Interim Results - Pre-tax Profit Up 22.7%

Smith(David S)(Holdings) PLC 8 December 1999 UPTURN IN PACKAGING MARKETS SUPPORTS FIRST HALF GROWTH Interim Results for the Half Year to 30 October 1999 - Results reflect upturn in packaging markets, progress in office products and benefits from cost reduction programmes - Group turnover up 4.3% to £594.2m (£569.6m) - Operating profits, margins and return on capital up in both packaging and office products business segments - Profit before tax, excluding exceptional items and goodwill amortisation, up 22.7% to £23.7m (£19.3m) - Adjusted earnings per share rise 24.3% to 5.1p (4.1p) - Interim dividend maintained at 2.7p - Strong balance sheet maintained with interest cover up to 6.3 times from 4.3 times - Encouraging outlook for European economy should produce more favourable trading conditions for Group's businesses Commenting on the results and future prospects Antony Hichens, Chairman, said: 'At our preliminary results in June we indicated that the trading performance of the Group should improve. This is being achieved as a result of better markets and the benefits from our cost reduction programmes. 'Clearly, there is more progress to be made. The outlook for the European economy is encouraging and should produce more favourable trading conditions for our businesses. We are, therefore, confident that the Group will deliver an improving performance for shareholders.' Enquiries: Peter Williams, Group Chief Executive, David S. Smith (Holdings) PLC David Buttfield, Finance Director Paul Froud, Investor Relations 020 7932 5000 Tim Spratt, Director Financial Dynamics 020 7831 3113 Highlights The Group has benefited from the upturn in our packaging markets that has taken place since the early summer, from continued progress in office products and from our cost reduction programmes. Group turnover for the half year to 30 October 1999 increased by 4.3% to £594.2 million from £569.6 million in the same period last year. Operating profit before exceptional items and goodwill amortisation rose by 12.7% to £28.3 million from £25.1 million. Group operating margins increased to 4.8% from 4.4%. Profit before tax excluding exceptional items and goodwill amortisation was £23.7 million, up from £19.3 million in the same period last year. The underlying effective tax rate was 30%. Earnings per share before exceptional items and goodwill amortisation were 5.1p compared with 4.1p in the half year ended 31 October 1998. Exceptional items and goodwill amortisation in the period amounted to £5.6 million of which £5.3 million relates to the closure of the Silverton paper mill. Net debt increased to £185.0 million from £181.8 million at this time last year, with gearing at 38.5%; interest cover improved to 6.3 times from 4.3 times. Fixed assets additions were £15.9 million compared with £20.5 million in the same period last year and are expected to be around £60 million for the full year, broadly equivalent to the anticipated level of depreciation. Interim Dividend The Board announces an interim dividend of 2.7p net per ordinary share, unchanged from last year. The interim dividend will be paid on 15 March 2000 to ordinary shareholders on the register at the close of business on 21 January 2000. Packaging Total sales for the packaging businesses increased by 1.7% to £365.7 million; operating profit before exceptional items and goodwill amortisation rose by 12.2% to £20.2 million, and operating margins advanced to 5.5% from 5.0%. The return on capital employed increased to 7.7% from 6.3%. Corrugated and Paper Turnover for the corrugated and paper segment was almost unchanged at £306.4 million; operating profit increased to £16.0 million from £14.0 million and operating margins improved to 5.2% from 4.6%. Corrugated packaging demand is currently strong. Growth in Europe year on year in the third calendar quarter is reported to be 5% and there is every indication that the final quarter will be even stronger. Part of this growth is due to extra stocking by customers ahead of the millennium and therefore is not sustainable. However we believe that underlying corrugated packaging demand is currently growing solidly. Prices across Europe have increased since the spring, led by kraftliner and followed by testliner. Global demand growth and tightening supply in most markets contributed to this improved pricing environment for corrugated case materials (CCM). Price increases on corrugated board have lagged behind CCM and have been harder to implement. David S. Smith Packaging Overall UK demand growth for corrugated board as reported by the industry for the calendar year to date is estimated to be 1% down, but is up 1.7% for the first half of the financial year compared to last year. These growth rates are believed to be understated as the corrugated market is perceptibly stronger than they would indicate. David S. Smith has increased volume at a slightly higher rate than the overall market growth with much of the improvement in our mainstream corrugated business. Despite this volume growth, competition remains fierce and operating margins, whilst improving, are still well below acceptable levels. Selling price increases were announced in September and, while strongly resisted, are starting to take effect. The heavy duty and decorative markets have also remained difficult and have been affected by the continued strength of sterling. Here also selling prices have been raised to recover the raw material cost increases. The Abbey sheet feeding business experienced strong demand which has facilitated improved pricing, resulting in a much needed improvement in profitability. Cost reduction and efficiency improvements continue to be pursued. Fordham is on an improving trend but a couple of the other underperforming units have not yet responded to management initiatives. It is pleasing that despite the difficulties of the past year we were named 'Overall Packaging Supplier of the Year' by the readers of Packaging Magazine. Kaysersberg Packaging Turnover has increased for the first half of the year and operating margins have improved slightly, helped by the recovery in the French and German economies. The French corrugated market is on a positive trend, with volume up 1.8% for the first nine months of the calendar year. Growth for the first five months of the financial year is stronger, running at approximately 3.8%. Kaysersberg's corrugated board operation grew at a similar rate to the market; profits were broadly in line with last year as improved productivity offset delays in passing on CCM price increases to customers. The paperboard mills had record sales volumes during the half year and should benefit from improved pricing over the balance of the year. In Italy Toscana Ondulati has performed well, with increased volume and selling prices. The Polish operations have suffered a difficult period in markets which remain oversupplied. An extensive programme of operational improvement is underway which has already substantially raised performance levels. In July the Group acquired Copikas, a Turkish corrugated board plant located to the north east of Ankara. This operation has performed strongly and is well positioned to develop further. St. Regis Paper The increased demand for CCM and the selling price increases implemented at the end of the summer have helped St. Regis to deliver a good performance for the half year. The focus on reducing costs and increasing business efficiencies continues with significant performance improvement achieved across the division, but particularly at Kemsley mill. Development of plasterboard liner at Kemsley during the period has been successful with sales building. Expansion of coreboard sales has also taken place. The specialist mills, however, remain under pressure due to weak markets and increased competition from imports from euro-based producers. The Silverton paper mill was permanently shut at the end of August. Severnside, the waste paper collection business, has improved its profitability in the first half of the year, helped by good demand and increased prices for waste paper. Some changes to the Packaging Waste Regulations have taken place and enforcement by the Environment Agency is slowly improving. However, demand for PRNs in 1999 has been weak as supply again has been in considerable surplus. Against this background PRN prices seem set to remain depressed which will not encourage the expansion of collection and recycling capacity that is essential to meet the Government's targets. Plastics and Logistics Turnover in the plastics and logistics segment increased by 12.5% to £59.3 million from £52.7 million in the first half of last year; operating profit rose 5.0% to £4.2 million compared with £4.0 million, and operating margins slipped to 7.1% against 7.6%. This has been a mixed first half for the division. Sales overall developed as expected but profits were impacted by several factors. Polymer prices have increased dramatically during the period. These increases are being passed on to customers but the time lag has led to reduced margins. The strength of sterling continues to make life difficult, not only affecting our direct exports but also depressing the activity of our customers in the UK manufacturing sector. The flexibles and dispensing businesses have performed well. Worldwide Dispensers (formerly Waddington & Duval) in particular made good progress, and Liquid Packaging continued to deliver better results. The extruded plastic sheet businesses of Kaysersberg and Correx performed satisfactorily and the Logistics operations also had a reasonable half year. The transit packaging operations suffered as Ducaplast experienced weaker demand, while DW Plastics remained at similar levels to last year. An innovative liquid detergent pack launched by Procter and Gamble with a new press tap, manufactured by Worldwide Dispensers, has established a growing market position within the USA. There are several other significant new projects in the pipeline across the plastics and logistics business. Office Products Turnover in the office products business increased by 8.8% to £228.5 million compared with £210.0 million in the first half of last year; operating profit rose to £8.1 million from £7.1 million, with operating margins up slightly to 3.5%. Return on capital employed rose to 11.1% from 10.2%. Wholesaling Spicers sales were £198.5 million for the half year, an increase of 12.7 % on the same period in the previous year; operating profit fell slightly to £9.1 million from £9.3 million, giving operating margins of 4.6% compared to 5.3%. The downturn in operating profit is attributable mainly to the UK and Ireland operations. Sales grew by 7.5% but sales of electronic office supplies (EOS), which contribute relatively lower gross margins, increased to make up a larger part of the sales mix. In addition, higher operating costs were incurred due to the continuing roll out of the new computer operating system in the distribution centres, plus disruption from Y2K upgrades. The UK market has become more consolidated by the recent merger of John Heath and Kingfield, the second and third largest wholesalers in the UK market. Oscarnet, our e-commerce module, was recently launched and is already being used by 11 dealers to provide an e-commerce service to office products consumers. Spicers France has performed well, with sales up by 13.3% over the same time last year. As with the UK, EOS sales continue to grow and account for a larger proportion of total sales, but operating profits have improved overall with good cost control. Spicers Germany has maintained its strong start-up performance with sales ahead of target and improving operational efficiency. A second distribution centre is to be opened in southern Germany next autumn. Manufacturing John Dickinson Stationery benefited from the reorganisation of its manufacturing operations but continued to experience difficult trading conditions. Sales fell by 13.8% to £38.6 million from £44.8 million at the same time last year. Operating losses were reduced to £1.0 million compared with £2.2 million, giving a negative operating margin of 2.6%, an improvement on 4.9% last year. It is taking longer than expected to implement change in the Sawston envelope factory which, along with the rest of the UK envelope industry, remains under severe competitive attack from imports. However, operating efficiencies in the manufacturing operations are improving which should lead to a better performance in the second half of this year. The John Dickinson Ledbury business has again performed well, while Spicer Hallfield has suffered slightly reduced operating margins in weaker market conditions. Millennium The programme of remediation and testing of computer systems, process control systems and other equipment is complete in all critical areas. Millennium operating procedures and contingency plans are being put in place to ensure, as far as possible, a smooth transition at the end of the calendar year. Board of Directors As announced in the annual report in July 1999 Antony Hichens, who joined the Board on 29 June 1999, succeeded Alan Clements as Chairman at the AGM in September. John Stancliffe left the Board at the same time as Alan having decided not to seek re-election after completing nine years' service. Since this time the Board has been strengthened by the appointment, effective from 8 December 1999, of Peter Johnson as a non-Executive Director. Peter is currently Chief Executive of The Rugby Group PLC. Outlook The improvement in the outlook for the European economy is encouraging and should result in more favourable trading conditions. The Group's performance should benefit from the combination of these better trading conditions, the low growth of papermaking capacity, and our cost reduction and efficiency improvement programme. Some short-term dislocation may occur in our markets because of the millennium, but our only serious concern is the continued weakness of the euro. Despite this, we view the future positively and are confident that the Group will deliver an improving performance for shareholders. Group profit and loss account Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) Note £m £m £m Turnover 2 594.2 569.6 1,138.0 Operating profit Before exceptional items and goodwill amortisation 2 28.3 25.1 48.9 Exceptional items 3 - (1.5) (30.7) Goodwill amortisation 3 (0.3) - (0.2) 28.0 23.6 18.0 Share of losses of associated undertakings (0.1) - (0.2) Exceptional (loss)/profit on termination of an operation 3 (5.3) 2.9 7.9 Profit on ordinary activities before interest 22.6 26.5 25.7 Interest payable - net (4.5) (5.8) (11.5) Profit on ordinary activities before taxation Before exceptional items and goodwill amortisation 23.7 19.3 37.2 Exceptional items and goodwill amortisation (5.6) 1.4 (23.0) 18.1 20.7 14.2 Tax on profit on ordinary 4 activities Tax on profit before exceptional items (7.1) (5.9) (10.3) Tax on exceptional items 1.6 2.0 3.8 (5.5) (3.9) (6.5) Profit on ordinary activities after taxation 12.6 16.8 7.7 Minority interests - equity (0.3) (0.3) (0.3) Profit for the period 12.3 16.5 7.4 Dividends (8.7) (8.6) (26.2) Retained profit/(loss) for the period 3.6 7.9 (18.8) Earnings per share: Basic 5 3.8p 5.2p 2.3p Diluted 5 3.8p 5.2p 2.3p Adjusted 5 5.1p 4.1p 8.3p Dividends per share 2.7p 2.7p 8.2p Statement of total recognised gains and losses Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Profit for the period 12.3 16.5 7.4 Exchange differences on foreign currency net investments (1.7) 2.5 (1.9) Total recognised gains and losses 10.6 19.0 5.5 Reconciliation of movements in shareholders' funds Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Profit for the period 12.3 16.5 7.4 Dividends (8.7) (8.6) (26.2) Retained profit/(loss) for the period 3.6 7.9 (18.8) Exchange differences on foreign currency net investments (1.7) 2.5 (1.9) New share capital issued - 0.2 0.2 Release of negative goodwill - (9.4) (9.6) Goodwill written off - (0.7) (0.7) Increase/(decrease) in shareholders' funds 1.9 0.5 (30.8) Opening shareholders' funds 478.3 509.1 509.1 Closing shareholders' funds 480.2 509.6 478.3 The difference between reported and historical cost profits for the periods reported above is not material. Group balance sheet At At At 30 October 31 October 1 May 1999 1998 (unaudited) (unaudited) 1999 £m £m £m Fixed assets 549.4 587.8 555.5 Current assets Stocks 124.0 134.8 127.1 Debtors 292.9 269.2 262.7 Short term investments 14.1 27.7 24.3 Cash at bank and in hand 15.2 37.0 14.1 446.2 468.7 428.2 Creditors: amounts falling due within one year Trade and other creditors (263.2) (264.3) (277.3) Borrowings (79.8) (24.3) (17.0) Net current assets 103.2 180.1 133.9 Total assets less current liabilities 652.6 767.9 689.4 Creditors: amounts falling due after more than one year Borrowings (134.5) (222.2) (175.7) Other (1.9) (2.1) (2.0) Provisions for liabilities and (31.9) (29.3) (29.5) charges 484.3 514.3 482.2 Minority interests - equity (4.1) (4.7) (3.9) Net assets 480.2 509.6 478.3 Capital and reserves Called up share capital 32.1 32.1 32.1 Share premium account 187.9 187.9 187.9 Revaluation reserve 10.6 10.6 10.6 Profit and loss account 249.6 279.0 247.7 Shareholders' funds - equity 480.2 509.6 478.3 Gearing (net debt expressed as a percentage of shareholders' funds) 38.5% 35.7% 32.3% Group cash flow statement Half year Half year Year ended ended Ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) Note £m £m £m Net cash inflow from operating activities 6 28.6 29.6 83.2 Returns on investments and servicing of finance (5.0) (5.7) (12.2) Taxation (6.8) 0.4 (5.7) Capital expenditure and financial investment 7 (21.7) (34.4) (38.3) Acquisitions and disposals 9 (10.4) (1.2) (11.6) Equity dividends paid (17.6) (17.6) (26.2) Net cash outflow before use of liquid resources and financing (32.9) (28.9) (10.8) Management of liquid resources 9.9 1.3 4.3 Financing - issue of ordinary shares - 0.2 0.2 - net increase in debt 23.3 40.4 6.3 Increase in cash in the period 0.3 13.0 - Reconciliation of net cash flow to movement in net debt (See note 8) Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Increase in cash in the period 0.3 13.0 - Increase in debt financing (23.3) (40.4) (6.3) Decrease in liquid resources (9.9) (1.3) (4.3) Increase in net debt resulting from cash flows (32.9) (28.7) (10.6) Net debt acquired with subsidiary undertakings (0.9) - 1.0 Exchange differences 3.1 (7.2) 1.2 Movement in net debt in the period (30.7) (35.9) (8.4) Opening net debt (154.3) (145.9) (145.9) Closing net debt (185.0) (181.8) (154.3) Notes to the accounts 1 Basis of preparation The interim financial information has been prepared on the basis of the accounting policies set out in the Group's 1999 statutory accounts. The half year figures are unaudited. The Group's results for the financial year ended 1 May 1999 have been extracted from the statutory accounts filed with the Registrar of Companies which contained an unqualified audit report and no adverse statement under Section 237(2) or (3) of the Companies Act 1985. 2 Analysis of Group turnover, profit and capital employed Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Turnover Packaging: Corrugated and Paper 306.4 306.9 591.2 Plastics and Logistics 59.3 52.7 105.4 365.7 359.6 696.6 Office Wholesaling 198.5 176.2 380.2 products: Manufacturing 38.6 44.8 83.7 Intra-segment sales (8.6) (11.0) (22.5) 228.5 210.0 441.4 594.2 569.6 1,138.0 By origin: United Kingdom 401.8 401.6 791.1 Rest of Europe 192.4 168.0 346.9 594.2 569.6 1,138.0 Operating profit (see below) Packaging: Corrugated and Paper 16.0 14.0 23.8 Plastics and Logistics 4.2 4.0 8.2 20.2 18.0 32.0 Office Wholesaling 9.1 9.3 22.5 products: Manufacturing (1.0) (2.2) (5.6) 8.1 7.1 16.9 28.3 25.1 48.9 By origin: United Kingdom 19.7 17.4 34.7 Rest of Europe 8.6 7.7 14.2 28.3 25.1 48.9 Capital employed (see below) Packaging: Corrugated and Paper 472.6 521.7 468.8 Plastics and Logistics 55.0 52.7 55.9 527.6 574.4 524.7 Office Wholesaling 106.5 88.4 92.1 products: Manufacturing 39.0 51.0 36.9 145.5 139.4 129.0 673.1 713.8 653.7 By origin: United Kingdom 489.4 524.4 472.7 Rest of Europe 183.7 189.4 181.0 673.1 713.8 653.7 Operating profit is stated before exceptional items and goodwill amortisation. Capital employed excludes goodwill, fixed asset investments, net borrowings, corporation tax, dividends payable and minority interests. Following a change in management responsibilities, the results and capital employed of the Group's Packaging Services Management business, which commenced operations in 1998/99, have been reclassified from corrugated and paper to plastics and logistics. 3 Exceptional items and goodwill amortisation Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Charged in arriving at operating profit: Impairment of fixed assets - - (24.0) UK packaging redundancy costs - (1.5) (6.7) Goodwill amortisation (0.3) - (0.2) (0.3) (1.5) (30.9) Charged after arriving at operating profit: Costs of closure (5.3) (6.5) (8.4) Profit on sale of property - - 6.9 Release of negative goodwill - 9.4 9.4 (5.3) 2.9 7.9 Total before tax (5.6) 1.4 (23.0) The costs of closure in the period relate to the closure of the Silverton mill. The mill's fixed assets had previously been written down to their estimated net realisable value as part of the fixed asset impairment provision charged in the financial year ended 1 May 1999. The exceptional items charged after operating profit in the financial year ended 1 May 1999 relate to the closure of the John Dickinson Stationery Apsley site. 4 Tax charge Tax on profits before exceptional items and goodwill amortisation has been charged at an effective rate of 30% (half year to 31 October 1998: 30%, year to 1 May 1999: 28%), being the expected full year effective rate. The tax charge for the period consists of UK taxation of £2.6m (half year to 31 October 1998: £1.8m, year to 1 May 1999: £0.6m) and overseas taxation of £2.9m (half year to 31 October 1998: £2.1m, year to 1 May 1999: £5.9m). The UK tax charge is stated net of a tax credit of £1.6m (half year to 31 October 1998: £2.0m credit, year to 1 May 1999: £3.8m credit) relating to the exceptional items. 5 Earnings per share The FRS 3 earnings per share have been calculated on the profit for the period of £12.3m (half year to 31 October 1998: £16.5m, year to 1 May 1999: £7.4m) and on 320.3m (half year to 31 October 1998: 320.3m, year to 1 May 1999: 320.3m) ordinary shares being the weighted average in issue and fully paid during the period. The adjusted earnings per share excludes the effect of exceptional items and goodwill amortisation and has been calculated on the adjusted profit for the period of £16.3m (half year to 31 October 1998: £13.1m, year to 1 May 1999: £26.6m). 6 Reconciliation of operating profit to net operating cash flow Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Operating profit before exceptional items and goodwill amortisation 28.3 25.1 48.9 Depreciation 28.3 26.9 54.7 (Profit)/loss on sale of tangible fixed assets (included in operating profit) (0.2) (0.3) 1.0 Working capital (24.4) (20.6) (9.4) Increase/(decrease) in provisions 0.9 (0.5) (0.6) Other non cash operating items 0.4 (0.1) (0.7) Cash flow from operating activities before exceptional items 33.3 30.5 93.9 Operating cash flow relating to exceptional items (see below) (4.7) (0.9) (10.7) Net cash inflow from operating activities 28.6 29.6 83.2 The operating cash flows relating to exceptional items comprise the cash costs of closing operations and UK packaging redundancy costs. 7 Capital expenditure and financial investment Half year Half year Year ended ended ended 30 October 31 October 1 May 1999 1998 1999 (unaudited) (unaudited) £m £m £m Purchase of tangible fixed assets Sale of tangible fixed assets (see below) (22.1) (31.8) (58.3) Purchase of fixed asset 1.1 0.5 21.1 investments (0.7) (3.1) (1.1) (21.7) (34.4) (38.3) The proceeds from the sale of tangible fixed assets in the year ended 1 May 1999 include £19.0m received on the sale of the John Dickinson Stationery Apsley site. 8 Analysis of net debt (unaudited) At Acquired Cash Other Exchange At 2 May flow non cash differences 30 1999 changes October 1999 £m £m £m £m £m £m Cash at bank and in hand 14.1 - 1.4 - (0.3) 15.2 Overdrafts (8.4) - (1.1) - 0.3 (9.2) 5.7 - 0.3 - - 6.0 Debt due after one year (172.7) (0.3) (19.9) 59.2 2.0 (131.7) Debt due within one year (8.1) (0.6) (3.8) (59.2) 1.4 (70.3) Finance leases (3.5) - 0.4 - - (3.1) (184.3) (0.9) (23.3) - 3.4 (205.1) Short term investments 24.3 - (9.9) - (0.3) 14.1 Total (154.3) (0.9) (32.9) - 3.1 (185.0) 9 Acquisition On 2 July 1999, the Group acquired the entire share capital of Copikas, a corrugated packaging plant based in Corum, Turkey. The estimated total consideration for the acquisition was £10.0m. Estimated goodwill arising on the acquisition totalled £3.4m.

Companies

Smith (DS) (SMDS)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today