Final Results

Smith(David S)(Holdings) PLC 28 June 2000 1999/00 PRELIMINARY RESULTS VOLUME GROWTH AND OPERATING EFFICIENCIES LIFT RESULTS - Adjusted earnings per share increased by 57% to 13.0p (8.3p).* - Group turnover up 7.0% at £1,217.7m (£1,138m). - Operating profit up 39% at £67.8m (£48.9m).* - Profit before tax up 55% at £57.7m (£37.2m).* - Total dividends increased by 3.7% to 8.5p per share (8.2p). - Strong balance sheet with interest cover of 6.8 times (4.2 times). - Strong volume growth. - Operating efficiencies and cost reduction offset impact of euro weakness. * before exceptional items and goodwill amortisation. Commenting on the outlook Chairman Antony Hichens said: 'We enter the year ahead with considerable momentum and good prospects for future growth. All our businesses are benefiting from the recovery in the European economy and the threat of a further weakening euro appears to be receding. Consequently the Board believes that the Group is in a position to make good progress in the current year.' Enquiries: Peter Williams, Group Chief Executive 020 7932 5000 David S. Smith (Holdings) PLC David Buttfield, Finance Director 020 7932 5000 David S. Smith (Holdings) PLC Tim Spratt, Director 020 7831 3113 Financial Dynamics CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT After several years of adversity it is pleasing to report that the Group has made solid progress during the year and enters the new year with considerable momentum and good prospects for future growth. Review of Operations The upturn in the Group's profitability was due to increased sales volumes and the success of our performance improvement programmes. Increases in selling prices were in general offset by increases in raw material prices. The Group also benefited from recent restructuring activity, such as the closure of the Apsley site of John Dickinson and the Silverton paper mill. The robust growth of the continental European economies is a major factor in the improved outlook for the Group. This has undoubtedly lessened the effects of the slowdown in the UK manufacturing sector which has been hard pressed by the overvaluation of sterling. Sales volumes grew strongly across Europe. In Packaging corrugated volumes grew by 8%, corrugated case materials (CCM) by 7% and many of our plastic packaging businesses by double digit rates. Office products sales grew by 7% overall with Spicers growing by 11% on a selling day adjusted basis. The Group's packaging business made progress during the year, improving ROCE to 9% from 6% the previous year. Growth in corrugated consumption in Europe accelerated throughout the year moving ahead by 7% in the first calendar quarter of 2000. The exception was the UK which showed negligible growth. This surge in corrugated demand against the background of a stronger world economy quickly tightened up paper and waste paper markets and brought a sharp escalation in the prices of both. This will benefit our paper making operations but our box plants are struggling to pass on the circa 30% selling price increases required to recover the paper cost increases incurred since last summer. The corrugated operations of David S Smith Packaging traded slightly better than the previous year with some growth in sales volumes and improved operating performances particularly at the Fordham plant. The arrival of a new competitor in the UK market and minimal market growth has resulted in fierce competition. The Bracknell decorative plant which had been loss making was closed just after the financial year-end. Market conditions are expected to remain difficult so that the present underperformance will only be redressed gradually and mainly through our drive for performance improvement. The corrugated and paper operations of Kaysersberg had a satisfactory year with sales and operating profits advancing in all regions. Toscana Ondulati, our Italian corrugating company, produced another good result and has embarked on a major project that will double its output of lightweight decorative corrugated. In Poland management action resulted in an impressive turnaround in performance with the operations back in profit by year-end. The division has several operational improvement initiatives underway that should have a positive impact on this year. The paper operations of St Regis had an excellent year as a result of strong paper markets, improved efficiencies and further cost reduction. Waste paper prices rose sharply particularly in the second half of last year; CCM prices followed and are now about 50% above the low point reached early last summer. The Kemsley paper mill had another excellent year achieving record output. By contrast the specialist mills suffered pricing pressure from imports and the Silverton and Daniels mills were closed. St Regis won the paper industry safety award for leading the way by markedly improving performance in this important area. With little new capacity on the horizon and growth in Europe expected to continue the outlook is positive for this division. The Plastics and Logistics division recorded strong sales growth but unchanged profits, affected by the strength of sterling and rising polymer prices. The outlook is positive as there are a number of significant projects underway and on the horizon which will ensure good future growth. The acquisition of Formative Engineering has been particularly propitious because of expanding opportunities in the USA for Worldwide Dispensers, our press tap manufacturing business. The Group's office products businesses raised their overall ROCE to 16% primarily as a result of the much lower operating loss at John Dickinson Stationery. Spicers Wholesaling grew strongly but profits were restrained by a number of restructuring and start-up costs. Spicers France did particularly well with record sales and profits. The launch in Germany has been a success and is now breaking even; the capacity of the existing distribution centre is being raised and a second distribution centre in Nuremberg will be operational in June 2001. John Dickinson Stationery is on an improving trend and made a small profit in the second half. The reorganisation of the envelope and stationery manufacturing business was largely completed and the business should continue to progress in the year ahead. The Group is investing heavily at all the divisions in new computer operating systems to remove costs, streamline our operations and facilitate the use of emerging internet technologies. Spicers Wholesaling launched an e-commerce package which is already being used successfully by over 100 dealers and delivering significant advantages to their customers. Abbey Corrugated was the first in the UK corrugated market to provide internet based, interactive links with its customers. Strategy The Group's strategy continues to be to create value for shareholders by developing its core activities through organic growth and acquisitions. The core activities are fibre and plastics based packaging, recycled papermaking and the distribution of office products. During the year, several decisions were taken which directly support the Group's strategy: - to reinforce the performance improvement programmes of all our manufacturing units, further increasing the visibility and scope of these initiatives. - to build a fully automated warehouse at Kemsley, ensuring that this mill provides the best customer service in the industry while maintaining its status as one of Europe's lowest cost mills; - to expand our lightweight decorative corrugated operations in Italy - a segment of the market offering both high growth potential and good returns; - to build a second Spicers distribution centre in Germany, recognising that the Spicers concept has proved successful in this major European market; - the acquisition of Formative Engineering, which will support the international development of Worldwide Dispensers by giving us a presence in the USA. The Group's strategy will be reviewed regularly to ensure that it remains focused on shareholder value creation. Group Trading Turnover for the year ended 29 April 2000 rose by 7.0% to £1,217.7 million from £1,138.0 million in 1998/99. This increase reflects demand growth in the Packaging segment and the continued growth of office products wholesaling. Operating profit before exceptional items and goodwill amortisation increased by 39% to £67.8 million from £48.9 million the previous year. Group operating margins rose to 5.6% from 4.3%. Profit before taxation excluding exceptional items and goodwill amortisation was £57.7 million, up from £37.2 million last year. The underlying effective tax rate dropped to 27% from 28%. Adjusted earnings per share were 13.0p compared with 8.3p the year before. Exceptional items and goodwill amortisation amounted to £9.1 million. Profit before taxation was £48.6 million and on an FRS 3 basis earnings per share were 11.7p compared with 2.3p last year. Net borrowings rose to £162.4 million at the year-end from £154.3 million the previous year. Gearing increased slightly to 33.6% from 32.3% and interest cover increased to 6.8 times before exceptionals from 4.2 times the year before. Expenditure on acquisitions amounted to £18.0 million and capital expenditure remained at a similar level to last year at £55.3 million. In the current year capital expenditure will increase due to a number of significant projects, some of which are based on cost savings and should produce a short pay back; others are expansionary and will enable growth to be sustained particularly in the plastics and logistics segment. Dividends Your Board is recommending a final dividend of 5.8p net per ordinary share which, together with the interim dividend of 2.7p net per ordinary share, will make a total dividend for the year of 8.5p net per ordinary share. This is an increase of 3.7% on the total dividend of 8.2p paid last year. Dividend cover is 1.5 times. Outlook We enter this year confident about the trading prospects of the Group. All our businesses are benefiting from the recovery in the European economy and are poised to make further progress although David S Smith Packaging will continue to feel the effects of the competitive conditions in the UK market. There are also a number of large projects underway that will enhance future performance and growth, and the recent small acquisitions will prove useful. Lastly the threat of a further weakening of the euro appears to be receding. Consequently the Board believes that the Group is in a position to make good progress in the current year. Group Profit and Loss Account For the financial year ended 29 April 2000 2000 1999 Before Exceptional Before Exceptional exceptional items and exceptional items and items and goodwill items and goodwill goodwill amortisation Total goodwill amortisation amortisation Total (Note 2) (Note 2) Note £m £m £m £m £m £m Turnover 1 1,217.7 - 1,217.7 1,138.0 - 1,138.0 Group operating profit 1 67.8 (0.6) 67.2 48.9 (30.9) 18.0 Share of losses of associated undertakings (0.2) - (0.2) (0.2) - (0.2) Total operating profit 67.6 (0.6) 67.0 48.7 (30.9) 17.8 Exceptional (loss)/profit on termination - (6.9) (6.9) - 7.9 7.9 of operations Profit on ordinary activities before interest 67.6 (7.5) 60.1 48.7 (23.0) 25.7 Interest (9.9) (1.6) (11.5) (11.5) - (11.5) Profit on ordinary activities before taxation 57.7 (9.1) 48.6 37.2 (23.0) 14.2 Tax on profit on ordinary activities (15.6) 5.1 (10.5) (10.3) 3.8 (6.5) Profit on ordinary activities after 42.1 (4.0) 38.1 26.9 (19.2) 7.7 taxation Minority interests - equity (0.5) - (0.5) (0.3) - (0.3) Profit for the 41.6 (4.0) 37.6 26.6 (19.2) 7.4 financial year Dividends paid and proposed (27.2) - (27.2) (26.2) - (26.2) Retained profit/(loss) for the 14.4 (4.0) 10.4 0.4 (19.2) (18.8) financial year Earnings per share: 3 Basic 11.7p 2.3p Diluted 11.7p 2.3p Adjusted 13.0p 8.3p Dividends per share 8.5p 8.2p Notes: (a) The Group's results are derived from continuing operations. There were no material acquisitions or discontinued operations in the year. (b) The difference between the reported and historical cost profits for each of the financial years reported above is not material. (c) The Annual Report and Accounts for the financial year ended 29 April 2000 will be posted to shareholders in July 2000. (d) Subject to approval of shareholders at the Annual General Meeting to be held on Wednesday 6 September 2000, the final dividend of 5.8p will be paid on 3 October 2000 to ordinary shareholders on the register on 18 August 2000. (e) The 1999/00 and 1998/99 results in this preliminary statement are not the Group's statutory accounts for these financial years. The 1999/00 and 1998/99 results have been extracted from statutory accounts which contained unqualified audit reports with no adverse statement under Section 237 (2) or (3) of the Companies Act 1985. The 1998/99 statutory accounts have been filed with the Registrar of Companies. Group Statement of Total Recognised Gains and Losses For the financial year ended 29 April 2000 2000 1999 £m £m Profit for the financial year 37.6 7.4 Exchange differences on foreign currency net (5.5) (1.9) investments Total recognised gains and losses 32.1 5.5 Group Reconciliation of Movements in Shareholders' Funds For the financial year ended 29 April 2000 2000 1999 £m £m Profit for the financial year 37.6 7.4 Dividends (27.2) (26.2) Retained profit/(loss) for the financial year 10.4 (18.8) Exchange differences on foreign exchange currency net (5.5) (1.9) investments New share capital issued 0.1 0.2 Release of negative goodwill on termination/disposal of operations - (9.6) Goodwill written off - (0.7) Increase/(decrease) in shareholders' funds 5.0 (30.8) Opening shareholders' funds 478.3 509.1 Closing shareholders' funds 483.3 478.3 Group Balance Sheet 29 April 1 May Note 2000 1999 £m £m Fixed assets 546.5 555.5 Current assets Stocks 130.1 127.1 Debtors 296.4 262.7 Short term investments 4 4.4 24.3 Cash at bank and in hand 4 12.4 14.1 443.3 428.2 Creditors: amounts falling due within one year Trade and other creditors (289.6) (277.3) Borrowings 4 (80.7) (17.0) Net current assets 73.0 133.9 Total assets less current liabilities 619.5 689.4 Creditors: amounts falling due after more than one year Borrowings 4 (98.5) (175.7) Other (1.8) (2.0) Provisions for liabilities and charges (31.9) (29.5) 487.3 482.2 Minority interests - equity (4.0) (3.9) Net assets 483.3 478.3 Capital and reserves Called up share capital 32.1 32.1 Share premium account 188.0 187.9 Revaluation reserve 10.7 10.6 Profit and loss account 252.5 247.7 Shareholders' funds - equity 483.3 478.3 Group Cash Flow Statement For the financial year ended 29 April 2000 Note 2000 1999 £m £m Net cash inflow from operating activities 5(a) 94.7 83.2 Returns on investments and servicing of 5(b) (10.3) (12.2) finance Taxation (13.6) (5.7) Capital expenditure and financial 5(c) (50.2) (38.3) investment Acquisitions and disposals 5(d) (18.0) (11.6) Equity dividends paid (26.2) (26.2) Net cash outflow before use of liquid resources and financing (23.6) (10.8) Management of liquid resources 18.8 4.3 Net cash (outflow)/inflow from financing (6.9) 6.5 Decrease in cash in the financial year (11.7) - Reconciliation of net cash flow to movement in net debt Note 2000 1999 £m £m Decrease in cash in the financial year (11.7) - Decrease/(increase) in debt and lease 7.0 (6.3) financing Decrease in liquid resources (18.8) (4.3) Change in net debt resulting from cash (23.5) (10.6) flow Liquid resources acquired with subsidiary - 1.2 undertakings Loans and finance leases acquired with subsidiary undertakings (0.9) (0.2) Exchange differences 16.3 1.2 Increase in net debt in the financial (8.1) (8.4) year Opening net debt (154.3) (145.9) Closing net debt 4,6 (162.4) (154.3) Notes to the Accounts 1 Analysis of Group turnover, operating profit and capital employed Operating profit before exceptional Capital items and employed Capital 2000 Turnover goodwill Operating excluding employed amortisation profit goodwill £m £m £m £m £m Packaging Corrugated and 620.5 37.4 37.2 459.4 464.3 Paper Plastics and 123.1 8.2 7.8 59.4 68.1 Logistics 743.6 45.6 45.0 518.8 532.4 Office products Wholesaling 419.4 23.0 23.0 104.8 104.8 Manufacturing 74.5 (0.8) (0.8) 36.1 36.1 Intra-segment (19.8) - - - - sales 474.1 22.2 22.2 140.9 140.9 Total 1,217.7 67.8 67.2 659.7 673.3 United Kingdom 813.7 47.8 47.8 484.0 484.6 Rest of World 404.0 20.0 19.4 175.7 188.7 Total 1,217.7 67.8 67.2 659.7 673.3 The operating profits shown above exclude the exceptional items relating to the termination of operations shown below operating profit on the face of the Group profit and loss account (see note 2). Operating profit before exceptional Capital items and employed 1999 Turnover goodwill Operating excluding Capital amortisation profit goodwill employed £m £m £m £m £m Packaging Corrugated and 591.2 23.8 (6.7) 468.8 470.2 Paper Plastics and 105.4 8.2 7.8 55.9 63.1 Logistics 696.6 32.0 1.1 524.7 533.3 Office products Wholesaling 380.2 22.5 22.5 92.1 92.1 Manufacturing 83.7 (5.6) (5.6) 36.9 36.9 Intra-segment (22.5) - - - - sales 441.4 16.9 16.9 129.0 129.0 Total 1,138.0 48.9 18.0 653.7 662.3 United Kingdom 791.1 34.7 5.5 472.7 473.3 Rest of World 346.9 14.2 12.5 181.0 189.0 Total 1,138.0 48.9 18.0 653.7 662.3 Capital employed as shown above excludes items of a financing nature, corporation tax balances and fixed asset investments. Following a change in management responsibilities, the 1998/99 results and capital employed of the Group's Packaging Services Management business have been reclassified from Corrugated and Paper to Plastics and Logistics. 2 Exceptional items and goodwill amortisation 2000 1999 £m £m Charged in arriving at operating profit: Impairment of fixed assets - (24.0) UK Packaging redundancy costs - (6.7) Goodwill amortisation (0.6) (0.2) (0.6) (30.9) Exceptional profit on termination of an operation: Costs of closure (6.9) (8.4) Profit on sale of property - 6.9 Release of negative goodwill - 9.4 (6.9) 7.9 Amount written off fixed asset investments (1.6) - Tax on exceptional items: UK packaging redundancy costs - 2.0 Exceptional costs of closure 2.1 1.8 2.1 3.8 Exceptional tax credit 3.0 - Total after tax (4.0) (19.2) The exceptional loss on termination of operations in the financial year relates to the closure of two UK paper mills. The amount written off fixed asset investments comprises the whole of the Group's investment in a Far Eastern packaging company. The company filed for temporary protection from its creditors in May 2000 to give it time to reschedule debts and negotiate a restructuring plan. The exceptional tax credit is a release of prior year provisions following agreement with the Inland Revenue on a number of open items. 3 Earnings per share Basic earnings per share are calculated on the profit for the financial year of £37.6m (1999 - £7.4m) and on 320.3m (1999 - 320.3m) ordinary shares being the weighted average in issue and fully paid during the year. The adjusted earnings per share is calculated on the profit for the financial year excluding exceptional items and goodwill amortisation and on the same number of shares. Diluted earnings per share are calculated on the same earnings numbers as basic earnings per share but on 320.8m (1999 - 320.5m) shares. 4 Borrowings 2000 1999 £m £m The Group's net borrowings are: Bank loans and overdrafts and other loans 176.5 189.2 Finance lease liabilities 2.7 3.5 Short term investments (4.4) (24.3) Cash at bank and in hand (12.4) (14.1) 162.4 154.3 Gearing (net borrowings expressed as a percentage of shareholders' funds) 33.6% 32.3% 5 Group cash flow statement 2000 1999 £m £m (a)Reconciliation of operating profit to net cash inflow from operating activities: Operating profit before exceptional items and goodwill amortisation 67.8 48.9 Depreciation 57.0 54.7 (Profit)/loss on sale of tangible fixed assets (3.2) 1.0 Increase in working capital (19.7) (9.4) Decrease in provisions (0.2) (0.6) Other non cash operating items - (0.7) Cash flow from operating activities before 101.7 93.9 exceptional items Operating cash flow relating to exceptional items (see below) (7.0) (10.7) Net cash inflow from operating activities 94.7 83.2 The operating cash flows elating to exceptional items mainly comprise the cash costs incurred in closing operations during the year. (b)Returns on investments and servicing of finance: Interest received 2.4 2.0 Interest paid (12.5) (14.0) Interest element of finance lease rental (0.2) (0.2) payments (10.3) (12.2) (c)Capital expenditure and financial investment: Purchase of tangible fixed assets (52.6) (58.3) Sale of tangible fixed assets (see below) 2.8 21.1 Purchase of David S. Smith (Holdings) PLC (0.4) (0.1) shares Purchase of fixed asset investments (0.2) (1.0) Sale of fixed asset investments 0.2 - (50.2) (38.3) The proceeds from the sale of tangible fixed assets in 1999 include £19.0m received on the disposal of John Dickinson's Apsley site. 5 Group cash flow statement (continued) (d) Acquisitions and disposals Purchase of subsidiary undertakings (17.1) (14.0) Net cash acquired with subsidiaries - 0.6 Investments in associated undertakings (0.9) (0.3) Disposal of business - 2.1 (18.0) (11.6) (e) Net cash inflow from financing: Issue of ordinary shares 0.1 0.2 New borrowings 6.2 8.4 Borrowings repaid (13.2) (2.1) (6.9) 6.5 6 Analysis of changes in net debt At At 29 2 May Cash Reclass- Exchange April 1999 Acquired flow ification movements 2000 £m £m £m £m £m £m Cash at bank and in hand 14.1 - (0.6) - (1.1) 12.4 Overdrafts (8.4) - (11.1) - 1.8 (17.7) 5.7 - (11.7) - 0.7 (5.3) Debt due after one year (172.7) (0.1) 6.5 59.2 10.9 (96.2) Debt due within one year (8.1) (0.8) - (59.2) 5.5 (62.6) Finance leases (3.5) - 0.5 - 0.3 (2.7) (184.3) (0.9) 7.0 - 16.7 (161.5) Short term investments 24.3 - (18.8) - (1.1) 4.4 Total (154.3) (0.9) (23.5) - 16.3 (162.4) Group Profit and Loss Account First Half / Second Half Split First half Second half (Unaudited) (Unaudited) Total year For the financial year 2000 1999 2000 1999 2000 1999 ended 29 April 2000 £m £m £m £m £m £m Turnover 594.2 569.6 623.5 568.4 1,217.7 1,138.0 Operating profit before exceptional items 28.3 25.1 39.5 23.8 67.8 48.9 Share of losses of associated undertakings (0.1) - (0.1) (0.2) (0.2) (0.2) Exceptional items and goodwill amortisation (5.6) 1.4 (1.9) (24.4) (7.5) (23.0) Profit on ordinary activities 22.6 26.5 37.5 (0.8) 60.1 25.7 before interest Interest (note 1) (4.5) (5.8) (7.0) (5.7) (11.5) (11.5) Profit on ordinary activities 18.1 20.7 30.5 (6.5) 48.6 14.2 before taxation Tax on profit on ordinary activities (5.5) (3.9) (5.0) (2.6) (10.5) (6.5) Profit on ordinary activities after 12.6 16.8 25.5 (9.1) 38.1 7.7 taxation Minority interests - (0.3) (0.3) (0.2) - (0.5) (0.3) equity Profit for the period 12.3 16.5 25.3 (9.1) 37.6 7.4 Earnings per share: Basic 3.8p 5.2p 7.9p (2.9)p 11.7p 2.3p Adjusted (note 2) 5.1p 4.1p 7.9p 4.2p 13.0p 8.3p Notes 1. Interest in the second half of 1999/00 includes a £1.6m exceptional charge relating to an amount written off a fixed asset investment. 2. Adjusted earnings per share exclude exceptional items and goodwill amortisation.

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