Final Results

26th Feb 2009 07:00



26 February 2009

Communisis plc

("Communisis" or "the Company")

Preliminary results for the year ended 31 December 2008

Strategic plan bearing fruit; strong balance sheet underpins future growth; well positioned to weather current economic climate

Financial highlights:

Profit before tax up 61% to £12.7m (2007: £7.9m) 

Operating cash inflow of £19.6m

Net debt reduced to £13.1m (£26.3m at 31 December 2007)

Further £20m debt facility agreed in February 2009, completing £40m of renewed facilities committed for three years

Earnings per share up 32% to 6.2p (2007: 4.7p)

Final dividend of 1.635p per share makes full year dividend of 2.495p (2007: 2.453p)

Further operational gains made:

Strategic focus on higher margin services underlined by acquisition of Absolute Intuistic Ltd and disposal of Bath Business Forms

Acquisition of order book of Mail Solutions Ltd in November 2008; 12 new customers added to Speke

Continued efficiency gains and cost cutting programme implemented

Widespread evidence of benefits of investment in added value services throughout the Group

Good progress on Greenprint environmental plan - most measures ahead of target

Wide-ranging spread of integrated portfolio of higher-value services to address customers' key business issues; 32 of top 100 clients now use more than one service

Commenting on the results, Steve Vaughan, Chief Executive, said:

"I am pleased to report that Communisis has once again made considerable progress in the past year. Our plan to focus on cross-selling to our customers and develop a portfolio of higher value services has served us well. At a time when many businesses in our sector are suffering serious difficulties, we have grown our profits and our balance sheet is significantly strengthened. It is largely because of the robust action taken since the start of 2007 to turn around the performance of the Group that we are in a better position to weather the effects of the current economic climate.

"We expect 2009 to be a difficult year for all businesses, but we will not let up on our investment in services, nor our focus on higher value propositions. Our balance sheet strength allows us to do this. This is the best response possible to the environment we all face at present."

For further information please contact:

Communisis plc	via FD
Steve Vaughan, Chief Executive / Peter King, Finance Director
FD	+44 (0)20 7831 3113
Edward Bridges / James Melville-Ross

  Chairman's Statement

The results for 2008 show that Communisis achieved its major objective which was the delivery of better financial returns during the year. In spite of worsening economic conditions towards the end of the year, the Group delivered improved profits, higher earnings and an increased dividend. The Balance Sheet was further strengthened, not only by the proceeds from the sale of the Bath Business Forms business but also by excellent working capital control which produced an exceptional cash performance. In the course of the year, the strategic shape of Communisis was altered to improve the quality of the Group's future earnings through the disposal of the low margin, commodity Bath business followed by the acquisition of specialist data services provider Absolute Intuistic Ltd ("Ai") in December. 

 

After accounting for the Bath disposal, revenue fell during the year to £258 million compared to £291 million in 2007. Profit from operations before exceptional items was £15.0 million which was 43% above last year's figure of £10.5 million. Profit before tax was £12.7m, an increase of 61% (2007: £7.9m). Earnings per share were 6.2 pence per share compared with 4.7 pence last year, an increase of 32%. We are proposing a final dividend of 1.635p per share which will bring the total dividend for the year to 2.495p, an increase of 1.7% over last year.

During 2008, the management continued the progress made during the previous eighteen months. Efficiency improved further in all of our factories and this was reflected in higher margins. Towards the end of the year, a range of overhead savings was identified which should benefit future earnings. Whilst the disposal of the Bath factory eliminated a low margin activity, it is now a major supplier. In addition, we continued to pursue higher value added business with both our existing and new customers. Our ability to do so has been enhanced by the acquisition of Ai with its excellent customer base, many of whom are already clients of Communisis. The benefits of all of these strategic moves will show through in future years.

In addition to our strong financial performance, the Group's role in environmental stewardship grew considerably during the year. Following the publication of our Greenprint environmental plan in late 2007, performance on the key targets such as carbon footprint and reduction of landfill use has been a great credit to our employees who have embraced the actions needed. The CSR report shows how we are ahead of plan in almost all objectives.

All businesses today are aware of the difficult economic climate in which they have to operate and the Group's management and employees have reacted effectively to the challenge. On behalf of the Board, I would like to thank them for all their effort and hard work. We have the protection of a number of medium to long term contracts, and have taken action to address our cost levels. Whilst our customer base is currently standing up well, long term planning is difficult so we need to be positioned to cope with any volatility which may be caused by the state of the economy. It is in this context that the excellent cash performance has been so important for the Group. Together with the renewal of our bank facilities, we are in a good financial position to face the future.

We have benefitted from stability at board level during the year. Alistair Blaxill, who carries responsibility for our major accounts, joined the Board in May. Throughout the year, the Board has worked well together, and is firmly behind the strategic direction. We have dealt with a number of difficult issues and will continue to do so in the months ahead. In particular, addressing the remaining legacy issues, especially pensions, has been an important part of our Board discussions.

Looking forward, the Board will address the challenges in 2009 and beyond. We must continue to deliver good financial returns for our shareholders, and maintain a strong Balance Sheet. Interesting opportunities may arise in the course of the year, and we are now in a good position to react to them. We shall continue to implement our plans so that Communisis can build on the excellent performance of the year.

  Chief Executive's Review

Business review

I am pleased to report that Communisis has once again made considerable progress in the past year. Our plan to focus on cross-selling to our customers and develop a portfolio of higher value services has served us well. At a time when many businesses in our sector are suffering serious difficulties, we have grown our profits and our balance sheet is significantly strengthened. It is largely because of the robust action taken since the start of 2007 to turn around the performance of the Group that we are in a better position to weather the effects of the current economic climate.

Our plan comprises three stages - first, to focus on the basics and our customers; second, from mid-2007 to focus on cross-selling and value-added services. The third stage, which began in mid-2008 to build on these two foundations, has seen us introduce an integrated portfolio of high-value services to address key business issues for our customers. The benefits of this plan are reflected in our results.

The Group has changed shape in two important ways during 2008.

First, it has shifted its centre of gravity higher up the value chain. The disposal of the Bath Business Forms business in June meant that we successfully exited the most commoditised part of our manufacturing base. We have also sold our small business in Holland, and we are withdrawing our sales presence from Spain and France. Although it is never good to lose a contract, our exit from the Print Management relationship with Sainsbury's at the end of August has seen a large piece of very low margin outsourced print volume fall away, with consequent benefit to margins. In contrast, our investment focus has been entirely on higher margin services. The recent acquisition of Absolute Intuistic Ltd ("Ai"), a provider of high value data services, demonstrates this most clearly. But this investment is by no means isolated - £1.5m further investment in digital print and £2.3m in software applications for document composition show our willingness to invest to grow the business. As a result, Group operating margin in 2008 improved to 5.8% (2007: 3.6%). 

Secondly, our business segments reinforce each other far more effectively. A Group-wide structure has been put in place to plan and coordinate our sales efforts, operations and investment. The integration of our offering to the market, and the placement of work in the facility best designed to deliver it, have become key parts of the way we work. We are thus able to focus on strong value propositions to our clients, adding high margin services to traditional offerings. It also unlocks a further round of efficiency opportunities, based on eliminating duplication of cost and capability across the Group. Continued focus on cross-selling has resulted in 32 of our top 100 customers buying more than one service from us, up from 24 in 2007.

Response to the economic climate

We have not ignored the macro-economic climate in deciding how to implement our plan. We have continued, and if anything increased, our relentless focus on improving the balance sheet. Collection of cash has been improved again, with the amount of receivables overdue now down to 7% (2007: 13%). We also received £8.2m cash inflow from the disposal of Bath, contrasting with a £4.5m cash outflow from the acquisition of Ai. As a consequence of this discipline, we have halved our net debt to £13.1m (31 December 2007: £26.3m). To support this debt position, we have had welcome success in renewing all of our Group lending facilities (totalling £40m) for three years, as detailed in the Finance Director's report. There can be no better time to have a strong balance sheet. 

Economic circumstances have affected all of our customers. Our bias towards the Financial Services sector naturally increases our concerns, with the most direct consequence being the lack of visibility of marketing spend. Communisis is insulated against the worst effects of this uncertainty by the long-term nature of many of our contracts; much of our transactional segment is covered by contracts of five year duration or longer. However there are parts of the business - particularly in Direct Mail - where we are exposed. We have therefore taken cost control very seriously in recent months, and will continue to do so in 2009. We have completed redundancies affecting about 6% of our workforce, and implemented a Group-wide wage freeze for 2009. We worked with KPMG during the third quarter of 2008 to identify a range of efficiency projects in our overhead structure, and these are already starting to deliver benefits in our cost base for 2009. Controlling fixed costs in all these ways helps to make us resilient to current conditions.

Two contingent liabilities inherited from historic business disposals crystallised during the year, following defaults by the assignees of the underlying property leases caused by the economic climate. These gave rise to a significant exceptional provision against the associated costs.

Resolving the pension plan

At £135m, the gross pension scheme IFRS liability is considerably bigger than the market capitalisation of the whole company and this produces undue volatility in the balance sheet. Despite additional contributions of £17m since 2005, the scheme deficit has not significantly reduced, and recent investment performance makes it clear that further cash will be required if there is no change in our approach to scheme management. The Board has therefore decided to deploy this extra cash to significantly reduce the scheme liabilities, rather than simply to fund the deficit. We intend to inject up to £8m of cash into the scheme in stages over the course of 2009 to fund enhanced transfer value and early retirement programmes. These actions between them are designed to remove about 75% of exposure to the scheme liability, and thereby reduce volatility on company assets. These initiatives will have appropriate control mechanisms to ensure that they will not impact the company's levels of capital expenditure, operating capability or dividend policy. Details of the programme are contained within the Finance Director's report.

Segmental performance

Technology and Services

Profits increased by 27% to £5.1m (2007: £4.0m). Margins in this our most value-added segment remain high at 43%, and the revenue growth is coming through from many of our customers. Our services now include consulting to improve the marketing process, and tools to deliver increased efficiency and effectiveness to our customers' marketing campaigns. All of our IT products are integrated into a single portal that can be accessed through the customer's desktop, which makes the sales process more straightforward. We have also been successful in growing business from our £2.3m investment in Hewlett Packard's Exstream Dialogue product, which automates the document composition process. Several large customers were amongst the first to adopt the benefits that this product delivers. Our relationship with Procter and Gamble to deliver the IQ print procurement product has been expanded to include North America. Numerous smaller customers are adopting elements of our IT solution.

Growth in this segment will be considerably increased in 2009 following the acquisition of Ai in December 2008. Our whole portfolio of services is linked by the importance of customer data. The acquisition of a company that offers good services to data users - including analysis, cleansing, profiling and complex data combination to predict customer behaviour - fits with our portfolio exceptionally well. Ai and Communisis are both strong in Financial Services, but complementary in other markets. This will drive cross-selling. Our technology offerings also fit well together, and we will integrate Ai Refiner, their software suite, into our own marketing portal. This will provide a single product set covering all aspects of the marketing process, allowing Direct Marketing from the desktop. In other respects Ai will operate as a separate business, so that our integration efforts can be focused on the software and customers alone.

  Direct Mail

Our business in Leeds remains the largest Direct Mail factory in Europe, and our investment programme during 2008 increased our range of capabilities and the quality of campaigns we deliver. Profits increased by 55% to £5.5m (2007: £3.5m). We have broadened our range of customers during the year in several important ways. Our efforts to grow charity sector business have paid off with customers such as the Woodland Trust, RSPB and RNLI. The fastest growing customer was RBS Insurance, who have been at the forefront of embracing our investment in Digital Print. We have invested more than £2m over the last 18 months and now boast seven presses. This enables us to run much larger campaigns for customers with the highly personalised and more effective document content that they look for. This technology has spread from its former use in very short run jobs to campaigns of up to 250,000 recipients. 

This is symptomatic of a more general trend across this business of customers turning away from high volume, low value production towards more targeted, shorter but more frequent campaigns. Our investment programme is designed to re-purpose the factory in this way, step-by-step, over the next few years; the digital investment is one example. The challenge is to manage the balance of work during that transition to maintain sufficient high volume work in the medium term to cover the fixed cost base, while growing the higher margin, more specialised new services. It is fortunate that we began this change programme two years ago. Nonetheless this is a balancing act made more difficult by the economic climate. Performance in the business was very strong in the first half of 2008, and we came through the summer in a very healthy financial position. But from late September we began to see the effects of customer uncertainty. A few of our more financially stressed banking clients cancelled virtually all mailing in the fourth quarter, and other customers cut demand too. As a result, the Direct Mail business fell short of its target for the year, and enters 2009 with a run-rate reduced by about 20%. We have made the assumption that this level of demand will not increase during the whole of 2009, and have planned cost control measures accordingly. We are therefore pleased that efficiency programmes commenced in 2008 will deliver benefits in 2009 that help deal with this issue. However, if revenues decline in line with our assumptions, this will inevitably have an adverse effect on the bottom line of this division.

Transactional

Overall, our transactional segment increased its profits by 20% to £13.3m (2007: £11.1m). There were two important developments in our statements and bills business in the second half of 2008. The first came with the opportunistic acquisition of the order book of one of our competitors, Mail Solutions Ltd, following a fire in their premises. We acquired an order book of approximately £3m per year for a consideration of up to £400,000. Most of this work fitted well into Speke, and has added 12 new customers to that facility. The largest contract involves production of portfolio valuations for a large investment bank, and we have also added some business-to-business work to our portfolio. Since this has been achieved with little additional cost except materials, this had had a positive effect on the bottom line.

The second has been the encouraging uptake of our technology offerings by customers in statements. Both the major customers in Speke have placed IT contracts with us to help their workflow and document production processes. This development is, we believe, tangible evidence of transpromotional business growth. We now issue about 300,000 email communications a month for Centrica, for example. As our portfolio of services becomes more integrated, we should look for more examples like this.

Our cheques business continues to deliver excellent results. As previously disclosed, volume erosion in the cheque market is running at between 8 and 10% per year, but we are able to control costs to maintain margins. We continued our efforts to grow related security print business, with several successes in our payslip production service. We saw some short-term increase in cheque usage in the latter part of the year, which helped to offset weakness in Direct Mail. It is difficult to predict whether this will be repeated in 2009, but does show the high level of operational gearing in this business.

Print Sourcing

Our print sourcing business increased profits by 52% to £1.3m (2007: £0.9m), even though it has, as predicted, continued to suffer margin pressure with the change in market conditions and business model. It is no longer possible to achieve a profit from contracts involving only the mark-up of bought-out print. However, these contracts can, when married to a portfolio of higher value services, form a useful platform to cross-sell and hence earn profits accounted for in other segments. We have achieved a number of useful changes in our mix of business, with the withdrawal from problematic small-scale presences in European offices and the concentration on a smaller number of more promising relationships. We have renewed our major contracts with the Post Office and Veolia, for example. Around 20 Print Sourcing customers have now adopted elements of our IT portal, with more than a third of all print orders being placed through Connect or IQ.

Print Sourcing is the focus of a renewed effort to win several major new customers, with an offering including print buying, but including our technology and manufacturing capabilities. Sales cycles with these major customer engagements are long, but benefits will accrue over time.

Outlook

We cannot expect to weather the current economic climate with no ill effects. Our competitors are already making efforts to cut prices to, we believe, unsustainably low levels. There is less work available for our Direct Mail business. Many of our customers, particularly in the financial services sector, are seeking ways to save money. However Communisis is in a very good position to emerge from this downturn ahead of its competitors. We have a strong balance sheet. Our investment in new services is well advanced, and provides us with alternatives to price reduction when addressing customer demands to reduce expenditure. In addition, our customers are contemplating some major projects, such as the re-engineering of marketing process, which in easier times would not be considered. We are well-placed to benefit from these. Those of our segments that are underpinned by long term contracts also provide us with some measure of stability which will contribute to a more consistent profit performance during difficult periods, as we saw in the fourth quarter of 2008. 

Taken together, these aspects of strength give us optimism for the future. We expect 2009 to be a difficult year for all businesses, but we will not let up on our investment in services, nor our focus on higher value propositions. Our balance sheet strength allows us to do this. This is the best response possible to the environment we all face at present.

Steve Vaughan

Chief Executive

  Financial Performance Report

Despite the slowdown experienced by parts of the business in the fourth quarter of 2008, Communisis delivered a 32% improvement in profit attributable to shareholders and halved its net debt.

The Group enters an uncertain 2009 with a growing and increasingly successful portfolio of higher margin value adding services to offer and a much reduced reliance on low margin, highly commoditised offerings. Much of our business is on long term contract and our balance sheet is further strengthened. We have achieved our lowest level of net debt for five years and successfully renewed our bank facilities for a 3 year term.

Profitability

All four of our business segments delivered year-on-year profit growth in excess of 20% in 2008. We have continued to invest in marketing and account management as we said we would and together this has enabled us to report a 43% increase in Profit from Operations before Exceptional Items to £15.0m (2007: £10.5m). 

Included within Profit from Operations are two items that, because of both their size and nature, we have classified as exceptional. The disposal of our Bath Business Forms business was completed in June, resulting in a £1.4m pre-tax exceptional gain, and was reported in our 2008 interim results. The other exceptional item is a property lease provision. We have established the provision following the failure of two businesses previously sold by the Group that were occupying properties under leases guaranteed by Communisis. This issue is discussed in more detail below.

After accounting for all exceptional items, Profit from Operations increased by 37% to £14.4m (2007: £10.5m).

The table below summarises our profit and loss account and shows the revenue and profit performance of our four business segments.

		2008		2007
		£m		£m
Revenue	Technology & Services	11.9		12.4
	Print Sourcing	96.7		107.4
	Direct Mail & Business Forms	91.8		115.7
	Transactional	57.3		55.1
		257.7		290.6
Profit	Technology & Services	5.1		4.0
	Print Sourcing	1.3		0.9
	Direct Mail & Business Forms	5.5		3.5
	Transactional	13.3		11.1
	Central costs	(10.2)		(9.0)
	Profit from operations before exceptional items	15.0		10.5
	Exceptional gain on disposal of Business Forms	1.4		-
	Provision for legacy property leases	(2.0)		-
	Profit from Operations	14.4		10.5
	Net finance cost	(1.7)		(2.6)
	Tax	(4.1)		(1.3)
	Profit for the year	8.6		6.6
	Earnings per share (pence)	6.2		4.7

Profits from our Technology and Services business have grown by 27% in 2008 and the margin has risen to 43% (2007: 32%). Some of the one-off higher volume, lower margin assignments we undertook in 2007 have not recurred, leading to a 4% year-on-year fall in revenue. In profit terms this work has been more than replaced by new higher margin work from a much broader range of customers. In some cases, we have begun new assignments only towards the end of 2008, and the bulk of the revenue and profit is expected to be earned over the next two to three years. With much of our 2009 expectation for this segment already sold, the prospects for continued strong growth in Technology & Services are very good. In addition, we will see further strong growth in this segment from the acquisition of Ai. The impact of this transaction is discussed under the heading Acquisitions and Disposals below.

Print Sourcing profits grew to £1.3m in 2008 (2007: £0.9m), however the result fell short of expectations at the beginning of the year. After a very strong first half driven by high activity levels, the second half was impacted by the loss of the Sainsbury's and HBOS contracts. Other segments in the Group have benefited significantly from the resulting relationship with Williams Lea, although we no longer have our lower margin Print Sourcing work. This segment has also borne a charge for the closure of our Spanish office and undertook further cost reduction in December to achieve a full year of benefit in 2009. Whilst Print Sourcing margins remain low at around 1%, customers in this segment are increasingly likely to buy higher margin services from other segments.

Our Direct Mail and Business Forms segment performed very strongly in 2008. The margin in this segment has doubled, from 3% in 2007 to 6% in 2008. In part this reflects the disposal of the lower margin Bath forms business in June. Of far more significance however is the contribution that higher value services are making to profits from our Leeds Direct Mail business. We are seeing strong growth in digital print following a £2m investment in state-of-the-art facilities, and response handling is also growing strongly. These services are both at margins in excess of 20%. The change in the nature of work in Direct Mail positions us well to withstand an uncertain economic outlook and exactly reflects our strategy. The business has also benefited from the full year effect of all the cost and efficiency measures implemented in 2007. The drive for increased efficiency and lower fixed costs will continue in 2009 nonetheless, although we are far better placed than we were two years ago. This business is still the one in our Group that has the most exposure to the market downturn. At the time of our October Interim Management Statement we reported a reduction in demand for high volume direct mail campaigns. This weakness continued in quarter four of 2008 such that revenues were 20% below our expectations. 2009 is budgeted to continue at this lower run rate.

Profits from our Transactional segment have grown by 20% to £13.3m (2007: £11.1m). In 2008 our cheque business benefited from higher demand associated with the credit crunch. With efficiency gains early in the year and by ensuring that printing is done in the facility best suited to the task, cheque profits are once again at record levels. Our Statement and Billing business grew following a full year of contribution from our new contract with Co-operative Group. In addition, we have been very successful in selling technology solutions to our major Transactional customers. Where we have done this, the profits are included within the Technology & Services segment. With the acquisition of Mail Solutions contracts expected to deliver benefits in 2009 we are well placed to withstand any softening of discretionary spend.

Following investment in our account management and marketing infrastructure in the second half of 2007, the run rate on Central Costs has been steady throughout 2008. In addition to the costs of our corporate head office, account management and marketing teams, we also include the cost of Group procurement and IT development under the Central Cost caption. We expect to make further investments in the market-facing teams and also in IT development in 2009. These investments will be paid for by efficiency savings elsewhere within Central Costs.

  Operational restructuring costs have been successfully managed down to below the £1.5m target we set for 2008. These costs have been absorbed by the segment to which they relate and broadly have impacted all segments except Technology & Services in equal proportion. We expect to spend at least this amount in 2009, possibly more depending on how the economic situation unfolds.

Net finance costs have fallen by 35% to £1.7m (2007: £2.6m). If the non-cash impact of pensions, foreign exchange and interest receivable on tax repayments in 2007 are excluded the fall is an even more significant 42%. Whilst the Group benefited from the fall in interest rates towards the end of 2008, the Group borrows at a margin over LIBOR and so was impacted by the much wider gap between LIBOR and the bank base lending rate that existed for much of 2008. The major driver for lower interest charges in 2008 was the lower debt levels achieved by the Group when compared with 2007. We expect that these upsides will be sustained in 2009 though the benefit will be more than offset by a significant adverse swing in the non-cash pension interest charge. This is a consequence of the deterioration in the value of assets held by the pension fund. The Group pension issue is discussed in more depth below.

The tax charge of £4.1m (2007: £1.3m) represents an effective rate of tax of 32% (2007: 17%). The 2008 rate is distorted by the very high (99%) effective rate of tax associated with the disposal of the Bath business forms operation. Excluding this exceptional transaction reveals an underlying effective tax rate of 25%. The major drivers of the lower rate are the release of contingent provisions from prior years (£1.7m) offset by disallowable expenses, unrelieved overseas losses associated with our exit from the Dutch and Spanish Print Sourcing businesses and changes to the Industrial Buildings Allowances regime. The effective rate in 2007 was low following the release of certain contingent provisions. Our expectation for the effective rate of tax in 2009 is for it to be slightly in excess of the UK statutory rate as a consequence of disallowable expenses.

Overall, the Group's robust financial performance in 2008 results in Profit after Tax and earnings per share increasing by more than 30% compared with 2007.

Legacy property lease provisions

The Group has retained a number of pre-sale liabilities from the significant disposal programme beginning in the year 2000, and also from disposals previously made by Waddington plc (now Waddington Limited, a wholly owned subsidiary of Communisis plc). The majority of these liabilities take the form of rent guarantees given to a landlord of a property used by the business being sold.  With the passage of time, many of the guarantees have lapsed, or the leases have expired leaving no residual liability. A few remain however, and where they do, the Group is dependent on the tenant's ability to continue to pay the rent as it falls due.

Management monitor the financial health of all tenants where there is residual risk to the Group. Almost without exception, these tenants have settled their liabilities satisfactorily. However in January 2008, one of these tenants, Jaycare Limited ("Jaycare") went into administration. Although Jaycare was subsequently bought from administration as a going concern, it avoided its liabilities under the lease as a consequence of administration. Annual rent on the property occupied by Jaycare is £225,000 and the first opportunity to exit the lease is in October 2012. In January 2009, the Group was notified that another tenant, Palgrave Brown Limited, had also been unable to avoid administration. In this case, annual rent is £230,000 and the first opportunity to exit the lease is March 2010.

The Board have reviewed this and all other remaining liabilities of this nature in the light of the current economic outlook and consider it appropriate to establish a provision of £2m. This provision has been classified as exceptional because of its size and the fact that the liabilities arise from businesses that ceased to be part of Communisis some years ago so that the costs are not related to current operating activities.

Cashflow and net debt

Considerable profit growth and continued intensive focus on cash management resulted in a strong cash flow performance for the second successive year. We have continued to make significant strategic investments whilst at the same time halving Group net debt such that at £13.1m (2007: £26.3m, 2006: £44.9m) it is now at its lowest level for five years.

The table below summarises the Group's key cashflows:

	2008		2007
	£m		£m
Profit from operations before exceptional items	15.0		10.5
Depreciation and other non-cash items	7.9		9.3
Decrease / (Increase) in working capital	1.7		16.2
Additional pension scheme contributions	(1.2)		(3.1)
Interest and tax	(3.8)		(5.0)
Net cashflow inflow from operating activities	19.6		27.9
Net capital expenditure	(6.9)		(8.5)
Business disposals	8.2		1.2
Business acquisitions	(4.5)		-
Dividends	(3.5)		(1.8)
	-		-
Other	0.3		(0.2)
Movement in net debt	13.2		18.6
Opening net debt	(26.3)		(44.9)
Group net debt	(13.1)		(26.3)

We have maintained downward pressure on working capital and this has produced a further cash inflow over the year. Largely this is driven by a further improvement in the amount of customer debt that is overdue. By the end of 2008 just 7% of customer debt was overdue (2007: 13%, 2006 33%). Expressed in absolute terms, the £13.5m of unimpaired customer debt overdue at the end of 2006 has been reduced to just £0.9m. Our management of customer debt, as well as further inventory management initiatives have produced a year-on-year working capital reduction of £1.7m (2007: 16.2m).

Tax cash outflows have continued to run at low levels in 2008 as we have benefited from repayments following successful resolution of capital loss claims. Lower debt levels throughout 2008 have resulted in a reduction of more than £1m in the cash cost of interest on our debt facilities. Overall, the impact is a net inflow of cash from operating activities of £19.6m (2007: £27.9m).

We have continued to invest to support our strategy. In addition to an actual net capital expenditure cash outflow of £6.9m (2007: £8.5m) we have made further commitments of £2.8m which will fall due to be settled in 2009. In total, capital expenditure plus outstanding commitments is in line with management expectation for 2008. As well as approximately £2m of annual spend maintaining our existing asset base, we have made significant investments in technology for onward sale to customers and invested to maximise efficiency and reduce our environmental impact. It is our intention to maintain our investment programme in 2009 albeit at slightly reduced levels.

The cash impact of the acquisition of Absolute Intuistic Limited, discussed below in more detail, is limited to payment of the initial consideration of £4.5m in 2008. The disposal of Bath Business Forms generated £8.2m by way of initial consideration; there is a further £4.6m to follow that is not contingent on future performance.

The 2008 final dividend is proposed to be 1.635p per share (2007: 1.635p). This takes the total dividend payable in respect of 2008 profits to 2.495p per share (2007: 2.453p), an increase of 1.7%. The Group remains within its self-imposed cover ratio target of 2-2.5 times profit. Dividends will be paid, subject to shareholders' approval, on 1 May 2009 to shareholders on the register at the close of business on 3 April 2009.

In December 2008 the Group announced the replacement of some of its existing lending agreements with a three year £20m committed loan facility with Lloyds TSB plc. In addition, in February 2009, we have added a second £20m three year committed loan facility with Barclays Bank plc. Both loans are fully revolving with the Lloyds and Barclays facility repayable in December 2011 and February 2012 respectively. Together these facilities leave us very well positioned to continue with our strategic plan.

Absolute Intuistic

On the 22 December 2008 Communisis acquired the entire issued share capital of Absolute Intuistic Limited ("Ai") for a total consideration of up to £12.5m in cash. The Group paid an initial consideration of £4.5m. A deferred cash consideration of up to a further £8m is payable early in 2011, based on financial performance over the period from 1 September 2008 to 31 August 2010. In their financial year to 31 August 2008, Ai achieved EBITDA of £0.9m implying a multiple of five times for the initial consideration. Deferred consideration becomes payable on the uplift in EBITDA at the same multiple. The acquisition is expected to be earnings accretive in 2009.

Pensions

Under International Accounting Standard rules our pension deficit gross of deferred tax has fallen to £11.1m (2007: £14.7m). A fall in the long term anticipated inflation rate coupled with high corporate bond yields are the main drivers of a £30m fall in the gross liability to £135m. This fall is not quite matched by the 18% fall year-on-year in the market value of pension scheme assets held to match this liability. With corporate bond yields now falling and liabilities therefore rising, without an equivalent recovery in asset values in 2009, the deficit can be expected to deteriorate.

The triennial pension scheme valuation, as at 30 September 2008, is in progress. When last assessed, at 30 September 2005, there was a deficit of £25m. With life expectancy increasing and depressed asset values, despite additional contributions to the scheme of £17m since 2005, the early indications are that the triennial valuation will produce a higher deficit.

The existing deficit recovery plan requires us to make five further annual payments of £2m. Given current conditions, the total recovery payment required by the scheme will almost certainly increase. In this situation we would expect to agree a repayment period considerably longer than the current 5 years so our investment programme is not unduly constrained.

It is against this backdrop that the Board have been reviewing alternative strategies to deal with the challenges posed by the pension scheme. We have concluded that more value will be derived from future payments to the scheme if they are applied to reduce and ultimately remove the risk associated with the liability. We consider that the most appropriate solution is a programme of enhanced transfer and early retirement offers followed by the de-risking of retired member liabilities with a specialist provider. This is expected to take the form of either a buy-out or buy-in of the pensioner share of the total remaining liability. 

It is our intention to pursue this strategy. Our aim will be to de-risk up to 75% of plan liabilities and we anticipate the programme will run into the first half of 2010. This will result in an acceleration of payments to the scheme, the quantum of which is dependent on market conditions prevailing at the time of member transfer and alternative investment opportunities that might arise. Our very low debt levels coupled with new committed bank facilities indicate that in 2009 the appropriate financial commitment will be in the region of £8m.

Outlook

With our lowest level of debt for five years and new three year committed loan facilities totalling £40m, we are a very different business to that of two years ago. We have reduced our exposure to low margin commodity print and added many higher margin technology based services to our range. Going into a period of economic uncertainty we will maintain the tight financial control that has served us so well and focus on selling these higher margin value adding services.

Peter King

Finance Director

  Corporate Social Responsibility Report 

Communisis remains strongly committed to its corporate responsibilities in relation to the communities within which it operates and to the environmental consequences of its activities. We believe that this commitment enhances our prospects of successfully achieving our business objectives. 

Policy and management 

Throughout 2008, as in previous years, we have focused on the following key areas: 

the health and safety of our employees 

improving our environmental performance 

conducting our business with honesty and integrity 

contributing to the development and wellbeing of our local communities 

Our internal control procedures also apply to Corporate Social Responsibility ('CSR'). Regular risk review reports are presented to the Board and Leadership Team, and CSR is considered as appropriate in those reports. 

Health, Safety and the Environment ('H,S&E') - Organisation Structure

The Group's activities in the fields of H,S&E remain under the control of our Head of Risk and Environmental Management ('HREM'). In turn, the HREM reports to the Company Secretary and thence to the Board. In addition, the H,S&E team includes the Group Environmental Support Manager. 

Individual operating businesses are responsible for H,S&E matters and as such all responsibilities are in the hands of site Managing Directors or General Managers. Each site manager is supported by a site Health, Safety and Environmental Manager or Co-ordinator, who also has a 'dotted line' responsibility to the HREM. Overall responsibility for H,S&E lies with the Chief Executive.

All of our site H,S&E Managers and Co-ordinators are 'NEBOSH' (National Examination Board for Occupational Health and Safety) qualified and this, together with a continuous review and improvement of talent at our sites, leads us to believe that our H,S&E function is well placed to provide the highest quality of service to each site and to help us achieve our goals.

Our commitment in this area is set out in our H,S&E Policies, last updated in October 2008, and supported by our H,S&E Manuals. 

Our Policy and Manuals are regularly reviewed by the H,S&E team, with the next revision scheduled for April 2009. The Manuals contain details on organisational arrangements (including roles and responsibilities), management and operational procedures, together with best practice guidance, which enables us to meet the requirements of current H,S&E legislation applicable to our business activities. 

Through audit, inspection and arranged visits the H,S&E team monitor and report on how relevant policies and procedures are implemented by our operating businesses. Collectively, we ensure that employees are appropriately trained to understand the working procedures they must follow. 

In line with Group procedures each operating site has been audited by the HREM with a view to benchmarking performance across the Group, helping sites to identify and prioritise issues for improvement and ensuring legal and regulatory compliance. 

The results of these audits are presented directly to the Chief Executive, the Company Secretary and to all relevant members of the Leadership Team, and appropriate action is taken. 

H,S&E issues are discussed at various levels within the Group including at quarterly Group H,S&E Study Days which are chaired by the HREM and attended by the Company Secretary. This process operates to allow the cross-fertilisation of ideas and to monitor the H,S&E performance of the operating businesses, and allows them to set site-specific targets for improvement, which may exceed the requirements set out in the Group objectives. 

Environmental Performance

In our 2007 CSR report we highlighted a major change in emphasis in relation to environmental impact reduction, away from localised management to a Group strategy encompassing a combined series of challenges and objectives which we hoped to achieve in the period from 2008 to 2010. This focus has not changed and we are pleased to report that we have made significant progress towards achieving our environmental targets.

We have defined 2007 as the baseline year for comparison of the current objectives and as such we have reviewed our baseline data in line with the current organisational structure. As a result we have made the following amendments

we have amended our energy conversion factors in line with Defra Voluntary Reporting Guidelines 2008, and

following the sale of the Bath business forms business we have deleted the related emissions data from our baseline year. This ensures that we measure progress against our objectives resulting from efficiencies at our remaining sites, and do not account for any reduction as a result of the sale.

Progress during 2008

Managing our systems

We have retained certification to the international Environmental Management Standard ISO 14001:2004 at all of our UK operations. We have also retained our multisite certification to the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification schemes (PEFC) chain of custody standards.

In 2007 we purchased 83,000 tonnes of paper of which 1.8% was FSC certified. During 2008 we have decreased the tonnage of purchased paper due to efficiencies and the sale of Bath and so our total paper purchased was 60,000 tonnes, of which 11.2% was FSC/PEFC certified, an increase of 9.4 percentage points.

During 2008 we have suffered no prosecutions as a result of breaches of environmental legislation.

Working to reduce carbon

In the 2007 CSR report we explained how we had engaged with the Carbon Trust to identify areas in which we could reduce our carbon impact. We have worked throughout the year to implement a number of the actions identified by that exercise. In particular and with funding from the Carbon Trust, we have conducted a series of energy awareness sessions with our employees to help establish better understanding of how we can all help to reduce our individual impacts. 

Operationally we have reviewed the recommendations around lighting, heating, compressed air and machine shut downs and are actively working towards the implementation of all cost effective projects.

Our amended carbon footprint for the 2007 baseline year is 15,059 carbon tonnes (Ct) and we are pleased to report our carbon impact for 2008 was 14,359 Ct, a reduction of 5%. 

Purchase of Energy

During 2007 and the first half of 2008 Communisis purchased 23% of its electricity from Combined Heat and Power (CHP) generated sources. In 2008 we changed our sourcing to include renewable energy (e.g. wind generated). The renewable energy contract runs until the end of 2009, and we anticipate the proportion of electricity purchased from renewable sources to be approximately 51% of our total electricity supplied. 

We have reduced our gas consumption by 9% and increased our electricity consumption by 3%; however, this additional usage of electricity is a direct consequence of increased production at our centre of excellence in Speke. Excluding Speke we have reduced electricity consumption by 7% during 2008.

Production volumes at our Speke site have increased by 150% since 2007, whilst carbon intensity has reduced by 25% from 0.0055kg of carbon (kg/C) per mailed item to 0.0041 kg/C per mailed item, demonstrating that, although consumption is growing, efficiencies are demonstrable and ongoing.

Our Leeds operation achieved an 80% reduction in its Climate Change Levy (CCL) as a result of the existing Climate Change Agreement and has demonstrated a 6.5% reduction in carbon intensity since 2007.

Producing Less Waste

We are very pleased to report that in 2008 we have reduced our waste sent to landfill by 37%, significantly exceeding our target of 20% by 2010. Our amended tonnage for 2007 was 439 tonnes, in comparison with 276 tonnes in 2008. We also take pride in reporting that since 2005 Communisis has reduced its waste to landfill by 85%, from 1877 tonnes in 2005 to 276 tonnes in 2008.

We have achieved these successes through a combination of increased recycling and working closely with our waste contractors to ensure we receive all available recycling services and accurate tonnage data. Where possible, and where environmentally friendly alternatives exist, we will always consider as a first option reducing the amount of waste we create by removing the stream altogether.

Influencing our supply chain

During 2008, the Communisis Sourcing team have reviewed and reissued our Pre-Qualification criteria for print suppliers, which now include a requirement for ISO 14001 compliance. We are pleased to report that as of December 2008 85% of our print suppliers had achieved ISO 14001 certification. The remaining 15% are working towards certification and will have achieved this by the end of the second quarter of 2009. These statistics have been verified by our Sourcing team during supplier audits. The 85% who have already achieved ISO 14001 represent 82% of our total spend with print suppliers. In the course of this initiative we have removed from our approved supplier list ten printers who were unable to comply with our requirement that they achieve ISO 14001.

The Sourcing team have also made excellent progress with our amended criteria for paper suppliers. We are able to report that 95% of our paper tonnage is supplied by mills which have FSC or PEFC certification; in 2007 this was 90%. We are confident that we will achieve our target of 100% of paper tonnage supplied by mills with FSC or PEFC certification by the end of 2010. In addition we can report that 98% of our paper supply chain is conforming to our definition of sustainability, which we have specifically designed to measure sustainability within the paper and print industry with its related impacts and emissions.

Current Status of Group Environmental Objectives 

Maintain our certification to ISO 14001:2004	Achieved/Ongoing
Measure our carbon footprint by the end of 2007	Achieved
Reduce our carbon footprint by 15% by the end of 2010	On Track
Reduce our energy intensity by 20% by the end of 2010	On Track
Reduce our use of landfill by 20% by end of 2010	Exceeded Target
Reduce our paper wastage by 20% by the end of 2010	On Track
99.5% of what we produce or supply will be recyclable by the end of 2008 (unless instructed otherwise by customer)	Extended deadline (see below)
Achieve and maintain our certification to FSC/PEFC Chain of Custody standards	Achieved/Ongoing
Migrate our paper supply to FSC or PEFC compliance by the end of 2010	On Track
Expand our supplier qualification criteria for external
printers to comply with ISO 14001 by the end of 2008	Extended deadline

We have extended the deadline for our recyclable products target until the end of 2009. During 2008 we have reviewed the recyclable proportion of the products we manufacture and have identified the envelope window as the main non-recyclable element. Due to the volume of envelopes we use this has the effect of making approximately 2% of our products non-recyclable. We have tested a number of recyclable windowed envelopes through both internal production and mailing processes. These tests have been successful. During 2009 we shall be working with our supply partners to agree a cost effective range of options to satisfy our requirements in this area. We also intend to engage with the Waste & Resources Action Programme (WRAP) during 2009 to help us capture and target the non-recyclable elements of our product range.

 

Financial Resource

In our 2007 CSR report we stated that our financial commitment to environmental initiatives in 2008 would total at least 10% of our capital expenditure budget with a minimum of £1m. During 2008 we have invested £1,026,680 in environmental projects of which 97% has been spent on site environmental improvement projects. These include a variety of initiatives including wastage audits, the expansion of environmentally friendly digital print capabilities, energy efficient lighting systems and building efficiency improvements as identified by the Carbon Trust.

During 2009 we will review the commitment to investment in line with the current Group structure and we shall continue our efforts to improve our environmental performance.

Greenprint

Our Greenprint document, which explains the challenges we have identified whilst addressing our environmental impact, is still relevant twelve months after its first issue. However, we intend to update this document during the first half of 2009 to ensure that our stakeholders are kept up to date with our additional services and case studies on our environmental achievements, investment and commitment.

Greenprint can be found at www.communisis.com 

Health and safety performance 

Our objective remains to prevent any harm befalling any person on our sites, be they employees, contractors or visitors. We are pleased to report further progress towards this goal, with accident frequency rates down on 2006 and 2007. 

In 2008 we achieved an Accident Incidence Rate per 100 employees of 8.40, a significant reduction on the 2007 figure of 12.11, having reduced the number of accidents in the year from 232 to 143. We have also reduced the number of RIDDORs (Reporting of Diseases and Dangerous Occurrences Regulations) from 13 to 9. For the purpose of this report RIDDOR is defined as an absence from work of three days or more caused by industrial injury.

It is also very important that all near misses are formally reported and action taken in terms of investigation, recording and analysis. This again enables suitable remedial or preventative action to be taken.

In 2007 there were 302 recorded cases of near misses, which fell to 125 cases during 2008. This is again a significant reduction, which we believe is a direct result of continuing strong H&S management in all our operations. We continue to encourage employees to report near misses.

We are pleased with the successes achieved in 2008 in reducing the incidence of accidents, the number of RIDDORs and the number of reported near misses. In part at least this has been a result of line managers taking a much more proactive role in the management of H&S in the areas for which they are responsible. In turn, we believe this has been encouraged by more active participation in training in this area; during 2008 98 managers attended our internal 'Managing Safely' course.

  During the past year we have suffered no prosecutions resulting from breaches of health and safety regulations. 

In addition each of our major operational sites is certificated to the international standard Occupational Health and Safety Assessment Series ('OHSAS') 18001:1999. 

Business Continuity Management ("BCM")

During 2008 we continued our initiatives, begun in 2007, to overhaul our BCM plans. This involved extensive training, and forced the Group's operations to review and assess the effectiveness of their procedures for handling emergencies and subsequent disaster recovery.

Test scenarios were conducted across the Group using site specific 'emergencies' identified in the site risk register as being reasonably foreseeable. The lessons from these tests were then used to update and improve the existing BCM plans. Regular site testing of BCM plans is now a part of standard Group operating procedures.

We believe that our current BCM plans, which are subject to six monthly reviews, are industry-leading.

People 

Our people are the most important elements in our efforts to achieve improvement in our performance. We have strengthened our team with the skills which should enable us to deliver business growth.

We offer competitive remuneration, including long-term incentives, to ensure we attract the best, and we remain committed to the personal development of our employees. Individual training, tailored to specific needs, is offered throughout Communisis via the use of internal and external courses. 

During 2008 our training efforts have been focused principally on further developing the skills of our sales account managers, while our regular training on H,S&E matters has continued in a similar vein to earlier years, although with higher levels of participation. In 2008 we have also introduced a graduate development programme and considerable training effort has been directed in this area during the year.

We have also reintroduced print apprenticeships to our recruitment plans at the Direct Mail operation in Leeds and have also started a programme to increase significantly the number of our staff in Leeds working towards NVQs. In all, during 2008 we have again undertaken more than 900 man-days of staff training. 

The external perception of the Group is also given careful consideration in order to maintain a reputation for honesty and integrity. We actively encourage an open culture, and strongly believe that this is a significant factor in helping to achieve our business objectives.

Community relations 

We recognise our responsibilities to the communities in which we operate and encourage our businesses and employees to support the development and wellbeing of their local communities through a variety of activities. We recognise, however, that at a time when profits and dividends have been under pressure we must be sensitive in the area of corporate giving, and we continue to monitor carefully our charitable donations; during the year the Group contributed £21,600 (2007 £32,191) for charitable purposes, principally to organisations promoting the protection and enhancement of the environment. 

No contributions were made for political purposes during the year.

  Consolidated Income Statement

for the year ended 31 December 2008

	Note	2008	2007
		£000	£000
Revenue		257,730	290,590
Changes in inventories of finished goods and work in progress		106	(246)
Raw materials and consumables used		(138,645)	(157,968)
Employee benefits expense		(65,316)	(77,999)
Other operating expenses		(32,464)	(37,169)
Depreciation and amortisation expense		(6,435)	(6,700)
Gains arising on disposal of Bath business	3	1,380	-
Exceptional property provisions	3	(1,969)	-
Profit from operations		14,387	10,508
Analysed as:
Profit from operations before exceptional items		14,976	10,508
Gains arising on disposal of Bath business	3	1,380	-
Exceptional property provisions	3	(1,969)	-
Profit from operations		14,387	10,508
Finance revenue		731	894
Finance costs		(2,392)	(3,531)
	2	(1,661)	(2,637)
Profit before taxation		12,726	7,871
Income tax expense	4	(4,095)	(1,320)
Profit for the year attributable to equity holders of parent		8,631	6,551
Earnings per share	5
On profit for the year attributable to equity holders and from continuing operations
- basic		6.24p	4.74p
- diluted		6.15p	4.69p
	6
Dividend per share
- paid		2.495p	1.318p
- proposed		1.635p	1.635p

Dividends paid and proposed during the year were £3.5 million and £2.3 million respectively (2007 £1.8 million and £2.3 million respectively).

The accompanying notes are an integral part of this Consolidated Income Statement. 

All income and expenses relate to continuing operations.

  Consolidated Balance Sheet

31 December 2008

	Note	2008	2007
		£000	£000
ASSETS
Non-current assets
Property, plant and equipment		23,752	27,473
Intangible assets		157,170	151,022
Trade and other receivables		4,965	1,865
Deferred tax assets		-	2,521
		185,887	182,881
Current assets
Inventories		7,248	10,970
Trade and other receivables		28,234	40,977
Cash and cash equivalents		17,940	13,628
		53,422	65,575
Non-current assets classified as held for sale		-	350
TOTAL ASSETS		239,309	248,806
EQUITY AND LIABILITIES
Equity attributable to the equity holders of the parent
Equity share capital		34,651	34,636
Share premium		22	4
Merger reserve		11,427	11,427
Capital redemption reserve		1,375	1,375
ESOP reserve		(338)	(338)
Cumulative translation adjustment		(143)	(76)
Retained earnings		87,773	81,470
Total equity		134,767	128,498
Non-current liabilities
Interest bearing loans and borrowings		6,000	22,000
Retirement benefit obligations		11,100	14,730
Deferred tax liability		353	-
Provisions		1,323	68
Financial liability		81	-
		18,857	36,798
Current liabilities
Interest bearing loans and borrowings		25,000	17,907
Trade and other payables		53,650	60,548
Income tax payable		4,213	3,568
Provisions		2,664	1,487
Financial liability		158	-
		85,685	83,510
Total liabilities		104,542	120,308
TOTAL EQUITY AND LIABILITIES		239,309	248,806

The accompanying notes are an integral part of this Consolidated Balance Sheet. 

  Consolidated Cash Flow Statement 

for the year ended 31 December 2008

	Note	2008	2007
		£'000	£'000
Cash flows from operating activities
Cash generated from operations	7	23,385	32,937
Interest paid		(2,764)	(3,696)
Interest received		358	266
Income tax paid		(1,423)	(1,584)
Net cash flows from operating activities		19,556	27,923
Cash flows from investing activities
Acquisition of subsidiary undertakings including overdraft acquired		(4,459)	-
Receipt of consideration from sale of Bath business		8,200	-
Receipt of deferred consideration from the sale of subsidiary undertakings		-	1,164
Purchase of property, plant and equipment		(5,444)	(7,667)
Proceeds from the sale of property, plant and equipment		705	260
Purchase of intangible assets		(2,111)	(1,074)
Net cash flows from investing activities		(3,109)	(7,317)
Cash flows from financing activities
Receipt from sharesave options exercised		30	7
New borrowings		800	6,000
Repayment of borrowings		(4,300)	(18,500)
Dividends paid		(3,450)	(1,822)
Net cash flows from financing activities		(6,920)	(14,315)
Net increase in cash and cash equivalents		9,527	6,291
Cash and cash equivalents at 1 January		8,221	2,085
Exchange rate effects		192	(155)
Cash and cash equivalents at 31 December		17,940	8,221
Cash and cash equivalents consist of:
Cash and cash equivalents		17,940	13,628
Overdrafts		-	(5,407)
		17,940	8,221

The accompanying notes are an integral part of this Consolidated Cash Flow Statement.

  Consolidated Statement of Recognised Income and Expense 

for the year ended 31 December 2008

		2008	2007
		£'000	£'000
Exchange losses on translation of foreign operations		(67)	(43)
Actuarial gains on defined benefit pension plans		1,240	511
Loss on cash flow hedges taken to equity		(239)	-
Tax on items taken directly to equity		(280)	(489)
Net profit / (loss) recognised directly in equity		654	(21)
Profit for the year		8,631	6,551
Total recognised income and expense for the year		9,285	6,530
Attributable to:
Equity holders of the parent		9,285	6,530

The accompanying notes are an integral part of this Consolidated Statement of Recognised Income and Expense.

  Notes to preliminary results

1 Segmental information

The Group is organised into four main business segments: Technology & Services, Print Sourcing, Direct Mail and Business Forms and Transactional.

The 'Technology & Services' segment includes 'new model' print management contracts and all profits made from selling added-value communication-enhancing services and print or communication related consultancy.

Customers who have signed up to a 'new model' print management contract have full access to the Group's print supply chain and are able to source print at the cost the Group buys it. The revenue and cost associated with the print element of the Group's offering to these customers is included in the 'Print Sourcing' segment. 'Print Sourcing' also includes 'old model' print management contracts that rely for profit on marking up print sourced elsewhere.

The Group's 'Direct Mail & Business Forms' segment includes activities in both these market sectors.

The 'Transactional' segment includes all cheque and cheque mailing activity along with statement and billing operations.

Transfer pricing between business segments is set on an arms length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment profits include sales between business segments. Those sales are eliminated on consolidation and are not included in the revenue figures below.

Business segments

The segment results for the year ended 31 December 2008 are as follows:

	Continuing operations
	Technology & Services	Print Sourcing	Direct Mail & Business Forms	Trans-actional	Central Cost	Total
	£000	£000	£000	£000	£000	£000
Revenue	11,851	96,727	91,816	57,336	-	257,730
Profit from operations before exceptional items	5,127	1,308	5,445	13,329	(10,233)	14,976
Gains arising on disposal of Bath business	-	-	1,380	-	-	1,380
Exceptional property provisions	-	-	-	-	(1,969)	(1,969)
Profit from operations	5,127	1,308	6,825	13,329	(12,202)	14,387
Net finance costs						(1,661)
Profit before tax						12,726
Income tax expense						(4,095)
Profit for the year						8,631

Inter-segment sales amounting to £29.1m, £6.5m and £3.1m were made to Print Sourcing from Direct Mail & Business Forms, Transactional, and Technology & Services respectively. Inter-segment sales amounting to £0.3m and £0.9m were made to Direct Mail & Business Forms from Transactional and Technology & Services respectively. Inter-segment sales amounting to £5.1m, £0.2m and £0.2m were made to Transactional from Direct Mail & Business Forms, Print Sourcing and Technology & Services respectively.

The segment results for the year ended 31 December 2007 were as follows:

	Continuing operations
	Technology & Services	Print Sourcing	Direct Mail & Business Forms	Trans-actional	Central Cost	Total
	£000	£000	£000	£000	£000	£000
Revenue	12,373	107,457	115,670	55,090	-	290,590
Profit from operations	4,031	859	3,511	11,150	(9,043)	10,508
Net finance costs						(2,637)
Profit before tax						7,871
Income tax expense						(1,320)
Profit for the year						6,551

Inter-segment sales amounting to £30.4m and £7.7m were made to Print Sourcing from Direct Mail & Business Forms and Transactional respectively. Inter-segment sales amounting to £0.4m and £0.5m were made to Direct Mail & Business Forms from Transactional and Technology & Services respectively. Inter-segment sales amounting to £10.1m were made to Transactional from Direct Mail & Business Forms.

2 Finance costs and finance revenue by category of financial instruments

	2008	2007
	£000	£000
Interest on receivables measured at amortised cost	419	266
Interest on financial liabilities measured at amortised cost	(2,392)	(3,350)
Net interest from financial assets and financial liabilities not at fair value through income statement	(1,973)	(3,084)
Gain / (loss) on foreign currency financial liabilities	62	(181)
Retirement benefit related income	250	628
	(1,661)	(2,637)

 

3 Exceptional items

	2008	2007
	£'000	£'000
Profit from operations is arrived at after charging / (crediting) the following items:
Gains arising on disposal of Bath business	(1,380)	-
Exceptional property provisions	1,969	-
Exceptional items	589	-

On 30 June 2008, the Group disposed of the Bath operation which comprised Communisis' Bath Business Forms and Economailer businesses, both of which were part of the Direct Mail & Business Forms segment. 

The exceptional property provisions relate primarily to the estimated costs for the rental obligations, dilapidations and other costs of surplus premises which are long term in nature. A provision has been established following the failure of two businesses previously sold by the Group that were occupying properties under leases guaranteed by Communisis. This provision has been classified as exceptional by virtue of its size and the fact that the liabilities arise from businesses that ceased to be part of Communisis trading activities some years ago and therefore the costs are not related to current operating activities. The provisions reflect the estimated discounted net cost to the Group over the remainder of the lease periods (maximum 7 years). The final outcome depends upon the ability of the Group to sublet or assign the lease over the related properties. 

4 Income tax

The major components of income tax expense for the years ended 31 December 2008 and 2007 are:

 

	2008	2007
	£000	£000
Tax charged in the Income Statement
Current income tax
UK Corporation Tax	3,543	1,659
Adjustments in respect of prior years	(1,723)	(1,284)
Total current income tax charge	1,820	375
Deferred income tax
Origination and reversal of temporary differences	1,699	1,091
Adjustments in respect of prior years	(232)	(73)
Changes in tax rates and laws	808	(73)
Total deferred tax charge	2,275	945
Tax charge in the Consolidated Income Statement	4,095	1,320
Tax relating to items charged or credited to equity
Deferred income tax related to items charged or credited directly to equity
Actuarial gains on pension scheme
Current year charge	347	143
Adjustments in respect of prior years – due to change in tax rate	-	346
Tax on financial liability	(67)	-
Income tax expense reported in Statement of Recognised Income and Expense	280	489

Current tax adjustments in respect of prior years relate to the release of provisions created in respect of prior years' tax submissions, agreed in the current year. 

Reconciliation of the total tax charge

The tax expense in the Income Statement for the year is higher (2007 lower) than the average standard rate of corporation tax in the UK of 28.5% (2007 30%). The differences are reconciled below:

 

	2008	2007
	£000	£000
Profit before income tax	12,726	7,871
At UK statutory income tax rate of 28.5% (2007 30%)	3,627	2,361
Write off of goodwill on disposal, not deductible for tax purposes	1,003	-
Expenses not deductible for tax purposes	347	335
Unrelieved overseas losses	171	100
Share-based payments	134	3
Change in deferred tax in respect of rolled over capital gains	(40)	(49)
Adjustments in respect of prior years	(1,147)	(1,430)
	4,095	1,320

5 Earnings per share

	2008	2007
	000	000
Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share	138,285	138,254
Effect of dilution:
Share options	2,060	1,468
Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution	140,345	139,722

279,628 (2007 279,628) shares were held in trust at 31 December 2008.

Share options in issue for which exercise is currently unlikely (as the option price is higher than the average market price) total 3,390,064 (2007 2,472,681) options. As a consequence, these options have not been included in the diluted earnings per share in the current year. The inclusion of these options would have been anti-dilutive in the prior year and so had no impact on diluted earnings per share for the year ended 31 December 2007.

	2008	2007
	£000	£000
Basic and diluted earnings per share is calculated as follows:
Profit attributable to equity holders of the parent	8,631	6,551

 

Earnings per share
Basic	6.24p	4.74p
Diluted	6.15p	4.69p

 

Earnings per share from continuing operations before exceptional items 

Net profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:

	2008	2007
	£000	£000
Profit after taxation from continuing operations	8,631	6,551
Exceptional items (Note 3)
Gains arising on disposal of Bath business	(1,380)	-
Exceptional property provisions	1,969	-
	9,220	6,551
Taxation on exceptional items	821	-
Taxation – adjustments in respect of prior years (Note 4)	(1,147)	(1,430)
Profit after taxation from continuing operations excluding exceptional items	8,894	5,121

 

Adjusted earnings per share
Basic	6.43p	3.70p
Diluted	6.34p	3.67p

Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

6 Dividends paid and proposed

	2008	2007
Declared and paid during the year	£000	£000
Amounts recognised as distributions to equity holders in the year:
Final dividend of the year ended 31 December 2006 of 0.500p per share	-	691
Interim dividend of the year ended 31 December 2007 of 0.818p per share	-	1,131
Final dividend of the year ended 31 December 2007 of 1.635p per share	2,261	-
Interim dividend of the year ended 31 December 2008 of 0.860p per share	1,189	-
	3,450	1,822
Proposed for approval at AGM (not recognised as a liability as at 31 December)
Final equity dividend on ordinary shares for 2008 of 1.635p (2007 1.635p) per share	2,261	2,261

7 Cash generated from operations

	2008	2007
	£000	£000
Continuing operations
Profit before tax	12,726	7,871
Adjustments for:
- depreciation and amortisation	6,438	6,700
- amortisation of contract premium payment	1,000	1,000
- excess of Income Statement pension charge over normal contributions paid	85	1,513
- gains arising on disposal of Bath business	(1,380)	-
- exceptional property provisions	1,969	-
- profit on sale of property, plant & equipment	55	(97)
- share-based payment charge	404	172
- net finance costs	1,661	2,637
Additional contribution to the defined benefit pension plan	(1,200)	(3,100)
Changes in working capital:
Decrease in inventories	447	2,307
Decrease in trade and other receivables	7,801	9,412
(Decrease) / increase in trade and other payables	(6,621)	4,522
Cash generated from operations	23,385	32,937

8 Additional information

Communisis plc is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Stock Exchange. 

The preliminary announcement is prepared on the same basis as set out in the previous year's financial statements. 

The financial information for the year ended 31 December 2008 and 31 December 2007 is abridged and has been extracted from the 2008 statutory accounts of Communisis plc which were approved by the Board of Directors on 26 February 2009, along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies. The auditors have issued an unqualified opinion on the 2008 statutory accounts. The 2007 statutory accounts have been delivered to the Registrar of Companies. The auditors' report on the 2007 statutory accounts was unqualified.

ENDFR DGGZZRKRGLZM

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Related Shares:

Communisis PLC