Interim Results
Smith (DS) PLC
06 December 2006
6 December 2006
DS Smith Plc - 2006/07 Interim Results
DS Smith Plc (LSE:SMDS), the international packaging manufacturer and office
products wholesaler, announces its results for the six months to 31 October
2006.
Financial Summary
H1 2006/07 H1 2005/06
Revenue £868.5m £821.6m
Adjusted operating profit(1) £30.4m £33.2m
Operating profit £40.4m £31.3m
Adjusted profit before tax(1) £29.0m £30.5m
Profit before tax £39.0m £28.6m
Adjusted earnings per share(1) 5.1p 5.5p
Basic earnings per share 8.5p 4.8p
Free cash flow before dividends, acquisitions and disposals(2) £18.5m £23.2m
Gearing 44.0% 52.2%
Interim dividend per share 2.6p 2.6p
(1) before an exceptional profit of £10.0m (H1 2005/06: exceptional charge of
£1.9m)
(2) including the £30.3m of proceeds from the sale of the Taplow site
Operational Highlights
• Paper and Corrugated Packaging:
- Adjusted operating profit lower due to higher input costs, particularly
energy
- Corrugated case material (CCM) prices up; box prices increasing
- UK businesses benefited from previous restructuring and cost reduction
- Sale of the Taplow site and restructuring in UK Paper and Corrugated
Packaging resulted in a £10.0m exceptional profit and a £27.4m net free
cash flow benefit
• Plastic Packaging: better sales mix and underlying growth
• Office Products Wholesaling (Spicers):
- UK: operating profit sharply lower; turnaround programme under way
- Continental Europe: continued encouraging performance
Commenting on the half-year results, Chairman, Antony Hichens said:
'The Group's result in the first half of 2006/07 was, as anticipated, affected
by increases in input costs in Packaging and by lower profits in our UK Office
Products Wholesaling business. The impact of these factors was partly mitigated
by our drive to pass on the increased input costs through raising selling prices
and the benefits of the strategic actions we have taken to exit unprofitable
operations and reduce costs.
'The outlook for the Group for the second half of the financial year remains
unchanged. The turnaround programme at Spicers UK is under way and we expect
some initial benefits in the second half of the year with more coming through in
2007/08. In Paper and Corrugated Packaging, although input costs continue to be
high, better pricing should result in an improving trend.'
Enquiries
DS Smith Plc 020 7932 5000
Tony Thorne, Group Chief Executive
Gavin Morris, Group Finance Director
Peter Aubusson, Group Communications Manager
Financial Dynamics 020 7269 7221
Richard Mountain/Susanne Walker
A briefing for analysts and investors will take place today at 9.30am at
Financial Dynamics, Holborn Gate, 28 Southampton Buildings, London WC2A 1PB.
The presentation slides from this briefing will be posted on the Group's website
(www.dssmith.uk.com) at 9.30am and an audio recording of the briefing will be
available on the website by approximately 1.00pm.
OVERVIEW
Group revenue for the half-year to 31 October 2006 increased to £868.5 million
(H1 2005/06: £821.6 million) and adjusted operating profit (before exceptional
items) was £30.4 million (H1 2005/06: £33.2million). Adjusted operating margin
was 3.5% (H1 2005/06: 4.0%) while adjusted return on average capital employed
was 6.7% (H1 2005/06: 7.1%).
Our ongoing restructuring actions resulted in a net exceptional profit of £10.0
million (H1 2005/06: an exceptional charge of £1.9 million). This comprised
exceptional costs of £10.5 million, relating to restructuring in UK Paper and
Corrugated Packaging, which were more than offset by an exceptional profit of
£20.5 million resulting from the sale of the Taplow paper mill site.
Profit before tax and exceptional items was £29.0 million (H1 2005/06: £30.5
million) and earnings per share before exceptional items were 5.1 pence (H1 2005
/06: 5.5pence). Profit before tax after exceptional items was £39.0 million (H1
2005/06: £28.6 million) and earnings per share after exceptional items were 8.5
pence (H1 2005/06: 4.8 pence).
Cash flow, before dividends, acquisitions and disposals was £18.5 million (H1
2005/06: £23.2 million). The £30.3 million cash flow benefit from the disposal
of the Taplow site was partially offset by greater working capital requirements.
Net debt was £238.6 million at the end of first half 2006/07 (end of 2005/06:
£237.8 million) resulting in gearing of 44.0% (end of 2005/06: 43.9%).
INTERIM DIVIDEND
The Board announces an interim dividend of 2.6 pence per share, which is
unchanged from the previous year's interim dividend. It will be paid on 6 March
2007 to ordinary shareholders on the register at the close of business on 2
February 2007.
GROUP INPUT COSTS
The Group's operating profit in the first half of 2006/07 was affected by a
circa £17 million increase in underlying energy, net waste paper and polymer
input costs, compared with the first half of 2005/06. Although market energy
prices remain at high levels there has been some recent easing. In the second
half of the financial year any benefit from the present lower level of energy
market prices will be largely offset by the effects of lagged price increases in
the energy contracts for some of our operations. The net cost of waste paper,
the principal raw material for our recycled CCM manufacturing operations, is
likely to remain high due to continuing strong demand from Asia and a fall in
the value of paper Packaging Recovery Notes.
OPERATING REVIEW
UK Paper and Corrugated Packaging
Half-year ended Half-year ended 31
31 October 2006 October 2005
Revenue £342.6m £331.1m
Adjusted operating profit £13.5m £14.4m
Adjusted operating margin 3.9% 4.3%
Adjusted return on average capital employed 5.5% 5.5%
The UK Paper and Corrugated Packaging segment, which is a net seller of paper,
continued to be affected by rising input costs. Faced with an increase for the
segment of circa £12 million in the costs of energy and waste paper, we
mitigated a large proportion of this through reducing operating costs, partly as
a result of our previous restructuring actions, and, increasingly, through
raising selling prices.
The UK market for corrugated packaging (boxes), by weight, in the first nine
months of calendar year 2006 was flat compared with the same period of 2005.
This represented an improvement on recent years but the UK continued to lag well
behind the 4% growth rate of Europe as a whole*.
Until late 2005, European over-capacity in CCM depressed selling prices and
constrained any recovery of the sharp increase in energy costs. Following some
strengthening of box demand and significant reductions in CCM capacity in the
European market, we have increased prices. At the end of the first half of 2006
/07, CCM prices were circa 35% higher than at the end of the first half of 2005/
06 and in the same period we have achieved a circa 10% average price increase
across our corrugated products. These price increases are enabling us to
recover a substantial proportion of the margin erosion we experienced during the
2005 calendar year.
In addition to benefiting from the improving pricing environment, this segment's
results are being assisted by growing our market share in higher added-value
corrugated products and maintaining good sales of speciality paper products.
Our programme to develop sales of plasterboard liner continued with extensive
capital expenditure to upgrade existing machines at the Kemsley and Wansbrough
Mills.
Taplow Mill made losses in 2005/06 as a result of the difficult market
conditions and the substantial increases in energy costs. It was not considered
to be an economic proposition over the longer-term, even under a more benign
external environment, and was closed at the end of October 2006. The Taplow
site was sold to a commercial property developer for a cash consideration of
£30.3 million.
The previously announced closure of the smaller of the two paper machines (PM1)
at Wansbrough Mill, which was planned to take place at the end of June, was
reviewed following the closure in mid-June of another UK paper producer. In
view of the consequent favourable change in the market environment for envelope
and imitation kraft paper grades, products PM1 is highly suited to producing, it
was decided to continue operating PM1 to satisfy the increased demand for these
speciality grades.
Although input costs are likely to remain high, the segment's results in the
second half of the year are expected to benefit from the higher pricing.
Continental European Corrugated Packaging
Half-year ended Half-year ended 31
31 October 2006 October 2005
Revenue £151.4m £135.3m
Operating profit £8.6m £9.9m
Operating margin 5.7% 7.3%
Return on average capital employed 10.4% 12.5%
Revenue in Continental European Corrugated Packaging advanced strongly,
principally as a result of strong growth in sales volumes. This segment, which
is a net buyer of paper, was affected by the higher costs of CCM which it was
not able fully to recover through increased box prices in the first half of the
year.
During the first nine months of 2006, the market for corrugated packaging in
continental Europe grew by 5% by weight with growth in demand in continental
western Europe of 4% while that in central and eastern Europe was 8%*. Box
price increases were slower to take effect on the continent as the impact of
energy cost increases on the supply chain occurred later and with less severity
than in the UK. We achieved some modest box price increases in the spring of
2006 and followed this up with a further price increase programme in all our
markets during the autumn of 2006. By the end of the first half of 2006/07, we
have achieved a circa 8% average increase in corrugated prices across the whole
of our continental European business compared with the end of the first half of
2005/06. This still represents an under-recovery relative to the increase in
our input costs.
In France, our paper business maintained good growth, assisted by the
development of speciality products. The French Corrugated Packaging operations
achieved good volume growth, but were unable to pass on the rise in CCM costs in
full during the first half of the year. The Italian, Polish and Turkish
businesses grew sales particularly strongly, which enabled them largely to
offset the effects of higher bought-in paper costs. Our associate business in
the Ukraine continued to perform well and is investing further to meet demand
and to broaden its product range.
The principal goal in this segment for the second half of the year is to raise
box prices further in order to recover more fully the increased CCM costs that
it will have incurred.
* Source: Federation of European Corrugated Board Manufacturers
Plastic Packaging
Half-year ended Half-year ended 31
31 October 2006 October 2005
Revenue £103.7m £101.7m
Operating profit £5.1m £2.0m
Operating margin 4.9% 2.0%
Return on average capital employed 8.2% 3.0%
Plastic Packaging continued its improving profit trend with a significant
advance in operating profit compared with the difficult trading experienced in
the first half of 2005/06. Although there was a further £3 million increase in
polymer costs in the half-year, this was recovered through higher selling prices
and a better sales mix. The result also benefited from an 11% underlying
advance in revenue, excluding BSK, which was sold in December 2005.
Within returnable transit packaging, beverage crate sales were particularly
strong during the first quarter of the financial year due to the fulfilment of a
number of large contracts; sales slowed in the second quarter as these contracts
came to an end - these are likely to remain at a lower level during the third
quarter before picking up again later in the year. The extruded product
businesses continued to benefit from our actions to strengthen the sales
function and improve the sales mix. However, margins remain under pressure from
the sustained high polymer costs which we have only partially recovered in
higher product prices over the last two years.
The liquid packaging and dispensing sector benefited from a higher-margin sales
mix, sales growth as a result of its strengthened product range, and improved
operating performance following the restructuring undertaken during 2005/06.
We will continue to push for further sales growth and mix improvement in this
segment, notwithstanding the project-related uneven nature of the demand for
certain of its products.
Office Products Wholesaling
Half-year ended Half-year ended 31
31 October 2006 October 2005
Revenue £270.8m £248.1m
Operating profit £3.2m £6.9m
Operating margin 1.2% 2.8%
Return on average capital employed 4.9% 11.2%
Spicers' revenue increased strongly, largely as a result of a full six months'
contribution from Timmermans, the Benelux business acquired in October 2005.
Operating profit was sharply lower due to the decline in the profitability of
the UK business. Spicers' continental European businesses continued their
encouraging performance.
Revenue in the UK increased slightly but profit was significantly affected by
stronger competition and higher operating costs. A turnaround programme is
under way in Spicers UK, aimed at raising operating performance and rebuilding
profits; the UK management team has been strengthened and extensive action has
been taken to improve the sales mix on the back of raised service levels. There
is an ongoing programme of cost reduction. We expect to see some initial
benefits from the turnaround programme in the second half of the financial year
and we are confident that our actions will lead to a re-building of profits as
the programme gathers momentum through next year.
On the continent, the French business achieved good sales and profit progress
while the Benelux business, acquired in 2005, continued to perform
satisfactorily. The Spanish business exceeded its planned sales growth and
opened its new distribution centre near to Madrid in October. Spicers Italy,
which is now in its second year of development, continued to build sales
rapidly.
In the seasonally stronger second half of the year, we expect Spicers' results
to reflect some initial benefits of the ongoing UK turnaround programme as well
as the continued development of the continental businesses.
BOARD CHANGES
As announced previously, Antony Hichens will retire from the Board at the end of
2006 and Peter Johnson will become Chairman with effect from 1 January 2007.
Also as previously announced, Jean-Paul Loison stepped down from the Board at
the end of September 2006 on his retirement. On 6 September 2006, Philippe
Mellier was appointed as a non-Executive Director. Philippe, aged 51, is
currently President of Alstom Transport and an Executive Vice-President of
Alstom Group. Previously he was Chairman and CEO of Renault Trucks and a Member
of the Executive Committee of AB Volvo.
EXTERNAL AUDITOR
Following a recent tender process, in accordance with good corporate governance
practice, the Board appointed Deloitte & Touche LLP as its external auditor with
effect from 20 October 2006. Accordingly, Deloitte & Touche will conduct the
audit of the Group's accounts for the financial year ending 30 April 2007 and a
resolution to appoint Deloitte & Touche as the Group's auditor will be put to
shareholders at the 2007 Annual General Meeting.
OUTLOOK
The outlook for the Group for the second half of the financial year remains
unchanged. The turnaround programme at Spicers UK is under way and we expect
some initial benefits in the second half of the year with more coming through in
2007/08. In Paper and Corrugated Packaging, although input costs continue to be
high, better pricing should result in an improving trend.
Consolidated Income Statement (unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
Note £m £m £m
Revenue 2 868.5 821.6 1,652.7
Operating profit
Before exceptional items 2 30.4 33.2 60.4
Exceptional items 3 10.0 (1.9) (42.4)
Operating profit 40.4 31.3 18.0
Finance income 2.3 1.1 2.3
Finance costs (9.4) (6.9) (14.6)
Employment benefit finance income 3.8 0.9 1.2
Net financing costs (3.3) (4.9) (11.1)
Profit after financing costs 37.1 26.4 6.9
Share of profit of associates 1.9 2.2 4.1
Profit before income tax
Before exceptional items 29.0 30.5 53.4
Exceptional items 10.0 (1.9) (42.4)
Profit before income tax 39.0 28.6 11.0
Income tax (expense)/credit
On profit before exceptional items (8.7) (8.8) (13.4)
On exceptional items 3.2 (1.0) 7.7
Income tax (expense) 4 (5.5) (9.8) (5.7)
Profit for the financial period 33.5 18.8 5.3
Profit for the financial period attributable to:
DS Smith Plc equity shareholders 33.0 18.4 4.2
Minority interest 0.5 0.4 1.1
33.5 18.8 5.3
Earnings per share - pence: 5
Adjusted for exceptional items 5.1p 5.5p 10.0p
Basic 8.5p 4.8p 1.1p
Diluted 8.5p 4.7p 1.1p
Interim Interim Total
Proposed/actual dividends per share 6 2.6p 2.6p 8.4p
Consolidated Statement of Recognised Income and Expense (unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
£m £m £m
Actuarial gains on defined benefit pension
schemes - - 54.4
Movements on deferred tax relating to the
actuarial gains - - (16.5)
Currency translation differences, after tax of £
(2.3)m (half-year to 31 October 2005: tax of
£0.3m; year to 30 April 2006: tax of £1.8m) (10.8) 4.5 9.7
Changes in the fair value of cash flow hedges,
after tax of £0.2m (half-year to 31 October
2005: tax of £0.5m; year to 30 April 2006: tax
of £0.1m) (0.4) (1.3) 0.2
Net (expense)/income recognised directly in
equity (11.2) 3.2 47.8
Profit for the financial period 33.5 18.8 5.3
Total recognised income and expense attributable to
the equity shareholders and minority interest
relating to the financial period 22.3 22.0 53.1
Changes in accounting policy - adoption of IAS 39,
from 1 May 2005, after tax of £0.6m - (1.5) (1.5)
Total recognised income and expense since the last
financial statements 22.3 20.5 51.6
Total recognised income and expense relating to the
financial period attributable to:
DS Smith Plc equity shareholders 21.8 20.1 50.5
Minority interest 0.5 0.4 1.1
Consolidated Balance Sheet (unaudited)
Note As at As at As at
31 October 31 October 30 April
2006 2005 2006
£m £m £m
Assets
Non-current assets
Intangible assets 194.3 196.7 195.4
Property, plant and equipment 510.5 558.7 536.1
Investments in associates 28.6 27.4 29.2
Other investments 0.5 9.6 0.5
Deferred tax assets 21.9 38.5 24.0
Other receivables 1.4 3.5 2.5
Derivative financial instruments 0.8 0.9 1.4
Total non-current assets 758.0 835.3 789.1
Current assets
Inventories 154.9 156.5 163.3
Other investments 0.1 - 0.1
Income tax receivable 4.8 - 4.8
Trade and other receivables 376.8 361.1 347.2
Cash and cash equivalents 51.2 54.4 60.4
Derivative financial instruments 1.4 1.1 3.7
Total current assets 589.2 573.1 579.5
Total assets 1,347.2 1,408.4 1,368.6
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings (252.0) (297.1) (264.9)
Post-retirement benefits (42.8) (108.2) (50.3)
Other creditors (2.9) (1.9) (3.6)
Provisions (2.6) (9.2) (2.8)
Deferred tax liabilities (76.5) (82.8) (76.3)
Derivative financial instruments (23.1) (13.8) (25.0)
Total non-current liabilities (399.9) (513.0) (422.9)
Current liabilities
Bank overdrafts (10.0) (11.0) (1.5)
Interest-bearing loans and borrowings (6.0) (3.9) (7.7)
Trade and other payables (356.7) (338.6) (355.3)
Income tax liabilities (19.7) (22.3) (21.0)
Provisions (13.0) (0.2) (16.7)
Derivative financial instruments (0.2) (0.7) (2.0)
Total current liabilities (405.6) (376.7) (404.2)
Total liabilities (805.5) (889.7) (827.1)
Net assets 541.7 518.7 541.5
Equity
Issued capital 39.1 38.9 39.1
Share premium 259.4 257.3 259.4
Reserves 233.3 213.7 233.6
DS Smith Plc shareholders' equity 9 531.8 509.9 532.1
Minority interest 9.9 8.8 9.4
Total equity 541.7 518.7 541.5
Gearing:
Net debt expressed as a percentage of total
equity 44.0% 52.2% 43.9%
Consolidated Cash Flow Statement (unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
Note £m £m £m
Operating Activities
Cash generated from operations 7 26.8 69.9 138.2
Interest received 0.2 0.4 0.8
Interest paid (6.9) (6.4) (12.8)
Income tax paid (6.3) (8.9) (13.5)
Net cash from operating activities 13.8 55.0 112.7
Investing Activities
Acquisition of subsidiary businesses, net of
cash and cash equivalents acquired - (10.3) (10.5)
Divestment of subsidiary businesses, net of
cash and cash equivalents disposed of 1.4 5.6 11.0
Capital expenditure (31.2) (35.3) (62.7)
Proceeds from the sale of assets 35.9 1.9 9.7
Proceeds from the sale of associate and
other non-current investments - 1.6 3.5
Cash flows from investing activities 6.1 (36.5) (49.0)
Financing Activities
Proceeds from issue of share capital - 0.3 2.6
(Repayment of)/increase in borrowings (10.9) 5.6 (17.2)
(Repayment of) finance lease obligations (2.1) (0.9) (0.9)
Dividends paid (22.5) (22.4) (32.6)
Cash flows from financing activities (35.5) (17.4) (48.1)
Net (decrease)/ increase in cash and cash
equivalents (15.6) 1.1 15.6
Cash and cash equivalents at 1 May 58.9 41.2 41.2
Exchange (losses)/gains on cash and cash
equivalents (2.1) 1.1 2.1
Closing cash and cash equivalents 41.2 43.4 58.9
Notes to the Accounts
1 Basis of preparation
This interim financial information, which was approved by the Board of Directors
on 5 December 2006, does not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985. The financial information presented in
this document is unaudited. The interim financial information has been prepared
using the same accounting policies as those adopted in the financial statements
for the year-ended 30 April 2006. Those accounts were reported on by the
Company's auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified and did not contain an adverse statement under
section 237 (2) or (3) of the Companies Act 1985.
2 Analysis of Group revenue, operating profit and capital employed
(unaudited)
Half-year ended Half-year ended Year ended
31 October 31 October 30 April
2006 2005 2006
£m £m £m
Revenue
UK Paper and Corrugated Packaging 342.6 331.1 649.6
Continental European Corrugated Packaging 151.4 135.3 276.6
Plastic Packaging 103.7 101.7 202.4
Office Products Wholesaling 270.8 248.1 518.7
Other - 5.4 5.4
Group total 868.5 821.6 1,652.7
Adjusted operating profit (1)
UK Paper and Corrugated Packaging 13.5 14.4 20.5
Continental European Corrugated Packaging 8.6 9.9 20.1
Plastic Packaging 5.1 2.0 7.2
Office Products Wholesaling 3.2 6.9 12.6
Group total 30.4 33.2 60.4
Period-end capital employed (2)
UK Paper and Corrugated Packaging 467.3 498.6 471.4
Continental European Corrugated Packaging 160.8 156.0 162.0
Plastic Packaging 115.9 131.1 109.9
Office Products Wholesaling 122.0 134.8 122.8
Group total 866.0 920.5 866.1
Adjusted return on sales - % (1)
UK Paper and Corrugated Packaging 3.9% 4.3% 3.2%
Continental European Corrugated Packaging 5.7% 7.3% 7.3%
Plastic Packaging 4.9% 2.0% 3.6%
Office Products Wholesaling 1.2% 2.8% 2.4%
Group total 3.5% 4.0% 3.7%
Adjusted return on average capital employed - % 1, 3
UK Paper and Corrugated Packaging 5.5% 5.5% 4.0%
Continental European Corrugated Packaging 10.4% 12.5% 12.4%
Plastic Packaging 8.2% 3.0% 5.6%
Office Products Wholesaling 4.9% 11.2% 9.9%
Group total 6.7% 7.1% 6.5%
(1) before exceptional items, as described in note 3
(2) capital employed is defined below
(3) average capital employed is defined below
The Group's primary format for segment reporting is business segments based on
the Group's management and internal reporting structure. The secondary format is
geographical segments showing the geographical origin of the Group's revenue and
adjusted operating profit. The Group operates in two principal geographical
areas: the UK and Western continental Europe. Two further segments are
identified: Eastern continental Europe and the Rest of the World.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Central administration costs
are allocated to the individual segments on a consistent basis year-on-year.
Assets and liabilities have been analysed by segment at a capital employed
level. Capital employed excludes items of a financing nature, taxation balances,
pension liabilities and fixed asset investments; segmental capital employed
comprises identifiable segment assets less segmental liabilities. Average
capital employed is the average monthly capital employed. The adjusted return on
average capital employed is calculated as twice the operating profit before
exceptional items divided by the average capital employed in the reporting
period.
Secondary reporting format - geographical segments
Half-year ended Half-year Year ended
31 October 2006 ended 30 April
31 October 2006
2005
£m £m £m
Revenue
UK 492.8 491.7 957.6
Western continental Europe 311.5 268.4 570.5
Eastern continental Europe 39.0 36.0 74.5
Rest of the World 25.2 25.5 50.1
Total 868.5 821.6 1,652.7
Operating profit
UK 9.9 15.3 18.4
Western continental Europe 15.6 12.1 33.1
Eastern continental Europe 3.3 3.1 5.5
Rest of the World 1.6 2.7 3.4
Total 30.4 33.2 60.4
3 Exceptional items
Items are presented as 'exceptional' in the financial statements where they are
significant items of financial performance that the Directors consider should be
separately disclosed, to assist in the understanding of the underlying trading
and financial results achieved by the Group.
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
£m £m £m
Gain on sale of Taplow Mill 20.5 - -
UK Paper and Corrugated Packaging segment restructuring (10.5) - (28.9)
costs
Loss on disposal of business - (1.9) (4.3)
Impairment charges - - (9.2)
Total exceptional items 10.0 (1.9) (42.4)
The exceptional profit of £20.5m resulted from the sale of the Taplow site, in
the UK Paper and Corrugated Packaging segment, for £30.3m.
The UK Paper and Corrugated Packaging restructuring costs in the half-year to 30
October 2006 of £10.5m relate to the closure of paper-making operations at
Taplow Mill and related restructuring.
The UK Paper and Corrugated Packaging restructuring costs in the full-year to 30
April 2006 related to the closure of paper-making operations at Sudbrook Mill
(£20.3m), the planned closure of a paper machine at Wansbrough Mill (£5.0m), and
other restructuring costs (£3.6m).
The loss on disposal of businesses arose on the disposal of the Office Products
Manufacturing business (loss of £1.9m recognised at the half-year to 30 October
2005; final loss of £1.7m recognised in the full-year to 30 April 2006) and a
business in the Plastic Packaging segment (loss of £2.6m).
The impairment charge in 2005/06 relates to an investment in the debt securities
of an independent UK packaging business, the performance of which had been
affected by difficult trading conditions and the high costs of energy.
4 Taxation
Tax on profits has been charged at an effective rate, before exceptional items
and share of profits of associates, of 32.1% (half-year to 31 October 2005:
31.1%; year to 30 April 2006: 27.2%), being the expected full-year effective
rate.
The tax charge on profit before exceptional items and share of profits of
associates for the period of £8.7m (half-year to 31 October 2005: £8.8m; year to
30 April 2006: £13.4m) consists of UK taxation of £2.0m (half-year to 31 October
2005: £3.1m; year to 30 April 2006: £2.3m) and overseas taxation of £6.7m
(half-year to 31 October 2005: £5.7m; year to 30 April 2006: £11.1m).
5 Earnings per share
The basic earnings per share have been calculated on the profit for the period
attributable to equity holders of the parent company of £33.0m (half-year to 31
October 2005: £18.4m; year to 30 April 2006: £4.2m) and on 388.7m ordinary
shares (half-year to 31 October 2005: 386.7m; year to 30 April 2006: 387.2m),
being the weighted average number in issue and fully paid during the period.
Diluted earnings per share are calculated assuming the conversion of potentially
dilutive shares issued under share option schemes and the Restricted Share Plan.
These adjustments give rise to an increase in the weighted average number of
ordinary shares to 390.2m (half-year to 31 October 2005: 388.0m; year to 30
April 2006: 388.8m).
Adjusted earnings per share
The Directors believe that the presentation of an adjusted earnings per share
amount, being the basic earnings per share adjusted for exceptional items, helps
to explain the underlying performance of the Group. A reconciliation of basic to
adjusted earning per share is as follows:
Half-year ended Half-year ended Year ended
31 October 31 October 30 April
2006 2005 2006
£m Pence per £m Pence per £m Pence per
share share share
Basic earnings 33.0 8.5 18.4 4.8 4.2 1.1
(Deduct)/add back: exceptional (gains)/losses,
after tax (13.2) (3.4) 2.9 0.7 34.7 8.9
Adjusted earnings 19.8 5.1 21.3 5.5 38.9 10.0
6 Dividends
The following dividends were paid by the Group:
£m
September 2005 Final dividend for the 2004/05 year of 5.8 pence per share 22.4
March 2006 Interim dividend for the 2005/06 year of 2.6 pence per share 10.1
September 2006 Final dividend for the 2005/06 year of 5.8 pence per share 22.5
The Directors have announced an interim dividend for the 2006/07 year of 2.6
pence per share, totalling £10.1m.
7 Reconciliation of profit for the period to cash generated from
operations (unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
£m £m £m
Profit for the period 33.5 18.8 5.3
Adjustments for:
- Exceptional items - non-cash amounts (12.7) 1.9 37.8
- Depreciation and amortisation 31.2 33.4 67.2
- Profit on sale of non-current assets (2.5) (1.6) (7.1)
- Share-based payments 0.4 0.4 0.1
- Share of profit of associates (1.9) (2.2) (4.1)
- Other finance income (3.8) (0.9) (1.2)
- Interest income (2.3) (1.1) (2.3)
- Interest expense 9.4 6.9 14.6
- Income tax expense 5.5 9.8 5.7
56.8 65.4 116.0
Changes in:
- inventories 2.7 (10.5) (4.2)
- trade and other receivables (41.7) 14.0 13.1
- trade and other payables 14.4 5.3 18.5
- provisions and employee benefits (5.4) (4.3) (5.2)
Cash generated from operations 26.8 69.9 138.2
8 Analysis of net debt (unaudited)
Net debt analysed in the table below comprises the book amount of cash, other
investments in current assets (which are treated as cash equivalents),
overdrafts, interest-bearing loans and borrowings together with the fair value
of derivative financial instruments that hedge the Group's borrowings.
At 1 May 2006 Cash flow Acquisition Other At 31 October
and non-cash 2006
disposals
£m £m £m £m £m
Cash and cash equivalents 60.4 (6.9) - (2.3) 51.2
Overdrafts (1.5) (8.7) - 0.2 (10.0)
Net cash and cash equivalents 58.9 (15.6) - (2.1) 41.2
Interest-bearing loans and
borrowings due after one year (264.9) 11.0 - 6.8 (247.1)
Interest-bearing loans and
borrowings due within one year (5.7) (0.1) - 0.1 (5.7)
Finance leases (2.0) 2.1 - (5.3) (5.2)
Derivative financial instruments
- assets 0.8 - - - 0.8
- liabilities (24.9) - - 2.3 (22.6)
(296.7) 13.0 - 3.9 (279.8)
Total net debt (237.8) (2.6) - 1.8 (238.6)
Other non-cash movements in the period relate to the effect of movements in
foreign exchange and interest rates on borrowings and related derivative
financial instruments, and the entering into of finance leases.
Derivative financial instrument amounts in the table above relate to interest
rate and cross-currency swaps hedging the Group's borrowings. The difference
between the amounts shown above and the total derivative financial instrument
assets and liabilities in the Group's balance sheet relates to derivative
financial instruments that hedge forecast foreign currency transactions and the
Group's purchases of energy.
9 Reconciliation of movements in shareholders' equity (unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
£m £m £m
Opening shareholders' equity:
As previously reported 532.1 511.5 511.5
Effect of adoption of IAS 39 as at 1 May 2005 - (1.5) (1.5)
As restated 532.1 510.0 510.0
Profit for the period 33.0 18.4 4.2
Actuarial gains recognised in the pension schemes - - 54.4
Movement on deferred tax relating to the actuarial gains - - (16.5)
Currency translation differences (after tax) (10.8) 4.5 9.7
Changes in the fair value of cash flow hedges (after tax) (0.4) (1.3) 0.2
New share capital issued - 0.3 2.6
Share-based payments 0.4 0.4 0.1
Dividends paid to shareholders (22.5) (22.4) (32.6)
Closing shareholders' equity 531.8 509.9 532.1
10 Reconciliation of net cash flow to movement in net debt
(unaudited)
Half-year ended Half-year Year ended
31 October ended 30 April
2006 31 October 2006
2005
Note £m £m £m
Operating profit before exceptional items 30.4 33.2 60.4
Depreciation and amortisation 31.2 33.4 67.2
EBITDA 61.6 66.6 127.6
Working capital movement (24.6) 8.8 27.4
Exceptional restructuring cash costs (2.7) - (4.6)
Other (7.5) (5.5) (12.2)
Cash generated from operations 7 26.8 69.9 138.2
Capital expenditure (31.2) (35.3) (62.7)
Proceeds from sales of assets and investments 35.9 3.5 13.2
Taxation paid (6.3) (8.9) (13.5)
Interest paid (6.7) (6.0) (12.0)
Free cash flow before net (acquisitions)/disposals
and dividends 18.5 23.2 63.2
Dividends (22.5) (22.4) (32.6)
Net disposals/(acquisitions) of subsidiaries 1.4 (4.7) 0.5
Net cash flow (2.6) (3.9) 31.1
Proceeds from the issue of share capital - 0.3 2.6
Net debt acquired - (2.5) (2.6)
Non-cash movements 1.8 (1.8) (6.1)
Net debt (increase)/decrease (0.8) (7.9) 25.0
Opening net debt (237.8) (262.8) (262.8)
Closing net debt 8 (238.6) (270.7) (237.8)
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