21st Feb 2005 07:00
4imprint Group PLC21 February 2005 Press Release 21 February 2005 4imprint Group plc Preliminary Results for the 53 weeks ended 31 December 2004 4imprint Group plc announces today its unaudited preliminary results for the 53weeks ended 31 December 2004. Highlights • Pre tax profit before exceptional items, goodwill amortisation and impairment and pension charges was £5.37m compared with a loss of £2.39m in 2003.• Pre tax profit was £3.41m compared with a loss of £10.83m in 2003.• Net cash increased by £5.09m to £12.75m at the end of 2004.• Proposed share buy back programme to return up to £10m to shareholders.• Taxation benefit of £2.75m produced post tax profits of £6.16m producing an EPS of 21.53p (2003: loss per share of 28.34p).• Strong growth in the US Direct Marketing division, the core US web and catalogue trading company.• AiA, the US Franchise business, achieves near £1m operating profit through restructuring and strong controls.• A final dividend of 3.5p is proposed bringing the total for the period to 5.25p (2003: Final dividend 3p, total dividend 4p). Commenting on the results, Ken Minton, Executive Chairman said: "The benefits of the major restructuring programme carried out in the Group areevident in the results and the second half was particularly strong. Cashgeneration was impressive and the proposed share buy back programme will benefitshareholders. The Group expects to make further progress in 2005." -Ends- For further information, please contact: 4imprint Group plcKen Minton, Chairman Tel: +44 (0) 161 272 4000 Chairman's Statement Shareholders will be pleased to see that the recovery in the performance oftheir company, already evident in the interim results, continued andstrengthened in the second half of 2004. Turnover at £93.59m was marginally below that of 2003, but this masks a verystrong performance in our principal business divisions, offset by elimination oflow margin activities. Operating profit before exceptional items, goodwill amortisation and pensioncharges was £5.08m. This excellent performance was achieved through very strongperformances at the European Direct Marketing and Corporate Programmes divisionwhere operating profits were almost double those of 2003; in US Direct Marketingwhere operating profits were almost three times those of 2003 and at the USFranchising division where operating profits of near £1m were achieved, comparedwith the substantial loss of 2003, reflecting the achievements of the managementof that division in bringing the business onto a strongly controlled and soundfooting. The European Premium Promotions division suffered from a strongcompetitive environment and reduced spend by some major clients; and operatingprofits were lower than last year. Here, we have carried out significantrestructuring and refocusing to bring back profitability to desired levels. Atthe Corporate level, major changes have been made in the overhead structure, andongoing costs have been significantly reduced. After exceptional operating charges and pension charges, operating profitbefore goodwill amortisation was £3.40m and this figure reduced to £3.12m aftergoodwill amortisation. Net interest income was £0.29m, bringing Pre tax profitsbefore exceptionals, goodwill amortisation and pension charges to £5.37m andafter exceptionals, goodwill amortisation and pension charges to £3.41m. The taxation credit of £2.75m comprises principally a previous yearsadjustment of £1.95m and a deferred tax credit of £0.76m. After tax profitincreased to £6.16m compared with a post tax loss of £8.14m in 2003. Earningsper share were 21.53p compared with a loss per share of 28.34p in 2003. The intrinsic cash generating feature of the 4imprint business was clearlydemonstrated by a net cash inflow for the year of £5.09m which arose from thestrong operating performance and reduction in working capital, producing a netcash balance of £12.75m at the year end. Share Buy Back The Board intends that substantial growth of shareholder value shall be thekey objective in the strategic development of the Group. The Board hasconsidered carefully the forward cash generation of the Group, its needs forcash to support its growth, and its responsibility for pensions and otherrequirements. As a result, the Board believes it should return a substantialportion of its current net cash resource to Shareholders. The Board has therefore decided to seek Shareholders' approval at its AGM on 6April to undertake a share buy back programme, involving a return of up to £10mto Shareholders through this mechanism. Details of how this will be done will becommunicated to Shareholders in due course. The Board Two of my Board colleagues, Edward Bramson, who was my predecessor as Chairman,and Matthew Peacock who is a Non-Executive Director have expressed their desireto resign from the Board and will leave the Group after the AGM on the 6 April2005. Edward and Matthew who are both principals of the specialist turnroundGroup, Hanover Investors, were responsible for executing the major changes inthe management of 4imprint and setting the Group on the way to recovery. We aregrateful to both, for the enormous contribution they have made to the Group'srecovery. The Board also welcomes two new Executive Directors; Gillian Davieswho in December last year was appointed Group Finance Director and Andrew Scullwho in November last year was appointed Corporate Services Director and LegalCounsel. We are delighted to have them on the Board. People The 4imprint Group has been through a necessary process of major change overthe recent past. The fact that these changes are now bringing renewed healthand prosperity to the Group is a tribute to all employees who have responded sowell to these challenges. We are grateful, on Shareholders' behalf, to everyonein 4imprint, for all that has been achieved. Dividend The Board is recommending a final dividend of 3.5p, which will bring the totaldividend for the period to 5.25p (2003: Final dividend 3p, total dividend 4p). Outlook The general trading climate for the Group's business at the start of this yearis similar to that which prevailed during the second half of last year. Againstthat background, and with a full year's benefit from operating changes made in2004, the Board expects the Group to achieve further progress in 2005. Ken MintonExecutive Chairman21 February 2005 Finance Director's Report Turnover and operating profit Group turnover for the period was £93.59 million, 99% of 2003, although, atconstant currency, results would be 105% of 2003. 2004 operating profit before exceptional items, goodwill amortisation andpension charges (both ongoing defined contribution charges and charges arisingfrom the revaluation of the defined benefit scheme in 2004) increased to £5.08mfrom a loss of £2.40m in 2003. There has been a strong performance from allbusinesses with a combination of increased sales, margin focus, exitingunprofitable business and tight cost control. At constant currency, operatingprofit of the US businesses would have been £0.39m higher. The Group's pensionfund triennial valuation was completed during the year and this has resulted ina £0.91m charge to operating profit (2003: £0.02m credit), ongoing definedcontribution pension charges are £0.24m (2003: £0.25m). In each company turnover and operating profit are recognised upon delivery ofgoods to the customer. Turnover for the franchise division is the fee incomereceived from the franchisee on the sale of goods. Exceptional items The exceptional items include the costs of a product recall in the EuropeanPremium Promotions division (£0.27m), scaling down its French office andrestructuring its UK business (£0.09m), as well as restructuring the UK DirectMarketing and Corporate Programmes division (£0.17m). Segment reporting Results are presented in four segments which represent the four separatedivisions of the Group. Each division has its own management team, is managed asa separate profit entity and is self contained with the exception of the USDirect Marketing and US Franchising divisions which share premises and systems.Each segment has a different market place or route to market and differentrisks, rewards and fixed and working capital demands. Interest Interest income increased to £0.29m from £0.01m in the previous year. Interestincome includes interest on the deferred consideration arising on the sale of aUS supplier business in 1999, as well as interest payable on a US dollar loanheld in the UK as a hedge against the US dollar deferred consideration. Themajority of the Group's cash balance is held and invested in the UK. Taxation The Group tax credit of £2.75m arose from the resolution of prior year taxissues resulting in a credit of £1.95m and recognition of deferred tax assets inline with FRS 19. Excluding these items the Group effective tax rate for theyear would be 25.8%. The Group's long term underlying tax rate is expected to bebetween 30% and 34%; however it is expected that the 2005 rate will benefit fromthe recognition of a deferred tax asset on US goodwill. Pensions 2004 2003 £'000 £'000Pension charges are made up as follows:Defined contribution plans 247 254Defined benefit scheme 907 (16) 1,154 238 Most current employees are members of defined contribution schemes and theregular ongoing contribution to these schemes is £0.25m (2003: £0.25m). In addition the Group has liabilities for the defined benefit scheme which hasbeen closed to new members for 4 years. Membership of the scheme is 6 active,1,539 deferred and 1,018 pensioners at the date of the last valuation. The Trustee Company Directors together with the actuaries and in consultationwith the Company have finalised the results of the April 2004 actuarialvaluation, the details of which are included in the notes to the accounts. Thevaluation resulted in a pre tax deficit of £11.3m compared to a pre tax surplusof £0.8m at the last valuation in April 2001. The principal factors causing thedeficit are the investment experience over the period together with an update inmortality assumptions. The Company has accounted for pensions on a SSAP 24 basis in 2004. The SSAP 24profit and loss account charge is £0.91m, representing a regular cost of £0.24mand a charge relating to the actuarial deficit of £0.67m. Contributions by theCompany of £1.44m have been made in the period, resulting in a total pensionprepayment at the end of the period of £1.66m (increased from £1.13m in 2003). Following the valuation, the Company and the Directors of the Trustee Companywill agree a revised schedule of contributions. On an FRS 17 basis, the pension scheme deficit is £12.59m, net of deferredtaxation. Following the adoption of International Financial Reporting Standardsin 2005, any deficit calculated on an IAS 19 basis will be included in theCompany's Balance Sheet, with a corresponding reduction in reserves. Earnings per share and dividends Earnings per share are 21.53p (2003: loss per share 28.34p). The Board has proposed a final dividend for the year of 3.5p (2003: 3p),bringing the total dividend for the period to 5.25p (2003: 4p) an increase of 31%. Cash flow The Group generated cash in the period of £5.09m resulting in a closing cashbalance of £12.75m. Strong cash generation was due to improved operatingprofit, reduction in working capital around the Group and sales growth inbusinesses which require a relatively low working capital investment. Growth in the Direct Marketing businesses has a low working capital requirementwhereas growth in the Corporate Programmes or US Franchising businessesnecessitates heavier investment in working capital. A share buy back programme to return cash of up to £10m to shareholders has beenproposed. Balance sheet and shareholders' funds Shareholders' funds increased to £34.88m (2003: £31.69m) due to strongprofitability and relatively low fixed and working capital investment. In respect of the US franchising business, the turnover includes only royaltyrevenues earned on sales of goods to customers, whereas working capital balancesinclude the full outstanding liabilities in relation to the sales as well as thefull outstanding debt due from the franchise owners. Current debtors include £1.67m of deferred consideration due to the Company inrespect of the disposal of a US supplier business in 1999. Exchange and cash management The average US dollar exchange rate during the course of the year was $1.8312(2003: $1.6425) to the pound. The exchange rate at the balance sheet date was$1.9031 (2003: $1.7757). This resulted in a reduction of US dollar denominatedassets of £0.64m. The Group does not currently hedge the translation exposure of profits andassets of its US subsidiaries. Treasury policy is centrally to manage the financial requirements and risk ofthe divisions that arise in relation to business needs. The Group operates cashpooling arrangements on currency accounts for its US operations and separatelyfor its UK and European operations to maximise interest income and activelyholds the majority of cash in the UK on deposit. Accounting standards During the year the Group adopted UITF Abstract 38 "Accounting for ESOP trusts".This led to a reclassification of interests in own shares from fixed assetinvestments to profit and loss reserves. The Group will adopt International Financial Reporting Standards (IFRS) in 2005.The principal impact on the Group will be as a result of the adoption of IAS 19"Employee benefits", IFRS 2 "Share based Payment" and IAS 10 "Events after thebalance sheet date" together with the associated tax implications. The 2004results and Balance Sheet will be restated on an IFRS basis for inclusion in the2005 half year accounts. Gillian DaviesGroup Finance Director21 February 2005 Operating Review European Premium Promotions 2004 2003 £'000 £'000Turnover 13,328 15,854Operating profit pre exceptional items, goodwill 932 1,589amortisation and pension chargesOperating profit 410 1,423 This division comprises the Product Plus International company based in London,which specialises in the supply of promotional products and services to a rangeof blue chip clients. Trading conditions have been difficult throughout the period for the EuropeanPremium Promotions business with strong competition and a lull in growth inoverall corporate spend in the sector. In the second half of the year thebusiness achieved sales of £6.8m, 73% of H2 2003 which included particularlyhigh client spend from two sectors. Total sales for the year are 84% of prioryear and, following tight cost control, operating profit pre exceptional items,goodwill amortisation and pension charges is 59% of prior year. The business has undertaken a full review of its profitability during 2004 andas a result has downsized its French subsidiary, ensuring that customer serviceis unaffected and support services are provided wherever possible from the UK.It has also undertaken restructuring at its UK Head Office re-aligning itsBusiness Units to the key business segments they serve. The restructuringresulted in a one off exceptional cost of £0.09m. Following this restructuringthe business is well placed to respond to the competitive landscape goingforward. An exceptional charge of £0.26m in the year relates to the cost of a productrecall which is treated as exceptional due to its rare occurrence and size. European Direct Marketing and Corporate Programmes 2004 2003 £'000 £'000Turnover 35,727 34,844Operating profit pre exceptional items, goodwill 1,886 1,008amortisation and pension chargesOperating profit 1,505 776 The Manchester based business which accounts for over 85% of this division'ssales, comprises of the following divisions: (a) Trade division - supplies a wide range of promotional products on a regular basis to end users and intermediate suppliers of end users. It provides bespoke printing and imprinting services through its own 'in house' laser printing facilities. The sector had an excellent year with sales up 6% on 2003. (b) Corporate Programmes division - this division builds on its product base by providing sophisticated design and artwork and additional support functions, including warehousing, distribution and product range consultancy, for specific corporate promotional programmes for major clients. The division generated flat sales as low value contracts were terminated as part of the drive to improve the profitability of this sector. (c) Direct Marketing and Field Sales - both sales and profits increased in this sector. In Direct Marketing, which uses catalogue and web selling techniques, a major drive is being implemented to accelerate the growth of this important area using the advanced skills and methods employed by 4imprint Inc in the US. Kreyer Promotions, in Germany, increased its turnover by 10% as a result ofreinforced sales efforts and securing several new customers and there was acorresponding increase in profitability. This was augmented by increasedpurchasing from the Far East. The European Direct Marketing and Corporate Programmes division's current costbase and margin focus leave it well placed to move forward in 2005. US Direct Marketing 2004 2004 2003 2003 US$'000 £'000 US$'000 £'000Turnover 73,083 39,910 64,180 39,075Operating profit pre pension charges 4,582 2,502 1,597 972Operating profit 4,382 2,393 1,403 854 This division based in Oshkosh Wisconsin has two separate activities, the coreDirect Marketing business and a smaller Corporate Programmes business. 4imprint Inc's core business, which represents over 80% of its sales is theDirect Marketing of promotional products covering US and Canada, usingsophisticated web and catalogue skills and technologies. It is one of theforemost companies in the sector with a reputation for service and innovation.It is growing strongly. Sales were up 17% on 2003 and total orders receivedgrew by 20%. New customer orders grew by 27% and orders placed through the webgrew by 60%. Overall a third of the total orders are made through the web.4imprint Inc's strategy is to grow as a multichannel direct marketer integratingdirect mail, internet and telephone strategies to acquire and retain customers.It is backed up by strong supplier relationships and procurement strategies. The small Corporate Programmes business has been downsized to a focused unitwhere 4imprint Inc's skills can be profitably used. US Franchising 2004 2004 2003 2003 US$'000 £'000 US$'000 £'000Turnover 8,471 4,626 8,377 5,100Operating profit pre goodwillamortisation and impairment and pensioncharges 1,840 1,005 (7,684) (4,678)Operating profit 1,802 984 (21,346) (12,183) This division comprises the AiA promotional products franchising business, basedin Oshkosh Wisconsin. 2004 has been a turnaround year for the division and the benefits of therestructuring which commenced in 2003 are evident with a year end operatingprofit before goodwill amortisation and pension charges of £1m following severalyears of losses. In 2003 all of the goodwill of £7.05m relating to AiA waswritten off, together with legacy balances due from Franchise owners totalling£3.36m. The operation has been successfully consolidated into Oshkosh, Wisconsin withminimal disruption to Franchise Owners. The business has a strong managementteam and is focused on tight financial controls as well as minimising the fixedoverhead cost base. Bad debt issues have been substantially reduced and thebusiness is on a sound footing to move forward. A decision was taken not to add new franchisees during the year until thereorganisation, relocation and improvements to the control systems werecomplete. A change in US Financial Accounting Standards (requiring theconsolidation of franchisees' accounts for US reporting) makes it impracticalfor the company to resume sales of new franchises. Therefore, going forward, thebusiness will continue to support its existing base of franchise holders andwill start to develop a new group of Independent Sales Representatives. Thisapproach will allow the division to maintain existing business and at the sametime will provide a platform for growth. It is anticipated that the new processwill commence later in 2005. Ken MintonChairman21 February 2005 Consolidated Profit and Loss Account (unaudited)For the 53 weeks ended 31 December 2004 2004 2003 Note £'000 £'000Turnover 2 93,591 94,873Operating expenses (90,471) (105,716)Operating profit/(loss) before exceptional items, goodwill 5,075 (2,403)amortisation and impairment and pension chargesExceptional operating expenses 3 (525) (421)Goodwill amortisation and impairment (276) (7,781)Pension charges 8 (1,154) (238)Operating profit/(loss) 2 3,120 (10,843)Net interest receivable 291 11Profit/(loss) on ordinary activities before taxation 3,411 (10,832)Taxation 4 2,748 2,696Profit/(loss) on ordinary activities after taxation 6,159 (8,136)Dividends 5 (1,495) (1,148)Transfer to/(from) reserves 4,664 (9,284) Earnings/(loss) per shareBasic 6 21.53p (28.34p)Diluted 6 20.82p (28.10p) All results relate to continuing activities. Statement of Group Total Recognised Gains and Lossesfor the 53 weeks ended 31 December 2004 2004 2003 £'000 £'000Profit/(loss) on ordinary activities after taxation 6,159 (8,136)Exchange adjustments offset in reserves (643) (2,532)Total gains/(losses) for the financial period 5,516 (10,668) No tax was payable on UK exchange gains in either period as this was covered bylosses brought forward for which no deferred tax asset was previouslyrecognised. Reconciliation of Movements in Group Shareholders' Fundsfor the 53 weeks ended 31 December 2004 2004 2003 (restated) Note £'000 £'000Profit/(loss) on ordinary activities after taxation 6,159 (8,136)Dividends 5 (1,495) (1,148) 4,664 (9,284)Other recognised losses relating to the period- exchange adjustments (643) (2,532)Movements arising from the exercise of share options 7 2Shares issued in the period 48 -Own shares purchased in the period (889) -Net movement in shareholders' funds 3,187 (11,814)Opening shareholders' funds 31,690 43,504Closing shareholders' funds 34,877 31,690 The opening shareholders' funds were £31,697,000 (2003: £43,513,000) before thereclassification of own shares from fixed asset investments to profit and lossreserves following the adoption of UITF 38 "Accounting for ESOP Trusts". Theeffect of this reclassification was to reduce the 2004 and 2003 profit and lossreserve by £889,000 and £7,000 respectively. Consolidated Balance Sheet (unaudited)at 31 December 2004 2004 2003 (restated) £'000 £'000Fixed assetsIntangible assets 4,065 4,341Tangible assets 4,399 5,299Investments 8 - 8,472 9,640Current assetsStocks 4,640 5,959Debtors due within one year 26,763 28,523Debtors due after more than one year 765 1,901Cash at bank and in hand 15,310 10,128 47,478 46,511Creditors: amounts falling due within (20,241) (23,194)one yearNet current assets 27,237 23,317Total assets less current liabilities 35,709 32,957Provisions for liabilities and charges (832) (1,267)Net assets 34,877 31,690 Capital and reservesCalled up share capital 11,063 11,044Share premium account 37,659 37,630Capital redemption reserve 208 208Profit and loss account (14,053) (17,192)Equity shareholders' funds 34,877 31,690 Interests in own shares have been reclassified from fixed asset investments tothe profit and loss reserve following the adoption of UITF Abstract 38 "Accounting for ESOP Trusts". The impact is to reduce reserves by £889,000 (2003:£7,000). The US dollar to sterling exchange rate at the balance sheet date was $1.9031(2003: $1.7757). Cash Flow Statementfor the 53 weeks ended 31 December 2004 2004 2003 Note £'000 £'000 £'000 £'000Cash inflow from operating activities 7 7,835 4,545Returns on investments and servicing of finance 198 11Taxation 470 397Capital expenditure (2,124) (1,395)Equity dividends paid (1,367) (650)Cash inflow before use of liquid resources and 5,012 2,908financingFinancing (157) 2,090Increase in cash in the period 4,855 4,998Reconciliation of net cash flow to movement innet cashIncrease in cash in the period 4,855 4,998Movement in bank borrowings 201 (2,090)Change in net cash resulting from cash flows 5,056 2,908Translation difference 37 (84)Movement in net cash in the period 5,093 2,824Opening net cash 7,652 4,828Closing net cash 12,745 7,652 1 Basis of Preparation This preliminary announcement for the 53 weeks ended 31 December 2004 has notbeen audited and does not constitute statutory accounts within the meaning ofS240 of the Companies Act 1985. The financial information has been prepared onthe basis of the accounting policies set out in the Group's Annual Report &Accounts for the 52 weeks ended 27 December 2003 except for the adoption of UITFAbstract 38 "Accounting for ESOP Trusts" as detailed on the face of the balancesheet. Those accounts carry an unqualified auditor's report and have beendelivered to the Registrar of Companies. The comparative results, restated forUITF Abstract 38, for the 52 weeks ended 27 December 2003 are abridged and assuch do not represent statutory accounts. The full Annual Report & Accounts forthe 53 weeks ended 31 December 2004 will be posted to shareholders shortly and,after adoption at the Annual General Meeting, delivered to the Registrar ofCompanies. 2 Segmental Analysis The analysis of turnover, operating profit and net assets by origin is asfollows: OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS, GOODWILL AMORTISATION AND IMPAIRMENT TURNOVER NET ASSETS AND PENSION CHARGES 2004 2003 2004 2003 2004 2003 (restated) £'000 £'000 £'000 £'000 £'000 £'000 EUROPE 7 50,698 15,176 15,620 1,698 2,122 US 44,536 44,175 7,948 9,289 3,377 (4,525) DIVIDEND CREDITOR & UNALLOCATED COSTS (992) (871) - - TOTAL NET CASH 12,745 7,652 93,591 94,873 34,877 31,690 5,075 (2,403) EXCEPTIONAL GOODWILL OPERATING AMORTISATION AND EXPENSES IMPAIRMENT PENSION CHARGES OPERATING PROFIT /(LOSS) 2004 2003 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 EUROPE (525) - (276) (276) (1,024) (120) (127) 1,726 US - - - (7,505) (130) (118) 3,247 (12,148) DIVIDEND - (421) - - - - - (421) CREDITOR & UNALLOCATED COSTS TOTAL NET CASH (525) (421) (276) (7,781) (1,154) (238) 3,120 (10,843) Unallocated liabilities relate to dividends due to be paid by the Group. Unallocated exceptional operating expenses in 2003 related to the aborted EGMcosts and Chief Executive severance costs detailed in note 3. Neither thesecosts nor liabilities have been allocated to the segments as this would bemisleading. The analysis of turnover, operating profit and net assets by segment is asfollows: OPERATING PROFIT/(LOSS) BEFORE EXCEPTIONAL ITEMS, GOODWILL AMORTISATION AND IMPAIRMENT TURNOVER NET ASSETS AND PENSION CHARGES 2004 2003 2004 2003 2004 2003 (restated) £'000 £'000 £'000 £'000 £'000 £'000 EUROPEAN 13,328 15,854 3,984 4,344 932 1,589 PREMIUM PROMOTIONS EUROPEAN DIRECT 35,727 34,844 8,615 10,964 1,886 1,008 MARKETING & CORPORATE PROGRAMMES US DIRECT MARKETING 39,910 39,075 3,659 4,936 2,502 972 US FRANCHISING 4,626 5,100 3,108 3,730 1,005 (4,678) CENTRAL NET ASSETS AND 2,766 64 (1,250) (1,294) UNALLOCATED COST/INCOME TOTAL NET CASH 12,745 7,652 93,591 94,873 34,877 31,690 5,075 (2,403) EXCEPTIONAL GOODWILL OPERATING AMORTISATION AND EXPENSES IMPAIRMENT PENSION CHARGES OPERATING PROFIT /(LOSS) 2004 2003 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 EUROPEAN (357) - (120) (120) (45) (46) 410 1,423 PREMIUM PROMOTIONS EUROPEAN (168) - (156) (156) (57) (76) 1,505 776 DIRECT MARKETING & CORPORATE PROGRAMMES US DIRECT - - - - (109) (118) 2,393 854 MARKETING US FRANCHISING - - - (7,505) (21) - 984 (12,183) CENTRAL NET - (421) - - (922) 2 (2,172) (1,713) ASSETS AND UNALLOCATED COST/ INCOME TOTAL NET CASH (525) (421) (276) (7,781) (1,154) (238) 3,120 (10,843) A detailed review of the segments is given in the Operating Review. Costs have been allocated in terms of resources required and do contain someindirect costs which are not dependent on the level of business conducted.Unallocated costs relate to the Head Office and ongoing defined contributioncharges for Head Office staff as well as the SSAP 24 charge for the definedbenefit scheme. Unallocated assets/(liabilities) relate to taxation, Head Office working capitaland dividends, which were not allocated to the segments as this would bemisleading. 3 Exceptional operating expenses 2004 2003 £'000 £'000Product recall costs 267 -European restructuring costs 258 -Aborted EGM costs - 209Severance costs of Chief Executive - 212Exceptional operating items 525 421 The operating exceptional in 2004 relates to the cost of a product recall in theEuropean Premium Promotions division which has been treated as exceptional dueto its rare occurrence and size, and to restructuring costs of £90,000 in theEuropean Premium Promotions division and £168,000 in the European DirectMarketing and Corporate Programmes division. The operating exceptional in 2003 related to costs incurred following therequisition of an EGM by Hanover Partners iv LP. The requisition was withdrawnon 10 October 2003. The severance costs related to the resignation of the ChiefExecutive Officer on 15 December 2003. 4 Taxation 2004 2003 £'000 £'000UK taxation: Corporation tax at 30% (2003: 30%) - - Adjustments in respect of previous years (1,945) (942) (1,945) (942)Overseas taxation: Current tax (34) (405) Adjustments in respect of previous years (10) 24 (44) (381)Total current tax (1,989) (1,323)Deferred tax Current year (664) (888) Adjustment in respect of previous years (95) (485) (759) (1,373)Tax credit (2,748) (2,696) The effect on the tax credit for the year of the exceptional operating expensesdisclosed in note 3 is a credit of £157,000. Factors affecting the total taxcredit for the year have been the release of UK Corporation tax provisionstotalling £1,953,000 (see UK taxation above) and the recognition of deferred taxassets of £1,571,000 (included in deferred tax above). 5 Dividends 2004 2003 £'000 £'000Equity dividends - ordinary sharesInterim 1.75p (2003: 1.00p), paid 8 November 2004 503 287Final 3.5p (2003: 3.00p), proposed to be paid 8 April 2005 992 861 1,495 1,148 The final dividend per ordinary share in respect of 2004 of 3.5p is proposed tobe paid on 8 April 2005 to the shareholders on the register at close of businesson 11 March 2005. 6 Earnings/(loss) 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 dilutive potential ordinaryshares. The dilutive potential 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: 2004 2003 Weighted Weighted average average number number Earnings of shares Pence per Earnings of shares Pence per £'000 '000 share £'000 '000 shareProfit/(loss) attributable to 6,159 (8,136)shareholdersOrdinary shares in issue 28,742 28,713Shares held by employee share (135) (3)trustBasic EPS 6,159 28,607 21.53 (8,136) 28,710 (28.34)Effect of dilutive shares 980 (0.71) 242 0.24Diluted EPS 6,159 29,587 20.82 (8,136) 28,952 (28.10) 7 Reconciliation of operating profit/(loss) to operating cash flows 2004 2003 £'000 £'000Operating profit/(loss) 3,120 (10,843)Depreciation charge 1,886 2,221Amortisation of goodwill 276 736US Franchising goodwill impairment - 7,045Loss on disposal of tangible fixed assets 44 5Decrease in stocks 1,261 162Decrease in debtors 2,769 3,111(Decrease)/increase in creditors (1,171) 2,906Decrease in provisions (350) (798)Net cash inflow from operating activities 7,835 4,545 8 Employee pension schemes 2004 2003 £'000 £'000The net pension charges are made up as follows:Defined contribution plans 247 254Defined benefit schemes: Regular cost 242 - Part of actuarial deficit/(surplus) allocated to year 665 (16) 1,154 238 Defined Contribution Plans The Group operates defined contribution plans for the majority of its UK and USemployees. The regular contributions are charged to the profit and loss accountas they are made. Defined benefit scheme - SSAP 24 costs The defined benefit scheme is closed to new members. The £242,000 (2003: £nil)charge comprises the regular ongoing cost. The £665,000 charge (2003: £16,000credit) represents the spreading of the actuarial deficit/(surplus) at the lastvaluation. Pension disclosures under FRS 17 The Group operates a defined benefit scheme in the UK, which is closed to newmembers. A full actuarial valuation was carried out at 5 April 2004 and updatedto 31 December 2004 by a qualified independent actuary. The major assumptionsused by the actuary were: 2004 2003 2002Rate of increase in salaries 3.70% 3.75% 3.50%Rate of increase of pensions in payment 2.70% 2.50% 2.25%Discount rate 5.50% 5.50% 5.75%Inflation assumption 2.70% 2.50% 2.25% The assets in the scheme and the expected rate of return were: 2004 2003 2002 Return £'000 Return £'000 Return £'000Equities 7.50% 36,110 7.00% 35,029 7.00% 31,510Bonds 5.00% 31,870 5.00% 30,305 5.00% 28,585Other 6.00% 410 6.00% 682 6.00% 1,485Total market value of 68,390 66,016assets 61,580Actuarial value of (86,379) (83,718) (78,091)liabilityDeficit in the scheme (17,989) (17,702) (16,511)Related deferred tax 5,397 5,311 4,953assetNet pension liability (12,592) (12,391) (11,558) Movement in deficit during the period 2004 2003 £'000 £'000FRS 17 deficit in scheme at beginning of period after deferred tax credit (12,391) (11,558)Movement in period:Current service cost (75) (71)Contributions 1,440 1,110Net return on assets (565) (732)Actuarial loss (1,087) (1,498)Deferred tax movement 86 358FRS 17 deficit in scheme at end of period after deferred tax credit (12,592) (12,391) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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