4th Mar 2008 07:01
4imprint Group PLC04 March 2008 4 March 2008 4imprint Group plc Preliminary Results for the period ended 29 December 2007 4imprint Group plc announces today its results for the period ended 29 December 2007 Highlights • Group sales increased to £146.82m, £27.30m ahead of 2006 with organicgrowth in the Direct Marketing Division producing a 21% increase on 2006,organic growth in the End User Division a 7% increase, while the Trade Divisionsales more than doubled those in 2006 reflecting the acquisition of Supreme inNovember 2006. • Operating profit at £10.16m before exceptional items and a one offshare grant was 35% ahead of 2006 and pre tax profit on the same basis was 26%ahead. • Profit before tax, after exceptional items and one off share grantwas £3.30m. • Tax charge was £1.07m (32%) (2006: £2.35m: 32%). • Basic earnings per share before exceptional items and one off sharegrant was up 24% at 26.40p (2006: 21.34p). • Basic earnings per share was 8.93p (2006: 20.29p). • Final dividend of 8.00p per share is proposed, 28% over 2006 giving atotal dividend paid and proposed of 12.00p, 26% ahead of 2006, in line with theestablished progressive dividend policy adopted by the Board. Commenting on the results, Ken Minton, Executive Chairman, said: "2007 was another year of significant progress for the 4imprint Group withstrong growth in operating and pre tax profit before exceptional items. Thelatter were principally incurred in preparing the Trade and End User Divisionsfor sustained profitable growth. The Direct Marketing Division delivered anotheryear of strong growth in sales and profits". - Ends - For further information, please contact: Ken MintonExecutive Chairman4imprint Group plc Tel. +44 (0) 207 299 7201 Executive Chairman's Statement In my statement to Shareholders in the interim report for 2007, I advised thatthe Board expected that the progress made by the Group at the half year wouldcontinue though the second half. I am pleased to report that the Group achievedthat objective. Group sales were £146.82m, £27.30m or 23% ahead of 2006. Of this £27.30m,organic growth in the Direct Marketing Division contributed £13.31m or 21% over2006, organic growth in the End User Division contributed £3.37m or 7% over 2006and the Trade Division contributed £10.62m or 117% over 2006, reflecting theacquisition of Supreme in November 2006. Operating profit before exceptional items and share grant at £10.16m was 35%ahead of 2006. Exceptional charges were substantial at £5.27m; the main components of whichwere:- (a) The integration of the Product Source business into the Supreme site atBlackpool,(b) The major rationalisation of the Manchester Broadway site, made possibleby the Product Source move to Blackpool,(c) The cost of the termination of a significant and onerous contract in theManchester based Corporate Programmes business, which took place in the firsthalf and for which a partial provision was recorded in the interim report. In addition, a non recurring share grant of £1.14m, relating to shares grantedto the Executive Chairman as an element of his overall remuneration package wasmade. Details of which are given in note 4. Operating profit after these charges was £3.75m. Net interest costs were £0.45mproducing profit before tax of £3.30m. Tax charges were £1.07m producing profitafter tax of £2.23m. Earnings per share before exceptional items and share grant was 26.40p anincrease of 24% on last year. The acquisition of the Supreme trade business at the end of 2006 provided theGroup with the opportunity to transfer its Manchester based Product Source tradebusiness onto the Supreme site at Blackpool. This integration, in July lastyear, resulted in the recruitment of over 120 more staff at Blackpool and asimilar reduction of jobs in Manchester. Furthermore, the overhead structureneeded to support the remaining businesses at Manchester was able to besubstantially reduced also leading to a transformation of the profitability ofthat business. The whole integration/rationalisation programme was a major undertaking for theTrade Division. Despite extensive planning, production capability was unable tomeet the major increases in demand placed on it. As a result customersatisfaction fell and sales likewise. In response, resources in many areas wereincreased, particularly in customer service, and by the end of 2007 output andcustomer satisfaction had greatly improved. During the first two months of thisyear production/quality/customer satisfaction were at planned levels. The Group now comprises three completely separate Divisions, all of whichdelivered substantial progress during 2007, as follows:- a) End User Division This Division comprises the Manchester based Corporate Programmes/Field Salesbusiness, the London based specialist premiums business and Kreyer, the Germanybased Corporate Programmes/Field Sales business. Like for like total sales forthis Division increased by 7% to £50.85m while operating profit beforeexceptional items at £2.88m increased by 23%, reflecting the benefitsparticularly of the rationalisation of the Manchester based business. b) Direct Marketing Division During the second half of the year, the fast growing Direct Marketing Divisionwas repositioned to develop internationally. The UK Direct Marketing businesswas put under the direct control and management of the US business, and theDivision is now additionally focussed on diversifying its business into WesternEurope. Like for like, sales of this Division increased by 21% to £76.74m, whileDivisional operating profit increased by 26% to £6.17m. Sales in the US andCanada continued to grow strongly throughout the second half and full year saleswere 30% ahead of prior year. c) Trade Division The Trade Division has almost doubled in size with the acquisition of Supreme.Total sales in 2007 at £23.73m were 81% up on 2006. Divisional operating profitbefore exceptional items at £3.33m was 41% ahead. Sales were lower than plannedin the second half, caused by the supply and customer service problems atBlackpool, particularly in the period July to October. These issues and theincreased costs incurred, produced lower profits in the second half thanplanned. However, as I said earlier, these problems are now resolved and salesare now recovering steadily. Cash management The Group started the year with £0.25m of net debt and ended the year with£7.08m of net debt and borrowings.Cash inflow from operating profit adjusted for non cash items and beforeexceptional items was £12.94m, principal outflows were tax, dividends, interestand defined benefit pension contributions of £7.52m; cash incurred onexceptional items was £3.03m and operating working capital and capital investedamounted to £9.12m. Strategy When the acquisition of Supreme was announced, the Company stated that itsintention would be to first merge its Product Source business with that ofSupreme, and when this was completed, the Company would pursue the placing ofthe merged business into separate ownership. With the completion of the merger,the Company will now pursue the second part of this strategy. Dividend The Board has a well established policy of ensuring that dividend payout is keptin line with the growth of the Group's earnings, while maintaining dividendcover pre exceptional items in excess of two. Accordingly, the Board is proposing a final dividend of 8.00p per share, whichwith the interim payment already made of 4.00p per share means a dividend payoutof 12.00p per share, an increase of 26% over 2006. People 4imprint has achieved sustained growth over recent years, and profit beforeexceptional items for 2007 is the highest for many years. Credit for achievingthis excellent performance must go to everyone working in the Divisions and inthe Group and on behalf of the Board I congratulate everyone for thisachievement and thank them for their great effort and commitment. Outlook Group sales in the first two months of this year were ahead of the same periodlast year. Sales in the Direct Marketing Division were strongly ahead of 2007,the End User Division sales more modestly so, while in the Trade Division saleswere lower than in the same period last year, but confirmed the recovery seen atthe end of 2007. In addition, 2008 should see a full year's benefit from thereduced cost base at Manchester and the successfully completed Trade Divisionintegration. Ken MintonExecutive Chairman4 March 2008 Finance Director's Report The Group's results are reported in three divisions, in accordance with the waythe business is now managed: Trade DivisionEnd User DivisionDirect Marketing Division A description of each division is given in the Operating Review. The UK DirectMarketing business was transferred from the End User Division to the DirectMarketing Division during 2007 and prior year comparatives have been restatedaccordingly. Group results 2007 2006 £m £m ChangeGroup sales 146.82 119.52 +23%Group operating profit before exceptional items and share grant 10.16 7.54 +35%Group profit before tax, exceptional items and share grant 9.72 7.72 +26%Group profit before tax 3.30 7.34 -55% Sales and operating profit before exceptional items from all three divisionswere ahead of prior year. Head office costs at £1.33m were greater than prior year (2006: £1.02m),principally reflecting increased professional advisory costs in the year. Share option charges The Group charged £0.60m (2006: £0.74m) to operating profit in accordance withIFRS2 "Share based payment". Pensions The Group sponsors a closed defined benefit scheme with 4 active members, 940pensioners and 1,434 deferred members at 5 April 2007, the date of the lastactuarial valuation. The pension charge to profit in the period for this schemewas £0.30m (2006: £0.33m) and the cash contributions by the Company were £1.90m(2006: £1.50m). The pension fund deficit reduced to £10.55m (2006: £18.44m). The scheme assets at 29 December 2007 were £80.99m (2006: £81.91m); theliabilities were £91.54m (2006: £100.35m); the reduction in liabilities wasprincipally due to an increase in the discount rate from 5.3% to 6.0%; partlyoffset by increases in inflation and mortality assumptions. Exceptional items The exceptional charge of £5.27m in 2007, comprised the following items:- i) Costs of £3.49m related to relocating the Manchester based Trade Businesses to Blackpool; ii) Costs of £0.98m of reorganisation in the End User Division following the exit of the Trade Businesses; iii) Contract exit costs of £0.80m related to the cost of exiting an onerous customer contract in the End User Division, including an inventory write down of £0.50m. Share grant 200,000 shares were granted to the Chairman on 1 August 2007. The charge of£1.14m represents the number of shares awarded at the share price on the date ofgrant plus associated costs. In view of the magnitude of the charge arising andnon-recurring nature of the award, separate disclosure has been made on the faceof the income statement. Taxation The tax charge was £1.07m (32%) compared to £2.35m (32%) in 2006. Tax paid inthe year amounted to £2.73m (2006: £0.85m), principally in overseas territories. The current tax charge at £2.19m relates principally to overseas subsidiariesand the deferred tax credit of £1.12m is due to the recognition of deferred taxassets in both the UK and US. Deferred tax of £2.94m was debited to reservesrelating to a reduction in the deferred tax assets for both pensions and shareoptions. Earnings per share Basic earnings per share for the year was 8.93p (2006: 20.29p); basic earningsper share before exceptional items and share grant was 26.40p (2006: 21.34p). Dividends The Board proposes a final dividend of 8.00p which together with the interimdividend of 4.00p gives 12.00p (2006: 9.50p) for the period, an increase of 26%. Cash flow The Group's net debt and borrowings at 29 December 2007 were £7.08m (2006:£0.25m). The principal components of the £6.83m cash outflow are as follows: £mCash generated from operating profit* before exceptional items and share grant 12.94Defined benefit pension contributions (1.90)Cash cost of exceptional items (3.03)Operating working capital outflow before exceptional items (7.23)Tax, dividends and interest (5.62)Capital investment (1.89)Other items (0.10) (6.83)*Plus defined benefit pension charge, share option charge, depreciation andamortisation. Operating working capital absorption is spread across all three divisionsprincipally comprising: £0.50m in the Direct Marketing Division in line withhigher sales; £3.20m in the End User Division principally due to around £2mhigher receivables as a result of an increase in last quarter sales in thespecialist premiums business and around £1m increase in ageing of receivables.£2.90m in the Trade Division due to £0.70m higher receivables and £0.90m higherinventory as a result of integration issues and a further £1.30m increase inreceivables due to the fact that the Supreme business was purchased with notrade receivables in November 2006. Balance sheet and Shareholders' funds Equity Shareholders' funds increased by £4.64m to £24.72m. Profit, net ofdividends paid in the period was £(0.33)m and movements relating to pensions,employee share options, share grant, exchange and related tax taken to reservesrepresented an increase of £4.91m, principally due to a reduction in the pensiondeficit reflected in reserves (£3.89m net of tax). Exchange and cash management The average exchange rates during the period used to translate the incomestatements of principal overseas subsidiaries were US dollars: $2.0025 (2006:$1.8581) and Euros: €1.4559 (2006: €1.4660) to the pound. The movement comparedto prior year in US dollar exchange rate reduced profit of the US business by£0.49m. The exchange rates at the balance sheet date used to translate assets andliabilities were US dollars: $1.9929 (2006: $1.9572) and Euros: €1.3553 (2006:€1.4842). This resulted in a decrease in US dollar denominated overseassubsidiaries assets of £0.09m and an increase in Euro denominated overseassubsidiary assets of £0.23m. Critical accounting policies Critical accounting policies are those that require significant judgements orestimates and potentially result in materially different results under differentassumptions or conditions. It is considered that the Group's critical accountingpolicies are limited to pensions, exceptional items, deferred taxation, sharebased payments and inventory provisions. Further details are given in the notes. Treasury policy Treasury policy is to manage centrally the financial requirements of theDivisions in line with their business needs. The Group operates cash poolingarrangements on currency accounts separately for its US operations and its UKoperations. The Group matches currency requirements in its UK Divisions withcurrency cash flows arising in its subsidiaries and actively seeks to hold themajority of cash or borrowings with its principal UK banker. Gillian DaviesGroup Finance Director4 March 2008 Operating Review Direct Marketing Division 2006 2007 (restated) £'000 £'000Sales 76,738 63,423Operating profit 6,167 4,910 2007 was another year of great progress in the Direct Marketing Division. Aspart of its plan to expand on an international scale, the UK based DirectMarketing business was transferred into the Division and the Divisional resultsfor 2007 include this business. The results for 2006 have been restated toreflect this change. Total Divisional sales in sterling increased by 21% and operating profit by 26%over 2006. The Division now markets directly into three countries: the US, UK and Canada.Sales from the UK and Canada now comprise more than 10% of total sales. The North American business continued the strong growth pattern of the last fouryears: sales have nearly tripled over that time period. In 2007 total sales forthe North American business in US dollars were $145.35m (2006: $111.39m), 30%ahead of prior year, and US dollar operating profit was 39% above prior year.The fundamentals of the catalogue/internet based business model continue todrive the growth, enhanced by new product and service offerings for anever-increasing customer base. New customer orders were 33% up over 2006, andthe overall retention rate of existing customers continued to increase overprior year. Increased effort in the Canadian market continued to producefavourable results, as sales grew more than 70% over the prior year. The smallUS Corporate Programmes business had a successful year, providing first classpersonalised service to a select group of larger clients. From 1 July 2007, the UK Direct Marketing operation has been managed as part ofthe Direct Marketing Division. All of the necessary people, structure andsystems work has been done to allow the UK Direct Marketing business to operateindependently from the UK End User Division. The team is now focused onimplementing the appropriate elements of the US and Canadian methodology todrive growth in the UK market. Cash generation across the Direct Marketing Division remains very healthy, withlow working capital requirements relative to the overall size of the business. Operating Review End User Division 2006 2007 (restated) £'000 £'000External and inter division sales 50,846 47,448External sales 50,383 47,018Operating profit before exceptional items 2,880 2,345Operating profit 1,099 2,175 The End User Division comprises three separate businesses each with its ownmanagement team, based in Manchester, London and Germany. The core activity ofthis group of businesses is the distribution of promotional items principally tolarge corporate clients through the use of innovative product design and projectmanagement capabilities and the use of technology based solutions. Although thebusinesses operate largely independently, the specialist skills within eachbusiness and their geographical locations are complementary to each other inmeeting the needs of our client requirements. Taking each of these businesses in turn: a) Manchester Following the relocation of the Product Source and MT Golf trade businesses tothe Blackpool based Trade Division and the transfer of UK Direct Marketing tothe executive control of US Direct Marketing, a major reorganisation of theremaining business, infrastructure and support services took place and wasoperational throughout the second half of 2007. The result is the merger of theCorporate Programmes and Field Sales businesses and the incorporation of therevised infrastructure and support services into this business. The reduction in support and infrastructure costs and focus on this singlebusiness produced an excellent second half profit performance. Sales at thissite grew by 4% in the year and from a breakeven profit position at the halfyear, the re-organisation programme transformed the site's profitability toproduce an excellent operating profit performance in the second half. In theyear, operating profit before exceptional items increased by 35%. (b) London Our specialist Premiums business delivered a strong second half performance andsales for the full year were 18% ahead of 2007. This resulted from the growth ofsales to existing clients and acquisition of new clients particularly in theHealth and Beauty and Airline sectors. Operating profit for the London based business increased by 21%. (c) Germany This business provides a similar type of service as the Manchester business,offering value added services and corporate programme solutions to its clients,working on occasions in partnership with the Manchester business. Sales in the business were 3% ahead of 2006 while operating profit was 13%higher aided by tight control of costs. The exceptional charges incurred in the year relate to the re-organisationprogramme in Manchester (£980,000) and to the termination of a significant,underperforming contract in the Manchester business (£801,000). Operating Review Trade Division 2007 2006 £'000 £'000External and inter division sales 23,727 13,137External sales 19,702 9,078Operating profit before exceptional items 3,334 2,361Operating (loss)/profit (158) 2,361 For two reasons, 2007 has been a year of major change for the Trade Division:- (a) The acquisition in November 2006 of the Blackpool based business of Supremealmost doubled the size of the Trade Division and made it the largest supplierto the Promotional Products trade in the UK. (b) The transfer of the Product Source business from Manchester to Blackpool inthe second half of the year provided further significant opportunity to optimisethe cost structure of both businesses and enhanced the resources available todevelop the combined business. The integration process was a complex operation including the recruitment andtraining of over 50% more staff at Blackpool, together with the commissioning ofnew and transferred equipment on the Blackpool site. The integration processextended over the whole of the second half, during which the normal highstandards of customer service and production output were seriously weakened.Costs were also considerably higher as we dealt with these problems. By the endof 2007, both capacity and service were approaching the desired levels andfurther progress has been made in the early weeks of 2008 to the point where ourproduction capability, quality and delivery are at planned levels. Excess costswere removed at the end of the year. During the year the product range of the combined business was extended andsales into export markets expanded; these now represent over 14% of the totalsales of the Division. Managerial resources were strengthened during the second half and the Divisionis now in a strong position to pursue its planned growth opportunities. The exceptional charge of £3.49m represents the costs attributable to therelocation and integration of the Manchester based Product Source and MT Golftrade businesses onto the Blackpool site. Income statement for the period ended 29 December 2007 2007 2006 Note £'000 £'000Sales 2 146,823 119,519Operating expenses (143,076) (112,355)Operating profit 2 3,747 7,164Operating profit before exceptional items and share grant 10,160 7,541Exceptional items 3 (5,273) (377)Share grant 4 (1,140) -Operating profit 2 3,747 7,164Finance costs (458) (44)Finance income 13 218Profit before tax 3,302 7,338Taxation 6 (1,072) (2,348)Profit attributable to equity Shareholders 2,230 4,990Earnings per shareBasic 8 8.93p 20.29pDiluted 8 8.65p 19.44p Balance sheet at 29 December 2007 Note 2007 2006 £'000 £'000Non current assetsProperty, plant and equipment 10,240 10,315Goodwill 9,084 9,084Intangible assets 1,459 1,616Investments 8 7Deferred tax assets 4,334 6,149 25,125 27,171Current assetsInventories 9,335 8,409Trade and other receivables 31,156 23,748Cash and cash equivalents 2,744 2,115 43,235 34,272Current liabilitiesTrade and other payables 22,950 18,710Current tax 322 857Borrowings 3,821 2,364 27,093 21,931Net current assets 16,142 12,341Non current liabilitiesRetirement benefit obligations 5 10,549 18,436Financial liability - 1,000Borrowings 6,000 - 16,549 19,436Net assets 24,718 20,076 Shareholders' equityShare capital 9 9,823 9,766Share premium reserve 9 37,943 37,757Capital redemption reserve 9 208 208Cumulative translation differences 9 (1,690) (1,750)Retained earnings 9 (21,566) (25,905)Total equity 24,718 20,076 The US dollar to sterling exchange rate at the balance sheet date was $1.9929(2006: $1.9572). Cash flow statement for the period ended 29 December 2007 2007 2006 Note £'000 £'000Cash flows from operating activitiesCash generated from operations 10 782 3,052Tax paid (2,734) (848)Finance income 82 167Finance costs (406) (23)Net cash (used in)/ generated from operating activities (2,276) 2,348Cash flows from investing activitiesAcquisition of subsidiary (266) (2,058)Cash acquired with subsidiary - 520Proceeds on disposal of subsidiary - 526Purchases of property, plant and equipment (1,220) (822)Purchases of intangible assets (672) (643)Proceeds from sale of property, plant and equipment - 27Net cash used in investing activities (2,158) (2,450)Cash flows from financing activitiesRepayment of borrowings on acquisition - (7,219)Proceeds from new borrowings 6,000 -Proceeds from issue of ordinary shares 243 205Dividends paid to Shareholders 7 (2,557) (1,911)Net cash generated from/(used in) financing activities 3,686 (8,925)Net movement in cash and bank overdrafts (748) (9,027)Cash and bank overdrafts at beginning of the period (249) 9,012Exchange losses on cash and bank overdrafts (80) (234)Cash and bank overdrafts at end of the period (1,077) (249)Analysis of cash and bank overdraftsCash at bank and in hand 2,744 2,115Bank overdraft (3,821) (2,364) (1,077) (249) 1 Basis of preparation The consolidated financial statements of 4imprint Group plc are prepared inaccordance with International Financial Reporting Standards ("IFRS") and IFRICinterpretations endorsed by the European Union (EU) and with those parts of theCompanies Act 1985 applicable to those companies reporting under IFRS. These consolidated financial statements are prepared under the historical costconvention. Critical accounting policies Critical accounting policies are those that require significant judgement orestimates and potentially result in materially different results under differentassumptions or conditions. Pensions As disclosed in note 5 the Group operates a closed defined benefit scheme. Yearend recognition of the liabilities under this scheme and the return on assetsheld to fund these liabilities require a number of significant actuarialassumptions to be made including inflation, asset returns, discount rate andmortality rates. Small changes in assumptions can have a significant impact onthe expense recorded in the income statement and on the pension liability in thebalance sheet. Deferred Taxation The Group is required to estimate the income tax in each of the jurisdictions inwhich it operates. This requires an estimation of the current tax liabilitytogether with an assessment of the temporary differences which arise as aconsequence of different tax and accounting treatments. Assumptions are madearound the extent to which it is probable that future taxable profit will beavailable against which the temporary differences can be utilised. Deferred taxassets are recognised at the balance sheet date based on these assumptions. Share based payments The fair values of employee share option plans are calculated using the Binomialor Monte Carlo models as appropriate. The fair value is charged to the incomestatement over the vesting period of the share option schemes. The calculationsrequire a number of estimates and judgements including the historical volatilityof the Company's share price, expected forfeiture rates of options and expectedlife of options. Inventory provisions Inventory provisions are made in relation to slow moving and obsolete inventoryand are based on assumptions on expected usage using historic and forecast salesas a basis. Exceptional items The Group presents certain items separately as "exceptional". These are itemswhich in management's judgement need to be disclosed separately by virtue oftheir size and occurrence. 2 Segmental reporting At 29 December 2007, the Group is reported in three primary business segments: Gross segment sales Inter-segment sales External sales 2006 2006 2007 (restated) 2007 2006 2007 (restated) £'000 £'000 £'000 £'000 £'000 £'000Trade Division 23,727 13,137 (4,025) (4,059) 19,702 9,078End User Division 50,846 47,448 (463) (430) 50,383 47,018Direct Marketing Division 76,738 63,423 - - 76,738 63,423Total 151,311 124,008 (4,488) (4,489) 146,823 119,519 As discussed in the Operating Review, during 2007, the UK Direct Marketingbusiness was transferred to the Executive control of the Direct MarketingDivision (previously called the North American Division). Its results for 2007have been included in this Division and 2006 has been restated accordingly. Inter-segment sales are made on an arms-length basis. Operating profit/(loss) before exceptional Exceptional items Operating items and share grant and share grant profit/(loss) 2006 2006 2007 (restated) 2007 2006 2007 (restated) £'000 £'000 £'000 £'000 £'000 £'000Trade Division 3,334 2,361 (3,492) - (158) 2,361End User Division 2,880 2,345 (1,781) (170) 1,099 2,175Direct Marketing Division 6,167 4,910 - - 6,167 4,910Head Office (1,331) (1,015) (1,140) (207) (2,471) (1,222)Operating profit before defined benefit 11,050 8,601 (6,413) (377) 4,637 8,224pension and share option chargesDefined benefit pension charges (295) (325) - - (295) (325)Share option charges (595) (735) - - (595) (735)Total 10,160 7,541 (6,413) (377) 3,747 7,164 The overheads and infrastructure costs of the Manchester site are shown entirelyin the European End User Division. As discussed in the Operating Review theseoverheads supported the Manchester site, including the Manchester based tradebusinesses until their relocation in the second half of 2007. Net finance cost totalling £445,000 (2006 income: £174,000) and taxation chargeof £1,072,000 (2006: £2,348,000) cannot be separately allocated to individualsegments. A review of the segments is included in the Operating Review. 3 Exceptional items 2007 2006 £'000 £'000Trade Division integration costs (3,492) -End User Division reorganisation costs (980) -Contract exit costs (801) -Group restructuring costs - (143)OFT fine and related costs - (64)European reorganisation charge - (170) (5,273) (377) The exceptional item above comprises £3,025,000 cash expenditure in 2007,£1,253,000 non cash items and £995,000 cash items included in accruals at 29December 2007. Trade Division integration costs and End User Division reorganisation costsrepresent the costs attributable to the relocation of the Manchester basedProduct Source and MT Golf trade businesses to the Supreme trade business inBlackpool, together with the resultant reorganisation of the business andrelated infrastructure in Manchester. Contract exit costs represent the costs of exiting an onerous customer contractin the European End User Division, including a £500,000 inventory write down. The Group restructuring costs in 2006 comprise legal, accounting and tax feesrelating to a one-off project to restructure the legal entities within the Groupto create further distributable reserves in 4imprint Group plc (the Company). The OFT fine in 2006 was imposed in relation to breaches of competition lawrelating to the supply of stock check pads by BemroseBooth Limited (a formergroup company) and Achilles Paper Group Ltd. The period during which BemroseCorporation plc (now 4imprint Group plc) was involved in such supply was from 20April 2000 to 2 July 2000. Legal costs of defence were also included in thischarge. The European reorganisation charge in 2006 relates to rationalisation of theManchester based business. 4 Share Grant On 1 August 2007, 200,000 shares were awarded to the Chairman. The charge of£1,140,000 represents the number of shares awarded at the share price on thedate of grant plus associated costs. In view of the magnitude of the chargearising and non-recurring nature of the award, separate disclosure on the faceof the income statement is relevant to assisting an understanding of the Group'sfinancial performance. 5 Employee pension schemes The Group operates defined contribution plans for the majority of its UK and USemployees. The regular contributions are charged to the income statement asthey are incurred. The Group also operates a UK defined benefit scheme which is closed to newmembers. 2007 2006 £'000 £'000Net pension costsDefined contribution plans 396 365Defined benefit schemeCurrent service cost 91 96Net interest cost 204 229 691 690 Defined benefit scheme In the most recent actuarial review of the 4imprint Group plc defined benefitscheme the principal assumptions made by the actuaries were: 2007 2006Rate of increase in pensionable salaries 4.30% 4.00%Rate of increase in pensions in payment and deferred pensions 3.30% 3.00%Discount rate 6.00% 5.30%Inflation assumption 3.30% 3.00%Expected return on scheme assets 7.00% 6.20% The mortality assumptions adopted at 31 December 2007 imply the following lifeexpectancies at age 65: 2007 2006Male currently age 40 21.4 years 19.8 yearsFemale currently age 40 24.2 years 22.8 yearsMale currently age 65 20.2 years 19.8 yearsFemale currently age 65 23.0 years 22.8 years The amounts recognised in the balance sheet are determined as follows: 2007 2006 £'000 £'000Present value of funded obligations (91,544) (100,347)Fair value of scheme assets 80,995 81,911Net liability recognised in the balance sheet (10,549) (18,436) The major categories of plan assets as a percentage of total scheme assets areas follows: 2007 2006Equities 42% 42%Bonds 32% 31%Property 22% 15%Cash 4% 12% The amounts recognised in the income statement are as follows: 2007 2006 £'000 £'000Current service cost 91 96Interest cost 5,200 4,722Expected return on scheme assets (4,996) (4,493)Total included in staff costs 295 325 Changes in the present value of the defined benefit obligation are as follows: 2007 2006 £'000 £'000Defined benefit obligation at start of period 100,347 98,023Current service cost 91 96Interest cost 5,200 4,722Contributions by scheme participants 3 3Actuarial (gains)/losses (9,524) 932Benefits paid (4,573) (3,429)Defined benefit obligation at end of period 91,544 100,347 Changes in the fair value of scheme assets are as follows: 2007 2006 £'000 £'000Fair value of assets at start of period 81,911 77,093Expected return on assets 4,996 4,493Actuarial (losses)/gains (3,242) 2,251Contributions by employer 1,900 1,500Contributions by scheme participants 3 3Benefits paid (4,573) (3,429)Fair value of assets at end of period 80,995 81,911 Analysis of the movement in the balance sheet liability: 2007 2006 £'000 £'000At start of period 18,436 20,930Total expense as above 295 325Contributions paid (1,900) (1,500)Actuarial gains taken directly to equity (6,282) (1,319)At end of period 10,549 18,436 The actual return on scheme assets was £1,754,000 (2006: £6,744,000). 6 Taxation 2007 2006 £'000 £'000Analysis of charge in the period:UK tax - current (341) (96)Overseas tax - current 2,534 1,041Deferred tax (1,146) 1,403Impact of change in UK tax rate on deferred tax 25 -Taxation 1,072 2,348 The tax for the year is different to the standard rate of corporation tax in theUK (30%). The differences are explained below: 2007 2006 £'000 £'000Profit before tax 3,302 7,338Profit on ordinary activities multiplied by rate of corporation tax in the UK of 30% 991 2,201Effects of:Adjustments in respect of foreign tax rates 360 235Expenses not deductible for tax purposes 88 86Timing differences and other differences (367) (174)Taxation 1,072 2,348 7 Dividends 2007 2006Equity dividends - ordinary shares £'000 £'000Interim paid: 4.00p (2006: 3.25p) 1,008 809Final paid: 6.25p (2006: 4.50p) 1,549 1,102 2,557 1,911 In addition, the Directors are proposing a final dividend in respect of theperiod ended 29 December 2007, of 8.00p per share, which will absorb anestimated £2.01m of Shareholders' funds. It will be paid on 28 April 2008 toShareholders who are on the register of members on 28 March 2008. Thesefinancial statements do not reflect this proposed dividend. 8 Earnings per share Basic earnings per share (EPS) is calculated by dividing the earningsattributable to ordinary Shareholders by the weighted average number of ordinaryshares in issue during the period, excluding those held in the Employee ShareTrust which are treated as cancelled.For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potential dilutive ordinaryshares. The potential dilutive ordinary shares relate to those share optionsgranted to employees where the exercise price is less than the average marketprice of the Company's ordinary shares at the balance sheet date.Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below: 2007 2006 Weighted Weighted average average number number Earnings of shares Pence per Earnings of shares Pence per £'000 '000 share £'000 '000 shareEarnings attributable to ordinary Shareholders 2,230 4,990Ordinary shares in issue 25,470 25,343Shares held by Employee Share Trust (501) (754)Basic EPS 2,230 24,969 8.93 4,990 24,589 20.29Effect of dilutive share 802 (0.28) 1,084 (0.85)optionsDiluted EPS 2,230 25,771 8.65 4,990 25,673 19.44 9 Statement of changes in Shareholders' equity Retained earnings Share Capital Cumulative Profit Share premium redemption translation Own and Total capital reserve reserve differences shares loss Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 January 2006 9,634 37,684 208 (210) (1,822) (29,534) 15,960Profit for the period 4,990 4,990Exchange adjustments net of tax (1,540) (1,540)Shares issued 132 73 205Own shares utilised 424 (424) -Employee share options taken to reserves 650 650Deferred tax on employee share options taken toreserves 459 459Current tax deduction on exercise of employee shareoptions 492 492Actuarial gains taken to reserves 1,319 1,319Deferred tax on pensions taken to reserves (548) (548)Dividends (1,911) (1,911)Balance at 30 December 2006 9,766 37,757 208 (1,750) (1,398) (24,507) 20,076Balance at 31 December 2006 9,766 37,757 208 (1,750) (1,398) (24,507) 20,076Profit for the period 2,230 2,230Exchange adjustments net of tax 60 60Shares issued 57 186 243Own shares utilised 830 (830) -Own shares purchased (183) (183)Employee share options taken to reserves 595 595Share grant taken to reserves 908 908Deferred tax on employee share options taken toreserves (540) (540)Actuarial gains taken to reserves 6,282 6,282Deferred tax on pensions taken to reserves (2,396) (2,396)Dividends (2,557) (2,557)Balance at 29 December 2007 9,823 37,943 208 (1,690) (751) (20,815) 24,718 The cumulative goodwill written off to the reserves in respect of subsidiarycompanies currently held amounts to £15,297,000 (2006: £15,297,000). 10 Cash generated from operations 2007 2006 £'000 £'000Operating profit 3,747 7,164Adjustments for:Depreciation charge 1,206 604Amortisation of intangibles 688 778Profit on disposal of property, plant and equipment - (1)Exceptional non cash items 1,253 -Share option charge 595 735Share grant 1,140 -IAS 19 pension charge for defined benefit scheme 295 325Contributions to defined benefit pension scheme (1,900) (1,500) Changes in working capital:Increase in inventories (1,426) (1,162)Increase in trade and other receivables (7,537) (5,195)Increase in trade and other payables 2,721 1,589Decrease in provisions - (285)Cash generated from operations 782 3,052 11 Five Year Financial Record IFRS IFRS IFRS IFRS UK GAAP 2007 2006 2005 2004 2003Income statement £'000 £'000 £'000 £'000 £'000Continuing operationsSales 146,823 119,519 96,481 88,965 89,773Operating profit 3,747 7,164 5,388 2,625 1,340Operating profit before exceptional 1,761items and share grant 10,160 7,541 5,703 3,150Exceptional items (5,273) (377) (315) (525) (421)Share grant (1,140) - - - -Operating profit 3,747 7,164 5,388 2,625 1,340Finance costs (458) (44) (47) (140) (234)Finance income 13 218 300 325 216Profit before tax 3,302 7,338 5,641 2,810 1,322Taxation (1,072) (2,348) (1,691) 492 548Profit from continuing operations 2,230 4,990 3,950 3,302 1,870Profit/(loss) from discontinued operations - - 4,012 3,270 (10,006)Profit/(loss) attributable to equity Shareholders 2,230 4,990 7,962 6,572 (8,136) Earnings/(loss) per ordinary share 8.93p 20.29p 30.94p 22.97p (28.34)p Dividend per share - paid and 12.00p 9.50p 7.00p 5.25p 4.00pproposed For consistency UK GAAP results have been split between continuing anddiscontinued operations as required by IFRS. 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4Imprint