operations. All foreign exchange gains and losses on the restatement of these loans were previously written off to reserves under UK GAAP. The majority of the loans meet the definition of 'net investments in a foreign operation' under IAS 21, as settlement is neither planned nor likely to occur. The foreign exchange difference on such loans is recognised directly in equity. The foreign exchange differences on the working capital element of these loans, that was not hedged, must be recognised in the income statement under IFRS. For fifty two weeks to 29 July 2005 a loss of Â£84,000 has been recognised. Disposal of subsidiary Under IAS 21, any translation differences taken to equity on the retranslation of a foreign operation's assets and liabilities, and income and expense items, should be recognised in the income statement on the disposal of that operation. For the fifty two weeks to 29 July 2005 a gain of Â£101,000 has been recognised in the income statement following the disposal of Johler Druck GmbH on 5 April 2005. IAS 36: ''Impairment of Assets'' ('IAS 36') Goodwill Under IFRS, goodwill amortisation is not permitted, instead annual impairment reviews must be carried out. At 31 July 2004 goodwill on the balance sheet and in reserves was frozen. For the fifty two weeks to 29 July 2005 goodwill amortisation of Â£2,773,000 has been reversed. The impairment tests performed during 2005 have been reworked to reflect IFRS requirements and no impairment charges are required for either period. IAS 38: ''Intangible Assets'' ('IAS 38') Computer software In accordance with IFRS, capitalised computer software, which is not integral to a related item of hardware, has been reclassified from property, plant and equipment to other intangible assets. At 31 July 2004 the net book value of computer software reallocated was Â£431,000. Similarly computer software reclassified at 29 July 2005 was Â£649,000. IFRS 1: ''First-time Adoption of International Financial Reporting Standards'' ('IFRS 1') IFRS 1 permits the freezing of goodwill in the balance sheet at the date of transition to IFRS. Goodwill reversed out of reserves under UK GAAP in relation to disposals, has been taken back to equity under IFRS. In the fifty two weeks to 29 July 2005 Â£5,865,000 has been written back following the disposal of Johler Druck GmbH and Â£941,000 following the closure of St Ives Bristol Limited. IFRS 2: ''Share-based Payment'' ('IFRS 2') IFRS 2 requires the Group to reflect in its accounts the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees. The options granted by the Group are fair valued at the grant date using a binomial model and charged to the income statement over the vesting period of the options. IFRS 2 does not affect the total equity on the opening IFRS balance sheet. For the fifty two weeks to 29 July 2005 the long-term incentive scheme release of Â£1,266,000 under UK GAAP has been reversed in the income statement and the IFRS net credit of Â£654,000 under IFRS 2 has been recognised. There is no impact on the total equity of the Group. IFRS 3: ''Business Combinations'' ('IFRS 3') The acquisition of SP Group has been reviewed as it falls within the scope of IFRS 3. As a result of the review no separately identifiable intangible assets have been recognised and the difference between the fair value of the assets acquired and the consideration is entirely goodwill. IAS 32: ''Financial Instruments: Disclosure and Presentation'' ('IAS 32') and IAS 39: ''Financial Instruments: Recognition and Measurement'' ('IAS 39') The Group adopted IAS 32 and IAS 39 on 30 July 2005: these standards therefore have no effect on the opening IFRS balance sheet at 30 July 2005 or restated financial information for the fifty two weeks to 29 July 2005. (a) Reconciliation of equity at 31 July 2004 IFRS UK GAAP adjustments IFRS ASSETS Â£'000 Â£'000 Â£'000 Non-current assets Property, plant and equipment 163,165 (431 ) 162,734 Goodwill 22,814 - 22,814 Other intangible assets - 431 431 Deferred tax assets - 10,722 10,722 Other non-current assets 22,896 (22,658 ) 238 ------ ------ ------ 208,875 (11,936 ) 196,939 ------ ------ ------ Current assets Inventories 11,554 - 11,554 Trade and other receivables 67,924 (2,410 ) 65,514 Cash and cash equivalents 47,455 - 47,455 ------ ------ ------ 126,933 (2,410 ) 124,523 ------ ------ ------ Total assets 335,808 (14,346 ) 321,462 ------ ------ ------ LIABILITIES Current liabilities Trade and other payables 65,358 (12,006 ) 53,352 Short-term borrowings 21,449 - 21,449 Current tax payable 6,026 - 6,026 Deferred income - 398 398 Short-term provisions - 6,938 6,938 ------ ------ ------ 92,833 (4,670 ) 88,163 ------ ------ ------ Non-current liabilities Retirement benefit obligations - 45,249 45,249 Deferred tax liabilities 9,624 (9,585 ) 39 Deferred income 706 (398 ) 308 Other non-current liabilities 992 - 992 Long-term provisions 8,895 (6,938 ) 1,957 ------ ------ ------ 20,217 28,328 48,545 ------ ------ ------ Total liabilities 113,050 23,658 136,708 ------ ------ ------ Net assets 222,758 (38,004 ) 184,754 ------ ------ ------ EQUITY Capital and reserves Share capital 10,331 - 10,331 Other reserves 45,234 985 46,219 Retained earnings 167,193 (38,989 ) 128,204 ------ ------ ------ Total equity 222,758 (38,004 ) 184,754 ------ ------ ------ (b) Reconciliation of the Income Statement for the fifty two weeks ended 29 July 2005 UK GAAP IFRS ----------------------------------------- --------------------------------------------- Before Before exceptional Exceptional restructuring Restructuring items and items and costs and costs and goodwill goodwill IFRS provision provision amortisation amortisation Total adjustments releases releases Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue ------- ------- -------- ------- ------- -------- ------- Existing activities 384,203 - 384,203 - 384,203 - 384,203 Acquired activities 35,274 - 35,274 - 35,274 - 35,274 ------- ------- -------- ------- ------- -------- ------- 419,477 - 419,477 - 419,477 - 419,477 Cost of sales (308,824 ) (6,837 ) (315,661 ) - (308,824 ) (6,837 ) (315,661) ------- ------- -------- ------- ------- -------- ------- Gross profit 110,653 (6,837 ) 103,816 - 110,653 (6,837 ) 103,816 Sales and distribution costs (28,494 ) (843 ) (29,337 ) - (28,494 ) (843 ) (29,337) Administrative expenses (43,440 ) (6,577 ) (50,017 ) 5,096 (42,058 ) (2,863 ) (44,921) Other operating income ------- ------- -------- ------- ------- -------- ------- Profit on disposal of fixed assets - 626 626 - - 626 626 Other income 576 72 648 - 576 72 648 ------- ------- -------- ------- ------- -------- ------- 576 698 1,274 - 576 698 1,274 ------- ------- -------- ------- ------- -------- ------- Profit from operations ------- ------- -------- ------- ------- -------- ------- Existing activities 35,142 (11,613 ) 23,529 3,736 36,524 (9,259 ) 27,265 Acquired activities 4,153 (1,946 ) 2,207 1,360 4,153 (586 ) 3,567 ------- ------- -------- ------- ------- -------- ------- 39,295 (13,559 ) 25,736 5,096 40,677 (9,845 ) 30,832 Loss on disposal of subsidiary - (14,101 ) (14,101 ) 5,966 - (8,135 ) (8,135) Investment income 574 - 574 7,762 8,336 - 8,336 Finance costs (763 ) - (763 ) (10,031 ) (10,794 ) - (10,794) ------- ------- -------- ------- ------- -------- ------- Profit before tax 39,106 (27,660 ) 11,446 8,793 38,219 (17,980 ) 20,239 Income tax expense (13,072 ) 4,406 (8,666 ) (109 ) (12,772 ) 3,997 (8,775) ------- ------- -------- ------- ------- -------- ------- Profit for the period 26,034 (23,254 ) 2,780 8,684 25,447 (13,983 ) 11,464 ------- ------- -------- ------- ------- -------- ------- Basic earnings per share 2.70p 11.14p ------ ------ Diluted earnings per share 2.70p 11.13p ------ ------ (c) Reconciliation of equity at 29 July 2005 IFRS UK GAAP adjustments IFRS ASSETS Â£'000 Â£'000 Â£'000 Non-current assets Property, plant and equipment 159,557 (649 ) 158,908 Goodwill 51,089 2,857 53,946 Intangible assets - 649 649 Deferred tax asset - 16,173 16,173 Other non-current assets 22,938 (22,798 ) 140 ------- ------- ------- 233,584 (3,768 ) 229,816 ------- ------- ------- Current assets Inventories 13,344 - 13,344 Trade and other receivables 79,965 (2,203 ) 77,762 Cash and cash equivalents 5,594 - 5,594 ------- ------- ------- 98,903 (2,203 ) 96,700 ------- ------- ------- Total assets 332,487 (5,971 ) 326,516 ------- ------- ------- LIABILITIES Current liabilities Trade and other payables 66,320 (11,912 ) 54,408 Short-term borrowings 29,086 - 29,086 Current tax payable 5,623 - 5,623 Deferred income - 102 102 Short-term provisions - 3,659 3,659 ------- ------- ------- 101,029 (8,151 ) 92,878 ------- ------- ------- Non-current liabilities Retirement benefit obligations - 66,584 66,584 Deferred tax liabilities 10,405 (10,359 ) 46 Deferred income 308 (102 ) 206 Other non-current liabilities 947 - 947 Long-term provisions 5,177 (3,659 ) 1,518 ------- ------- ------- 16,837 52,464 69,301 ------- ------- ------- Total liabilities 117,866 44,313 162,179 ------- ------- ------- Net assets 214,621 (50,284 ) 164,337 ------- ------- ------- EQUITY Capital and reserves Share capital 10,349 - 10,349 Other reserves 45,822 901 46,723 Retained earnings 158,450 (51,185 ) 107,265 ------- ------- ------- Total equity 214,621 (50,284 ) 164,337 ------- ------- ------- (d) Reconciliation of cash flows There was no material effect on the cash flows of the Group on adopting IFRS. The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 10 October 2006. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statements. This information is provided by RNS The company news service from the London Stock Exchange

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Flutter shares tank as primary listing moves to New York and the CFO steps aside, JD Sports struggles to impress despite sales growth in challenging market and Nat West buys £1.24bn of its own stock back from the government.

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