2nd Mar 2006 07:00
2 March 2006PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2005Turnover from continuing businesses of ‚£264.8m (2004: ‚£269.7m)Profit from operations before exceptional restructuring costs of ‚£15.1m (2004:‚£15.3m). Profit from operations from continuing businesses was ‚£7.2m (2004: ‚£8.5m)Profit before tax from continuing operations was ‚£4.1m (2004: ‚£6.2m) afterrestructuring costs of ‚£7.9m (2004: ‚£6.8m)Profit for the year attributable to equity shareholders was ‚£2.6m (2004: Lossof ‚£6.7m)HSBC ‚£250m outsourcing win and Barclays contract extensionNet debt at 31 December 2005 was ‚£36.0m (2004: ‚£27.6m) following an additionalpension contributionDividend up 10% - proposed final dividend of 3.897p per share taking proposedfull year dividend to 5.85p (2004: 5.324p) per shareInitial ‚£5m share buy-back programmeCommenting on the results David Jones, Chief Executive of Communisis plc, said:"We are well positioned to see progress this year, despite the challengingindustry conditions. We have a strong pipeline of growth opportunities with ourexisting customer base and the HSBC outsourcing deal is a breakthrough in ourpartnership approach with major customers."For 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 STATEMENTChairman's Statement2005 has been an eventful year for Communisis. Short term results have beenunder pressure through the continued weakness in the UK printing industry.Price pressure intensified at a time of increased costs, caused in part byfalling demand in key market segments.We firmly believe however that the outlook for Communisis remains exciting andin the year we made strategic progress in those market sectors we have declaredto be of increasing importance to the business. In particular we strengthenedour position as the leading provider of printed products and services tofinancial institutions by acquiring HSBC's UK bank statement productionbusiness and signing a 10 year statement outsourcing contract.Perhaps not surprisingly, given our longer term prospects, there have beenpersistent rumours of outside interest from buyers for all or part ofCommunisis. To bring this to a head the Board instigated a strategic reviewwith the help of our financial advisers. This review not only assessed our owncompetitive position but also the prospects for cooperating with third partiesincluding becoming part of a larger Group. We made contact with many identifiedpotential buyers but nothing materialised on a basis that was acceptable toyour Board.Now that the process has ended and with it the inevitable uncertainty for bothemployees and customers, we feel freshly energised to continue to take thecompany forward. Morale is high and we believe that we can show meaningfulprogress in 2006.Chief Executive's ReportResults for 2005Communisis continued its progress in developing contractual business with majorfinancial institutions in 2005. In particular, Print Management andTransactional Print business sectors benefited from the HBOS 5 year, ‚£60million deal and will benefit in 2006 from the HSBC 10 year, ‚£250 million deal.In the year ended 31 December 2005 turnover from continuing businesses fellmarginally to ‚£264.8 million (2004: ‚£269.7 million) despite 10% growth in thePrint Management sector. Operating profit from continuing businesses, beforerestructuring costs, was ‚£15.1 million (2004: ‚£15.3 million). Profit before taxfrom continuing operations, after the loss on the sale of Datadocs andrestructuring costs combined (‚£7.9 million), was ‚£4.1 million (2004: ‚£6.2million) with adjusted earnings per share of 6.31p* (2004: 7.68p). Afterresults from discontinued operations the profit for the year was ‚£2.6 million(2004: Loss of ‚£6.7 million). Net debt increased in 2005 to ‚£36.0 millionincluding one off payments for the Barclays contract extension and the paymentinto the Pension Fund totalling ‚£13 million.DividendsThe Board proposes to increase the final dividend by 10%. This will take thefull year dividend to 5.850p, (2004: 5.324p) including a proposed finaldividend of 3.897p. Going forward it is the Board's intention to hold thislevel of dividend whilst commencing an initial ‚£5 million share buy-backprogramme. The programme will be within the Board's approval level to buy backup to 15% of the company's shares.Dividends will be paid, subject to shareholders' approval, on 28 April 2006 toshareholders on the register at the close of business on 7 April 2006.TransformationSince its inception in 2000, Communisis, formed through the acquisitions ofWaddington PLC and Rexam PLC's printing division, has been developing a newbase of contract print business, principally with the leading UK financialinstitutions.During this period an extensive disposal and restructuring programme has takenCommunisis out of print manufacture in the USA, Canada, France, Belgium,Holland and Luxembourg as well as consolidating remaining business stationeryoperations in the UK.At the same time Communisis also built its position to be the leading supplierof cheque books in the UK, with three dedicated production facilities and 100%share with HSBC, RBS, Lloyds TSB, Barclays and HBOS.Entirely new contract business has been added in Print Management andTransactional Print both by acquisition and through organic growth. Theannualised turnover of this new business is ‚£200 million with major contractswon with Barclays, HSBC, HBOS and Sainsbury's.Communisis has had to absorb extensive restructuring costs and selling pricedeclines for its manufactured products over this period; this has held backprofit improvement despite the new sales growth. Excess capacity remains in UKprint manufacturing and prices continue to be under pressure.Communisis has closely managed its cashflow during this period. Net debt at thebeginning of 2000 was ‚£240 million and at the end of 2005 was ‚£36.0 million. In2000 there was a small actuarial pension surplus that was off balance sheet. Atthe end of 2005 the IFRS pension deficit, on balance sheet, was ‚£37.7 million.Your Board continues to look at the most efficient way to eliminate thisdeficit in liaison with the Trustees of the Pension Fund.Following an extensive strategic review in 2005 your Board concluded thatCommunisis should complete the transformation it began back in 2000. We arecommitted to this course and see exciting and profitable opportunities ahead.We have excellent customer positions, especially with the major UK banks. Wemanage the largest print management contract in Europe with Barclays, deployingour c-store software and integrated logistics operations. We are leaders in thekey strategic products of cheques and now, statements, with the HSBC 10 yearoutsourcing deal.Business ReviewPrint Management Services‚£'million Turnover Operating Profit* 2005 148.9 5.7 2004 135.8 4.6Communisis Print Management Services made further progress in the year withturnover up 10% and profits improving by ‚£1.1 million to ‚£5.7 million. Thisperformance was helped by the acquisition of Dataform in September 2004 whichadded significantly to our operational print and logistics capability.During the year we launched a consolidation programme of our UK printmanagement business. This is designed to enable us to serve all our customersfrom a single IT platform base in the North East, and at significantly lowercost.Contract renewals in the year were achieved with the Post Office and Coors. InEurope we made further progress and opened Axa and Disney accounts in France;small to begin with but offering growth opportunities across Europe.New business wins included the Department for Work and Pensions, RBS and LloydsTSB but the highlight was the 5 year, ‚£60 million deal with HBOS for theprovision of direct mail and security printing services. The deal includes theroll out of Communisis' document management software, c-store.Barclays remains our largest contract, continuing to run at over ‚£56 millionturnover annually. In the year we paid ‚£3 million to extend the contract until2010 and also to access potential additional turnover; this includes workingwith the bank on international business.Print Management in the UK continues to offer growth opportunities but at thesmaller contract end there are now too many competitors and pricing has becomecommoditised. Communisis is targeting the larger contracts that requiremanagement of the entire document process, utilising c-store and our logisticscapability as well as world-class procurement. Here there are fewer competitorsand our focus on the major banks distinguishes our offer.It is essential that we continually develop our procurement capabilityespecially in the areas of paper and print purchasing. We are extending thesupplier base across Central Europe and the Far East, and we continue todevelop our e-procurement tools with dedicated IT support and investment.Communisis will look to win the bigger contracts that require management of thecustomers' end-to-end document process; marketing campaigns through our c-storesoftware; operational print and logistics and data-critical regulatory customercommunications.Print & Direct Mail Services‚£'million Turnover Operating Profit* 2005 125.5 7.2 2004 139.3 10.1Turnover in Print and Direct Mail Services fell 10% in the year due in the mainto continued, significant pricing pressure. Despite the drive for efficiencyimprovements at each of our locations, profitability was inevitably affected,reducing by ‚£2.9 million in the year to ‚£7.2 million.In Direct Mail we are the leading manufacturer predominantly serving thefinancial sector of the direct mail market. This market sector has deterioratedover the past 24 months in particular; as a consequence of a combination ofreduced credit card mailings and highly competitive pricing. We are continuallylooking to optimise performance against this difficult trading background.In the first half year we exited the remaining European Business Formsmanufacturing leaving us with a single, well-invested UK facility. Communisis'inter-company work also supports this business which has also faced extremepricing pressure over the past 12 months, particularly driven by e-auctionprocesses. The business will benefit from cost efficiency programmes in 2006and growth in statement base stock printing; recent wins being RBS and the HSBCoutsourcing deal.Transactional Print Services‚£'million Turnover Operating Profit* 2005 27.1 5.4 2004 30.4 4.7Despite the 10% decline in turnover Transactional Print Services, which has todate comprised Communisis' personalised cheque book business, increased itsprofits.The normal annual decline in cheques is about 6% but it remains a strategicproduct for our customers. It is important to restate that we have 100% of thepersonalised cheque business for the top five banks; HSBC, RBS, Lloyds TSB,Barclays and HBOS. In the year we achieved a significant breakthrough winningthe Allied Irish Bank's cheques business in Ireland. This opens the door tofurther business with the bank.Communisis' position with the banks is helpful in developing new business. The10 year, ‚£250 million HSBC statement outsourcing deal is groundbreaking in theUK. With effect from 16th January 2006 we have taken over 255 staff in threelocations and have committed to building a world-class statementing facility tobe ready second quarter 2007. This will not only house all of HSBC but alsoother statementing business. We are actively pursuing the next opportunities.This business sector offers Communisis attractive turnover and profits growthpotential.The BoardThe composition of the Board has remained unchanged during 2005.PeopleCommunisis continues its training and development strategy despite thedifficult background trading environment. Our people distinguish the companyfrom its competitors and are responsible for managing the most prestigiouscontracts in the industry; Barclays, HSBC, HBOS and Sainsbury's.We continue our training programmes; Cranfield Business Leaders, Communisis"bespoked" Management Development and Customer Service Relationship Management.This approach, we believe, makes Communisis attractive to the best people inthe industry.OutlookWe are well positioned to see progress this year, despite the challengingindustry conditions.We have a strong pipeline of growth opportunities, importantly the majoritybeing with our existing customer base.The HSBC outsourcing deal is a breakthrough for the company in our focus topartner with major customers.*Before exceptional restructuring costsConsolidated Income Statementfor the year ended 31 December 2005 Restated Note 2005 2004 ‚£000 ‚£000 Continuing operations Revenue 1 264,785 269,664 Changes in inventories of finished goods and work (79) 95in progress Raw materials and consumables used (140,349) (144,413) Employee benefits expense (70,139) (76,454) Depreciation and amortisation expense (9,233) (9,545) Other operating expenses (32,956) (30,868) Loss on sale of Datadocs operation (4,865) - Profit from operations 7,164 8,479 Analysed as: Profit from operations before exceptional 15,073 15,266restructuring costs Restructuring costs 2.2 (7,909) (6,787) Profit from operations 7,164 8,479 Finance revenue 252 351 Finance costs 2.1 (3,317) (2,605) Profit before taxation 4,099 6,225 Income tax expense 3 (2,014) (1,215) Profit for the year from continuing operations 2,085 5,010 Discontinued operations Profit / (loss) for the year from discontinued 512 (11,750)operations Profit / (loss) for the year attributable to 2,597 (6,740)equity holders of parent Earnings per share 4 On profit / (loss) for the year attributable to equity holders - basic 1.81p (4.69p) - diluted 1.80p (4.69p) On profit for the year from continuing operations - basic 1.45p 3.49p - diluted 1.45p 3.48p Dividend per share 5 - paid 5.502p 5.002p - proposed 3.897p 3.549pDividends paid and proposed during the year were ‚£7.9 million and ‚£5.6 millionrespectively (31 December 2004: ‚£7.2 million and ‚£5.1 million respectively).The accompanying notes are an integral part of this consolidated income statement.Consolidated Balance Sheet31 December 2005 Restated 2005 2004 ‚£000 ‚£000 ASSETS Non-current assets Property, plant and equipment 32,286 42,619 Intangible assets 173,797 176,537 Trade and other receivables 6,055 3,927 Deferred tax assets 8,417 6,956 220,555 230,039 Current assets Inventories 13,089 15,982 Trade and other receivables 47,616 48,870 Cash and cash equivalents 9,778 12,963 70,483 77,815 Non-current assets classified as held for sale 3,344 996 TOTAL ASSETS 294,382 308,850 EQUITY AND LIABILITIES Equity attributable to the equity holders of the parent Issued capital 36,008 35,999 Share premium 152,287 152,261 Merger reserve 11,427 11,427 Share option reserve 602 359 ESOP reserve (374) (374) Cumulative translation adjustment (2) (253) Retained earnings (56,631) (49,191) Total equity 143,317 150,228 Non-current liabilities Interest bearing loans and borrowings 33,500 29,500 Retirement benefit obligations 37,737 42,664 Provisions 408 698 71,645 72,862 Current liabilities Interest bearing loans and borrowings 12,251 11,077 Trade and other payables 61,575 67,431 Income tax payable 5,550 6,125 Provisions 44 1,127 79,420 85,760 Total liabilities 151,065 158,622 TOTAL EQUITY AND LIABILITIES 294,382 308,850The accompanying notes are an intergral part of this consolidated balance sheet.Consolidated Cash Flow Statementfor the year ended 31 December 2005 Restated Note 2005 2004 ‚£000 ‚£000 Cash flows from operating activities Cash generated from operations 6 6,408 18,332 Interest paid (2,498) (1,634) Interest received 239 351 Income tax paid (2,988) (5,217) Net cash flows from operating activities 1,161 11,832 Cash flows from investing activities Acquisition of subsidiary undertaking net of (1,137) (16,804)cash acquired Proceeds from the sale of subsidiary 147 7,996undertakings Purchases of property, plant and equipment (3,857) (7,778) Proceeds from the sale of property, plant and 3,997 1,557equipment Purchase of intangible assets (539) (569) Tax on disposal of property, plant and equipment (231) - Net cash flows from investing activities (1,620) (15,598) Cash flows from financing activities Proceeds from issue of share capital 35 7 New borrowings 10,000 22,000 Repayment of borrowings (5,000) (12,500) Repayment of borrowings assumed on acquisition - (4,216) Dividends paid (7,907) (7,184) Net cash flows from financing activities (2,872) (1,893) Net decrease in cash and cash equivalents (3,331) (5,659) Cash and cash equivalents at 1 January 9,386 15,343 Exchange rate effects (28) (298) Cash and cash equivalents at 31 December 6,027 9,386 Cash and cash equivalents consist of: Cash and cash equivalents 9,778 12,963 Overdrafts (3,751) (3,577) 6,027 9,386The accompanying notes are an integral part of this consolidated cash flow statement.Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2005 Restated 2005 2004 ‚£000 ‚£000 Currency translation gains / (losses) in year 98 (949) Foreign currency translation difference - 696transferred from reserves on sale of Colour Cards businesses Foreign currency translation difference 153 -transferred from reserves on sale of Datadocs business Exchange gains / (losses) on translation of 251 (253)foreign operations Actuarial losses on defined benefit pension (3,043) (1,167)plans Tax on items taken directly to equity 913 350 Net loss recognised directly in equity (1,879) (1,070) Profit/(loss) for the year 2,597 (6,740) Total recognised income and expense for the year 718 (7,810) Attributable to: Equity holders of the parent 718 (7,810) The accompanying notes are an integral part of this consolidated statement ofrecognised income and expense.Notes to preliminary results1) Business segmentsThe segment results for the year ended 31 December 2005 are as follows: Continuing operations Discontinued operations Print Print Trans- Corporate Total Colour Group Manage- and actional expenses Solutions ment Direct Print Services Mail Services Services ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Revenue Total revenue 148,893 125,537 27,081 - 301,511 - 301,511 Inter-segment (2,171) (30,263) (4,292) - (36,726) - (36,726)sales External sales 146,722 95,274 22,789 - 264,785 - 264,785 Segment result 5,710 7,205 5,377 (3,219) 15,073 - 15,073before restructuring costs Restructuring (649) (500) (448) (1,447) (3,044) - (3,044)costs Loss on sale of - (4,865) - - (4,865) - (4,865)Datadocs operations Profit on sale of - - - - - 1,048 1,048property Loss on closure of - - - - - (418) (418)label printing operation Profit / (loss) 5,061 1,840 4,929 (4,666) 7,164 630 7,794from operations The segment results for the year ended 31 December 2004 are as follows: Continuing operations Discontinued operations Print Print Trans- Corporate Total Colour Group Manage- and actional expenses Solutions ment Direct Print Services Mail Services Services ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Revenue Total revenue 135,783 139,266 30,415 - 305,464 17,114 322,578 Inter-segment (3,271) (28,747) (3,782) - (35,800) (1,171) (36,971)sales External sales 132,512 110,519 26,633 - 269,664 15,943 285,607 Segment result 4,644 10,109 4,688 (4,175) 15,266 (962) 14,304before restructuring costs Restructuring (330) (5,914) (543) - (6,787) - (6,787)costs Loss on - - - - - (12,377) (12,377)discontinued operations Profit / (loss) 4,314 4,195 4,145 (4,175) 8,479 (13,339) (4,860)from operations 2 Other expenses2.1 Finance costs 2005 2004 ‚£000 ‚£000 Bank loans and overdrafts 2,575 1,674 Retirement benefit related costs 744 1,068 3,319 2,742 Continuing operations 3,317 2,605 Discontinued operations 2 137 3,319 2,7422.2 Restructuring costs 2005 2004 ‚£000 ‚£000 Profit from operations is arrived at after charging the following items: Loss on sale of Datadocs operation 2,448 - Write off of unamortised goodwill relating to sale of 2,417 -Datadocs operation 4,865 - Other restructuring costs including reorganisation and 3,044 6,787strategic review costs 7,909 6,787 3 Income tax 2005 2004The tax charge in the consolidated income statement is ‚£000 ‚£000disclosed as follows: Income tax expense on continuing operations 2,014 1,215 Income tax expense / (credit) on discontinued 116 (1,726)operations 2,130 (511)Reconciliation of the total tax chargeThe tax expense in the income statement for the year is higher than thestandard rate of corporation tax in the UK of 30% (2004 30%). The differencesare reconciled below: 2005 2004 ‚£000 ‚£000 Accounting profit before tax from continuing operations 4,099 6,225 Profit/(loss) before tax from discontinued operations 628 (13,476) Accounting profit / (loss) before income tax 4,727 (7,251) At UK statutory income tax rate of 30% (2004 30%) 1,418 (2,175) Disposal of goodwill not deductible for tax purposes 628 1,545 Expenses not deductible for tax purposes 136 158 Non-deductible loss on disposal of business 756 841 Unrelieved overseas losses 136 1,448 Share based payments 140 8 Change in deferred tax in respect of rolled over (55) (56)capital gains Adjustments in respect of prior years (1,029) (2,280) 2,130 (511)4 Earnings per share 2005 2004 ‚£000 ‚£000 Basic and diluted earnings per share is calculated as follows: Profit attributable to equity holders of the parent - 2,085 5,010continuing operations Profit / (loss) attributable to equity holders of the parent - 512 (11,750)discontinued operations Profit / (loss) attributable to equity holders of the parent 2,597 (6,740) 2005 2004 Thousands Thousands Weighted average number of ordinary shares (excluding 143,710 143,625treasury shares) for basic earnings per share Effect of dilution: Share options 244 326 Weighted average number of ordinary shares (excluding 143,954 143,951treasury shares) adjusted for the effect of dilution 309,628 (2004: 309,628) shares were held in trust at 31 December 2005.Earnings per share from continuing operations before restructuring costsNet profit from continuing operations before restructuring costs andattributable to equity holders of the parent is derived as follows: 2005 2004 ‚£000 ‚£000 Profit after taxation from continuing operations 2,085 5,010 Restructuring costs (Note 2.2) 7,909 6,787 Taxation on restructuring costs (913) (738) Profit after taxation from continuing operations 9,081 11,059excluding restructuring costs Adjusted earnings per share Basic 6.32p 7.70p Diluted 6.31p 7.68p5 Dividends paid and proposed 2005 2004 ‚£000 ‚£000 Declared and paid during the year Amounts recognised as distributions to equity holders in the year: Final dividend of the year ended 31 December 2003 of 3.227p 4,634per share Interim dividend of the year ended 31 December 2004 of 1.775p 2,550per share Final dividend of the year ended 31 December 2004 of 3.549p 5,100 per share Interim dividend of the year ended 31 December 2005 of 1.953p 2,807 per share 7,907 7,184 Proposed for approval at AGM (not recognised as a liability as at 31 December) Final equity dividend on ordinary shares for 2005 of 3.897p 5,600 5,100(2004 3.549p) per share 6 Cash generated from operations 2005 2004 ‚£000 ‚£000 Continuing operations Profit before tax 4,099 6,225 Adjustments for: - depreciation and amortisation 9,233 9,545 - amortisation of contract premium payment 1,000 1,000 - excess of Income Statement pension charge over 1,286 2,189 contributions paid - loss on sale of Datadocs operation 4,865 - - restructuring costs 3,044 6,787 - profit on sale of property, plant & equipment (49) (82) - share-based payment charge 240 259 - net finance costs 3,065 2,254 Additional contribution to the defined benefit (10,000) -pension plan Cash effect of restructuring continuing (2,942) (7,613)operations Changes in working capital: Decrease / (increase) in inventories 1,361 (470) (Increase) / decrease in trade and other (5,101) 200receivables (Decrease) / increase in trade and other (3,926) 1,133payables Cash inflow from operating activities on 6,175 21,427continuing operations Discontinued operations Profit /(loss) before tax 628 (13,476) Adjustments for: - depreciation and amortisation - 719 - loss on sale of Color Cards operation - 7,308 - loss on closure of label printing operation - 4,850 - profit on sale of property, plant & equipment (1,048) (9) - exchange difference transferred from reserves - 696 - share-based payment charge 3 6 - net finance costs 2 137 Cash effect of closure of label printing - (2,432)operation Changes in working capital: Decrease in inventories - 100 Decrease/(increase) in trade and other 3,327 (541)receivables Decrease in trade and other payables (2,679) (453) Cash inflow / (outflow) from operating 233 (3,095)activities on discontinued operations Cash generated from operations 6,408 18,3327 Additional informationCommunisis plc is a public limited company incorporated and domiciled inEngland and Wales. The company's ordinary shares are traded on the London StockExchange.The Group previously prepared its primary financial statements under UKgenerally accepted accounting principles ("UK GAAP"). From 2005 the Group isrequired to prepare its consolidated financial statements in accordance withInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion. For the purpose of this document the term IFRS includes InternationalAccounting Standards.The basis of transition to IFRS and a reconciliation between results previouslyreported under UK GAAP and the comparative information presented here waspublished on 16 September 2005. A full copy is also available in the publishedInterim Report and Accounts 2005 which can be obtained from the Company'swebsite.These results represent the first annual financial statements the Group hasprepared in accordance with its accounting policies under IFRS and thecomparatives for 2004 have been restated from UK GAAP to comply with IFRS. Theaccounting policies of the Group under IFRS can be found in the 2005 statutoryaccounts. A description of how the Group's reported performance and financialposition are affected by this change can be found in the 2005 statutoryaccounts which will be delivered to shareholders on 23 March 2006.The financial information for the year ended 31 December 2005 and 31 December2004 is abridged and has been extracted from the 2005 statutory accounts ofCommunisis plc which were approved by the Board of Directors on 2 March 2006,along with this preliminary announcement, but have not yet been delivered tothe Registrar of Companies. The auditors have issued an unqualified opinion onthe 2005 statutory accounts. The 2004 statutory accounts, prepared under UKGAAP, have been delivered to the Registrar of Companies. The auditors' reporton the 2004 statutory accounts was unqualified.ENDCOMMUNISIS PLCRelated Shares:
Communisis PLC