Final Results
Smith (DS) PLC
27 June 2002
27th June 2002
2001/02 FULL YEAR RESULTS
DS Smith Plc (LSE:SMDS), the international packaging manufacturer and office
products wholesaler, announces its preliminary results for the year to 30 April
2002.
KEY POINTS
• Turnover up 3% at £1,440.2 million (2000/01: £1,399.1 million)
• Profit before tax £62.6 million* (2000/01: £72.2 million)
• Cash inflow before acquisitions £43.0 million (2000/01: outflow of
£6.9 million)
• In difficult markets, good progress in Packaging offset by lower
profits in Office Products
• Adjusted earnings per share 14.0p* (2000/01: 15.1p)
• Dividend maintained at 8.8p for the full year
*before exceptional items and amortisation of intangibles
Commenting on the full year results and outlook, Chairman Antony Hichens said:
'I am pleased to report that our largest activity, Packaging, made good progress
and it was disappointing that this was more than offset by lower profits in
Office Products. The emphasis on cash management throughout the Group resulted
in a significantly higher cash flow compared with the previous year.
'Looking ahead, we expect the decisive actions taken to improve performance in
Office Products to result in a measure of recovery in this activity in 2002/03.
Conditions in many of the Group's markets remain uncertain and, in particular,
rising recovered paper prices are currently squeezing paper margins.
Nevertheless, I am confident that the steps we have taken to raise operational
performance across the Group provide a sound basis for progress in the coming
year.'
Enquiries:
DS Smith Plc 020 7932 5000
Tony Thorne, Group Chief Executive
David Buttfield, Finance Director
Peter Aubusson, Group Communications Manager
Financial Dynamics 020 7831 3113
Richard Mountain/Robert Gurner
CHAIRMAN'S STATEMENT
From its outset, we viewed 2001/02 as a testing year due to the deteriorating
European economy. In the event, trading conditions worsened more than we had
anticipated, particularly following the events of 11 September. I am,
therefore, particularly pleased to report that our largest activity, Packaging,
made progress despite these tough external conditions. This was due in large
part to the ongoing drive for operational improvement, our strong market
positions and benefits from recent investments. Disappointingly, the
improvement in Packaging was more than offset by a fall in operating profit in
Office Products, principally due to the effects of a sharp market slow-down,
additional costs put in place to support projected expansion and some short-term
operational difficulties. We took decisive action to improve performance and
expect a measure of recovery in 2002/03.
The Group's adjusted earnings per share, before exceptionals and amortisation of
intangibles, was 14.0p compared with 15.1p in the previous year. The basic
earnings per share were 5.4p. Cash inflow after payment of the dividend but
before acquisitions was £43.0 million.
Your Board attaches considerable importance to the Group's capacity to pay its
shareholders a reliable and significant dividend. This year, in view of the
reduced profits, the Board is recommending an unchanged final dividend of 6.0p
per ordinary share which, together with the interim dividend of 2.8p, will make
a maintained total dividend for the year of 8.8p per ordinary share.
During the past year we progressed a number of strategic capital projects and
made six acquisitions which strengthened our competitiveness in selected
sectors, most particularly in corrugated packaging in the United Kingdom and in
our international liquid packaging business. In Office Products Wholesaling, we
continued to expand geographically, opening our second distribution centre in
Germany and our first in Spain.
The Group's strategy continues to be the operational improvement and further
development of our two principal activities - Packaging and Office Products
Wholesaling. We are developing these businesses in parallel while remaining
focused on maximising shareholder value.
The name of the Company was changed to DS Smith Plc at the Annual General
Meeting last September. This simplification of the name has helped us to
present a more cohesive image across the whole spectrum of the Group's
activities.
Tony Thorne, who joined us as Group Chief Operating Officer in January 2001
after six years in a senior role with a major packaging competitor, was
appointed Group Chief Executive in December 2001. Peter Williams, who stepped
down after a decade as Chief Executive, became Deputy Chairman and will retire
from the Board at the AGM in September 2002. We owe him a great debt of
gratitude for his courageous development of the DS Smith Group in good times and
bad during his long period at the helm.
I would also like to thank our 10,900 employees worldwide for their enthusiastic
commitment to improving the Group's performance during the year. The relentless
quest for greater productivity has had their understanding support.
Conditions in many of our markets remain uncertain and, in particular, rising
recovered paper prices are currently squeezing paper margins. Nevertheless, I
am confident that the steps we have taken to raise operational performance
across the Group provide a sound basis for progress in the coming year.
Antony Hichens
Chairman
CHIEF EXECUTIVE'S REVIEW
I joined the Group in January 2001 and have been Chief Executive for the last
six months. We have a number of strong market positions with good potential for
further development, a sound asset base and a strong team. In the main, we
operate in highly competitive markets where it is essential to meet our
customers' quality and service requirements whilst continually driving for
operational improvements and greater efficiency. Achieving a good return on the
existing capital employed is fundamental and new capital must be committed
prudently and prioritised to cost reduction and new products or markets.
In Packaging, the Corrugated and Paper segment has a strong position in the UK
and good regional positions in continental Europe. We will continue to build on
these, principally through organic development and operational improvements,
although we will remain alert to good value, bolt-on acquisition opportunities.
Given the nature of the markets, further plant restructuring cannot be ruled
out. In Plastics, we have created a growing global business in liquid packaging
and dispensing and a strong European business in industrial returnable transit
packaging. There is the prospect of good growth in these areas and the
potential for further acquisitions.
Our Office Products businesses have suffered setbacks this year, exacerbated by
particularly tough market conditions. However, Spicers Wholesaling is a market
leader in the UK and our success in France demonstrates the potential returns
from taking the Spicers model to other markets. Whilst our short term priority
must be to rebuild profitability, we will continue our development in
continental Europe, principally through investment in new regional distribution
centres.
Going forward, we will drive operational improvements hard in all our businesses
and will accelerate the pace of development in selected areas while having
regard to maintaining a strong balance sheet. At the same time, in order to
ensure focus and not constrain the development of individual business areas, we
will look to streamline our portfolio. From the investors' viewpoint, I am
seeking to achieve sustainable improvement in underlying earnings per share and
return on invested capital. From the customers' perspective, my objective is
that Group companies will be the preferred suppliers, based principally on an
ability to provide superior service. For employees, my aim is that the Group
companies achieve high performance in a safe working environment while
recognising our employees' contribution to this process and thereby making the
Group a rewarding one to work for.
Highlights of the Year
Overview
Compared to last year, Group sales increased by 3% to £1,440.2 million but Group
operating profit before exceptional items and amortisation of intangibles was
15% lower at £72.0 million. This result in part reflected the tough economic
and market conditions in which the Group had to operate but, more importantly, a
disappointing result in Office Products.
Profit before tax, exceptional items and amortisation of intangibles fell from
£72.2 million to £62.6 million. We have taken an exceptional impairment charge
of £32.4 million mainly relating to our Office Products Manufacturing business
and our investment in Turkish corrugated packaging. Return on year end capital
employed was 10.3% compared to last year's 11.7%. Adjusted earnings per share
were 14.0p compared with 15.1p in the previous year and basic earnings per share
were 5.4p.
Our Packaging activities, which account for 62% of our sales and 89% of
operating profit, made good progress. Despite negative growth in a number of
markets, Packaging sales advanced by 3% and operating profit before exceptional
items and amortisation of intangibles increased by 6%. Although Office Products
sales were 2% ahead of the previous year, operating profit was 67% lower due to
a combination of significantly weaker market conditions, additional costs put in
place to support forecast growth and operational difficulties.
In the circumstances, our priority in Office Products has been to ensure that we
develop and implement profit recovery plans. These are now well in place. In
Packaging, we accelerated the performance improvement programme giving
particular attention to a number of low performing businesses. Significant
progress has been made in both activities and we have an improved base for the
coming year. A number of strategic capital projects have been completed, or
significantly advanced, in the year, including the upgrading of our lightweight
paper capability, expansion in both heavy duty corrugated conversion and
lightweight decorative corrugated and the introduction of new plastic dispensing
products. We made six bolt-on acquisitions: two in Corrugated, three in
Plastics and one in Office Products. The benefits to earnings from these
various initiatives will come through in 2002/03 and subsequent years.
A high degree of emphasis was put on cash management, especially on reducing
working capital. The Group generated a cash inflow after dividends but before
acquisitions of £43.0 million compared with an outflow of £6.9 million in 2000/
01. This enabled us to end the year with virtually unchanged borrowings after
spending £44.7 million on acquisitions. Gearing increased marginally to 45% and
interest cover remained strong at 6.4 times.
Packaging (Corrugated and Paper; Plastics)
In the Corrugated and Paper segment, a concentration on raising the performance
of the existing operations through pricing discipline, structural cost reduction
and a pursuit of greater efficiency delivered a slightly improved overall result
despite the deterioration in the market. The key feature of the year was the
weakness in the global paper market, which caused a progressive fall in European
prices for corrugated case materials (CCM). In the second half of the year, the
lower CCM prices were not matched by lower recovered paper prices, causing a
fall in the profits of St Regis Paper. The Group is an 'open market' player in
CCM, producing more CCM than it consumes through its downstream converting
operations. It was therefore encouraging that the profit decline at St Regis
was compensated by better profits in our corrugated operations, both in the UK
and in continental Europe. The improved corrugated returns reflected both
better gross margins and greater efficiency. There was considerable success in
turning around a number of the lower performing corrugated businesses both in
the UK and continental Europe and in particular our UK conventional plants.
During the year, we acquired two UK sheet feeders and eleven sheet plants from
Danisco which enabled us to gain both a substantial presence in the growing
lightweight speciality sheetboard market and to strengthen our sheet plant
network. By combining these operations with existing Group businesses we were
able to rationalise the production base and reduce costs.
In Plastics, we made substantial progress in 2001/02. Plastics achieved a 14%
increase in sales and 37% advance in operating profit before amortisation of
intangibles, partly helped by lower polymer prices in the second half of the
year. During the year, we refined the strategy for this division to increase
the focus on liquid packaging and dispensing and industrial returnable transit
packaging (RTP). Through both acquisitions and organic growth we have developed
scale in these areas and the prospects are positive. In liquid packaging and
dispensing, our US business continues to grow rapidly and we formed a joint
venture in the year in Australasia in order to secure core technology and have a
base there for further geographic expansion. In industrial returnable transit
packaging, we have grouped a number of separate businesses under one management
and now have a unified European-wide sales force selling an enlarged range of
products.
Office Products
The office products market was hit by a sharp slow-down in demand across Europe,
the speed and extent of which was greater than expected. This came at a
particularly difficult time for Spicers, our Office Products Wholesaling
business, which was coming out of a restructuring of its distribution network in
the UK and also accelerating its expansion into continental Europe.
In our principal market, the UK, the fall-off in profitability was the result of
a number of factors, both external and internal. The UK market slow-down
particularly affected sales of higher margin traditional products rather than
lower margin electronic office supplies. The resultant poorer sales mix
compounded the effect of the overall lower market activity. Our dealer
customers were affected by the market slow-down and a number went into
liquidation, pushing up our bad debts. The consolidation of four distribution
centres into two in late 2000/01 plus the roll-out of the upgraded IT systems
created disruption and extra costs, in part related to overcoming a
deterioration in service.
Considerable attention has been given to turning around our UK business.
Management has been strengthened, the pricing policy reviewed and is in the
process of being adjusted, operating disciplines reinforced and costs cut.
Further initiatives planned for implementation in 2002/03 have been announced.
An essential element in this process is to have the support of our customers.
To this end we have targeted and are now achieving a demonstrable uplift in
service levels. The improved trend in operational performance, coupled with the
elimination of some one-off costs, should provide a better result in 2002/03.
In continental Europe, Spicers France increased its market penetration through
organic growth and acquiring a dealer group, Plein Ciel. Despite the costs of
integrating Plein Ciel, the business improved its profits. In Germany,
expansion continued with the opening of a second distribution centre at
Nuremberg. Sales in Germany had been progressing well but difficulty in
commissioning an upgraded version of Spicers' integrated IT system led to
significant customer service problems with a consequent fall in sales
development. By our financial year end the IT problems had been overcome and
service levels much improved, as a result of which it is expected that sales
will again grow rapidly and the business will return to profit. In Spain, we
opened our first distribution centre, in Barcelona. This has been well received
by the dealer community but it is too early to determine how fast sales will
grow.
Our Office Products Manufacturing business, John Dickinson, also suffered from
the fall in market demand as well as from significant price pressure. We have
restructured this business, focusing its activities on its more profitable
sectors and reducing the workforce. We are confident that these actions will
put the business into profit.
Outlook
During the past year, we improved our performance in many areas, completed a
number of strategic acquisitions and projects as well as restructuring some
businesses. These actions have positioned the Group well to take advantage of
any recovery in our markets.
As we start the new financial year, recovered paper prices are rising fast,
reflecting increased global usage. This price rise has squeezed paper margins.
However, CCM prices are now increasing which will inevitably require higher
corrugated prices.
Whilst we have yet to see an improvement in demand in our markets, we are
confident that through the actions taken in Office Products and our continuing
concentration on raising operational performance throughout the Group, we can
expect to make progress in the year ahead.
Tony Thorne
Group Chief Executive
OPERATING REVIEW
Packaging
Total sales increased by 3% to £892.4 million. Operating profit before
exceptional items and amortisation of intangibles advanced by 6% to £63.9
million resulting in an operating margin of 7.2% compared with 7.0% in the
previous year. Return on year end capital employed was 11.5% compared with
10.6%.
Corrugated and Paper
Sales in the Corrugated and Paper segment increased to £708.5 million (2000/01:
£702.1 million). Operating profit before exceptional items and amortisation of
intangibles grew slightly to £51.7 million and operating margins were unchanged
at 7.3%. Return on capital employed was 10.8% (10.6%).
UK industry data for calendar year 2001 shows a 3.6% fall in demand for
corrugated board. The equivalent industry data for France and Germany for 2001
shows falls in demand of 1.9% and 0.1% respectively. These weak market
conditions continued in the first quarter of 2002.
UK CCM demand closely mirrored board demand, falling by 3.7% in 2001, while
demand in Europe as a whole fell by 0.6%. CCM prices declined in the first half
of 2001 and price weakness continued through the remainder of the year and into
the early months of 2002, reflecting continued weak demand and high industry
stock levels. However, there was a firming of prices in the final weeks of our
financial year. New CCM capacity coming on stream in continental Europe has
negatively affected the market but the impact has been mitigated to an extent by
major producers taking downtime.
Recovered paper prices weakened in the first half of 2001 but have moved ahead
sharply since the autumn, reflecting greater demand from Asia and higher usage
across Europe. The UK packaging waste regulations imposed higher targets for
waste recovery and recycling for 2002 which resulted in higher Packaging
Recovery Note (PRN) values. The failure by a major compliance scheme to meet
its 2001 obligations under the packaging regulations has been addressed by the
government.
DS Smith Packaging
Substantial operational improvement, increased efficiency levels and lower CCM
prices enabled DS Smith Packaging to make good progress in sales, profits and
cash generation. This was despite the impact of the continuing decline in UK
manufacturing and our plants in Scotland being badly hit by the closure of
customers in the electronics sector.
Profitability at the conventional corrugated plants, which account for nearly
40% of divisional sales, was helped by lower paper prices, but also through
higher efficiency levels. The segment is benefiting from the capital invested
in previous years.
Volumes progressed well across the majority of our speciality operations, in
part due to the success of ongoing efforts to develop new products and identify
new market niches. The decline of the electronics industry affected our high
value decorative print business in Scotland but we took swift action to close
another operation and combine the businesses, thereby achieving cost savings.
The investment in new printing and converting facilities is well underway.
The Tri-Wall heavy duty corrugated business suffered most from the UK
manufacturing recession and the relative strength of sterling against the euro
in export markets. The investment programme to make this business more cost
competitive and to allow it to develop further speciality products is well
advanced.
The division continues to focus on innovative product development as a key means
of adding value and this was reflected in the four awards it won in the recent
Worldstar global packaging competition. Recent successful product introductions
have included a system, branded Xtend(R), that combines corrugated packaging and
a plastic film from the Group company, StePac, to control and extend the
ripening period of fresh fruit and vegetables, and ovenable corrugated packs
that enable cakes to be baked in their packaging.
In September 2001, the division acquired two sheet feeders and 11 sheet plants
from Danisco, based mainly in the south and west of the UK. These operations
have been integrated successfully. In particular, the Kettering sheet feeder
plant, which is a well invested factory focused on the fast growing lightweight
speciality board segment, has been allied with our existing Abbey sheet feeder
to form a single business, allowing us to operate with an expanded product range
at a lower cost.
Kaysersberg Packaging
The Group's continental European corrugated and paper division, Kaysersberg
Packaging, achieved a healthy advance in profitability, principally due to lower
CCM prices and good cost control.
Through good product mix management, the French paper mills continued to perform
well despite a fall in selling prices and flat volumes. A new combined heat and
power plant was commissioned during the year at the Kaysersberg mill leading to
a reduction in energy costs and greenhouse gas emissions.
Sales at the main corrugated plants in France fell in line with the decline in
the national market. However, profit increased, considerably enhanced by
greater efficiency and helped by lower CCM prices. The French corrugated
operations' strong position in the heavy duty sector will be further
strengthened by the development of a specialist packaging solution for the
rubber industry in alliance with Georgia-Pacific Corporation and the opening of
an extension to our sheet plant near Orleans.
In Italy, Toscana Ondulati continued to grow its volumes significantly. Its
margins improved as a result of increasing its output and a decrease in raw
material costs that was partly offset by a fall in selling prices. The new
greenfield Lari factory was commissioned at the end of March 2002. It will
produce lightweight corrugated packaging for the ceramic and pizza industries,
allowing the existing factory at Marlia to focus on heavy duty and conventional
products. This places Toscana Ondulati in a strong position across several
market sectors.
Our Polish business also made good progress, growing at a faster rate than the
national market. Its merchanting operations continue to provide a strong sales
outlet for the main plant. The margin improvement reflects the advance in
production efficiencies resulting from recent investments and a shift in sales
mix to higher added value products.
The Copikas operation in Turkey was seriously affected by the country's
difficult economic situation and action was taken to restore the business to
profitability. The impact of these actions and the acquisition of a small
corrugating operation close to the division's international customers in the
Istanbul area, gives encouragement that the business is set for improvement in
the coming years.
St Regis Paper
St Regis achieved a resilient performance within the context of a tough trading
environment. Sales volumes were flat and selling prices were depressed by the
overall market situation. This, together with higher recovered paper prices
since the autumn of 2001, led to a fall in both sales revenue and profit. CCM
market demand in the UK was subdued but the continuing focus on cost reduction
helped to mitigate the poor market conditions.
Trading cash flow showed a significant improvement on the prior year due largely
to a reduction in working capital. Margins were assisted by lower recovered
paper prices in the early part of the financial year. However, they came under
increasing pressure towards the end of the period as input costs rose, due to
the supply of recovered paper in the UK being affected by increased exports to
Europe and Asia.
The Kemsley paper mill again performed well, producing over half a million
tonnes for the second successive year. Wansbrough and Taplow underwent planned
downtime while their machines were partly rebuilt and upgraded. This investment
will enable Wansbrough to rationalise its product mix to focus on the more
profitable paper grades. The upgrade at Taplow increases the division's
capability to produce lightweight CCM of a quality to satisfy growing customer
demand for lighter weight paper.
The division's specialist paper mills continued to experience heavy competition
from overseas but product development enabled them to make reasonable progress.
Severnside had to contend with the fall in recovered paper prices in the early
months of the financial year but, although prices firmed in the second half of
the year, the volume of paper recovered was adversely affected by the difficulty
of sourcing paper against strong export demand. The division continued to
invest in its waste collection capability, adding further mobile compaction
vehicles in the year.
Plastics
DS Smith Plastics' sales grew by 14% to £183.9 million through a combination of
organic growth and acquisitions. Operating profit before amortisation of
intangibles advanced by 37% to £12.2 million, assisted in part by lower polymer
prices. Operating margins increased from 5.5% to 6.6% and the return on year
end capital employed moved ahead from 10.9% to 15.5%.
The division continued to build its strong position in liquid packaging and
dispensing. The division's liquid packaging business, Rapak, is now the number
two supplier globally of bag-in-box packaging and maintained its strong sales
growth in both Europe and in particular, the USA. In November 2001, it extended
its market coverage and secured some core and valuable technology with the
acquisition of a 50% interest in a liquid packaging joint venture in Australia
and New Zealand. This enables Rapak to provide truly global coverage to its
major multinational customers. WD, the dispensing tap business, experienced
strong levels of demand across its product range. Its US business completed a
major factory extension in the year which enables it to offer its multinational
customers an enlarged US manufacturing facility.
Despite the adverse effects of the slow-down in European manufacturing which
held back sales in some sectors, we continued to develop our strong position in
industrial RTP in Europe. The extruded product operations held up well in
difficult market conditions, but profits declined somewhat as a result of lower
volumes. In May 2001, we acquired a small extruded plastics packaging company
based in Madrid to enable us to develop the Iberian market and we have
subsequently relocated an additional extruder to this site. Our competitive
position in RTP was enhanced in December 2001 by the acquisition and successful
integration of a small plastic pallet manufacturing business. The plastic crate
business had a good year, benefiting from strong performances from its Dominican
Republic and Spanish operations.
Our packaging management activities had a difficult year due to more aggressive
competition throughout Europe. Action has been taken to reduce costs,
particularly in the UK.
Office Products
Total sales increased by 2% to £547.8 million but operating profit before
exceptional items and amortisation of intangibles was lower at £8.1 million
(2000/01: £24.7 million). Operating margin fell to 1.5% (4.6%) and return on
year end capital employed was 5.8% (15.5%).
Wholesaling
Spicers' total sales grew by 3% to £500.5 million, despite the sharp slow-down
in demand for office products across Europe, particularly in the second half of
the year. For the year as a whole, Spicers' sales in France and Germany grew by
15% and 17% respectively, but this was partly offset by sales decreases of
around 3% in both the UK and Ireland, where Spicers has more established market
positions. Operating profit growth for the year was expected to be low as a
result of start-up costs in Germany and Spain and the cost of developing
additional capacity in the UK and Ireland. In the event, the downturn in demand
in all our markets and a number of operational difficulties in the UK and
Germany resulted in a decline in operating profit to £9.7 million (2000/01:
£24.4 million) and a reduced operating margin of 1.9% (5.0%). Return on year
end capital employed was 7.8% (19.9%).
Electronic office supplies (EOS) are accounting for an increasing share of the
office products market worldwide and of Spicers' business. The lower margin
available from this growing segment of the business has contributed to the
reduction in margin for the business as a whole. Steps are being taken to adapt
pricing structures, costs and trading policies to this fundamental change in the
sales mix.
The level of bad debts increased as dealer customers suffered from the
deteriorating market conditions. The consolidation of four warehouses into two
late in 2000/01 plus the roll-out of the upgraded IT system also created extra
costs, in part related to overcoming a deterioration in service. Decisive
action was taken to address these issues, including strengthening management,
amendments to the pricing policy, the reinforcement of operating disciplines,
new procedures for rolling out IT, reduction of the cost base and further
tightening of stock and credit control. These actions yielded some significant
benefits in the final quarter of the year, in particular in terms of quality and
customer service and are expected to improve performance further in 2002/03.
Despite the difficulties in the UK and Ireland, Spicers maintained its strong
competitive position. It is continuing to upgrade its operations and the
planned relocation of the South London regional distribution centre (RDC) from
Bermondsey to Greenwich in the current year will increase capacity, service
capabilities and efficiency.
There was a substantial slow-down in the French office products market, but
Spicers France continued its growth based on its strong market position and
assisted by the acquisition in October 2001 of a smaller competitor, Plein Ciel.
This move added a strong brand and sales are being successfully expanded
through the Plein Ciel dealer network.
In Germany, the second RDC, at Nuremberg, was opened in April 2001 and became
fully operational during the first half of the year, increasing capacity and
allowing same day delivery to the whole German market. Difficulties with the
implementation of an updated version of Spicers' integrated IT system during
autumn 2001 resulted in reduced service levels and a reduction in sales growth.
Actions have been taken to rectify the situation and to restore customer
confidence. The IT problems have now been resolved, customer confidence is
recovering and sales growth is picking up.
Spicers Spain was launched in April 2002 with the opening of the new Barcelona
RDC. Plans are well advanced for a second RDC in Madrid, due to open in January
2003. Initial indications and feedback from the dealer community are
encouraging, although the business will be loss making for some time to come.
The office products market remains challenging but the actions we have taken in
2001/02 should allow us to improve our position in the coming year, even in the
absence of market growth.
Manufacturing
John Dickinson experienced a 7% decline in sales to £66.7 million due to reduced
volumes and price pressure in its markets. The division made an operating loss
before exceptional items and amortisation of intangibles of £1.6 million
compared with a small operating profit of £0.3 million in the previous year.
The 2001/02 result however is stated after charging a £1.9 million restructuring
charge associated with exiting certain product lines and reducing the workforce
by about 100.
Market conditions were tough for all parts of the business but sales of
envelopes were particularly badly affected by the economic downturn with severe
price competition in part driven by a high level of imports. The Sawston
envelope factory was restructured towards the end of the year to reduce
capacity, cut costs and focus on the higher added value products. The book and
pad stationery business experienced weaker demand but achieved an improvement in
product mix towards higher added value products. The Spicer Hallfield
photographic stationery business produced a disappointing result due to lower
sales and a number of one-off costs.
Group Profit and Loss Account
For the financial year ended 30 April 2002
2002 2001
Before Exceptional Total Before Exceptional Total
exceptional items and exceptional items and
items and amortisation items and amortisation
amortisation of amortisation of
of intangibles of intangibles intangibles
intangibles (Note 2) (restated) (Note 2) (restated)
Note £m £m £m £m £m £m
Turnover 1 1,440.2 - 1,440.2 1,399.1 - 1,399.1
Group operating profit 1 72.0 (34.1) 37.9 84.9 (1.1) 83.8
Share of operating
profits/(losses) of
associated undertakings 2.2 0.3 2.5 (0.2) - (0.2)
Total operating profit 74.2 (33.8) 40.4 84.7 (1.1) 83.6
Exceptional loss on
termination of
operations - - - - (4.3) (4.3)
Profit on ordinary
activities before
interest 74.2 (33.8) 40.4 84.7 (5.4) 79.3
Net interest payable (11.6) - (11.6) (12.5) - (12.5)
Profit on ordinary
activities before
taxation 62.6 (33.8) 28.8 72.2 (5.4) 66.8
Tax on profit on
ordinary activities (16.9) 6.4 (10.5) (22.9) 1.2 (21.7)
Profit on ordinary
activities after
taxation 45.7 (27.4) 18.3 49.3 (4.2) 45.1
Minority interests -
equity (0.9) - (0.9) (0.8) - (0.8)
Profit for the
financial year 44.8 (27.4) 17.4 48.5 (4.2) 44.3
Dividends paid and
proposed (28.2) - (28.2) (28.2) - (28.2)
Retained profit/(loss)
for the financial year 16.6 (27.4) (10.8) 20.3 (4.2) 16.1
Earnings per share: 3
Basic 5.4p 13.8p
Diluted 5.4p 13.8p
Adjusted 14.0p 15.1p
Dividends per share 8.8p 8.8p
Notes:
(a) The Group's results shown above are derived from continuing operations.
There were no material acquisitions or discontinued operations in either
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 financial statements for the financial year ended 30
April 2002 will be posted to shareholders in July 2002.
(d) Subject to approval of shareholders at the Annual General Meeting to be
held on Tuesday 3 September 2002, the final dividend of 6.0p will be paid on
17 September 2002 to ordinary shareholders on the register on 16 August
2002.
(e) The 2001/02 and 2000/01 results in this preliminary statement are not the
Group's statutory accounts for these financial years. The 2001/02 and 2000/
01 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 2000/01 statutory accounts have been
filed with the Registrar of Companies.
(f) The results for the financial year ended 28 April 2001 have been
restated for the effects of applying FRS19 'Deferred Tax'.
Group Statement of Total Recognised Gains and Losses
For the financial year ended 30 April 2002
2002 2001
(restated)
£m £m
Profit for the financial year 17.4 44.3
Exchange differences on foreign currency net investments 2.9 5.6
Total recognised gains and losses relating to the financial year 20.3 49.9
Prior year adjustment (62.2) -
Total recognised gains and losses since the last financial statements (41.9) 49.9
The prior year adjustment arises from the implementation during the year of FRS
19 'Deferred Tax'.
Group Reconciliation of Movements in Shareholders' Funds
For the financial year ended 30 April 2002
2002 2001
(restated)
£m £m
Profit for the financial year 17.4 44.3
Dividends (28.2) (28.2)
Retained (loss)/profit for the financial year (10.8) 16.1
Exchange differences on foreign currency net investments 2.9 5.6
New share capital issued 0.6 -
Net (decrease)/increase in shareholders' funds (7.3) 21.7
Opening shareholders' funds (restated after a prior year adjustment of £62.2m) 446.2 424.5
Closing shareholders' funds 438.9 446.2
Group Balance Sheet
30 April 28 April
2002 2001
(restated)
Note £m £m
Fixed assets
Intangible assets 32.1 25.7
Tangible assets 551.6 541.1
Investments 27.8 20.8
611.5 587.6
Current assets
Stocks 142.4 155.2
Debtors 319.7 334.6
Short term investments 4 16.0 19.3
Cash at bank and in hand 4 28.5 10.0
506.6 519.1
Creditors: amounts falling due within one year
Trade and other creditors (330.3) (334.0)
Borrowings 4 (29.4) (22.1)
Net current assets 146.9 163.0
Total assets less current liabilities 758.4 750.6
Creditors: amounts falling due after more than one year
Borrowings 4 (211.0) (200.6)
Other (11.1) (6.8)
Provisions for liabilities and charges (90.1) (92.0)
446.2 451.2
Minority interests - equity (7.3) (5.0)
Net assets 438.9 446.2
Capital and reserves
Called up share capital 32.1 32.1
Share premium account 188.6 188.0
Revaluation reserve 8.9 9.5
Profit and loss account 209.3 216.6
Shareholders' funds - equity 438.9 446.2
Group Cash Flow Statement
For the financial year ended 30 April 2002
2002 2001
Note £m £m
Net cash inflow from operating activities 5(a) 178.0 98.6
Returns on investments and servicing of finance 5(b) (10.0) (12.2)
Taxation (26.9) (3.0)
Capital expenditure and financial investment 5(c) (69.9) (62.8)
Acquisitions and disposals 5(d) (44.6) (9.1)
Equity dividends paid (28.2) (27.5)
Net cash outflow before use of liquid resources and financing (1.6) (16.0)
Management of liquid resources 5(e) 3.5 (13.9)
Net cash inflow from financing 5(f) 16.9 29.6
Increase/(decrease) in cash in the financial year 18.8 (0.3)
Reconciliation of Net Cash Flow to Movement in Net Debt
For the financial year ended 30 April 2002
2002 2001
Note £m £m
Increase/(decrease) in cash in the financial year 18.8 (0.3)
Increase in debt and lease financing (16.3) (29.6)
(Decrease)/increase in liquid resources (3.5) 13.9
Increase in net debt resulting from cash flow (1.0) (16.0)
Liquid resources acquired with subsidiary undertakings 0.5 -
Loans and finance leases acquired with subsidiary undertakings (3.2) (5.3)
Exchange differences 1.2 (9.7)
Increase in net debt in the financial year (2.5) (31.0)
Opening net debt (193.4) (162.4)
Closing net debt 4,6 (195.9) (193.4)
Notes to the Financial Statements
1 Analysis of Group turnover, operating profit and capital employed
Operating
profit before
exceptional Capital
items and employed Return on
amortisation of Operating Return excluding Capital capital
2002 Turnover intangibles profit on sales intangibles employed employed
£m £m £m % £m £m %
Packaging
Corrugated and
Paper 708.5 51.7 32.4 7.3 477.8 478.3 10.8
Plastics 183.9 12.2 10.9 6.6 78.5 108.4 15.5
892.4 63.9 43.3 7.2 556.3 586.7 11.5
Office Products
Wholesaling 500.5 9.7 9.6 1.9 123.9 125.6 7.8
Manufacturing 66.7 (1.6) (15.0) (2.4) 16.3 16.3 (9.8)
Intra-segment (19.4) - - - - - -
547.8 8.1 (5.4) 1.5 140.2 141.9 5.8
Total 1,440.2 72.0 37.9 5.0 696.5 728.6 10.3
United Kingdom 892.9 43.7 20.4 4.9 466.4 465.6 9.4
Rest of World 547.3 28.3 17.5 5.2 230.1 263.0 12.3
Total 1,440.2 72.0 37.9 5.0 696.5 728.6 10.3
2001
Packaging
Corrugated and
Paper 702.1 51.3 51.1 7.3 484.4 489.5 10.6
Plastics 161.1 8.9 8.0 5.5 82.0 102.6 10.9
863.2 60.2 59.1 7.0 566.4 592.1 10.6
Office Products
Wholesaling 485.0 24.4 24.4 5.0 122.7 122.7 19.9
Manufacturing 71.4 0.3 0.3 0.4 36.4 36.4 0.8
Intra-segment (20.5) - - - - - -
535.9 24.7 24.7 4.6 159.1 159.1 15.5
Total 1,399.1 84.9 83.8 6.1 725.5 751.2 11.7
United Kingdom 898.6 56.6 56.5 6.3 497.8 498.7 11.4
Rest of World 500.5 28.3 27.3 5.7 227.7 252.5 12.4
Total 1,399.1 84.9 83.8 6.1 725.5 751.2 11.7
The operating profits shown above exclude the Group's share of operating profits
and losses of associated undertakings and the prior year exceptional loss
relating to the termination of operations, which is shown below operating profit
on the face of the consolidated profit and loss account (see note 2). Capital
employed as shown above excludes net borrowings, deferred consideration due in
respect of acquisitions, corporation tax, dividends payable, fixed asset
investments and minority interests.
Return on sales is defined as operating profit before exceptional items and
amortisation of intangibles divided by turnover. Return on capital employed is
defined as operating profit before exceptional items and amortisation of
intangibles divided by capital employed excluding intangibles.
2 Exceptional items and amortisation of intangibles
2002 2001
£m £m
Impairment of tangible fixed assets and goodwill (32.4) -
Amortisation of intangibles (1.7) (1.1)
Amortisation of goodwill of associates 0.3 -
Exceptional loss on termination of operations:
Costs of closure - (4.3)
(33.8) (5.4)
Tax on exceptional items 6.4 1.2
Total (27.4) (4.2)
In the second half of the year the Group carried out an extensive review of its
operating assets, as a result of which a £32.4m impairment provision against the
carrying value of tangible fixed assets and goodwill has been charged in
arriving at operating profit. A substantial part of this change relates to the
Group's Office Products Manufacturing business and the investment in Turkish
corrugated packaging. The exceptional loss on termination of operations in the
previous year related to the closure of the Group's Bracknell corrugated
packaging plant.
3 Earnings per share
Basic earnings per share are calculated by dividing the profit for the financial
year of £17.4m (2001 - £44.3m) by the weighted average in issue and fully paid
during the year of 320.2m (2001 - 320.2m). The adjusted earnings per share is
calculated on the profit for the financial year excluding exceptional items and
amortisation of intangibles 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 321.2m (2001 - 321.1m) shares.
4 Borrowings
2002 2001
£m £m
The Group's net borrowings are:
Bank loans and overdrafts and other loans 235.2 219.6
Finance lease liabilities 5.2 3.1
Short term investments (16.0) (19.3)
Cash at bank and in hand (28.5) (10.0)
195.9 193.4
Gearing (net borrowings expressed as a
percentage of shareholders' funds) 44.6% 43.3%
5 Group cash flow statement
2002 2001
£m £m
(a) Reconciliation of operating profit to net cash inflow from operating
activities:
Operating profit before exceptional items and amortisation of intangibles 72.0 84.9
Depreciation 63.6 60.4
Profit on sale of tangible fixed assets (2.9) (3.2)
Decrease/(increase) in working capital 40.6 (39.7)
Increase/(decrease) in provisions 3.9 (0.1)
Other non cash operating items 0.8 0.8
Cash flow from operating activities before exceptional items 178.0 103.1
Operating cash flow relating to exceptional items (see below) - (4.5)
Net cash flow from operating activities 178.0 98.6
The prior year operating cash flows relating to exceptional items mainly
comprise the cash costs incurred in closing operations.
(b) Returns on investments and servicing of finance:
Interest received 4.9 3.9
Interest paid (14.7) (15.9)
Interest element of finance lease rental payments (0.2) (0.2)
(10.0) (12.2)
(c) Capital expenditure and financial investment:
Purchase of tangible fixed assets (75.3) (70.7)
Sale of tangible fixed assets 7.7 10.1
Purchase of DS Smith Plc shares (0.6) (0.1)
Purchase of fixed asset investments (1.7) (2.1)
(69.9) (62.8)
(d) Acquisitions and disposals:
Purchase of subsidiary undertakings (41.5) (9.9)
Net cash acquired with subsidiaries 0.1 1.1
Investment in associated undertakings (3.2) (0.3)
(44.6) (9.1)
(e) Net sale/(purchase) of short term investments 3.5 (13.9)
Short term investments mainly comprise deposits with
banks.
(f) Net cash inflow from financing:
Issue of ordinary shares 0.6 -
New borrowings 20.2 93.9
Borrowings repaid (3.9) (64.3)
16.9 29.6
6 Analysis of changes in net debt
At 28 April Exchange At 30 April
2001 Acquired Cash flow movements 2002
£m £m £m £m £m
Cash at bank and in hand 10.0 - 18.7 (0.2) 28.5
Overdrafts (18.1) - (0.1) 1.8 (16.2)
(8.1) - 18.8 1.6 12.3
Debt due after one year (198.2) (0.1) (9.4) 1.0 (206.7)
Debt due within one year (3.3) - (7.8) (1.2) (12.3)
Finance leases (3.1) (3.1) 0.9 0.1 (5.2)
(204.6) (3.2) (16.3) (0.1) (224.2)
Short term investments 19.3 0.5 (3.5) (0.3) 16.0
Total (193.4) (2.7) (1.0) 1.2 (195.9)
7 Acquisitions
On 11 September 2001, the Group acquired a number of corrugated packaging
operations on a back-to-back basis from Anglo American International S.A. (an
associate of Mondi Packaging UK) following their purchase of the UK paper and
packaging operations of Danisco A/S. The acquired operations consisted of two
corrugated sheet feeder plants, based at Kettering and Hastings, and 11
corrugated sheet plants mainly located in the south and west of the UK. The
businesses were acquired for a consideration of £21.4m.
A further £20.1m of consideration was paid for a number of other acquisitions in
the year.
Group Profit and Loss Account
First Half / Second Half Split
For the financial year ended 30 April 2002
First half Second half
(Unaudited) (Unaudited) Total year
2002 2001 2002 2001 2002 2001
(restated) (restated) (restated)
£m £m £m £m £m £m
Turnover 711.9 689.2 728.3 709.9 1,440.2 1,399.1
Operating profit before exceptional 41.9 45.0 30.1 39.9 72.0 84.9
items and amortisation of intangibles
Share of profits/(losses) of associated
undertakings (0.1) (0.1) 2.3 (0.1) 2.2 (0.2)
Exceptional items and amortisation of
intangibles (0.7) (2.6) (33.1) (33.8)
Profit/(loss) on ordinary activities
before interest 41.1 42.3 (0.7) 37.0 40.4 79.3
Net interest payable (6.0) (5.5) (5.6) (7.0) (11.6) (12.5)
Profit/(loss) on ordinary activities
before taxation 35.1 36.8 (6.3) 30.0 28.8 66.8
Tax on profit/(loss) on ordinary (10.7) (11.8) 0.2 (9.9) (10.5) (21.7)
activities
Profit/(loss) on ordinary activities
after taxation 24.4 25.0 (6.1) 20.1 18.3 45.1
Minority interests - equity (0.6) (0.4) (0.3) (0.4) (0.9) (0.8)
Profit/(loss) for the period 23.8 24.6 (6.4) 19.7 17.4 44.3
Earnings per share:
Basic 7.4p 7.7p (2.0)p 6.1p 5.4p 13.8p
Adjusted (note 1) 7.7p 8.3p 6.3p 6.8p 14.0p 15.1p
Notes
1. Adjusted earnings per share exclude exceptional items and amortisation
of intangibles.
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