Interim Results
Smith (DS) PLC
05 December 2007
5 December 2007
DS Smith Plc - 2007/08 Interim Results
DS Smith Plc, the international packaging manufacturer and office products
wholesaler, announces its results for the six months to 31 October 2007.
Financial Summary
H1 2007/08 H1 2006/07
Revenue £942.7m £868.5m
Adjusted operating profit(1) £60.4m £30.4m
Operating profit £60.4m £40.4m
Adjusted profit before tax(1) £56.1m £29.0m
Profit before tax £56.1m £39.0m
Adjusted earnings per share(1) 10.4p 5.1p
Basic earnings per share 10.4p 8.5p
Free cash flow before dividends, acquisitions and disposals(2) £18.5m £18.5m
Interim dividend per share 2.6p 2.6p
(1) H1 2006/07: before an exceptional profit of £10.0m
(2) H1 2006/07: included £29.6m of proceeds from the sale of the Taplow site
Highlights
• Like-for-like revenue up 10%, primarily reflecting input cost recovery
through price increases
• UK Paper and Corrugated Packaging operating profit substantially up
• Office Products Wholesaling - Spicers - good progress in rebuilding
profits
• Return on average capital employed 13.6%
Chairman, Peter Johnson said:
'This is a strong set of first half results which maintained the momentum of the
second half of last financial year. The higher profits reflect the management's
actions to lower costs, improve the sales mix and recover the higher input costs
through better pricing.'
Group Chief Executive, Tony Thorne said:
'The outcome for the year will be principally influenced by how well demand
holds up, the extent to which we recover recent input cost rises and our success
in further rebuilding profits at Spicers UK. The Board remains confident that
the Group will make substantial progress this financial year.'
Enquiries
DS Smith Plc 020 7932 5000
Tony Thorne, Group Chief Executive
Gavin Morris, Group Finance Director
Peter Aubusson, Group Communications Manager
Financial Dynamics 020 7269 7221
Richard Mountain/Susanne Yule
A briefing for analysts and investors will take place today at 9.30am at
Financial Dynamics, Holborn Gate, 28 Southampton Buildings, London WC2A 1PB.
This briefing may be heard live by dialling in on: +44 (0)1452 562815 (call
reference: 24805574). The presentation slides from this briefing will be posted
on the Group's website (www.dssmith.uk.com) at 9.30am. A replay of the briefing
will be available by telephone for five days, from 30 minutes after the meeting
has ended, on: +44 (0)1452 550000 (call reference: 24805574#) and an audio
recording of the briefing will be available on the Group's website by
approximately 1.00pm.
OVERVIEW
Group revenue for the half-year to 31 October 2007 increased by 8.5% to £942.7
million (H1 2006/07: £868.5 million). On a like-for-like basis, excluding the
two paper mills which were closed during 2006 and adjusting for foreign exchange
effects, revenue increased by 9.6%. Operating profit was sharply higher at
£60.4 million (H1 2006/07 adjusted operating profit: £30.4million). There were
no exceptional items in the result for the first half of 2007/08 whereas in the
first half of 2006/07 there was a net exceptional profit of £10.0 million, which
included the exceptional profit that resulted from the sale of the Taplow paper
mill site.
Operating margin increased to 6.4% (H1 2006/07 adjusted operating margin: 3.5%)
and return on average capital employed (ROACE) advanced to 13.6% (H1 2006/07
adjusted ROACE: 6.7%).
Net interest expense increased to £10.6 million (H1 2006/07: £7.1 million),
principally due to a charge from an increase in the fair value of put options
(in accordance with IAS 32 / 39), held by minority, non-controlling shareholders
in a subsidiary of the Group.
Profit before tax was £56.1 million (H1 2006/07 before exceptional items: £29.0
million; H1 2006/07 after exceptional items: £39.0 million) and earnings per
share were 10.4 pence (H1 2006/07 before exceptional items: 5.1 pence; H1 2006/
07 after exceptional items: 8.5 pence).
Tax on profits has been charged at an underlying rate, before the share of
profits of associates, of 32.1% (H1 2006/07: 32.1%), being the expected
full-year underlying rate. The tax charge for the current period has been
reduced by a release of £2.4 million of the deferred tax provision following the
reduction in the UK rate of corporation tax from 30% to 28% with effect from 1
April 2008. Including this release, the effective rate of tax before the share
of profits of associates, for the current period, is 27.8%.
Cash flow, before dividends, acquisitions and disposals was £18.5 million (H1
2006/07: £18.5 million, which included the £29.6 million cash flow benefit from
the disposal of the Taplow site). Net debt was £188.5 million at the end of
first half 2007/08 (end of 2006/07: £181.2 million) resulting in gearing of
31.7% (end of 2006/07: 32.0%).
INTERIM DIVIDEND
The Board announces an interim dividend of 2.6 pence per share, which is
unchanged from the previous year's interim dividend. It will be paid on 4 March
2008 to ordinary shareholders on the register at the close of business on 1
February 2008.
OPERATING REVIEW
UK Paper and Corrugated Packaging
Half-year ended Half-year ended 31
31 October 2007 October 2006
Revenue £367.1m £342.6m
Adjusted operating profit £39.9m £13.5m
Adjusted return on sales 10.9% 3.9%
Adjusted return on average capital employed 17.2% 5.5%
The substantial advance in adjusted operating profit in UK Paper and Corrugated
Packaging reflected the benefits of the price increases achieved to recover
higher input costs and the previous actions taken to strengthen further the
Group's UK market positions in waste paper collection, recycled paper and
corrugated packaging (boxes).
In the first nine months of calendar year 2007, the UK market for corrugated
packaging was broadly flat compared with the same period of 2006*; overall sales
were affected by softer consumer demand during the summer, particularly for
seasonal products such as beverages. The UK market remains in the forefront of
the trend towards the greater use of lighter-weight boxes for cost and
environmental reasons. Within the total market, demand for retail-ready
packaging (RRP) continued to grow strongly; RRP boxes, which can be readily
converted into a box or tray that can be placed directly on display on the shelf
in the retail store, require a greater design and production capability.
The better pricing environment in both CCM and boxes, throughout 2007, has been
underpinned by the balanced supply and demand position for recycled corrugated
case material (CCM) across Europe. No significant CCM capacity additions are
expected in western Europe during 2008. Several European CCM producers have
announced their intentions to invest in new capacity some of which is expected
to come on stream from late 2009; the additional capacity announced to date
should broadly be absorbed by current levels of market growth. Input costs of
energy and waste paper, the principal raw material for recycled CCM, have both
risen from already high levels; the price of waste paper in the UK has increased
by circa 30% since the start of 2007 as a result of the continued strong demand
for it from Asia.
Our waste collection business, Severnside Recycling, grew on the back of
increased demand for recycling services and government action to reduce the
amount of waste going to landfill. In addition to its primary role of securing
the required quantities of fibre for our UK paper mills, we are looking to
develop its value-added waste management services. Severnside works closely
with DS Smith Packaging, our UK box business, in marketing our cradle-to-cradle
environmental capability which encompasses: the Group's expertise in designing
packaging that will minimise waste throughout the supply chain; the
environmental benefits of the recyclability of corrugated packaging; and
Severnside's capability for managing customers' entire waste recycling and
disposal needs.
St Regis, our UK paper business, increased the sales volume from its ongoing
mills and maintained its focus on higher added-value products. It raised its
margin as a result of the improved recovery of its higher input costs, the
benefits of the restructuring carried out in 2006 and our investment programme
to upgrade existing machines at Kemsley and Wansbrough Mills. In September
2007, it implemented a further increase in CCM prices in order to recover the
most recent rise in waste paper costs.
* Source: Federation of European Corrugated Board Manufacturers; volume in
million square metres
DS Smith Packaging grew its sales further in higher added-value, converted
products, in particular the rapidly-growing RRP sector of the market. Sales
volumes in sheet feeding were lower as a result of our emphasis on recovering
the higher CCM costs. The ongoing programme to raise prices across all our
corrugated products has broadly recovered the higher raw material costs incurred
prior to the most recent increases.
As we start the second half of the financial year, box margins have again been
lowered significantly by further input cost increases. We are now raising box
prices to recover these most recent cost increases; this process will continue
into the first half of next financial year. The second half performance in this
segment will be influenced by the extent of the cost recovery, the level of
energy costs in the winter season and the degree to which box demand may be
affected by any economic slow-down, especially in the retail sector.
Continental European Corrugated Packaging
Half-year ended Half-year ended 31
31 October 2007 October 2006
Revenue £165.0m £151.4m
Operating profit £8.0m £8.6m
Return on sales 4.8% 5.7%
Return on average capital employed 9.1% 10.4%
Margins in the Continental European Corrugated Packaging segment, which is a net
buyer of paper, were adversely affected by the higher costs of CCM which it was
not able fully to recover through increased box prices in the first half of the
year.
Market growth in corrugated packaging has continued to be generally satisfactory
across continental Europe but it has been lower than in 2006, being primarily
affected by slower demand from the beverage and other seasonal product sectors
in August and September. In the first nine months of the 2007 calendar year,
market growth for continental Europe as a whole was 4% with eastern Europe
performing well above this average*.
CCM costs rose significantly in all continental markets and our box businesses
maintained their price increase programmes to recover the higher input costs.
We are making good progress on raising box prices but were not able to recover
all our increased input costs during the first half of the year. We expect to
have recovered a large proportion of the CCM cost increases incurred to date as
we enter financial year 2008/09.
The French corrugated packaging operations were affected by the general
slow-down in their market during the summer and early autumn; the effect of this
on profit was partly mitigated by improved productivity. Our Polish business,
which we have developed through substantial recent investment, grew its sales
volume strongly and gained market share; its profits were additionally boosted
by its concentration on higher added-value sectors of the market. In Italy, we
grew revenue well but our Turkish business experienced weaker sales due
principally to the effect of the strengthening of the Turkish Lira on the export
business of our customers in the brown and white goods sectors. Our associate
business in the Ukraine continued its good performance; the major investment
project to increase its capacity and broaden its product range is well underway
and a financing package for this has been established.
The principal goal in this segment for the second half of the year is to recover
the recently incurred increase in CCM costs through our continuing drive to
raise prices.
* Source: Federation of European Corrugated Board Manufacturers; volume in
million square metres
Plastic Packaging
Half-year ended Half-year ended 31
31 October 2007 October 2006
Revenue £109.6m £103.7m
Operating profit £5.7m £5.1m
Return on sales 5.2% 4.9%
Return on average capital employed 9.2% 8.2%
Profits in Plastic Packaging were ahead of those of last year despite margins
remaining under pressure as a result of further rises in polymer costs; our
programme to recover these additional input costs through price increases is
continuing.
Revenue and profit advanced well in returnable transit packaging (RTP) despite
lower sales volume in beverage crates during the period. We grew RTP sales
strongly in central Europe and the construction of the new extrusion facility in
Slovakia progressed well. The result in liquid packaging and dispensing (LP&D)
was adversely affected by competitive pressure on tap prices in the USA and
lower wine bag sales in Europe. We continue to place considerable emphasis on
new product development to counter the competitive pressure. The consultation
with employees on the proposed restructuring of our LP&D operations in Germany
is continuing.
The packaging management business benefited from our recent investment and
previous restructuring actions while the modified atmosphere packaging business
continued to grow sales strongly.
Our priorities for the second half of the year in this segment are to recover
the higher polymer costs through price increases, to complete the restructuring
of our European liquid packaging and dispensing business and to make further
progress on enhancing the segment's sales mix.
Office Products Wholesaling
Half-year ended Half-year ended 31
31 October 2007 October 2006
Revenue £301.0m £270.8m
Operating profit £6.8m £3.2m
Return on sales 2.3% 1.2%
Return on average capital employed 10.8% 4.9%
The significantly improved result in Office Products Wholesaling was due to
further progress in the continental European businesses and a good advance in
the UK, in line with our three-year plan to restore profits.
Spicers UK grew its revenue well and increased its profit strongly, reflecting
the actions taken by the new management team to raise service levels in order to
build sales and to reduce costs. The result benefited from the closure, in June
2007, of the Park Royal distribution centre in London. We continue to consider
further steps for lowering costs and improving the longer-term competitiveness
of our network of distribution centres.
On the continent, the two well-established businesses in France and the Benelux
grew their revenue and maintained their good profit performance. In Germany, we
achieved a significant sales advance with our dealer customers and improved
profits. At the more recently developed businesses in Spain and Italy we grew
sales strongly.
In the seasonally stronger second half of the year, we expect Spicers'
performance to reflect further benefits of the ongoing programme to rebuild
profits in the UK and the continued development of the continental businesses.
BOARD CHANGES
On 4 December 2007, the Company announced the appointment of Steve Dryden as
Group Finance Director; the date on which he will join the Company will be
confirmed in due course. Steve, aged 39, has held the position of Finance
Director of Filtrona plc since its demerger from Bunzl plc in 2005. Prior to
that, he was divisional Finance Director of the Filtrona businesses and held
other senior finance positions within Bunzl plc. Steve began his career at
Price Waterhouse and has also held various finance roles within Rolls-Royce plc.
As announced previously, Gavin Morris, Group Finance Director, will be stepping
down from the Board of Directors by mutual agreement. It is expected that Mr
Morris will remain with the Company to assist with the handover of his
responsibilities until the end of the financial year. The Board thanks Mr
Morris for his contribution to the significant development of the Company in
recent years and wishes him every future success.
Also as announced previously, George Adams is appointed as a non-Executive
Director with effect from 29 January 2008. George, aged 51, is currently
Managing Director, European Development and Chief Executive Officer, UK Trade at
Kingfisher Plc. Previously he held senior management positions at B&Q UK, FW
Woolworth Plc, Makro UK and Management Horizons Europe Management Consultancy.
He is a non-Executive Director of the specialist economics consultancy, Frontier
Economics, and of Hornbach Holding AG.
OUTLOOK
The outcome for the year will be principally influenced by how well demand holds
up, the extent to which we recover recent input cost rises and our success in
further rebuilding profits at Spicers UK. The Board remains confident that the
Group will make substantial progress this financial year.
Consolidated Income Statement (unaudited)
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
Note £m £m £m
Revenue 2 942.7 868.5 1,766.1
Cost of Sales (702.7) (655.7) (1,342.1)
Gross profit 240.0 212.8 424.0
Operating expenses (179.6) (172.4) (344.4)
Operating profit
Before exceptional items 2 60.4 30.4 77.7
Exceptional items 3 - 10.0 1.9
Operating profit 60.4 40.4 79.6
Finance income 1.9 2.3 1.7
Finance costs 4 (12.5) (9.4) (16.7)
Employment benefit finance income 4.3 3.8 8.0
Net financing costs (6.3) (3.3) (7.0)
Profit after financing costs 54.1 37.1 72.6
Share of profit of associates
Before exceptional items 2.0 1.9 3.9
Exceptional items 3 - - 2.0
Profit before income tax
Before exceptional items 56.1 29.0 74.6
Exceptional items - 10.0 3.9
Profit before income tax 56.1 39.0 78.5
Income tax (expense)/credit
On profit before exceptional items 5 (15.0) (8.7) (22.8)
On exceptional items - 3.2 5.6
Income tax (expense)/credit (15.0) (5.5) (17.2)
Profit for the financial period 41.1 33.5 61.3
Profit for the financial period attributable to:
DS Smith Plc equity shareholders 40.7 33.0 60.6
Minority interest 0.4 0.5 0.7
41.1 33.5 61.3
Earnings per share - pence: 6
Adjusted for exceptional items 10.4p 5.1p 13.1p
Basic 10.4p 8.5p 15.6p
Diluted 10.2p 8.5p 15.4p
Interim Interim Total
Proposed/actual dividends per share 7 2.6p 2.6p 8.6p
Consolidated Statement of Recognised Income and Expense (unaudited)
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Actuarial gains on defined pension - - 17.0
schemes
Movement on deferred tax relating to the - - (5.1)
actuarial gains
Currency translation differences, including tax 6.1 (10.8) (6.7)
of £1.2m
(half-year to 31 October 2006: tax of £2.3m;
year to 30 April 2007: tax of £1.5m)
Changes in the fair value of cash flow hedges, 2.3 (0.4) (1.2)
including tax of £1.0m (half-year to 31 October
2006: tax of £0.2m; year to 30 April 2007: tax
of £0.4m)
Net income/(expense) recognised directly in 8.4 (11.2) 4.0
equity
Profit for the financial period 41.1 33.5 61.3
Total recognised income and expense since the last
financial statements 49.5 22.3 65.3
Total recognised income and expense relating to the
financial period attributable to:
DS Smith Plc equity shareholders 48.9 21.8 64.7
Minority interest 0.6 0.5 0.6
Consolidated Balance Sheet (unaudited)
Note As at As at As at
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Assets
Non-current assets
Intangible assets 192.7 194.3 192.9
Property, plant and equipment 517.5 510.5 517.1
Investments in associates 32.6 28.6 30.5
Other investments 0.5 0.5 0.5
Deferred tax assets 20.6 21.9 21.4
Other receivables 2.3 1.4 2.4
Derivative financial instruments 1.5 0.8 0.2
Total non-current assets 767.7 758.0 765.0
Current assets
Inventories 161.7 154.9 160.5
Other investments 0.1 0.1 0.1
Income tax receivable 0.9 4.8 0.9
Trade and other receivables 388.0 376.8 350.2
Cash and cash equivalents 72.4 51.2 92.4
Derivative financial instruments 2.0 1.4 0.7
Total current assets 625.1 589.2 604.8
Total assets 1,392.8 1,347.2 1,369.8
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings (206.3) (252.0) (230.9)
Post-retirement benefits (11.2) (42.8) (18.6)
Other payables (5.8) (2.9) (5.1)
Provisions (8.7) (2.6) (8.9)
Deferred tax liabilities (80.5) (76.5) (81.4)
Derivative financial instruments (37.9) (23.1) (31.7)
Total non-current liabilities (350.4) (399.9) (376.6)
Current liabilities
Bank overdrafts (13.6) (10.0) (10.8)
Interest-bearing loans and borrowings (4.3) (6.0) (1.6)
Trade and other payables (396.8) (356.7) (384.8)
Income tax liabilities (24.0) (19.7) (16.6)
Provisions (8.0) (13.0) (10.6)
Derivative financial instruments (1.4) (0.2) (1.7)
Total current liabilities (448.1) (405.6) (426.1)
Total liabilities (798.5) (805.5) (802.7)
Net assets 594.3 541.7 567.1
Equity
Issued capital 39.3 39.1 39.3
Share premium 263.1 259.4 262.9
Reserves 293.6 233.3 267.2
DS Smith Plc shareholders' equity 10 596.0 531.8 569.4
Minority interests (1.7) 9.9 (2.3)
Total equity 594.3 541.7 567.1
Gearing:
Net debt expressed as a percentage of total
equity
31.7% 44.0% 32.0%
Consolidated Cash Flow Statement (unaudited)
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
Note £m £m £m
Operating activities
Cash generated from operations 8 66.1 26.8 128.0
Interest received 0.9 0.2 2.8
Interest paid (8.7) (6.9) (16.9)
Income tax paid (7.6) (6.3) (15.1)
Net cash from operating activities 50.7 13.8 98.8
Investing activities
Acquisition of subsidiary businesses, net of (0.3) - (0.8)
cash and cash equivalents acquired
Disposal of subsidiary businesses, net of 1.0 1.4 1.0
cash and cash equivalents disposed of
Capital expenditure (37.7) (31.2) (55.8)
Proceeds from the sale of assets 5.5 35.9 39.2
Proceeds from the sale of associates and - - 1.8
other non-current investments
Cash flows from investing activities (31.5) 6.1 (14.6)
Financing activities
Proceeds from issue of share capital 0.2 - 3.7
Purchase of own shares (0.2) - -
Repayment of borrowings (19.7) (10.9) (28.7)
Repayment of finance lease obligations (0.2) (2.1) (2.5)
Dividends paid (23.5) (22.5) (32.7)
Cash flows from financing activities (43.4) (35.5) (60.2)
Net increase / (decrease) in cash and cash (24.2) (15.6) 24.0
equivalents
Cash and cash equivalents at 1 May 81.6 58.9 58.9
Exchange gains on cash and cash equivalents 1.4 (2.1) (1.3)
Closing cash and cash equivalents 58.8 41.2 81.6
Notes to the Accounts (unaudited)
1 Basis of preparation
This interim financial information, which was approved by the Board of Directors
on 4 December 2007, does not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985. The financial information presented in
this document is unaudited. Except as noted below, the interim financial
information has been prepared using the same accounting policies as those
adopted in the financial statements for the year-ended 30 April 2007. Those
accounts were reported on by the Company's auditors and delivered to the
Registrar of Companies. The report of the auditors was unqualified and did not
contain an adverse statement under section 237 (2) or (3) of the Companies Act
1985. During the half-year ended 31 October 2007, the Group has applied IAS 34
Interim Financial Reporting for the first time which has resulted in enhanced
disclosures of financial information in the unaudited consolidated income
statement.
2 Analysis of Group revenue, operating profit and capital employed
Half-year ended Half-year ended Year
31 October 2007 31 October 2006 ended
30 April
2007
£m £m £m
Revenue
UK Paper and Corrugated Packaging 367.1 342.6 687.1
Continental European Corrugated Packaging 165.0 151.4 308.0
Plastic Packaging 109.6 103.7 201.8
Office Products Wholesaling 301.0 270.8 569.2
Group total 942.7 868.5 1,766.1
Adjusted operating profit (1)
UK Paper and Corrugated Packaging 39.9 13.5 36.5
Continental European Corrugated Packaging 8.0 8.6 18.2
Plastic Packaging 5.7 5.1 10.2
Office Products Wholesaling 6.8 3.2 12.8
Group total 60.4 30.4 77.7
Period-end capital employed (2)
UK Paper and Corrugated Packaging 453.9 467.3 444.6
Continental European Corrugated Packaging 170.4 160.8 146.4
Plastic Packaging 120.5 115.9 110.9
Office Products Wholesaling 116.3 122.0 115.4
Group total 861.1 866.0 817.3
Adjusted return on sales - % (1)
UK Paper and Corrugated Packaging 10.9% 3.9% 5.3%
Continental European Corrugated Packaging 4.8% 5.7% 5.9%
Plastic Packaging 5.2% 4.9% 5.1%
Office Products Wholesaling 2.3% 1.2% 2.2%
Group total 6.4% 3.5% 4.4%
Adjusted return on average capital employed - % 1, 3
UK Paper and Corrugated Packaging 17.2% 5.5% 7.6%
Continental European Corrugated Packaging 9.1% 10.4% 11.1%
Plastic Packaging 9.2% 8.2% 8.3%
Office Products Wholesaling 10.8% 4.9% 9.8%
Group total 13.6% 6.7% 8.7%
(1) before exceptional items, as described in note 3
(2) capital employed is defined below
(3) average capital employed is defined below
The Group's primary format for segment reporting is business segments based on
the Group's management and internal reporting structure. The secondary format is
geographical segments showing the geographical origin of the Group's revenue and
adjusted operating profit. The Group operates in two principal geographical
areas: the UK and Western continental Europe. Two further segments are
identified: Eastern continental Europe and the Rest of the World.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Central administration costs
are allocated to the individual segments on a consistent basis year-on-year.
Assets and liabilities have been analysed by segment at a capital employed
level. Capital employed excludes items of a financing nature, taxation balances,
net pension liabilities and fixed asset investments; segmental capital employed
comprises identifiable segment assets less segmental liabilities. Average
capital employed is the average monthly capital employed. The adjusted return on
average capital employed is calculated as twice the operating profit before
exceptional items divided by the average capital employed in the reporting
period.
Secondary reporting format - geographical segments
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Revenue
UK 533.0 492.8 999.7
Western continental Europe 330.8 311.5 632.8
Eastern continental Europe 50.2 39.0 82.5
Rest of the World 28.7 25.2 51.1
Total 942.7 868.5 1,766.1
Operating profit
UK 37.4 9.9 28.6
Western continental Europe 16.5 15.6 37.5
Eastern continental Europe 3.2 3.3 6.1
Rest of the World 3.3 1.6 5.5
Total 60.4 30.4 77.7
3. Exceptional items
Items are presented as 'exceptional' in the financial statements where they are
significant items of financial performance that the Directors consider should be
separately disclosed, to assist in the understanding of the underlying trading
and financial results achieved by the Group.
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Gain on sale of Taplow Mill - 20.5 20.5
UK Paper and Corrugated Packaging restructuring costs - (10.5) (13.8)
Plastic Packaging restructuring costs - - (1.9)
Office Products Wholesaling restructuring costs - - (2.9)
Total exceptional items recognised in operating profit - 10.0 1.9
Negative goodwill recognised in associate accounting - - 2.0
Total exceptional items - 10.0 3.9
In the half-year ended 31 October 2007, the Group recorded no exceptional items.
In the half-year ended 31 October 2006, the exceptional profit of £20.5m
resulted from the sale of the Taplow site, in the UK Paper and Corrugated
Packaging segment, for £29.6m.
In the half-year ended 31 October 2006, the UK Paper and Corrugated Packaging
restructuring costs of £10.5m related to the closure of paper-making operations
at Taplow Mill and related restructuring.
The UK Paper and Corrugated Packaging restructuring costs in the year to 30
April 2007 of £13.8m related to the closure of paper-making operations at Taplow
Mill and related restructurings. The Plastic Packaging restructuring costs in
the year to 30 April 2007 related to the proposed restructuring of our European
liquid packaging and dispensing operations. The Office Products Wholesaling
restructuring costs in the year to 30 April 2007 related to the closure of a
regional distribution centre within the UK operations and related restructuring.
The negative goodwill credit recognised in associate accounting of £2.0m arose
in respect of an increase in the Group's investment in Rubezhansk.
4. Finance costs
Finance costs for the half-year ended 31 October 2007 of £12.5m (half-year to 31
October 2006: £9.4m; year to 30 April 2007: £16.7m) include a charge of £2.7m
relating to an increase in the fair value of put options, in accordance with IAS
32 / 39, held by minority, non-controlling shareholders in a subsidiary of the
Group.
5. Taxation
Tax on profits has been charged at an underlying rate, before exceptional items
and share of profits of associates, of 32.1% (half-year to 31 October 2006:
32.1%; year to 30 April 2007: 32.2%), being the expected full-year underlying
rate. The tax charge for the current period has been reduced by a release of
£2.4m of the deferred tax provision following the reduction in the UK rate of
corporation tax from 30% to 28% with effect from 1 April 2008. Including this
release, the effective rate of tax before exceptional items and share of profits
of associates, for the current period, is 27.8%.
The tax charge on profit before exceptional items and share of profits of
associates for the period of £15.0m (half-year to 31 October 2006: £8.7m; year
to 30 April 2007: £22.8m) consists of UK taxation of £7.0m (half-year to 31
October 2006: £2.0m; year to 30 April 2007: £8.2m) and overseas taxation of
£8.0m (half-year to 31 October 2006: £6.7m; year to 30 April 2007: £14.6m).
6. Earnings per share
The basic earnings per share have been calculated on the profit for the period
attributable to equity holders of the parent company of £40.7m (half-year to 31
October 2006: £33.0m; year to 30 April 2007: £60.6m) and on 391.7m ordinary
shares (half-year to 31 October 2006: 388.7m; year to 30 April 2007: 389.5m),
being the weighted average number in issue and fully paid during the period.
Diluted earnings per share are calculated assuming the conversion of potentially
dilutive shares issued under share option schemes. These adjustments give rise
to an increase in the weighted average number of ordinary shares to 397.5m
(half-year to 31 October 2006: 390.2m; year to 30 April 2007: 392.9m).
Adjusted earnings per share
The Directors believe that the presentation of an adjusted earnings per share
amount, being the basic earnings per share adjusted for exceptional items, helps
to explain the underlying performance of the Group. A reconciliation of basic to
adjusted earnings per share is as follows:
Half-year ended Half-year ended Year ended
31 October 31 October 30 April
2007 2006 2007
£m pence £m pence £m pence
per share per share per share
Basic earnings 40.7 10.4 33.0 8.5 60.6 15.6
Deduct exceptional items after tax - - (13.2) (3.4) (9.5) (2.5)
Adjusted earnings 40.7 10.4 19.8 5.1 51.1 13.1
7. Dividends
The following dividends were paid by the Group:
£m
September 2006 Final dividend for the 2005/06 year of 5.8 pence per share 22.5
March 2007 Interim dividend for the 2006/07 year of 2.6 pence per share 10.2
September 2007 Final dividend for the 2006/07 year of 6.0 pence per share 23.5
The Directors have announced an interim dividend for the 2007/08 year of 2.6
pence per share, totalling £10.2m.
8. Reconciliation of profit for the period to cash generated from
operations
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Profit for the period 41.1 33.5 61.3
Adjustments for:
- Exceptional items (2.5) (12.7) (11.1)
- Depreciation and amortisation 30.1 31.2 62.9
- Profit on sale of non-current assets (1.5) (2.5) (6.6)
- Share-based payments 1.2 0.4 1.0
- Share of profit of associates (2.0) (1.9) (3.9)
- Employment benefit finance income (4.3) (3.8) (8.0)
- Interest income (1.9) (2.3) (1.7)
- Interest expense 12.5 9.4 16.7
- Income tax expense 15.0 5.5 17.2
87.7 56.8 127.8
Changes in:
- inventories 0.7 2.7 (1.9)
- trade and other receivables (35.3) (41.7) (11.5)
- trade and other payables 16.5 14.4 21.9
- provisions and employee benefits (3.5) (5.4) (8.3)
Cash generated from operations 66.1 26.8 128.0
9. Analysis of net debt
Net debt analysed in the table below comprises the book amount of cash, other
investments in current assets (which are treated as cash equivalents),
overdrafts, interest-bearing loans and borrowings together with the fair value
of derivative financial instruments that hedge the Group's borrowings.
At 1 May 2007 Cash flow Acquisition Other At
and non-cash 31 October
2007
disposals
£m £m £m £m £m
Cash and cash equivalents 92.4 (21.6) - 1.6 72.4
Overdrafts (10.8) (2.6) - (0.2) (13.6)
Net cash and cash equivalents 81.6 (24.2) - 1.4 58.8
Interest-bearing loans and
borrowings due after one year (226.4) 22.2 - 2.4 (201.8)
Interest-bearing loans and
borrowings due within one year (1.3) (2.5) - (0.2) (4.0)
Finance leases (4.8) 0.2 - (0.2) (4.8)
Derivative financial instruments
- assets 0.2 - - 0.3 0.5
- liabilities (30.5) - - (6.7) (37.2)
(262.8) 19.9 - (4.4) (247.3)
Total net debt (181.2) (4.3) - (3.0) (188.5)
Other non-cash movements in the period relate to the effect of movements in
foreign exchange and interest rates on borrowings and related derivative
financial instruments, and the entering into of finance leases.
Derivative financial instrument amounts in the table above relate to interest
rate and cross-currency swaps hedging the Group's borrowings. The difference
between the amounts shown above and the total derivative financial instrument
assets and liabilities in the Group's balance sheet relates to derivative
financial instruments that hedge forecast foreign currency transactions and the
Group's purchases of energy.
10. Reconciliation of movements in shareholders' equity
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
£m £m £m
Opening shareholders' equity 569.4 532.1 532.1
Profit for the period 40.7 33.0 60.6
Actuarial gains recognised in the pension schemes - - 17.0
Movement on deferred tax relating to the actuarial gains - - (5.1)
Currency translation differences (after tax) 5.9 (10.8) (6.6)
Changes in the fair value of cash flow hedges (after tax) 2.3 (0.4) (1.2)
New share capital issued 0.2 - 3.7
Purchase of own shares (0.2) - -
Share-based payments (after tax) 1.2 0.4 1.6
Dividends paid to shareholders (23.5) (22.5) (32.7)
Closing shareholders' equity 596.0 531.8 569.4
11. Reconciliation of net cash flow to movement in net debt
Half-year ended Half-year ended Year ended
31 October 2007 31 October 30 April
2006 2007
Note £m £m £m
Operating profit before exceptional items 60.4 30.4 77.7
Depreciation and amortisation 30.1 31.2 62.9
EBITDA 90.5 61.6 140.6
Working capital movement (18.1) (24.6) 8.5
Exceptional cash costs (2.5) (2.7) (7.2)
Other (3.8) (7.5) (13.9)
Cash generated from operations 8 66.1 26.8 128.0
Capital expenditure (37.7) (31.2) (55.8)
Proceeds from sales of assets and investments 5.5 35.9 41.0
Taxation paid (7.6) (6.3) (15.1)
Net interest paid (7.8) (6.7) (14.1)
Free cash flow before net disposals/(acquisitions)
and dividends
18.5 18.5 84.0
Dividends (23.5) (22.5) (32.7)
Net disposals/(acquisitions) of subsidiaries 0.7 1.4 0.2
Net cash flow (4.3) (2.6) 51.5
Proceeds from the issue of share capital 0.2 - 3.7
Purchase of own shares (0.2) - -
Non-cash movements (3.0) 1.8 1.4
Net debt (increase)/decrease (7.3) (0.8) 56.6
Opening net debt (181.2) (237.8) (237.8)
Closing net debt 9 (188.5) (238.6) (181.2)
This information is provided by RNS
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