2nd Mar 2005 07:00
2 March 2005Communisis plcPRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2004Turnover from continuing businesses increased to ‚£269.7m (2003: ‚£268.3m)Operating profit* from continuing businesses was ‚£17.5m (2003: ‚£20.0m) which,when adjusted for amortisation of contract premium, gives ‚£18.5m (2003: ‚£21.0m)Loss before tax was ‚£12.8m (2003: Profit ‚£8.8m) after exceptional costs of ‚£18.9m arising from restructuring costs and loss on disposal and termination ofdiscontinued operationsPrint Management turnover grew by 6.5% to ‚£135.8mCash flow from operating activities, before exceptional cash costs, was ‚£28.4m(2003: ‚£38.7m)Net debt at 31 December 2004 was ‚£27.6m (2003: ‚£12.2m) following theacquisition of Dataform for ‚£22.0m including debt assumedDividend up 10% - proposed final dividend of 3.549p per share taking proposedfull year dividend to 5.324p (2003: 4.84p) per shareCommenting on the results David Jones, Chief Executive of Communisis plc, said:"The printing industry remains highly fragmented and competitive. Communisis istargeting profitable opportunities in Continental Europe and in the UK can nowbe more selective with regard to the business we want to grow.We believe our print partner approach will lead to the further development ofmajor customer opportunities."* Before goodwill amortisation and exceptional itemsFor further information, please contact: David Jones, Chief Executive Tel: 0113 277 0202 Communisis plc Mark Whiteling, Finance Director Tel: 0113 277 0202 Communisis plc William Clutterbuck/Michelle Jeffery Tel: 020 7379 5151 The Maitland Consultancy PRELIMINARY STATEMENTResults for 2004Communisis' transformation into a contract-based print solutions businesscontinued in 2004 against a backdrop of weak demand and further price erosion.In the year ended 31 December 2004 turnover from continuing businessesincreased to ‚£269.7m (2003: ‚£268.3m) including an initial contribution from theDataform Group Limited (Dataform) acquired in September 2004. Operating profitfrom continuing businesses, before goodwill amortisation and exceptional items,was ‚£17.5m (2003: ‚£20.0m) which, when adjusted for amortisation of contractpremium, gives ‚£18.5m (2003: ‚£21.0m). The loss before tax, after exceptionalcosts of ‚£18.9m, was ‚£12.8m (2003: Profit ‚£8.8m) with adjusted earnings pershare* of 9.04p (2003: 10.09p). Net debt increased in 2004 to ‚£27.6m (2003: ‚£12.2m) after the acquisition of Dataform for ‚£22.0m including debt assumed.DividendsGiven the Board's confidence in the strategy going forward, a 10% increase inthe final dividend to 3.549p per share is proposed taking the full yeardividend to 5.324p (2003: 4.84p) per share. Dividends will be paid, subject toshareholder's approval, on 22 April 2005 to shareholders on the register at theclose of business on 1 April 2005.One Organisation, One NameCommunisis continued the transformation which began in early 2002 andessentially completed at the end of 2004; from a direct sales and manufacturingprint business to becoming the leading print manager in the UK and ContinentalEurope with more than two thirds of the group's business under contract.This had been achieved through a planned process of acquisitions, disposals,reorganisations and customer developments since 2000.In 2004 we acquired Dataform, sold our Colour Cards businesses, and closed theLuxembourg forms and Gateshead labels plants.Following Barclays formal endorsement of the Communisis contract, includingsavings in excess of 20% and additional cost savings since the implementationof c-store in January 2003, we established Group Business Development mid 2004to extend our offer to the marketplace.By year end we had fully functional print management offices in Paris, Madrid,Frankfurt and Breda and announced a group-wide reorganisation; Print Managementand Manufacturing Operations each brought together under co-ordinatedresponsibilities. In addition, we further emphasised our commitment to thedevelopment of world class, global procurement for the benefit of ourcustomers.Communisis has also announced a rebranding campaign. This will take effect fromthe second quarter 2005 and will further endorse the `one organisation, onename' approach by adopting the simplified Communisis name throughout Europe.Customer feedback convinces us that this approach will lead to an increase inthe level of contractual business with blue chip customers who want to partnerwith a print management business. Principal product areas where clients tell usthey need our services include cheques, transactional and statement production,direct mail and business stationery, logistics and data services. We willincreasingly offer our customers the opportunity to reduce process cost throughthe application of Communisis' products such as c-store.Already Communisis operates the largest full print offering in Europe withBarclays Bank plc. We are committed to winning a second strategic partnershipcontract with a major financial institution during 2005.Business Review‚£'m Turnover Operating Profit** 2004 2003 2004 2003 Print Management 135.8 127.5 5.1 6.6 Communisis Print Management turnover grew by 6.5% in 2004, a slower rate thanthe fast build-up following the Centurion acquisition in 2002, and following ayear of significant change and refocus; a year in which profits fell back by ‚£1.5m as we invested further in development costs to fuel future growth.The Barclays contract began promisingly in 2004 with products such as securityand operational print transitioned to Communisis, further evidence that thecontract encompasses not just marketing print but it involves the print anddocument process across the entire bank. Communisis commits 40 people atBarclays locations on the supply partnership and has further staff in supportwithin Communisis sites. Over 600 people within the Bank, their creativeagencies and Communisis use the Barclays version of c-store which now carriesseparate endorsement from the Bank in respect of process cost savings. In factthe facets of this unique print partnership are taught as a case study on theexecutive MBA programmes at Insead Business School in France.Turnover with Barclays had increased by 10% at year end to ‚£56m.Communisis also created a further growth channel in operational print andlogistics with the acquisition of Dataform in September 2004. Dataformcomplements our Centurion business and as part of Communisis will go to marketwith the support of our business stationery facilities. The businesscontributed ‚£10.6m to Communisis print management turnover in 2004.Some business was lost in the year, principally with Microsoft, Jaguar andNational Trust with whom we had enjoyed excellent relations through Centurion'soutstanding service and performance. However, it became clear that thecompetition were targeting some smaller contracts with financial deals that didnot make commercial sense to us. The impact of these losses was less than ‚£3mon turnover in 2004 and negligible on profitability.We gained new business in the year with Nike, Eurotunnel and The GilletteCompany; headquartered in Geneva. The Gillette business is being run from ourParis office. We also renewed contracts with existing customers, notablySainsbury's and Britvic.In the future our new business targets and successes will be with customers whoare looking to obtain value from their full document print process as well asprint buying. Print buying has in itself become commoditised in the UK.However, the opportunity to develop larger, more strategic business in the UKand Continental Europe is better than ever given Communisis' scale,comprehensive offering and customer endorsements.At the half year, we identified development costs of approximately ‚£3m that wecommit on an annual basis. In 2004 compared with 2003 the Print Managementprofits have been impacted by some ‚£1.8m through a combination of c-storedevelopment costs, the new business development team and new European offices.These costs are in advance of major contract wins.In 2005 we are confident of building our European base with some businessalready won and with Barclays work specified and under our management in Spainand in France. In the UK we are committed to develop our position within thefinancial services sector in the statement market as a natural extension to ourbusiness in security products and direct mail.And last but not least, we are developing a world class procurement capabilitywith strategic supply partners in the UK, Central and Eastern Europe, and theFar East. We are already supporting our largest contracts with supplyarrangements from the most cost effective sources on an international basis.Procurement will be at the heart of our offer as will the support of ourspecialist manufacturing capability.‚£'m Turnover Operating Profit** 2004 2003 2004 2003 Print & Direct Mail 139.3 150.5 11.5 11.4 This new definition of Communisis businesses includes document services(business stationery) and the direct mail part of personalised products; thatis all of the manufacturing businesses with the exception of security productswhich is now part of Transactional Print Services. The change is part of theCommunisis rebranding exercise and the clarification of our offer to the marketplace. The Print & Direct Mail business is predominantly print driven althoughthere is a substantial capability in personalisation. Transactional PrintServices is predominantly data driven and although initially includes oursecurity products business, which is effectively a cheques data bureau for themajor banks, it will in the future include our development of transactional,statement and allied data products.Turnover in Print & Direct Mail fell by 7.5% in 2004, however profits weremaintained and the margin improved. The largest reduction in turnover was inBenelux business stationery where we closed the Luxembourg plant and centred areduced sales base on our remaining facility in Holland. The reduction in saleswas ‚£4m, 23%, although losses halved in the year. The reorganisation wascomplete by year end.In the UK our business stationery turnover fell 3% to ‚£45.7m, a significantimprovement in the decline last year which was over 14%. Prices remained underpressure but the acquisition of Dataform brought additional volume as did newbusiness wins in the second half year. In the future the UK will develop as animportant supplier of base stationery products to Transactional Print. Profitsimproved in the second half and overall at ‚£3.2m were comparable with 2003.Direct Mail turnover fell 8% in the year to ‚£82.4m and this was almost entirelydue to the last quarter which saw a reduction in client mailing volumes, inparticular from the credit card banks. This effect was experienced by theindustry at large but is not considered to indicate a structural change nor atrend. The loss of some ‚£6m turnover in such a short period impactedprofitability. However, with significant improvements in productivity, theoverall year on year profit reduction was only ‚£0.4m and the operating marginimproved to 10.8%.‚£'m Turnover Operating Profit** 2004 2003 2004 2003 Transactional Print 30.4 29.8 5.1 6.0 Services Transactional Print Services initially comprises the security products chequeand credits business. Despite the long term decline in the use of cheques inthe UK, turnover grew by 2% in 2004. Business gains in the year included 100%of Barclays cheques, an increase to 100% with HSBC and with the addition ofBank of Scotland, an increase to 100% with HBOS. In addition we have 100%contracts with Lloyds TSB and RBS/Natwest.Overall profits reduced in the year due to lower prices and the loss ofproductivity in the first half as the new contracts were absorbed. Nonethelessthe operating margin remains at a healthy 16.9%.The nature of the business, strategic to our customers and with our marketposition, gives Communisis an unrivalled foundation to develop furtherstrategic partner positions with not only the UK but also the European Banks.Effectively a data bureau for the banks, the cheque business is the link toother data critical and secure products such as statements. We intend to investin this area of activity.The BoardIn July Denise Moran, Group Business Development Director, joined the Board asexecutive director responsible for sales and marketing. Denise has over 20years experience in the direct marketing and printing industries.Aidan Hughes resigned from his position as Finance Director in August. TheBoard would like to thank him for his contribution to the business. He wasreplaced by Mark Whiteling who joined us from Tibbett & Britten Group PLC.PeopleCommunisis continues its training and development strategy to ensure thatleadership and performance levels are of the highest standard.Members of the Executive Management Committee attend the Cranfield BusinessLeaders programme and the management tier below the EMC has undertaken a3-module programme developed by Bray Leino Training.To ensure common standards of excellence are taught to all customer-facingstaff, to date more than 160 account management and customer service staff havebeen through a relationship management programme developed with the help ofexperts, KL Consultants.Promoting excellence in production is the aim of the Lean Manufacturingtraining taking place at our two largest plants in Leeds and Midsomer Norton.Communsis believes that this focus on development gives us a real edge in termsof performance and retaining talent in the business. By offering an opportunityfor personal growth it also aims to make Communisis attractive to the bestpeople in the industry.Pension PlanIn December 2004 we announced our intention to inject a one-off cashcontribution of ‚£10m into the Communisis pension plan in early 2005. Thiscontribution is intended to significantly reduce the size of the fundingdeficit in the pension plan (estimated at ‚£21.2m at December 31 2004 on a basisconsistent with the latest actuarial valuation) and is anticipated to occurduring the first half of 2005. This contribution will be financed by a new ‚£10mdebt facility which we intend to enter into in conjunction with making the cashcontribution into the pension plan.International Accounting StandardsThe group has been preparing for the adoption of International FinancialReporting Standards ("IFRS") as its primary basis of accounting and will applythe new accounting rules for the first time in its interim financial resultsfor the period to 1 July 2005. These preparations are substantially completeand we are currently finalising the impact on the group in conjunction with ourauditors.OutlookWith a five year programme of business transformation essentially completeCommunisis will rebrand in 2005 to the effect that all group companies willhave one name and operate as one company. During this period of rapid changeCommunisis has been responding to deteriorating market conditions in terms ofprice erosion and manufacturing over-capacity. The printing industry remainshighly fragmented and competitive.Communisis is targeting profitable opportunities in Continental Europe and inthe UK we are being more selective with regard to the business we want to grow.We can offer our customers bigger savings and greater productivity throughmanaging their data, processes and through leveraging our global procurementcapabilities.We believe the Communisis print partner approach will lead to the furtherdevelopment of major customer opportunities.* Before goodwill amortisation and exceptional items** Before amortisation of contract premium, goodwill amortisation andexceptional itemsCommunisis plc Consolidated Profit and Loss Account for the year ended 31 December 2004 As restated (Note 9) 2004 2003 ‚£000 ‚£000 Turnover Note 1 Continuing operations 269,664 268,268 Discontinued operations 15,943 32,412 285,607 300,680 Operating costs (285,427) (290,111) Operating profit Note 1 Continuing operations * 18,455 21,020 Amortisation of contract premium (1,000) (1,000)payment Continuing operations ** 17,455 20,020 Discontinued operations ** (303) 1,750 17,152 21,770 Goodwill amortisation - continuing (9,682) (9,617)operations Goodwill amortisation - discontinued - (316)operations Exceptional items - continuing Note 2 (6,787) (1,268)operations Exceptional items - discontinued Note 2 (503) -operations Operating profit deriving from 986 9,135continuing operations Operating profit deriving from (806) 1,434discontinued operations Operating profit 180 10,569 Non-operating exceptional items Loss on termination of discontinued Note 2 (4,850) -operation Loss on sale of discontinued operations Note 2 (6,805) - (Loss) / profit before interest (11,475) 10,569 Net interest payable Note 3 (1,323) (1,737) (Loss) / profit before taxation (12,798) 8,832 Taxation Note 4 (561) (5,170) (Loss) / profit attributable to (13,359) 3,662shareholders Ordinary dividends Note 5 (7,650) (6,933) Loss retained for the financial year (21,009) (3,271) Earnings per ordinary share Note 6 Basic (9.30p) 2.55p Diluted (9.30p) 2.54p Adjusted earnings per ordinary share - before goodwill amortisation and exceptional items Basic 9.04p 10.09p Diluted 9.02p 10.05p Dividend per ordinary share Note 5 5.324p 4.84p * Before amortisation of contract premium payment, goodwill amortisation andexceptional items.** Before goodwill amortisation and exceptional items.The accompanying notes are an integral part of this consolidated profit andloss account.There is no difference between the reported loss (2003: loss) retained for thefinancial year and that which would have been reported on a historical cost basis.Communisis plc Consolidated Balance Sheet As at 31 December 2004 As restated (Note 9) 2004 2003 ‚£000 ‚£000 Fixed assets Goodwill 165,488 161,576 Tangible assets 43,448 54,169 ______ _______ 208,936 215,745 _______ _______ Current assets Stocks 15,982 19,225 Debtors 54,143 51,608 Cash at bank and in hand 12,963 18,139 _______ _______ 83,088 88,972 _______ _______ Creditors (amounts falling due within one year) Borrowings (11,077) (15,296) Other creditors (78,656) (77,173) _______ _______ (89,733) (92,469) _______ _______ Net current liabilities (6,645) (3,497) _______ _______ Total assets less current 202,291 212,248liabilities Creditors (amounts falling due after one year) Borrowings (29,500) (15,000) Provisions for liabilities and (6,009) (8,597)charges _______ ________ Net assets 166,782 188,651 _______ ________ Capital and reserves Called up share capital 35,999 35,977 Share premium account 152,261 152,256 Merger reserve 11,427 11,365 Other reserve (374) (374) Profit and loss account Note 7 (32,531) (10,573) _______ _______ Equity shareholders' funds 166,782 188,651 _______ _______The accounts were approved by the Board on 2 March 2005 and signed on itsbehalf by:D E A JonesM A WhitelingDirectorsThe accompanying notes are an integral part of this consolidated balance sheet.Communisis plc Consolidated Cash Flow Statement for the year ended 31 December 2004 As As restated restated (Note 9) (Note 9) 2004 2004 2003 2003 ‚£000 ‚£000 ‚£000 ‚£000 Net cash inflow from operating 18,332 34,103activities Note 8 Returns on investments and servicing of finance Interest paid (1,634) (1,784) Interest received 351 172 _______ _______ (1,283) (1,612) Taxation paid (5,217) (5,715) Capital expenditure Purchase of tangible fixed assets (8,347) (5,859) Sale of tangible fixed assets 1,557 1,564 _______ _______ (6,790) (4,295) Acquisitions and disposals Acquisition of subsidiary undertaking (16,804) - Disposal of subsidiary undertaking 7,996 - _______ _______ (8,808) - Equity dividends paid (7,184) (6,520) Financing Issue of ordinary shares 7 - New loans 22,000 - Repayment of loans (12,500) (2,854) Repayment of loans assumed on (4,216) - acquisition _______ _______ 5,291 (2,854) _______ ______ (Decrease) / increase in cash (5,659) 13,107 _______ ______ Reconciliation to net debt (Decrease) / increase in cash in the (5,659) 13,107year (Increase) / decrease in debt in the (9,500) 2,854year _______ _______ Change in net debt from cash flow (15,159) 15,961 Currency translation differences (298) 37 _______ _______ Movement in net debt in the year (15,457) 15,998 Net debt at 1 January (12,157) (28,155) _______ _______ Net debt at 31 December (27,614) (12,157) _______ _______ The accompanying notes are an integral part of this consolidated cash flowstatement.Communisis plc Consolidated Statement of Total Recognised Gains and Losses for the year ended 31 December 2004 As restated (Note 9) 2004 2003 ‚£000 ‚£000 (Loss) / profit attributable to shareholders (13,359) 3,662 Currency translation differences (949) 1,116 _______ _____ Total gains and losses relating to the year (14,308) 4,778 _____ Prior year adjustment for UITF Abstract 38 (Note 9) (256) _______ Total gains and losses recognised since last annual report (14,564) _______ The accompanying notes are an integral part of this consolidated statement of total recognised gains and losses. Reconciliation of Movements in Equity Shareholders' Funds for the year ended 31 December 2004 As restated (Note 9) 2004 2003 ‚£000 ‚£000 (Loss) / profit attributable to shareholders (13,359) 3,662 Ordinary dividends (7,650) (6,933) New share capital issued 22 - Share premium on new share capital issued 5 - Merger reserve arising on issue of new share capital 62 - Currency translation differences (949) 1,116 _______ ______ (21,869) (2,155) Equity shareholders' funds at 1 January as previously 188,907 191,150reported Prior year adjustment for UITF Abstract 38 (Note 9) (256) (344) Equity shareholders' funds at 1 January as restated 188,651 190,806 _______ _______ Equity shareholders' funds at 31 December as restated 166,782 188,651 _______ _______ Communisis plc Notes to final results Operating profit before goodwill amortisation Return Assets and on employed exceptional sales Turnover items As As As restated restated restated (Note 9) (Note 9) (Note 9) 2004 2003 2004 2003 2004 2003 2004 20031. Segment ‚£000 ‚£000 ‚£000 ‚£000 % % ‚£000 ‚£000information Continuing operations Print Management 135,783 127,508 5,047 6,639 3.7 5.2 5,127 4,325 Print & Direct Mail 139,266 150,498 11,523 11,389 8.3 7.6 28,695 30,524 Transactional Print 30,415 29,776 5,141 6,034 16.9 20.3 6,272 7,041Services Central Costs - - (3,256) (3,042) - - 2,528 (1,715) _________ _________ ________ ________ _____ _____ ________ ________ 305,464 307,782 18,455 21,020 - - 42,622 40,175 Amortisation of (1,000) (1,000) contract premium Less inter segment (35,800) (39,514) - - - - - sales _________ _________ ________ _________ _____ _____ _______ ________ Continuing operations 269,664 268,268 17,455 20,020 6.5 7.5 42,622 40,175 Discontinued operations Color Solutions 15,943 32,412 (303) 1,750 (1.9) 5.4 1,695 18,548 _________ _________ _________ _________ _____ _________ _______ ________ 285,607 300,680 17,152 21,770 6.0 7.2 44,317 58,723 _________ _________ _________ _________ _____ _________ _______ ________Total return on assets employed on continuing operations before 41.0% 49.8%goodwill amortisation and exceptional items Total return on assets employed before goodwill 38.7% 37.1%amortisation and exceptional items _______ ________ By location of customer: Continuing operations United Kingdom 255,067 250,237 Continental Europe 13,982 17,532 North America 615 499 _________ _________ 269,664 268,268 Discontinued operations United Kingdom 10,244 13,958 Continental Europe 3,147 10,843 North America 2,552 6,395 Rest of World 1,216 _________ _________ 15,943 32,412 _________ _________ 285,607 300,680 _________ _________ Communisis plc Notes to final results 1.Segment information (continued) Operating profit before goodwill amortisation and exceptional items Assets employed As As Turnover restated restated (Note 9) (Note 9) 2004 2003 2004 2003 2004 2003 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 By origin: Continuing operations United Kingdom 256,154 250,919 18,883 21,338 40,527 36,428 Continental Europe 13,510 17,349 (1,428) (1,318) 2,095 3,747 ________ ________ ________ ________ _______ ________ 269,664 268,268 17,455 20,020 42,622 40,175 Discontinued operations United Kingdom 10,272 10,023 (724) (21) 1,695 5,274 Continental Europe 3,119 14,498 274 1,698 - 7,674 North America 2,552 7,891 147 73 - 5,600 ________ ________ ________ ________ _______ _______ 15,943 32,412 (303) 1,750 1,695 18,548 ________ ________ ________ ________ _______ ________ 285,607 300,680 17,152 21,770 44,317 58,723 ________ _________ ________ ________ _______ ________Assets employed reconcile to the consolidated balance sheet as follows: Assets employed 44,317 58,723 Goodwill 165,488 161,576 Net debt (27,614) (12,157) Current and deferred (10,309) (14,857)taxation Dividends (5,100) (4,634) _______ ________ Net assets 166,782 188,651 _______ ________ Notes The segments shown in the above disclosure have been changed to reflect the group reorganisation. Comparatives have been restated accordingly. The above segment information shows operating profit before goodwill amortisation of ‚£9,682,000 (2003: ‚£9,933,000) which cannot be allocated bysegment, operating exceptional items of ‚£7,290,000 (2003: ‚£1,268,000) and non-operating exceptional items of ‚£11,655,000 (2003: ‚£Nil). The operating exceptional items relate to costs in the following segments:Print Management ‚£330,000 (2003: ‚£127,000); Print & Direct Mail ‚£5,914,000 (2003: ‚£908,000), Transactional Print Services ‚£543,000 (2003: ‚£Nil); Color Solutions ‚£ 503,000 (2003: ‚£Nil) and Central ‚£Nil (2003: ‚£233,000) (See Note 2(a)). Discontinued operations include the disposal of the Colour Cards businesses in March 2004 and the closure of the Labels printing operation in December 2004. The non-operating exceptional items relate to costs in the Color Solutionssegment ‚£11,655,000 (2003: ‚£Nil) (See Note 2(b)). The contract premium payment to Barclays Bank PLC is being amortised over the life of the contract. The directors consider that this will benefit all the continuing segments of the business. Communisis plc Notes to final results 2004 2003 ‚£000 ‚£000 2. Exceptional items (a) Operating profit is arrived at after charging the following exceptional items: Continuing operations Reorganisation and restructuring costs 6,787 1,035 Long term incentive plan - 233 _____ _____ 6,787 1,268 Discontinued operations Stock loss from flood damage 503 - _____ _____ 7,290 1,268 _____ _____ Exceptional items on continuing operations in 2004 and 2003 comprise reorganisation and restructuring costs principally relating to the Document Services Europe business and 2003 includes a residual charge relating to the final payment under the long term incentive plan. The tax effect of these items are detailed in Note 4. 2004 2003 ‚£000 ‚£000 (b) Loss before tax is arrived at after charging the following exceptional items: Discontinued operations Loss on closure of label printing operation 4,472 - Write off of unamortised goodwill relating to the 378 - closure of the label printing operation _____ _____ 4,850 - _____ _____ Loss on sale of Colour Cards businesses 2,059 - Write off of unamortised goodwill relating to sale of 4,746 - ColourRelated Shares:
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