28th Feb 2007 07:02
Communisis PLC28 February 2007 28 February 2007 Communisis plc Preliminary Results for the year ended 31 December 2006 Outcome of strategic review Highlights: • Profit from operations before exceptional items in line with expectations at £15.1m (2005 £15.1m) • Revenues of £260.6m (2005 £264.8m) down 2% • Full year loss from operations of £16.6m (2005 profit £7.2m) after £31.6m intangible asset impairment charge (2005 £nil) • Proposed final dividend of 0.5p (2005 3.897p) taking 2006 full year dividend to 2.453p (2005 5.85p) and returning dividend cover to 2.4 times (2005 1 times) • Pension deficit (IFRS basis) has fallen to £17.3m (2005 £37.7m) following triennial valuation, improvement in bond yields and strong investment performance. Assumptions strengthened • Net debt at 31 December 2006 was £44.9m (2005 £36.0m) • Excellent performance in Transactional Print division - HSBC and Centrica contracts going well • Strategic review completed: New Print Management business model announced, but operational issues need to be addressed Commenting on these results, Steve Vaughan, who became Chief Executive inOctober 2006, said today: "While our Transactional Print Services business has performed well in 2006,these results characterise the continuing competitive pressures in our broadermarkets. As already announced in December 2006, the disruption and costs of merging theAltrincham facility into Leeds has been very significant and we envisage thatthis site will only be running at acceptable levels of quality and efficiency bythe second half of the current financial year. The execution of the revised business strategy will require investment and thishas already begun in terms of new management and revised internal practices.The Board has reviewed the company's dividend policy which, over time, hasbecome unsustainable given the underlying performance of the business. We havetherefore taken the difficult but necessary decision to re-base the dividend toa more sustainable level, allowing the business to be valued on its fundamentalsin the longer term." Commenting on the completed strategic review and current trading, Steve Vaughanadded: "The strategic review of our operations shows clearly that Communisis has arange of services that can be sold to many of our customers. The different partsof the business make good sense together if we can combine them effectively. Weare changing the Group's sales efforts quickly, implementing true, group wide,customer account management that presents a coordinated and integrated serviceoffering to the customer. To support this drive for account management we need to be much clearer aboutthe service proposition we are taking to market. In the past, Communisis hasfocused too much on putting ink on paper, and not enough around the additionalservices we can and do provide. So our customer proposition will be "to helpmake customer communication a more profitable process". We can add real value toclients by offering expertise, technology and services that address the wholebusiness process of marketing and customer communications, not just printing. Wehave already sold elements of this proposition successfully into several of ourlargest customers. The opportunity is to take a combined offering to the wholeof our impressive customer base, and then beyond. Looking forward to 2007, the first half is going to be one of significant changefor the Group: basic processes need to be improved, account managementpractices implemented and the Leeds facility brought up to the levels of qualityand efficiency required. In what will be a year of considerable transition, weexpect profitability to be weighted significantly to the second half. For thecurrent year overall, we expect profits from operations (before exceptionalcosts) to be impacted by the changes outlined above, but with a substantiallyreduced level of exceptional charges. In addition net debt levels should fall byyear end. The changes made to the business in the current financial year can beexpected to provide the foundation for incremental shareholder value in 2008 andbeyond." Enquiries: Communisis plcSteve Vaughan, Chief ExecutivePeter King, Finance Director On the day: 0207 8313113Thereafter: 0207 4264690 Financial DynamicsEdward BridgesJames Melville-Ross 0207 8313113 Chairman's Report 2006 has been another demanding year for the management and employees ofCommunisis. Market conditions remained challenging and there was a need toreact constantly to the changing circumstances. Our decision to cut costs byamalgamating two major plants, a process not yet fully complete, will serve tomaintain longer term profitability. We also responded to price pressures, evenwithin major long running contracts, in order to protect long term relationshipswith key customers. Within this environment, Communisis managed not only to retain its majorcustomers and contracts but added the strategically important HSBC and Centricatransactional print contracts. This means that the new Speke transactions plantdue for completion in June 2007 will now be 60% utilised once both HSBC andCentrica work are transferred. This is a business sector where Communisis wasnot represented at all prior to 2006. David Jones stood down as Chief Executive in October 2006 and Denise Moranresigned shortly after. My sincere thanks go to them both for their efforts andsignificant contributions to Communisis over many years. Steve Vaughan becameChief Executive and his background in account management and systems will assistthe Company in its continuing re-orientation towards providing added valueservices. Peter King earned a well deserved promotion to Finance Directorfollowing the resignation of Mark Whiteling in August. Despite the market related pressures which have inhibited improved financialresults, Communisis has responsibly both protected the integrity of the pensionarrangements for employees by making additional contributions, and boostedpayments to shareholders by share buy-backs in the first half of the year. In2007 the financial imperative will be providing the investment for committedadditional facilities and services including the new plant in Speke andrebuilding a financial capacity to allow for further expansion in marketsdesignated as being of the highest potential. Mike SmithChairman Business Review The year ended 31 December 2006 was a year of significant change for thebusiness. The Group has entered a new market, the printing of statements andbills, and aimed to drive efficiencies in the business. In the final quarter anew management team was put in place. This change has presented an opportunityto take a step back and consider the Group's strategic options and businessopportunities afresh. We have done this over the past few months, and I ampleased to say that there are some promising opportunities for the Group in thenext few years. Of course, it will have to face its fair share of challenges aswell. We have created a business plan, which, we believe, will secure realcompetitive advantage and shareholder value in the longer term. Our place in the market in 2006 2006 has been a challenging year. Over-capacity and consequent downward pricingpressure continues to be a major feature of some parts of our business. Business Forms is experiencing supply side over-capacity of approximately 40%,and prices reflect that. Efficiency is therefore key and we are very fortunatethat our team at our Midsomer Norton plant, which services this market segment,is at the forefront of lean manufacturing in our industry. As a result, theyhave been able to maintain reasonable operating margins in the face ofsignificant competition. Our Direct Mail operations have seen a similar level of competition, but also alevel of change in customer demand. The direct mail industry is fundamentallychanging, moving away from long run, generic direct mail campaigns to tacticalcampaigns with much more personalisation. Communisis needs to be able torespond to our clients' requirements rapidly, allowing changes in timing anddesign. This way, we can accommodate shorter timescales in marketing campaigns.Overall, our operation in Leeds is well placed to handle these requirements.Despite difficult market conditions, our sales efforts have managed to keeporder volumes strong. This is the benefit of being the leader in this market. During the year, the Group decided that operational efficiencies could beincreased by combining our Leeds and Altrincham facilities. So the Altrinchamplant was closed and the entire operation transferred to a reconfigured andexpanded Leeds facility. This ambitious project was the largest move of printcapacity ever attempted in Europe. As announced on 15th December, this projecthas proved highly disruptive, costing more and taking longer than firstanticipated. While the physical move is now essentially complete, it hasproduced many problems in the resulting business. Much remains to be done torealise the plant's potential - a Direct Mail facility with at least twice thecapacity of any other plant in Europe. If this can be achieved, it will become akey asset in the marketplace over the next few years. We are now engaged innumerous integration and enhancement activities in the merged operation toextract full economic and operational benefit from the considerable £8.2 millioninvestment in restructuring. Realistically, it will take much of 2007 to makethis goal a reality. Our Transactional Print business has had an excellent year. At the start of 2006Communisis had no presence at all in the statement and billing sector. By theend of the year, we have achieved the number two position in this market.Communisis won both of the significant transactional print opportunities thatcame to tender during the year. The ten-year statement production contract withHSBC started in January 2006 and has proceeded well. We have completed all themajor milestones in service transition on or ahead of schedule. The secondcontract, a seven-year agreement to produce bills for Centrica, began duringDecember and has made a promising start. Both these contracts will transferduring 2007 to our new, purpose-built facility in Speke, which is on time and onbudget and is expected to open in June 2007. This will be by far the largest andmost modern transactional print facility in Europe. These two contracts willoccupy about 60% of its capacity. There is opportunity for further profitablegrowth in this market segment. The Cheques business has had a very successful year. We absorbed the 7% declinein cheque usage with some gain in market share and a continued focus on reducingcosts. We are now the leading supplier in this segment. Volume erosion mayaccelerate in the future, but we have identified many areas for continued costreduction. There are also opportunities in related security products that couldabsorb excess capacity. The Group's Print Management business faces the most rapid change in itsmarketplace. The conventional print management model offers customers aconsolidated print buying service. In the past, easily achieved savingssupported strong margins. This is no longer the case. As contracts are renewed,customers demand more savings that can only be realised by reducing margins. Inaddition, new entrants with very low costs are rapidly commoditising thisbusiness. As a result, today if a contract only involves the consolidation ofprint buying for a customer, there is virtually no profit to be had. Asannounced on 15 December, this pricing pressure has caused our Print Management(PMS) division problems during the year. Several large contracts includebenchmarking clauses that require Communisis to respond to market pricereductions mid-contract. In one or two cases, these reductions were backdated tothe point at which the benchmarking exercise began, earlier in the year. As aresult, a charge to address the effects of these clauses was taken in December2006. Communisis can now confirm that these benchmarking processes have now beenresolved. The Future - Focusing on our customers Communisis has been built on a manufacturing heritage in the print industry. Nowit needs to be a business services company. The principal asset of any servicescompany is its customers, and the Communisis customer list is absolutelyunrivalled. The Group has a strong market position in financial services, withlong-term relationships with all the major UK retail banks. In retail, we arenumbered amongst the ten biggest suppliers to Sainsbury's and also service Marks& Spencer, Debenhams, the Cooperative Group, Tesco and leading home shoppingbrands such as Grattan, Freemans and the Redcats group. We also haverelationships with leading companies in Consumer Packaged Goods (e.g. Gillette),utilities (Centrica and United Utilities) and the public sector (Department ofWork and Pensions and the Post Office). The strategic review of our operations shows clearly that Communisis has a rangeof services that can be sold to many of our customers. Our important wins inTransactional Print in 2006 show that our sales force, when given the rightfocus and effort, can win in even the most challenging situations. However, theGroup's sales efforts are currently aligned to individual divisions. We arechanging this model quickly, implementing true, group wide, customer accountmanagement. This will present a coordinated and integrated service offering tothe customer. Account managers will be measured on the profitability of theircustomer relationships rather than the revenue targets used in the past. As aresult, this will naturally direct the strongest sales efforts towards the mostprofitable opportunities. To support this drive for account management we need to be much clearer aboutthe service proposition we are taking to market. Communisis has historicallyfocused on putting ink on paper, and not enough around the additional serviceswe can and do provide. So our customer proposition will be "to help makecustomer communication a more profitable process". We can add real value toclients by offering expertise, technology and services that address the wholebusiness process of marketing and customer communications, not just printing. Wehave already sold elements of this proposition successfully into several of ourlargest customers. The opportunity is to take a combined offering to the wholeof our impressive customer base, and then beyond. Improving the marketing communications business process Communisis has a very well established position at the end of the marketingcommunications process - in printing. However if we concentrate only on theproduction phase, then we will be trapped in an increasingly commoditisedmarket. Similarly, if our print management contracts focus only on the sourcingof print, then we cannot continue to be profitable. Communisis needs to movefurther up the value chain. To move up the value chain means helping our customers improve the marketingbusiness process. Fortunately, the Group already has a means to do this. Wehave existing service offerings that have improved the efficiency andeffectiveness of a few of our clients' whole customer communications process. Wehave provided consultancy on the effective design of marketing material toimprove rates of return and optimise production costs. We have technology thatorganises the process of campaign management, reducing campaign lead times andcontrolling budgets. We also provide the crucial documentary evidence thatsupports the financial services compliance requirements for our customers. Wemanage artwork for some of our customers, providing a central repository forcreative assets, increasing reuse and reinforcing brand compliance. Theseservices all go together to make a real difference to the effectiveness of ourcustomers' communications with their customers. Our consulting capabilities in best practice campaign management are scatteredamongst customer teams, but nonetheless represent a strong and untappedresource. Some clients already benefit from these capabilities. For example, in ourrelationship with Barclays, we deliver value throughout the whole marketingprocess from budget planning through campaign management, artwork handling, datamanipulation and eventual production. A relationship of this kind is sustainableand profitable because we are delivering genuine value to the customer's corebusiness process. The future for Print Management The margins available from the current print management business model no longermake economic sense. There must be a better way, and Communisis is in anexcellent position to define the industry going forward. I have already outlinedservices we provide today for a few customers that represent a much morevalue-based proposition. For this business to prosper, we must concentrate onthese aspects of our solution. This value adding, service led approach createssignificant competitive advantage for Communisis that smaller competitors cannotmatch. Our scale makes us a force to be reckoned with in the print supply chain. Wehave developed our supplier sourcing process and associated electronicprocurement to be a key competitive advantage. Our sourcing process has receivedthe highest level of accreditation from the Chartered Institute of Purchasingand Supply - the only one in the print industry. This gives us the basis of anew approach to print management business, with built-in credibility in themarketplace. In the future, we will base our approach to print management around giving ourcustomers direct access to our supply chain. The customer will be able to sourceprint at the cost we buy it. In return, we gain access to the customer'smarketing process for consulting opportunities, and ways to improve the processthrough our other offerings. This approach provides powerful benefits to thecustomer, and delivers profit to Communisis where we really add value. Thiscreates entry barriers against small print brokers because they cannot makeprofits by marking up print throughput. We are now working to convert one of ourexisting Print Management contracts to this model. It is attractive and willprovide a better source of profit in the future. The plan to make this happen The change in approach to our market is not an overnight project. It will taketime to bring about the move to higher value services as our principal source ofprofit growth. We are in the fortunate position of being able to make some quickimprovements to show progress. However, the management team expects it will takeabout two years for the change process to filter fully through to the profitline. In order to give confidence that our plan is working, we have split ourchange programme into a series of discrete steps. The first stage, Focus on Customers and Basics, is well underway. This will takeus until the middle of 2007. Much of the attention during this period will restupon basic business disciplines that need better implementation throughout theGroup. During this stage, we are implementing the account management model, withaccount managers measured on profits rather than revenues. We have beensuccessful in attracting a number of senior and middle managers into theorganisation, with a range of experience, to begin this process. This investmentwill continue. Account management techniques will help build plans for all ofour key customer relationships. The process of merging all of our direct mail operations into Leeds must becompleted. Quality and efficiency programmes are needed to deliver the fullbenefits from this major project. These started in the first half of 2007 andwill spread into the second half. We expect that this programme to restorecommercial effectiveness to our Leeds plant will involve further cost reductionand investment. We will develop our new print management business model, andsign several 'landmark' deals, showing customer acceptance of this model. Wewill also strengthen the Group balance sheet, with better management of workingcapital as a key priority. The combination of these significant changeprogrammes is likely to dilute our profitability in the first half of 2007. The second stage, Focus on Cross-sell and Value, will concentrate on changingthe way we do business with customers, to focus on the areas where we really addvalue. We will channel sales efforts into the areas of technology andconsultancy that command better prices. In this twelve-month period, we wouldexpect to see our electronic supply chain become a major force in print buyingin the UK. In addition, we would expect to be able to fill the statementfacility in Speke to capacity. New service line development will concentrate onthose areas where we already have some embryonic capability, such as improvingmarketing campaign management and document composition solutions for ourstatements business. In financial terms, we expect during this period to ceaseto derive profit from deals that solely mark-up print throughput, replacing thiswith value added services. We also expect to produce positive net cashflow fromthe group. Towards the end of 2008, we would expect to see a business in quite a differentplace from today. During the third stage, Focus on Integrated Portfolio, weshould have most customers buying more than one service from us. Communisisshould be in a position to offer integrated propositions to manage or supportlarge parts of a customers marketing workflow. We anticipate that a majority ofour profits will come from multi-service customer relationships, and thereforelook to exit some very low margin areas of our business. During this period, wewill also consider additional investment in new complementary services tocross-sell further. The move towards higher margin services will still besupported by fundamental strength in niche manufacturing. We see this as a keydifferentiator for us in our chosen marketplace. Managing and implementing change To effect the change implied by this programme, the Group must make some cleardecisions on priorities and investments. The most pressing requirement is tostrengthen the customer facing parts of our business. We have been too ready inthe past to respond to market changes solely by reducing costs rather than toembrace those changes as business opportunities. Nonetheless, there are elementsof our business where costs are too high, so addressing those cost issues formspart of our plan. Both of these imperatives will take investment, which willform the basis for sustainable profitable growth. Because of this need forinvestment, the board has taken the difficult decision to reduce the 2006 finaldividend payment. Going forward, we intend to maintain a dividend cover ratio ofbetween 2 and 2.5. We believe that this represents a sustainable and affordablepolicy. Looking forward to 2007, the first half is going to be one of significant changefor the Group: basic processes need to be improved, account managementpractices implemented and the Leeds facility brought up to the levels of qualityand efficiency required. In what will be a year of considerable transition, weexpect profitability to be weighted significantly to the second half. For thecurrent year overall, we expect profits from operations (before exceptionalcosts) to be impacted by the changes outlined above, but with a substantiallyreduced level of exceptional charges. In addition net debt levels should fall byyear end. The changes made to the business in the current financial year can beexpected to provide the foundation for incremental shareholder value in 2008 andbeyond." Fundamentally, success will be measured by a sustainable improvement in profits.This can be achieved by ensuring that our mix of services migrates to highermargin offerings. A key performance indicator that will demonstrate thismigration will be the number of customers buying more than one service from us.In 2006, just 14 of our top 100 customers bought more than one service from us.It is success in cross-selling that will ultimately define our progress. Our mixof services already supports this approach. It will allow us to become thechosen marketing communications partner, rather than just the preferred printpartner. Steve VaughanChief Executive Financial Review Profitability The Group has reported a loss from operations in 2006 of £16.6m, compared in2005 with a profit of £7.2m. Both results include significant exceptional itemsas shown by the table below: 2006 2005 £m £m Print Management 4.7 5.7Print and Direct Mail 4.5 7.2Transactional Print 10.8 5.4Corporate expenses (4.9) (3.2) ------------- ------------Profit from operations before exceptional items 15.1 15.1 Operational restructuring charges (1.1) (0.9)Transfer of business - PDM Altrincham (8.2) -Loss on sale of Datadocs operation - (4.9)Other restructuring and corporate activity charges (3.9) (2.1) ------------- ------------Profit from operations after exceptional restructuring costs 1.8 7.2 Impairment of intangible assets (31.6) -Profit on exceptional property disposals 13.1 - ------------- ------------(Loss) / profit from operations (16.6) 7.2 Profit from operations before exceptional items at £15.1m was in line with 2005.As the segmental analysis shows, this masks some significant developments in theprofitability of individual service lines. Print Management profitability has begun to decline, as new low cost marketentrants drive margin erosion both at the time of contract renewal and in somecases mid-contract through the action of benchmarking clauses. The overallreduction in the profitability of this segment has been softened by animprovement in the trading performance of our European operations, where a lossof £1m in 2005 was reduced to a loss of £0.1m in 2006. Print and Direct Mail profitability declined £2.7m in the year following a fallof £2.9m in 2005. Industry over capacity resulted in continued pressure onmargins. In addition, the transfer of the PDM Altrincham business to PDM Leedsgave rise to considerable disruption in PDM Leeds. The move took longer thananticipated and impacted the traditionally active fourth quarter. The segmentresult also reflects, for the first time, a rental charge net of depreciationsaved of £0.5m in the second half of the year, following the sale and leasebackof the PDM Bath facility. Transactional Print profitability improved considerably to £10.8m (2005 £5.4m).This segment benefited from almost a full year of contribution from the HSBCstatement production business acquired in January. In addition we havecontinued to drive efficiency gains in our cheques business which has also beenvery successful in absorbing a proportion of the work transferred from PDMAltrincham. Group revenue fell to £260.6m in 2006 (2005 £264.8m). The Transactional Printbusiness enjoyed net revenue growth of £22.3m, the majority of which was theresult of the new HSBC contract. The contract with Centrica commenced justbefore the year end and has had negligible impact on revenue. The growthenjoyed by the Transactional print business has been offset by declines in bothPrint and Direct Mail and Print Management Services. Corporate expenses at £4.9m (2005 £3.2m) have increased as the Group no longerbenefits from rental income associated with the Stourton factory property soldby the Group in March 2006. In addition, the 2005 corporate expense benefitedfrom a one off payment received in respect of the early termination of the leaseagreement on the same property. Operational restructuring charges at £1.1m (2005 £0.9m) show the cost ofcontinued cost reduction at our cheque printing plants and at our Business Formsoperation. This action has enabled us to increase our efficiency in response toconsiderable competition and falling demand. The transfer of the PDM Altrincham business to PDM Leeds resulted in anexceptional charge in the year of £8.2m. In 2005 the Group incurred a loss onthe sale of the remaining European Forms business (Datadocs). Other restructuring and corporate activity charges include the cost of theconsolidation of the support functions for the Print Management business into asingle location in the North East, the closure of our German office andassociated cost reduction in our European operations, the capitalreorganisation, changes to the management team and costs associated withconcluding discussions in connection with a possible offer for the company.Profit from operations after exceptional restructuring costs is £1.8m (2005£7.2m). As required by International Financial Reporting Standards, the Group hascompleted its annual test for impairment of intangible assets arising frombusiness combinations. In recognition of the decline in profitability of boththe Print Management and Print and Direct Mail operations we have reduced ourestimates of future cash flows from these segments. The result is an impairmentof intangible assets of £31.6m (2005 £Nil), of which £22.4m is attributable toPrint and Direct Mail operations and £9.2m to Print Management. Exceptional property gains comprise the sale of our vacant factory property inStourton, Leeds which generated a profit of £3.6m and the sale and leaseback ofour PDM Bath facility which generated a profit of £9.5m. These transactionsfunded the share buyback undertaken in the first half of 2006, the transfer ofthe PDM Altrincham business and the acquisition of Centrica's UK transactionalprint and mail operations. The tax charge in the year fell to £0.7m (2005 £2.0m) and after excluding thecharge for impairment of intangible assets. This represents an effective rateof tax of 5.6% (2005 22.5%). This exceptionally low rate is driven by twofactors. Firstly the Group benefited from a very low tax charge in respect ofthe gains made on the two exceptional property disposals. Substantialindexation allowances and the utilisation of brought forward capital lossessignificantly reduced the taxable capital gain on these transactions. Secondlythe Group successfully concluded discussions with HM Revenue and Customs as tothe tax treatment of expenses associated with businesses disposed of at the timeof the Group's reconstruction in 2000. The result was a £1.1m release of prioryear tax provisions. The loss per share of 14.35 pence (2005 profit 1.81 pence) reflects the impactof the intangible asset impairment in 2006. Adjusted earnings per share, whichexcludes the impact of exceptional items and exceptional tax credits, hasincreased to 5.81 pence per share (2005 5.60 pence) following the repurchase andcancellation of 5.5m of the Company's shares. Cashflow and Net Debt The Group's principal cash flows are summarised in the table below: 2006 2005Inflow / (ouflow): £m £m Profit before exceptional items 15.1 15.1Depreciation and other non-cash items 10.4 11.7Additional pension contributions (2.5) (10.0)Cash effect of restructuring (9.6) (2.9)Increase in working capital (10.3) (7.7)Interest and tax (4.5) (5.3)Discontinued operations - 0.2 -------------- --------------Net cash (outflow) / inflow from operations (1.4) 1.1 Investing activities 5.8 (1.6)Financing activities excluding loan facility movements (13.3) (7.9) -------------- --------------Movement in net debt (8.9) (8.4) Opening net debt (36.0) (27.6) Closing net debt (44.9) (36.0) The Group experienced a net cash outflow from operations of £1.4m in 2006 (2005net inflow £1.1m). Whilst additional contributions to the pension scheme werereduced by £7.5m in 2006, the closure of PDM Altrincham led to an increase of£6.7m in restructuring costs and our working capital requirement increased by£10.3m (2005 £7.7m). Working capital management will be a significant focus for the Group in 2007.By the end of 2006, the proportion of trade debt outside contracted paymentterms had risen to 32.6% (2005 18.4%). Our focus and investment in accountmanagement is targeted to drive a significant improvement in this keyperformance indicator and consequent reduction in our working capitalrequirement. The working capital increase in 2006 also reflects the fact that,where it is prudent to do so, the Group takes advantage of early paymentdiscounts offered by our major suppliers. We intend to continue with thispolicy. The Group's cash inflow from investing activities included £21.5m from the twoexceptional property disposals (2005 £4.0m) and a further £1.6m in deferredconsideration following the disposal of the Colour Solutions business in 2004.The principal investing activity outflows were the acquisition of the HSBCstatement production business and Centrica's UK billing operations whichtotalled £7.9m and fixed and intangible asset additions of £8.2m (2005 £4.4m). Financing activity excluding amortisation of existing loans and the addition ofnew loan facilities consisted solely of cash payments to shareholders in theform of a £5.1m share buyback (2005 £nil) and dividends of £8.2m (2005 £7.9m). Overall net debt increased by £8.9m (2005 £8.4m) and ended the year at £44.9m(2005 £36.0m). The Group had committed bank facilities at 31 December 2006 of£49m (2005 £42m) and cash and cash equivalents at the year end of £2.1m (2005£6.0m). Dividend Policy In considering the company's strategic options and business opportunitiesafresh, the Board has reviewed the existing dividend policy. The Group'sdividend cover before exceptional items fell from 3.4 times in 2001 to around 1times in 2005. In 2007 we will complete our investment in our Speke plant, the largest and mostmodern transaction printing facility in Europe. We will also invest to increaseour customer-facing skills. Against this backdrop, the Board has resolved to rebase the dividend. For 2006,we propose to increase our dividend cover ratio to 2.4 times, and over themedium term to maintain this ratio at between 2 and 2.5 times. Accordingly theBoard propose to pay a final dividend in respect of 2006 of 0.5 pence per sharetaking the full year dividend to 2.453 pence per share (2005 5.85 pence pershare). This represents a significant cash saving for the Group in 2007 whichwill enable more rapid progress with the Group's new strategy. Dividends willbe paid, subject to shareholders' approval, on 1 May 2007 to shareholders on theregister at the close of business on 10 April 2007. Capital Reorganisation At the time of our 2006 interim results, the Board announced that it would seekshareholder approval for a capital reorganisation. The board are pleased toreport that this approval was given and that Communisis plc's application to theCourt to reorganise its share capital through the cancellation of its sharepremium account was successful. The result is a capital reduction of £152.3m registered at Companies House on 9November 2006. The Board has reassessed the carrying value of Communisis plc'sinvestment in subsidiary businesses and has written down this value by a totalof £95.7m. The impact of the reorganisation, the write down and other corporatetransactions on Communisis plc distributable reserves is an increase of £53m,with distributable reserves ending the year at £83m. Pensions The gross pension deficit under IFRS included in the Group balance sheet hasfallen by more than £20m to £17.3m (2005 £37.7m). The reduction is driven bythree significant factors. Firstly an increase in the liability discount rateused from 4.8% in 2005 to 5.1% in 2006 reflecting the extent of the recovery inbond yields from their low point. Secondly the recognition of higher cashcommutation allowances following the 'A Day' pension legislation changes andthirdly, gains from better than expected investment returns and experience gainsarising from the triennial valuation. The Board has reviewed all the assumptions underpinning the IFRS valuationbasis. We have adopted higher long term inflation views and strengthened themortality assumptions, adding an average of 2 years of life expectancy. The Trustees' actuarial valuation of the pension fund, last updated at 30September 2005, recorded a deficit of £4.5m. During 2006, following discussionswith the fund's Trustees, we reached agreement to eliminate this deficit via twocash payments. The first of these (£1.6m) was made in July 2006 and the second(£3.1m including interest costs) was made in January 2007. A further outcome tothese discussions was agreement as to the Company contribution rate for the Plangoing forward. This has been set at 13.3% of pensionable salary (2005 12%). Peter KingFinance Director Risks and Uncertainties The operation of a public company involves a series of risks and uncertaintiesacross a range of strategic, commercial, operational and financial areas.Communisis has a robust internal control and risk management process, outlinedin the corporate governance statement. This process is designed to provideassurance but cannot seek to avoid all risks. The more significant risks and uncertainties faced which could cause the Group'sactual results to vary materially from historical and expected results are setout below. Competition Communisis operates in highly competitive markets and the Group's products andservices are characterised by continually evolving industry standards andchanging technology driven by the demands of the Group's customers. We investin product development to sustain competitive advantage. However, if we fail tokeep pace with technological, product and process change, the Group may fail toor experience delay in introducing new or enhanced services. We review ourpricing and take action to control our cost base to ensure that we remaincompetitive and protect our margins. Failure to do either of the above mayresult in materially lower margins and loss of market share. Operational Disruption Given the nature of our products and services, disruption of our manufacturingand distribution facilities could impact our revenues and profits. This risk ismanaged through a process including systems of standard operating procedures,regulatory compliance, monitoring, audit and multiple sourcing. During 2006 we closed our print and direct mail manufacturing facility atAltrincham and relocated its operations to Leeds and Manchester. The disruptionto our factory in Leeds caused by this process has been very significant, andwork is continuing to address issues of quality and production efficiency.Whilst we are confident of resolving these problems, to the extent that we aredelayed or are not completely successful there is a risk of a potentiallymaterial and adverse impact on the operations of the Group. A failure of the Group's information systems platform would affect all oursites. The Group therefore maintains back up and disaster recovery plans.While the Group maintains insurance at appropriate levels, some of theseoperational risks could result in losses and liabilities in excess of ourinsurance coverage or in uninsured losses and liabilities. Pensions Liabilities The interaction of, amongst other things, increased life expectancy, equitymarket performance and low interest rates over the past several years has had asignificant negative impact on the funding levels of the Group's pension plan.This has materially and adversely affected the pension plan funding obligationsof the Group and action has been taken to mitigate the effects of these factorsby means of the closure to new entrants of the defined benefit section of theGroup's pension plan and increased pension contributions from our employees.Although market movements during 2006 and a number of other factors have helpedto reduce the funding deficit, any future decline in the equity market,improvement in life expectancy, or future decreases in interest rates couldincrease that deficit and require additional contributions in excess of thosecurrently expected. Group Debt Levels The Group has significant debt and similar liabilities. Our ability to complywith our financial covenants and to make scheduled payments or to re-finance ourdebt and other obligations will depend on, among other things, our gearing,operating performance and liability management. If the Group's cash flow andcapital resources are insufficient to meet our debt service requirement andother obligations we may be forced to reduce or delay scheduled expansion andcapital expenditure, sell material assets, obtain additional capital orrestructure our debt. In the event of significant deterioration in the Group'soperating performance, cash flow or capital resources, there is a risk that theGroup could no longer service the debt and other liabilities in the future. Working Capital Management Management of the Group's working capital is a cause of concern to the Board anda range of measures has been introduced in order to improve our performance inthis area. Credit control and stock management are both areas in which asignificant opportunity lies if we are able to bring about the desiredimprovement, and more regular and rigorous monitoring of performance is nowbeing established as part of our management regime. To the extent that we fail to achieve our objectives in this area, however, wemay find our ability to expand or invest in new equipment constrained by ashortage of capital. There cannot be complete assurance that the measurescurrently being introduced will be wholly successful and there is therefore arisk that the Group's activities and development could be hindered if we fallshort of our targets. Liabilities Arising from Past Disposals Over the past few years the Group has made a number of disposals. In many casesthe Group has agreed to retain known or pre-sale liabilities. Any materialchanges in known or potential pre-sale liabilities could result in a cashoutflow from the Group and have a material adverse effect on the Group'sbusiness, financial condition and results of operations. Environmental Risk The Group seeks to conduct its activities in such a manner that there is no orminimal damage to the environment. Risk could arise if we do not apply ourresources in such a way to achieve the protection or improvement of the naturalenvironment. Network and Systems The Group's operations depend crucially on complex networks and systems and onthe ability to access similar networks belonging to other parties. Failures inthese networks or systems may mean that we cannot serve our customers, exposingus to potential claims and loss of those customers and to costs of repair ormodification of the systems. High Dependency on Few High Value Customers The Group is dependant upon a small number of high value customers. 56% of theGroup's turnover is derived from its top ten customers. If we were to lose oneor more of these customers without replacing them this could result in amaterial adverse affect on the Group's business and operations. Off-Shoring We continue to see a trend towards sourcing print and print related productsfrom manufacturers outside the United Kingdom. Whilst our product range andcustomer base normally implies time-critical delivery, making overseas sourcingmore difficult, there is a risk that increasing sophistication in overseassuppliers may impact on our ability to retain turnover levels within the UnitedKingdom. To the extent that business is lost to this lower cost competitionthere is a risk that the Group's activities could be adversely affected. Technological Change and Declining Markets As outlined above in the context of competition risk, the Group's activities aresubject to constant technological development and change. Certain of ourbusinesses operate in market sectors where there is a strong risk thatelectronic technology will supersede paper-based communications. The Groupfully recognises this risk and is actively involved in developing, often intandem with our customers, new methods of providing information that will, indue course, replace existing products. In addition, the Group maintains anactive programme to increase efficiency in areas of operation addressingdeclining markets in order to maintain profitability. The success of this workshould protect us from loss of market share and turnover but there is a clearrisk that if we fail to meet the evolving requirements of our customers therewill be a material adverse effect on the Group's results of operations. Consolidated Income Statementfor the year ended 31 December 2006 Note 2006 2005 £000 £000Continuing operationsRevenue 1 260,640 264,785Changes in inventories of finished goods and work in progress 566 (79)Raw materials and consumables used (133,428) (140,349)Employee benefits expense (79,005) (70,139)Depreciation and amortisation expense (7,541) (9,233)Impairment of intangible assets 2.2 (31,561) -Other operating expenses (39,395) (32,956)Profit on disposal of properties 2.2 13,132 -Loss on sale of Datadocs operation - (4,865)(Loss)/ profit from operations (16,592) 7,164 Analysed as:Profit from operations before exceptional items 15,106 15,073Exceptional restructuring costs 2.2 (13,269) (7,909)Profit from operations after exceptional restructuring costs 1,837 7,164Impairment of intangible assets (31,561) -Profit on disposal of properties 2.2 13,132 -(Loss)/ profit from operations (16,592) 7,164 Finance revenue 619 252Finance costs 2.1 (3,392) (3,317) (Loss)/ profit before taxation (19,365) 4,099 Income tax expense 3 (675) (2,014)(Loss)/ profit for the year from continuing operations (20,040) 2,085 Discontinued operationsProfit for the year from discontinued operations - 512(Loss)/ profit for the year attributable to equity holders of parent (20,040) 2,597 Earnings per share 4On (loss)/ profit for the year attributable to equity holders - basic (14.35)p 1.81p - diluted (14.35)p 1.80p On (loss)/ profit for the year from continuing operations - basic (14.35)p 1.45p - diluted (14.35)p 1.45p Dividend per share 5 - paid 5.850p 5.502p - proposed 0.500p 3.897p Dividends paid and proposed during the year were £8.2 million and £0.7 millionrespectively (31 December 2005: £7.9 million and £5.6 million respectively). The accompanying notes are an integral part of this Consolidated IncomeStatement. Consolidated Balance Sheet31 December 2006 2006 2005 £000 £000ASSETSNon-current assetsProperty, plant and equipment 27,080 32,286Intangible assets 151,182 173,797Trade and other receivables 2,865 6,055Deferred tax asset 3,955 8,417 185,082 220,555Current assetsInventories 13,272 13,089Trade and other receivables 51,624 47,616Cash and cash equivalents 2,133 9,778 67,029 70,483 Non-current assets classified as held for sale 350 3,344 TOTAL ASSETS 252,461 294,382 EQUITY AND LIABILITIESEquity attributable to the equity holders of the parentEquity share capital 34,633 36,008Share premium - 152,287Merger reserve 11,427 11,427Capital redemption reserve 1,375 -ESOP reserve (338) (374)Cumulative translation adjustment (33) (2)Retained earnings 76,547 (56,029)Total equity 123,611 143,317 Non-current liabilitiesInterest bearing loans and borrowings 38,521 33,500Retirement benefit obligations 17,306 37,737Provisions 211 408 56,038 71,645Current liabilitiesInterest bearing loans and borrowings 8,548 12,251Trade and other payables 57,853 61,575Income tax payable 4,783 5,550Provisions 1,628 44 72,812 79,420 Total liabilities 128,850 151,065 TOTAL EQUITY AND LIABILITIES 252,461 294,382 The accompanying notes are an integral part of this Consolidated Balance Sheet. Consolidated Cash Flow Statementfor the year ended 31 December 2006 Note 2006 2005 £'000 £'000Cash flows from operating activitiesCash generated from operations 7 3,039 6,408 Interest paid (3,177) (2,498)Interest received 619 239Income tax paid (1,912) (2,988)Net cash flows from operating activities (1,431) 1,161 Cash flows from investing activitiesAcquisition of subsidiary undertakings netof cash acquired (7,929) (1,137)Receipt of deferred consideration fromthe sale of subsidiary undertakings 1,600 147Purchases of property, plant and equipment (4,580) (3,857)Proceeds from the sale of property, plant andequipment 21,495 3,997Purchase of intangible assets (3,580) (539)Tax on disposal of property, plant and equipment (1,191) (231)Net cash flows from investing activities 5,815 (1,620) Cash flows from financing activitiesProceeds from issue of share capital - 35Purchase of own shares including costs (5,147) -New borrowings 13,075 10,000Repayment of borrowings (8,000) (5,000)Dividends paid (8,223) (7,907)Net cash flows from financing activities (8,295) (2,872) Net decrease in cash and cash equivalents (3,911) (3,331) Cash and cash equivalents at 1 January 6,027 9,386 Exchange rate effects (31) (28)Cash and cash equivalents at 31 December 2,085 6,027 Cash and cash equivalents consist of:Cash and cash equivalents 2,133 9,778Overdrafts (48) (3,751) 2,085 6,027 The accompanying notes are an integral part of this Consolidated Cash FlowStatement. Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2006 2006 2005 £'000 £'000 Currency translation (losses) / gains in year (31) 98Foreign currency translation difference transferred from reserves on sale of Datadocs operation - 153Exchange (losses) / gains on translation offoreign operations (31) 251Actuarial gains / (losses) on definedbenefit pension plans 19,176 (3,043)Tax on items taken directly to equity (5,752) 913Net profit / ( loss) recognised directly in equity 13,393 (1,879)(Loss) / profit for the year (20,040) 2,597Total recognised income and expense for the year (6,647) 718 Attributable to:Equity holders of the parent (6,647) 718 The accompanying notes are an integral part of this Consolidated Statement ofRecognised Income and Expense. Notes to preliminary results 1 Business segments The segment results for the year ended 31 December 2006 are as follows: Print Print and Trans- Manage- Direct actional ment Mail Print Corporate Services Services Services expenses Total £000 £000 £000 £000 £000RevenueTotal revenue 139,739 115,060 49,864 - 304,663Inter-segment sales (623) (38,598) (4,802) - (44,023)External sales 139,116 76,462 45,062 - 260,640 Operating profit before exceptional items 4,736 4,497 10,780 (4,907) 15,106Operational restructuring costs - (617) (489) - (1,106)Transfer of business - PDM Altrincham - (8,260) - - (8,260)Other restructuring and corporateactivity charges (2,047) - - (1,856) (3,903)Profit from operations after exceptionalrestructuring costs 2,689 (4,380) 10,291 (6,763) 1,837Impairment of intangible assets (9,115) (22,446) - - (31,561)Profit on disposal of properties - 9,559 - 3,573 13,132(Loss) / profit from operations (6,426) (17,267) 10,291 (3,190) (16,592)Net finance costs (2,773)Loss before taxation (19,365)Income tax expense (675)Loss for the year (20,040) The segment results for the year ended 31 December 2005 are as follows: Continuing operations Discontinued operations Print Print and Trans- Manage- Direct actional ment Mail Print Corporate Colour Services Services Services expenses Total Solutions Group £000 £000 £000 £000 £000 £000 £000RevenueTotal revenue 148,893 125,537 27,081 - 301,511 - 301,511Inter-segment sales (2,171) (30,263) (4,292) - (36,726) - (36,726)External sales 146,722 95,274 22,789 - 264,785 - 264,785 Operating profit beforeexceptional items 5,710 7,205 5,377 (3,219) 15,073 - 15,073Operational restructuring costs - (500) (448) - (948) - (948)Other restructuring and corporateactivity charges (649) - - (1,447) (2,096) - (2,096)Loss on sale of Datadocsoperations (Note 2.2) - (4,865) - - (4,865) - (4,865)Profit from operationsafter exceptionalrestructuring costs 5,061 1,840 4,929 (4,666) 7,164 - 7,164Profit on sale of property - - - - - 1,048 1,048Loss on closure of label printingoperation - - - - - (418) (418)Profit / (loss) from operations 5,061 1,840 4,929 (4,666) 7,164 630 7,794Net finance costs (3,065) (2) (3,067)Profit before taxation 4,099 628 4,727Income tax expense (2,014) (116) (2,130)Profit for the year 2,085 512 2,597 2 Other expenses 2.1 Finance costs 2006 2005 £000 £000 Bank loans and overdrafts 3,346 2,575Retirement benefit related costs 46 744 3,392 3,319 Continuing operations 3,392 3,317Discontinued operations - 2 3,392 3,319 2.2 Exceptional items 2006 2005 £'000 £'000 (Loss) / profit from operations is arrived at after charging / (crediting)the following items: Operational restructuring costs 1,106 948Transfer of business - PDM Altrincham 8,260 -Other restructuring and corporate activity charges 3,903 2,096Loss on sale of Datadocs operation - 4,865Restructuring costs 13,269 7,909Profit on disposal of properties (13,132) -Impairment of intangible assets (Note 6) 31,561 -Net exceptional expense 31,698 7,909 During the year the Group closed its PDM Altrincham operation and transferredproduction to PDM Leeds. The exceptional item deriving from this closure relatesto disruption, redundancy, onerous lease costs, and loss on disposal ofproperty, plant and equipment. Other exceptional item comprise redundancy costs and expenses at bothoperational and board level which relate to the strategic review of business. Inaddition there are exceptional costs arising from previous disposals andlitigation expenses. Profits on disposal of properties are classified as exceptional on the basisthat they arise from transactions to dispose of assets other than at the end oftheir usual expected lives or at values significantly different to theirpreviously assessed residual. As such the amounts earned or charged in any givenyear is not indicative of a trend in financial performance. 3 Income tax The major components of income tax expense for the years ended 31 December 2006and 2005 are: 2006 2005 £000 £000Tax charged in the Income StatementCurrent income taxUK Corporation Tax - continuing operations 3,476 3,469 - discontinued operations - 250 Adjustments in respect of prior years - continuing operations (1,454) (1,037) - discontinued operations - 5 Adjustments in respect of overseas tax for prior years - continuing operations 295 -Total current income tax charge 2,317 2,687 Deferred income taxOrigination and reversal of temporary - continuing operations (1,307) (489) differences - discontinued operations - (71) Adjustments in respect of prior years - continuing operations (335) 71 - - (68)discontinued operationsTotal deferred tax credit (1,642) (557) Tax charge in the Consolidated Income Statement 675 2,130 The tax charge in the Consolidated Income Statement is disclosed as follows:Income tax expense on continuing operations 675 2,014Income tax expense on discontinued operations - 116 675 2,130 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 5,752 (913)Income tax expense / (credit) reported in Statement of RecognisedIncome and Expense 5,752 (913) 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 chargeThe tax expense in the Income Statement for the year is higher (2005 higher) than the standard rateof corporation tax in the UK of 30% (2005 30%). The differences are reconciled below: 2006 2005 £000 £000(Loss)/ profit before tax from continuing operations (19,365) 4,099Profit before tax from discontinued operations - 628(Loss)/ profit before income tax (19,365) 4,727 At UK statutory income tax rate of 30% (2005 30%) (5,810) 1,418Impairment (2005 disposal) of goodwill not deductible for tax purposes 9,468 628Expenses not deductible for tax purposes 276 136Non-taxable gain on property disposals (1,887) -Non-deductible loss on disposal of business - 756Unrelieved overseas losses 55 136Share-based payments 72 140Change in deferred tax in respect of rolled over capital gains (5) (55)Adjustments in respect of prior years (1,494) (1,029) 675 2,130 4 Earnings per share 2006 2005 £000 £000Basic and diluted earnings per share is calculated as follows: (Loss) / profit attributable to equity holders of the parent - continuingoperations (20,040) 2,085Profit attributable to equity holders of the parent - discontinuedoperations - 512(Loss) / profit attributable to equity holders of the parent (20,040) 2,597 2006 2005 Thousands Thousands Weighted average number of ordinary shares (excludingtreasury shares) for basic earnings per share 139,653 143,710Effect of dilution:Share options 877 244Weighted average number of ordinary shares (excludingtreasury shares) adjusted for the effect of dilution 140,530 143,954 279,628 (2005 309,628) shares were held in trust at 31 December 2006. Share options in issue for which exercise is currently unlikely total 3,168,339(2005 1,131,239) share options. The inclusion of these options would beanti-dilutive and so would have no impact on diluted earnings per share. Earnings per share from continuing operations before exceptional items Net profit from continuing operations before exceptional items and attributableto equity holders of the parent is derived as follows: 2006 2005 £000 £000 (Loss)/ profit after taxation from continuing operations (20,040) 2,085Exceptional items (Note 2.2) 31,698 7,909Taxation on exceptional items (2,055) (913)Taxation - adjustments in respect of prior years (1,494) (1,029)Profit after taxation from continuing operations excludingexceptional items 8,109 8,052 Adjusted earnings per shareBasic 5.81p 5.60pDiluted 5.77p 5.59p Adjusted earnings per share uses the same weighted average number of ordinaryshares as reported above. Discontinued operations Profit per share for discontinued operations is derived from the net profitattributable to the equity holders of the parent from discontinued operations of£Nil (2005 £512,000) divided by the weighted average number of ordinary sharesfor both basic and diluted amounts per the table above. 5 Dividends paid and proposed 2006 2005Declared and paid during the year £000 £000Amounts recognised as distributions to equity holders in the year:Final dividend of the year ended 31 December 2004 of 3.549p per share - 5,100Interim dividend of the year ended 31 December 2005 of 1.953p per share - 2,807Final dividend of the year ended 31 December 2005 of 3.897p per share 5,523 -Interim dividend of the year ended 31 December 2006 of 1.953p per share 2,700 - 8,223 7,907Proposed for approval at AGM (not recognised as a liability asat 31 December)Final equity dividend on ordinary shares for 2006 of 0.500p (2005 3.897p)per share 691 5,523 6 Impairment of goodwill Goodwill acquired through business combinations has been principally allocatedfor impairment testing purposes to three cash-generating units, which arereportable segments, as follows: • Print Management Services• Print and Direct Mail Services• Transactional Print Services These represent the lowest level within the Group at which goodwill is monitoredfor internal management purposes. In addition, impairment tests have beenperformed on goodwill arising on current year acquisitions. The recoverable amount of all three units has been determined based on a valuein use calculation using risk-adjusted cash flow projections based on financialbudgets approved by the Board. The approach and key assumptions are consistentwith those used in prior years. In 2006 an impairment charge of £30.2 million has been calculated, £22.4 millionis attributed to the Print and Direct Mail segment and £7.8 million isattributed to the Print Management segment and arises due to over capacity inthe UK print industry leading to continuing pressure on prices and thus profits. Following the impairment the carrying amount of goodwill allocated tocash-generating units is as follows: Carrying amount of goodwill allocated to cash-generating units: Total 2006 2005 £000 £000Print Management Services 62,211 69,963Print and Direct Mail Services 69,871 92,317Transactional Print Services 14,146 8,920 146,228 171,200 There are no other intangible assets with indefinite useful lives. Includedwithin Transactional Print Services is goodwill of £5,226,000 relating tocurrent year acquisitions, for which separate impairment tests have beenperformed. Key assumptions used in value in use calculations Discount rates The pre tax discount rate applied to the cash flow projections is 10.36% (20059.51%). This is the Group's weighted average cost of capital adjusted to a pretax rate and adjusted to reflect market assessment of specific risks associatedwith the segment cash flows. Period over which projected cash flows are based on approved financial budgets The period over which cash flows are projected based on financial budgetsapproved by the Board is three years in respect of all cash-generating units. Profit growth rate used to extrapolate cash flows beyond the budget period The profit growth rate used to extrapolate cash flow projections beyond thebudget period for all cash-generating units is below the long term averagegrowth rate for the UK and is considered to be a representative rate for themarkets to which these segments are dedicated. Profit growth rates have been assessed individually for each cash-generatingunit (primary segment). Print Management Services profit growth rates rangebetween 0% and 2%, Print and Direct Mail Services profit growth rates rangebetween 0% and 2% and Transactional Print Services growth rates range between-2% and 0%. These rates reflect both past experience and the expected outcome ofcontract re-negotiations with significant customers. Sensitivity to changes in assumptions An impairment charge has been made against goodwill for Print ManagementServices to bring the carrying amount into line with the segment's value in use.Any further deterioration in the key assumptions above would result in a furtherimpairment charge. For example a 0.1% increase in the discount rate would resultin £1.6 million additional impairment and a 0.5% reduction in profit growthrates would result in an additional £4.8 million impairment. An impairment charge has been made against goodwill for Print and Direct MailServices to bring the carrying amount into line with the segment's value in use.Any further deterioration in the key assumptions above would result in a furtherimpairment charge. For example a 0.1% increase in the discount rate would resultin £2.0 million additional impairment and a 0.5% reduction in profit growthrates would result in an additional £5 million impairment. 7 Cash generated from operations 2006 2005 £000 £000Continuing operations(Loss) / profit before tax (19,365) 4,099Adjustments for:- depreciation and amortisation 7,523 9,233- amortisation of contract premium payment 1,000 1,000- excess of Income Statement pension charge over normal contributions paid 1,547 1,286- loss on sale of Datadocs operation - 4,865- restructuring costs 13,269 3,044- profit on sale of property, plant & equipment (43) (49)- profit on exceptional property disposals (13,132) -- share-based payment charge 259 240- net finance costs 2,773 3,065- impairment of goodwill and customer relationship assets 31,561 - Additional contribution to the defined benefit pension plan (2,484) (10,000)Cash effect of restructuring continuing operations (9,636) (2,942) Changes in working capital:(Increase) / decrease in inventories (183) 1,361Increase in trade and other receivables (3,734) (5,101)Decrease in trade and other payables (6,316) (3,926)Cash inflow from operating activities on continuing operations 3,039 6,175 Discontinued operationsProfit before tax - 628Adjustments for:- profit on sale of property, plant & equipment - (1,048)- share-based payment charge - 3- net finance costs - 2 Changes in working capital:Decrease in trade and other receivables - 3,327Decrease in trade and other payables - (2,679) Cash inflow from operating activities on discontinued operations - 233 Cash generated from operations 3,039 6,408 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 2006 and 31 December2005 is abridged and has been extracted from the 2006 statutory accounts ofCommunisis plc which were approved by the Board of Directors on 27 February2006, along with this preliminary announcement, but have not yet been deliveredto the Registrar of Companies. The auditors have issued an unqualified opinionon the 2006 statutory accounts. The 2005 statutory accounts have been deliveredto the Registrar of Companies. The auditors' report on the 2005 statutoryaccounts was unqualified. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Communisis PLC