12th Sep 2007 07:01
Communisis PLC12 September 2007 12 September 2007 Communisis plc Interim Results for the six months ended 30 June 2007 Financial Highlights: • Profit after restructuring costs up 43% vs 1H06 to £4.0m • Revenue up 8.6% vs 1H06 • Exceptional costs in line with expectations • Cash generated from operations 503% vs 1H06 to £14.9m • Net debt reduced by £5.8m to £39.1m • Interim Dividend confirmed (0.8p/share) Operating Highlights: • First stage of recovery plan completed successfully • Significant improvements in cost control, quality, efficiency and volumes at Leeds plant • Account management structure implemented • First landmark customers signed up to new Print Management business model • New Speke factory opened on time and to budget Commenting on the results, Steve Vaughan, Chief Executive, said: "I am pleased to report that during the first half we have made considerableprogress towards resolving the issues we identified at the start of the year.The first phase of our plan was to set the business on a strong foundationbefore concentrating on increasing the range of services to our customers. Wehave made good progress; in fact, better than expected in all areas of thisfirst phase. "Our financial performance in the first half, notably the significantimprovement in working capital, shows we have introduced the right level ofbasic controls needed by the business. Account management has been implemented,and we have made great strides in our factory in Leeds, with important projectsdelivered to control costs and improve quality. This positive progress will feedthrough into our financial results in the second half, and carry though to nextyear. The plan now is to exploit our enviable customer base by cross-selling ourservices in marketing communications. This is a challenge, but we now have agreat base to work from." Enquiries: Communisis plcSteve Vaughan, Chief ExecutivePeter King, Finance Director On the day: 0207 8313113Thereafter: 0207 4264690 Financial DynamicsEdward BridgesJames Melville-Ross0207 8313113 Business Review I am pleased to report that during the first half we have made considerableprogress towards resolving the issues we identified at the start of the year.Our plan for the business is on track, and the first phase of that plan has beensuccessful. Profit after restructuring costs was up 43% to £4.0m (2006: £2.8m)and cash generated from operations was up 503% to £14.9m (2006: £2.9m). Anencouraging financial performance has been achieved when compared with the sameperiod last year, which was distorted by one off property disposal profits. As a reminder, our plan is in three phases. The first, Focus on Customers andBasics, is completed and the business is already benefiting from itsimplementation. The second, Focus on Cross-Sell and Value, is now underway, withsome early successes giving us the confidence that we are on the right track.The third, Focus on Integrated Portfolio, is designed to deliver sustainableincreasing profits from business services in marketing communications. The plan is underpinned by our clear message to customers. We aim to makecustomer communication a more profitable process. We have the expertise and thetechnology to help our customers communicate more effectively and efficientlywith their customers. Although the market for print itself remains difficult,there is good evidence that demand for these higher value services is growing.Our customers include all the major UK banks, many significant retailers, andimportant representatives in the FMCG, utilities and public sectors. These arethe ingredients for a strong business. First phase delivered The first phase of our plan had four objectives: to put in place better basicprocesses, particularly around financial disciplines; to address the problemscaused by the merger of the Leeds and Altrincham direct mail factories; toimplement an account management structure; and to develop a new model for ourPrint Management services. These issues had to be resolved quickly to set thebusiness on a strong foundation before concentrating on increasing the range ofservices to our customers. We have made good progress; in fact, better thanexpected on all four objectives. Better basic processes Our financial results are strong, and demonstrate the extent to which we havebeen successful in implementing good business practices where they were lacking.Working capital management was the major focus of attention during the firsthalf. There has been a major reduction in receivables overdue from customers. Atthe end of 2006, 33% of all debts were overdue (outside contractual terms). Atthe end of the first half, this had been reduced to 17%. The resulting cashinflow has been the primary factor in bringing about a reduction in net debt of£5.8m from £44.9m to £39.1m. At the same time, capital investment, restructuringand additional pension contributions have all continued at the planned rate.This one achievement is indicative of the many excellent efforts of our staff tofocus attention on the basics. Recovery in Leeds The merger of the group's two direct mail factories into one site at Leeds wasan ambitious but problematic project. We had to resolve the resulting issues ofcost control, quality, efficiency and of the mix and volume of work. The newmanagement team in Leeds has made excellent progress since January. Cost controlin particular has received attention. Long-standing issues such as inefficientshift patterns, manning levels and poor procurement practices have beenrectified. For example, a new working pattern agreement negotiated with theworkforce has reduced pressroom labour costs by about 29%. Quality has also beenattended to; investments in technology and process have improved colourmanagement and added integrity checking in the outbound mailroom. New systemshave been installed for production planning and warehouse management. Removal ofproduction bottlenecks has increased average press running speeds by 12%. Cost control, quality and efficiency would have been insufficient without animprovement in the volume and mix of the work. We have also been able to addressthis, despite very competitive market conditions and margins remaining tight.Significant new contracts have been signed with HSBC and the Royal Bank ofScotland during the first half and strong relationships continue with many othercustomers. Improvements to the mix of business have also begun, as the salesteam increases efforts to sell value-added services. These include handling thedata involved in personalised mailings, processing the responses to campaigns,and specialist services such as electronic voting for public company AGMs. Thisall helps to increase the average margin. In the second half, work will continue to address the remaining problems fromthe merger project. However there is a very different feeling to this business.The major issues are behind us, the cost base is under control and quality hasrecovered. Efforts now are directed at progressive improvements in efficiencyand waste reduction, where there is much still to go for. This business lostmoney in the first quarter, but made that all back in the second quarter,establishing a run rate which should show a good performance in the second half,and carry through to next year. Implementing account management Our strategy requires us to sell more services to existing customers as well aswin new ones. Proper account management is an essential precursor. We now haveaccount managers in place for our top 60 customers, with profit and growthresponsibility for those relationships. This is a new role for many, so we haveundertaken nearly 500 man-days of management development training in the firsthalf, with about 400 more planned for the second half. Account development planshave been produced for all existing customer relationships spending over£500,000 per annum. More than 100 plan reviews have been held. This is a hugecommitment to the process of understanding our customers and developing newbusiness propositions for them. It is early days to measure quantifiable results of these initiatives, butnonetheless there are some. We have grown our relationship with HSBC by winninga sole-source contract for all of their direct mail, implementing C-Store (ourcampaign workflow technology) and signing a group-wide agreement to providesustainably-sourced paper. The number of our customers buying more than oneservice has increased from 14 at the end of 2006 to 18 at the end of June 2007. A new print management model Our new approach to Print Management is based on value-added services, notaround marking up print bought for our customers. On 1 May 2007, Barclays, ourbiggest customer, signed up to this new Print Management model, which provided abig vote of confidence in our revised approach. Direct access to our printsupply chain is a key feature of our new model, and this access provides thecustomer with transparency on pricing of print. The customer is able to makeinformed decisions on design, layout and delivery based on real market prices.In the long run, this produces considerable savings for the customer, whilstallowing Communisis to charge properly for the value-added service it provides. Since the Barclays announcement, we have a second customer for our new model.Procter and Gamble have selected IQ - the software tool at the heart of ourelectronic supply chain - as the platform for their own print sourcing. We havenow implemented this for them in 14 European countries, bringing their suppliersinto our network. P&G pay us a recurring licence fee for the software and vendormanagement, but buy the print direct. This is Print Management with low revenue,but high margin - an important development. These two contracts represent the initial landmark deals for new PrintManagement. It is an approach that provides customers important benefits -transparency and direct access to our expertise - and provides sustainable andvalue-based profits for Communisis. We have other interested customers, bothexisting and new. Steady as she goes elsewhere Performance in other areas has been encouraging. The first statements contracthas been successfully transferred to our new factory in Speke, as planned. Thesecond contract moves in Q4. We have won a third smaller contract that will fitin to Speke before the year end. Our pipeline is healthy, and there is 40% freecapacity in the factory. The cheques business has proved resilient and continuesto win market share and find efficiencies. The business forms factory in Bath has been working near to capacity for much ofthe first half, with margins holding up quite well. We are winning market sharein this very commoditised sector, and it is the scale and quality of ouroperation there that is making the difference in this segment. Taken together, the performance of all of the parts of the company gives usconfidence that we will achieve the financial results planned for the full year. The second phase begins Completion of the first phase places the business on a firm foundation. Thesecond phase is designed to maximise the value of our principal asset - ourcustomers. With account management in place and a range of higher value servicesemerging, we can now cross-sell. Our goal here is to provide services to ourcustomers which cover their whole marketing communications process. Ourtechnology, associated consultancy and expertise can help from the initialplanning of the campaign through its creation, checking, production anddistribution. During the coming year, we will seek to expand the number of customers buyingmore than one service from us. We will steadily increase the range of valueadded services that we offer. This will help us outpace declining margins in thecommodity parts of our business. This is the basis for sustainable valuecreation, which is the objective of the strategy. Steve Vaughan Chief Executive Financial Review Profitability In a period of recovery and transformation for the Group, operating profit afterexceptional restructuring costs has increased by 43% to £4.0m (2006: £2.8m).Revenue has grown by 8.6% following the commencement of our 7 year contract withCentrica in January. In order to reflect the way in which we are now managing performance and torecord very clearly progress with our strategy, we have taken the opportunity torealign our business segments. The old 'Print Management Services' segment willbe replaced by a 'Technology & Services' segment and a 'Print Sourcing' segment.The former will include 'new model' print management contracts and all profitsmade from selling added value communication enhancing services and print orcommunication related consultancy. Customers who have signed up to a 'new model' print management contract havefull access to our print supply chain and are able to source print at the costwe can buy it. Where this is the case, revenue and cost associated with theprint element of our offering to these customers is included in our 'PrintSourcing' segment. 'Print Sourcing' will also include 'old model' printmanagement contracts that rely for profit on marking up print sourced elsewhere. We will report performance against two further segments, 'Direct Mail & BusinessForms', and 'Transactional'. Our 'Direct Mail & Business Forms' segment willinclude our activities in both these market sectors, predominantly undertaken inour Leeds and Bath facilities. Our 'Transactional' segment includes all of ourcheque and cheque mailing activity along with our statement and billingoperations. These activities are currently conducted at facilities located inManchester, Crewe, Lisburn - Northern Ireland, Speke and Northampton. 'Technology & Services' has grown strongly in the first half of 2007 with theconversion of our class-leading contract with Barclays to our new printmanagement model. Profits made from providing Barclays with access to our printsupply chain and from other value-added services are included in this segment.Where we print in-house for Barclays, the profits made are recorded wholly inour 'Direct Mail & Business Forms' segment or in our 'Transactional' segment asappropriate. The decline in 'Print Sourcing' reflects not only the conversion of the Barclayscontract but the loss, primarily in the second half of 2006, of print managementcontracts based solely on marking up print bought elsewhere. It is our aim toconvert further existing print management contracts to the new print managementmodel and for this reason profits in the 'Print Sourcing' segment can beexpected to decline. We have, however, reduced both direct and overhead costsincurred in this segment, the benefits of which will be felt in the second halfof 2007. The fall in profit in our 'Direct Mail & Business Forms' segment reflectsprimarily the problems reported at the end of 2006 with our Direct Mail businessin Leeds. In fact our Leeds plant was in loss at the end of quarter one but asthe improvements reported above took effect, returned strongly to profit inquarter two. Continuous improvement in our Business Forms operation has meantthat after adjusting for the impact of increased rental costs following the saleand leaseback of the Bath property in June 2006, this business has returnedprofits in line with the previous year. Together however, these two factorshave driven margins in this segment below 3%. As we enjoy the benefit of thesignificant changes in the Leeds operation, we expect margins to recover. Our 'Transactional' segment has delivered further revenue and profit growthfollowing the start up in January of our seven year contract with Centrica.Completion and occupation of our Speke facility in the first half means thatmargins in this segment are now anticipated to settle at more historic levels. Our contract requires us to source postal services. Whilst this gives usfurther leverage in the management of postal services, this low margin aspect ofour service is included within the 'Print Sourcing' segment. In Central cost, we now record the cost of all Group-centred activity. Inaddition to the Corporate office, we account for the costs of our Groupprocurement team, our Group business development team and IT development.Previously the cost of these functions were absorbed by one or sometimes twobusiness segments. Exceptional restructuring costs have fallen in the first half from £5.8m to£1.9m. As forecast, we have continued to improve efficiency in our 'Transactional' business where the cost of improvements is similar to previousyears and in line with our expectation. We have spent £1.2m to date onefficiency improvements in our direct mail business. In 'Print Sourcing' wehave taken steps to further reduce the cost of our European business ensuringthat this business remains profitable. In aggregate, our restructuring activityhas delivered annualised benefits in excess of £3m. We expect to make furthersavings in the second half, particularly in direct mail where the plannedchanges have already been communicated to our employees, such that full yearoperational restructuring cost finishes in line with management expectations at£3m. As we enter the second phase of our plan, exceptional costs are expectedto reduce still further and settle at around half their current level. Our effective rate of tax at 17% (2006: 12%) continues to run well below thestandard rate of tax paid by the Group due to adjustments in respect of prioryears. We expect this rate to be sustained in the short term and then to movein line with standard rate. Cash management The focus on cash and working capital management in the first half of 2007 hasdelivered a net cash inflow from operations of £12.5m compared with an outflowof £0.3m in the first half of 2006 and an outflow of £1.4m for the full year2006. The main features of our cash flow performance and movements in net debt aresummarised in the following table: £m 6 months 6 months Year ended to 30 June to 30 June 31 Dec 2007 2006 2006 Profit before exceptional items 5.9 8.6 15.1Depreciation and other non cash items 4.9 5.6 10.4Reduction / (increase) in working capital 10.5 (9.4) (10.3)Cash effect of restructuring (3.3) (1.8) (9.6)Additional pension contributions (3.1) - (2.5)Interest and tax (2.4) (3.3) (4.5) ------------ ------------ ------------Net cash inflow / (outflow) from operations 12.5 (0.3) (1.4) Investing activities (6.0) 17.1 5.8Financing activities excluding loanfacility movements (0.7) (10.7) (13.3) ------------ ------------ ------------Reduction / (increase) in net debt 5.8 6.1 (8.9)Opening net debt (44.9) (36.0) (36.0) ------------ ------------ ------------Closing net debt (39.1) (29.9) (44.9) As the table demonstrates, our successful focus on working capital managementhas enabled us to more than absorb the cost of further scheduled pension deficitrepayments as well as the cash cost of restructuring activity. The workingcapital improvement, driven by the reduction in the percentage of debt overduefrom 33% to 17%, has been delivered against a backdrop of both an increase inrevenue and trading levels that are traditionally higher in the run up to thehalf year than the full year. Investing activity in 2007 comprises almost exclusively capital investment with£3.3m of this being our investment in the new Transactional facility at Speke.In 2006 the investing inflow resulted from exceptional property disposalstotalling £21.2m. With the benefit of the new dividend policy primarily being felt in the firsthalf of 2007 and no further share buy back activity, we have reduced financingoutflows. The combined effect of our focus on cash management is a reduction innet debt of £5.8m, almost equivalent to that achieved in the comparable periodof 2006 but without the benefit of exceptional property disposals. With account managers now rewarded for both cash and profit delivery, we believewe have established an infrastructure that will enable us to maintain the focuson our working capital requirement and sustain this new lower level through tothe year end. Interest charges have risen in the first half of 2007, reflecting both raterises, a gradual increase in the margin at which we are able to borrow andhigher average debt levels than the equivalent period in 2006. The improvementin overall Group net debt, which we have achieved earlier than anticipated, isexpected to result in a fall in the interest charge in the second half based onthe market consensus view for rates generally. Pension funding During the half year, we have made significant progress with our review of theCompany's pension arrangements for its employees. We have concluded that theinterests of both scheme members and the Company are best served by closing thedefined benefit section of the Communisis Pension Plan ("the plan") to futurebenefit accruals. Accordingly, on 11 July, the Company announced that it hasentered into consultations with the beneficiaries of the plan to this effect. Discussions with the plan Trustees have also continued. The Trustees' actuarialvaluation of the plan, last updated at 30 September 2005, recorded a deficit of£4.5m. For the purpose of comparison, the gross deficit under IFRS at 30September 2005 was £25m. In light of the difference between these twovaluations, the Company and Trustees have reviewed the assumptions used inpreparing the actuarial valuation of the plan. This has resulted in adoption bythe Trustees of stronger mortality assumptions and lower pre-retirementinvestment returns. These two changes combined result in a revised trusteedeficit assessment of £25.1m, based on conditions in existence at 30 September2005. The Company and Trustees have agreed a new recovery plan to eliminate thishigher deficit. After taking into account additional contributions alreadymade, including £3.1m in January 2007, and allowing for post valuation dateinvestment returns, the Company has agreed to pay an additional £1.2m in 2008and five further payments of £2m in the five subsequent years. The trustees' actuarial valuation of the plan will next be reassessed at 30September 2008. This new valuation will enable us to reflect the significantreductions in scheme membership since 30 September 2005, the outcome of thecurrent consultation process and market performance over the 3 year period. Thenew recovery plan will also be reassessed following completion of thisvaluation. The gross deficit under IFRS at 30 June 2007 has fallen to £10.4m (31 December2006: £17.3m). The reduction has been driven by the £3.1m additionalcontribution made by the Group in January 2007, and improvements in bond yieldsresulting in a higher liability discount rate offset by an increase in the longterm inflation assumption. Peter King Finance Director Consolidated Income Statementfor the half year ended 30 June 2007: unaudited Half year Half year Year ended ended ended 30 June 30 June 31 Dec Note 2007 2006 2006 £000 £000 £000Continuing operationsRevenue 1 145,937 134,310 260,640Changes in inventories of finished goods and work in progress 92 508 566Raw materials and consumables used (80,507) (66,927) (133,428)Employee benefits expense (39,918) (41,710) (79,005)Depreciation and amortisation expense (3,695) (4,015) (7,541)Impairment of intangible assets - - (31,561)Other operating expenses (17,951) (19,407) (39,395)Profit on disposal of properties - 13,132 13,132 Profit / (loss) from operations 1 3,958 15,891 (16,592) Analysed as:Profit from operations before exceptional items 5,856 8,570 15,106Exceptional restructuring costs (1,898) (5,811) (13,269)Profit from operations after exceptional restructuring costs 3,958 2,759 1,837Impairment of intangible assets - - (31,561)Profit on disposal of properties - 13,132 13,132Profit / (loss) from operations 3,958 15,891 (16,592) Finance revenue 424 165 619Finance costs 2 (1,751) (1,564) (3,392) Profit / (loss) before taxation 2,631 14,492 (19,365) Income tax expense 4 (444) (1,692) (675)Profit / (loss) for the period attributable to equityholders of parent 2,187 12,800 (20,040) Earnings per share 5On profit / (loss) for the period attributable to equity holders -continuing operations - basic 1.58p 9.07p (14.35)p - diluted 1.57p 9.07p (14.35)p Dividend per share - paid 0.500p 3.897p 5.850p - proposed 0.818p 1.953p 0.500p Dividends paid and proposed during the period were £0.7 million and £1.1 millionrespectively (30 June 2006: £5.6 million and £2.7 million respectively, 31December 2006: £8.2 million and £0.7 million respectively). The accompanying notes are an integral part of these consolidated financialstatements. Consolidated Balance Sheet30 June 2007: unaudited Half year Half year Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000ASSETSNon-current assetsProperty, plant and equipment 27,797 24,620 27,080Intangible assets 151,601 177,641 151,182Trade and other receivables 2,365 4,498 2,865Deferred tax asset 3,016 5,591 3,955 184,779 212,350 185,082Current assetsInventories 12,724 13,716 13,272Trade and other receivables 46,957 53,950 51,624Cash and cash equivalents 6,949 20,955 2,133 66,630 88,621 67,029 Non-current assets classified as held for sale 350 350 350 TOTAL ASSETS 251,759 301,321 252,461 EQUITY AND LIABILITIESEquity attributable to the equity holders of the parentEquity share capital 34,633 34,633 34,633Share premium - 152,287 -Merger reserve 11,427 11,427 11,427Capital redemption reserve 1,375 1,375 1,375ESOP reserve (338) (374) (338)Cumulative translation adjustment (25) (3) (33)Retained earnings 81,184 (46,997) 76,547Total equity 128,256 152,348 123,611 Non-current liabilitiesInterest bearing loans and borrowings 39,517 40,575 38,521Retirement benefit obligations 10,354 28,250 17,306Provisions 196 324 211 50,067 69,149 56,038Current liabilitiesInterest bearing loans and borrowings 6,536 10,304 8,548Trade and other payables 60,770 61,259 57,853Income tax payable 5,248 5,545 4,783Provisions 882 2,716 1,628 73,436 79,824 72,812 Total liabilities 123,503 148,973 128,850 TOTAL EQUITY AND LIABILITIES 251,759 301,321 252,461 The accompanying notes are an integral part of these consolidated financialstatements. Consolidated Cash Flow Statementfor the half year ended 30 June 2007: unaudited Half year Half year Year ended ended ended 30 June 30 June 31 December Note 2007 2006 2006 £000 £000 £'000Cash flows from operating activitiesCash generated from operations 7 14,854 2,955 3,039 Interest paid (1,797) (1,393) (3,177)Interest received 89 165 619Income tax paid (680) (2,055) (1,912)Net cash flows from operating activities 12,466 (328) (1,431) Cash flows from investing activitiesAcquisition of subsidiary undertaking netof cash acquired - (2,275) (7,929)Proceeds from the sale of subsidiary undertakings - 636 1,600Purchases of property, plant and equipment (5,285) (1,111) (4,580)Proceeds from the sale of property, plantand equipment 58 21,178 21,495Purchase of intangible assets (716) (1,284) (3,580)Tax on disposal of property, plant and equipment - - (1,191)Net cash flows from investing activities (5,943) 17,144 5,815 Cash flows from financing activitiesPurchase of own shares - (5,147) (5,147)New borrowings 2,000 13,075 13,075Repayment of borrowings (6,000) (6,000) (8,000)Dividends paid 6 (691) (5,600) (8,223)Net cash flows from financing activities (4,691) (3,672) (8,295) Net increase in cash and cash equivalents 1,832 13,144 (3,911) Cash and cash equivalents at 1 January 2,085 6,027 6,027 Exchange rate effects (4) (20) (31)Cash and cash equivalents at end of period 3,913 19,151 2,085 Cash and cash equivalents consist of:Cash and cash equivalents 6,949 20,955 2,133Overdrafts (3,036) (1,804) (48) 3,913 19,151 2,085 The accompanying notes are an integral part of these consolidated financialstatements. Consolidated Statement of Recognised Income and Expensefor the half year ended 30 June 2007: unaudited Half year Half year Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000Currency translation gains / (losses) on translationof foreign operations 8 (1) (31)Purchase of own shares - (5,147) -Actuarial gains on defined benefit pension plans 4,615 9,756 19,176Tax on items taken directly to equity (1,638) (2,927) (5,752)Net gain / (loss) recognised directly in equity 2,985 1,681 13,393Profit / (loss) for the period 2,187 12,800 (20,040)Total recognised income and expensefor the period 5,172 14,481 (6,647) Attributable to:Equity holders of the parent 5,172 14,481 (6,647) The accompanying notes are an integral part of these consolidated financialstatements. Notes to the Interim Results 1 Segmental information At 30 June 2007, the Group is organised into four main business segments:Technology and Services, Print Sourcing, Direct Mail and Business Forms andTransactional. Previously the Group presented three business segments. Business segments The segment results for the half year ended 30 June 2007 are as follows: Direct Mail Technology Print & Business Central & Services Sourcing Forms Transactional cost Total £000 £000 £000 £000 £000 £000Revenue 6,570 52,174 58,894 28,299 - 145,937 Operating profit beforeexceptional items 1,959 422 1,677 5,793 (3,995) 5,856 Exceptional restructuring costs - (130) (1,194) (574) - (1,898) Profit from operations after exceptional restructuring costs 1,959 292 483 5,219 (3,995) 3,958Net finance costs (1,327)Profit before taxation 2,631Income tax expense (444)Profit for the period 2,187 The segment results for the half year ended 30 June 2006, restated to reflectthe new segmental reporting structure adopted from 1 January 2007, are asfollows: Direct Mail Technology Print & Business Central & Services Sourcing Forms Transactional cost Total £000 £000 £000 £000 £000 £000Revenue 3,984 50,308 59,309 20,709 - 134,310 Operating profit beforeexceptional items 1,392 3,312 3,545 4,496 (4,175) 8,570 Exceptional restructuring costs - (467) (389) (455) (500) (1,811)Transfer of business - PDM Altrincham - - (4,000) - - (4,000) Profit from operations after exceptional restructuring costs 1,392 2,845 (844) 4,041 (4,675) 2,759 Profit on disposal of properties - - 9,559 - 3,573 13,132 Profit from operations 1,392 2,845 8,715 4,041 (1,102) 15,891Net finance costs (1,399)Profit before taxation 14,492Income tax expense (1,692)Profit for the period 12,800 The segment results for the year ended 31 December 2006, restated to reflect thenew segmental reporting structure adopted from 1 January 2007, are as follows: Direct Mail Technology Print & Business Central & Services Sourcing Forms Transactional cost Total £000 £000 £000 £000 £000 £000Revenue 7,010 97,974 114,095 41,561 - 260,640 Operating profit beforeexceptional items 1,982 4,990 6,109 10,531 (8,506) 15,106 Exceptional restructuring costs - - (617) (489) - (1,106)Transfer of business - PDM Altrincham - - (8,260) - - (8,260)Other restructuring and corporateactivity charges - (2,047) - - (1,856) (3,903)Profit from operations afterexceptional restructuring costs 1,982 2,943 (2,768) 10,042 (10,362) 1,837Impairment of intangible assets - (9,115) (22,446) - - (31,561)Profit on disposal of properties - - 9,559 - 3,573 13,132 Loss from operations 1,982 (6,172) (15,655) 10,042 (6,789) (16,592)Net finance costs (2,773)Loss before taxation (19,365)Income tax expense (675)Loss for the year (20,040) The segment results for the year ended 31 December 2005, restated to reflect thenew segmental reporting structure adopted from 1 January 2007, are as follows: Discontinued Continuing operations operations Direct Mail & Technology Print Business Transac- Central Colour & Services Sourcing Forms tional cost Total Solutions Group £000 £000 £000 £000 £000 £000 £000 £000External revenue 6,509 107,403 124,797 26,076 264,785 - 264,785 Operating profit beforeexceptional items 1,460 5,582 8,237 5,726 (5,932) 15,073 - 15,073 Operational restructuring - - (500) (448) - (948) - (948)costsLoss on sale of Datadocsoperations - - (4,865) (4,865) - (4,865)Other restructuring andcorporate activity charges - (649) - - (1,447) (2,096) - (2,096)Profit from operations afterexceptional restructuringcosts 1,460 4,933 2,872 5,278 (7,379) 7,164 - 7,164Loss on closure of labelprinting operation - - - - - - (418) (418)Profit on disposal of - - - - - - 1,048 1,048propertyProfit from operations 1,460 4,933 2,872 5,278 (7,379) 7,164 630 7,794Net finance costs (3,065) (2) (3,067)Profit before taxation 4,099 628 4,727Income tax expense (2,014) (116) (2,130)Profit for the year 2,085 512 2,597 2 Finance costs Half year Half year Year ended Ended ended 30 June 30 June 31 Dec 2007 2006 2006 £000 £000 £000Bank loans and overdrafts 1,751 1,493 3,346Retirement benefit related cost - 71 46 1,751 1,564 3,392 Continuing operations 1,751 1,564 3,392 1,751 1,564 3,392 3 Exceptional items Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006 £000 £000 £000Profit from operations is arrived at after charging / (crediting)the following items:Operational restructuring costs 574 844 1,106Loss on closure of PDM Altrincham - 4,001 8,260Other restructuring and corporate activity charges 1,324 966 3,903Restructuring costs 1,898 5,811 13,269Profit on disposal of properties - (13,132) (13,132)Impairment of intangible assets - - 31,561 Exceptional expense / (profit) 1,898 (7,321) 31,698 4 Income tax expense The tax charge on continuing operations for the period is based upon theestimated effective tax rate for the period of 16.88%. This rate is lower than the standard rate of tax at 30% primarily due toadjustments in respect of prior years. 5 Earnings per share Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006 £000 £000 £000 Basic and diluted earnings per share is calculated as follows: Profit / (loss) attributable to equity holders of the parent -continuing operations 2,187 12,800 (20,040)Profit / (loss) attributable to equity holders of the parent 2,187 12,800 (20,040) Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006 Thousands Thousands ThousandsWeighted average number of ordinary shares (excludingtreasury shares) for basic earnings per share 138,532 141,047 139,653Effect of dilution:Share options 456 - 877Weighted average number of ordinary shares (excludingtreasury shares) adjusted for the effect of dilution 138,988 141,047 140,530 279,628 (30 June 2006: 309,628, 31 December 2006: 279,628) shares were held intrust at 30 June 2007. Earnings per share from continuing operations before exceptional items Profit from continuing operations before exceptional items and attributable toequity holders of the parent is derived as follows: Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006 £000 £000 £000Profit / (loss) after taxation from continuing operationsafter exceptional items 2,187 12,800 (20,040)Exceptional items (Note 3) 1,898 (7,321) 31,698Taxation on exceptional items (530) 486 (2,055)Taxation - adjustment in respect of prior periods (410) (1,130) (1,494)Profit after taxation from continuing operations beforeexceptional items 3,145 4,835 8,109 Adjusted earnings per shareBasic 2.27p 3.43p 5.81pDiluted 2.26p 3.43p 5.77p 6 Dividends paid and proposed Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006Declared and paid during the period £000 £000 £000Amounts recognised as distributions to equity holders in the period:Final dividend of the year ended 31 December 2005of 3.897p per share - 5,600 5,523Interim dividend of the year ended 31 December 2006of 1.953p per share - - 2,700Final dividend of the year ended 31 December 2006of 0.500p per share 691 - - 691 5,600 8,223Proposed for approval by the Board (not recognisedas a liability at period end)Interim equity dividend on ordinary shares for 2007 of 0.818p(30 June 2006 interim 1.953p, 31 December 2006 final 0.50p)per share 1,128 2,706 691 7 Cash generated from operations Half year Half year Year ended ended ended 30 June 30 June 31 Dec 2007 2006 2006 £000 £000 £000Continuing operationsProfit before taxation 2,631 14,492 (19,365)Adjustments for:- depreciation and amortisation 3,195 4,015 7,523- amortisation of contract premium payment 500 500 1,000- excess of Income Statement pension charge over contributions paid 1,100 948 1,547- restructuring costs 1,904 5,811 13,269- profit on sale of property, plant & equipment (28) (8) (43)- profit on exceptional property disposals (13,132) (13,132)- share-based payment charge 164 150 259- net finance costs 1,319 1,399 2,773- impairment of goodwill and customer relationship assets - - 31,561 Additional contribution to the defined benefit pension plan (3,100) - (2,484)Cash effect of restructuring continuing operations (3,290) (1,827) (9,636) Changes in working capital:Decrease / (increase) in inventories 547 (627) (183)Decrease / (increase) in trade and other receivables 4,567 (6,379) (3,734)Increase / (decrease) in trade and other payables 5,345 (2,387) (6,316) Cash inflow from operating activities on continuing operations 14,854 2,955 3,039Cash generated from operations 14,854 2,955 3,039 8 Additional information The financial information for the half year ended 30 June 2007 and for theequivalent period in 2006 has not been audited or reviewed, with the exceptionof the change to segmental reporting disclosed in Note 1 which has been audited.It has been prepared on the basis of the accounting policies as set out in the2006 Annual Report and Accounts. The financial information in this statement does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Thestatutory accounts for the year ended 31 December 2006 on which the auditorshave given an unqualified audit report, have been filed with the Registrar ofCompanies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Communisis PLC