Final Results
Smith (DS) PLC
26 June 2003
26 June 2003
DS Smith Plc 2002/03 Preliminary Results
STRONG PROFIT ADVANCE
DS Smith Plc (SMDS), the international packaging manufacturer and office
products wholesaler, announces its preliminary results for the year ended 30
April 2003.
HIGHLIGHTS
Financial
• Profit before tax* up 27% at £79.7m
• Operating margin* up from 5.0% to 5.9%
• Return on capital employed* up from 9.2% to 11.3%
• Earnings per share* up 29% at 18.0p
• Full year dividend maintained at 8.8p
• Net cash inflow after dividends and acquisitions £15.6m
• Interest cover 8.3 times
Operations
• Packaging: continued progress; operating profit* £67.8m (2001/02:
£63.9m)
• Office Products: turnaround in operating profit* to £20.2m (2001/02:
£8.1m)
* before exceptional items and amortisation of intangibles - see Group Profit
and Loss Account.
Commenting on the results, Chairman, Antony Hichens said:
'I am pleased to report that we met our key objectives of maintaining progress
in Packaging and rebuilding profitability in Office Products. This was achieved
through continuing to raise operational performance and realising the benefits
of the acquisitions made in recent years.
'The Group has demonstrated its resilience and its ability to operate
successfully in tough markets. In the current year, margins in our Paper
business are under increased pressure but we are confident that the other parts
of the Group will make further progress.'
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
CHAIRMAN'S STATEMENT
2002/03 was a challenging year in which demand weakened in most of our markets.
We also had to contend with substantial fluctuations in the price of recovered
paper, the principal raw material for our largest business segment, Corrugated
and Paper Packaging. Despite these difficulties, I am pleased to report that we
met our key objectives of maintaining progress in Packaging and rebuilding
profitability in Office Products. This was achieved through continuing to raise
operational performance and realising the benefits of the acquisitions made in
recent years.
The Group's earnings per share before exceptional items and amortisation of
intangibles advanced by 29% to 18.0p. The net cash inflow after dividends and
acquisitions was £15.6 million compared with an outflow of £1.6 million in the
previous year.
Your Board attaches considerable importance to the Group's capacity to pay its
shareholders a reliable and significant dividend consistent with its objective
of sustaining around two times dividend cover over the course of the business
cycle. The Board is recommending a final dividend of 6.0p per ordinary share
which, together with the interim dividend of 2.8p, maintains the total dividend
for the year at 8.8p per ordinary share.
The Group continues to pursue its strategy of operational improvement and
development of its two principal activities, Packaging and Office Products
Wholesaling. In 2002/03, we built further on our strong market positions and
raised the Group's return on capital employed from 9.2% to 11.3%. We will
continue to invest in capital projects and bolt-on acquisitions which strengthen
our competitiveness in selected sectors, while remaining focused on raising
returns.
In November 2002, Gavin Morris was appointed Group Finance Director, bringing
extensive financial and international management experience to the Group. David
Buttfield, who had been Group Finance Director since 1994, took early retirement
and stood down from the Board in January 2003. The Board thanks David for his
valuable contribution and for maintaining the Group's sound financial position
through an ever-changing trading environment.
I would also like to thank all the Group's employees worldwide for their
contribution to the year's good result. The progress we have achieved in such
tough market conditions would not have been possible without their enthusiasm
and commitment.
Over the last year, the Group has demonstrated its resilience and its ability to
operate successfully in tough markets. In the current year, margins in our
Paper business are under increased pressure but we are confident that the other
parts of the Group will make further progress.
Antony Hichens
Chairman
CHIEF EXECUTIVE'S REVIEW
Overview
At the start of the financial year 2002/03, we recognised that we could not
expect any significant improvement in demand in most of our markets and that we
were also facing a squeeze on our margins in paper following a sharp rise in
recovered paper prices. Against this background, our principal financial
objectives were to maintain our progress in Packaging and to improve
profitability in Office Products. I am pleased to report that the team's
concentration on mix management, cutting costs and attention to cash, combined
with the benefits from actions we had taken previously, enabled us to meet these
objectives while also continuing the development of the Group.
Group sales increased by 3% to £1,479.0 million, of which 2% was attributable to
acquisitions. Operating profit before exceptional items and amortisation of
intangibles advanced in all four of our business segments, giving an overall
increase of 22% to £88.0 million; at constant exchange rates the increase was
20%. Operating margin rose from 5.0% to 5.9% while return on average capital
employed moved from 9.2% to 11.3%. Interest cover remained strong at 8.3 times.
Profit before tax, exceptional items and amortisation of intangibles rose 27% to
£79.7 million while adjusted earnings per share advanced by 29% to 18.0p.
The cash inflow after dividends, but before net acquisitions, was £31.7 million.
After net expenditure on acquisitions of £16.1 million, principally in the
liquid packaging and dispensing segment of Plastic Packaging, there was a net
cash inflow of £15.6 million which resulted in net borrowings of £202.3 million
(2001/02: £195.9 million) after the effect of exchange movements. The resultant
gearing was 43% (45%).
These results reflect the strength of many of the Group's market positions and
the skill and determination with which the divisional management teams have run
their operations.
Packaging
Our larger activity, Packaging, which accounted for 64% of Group sales and 77%
of normalised operating profit, raised sales and operating profit before
exceptional items and amortisation of intangibles by 6% despite flat or
declining demand in the majority of its markets. The recent acquisitions made a
strong contribution to this result.
In Corrugated and Paper, sales and operating profit before exceptional items and
amortisation of intangibles both increased by 4%. The management of price
volatility was particularly challenging this year. Price movements in
recovered paper, our principal raw material, resulted in periods of margin
squeeze and triggered substantial movements in paper and corrugated prices over
the course of the year. We dealt with these changing circumstances through
timely price adjustments and continuing cost control, although the underlying
lack of customer demand limited our scope to recover fully raw material cost
increases. Despite increased efficiencies, this market environment resulted in
lower profits from our UK paper operations. An underlying improvement in the
performance of our corrugated operations, enhanced by the benefits of recent
investment and, in the UK, by the acquisition of Danisco's plants, allowed us to
more than compensate for this profit shortfall.
In Plastic Packaging, we continued to make good progress, with a 13% increase in
sales and a 16% advance in operating profit before exceptional items and
amortisation of intangibles. Strong growth was maintained in liquid packaging
and dispensing, boosted by the acquisition of a leading European manufacturer of
bag-in-box packaging. Since the year end we have also acquired the remaining
50% shareholding in our Australasian operation, strengthening our base in the
Asia-Pacific market. In industrial returnable transit packaging (RTP), our
bottle crate business performed well. Trends in sales of other RTP products
varied, depending upon the sector, but were helped by new product development
and our pan-European approach to the market.
Office Products
The decisive actions taken by the management teams towards the end of 2001/02 in
both Wholesaling and Manufacturing resulted in a turnaround in profits despite
the very poor demand for office products across Europe. Total Office Products
sales were 2% lower, partly due to decisions to exit some unprofitable areas of
business, but operating profit before exceptional items and amortisation of
intangibles increased from £8.1 million to £20.2 million.
In Office Products Wholesaling, the extensive improvement programme that was
implemented throughout Spicers' operations enabled it to meet its targets for
rebuilding profitability. Operating profit before exceptional items and
amortisation of intangibles increased from £9.7 million to £16.2 million. In
the UK, high service levels were achieved and margins improved through reduced
operating costs and margin management. Spicers France, operating in
increasingly tough market conditions, performed well although its result was
slightly lower than the previous year. Spicers Germany has rebuilt customer
confidence and is now making progress in very tough market conditions, while in
Spain, where we are still at an early stage of development, sales are growing
steadily.
Our Office Products Manufacturing business, John Dickinson, achieved a
turnaround in profit from a loss before exceptional items of £1.6 million to a
profit of £4.0 million, benefiting from both significant cost reduction and
lower depreciation following the impairment of assets in 2001/02.
Strategy
The Group has strong market positions with good potential in both its Packaging
and Office Products activities. We will continue to use our sound financial
base and strong management teams to develop these two activities in parallel.
In order to improve overall returns, we will restructure businesses where
necessary or exit them if we do not believe we can raise returns to satisfactory
levels. In 2002/03 we sold three small peripheral businesses for a total
consideration of about £4.5 million. New capital for investment or acquisitions
continues to be committed prudently with the priorities being cost reduction and
the seizing of opportunities in new products or markets.
In Corrugated and Paper, two important trends that our strategy is addressing
are, the greater growth for corrugated packaging in central and eastern Europe,
and the increase in demand for lighterweight papers. In recognition of the low
market growth in the UK and France, we have set demanding productivity targets
for our operations in these markets while concentrating our development efforts
on higher margin segments. Building on our strong bases in the UK and France,
we are growing our positions in corrugated packaging in Italy, Poland and the
Ukraine. Despite ongoing operational improvements in our Turkish business, the
country's economic environment is such that the business is loss making and the
resolution of this situation remains a priority. We remain alert to good value
bolt-on acquisitions in corrugated packaging. In our Paper operations, we are
meeting the market trend to lighter weight papers through adapting successfully
our existing mills to run these products efficiently.
Plastic Packaging has the prospect of strong and profitable growth in our
selected markets. We now have a leading global business in liquid packaging and
dispensing, a market that is expected to continue expanding and should provide
further development opportunities. In industrial RTP we have developed strong
European positions in a number of sectors of the market in which we can build
organically and through acquisitions.
Spicers Office Products Wholesaling has pre-eminent positions in the UK and
France, emerging positions in Germany and Spain and a base for entering the
Italian market in late 2004. We are confident, given our success in France and
the development of an expanding customer base in Germany, that we can enhance
the value of Spicers through building its position in continental Europe. The
priority for management is to achieve profit breakthrough in Germany and strong
sales growth in Spain.
Pension Scheme
During the year we reviewed the position of our UK defined benefits pension
scheme. We decided to retain the scheme for current and new members, while
keeping the position under review pending the next triennial valuation which is
due to take place as at April 2004. In the year, we reduced some of the
benefits to lower the ongoing cost of the scheme to the Company. The Company
has resumed payments into the scheme at the rate of £10 million per annum,
broadly the annual cost of the scheme, with £5 million being paid in the second
half of 2002/03. In accordance with SSAP 24, these payments are being treated
as prepayments on the balance sheet and are not being shown as a charge to the
profit and loss account until the next triennial valuation. The historic SSAP
24 surplus will continue to generate a net credit to the profit and loss account
of approximately £10 million until the next valuation, thereby offsetting the
ongoing costs of providing benefits under the scheme, resulting in a nil SSAP 24
pension charge. Under the FRS 17 accounting standard the scheme had a post-tax
net deficit, as at 30 April 2003, of £93.8 million compared with a net deficit
of £7.3 million a year ago.
Banking facilities
At the end of 2001/02, the Group's main banking facilities comprised £325
million of bilateral revolving credit facilities expiring in December 2003.
These have been successfully refinanced during the year with the issue of a
£92.5 million 10-year private placement and the agreement of £290 million of new
bilateral revolving credit facilities, largely for five years. Tightening of
the banking markets since the original facilities were put in place in 1996 and
the addition of a private placement has resulted in an increase in the average
margin on the Group's facilities above market rates. The full year effect of
this will be to increase interest costs by about £2.5 million.
Outlook
In 2002/03 we improved our operations and continued the strategic development of
our businesses. These actions underpinned the year's results and further
strengthened our market positions.
We have yet to see an improvement in the trading environment. Therefore, our
focus will continue to be on raising operational performance and building on
these strong market positions. While, at this early stage of the year,
movements in recovered paper prices are putting increased pressure on margins in
our substantial Paper business, I am confident that the rest of the Group will
make further progress.
Tony Thorne
Group Chief Executive
OPERATING REVIEW
Packaging
Total Packaging sales increased by 6% to £942.0 million. Operating profit
before exceptional items and amortisation of intangibles advanced by 6% to £67.8
million and the operating margin remained at 7.2%. Return on capital employed
rose from 10.4% to 10.7%.
Corrugated and Paper
Sales in the Corrugated and Paper segment increased by 4% to £747.0 million.
Excluding the effect of acquisitions, principally the former Danisco plants
acquired in September 2001, the growth was 2%. Operating profit before
exceptional items and amortisation of intangibles grew by 4% to £53.1 million
with lower profits in paper being more than compensated for by higher profits in
corrugated. Operating margin was unchanged at 7.1% while return on capital
employed rose from 10.0% to 10.6%.
Industry statistics for calendar year 2002 show that overall volume demand for
corrugated board in Europe increased by 2.7%. However, demand in the Group's
major markets remained weak, with the UK experiencing a marginal decline of 0.2%
and France being down by 2.3%, after falls of 3.7% and 1.9%, respectively, in
the previous year. Demand was significantly stronger in the Group's two
principal development markets, Italy and Poland, which grew by 3.3% and 20.8%,
respectively. In the first quarter of calendar year 2003, demand in the UK and
France was flat while Italy and Poland continued to grow, but at lower rates
than in 2002(1). Total imports of corrugated case materials (CCM) into the UK
in calendar year 2002 were flat year-on-year.
There was considerable price turbulence throughout the corrugated and paper
supply pipeline during 2002/03 due to volatility in the price of recovered
paper, the principal raw material for CCM. Recovered paper prices rose sharply
through the first half of calendar year 2002, peaking in the second quarter,
principally due to strong demand from Asia where there has been substantial
investment in recycled paper manufacturing. Prices subsequently fell back
during the autumn, although not to their 2001 average level, and then increased
again in the early months of 2003. CCM prices rose during the second quarter of
calendar year 2002, driven by the increase in recovered paper prices, but then
softened towards the end of 2002. The movement in CCM prices necessitated an
increase in corrugated box prices in late summer and early autumn 2002 but
weakening economic conditions led to box prices coming under pressure from
January 2003 onwards.
These sharp price movements resulted in margins being squeezed in both our paper
and corrugated operations at various times during the year. However, by
managing the adjustment of prices across the segment at appropriate times,
maintaining tight cost controls and effecting other operational improvements, we
were able to raise the overall result.
DS Smith Packaging
The Group's UK corrugated division, DS Smith Packaging, continued to improve its
profits through better operational efficiency and increasing focus on higher
added value products. The former Danisco plants, acquired in September 2001,
contributed to the increased profitability and enabled the division to gain
market share. This was achieved despite flat market demand, industry
over-capacity in the UK and margins being squeezed by higher paper prices for
part of the year.
Profits in the conventional integrated plants benefited from investment made in
previous years, higher productivity and initiatives to raise service levels.
The four plants are increasingly being operated as a single business with an
integrated IT system, which helps them optimise use of their manufacturing,
sales and design capabilities for servicing a mix of local and national
accounts.
The speciality operations increased profitability through their focus on
innovation, high levels of product differentiation and increased efficiency.
The investment in new printing and converting facilities at the Lockerbie plant
is now complete and is being focused on developing new, higher added value
market opportunities. The Tri-Wall heavy duty business maintained profits
despite continuing to suffer from the decline in UK manufacturing industry;
recent investment is enabling it to increase productivity and service its
markets more efficiently.
Despite particularly difficult trading conditions, the sheet feeder plants,
which produce corrugated sheet board, and the sheet plants, which convert board
into boxes, increased profits, principally through higher productivity and
service levels.
Kaysersberg Packaging
The Group's continental European packaging division, Kaysersberg Packaging,
achieved a solid result. The good performances in the French, Polish and
Italian corrugated units were offset by poorer results in the French paper mills
and losses in Turkey.
The growing trend amongst manufacturing companies to relocate from France
contributed to the French market being particularly weak. Lower activity levels
and periods of margin squeeze, due to higher recovered paper prices, affected
results at the French paper mills. However, margins in the French corrugated
operations benefited from good cost control and targeting higher added value
customer and market segments. Increased operating flexibility enabled the
businesses to adjust more rapidly to changing market circumstances. In February
2003, the Sorepa waste collection business, in which DS Smith held a 60 % share,
was sold.
In Italy, where the corrugated market continued to grow relatively strongly,
Toscana Ondulati increased its profits and market share. It benefited from its
new lightweight corrugated factory, opened at Lari in March 2002, which is
focused on the food and ceramics industries and has built a leading position in
the European pizza box market.
Although sales advanced at the Turkish business and the efficiency of the
operations improved, poor market prices and the country's difficult economic
environment have combined to cause the business to be in loss. Action is being
taken to raise performance.
The Polish business advanced its sales and profits strongly, gaining share in a
fast growing market and improving its productivity. In addition to its
conventional corrugated business, it is developing positions in litho-laminated
and heavy duty products. Commercial links have been established into the Czech
Republic and Slovakia to develop sales in those markets.
St Regis Paper Company
St Regis' margins were adversely affected by higher recovered paper prices
resulting in lower profits. However, the profit was better than expected due to
a combination of slightly higher sales volumes and efficiency improvements.
Despite the generally weak market conditions, record output levels were achieved
at a number of mills. Export sales and the division's competitiveness in the UK
market were assisted towards the end of the financial year by the strengthening
of the euro against sterling.
The Kemsley paper mill performed well due to enhanced process control, improved
operational stability and further advances in product quality. Recent
investment to raise production performance on lightweight products at Kemsley
and Taplow mills further strengthened the division's capability to satisfy that
segment of the market. Sudbrook mill benefited from recent investment and the
withdrawal from the market of a competitor in its principal product,
semi-chemical fluting paper. A new warehouse is under construction at Kemsley
that will virtually eliminate use of third party warehousing thereby
significantly reducing costs. In February 2003, the Western Board business,
which manufactures and converts fibreboard, and was peripheral to St Regis' main
business, was sold.
The Severnside collection and recycling operation performed well in the
turbulent market for recovered paper, helped by lower costs and higher
efficiencies. It processed a record quantity of material and invested further
in its infrastructure with the acquisition of two additional collection depots,
one since the year end.
The value of Packaging Recovery Notes (PRNs), which are issued as evidence that
packaging has been reprocessed in compliance with the UK Packaging Waste
Regulations, fell substantially towards the end of 2002. This was partly due to
weaker demand for PRNs, following the government's decision not to increase
recycling targets for 2003, as well as the unexpectedly high number of wood PRNs
issued, which is the subject of an ongoing investigation by the Environment
Agency.
Plastic Packaging
DS Smith Plastics continued its expansion through both organic growth and
acquisitions with sales increasing by 13% to £195.0 million. Despite margins
being adversely affected by higher polymer prices in the latter part of the
year, operating profit before exceptional items and amortisation of intangibles
advanced by 16% to £14.7 million helped by increased focus on higher added value
products and improved operating efficiencies. Operating margin increased from
7.4% to 7.5% while return on capital employed fell from 12.2% to 11.5%,
primarily as a result of integration costs and higher capital employed arising
from acquisitions.
The division strengthened further its global position in the growing liquid
packaging and dispensing market. In July 2002, Zewathener GmbH, one of Europe's
leading manufacturers of bag-in-box packaging, was acquired and its integration
with Rapak's existing bag-in-box operations is progressing on schedule. Rapak's
European operations in the UK and Germany benefited from strong growth in wine
bags, particularly in France and Eastern Europe, and increasing demand from the
dairy industry. Progress in the USA was principally attributable to sales
growth into the beverage sector although the slow-down in the fast food market
during the Iraq war held back demand towards the end of the financial year.
Rapak's Australasian joint venture was adversely affected by lower demand from
the dairy industry, due to the drought in the region, and disruption during the
transfer of manufacturing to a new site in Auckland. Since the year end, the
Group has acquired the remaining 50% shareholding in this business to strengthen
its base in the Asia-Pacific region. Worldwide Dispensers' injection moulded
taps operations in the UK and USA are being increasingly run on an integrated
basis and continued to grow well with strong demand for taps used in detergent
and bag-in-box packaging. Operational performance and product quality have been
enhanced by recent investment in automated assembly and testing.
Sales and profits in industrial returnable transit packaging (RTP) products were
relatively flat due to the European economic slow-down. However, the Group's
position in RTP was strengthened by its increasingly pan-European approach to
the market. In extruded products, both custom-made converted products and
semi-finished solid polypropylene and polycarbonate sheet grew well. However,
sales were lower in moulded products, such as tailor-made containers for the
automotive industry, where the market is project-driven. Injection moulded
crates are now being produced in four countries and relatively strong demand in
the Dominican Republic, Spain and Poland offset weaker demand in Belgium.
Office Products
While total Office Products sales were lower at £537.0 million (2001/02: £547.8
million), operating profit before exceptional items and amortisation of
intangibles advanced from £8.1 million to £20.2 million and operating margin
increased from 1.5% to 3.8%. Return on capital employed rose from 4.8% to
14.0%.
Office Products Wholesaling
Spicers' sales were slightly down at £495.6 million with lower sales in the UK
and Ireland and growth in continental Europe. Operating profit before
exceptional items and amortisation of intangibles increased from £9.7 million to
£16.2 million with a substantial improvement in the UK being partly offset by
lower margins in France. Operating margin increased from 1.9% to 3.3% and
return on capital employed advanced from 7.2% to 12.7%.
This result was achieved through an extensive programme of operational
initiatives, and against a background of weakened demand for office products
across Europe due to the marked impact of the economic slow-down on office
activity.
In the UK, Spicers maintained its strong market position by focusing on meeting
its customers' needs while increasing operational efficiency and cost
effectiveness. Margins were enhanced by exiting unprofitable business and
reducing costs. Good progress has been made on rebuilding and maintaining high
service levels by improving the processes that contribute to customers' orders
being fulfilled accurately and promptly. The roll-out of the upgraded IT system
has been successfully completed at all of the nine regional distribution
centres. Relocation of the South London regional distribution centre to
Greenwich in July 2002 increased service capability and efficiency.
The slow-down in the French market intensified in the course of the financial
year and this adversely affected Spicers' growth in the second half. Profits
were lower principally as a result of the increased costs put in to support
future sales growth, including the establishment of a central warehouse.
Spicers Germany made good progress in rebuilding customer confidence by
providing consistently high service levels and in expanding its dealer network;
this resulted in sales growth, despite weak market conditions, and provides a
good basis to achieve profitability.
The Spanish operation, launched in April 2002, is steadily building turnover;
good catalogue sales in 2003 augur well for future sales development.
Spicers' sales in continental Europe now account for circa 40% of its total
sales. In line with the strategy of continued development of Spicers in
continental Europe, preparation is under way for entering the Italian market in
late 2004. Extensive research has indicated a good opportunity for Spicers'
business model adapted to meet the needs of Italian retailers and dealers.
Office Products Manufacturing
John Dickinson achieved a turnaround in profitability, from a loss before
exceptional items of £1.6 million to a profit of £4.0 million, benefiting from
the restructuring undertaken towards the end of the previous financial year and
lower depreciation following the impairment of assets at last year end. Sales
were 10% lower at £59.7 million, largely due to the planned withdrawal from
lower margin products. Operating margin was 6.7% and return on capital employed
in the year was 23.1%, in part due to the fixed asset impairment made in 2001/
02.
Market conditions continued to be difficult due to generally reduced demand for
office products and a sharp rise in imports of low priced envelopes from
continental Europe, where there is substantial over-capacity. Although the own
label sector of the business remains very price competitive, the branded sector
performed well, helped by strengthened marketing programmes and product
innovation. Sales of Black n' Red notebooks grew strongly in the UK while sales
in the USA and Europe are starting to benefit from increased catalogue listings.
The Spicer Hallfield photographic stationery business was sold in February
2003.
Group Profit and Loss Account
For the financial year ended 30 April 2003
2003 2002
Before Exceptional Total Before Exceptional Total
exceptional items and exceptional items and
items and amortisation items and amortisation
amortisation of amortisation of
of intangibles of intangibles intangibles
intangibles (note 2) (note 2)
Note £m £m £m £m £m £m
Turnover 1 1,479.0 - 1,479.0 1,440.2 - 1,440.2
Group operating 1 88.0 (2.6) 85.4 72.0 (34.1) 37.9
profit
Share of operating
profits of 0.3 2.5
associated 2.6 0.4 3.0 2.2
undertakings
Total operating 90.6 (2.2) 88.4 74.2 (33.8) 40.4
profit
Exceptional loss on
sale of businesses - (8.5) (8.5) - - -
Profit on ordinary
activities before
interest 90.6 (10.7) 79.9 74.2 (33.8) 40.4
Net interest payable (10.9) - (10.9) (11.6) - (11.6)
Profit on ordinary
activities before
taxation 79.7 (10.7) 69.0 62.6 (33.8) 28.8
Tax on profit on
ordinary activities
(21.6) - (21.6) (16.9) 6.4 (10.5)
Profit on ordinary
activities after
taxation 58.1 (10.7) 47.4 45.7 (27.4) 18.3
Minority interests -
equity
(0.3) - (0.3) (0.9) - (0.9)
Profit for the
financial year
57.8 (10.7) 47.1 44.8 (27.4) 17.4
Dividends paid and
proposed
(28.2) - (28.2) (28.2) - (28.2)
Retained profit/
(loss) for the
financial year 29.6 (10.7) (18.9) 16.6 (27.4) (10.8)
Earnings per share: 3
Basic 14.7p 5.4p
Diluted 14.6p 5.4p
Adjusted 18.0p 14.0p
Dividends per share 8.8p 8.8p
Notes:
(a) The Group's results shown above are derived from continuing operations.
There were no material acquisitions or discontinued operations in either year.
(b) The difference between the reported and historical cost profits for each
of the years reported above is not material.
(c) The exceptional items relate to the net loss on sale of businesses in the
year. These include £7.4m of goodwill previously written off to reserves.
(d) The Annual Report and statements for the year ended 30 April 2003 will be
posted to shareholders in July 2003.
(e) Subject to approval of shareholders at the Annual General Meeting to be
held on Wednesday 3 September 2003, the final dividend of 6.0p will be paid on
16 September 2003 to ordinary shareholders on the register on 13 August 2003.
(f) The 2002/03 and 2001/02 results in this preliminary statement are not
the Group's statutory accounts for these years. The 2002/03 and 2001/02 results
have been extracted from statutory accounts which contained unqualified audit
reports with no adverse statement under Section 237 (2) or (3) of the Companies
Act 1985. The 2001/02 statutory accounts have been filed with the Registrar of
Companies.
Group Statement of Total Recognised Gains and Losses
For the year ended 30 April 2003
2003 2002
£m £m
Profit for the financial year 47.1 17.4
Exchange differences on foreign currency net investments 7.3 2.9
Total recognised gains and losses relating to the financial year 54.4 20.3
Group Reconciliation of Movements in Shareholders' Funds
For the year ended 30 April 2003
2003 2002
£m £m
Profit for the financial year 47.1 17.4
Dividends (28.2) (28.2)
Retained profit/(loss) for the financial year 18.9 (10.8)
Exchange differences on foreign currency net investments 7.3 2.9
Goodwill previously written off 7.4 -
New share capital issued 0.4 0.6
Net increase/(decrease) in shareholders' funds 34.0 (7.3)
Opening shareholders' funds 438.9 446.2
Closing shareholders' funds 472.9 438.9
Group Balance Sheet
30 April 30 April
2003 2002
Note £m £m
Fixed assets
Intangible assets 49.0 32.1
Tangible assets 560.9 551.6
Investments 29.0 27.8
638.9 611.5
Current assets
Stocks 155.2 142.4
Debtors: amounts falling due within one year 327.5 317.2
Debtors: amounts falling due after more than one year 6.8 2.5
Short term investments 4 26.7 16.0
Cash at bank and in hand 4 27.7 28.5
543.9 506.6
Creditors: amounts falling due within one year
Trade and other creditors (355.9) (330.3)
Borrowings 4 (142.7) (29.4)
Net current assets 45.3 146.9
Total assets less current liabilities 684.2 758.4
Creditors: amounts falling due after more than one year
Borrowings 4 (114.0) (211.0)
Other (2.7) (11.1)
Provisions for liabilities and charges (87.9) (90.1)
479.6 446.2
Minority interests - equity (6.7) (7.3)
Net assets 472.9 438.9
Capital and reserves
Called up share capital 32.2 32.1
Share premium account 188.9 188.6
Revaluation reserve 8.8 8.9
Profit and loss account 243.0 209.3
Shareholders' funds - equity 472.9 438.9
Group Cash Flow Statement
For the year ended 30 April 2003
2003 2002
Note £m £m
Net cash inflow from operating activities 5(a) 142.0 178.0
Returns on investments and servicing of finance
Net interest paid (7.3) (9.8)
Interest element of finance leases (0.2) (0.2)
Net cash outflow from returns on investments and servicing of (7.5) (10.0)
finance
Taxation
UK corporation and overseas tax paid (15.1) (26.9)
Capital expenditure and investments
Purchase of tangible fixed assets (63.4) (75.3)
Sale of tangible fixed assets 4.2 7.7
Purchase of holding company shares (0.8) (0.6)
Purchase of fixed asset investments (0.1) (1.7)
Sale of fixed asset investments 0.6 -
Net cash outflow from capital expenditure and investments (59.5) (69.9)
Acquistions and disposals
Purchase of subsidiary undertakings (19.6) (41.5)
Net (overdrafts)/cash acquired/disposed (0.5) 0.1
Purchase of associated undertakings - (3.2)
Disposal of businesses 4.0 -
Net cash outflow from acquisitions and disposals (16.1) (44.6)
Equity dividends paid (28.2) (28.2)
Net cash inflow/(outflow) before use of liquid resources and 15.6 (1.6)
financing
Management of liquid resources 5(b) (8.4) 3.5
Financing
Issue of ordinary shares 0.3 0.6
(Decrease)/increase in debt and lease financing (29.9) 16.3
Net cash (outflow)/inflow from financing (29.6) 16.9
(Decrease)/increase in cash in the year (22.4) 18.8
Reconciliation of Net Cash Flow to Movement in Net Debt
(Decrease)/increase in cash in the financial year (22.4) 18.8
Decrease/(increase) in debt and lease financing 29.9 (16.3)
Increase/(decrease) in liquid resources 8.4 (3.5)
Decrease/(increase) in net debt resulting from cash flow 15.9 (1.0)
Liquid resources acquired with subsidiary undertakings - 0.5
Loans and finance leases acquired with subsidiary undertakings (2.0) (3.2)
Exchange differences (20.3) 1.2
Increase in net debt in the financial year (6.4) (2.5)
Opening net debt (195.9) (193.4)
Closing net debt 4,6 (202.3) (195.9)
Notes to the Financial Statements
1 Analysis of Group turnover, operating profit and capital employed
Operating
profit before
exceptional
items and
amortisation of Return on
intangibles
Return on Average average
sales
2003 Operating capital capital
profit employed employed
Turnover
£m £m £m % £m %
Packaging
Corrugated and
Paper 747.0 53.1 53.0 7.1 502.9 10.6
Plastic 195.0 14.7 12.3 7.5 128.2 11.5
Packaging
942.0 67.8 65.3 7.2 631.1 10.7
Office Products
Wholesaling 495.6 16.2 16.1 3.3 127.1 12.7
Manufacturing 59.7 4.0 4.0 6.7 17.3 23.1
Intra-segment (18.3) - - - - -
537.0 20.2 20.1 3.8 144.4 14.0
Total 1,479.0 88.0 85.4 5.9 775.5 11.3
United Kingdom 865.5 59.7 59.7 6.9 482.8 12.4
Rest of World 613.5 28.3 25.7 4.6 292.7 9.7
Total 1,479.0 88.0 85.4 5.9 775.5 11.3
2002
Packaging
Corrugated and
Paper 720.5 51.2 31.9 7.1 510.3 10.0
Plastic 171.9 12.7 11.4 7.4 103.9 12.2
Packaging
892.4 63.9 43.3 7.2 614.2 10.4
Office Products
Wholesaling 500.5 9.7 9.6 1.9 134.2 7.2
Manufacturing 66.7 (1.6) (15.0) (2.4) 34.9 (4.6)
Intra-segment (19.4) - - - - -
547.8 8.1 (5.4) 1.5 169.1 4.8
Total 1,440.2 72.0 37.9 5.0 783.3 9.2
United Kingdom 892.9 43.7 20.4 4.9 520.8 8.4
Rest of World 547.3 28.3 17.5 5.2 262.5 10.8
Total 1,440.2 72.0 37.9 5.0 783.3 9.2
The operating profits shown above exclude the Group's share of operating profits
and losses of associated undertakings and the exceptional net loss relating to
the sale of businesses, which is shown below operating profit on the face of the
consolidated profit and loss account (see note 2). Return on sales is defined
as operating profit before exceptional items and amortisation of intangibles
divided by turnover. Average capital employed is the average monthly capital
employed including the intangible assets on the balance sheet. Capital employed
excludes net borrowings, deferred consideration due in respect of acquisitions,
corporation tax, dividends payable, fixed asset investments and minority
interests. Return on average capital employed is defined as operating profit
before exceptional items and amortisation of intangibles divided by the average
capital employed. Following a change in management responsibilities, the 2001/
02 results and capital employed of the Group's Packaging Services Management
business have been reclassified from Plastic Packaging to Corrugated and Paper.
2 Exceptional items and amortisation of intangibles
2003 2002
£m £m
Net loss on sale of businesses (8.5) -
Impairment of tangible fixed assets and goodwill - (32.4)
Amortisation of intangibles (2.6) (1.7)
Amortisation of negative goodwill of associates 0.4 0.3
(10.7) (33.8)
Tax on exceptional items - 6.4
Total (10.7) (27.4)
The loss on sale of businesses in the current year includes £7.4m of goodwill
previously written off to reserves. Last year the Group carried out an
extensive review of its operating assets, as a result of which a £32.4m
impairment charge against the carrying value of tangible fixed assets and
goodwill was charged in arriving at operating profit. A substantial part of
this charge related to the Group's Office Products Manufacturing business and
the investment in Turkish corrugated packaging.
3 Earnings per share
Basic earnings per share are calculated by dividing the profit for the financial
year of £47.1m (2002: £17.4m) by the weighted average number of shares in issue
and fully paid during the year of 320.3m (2002: 320.2m). The adjusted earnings
per share is calculated on the profit for the financial year excluding
exceptional items and amortisation of intangibles and on the same number of
shares.
Diluted earnings per share are calculated on the same earnings numbers as basic
earnings per share but on 321.6m (2002: 321.2m) shares.
4 Borrowings
2003 2002
£m £m
The The Group's book value of net borrowings comprised:
Bank loans and overdrafts and other loans 251.8 235.2
Finance lease liabilities 4.9 5.2
Short term investments (26.7) (16.0)
Cash at bank and in hand (27.7) (28.5)
202.3 195.9
Gearing (net borrowings expressed as a
percentage of shareholders' funds) 42.8% 44.6%
The Group refinanced its borrowing facilities during the year. As at 30 April
2003, the Group had committed facilities of £567m, of which £135m will expire in
December 2003.
5 Group cash flow statement
2003 2002
£m £m
(a) Reconciliation of operating profit to net cash inflow from
operating activities:
Operating profit before exceptional items and amortisation of 88.0 72.0
intangibles
Depreciation 62.2 63.6
Profit on sale of tangible fixed assets (0.4) (2.9)
(Increase)/decrease in working capital (6.0) 40.6
(Decrease)/increase in provisions (3.3) 3.9
Other non cash operating items 1.5 0.8
Net cash inflow from operating activities 142.0 178.0
(b) Net (purchase)/sale of short term investments (8.4) 3.5
Short term investments mainly comprise deposits with banks.
6 Analysis of changes in net debt
At 30 April 2002 Exchange At 30 April
movements 2003
£m Acquired Cash flow
£m £m
£m £m
Cash at bank and in hand 28.5 - (0.9) 0.1 27.7
Overdrafts (16.2) - (21.5) (2.1) (39.8)
12.3 - (22.4) (2.0) (12.1)
Debt due after one year (206.7) (1.8) 116.7 (18.3) (110.1)
Debt due within one year (12.3) (0.2) (87.7) (1.7) (101.9)
Finance leases (5.2) - 0.9 (0.6) (4.9)
(224.2) (2.0) 29.9 (20.6) (216.9)
Short term investments 16.0 - 8.4 2.3 26.7
Total (195.9) (2.0) 15.9 (20.3) (202.3)
7 Acquisitions and disposals
On 15 July 2002, the Group acquired Zewathener GmbH, one of Europe's leading
manufacturers of bag-in-box packaging, located in Schwetzingen, Germany. The
business was acquired for a total consideration of £17.5m, including acquired
debt, which resulted in goodwill arising of £13.6m.
A further £3.2m of consideration was paid for a number of other acquisitions in
the year.
During the year, the Group sold three small businesses for a net consideration
of £4.5m.
Group Profit and Loss Account
First Half / Second Half Split
For the year ended 30 April 2003 First half Second half
(Unaudited) (Unaudited) Total year
2003 2002 2003 2002 2003 2002
£m £m £m £m £m £m
Turnover 741.1 711.9 737.9 728.3 1,479.0 1,440.2
Operating profit before exceptional 48.6 41.9 39.4 30.1 88.0 72.0
items and amortisation of intangibles
Share of profits of associated 1.6 (0.1) 1.0 2.3 2.6 2.2
undertakings
Exceptional items and amortisation of
intangibles (0.9) (0.7) (9.8) (33.1) (10.7) (33.8)
Profit/(loss) on ordinary activities
before interest 49.3 41.1 30.6 (0.7) 79.9 40.4
Net interest payable (5.4) (6.0) (5.5) (5.6) (10.9) (11.6)
Profit/(loss) on ordinary activities
before taxation 43.9 35.1 25.1 (6.3) 69.0 28.8
Tax on profit/(loss) on ordinary (12.1) (10.7) (9.5) 0.2 (21.6) (10.5)
activities
Profit/(loss) on ordinary activities
after taxation 31.8 24.4 15.6 (6.1) 47.4 18.3
Minority interests - equity (0.4) (0.6) 0.1 (0.3) (0.3) (0.9)
Profit/(loss) for the period 31.4 23.8 15.7 (6.4) 47.1 17.4
Earnings per share:
Basic 9.8p 7.4p 4.9p (2.0)p 14.7p 5.4p
Adjusted (note 1) 10.1p 7.7p 7.9p 6.3p 18.0p 14.0p
Notes
1. Adjusted earnings per share exclude exceptional items and amortisation
of intangibles.
--------------------------
(1) Source: European Federation of Corrugated Board Manufacturers
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