Interim Results
Smith (DS) PLC
07 December 2005
7 December 2005
DS Smith Plc - 2005/06 Interim Results
DS Smith Plc (LSE:SMDS), the international packaging manufacturer and office
products wholesaler, announces its results for the six months to 31 October
2005.
FIRST HALF 2005/06 HIGHLIGHTS
• Revenue: £821.6m (H1 2004/05: £800.1m)
• Operating profit(1): £33.2m (H1 2004/05: £42.6m)
• Profit before tax(1): £30.5m (H1 2004/05: £37.4m)
• Earnings per share(1): 5.5p (H1 2004/05: 7.3p)
• Cash inflow before dividends and acquisitions: £23.2m (H1 2004/05: inflow
of £26.5m)
• Gearing: 52.2% (end of 2004/05: 50.2%)
• Interim dividend unchanged at 2.6p
• Results after exceptional items: profit before tax £28.6m (H1 2004/05:
£37.4m); earnings per share 4.8p (H1 2004/05: 7.3p)
(1) before exceptional item - loss of £1.9m on the sale of the Office
Products Manufacturing operations
Commenting on the half year results, Chairman, Antony Hichens said:
'The trading environment was particularly tough during the first half of the
financial year but many of our operations performed well. We made further
progress in strengthening the Group. In our enlarged UK Paper and Corrugated
Packaging business, we are achieving the expected synergy benefits and an
improved product mix in Paper. We expanded further our Corrugated Packaging
operations in eastern Europe. Spicers continued its development in continental
Europe and acquired the leading office products wholesaler in Benelux. We sold
the unprofitable Office Products Manufacturing business. The benefits of these
strategic moves are significant but in the half year were more than offset by
the effects of price erosion, considerably higher energy costs and unrecovered
polymer cost increases.
'Trading conditions are expected to continue to be challenging during the second
half of the year. We are achieving price increases within our packaging
businesses but it is too early to be certain of the impact on our overall
results. In the light of the sustained difficult market conditions, we are
intensifying our efforts to reduce costs. Although energy costs remain an
uncertainty, the outlook for the Group for 2005/06 as a whole remains unchanged
from that stated in our October trading update.'
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 7291
Richard Mountain/Robert Gurner
Adoption of International Financial Reporting Standards (IFRS)
DS Smith, along with all EU listed companies, is now required to produce its
results under IFRS. In October 2005, DS Smith published IFRS information
relating to its consolidated balance sheet at 1 May 2004, its half-year results
to 31 October 2004 and the full year results to 30 April 2005. Details of these
results, together with reconciliations between previously published UK GAAP
reported results and those reported under IFRS, are available on the
DS Smith website www.dssmith.uk.com.
All references in this statement and in the attached financial statements
reflect results prepared on the basis of IFRS.
OVERVIEW
Group revenue for the half year to 31 October 2005 increased to £821.6 million
(H1 2004/05: £800.1 million) and operating profit before exceptional items was
£33.2 million (H1 2004/05: £42.6million). Group operating margin before
exceptional items was 4.0% (H1 2004/05: 5.3%) while return on average capital
employed for the six months was 7.1% (H1 2004/05: 9.1%).
Profit before tax and exceptional items was £30.5 million (H1 2004/05: £37.4
million) and earnings per share before exceptional items were 5.5 pence (H1 2004
/05: 7.3 pence).
A cash inflow before dividends and acquisitions of £23.2 million (H1 2004/05:
inflow of £26.5 million) enabled the Group to maintain a healthy balance sheet.
Net borrowings were £270.7 million at the end of first half 2005/06 (end of 2004
/05: £260.7 million) resulting in gearing of 52.2% (end of 2004/05: 50.2%).
The primary factors which impacted the business in the first half of 2005/06
were the fall in paper and corrugated packaging prices, the continued rise in
energy costs and higher polymer costs. Many of our operations are performing
well and we are achieving the expected synergies in our enlarged UK Corrugated
Packaging business. However, the difficult trading environment and higher costs
have resulted in a marked deterioration in the results of a number of businesses
within the Group; we have these businesses under close scrutiny. Over recent
years we have successfully implemented a determined cost reduction programme,
particularly in our more mature businesses. In the light of the sustained
difficult trading conditions, we are intensifying these efforts, targeting
further cost reduction as part of our drive to improve returns.
The Group's total costs for energy increased from circa £34 million in the first
half of 2004/05 to circa £41 million in the first half of 2005/06 principally
due to the extraordinary rise in the UK average market price of gas, which we
had partially hedged. The Group's previous fixed price UK electricity contract
ended in October 2005 and a new contract, including flexible hedging
arrangements, is now in place. In our AGM trading update in September 2005, we
stated that we expected our energy and fuel costs for the full year 2005/06 to
increase by approximately £18 million from the £73 million incurred in 2004/05.
Following the recent further sharp rise in energy prices we anticipate that this
increase will now be in the range of £20-23 million but we expect to be able to
mitigate most of this recent further increase. However, the outcome for the
year will be dependent upon the degree to which the current high energy prices
are sustained through the winter months.
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 7 March
2006 to ordinary shareholders on the register at the close of business on 3
February 2006.
OPERATING REVIEW
UK Paper and Corrugated Packaging
Half year ended Half year ended 31
31 October 2005 October 2004
Revenue £331.1m £312.7m
Operating profit £14.4m £19.8m
Operating margin 4.3% 6.3%
Return on average capital employed 5.5% 7.5%
The recent actions we have taken to develop our integrated UK Paper and
Corrugated Packaging segment have strengthened the Group. We are achieving the
expected synergies from our enlarged UK Corrugated Packaging business; these
benefited the result in the first half by some £7 million and we are confident
of achieving the anticipated £14.5 million annual run-rate as we enter the next
financial year. However, this benefit in the first half was more than offset by
lower selling prices and higher energy costs.
The UK market for corrugated packaging in 2005 has been weak, principally due to
the slowdown in retail sales. In the first nine months of calendar year 2005,
demand in the UK was 2.9% down by weight on the same period in 2004*. Prices of
corrugated case material (CCM) throughout Europe fell as a result of patchy
demand and excess CCM capacity. Paper producers' margins have been further
squeezed by substantial increases in energy costs and the relatively high cost
of recovered paper, our principal raw material. The lower CCM prices and slack
demand resulted in a fall in corrugated box prices. In both CCM and box
production, a number of companies have recently announced restructuring and
capacity reduction plans to address the effects of the poor market conditions.
In our Paper business, the effects on results of the adverse trading environment
and higher energy costs were partly mitigated by the recent strategic moves we
have made within the Group. The enlargement of our corrugated packaging
operations through our recent major acquisition enabled us to maintain high
levels of capacity utilisation, and allowed us to increase the proportion of
both our UK CCM sales, which have better margins than export sales, and those
paper grades that we produce most efficiently. As a result of our strategic
supply agreement with BPB Plc we have grown our sales of higher added-value
plasterboard liner to an annual run-rate of over 140,000 tonnes and consequently
reduced the proportion of CCM within our total paper sales mix.
Our Corrugated Packaging operations benefited from the synergies arising from
the enlarged business but results were adversely affected by the lower overall
market demand, price pressure and increased energy costs. The trading
environment has been tough and we have had some disruption as a result of the
closure of two large facilities and the subsequent transfer of production to
other plants. Nevertheless, we remain confident that our market-leading
position is capable of generating good overall returns.
Towards the end of the half year, CCM prices were increased in continental
Europe and, subsequently, we have raised our prices in the UK with a view to
recovering some of the cost increases. We also raised corrugated box prices
during November. As yet, it is uncertain as to the effect these price moves
will have on our results in the second half of the financial year and much will
depend upon market demand during the coming months.
* Source: Federation of European Corrugated Board Manufacturers
Continental European Corrugated Packaging
Half year ended Half year ended 31
31 October 2005 October 2004
Revenue £135.3m £131.5m
Operating profit £9.9m £9.9m
Operating margin 7.3% 7.5%
Return on average capital employed 12.5% 13.9%
Our Continental European Corrugated Packaging operations, which are principally
located in France, Italy, Poland and Turkey, performed solidly.
During the first nine months of 2005, the market for corrugated packaging in
Europe as a whole grew by 0.9% by weight. Demand in our main continental
western European markets of France and Italy grew by 0.1% and 1.2%,
respectively, while growth in central and eastern Europe was stronger with our
principal markets of Poland and Turkey advancing by 10.2% and 5.4%, respectively
*. In France and Italy, prices fell substantially, reflecting intense
competition, but the impact of the lower prices was to a large extent offset by
the lower cost of the raw material, CCM, and our development of value-added
products. Sales continued to advance strongly at our Polish business; its new
factory at Kutno, west of Warsaw, commenced production in November. Our Turkish
business, which moved into profit in 2004/05, made further progress in
developing its customer base for higher added value products. Our associate
business in the Ukraine continues to perform well and we are supporting it in
its expansion into plasterboard liner. The French solid board paper business
benefited from recent investment which enabled it to increase sales and it is
performing well in the context of challenging market conditions.
The recent rise in CCM prices is resulting in a squeeze on margins in this
segment. We will be looking to raise box prices to recover our higher input
costs and the extent to which these price increases are achieved will affect
this segment's results in the second half of the financial year. We remain
alert to good development opportunities consistent with our strategy to expand
further our Continental European Corrugated Packaging operations.
* Source: Federation of European Corrugated Board Manufacturers
Plastic Packaging
Half year ended Half year ended
31 October 2005 31 October 2004
Revenue £101.7m £99.9m
Operating profit £2.0m £6.2m
Operating margin 2.0% 6.2%
Return on average capital employed 3.0% 8.9%
Plastic Packaging had a very tough first half in both of its principal market
sectors, although both sectors remained profitable. In returnable transit
packaging, results were significantly lower owing to reduced crate sales volumes
and under-recovery of higher polymer costs, while in liquid packaging and
dispensing there was significant price erosion. The three small speciality
businesses showed an improvement and were in profit in aggregate.
Within returnable transit packaging, the previously highlighted slowdown in
sales and the squeeze on margins from high polymer costs, continued in the first
half of 2005/06. Our forward order book in this sector has recently
strengthened.
In liquid packaging and dispensing, our USA operations performed satisfactorily
on the back of good product development and we continued to enjoy stronger sales
in dispensing products. In contrast, we faced increased competition in Europe,
particularly in higher margin products, and profits were well down on the prior
year. We have introduced new products and taken action to reduce costs; the
first half result included the costs of restructuring.
Against the background of further rises in polymer costs during the autumn, we
have increased prices but to date this has been insufficient to restore our
margins to acceptable levels.
Our primary goal in this division is to rebuild profitability. In addition to
raising prices, we are taking action to strengthen substantially our sales and
product development capability and to increase productivity.
Office Products Wholesaling
Half year ended Half year ended
31 October 2005 31 October 2004
Revenue £248.1m £240.0m
Operating profit £6.9m £6.9m
Operating margin 2.8% 2.9%
Return on average capital employed 11.2% 12.1%
Operating profit in the Spicers Office Products Wholesaling business was steady
with a lower result in the UK being offset by progress in Continental Europe.
Sales advanced in the UK, but continuing price erosion across the product range
and a larger-than-expected proportion of lower margin electronic office supplies
resulted in reduced profits. Action has been taken to improve the sales mix and
to lower costs. The French business performed well and further increased its
market share. The development business in Germany was in profit while that in
Spain made further good progress and the Italian business continued its
encouraging build-up of sales in its first year of trading. On 1 October, we
acquired Timmermans NV, the largest office products wholesaler in the Benelux
region, which further extended Spicers' sales coverage in continental Europe.
In the light of the trading difficulties in the UK, and as outlined in our
October trading update, it will be challenging for Spicers to exceed last year's
result for the full year.
The Office Products Manufacturing business, John Dickinson, was sold to Groupe
Hamelin in July 2005.
OUTLOOK
Trading conditions are expected to continue to be challenging during the second
half of the year. We are achieving price increases within our packaging
businesses but it is too early to be certain of the impact on our overall
results. In the light of the sustained difficult market conditions, we are
intensifying our efforts to reduce costs. Although energy costs remain an
uncertainty, the outlook for the Group for 2005/06 as a whole remains unchanged
from that stated in our October trading update.
Group Income Statement (unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
Revenue 3 821.6 800.1 1,624.9
Group operating profit
Before exceptional items 3 33.2 42.6 82.6
Exceptional operating items:
- Loss on sale of office products manufacturing (1.9) - -
operations
- Costs of restructuring acquired business - - (4.9)
- Impairment of goodwill - - (5.8)
Operating profit 31.3 42.6 71.9
Net interest expense (5.8) (6.8) (13.2)
Employment benefit finance income 0.9 0.5 1.1
Net finance expense (4.9) (6.3) (12.1)
Profit after financing costs 26.4 36.3 59.8
Share of profit of associates (after tax) 2.2 1.1 3.4
Exceptional item: - reversal of previous
impairment of associate - - 1.1
Profit before income tax 28.6 37.4 64.3
Income tax on:
Profit before exceptional items 4 (8.8) (9.1) (17.6)
Exceptional items (1.0) - 1.4
Income tax expense (9.8) (9.1) (16.2)
Profit for the financial period 18.8 28.3 48.1
Profit for the financial period attributable to:
Equity holders of the parent 18.4 28.1 47.1
Minority interest 0.4 0.2 1.0
18.8 28.3 48.1
Earnings per share: 5
Basic 4.8p 7.3p 12.2p
Diluted 4.7p 7.2p 12.1p
Interim Interim Total
Proposed dividends per share 6 2.6p 2.6p 8.4p
Group Statement of Recognised Income and Expense (unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
Actuarial (losses) on defined benefit pension
schemes - - (31.2)
Movements on deferred tax relating to the
actuarial losses - - 9.5
Currency translation differences arising in 4.5 3.5 (0.3)
period
Changes in fair value of cash flow hedges, net (1.3) - -
of tax
Effect of adoption of IAS 32 and IAS 39 from 1 2 (1.5) - -
May 2005
Net income/(expense) recognised directly in equity 1.7 3.5 (22.0)
Profit for the financial period 18.8 28.3 48.1
Total recognised income and expense relating to the
financial period 20.5 31.8 26.1
Attributable to:
Equity holders of the parent 20.1 31.6 25.1
Minority interest 0.4 0.2 1.0
20.5 31.8 26.1
Group Balance Sheet (unaudited) As at As at As at
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
ASSETS
Non-current assets
Property, plant and equipment 558.7 563.5 559.3
Intangible assets 196.7 196.8 190.9
Investments in associates 27.4 22.0 22.1
Other investments 9.6 10.3 10.1
Deferred tax assets 38.5 24.2 35.6
Other receivables 3.5 3.4 1.0
Derivative financial instruments 0.9 - -
Total non-current assets 835.3 820.2 819.0
Current assets
Inventories 156.5 156.1 161.7
Other investments 18.7 21.3 28.4
Income tax receivable - 1.0 1.0
Trade and other receivables 361.1 361.9 358.4
Cash and cash equivalents 35.7 42.3 30.4
Derivative financial instruments 1.1 - -
Total current assets 573.1 582.6 579.9
Total assets 1,408.4 1,402.8 1,398.9
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings (297.1) (320.2) (294.1)
Employee benefits (before associated deferred (108.2) (83.2) (114.8)
tax asset)
Other creditors (1.9) (1.9) (2.4)
Provisions (9.2) (6.2) (7.2)
Deferred tax liabilities (82.8) (73.9) (78.7)
Derivative financial instruments (13.8) - -
Total non-current liabilities (513.0) (485.4) (497.2)
Current liabilities
Bank overdrafts (11.0) (19.5) (17.6)
Interest-bearing loans and borrowings (3.9) (11.7) (7.8)
Trade and other payables (338.6) (326.0) (335.5)
Income tax liabilities (22.3) (25.3) (18.7)
Provisions (0.2) (5.0) (2.3)
Derivative financial instruments (0.7) - -
Total current liabilities (376.7) (387.5) (381.9)
Total liabilities (889.7) (872.9) (879.1)
NET ASSETS 518.7 529.9 519.8
EQUITY
Issued capital 38.9 38.7 38.9
Share premium 257.3 254.7 257.0
Other reserves 7.5 12.0 7.7
Retained earnings 206.2 216.6 207.9
Total equity attributable to equity holders of 9
the parent 509.9 522.0 511.5
Minority interests 8.8 7.9 8.3
TOTAL EQUITY 518.7 529.9 519.8
Gearing:
Net debt expressed as a percentage of total
equity 2,10 52.2% 54.3% 50.2%
Group Cash Flow Statement (unaudited)
Half year to 31 Half year to Year to
October 2005 31 October 30 April
2004 2005
Note £m £m £m
Operating Activities
Cash generated from operations 7 69.9 70.2 139.7
Interest paid (6.0) (6.5) (13.3)
Income tax paid (8.9) (13.0) (23.7)
Net cash from operating activities 55.0 50.7 102.7
Investing Activities
Net (acquisitions)/disposals of subsidiaries (5.5) (10.5) (11.7)
Purchases of property, plant and equipment (35.3) (25.1) (53.6)
Proceeds from sale of non-current assets 3.5 0.9 6.7
Cash flows from investing activities (37.3) (34.7) (58.6)
Financing Activities
Proceeds from issue of share capital 0.3 0.1 2.6
Purchase of own shares - (2.3) (2.1)
Increase in borrowings 5.6 19.2 -
Repayment of borrowings - - (3.7)
Payments under finance leases (0.9) (0.5) (0.9)
Dividends paid (22.4) (21.6) (31.6)
Cash flows from financing activities (17.4) (5.1) (35.7)
Net increase in cash and cash equivalents 0.3 10.9 8.4
Cash and cash equivalent at 1 May 41.2 31.1 31.1
Acquired with subsidiary undertaking 0.8 - -
Exchange gains on cash and cash equivalents 1.1 2.3 1.7
Closing cash and cash equivalents 43.4 44.3 41.2
Notes to the Accounts
1 Basis of preparation
This interim financial information, which was approved by the Board of Directors
on 6th December 2005, 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.
Financial information for the year ended 30 April 2005 and for the six months
ended 31 October 2004, presented as comparative figures in this report, has been
restated from UK GAAP in accordance with the Group's best knowledge of expected
International Financial Reporting Standards ('IFRSs') (including International
Accounting Standards ('IASs') and interpretations issued by the International
Accounting Standards Board ('IASB') and its committees). These are subject to
ongoing amendment by the IASB and subsequent endorsement by the European
Commission and are therefore subject to possible change. Further changes may
therefore be required to this information before it is published as comparative
information in the Company's 2006 Annual Report and Accounts.
A comprehensive analysis and explanation of the adjustments made by the Company
to its comparative consolidated financial statements on transition to IFRS from
UK GAAP, as disclosed in the Company's statutory Annual Report and Accounts for
2005, was first published in an announcement made on 13 October 2005. A copy of
this announcement can be found on the Company's website www.dssmith.uk.com/
invest-report.asp and is obtainable from the Group Company Secretary at the
Company's registered address.
The IFRS information for the year ended 30 April 2005 was derived by restatement
of information extracted from the statutory financial statements prepared under
UK GAAP. Those statutory financial statements were filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified and did not
contain statements under section 237(2) or 237(3) of the UK Companies Act 1985.
The restated IFRS financial information provided for the year ended 30 April
2005 does not constitute statutory accounts within the meaning of section 240 of
the Companies Act 1985. However, they are anticipated to form the comparative
period for the statutory accounts for the year ending 30 April 2006, the Group's
first Annual Report and Accounts to be prepared in accordance with IFRS.
The significant changes to accounting policies used in preparing this
information that resulted from the adoption of IFRS are set out in note 2.
As allowed by IFRS 1, 'First-time Adoption of IFRSs', the Group adopted IAS 32,
'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial
Instruments: Recognition and Measurement', prospectively from 1 May 2005. As a
result, the comparative financial statements exclude the effect of the adoption
of these standards. Summary details of the effect of adopting these standards
as at 1 May 2005 are included in the announcement on 13 October 2005 and are
further shown in note 2 to these accounts.
2 Accounting policies: changes resulting from the adoption of IFRS
The most significant changes for the Group in its financial statements for 2005/
06 following the adoption of IFRS are:
• changes in presentation and disclosure (IAS 1);
• a change to the segments presented for segmental reporting (IAS 14);
• the ending of goodwill amortisation (IFRS 3);
• the recognition of an expense for share-based payments (IFRS 2);
• the statement of the Group's share of the associates' results after
interest and tax (IAS 1);
• the recognition of additional deferred tax liabilities on historical
temporary differences, with a consequent effect in the income
statement as any deferred tax raised will reverse when the underlying
book to tax temporary differences are amortised (IAS 12);
• the recognition of dividends only after they have been declared (IAS
10); and
• the recognition of the fair values of derivative financial instruments
(IAS 39) - see also below.
Items are presented as 'exceptional' in the accounts 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.
The Group adopted IAS 32, 'Financial Instruments: Disclosure and Presentation',
and IAS 39, 'Financial Instruments: Recognition and Measurement', from 1 May
2005. The effect of the adoption of IAS 39 on the Group's borrowings and
shareholders' equity is shown in the table below:
1 May 2005: Effect of adoption 1 May 2005:
(before IAS 39 of IAS 39 (after IAS 39
adjustments) adjustments)
£m £m £m
Cash and cash equivalents 58.8 - 58.8
Overdrafts (17.6) - (17.6)
Net cash 41.2 - 41.2
Interest-bearing loans and borrowings due
after one year (292.1) 16.2 (275.9)
Interest-bearing loans and borrowings due
within one year (6.9) - (6.9)
Finance leases (2.9) - (2.9)
Derivative financial instruments
- assets - 2.1 2.1
- liabilities - (20.4) (20.4)
Total net debt (260.7) (2.1) (262.8)
Other assets and liabilities* - 0.6 0.6
Net assets 519.8 (1.5) 518.3
Gearing (total net debt as a percentage of
net assets) 50.2% 50.7%
* The effect of the adoption of IAS 39 on other assets and liabilities in the
table above relates to deferred tax on derivative financial instruments' fair
value and on changes in the fair value of borrowings.
The effect of the adoption of IAS 39 on net debt was an increase as at 1 May
2005 of £(2.1)m, on previous total net debt of £(260.7)m to result in net debt
of £(262.8)m. This compares with the previous UK GAAP measure of £(260.4)m.
The adoption of IAS 39 resulted in an increase in gearing of 0.5 percentage
points to 50.7%; this compares with the previous UK GAAP measure of 53.1%, the
decrease being largely the result of the higher level of net assets under IFRS.
3 Analysis of Group revenue, operating profit and capital employed
(unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
£m £m £m
Revenue
UK Paper and Corrugated Packaging 331.1 312.7 631.2
Continental European Corrugated Packaging 135.3 131.5 265.7
Plastic Packaging 101.7 99.9 195.9
Office Products Wholesaling 248.1 240.0 499.7
Other 5.4 16.0 32.4
Group Total 821.6 800.1 1,624.9
By origin: United Kingdom 495.8 482.5 970.7
Rest of World 325.8 317.6 654.2
Group Total 821.6 800.1 1,624.9
3 Analysis of Group revenue, operating profit and capital employed
(unaudited) (continued)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
£m £m £m
Operating profit before exceptional items
(see a) below)
UK Paper and Corrugated Packaging 14.4 19.8 31.6
Continental European Corrugated Packaging 9.9 9.9 20.2
Plastic Packaging 2.0 6.2 9.3
Office Products Wholesaling 6.9 6.9 21.5
Other - (0.2) -
Group Total 33.2 42.6 82.6
By origin: United Kingdom 18.2 27.5 45.5
Rest of World 15.0 15.1 37.1
Group Total 33.2 42.6 82.6
Capital employed (see b) below)
UK Paper and Corrugated Packaging 498.6 520.7 508.3
Continental European Corrugated Packaging 156.0 143.7 149.6
Plastic Packaging 131.1 141.6 132.2
Office Products Wholesaling 134.8 119.9 126.2
Other - 13.3 12.6
Group Total 920.5 939.2 928.9
By origin: United Kingdom 621.0 643.6 631.5
Rest of World 299.5 295.6 297.4
Group Total 920.5 939.2 928.9
Return on sales
UK Paper and Corrugated Packaging 4.3% 6.3% 5.0%
Continental European Corrugated Packaging 7.3% 7.5% 7.6%
Plastic Packaging 2.0% 6.2% 4.7%
Office Products Wholesaling 2.8% 2.9% 4.3%
Other - (1.3)% -
Group Total 4.0% 5.3% 5.1%
By origin: United Kingdom 3.7% 5.7% 4.7%
Rest of World 4.6% 4.8% 5.7%
Group Total 4.0% 5.3% 5.1%
3 Analysis of Group revenue, operating profit and capital employed
(unaudited) (continued)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Return on average capital employed (see c) below)
UK Paper and Corrugated Packaging 5.5% 7.5% 6.0%
Continental European Corrugated Packaging 12.5% 13.9% 13.7%
Plastic Packaging 3.0% 8.9% 6.6%
Office Products Wholesaling 11.2% 12.1% 18.1%
Other - (2.8)% -
Group Total 7.1% 9.1% 8.7%
By origin: United Kingdom 5.7% 8.6% 7.0%
Rest of World 10.0% 10.1% 12.3%
Group Total 7.1% 9.1% 8.7%
a) Operating profit is stated before exceptional items. The exceptional items
were: in the six months to 31 October 2005, a loss on the disposal of the office
products manufacturing business (£1.9m); in the year to 30 April 2005,
restructuring expenses in the UK Paper and Corrugated Packaging segment (£4.9m)
and the impairment of goodwill in a business in the Plastic Packaging segment
(£5.8m). There were no exceptional items in the six months to 31 October 2004.
b) Capital employed excludes net debt (see note 8), non-current investments,
income tax balances, deferred tax balances and employee benefit liabilities.
c) Return on average capital employed for the half year is calculated as twice
the operating profit before exceptional items divided by the average capital
employed in the reporting period.
4 Taxation
Tax on profits has been charged at an effective rate, before exceptional items
and share of profits of associates, of 31.1% (half year to 31 October 2004:
25.1%; year to 30 April 2005: 25.0%), being the expected full-year effective
rate. The effective tax rate after exceptional items and the share of profits
of associates was 34.3% (half year to 31 October 2004: 24.3%; year to 30 April
2005: 25.2%).
The tax charge on profit before exceptional items and share of profits of
associates for the period of £8.8m (half year to 31 October 2004: £9.1m; year to
30 April 2005: £17.6m) consists of UK taxation of £3.1m (half year to 31 October
2004: £5.7m; year to 30 April 2005: £11.1m) and overseas taxation of £5.7m (half
year to 31 October 2004: £3.4m; year to 30 April 2005: £6.5m).
5 Earnings per share
The basic earnings per share have been calculated on the profit for the period
attributable to equity holders of the parent company of £18.4m (half year to 31
October 2004: £28.1m; year to 30 April 2005: £47.1m) and on 386.7m (half year to
31 October 2004: 385.2m; year to 30 April 2005: 385.3m) ordinary shares, being
the weighted average in issue and fully paid during the period.
Diluted earnings per share are calculated assuming conversion of potentially
dilutive shares issued under share option schemes and the Restricted Share Plan.
These adjustments give rise to an increase in the weighted average of ordinary
shares to 388.0m (half year to 31 October 2004: 388.2m; year to 30 April 2005:
387.3m).
6 Dividends
The following dividends were paid by the Group:
£m
September 2004 Final dividend for the 2003/04 year of 5.6 pence per share 21.6
March 2005 Interim dividend for the 2004/05 year of 2.6 pence per share 9.9
September 2005 Final dividend for the 2004/05 year of 5.8 pence per share 22.4
The directors have announced an interim dividend for the 2005/06 year of 2.6
pence per share, totalling £10.1m.
7 Reconciliation of profit for the period to cash generated from
operations (unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
£m £m £m
Profit for the period 18.8 28.3 48.1
Exceptional items - non-cash amounts 1.9 - 7.1
Depreciation and amortisation 33.4 34.4 68.6
Profit on sale of non-current assets (1.6) (0.2) (1.8)
Equity settled share-based payment expenses 0.4 0.4 1.1
Share of profit of associates (after tax) (2.2) (1.1) (3.4)
Other finance income (0.9) (0.5) (1.1)
Net interest expense 5.8 6.8 13.2
Income tax expense 9.8 9.1 16.2
Changes in working capital 8.8 (4.2) (6.9)
Other non-cash operating items
- changes in pensions (2.6) (1.8) 1.9
- changes in provisions (1.7) (1.0) (3.3)
Cash generated from operations 69.9 70.2 139.7
8 Analysis of net debt (unaudited)
Net debt analysed in the table below comprises the book amount of cash, other
investments in current assets (which are treated as cash equivalents),
overdrafts, interest-bearing loans and borrowings together with the fair value
of derivative financial instruments that hedge the Group's borrowings.
At 1 May Cash flow Acquisition Other At 31
2005* and disposals non-cash October 2005
£m £m £m £m £m
Cash and cash equivalents 58.8 (6.4) 0.8 1.2 54.4
Overdrafts (17.6) 6.7 - (0.1) (11.0)
Net cash and cash equivalents 41.2 0.3 0.8 1.1 43.4
Interest -bearing loans and
borrowings due after one year (275.9) (10.8) (0.6) (7.8) (295.1)
Interest -bearing loans and
borrowings due within one year (6.9) 5.2 (1.9) - (3.6)
Finance leases (2.9) 0.9 - (0.3) (2.3)
Derivative financial instruments
- assets 2.1 - - (1.4) 0.7
- liabilities (20.4) - - 6.6 (13.8)
(304.0) (4.7) (2.5) (2.9) (314.1)
Total net debt (262.8) (4.4) (1.7) (1.8) (270.7)
* after the adoption of IAS 39 - see note 2.
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.
Derivative financial instruments assets and liabilities 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 which hedge forecast foreign currency transactions and the Group's
purchases of energy.
9 Reconciliation of movements in shareholders' equity (unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
Opening shareholders' equity:
As previously reported 511.5 494.4 494.4
Adjustments on adoption of IFRS from 1 May 2004 - 19.2 19.2
Adjustments on adoption of IAS 32 and IAS 39 from 1 2
May 2005 (1.5) - -
As restated 510.0 513.6 513.6
Profit for the financial period 18.4 28.1 47.1
Dividends (22.4) (21.7) (31.6)
Retained (loss)/profit for the financial period (4.0) 6.4 15.5
Actuarial (losses) recognised in the pension - - (31.2)
schemes
Movement on deferred tax relating to the actuarial - - 9.5
losses
Currency translation differences in period 4.5 3.5 (0.3)
Changes in fair value of cash flow hedges, net of (1.3) - -
tax
New share capital issued 0.3 0.1 2.6
Share-based payments 0.4 0.5 3.7
Share trust arrangements - (2.1) (1.9)
(Decrease)/increase in shareholders' equity (0.1) 8.4 (2.1)
Closing shareholders' equity 509.9 522.0 511.5
10 Reconciliation of net cash flow to movement in net debt (unaudited)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
Operating profit before exceptional items 33.2 42.6 82.6
Depreciation and amortisation 33.4 34.4 68.6
EBITDA 66.6 77.0 151.2
Working capital movement 8.8 (4.2) (6.9)
Exceptional cash costs - - (2.5)
Other (5.5) (2.6) (2.1)
Cash generated from operations 7 69.9 70.2 139.7
Capital expenditure payments (31.8) (24.2) (46.9)
Taxation (8.9) (13.0) (23.7)
Interest (6.0) (6.5) (13.3)
Free cash flow before net (acquisitions)/disposals 23.2 26.5 55.8
and dividends
Dividends (22.4) (21.6) (31.6)
Free cash flow before net (acquisitions)/disposals 0.8 4.9 24.2
Net (acquisitions)/disposals of subsidiaries (5.5) (10.5) (11.7)
Net cash flow (4.7) (5.6) 12.5
10 Reconciliation of net cash flow to movement in net debt (unaudited)
(continued)
Half year to Half year to Year to
31 October 2005 31 October 30 April
2004 2005
Note £m £m £m
Net cash flow (4.7) (5.6) 12.5
Proceeds from issue of share capital 0.3 0.1 2.6
Net purchase of own shares - (2.3) (2.1)
Net debt acquired/disposed of (1.7) - -
Non-cash movements (1.8) (4.6) 1.7
Net debt movement (7.9) (12.4) 14.7
Opening net debt (262.8) (275.4) (275.4)
Closing net debt 8 (270.7) (287.8) (260.7)
--------------------------
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