27th Feb 2008 07:00
Communisis PLC27 February 2008 27 February 2008 Communisis plc ("Communisis" or "the Company") Preliminary Results for the twelve months ended 31 December 2007 Implementation of turnaround plan results in a year of significant financialimprovement: • Profit from operations after restructuring costs up by 472% to £10.5m (2006: £1.8m) • Profit after tax £6.6m compared with a loss in 2006 of £20.0m • Operating cash inflow significantly improved at £27.9m (2006: cash outflow £1.4m) • 42% reduction in net debt to £26.3m (2006: £44.9m) • Final dividend proposed of 1.635p/share Further operational gains made: • Benefits from first stage of recovery plan flowing through, with stage two well underway • Account management discipline embedded in the business: benefits flowing through to the bottom line with more to come • Cross-sell building momentum, with 24 of our top 100 customers now buying more than one service (2006: 14) • Leeds Direct Mail business stabilised and returned to profit in H2 • "Greenprint" enhances our strong environmental credentials Commenting on the results, Steve Vaughan, Chief Executive, said: "This has been a year of real improvement across all parts of the Communisisbusiness. Stage one of our recovery plan, to restore the right focus on ourcustomers and business basics, is now complete and we have made great in-roadsinto stage two: developing our range of services and better cross sellcapabilities. "Operationally, we have delivered on our commitments. Account managementdisciplines have been introduced, increasing the number of customers taking morethan one service from us and greatly improving our cash collection performance.Our Leeds factory has been turned around, offering high quality output andreturning to profit in the second half. Our transaction print factory in Spekewas opened on time and now has four customers. Restructuring costs have alsobeen brought under control. These actions resulted in the Company being able toreport significant improvements in Group profit, revenue and cash conversion. "With these foundations laid, our attention now turns to stage three: investingin building a range of propositions and services that help make our customer'smarketing communications more profitable and efficient. As we enter 2008 webelieve Communisis is well placed in its chosen marketplace and our long termprospects are strong." For further information please contact: Communisis plc via FDSteve Vaughan, Chief Executive / Peter King, Finance Director FD +44 (0)20 7831 3113Edward Bridges / James Melville-Ross / Matt Dixon Chairman's Statement I became chairman of Communisis shortly before the year end, succeeding MikeSmith who stood down after four and a half years in the role. In the relativelyshort period since I arrived, I have spent time learning about a company which,with its improved manufacturing processes, its superior technological skills andits excellent customer base, has a real opportunity to continue the excellentwork so clearly reflected in this year's results. Revenue was £290.6m compared with £260.6m in 2006. Profit from operations afterrestructuring was £10.5m which was £8.7m above last year's figure of £1.8m.Profit after tax was £6.6m compared with a loss of £20.0m in 2006. Earnings pershare were 4.73p, up 19.08p against (14.35p) in 2006. The Board is proposing afinal dividend payment of 1.635p per share bringing the total dividend for theyear to 2.453p, the same as last year. Communisis started 2007 facing a number of significant challenges. The chiefexecutive's report sets out the detailed story of the year that contained anumber of considerable achievements. The Leeds factory was brought under controland restored to profitability: the new facility in Speke was successfullycommissioned; the account management system was developed to enable improvedcustomer service provision; and importantly the company met, and in most casesexceeded, its financial targets. Of particular importance was the cashmanagement which saw the Group's debt substantially reduced. Since taking over as chairman, I have had the opportunity to visit a number ofthe Group's locations and have been shown round our manufacturing facilities. Ihave been most impressed with what I have seen and this is a tribute to theleadership within the company. I have been struck by the high quality of themanagement I have met, and also by the enthusiasm of the employees. After manyyears of difficulty, we are most fortunate to have such a committed workforcewho are so keen to see the company prosper. This set of results is a tribute totheir effort, ingenuity and resilience; on behalf of the Board, I wish to thankall our staff for this. At Board level, this year has seen changes. Mike Smith stepped down as adirector and chairman on 10 December. I became a director on the same date, asdid Nigel Howes, a former partner of Arthur Andersen and Deloitte, who joined asa non-executive director. He will take over from Roger Jennings as chairman ofthe Audit Committee after the AGM in April. The Board will be responsible for addressing the challenges Communisis will facein 2008 and beyond. Our major objective must be to continue to deliver betterfinancial returns for shareholders by pursuing the company's three stage plan. Ilook forward to the year ahead as we turn our attention to implementingsuccessfully the third stage of this plan so Communisis can develop from thesolid base we have worked hard this year to build. Chief Executive's Report I am pleased to report that 2007 has been a year of considerable progress. Webegan with much to do to turn around the operating performance of the Group. Ourplan comprised three stages - first, to focus on the basics and most importantlyour customers; secondly, from the middle of the year to focus on cross-sellingand value-based services. The third stage, which will begin in the middle of2008, will build on these two foundations, and see us introduce an integratedportfolio of services to address key business issues for our customers. I ampleased to say that this plan is progressing very well. A strong financial position Our financial results show the progress we have made. Revenues grew by 11.5%,indicating the strength in demand we are seeing for our services. More importantis the revival in profit and cash generation, our key performance indicators. Profit performance for Communisis in previous years has been dominated by largerestructuring charges. We set an objective to run the group without these largecharges, concentrating instead on driving long-term profit improvement fromoperations. In 2007 we have succeeded in breaking this cycle and holdingrestructuring costs to £3m (2006: £13.3m). The resulting profit from operationsafter restructuring costs is up 472% at £10.5m (2006: £1.8m). We anticipate thatrestructuring during 2008 will be restricted to cost reduction in our decliningbusinesses, at around £1.5m. Our cash generation has received considerable attention during the year. Our newaccount management structure has helped us focus on securing customer paymentwithin contractual terms. As a result, we have reduced the level of debtors'outside terms from 33% at the start of the year to 13% at the end of the year.This, coupled with stronger disciplines in capital expenditure, stock controland restructuring spend, has produced operating cash inflow of £27.9m. This yearwe have therefore converted operating profit to operating cashflow at a rateexceeding 200%. This has enabled us to reduce net debt to £26.3m (2006: £44.9m):a major achievement, and a clear result of a proper focus on basic businessdisciplines. Strong underlying indicators too Good financial performance has been reinforced by progress in our operations andwith our customers. There were four tasks to accomplish in 2007. Success in eachof these areas was a key reason for our strong financial performance: • The turnaround in performance of our Leeds Direct Mail factory • The implementation of an account management structure • The roll out of a new business model for our print management business • The start-up of the statement business in Speke The improvement in performance in Direct Mail was well documented at the time ofthe Group's interim results. Progress has continued into the second half, withLeeds returning strongly to profit. Profit in the Direct Mail and Business Formssegment, comprising our Leeds and Bath factories, is up 129% in the second halfto £3.9m (H1 07: £1.7m). All of this increase is due to the improvements atLeeds. Operating indicators such as press running speeds (up 13.1% in Q4 compared toQ1), and business quality indicators such as growth in high margin services(data and response handling revenue up 45% on 2006) both show the extent of theimprovement. The management team and staff in Leeds have brought about aconsiderable transformation. To show our confidence in this change, we made ourfirst investment in full colour digital print capacity during October 2007. Bythe end of 2007, our order book for this new press was full. Our customers havenoticed the changes. We have a strong flow of business, with 2008 showing arobust start to the year. Account management is now at the heart of the way we do business. Cross-sellingis the outcome. The number of our top 100 customers buying more than one servicefrom us has increased to 24 compared with 14 a year ago. Stage 2 of our strategydepends for its success on deriving profit from selling additional services,wherever and whatever these are. There are many small-scale examples of theaddition of service lines to existing customers. The growth in size of somerelationships is impressive. Our considerable investment in the skills andsupport infrastructure for the account management function has continued throughthe second half, and this continues in 2008. Our new print management model is now installed fully in several of our highestprofile customers. Our biggest relationship, with Barclays, was renegotiated inMay 2007 to adopt the new model. We also have elements of the solutionimplemented in a number of other customers including Procter and Gamble, HSBC,HBOS, Defra and Wolseley. The key to the new model is to make our margin fromtechnology and consultancy services, rather than marking up bought-in print.This has a number of advantages for the customer, such as access to betterprocurement technology and management information and there is better incentivefor the print manager to help reduce the amount of print bought. For Communisis,the benefit is a source of profit that is more sustainable and value-based thansimply a procurement mark-up on bought-in print. Our account managementdiscipline is working well to roll out this new approach to a wider range of ourcustomers. The statement business has had an excellent year. To give some sense of thestrides we have made, in 2005 Communisis had no presence in this sector - now weare the number 2 in the UK. During the last twelve months, our team havecompleted a new 100,000 sq ft factory in Speke, Liverpool. 230 staff and relatedequipment from five different customer sites have transferred to the newfacility. We now produce 1.5m statements and invoices a day for HSBC andCentrica from what has become the most advanced facility of its type in thecountry. The quality of this operation has attracted further customers. InDecember 2007 we signed a five year, £10m contract with Co-operative FinancialServices to produce all their banking and insurance statements. In January 2008we were selected by a fourth customer to outsource their statement printoperation. With these four contracts, the factory will be operating at over 80%capacity, although rationalisation projects during 2008 will increase the spaceavailable. In other parts of the business, we have been successful in defending profitsdespite declining markets. Our cheques business has had its most profitable yearto date. The annual decline in cheque book issuing has continued, but we havebeen able to remove cost at an even faster rate. The Bath business forms factoryremains very efficient and lean, but its markets are in decline and competitionis severe. This is the only part of our business where offshore competition is aserious threat, because many of its products are ordered on long lead times.Nonetheless, the factory remains in profit and a resilient business. Although ithas recorded a decline year on year, it has grown market share in severalimportant products. We have been able to use the cross-selling model to achievesome sales to customers from other divisions who have not previously takenproducts from Bath. Our place in the market We have a clear vision of how Communisis can maintain and develop itscompetitive advantage in a complex, fragmented and at times difficultmarketplace. Despite our heritage in print, we will be successful now and in thefuture where we deliver additional services and skills beyond ink and paper. Our customers face challenges to make their marketing content more effective andmore efficient. In general they regard direct marketing as a cost effectivechannel for customer communication, and a key element in their own fight formarket share. The evidence we glean from those customers still shows anincreasing willingness to invest to make that customer communication morerelevant, compelling, agile and rapid. Because our range of services extendsbeyond manufacturing, we are able to help address these challenges. Ourinformation technology services represent a key competitive advantage indelivering these improvements. What makes us unique is the ability to connectthese services to a manufacturing base with the scale, capability and quality todeliver strong end-to-end solutions. We are and will be more resilient todifficult market conditions precisely because we have these wider offerings. Where to next? The three-stage plan that was outlined a year ago remains our blueprint: 1. Focus on customers and basics, which has been completed with much success. 2. Focus on cross-sell and value, which is still in progress. 3. Focus on integrated portfolio, which is to begin later this year. Our focus on cross-selling has delivered excellent results in the second half of2007, and shows every sign of continuing strongly. The challenge for 2008 is tomove from stage 2 to stage 3 of our plan. So far, we have sold additionalservice lines to customers one at a time. We have consciously designed ourchannel to market to encourage incremental business to develop our customerrelationships. This has been successful, but it has not yet unlocked the fullpotential of those relationships, and the value we can bring to them. Stage 3 will see us capitalise on our existing range of services to offerjoined-up propositions which deliver Business Process Improvement for ourcustomers. This is something our competitors find difficult to replicatebecause they tend to lack the necessary breadth of capabilities. But, for ourbusiness, this will be the source of sustainable profit improvement goingforward. We have already released the first of these propositions - helping our customersto respond to environmental issues in marketing. Linking a range of ourservices, such as use of sustainable paper or data modelling for better customertargeting, helps with this issue. We can reduce the environmental impact ofmarketing by reducing waste and making better use of resources. We have calledthis proposition "Greenprint". It has generated a better quality of conversationwith customers about a serious business issue - the environment. Further propositions will follow. For example, there is increasing demand fromour customers to merge transactional mailings, such as bank statements, withmarketing material on the same page. Experience from markets such as the UnitedStates shows that this increases the effectiveness of the marketing message.This so-called Transpromotional proposition has great potential benefits, butour customers face issues of data integrity, design and management control. Withour capabilities in both statements and direct mail, we are in an excellentposition to help our customers achieve this change. It will involve a complex,related set of our services, and will require Communisis to demonstrate goodsales skills and strong delivery credibility. The ability to sell in this way isat the heart of stage 3. Investing for the future Executing stage 3 will require investment. We must invest in relevant serviceswe cannot deliver at present, such as email marketing, artwork and complex dataprofiling, to make sure our propositions are complete. Investment in the ITproducts that make up our new print management model, such as C-Store, IQ andConnect-3 will increase. New technology in manufacturing will also be required,because we must migrate our production to match new marketing techniques. Ourinvestment programme will not neglect skill development and creation ofmarketing material to support this account management. Finally, we will alsomake an investment of £1m in 2008 to reduce the impact of our operations on theenvironment. Our level of capital investment in 2008 will remain at about the same level asin 2007. In real terms this represents an increase, because our 2007 investmentfunded the new Speke factory, and that expense will not repeat in 2008. Theimprovement in our balance sheet during 2007 leaves us in a good position to dothis. This investment will bear fruit as Stage 3 develops into 2009. Many of these newservices will fall within our Technology and Services segment, and so we expectthis segment to deliver an increasing percentage of our profits in the future.Margins here are strong, and we believe will remain so. Manufacturing willremain important, because it forms part of our end-to-end service offering, butwe will rely on it less as a source of profit for the overall Group. Strong foundations and momentum Our aim is to help our customers make communication with their customers a moreprofitable process. We have made enormous progress in 2007 in that direction.All of our manufacturing facilities now deliver high quality, efficient andrelevant products at a profit. Our financial performance is greatly improved.Our account management model is evolving into a strong channel to market for ourservices. Communisis operates in a difficult and competitive sector, so staying ahead ofthe market is crucial. Our progress in this regard in 2007 and the investmentswe are committed to making in the year ahead mean that we are well placed tosucceed in our chosen marketplace. We take note of recent developments in theeconomy, particularly in financial services, but to date these have had littleeffect on our business. We are in a strong position to respond to changingcustomer priorities, and we enter 2008 with good long term prospects. Steve Vaughan Chief Executive Financial Performance Report This financial year has seen Communisis make significant progress in its statedstrategy and numerous improvements in business performance. Even now, the earlyfinancial rewards of this progress are showing through in terms of both improvedprofitability and stronger balance sheet. These improvements, and those wecontinue to make, bolster our confidence in Communisis' long-term prospects. Profitability Profit from operations after restructuring costs increased by 472% to £10.5m(2006: £1.8m). Restructuring costs were controlled in line with managementexpectations. Profit after tax was £6.6m (2006: loss of £20.0m). The table below records revenue and profit performance in each of our keybusiness segments as well as the much-reduced impact of exceptional items. Weannounced a realignment of our reportable business segments at our 2007 interimresults. The change is designed to show the way we manage performance and itbetter records progress with our strategy (see note 1). The 2006 results in thetable below have been restated to show this new segmentation, presented on acomparable basis. 2007 2006 £m £m Revenue Technology & Services 12.4 7.0 Print Sourcing 107.4 98.0 Direct Mail & Business Forms 115.7 114.1 Transactional 55.1 41.5 290.6 260.6 Profit Technology & Services 4.0 2.0 Print Sourcing 1.1 5.0 Direct Mail & Business Forms 5.7 6.1 Transactional 11.7 10.5 Central costs (9.0) (8.5) Restructuring costs (3.0) (13.3) Profit from operations after restructuring costs 10.5 1.8 Profit on exceptional property disposals - 13.1 Impairment of intangible assets - (31.5) Profit / (Loss) from Operations 10.5 (16.6) Net finance cost (2.6) (2.8) Tax (1.3) (0.6) Profit / (loss) for the year 6.6 (20.0) Revenue improved in all four of our business segments, overall growing by 11.5%.Profit from operations after all exceptional costs improved from a loss of£16.6m in 2006 to a profit of £10.5m in 2007. The loss from operations in 2006was impacted by a £31.5m goodwill impairment charge but was flattered by one offprofits of £13.1m from major property disposals. The Technology & Services business has grown strongly in 2007. A major factorin this growth was the renegotiation of our contract with Barclays to our newprint management model. This model charges for access to our print supply chainand other value-added services, and these charges are shown in this segment.New sales of marketing and procurement software and services sustained growth inthis segment into the second half. New sales of this type to Procter & Gamble,HSBC and Defra replaced one-off profits made in 2006 from other consultancyopportunities. Technology & Services margins continue to be strong. In contrast, Print Sourcing profits declined year-on-year, as expected. A newfeature of this segment was £39.1m of revenue provided to customers at nilmargin (2006: £nil), either as part of our new print management model, or forpostal services. Profits derived from marking up bought-in print fellsignificantly. Early in 2007 we took steps to reduce cost and improveefficiency in this segment. As anticipated, this enabled us to grow profits inthe second half of 2007 - by more than 50% compared with the first half of 2007. The Direct Mail and Business Forms segment delivered modest revenue growth. Ayear-on-year comparison shows a 6.5% decline in profits and an operating marginreduced from 5.4% to 5%. This masks the significant turnaround achieved,particularly in our Leeds Direct Mail factory. Segment profit in the secondhalf of 2007 improved to £4m (compared with first half 2007: £1.7m, and secondhalf 2006: £2.6m). This half-on-half improvement of 135% was achieved despitethe traditionally quiet summer months. Year-on-year performance was diluted bythe full year effect of rent payments following the sale and leaseback of theBath facility in June 2006. Excluding this dilution shows that profits havegrown year on year. All of this improvement was due to the Leeds direct mailbusiness; Bath business forms recorded a decline year-on-year, but remains aresilient business. The Transactional business continued to grow in 2007 with the Centrica billingcontract coming on stream early in the year. Segment performance in 2006 and2007 was boosted by additional activity associated with the service transitionto Speke. In 2008 we have two new statement contracts to add to the Spekeoperation and investment to enable further efficiency gains. Cheques performedstrongly again in 2007. Well-developed efficiency improvement plans wereimplemented early in the year helping to offset the impact of continued volumedecline. In addition, work more suited to the cheque business moved from Leedsand the cheque business benefited from a full year of business previouslyundertaken in Altrincham. Central costs now include all the cost of Group centred activity, some of whichwas previously allocated to divisions. This includes our Corporate head office,the Group procurement team and business development teams, and IT development.The 6% rise in cost, year-on-year, reflects both our investment in new skillsand capabilities, and a provision for bonuses payable on delivery of profit andcash targets. The targeted reduction in restructuring costs was achieved in line withexpectations. The £3m incurred in 2007 funded redundancies in Print Sourcing inEurope, Direct Mail and cheques. These initiatives enabled us to achieve realefficiency gains in the three segments in which these businesses operate andwill benefit future years. Headline net finance costs were slightly reduced compared with 2006. If thenon-cash impact of pensions, foreign exchange losses and interest receivable ontax repayments are excluded however, net finance costs rose by 3%. The increasereflected the rise in the base lending rate, the more significant rise in LIBORin the latter part of the year and the addition of new Group borrowing at highermargins offset by lower net debt levels, particularly in quarter 4 of 2007. The tax charge for the year of £1.3m (2006: £0.6m) represents an effective rateof tax of 16%. The principal reason for the relatively low rate was the releaseof certain contingent provisions established in previous accounting periods. Wewould anticipate the effective rate increasing in 2008 and beyond to slightly inexcess of the UK statutory rate. Cashflow and net debt A key aim for this financial year was to improve working capital management andbegin to repair our balance sheet. In the second half of 2007, we built upon thesignificant improvements delivered in the first half of 2007. Our continuedfocus on working capital and further reductions in overdue customer debt enabledus to reduce Group net debt by £18.6m. The table below summarises the Group's key cashflows: 2007 2006 £m £m Profit from operations before restructuring costs 13.5 15.1Depreciation and other non-cash items 9.3 10.4Decrease / (Increase) in working capital 17.4 (10.3)Cash effect of restructuring (4.2) (9.6)Additional pension contributions (3.1) (2.5)Interest and tax (5.0) (4.5)Net cashflow from operating activities 27.9 (1.4) Capital expenditure (8.5) (8.2)Exceptional property disposals - 20.3Net acquisitions and disposals 1.2 (6.3)Dividends (1.8) (8.2)Share buybacks - (5.1)Other (0.2) -Movement in net debt 18.6 (8.9)Opening net debt (44.9) (36.0)Group net debt (26.3) (44.9) Despite 11.5% growth in revenue, the Group achieved working capital improvementsfrom stock, debtors and creditors. These improvements provided a total cashinflow of £17.4m compared with an outflow of £10.4m in 2006. Customer debt was considerably reduced during the year. At the end of 2006, 33%of all customer debt was overdue. By the half year this had reduced to 17% andat the end of 2007 to 13%. Most attention was directed to the top 60 customeraccounts looked after by our key account managers. Here the improvement waseven more marked, with overdue debt falling from 28% to 8%. The result is a£9.4m reduction in trade and other receivables and consequent cash inflow,despite higher sales revenue. Overall debtor days fell by 38% year-on-year. Our growth allowed the absolute level of supplier credit to rise. This wasoffset by a 23% reduction in the number of days of credit taken from suppliers,which gave us the advantage of early payment discounts. Group stock levelsreduced by £2.3m following attention to levels of finished goods and work inprogress. Control of restructuring costs delivered a reduction in the cash costof restructuring of more than 50%. The combination of all these measures enabled the Group to achieve a £27.9m cashinflow from operations, an improvement of nearly £30m compared with the prioryear. In 2007, the bulk of our capital expenditure was in the Speke factory fit outand equipment for our new transactional contracts. We have also supported theturnaround in Leeds with investment in both new capability and enhancements toexisting equipment in Leeds. Cash flow in 2006 was flattered by two exceptional property disposals; the saleand leaseback of our Bath business forms facility and the sale of a factoryproperty in Stourton, Leeds. There have been no property disposals in 2007. There were no acquisitions in 2007; in 2006 the Group acquired HSBC's statementproduction business and Centrica's UK billing operations. In 2007 we received£1.2m (2006: £1.6m) in respect of the disposal of the Colour Solutions businessin 2004. All amounts due in respect of this transaction have now been receivedin full. The total 2007 dividend is held at the same level as 2006 at 2.453p per share.The Group remains within its self-imposed cover ratio target of 2-2.5 timesprofit before restructuring cost. The bulk of the 2006 dividend was paid as aninterim dividend (1.953p per share) in 2006, whereas two thirds of the 2007dividend will be paid in April 2008. The result is a one-off reduction in theyear-on-year cash cost of dividends of £6.4m. Dividends will be paid, subject toshareholders approval, on 30 April 2008 to shareholders' on the register at theclose of business on 4 April 2008. There were no further share buybacks in 2007(2006: £5.1m). The combined effect of all of the above was an £18.6m reduction in Group netdebt levels. This compares with an increase in debt of £8.9m in 2006. The Groupincreased the level of committed bank facilities by £5m whilst making scheduledloan repayments of £8.5m. Committed loan facilities totalled £46.1m at the endof 2007 with £12.5m of amortisation scheduled for 2008. There are welldeveloped plans to extend the facilities by a further £10m to ensure that theGroup has access to the funds necessary to continue progress with its strategy. Pensions On 30 November 2007, following consultation with the beneficiaries of thedefined benefit sections of the Communisis Pension Plan ("the plan"), thedefined benefit sections of the plan closed to future benefit accruals. A newdefined contribution section of the plan replaced defined benefit sections foraccruals after that date. Employees have the opportunity to contribute between2% and 7% of pensionable salary to this section to which the Company contributesa further 4% to 9%. Employees can vary their contributions annually, which inturn will affect the level of Company contributions. With most employees optingfor the upper end of the contribution range, indications are that overall thechange in pension arrangements will be cash neutral to the Group. The new deficit recovery plan agreed with Trustees during the first half remainsin place with the first instalment of £1.2m due in March 2008. Planning hasstarted for the trustees' next actuarial valuation of the plan due at 30September 2008. The gross pension deficit under IFRS has fallen to £14.7m (31 December 2006:£17.3m, 30 June 2007: £10.4m). The reduction was driven by the £3.1m additionalcontribution made by the Group in January 2007, and improvements in bond yieldsresulting in a higher liability discount rate offset by an increase in thelong-term inflation assumption. Peter King Finance Director Consolidated Income Statement for the year ended 31 December 2007 Note 2007 2006 £000 £000Revenue 290,590 260,640Changes in inventories of finished goods and work in progress (246) 585Raw materials and consumables used (157,968) (132,215)Employee benefits expense (75,742) (72,977)Other operating expenses (36,401) (33,386)Depreciation and amortisation expense (6,700) (7,541)Impairment of intangible assets 3 - (31,561)Restructuring costs 3 (3,025) (13,269)Profit on disposal of properties 3 - 13,132Profit / (loss) from operations 10,508 (16,592) Analysed as:Profit from operations after restructuring costs 10,508 1,837Impairment of intangible assets 3 - (31,561)Profit on disposal of properties 3 - 13,132Profit / (loss) from operations 10,508 (16,592) Finance revenue 894 619Finance costs (3,531) (3,392) 2 (2,637) (2,773) Profit / (loss) before taxation 7,871 (19,365) Income tax expense 4 (1,320) (675)Profit / (loss) for the year attributable to equity holders of parent 6,551 (20,040) Earnings per share 5On profit / (loss) for the year attributable to equity holdersand from continuing operations - basic 4.73p (14.35)p - diluted 4.68p (14.35)p Dividend per share 6 - paid 1.318p 5.850p - proposed 1.635p 0.500p Dividends paid and proposed during the year were £1.8 million and £2.3 millionrespectively (2006 £8.2 million and £0.7 million respectively). The accompanying notes are an integral part of this Consolidated IncomeStatement. Consolidated Balance Sheet 31 December 2007 2007 2006 £000 £000ASSETSNon-current assetsProperty, plant and equipment 27,473 27,080Intangible assets 151,022 151,182Trade and other receivables 1,865 2,865Deferred tax assets 2,521 3,955 182,881 185,082Current assetsInventories 10,970 13,272Trade and other receivables 40,977 51,624Cash and cash equivalents 13,628 2,133 65,575 67,029 Non-current assets classified as held for sale 350 350 TOTAL ASSETS 248,806 252,461 EQUITY AND LIABILITIESEquity attributable to the equity holders of the parentEquity share capital 34,636 34,633Share premium 4 -Merger reserve 11,427 11,427Capital redemption reserve 1,375 1,375ESOP reserve (338) (338)Cumulative translation adjustment (76) (33)Retained earnings 81,470 76,547Total equity 128,498 123,611 Non-current liabilitiesInterest bearing loans and borrowings 22,000 38,521Retirement benefit obligations 14,730 17,306Provisions 68 211 36,798 56,038Current liabilitiesInterest bearing loans and borrowings 17,907 8,548Trade and other payables 60,548 57,853Income tax payable 3,568 4,783Provisions 1,487 1,628 83,510 72,812 Total liabilities 120,308 128,850 TOTAL EQUITY AND LIABILITIES 248,806 252,461 The accompanying notes are an integral part of this Consolidated Balance Sheet. Consolidated Cash Flow Statement for the year ended 31 December 2007 Note 2007 2006 £'000 £'000Cash flows from operating activitiesCash generated from operations 7 32,937 3,039 Interest paid (3,696) (3,177)Interest received 266 619Income tax paid (1,584) (1,912)Net cash flows from operating activities 27,923 (1,431) Cash flows from investing activitiesAcquisition of subsidiary undertakings net of cash acquired - (7,929)Receipt of deferred consideration from the sale of subsidiary undertakings 1,164 1,600Purchase of property, plant and equipment (7,667) (4,580)Proceeds from the sale of property, plant and equipment 260 21,495Purchase of intangible assets (1,074) (3,580)Tax on disposal of property, plant and equipment - (1,191)Net cash flows from investing activities (7,317) 5,815 Cash flows from financing activitiesReceipt from sharesave options exercised 7 -Purchase of own shares including costs - (5,147)New borrowings 6,000 13,075Repayment of borrowings (18,500) (8,000)Dividends paid (1,822) (8,223)Net cash flows from financing activities (14,315) (8,295) Net increase / (decrease) in cash and cash equivalents 6,291 (3,911) Cash and cash equivalents at 1 January 2,085 6,027 Exchange rate effects (155) (31)Cash and cash equivalents at 31 December 8,221 2,085 Cash and cash equivalents consist of:Cash and cash equivalents 13,628 2,133Overdrafts (5,407) (48) 8,221 2,085 The accompanying notes are an integral part of this Consolidated Cash FlowStatement. Consolidated Statement of Recognised Income and Expense for the year ended 31 December 2007 2007 2006 £'000 £'000 Exchange losses on translation of foreign operations (43) (31)Actuarial gains on defined benefit pension plans 511 19,176Tax on items taken directly to equity (489) (5,752)Net profit / ( loss) recognised directly in equity (21) 13,393Profit / (loss) for the year 6,551 (20,040)Total recognised income and expense for the year 6,530 (6,647) Attributable to:Equity holders of the parent 6,530 (6,647) The accompanying notes are an integral part of this Consolidated Statement ofRecognised Income and Expense. Notes to preliminary results 1 Segmental information In order to reflect the way in which the Group now manages performance and torecord very clearly progress with our strategy, business segments have beenrealigned. The old 'Print Management Services' segment has been replaced by a 'Technology & Services' segment and a 'Print Sourcing' segment. The formerincludes 'new model' print management contracts and all profits made fromselling added-value communication-enhancing services and print or communicationrelated consultancy. Customers who have signed up to a 'new model' print management contract havefull access to the Group's print supply chain and are able to source print atthe cost the Group buys it. Where this is the case, revenue and cost associatedwith the print element of the Group's offering to these customers is included inthe 'Print Sourcing' segment. 'Print Sourcing' will also include 'old model'print management contracts that rely for profit on marking up print sourcedelsewhere. The Group will report performance against two further segments, 'Direct Mail &Business Forms' and 'Transactional'. The Group's 'Direct Mail & Business Forms'segment will include activities in both these market sectors. The 'Transactional' segment includes all cheque and cheque mailing activity alongwith statement and billing operations. Transfer pricing between business segments is set on an arms length basis in amanner similar to transactions with third parties. Segment revenue, segmentexpense and segment profits include sales between business segments. Thosesales are eliminated on consolidation and are not included in the revenuefigures below. Business segments The segment results for the year ended 31 December 2007 are as follows: Continuing operations Direct Mail & Technology & Print Business Trans- Central Services Sourcing Forms actional Cost Total £000 £000 £000 £000 £000 £000Revenue 12,373 107,457 115,670 55,090 - 290,590 Profit from operations beforerestructuring costs 4,031 1,087 5,734 11,724 (9,043) 13,533Restructuring costs (Note 3) - (228) (2,223) (574) - (3,025)Profit from operations 4,031 859 3,511 11,150 (9,043) 10,508 Revenue attributable to contracts where the Group provides certain services atnil margin is shown wholly within Print Sourcing and amounts to £39.1m (2006:£nil). Inter-segment sales amounting to £30,368,000 and £7,737,000 were made to PrintSourcing from Direct Mail & Business Forms and Transactional respectively.Inter-segment sales amounting to £356,000 and £521,000 were made to Direct Mail& Business Forms from Transactional and Technology & Services respectively.Inter-segment sales amounting to £10,051,000 were made to Transactional fromDirect Mail & Business Forms. The segment results for the year ended 31 December 2006, restated to reflect thenew segmental reporting structure adopted from 1 January 2007, are as follows: Continuing operations Direct Mail & Technology & Print Business Trans- Central Services Sourcing Forms actional Cost Total £000 £000 £000 £000 £000 £000Revenue 7,010 97,974 114,095 41,561 - 260,640 Profit from operations beforerestructuring costs 1,982 4,990 6,109 10,531 (8,506) 15,106 Restructuring costs - (2,047) (8,877) (489) (1,856) (13,269)Profit from operations afterrestructuring costs 1,982 2,943 (2,768) 10,042 (10,362) 1,837 Impairment of intangible assets - (9,115) (22,446) - - (31,561)Profit on disposal of properties - - 9,559 - 3,573 13,132 Profit / (loss) from operations 1,982 (6,172) (15,655) 10,042 (6,789) (16,592) Inter-segment sales amounting to £31,689,000 and £4,489,000 were made to PrintSourcing from Direct Mail & Business Forms and Transactional respectively.Inter-segment sales amounting to £268,000 and £623,000 were made to Direct Mail& Business Forms from Transactional and Technology & Services respectively.Inter-segment sales amounting to £6,881,000 were made to Transactional fromDirect Mail & Business Forms. 2 Finance costs and finance income by category of financial instruments 2007 2006 £000 £000 Interest on receivables measured at amortised cost 266 619Interest on financial liabilities measured at amortised cost (3,350) (3,346)Net interest from financial assets and financial liabilities not at fairvalue through profit and loss (3,084) (2,727)Loss on foreign currency financial liabilities (181) -Retirement benefit related income / (costs) 628 (46) (2,637) (2,773) 3 Restructuring costs and other exceptional items 2007 2006 £'000 £'000Profit / (loss) from operations is arrived at after charging / (crediting)the following items:Transfer of business - PDM Altrincham 700 8,260Other restructuring costs 2,325 5,009Restructuring costs 3,025 13,269Profit on disposal of properties - (13,132)Impairment of intangible assets - 31,561 3,025 31,698 During the previous year the Group closed its Altrincham operation andtransferred production to Leeds. The restructuring costs deriving from thisclosure relates to disruption, redundancy, onerous lease costs, and loss ondisposal of property, plant and equipment. In 2007 the Group's exposure to anonerous lease and other associated property costs in respect of the Altrinchamproperty has been reassessed and a further charge made of £700,000. Other restructuring costs in 2007 consist entirely of redundancy costsassociated with efficiency improvement made in the European business, the LeedsDirect Mail factory and the cheques business. In 2006, Other restructuring costs includes redundancy costs in both the UK andEuropean print sourcing businesses, the Bath business forms operation, and thecheques business. Also included are the costs of Board appointments and finalcosts associated with corporate activity in 2005. 4 Income tax The major components of income tax expense for the years ended 31 December 2007and 2006 are: 2007 2006 £000 £000Tax charged in the Income StatementCurrent income tax UK Corporation Tax 1,659 3,476 Adjustments in respect of prior years (1,284) (1,454) Adjustments in respect of overseas tax for prior years - 295Total current income tax charge 375 2,317 Deferred income tax Origination and reversal of temporary differences 1,091 (1,307) Adjustments in respect of prior years (73) (335) Adjustments in respect of prior years - due to change in tax rate (73) -Total deferred tax charge / (credit) 945 (1,642) Tax charge in the Consolidated Income Statement 1,320 675 Tax relating to items charged or credited to equityDeferred income tax related to items charged or credited directly to equityActuarial gains / (losses) on pension scheme Current year charge 143 5,752 Adjustments in respect of prior years - due to change in tax rate 346 -Income tax expense / (credit) reported in Statement of RecognisedIncome and Expense 489 5,752 Adjustments in respect of prior years' corporation tax relate to the release ofprovisions created in respect of prior years' tax submissions, agreed in thecurrent year. Reconciliation of the total tax charge The tax expense in the Income Statement for the year is lower (2006 higher) thanthe standard rate of corporation tax in the UK of 30% (2006 30%). Thedifferences are reconciled below: 2007 2006 £000 £000(Loss)/ profit before income tax 7,871 (19,365) At UK statutory income tax rate of 30% (2006 30%) 2,361 (5,810)Impairment of goodwill not deductible for tax purposes - 9,468Expenses not deductible for tax purposes 335 276Non-taxable gain on property disposals - (1,887)Unrelieved overseas losses 100 55Share-based payments 3 72Change in deferred tax in respect of rolled over capital gains (49) (5)Adjustments in respect of prior years (1,430) (1,494) 1,320 675 5 Earnings per share 2007 2006 £000 £000Basic and diluted earnings per share is calculated as follows:Profit / (loss) attributable to equity holders of the parent 6,551 (20,040) 2007 2006 Thousands ThousandsWeighted average number of ordinary shares(excluding treasury shares) for basic earnings per share 138,254 139,653Effect of dilution:Share options 1,468 877Weighted average number of ordinary shares(excluding treasury shares) adjusted for the effect of dilution 139,722 140,530 279,628 (2006 279,628) shares were held in trust at 31 December 2007. Share options in issue for which exercise is currently unlikely (as the optionprice is higher than the average market price) total 2,472,681 (2006 3,168,339)options. As a consequence, these options have not been included in the dilutedearnings per share in the current year. The inclusion of these options wouldhave been anti-dilutive in the prior year and so had no impact on dilutedearnings per share for the year ended 31 December 2006. Earnings per share from continuing operations after restructuring costs andbefore other exceptional items Net profit from continuing operations before exceptional items and attributableto equity holders of the parent is derived as follows: 2007 2006 £000 £000 Profit / (loss) after taxation from continuing operations 6,551 (20,040)Exceptional items (Note 3)Profit on disposal of properties - (13,132)Impairment of intangible assets - 31,561Taxation on exceptional items - 1,818Taxation - adjustments in respect of prior years (Note 4) (1,430) (1,494)Profit after taxation from continuing operations excluding exceptional items 5,121 (1,287) Adjusted earnings per shareBasic 3.70p (0.92)pDiluted 3.66p (0.92)p Earnings per share from continuing operations before restructuring costs andother exceptional items 2007 2006 £000 £000 Profit / (loss) after taxation from continuing operations 6,551 (20,040)Restructuring costs 3,025 13,269Exceptional items (Note 3)Profit on disposal of properties - (13,132)Impairment of intangible assets - 31,561Taxation on restructuring costs and exceptional items (825) (2,055)Taxation - adjustments in respect of prior years (Note 4) (1,430) (1,494)Profit after taxation from continuing operations excluding exceptional items 7,321 8,109 Adjusted earnings per shareBasic 5.28p 5.81pDiluted 5.23p 5.77p Adjusted earnings per share uses the same weighted average number of ordinaryshares as reported above. 6 Dividends paid and proposed 2007 2006Declared and paid during the year £000 £000Amounts recognised as distributions to equity holders in the year:Final dividend of the year ended 31 December 2005 of 3.897p per share - 5,523Interim dividend of the year ended 31 December 2006 of 1.953p per share - 2,700Final dividend of the year ended 31 December 2006 of 0.500p per share 691 -Interim dividend of the year ended 31 December 2007 of 0.818p per share 1,131 - 1,822 8,223Proposed for approval at AGM (not recognised as a liability as at 31 December)Final equity dividend on ordinary shares for 2007 of 1.635p(2006 0.500p) per share 2,260 691 7 Cash generated from operations 2007 2006 £000 £000Continuing operationsProfit / (loss) before tax 7,871 (19,365)Adjustments for:- depreciation and amortisation 6,700 7,523- amortisation of contract premium payment 1,000 1,000- excess of Income Statement pension charge over normal contributions paid 1,513 1,547- restructuring costs 3,025 13,269- profit on sale of property, plant & equipment (97) (43)- profit on exceptional property disposals - (13,132)- share-based payment charge 172 259- net finance costs 2,637 2,773- impairment of goodwill and customer relationship assets - 31,561 Additional contribution to the defined benefit pension plan (3,100) (2,484)Cash effect of restructuring continuing operations (4,223) (9,636) Changes in working capital:Decrease / (increase) in inventories 2,307 (183)Decrease / (increase) in trade and other receivables 9,412 (3,734)Increase / (decrease) in trade and other payables 5,720 (6,316)Cash generated from operations 32,937 3,039 In 2007 the cash effect of restructuring includes payments of £1,973,000 inrespect of amounts charged to profit in 2006. Non cash restructuring costs in2007 amount to £775,000 in respect of onerous lease provisions and redundancyprovisions. 8 Additional information Communisis plc is a public limited company incorporated and domiciled in Englandand Wales. The Company's ordinary shares are traded on the London StockExchange. The preliminary announcement is prepared on the same basis as set out in theprevious year's financial statements. The financial information for the year ended 31 December 2007 and 31 December2006 is abridged and has been extracted from the 2007 statutory accounts ofCommunisis plc which were approved by the Board of Directors on 27 February2008, along with this preliminary announcement, but have not yet been deliveredto the Registrar of Companies. The auditors have issued an unqualified opinionon the 2007 statutory accounts. The 2006 statutory accounts have been deliveredto the Registrar of Companies. The auditors' report on the 2006 statutoryaccounts was unqualified. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Communisis PLC