Final Results

RNS Number : 2600P

Xaar PLC

23 March 2009

 



FOR IMMEDIATE RELEASE

23 March 2009

Xaar plc

FINAL RESULTS FOR 2008

Xaar plc ('Xaar', the 'group' or the 'company'), the inkjet printing technology group headquartered in Cambridge, announces its audited results for the year ended 31 December 2008.

Key points:

• The results reflect the effects of lower sales in the Chinese market and the effect of the global recession more than offsetting a promising start to the year.

• The financial results were:

  • Turnover was £42.0m (2007: £47.9m);

  • Gross margin excluding restructuring costs was 50% (2007: 52%);

  • Profit before tax was £4.4m (2007: £7.3m);

  • Earnings per share were 5.6p (2007: 8.9p); and

  • Net cash and cash equivalents at 31 December 2008 were £11.0m (30 June 2008: £10.0m; 31 December 2007: £11.9m).

• Final dividend of 1.5p is recommended, making 2.5p for the year (2007: 2.5p).

• Proposed rationalisation of manufacturing facilities:

  • Substantial reduction in manufacturing costs and improved efficiency; 

  • Carefully phased transfer of manufacturing from Järfälla, Sweden to Huntingdon, UK over a two year period.

On outlook, Chairman, Phil Lawler stated:

'Despite the unpredictable economic climate and slower than desired rate of adoption of technological change in the commercial and industrial printing market, the board remains optimistic that Xaar has the right products now and is developing the right products for the future. Most importantly, Xaar remains profitable and cash generative with a strong balance sheet including substantial net cash balances. We remain in a robust position.'

Contacts

Xaar plc:	today: 020-7367-8888
Ian Dinwoodie, Chief Executive	thereafter: 01223-423663
Andrew Taylor, Finance Director	www.xaar.com
Bankside Consultants:
Steve Liebmann or Andy Harris	020-7367-8883 / 07802-888159

  CHAIRMAN'S STATEMENT

Introduction

2008 proved to be both a difficult and disappointing year despite the substantial market potential of Xaar's technological leadership. Early promise was indicated in May at DRUPA, the most important printing industry global trade show held every four years in Düsseldorf, with much independent industry analysis referring to both the advance of inkjet and Xaar's prominent position within that sector.

Progress towards the digital transformation of commercial and industrial printing is continuing steadily, but at a rate that is frustratingly slow and one that is difficult for Xaar to influence. This can be understood when one considers the extraordinary range of inks, coatings, substrates, environments, applications and markets. In addition, numerous 'non-digital' OEMs have substantial vested interests based on their equipment, service and maintenance revenues reliant on traditional printing technologies. However, many independent analysts and OEMs are now clear that inkjet will play an increasing part in the £250bn market that is commercial and industrial printing. This continues to be Xaar's opportunity.

As 2008 progressed, events in China (the Sichuan earthquake and the 2008 Beijing Olympic Games) and the usual lack of visibility into end markets there initially masked an aggressive push by a licensee to 'buy' itself a significant share of the Chinese market for Xaar's Platform 1 products. In the current economic climate, and especially in Asia, price is key. Xaar has responded vigorously; overhead costs have been cut and our workforce reduced to allow us to remain competitive in our largest market. We have also been helped by the weakening of sterling. Accelerated product development has included the recently announced Proton and Electron Platform 1 products which offer a significant improvement in price/performance and are targeted at recovering market share in China. It is important to note that our business in other geographic markets and in our newer technology has continued to progress.

It is clear that the global printing industry is highly sensitive to the general downturn although, whilst we cannot expect to be immune from this, we continue to believe we are delivering the right products into the right markets at the right time.  

Results and dividend

Revenue and profit for the year were significantly below what we achieved in 2007, although we have remained profitable. We have managed costs carefully, maintained good cash flow and again ended the year with a very healthy net cash balance. This gives us confidence that we can manage through the current difficult trading environment and be in a strong position to capitalise on opportunities when the market picks up.  

Based on the cash generation of the business, the board has decided to recommend a final dividend of 1.5p which, together with the 1.0p interim dividend paid already, maintains the total dividend for the year at 2.5p (2007: 2.5p).

Proposed rationalisation of manufacturing facilities

Subject to the completion of a statutory period of consultation with the representatives of the workforce of approximately 130 at the company's Swedish manufacturing facility in Järfälla, near Stockholm, the company proposes rationalising its production of printheads by transferring manufacturing from the plant in Sweden to its facility in Huntingdon, near Cambridge, and the eventual closure of the Järfälla facility. If this rationalisation goes ahead as proposed, the process is expected to take about two years to complete in a phased transfer to ensure minimal disruption to the business and continued availability of finished product.

  The proposed transfer would be expected to achieve:

• a substantial reduction in manufacturing costs;

• a reduction in management overheads;

• better use of production capacity;

• improved operational efficiency; and 

• the elimination of exchange rate exposure between sterling and the Swedish kronor.  

As part of the proposed rationalisation, it is expected that approximately 100 new jobs would be created at the Huntingdon plant over the period of the transfer.  

Some exceptional costs would be incurred in 2009 and 2010 as the result of the proposed transfer of manufacturing in Sweden to the UK. The capital costs of the relocation would be expected to be met from a mix of operating cash flow and some external equipment finance, thus preserving cash balances and the strength of the company's balance sheet. A substantial element of the capital investment that would be required over the next two years is effectively an acceleration of the investment that would have been required in Sweden over the next four years.

Board

As previously reported, Andrew Taylor, formerly Deputy Finance Director, succeeded Nigel Berry, Finance Director and Deputy Chief Executive on 31 March 2008 as Finance Director. Founder director and former Chairman, Richard King CBE retired at the Annual General Meeting after 18 years of valued and dedicated service. 

Outlook

Despite the unpredictable economic climate and slower than desired rate of adoption of technological change in the commercial and industrial printing market, the board remains optimistic that Xaar has the right products now and is developing the right products for the future. Most importantly, Xaar remains profitable and cash generative with a strong balance sheet including substantial net cash balances. We remain in a robust position. 

Although the results for 2008 were far from what had been planned, the management team has focused on improvement, remains committed to renewed success and is continuing to implement appropriate changes which will ensure we are well placed for the future.

Phil Lawler

Chairman

20 March 2009

REVIEW OF OPERATIONS

Introduction

2008 was extraordinarily challenging but ultimately frustrating for the company. It started with great promise, with significant efforts during the early part of the year to support the many customers who were launching new Platform 3 based products at the DRUPA tradeshow in Düsseldorf in May. Whilst that particular milestone was hit successfully - with eight new customer products demonstrated and the Xaar 1001 being recognised as one of the 'stars' of the show - the sudden and significant decline in our traditional Platform 1 business in China, which started towards the end of Q2, meant that the results for the year fell significantly below expectations. The banking crisis and the onset of worldwide economic recession during the second half of the year created further uncertainty across the business environment. It would be prudent to expect that this uncertainty may result in further delays to our customer development plans and changes in capital investment plans in the end markets. Xaar has responded vigorously to these challenges by implementing significant cost cutting measures across the group, whilst launching two second generation Platform 1 products into BRIC regions with the aim of reversing the decline in sales experienced during the second half of the year.

Business Review

The total revenue of £42.0m (2007: £47.9m) is made up of: product sales: £37.5m (2007: £45.6m), representing 89% of turnover (2007: 95%); royalties: £3.9m (2007: £1.8m), representing 9% of turnover (2007: 4%) and development fees delivering the remaining small balance. Both the decline and change in mix of revenues was due to the shift in market share in China. Xaar technology remains dominant in this market; however, in 2008 our licensees gained market share from Xaar, resulting in a reduction in product revenue whilst boosting royalty income. These licensing arrangements were put in place in the mid 1990s, prior to Xaar becoming a direct manufacturer and supplier of its own products. 

During the year, Xaar has responded to both this loss of sales and the worsening economic environment by implementing a cost reduction programme which has cut both annualised spend and headcount by more than 20%. To reverse the Platform 1 sales trend, we accelerated the development of our second generation Platform 1 products, with the Proton (previously codenamed the 382) commencing volume shipments at the turn of the year and the Electron, due to commence volume shipments before the second half of 2009. Both products offer significant performance enhancements over the original Platform 1 range and initial customer response is very positive, with 17 new machines being launched at the recent Sign China trade exhibition in Guangzhou.

Whilst recovering Platform 1 market share has become an immediate goal, we continue to develop our business into many other end markets based on our first Platform 3 product, the award winning Xaar 1001. The DRUPA show in May, informally titled 'the Inkjet DRUPA', was a high profile event where the potential for industrial and commercial inkjet printing was recognised widely. Whilst many 'concept' machines were shown, the Xaar 1001 was the enabling technology behind the majority of the high resolution single pass digital inkjet presses announced as being commercially available at the show. Following the show, the focus turned to converting these launches into robust growing business lines. There continues to be a high level of activity amongst printing machinery OEMs in terms of developing new Xaar 1001 based products. Currently, the number of customer developments not yet announced still outweighs heavily those announced already and, whilst we recognise the deteriorating economic environment may well have an adverse impact on both the timing of these developments and the end markets, we remain convinced that our Platform 3 business will grow into a substantial entity over the medium term. 

  Commercial Review - Geographic 

As a supplier of technology to OEM partners, our geographic sales split reflects where the final stages of OEM equipment is manufactured and not necessarily the end user location.

Despite the sales decline in the region, Asia continues to be our largest market and generated 48% (2007: 58%) of our total sales in 2008 at £20.3m (2007: £27.9m). The sales decline in China was a direct result of losing market share (as previously described), coupled with a shift to direct distribution into South America. A combination of product differentiation and keen pricing was the primary driver in this shift. Xaar has responded to this change in the competitive environment, both by pricing adjustments and accelerating the deployment of new products. These second generation Platform 1 products (the Proton and the Electron) offer both 'newness' and a significant improvement in price/performance with a higher speed and better image quality. We expect the Proton to make an important contribution to revenue from Q1 of 2009 with Electron sales starting to contribute later in the first half. The strong growth of sales in India which developed during 2007 has continued in 2008, with India now representing close to a quarter of our total Asian business. 

Europe and the Middle East had a reasonable year, given the deteriorating economic climate experienced during the second half. This region generated 36% (2007: 30%) of our total sales at £14.9m (2007: £14.2m), this being a 5% growth over the previous year. Mature product sales into coding and marking reduced in the year but were more than offset by new Platform 3 product sales into both industrial and packaging printing markets. 

The strongest region in terms of growth in 2008 was the Americas, which saw revenue increase by 19% over 2007 levels. Sales in the period totalled £6.8m (2007: £5.7m), representing 16% (2007: 12%) of the worldwide total. Both North and South America contributed to this growth with the South developing Platform 1 business for external advertising, whilst the North has grown on the back of Platform 3 for the new markets of industrial and packaging printing. 

Commercial Review - End Markets

The graphic arts market, specifically large format advertising and signage printing, continues to be the primary end-use of Xaar technology. 56% of sales were related to this market, totalling £23.3m (2007: £34.9m), the reduction coming from the market share loss in China previously discussed and a shift of end market focus for some of our OEM customers who have redirected their businesses away from graphic arts to what we categorise as industrial markets. The new Proton and Electron products are intended to recover market share in this space.

Xaar's push into the packaging printing market continues with revenues of £9.2m recorded for 2008 (2007: £9.0m), this being 22% of total sales. This modest growth was due to a combination of a decline in the traditional coding and marking business, offset by increased Platform 3 sales in the label print sector.  

Sales into industrial markets have risen significantly in the year with revenues totalling £5.0m (2007: £1.7m) contributing 12% of total turnover. Whilst these figures are encouraging, it should be noted that many of these applications are still in their infancy and end market acceptance in many places still needs to happen. However, even at this early stage, it is evident that there is substantial business potential for Xaar in these industrial markets, which we intend to develop and nurture over the medium term. The most developed applications to date are franking, ceramic tile decoration, flat panel display screen fabrication and product decoration.

Operations Review

Although both the Järfälla and Huntingdon plants operated successfully during the year, it has become clear that demand is growing more slowly than predicted a few years ago, whilst the marketplace is becoming more competitive. The Company has concluded that it is an appropriate time to consider consolidating all manufacturing operations into the new 'state of the art' Huntingdon plant - as set out in the Chairman's statement. Should this proposed consolidation go ahead, it is expected that the Huntingdon plant will still have significant capacity for future expansion.

  R&D spend in the year was £4.5m (2007: £4.8m) representing 11% of sales. As part of our cost reduction exercise, some programmes have been put on hold and others re-scheduled; that said, we expect to maintain a robust R&D investment profile going forward. The R&D activities range from design enhancements for existing products, to 'next generation' designs of the existing platforms, and on to concept design for completely new platforms. This will ensure that Xaar will be well placed to take maximum advantage of the opportunities which will present themselves once the economic environment improves.

Priorities for the Future

Having cut our cost base in line with the lower level of trading experienced in the latter part of 2008, we now need to regain market share in our core business, whilst continuing to push our new technology into our chosen markets. Whilst it is still early days, the initial customer response to our new Proton and Electron Platform 1 offerings appears to be very positive, which should enable us to re-build market share in this primary market. In the new markets of industrial and packaging printing we need to build on the progress made to date with Platform 3, helping to establish the end market acceptance of the OEM products announced so far, and supporting multiple new OEM products which have yet to be announced. A return to profitable and sustainable growth remains the company's primary objective.

People

I would like to pay credit to the resilience and dedication of all our staff who have performed admirably during this difficult period. Whilst it is unclear when the economic environment will improve, we recognise that the skills and capability of our staff are vital to maximising our business success in the future.

Ian Dinwoodie

Chief Executive

20 March 2009

  FINANCIAL REVIEW

Trading

Trading in the latter part of 2008 can best be described as challenging, with revenues for the second half of 2008 significantly lower than for the same period in the previous year at £19.5m (2007: £24.4m). Revenues for the full year were £42.0m (2007: £47.9m). Whilst the company was not immune to the deteriorating economic situation in 2008, sales to Asia (2008: £20.3m; 2007: £27.9m) were affected mainly by both the loss of market share for our Platform 1 products, primarily to one of our licensees, and the continuing growth of direct sales into Latin America that were previously supported by our Chinese OEMs. Whilst sales of Platform 2 products grew slightly year-on-year, sales of Platform 3 products continued to grow significantly with revenues for 2008 approaching four times those for 2007, albeit from a low base as 2007 was the launch year for the product. Overall, sales of products for the year were £37.5m (2007: £45.6m).

Licensee royalties increased in the year to £3.9m (2007: £1.8m) due to a combination of increased sale of printheads into Asia by our Japanese licensees and the strengthening of the Japanese yen against sterling. Development fees received remained at a similar level to 2007 at £0.6m (2007: £0.5m).

Gross margin for the year excluding restructuring costs was 50% (2007: 52%). The fall from 2007 was driven by second half trading, where revenues fell sharply from Q2 to Q3 but costs continued at Q2 levels. On a positive note, trading stabilised at Q3 levels and no further deterioration was seen in Q4. Once the extent of this deterioration in trading became evident, a cost reduction programme was immediately implemented, reducing both headcount and annualised spend by over 20%. During the year, restructuring costs incurred were £0.6m (2007: £nil).

The group's Huntingdon facility continued to perform in line with our expectations, although the general slowdown seen in the second half meant that the facility stayed broadly at breakeven for the year.

Operating expenditure for the year was £16.4m (2007: £16.9m). This excludes restructuring costs of £0.3m (2007: £nil), the impairment of a trade investment of £0.1m (2007: £nil) and an income of £0.1m (2007: cost of £1.0m) on share option charges but includes the amortisation of capitalised R&D of £1.0m (2007: £1.0m).  

Adjusted profit before tax for the year was £4.9m (2007: £8.3m). Adjusted profit before tax is used internally to measure the profitability of the company and is stated before an income from the IFRS 2 share option valuation of £0.1m (2007: cost of £1.0m), the impairment of a trade investment of £0.1m (2007: £nil) and the restructuring charge of £0.6m (2007: £nil). The restructuring charge is made up of a charge of £0.3m to operating expenditure and £0.3m to cost of goods sold. Profit before tax for the year was £4.4m (2007: £7.3m).

Cash and capital expenditure

The group closed the year with gross cash of £11.6m (2007: £13.0m) after dividend payments of £2.1m (2007: £1.2m) and capital expenditure (tangible and intangible) of £4.2m (2007: £5.6m). Net cash at 31 December 2008 was £11.0m (2007: £11.9m) with the only debt being due to financing of capital equipment. With net cash at 30 June 2008 of £10.0m, prudent management of the group's resources ensured net cash increased in the second half of the year.

Dividend

The board is recommending a final dividend of 1.5p, following an interim dividend of 1.0p (2007: n/a), making a total of 2.5p for the year (2007: 2.5p). Subject to approval at the forthcoming Annual General Meeting, the final dividend will be paid on 12 June 2009 to shareholders on the register on 15 May 2009.

  Foreign Currency

The group's foreign exchange exposure is generally unchanged from previous years with 66% of the group's revenues invoiced in sterling (2007: 72%) and 25% in US dollars (2007: 22%), with 46% of purchases in sterling (2007: 52%) and 25% in Swedish kronor (2007: 26%). The strengthening of the Japanese yen against sterling in the latter part of the year has benefited the group, with 18% of the growth in royalties due to the movement in these rates. The group continues to have an exposure to the Swedish kronor through the requirement to fund the intercompany purchase of printheads from the Stockholm facility. Should the proposed restructuring of the group's manufacturing facilities go ahead, the exposure to the Swedish kronor will diminish over time until the process of transferring production from Sweden to the UK is complete.  

Andrew Taylor

Finance Director

20 March 2009

  Consolidated income statement

For the year ended 31 December 2008

		2008	2007
	Notes	£'000	£'000
Continuing operations
Revenue	2	42,017	47,853
Cost of sales		(21,389)	(22,925)
Gross profit		20,628	24,928
Distribution costs		(5,012)	(4,003)
Administrative expenses		(11,657)	(13,932)
Operating profit		3,959	6,993
Investment income		450	447
Finance costs		(57)	(119)
Profit before tax before restructuring costs, impairment of trade investments and share based payments		4,893	8,275
Restructuring costs	3	(553)	-
Impairment of trade investments	3	(120)	-
Share-based payments		132	(954)
Profit before tax		4,352	7,321
Tax		(921)	(1,920)
Profit for the year attributable to shareholders		3,431	5,401
Earnings per share from continuing operations
Basic	4	5.6p	8.9p
Diluted	4	5.5p	8.7p

Dividends paid in the year amounted to £2,148,000 (2007: £1,218,000). 

Consolidated statement of recognised income and expense

for the year ended 31 December 2008

	2008	2007
	£'000	£'000
Exchange differences on translation of foreign operations	(260)	(64)
Increase in fair value of hedging derivatives	452	-
Tax on items taken directly to equity	(446)	(746)
Net loss recognised directly in equity	(254)	(810)
Profit for the year	3,431	5,401
Total recognised income and expense for the year	3,177	4,591

  Consolidated balance sheet

as at 31 December 2008

	2008	2007
	£'000	£'000
Non-current assets
Property, plant and equipment	12,667	11,849
Goodwill	720	720
Other intangible assets	6,650	7,294
Investments	1,900	2,020
Deferred tax asset	239	322
	22,176	22,205
Current assets
Inventories	7,269	4,137
Trade and other receivables	7,796	8,511
Cash and cash equivalents	11,601	13,036
Derivative financial instruments	704	261
	27,370	25,945
Total assets	49,546	48,150
Current liabilities
Trade and other payables	(5,997)	(6,711)
Other financial liabilities	(210)	(198)
Current tax liabilities	(1,321)	(1,246)
Obligations under finance leases	-	(245)
Provisions	(528)	(193)
Derivative financial instruments	(352)	-
	(8,408)	(8,593)
Net current assets	18,962	17,352
Non-current liabilities
Deferred tax liabilities	(2,260)	(1,810)
Other financial liabilities	(441)	(651)
	(2,701)	(2,461)
Total liabilities	(11,109)	(11,054)
Net assets	38,437	37,096
Equity
Share capital	6,350	6,285
Share premium	10,525	10,146
Own shares	(4,465)	(4,465)
Other reserves	3,919	4,051
Hedging and translation reserves	594	529
Retained earnings	21,514	20,550
Equity attributable to shareholders	38,437	37,096
Total equity	38,437	37,096

  Consolidated cash flow statement

for the year ended 31 December 2008

		2008	2007
	Note	£'000	£'000
Net cash inflow from operating activities	5	4,228	8,242
Investing activities
Investment income		457	442
Purchases of property, plant and equipment		(3,307)	(3,823)
Proceeds on disposal of property, plant and equipment		75	-
Purchases of trading investments		-	(89)
Expenditure on capitalised product development		(854)	(1,770)
Net cash used in investing activities		(3,629)	(5,240)
Financing activities
Dividends paid		(2,148)	(1,218)
Proceeds from issue of ordinary share capital		444	561
Finance costs		(57)	(119)
Repayments of borrowings		(198)	(201)
Repayments of obligations under finance leases		(259)	(498)
Purchase of own shares		-	(1,045)
Net cash outflow from financing activities		(2,218)	(2,520)
Net (decrease)/increase in cash and cash equivalents		(1,619)	482
Effect of foreign exchange rate changes		184	116
Cash and cash equivalents at beginning of year		13,036	12,438
Cash and cash equivalents at end of year		11,601	13,036

  Notes to the consolidated financial statements

for the year ended 31 December 2008

1  Basis of preparation

The preliminary results for the year ended 31 December 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.  Information in this final announcement does not constitute statutory accounts of the group within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2008 and the year ended 31 December 2007, presented in this final announcement is extracted from, and is consistent with, that in the group's audited financial statements for the year ended 31 December 2008. The financial statements were approved by the board of directors on 20 March 2009; the auditor's report on these accounts was unqualified. The financial statements will be delivered to the Registrar of Companies following the company's Annual General Meeting. Statutory accounts for the year ended 31 December 2007, which were prepared under International Financial Reporting Standards, have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985.

2  Business and geographical segments

Revenue
An analysis of the group's revenue is as follows:
	2008	2007
	£'000	£'000
Sales of goods	37,511	45,612
Development fees	605	467
Licence fees and royalties	3,901	1,774
	42,017	47,853
Investment income	450	447
	42,467	48,300

Business segments
For management reporting purposes, the group's operations are currently analysed according to product type. These product groups are the basis on which the group reports its primary segment information.
Principal product groups are as follows:
Printheads and related products
Development fees
Licence fees and royalties
Segment information about these product types is presented below and the nature of these product groups is discussed in more detail in the review of operations.
	2008	2007
	£'000	£'000
Revenue
Printheads and related products	37,511	45,612
Development fees	605	467
Licence fees and royalties	3,901	1,774
Total revenue	42,017	47,853

Other information
	Printheads		Licence
	and related	Development	fees and
	products	fees	royalties	Consolidated
	2008	2008	2008	2008
	£'000	£'000	£'000	£'000
Capital additions	4,234	-	-	4,234
Depreciation and amortisation	3,844	460	57	4,361
Balance sheet
Assets
Segment assets	34,927	457	422	35,806
Unallocated corporate assets				13,740
Consolidated total assets				49,546
Liabilities
Segment liabilities	(6,902)	(398)	(228)	(7,528)
Unallocated corporate liabilities				(3,581)
Consolidated total liabilities				(11,109)

	Printheads		Licence
	and related	Development	fees and
	products	fees	royalties	Consolidated
	2007	2007	2007	2007
	£'000	£'000	£'000	£'000
	restated*	restated*	restated*	restated*
Capital additions	4,247	-	-	4,247
Depreciation and amortisation	3,694	463	58	4,215
Balance sheet
Assets
Segment assets	31,265	913	594	32,772
Unallocated corporate assets				15,378
Consolidated total assets				48,150
Liabilities
Segment liabilities	(7,127)	(782)	(89)	(7,998)
Unallocated corporate liabilities				(3,056)
Consolidated total liabilities				(11,054)
* The segment additions, depreciation and amortisation, assets and liabilities for 2007 have been restated and now include amounts previously included in unallocated corporate assets and liabilities. The consolidated total assets and liabilities remain unchanged.
Included within unallocated corporate assets and liabilities are investments, cash and taxation which cannot be directly attributed to a specific business segment.

Geographical segments
The group's operations are located in Asia, Europe and North and South America. The following table provides an analysis of the group's sales by geographical market, which is considered to be the group's secondary segment, irrespective of the origin of the goods:
			2008	2007
			£'000	£'000
Asia			20,319	27,937
Europe and Middle East			14,930	14,235
Americas			6,768	5,681
			42,017	47,853
Substantially, all assets and additions to property, plant and equipment and intangible assets are located in Europe and the Middle East.

3  Restructuring costs and impairment of trade investments

The restructuring charge in 2008 relates to amounts payable in respect of staff redundancies during the year. It is expected that the remaining expenditure of £251,000 (which is included within the costs recognised in the income statement in the year, but remains as a provision on the balance sheet as at the end of the year) will be incurred in the next financial year. These costs have been reported separately on the face of the income statement due to the size and nature of the amounts to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods.

As a result of its annual impairment review, the group has concluded that in the current economic climate there is no longer sufficient evidence that the future economic performance of one of its trade investments supports its carrying value. The full value of this investment has therefore been recognised as an impairment loss in the income statement in the year, within administrative expenses.

4  Earnings per ordinary share - basic and diluted

The calculation of basic and diluted earnings per share is based on the following data:
		2007
	2008 £'000	£'000 restated*
Earnings
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	3,431	5,401
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	61,458,643	60,975,459
Effect of dilutive potential ordinary shares:
Share options	526,969	1,222,023
Weighted average number of ordinary shares for the purposes of diluted earnings per share	61,985,612	62,197,482

* The prior year basic and diluted number of shares have been restated to correctly reflect the treatment of investment in own shares and performance conditions of contingently issuable shares.

Share options granted over 2,181,953 shares (2007: 1,358,991) have not been included in the diluted earnings per share calculation because they are anti-dilutive at the period end.

The performance conditions for LTIP awards granted over 857,491 shares (2007: 320,777) and share options granted over 292,000 shares (2007: 902,962) have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.  

Adjusted earnings per share

The calculation of adjusted EPS excluding restructuring costs, impairment of trade investments and share-based payments is based on earnings of:

	2008 £'000	2007 £'000
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	3,431	5,401
Restructuring costs	553	-
Impairment of trade investments	120	-
Share-based payments	(132)	954
Tax effect of adjusting items	(151)	(286)
Profit after tax excluding restructuring costs, impairment of trade investments and share-based payments	3,821	6,069

The denominators used are the same as those detailed above for both basic and diluted earnings per share.

Earnings per share excluding restructuring costs, impairment of trade investments and share-based payments:

	2008 £'000	2007 £'000
Basic	6.2p	9.9p
Diluted	6.2p	9.7p

This adjusted earnings per share information is considered to provide a fairer representation on the group's trading performance year on year.

  5    Notes to the cash flow statement

	2008	2007
	£'000	£'000
Profit before tax	4,352	7,321
Adjustments for:
Share-based payments	(132)	954
Depreciation of property, plant and equipment	3,010	2,895
Amortisation of intangible assets	1,351	1,320
Impairment loss on trade investments	120	-
Investment income	(450)	(447)
Finance costs	57	119
Loss on disposal of property, plant and equipment	-	12
Increase/(decrease) in provisions	335	(16)
Operating cash flows before movements in working capital	8,643	12,158
Increase in inventories	(2,769)	(319)
Decrease/(increase) in receivables	609	(2,640)
Decrease in payables	(1,206)	(16)
Cash generated by operations	5,277	9,183
Income taxes paid	(1,049)	(941)
Net cash inflow from operating activities	4,228	8,242
Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less.

 

END

 

 

FR UROKRKWROUAR